WASHINGTON — One of the hallmarks of the Dodd-Frank Act was the creation of the Financial Stability Oversight Council, a group of regulators that was supposed to identify systemic risks and act to disarm them. But the first five months of the council's existence have been underwhelming.

Its few public meetings have been characterized more with formalities than substance. Behind the scenes, meanwhile, regulators have disagreed over crucial issues, leaving many to question how well the new council will work.

"The success or failure of FSOC will be the most important determining factor in the success or failure of Dodd-Frank. … They are not inspiring confidence right now," said Douglas Landy, a partner in Allen & Overy LLP and formerly a lawyer for the Federal Reserve Bank of New York. "The attention paid to it has been minimal, in a sense."

Regulators waited two and a half months after the law's enactment to hold the council's first meeting, and spent most of their time discussing its bylaws and committee structure.

The only proposals the council has released to date have largely been open-ended ones seeking more input on how it can fulfill its statutory mandates. It released proposals on how it should study implementation of the Volcker Rule, and which entities to target as systemically important.

"It hasn't really done anything," said Cornelius Hurley, a professor at Boston University School of Law. "They were late getting started. … This whole thing was an answer to a crisis, and only the most naive people would say the crisis was eliminated. So we are still in crisis but proceeding in noncrisis mode. That's disturbing to me."

Others say more time is needed.

"It's too early to tell the effectiveness of it," said Cliff Rossi, executive-in-residence at the Center for Financial Policy at the University of Maryland. "I remain skeptical that a large committee is going to be able to see around the next corner and identify systemic risk and nip it in the bud."

With 15 members of the council, regulators are already disagreeing on how to proceed on certain proposals, including implementing the Volcker Rule, which bans proprietary trading and puts limits on risky investments.

The Federal Reserve Board and the Federal Deposit Insurance Corp. have also differed over what institutions should be considered systemically risky. The FDIC wants a quick designation of critical firms, while the Fed prefers to give companies more leeway to reduce risk before being targeted by regulators.

Most of the substantive action by the council is likely to come next year, starting as early as January. The FSOC is expected to release studies on the Volcker Rule and take a first crack at designating nonbank financial institutions as systemically risky.

"I think it will be very interesting to see how these proposed rules come out in the January time frame, and I think that will tell a lot how these processes will move forward in 2011," said Satish Kini, who co-chairs the banking group at Debevoise & Plimpton LLP.

Bill Haraf, the commissioner of financial institutions for California and a nonvoting member of the council, said the next year will be pivotal.

"The FSOC is a newly established entity that is intended to be around in perpetuity, so I think people will judge FSOC's work on an ongoing basis," Haraf said. "There are statutory deadlines that are clear markers that should allow people to assess our work. Beyond those markers, this new body will hopefully play a role for decades to come."

Some critics have suggested the FSOC is little more than a reconstituted President's Working Group on Financial Markets. That informal group of regulators met semiregularly during the past several years, but failed to detect or act on signs of a pending financial crisis.

But the FSOC is different, some observers said.

"The President's Working Group was an informal body, without statutory clout," said Gene Ludwig, chief executive of Promontory Financial Group and former comptroller of the currency. "The FSOC has clear statutory obligations and powers. It can designate any financial entity as systemically significant. That's a clear legal mandate, and it's tremendously powerful."

Phillip Swagel, a visiting professor at Georgetown University and a former Treasury official, agreed, calling the council's very existence and mission a positive.

"In the last crisis, no one felt the need to find out what was happening at AIG," Swagel said. "No one felt the responsibility. … I think that's the most important aspect of FSOC, not the particular people, but the constitution of the thing."

Administration officials also contend that the council's statutory responsibilities and authorities will make a big difference.

"The statute places clear public accountability on the Financial Stability Oversight Council to identify risks and respond to emerging threats in the financial sector," said Jeffrey Goldstein, Treasury undersecretary for domestic finance. "The statute provides new tools to monitor and constrain risk and mandates cooperation and information sharing that will help keep our financial system stable and strong."

Others worry that even if the FSOC is able to spot systemic risk, it may lack the will to take action against it.

"They can spot it," said Josh Rosner, managing director at research firm Graham Fisher & Co. "The question is with 15 members, can they do anything about it? The issue is not about spotting a bubble, but about having the wherewithal and fortitude to do something about it."

Ernest Patrikis, a lawyer at White & Case LLP, was also doubtful.

"I don't like the council, because it is a committee," Patrikis said. "I wanted to see an independent agency that would in effect be the bubble watcher that wouldn't be beholden to anyone politically" — in particular the Treasury.

Bob Clarke, a senior partner at Bracewell & Giuliani LLP and former comptroller of the currency, suggested this group of regulators will be no more effective than others in the past.

"If the mission of this group is specifically to identify risk and they have staff tasked with this responsibility, then maybe that's what it takes," he said. "But it's hard for me to believe with as much as information that was available to regulators, specifically to the big banks, that they didn't know what was going on."

Even Treasury Secretary Tim Geithner has expressed doubt about a council that takes a lead role on systemic risk.

