In his October 10, 2012 remarks at the University of Pennsylvania Law School, Federal Reserve Board Governor, Daniel K Tarullo, criticized Dodd-Frank sharply for missing the mark in a number of vital ways in its framework for ensuring financial stability.  Tarullo called Dodd-Frank a sweeping piece of legislation pieced together in a crisis, based on some theories of financial stability that are in many respects undeveloped or uncontested, and incomplete in a number of systematically important risk areas.   According to Tarullo, this lack of an overarching unifying concept of financial stability or an officially embraced consensus theory of how financial stability is undermined presents a major weakness in the reform effort and is a significant hurdle for regulators in implementing and enforcing the legislation.  This poor theoretical foundation for financial stability leaves major gaps in the handling of the moral hazard associated with too-big-to-fail institutions, as well as other areas like shadow banking.  Consequently, Tarullo believes that these gaps in Dodd-Frank leave room for further Congressional action, including imposing caps on the size of banks.

Increased capital requirements are squeezing as many as 25% of financial firms out of certain business lines, according to the fourth annual survey by the Professional Risk Managers’ Association (PRMIA), which was co-sponsored by SunGard. The survey finds, among other things, that the introduction of central clearing is expected to result in lower margins, increased collateral requirements, and generally increase the cost of doing business in OTC derivatives. Twenty-five percent of the respondents to the survey reported that they had withdrawn from capital-intensive businesses, while 58 percent admit that they are more selective when undertaking such business. Eighteen percent say they would pass on these extra capital costs to clients.

Both the President's Working Group on Financial Markets and the Financial Stability Oversight Council have consistently called for the SEC to pursue additional reforms to address structural vulnerabilities in [money market funds], including unanimous recommendations in the [FSOC's] 2011 and 2012 annual reports. The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the Council both the responsibility and the authority to take action to address risks to financial stability if an agency fails to do so.  (emphasis added) Accordingly, I would like the [FSOC] to consider taking a series of steps to address this challenge. With Treasury Secretary Timothy Geithner and the Financial Stability Oversight Council taking the lead on further reforms to money market mutual funds, Geithner and the FSOC will be testing the limits of the super-regulatory powers granted by the Dodd-Frank Act.  Section 12(a)(1) of the Dodd-Frank Act set forth the essential duties and powers of the FSOC. Among these are: identifing systemically important financial market utilities and payment, clearing, and settlement activities (as that term is defined in title VIII); and making recommendations to primary financial regulatory agencies to apply new or heightened standards and safeguards for financial activities or practices that could create or increase risks of significant liquidity, credit, or other problems spreading among bank holding companies, nonbank financial companies, and United States financial markets. As his September 27, 2012 letter to the FSOC makes clear, Geithner intends for the FSOC to use its Section 12(a)(1) power to bring money market funds into the ambit of the Dodd-Frank Act by declaring them systematically important nonbank financial companies.