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Minutes of the Financial Stability Oversight Council

Held November 13, 2012

PRESENT: 

Timothy F. Geithner, Secretary of the Treasury and Chairperson of the Financial Stability 

Oversight Council 

Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System (Federal Reserve)

Martin J. Gruenberg, Acting Chairperson, Federal Deposit Insurance Corporation (FDIC) 

Mary Schapiro, Chairman, Securities and Exchange Commission (SEC) 

Gary Gensler, Chairman, Commodity Futures Trading Commission (CFTC) 

Richard Cordray, Director, Consumer Financial Protection Bureau (CFPB)

Edward DeMarco, Acting Director, Federal Housing Finance Agency (FHFA)

Debbie Matz, Chairman, National Credit Union Administration (NCUA)

Thomas J. Curry, Comptroller of the Currency, Office of the Comptroller of the Currency (OCC) 

Roy Woodall, Independent Member with Insurance Expertise

Michael McRaith, Director, Federal Insurance Office, Department of the Treasury (non-voting 

member)

John P. Ducrest, Commissioner, Louisiana Office of Financial Institutions (non-voting member)

(participating by phone)

John Huff, Director, Missouri Department of Insurance, Financial Institutions, and Professional 

Registration (non-voting member)

David Massey, Deputy Securities Administrator, North Carolina Department of the Secretary of 

State, Securities Division (non-voting member) 

GUESTS: 

Department of the Treasury 

Mary J. Miller, Under Secretary for Domestic Finance

Amias Gerety, Deputy Assistant Secretary for FSOC 

Christopher J. Meade, Acting General Counsel

Board of Governors of the Federal Reserve System 

Daniel K. Tarullo, Governor

Nellie Liang, Director, Office of Financial Stability Policy and Research

Federal Deposit Insurance Corporation 

Jason Cave, Deputy Director, Division of Complex Financial Institutions

Securities and Exchange Commission 

Jennifer McHugh, Senior Advisor to the Chairman

Commodity Futures Trading Commission

Dan Berkovitz, General Counsel
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Consumer Financial Protection Bureau

Raj Date, Deputy Director

Federal Housing Finance Agency 

Mario Ugoletti, Special Advisor to the Director

National Credit Union Administration 

John Worth, Chief Economist

Office of the Comptroller of the Currency 

John Lyons, Senior Deputy Comptroller and Chief National Bank Examiner

Office of the Independent Member with Insurance Expertise

Chris Ledoux, Senior Advisor

Federal Reserve Bank of New York

William Dudley, President and Chief Executive Officer

Federal Insurance Office

Matthew McKenney, Senior Insurance Regulatory Policy Analyst

Louisiana Office of Financial Institutions

Michael Stevens, Senior Executive Vice President, Conference of State Bank Supervisors

Missouri Department of Insurance, Financial Institutions, and Professional Registration 

Mark Sagat, Counsel and Manager, Financial Policy and Legislation, National Association of 

Insurance Commissioners

North Carolina Department of the Secretary of the State, Securities Division

Joseph Brady, Deputy General Counsel, North American Securities Administrators Association

PRESENTERS:

Macro-environment Overview: Market Structure

• Robert Cook, Director, Division of Trading and Markets, SEC 

• Gregg Berman, Senior Policy Advisor, Division of Trading and Markets, SEC 

FSOC Governance Update

• Amias Gerety, Deputy Assistant Secretary for FSOC, Treasury

Executive Session 

The Chairperson called the executive session of the meeting of the Financial Stability Oversight 

Council (Council) to order at approximately 1:03 P.M. (EST). 
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The Chairperson began by outlining the meeting agenda for the executive session, which had 

been previously distributed to the members together with the meeting agenda for the open 

session and copies of the resolutions and other materials. The agenda for the executive session 

of the meeting included the following subjects: (1) a market structure update; (2) a Volcker Rule

status update; (3) proposed recommendations for money market mutual fund reform; and (4) a 

Council governance update. 

1. Macro-environment Overview: Market Structure

The Chairperson turned to the first agenda item and asked Robert Cook, Director of the Division 

of Trading and Markets at the SEC, and Gregg Berman, Senior Policy Advisor, Division of 

Trading and Markets at the SEC, to give the presentation. The presenters provided an overview 

of the current equity market structure. They also discussed certain recent events relating to 

market structure. After the presentation, members of the Council asked questions. 

2. Volcker Rule Status Update

The Chairperson introduced the next agenda item regarding an update on the status of the 

Volcker Rule. Daniel K. Tarullo, Federal Reserve Board Governor, and Mary Schapiro, 

Chairman of the SEC, provided an update. 

3. Proposed Recommendations for Money Market Mutual Fund Reform

The Chairperson then introduced the agenda item regarding proposed recommendations for 

money market mutual fund (MMF) reform. He said that a vote to approve the proposed 

recommendations for MMF reform would occur during the open session of the meeting and that 

with the Council’s approval, the proposed recommendations would be released to the public and 

published in the Federal Register, initiating a 60-day public comment period. Members of the 

Council then had a discussion. 

