Minutes of the Financial Stability Oversight Council

February 10, 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)

Rohit Chopra, Director, Consumer Financial Protection Bureau (CFPB)

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

Jay Gallagher, Senior Deputy Comptroller for Supervision Risk and Analysis, Office of the 

Comptroller of the Currency (OCC) (acting pursuant to delegated authority)

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)

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

member)

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

member) 

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

Regulation (non-voting member)

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 

Board of Governors of the Federal Reserve System

Michael Barr, Vice Chair for Supervision

Andreas Lehnert, Director, Division of Financial Stability

Federal Deposit Insurance Corporation

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

Resolution
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Securities and Exchange Commission

Amanda Fischer, Chief of Staff

Commodity Futures Trading Commission

David Gillers, Chief of Staff

Consumer Financial Protection Bureau

Gregg Gelzinis, Advisor to the Director

Federal Housing Finance Agency

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

Comptroller of the Currency

Jonathan Fink, Associate Chief Counsel

National Credit Union Administration

Elizabeth Eurgubian, Director of External Affairs and Communications and Policy Advisor

Office of the Independent Member with Insurance Expertise

Charles Klingman, Senior Policy Advisor

Federal Reserve Bank of New York

John Williams, President

Richard Crump, Financial Research Advisor, Macrofinance Studies

Office of Financial Research

Sriram Rajan, Associate Director, Research and Analysis Center

Federal Insurance Office

Philip Goodman, Senior Insurance Regulatory Policy Analyst

New York 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

Maryland Office of the Attorney General, Securities Division

Vincente Martinez, General Counsel, North American Securities Administrators Association

PRESENTERS:

Update on Council Priorities

• Sandra Lee, Deputy Assistant Secretary for the Council, Treasury
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Report on Cloud Services Adoption in the Financial Sector

• Todd Conklin, Deputy Assistant Secretary for Cybersecurity and Critical Infrastructure 

Protection, Treasury

Council Options for Financial Stability Risks and Nonbank Financial Company Designations

• Sandra Lee, Deputy Assistant Secretary for the Council, Treasury

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

• Devin Mauney, Attorney-Advisor, Treasury (available for questions)

• Carol Rodrigues, Attorney-Advisor, Treasury (available for questions)

Executive Session

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

approximately 9:31 A.M. The Council convened by videoconference. The Chairperson began 

by congratulating Martin Gruenberg, Chairman of the FDIC, on his recent confirmation and 

welcoming Adrienne Harris, Superintendent of the New York Department of Financial Services,

as the Council’s new state banking member. She then outlined 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 the Council’s priorities, (2) a presentation on 

Treasury’s recently issued report on cloud services adoption in the financial sector, (3) an update 

on the Council’s options for financial stability risks and nonbank financial company 

designations, and (4) a vote on the minutes of the Council’s meeting on December 16, 2022.

1. Update on Council Priorities

The Chairperson introduced the first agenda item, an update on the Council’s priorities. She 

introduced Sandra Lee, Deputy Assistant Secretary for the Council at Treasury.

Ms. Lee provided an overview of Council priorities, including an overview of the progress made 

on the Council’s priorities in 2022 and a preview of proposed priorities for 2023. She stated that 

the Council had made progress in each of the four areas that the Council identified as priorities in 

2022: climate-related financial risk, nonbank financial intermediation, digital assets, and 

Treasury market resilience. She said that, following the publication of the Council’s Report on 

Climate-related Financial Risk in October 2021, the Council established a new Climate-related 

Financial Risk Committee, or CFRC, and created working groups on data, risk assessment, and 

scenario analysis to help advance the report’s recommendations. In the area of nonbank 

financial intermediation, she said that the Council’s Hedge Fund Working Group developed a 

quantitative risk monitor, drawing on data sets from regulators, to inform the Council’s

understanding of hedge fund risks. She also highlighted the Council’s Report on Digital Asset 

Financial Stability Risks and Regulation, which was published in October 2022. She stated that 

the report resulted from extensive interagency engagement and provided a foundation for the 

Council’s efforts to identify and mitigate potential financial stability risks posed by digital assets. 

