Since the crisis, the Dodd-Frank Act increased transparency in many derivatives – a good thing. But it also made a complex system of bank and nonbank regulators more complex and created a class of systemically important banks (and even non-banks), codifying “too big to fail.” It did not – nor did other legislation – seriously address reform of housing finance or direct the central bank to focus more on financial stability. Writing the Act’s web of rules will take years. Globally, an emphasis on higher capital requirements leaves open questions of how one measures the risks taken against that capital – recall the sovereign bonds were deemed “riskless” for that purpose before the crisis – or how to limit the incentive for “shadow banking” forms of intermediation to grow outside more heavily regulated sectors.

One key reason for skepticism that policy has put us on a course toward financial stability is that we have treated the loose ends of the financial crisis as technical problems to be solved …

If proprietary trading by financial institutions is risky – though such risk-taking paled alongside old-fashioned bad lending before the crisis – ban it.

If taxpayers and investors lost money in the crisis, force institutions to hold much larger amounts of capital to mitigate future losses.

If securitization led to losses, force mortgage originators to hold more “skin in the game.”

… and so on.

This technical approach misses two big things. First, it fails to focus adequately on trade-offs: between lower risk taking and economic growth; between higher capital requirements and growth in shadow banking; between reduced risk of securitization and benefits of securitization in the cost of funds. We lack a policy framework for assessing these trade-offs. Dodd-Frank’s Financial Stability Oversight Council will not accomplish this discussion.

Second, it fails to consider structural and organizational changes in financial regulation, as opposed to technical remedies. A technical approach is akin to generals fighting the last war. The next crisis may well not start in the housing market. But financial history teaches us about the perils of a range of large credit booms, opening the door for broad questions about how regulation can be more streamlined and how to make policymakers more aware of emerging developments in financial markets and institutions. And organizational change, too: For example, should the Federal Reserve have a mandate for financial stability that would force Fed officials to be more vigilant as financial excesses mount? While taking away the proverbial punch bowl is never easy, the Fed’s independence is a big plus here. Of course, conventional monetary policy tools are blunt for this purpose, but the Fed has – or could have – others, such as capital rules, maximum loan-to-value ratios for mortgages, or rules on “haircuts” in repo transactions. There are many views on how to sort out this broader discussions, but many groups are doing so, including the Committee on Capital Markets Regulation, which I co-chair.