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Minutes of the Financial Stability Oversight Council

November 7, 2019

PRESENT: 

Steven T. Mnuchin, Secretary of the Treasury and Chairperson of the Financial Stability 

Oversight Council (Council)

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

Reserve) 

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

Heath P. Tarbert, Chairman, Commodity Futures Trading Commission (CFTC)

Kathleen Kraninger, Director, Consumer Financial Protection Bureau (CFPB)

Mark Calabria, Director, Federal Housing Finance Agency (FHFA)

Joseph Otting, Comptroller of the Currency, Office of the Comptroller of the Currency (OCC)

Rodney Hood, 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) (by telephone)

GUESTS: 

Department of the Treasury (Treasury)

Justin Muzinich, Deputy Secretary of the Treasury

Brian Callanan, General Counsel

Brian Morrissey, Deputy General Counsel

Bimal Patel, Assistant Secretary for Financial Institutions

Howard Adler, Deputy Assistant Secretary for the Council

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

Michael Gibson, Director, Division of Supervision and Regulation

Federal Deposit Insurance Corporation

Travis Hill, Deputy to the Chairman for Policy
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Securities and Exchange Commission

Jeffrey Dinwoodie, Chief Counsel and Senior Policy Advisor for Market and Activities-Based 

Risk

Commodity Futures Trading Commission

Jaime Klima, Chief of Staff

Consumer Financial Protection Bureau

Christopher Mufarrige, Senior Advisor

Federal Housing Finance Agency

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

Comptroller of the Currency

Steven Key, Associate Deputy Comptroller for Bank Supervision Policy

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 (by telephone)

Office of Financial Research

Stacey Schreft, Deputy Director for Research and Analysis 

Federal Insurance Office

Kevin Meehan, Senior Insurance Regulatory Policy Analyst

Texas Department of Banking

Michael Townsley, Policy Counsel, Conference of State Bank Supervisors (CSBS)

Maine Bureau of Insurance

Mark Sagat, Assistant Director, Financial Policy and Legislation, National Association of 

Insurance Commissioners

Maryland Office of the Attorney General, Securities Division

Kameron Hillstrom, Counsel, North American Securities Administrators Association

PRESENTERS:

Proposed Interpretive Guidance on Nonbank Financial Company Designations

• Howard Adler, Deputy Assistant Secretary for the Council, Treasury
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• Stephen Ledbetter, Director of Policy, Office of the Financial Stability Oversight 

Council, and Executive Director of the Council, Treasury (available for questions) 

• Eric Froman, Assistant General Counsel (Banking and Finance), Treasury (available for 

questions)

Cloud Service Providers

• Ray Diggs, Deputy Associate Director for Risk, Federal Reserve

• Kevin Greenfield, Director for Bank Information Technology, OCC

• Martin Henning, Deputy Director, Operational Risk, FDIC 

• Brian Callanan, General Counsel, Treasury

• Edward Kraus, Senior Financial Policy Analyst, Federal Reserve (available for 

questions)

• Neha Contractor, Manager, Federal Reserve (available for questions)

Current Expected Credit Losses (CECL)

• Sydney Menefee, Deputy Comptroller and Chief Accountant, OCC

• Ben Ranish, Senior Economist, Federal Reserve 

• Robert Storch, Chief Accountant, FDIC

• Sarah Chae, Senior Accounting Policy Analyst, Federal Reserve (available for questions)

2019 Annual Report

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

Council, and Executive Director of the Council, Treasury 

• James Bohn, Senior Professional, Federal Reserve Bank of Boston

Executive Session

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

approximately 3:33 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 of the 

meeting included (1) the Council’s proposed interpretive guidance on nonbank financial 

company designations; (2) cloud service providers; (3) the current expected credit losses 

accounting methodology; (4) the Council’s 2019 annual report; (5) a vote on approving the 

appointment of the Executive Director of the Council; and (6) a vote on the minutes of the 

Council’s meeting on September 4, 2019.

1. Proposed Interpretive Guidance on Nonbank Financial Company Designations

The Chairperson then introduced the first agenda item, a presentation on the Council’s proposed 

interpretive guidance on nonbank financial company designations under section 113 of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Council 

approved the proposed interpretive guidance on March 6, 2019. The Chairperson turned to 

Howard Adler, Deputy Assistant Secretary for the Council at Treasury, for the presentation.
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Mr. Adler explained that staff were working to finalize the interpretive guidance. He described 

the primary changes to the proposal in the current draft of the final interpretive guidance. In 

particular, he described revisions in the current draft of the final interpretive guidance related to 

the Council’s analysis and procedures in the proposed activities-based approach and in its 

evaluation of nonbank financial companies for potential designation under section 113 of the 

Dodd-Frank Act.

