The financial regulatory framework in the United States was built over the last 150 years, largely in response to crises and significant market developments. As a result, the regulatory system is complex and fragmented. For some time, we have reported that the U.S. financial regulatory system has not kept pace with major developments in financial markets and products in recent decades. Although the Dodd-Frank Act has brought additional changes, the U.S. financial regulatory structure largely remains the same. The U.S. financial regulatory structure is a complex system of multiple federal and state regulators as well as self-regulatory organizations (SRO). In the banking industry, the specific regulatory configuration depends on the type of charter the depository institution chooses. Charter types for depository institutions include commercial banks, savings associations, and credit unions. These charters may be obtained at the state or federal level. The prudential regulators—all of which generally may issue regulations and take enforcement actions against industry participants within their jurisdiction—are identified in table 1. In addition, as will be discussed, the Dodd-Frank Act created CFPB as an independent bureau in the Federal Reserve System that is responsible for regulating the offering and provision of consumer financial products and services under federal consumer financial laws. Under the Dodd-Frank Act, certain authority vested in the prudential regulators and other regulators was transferred to CFPB on July 21, 2011. The securities and futures industries are regulated under a combination of self-regulation (subject to oversight by the appropriate federal regulator) and direct oversight by SEC and CFTC, respectively. SEC oversees the securities industry’s SROs, and the securities industry as a whole, and is responsible for administering federal securities laws and developing regulations for the industry. SEC’s overall mission includes protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. CFTC oversees the futures industry and its SROs. Under the Dodd-Frank Act, CFTC also has extensive responsibilities for the regulation of swaps and certain entities involved in the swaps markets, and SEC has comparable authority for markets in security- based swaps. CFTC and SEC have responsibility for administering federal legislation and developing comprehensive regulations to protect the public from fraud and manipulation, insure the financial integrity of markets, and help to foster better risk management, among other things. Further, state regulators oversee the insurance industry and contribute to the oversight of banks and securities as well. Certain housing market participants, including the housing finance government-sponsored enterprises—Fannie Mae and Freddie Mac (the enterprises)—and the Federal Home Loan Bank System, are supervised by FHFA. FHFA has authority to take enforcement actions against, appoint itself conservator or receiver for, and resolve these enterprises. Federal financial regulators are continuing to implement reforms pursuant to the Dodd-Frank Act. A key goal of the act was to promote the stability of the financial system, and the act puts forward a number of reforms to achieve this goal, such as provisions related to identifying and addressing systemic risk and enhancing supervision of large, complex financial institutions. Other reforms seek to expand protections for consumers and investors and expand oversight to entities that were less regulated. The implementation of the reforms is largely being driven by the rulemakings or other key actions of the various responsible financial regulators, and as figure 1 shows, the status of the regulators’ implementation of these reforms varies. As of December 2012, regulators had finalized rules for a little less than half of the 236 required rulemakings and other key rulemakings that we identified. The remaining required rulemakings and other key rulemakings have not been finalized or have yet to be proposed. Additionally, of the 236 provisions we identified, over two-thirds (157) required regulators to take action by a specific date. Among the provisions with deadlines that passed as of December 2012 (a total of 134 provisions), regulators had missed the act’s deadlines for the majority (119, or 89 percent) of the provisions. The recent crisis highlighted several sources of systemic risk, including the potential for one financial firm’s distress to spill over into the broader financial system and economy and for systemic risk to be generated and propagated outside of the largest financial firms. This was due, in part, to interconnections not only among firms but also among markets. To better monitor and contain the potential for such events to create systemic risk and increase overall system stability, the act mandated various reforms including creating FSOC and the Office of Financial Research (OFR); establishing heightened prudential requirements for certain nonbank financial companies and new capital standards for banks and bank holding companies; establishing the Orderly Liquidation Authority (OLA) to address failures of certain financial institutions; expanding the regulation of the swaps market; and banning banking entities from engaging in certain types of trading and investments. However, the implementation of many of these reforms remains ongoing and the effectiveness of some remains an open question. The 2007-2009 financial crisis highlighted the lack of an agency or mechanism