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Minutes of the Financial Stability Oversight Council

September 25, 2020

PRESENT: 

Steven T. Mnuchin, 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) (by telephone)

Jay Clayton, Chairman, Securities and Exchange Commission (SEC) (by telephone)

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

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

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

Brian Brooks, Acting Comptroller of the Currency, Office of the Comptroller of the Currency

(OCC)

Rodney Hood, Chairman, National Credit Union Administration (NCUA) (by telephone)

Thomas E. Workman, Independent Member with Insurance Expertise (by telephone)

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

(non-voting member) (by telephone)

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

member) (by telephone)

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

telephone)

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

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

Division (non-voting member) (by telephone)

GUESTS: 

Department of the Treasury (Treasury)

Brian Callanan, General Counsel

Kipp Kranbuhl, Principal Deputy Assistant Secretary for Financial Markets

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

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
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Securities and Exchange Commission

Sumit Rajpal, Senior Policy Advisor

Commodity Futures Trading Commission

Jaime Klima, Chief of Staff and Chief Operating Officer

Consumer Financial Protection Bureau

Thomas Pahl, Policy Associate Director 

Federal Housing Finance Agency

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

John Roscoe, Chief of Staff, Office of the Director

Comptroller of the Currency

Blake Paulson, Senior Deputy Comptroller of the Currency and Chief Operating Officer

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 

Sandra Lee, Senior Vice President

Office of Financial Research

Alexander Pollock, Principal Deputy Director for Research and Analysis 

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

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 
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PRESENTERS:

Secondary Mortgage Market Activities

• Howard Adler, Deputy Assistant Secretary for the Council, Treasury

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

Council, and Executive Director of the Council, Treasury

• Adolfo Marzol, Principal Deputy Director, FHFA

• Gillian Burgess, Senior Counsel, Federal Reserve 

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

Treasury (available for questions)

Short-term Wholesale Funding Markets

• S.P. Kothari, Chief Economist and Director, Division of Economic and Risk Analysis, 

SEC

• Sumit Rajpal, Senior Policy Advisor, SEC

2020 Annual Report

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

Council, and Executive Director of the Council, Treasury

• Rajdeep Sengupta, Economist, Federal Reserve Bank of Kansas City (available for 

questions)

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

Council, Treasury (available for questions)

Fiscal Year 2021 Council Budget

• Howard Adler, Deputy Assistant Secretary for the Council, Treasury

Executive Session

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

approximately 10:32 A.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) secondary mortgage market activities, (2) short-term wholesale funding 

markets, and (3) the Council’s 2020 annual report.

1. Secondary Mortgage Market Activities

The Chairperson introduced the first agenda item, an update on the Council’s review of 

secondary mortgage market activities. The Chairperson introduced Stephen Ledbetter, Director 

of Policy in the Office of the Financial Stability Oversight Council at Treasury and Executive 

Director of the Council; Gillian Burgess, Senior Counsel at the Federal Reserve; and Adolfo 

Marzol, Principal Deputy Director at the FHFA.

Mr. Ledbetter began by stating that a working group including staff of the FHFA, the Federal 
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Reserve, and Treasury had conducted a review of activities associated with the provision of 

secondary mortgage market liquidity. He stated that the group’s work had focused on Fannie 

Mae and Freddie Mac (the Enterprises), which he noted facilitate the origination of nearly 50% 

of new single-family mortgages through their purchase of mortgages for securitization and sale 

as guaranteed mortgage-backed securities (MBS). He stated that in organizing its analysis, the 

working group had applied the framework for an activities-based approach described in the 

interpretive guidance issued by the Council in December 2019. He noted that an analysis under 

the Council’s framework focuses on four questions: (1) how the potential risk could be triggered;

(2) how the adverse effects of the potential risk could be transmitted to financial markets or 

market participants; (3) what impact the potential risk could have on the financial system; and 

(4) whether the adverse effects of the potential risk could impair the financial system in a manner 

that could harm the non-financial sector of the U.S. economy. Mr. Ledbetter stated that the 

analysis concluded that any distress at the Enterprises that affected their secondary mortgage 

market activities could pose a risk to financial stability, if risks are not properly mitigated.