"That would risk more confusion and less accountability, frankly, to invest in a committee responsibility to enforce those kinds of changes," Geithner said in a June 2009 congressional hearing.

The current structure is a compromise. While Congress created a council to propose heightened standards for systemic risk, it gave the Fed the power to implement the standards.

Acting Comptroller of the Currency John Walsh said the council will be more likely to stop systemic risk by touching on all parts of the financial industry.

"The tendency of bank regulators is to identify problems in the institutions they supervise and lean on them to improve underwriting or to get out of a business that triggers" concerns about unfair and deceptive practices, Walsh said. "But once we squeezed it out of the banking system, it had to go somewhere, and the question was: where was it and who was overseeing it? That is the gap that FSOC can fill."

He acknowledges that its success is not certain. "There is absolutely no guarantee in the world that the next time something like this happens that people won't miss it or fail to comprehend the size of it," Walsh said. "But I do think having the kind of conversation that covers the waterfront on risk will be very helpful."

Adding to the chaos of the council is its unwieldy size. It has 10 voting members, including the Fed, FDIC, the Office of the Comptroller of the Currency, the Federal Housing Finance Agency, Securities and Exchange Commission, the Consumer Financial Protection Bureau, the Commodity Futures Trading Commission and the National Credit Union Administration. Its five nonvoting members include the head of the Office of Financial Research, a state banking supervisor and a state insurance commissioner.

Observers said the council is simply too big to accomplish anything.

"It was written for gridlock," said Paul Miller, managing director at FBR Capital Markets Corp. "I don't think anything can come out of a group of that size. … The body I think was dreamed up and looks good on paper. In practice I think it's going to be very ineffective. You can't have that many people deciding on anything."

Rosner said the council is a perfect example of bureaucracy gone wrong.

"There are too many voices in the room with competing interests to properly drive prudent regulatory policy," Rosner said. "This is a disaster."

The OCC's Walsh rejected the idea the council has too many members. "There will be a tendency for particular agencies with particular expertise to take the lead on their issues," he said. "There will be some wrinkles in sharing confidential information across diverse agencies, but there will be information-sharing agreements."

Richard Carnell, associate professor at Fordham University School of Law and former Treasury official, said it will be beneficial to have more voices. "When a group of people deliberate, they are less likely to make mistakes than an individual," Carnell said.

FDIC Chairman Sheila Bair agreed that robust debate among a large group of regulators isn't necessarily a bad thing.

"Getting different perspectives on the table is good," she said. "Where you run into problems is when people aren't willing to give a little bit to get an agreement. If you have one or two entities just trying to drive the process saying, 'This is what we're going to do,' then I think you get some stalemate."

Bair said the SEC's insights into recent foreclosure problems have already been valuable.

"Having diverse views at the table is very helpful," she said. "On robo-signing and servicing-related issues, it's great not just having the bank regulators there but having SEC there for disclosure issues, and the FHFA, which is such a huge part of the market now. It's really, really helpful to get all of those people in the same room."

Still, some worry that the Fed and Treasury may eventually dominate the council, noting that the Treasury secretary serves as its chairman and the Fed is its chief enforcement tool.

"Ultimately what we are going to have to see is down the road as we put this framework on systemic problems are that's where we are going to have to see the other agencies step in," said Kevin Jacques, Boynton D. Murch Chair in Finance at Baldwin-Wallace College. "This cannot be an organization where the committee gets together, the Federal Reserve and the Treasury dictate what happens and we don't get the input of the other regulators."

The creation of the council also marks a shift for the Treasury, which has not traditionally taken a hands-on role in financial regulation.

"It changes Treasury's focus a little bit. It may politicize financial regulation," Kini said. "I think that's a potential threat to the extent previously financial regulation was an agency function and insulated from the political process. Now Treasury is the chair of FSOC and Treasury staff is the FSOC staff, so I think a Republican administration's views may differ for FSOC's views than a Democratic administration."

Some of the council's success may ultimately turn on its Office of Financial Research, which is expected to gather data from a wide variety of sources to help the council target systemic risk.

"The Office of Financial Research is well funded and will likely capture more data than any existing entity, except perhaps the Fed," Ludwig said.

Kini agreed the OFR is critical. "In some ways it's the sleeper provision of Dodd-Frank," he said. "A lot of people didn't pay attention to it, but I think it's going to be very important. The burden of data collection and the type of analysis that they do in terms of the data they collect will be very important and shape how FSOC proceeds."

But observers worry about data-collection overload. The Fed has its own research office, and the central bank announced in November that it was forming an Office of Financial Stability Policy and Research to act as a liaison to the FSOC. The CFPB is also forming a research office to collect data on risky financial products and services. "My concern is other agencies setting up research on systemic risk will not create more consistency," Rossi said. "I'm hopeful OFR will oversee and bring all that together."

While observers are divided on whether the FSOC will detect and prevent systemic risk, they are more confident it will at least achieve better coordination among regulators. "The idea that they are meeting, they are going to sit down face to face is going to encourage people to talk," said Oliver Ireland, a partner at Morrison & Foerster LLP. "I think that's going to work."