The U.S. financial system is growing more vulnerable to debilitating shocks as new regulations and market forces change trading habits and make some market participants less willing to smooth out volatility, a government watchdog warned, the Wall Street Journal reported today. The Office of Financial Research, a new arm of the Treasury Department created by the 2010 Dodd-Frank law, said that the system is vulnerable to repeats of what occurred in October, when tumult in the trading of U.S. Treasury securities spread broadly to futures, swaps and options markets. “Although the dislocation that peaked in mid-October was fleeting, we believe there is a risk of a repeat occurrence,” the office said in its third annual report, adding that such volatility “raises a host of financial stability concerns.”
