Minutes of the Financial Stability Oversight Council

April 21, 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)

Michael J. Hsu, Acting Comptroller of the Currency, Office of the Comptroller of the Currency 

(OCC)

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 State 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

Nami Mukasa, Associate Director and Chief of Staff, 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

Rahul Varma, Acting Deputy Director, Division of Market Oversight

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

Jay Gallagher, Senior Deputy Comptroller for Supervision Risk and Analysis

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 (via videoconference)

New York State 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

Dylan White, Associate General Counsel, North American Securities Administrators Association

PRESENTERS:

Update on Market Developments

• David Bowman, Senior Associate Director, Division of Monetary Affairs, Federal 

Reserve (available for questions)
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Hedge Fund Working Group Update

• Ron Alquist, Senior Policy Advisor, Office of the Financial Stability Oversight Council, 

Treasury (via videoconference)

• Alexandra Somers, Senior Policy Advisor, Office of the Financial Stability Oversight 

Council, Treasury

• Michelle Danis, Assistant Director, Risk Supervised Broker-Dealer Program, SEC 

(available for questions) (via videoconference)

• Jay Kahn, Senior Economist, Federal Reserve (available for questions) (via 

videoconference)

• Neth Karunamuni, Quantitative Analyst, OFR (available for questions) (via 

videoconference)

Nonbank Mortgage Servicing Task Force

• Greg Keith, Senior Vice President and Chief Risk Officer, Government National 

Mortgage Association (Ginnie Mae)

• Karen Pence, Deputy Associate Director, Division of Research and Statistics, Federal 

Reserve

• Kevin Silva, Associate Director, Enterprise Counterparty Financial Standards, FHFA

• Jeffrey Levine, Principal, Markets Group, Federal Reserve Bank of New York (available 

for questions) (via videoconference)

• Alanna McCargo, President, Ginnie Mae (available for questions) (via videoconference)

• Anna Mwangi, Senior Financial Analyst, FHFA (available for questions) (via 

videoconference)

• Sam Valverde, Executive Vice President and Chief Operating Officer, Ginnie Mae 

(available for questions)

Proposed Analytic Framework on Financial Stability Risks and Proposed Guidance on Nonbank 

Financial Company Designations

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

Executive Session

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

approximately 9:59 A.M. The Chairperson began by outlining 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 recent market developments, (2) an update on the 

work of the Council’s Hedge Fund Working Group, (3) a presentation on the work of the 

Council’s Nonbank Mortgage Servicing Task Force, and (4) the Council’s proposed financial 

stability risk monitoring framework and its proposed interpretive guidance on nonbank financial 

company designations.

1. Update on Market Developments

The Chairperson introduced the first agenda item, an update on recent market developments. 

She said that while financial conditions had calmed since the Council’s previous meeting and the 

stress in regional banks appeared less acute, it was important that the Council continue to 
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monitor market developments closely for any signs of stress in the financial sector. She asked 

the Federal Reserve and the FDIC to share their perspectives. She turned first to Jerome Powell, 

Chair of the Federal Reserve. 

Chair Powell said that the Federal Reserve expected continued slow or modest growth in 2023. 

He said that while the labor market remained strong, gradual slowing was developing in job and 

wage growth. He said that inflation continued to be too high. He noted that credit standards at 

small and midsize banks were tightening. Chair Powell then turned to Michael Barr, Vice Chair 

for Supervision at the Federal Reserve.

Mr. Barr said that the banking system overall was sound and resilient, with strong capital and 

liquidity. He said that the Federal Reserve was closely monitoring the banking system, including 

monitoring mark-to-market losses on investment securities, and examining uninsured deposits at 

banks, bank exposures to commercial real estate, and potential risks related to the debt limit. He 

said that it would be necessary to address these and other vulnerabilities. 

Mr. Barr then provided a brief update on the transition from LIBOR to alternative reference 

rates, which he had previously discussed at a meeting of the Council on December 16, 2022. He 

noted that Council members have emphasized that the overnight Secured Overnight Financing 

Rate (SOFR) must remain the primary tool for derivatives and capital markets, and the use of 

Term SOFR and other reference rates must remain limited. He reported that CME Group, the 

administrator of the Term SOFR rates, had agreed to embed recommendations by the Alternative 

Reference Rates Committee (ARRC), the private-sector body leading the transition in the United 

States, into its licensing agreement for Term SOFR.

