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Minutes of the Financial Stability Oversight Council

Held January 21, 2015 

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) 

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) (by telephone) 

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) 

David Massey, Deputy Securities Administrator, North Carolina Department of the Secretary of 

State, Securities Division (non-voting member) 

NOT PRESENT:

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

GUESTS: 

Department of the Treasury 

Sarah Bloom Raskin, Deputy Secretary of the Treasury 

Matthew Rutherford, Acting Under Secretary for Domestic Finance 

Christopher J. Meade, General Counsel 

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

Eric M. Thorson, Inspector General and Chairman of the Council of Inspectors General on 

Financial Oversight

Board of Governors of the Federal Reserve System 

Daniel K. Tarullo, Governor 

Federal Deposit Insurance Corporation 

Jason Cave, Special Advisor to the Chairman for Supervisory Matters 

Securities and Exchange Commission 

Lona Nallengara, Chief of Staff
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Consumer Financial Protection Bureau 

Ron Borzekowski, Deputy Assistant Director 

Federal Housing Finance Agency 

Mario Ugoletti, Special Advisor to the Director 

Office of the Comptroller of the Currency 

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

Examiner

National Credit Union Administration 

John Worth, Chief Economist (by telephone) 

Office of the Independent Member with Insurance Expertise

Diane Fraser, Senior Policy Advisor 

Federal Reserve Bank of New York

William Dudley, President and Chief Executive Officer (by telephone) 

Office of Financial Research

Patricia Mosser, Deputy Director for Research and Analysis

Louisiana Office of Financial Institutions 

James Cooper, Senior Vice President, Conference of State Bank Supervisors 

North Dakota Insurance Department

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

Insurance Commissioners 

North Carolina Department of the Secretary of the State, Securities Division

Christopher Staley, Counsel, North American Securities Administrators Association

PRESENTERS: 

Market Update: Foreign Exchange Developments 

• Ramin Toloui, Assistant Secretary for International Markets, Treasury 

• Thomas J. Smith, Interim Director, Division of Swap Dealer and Intermediary 

Oversight, CFTC (available for questions) 

Leveraged Lending 

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

Reserve 

• Ashish Kumbhat, Division of Monetary Affairs, Federal Reserve (available for 

questions) 
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2015 Annual Report 

• Trent Reasons, Senior Policy Advisor, Treasury 

• Daniel Beltran, Senior Economist, Federal Reserve

Other Business 

• Kathleen Hartnett, Deputy Assistant Attorney General, Department of Justice 

• Eric Froman, Deputy Assistant General Counsel for the Council, Treasury 

(available for questions) 

• Deepthy Kishore, Trial Attorney, Department of Justice (available for questions) 

Supplemental Procedures Relating to Nonbank Financial Company Determinations 

• Matthew Rutherford, Acting Under Secretary for Domestic Finance, Treasury 

• Patrick Pinschmidt, Deputy Assistant Secretary for the Council and Executive

Director of the Council, Treasury 

Benchmark Reform Update 

• John Schindler, Assistant Director, Office of Financial Stability Policy and 

Research, Federal Reserve

Executive Session 

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

approximately 1:32 P.M. (EST). He began by welcoming Eric Thorson, Treasury’s Inspector 

General and Chairman of the Council of Inspectors General on Financial Oversight, who was 

invited to observe the meeting. The Chairperson then 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 executive session of the meeting included the following subjects: 

(1) a market update on foreign exchange developments; (2) leveraged lending; and (3) the 

Council’s 2015 annual report. 

1. Market Update: Foreign Exchange Developments 

The Chairperson introduced Ramin Toloui, Assistant Secretary for International Finance at 

Treasury, who presented an update on recent developments related to foreign exchange markets. 

He described the Swiss National Bank’s decision on January 15, 2015, to discontinue its efforts 

to peg the Swiss franc to the euro. Mr. Toloui discussed the market reaction to the Swiss 

National Bank’s decision, possible vectors for the transmission of stress, and the potential for 

related market developments in 2015. Following the presentation, members of the Council asked 

questions and had a discussion. 

2. Leveraged Lending Update

The Chairperson then introduced the next agenda item, a presentation on speculative-grade debt 

markets, including leveraged lending. Nellie Liang, Director of the Federal Reserve’s Office of 

Financial Stability Policy and Research, presented on developments in these markets. She noted 

the increased issuance of speculative-grade debt and that the quality of new issues has been 

weak. She also noted that speculative-grade bond spreads are low and the leverage of 
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speculative-grade nonfinancial businesses is rising. She then discussed potential risks to 

financial stability relating to these markets. Members of the Council then asked questions on 

topics including implications of the decline in oil prices, and had a discussion. 

