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Minutes of the Financial Stability Oversight Council

Held December 18, 2014 

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) 

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

Debbie Matz, 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) 

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

State, Securities Division (non-voting member) 

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 

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

Commodity Futures Trading Commission

Lawranne Stewart, Special Counsel
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Consumer Financial Protection Bureau

Steven Antonakes, Deputy Director 

Federal Housing Finance Agency 

Mario Ugoletti, Special Advisor to the Director 

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 

Office of the Independent Member with Insurance Expertise

Chris Ledoux, Senior Advisor 

Office of Financial Research

Patricia Mosser, Deputy Director for Research and Analysis

Federal Insurance Office

Steven Seitz, Acting Deputy Director (Financial Stability)

Louisiana Office of Financial Institutions 

Michael Stevens, Senior Executive Vice President, Conference of State Bank Supervisors 

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

Christopher Staley, Counsel, North American Securities Administrators Association
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PRESENTERS:

Asset Management 

• Lyndsay Huot, Senior Policy Advisor, Treasury 

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

(available for questions) 

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

Council, Treasury (available for questions) 

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

Reserve (available for questions) 

• Lona Nallengara, Chief of Staff, SEC (available for questions) 

Nonbank Financial Company Designations 

• Felton Booker, Senior Advisor, Banking Supervision and Regulation, Federal Reserve 

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

• Todd Cohen, Senior Policy Advisor, Treasury (available for questions) 

• Steven Seitz, Acting Deputy Director (Financial Stability), Federal Insurance Office 

(available for questions) 

• Diane Fraser, Senior Policy Advisor, Office of the Independent Member (available 

for questions) 

• Laurie S. Schaffer, Associate General Counsel, Federal Reserve (available for 

questions) 

Update on International Market Developments 

• Ramin Toloui, Assistant Secretary for International Finance, Treasury 

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

Reserve

2014 Council Annual Report Update 

• Amias Gerety, Counselor to the Secretary for Financial Institutions, Treasury 

• Trent Reasons, Senior Policy Advisor, Treasury 

OFR Annual Report and Financial Stability Monitor 

• Rebecca McCaughrin, Associate Director, Current Analysis, OFR

Executive Session 

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

approximately 10:08 A.M. (EST). 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 executive session of the meeting included the following subjects: (1) asset 

management; (2) nonbank financial company designations; and (3) an update on international 

market developments. 

1. Asset Management
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The Chairperson introduced the first agenda item, the Council’s work on asset management. He 

explained that a Federal Register notice seeking public comment on potential risks in the asset 

management industry represented a key step in carrying out the Council’s responsibility to 

identify and examine potential threats to financial stability. He then introduced Lyndsay Huot, 

Senior Policy Advisor at Treasury, who presented on the final draft of the proposed Federal 

Register notice and described its components. Members of the Council then had a discussion. 

2. Nonbank Financial Company Designations 

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

under Section 113 of the Dodd-Frank Act, relating to MetLife, Inc. (MetLife). The Chairperson 

noted that the Nonbank Designations Committee staff had worked to address the information and 

arguments MetLife submitted in its written and oral hearings and other submissions. He then 

introduced Felton Booker, Senior Advisor, Banking Supervision and Regulation, at the Federal 

Reserve; Todd Cohen, Senior Policy Advisor at Treasury; Steven Seitz, Acting Deputy Director 

(Financial Stability) of the Federal Insurance Office; Diane Fraser, Senior Policy Advisor in the 

Office of the Independent Member; and Eric Froman, Deputy Assistant General Counsel for the 

Council at Treasury. Mr. Booker presented on the Nonbank Designations Committee’s analysis 

of the company. Mr. Froman then explained the timing of next steps if the Council were to 

designate the company, noting that the company and certain of its regulators would be notified 

promptly of the final designation and be provided with the statement of the basis for the 

Council’s final designation. Mr. Froman also noted that, consistent with the Council’s 

interpretive guidance, the final designation would be announced publicly the following morning 

and a public version of the Council’s basis for the final designation would be posted on the 

Council’s website. Members of the Council asked questions and had a discussion. 

The Chairperson then presented to the Council the following resolution. 