The Chairperson then turned to Martin Gruenberg, Chairman of the FDIC. Chairman Gruenberg

stated that the actions taken by the official sector on March 12, 2023, regarding Signature Bank 

and Silicon Valley Bank (SVB) were an appropriate step that helped to protect uninsured 

depositors and support financial stability. He noted that Signature Bank and SVB had been

placed into bridge banks and sold to regional banks. He said that the FDIC would continue to 

monitor developments. He said that the FDIC intended to release a report regarding the FDIC’s 

supervision of Signature Bank; a report on U.S. deposit insurance risks and policy options; and a 

proposal to implement a special assessment to recover the costs associated with protecting 

uninsured depositors of Signature Bank and SVB. He said that recent developments in the

banking sector had provided lessons regarding financial stability risks.

Council members then asked questions and had a discussion about the recent market 

developments, including at money market funds and hedge funds.

2. Hedge Fund Working Group Update

The Chairperson then turned to the second agenda item, an update on the work of the Council’s 

Hedge Fund Working Group, including its risk monitor. She noted that previous updates to the 

Council on the working group had identified potential financial stability risks associated with

hedge fund activities. She then introduced Alexandra Somers, Senior Policy Advisor in the 

Office of the Financial Stability Oversight Council at Treasury, and Ron Alquist, Senior Policy 
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Advisor in the Office of the Financial Stability Oversight Council at Treasury, for the 

presentation.

Ms. Somers stated that in November 2022, the working group provided the Council with an 

update on its risk assessment, which focused on two questions: how hedge fund-related 

vulnerabilities evolved in 2022, and how potential future shocks could interact with hedge fund 

vulnerabilities to create systemic risks. She said that the update in this meeting would build on 

the working group’s previous analysis and address two topics: the working group’s assessment 

of risks related to hedge funds, with a focus on how funds managed the March 2023 interest rate 

volatility event, and a review of hedge funds’ use of the non-centrally cleared bilateral 

repurchase agreement (repo) market, in light of the findings from the OFR’s bilateral repo data 

collection pilot project that most hedge funds are obtaining repo funding with zero haircuts.

Ms. Somers then addressed risks related to foreign exchange and interest rate volatility. She said 

that macro hedge funds funds largely outperformed the broader hedge fund industry in 2022, 

which she noted may be partly due to historically high levels of leverage. She said that although 

high leverage ratios likely contributed to macro funds’ outperformance, it left them with 

directional rates positions that are vulnerable to unexpected rate changes. Addressing recent 

interest rate volatility, Ms. Somers said that the volatility in interest rate markets following the 

failure of SVB led to significant margin calls and rapid deleveraging at certain hedge funds. She 

said that reports indicated that multiple funds unwound sizable short interest rate positions to 

reduce directional exposures.

Ms. Somers stated that the March 2023 events supported the working group’s view that 

liquidations by highly leveraged hedge funds can contribute to market disruptions even if they 

are not the ultimate source of the adverse shock. She stated that the deterioration in Treasury 

market liquidity in March 2023 was more consistent with the extreme volatility observed. She 

said that the resilience of the Treasury market was partly attributable to the diversity of investor 

flows. She noted that the working group served as an important forum for interagency 

information sharing during this period of market volatility. She said that the SEC’s proposed 

“current reporting” requirement, which would require advisers to report significant stress at a 

fund, and the SEC’s proposed changes to Form PF, which would require more granular data 

reporting on positions, would provide the Council with timelier information than it currently 

receives.

Mr. Alquist then discussed hedge funds’ use of the non-centrally cleared bilateral repo (NCCBR)

market. He said that hedge fund repo borrowing had roughly doubled over the past five years 

and approached $1.25 trillion as of the fourth quarter of 2022. He noted that hedge funds 

generally obtain repo borrowing in two market segments: the NCCBR market and the centrally 

cleared repo market. He said that large hedge funds often use the NCCBR market because 

dealers offer low or zero haircuts, and the funds can obtain customized trade terms. He noted 

that, by contrast, haircuts are higher on Treasury repo in the centrally cleared and tri-party repo 

markets.

Mr. Alquist stated that discussions with member agencies and market participants had indicated 

that the lower haircuts in the NCCBR market are attributable to several factors, including
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bilateral netting practices, cross-product margining, ongoing commercial relationships, and client 

profitability. He said that although netted packages and cross-product margining may reduce 

dealers’ overall counterparty credit exposure, important risks may remain, particularly during 

stress events, as the March 2020 collapse of the Treasury cash-futures basis trade illustrated.