Mr. Ledbetter then summarized the key risk mitigants that the working group had considered. 

He noted that a significant amount of the working group’s review was devoted to analysis of the 

capital rule for the Enterprises that the FHFA had recently reproposed. He described the various 

components of the FHFA’s proposed risk-based capital requirements, and he noted changes in 

the reproposal that made the requirements more closely resemble the structure of the banking 

capital framework. He stated that the working group’s assessment of the FHFA’s proposed 

capital rule focused on whether the rule was appropriately sized and structured for the risks and 

for the key role played by the Enterprises, and whether the rule would promote stability in the 

housing finance system.

Ms. Burgess then presented to the Council on the working group’s capital resiliency analysis. 

She described benchmarks for the level of capital that the Enterprises require, including an 

analysis of losses the Enterprises experienced during the financial crisis in 2008. She then 

compared the proposed capital rule to the bank capital framework. She noted that there are 

differences in the business models of the Enterprises and banking organizations that are relevant 

to capital requirements, but that the credit risks these entities take are similar. She explained 

certain similarities and differences between the proposed capital rule and bank capital 

requirements, including with respect to credit risk transfers (CRT) and risk weights applied to 

mortgage loans. She also described the components of the proposed capital requirements as they 

would apply to the Enterprises over time. Finally, she noted that the proposed capital rule would 

require high-quality capital.

Mr. Marzol then presented on the proposed capital rule and the FHFA’s regulatory framework. 

He began by addressing key elements of the structure and design of the proposed rule. He noted 

that model and measurement risks were inherent in any mortgage risk-sensitive framework, and 

that the proposed rule contained several elements intended to protect against model risk, 

including a 15 percent risk-weight floor for mortgage exposures and a 10 percent floor for 

retained credit-risk tranches, in addition to a risk-insensitive leverage requirement. He stated 

that in order to help address procyclicality, the risk-based capital component of the proposed rule 

would adjust home prices downward when they are more than 5 percent above the long-term 

trend or upward when they are more than 5 percent below the long-term trend. He then 
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addressed market discipline, stating that capital requirements that are too low could undermine 

market discipline and give the Enterprises a competitive advantage over banks and other market 

participants. He stated that the proposed capital rule contained elements intended to promote 

market discipline, including that it built off of the bank capital framework, which could facilitate 

market understanding about the quality and quantity of capital, and that it included a stability 

capital buffer, which he stated mitigated stability risk and could offset funding advantages. He 

also noted that the proposed rule included explicit capital charges for market risk and operational 

risk.

Mr. Marzol then addressed the extent to which the proposed rule would promote stability in the 

broader housing finance system. He stated that the proposed stability capital buffer was intended 

to address the risks that each Enterprise’s default or financial distress could pose to housing 

finance markets and to offset potential funding advantages. He described the differences 

between the proposed buffer and the capital surcharge applicable to global systemically 

important banks, noting that the proposed buffer was based on the Enterprises’ share of mortgage 

debt outstanding and was calculated based on adjusted total assets. He stated that the inclusion 

of the buffer was an important step for mitigating the risks the Enterprises pose to the broader 

system. He also noted that the proposed rule would not result in market participants having the 

same credit risk capital requirements for the same risk exposures, and that these differences 

could maintain concentration of risk with the Enterprises. In addition, he described the proposed 

rule’s treatment of CRT. He stated that the proposed rule would continue to award capital relief 

for CRT but that it sought to ensure that each Enterprise maintains appropriate regulatory capital 

for the retained CRT exposure. He noted that the proposed rule would generally reduce the 

amount of capital relief for CRT compared to the current Enterprise conservatorship capital 

framework.

