Minutes of the Financial Stability Oversight Council

September 9, 2021 

PRESENT: 

Janet L. Yellen, Secretary of the Treasury and Chairperson of the Financial Stability Oversight 

Council (Council) 

Jerome H. Powell, Chair, Board of Governors of the Federal Reserve System (Federal Reserve)

Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation (FDIC) 

Gary Gensler, Chair, Securities and Exchange Commission (SEC) 

Rostin Behnam, Acting Chairman, Commodity Futures Trading Commission (CFTC) 

David Uejio, Acting Director, Consumer Financial Protection Bureau (CFPB) 

Sandra L. Thompson, Acting Director, Federal Housing Finance Agency (FHFA) 

Michael J. Hsu, Acting Comptroller of the Currency, Office of the Comptroller of the Currency

(OCC)

Todd M. Harper, Chairman, National Credit Union Administration (NCUA) 

Thomas E. Workman, Independent Member with Insurance Expertise 

Dino Falaschetti, Director, Office of Financial Research (OFR), Department of the Treasury

(non-voting member) 

Steven Seitz, Director, Federal Insurance Office (FIO), Department of the Treasury (non-voting 

member) 

Charles G. Cooper, Commissioner, Texas Department of Banking (non-voting member) 

Eric Cioppa, Superintendent, Maine Bureau of Insurance (non-voting member) 

Melanie Lubin, Securities Commissioner, Maryland Office of the Attorney General, Securities 

Division (non-voting member) 

GUESTS: 

Department of the Treasury (Treasury)

Nellie Liang, Under Secretary for Domestic Finance

Eric Froman, Assistant General Counsel (Banking and Finance) 

Stephen Ledbetter, Director of Policy, Office of the Financial Stability Oversight Council, and 

Executive Director of the Council 

Board of Governors of the Federal Reserve System 

Randal Quarles, Vice Chairman for Supervision 

Andreas Lehnert, Director, Division of Financial Stability 

Federal Deposit Insurance Corporation 

Travis Hill, Deputy to the Chairman for Policy 

Securities and Exchange Commission 

Amanda Fischer, Senior Counselor 
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Commodity Futures Trading Commission 

David Gillers, Chief of Staff 

Consumer Financial Protection Bureau

Ashwin Vasan, Senior Advisor to the Director 

Federal Housing Finance Agency 

Naa Awaa Tagoe, Acting Deputy Director, Division of Housing Mission and Goals 

Comptroller of the Currency 

Blake Paulson, Senior Deputy Comptroller for Supervision Risk and Analysis

National Credit Union Administration

Andrew Leventis, Chief Economist 

Office of the Independent Member with Insurance Expertise 

Charles Klingman, Senior Policy Advisor 

Federal Reserve Bank of New York

John Williams, President and Chief Executive Officer 

Richard Crump, Vice President, Capital Markets Function 

Office of Financial Research

Sriram Rajan, Associate Director 

Federal Insurance Office

Philip Goodman, Senior Insurance Regulatory Policy Analyst 

Texas Department of Banking 

Michael Townsley, Policy Counsel, Conference of State Bank Supervisors 

Maine Bureau of Insurance

Ethan Sonnichsen, Managing Director of Government Relations, National Association of 

Insurance Commissioners 

Maryland Office of the Attorney General, Securities Division 

Vincent Martinez, General Counsel, North American Securities Administrators Association 

PRESENTERS:

Climate Report Update 

• Eric Juzenas, Counselor to the Under Secretary for Domestic Finance, Treasury 

• Sean Hoskins, Senior Advisor, Office of the Financial Stability Oversight Council, 

Treasury (available for questions) 
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Commercial Real Estate

• Jeffrey Levine, Senior Trader/Analyst, Markets Group, Federal Reserve Bank of New 

York 

• Woojung Park, Senior Associate, Markets Group, Federal Reserve Bank of New York 

2021 Annual Report 

• Stephen Ledbetter, Director of Policy, Office of the Financial Stability Oversight 

Council, and Executive Director of the Council, Treasury 

• Jonathan Rose, Senior Economist, Federal Reserve Bank of Chicago 

• Alexandra Somers, Senior Policy Advisor, Office of the Financial Stability Oversight 

Council, Treasury (available for questions) 

Fiscal Year 2022 Council Budget 

• Stephen Ledbetter, Director of Policy, Office of the Financial Stability Oversight 

Council, and Executive Director of the Council, Treasury 

• Samantha MacInnis, Director of Operations, Office of the Financial Stability Oversight 

Council, Treasury 

Executive Session

The Chairperson called the executive session of the meeting of the Council to order at 

approximately 1:00 P.M. The Council convened by videoconference. 

