BNA's Banking Report published an article, titled "Financial Stability Oversight Council: All New or Deja Vu?," by Shearman & Sterling counsel Donald N. Lamson (Washington, DC-Financial Institutions Advisory & Financial Regulatory) on May 24, 2011.

Amid the swirl of news stories reporting on financial regulatory reform developments and, increasingly on the Financial Stability Oversight Council (FSOC), there has been little attention paid to what it is, what it is not, and what it can be expected to do. Like its predecessor, the President’s Working Group on Financial Markets (PWG), the FSOC is a grouping of federal financial institution regulators. Like the PWG, the FSOC’s mission is to implement the lessons learned from the crisis that gave rise to it. Unlike the PWG, the FSOC is a more formalized entity designed to be more transparent and accountable, and its membership more inclusive and representative of the full spectrum of financial regulators. It remains to be seen whether this new structure will allow the FSOC to be more effective than the PWG in anticipating and avoiding financial crises, or whether its rigid, yet more transparent and inclusive structure makes it less likely to replicate the PWG’s largely unnoticed successes.

The article points out that while the FSOC has a broad array of functions to discharge, these may be too closely tailored to the perceived causes of the last financial crisis and not predictive of the next financial crisis. Going forward, the FSOC will need to be configured in such a way that it can anticipate future crises. The key is whether the FSOC will act effectively in the face of a financial meltdown without feeding expectations that the U.S. Government will shield market participants from losses.

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