Mr. Ledbetter then highlighted the working group’s key findings, as described in the written 

statement the Council was voting on during the open session of the meeting.

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

exposures of the Enterprises, the treatment of CRT under the proposed rule, and the importance 

of the Enterprises having sufficient and high-quality capital.

2. Short-term Wholesale Funding Markets

The Chairperson then introduced the next agenda item, short-term wholesale funding markets. 

He turned to S.P. Kothari, Chief Economist and Director of the Division of Economic and Risk 

Analysis at the SEC, and Sumit Rajpal, Senior Policy Advisor at the SEC. 

Mr. Kothari described a report by SEC staff regarding interconnectedness of U.S. credit markets, 

which was expected to be released shortly. He noted that the report also addressed the economic 

shock related to COVID-19. He stated that the report examined a number of financial markets, 

but that his presentation to the Council would focus on short-term funding markets. He stated 

that three categories of financial market stresses from COVID-19 were observed: short-term 

funding stresses, market structure or liquidity-driven stress, and long-term credit issues. He then 

provided an overview of short-term funding markets, which he stated comprised a complex 
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ecosystem with significant daily flows.

He then described particular sectors of the short-term funding market. First, he described the 

repurchase agreement (repo) market. He noted that U.S. Treasury securities were used as 

collateral in nearly half of all repo transactions, and that agency MBS were used in 

approximately one third. He stated that in March 2020, volatility in the repo market had led to 

price dislocations and increased volatility in the U.S. Treasury and MBS markets. He noted that 

the Federal Reserve’s purchases of Treasury securities and MBS had alleviated stress in these 

markets. He then described the commercial paper and certificate of deposit market. He stated 

that ordinarily, secondary trading is limited in these markets, but that in March 2020 there had 

been dislocations, and dealers had been constrained in supporting these markets. He noted that 

as a result, dealers had turned to other sources of funding, including revolving loan facilities. 

Mr. Kothari then described developments in March 2020 regarding money market mutual funds 

(MMFs). He stated that government MMFs had experienced material inflows while prime 

MMFs had seen material outflows. He noted that three prime MMFs had closed in 2020 so far. 

He then turned to securities lending markets, which he stated are connected with short-term 

funding markets because of the way that collateral received in securities lending transactions is 

invested. Specifically, he noted that in the U.S. markets, a large part of collateral is in the form 

of cash, which is reinvested in various money market instruments. He noted that the COVID-19 

shock had stressed the securities lending market. He then described the prime brokerage market, 

which includes financial institutions providing secured financing to hedge funds and other active 

capital markets participants. He noted that in connection with the market stresses of March 

2020, hedge funds had de-leveraged their portfolios, leading to an overall reduction in margin 

balances and reduced demand for securities on loan. Finally, he cited interconnections with 

short-term funding markets arising from bank lines of credit and derivatives. 

Mr. Kothari concluded by noting that the events related to the COVID-19 economic shock had 

led to a decline in business activity and spurred the demand for cash and safe assets, with effects 

on U.S. short-term funding markets. He noted that the Federal Reserve’s actions had injected 

liquidity into the market, restored investor confidence, lowered interest rates, and thus stabilized 

the market, but that predicting how credit markets would change because of the ongoing 

COVID-19 stress was challenging.

3. 2020 Annual Report

The Chairperson then introduced the next agenda item, the Council’s 2020 annual report, and 

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

Council at Treasury and Executive Director of the Council; Alexandra Somers, Senior Policy 

Advisor in the Office of the Financial Stability Oversight Council at Treasury; and Rajdeep 

Sengupta, Economist at the Federal Reserve Bank of Kansas City.

Mr. Ledbetter described the timeline and process for drafting the annual report. He also updated 

the Council regarding the topics, vulnerabilities, and recommendations in the current draft of the 

report.
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The Chairperson adjourned the executive session of the meeting at approximately 11:20 A.M.

Open Session

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

11:27 A.M.