The Chairperson began by highlighting risks related to the debt limit. She noted that the debt 

limit was reinstated on August 1, 2021. She stated that since then, Treasury had been using 

extraordinary measures to continue to finance the government, including not investing portions 

of some federal trust funds. She stated that those measures were only temporary. The 

Chairperson stated that on September 8, she sent a letter to Congress stating that, absent 

Congressional action, the most likely outcome was that Treasury’s cash and extraordinary 

measures would be exhausted during the month of October. She said that if the debt limit was 

not increased or suspended by the time available resources were exhausted, Treasury would be 

unable to meet its payment obligations for the first time in the nation’s history. She stated that 

this would force the United States to default on its obligations, which posed truly systemic risks 

to the global economy and financial system. She stated that this issue was particularly urgent at 

a time when the nation was still working to recover from the effects of the pandemic. She stated 

that a default would increase borrowing costs for the government and lead to higher interest rates 

across the economy, given that Treasury securities serve as the benchmark interest rates for a 

wide range of credit products. She noted that Treasury securities are also a key asset on financial 

institutions’ balance sheets and are widely used as collateral in short-term financing transactions. 

She stated that a default on Treasury’s obligations would be an unnecessary shock that could 

lead to concerns about the solvency of certain institutions and cause significant stress in markets. 

The Chairperson emphasized the importance of assessing the potential risks that the ongoing 

debt limit impasse could have on regulated entities and markets. 

The Chairperson then outlined the meeting agenda, which had previously been distributed to the 

members together with other materials. The agenda for the executive session included (1) the 
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Council’s report under the Executive Order on Climate-Related Financial Risk, (2) commercial 

real estate, (3) the Council’s 2021 annual report, (4) a vote on the Council’s fiscal year 2022 

budget, and (5) a vote on the minutes of the Council’s meeting on July 16, 2021. 

1. Climate Report Update

The Chairperson then turned to the first agenda item, an update on the Council’s report to be 

issued under the Executive Order on Climate-Related Financial Risk, which was issued on May 

20, 2021 (the Climate EO). She introduced Eric Juzenas, Counselor to the Under Secretary for 

Domestic Finance at Treasury, and Sean Hoskins, Senior Advisor in the Office of the Financial 

Stability Oversight Council at Treasury. 

Mr. Juzenas provided an update on the status of the development of the report and an overview 

of the potential recommendations to be included in the report. He also described the timeline for 

drafting the report and anticipated next steps in the interagency review process. He then 

highlighted key themes expected to be included in the report. 

Council members then asked questions and had a discussion about the draft report, including the 

proposed recommendations, the role of independent regulatory agencies, and relevant impacts on 

underserved communities. 

2. Commercial Real Estate

The Chairperson then introduced the next agenda item, a presentation on commercial real estate

(CRE). She noted that while CRE had broadly recovered from its pandemic lows, some market 

segments remained highly sensitive to the economic effects of the pandemic, and ongoing review 

of CRE trends was an important part of monitoring financial stability. She then introduced 

Jeffrey Levine, Senior Trader/Analyst in the Markets Group at the Federal Reserve Bank of New 

York, and Woojung Park, Senior Associate in the Markets Group at the Federal Reserve Bank of 

New York. 

Mr. Levine stated that he and Mr. Park would provide an overview of trends and risks in CRE 

markets since the onset of COVID-19. He noted that the presentation was based on information 

from industry participants and did not include information gathered during the supervision of 

banks. Mr. Park then described the CRE market. He noted that the $4.9 trillion market for CRE 

loans represents 16 percent of total U.S. loans outstanding and is a core component of U.S. 

commercial bank lending. He noted that prior to the pandemic, CRE experienced a multi-year 

period of price appreciation, with low CRE capitalization rates suggesting elevated valuations. 