“WHEREAS, section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(the “DFA”) authorizes the Financial Stability Oversight Council (the “Council”) to determine 

that a nonbank financial company shall be supervised by the Board of Governors of the Federal 

Reserve System (the “Federal Reserve”) and shall be subject to enhanced prudential standards 

if the Council determines that material financial distress at the nonbank financial company, or 

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

nonbank financial company, could pose a threat to the financial stability of the United States; 

and 

WHEREAS, in making a determination under section 113 of the DFA, the Council must take 

into consideration the following: (A) the extent of the leverage of the company; (B) the extent 

and nature of the off-balance-sheet exposures of the company; (C) the extent and nature of the 

transactions and relationships of the company with other significant nonbank financial 

companies and significant bank holding companies; (D) the importance of the company as a 

source of credit for households, businesses, and State and local governments and as a source of 

liquidity for the United States financial system; (E) the importance of the company as a source

of credit for low-income, minority, or underserved communities, and the impact that the failure 

of such company would have on the availability of credit in such communities; (F) the extent to 
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which assets are managed rather than owned by the company, and the extent to which 

ownership of assets under management is diffuse; (G) the nature, scope, size, scale,

concentration, interconnectedness, and mix of the activities of the company; (H) the degree to 

which the company is already regulated by one or more primary financial regulatory agencies; 

(I) the amount and nature of the financial assets of the company; (J) the amount and types of the 

liabilities of the company, including the degree of reliance on short-term funding; and (K) any 

other risk-related factors that the Council deems appropriate; and 

WHEREAS, the Council issued a final rule and accompanying interpretive guidance (the “Rule 

and Guidance”), codified at 12 C.F.R. Part 1310, that describes the criteria and the processes 

and procedures by which the Council will determine that a nonbank financial company shall be 

supervised by the Federal Reserve and shall be subject to enhanced prudential standards under 

the DFA; and 

WHEREAS, the Rule and Guidance describes a three-stage process that the Council expects to 

use for evaluating a nonbank financial company prior to a Council vote on a proposed 

determination; and 

WHEREAS, the Council has evaluated MetLife, Inc. (“MetLife”), which the Council previously 

advanced to stage 3, in accordance with the DFA and the Rule and Guidance, including 

conducting an assessment of all of the considerations set forth in section 113 of the DFA; and 

WHEREAS, the Council has considered a broad range of information available through existing 

public and regulatory sources, as well as information collected directly from MetLife; and 

WHEREAS, based on the stage 3 evaluation, the Council made a proposed determination 

regarding MetLife and provided MetLife written notice of the proposed determination, 

including an explanation of the basis of the proposed determination; and 

WHEREAS, the Council provided MetLife an opportunity to request a hearing before the 

Council to contest the proposed determination; and 

WHEREAS, MetLife requested a written and an oral hearing before the Council; and

WHEREAS, the Council held a written and an oral hearing in which MetLife contested the 

proposed determination; and 

WHEREAS, based on the evaluation of MetLife, the staffs of the Council Members and of their 

Agencies recommend that the Council make a final determination regarding MetLife; and 

WHEREAS, under the provisions of the DFA and the Rule and Guidance, the Council is 

required to notify a nonbank financial company of the final determination of the Council, which 

shall contain a statement of the basis for the decision of the Council; and 

WHEREAS, under the provisions of the Rule and Guidance, the Council is required to publicly 

announce any final determination of the Council under section 113 of the DFA.
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NOW, THEREFORE, BE IT RESOLVED, that, based on the information, considerations, and 

analysis set forth in the attached “Basis for the Financial Stability Oversight Council’s Final 

Determination Regarding MetLife, Inc.” (the “Basis”), and on a review of the administrative 

record, the Council hereby determines, pursuant to section 102 of the DFA and the Federal 

Reserve’s Regulation PP, that MetLife is a nonbank financial company and thus eligible for a 

determination by the Council under section 113 of the DFA.

BE IT FURTHER RESOLVED, that, based on the information, considerations, and analysis set 

forth in the Basis, and on a review of the administrative record, the Council hereby makes a 

final determination, pursuant to section 113 of the DFA, that material financial distress at 

MetLife could pose a threat to the financial stability of the United States and that MetLife shall 

be supervised by the Federal Reserve and shall be subject to prudential standards, in 

accordance with Title I of the DFA. 

