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Busch: The Biggest Risk to the US Financial System Goes Unnoticed—In DC

What do these people have in common?

Timothy Geithner, Ben Bernanke, Gary Gensler, Mary Shapiro, Sheila Bair, Edward DeMarco, Debbie Matz and John Walsh.

They are the voting members of the Financial Stability Oversight Council or FSOC. The council is charged with assessing risks to the stability of the financial system and the economy via “comprehensive monitoring.”

On February 24th, Mr. Bernanke warned Congress that the United States could soon face a debt crisis like the one in Greece, and declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt according to the Washington Times.

On May 16th, the WSJ reportsthat Mr. Geithner cautioned the GOP leadership against tying their budget blueprint to the contentious talks to lift the U.S.'s $14.3 trillion debt ceiling. "If [House] Republicans try to impose that plan on this country as a condition for raising the debt limit, then they will own the responsibility for the first default in our history, with devastating damage to the nation," Geithner said.”

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Tim Graham | The Image Bank | Getty Images

Yet, the FSOC has not issued any formal warning or statement on the national debt nor on a default. How is this possible?

Dodd-Frank requires this assessment as part of its over-arching plan to address important system issues before they manifest into a crisis.

Recently, this has caught the attention of Sen. Jeff Sessions (R-Ala.) who formally requested the FSOC to investigate.

“The FSOC was designed to be an early-warning body, scanning markets and activities to foresee and help prevent systemic threats. I respectfully request, therefore, that you explain, individually and as a Council, whether you believe that U.S. fiscal policy and that approach of hitting our debt ceiling poses systemic risks to the U.S. financial system and the economy.” Sessions adds that he wants this before the new debt ceiling date of August 2nd.

While it’s a great idea to engage the one group responsible for systemic risk on the biggest systemic risk looming (the debt crisis), but the fact the FSOC hasn’t already addressed it means they are already behind the curve in what they are supposed to be doing. However, the FSOC has a critical role to play here in clearly delineating the risks to the US financial system and clearly stating that it must be done now. Their expertise and advice are needed to move the process forward and bring the sides together to make tough decisions.

Like Congress and the White House, the FSOC needs to act swiftly on the debt crisis or the outcome will be “devastating.”

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.