In the area of Treasury market resilience, she said that the Council’s work on hedge funds and 

open-end funds informed the efforts of the Inter-Agency Working Group on Treasury Market 

Surveillance (IAWG) to examine the effects of leverage and fund liquidity risk management 
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practices on Treasury market liquidity. She also noted that the Council had issued its 2022 

annual report, which the Council streamlined and restructured to focus on key financial stability 

vulnerabilities. 

Ms. Lee said that the Council intended to make further progress on each of these four priorities 

in 2023. With respect to climate-related financial risk, she said that the OFR’s Joint Analysis 

Data Environment, which is intended to make a variety of data, computing resources, and 

analytic software available to Council member agencies, would continue onboarding data sets 

and users across member agencies, helping fill critical data and analytical gaps. She noted that 

the Council was developing climate-related risk indicators for the banking and insurance sectors 

and for capital markets, including new exposure metrics for bank and insurance holdings of 

commercial and residential real estate and other asset classes. She also stated that member 

agencies were sharing best practices regarding climate scenario risk analysis. She said that, as 

discussed in the Council’s climate report, the CFRC would provide updates to the Council at 

least semiannually on efforts by the Council and its members to identify and address climaterelated financial risk. She also noted that the Council planned to convene the first meeting of its 

new Climate-related Financial Risk Advisory Committee, or CFRAC, in March 2023, which 

would enable the Council to gather information and analysis from a broad array of stakeholders 

and advance its understanding of climate-related financial risks.

With respect to nonbank financial intermediation, Ms. Lee noted that the meeting would include 

a presentation on a potential approach for issuing a new framework for the Council’s efforts to 

monitor and address potential risks to financial stability and replacing the Council’s existing 

guidance on nonbank financial company designations. Ms. Lee also said that digital assets 

would continue to be a focus of Council efforts. She noted that the Council expected to 

reestablish its Digital Assets Working Group to provide a forum to share information and 

monitor developments in digital asset markets. With respect to Treasury market resilience, she 

said that the Council’s Hedge Fund Working Group would continue in 2023 to conduct risk 

analyses and consider approaches to mitigate potential risks, in coordination with IAWG 

colleagues working on related issues. She also said that in 2023 staff expected to continue to 

assess risks related to nonbank mortgage servicing. Finally, she noted that she expected to 

continue efforts to increase the headcount of the Council Secretariat at Treasury in order to 

enhance the Council’s broader financial stability monitoring efforts. 

Discussing other areas of Council focus, she said that the Council was seeking to conduct more 

robust risk monitoring in various areas. She said that the Council also intended to enhance its

staff-level coordination with the Financial and Banking Information Infrastructure Committee 

(FBIIC) on cybersecurity and operational resilience, to enhance the ability of the staffs of 

Council and FBIIC member agencies to share information and analysis on areas of common 

concern. 

Following the presentation, the Chairperson said that she looked forward to continued progress 

in 2023 on the four Council priorities. She said that it was also important for the Council to

consider additional areas of focus, such as cyber risks and operational resilience, and remain

vigilant regarding other emerging threats to financial stability.
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Council members then discussed the Council’s priorities for 2023, including specific areas of 

focus. 

2. Report on Cloud Services Adoption in the Financial Sector

The Chairperson then turned to the second agenda item, a presentation on Treasury’s recent 

report, The Financial Services Sector’s Adoption of Cloud Services. She introduced Todd 

Conklin, Deputy Assistant Secretary for Cybersecurity and Critical Infrastructure Protection at 

Treasury.

Mr. Conklin stated that on February 8, 2023, Treasury issued a report on the potential benefits 

and challenges associated with the increasing trend of financial sector firms adopting cloud 

services technology. He stated that Treasury prepared the report in coordination with members 

of the FBIIC. He noted that he had presented on the development of the report at the October 3, 

2022 Council meeting. He also said that Treasury had consulted with various federal agencies 

and external stakeholders on cloud adoption and vulnerabilities. 