BE IT FURTHER RESOLVED, that the Council has considered and hereby approves the 

attached “Notice of Final Determination and Statement of the Basis for the Financial Stability 

Oversight Council’s Final Determination Regarding MetLife, Inc.” (the “Notice”) and 

authorizes the Notice to be sent to MetLife.

BE IT FURTHER RESOLVED, that the Council hereby approves the Basis and authorizes the 

Basis to be released to the public.

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 

Notice and the Basis.” 

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

The Council approved the resolution by a vote of nine to one, with Mr. Woodall dissenting and 

Commissioner Hamm noting his opposition to the designation. 

3. Update on International Market Developments

The Chairperson then introduced Ramin Toloui, Assistant Secretary of the Treasury for 

International Finance, and Nellie Liang, Director of the Office of Financial Stability Policy and 

Research at the Federal Reserve, who presented a brief update on recent international market 

developments related to Russia and emerging markets. Following the presentation, members of 

the Council asked questions and had a discussion. 

Before moving to the open session of the meeting, the Chairperson provided an update to the 

Council regarding staff work on potential changes to the nonbank financial company 

designations process. Federal Insurance Office Director Michael McRaith also noted that 

authority for the Terrorism Risk Insurance Program will expire and stated that his office would 

monitor related developments and report back to the Council. 
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The Chairperson adjourned the executive session of the meeting at approximately 11:22 A.M. 

(EST).

Open Session

The Chairperson called the open session of the Council meeting to order at approximately 11:28 

A.M. (EST). The agenda for the open session of the meeting included: (1) two updates on the 

2014 Council annual report; (2) a presentation on the OFR’s annual report and Financial Stability 

Monitor; (3) a vote on publication of a Federal Register notice seeking public comment on asset 

management products and activities; and (4) consideration of, and a vote on, a resolution 

approving the minutes of the Council’s meeting on November 3, 2014. 

The Chairperson noted Congress’s modification the prior week of the so-called “swaps push-out” 

provision of the Dodd-Frank Act and said it was a step in the wrong direction in that it pared 

back an element of the Dodd-Frank Act aimed at reducing taxpayer exposure to derivatives

activities within banks. The Chairperson also said, however, that the new and comprehensive 

architecture for swaps regulation in Title VII of the Dodd-Frank Act remains and that regulators

have a duty to fully implement these critical reforms. 

More broadly, the Chairperson observed that the Council has worked together vigorously on 

implementing the Dodd-Frank Act since its 2010 enactment and that the law represents the most 

comprehensive set of reforms to the financial system since the Great Depression. He stated that 

he and the President remain committed to defending the Dodd-Frank Act, and that implementing 

the Dodd-Frank Act has been a core recommendation in the Council’s annual report for the past 

four years. 

1. 2014 Council Annual Report Update 

a. Cybersecurity

The Chairperson then introduced Amias Gerety, Counselor to the Secretary of the Treasury for 

Financial Institutions, and Comptroller of the Currency Thomas Curry, who provided updates 

related to cybersecurity.

Mr. Gerety explained that cyber-related vulnerabilities are a top priority of the Council and have 

remained a considerable threat to financial stability since the Council’s 2012 annual report 

identified them as such. He reported that in early 2013, the Chairperson hosted over 50 bank 

chief executive officers at the Treasury Department to receive a classified briefing on 

cybersecurity threats, and in summer 2014, the Chairperson and Deputy Secretary of the 

Treasury Sarah Bloom Raskin convened principal-level engagement on strategic matters related 

to cybersecurity through the Financial and Banking Information and Infrastructure Committee 

(FBIIC).

Mr. Gerety reported that awareness and resilience efforts also continue in the private sector 

through the Financial Services Sector Coordinating Council (FSSCC), which includes the largest 

financial services firms and relevant trade groups. In addition to routine, direct contact with 
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individual government agencies and private-sector firms, Mr. Gerety stated that the Treasury 

Department coordinates regularly with the intelligence and law enforcement communities who 

respond to incidents and also set strategic policy and planning related to cybersecurity. 

