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Minutes of the Financial Stability Oversight Council

Held January 28, 2016

PRESENT: 

Jacob J. Lew, Secretary of the Treasury and Chairperson of the Financial Stability Oversight 

Council (Council)

Janet Yellen, Chair, Board of Governors of the Federal Reserve System (Federal Reserve) 

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

Mary Jo White, Chair, Securities and Exchange Commission (SEC)

Timothy Massad, Chairman, Commodity Futures Trading Commission (CFTC) 

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

Melvin Watt, Director, Federal Housing Finance Agency (FHFA)

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

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

Roy Woodall, Independent Member with Insurance Expertise 

Richard Berner, Director, Office of Financial Research (OFR), Department of the Treasury 

(nonvoting member) 

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) 

Adam Hamm, Commissioner, North Dakota Insurance Department (non-voting member) 

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

Division (non-voting member)

GUESTS: 

Department of the Treasury (Treasury)

Sarah Bloom Raskin, Deputy Secretary of the Treasury 

Antonio Weiss, Counselor to the Secretary

Patrick Pinschmidt, Deputy Assistant Secretary and Executive Director of the Council

Eric Froman, Deputy Assistant General Counsel for the Council 

Mark Kaufman, Counselor to the Deputy Secretary

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, Special Advisor to the Chairman for Supervisory Matters

Securities and Exchange Commission

Michael Liftik, Deputy Chief of Staff

Commodity Futures Trading Commission
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Lawranne Stewart, Special Counsel

Consumer Financial Protection Bureau

Ron Borzekowski, Assistant Director for Research 

Federal Housing Finance Agency

Sandra Thompson, Deputy Director, Division of Housing Mission and Goals

Comptroller of the Currency

Jennifer Kelly, Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank 

Examiner

National Credit Union Administration

Ralph Monaco, Chief Economist

Office of the Independent Member with Insurance Expertise

Diane Fraser, Senior Policy Advisor

Office of Financial Research

Stacey Schreft, Deputy Director for Research and Analysis

Federal Insurance Office

Steven Seitz, Deputy Director (Financial Stability)

Louisiana Office of Financial Institutions

Jim Cooper, Senior Vice President for Policy, Conference of State Bank Supervisors

North Dakota Insurance Department

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

Insurance Commissioners

Maryland Office of the Attorney General, Securities Division

Christopher Staley, Counsel, North American Securities Administrators Association

PRESENTERS:

Update on Market Developments

• Simon Potter, Executive Vice President, Markets Group, Federal Reserve Bank of New 

York (via telephone)

• Robert Dohner, Deputy Assistant Secretary for International Economic Analysis and 

Senior Advisor for Asia, Treasury

2016 Annual Report

• Trent Reasons, Director of Analysis, Treasury

• Erik Heitfield, Assistant Director, Research and Statistics, Federal Reserve
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Update on Review of Asset Management Products and Activities

• Patrick Pinschmidt, Deputy Assistant Secretary and Executive Director of the Council, 

Treasury

• Charles Cohen, Deputy Director of Analysis, Treasury 

• Stephen Ledbetter, Director of Policy, Treasury

• Buddy Donohue, Chief of Staff, SEC (available for questions)

• Lyndsay Huot, Deputy Director of Policy, Treasury (available for questions)

• Dave Johnson, Senior Researcher, OFR (available for questions)

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

Reserve (available for questions)

• Jake Liebschutz, Director, Office of Capital Markets, Treasury (available for questions)

• Anjan Mukherjee, Deputy Assistant Secretary for Financial Institutions, Treasury 

(available for questions)

• Trent Reasons, Director of Analysis, Treasury (available for questions)

• Penelope Saltzman, Senior Special Counsel, Division of Investment Management, SEC 

(available for questions)

Executive Session

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

approximately 4:04 P.M. (EST). He outlined the meeting agenda, which had previously been 

distributed to the members together with copies of the resolution and other materials. The 

agenda for the meeting included the following subjects: (1) an update on market developments; 

(2) the Council’s 2016 annual report; (3) an update on the Council’s review of asset management

products and activities; and (4) consideration of, and a vote on, a resolution approving the 

minutes of the Council’s meeting on December 17, 2015.

1. Update on Market Developments

The Chairperson introduced the first agenda item and turned to Simon Potter, Executive Vice 

President of the Markets Group at the Federal Reserve Bank of New York, who presented an 

update on recent market developments. Mr. Potter described asset price changes since the start 

of 2016, noting that factors affecting markets included economic and financial stability in China

and declines in oil and commodity prices. He noted that there had been substantial movement in 

equity market prices and described recent movements in metrics including exchange rates, 

interest rates, and credit-default swap spreads for banks and high-yield issuers. The Chairperson 

then introduced Robert Dohner, Deputy Assistant Secretary for International Economic Analysis 

and Senior Advisor for Asia at Treasury, to present on international market developments. Mr. 