The Chairperson outlined the agenda for the open session, which included (1) the Council’s 

review of secondary mortgage market activities and a vote on a public statement regarding this 

review, (2) a vote on the Council’s fiscal year 2021 budget, and (3) a vote on the minutes of the 

Council’s meeting on July 14, 2020.

1. Secondary Mortgage Market Activities

The Chairperson turned to the first agenda item, the Council’s review of and public statement 

regarding secondary mortgage market activities. The Chairperson noted that in December 2019, 

the Council had adopted interpretive guidance that provides for an activities-based approach for 

identifying and responding to potential risks to U.S. financial stability. He stated that the

Council had implemented the framework under that guidance with an analysis of potential risks 

arising from secondary mortgage market activities, particularly involving the activities of the 

Enterprises. The Chairperson stated that this effort showed the benefits of collaboration and 

information-sharing across the Council member agencies. He then introduced Howard Adler, 

Deputy Assistant Secretary for the Council at Treasury, to provide an overview of the Council’s 

review and the public statement regarding secondary mortgage market activities.

Mr. Adler stated that at the previous Council meeting, Secretary Mnuchin had requested the 

formation of a working group composed of staff from Treasury, the Federal Reserve, and the 

FHFA to assess potential risks related to the provision of secondary mortgage market liquidity. 

He noted that the working group’s review focused in particular on the activities of the 

Enterprises as the dominant private secondary market providers of liquidity, through their 

purchase of mortgages for securitization and sale as guaranteed MBS. Mr. Adler stated that the 

working group had assessed potential financial stability risks in the secondary market, as well as 

whether those risks are appropriately addressed by market and regulatory mitigants. 

Mr. Adler stated that in assessing potential risks to financial stability, the working group applied 

the framework for an activities-based approach described in the interpretive guidance on 

nonbank financial company determinations issued by the Council in December 2019. He noted 

that the working group had been asked to prepare a statement summarizing its conclusions. Mr. 

Adler stated he would summarize the statement. 

Mr. Adler noted that, according to the statement, the 2008 financial crisis demonstrated that 

financial stress at the Enterprises could limit their ability to provide reliable liquidity in the 

secondary market or perform their guarantee and other obligations on their MBS and other 

liabilities, with significant implications for the national housing finance markets, financial 

stability, and the broader economy. 
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Mr. Adler stated that the Enterprises continued to play a central role in the national housing 

finance markets—acquiring nearly 50% of newly originated mortgages in both single-family and 

multifamily markets—and were two of the largest U.S. financial institutions, with significant 

interconnectedness to financial markets and other financial institutions. He noted that if the 

Enterprises were unable to provide liquidity to the secondary market, other market participants 

may be unable to provide liquidity at the scale and pricing needed to ensure smooth market 

functioning and financial intermediation. 

Mr. Adler said that, as a result, the statement noted that any distress at the Enterprises that 

affected their secondary mortgage market activities, including their ability to perform on their 

guarantee and other obligations on their MBS and other liabilities, could pose a risk to financial 

stability, if risks were not properly mitigated. He noted that the FHFA had recently proposed a 

capital rule that was intended to enhance the quality and quantity of the Enterprises’ required 

capital, so as to ensure that each Enterprise would remain viable in a severe economic downturn,

and also to mitigate the potential risk to national housing finance markets posed by the 

Enterprises. Mr. Adler stated that the working group’s analysis of the extent to which the 

FHFA’s regulatory framework would adequately mitigate potential stability risks centered on 

FHFA’s proposed capital rule. 

Mr. Adler stated that the working group, in conducting its review, considered the following two 

questions, among others. Is the proposed capital rule appropriately sized and structured given 

the Enterprises’ risks and their key role in the housing finance system? Does the proposed 

capital rule promote stability in the broader housing finance system? Mr. Adler stated that the 

statement provided three key findings. 