 

4. Council Governance

The Chairperson turned to the next agenda item regarding Council governance and asked Amias 

Gerety, Deputy Assistant Secretary for FSOC at Treasury, to give the presentation. Mr. Gerety 

provided an overview of recent developments in staffing of the Council’s Secretariat and 

progress made over the past year to establish the office. 

 

The Chairperson adjourned the executive session of the meeting at approximately 2:24 P.M. 

(EST).

Open Session

The Chairperson called the open session of the meeting of the Council to order at approximately 

2:30 P.M. (EST). 
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The agenda for the open session of the meeting included the following subjects: (1) 

consideration of, and a vote on, a resolution approving proposed recommendations for money 

market mutual fund reform; and (2) consideration of, and votes on, resolutions approving the 

minutes from the Council’s meetings held on October 18, 29, and 30, 2012. 

1. Proposed Recommendations for Money Market Mutual Fund Reform

The Chairperson began by providing remarks on the proposed recommendations for MMF 

reform, the approval of which he noted was the central item on the agenda for the meeting. He 

acknowledged the work of Chairman Schapiro and her colleagues at the SEC who recognized 

early on that reforms to the MMF industry were essential to the financial stability of the United 

States, and further stated that the Council’s own work on MMF reform owes a great deal to the 

early work of the SEC staff on the issue. The Chairperson explained that during the fall of 2008, 

basic vulnerabilities in the design of MMFs helped to accelerate and exacerbate the financial 

crisis, and the full range of reforms needed to address those vulnerabilities has not yet been 

achieved. He added that while the SEC took some important initial steps in 2010 to begin 

improving the resilience of MMFs, the view of Chairman Schapiro and the Council was that the 

reforms did not go far enough. He noted that in August of this year, Chairman Schapiro 

announced that a majority of SEC Commissioners did not support soliciting public comments on 

staff proposals for reforms to MMFs. He further noted that, in response, the Council had been 

considering a set of recommendations about which to obtain comments from the public. The 

Chairperson expressed his hope that a public debate on a series of concrete options for reform 

would provide a basis for the SEC to move forward. He also emphasized that if, at any point, the 

SEC finds a majority to support a set of recommendations for MMF reform, the Council would 

suspend its work, to allow the SEC process to play out.

The Chairperson then set forth the Council’s three recommendations on which it would seek 

public comment: (1) requiring a floating net asset value, meaning that MMF shares would not be 

fixed at $1; (2) requiring MMFs to have a capital buffer of up to 1 percent of the fund’s value to 

absorb losses, combined with a requirement that a small percentage of MMF shareholders’ funds 

could be redeemed only on a delayed basis; and (3) requiring MMFs to maintain a buffer of up to 

3 percent, potentially combined with other measures that could reduce the size of the required 

buffer if they are deemed to be sufficiently strong. He mentioned that other possible reform 

options also exist, and that the Council would also seek public comments on such options. 

The Chairperson then recognized Chairman Schapiro. Chairman Schapiro stated that she had 

asked the Council to address structural weaknesses in MMFs that make them vulnerable to runs, 

and that she was pleased that the Council was taking this important action, in which options 

could be published and would benefit from public input. She noted that in the fall of 2008, the 

run on prime MMFs happened in a matter of days and was a core part of the financial crisis that 

abated only with federal government intervention. She went on to say that the Council had put 

forth three options for reform, and that she believed that the floating NAV was the purest and 

simplest option and the most consistent with the SEC’s regulatory approach to investment 

products. She recognized, however, that MMF investors value a stable-NAV product, and she 

was therefore open to receiving feedback on additional options. 
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The Chairperson next called on Ben Bernanke, Chairman of the Board of Governors of the 

Federal Reserve System. Chairman Bernanke began by noting that four year ago, runs on prime 

MMFs furthered the financial crisis, and that in just five days, there were more than $300 billion 

of redemptions. He also said that the 2008 runs were stopped only by extraordinary 

interventions by the federal government, using powers that are no longer available. He added 

that the SEC took important steps regarding MMF reform in 2010, but that these were only first 

steps. Chairman Bernanke also pointed to the withdrawals from MMFs that occurred in the 

summer of 2011 when concerns about MMFs’ exposure to European banks led institutional 

investors to redeem $180 billion from prime MMFs over the course of eight weeks. He 

recognized that while this was a smaller event than 2008, it suggested that the basic run issue

relating to MMFs had not been solved. He hoped that the public comments on the Council’s 

proposed recommendations would be helpful to the SEC, which he stated is the agency that 

should be responsible for making the appropriate MMF rules. In closing, Chairman Bernanke 

expressed his support for the Council’s actions. 

The Chairperson then recognized Gary Gensler, Chairman of the Commodity Futures Trading 

Commission. Chairman Gensler stated that in considering MMF reform, a key consideration 

would be how policy makers could find an appropriate balance between risks of runs on MMFs 

and how the alternatives may significantly change the MMF products on which many Americans 

rely. He noted that changes to MMFs could diminish their use as an investment product and as a 

source of funding. He also said that while the Council plays an advisory role, the SEC ultimately 

has authority to set policies in the area of MMF reform. Chairman Gensler closed by saying that 

he supported the Council’s proposal because he believed it was important to obtain broad public 

input on how policy makers should balance the risk of runs with the effects that the alternatives 

may have on the utility of MMFs and on the economy. 