Dohner described recent global market volatility and noted concerns about slowing global 

growth. He noted that while lower oil prices are a net economic positive for the United States, 

there were negative impacts on oil producers, oil-producing countries, and concentrated impacts 

on firms in the oil sector, including in the United States. He explained that fluctuations in 

Chinese stock markets had relatively little direct effects on other economies, and he described 

actions the Chinese government has taken with respect to renminbi exchange rates that had 

fundamentally changed expectations for the currency and precipitated large capital outflows. 

Following the presentations, members of the Council asked questions and had a discussion, 
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including regarding regulators’ efforts to monitor financial institutions’ exposures to oil and 

commodity price volatility. Council members noted that the exposures of large U.S. financial 

institutions with respect to recent market volatility generally appeared to be limited and that 

these developments had not impaired market functioning.

2. 2016 Annual Report

The Chairperson introduced Trent Reasons, Director of Analysis at Treasury, and Erik Heitfield, 

Assistant Director for Research and Statistics at the Federal Reserve, to present on the next 

agenda item, the Council’s 2016 annual report. Mr. Reasons described potential themes that 

could be included in the report and noted that the report was expected to be published in the 

spring. He also explained that staff were working to prioritize risk topics that may be addressed 

in the report as recommendations or as potential emerging threats to financial stability. He noted 

that the prioritization may include condensing, modifying, or removing some recommendations 

or potential emerging threats to financial stability included in previous annual reports in cases 

where there had been either a significant reduction in their likelihood or severity or a significant 

increase in resiliency or preparedness. Members of the Council then asked questions and had a 

discussion, including regarding potential topics to be considered in the report and the importance 

of continuing efforts to implement recommendations made in the Council’s 2015 annual report. 

Mr. Heitfield noted that the report will discuss progress that has been made in various areas of 

financial regulatory reform.

3. Update on Review of Asset Management Products and Activities

The Chairperson then introduced the next agenda item, an update on the staff evaluation of 

potential risks to financial stability arising from asset management products and activities. He 

noted that the purpose of this discussion was to discuss staff’s assessments of potential risks to 

financial stability and to provide feedback on those assessments. He said that the Council should 

seek to issue a public statement in the spring providing a progress update on these efforts. He 

also acknowledged the proposed rules the SEC had recently issued related to asset management. 

The Chairperson then introduced Patrick Pinschmidt, Deputy Assistant Secretary and Executive 

Director of the Council at Treasury, and noted that staff from several agencies were available in 

the room to answer questions that arose.

Mr. Pinschmidt noted that staff had worked on an interagency basis to evaluate potential risks to 

financial stability from asset management products and activities. He explained that in recent 

months the analysis was organized into six categories: liquidity and redemption risk; leverage; 

securities lending; data and disclosure; operational risks of service provider concentrations; and 

resolvability and transition planning. He noted that the mandate for staff in each of the six areas 

was to evaluate potential risks; examine potential mitigants, including existing or proposed 

regulations; and identify any potential risks to financial stability. He explained that staff had 

prioritized the analyses of liquidity and redemption risk and leverage, although work was also 

continuing in the other areas.

Mr. Pinschmidt then introduced Charles Cohen, Deputy Director of Analysis at Treasury. Mr. 

Cohen presented on the interagency staff’s analysis of potential liquidity and redemption risks 
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arising from asset management products and activities. He discussed factors that could affect the 

materiality of these risks. He also described proposed rules regarding fund liquidity risk 

management that the SEC had issued for public comment. The Council then asked questions and 

had a discussion regarding potential liquidity and redemption risks, including risks from funds 

holding less-liquid assets and potential mitigants to liquidity and redemption risks. It was also 

noted that the Council’s focus is on potential risks to financial stability, rather than the potential 

for investor losses.

The Chairperson then introduced Stephen Ledbetter, Director of Policy at Treasury. Mr. 

Ledbetter presented on the interagency staff analysis regarding potential risks to financial 

stability arising from leverage at investment vehicles. He noted that the evaluation was 

addressing the ways in which leverage could increase the potential for forced asset sales or 

expose counterparties to losses. He described differences in the nature and extent of leverage 

obtained by various types of investment vehicles. He noted that the SEC had issued proposed 

rules for public comment that would limit the use of derivatives by registered funds. He also 

noted that hedge funds are not subject to regulatory leverage limits. The Council then asked 

questions and had a discussion, including regarding the extent of risks arising from funds’ 

derivatives activities and ongoing efforts to conduct further analysis. Following the discussion 

regarding potential risks related to leverage, Mr. Pinschmidt explained that staff had also 

analyzed potential risks arising from securities lending, service provider concentrations, and 

resolvability and transition planning. 

4. Resolution Approving the Minutes of the Meeting held on December 17, 2015 

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

minutes attached hereto of the meeting held on December 17, 2015 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 without objection.

The Chairperson adjourned the meeting at approximately 6:15 P.M. (EST).