2. Cloud Service Providers

The Chairperson then introduced the next agenda item, financial institutions’ use of cloud service 

providers. He stated that he had received a number of questions about potential risks posed by 

financial institutions’ use of third-party cloud service providers. He noted that some commenters 

had recommended that the Council consider designating certain cloud service providers as 

systemically important financial market utilities (FMUs). Before turning to the presentation, the 

Chairperson asked Brian Callanan, General Counsel at Treasury, to provide an analysis of the 

Council’s authorities and whether cloud service providers are FMUs.

Mr. Callanan began by explaining that section 804 of the Dodd-Frank Act gives the Council the 

authority to designate any FMU that it determines is, or is likely to become, systemically 

important. He explained the statutory definition of “financial market utility,” which 

encompasses any person that manages or operates a multilateral system for the purpose of 

transferring, clearing, or settling payments, securities, or other financial transactions among 

financial institutions or between financial institutions and the person. He then described his 

analysis of cloud service providers under this definition. He concluded that while new cloud 

service provider business models could emerge over time, no cloud service provider had been 

identified that would currently qualify as an FMU under the plain meaning of the statute.

The Chairperson then introduced Ray Diggs, Deputy Associate Director for Risk at the Federal 

Reserve, and Kevin Greenfield, Director for Bank Information Technology at the OCC, for the 

presentation.

Mr. Greenfield began by describing banks’ current usage of cloud service providers. He noted 

that a limited number of banks had moved critical services to the cloud, but that there was wider 

adoption of cloud-based services for less-critical functions, such as document archiving and 

human resources systems. He then described several different types of cloud deployments and 

cloud service models. He noted that his presentation was focused on public cloud environments, 

in which computing resources are available in a shared environment, accessible by multiple 

customers of the cloud service provider.

Mr. Greenfield then described banking agencies’ authorities for oversight of public cloud service 

providers. He noted that under the Bank Service Company Act, federal banking regulators can 

examine the performance of covered services provided by third parties to the same extent as if 

such services were performed by the serviced financial institution. He explained that in 

supervising banks’ critical service providers, regulators consider the types of services provided; 

the services’ criticality to the banks; the number of banks being serviced; and the size of those 

banks. He explained that the banking agencies’ interagency supervision program for technology 
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service providers has been in place for over 30 years. He noted that this oversight, including onsite examinations, supports regulators’ mission of bank supervision and safety and soundness.

Members of the Council then asked questions and had a discussion, including regarding banks’ 

adoption of public cloud services and banking agencies’ authorities to supervise and examine 

cloud service providers.

3. Current Expected Credit Losses

The Chairperson then introduced the next agenda item, the current expected credit losses (CECL) 

accounting methodology. He stated that the Council had discussed this issue at its meeting in 

December 2018. The Chairperson noted that he had recently received a letter from members of 

Congress regarding CECL. He then introduced Sydney Menefee, Deputy Comptroller and Chief 

Accountant at the OCC; Ben Ranish, Senior Economist at the Federal Reserve; and Robert 

Storch, Chief Accountant at the FDIC, for the presentation.

Ms. Menefee began by stating that she would provide an update on the transition to CECL. She 

stated that CECL was an accounting change from an incurred-loss methodology to an expectedloss methodology. She noted that the incurred-loss methodology, which requires firms to 

recognize credit losses when losses are probable, had been criticized as resulting in loan losses 

that were “too little, too late.” She stated that CECL, in contrast, requires entities to recognize 

expected credit losses. She noted that the Financial Accounting Standards Board (FASB) had 

issued CECL in 2016 after eight years of deliberations. She explained that CECL applies to all 

entities, regardless of their size or industry. She stated that most SEC registrants must adopt 

CECL in 2020, and that most others will adopt CECL in 2023. She also noted that the banking 

agencies were allowing a transition period to phase in CECL’s day-one effect on regulatory 

capital at banking organizations. She then noted that, based on certain banks’ recent public 

disclosures, the impact of CECL on those firms’ allowances would range from an increase of 115 

percent to a decrease of 14 percent. She stated that none of those firms would be near their 

regulatory capital minimums due to the day-one impact of CECL. She also noted that legislation 

had been introduced in Congress to require further study of CECL before its implementation. 

She noted that Federal Reserve staff had conducted several studies of CECL.

