Minutes of the Financial Stability Oversight Council

June 16, 2023

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)

Martin Gruenberg, Chairman, Federal Deposit Insurance Corporation (FDIC)

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

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

videoconference)

Gregg Gelzinis, Advisor to the Director, Consumer Financial Protection Bureau (CFPB) (acting 

pursuant to delegated authority)

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

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

(OCC) (via videoconference)

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

Thomas E. Workman, Independent Member with Insurance Expertise 

James Martin, Acting Director, Office of Financial Research (OFR), Department of the Treasury

(non-voting member) (via videoconference)

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

member)

Adrienne Harris, Superintendent, New York State Department of Financial Services (non-voting 

member) 

Elizabeth K. Dwyer, Superintendent of Financial Services, Rhode Island Department of Business 

Regulation (non-voting member) (via videoconference)

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

Sandra Lee, Deputy Assistant Secretary for the Council

Laurie Schaffer, Principal Deputy General Counsel

Eric Froman, Assistant General Counsel (Banking and Finance)

Sean Hoskins, Director of Policy, Office of the Financial Stability Oversight Council 

Nicholas Steele, Director of Analysis, Office of the Financial Stability Oversight Council

Board of Governors of the Federal Reserve System

Michael Barr, Vice Chair for Supervision

Andreas Lehnert, Director, Division of Financial Stability
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Federal Deposit Insurance Corporation

James McGraw, Senior Deputy Director, Division of Complex Institution Supervision and 

Resolution

Securities and Exchange Commission

Amanda Fischer, Chief of Staff

Commodity Futures Trading Commission

Rahul Varma, Acting Deputy Director, Division of Market Oversight (via videoconference)

Federal Housing Finance Agency

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

Comptroller of the Currency

Jay Gallagher, Senior Deputy Comptroller for Supervision Risk and Analysis (via 

videoconference)

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

Richard Crump, Financial Research Advisor, Macrofinance Studies (via videoconference)

Office of Financial Research

Sriram Rajan, Associate Director, Research and Analysis Center

Federal Insurance Office

Philip Goodman, Senior Insurance Regulatory Policy Analyst

New York State Department of Financial Services

Karen Lawson, Executive Vice President for Policy and Supervision, Conference of State Bank 

Supervisors

Rhode Island Department of Business Regulation 

Ethan Sonnichsen, Managing Director, National Association of Insurance Commissioners (via 

videoconference)

Maryland Office of the Attorney General, Securities Division

Vincente Martinez, General Counsel, North American Securities Administrators Association
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PRESENTERS:

Update on Financial Stability Vulnerabilities

• Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Federal 

Reserve

• David Bowman, Senior Associate Director, Division of Monetary Affairs, Federal 

Reserve

Commercial Real Estate Developments

• David Bates, Director for Commercial Credit Risk Policy, OCC

• Camille Schmidt, Chief of Risk Insights and Analytics, FDIC

• Andrew Felton, Deputy Director, Systemic Risk, FDIC (available for questions)

• Melissa Love-Greenfield, Deputy Comptroller for Systemic Risk Identification and 

Support, OCC (available for questions)

Developments in the Banking Sector

• Michael Barr, Vice Chair for Supervision, Federal Reserve

Executive Session

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

approximately 12:58 P.M. The Chairperson began by outlining the meeting agenda, which had 

previously been distributed to the members together with other materials. The agenda for the 

executive session included (1) an update on financial stability vulnerabilities, (2) a presentation 

on developments in the commercial real estate market, (3) an update on developments in the 

banking sector, and (4) a vote on the minutes of the Council’s meeting on April 21, 2023.

1. Update on Financial Stability Vulnerabilities 

The Chairperson introduced the first agenda item, an update on financial stability vulnerabilities.

She introduced Elizabeth Klee, Senior Associate Director of the Division of Financial Stability at 

the Federal Reserve, and David Bowman, Senior Associate Director of the Division of Monetary 

Affairs at the Federal Reserve.

Ms. Klee stated that the presentation would focus on the Federal Reserve’s semiannual Financial 

Stability Report (FSR), published most recently in May 2023. She said that following the 

publication of the Federal Reserve’s November 2022 FSR, events had been dominated by the 

failures of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank. She said that 

as stress in the banking sector materialized, financial market volatility had increased and 

liquidity was strained in some markets. She noted that the shock to confidence may weigh on 

credit conditions, and she said that the Federal Reserve was closely monitoring developments. 

Ms. Klee stated that market participants contacted by the Federal Reserve were focused on 

inflation and tighter monetary policy. She noted that respondents surveyed after the failure of 

SVB cited banking-sector concerns, particularly the potential interaction with commercial real 
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estate. She said that respondents also cited geopolitical risks, particularly tensions between the 

United States and China. 

Ms. Klee said that valuation pressures in corporate markets had risen slightly and that market 

liquidity had been strained in some markets in March. She said that while commercial real estate 

prices had fallen slightly, valuations still remained high. She noted that while rising borrowing 

costs had contributed to a deceleration in house price increases, house price valuations remained 

near historical highs. She stated that business and household debt had grown more slowly than 

nominal gross domestic product, and that measures of business leverage remained high. She said 

that while household balance sheets remained strong, consumer debt delinquency rates had 

increased. She noted that credit card debt, after slowing appreciably during the pandemic, had

increased at a double-digit pace.