3. 2015 Annual Report 

The Chairperson introduced Trent Reasons, Senior Policy Advisor at Treasury, and Daniel 

Beltran, Senior Economist at the Federal Reserve, to present on the next agenda item, the 

Council’s 2015 annual report. They explained that work had begun on developing the report and 

that the target date for publication was the spring. They stated that they expected the structure to 

be similar to prior reports and to be based on five substantive sections: (1) macroeconomic 

environment, (2) financial developments, (3) regulatory developments and Council activities, (4) 

potential emerging threats, and (5) recommendations. They described potential 

recommendations and topics for the report, including potential new risk topics and themes they 

expected to re-emphasize from the 2014 report. Members of the Council then asked questions 

and had a discussion, including regarding potential topics to be considered in the report. 

4. Other Business

Finally, the Chairperson introduced Kathleen Hartnett, Deputy Assistant Attorney General from 

the Department of Justice. Ms. Hartnett gave a presentation regarding the lawsuit brought by 

MetLife, Inc. challenging the Council’s determination in December 2014 that the company 

would be subject to Federal Reserve supervision and enhanced prudential standards. Members 

of the Council asked questions and had a discussion. 

The Chairperson adjourned the executive session of the meeting at approximately 2:48 P.M. 

(EST).

Open Session

The Chairperson called the open session of the Council meeting to order at approximately 2:59 

P.M. (EST). The agenda for the open session of the meeting included: (1) the nonbank financial 

company designations process; (2) an update on benchmark reform efforts; and (3) consideration 

of, and a vote on, a resolution approving the minutes of the Council’s meeting on December 18, 

2014. 

1. Nonbank Financial Company Designations Process 

The Chairperson introduced the first agenda item, the nonbank financial company designations

process. He noted that prior to the financial crisis and the formation of the Council, no single 

entity was accountable for monitoring and addressing risks to financial stability, but rather each 

regulator focused on the institutions, functions, or markets under its own purview. He described 

the Council’s authority to designate nonbank financial companies for Federal Reserve 

supervision and enhanced prudential standards as an important part of the Council’s role in 

bringing together regulators from across the financial system to identify threats to financial 

stability and take action to address such threats. 
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The Chairperson stated that the Council does not reach the decision to designate a firm lightly. 

He noted that the Council reviews a company in extraordinary detail before doing so, including 

working closely with the company and its regulators, to determine how the firm’s material 

financial distress, if it were to occur, could affect the broader financial system. He observed that 

the existing process is rigorous and includes extensive engagement and communication with any 

firm under consideration. At the same time, he stated that the Council, as a young organization, 

must periodically examine how it conducts its activities. He stated that following last year’s 

enhancements to the Council’s governance procedures and transparency policy, the Council 

proceeded to examine ways to enhance its nonbank financial company designations process and 

that, at the Council’s instruction, staff conducted extensive outreach to stakeholders in the fall of 

2014. 

The Chairperson noted attempts to roll back financial reform in recent months and stated his 

opposition to diminishing the Council’s ability to address threats to stability, including its 

authority to designate nonbank financial companies. He then introduced Matthew Rutherford, 

Acting Under Secretary for Domestic Finance at Treasury and Chairperson of the Council’s 

Deputies Committee, to describe the stakeholder outreach that had been conducted, and Patrick 

Pinschmidt, Deputy Assistant Secretary and Executive Director of the Council at Treasury, to 

describe the types of changes the Council is considering. 

Acting Under Secretary Rutherford stated that Council staff had worked diligently over the past 

four months to identify potential enhancements to the Council’s nonbank financial company 

designation process. He explained that staff began a series of conversations with a wide range of 

stakeholders and also solicited input from Congressional staff and each of the companies then 

subject to a designation. In total, Mr. Rutherford stated that staff heard the views of 20 different 

trade groups, companies, consumer advocates, and public interest organizations. He noted that 

the Government Accountability Office’s recent review of the Council’s nonbank financial 

company designations process also informed the staff’s work. 

Mr. Rutherford then provided a brief summary of the feedback the staff received and described 

three key themes emerging from the staff’s outreach discussions. He stated that companies in the 

process want to know earlier when they are under consideration and to engage earlier in the 

process, although some stakeholders argued that earlier engagement would subject the Council 

and staff to attempts to slow down or hinder the process. Mr. Rutherford stated that there was 

also broad agreement that the public would benefit from more information on the Council’s 

process and the Council’s reasons for designating particular companies. Finally, he stated that 

staff heard that the Council should better explain its process for its annual reevaluations of 

designations and enable more engagement in that process, including opportunities to meet with 

the Council. 