He stated that when the pandemic began, certain segments of CRE experienced immediate 

negative effects, with retailers and hotels experiencing reduced revenues. Mr. Park noted that 

this period saw a temporary halt in the issuance of commercial mortgage-backed securities 

(CMBS) amid significantly reduced liquidity and wider spreads, with overall loan origination 

volume declining notably. 

Mr. Park then addressed CRE conditions through year-end 2020. He stated that a recovery in 

capital market conditions had occurred by this time, evidenced by improved issuance levels, and 
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a substantial recovery in CRE loan and CMBS spreads. He stated that although non-agency 

CMBS loan delinquency rates had increased at the beginning of the pandemic (led by hotel and 

retail loans), rates had stabilized and started to decline by this time. Mr. Park noted that as of 

year-end 2020, there was a divide across CRE property segments, with investors preferring 

perceived safer property types. He stated that concerns remained over the future of major cities 

and central business district properties, and noted that and started to decline higher delinquencies 

could lead to an uptick in distressed assets, such as hotels and retail. 

Addressing trends in CRE markets in 2021, Mr. Park stated that the widespread availability of 

vaccinations and recovering economic activity had led to improved performance across CRE 

property sectors. He stated that CRE property sale transaction volumes had remained robust 

through the first half of 2021, although there was uneven activity across property types. He 

noted that CRE property prices generally increased in 2021, but that central business district

office prices remained a notable exception. Mr. Park then described various CRE financial 

market indicators in 2021. He noted that some real estate investment trust indexes (notably 

multifamily residential and industrial indexes) had retraced their 2020 losses, although retail, 

hotel, and office indicators continued to lag pre-pandemic levels. He said that credit spreads for 

private-label CMBS had tightened over much of 2021 and were at or near multi-year lows. He 

stated that underwriting standards, which market participants reported were stronger in 2021 than 

immediately before the 2007-09 financial crisis, had assisted the recovery process. Mr. Park 

stated that loan delinquency rates continued to trend lower in 2021, but that delinquencies

remained elevated for some subsectors, such as hotels focusing on business travel or 

conferences. 

Mr. Levine then provided a summary of market conditions experienced by CRE credit providers 

in 2021. He noted that balance sheet lenders, such as banks and insurance companies, were 

increasing their lending activity, with a focus on safer CRE property types. He stated that in 

securitized markets, CMBS issuance had seen a record pace. He stated that leveraged non-bank 

lenders had returned to their level of market engagement before the pandemic and a greater 

willingness to extend credit to perceived riskier CRE property types. Mr. Levine noted that data 

as of the second quarter of 2021 shows that net CRE lending by banks had increased since the 

onset of COVID-19, particularly among regional and community banks, and he stated that some 

large banks had increased their indirect CRE exposures through warehouse lending lines to nonbank CRE lenders. 

Regarding trends in CRE securitization, Mr. Levine stated that the record pace of issuance in 

single asset, single borrower CMBS and CRE CLOs highlighted the bifurcated credit 

availability, alongside strong investor demand and other factors, for credit that is perceived to be 

of good quality. Mr. Levine stated that reach-for-yield investor behavior added demand for CRE 

CLOs and the robust return of this market has provided a funding source for leveraged CRE 

lenders. Commenting on trends in non-bank CRE lending, Mr. Levine stated that concerns had 

arisen during the peak stress periods in 2020 that many non-banks, particularly the smaller firms, 

were experiencing strains and paused their lending activity. He noted the emergence of new 

non-bank entrants in 2021, and stated that both large and smaller non-banks had broadly resumed 

lending activity in 2021. Noting recent optimism in CRE markets, he stated that certain CRE 

asset classes, such as multifamily and industrial properties, had attracted strong investor interest 
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at increasingly elevated valuations. He stated that spreads on CRE-based products reached 

multi-year lows in 2021, despite robust issuance volumes. 