responsible for monitoring and addressing risks across the financial system and a shortage of timely information to facilitate this oversight. To address these limitations, the Dodd-Frank Act created FSOC to provide, for the first time, an entity charged with monitoring and identifying risks to financial stability throughout the entire financial system. The act also established OFR to serve FSOC, its member agencies, and the public by improving the quality, transparency, and accessibility of financial data and information; conducting and sponsoring research related to financial stability; and promoting best practices in risk management. The voting members of FSOC include the Secretary of the Treasury and the heads of CFPB, CFTC, FDIC, Federal Reserve, FHFA, National Credit Union Administration, OCC, SEC, and an independent voting member with insurance expertise. The nonvoting members include the director of the Federal Insurance Office, the director of OFR, and a state banking supervisor, a state insurance commissioner, and a state securities commissioner. on regulating proprietary trading, contingent capital, and concentration limits on large financial companies. FSOC has also issued two annual reports addressing market and regulatory developments across the financial system. In addition, FSOC voluntarily issued rulemakings explaining the processes and criteria that it will follow in designating financial market utilities—entities that provide critical services to the markets such as clearinghouses that process trading information and facilitate payments associated with trades—as systemically important and nonbank financial companies for supervision by the Federal Reserve. OFR—created by the act to support FSOC, its member agencies, Congress, and the public by improving financial data and conducting research related to financial stability—has taken a number of steps to help For example, in July 2012 OFR released its first annual fulfill its mission. report, which assessed the state of the U.S. financial system.also begun a process to assemble an inventory of data that FSOC member agencies obtain, which OFR staff described as a first step toward standardizing data, reducing duplication, and eventually lowering costs for industry and regulators. OFR has also collaborated with industry, foreign government entities, and international bodies in efforts to create a legal entity identifier (LEI), which OFR describes as an emerging global standard that will enable regulators and companies around the world to quickly and accurately identify parties to financial transactions. Additionally, OFR has initiated a working paper series in which OFR researchers often collaborate with outside academics. Three papers have been published, including one that catalogs systemic risk monitoring systems and another that describes ways to improve risk management at financial institutions. Several more papers will be published in the coming months. OFR has Although the creation of FSOC and OFR could assist the U.S. regulatory system in identifying systemic threats, they will have to overcome various challenges to help ensure that these reforms achieve their intended goals. First, FSOC’s key missions—to identify risks to financial stability and respond to emerging threats—are inherently challenging. For example, key indicators, such as market prices, often do not reflect these risks; such threats do not develop in precisely the same way in successive crises; financial innovations are not well understood; and according to experts, effectively monitoring and mitigating systemic risk is a very large and procedurally complex undertaking. Additionally, actions to preemptively mitigate threats may appear unnecessary or too costly at the time they are proposed or taken. Second, FSOC’s effectiveness hinges to a large extent on collaboration among its many members, almost all of whom come from federal and state agencies with their own specific statutory missions. In testifying before Congress on Dodd-Frank rulemakings, the chairperson of FSOC recognized this challenge, noting that coordination in the rulemaking process was hard because the act left in place a financial system with a complex set of independent agencies with overlapping jurisdictions and different responsibilities. Third, OFR faces the challenge of trying to build a world-class research organization from the ground up while meeting shorter-term goals and responsibilities. Those researchers who supported the creation of OFR have suggested that it will take many years for the new entity to provide the insights that will ultimately be expected of it. In addition, in a September 2012 report, we concluded that the ability of FSOC and OFR to fundamentally change the way the federal government monitored threats to financial stability remains to be seen. The uncertainty partly stemmed from the newness of the entities, as both were continuing to develop needed management structures. But we also noted that limits in FSOC’s and OFR’s transparency contributed to questions about their effectiveness. We made 10 recommendations to FSOC and OFR to strengthen their accountability and transparency. These include FSOC and OFR clarifying their monitoring responsibilities to better ensure that the monitoring and analysis of the financial system are comprehensive and not unnecessarily duplicative, and FSOC systematically sharing key financial risk indicators among member agencies to assist in identifying potential threats for further monitoring or analysis.