Mr. Ranish then described research that had been conducted by economists, companies, and 

trade associations on the economic impact CECL will have. He stated that studies have found 

that CECL will generally accelerate loss provisioning, but that the studies disagree on the impact 

of the change because of their different assumptions regarding how lenders will react to CECL. 

He stated that CECL could have a procyclical or anticyclical impact, depending on how various 

factors trade off in practice and how CECL is implemented. He stated that for these reasons, 

conducting further new research may be of limited benefit. He noted that the banking agencies 

had adopted a three-year phase-in period for CECL’s impact on regulatory capital ratios and a 

two-year commitment to maintain the current modeling framework in the Federal Reserve’s 

stress tests.

Ms. Menefee then described CECL’s potential impact on access to credit. She stated that no 

banks had indicated that they were changing their lending mix due to CECL. She stated that she 
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expected the aggregate impact of CECL to be moderate, but that it could be significant at certain 

individual institutions. She then described the OCC’s assessments of CECL’s impact on 

individual OCC-regulated financial institutions.

Mr. Storch then noted that CECL allows companies to develop their own loss-estimation 

methods. He stated that community financial institutions will not need to engage in complex 

modeling or retain third-party service providers to apply CECL. He also noted that institutions 

other than SEC registrants have until 2023 to adopt CECL. He stated that regulators and the 

FASB are continuing their outreach to the public regarding CECL.

Members of the Council then asked questions and had a discussion. Among other issues, 

Council members discussed the estimated impact CECL will have on reserves at various 

financial institutions; types of financial products and financial institutions, including community 

banks, on which CECL will have a greater or lesser impact; CECL’s impact on banks’ earnings 

and capital; and consistency between CECL and the accounting methodology under the 

International Financial Reporting Standards.

The Chairperson asked the OFR to review existing research on CECL and to report back to the 

Council with a summary of that literature.

4. 2019 Annual Report

The Chairperson then introduced the next agenda item, the Council’s 2019 annual report. He 

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

Oversight Council and Executive Director of the Council at Treasury, and James Bohn, Senior 

Professional at the Federal Reserve Bank of Boston.

Mr. Ledbetter summarized the structure of the annual report, noting certain topics that would be 

addressed in the report as recommendations of the Council or as potential emerging threats and 

vulnerabilities. Mr. Bohn then noted several topics in the report. Mr. Ledbetter then described 

the timeline for completing the draft of the annual report and preparing it for approval by the 

Council.

5. Approval of Appointment of Council Executive Director

The Chairperson then introduced the next agenda item, the approval of the appointment of a new 

Executive Director of the Council. The Chairperson noted that the Council’s Executive Director 

serves as a principal advisor to Treasury officials on the work of the Council and the Council’s 

committees and coordinates with Council members and their staffs. He explained that the 

Executive Director also provides general leadership over the work of the Council and the 

Council’s committees in the absence of Treasury’s Deputy Assistant Secretary for the Council or 

during periods of transition.

The Chairperson presented to the Council the following resolution approving the appointment of 

Stephen Ledbetter as Executive Director of the Council. 
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WHEREAS, Section XXX.3 of the Rules of Organization of the Financial Stability Oversight 

Council (Bylaws) establishes the position of Executive Director of the Financial Stability

Oversight Council (Council), whose duties are to advise and assist the Council in carrying out 

its responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act, 

assist in providing general direction with respect to the administration of the Council’s actions, 

assist in directing the activities of staff, and perform such other duties as the Chairperson may 

require;

WHEREAS, Section XXX.3(a)(2)(A) of the Bylaws authorizes the Chairperson to designate an 

individual to serve as Executive Director of the Council, subject to the Council approving by a 

majority vote of the voting members then serving the appointment of an individual to serve as

Executive Director; and 

WHEREAS, in order to assist in the conduct of business by the Council, the Chairperson 

recommends that the Council approve the appointment of Stephen Ledbetter to serve as 

Executive Director of the Council.

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby approves the appointment of 

Stephen Ledbetter to serve as Executive Director of the Council, to serve until such time as he 

resigns or his appointment is terminated as Executive Director of the Council, he is no longer 

serving as an employee of the Department of the Treasury, or the Council approves the 

appointment of a new Executive Director of the Council, whichever occurs first. 

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

The Council approved the resolution by unanimous vote.

6. Resolution Approving the Minutes of the Meeting Held on September 4, 2019

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

minutes attached hereto of the meeting held on September 4, 2019 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 4:29 P.M.