Mr. Alquist stated that analysis by the OFR and market outreach indicated that the prevalence of 

zero-haircut Treasury repo is partially due to the use of netted packages. He said that the OFR 

estimated that 70 percent of hedge fund Treasury repo borrowing and 57 percent of hedge fund 

Treasury repo lending at zero haircuts can be netted. He said that there is also a negative 

relationship between Treasury repo haircut levels and the amount of netting, suggesting that 

netted packages play a role in driving zero haircuts. He stated that the use of zero haircuts is also 

partly attributable to cross-product margining, a practice that depends on the dealer’s commercial 

relationship with the client. He said that market participants report that certain dealers do not 

charge haircuts to clients with which they have a cross-product margining agreement based on 

the legal rights of cross-default. 

Mr. Alquist said that OFR analysis of the NCCBR pilot data found that large hedge funds face 

considerably lower haircuts. He said that because large funds are likely more profitable to the 

dealer, this evidence suggests that more favored clients can get better borrowing terms. 

Addressing possible risks related to zero haircuts, he said that the potential financial stability

risks associated with zero haircuts had become more prominent, given the increased presence of 

hedge funds in Treasury markets in recent years. He said that market participants view netting as 

risk-reducing and their credit exposure as near zero, and he noted that zero haircuts reflect the

liquidity and lower risk of Treasury repo. He noted, however, that zero haircuts permit funds to 

become highly leveraged and take arbitrage positions where price differentials are small. He 

said that these types of trades entail several potential risks, including basis risk, liquidity risk, 

and concentration risk. 

Mr. Alquist said in conclusion that NCCBR zero haircut transactions may represent a structural 

vulnerability during periods of market stress. He stated that shocks to Treasury market liquidity 

or a divergence in the historical relationship between Treasury securities with different maturities 

can cause the assumptions underlying netted packages and cross-margining to break

down and lead to stressed liquidations of highly leveraged positions. He said that the March 

2020 breakdown of the Treasury cash-futures basis trade and its material contribution to the

market disruption underscored this risk. He stated that any policy proposal to address identified 

risks should consider the tradeoffs between reducing excessive volatility in affected markets and 

liquidity provision.

Council members then had a discussion regarding bank exposures to hedge funds, margining 

practices for securities financing transactions, Treasury market liquidity, and data gaps.

3. Nonbank Mortgage Servicing Task Force 

The Chairperson then introduced the next agenda item, a presentation on the Council’s Nonbank 

Mortgage Servicing Task Force. She noted that the Council had described the risks associated 

with nonbank mortgage servicers in its annual reports. She welcomed representatives of Ginnie 

Mae participating in the meeting, including Alanna McCargo, President of Ginnie Mae.
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The Chairperson then introduced Kevin Silva, Associate Director of Enterprise Counterparty 

Financial Standards at FHFA; Greg Keith, Senior Vice President and Chief Risk Officer at 

Ginnie Mae; and Karen Pence, Deputy Associate Director of the Division of Research and 

Statistics at the Federal Reserve, for the presentation.

Mr. Silva stated that the Council restarted meetings of the Nonbank Mortgage Servicing Task 

Force in June 2022 to facilitate interagency coordination and monitoring of risks from nonbank 

mortgage servicing. He said that nonbank origination and servicing market share had grown 

rapidly in the last 10 years as banks exited the space. He noted that as of December 31, 2022, 

nonbanks serviced $6 trillion out of $13 trillion in total single-family mortgage debt outstanding, 

representing a significant increase in nonbank servicing during the COVID-19 pandemic. 

Discussing the reasons why banks were reluctant to return to the mortgage market, Mr. Silva

stated that the bank capital treatment of mortgage servicing rights had made it difficult to 

conduct mortgage servicing at a profitable scale; a rising interest rate environment was making

mortgage origination less profitable; and banks had developed long-term profitability concerns 

about the mortgage origination and servicing business model, among other reasons. He said that 

a nonbank business model is subject to certain fragilities, including high exposure to mortgage 

and interest rate market conditions, concentrated sources of funding, volatile assets holdings, and 

limited emergency liquidity sources. He said that a recent confluence of macroeconomic factors, 

including the rise in mortgage rates and drop in mortgage refinancings, had strained the nonbank 

business model, leading to negative profitability and lower liquidity. He stated that nonbanks 

heavily rely on warehouse credit facilities from depository institutions, and he said that lending

may be vulnerable during strained market conditions.

Mr. Keith stated that a rise in delinquencies could lead to significant liquidity strain at nonbank 

mortgage servicers, because they are typically obligated to make various servicing payments, 

such as property tax and insurance payments on behalf of borrowers. He discussed the results of 

stress testing that Ginnie Mae had conducted to evaluate the ability of Ginnie Mae mortgage 

issuers to withstand certain adverse scenarios. 

