The U.s. Financial Stability Oversight Council: Understanding Polycentric Governance
Abstract: The most recent crisis in the U.S. financial system revealed serious structural vulnerabilities and resurrected debate about how to better govern the system. After extended inquiry, Congress passed and President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which among other provisions, establishes a new entity to address financial stability: The Financial Stability Oversight Council (FSOC). Yet public concerns and controversy about governing the financial system have not abated, leading us to wonder how we can better understand and investigate the FSOC as a governing mechanism. In this paper we extend work in institutional political economy to analyze the nature of the financial system, the governing principles of the FSOC, and the fit between them. We argue that the U.S. financial system and the FSOC are examples of polycentric systems and identify principles that can be further investigated to explore governing issues in polycentric systems.