First, Mr. Adler stated that the proposed rule included a risk-sensitive capital framework. He 

stated that it would require credit risk capital on mortgage exposures that, as of September 2019, 

would lead to a substantially lower risk-based capital requirement than the bank capital 

framework, and likely be lower than other credit providers across significant portions of the risk 

spectrum during much of the credit cycle. Mr. Adler stated that this would create an advantage 

that could maintain significant concentration of risks with the Enterprises. He noted that the

statement thus encouraged the FHFA and other regulatory agencies to coordinate and take other 

appropriate action to avoid market distortions that could increase risks to financial stability by 

generally taking consistent approaches to the capital requirements and other regulation of similar 

risks across market participants, consistent with the business models and missions of their 

regulated entities. 

Mr. Adler stated that the second finding related to capital buffers. He noted that the proposed 

rule included a stress capital buffer and a stability capital buffer. He stated that the inclusion of 

such capital buffers was an important step to mitigating the risks the Enterprises posed to the 

broader system. He stated that the calibration of the buffers in the proposed rule was based on 

total adjusted assets, not risk-weighted assets, and thus may be relatively risk-insensitive. For 

that reason, Mr. Adler stated that the statement encouraged the FHFA to consider the relative 

merits of alternative approaches for more dynamically calibrating the capital buffers. He said 

that the capital buffers should be tailored to mitigate the potential risks to financial stability and 
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otherwise ensure that the Enterprises have sufficient capital to absorb losses during periods of 

severe stress and remain viable going concerns, while balancing other policy objectives. 

Mr. Adler stated that the third finding related to total capital sufficiency. He said that the

proposed rule would increase the quality and quantity of capital that the Enterprises would be 

required to hold. He noted that significant high-quality capital would mitigate risks to financial 

stability by making it more likely that the Enterprises would be able to perform their 

countercyclical function and maintain market confidence as viable going concerns through the 

economic cycle. Mr. Adler stated that, similarly, a meaningful leverage ratio requirement that 

was a credible backstop to the risk-based requirements would address potential risks to financial 

stability. He stated that the proposed rule, by relying on definitions of regulatory capital that are 

similar to the U.S. banking framework, would ensure that high-quality capital is the predominant 

form of regulatory capital. Mr. Adler stated that, with respect to the quantity of regulatory 

capital, the working group considered the proposed capital requirements in light of a number of

relevant benchmarks, such as (1) losses during the 2008 financial crisis; (2) a comparison of the 

proposed capital requirements to those of other large, complex financial institutions, taking into 

account differences in business models and risk profiles; and (3) the capital requirements implied 

by a conservative mortgage stress test model. He noted that the statement concluded that the 

proposed rule required a meaningful amount of capital for the Enterprises and was a significant 

step towards ensuring that the Enterprises would be able to provide liquidity to the secondary 

mortgage market and satisfy their obligations in a period of severe stress. Mr. Adler stated that 

the working group’s analysis suggested that risk-based capital and leverage ratio requirements 

that were materially less than those contemplated by the proposed rule would likely not 

adequately mitigate the potential stability risk posed by the Enterprises. He noted, moreover, 

that it was possible that additional capital could be required for the Enterprises to remain viable 

concerns in the event of a severely adverse stress, particularly if the Enterprises’ asset quality 

were to deteriorate to levels comparable to the experience leading up to the 2008 financial crisis. 

Mr. Adler noted that the statement thus encouraged the FHFA to ensure high-quality capital by 

implementing regulatory capital definitions that were similar to those in the U.S. banking 

framework. He said the statement also encouraged the FHFA to require the Enterprises to be 

sufficiently capitalized to remain viable as going concerns during and after a severe economic 

downturn. 

Mr. Adler stated that FHFA was also implementing additional enhancements to the Enterprises’ 

regulatory framework that would help mitigate the potential risk to financial stability. He noted 

that these enhancements included efforts to strengthen Enterprise liquidity, stress testing, 

supervision, and resolution planning. 