Mr. Gerety noted that malicious cyber activity is likely to continue and that the Council’s 2014 

annual report recommended specific actions to help reduce risks associated with that activity, 

including efforts to enhance information sharing, improve best practices, and support incident 

response efforts. As to information sharing, Mr. Gerety stated that private firms continue to join 

the financial sector’s Information Sharing and Analysis Center (FS-ISAC), which now includes 

close to 6,000 members. He reported that last month, the Federal Financial Institutions 

Examination Council (FFIEC) publicly recommended that financial institutions of all sizes 

participate in information-sharing organizations. He also stated that the government continues to 

distribute unique information about cyber threats quickly to network defenders to enable 

effective cyber defense.

Turning to best practices, Mr. Gerety reported that FBIIC continues to encourage firms to 

implement the National Institute of Standards and Technology’s Framework for Improving 

Critical Infrastructure Cybersecurity. This framework lays out a model for considering cyber 

risk based on five functions: identify, protect, detect, respond, and recover. Mr. Gerety stated 

that one important aspect of the framework is that it considers the management of third-party 

service providers, which offer essential services to the financial sector, as requiring appropriate 

oversight. He said that regulators have recognized the value of this framework, citing the SEC’s

recommendation of the framework as a tool for exchanges and other entities required to comply 

with the SEC’s newly adopted Regulation SCI. Mr. Gerety also stated that the financial sector 

continues to adapt and tailor the framework, noting that the Securities Industry and Financial 

Markets Association is developing auditable standards for the framework that firms can use to 

evaluate their own practices, as well as those of their suppliers, business partners, and third-party 

vendors. 

In connection with incident response, Mr. Gerety described the FBIIC’s work in conjunction 

with the FSSCC; the Department of Homeland Security; and others in the national security, law 

enforcement, and intelligence communities on a series of cybersecurity simulation exercises to 

improve cyber incident response preparedness. While recognizing that synchronizing complex 

incident responses across multiple organizations and sectors poses operational, legal, and 

strategic challenges, he stated that acting on the lessons learned from these exercises would 

improve response planning. 

In conclusion, Mr. Gerety stated that the FBIIC would continue to improve its coordination with 

applicable organizations and also continue to brief the Council on its efforts. 

Comptroller Curry then presented on the FFIEC’s cybersecurity efforts. He reported that 

cybersecurity is a top priority for all FFIEC members and the FFIEC’s work is leveraging the 

examination and supervisory authorities the banking regulators already have to this end. He 

described a multi-pronged approach to cybersecurity that involves ongoing communications 

about emerging threats and risks, supervisory policies and standards, and ongoing supervision to 

assess compliance of both financial institutions and key third-party technology service providers. 
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Comptroller Curry stated that the FFIEC has established a cybersecurity and critical 

infrastructure working group that over the past year has hosted a webinar for community bank 

executives with over 5,000 registrants, launched a cybersecurity web page, and published 

numerous joint statements on the risks posed by specific cyber threats and wide-scale 

vulnerabilities. He reported that agencies, through the FFIEC, also piloted a cybersecurity exam 

work program over the summer at over 500 community institutions, an assessment focusing on 

five key areas: cybersecurity risk management and oversight, threat intelligence and 

collaboration, cybersecurity controls, external dependency management, and cyber incident 

management resilience. 

Comptroller Curry stated that the FFIEC released its general observations report from this 

assessment, which addresses a range of risks and provides suggested considerations for 

management and directors to consider in assessing their institutions’ preparedness. He noted that 

the report also lists sound practices, such as setting an appropriate tone at the top and recognizing 

the critical first line of defense bank employees play, maintaining sufficient awareness of 

cybersecurity threats and vulnerabilities, joining FS-ISAC to help monitor threats and emerging 

risks, and establishing and routinely testing incident response plans throughout the institution to 

strengthen the ability to address breaches that occur. He stated that the FFIEC hopes to use 

results of assessments to inform additional steps to further strengthen the banking sector against 

cyber threats. Comptroller Curry thanked his FFIEC colleagues for their cybersecurity work. 

FDIC Chairman Martin Gruenberg then underscored Comptroller Curry’s FFIEC’s comments, 

emphasizing that cyber risks are among the key operational risks the industry faces. He noted 

that the FFIEC is particularly focused on the cybersecurity risks posed to community banks. 

