The US financial system is growing more vulnerable to debilitating shocks as new regulations and market forces change trading habits and reduce the willingness of some market participants to smooth out volatility, a government watchdog warned.

The Office of Financial Research, a new arm of the Treasury Department created by the 2010 Dodd-Frank law, said the system is vulnerable to repeats of what occurred in October, when tumult in the trading of US Treasury securities spread broadly to futures, swaps and options markets.