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Minutes of the Financial Stability Oversight Council

Held July 18, 2016

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)

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

Richard Cordray, Director, Consumer Financial Protection Bureau (CFPB)

Melvin Watt, Director, Federal Housing Finance Agency (FHFA) (by telephone)

Thomas J. Curry, Comptroller of the Currency, Office of the Comptroller of the Currency (OCC) 

Rick Metsger, Chairman, National Credit Union Administration (NCUA) 

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) 

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

Division (non-voting member)

GUESTS: 

Department of the Treasury (Treasury)

Sarah Bloom Raskin, Deputy Secretary of the Treasury 

Antonio Weiss, Counselor to the Secretary

Jonah Crane, Deputy Assistant Secretary for the Council

Eric Froman, Deputy Assistant General Counsel for the Council 

Mark Kaufman, Counselor to the Deputy Secretary

Board of Governors of the Federal Reserve System

Daniel Tarullo, Governor

Nellie Liang, Director, Division of Financial Stability

Federal Deposit Insurance Corporation

Jason Cave, Special Advisor to the Chairman for Supervisory Matters

Securities and Exchange Commission

Michael Liftik, Deputy Chief of Staff
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Commodity Futures Trading Commission

Lawranne Stewart, Special Counsel

Consumer Financial Protection Bureau

Ron Borzekowski, Assistant Director for Research

Federal Housing Finance Agency

Sandra Thompson, Deputy Director, Division of Housing Mission and Goals (by telephone)

Comptroller of the Currency

Grace Dailey, Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank 

Examiner

National Credit Union Administration

Ralph Monaco, Chief Economist

Office of the Independent Member with Insurance Expertise

Charles Klingman, Senior Policy Advisor

Federal Reserve Bank of New York

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

Office of Financial Research

Stacey Schreft, Deputy Director for Research and Analysis

Federal Insurance Office

Steven Seitz, Deputy Director (Financial Stability)

Louisiana Office of Financial Institutions

Margaret Liu, Senior Vice President & Deputy General Counsel, Conference of State Bank 

Supervisors

Maryland Office of the Attorney General, Securities Division

Christopher Staley, Counsel, North American Securities Administrators Association

PRESENTERS:

Update on Market Developments

• Nellie Liang, Director, Division of Financial Stability, Federal Reserve

• Nathan Sheets, Under Secretary for International Affairs, Treasury

• Daleep Singh, Acting Assistant Secretary for Financial Markets, Treasury

• Tara Rice, Deputy Assistant Secretary for International Financial Stability and 

Regulation, Treasury (available for questions)
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Update on Review of Asset Management Products and Activities

• Charles Cohen, Deputy Director of Analysis, Treasury 

• Stephen Ledbetter, Director of Policy, Treasury (available for questions)

Federal Reserve Stress Tests

• Andreas Lehnert, Deputy Director, Division of Financial Stability, Federal Reserve

Bilateral Repurchase Agreement and Securities Lending Data Collection and Analysis

• Viktoria Baklanova, Senior Financial Analyst, OFR

• Frank Keane, Policy Adviser, Markets Group, Federal Reserve Bank of New York

Executive Session

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

approximately 3:03 P.M. (EDT). He outlined the meeting agenda, which had previously been 

distributed to the members together with copies of the resolutions and other materials. The 

agenda for the meeting included the following subjects: (1) an update on market developments; 

(2) an update on the Council’s review of asset management products and activities; (3) the 

Federal Reserve’s stress tests; (4) bilateral repurchase agreement and securities lending data 

collection and analysis; and (5) consideration of, and a vote on, resolutions approving the 

minutes of the Council’s meetings on June 21, 2016, and June 24, 2016.

1. Update on Market Developments

The Chairperson introduced Daleep Singh, Acting Assistant Secretary for Financial Markets at 

Treasury; Nellie Liang, Director of the Division of Financial Stability at the Federal Reserve;

and Nathan Sheets, Under Secretary for International Affairs at Treasury. Tara Rice, Deputy 

Assistant Secretary for International Financial Stability and Regulation at Treasury, was 

available to answer questions.

Mr. Singh described market reactions since the announcement that the outcome of the United 

Kingdom (U.K.) referendum on membership in the European Union was to leave the European 

Union. He noted that the immediate market reaction had been sharp and broad-based but not 

disorderly or disproportionate to the catalyst. He explained that prices of most risk-sensitive

assets had returned to levels from before the referendum, but that assets, markets, and firms more 

directly exposed to the U.K. continued to experience visible effects. He then reviewed market 

functioning across various asset classes, noting that conditions remained orderly despite some 

pullback in liquidity in the immediate aftermath of the referendum. 

Ms. Liang then described the impact of the U.K. referendum on financial institutions. She 

described stresses on some European financial institutions and noted that U.S. financial 

institutions had little direct exposure to those firms but that the U.S. economy and financial 

sector would not be immune if there were serious distress in Europe. She also noted that there 

were upcoming European Union bank stress tests.
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Mr. Sheets then explained that the levels of market volatility following the U.K. referendum 

were consistent with expectations. He also described challenges facing some European banks. 