Chairman Gruenberg also thanked the Chairperson for the leadership the Treasury Department 

has taken on this issue. 

Louisiana Office of Financial Institutions Commissioner John Ducrest also thanked Comptroller 

Curry for his FFIEC leadership and noted that the FFIEC’s work has helped those who regulate 

both small and large institutions to present a common message. 

Director McRaith asked Mr. Gerety about the Treasury Department’s view on cyber risk 

insurance. Mr. Gerety responded that while having cyber risk insurance will not prevent attacks, 

the underwriting process could be helpful in highlighting risks. He observed that cyber risk 

insurers could play a role in response and recovery from cyber events and help their 

policyholders adopt best practices for their response and recovery plans. 

FHFA Director Melvin Watt then stated that the FHFA had issued an advisory bulletin on 

cybersecurity in May covering seven areas and that the FHFA’s new inspector general is making 

cybersecurity a priority for oversight. 

NCUA Chair Debbie Matz acknowledged Comptroller Curry’s work as FFIEC chairman. She 

also explained the NCUA is the only financial services regulator without vendor authority and 

described this as a challenge to providing oversight in this arena. She said she would continue to 

call on Congress for this authority. 
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The Chairperson then thanked the presenters and recognized Comptroller Curry’s leadership in 

the FFIEC. He also noted Deputy Secretary of the Treasury Sarah Bloom Raskin’s work in 

fostering principal-level involvement among financial regulatory agencies. The Chairperson 

expressed the hope that industry will participate in the FS-ISAC.

b. Interest Rate Risk

The Chairperson recognized Trent Reasons, Senior Policy Advisor at Treasury, who presented

on the ongoing work of the Council’s Systemic Risk Committee related to monitoring interest 

rate risks and preparedness for potential rate shocks. 

Mr. Reasons stated interest rate risk and the preparedness of financial firms against potential rate 

shocks has been an important issue for the Council since its first annual report. He stated that the 

Council’s efforts have complemented individual member agencies’ longstanding efforts by 

providing greater visibility of the risks across different types of institutions, markets, and asset 

classes. He noted there are signs of “reach for yield,” where some investors and institutions 

significantly increase their risk profiles for incrementally higher yields, and that this makes 

continued monitoring and vigilance by member agencies, regulators, and supervisors crucial. 

With respect to depository institutions, Mr. Reasons described uncertainties in modeling deposit 

behavior given post-crisis deposit growth but delineated some steps member agencies have taken 

to evaluate the resilience of deposit funding for the institutions they supervise in the event of 

interest rate shocks.

With respect to broker-dealer institutions, Mr. Reasons stated that persistently low rates have 

lowered volatility and trading volume while spurring new corporate issuance in debt and equity 

and other investment banking activity. He explained that while certain measures of brokerdealer risk have declined, an overall decline in market volatility has been the key driver and new 

measures, such as stressed value at risk or SVaR, are helping to confirm the derisking of some 

broker-dealers.

Finally, Mr. Reasons described continued investment margin pressure on life insurers and 

heightened reinvestment risk stemming from the continued low interest rate environment. He 

stated that life insurers have extended portfolio duration and moved gradually toward lower-rated

credit. He also reported that risk-based capital ratios have continued to improve gradually but 

expressed concern that some insurance companies could be less resilient in the event of a rapid 

increase in rates. 

Federal Reserve Chair Janet Yellen then stated that the Federal Reserve recognizes low rates can 

encourage reach for yield and taking additional credit or duration risk or increasing leverage to 

boost margins. She said the Federal Reserve has paid close attention to these risks at the 

institutions it supervises and more broadly in the financial system while also working with those 

firms to increase their resilience to possible credit or interest rate shocks. She reported that 

Federal Reserve supervisors periodically estimate the effects of a variety of interest rate 

scenarios on banks’ earnings and capital, including loan securities and deposits. Chair Yellen 

also stated that she and her colleagues on the Federal Open Markets Committee have the goal of 
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communicating as clearly as possible about monetary policy to avoid unnecessary surprises that 

could lead to sharp, unanticipated interest rate movements. 

