Dodd-Frank Risk Council Faces Risk of Irrelevance

By Donna Borak

While other regulators busily check off implementation goals set by last year’s financial reform law, the new body charged with limiting threats to the financial system is getting lost in the shuffle. The Financial Stability Oversight Council, created by the new law to spot systemic risks, has hardly anything to show for since its inception. The council has made early steps related to initiatives in the Dodd-Frank Act to curb banks’ proprietary trading and classify certain firms as “systemically important.” But it has yet to seal the deal on anything, leading some to question if it is more relevant than informal policy groups that predate it. Observers said the oversight council was hurt by getting off the ground too slowly, and may simply be a lower priority for its members that run other agencies with their own workloads. Others said the 10-member panel is hearing conflicting messages from lawmakers to both work quickly but also be careful in its deliberations. “They moved in a very deliberate fashion, which of course leaves them very vulnerable to the one year later what-have-they-done-challenge, because it’s not that much,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc. “They’re obviously under pressure. You’ve seen several hearings, calling them in to say two contradictory things: ‘Why aren’t you doing anything? And when are you going to do things in a much more complete, clear fashion? At this point, they are dammed on both counts, so they might as well do one or the other.”