Ms. Pence said that systemic nonbank strains could produce a number of adverse consequences, 

and some with potential severe systemic implications. Describing potential risks to consumers, 

she said that servicers experiencing financial distress may be less responsive to customers, 

particularly in instances of loan modifications or forbearance requests. She noted that servicer 

failures may lead to disorderly servicing transfers, with possible harm to consumers. She said 

that given the reduced bank mortgage business over the last decade, widespread failures in the 

nonbank sector would further reduce access to mortgage credit. She also discussed counterparty 

risks to Fannie Mae, Freddie Mac, Ginnie Mae, banks, and other financial institutions. She said 

that private equity funds, hedge funds, and insurance companies are increasingly providing 

longer-duration financing to the nonbank sector, and she noted that these exposures can be 

opaque. 

Mr. Silva stated that agencies were taking a number of steps in nonbank oversight and risk 

management, which were designed to enhance resilience, develop interagency coordination, and 
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promote risk management and monitoring. He said that nonbank mortgage servicers may pose 

both near and long-term challenges for policymakers. He said that staff intended to focus on

interagency coordination, liquidity risks, regulatory and resolution authorities, and oversight of 

mortgage servicing right valuations.

Council members then had a discussion about mortgage servicing rights, liquidity sources, and 

potential steps to address vulnerabilities identified in the presentation. 

4. Proposed Analytic Framework on Financial Stability Risks and Proposed Guidance on 

Nonbank Financial Company Designations

The Chairperson then turned to the next agenda item, the Council’s proposed financial stability 

risk monitoring framework and its proposed interpretive guidance on nonbank financial company 

designations.

She noted that the Council would vote on the two proposals in the open session of the meeting. 

She said that the proposals would continue to be discussed at meetings of the Council and the 

Council’s Deputies Committee over the coming months.

The Chairperson adjourned the executive session of the meeting at approximately 11:22 A.M.

Open Session

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

11:28 A.M.

The Chairperson outlined the agenda for the open session, which included (1) a presentation on 

the Council’s proposed financial stability risk monitoring framework and its proposed 

interpretive guidance on nonbank financial company designations, to be followed by votes on the 

framework and the guidance, and (2) votes on the minutes of the Council’s meetings on February 

10, 2023, March 12, 2023, and March 24, 2023.

1. Proposed Analytic Framework on Financial Stability Risks and Proposed Guidance on 

Nonbank Financial Company Designations

The Chairperson stated that the first agenda item was a discussion and votes on two proposals: 

the Council’s proposed framework for financial stability risk identification, assessment, and 

response, and the Council’s proposed interpretive guidance on nonbank financial company 

designations.

The Chairperson stated that she would first speak about how the recent banking developments 

demonstrated the importance of the actions the Council was about to take. She said that in 

March, the government had taken necessary actions to manage the fallout from the failure of two 

regional banking institutions. She said that the government’s goal was to mitigate the risk of 

contagion and protect the broader banking system and economy. She stated that the situation had 

stabilized in the past few weeks, and the banking system remained sound, with strong capital and 
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liquidity positions. She noted that the Council was continuing to monitor conditions closely. 

She said that these developments offered a reminder of the fear and uncertainty that can 

accompany financial disruptions. She stated that the developments underscored the importance 

of the Council’s work on financial stability and its efforts to continue to improve the resilience of 

a financial system that can support the economy through both good and bad times.

The Chairperson stated that the events of March demonstrated that the Council’s work is not yet 

done. She said that the authority for emergency interventions is critical, as is a supervisory and 

regulatory regime that can help prevent financial disruptions from starting and spreading in the 

first place. She said that she believed the votes the Council would take in the meeting on the two 

proposals would advance these objectives. She said that the Council would first vote to issue, for 

public comment, a proposed analytic framework on financial stability. She said that this 

framework would provide new public transparency into how the Council does its work, including 

how it identifies, assesses, and mitigates risks to U.S. financial stability. She said that this would 

be the first time the Council had published such a document. She stated that the framework 

outlines common vulnerabilities and transmission channels through which shocks can propagate 

through the financial system, and she noted that it lays out how the Council considers the tools it 

uses to address these risks.

The Chairperson stated that the framework emphasizes the importance of taking a 

comprehensive and rigorous approach to the evaluation of U.S. financial stability. She said that 

addressing the diverse range of financial vulnerabilities that exist today, and that may arise in the 

future, requires a broad set of flexible tools. She noted that the Council does not broadly 

prioritize one type of tool over another, but instead examines a risk and designs a response 

intended to mitigate it. She said that the Council would often determine that a risk should be 

addressed by existing regulators, using what is sometimes called an activities-based approach. 