Next, Chairman Gruenberg stated that the FDIC has been monitoring interest rate risk regularly 

in the quarterly banking profiles it has been issuing and noted the potential risk for institutions

investing in higher-yielding securities; he stated that the FDIC has focused on this dynamic in its

supervisory capacity. He noted that the FDIC periodically releases its Supervisory Insights 

journal and that an installment released on the morning of December 18 focuses on insured 

depository institutions’ management of interest rate risk.

North Dakota Insurance Department Commissioner Adam Hamm asked Mr. Reasons to compare 

life insurance industry risk taking today with historical levels. Mr. Reasons responded that while 

there clearly is increased risk taking, it should be considered not just in nominal terms but as a 

percentage of total portfolio assets. As a percentage of invested assets, Mr. Reasons stated that 

risk growth has been only gradual and still remains below pre-crisis levels. He clarified that his 

observations apply to the U.S. life industry as a whole and not to any particular insurer. 

4. Office of Financial Research Annual Report and Financial Stability Monitor 

The Chairperson then introduced OFR Director Richard Berner and Associate Director for 

Current Analysis Rebecca McCaughrin to make a presentation about the OFR’s recent annual 

report and the Financial Stability Monitor, which the OFR has updated since first unveiling it in 

its 2013 annual report. 

Director Berner described three key risks identified in the OFR’s annual report: excessive risktaking during an extended period of low interest rates and low volatility; an increase in market 

fragility resulting in declining market liquidity and persistent risks of asset fire sales and runs; 

and the migration of financial activity away from banks toward non-traditional venues that are 

less regulated and where the threats could be significant, but are more difficult to assess.

Ms. McCaughrin then presented on the OFR’s Financial Stability Monitor, which she described 

as one of the key tools in monitoring and reporting on threats to financial stability. She stated 

that the OFR introduced the tool in its annual report last year to track and quantify the 

vulnerabilities and conditions that may weigh on financial stability and that the OFR has refined 

the framework in two respects this year: expanded metrics and testing all the indicators 

underpinning the monitor to gauge reliability. 

Ms. McCaughrin stated that the OFR adopted a risk-based approach to assessing and monitoring 

threats and organized the indicators in five functional areas of risk: macroeconomic risk, market 

risk, credit risk, funding and liquidity risk, and contagion. She described two advantages of this 

approach. First, she stated that these risks are aligned with the services a well-functioning 

financial system should provide, such as credit allocation, provision of leverage, maturity 

transformation, risk transfer, and liquidity intermediation. Second, she stated that it allows 

tracking risks across the system, rather than in any particular institution or market. 
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Ms. McCaughrin stated that the monitor currently suggests overall threats are not high when 

compared to, for example, the peak of the financial crisis, but that there are a few areas where 

risks have intensified and several indicators are approaching values that were seen before the 

crisis, including duration risk, valuations in some market segments, and credit positions. She 

stated that while most measures of funding remain stable, market liquidity remains a concern. 

 

Ms. McCaughrin reported that credit risks among non-financial companies also warrant scrutiny. 

While many measures of credit risk look benign, she explained that this may be a reflection of 

low interest rates. She stated that other evidence increasingly shows the corporate credit cycle is 

in its latter stages as seen, for example, in rising balance sheet leverage, less-productive use of 

debt proceeds, and looser bank lending conditions. The OFR believes that these require further 

analysis and scrutiny. Ms. McCaughrin stated that the monitor does not predict when or how 

material shocks could materialize, but rather it is one tool to identify vulnerabilities that shocks 

could expose and is part of systematic monitoring and research efforts.

5. Asset Management Federal Register Notice

The Chairperson then provided an update on the Council’s ongoing assessment of potential risks 

in the asset management industry. He explained that based on efforts including a public 

conference earlier this year on asset management, the Council had identified certain areas of 

interest that warrant further review and analysis. The Chairperson described a proposed Federal 

Register notice that would seek public comment on potential risks to U.S. financial stability from 

asset management products and activities. He stated the notice would request information about 

risks in four areas: liquidity and redemption, leverage, operational functions, and resolution. 

