While the formation of the Financial Stability Council is meant to help regulators put an end to "too big to fail," many are wondering if the panel itself will prove too big to manage.

With so many members — 15 in total — each with varied points of view and priorities, there are significant questions about whether the council will be able to coordinate successfully.

The recently enacted regulatory reform bill created the council, but left many critical elements unclear, including how it will be staffed, whether its deliberations will be transparent and how it will determine which financial entities pose a threat to the economy.

"They are almost being set up for failure," said Wayne Abernathy, executive director of financial institutions policy and regulatory affairs for the American Bankers Association. "Their job is to get ahead of any systemic risk to occur. So if anything does get by them, they are set up to be blamed."

Unlike past interagency groups, like the President's Working Group, an informal collection of regulators, members have been given a strict mandate with statutory responsibilities to prevent the next crisis from happening.

But it is also far larger than any previous body designed to coordinate the agencies. Ten of the 15 members have voting rights and the council includes every major or minor player in the world of financial services regulation.

In addition to the heads of nine federal agencies, the council will include an insurance expert appointed by the president, three state representatives, and the heads of the Office of Financial Research and the Federal Insurance Office.

Many wonder if that is simply too many voices and competing interests to effectively operate in a council. Even relatively small boards, like the five-member Federal Deposit Insurance Corp., have had difficulties in the past agreeing on an appropriate course of action. The council could potentially be far worse, observers said.

"If you don't change the mind-set then you are going to revert back to the same kind of interagency groups we've had before without any effectiveness," said Kevin Jacques, Boynton D. Murch Chair in Finance at Baldwin-Wallace College and a former OCC and Treasury official. "The greatest danger to this systemic-risk regulation process is agencies simply go back to the same mind-set they had for other interagency groups which is, 'We will worry about our little sliver of it, but we won't worry about the big picture."

Observers wondered whether the glut of bodies on the council could lead to vote trading, when members may vote to support a particular agency on a certain issue they care little about in return for support for their own priorities.

For example, the Federal Reserve Board, Office of the Comptroller of the Currency and FDIC — the primary banking regulators on the council — could align in an effort to block a vote.

"It seems the potential for vote trading gets really high," said Phil Swagel, a visiting professor at the McDonough School of Business at Georgetown University and a former Treasury official. "That seems irresponsible but possible."

Some worry that the abundance of representatives could effectively give the Treasury Department, which will head the council, an outsize role in its decisions. Previously the Treasury was kept at arm's length from regulatory policy, but now it can help set the agenda for the council.

"Treasury gets to set the agenda and drive the discussion," said Chuck Muckenfuss, a partner at Gibson, Dunn & Crutcher LLP and a former deputy comptroller of the currency. "Combined with the research bureau, it greatly enhances the Treasury's role in financial oversight."

Others agreed. "We've always thought of the Fed as being the agency that worried about risk in the economy and Treasury was off doing something else," said John Douglas, a partner at Davis Polk & Wardwell. "This really puts Treasury right in the midst of thinking about systemic risk in our country."

Arguably even more problematic is the job the council is asked to do. According to the law, it must define systemic importance and determine which firms are systemically important.

Observers have questioned what criteria regulators will use to identify institutions that pose a risk to the economy. Among the areas the council is directed to consider include assets, leverage, size, liabilities and interconnectedness. It will be up to the council to figure out how to quantify such factors. "The first problem is no one has the faintest idea what systemic risk is, and this is the systemic-risk council, so the main problem is identifying what systemic risk is," said Peter Wallison, a fellow in financial policy studies at American Enterprise Institute.

Though the bill initially tags any bank with more than $50 billion of assets as systemically vital, the council must determine which nonbank firms would qualify.

Richard Spillenkothen, a former director of banking supervision at the Fed who is now a director in Deloitte & Touche LLP's regulatory and capital markets consulting practice, acknowledged issues with the council's structure but said it could still accomplish its goals.

"Any committee can become cumbersome," he said. "They have to develop some workable operating arrangement. But I think as a practical matter, if there is a larger nonbank firm that is not currently regulated with an adequate oversight framework, I would assume that any constituent agency could identify that firm."

But as the council makes that critical determination, it is unclear if its debates or decision-making process will ever be public.

"The Dodd-Frank bill is not clear on the level of transparency that will held by the council," said Satish Kini, who co-chairs the banking group at Debevoise & Plimpton LLP.

Some observers said the Treasury is unlikely to make the council's mandatory quarterly meetings open to the public, yet it must provide some information on its activities. The council must submit annual reports to Congress, and the Treasury secretary must testify on the council's actions, regulatory developments, potential emerging threats and any recommendations it makes.

The annual reports will likely give some limited insight into the process. For example, while a vote is likely to be secret, each voting member must submit a signed statement on whether it agrees with the steps of the council or argue if more actions are needed.

The council would also be subject to audits by the Government Accountability Office.

Past interagency groups have a diverse history with transparency.

The meetings of the President's Working Group were done behind closed doors with little, if any, information made available after meetings.

For the Fed's Federal Open Market Committee, however, the central bank immediately releases decisions at the end of a meeting, and discloses minutes of the discussion three weeks later.

The FDIC board has public sessions for many policy matters but also meets in private to discuss confidential items, such as bank failures.

Douglas said the latter may prove a model. "We will see debates on regulation that could be public, but when they get to which firm is systemic, I suspect that will be behind closed doors," he said.

But Jacques disagreed. "You don't want transparency here, because you want the regulators to have a free flow of information," he said. "That is the only way it's going to work."

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