Ms. Klee stated that between 2020 and 2021, banks had experienced deposit inflows of $4.7 

trillion, nearly $3 trillion of which were uninsured, and had increased their securities holdings by 

$2.3 trillion. She said that as interest rates rose in 2022, banks’ fair-value losses on fixed-rate 

assets increased. She said that the May FSR described significant events in the banking sector in 

March 2023, when poor management of interest rate and liquidity risks led to the failures of SVB 

and Signature Bank and to official interventions. She said that immediately following the bank 

failures, mid-sized and regional domestic banks experienced deposit outflows, while U.S. global 

systemically important banks experienced inflows. She said that in recent months, investors 

remained concerned about regional banks. She noted that bank deposit rates had been rising, 

including for retail deposits. She said that other types of borrowing had expanded, reflecting 

increased reliance on Federal Home Loan Bank advances, the discount window, and the Federal 

Reserve’s Bank Term Funding Program. She said that while risk-based capital ratios for the U.S. 

global systemically important banks remained high, other measures were mixed.

Ms. Klee stated that hedge fund leverage continued to be elevated, particularly for the largest 

hedge funds. She noted that private credit funds had experienced substantial growth, and she 

said that prime money market mutual funds (MMFs) remained vulnerable. She said that as 

short-term rates continued to increase, assets under management in prime MMFs had increased 

by $220 billion, or 44 percent. She said that MMFs experienced risk-off flows following the 

failures of SVB and Signature Bank, with government MMFs experiencing inflows and prime 

MMFs experiencing a short-lived increase in redemptions. She noted that bond and loan mutual 

funds remained exposed to liquidity risks and had experienced a sharp drop in assets under 

management in 2022. 

Mr. Bowman then provided an update on the transition from U.S. dollar LIBOR on June 30, 

2023. He said that, following coordinated efforts to prepare for the transition from LIBOR, the 

financial stability risks around the LIBOR transition had been addressed. He stated that while it 

was unlikely that there would be major disruptions associated with the June 30 transition, smaller 

disruptions could arise if a large number of LIBOR-based financial instruments did not 

communicate rate changes; a significant number of borrowers whose LIBOR-based loans had not 

been remediated were dissatisfied with the process or the outcomes; a significant number of 

clients were surprised to learn that their bilaterally cleared U.S. derivatives contracts transitioned 

to the overnight Secured Overnight Financing Rate (SOFR) while cash products transitioned to 
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Term SOFR and that they must take active steps if they wish to re-hedge; a significant number of 

end users had not established the legal fallbacks to their contracts or a significant number of legal 

challenges to implemented fallbacks arose; or contracts referencing LIBOR-based rates were

forced to rely on dealer polling as a fallback mechanism. 

Council members then had a discussion regarding bank demand for bank deposits, demand for 

bank loans, and the LIBOR transition.

2. Commercial Real Estate Developments

The Chairperson then turned to the second agenda item, a presentation on developments in the 

commercial real estate (CRE) market. She introduced Camille Schmidt, Chief of Risk Insights 

and Analytics at the FDIC, and David Bates, Director for Commercial Credit Risk Policy at the 

OCC.

Ms. Schmidt discussed how developments in CRE were impacting depository institutions. She 

said that banks serve an important role in providing loans for CRE, and she noted that bank-held 

CRE had consistently increased in recent years, with non-farm, non-residential CRE representing 

the largest portion. She said that a growing number of banks, most of which have under $10 

billion in assets, have CRE concentrations. She noted that a large number of banks with less 

than $10 billion in assets hold CRE assets totaling over 300 percent of their tier 1 capital. She 

noted, however, that asset quality metrics remained relatively stable. 

Ms. Schmidt stated that the banking industry was preparing for potential challenges related to 

CRE. She noted that the vacancy rate for office and multifamily properties was rising. She said 

that these factors could present risks during the refinancing process. She said that vacancy rates 

were also high in some multifamily markets. She said that the retail and industrial sectors had

more modest vacancy rates generally, with some exceptions, such as shopping malls. She stated 

that CRE merits ongoing supervisory attention. She noted that bank examinations prioritize the 

highest risks, often focusing on CRE for banks with CRE concentrations. She described the 

FDIC’s examination methodologies, including various monitoring efforts. She noted that when 

issues are discovered, they may lead to supervisory recommendations or matters requiring board 

attention. She noted that FDIC subject matter experts monitor and report on CRE and that the 

FDIC would continue to monitor CRE.