The Chairperson next called on Martin Gruenberg, Acting Chairperson of the Federal Deposit 

Insurance Corporation. Acting Chairperson Gruenberg stated that the financial stability issues 

raised by MMFs have been made apparent and that the Council had a useful tool in Section 120 

of the Dodd-Frank Act to make recommendations to the agency with jurisdiction to consider 

responses to this important issue. He further expressed his support for the Council’s efforts. 

The Chairperson then presented to the Council the following resolution approving the proposed 

recommendations regarding MMF reform. 

“WHEREAS, section 120 of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(the “DFA”) authorizes the Financial Stability Oversight Council (“Council”) to provide for 

more stringent regulation of a financial activity by issuing recommendations to the primary 

financial regulatory agencies to apply new or heightened standards and safeguards for a 

financial activity or practice conducted by bank holding companies or nonbank financial 

companies under their respective jurisdictions, if the Council determines that the conduct, scope, 

nature, size, scale, concentration, or interconnectedness of such activity or practice could create 

or increase the risk of significant liquidity, credit, or other problems spreading among bank 

holding companies and nonbank financial companies, financial markets of the United States, or 

low-income, minority, or underserved communities; and
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WHEREAS, under section 120 of the DFA, the Council is required to consult with the primary 

financial regulatory agencies and provide notice to the public and opportunity for comment for 

any proposed recommendation that the primary financial regulatory agencies apply new or 

heightened standards and safeguards for a financial activity or practice; and

WHEREAS, under section 120 of the DFA, the new or heightened standards and safeguards for a 

financial activity or practice recommended by the Council are required to take costs to longterm economic growth into account and may include prescribing the conduct of the activity or 

practice in specific ways or prohibiting the activity or practice; and

WHEREAS, the staffs of the Council Members and their Agencies have evaluated the conduct, 

scope, nature, size, scale, concentration, or interconnectedness of activities and practices of 

money market mutual funds (“MMFs”) and recommend that the Council propose to determine 

that such activities and practices could create or increase the risk of significant liquidity, credit, 

or other problems spreading among bank holding companies and nonbank financial companies, 

financial markets of the United States, or low-income, minority, or underserved communities; 

and

WHEREAS, the staffs of the Council Members and their Agencies have prepared the “Proposed 

Recommendations Regarding Money Market Mutual Fund Reform” attached hereto (the 

“Proposed Recommendations”); and

WHEREAS, the Council proposes to determine that the activities and practices of MMFs could 

create or increase the risk of significant liquidity, credit, and other problems spreading among 

bank holding companies, nonbank financial companies, and U.S. financial markets, due to the 

conduct and nature of the activities and practices of MMFs that leave them susceptible to 

destabilizing runs; the size, scale, and concentration of MMFs and the important role they play 

in the financial markets; and the interconnectedness between MMFs, the financial system, and 

the broader economy that can act as a channel for the transmission of risks and contagion and 

curtail the availability of liquidity and short-term credit, and create other problems, such as 

destabilizing runs; and

WHEREAS, the Council has consulted with the Chairman and staff of the Securities and 

Exchange Commission, which is the primary financial regulatory agency for MMFs, regarding 

the Proposed Recommendations; and

WHEREAS, the staffs of the Council Members and their Agencies recommend that the Council 

approve and publish in the Federal Register and on the Council’s website the Proposed 

Recommendations.

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby approves the Proposed 

Recommendations and authorizes the Chairperson, or his designee, to cause the Proposed 

Recommendations to be published in the Federal Register and on the Council’s website, in a 

form and manner acceptable to the Chairperson or his designee, and to otherwise make it 

available to the public as the Chairperson deems appropriate.
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BE IT FURTHER RESOLVED, that the Council hereby delegates authority to the Chairperson, 

or his designee, to make technical, nonsubstantive, or conforming changes to the text of the 

Proposed Recommendations to ensure that the Council can issue and publish the Proposed 

Recommendations in the Federal Register, and to take such other actions and issue such other 

documents incident and related to the foregoing as they may deem necessary or appropriate to 

fulfill the Council’s objectives in connection with its publication.”

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

The Council then approved the resolution by unanimous vote.

2. Resolutions Approving the Minutes of the Meetings Held on October 18, 29, and 30, 

2012

The Chairperson next presented the following three resolutions approving minutes from Council 

meetings held on October 18, 29, and 30, 2012. 

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

minutes attached hereto of the meeting held on October 18, 2012 of the Council are hereby 

approved.” 

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

minutes attached hereto of the meeting held on October 29, 2012 of the Council are hereby 

approved.” 

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

minutes attached hereto of the meeting held on October 30, 2012 of the Council are hereby 

approved.” 

The Chairperson asked for motions to approve each of the three resolutions, which were made

and seconded. The Council approved each of the three resolutions by unanimous vote.

The Chairperson asked for a motion to adjourn the meeting, and the Council voted to adjourn. 

The Chairperson adjourned the meeting at approximately 2:50 P.M. (EST).