Addressing the report’s primary findings, Mr. Conklin stated that there was a range of maturity 

with respect to cloud services adoption. He said that cloud services was no longer an emerging 

technology and was widely used for e-mail and videoconferencing. He noted that financial 

institutions were starting to use it for core operations, and that cloud services adoption was 

expected to continue. He stated that many smaller financial institutions had moved almost all of 

their operations to the cloud, but he noted that smaller institutions had also experienced difficulty 

negotiating cloud services contracts and that the shift can be more expensive for smaller firms.

He stated that when configured correctly, cloud services can provide significant benefits to firms 

in terms of redundancy, scalability, and security. 

Mr. Conklin stated that Treasury had identified six main challenges to greater cloud adoption by 

financial institutions: obstacles to transparency; gaps in expertise and tools; exposure to potential 

operational incidents, including from incidents originating at a cloud service provider; potential 

impact of market concentration on the sector’s resilience; dynamics in contract negotiations; and 

the international landscape and regulatory fragmentation. He said that Treasury, as it evaluates 

next steps, would seek to support the resilience of the financial sector’s use of cloud services. 

He said that Treasury’s long-term objectives address risk assessment and mitigation; sector-wide 

concentration; and domestic and international collaboration and coordination. He stated that 

Treasury, as part of a multi-year effort on cloud services, would set up an interagency Cloud 

Services Steering Group, which would provide updates to both the Council and FBIIC, to 

coordinate on issues raised in the Treasury report. He said that key objectives of this group 

would include the development of common definitions and terms; the enhancement of 

interagency information sharing and risk management; and the development of an incidentresponse protocol involving cloud services. He stated that Treasury would also pursue continued 

engagement with the private sector on various issues raised in the report, including issues related 

to risk-management practices and contracting. He said that Treasury would lead ongoing 

engagement with the Financial Services Sector Coordinating Council (FSSCC), which he said 

would create a working group to address industry perspectives on cloud adoption. He said that 

Treasury would also emphasize engagement with international partners, including continued 
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development of international standards, principles, and recommendations, at the G7 Cyber 

Expert Group, Financial Stability Board, and international financial standard-setting bodies.

Following the presentation, the Chairperson stated that cloud services has the potential to 

enhance security and operational resilience among financial institutions. She noted that the 

financial sector’s concentrated dependency on a limited number of providers of critical cloud 

services is a potential risk. She expressed support for the report’s proposals for enhanced 

coordination between the public and private sectors. 

Council members then asked questions and had a discussion regarding oversight of cloud service 

providers, the use of artificial intelligence in cloud services, cybersecurity events involving cloud 

service providers, and next steps for Treasury’s engagement on this issue. 

3. Council Options on Financial Stability Risks and Nonbank Financial Company 

Designations

The Chairperson then introduced the next agenda item, an update on a potential analytic 

framework describing how the Council identifies, evaluates, and addresses risks, and potential 

new guidance on the Council’s process for designating nonbank financial companies for Federal 

Reserve supervision and prudential standards. The Chairperson began by emphasizing that the 

Council should be able to use any of its statutory authorities when appropriate. She said that in 

most cases, the Council would address issues across an entire sector, or promote collaboration 

and information sharing among regulators. She stated, however, that there can be cases where 

designation is appropriate. She said that she believes it is necessary to revise the Council’s 

current nonbank financial company designation guidance to enable that work. Second, she said 

that the Council should have a robust approach to identifying and addressing financial stability 

risks, whether they arise from activities or entities. She said that staff had made progress in 

developing an approach on these issues. 

She then introduced Sandra Lee, Deputy Assistant Secretary for the Council at Treasury, and 

Eric Froman, Assistant General Counsel (Banking and Finance) at Treasury.

