Whatever one thinks of the FSOC, the manner in which it is funded and the methods by which it operates make it a very odd beast within the government. Significantly, its funding was established so as to make the agency largely immune from Congressional funding cuts for the first years of its operation.

FSOC is a peculiarly partisan agency in that it is governed by procedures that largely assure that all or virtually all of its members come from the President's party. This is in…

Chair Gruenberg's confident assessments add up to an extraordinary assertion of certainty as to the outcome of a crisis, which is inherently a situation whose defining characteristics are panic and uncertainty. Previous bank regulators were equally convinced that the world was under good control, before it turned out to be not so much. Perhaps some degree of greater modesty is now in order.

In the event of a crisis, it will not be obvious that the leaders of a failed bank or…

Increased capital requirements on dealers, combined with the prohibition on bank dealers taking material positions, should significantly increase market volatility because market makers are much less likely, and are less able, to dampen such volatility. In fact, with a system of strict capital regulation, one should expect to see market makers very quickly being forced to liquidate into declining markets. 

To counter the possibility of a market crash, the report suggests…

This case should serve as a reminder to firms of the benefits of occasional independent reviews of the value of collateral used to secure margin loans. Independent valuations can serve an important compliance function in lending activities, just as they do in proprietary trading activities.