Mr. Pinschmidt then detailed the staff recommendations for potential changes to the Council’s 

process. He described recommendations in three categories: (1) engagement with companies 

under consideration by the Council for potential designation; (2) transparency to the broader 

public regarding the designations process; and (3) the Council’s annual reevaluations of previous 

designations. 
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Under the first category of recommendations, Mr. Pinschmidt stated that the Council would 

notify a company when it comes under active review in Stage 2 of the Council’s process for 

evaluating companies, rather than first notifying a company only when it is advanced to Stage 3. 

He further explained that, under the recommendations, a company under active review in Stage 2 

would have the opportunity to meet with staff representing Council members and member 

agencies, receive a description of the primary sources of public information staff are reviewing, 

and provide any relevant information. Under the recommendations, if the Council votes to not 

advance a company from Stage 2 to Stage 3, the Council would notify the company in writing of 

the Council’s decision. If the Council votes to advance a company from Stage 2 to Stage 3, 

under the recommendations, staff would meet with the company’s representatives at the start of 

Stage 3 to explain the evaluation process and the framework for the Council’s analysis; if the 

analysis in Stage 2 identified specific aspects of the company’s operations or activities as the 

primary focus for the evaluation, staff would notify the company of those issues. Further, Mr. 

Pinschmidt noted that under the recommendations, the Council’s Deputies Committee would 

meet with a company in Stage 3. Under the recommendations, the Council would continue to 

engage with a company’s primary financial regulatory agencies, including notifying the regulator 

when the company comes under active review in Stage 2 and beginning the consultation process 

with the regulator before any vote to advance the company to Stage 3.

Mr. Pinschmidt stated that under the second category of recommendations, if a company under 

review by the Council has publicly announced the review, the Council would, on the request of a 

third party, confirm the status of the company’s review. He also stated that, under the 

recommendations, the Council would continue providing the public with a greater understanding 

of the Council’s analysis supporting any final designation, while continuing to meet its statutory 

obligation to protect sensitive, confidential information submitted by companies; include more 

information in its annual reports about its designations work, including the number of companies 

that have been voted on in Stages 2 and 3; and publish further details explaining how the Council 

calculates the uniform, quantitative Stage 1 thresholds used to identify nonbank financial 

companies for review in Stage 2. 

For the third category of recommendations, Mr. Pinschmidt stated that when the Council 

conducts its annual review of a nonbank financial company’s designation, the company would 

have an opportunity to meet with staff to discuss the scope and process for the review and to 

present information regarding any relevant changes. He also stated that, under the 

recommendations, if a company contests its designation in an annual review, the Council would 

vote on whether to rescind the designation and would provide the company with a written 

explanation if it decides not to rescind the designation. In addition, Mr. Pinschmidt stated that, 

under the recommendations, the Council would give each designated company an opportunity 

for an oral hearing before the Council every five years to contest its designation. 

The Chairperson expressed his strong support for the recommendations, describing them as good 

changes that would refine engagement with the companies under review and provide additional 

transparency to the public. He suggested that the recommendations be formalized for adoption. 

Federal Reserve Chair Janet Yellen described the recommendations as a strong set of proposals 

for enhancing the Council’s process for making nonbank financial company designations and 
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stated that she supported adopting them. She also stated that the Council’s goal should be to 

make the designation process and the rationale for the Council’s decisions as transparent as 

possible while safeguarding confidential firm-specific information. She also observed that the 

staff proposals meaningfully respond to concerns that financial companies, public interest 

groups, and members of Congress raised, and also took into account Government Accountability 

Office recommendations. 

Comptroller of the Currency Thomas Curry stated that he believes the current designation 

process is robust and provides ample opportunities for engagement with firms under 

consideration but that he also supports the recommendations and ongoing efforts to review and 

improve the Council’s process generally. 

SEC Chair Mary Jo White voiced her support for the Council’s efforts to enhance transparency

and its process for nonbank financial company designations, including the proposals described in 

the presentation and the continuing study of possible enhancements. 

Federal Insurance Office Director Michael McRaith thanked insurance stakeholders, including 

firms and staff of the National Association of Insurance Commissionersfor their engagement 

with the Council in support of the nonbank financial company designations process discussion 

and described input from firms and state regulators as tremendously constructive. 

CFPB Director Richard Cordray stated he supported the proposals put forward in the meeting. 