He noted that the statement expressed support for the FHFA’s commitment to developing its 

broader prudential regulatory framework for the Enterprises, and indicated that the Council 

would continue to monitor the secondary mortgage market activities of the Enterprises and the 

FHFA’s implementation of the regulatory framework to ensure potential risks to financial 

stability are adequately addressed. Mr. Adler concluded by noting that, according to the 

statement, if the Council determined that such risks to financial stability were not adequately 

addressed by the FHFA’s capital and other regulatory requirements or other risk mitigants, the 
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Council may consider more formal recommendations or other actions, consistent with the 

Council’s December 2019 interpretive guidance.

The Chairperson called on other Council members to comment. 

Mark Calabria, Director of the FHFA, stated that he supported the Council’s public statement, 

which he said acknowledged that any distress affecting the secondary mortgage market activities 

of the Enterprises could pose risks to financial stability. He noted that the Council’s review 

focused on the extent to which the FHFA’s regulatory framework, particularly the re-proposed 

capital rule, would mitigate the potential stability risks posed by the Enterprises. He stated that 

the Council’s analysis affirmed that the capital rule was a necessary and significant step toward 

financial stability. Director Calabria stated that, as the Council’s review indicated, risk-based 

capital and leverage ratio requirements materially less than those in the proposed rule would 

likely not mitigate the potential stability risk posed by the Enterprises, and the review recognized 

that more capital may be necessary. He noted that the Council’s review recognized that the 

Enterprises’ risk-based capital requirements for mortgage exposure remained lower than those of 

other credit providers. Director Calabria thanked the Council for encouraging the FHFA and 

other regulators to continue working toward a level playing field for credit risk. He stated that 

the FHFA would consider the Council’s findings and recommendations as it finalized the capital 

rule in the coming months. He stated that the FHFA would also continue its work to strengthen 

the regulatory framework for the Enterprises, with the goal of responsibly ending the 

conservatorships. Director Calabria commended the Council for committing to monitor the 

activities of the Enterprises and the FHFA’s implementation of the regulatory framework so that 

the FHFA could ensure that potential risks to financial stability are adequately addressed. He 

stated that the FHFA recognized the seriousness of the stability risk posed by the Enterprises to 

the financial system and committed that the FHFA would ensure that that risk is mitigated. 

Jerome Powell, Chair of the Federal Reserve, stated that the statement addressed a crucial 

component of the financial system’s health. Chairman Powell stated that a robust, wellcapitalized, well-regulated housing finance system was vital to the stability of the financial 

system overall and to the long-run health of the U.S. economy. Chairman Powell stated that the 

housing finance system needed to provide mortgage credit in good times and bad to a broad 

range of creditworthy borrowers. He noted that to accomplish that goal, the Enterprises must 

have strong capital positions. Chairman Powell stated that the FHFA’s proposed capital rule was 

an improvement over the previous proposal in 2018, and that the Federal Reserve welcomed

higher capital levels and less procyclicality. He stated that any capital rule for the Enterprises

should be sensitive to Enterprise risk-taking and should ensure that the Enterprises retain enough 

capital to continue their critical role in times of economic stress or in the wake of a shock to the 

housing market. Chairman Powell stated that he looked forward to FHFA’s further development 

of a more robust prudential regulatory framework, including liquidity and stress-testing

requirements, supervision, and a resolution framework. He concluded by expressing his support 

for the Council’s statement. 

Jay Clayton, Chairman of the SEC, pledged the SEC’s support to developing more private 

funding in the mortgage market and the secondary mortgage market. He stated that the SEC is 

always conscious of investor protection and financial stability more generally. 
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Heath Tarbert, Chairman of the CFTC, noted his support for the Council’s review. He discussed 

the links between the 2008 financial crisis and the Enterprises, and subsequent legislative 

attempts to address the Enterprises. He stated that, in the absence of legislative action, the 

Council should address the potential systemic risks posed by the Enterprises. Chairman Tarbert 

noted that the Council’s statement acknowledged that any distress that affects the secondary 

market activities of the Enterprises could pose a risk to U.S. financial stability if not properly 

mitigated. He stated that the Council’s review was a necessary and important step in protecting 

American taxpayers from future bailouts and reforming the housing finance system. Chairman 

Tarbert commended the FHFA in its efforts to develop a robust regulatory framework tailored to 

the systemic risk posed by the Enterprises. He stated that the Council must continue to monitor 

the Enterprises’ activities and the FHFA’s implementation of the framework, which, so long as it 

continues to embody strong capital requirements, should lessen the need for the Council to 

consider taking more formal actions. 