Mr. Levine then described industry concerns over the future performance of the office sector. 

He stated that sources of uncertainty included the increased reliance on telework. He noted signs 

of potential stress, including the underperformance of equity real estate investment trusts with 

large exposure to offices in the urban cores of major metropolitan areas. Finally, Mr. Levine 

discussed potential future risks in the CRE market, including potential additional shutdowns 

triggered by emerging COVID-19 variants; CRE mortgage borrowers’ thinner cash cushions 

compared to before the pandemic; the non-bank lenders with short-term, less-stable funding; 

high valuations in some CRE sectors supported by highly optimistic future performance 

forecasts; interest rate risk; and the risk of a drop in office valuations due to teleworking and 

reduced demand for office space. 

Members of the Council then had a discussion, including regarding the importance of monitoring 

banks’ exposures to CRE loans; risks in the CRE market; and trends in the multifamily housing 

sector. 

3. 2021 Annual Report 

The Chairperson then introduced the next agenda item, an update on the Council’s 2021 annual 

report.

She turned to Stephen Ledbetter, Director of Policy in the Office of the Financial Stability 

Oversight Council at Treasury and Executive Director of the Council; Jonathan Rose, Senior 

Economist at the Federal Reserve Bank of Chicago; and Alexandra Somers, Senior Policy 

Advisor in the Office of the Financial Stability Oversight Council at Treasury. 

Mr. Ledbetter described the process for developing the annual report, and provided an update 

regarding interagency staff deliberations about the report. Mr. Rose then provided an overview 

of the organization of the report and highlighted certain topics that the report may

address.

Council members then asked questions and had a discussion about certain topics that may be 

included in the report. 

4. Fiscal Year 2022 Council Budget 

The Chairperson then introduced the next agenda item, the Council’s fiscal year 2022 budget. 

She introduced Stephen Ledbetter, Director of Policy in the Office of the Financial Stability 

Oversight Council at Treasury and Executive Director of the Council, and Samantha MacInnis, 

Director of Operations in the Office of the Financial Stability Oversight Council at Treasury, for 

the presentation. 

Mr. Ledbetter and Ms. MacInnis reported on the Council’s proposed budget for fiscal year 2022. 

Treasury had distributed a proposed budget to the Council in accordance with the Council’s 
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bylaws. Mr. Ledbetter explained that the Council’s budget included two main components: 

expenses of the Office of the Financial Stability Oversight Council at Treasury and the Office of 

the Council’s Independent Member with Insurance Expertise; and reimbursement of certain 

FDIC expenses for implementation of Title II of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act. The proposed fiscal year 2022 budget included $7.56 million for 

expenses of the Office of the Financial Stability Oversight Council at Treasury and the Office of 

the Independent Member with Insurance Expertise, and $3.25 million for the reimbursement of 

FDIC expenses. 

Ms. MacInnis explained that the proposed budget called for 23 staff at Treasury supporting the 

Council, and four employees in the Office of the Independent Member with Insurance Expertise. 

She noted that compared to the budget approved by the Council for fiscal year 2021, the 

proposed budget would allow for an additional six full-time-equivalent employees. She also 

noted that the Council’s actual expenses in fiscal year 2021 had come in under budget due to 

unfilled staff positions and savings on travel. 

The Chairperson then presented to the Council the following resolution approving the Council’s 

budget for fiscal year 2022. 

BE IT RESOLVED, by the Financial Stability Oversight Council (the “Council”), that the 

Council’s budget for fiscal year 2022 attached hereto is hereby approved. 

The Chairperson asked for a motion to approve the resolution, which was made and seconded. 

The Council approved the resolution by unanimous vote. 

5. Resolution Approving the Minutes of the Meeting Held on July 16, 2021 

BE IT RESOLVED, by the Financial Stability Oversight Council (the “Council”), that the 

minutes attached hereto of the meeting held on July 16, 2021 of the Council are hereby 

approved. 

The Chairperson asked for a motion to approve the resolution, which was made and seconded. 

The Council approved the resolution by unanimous vote. 

The Chairperson adjourned the meeting at approximately 2:20 P.M.