By Simon Johnson
The Dodd-Frank financial reform legislation of 2010 created a Financial Stability Oversight Council (FSOC), with the task of taking an integrated view of risks in and around the U.S. financial sector. The FSOC is comprised of all leading regulators and other responsible officials, chaired by the Treasury Secretary. So far, it has done little – fitting with the predominant official view being that in the post-crisis recovery phase, financial risks in the U.S. were generally receding rather than building up.
But this summer has established three important and related issues on which FSOC needs rule quickly. These are: impending bank mergers that could create two more “too big to fail” banks; whether to force the break-up of Bank of America; and how to rethink capital requirements for large systemically important banks, particularly as the continuing European sovereign debt problems undermine the credibility of the international Basel Committee approach to bank capital. Continue reading