SEC Chair Mary Jo White stated that she supports the decision to seek comment on the issues 

identified in the proposed notice and looks forward to public input on these important and 

complex issues. She stated that the SEC has regulated asset managers since 1940, adding that 

the industry is constantly evolving and presents new challenges and risks, which the SEC’s 

regulatory program addresses. She stated that systemic risks, by definition, cannot be addressed 

by any single agency alone and the Council is an important forum for identifying and studying 

systemic risk. She described the proposed request for comment as a constructive complement to 

the SEC’s initiatives. 

Chair Yellen stated that the asset management initiatives described in the proposed Federal 

Register notice are critically important given the increased amount of credit market debt that has 

flowed to this sector in the past few years. She stated that the Council’s efforts can be an 

important complement to the SEC’s efforts and that the Council may want to evaluate whether 

financial stability risks could arise from liquidity risks, leverage, and interconnectedness, even if 

policies are in place to protect individual investors in funds. She stated she was particularly 

attuned to the risks of the build-up of leverage across the financial system. She also voiced 

support for the notice, describing it as a way to help the Council better understand how and to 

what extent different types of investment funds use derivatives and how they manage the risks 

from such exposures. She stated her hope that the notice also would provide insight on how 

funds manage the liquidity of their asset holdings to meet redemption requests. She 
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complimented the staff for its work and said she looks forward to public comments on whether 

and how certain asset management products and activities could create risks to financial stability.

Chairman Gruenberg concurred with Chair White and Chair Yellen and stated that the proposed 

Federal Register notice aptly lays out the key issues for the Council to consider and on which to 

receive public comments. 

Comptroller Curry thanked the Council staff for its work on the Federal Register notice, stated 

that he supported the notice, and commented that the relevant perspective for the Council is not 

performance in the ordinary course of business but rather a focus on periods of financial distress. 

CFPB Director Richard Cordray concurred with publication of the Federal Register notice and 

also stated that the Council intends to move forward rapidly with assessing the asset management 

sector of the economy. He also stressed the importance of collecting additional data related to 

asset management products and activities to further inform the work of the Council in this area. 

CFTC Chairman Timothy Massad also expressed support for publishing the notice. He 

emphasized that the Council’s purpose is focused on risks to financial stability. 

Independent member Roy Woodall stated support for the notice and especially encouraged 

insurance companies, regulators, and experts to provide input to the Council. He expressed a 

particular interest in views on redemption risk for certain insurance products and how it is 

distinct from the risk that other asset management products face. 

The Chairperson stated that the Council needs to be alert to risks stemming from evolving 

financial markets and respond with appropriate policy tools and that the request for comment 

goes to the very core of the Council’s responsibilities. He also said that the Council had no 

predetermined view about the conclusions to draw or actions to take following the notice. He 

thanked the staff and Council members for their work on the proposed notice and then presented 

to the Council the following resolution. 

“WHEREAS, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “DFA”) 

established the Council to identify risks to the financial stability of the United States, promote 

market discipline, and respond to emerging threats to the stability of the U.S. financial system; 

and 

WHEREAS, over the past year the Council has been engaged in work to analyze risks associated 

with the asset management industry and whether any such risks could affect U.S. financial 

stability; and

WHEREAS, the Council is evaluating industry-wide products and activities to assess potential 

risks associated with the asset management industry; and 

WHEREAS, certain areas of interest have been identified as warranting further review and 

analysis, particularly whether risks associated with liquidity and redemptions, leverage, 
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operational functions, and resolution in the asset management industry could affect U.S. 

financial stability; and 

WHEREAS, the staffs of the Council Members and their Agencies have prepared the attached 

“Notice Seeking Comment on Asset Management Products and Activities” (the “Notice”). 

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

authorizes the Chairperson, or his designee, to cause the Notice to be published in the Federal 

Register, in a form and manner acceptable to the Chairperson or his designee, and to otherwise 

make it available to the public as the Chairperson 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 

Notice to ensure that the Council can issue and publish the Notice in the Federal Register, and to 

take such other actions and issue such other documents incident and related to the foregoing as 

they deem 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. 

6. Resolution Approving the Minutes of the Meeting held on November 3, 2014. 

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

minutes attached hereto of the meeting held on November 3, 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 12:17 P.M. (EST).