He also stated that he did not believe that these proposals would affect any of the determinations

the Council has previously made and that the Council has always based its determinations on an 

extensive, thorough, careful, and comprehensive record and through an accessible process. 

2. Benchmark Reform Update

The Chairperson then introduced John Schindler, Assistant Director of the Federal Reserve’s 

Office of Financial Stability Policy and Research, to provide an update on the efforts by U.S. and 

foreign regulators to reform interest rate benchmarks, a topic that has been an important area of 

focus for the Council over the past several years, including in annual reports. 

Mr. Schindler described the context for benchmark rate reform, noting the June 2012 revelations 

that some banks manipulated or attempted to manipulate rates such as the London Interbank 

Offered Rate (LIBOR), which damaged public confidence in the rates and encouraged some 

banks to withdraw from reference rate panels. He raised the concern that had many banks 

withdrawn from the LIBOR panel, it may have been difficult to publish a meaningful rate, 

drawing into question the ability of about $300 trillion in LIBOR-based contracts to settle. 

Mr. Schindler stated that the Council recommended reference rate reform in its 2013 and 2014 

annual reports, including that U.S. and foreign regulators cooperate with international bodies and 

market participants to reform interest rate benchmarks, including by identifying alternative 

interest rate benchmarks for potential use by market participants and by promoting an orderly 

transition to those alternative rates. 
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Mr. Schindler stated that in 2013, the Financial Stability Board set up an official sector steering 

group charged with developing reference rate reform recommendations. He stated that the 

group’s key recommendation, released in July 2014, was that there should be multiple, 

transaction-based reference rates. Mr. Schindler explained that the benefits of this approach 

would include allowing users to choose a rate that more closely ties to the underlying economic 

purpose of the transaction; reducing the incentive to manipulate any particular rate; and 

enhancing stability by having more alternative rates available. He stated that a reformed, 

strengthened LIBOR would be among those reference rates and that it would continue to include 

a measure of bank credit risk in it and be a proxy for a bank’s cost of funding. He also described 

other rates that would be risk-free and more appropriate for transactions where credit risk is a 

very small component or non-existent. Having these new rates alongside a reformed LIBOR, 

Mr. Schindler stated, would both offer market choice and avoid the problem of replacing LIBOR 

for existing contracts that reference it.

With respect to strengthening LIBOR, Mr. Schindler stated that administration of the rate had 

shifted from the British Bankers Association to Intercontinental Exchange Benchmark 

Administration (IBA). He explained that IBA advocates for using a transactions-based approach 

to calculating LIBOR, for increasing the number of participating banks on the rate panels, for 

widening the scope of transactions used to make it more representative of bank funding costs, 

and for increasing the time frame for considering transactions. 

For a risk-free, side-by-side alternative rate, Mr. Schindler stated that the Federal Reserve is 

sponsoring an alternative reference rate committee consisting of market participants and with 

support from agencies including Treasury, the CFTC, and foreign agencies. He stated this 

committee is working to (1) identify best practices for reference rates and rates that meet those 

best practices; (2) develop an adoption plan for these alternative rates, including a timeline for 

the plan; and (3) consider contract robustness in the event a reference rate cannot be published. 

Mr. Schindler also noted the challenges in shifting market practices from a long-standing 

reference rate and stated that the Federal Reserve and other agencies have been working to 

address some of those challenges, including the way various accounting standards and tax 

principles treat the reference rates. He also noted the involvement of market participants, 

including end users, clearing houses, and exchanges, to ensure incorporation of their views in the 

alternative reference rate development.

The Chairperson asked how smooth a transition to new benchmarks would be and about Mr. 

Schindler’s confidence in there being a transactional base to inform the benchmarks. In 

response, Mr. Schindler stated that keeping LIBOR as a reference rate option lessens the 

transitional hurdle and that involving market participants in the process is an important part of 

the strategy for encouraging adoption of alternative rates. He described the overhaul of LIBOR 

to make it more robust. 

OFR Director Richard Berner asked Mr. Schindler to describe some of the interest rate 

benchmarks that have been proposed as potential LIBOR alternatives. Director Berner also 

commented on the importance of data quality and the use of standards for creating and 

maintaining reference rates. Mr. Schindler stated that for alternative stand-alone U.S. dollar 

rates that could exist side-by-side with LIBOR, three rates have been mentioned most 
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prominently: (1) overnight index swap rates, or a derivate of those; (2) Treasury yields; and (3) 

general collateral repo rates. 

3. Resolution Approving the Minutes of the Meeting held on December 18, 2014. 

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

minutes attached hereto of the meeting held on December 18, 2014 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 3:34 P.M. (EST).