Mr. Bates focused his remarks on the CRE exposures of the 32 banking institutions with over 

$100 billion in assets. He said that the CRE category of most significant concern was office, 

which comprises 19 percent of CRE holdings for banks with over $100 billion in assets. He said 

that while there had been an increase in multifamily loans being classified (i.e., assets that are 

exposures rated substandard, doubtful, or loss), this sector was nonetheless supported by

continuing demand. He said that additional potentially related exposures on bank balance sheets 

included $144 billion of collateralized loan obligations, $216 billion of guaranteed commercial 

mortgage-backed securities, and $44 billion of non-guaranteed commercial mortgage-backed 

securities. 
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Discussing portfolio performance, Mr. Bates stated that there had been an increase in 

nonperforming loans, largely due to office properties. He said that loan-to-value ratios for office 

properties were generally 45 to 50 percent, leaving excess collateral and margin in the event of

devaluations. He said that bank portfolios nonetheless merit further monitoring. He noted that,

among banks with over $100 billion in assets, CRE concentrations were generally smaller in the 

larger banks within this group. Discussing CRE risk indicators, he said that there had been an 

increase in classified office commitments. He said that of the office properties maturing in the 

medium term, office vacancies were most significant in larger urban and metropolitan areas. 

Mr. Bates then described certain supervisory actions that the OCC was undertaking with respect 

to CRE for banks with over $100 billion in total assets, including ad hoc reviews of risk ratings, 

collateral valuation practices, credit risk reviews, stress testing, problem loan workouts, and 

concentrations. He concluded by discussing recently issued OCC examiner guidance, including 

several OCC bulletins. 

Following the presentation, the Chairperson noted that in the Council’s 2022 annual report, the 

Council had recommended that supervisors and financial institutions continue to monitor CRE 

exposures and ensure the adequacy of credit loss allowances. She said that, consistent with this 

recommendation, she supported the Federal Reserve’s statement in the May FSR that it had 

increased monitoring of the performance of CRE loans and expanded examination procedures for 

banks with significant CRE concentration risks.

Council members then had a discussion regarding concentrations of CRE in smaller banks,

federal banking agencies’ supervision and monitoring of banks with CRE exposures, and risks in 

the multifamily market.

3. Developments in the Banking Sector

The Chairperson then introduced the next agenda item, an update on developments in the 

banking sector.

The Chairperson stated that the banking sector was sound and resilient, although she noted that

some institutions had continued to come under pressure. She said that it would be important for 

the Council, while monitoring these risks, to also consider the causes of the bank failures that 

had occurred in 2023 and how the Council can apply the lessons learned. She commended the

banking regulators for their efforts and said that she looked forward to continued progress. She 

then asked the federal banking regulators to share their perspectives on recent developments and 

on how to strengthen the system. She introduced Michael Barr, Vice Chair for Supervision at the

Federal Reserve, to offer remarks.

Mr. Barr stated that overall, the banking sector was sound and resilient. He then described 

potential risks on the horizon. He noted that increased deposit rates were leading to compression 

in banks’ net interest margins. He also noted risks related to CRE, particularly the office and 

hotel sectors. He said that the market would be attentive to bank earnings to be announced in 

July, including with respect to deposit stability and profitability. He also cited impacts of the 

real economy on banks, particularly credit tightening. He noted that the Federal Reserve and the 
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FDIC had issued reports on SVB and Signature Bank, respectively, and he said that the Federal 

Reserve was committed to addressing the weaknesses identified in its report. He said that the 

Federal Reserve was also assessing the regulatory framework. He said that recent events had 

shown that previous estimates regarding the probability of default were incorrect and that 

estimates of losses given default did not account for contagion risks. He said the Federal 

Reserve, the FDIC, and the OCC were working to finalize the Basel III capital regulations.

The Chairperson then turned to Martin Gruenberg, Chairman of the FDIC. Chairman Gruenberg

said that stabilization had occurred in the banking sector following the failure of First Republic

Bank. He noted, however, that risks remained, including rising interest rates, a slowing 

economy, concentrations of uninsured deposits and unrealized losses, and CRE exposures. He 

said that regulators must continue to monitor these risks. With respect to regulatory issues, he 

noted that the banking agencies were working on finalizing the Basel III capital regulations and 

that the FDIC would seek to establish a long-term debt requirement for more banks. He also said

that uninsured deposits require supervisory attention.

Council members then had a discussion about the need to remain vigilant regarding potential 

risks; federal regulators’ monitoring of firms within their respective jurisdictions; and flows in 

bank deposits and money market mutual funds in the first quarter of 2023. 

4. Resolution Approving the Minutes of the Meeting Held on April 21, 2023

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

attached hereto of the meeting held on April 21, 2023 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.

5. Other Business

Sandra Lee, Deputy Assistant Secretary for the Council at Treasury, briefly described several 

current efforts of Council Secretariat staff. She said that staff would provide an update on the 

work of the Council’s staff-level Nonbank Mortgage Servicing Task Force at the next Council 

meeting. She said that staff also expected to update the Council soon on ongoing efforts 

regarding climate-related financial risks. Finally, she noted that the Council had received 

requests from stakeholders to extend by 30 days the public comment periods for the Council’s 

proposed financial stability risk monitoring framework and its proposed interpretive guidance on 

nonbank financial company designations. The Council will extend the comment periods on the 

two proposals.

The Chairperson adjourned the meeting at approximately 2:29 P.M.