Jelena McWilliams, Chairman of the FDIC, stated that one of the most important reforms 

implemented following the 2008 financial crisis was the substantial increase in the quantity and 

quality of loss-absorbing capital at the nation’s largest banks. She stated that robust capital 

standards help ensure that banks are more resilient and more capable of absorbing losses during 

times of stress. She noted that over the previous few months the financial system had seen the 

benefits of a well-capitalized banking system, as banks were able to serve as a source of strength 

during COVID-19-related economic stress. Chairman McWilliams noted that before the global 

financial crisis, the Enterprises were two of the largest, most highly leveraged financial 

companies in the world. She stated that since being placed into conservatorship in September 

2008, their role in the mortgage market has only grown. She noted that when the Enterprises are 

released from conservatorship, robust capital standards will be critical to help protect the 

mortgage markets and taxpayers during future housing market downturns. Chairman 

McWilliams stated that while the FHFA’s proposed capital requirements would still be 

substantially lower than bank capital requirements, the FHFA’s proposed capital rule represented

a dramatic improvement compared to the pre-crisis model. She noted that raising capital comes 

with a cost and that calibrating capital standards involves balancing competing goals. She 

concluded by expressing her support for the Council’s review and statement. 

Brian Brooks, Acting Comptroller of the Currency, stated that he supported the Council’s 

review. He stated that the Council’s recommendations strengthened the efforts already 

underway to strengthen risk management and prudential controls in the housing finance system. 

He noted that the OCC was also focused on the role of national banks and federal savings 

associations in that system. He stated that, consistent with the Council statement, the OCC 

looked to avoid market distortions and different approaches to regulation of similar risks across 

the system. He noted that the OCC sought to ensure that banks would continue to play a 

meaningful role in the provision of housing finance. He also noted that the OCC was evaluating

the provision of capital relief for CRT transactions in the banking sector. 

Kathleen Kraninger, Director of the CFPB, stated that she supported the Council statement. She 

noted that the Enterprises play a central role in the $11 trillion single-family mortgage market by 

providing liquidity needed by lenders to provide affordable housing options to consumers. 

Director Kraninger stated that financial stability and access to credit may be imperiled if the 
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Enterprises could not perform this role effectively. She stated that it was therefore critical that 

the Council take steps to mitigate this risk. She stated that the Council’s review supported the 

FHFA’s efforts to promote the safety and soundness of the Enterprises. Director Kraninger 

noted that the Enterprises were significantly undercapitalized in the lead-up to the 2008 

recession. She stated that this was largely due to the investor perception that there was an 

implicit government guarantee of the Enterprises that their competitors did not have. Director 

Kraninger stated that the Enterprises’ competitive advantage incentivized the Enterprises’ risktaking and growth, resulting in the market dominance that necessitated federal assistance when 

their solvency was at risk. She stated that, in considering the future of the Enterprises, regulators

needed to avoid policies that would provide incentives for the Enterprises to engage in such risktaking and that make consumers responsible for that risk-taking. Director Kraninger stated that 

the FHFA’s proposed capital framework was a significant step toward these goals. She noted 

that while higher capital requirements under the proposal may increase mortgage costs in the 

near term, they would help create a more competitive secondary mortgage market whereby 

private market participants would be able to compete with the Enterprises on a more level 

playing field. She discussed the positive impact of competition among firms, which she 

indicated should lead to lower mortgage rates for consumers over the longer term, and facilitate 

innovation to provide consumers with new financing options. 