He then explained that the U.K. referendum was expected to have a meaningful impact on U.K. 

gross domestic product as a result of reduced trade, capital flows, and confidence, but that the 

effects on U.S. and euro-area gross domestic products would likely be much smaller. He noted 

that the potential political implications for the European Union were not yet clear.

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

on European financial institutions and possible next steps by the U.K. and European Union.

2. Update on Review of Asset Management Products and Activities

The Chairperson then introduced the next agenda item, an update on the review of potential risks 

to financial stability arising from asset management products and activities. The Chairperson 

asked Jonah Crane, Deputy Assistant Secretary for the Council at Treasury, to provide an update 

regarding the analysis. Mr. Crane noted that the SEC was engaged in ongoing rulemakings 

relevant to the Council’s evaluation of potential threats to financial stability arising from 

liquidity and redemption risks, the use of derivatives by registered funds, and resolvability and 

transition planning. He also noted that staff continued to analyze potential risks arising from 

service provider concentration and securities lending. He then turned to Charles Cohen, Deputy 

Director of Analysis at Treasury, who provided an update regarding the ongoing efforts of the 

Council’s interagency hedge fund working group. Mr. Cohen explained that the hedge fund 

working group’s mandate was to evaluate potential risks to financial stability from the use of 

leverage; assess existing data regarding leverage and consider how those data might be 

augmented; and consider enhancements to measurements of leverage. He described preliminary 

analyses conducted by the hedge fund working group regarding the primary sources of leverage

used by large, highly leveraged hedge funds. He also described the availability and quality of 

certain existing data regarding hedge funds’ sources of leverage, including data regarding 

futures, swaps, bilateral repurchase agreements, and loans from prime brokers.

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

gaps and the importance of data to the hedge fund working group’s analysis.

3. Federal Reserve Stress Tests

The Chairperson then introduced the next agenda item, the Federal Reserve’s stress tests. He 

turned to Andreas Lehnert, Deputy Director of the Division of Financial Stability at the Federal 

Reserve, to provide an overview of the Federal Reserve’s bank holding company stress-testing 

process for 2016, including the process and results of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act stress tests (DFAST) and the Comprehensive Capital Analysis and 

Review (CCAR). Mr. Lehnert explained the stress testing procedures, noting that stress tests 

with both quantitative and qualitative exercises are run on the largest bank holding companies 

each year. He noted that the Federal Reserve published scenarios for the stress tests in January 

2016, firms submitted their capital plans in April 2016, and the Federal Reserve released the 

DFAST and CCAR results in June 2016. He then described several key elements of the 

projections applied in the stress tests, including the terms of the assumed market shock and 
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macroeconomic scenarios. Mr. Lehnert then summarized the results of the stress tests, including 

changes since the previous year. He explained that the Federal Reserve had objected to the 

capital plans of two firms on a qualitative basis, and that one other firm was required to resubmit 

its capital plan within six months.

The Chairperson noted that stress tests are an important part of financial reform and thanked Mr. 

Lehnert.

4. Bilateral Repurchase Agreement and Securities Lending Data Collection and Analysis

The Chairperson then introduced the next agenda item, bilateral repurchase agreement and 

securities lending data collection and analysis. He introduced Viktoria Baklanova, Senior 

Financial Analyst at the OFR, and Frank Keane, Policy Adviser in the Markets Group at the 

Federal Reserve Bank of New York. Mr. Keane began by explaining that securities lending and 

repurchase agreement transactions can involve substantial liquidity and maturity transformation 

and therefore pose potential run risks. He then described market practices regarding securities

lending transactions, including the use of securities and cash as collateral. He then explained 

that the Federal Reserve, OFR, and SEC had conducted a joint pilot program to collect data 

regarding securities lending. Under the program, pilot program participants provided data during 

the fourth quarter of 2015 and the first quarter of 2016. He noted that the agencies’ effort was 

the first official data collection regarding the securities lending market. Ms. Baklanova then 

explained the limitations on available data regarding securities lending and described the 

information that was submitted during the pilot program, including data regarding securities 

available for lending and details regarding collateral. She explained that the pilot program 

involved the collection of data from seven lenders. She then described the findings from the 

pilot program, including information regarding the size of the securities lending market, contract 

types, sources of securities available for lending, and types of collateral. Mr. Keane described 

the pilot program’s findings regarding compensation for securities lending transactions. Ms. 

Baklanova then explained the data limitations from the pilot program, including the small 

number of participating lenders, the short time period covered by the reported data, and data 

quality issues.

Members of the Council then discussed the pilot program, including the potential creation of a 

permanent program for collecting securities lending data.

5. Other Business

The Chairperson asked whether there was any other business before the Council voted on the 

minutes of the previous Council meeting. Richard Berner, Director of the OFR, noted that the 

OFR would be publicly releasing a new money market mutual fund monitor. He explained that 

the OFR had collaborated with the SEC in developing the monitor, which uses publicly available 

data regarding funds’ investment portfolios.
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6. Resolutions Approving the Minutes of the Meetings Held on June 21, 2016, and June 

24, 2016

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

minutes attached hereto of the meeting held on June 21, 2016 of the Council are hereby 

approved.”

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

minutes attached hereto of the meeting held on June 24, 2016 of the Council are hereby 

approved.”

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

The Council approved the resolutions without objection.

The Chairperson adjourned the meeting at approximately 4:30 P.M. (EDT).