Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

The Dodd-Frank financial legislation of 2010 created a Financial Stability Oversight Council, tasked with taking an integrated view of risks in and around the financial sector in the United States. Known as the FSoc (pronounced EFF-sock), the council comprises all leading regulators and other responsible officials, headed by the Treasury secretary.

So far, it has done little — reflecting the predominant official view that in the post-crisis recovery phase, financial risks in the United States are generally receding.

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But three important and related issues emerged this summer that the FSoc needs to consider quickly: impending bank mergers that could create two more too-big-to-fail banks; whether to force the breakup of Bank of America; and how to rethink capital requirements for large systemically important banks, particularly as continuing European sovereign debt problems undermine the credibility of the international Basel Committee approach to bank capital.

On the merger front, Capital One plans to buy the online business of ING, and PNC is acquiring the American business of Royal Bank of Canada. Both acquisitions would create banks with assets around $300 billion. (Steven Pearlstein had a very good column in The Washington Post on Sunday on the background to these deals.)

In some official minds, Dodd-Frank has made it impossible for too-big-to-fail banks to exist — if any such bank got into trouble, it would be shut down without any significant costs being incurred by taxpayers. Most independent analysts and many people active in financial markets regard this proposition as unproven at best and, most likely, incorrect.

For example, in a new working paper, “Too-Systemic-to-Fail: What Option Markets Imply About Sector-Wide Government Guarantees,” Bryan T. Kelly, Hanno Lustig and Stijn Van Nieuwerburgh compare the price of put options (i.e., the option to sell and therefore lock in a price) for the financial sector stock index relative to put options on individual banks’ stocks (Disclosure: I’m a research associate at the National Bureau of Economic Research, which published this paper, and co-director of its Africa Project but had nothing to do with this paper).

Put options are cheaper if they are less valuable to investors as protection against price collapses, and the index puts are a lot cheaper than the appropriately weighted sum of put options on individual bank stocks, particularly during the recent financial crisis.

The authors infer that “investors price in substantial government bailout guarantees for the financial sector as a whole” — thus the index puts are cheap, because you don’t need to insure privately against overall collapse — with around half of the market value of the financial sector during 2003-9 accounted for by collective bailout guarantees. No other sector in the United States economy gets anything like this kind of insurance.

At the same time, the researchers point out that the government does not eliminate all idiosyncratic company-specific risk; this is why put options on individual companies stocks are relatively more valuable. In a sense this message is encouraging, because it suggests some specific companies can fail or otherwise go out of business.

But presumably, at critical moments specific megabanks have a particular and complete kind of downside protection. It’s hard to envisage the potential failure of a $2 trillion bank like Citigroup, JPMorgan Chase or Bank of America without systemwide adverse consequences.

The first question for the FSoc is therefore: Wouldn’t allowing mergers by Capital One and ING and by PNC and Royal Bank of Canada create financial companies whose potential risk is more likely to be systemic?

The largest financial institution allowed to fail without a bailout since the collapse of Lehman Brothers was CIT Group, which had a balance sheet of around $80 billion. Perhaps Capital One and PNC are already too big to fail; PNC is No. 12 and Capital One is No. 13 on the official list of bank holding companies, ranked by assets as of June 30.

We don’t know where the critical cutoff is — and perhaps more studies along the lines of the work by Professors Kelly, Lustig and Nieuwerburgh would be helpful, or the FSoc could find another way to make a reasonable and fact-based determination.

But what really matters is what could happen in future systemic crises, and this is very hard to predict. So why not err on the side of caution and keep large banks from becoming bigger through merging? Or the FSoc could require these merging banks to demonstrate that they will generate social value commensurate with or in excess of the extra social risks that they are creating.

The second question is closely related: Why not break up Bank of America? The Dodd-Frank legislative process ended up rejecting the idea that existing banks, as of 2010, should be broken up — as long as they continue to operate in a reasonable and sustainable fashion. But the legislative intent was also clear with regard to big banks that are in trouble: There should be preemptive action, either through pressing bank management or, if that doesn’t work, through regulator-imposed requirements.

These requirements can include making the bank smaller, simpler and less systemic – in other words making sure that any kind of future “resolution” or “intervention” for that bank (both euphemisms for a form of bankruptcy) would not be a systemic event.

If Bank of America were to fail today, it would create a systemic problem and presumably set off some sort of desperate policy reaction. The bank is the largest bank-holding company in the United States, with assets at the end of June of more than $2.26 trillion.

If Bank of America is forced to divest various activities, like those it bought from Merrill Lynch, that would not eliminate systemic risk. But it would make this one troubled institution less central to the economy, and, if handled properly, less of a brake on economic recovery.

This raises the third and arguably most important question: Why not increase capital requirements further for systemically important financial institutions?

Warren Buffett’s agreement last week to invest in Bank of America has highlighted the lack of capital, at least at that one bank: It has too little equity relative to its debts, hence the need for Mr. Buffett.

But Mr. Buffett, it now appears, is getting cumulative preferred stock — so he gets a guaranteed dividend before any common-stock holders get a return. This makes sense for him, without question. And his holding is loss-absorbing, in the sense that his equity would be wiped out before there was any question of defaulting on money owed to any creditors.

This is presumably the best that Bank of America could do in terms of raising capital through the market. But it should not be enough from the perspective of FSoc, which is charged with overall responsibility for systemic risks.

The Basel Committee on Banking Supervision has proposed a methodology for systemically important institutions, but it rests on a very weak analytical basis, as Americans for Financial Reform pointed out in a recent letter. The FSoc would be making a very bad mistake if it continued to follow the European lead that set the lowest common denominator at Basel.

The evident capital problems of European banks, and the way this will slow growth, were flagged at the Jackson Hole, Wyo., meeting of policy makers last week by Christine Lagarde, the new managing director of the International Monetary Fund and, until recently, finance minister of France (see this assessment by Felix Salmon). The FSoc should listen to her warnings and think about what this means for American banks.

If the Dodd-Frank legislation is to have lasting impact, the FSoc needs to establish itself as a meaningful overseer of systemic financial risks. It needs to meet and deliberate in an open and transparent manner. It should confront pressing questions of systemic risk head on, being clear about the analytical basis for its decisions. Business as usual is a recipe for disaster — in the United States, as in Europe.

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