Systemically important banks are the one with big size, network, and their ability to provide complex financial products on their own. Because of their importance, central banks have to take more precautions for their health. Hence the Basel III sets criteria for the identification of such banks globally and domestically and recommends advanced regulations form them.
When a big one falls, its effects will be disastrous for the global economy. If they are controlled or well regulated, the occurrence of a crisis and its adverse effects etc. can be minimized. The Basel Committee on Banking Supervision (BCBS) categorizes as Global Systemically Important Banks (G-SIBs) who are spread across the world. Similarly, individual central banks should identify domestic systemic important financial institutions. The BCBS has developed sound criteria for identifying the G –SIBs based on – Size, Interconnectedness, Substitutability and complexity.
In India, the RBI has identified SBI and ICICI as Domestic Systemically Important Banks (D-SIBs).
