The financial crisis of 2007-2009 revealed that, the failure or impairment of banks having systemic implications (“Too-Big and/or Too Complex-To Fail”) had profound damaging implication for the whole economy. Orderly functioning of the financial system and hence ultimately the real economy were in jeopardy considering their size and functional linkages with other players in the system leading to huge loss of public money.

The damage was so severe because of the absence of a crisis management framework at hand. Since an adequate Early Warning System was not in practice, financial entities remained unaware of the ailments until they caught them. Nor was the system of keeping in readiness a Resolution Regime to act quickly in response to the inflicted distress was in vogue.

Accordingly, the Basel Committee on Banking Supervision (BCBS) coined a concept called Domestic Systemically Important Banks (D-SIBs) and evolved an empirical mechanism through which such banks could be identified in any jurisdiction. It formulated an enhanced regulatory/supervisory regime for such banks to reduce their probability of failure.