Ms. Lee stated that the Council’s Deputies Committee had collaborated to develop a new 

proposed approach for the Council’s risk assessment efforts and the Council’s process for 

nonbank financial company designations. Mr. Froman then provided a brief background on the 

history of the Council’s nonbank financial company designations guidance. He said that the 

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) lists 14 duties 

for the Council, which largely address risk monitoring, information sharing, and making 

recommendations. He said that one of the Council’s duties is to designate nonbank financial 

companies for Federal Reserve supervision and prudential standards. He said that the DoddFrank Act sets forth the standard for designation—that material financial distress at the company, 

or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of

the company, could pose a threat to U.S. financial stability. He noted that the Dodd-Frank Act 

also lists the factors the Council is required to consider in designating a nonbank financial 

company. He said that the Dodd-Frank Act also provides a high-level process for a proposed 

and final designation. 
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Mr. Froman stated that in 2012, the Council adopted a regulation on nonbank financial company 

designations, to which interpretive guidance was attached as an appendix. He said that the 

interpretive guidance described the substance of the Council’s review of nonbank financial 

companies for designation, and set forth additional procedures, creating what was at that time a 

three-stage process. He stated that the Council, applying the 2012 guidance, designated four 

nonbank financial companies in 2013 and 2014. He said that in 2015, the Council approved 

supplemental guidance that provided additional due process, primarily in the form of expanded 

engagement between the Council and companies under review. He stated that between 2016 and 

2018, all four previous nonbank financial company designations were rescinded, one by court 

order and the other three by Council votes. 

Mr. Froman stated that in 2019, the Council replaced the 2012 interpretive guidance with new 

guidance. He noted three aspects of the 2019 interpretive guidance. First, he said that it

described how the Council would prioritize its efforts to identify, assess, and address potential 

risks and threats to U.S. financial stability through a process that begins with an activities-based 

approach. Second, he said that it described the Council’s analytic approach in nonbank financial 

company designations, including adding requirements for cost-benefit analysis and the 

consideration of the likelihood of a nonbank financial company’s material financial distress 

when evaluating it for a potential designation. Third, he said that it described the Council’s 

procedures for designation. Mr. Froman noted that the process for nonbank financial company 

designations set forth in the 2019 guidance made few changes to the Council’s existing guidance 

and practices at that time regarding engagement with companies under review and their 

regulators. 

Ms. Lee described the new proposed approach, which contemplates issuing a framework for 

monitoring and addressing risks and replacing the Council’s 2019 guidance with new procedures 

for nonbank financial company designations. She said that, in developing the new framework 

and guidance, the Council was promoting three goals: focusing on the Council’s duty to identify 

and respond to risks to financial stability, without prioritizing some of its tools over others; 

providing transparency to the public on how the Council identifies and addresses financial 

stability risks; and removing the impediments established in the 2019 guidance that would 

unduly limit the Council’s ability to designate nonbank financial companies. She stated that to 

fulfill the Council’s statutory mandate, it is important for the Council to have a rigorous 

framework in place for identifying, assessing, and addressing risks. She said that the Council’s

approach should promote its ability to identify risks whether they arise from activities, firms, or 

elsewhere, and should also enable the Council to address those risks using any of its tools as 

appropriate.

Ms. Lee then described the draft Council framework for identifying, evaluating, and addressing 

risks, which sets forth the substantive analytic approach the Council takes in its work. She noted 

that the framework would apply to any of the Council’s work, regardless of whether that work 

resulted in a nonbank financial company designation, informal regulatory collaboration, or 

another outcome. She noted that the Council has a wide range of statutory tools for addressing 

identified risks, and that nonbank financial company designation is only one of those tools. She 
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also noted that the Council most frequently relies on its authority to work with Council member 

agencies to share information, collaborate, and address risks.

Mr. Froman described a separate document under development, which would replace the 2019 

guidance and would be attached as an appendix to the Council’s 2012 regulation on nonbank

financial company designations. He stated that the draft document would address the Council’s 

process for nonbank financial company designations, rather than the analytical substance of such 

designations. He described the process set forth in the draft guidance. He concluded by 

discussing the next steps in the development of the new framework and procedures, including

anticipated issuance of the proposals for public comment.

Council members then asked questions and had a discussion about the Council’s authorities 

under the Dodd-Frank Act to address risks to U.S. financial stability, the Council’s process for 

identifying and reviewing nonbank financial companies and the process for issuing the new 

framework and guidance.

4. Resolution Approving the Minutes of the Meeting Held on December 16, 2022 

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

attached hereto of the meeting held on December 16, 2022 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 10:52 A.M.