Rodney Hood, Chairman of the NCUA, noted that the Council’s review marked the first formal 

use of the activities-based approach under the interpretive guidance adopted by the Council in 

December 2019. Chairman Hood stated that a well-functioning secondary mortgage market was 

essential for credit unions and their members. He stated that the credit union industry held 

roughly $500 billion in loans for residential properties for one to four families, or 44 percent of 

the industry’s $1.14 trillion in outstanding loans. Chairman Hood stated that although many 

credit unions held mortgage loans on their own books, those seeking to sell the loans would 

continue to have partners in the Enterprises due to the regulatory framework put in place by the 

FHFA. He concluded by stating that the NCUA intended to continue to monitor and safeguard 

this segment of the U.S. financial system to ensure sustainable home ownership. 

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

statement regarding secondary mortgage market activities:

WHEREAS, the Council’s duties under section 112 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act include monitoring the financial services marketplace in order to 

identify potential threats to U.S. financial stability; recommending to the Council member 

agencies general supervisory priorities and principles reflecting the outcome of discussions 

among the member agencies; identifying gaps in regulation that could pose risks to the financial 

stability of the United States; and making recommendations to primary financial regulatory 

agencies to apply new or heightened standards and safeguards for financial activities or 

practices that could create or increase risks of significant liquidity, credit, or other problems 

spreading among financial companies and markets; and

WHEREAS, on December 4, 2019, the Council approved interpretive guidance on nonbank 

financial company determinations, which sets forth an activities-based approach for identifying 

and addressing risks to financial stability; and 
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WHEREAS, the staffs of Council members and their agencies applied the activities-based 

approach to analyze potential risks to financial stability that may arise from the secondary 

mortgage market, with a focus on the activities of Fannie Mae and Freddie Mac; and

WHEREAS, the staffs of Council members and their agencies have prepared the “Financial 

Stability Oversight Council Statement on Activities-Based Review of Secondary Mortgage 

Market Activities” attached hereto (the “Statement”).

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby approves the Statement and 

authorizes the Chairperson, or his designee, to cause the Statement to be published 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, or his designee, deems 

appropriate. 

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 

Statement and to take such other actions and issue such other documents incidental and related 

to the foregoing as the Chairperson, or his designee, deems necessary or appropriate to fulfill 

the Council’s objectives in connection with its publication.

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

The Council approved the resolution by unanimous vote.

2. Fiscal Year 2021 Council Budget

The Chairperson then introduced the next agenda item, the Council’s fiscal year 2021 budget. 

He introduced Howard Adler, Deputy Assistant Secretary for the Council at Treasury, for a 

presentation regarding the Council’s budget. 

Mr. Adler stated that there are two main components to the Council budget. He noted that the

first consists of the expenses of the Council secretariat office at Treasury and the office of the 

Council’s independent member with insurance expertise. He stated that the second component is 

the reimbursement of implementation expenses of the FDIC related to certain resolutionplanning activities under Title II of the Dodd-Frank Act. Mr. Adler stated that the FDIC’s 

expenses had increased from approximately $2.99 million for fiscal year 2020 to approximately 

$4.45 million for fiscal year 2021, but that the 2020 expenses were abnormally low by historical 

measures. He stated that the FDIC’s 2021 expenses related to activities including developing 

various support agreements and engaging in extensive coordination with regulators in other 

countries with respect to a potential resolution under Title II of the Dodd-Frank Act.

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

budget for fiscal year 2021.

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

Council’s budget for fiscal year 2021 attached hereto is hereby approved. 

The Chairperson asked for a motion to approve the resolution, which was made and seconded. 
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The Council approved the resolution by unanimous vote.

3. Resolution Approving the Minutes of the Meeting Held on July 14, 2020

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

minutes attached hereto of the meeting held on July 14, 2020 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 11:55 A.M.