Contents iii

1 Member Statement ...................................................... 1

2 Executive Summary ..................................................... 3

3 Annual Report Recommendations..............................11

3.1 Reforms to Address Structural Vulnerabilities ........................................11

3.2 Heightened Risk Management and Supervisory Attention .....................13

3.3 Housing Finance Reforms .....................................................................16

3.4 Progress on Implementation and Coordination of Financial Reform .......19

4 Macroeconomic Environment.................................... 23

4.1 U.S. Economic Activity..........................................................................23

4.2 Private Nonfinancial Balance Sheets and Credit Flows ............................27

4.3 Government Sectors ............................................................................33

4.4 External Environment............................................................................37

5 Financial Developments............................................. 45

5.1 Major Financial Markets....................................................................... 45

BOX A: Impacts of Downgrade of U.S. Treasury Securities .................................46

BOX B: Greek Sovereign Debt Restructuring ......................................................48

BOX C: Recent Fiscal and Banking Developments in Spain .................................50

5.2 Bank Holding Companies and Depository Institutions ........................... 64

5.3 Other Financial Institutions....................................................................73

BOX D: MF Global Bankruptcy ............................................................................78

BOX E: Current Status of Remaining Stabilization Facilities Inaugurated 

During the Crisis.....................................................................................84

5.4 Financial Market Infrastructure ............................................................ 86

BOX F: Algorithmic and High-Frequency Trading .................................................88

Contents
iv 2012 FSOC // Annual Report

6 Regulatory Developments; Council Activities ........... 97

6.1 Safety and Soundness..........................................................................97

6.2 Financial Infrastructure, Markets, and Oversight..................................106

6.3 Consumer and Investor Protection....................................................... 113

6.4 Council Activities ................................................................................ 118

7 Potential Emerging Threats ..................................... 123

7.1 Framework: Threats as a Combination of Shocks and Vulnerabilities ...123

7.2 Areas of Heightened Uncertainty.........................................................124

7.3 Robustness of Financial Institutions and Markets ...............................127

7.4 Continuing Vulnerabilities in the Financial System................................130

BOX G: Ongoing Vulnerabilities in the Tri-Party Repo Market............................. 133

BOX H: Money Market Fund Responses to Euro Area Uncertainty .................... 134

Appendix A ................................................................... 145

Glossary ........................................................................ 189

Abbreviations................................................................ 199

Notes on the Data ......................................................... 207

List of Charts ................................................................ 209

Endnotes ....................................................................... 215