She noted that there may be instances where systemic risks emanate from widely conducted 

activities in a particular sector or market. She noted that the Council had made activities-based 

recommendations in traditional areas like money market and open-end funds, as well as in 

developing areas like crypto-assets. She said that many of these risks and recommendations are 

described every year in the Council’s annual reports. She stated that there may be certain 

instances when systemic risks could emanate from a particular entity that may not be within the 

jurisdiction of a regulator with adequate prudential or supervisory authorities. She stated that in 

this case, an entity-focused approach may be more appropriate. She said that this was why 

Congress gave the Council the authority to designate nonbank financial companies for Federal 

Reserve supervision and enhanced prudential standards. She said that this was also the reason 

why the Council would vote in the meeting on issuing proposed guidance that would enable the 

Council to use the designation tool more effectively, should it be needed.

The Chairperson then stated that the Council was proposing revisions to elements of the 

Council’s existing guidance that had made it difficult to use its nonbank financial company 

designation authority. She said that the existing guidance, issued in 2019, had created 

inappropriate hurdles as part of the designation process. She noted that these additional steps are 

not required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 

Act), and she said that they are neither useful nor feasible. She said that some hurdles were 

based on a flawed view of how financial crises begin and the costs that they impose. She stated 
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that it had been estimated that a designation process with these steps could take six years to 

complete. She said that this was an unrealistic timeline that could prevent the Council from 

acting to address an emerging risk to financial stability before it was too late. She said that the 

designation tool serves as an important part of regulators’ defenses following the 2008 financial 

crisis. She said that designation is an important preventative tool to address systemic risks that 

may arise from a nonbank financial company whose activities or distress could threaten the 

financial system.

The Chairperson stated that the Council was also taking significant steps to ensure that the 

Council’s nonbank financial company designation process is rigorous and transparent. She said 

that the proposed designation guidance provides for strong procedural protections, and she noted 

that these include significant engagement and communication with companies under review, 

designed to minimize administrative burdens on these companies while providing ample 

opportunities to be heard. She said that under the proposal, the Council would also engage with 

the company’s primary regulator during any designation review. She said that through the 

separate proposed analytic framework, the Council would provide the public with more 

information about how nonbank financial company designation fits into the Council’s broader 

approach to financial stability risk monitoring and mitigation.

The Chairperson stated in conclusion that that she believed that the Council’s votes on the two 

proposals were a major step toward strengthening safeguards for the U.S. financial system. She 

said that the Council looked forward to public comments on the proposals. She then introduced 

Sandra Lee, Deputy Assistant Secretary for the Council at Treasury, to provide an overview of 

the proposals.

Ms. Lee stated that the proposed analytic framework describes the approach the Council would 

take in identifying, assessing, and responding to risks to U.S. financial stability. She said that the 

framework would apply regardless of whether a risk relates to a widely conducted activity or to 

specific entities. She said that the proposed analytic framework would not impose obligations on 

any entity but would help market participants and members of the public better understand how 

the Council approaches potential risks. 

Ms. Lee stated that the proposed analytic framework is composed of three parts. First, she said 

that it describes the Council’s monitoring function. She said that under the framework, to enable 

the Council to identify potential risks to U.S. financial stability, the Council would monitor a 

broad range of markets, asset classes, and types of entities. Second, she said that the proposal 

describes how the Council would assess potential risks. She stated that the Council would work 

with regulators to evaluate potential risks to determine whether they merit further review or 

action. She said that the evaluation of a risk would be fact-specific, but she noted that the 

proposed analytic framework highlights vulnerabilities that most commonly contribute to such

risks, such as leverage and liquidity risk, and includes quantitative metrics that the Council may 

use to measure those vulnerabilities. She said that the proposal also explains four transmission 

channels that the Council would use in evaluating the potential for the negative effects of a risk 

to spread to other parts of the financial system. Third, she said that the proposed analytic 

framework describes how the Council would address identified risks. She noted that the Council 

has a range of authorities it may use. She said that under the proposal, in many cases, the 
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Council would work with regulators to seek the implementation of actions to address a risk. She 

stated that, alternatively, the Council may issue recommendations, or it may use one of its

designation authorities. She said that under the proposed analytic framework, the Council would 

not prioritize among its authorities for addressing risks, and she noted that the Council’s actions 

would instead depend on the nature of the vulnerability. As an example, she said that 

vulnerabilities from activities that are widely conducted in a market over which a regulator has 

adequate authority may be addressed through an activities-based approach. She noted that, in 

contrast, an entity-based action may be appropriate where a particular nonbank financial 

company’s distress could pose a threat to financial stability. 

Ms. Lee stated that the second document the Council would consider in the meeting, the 

proposed interpretive guidance on nonbank financial company designations, focuses solely on 

the procedural elements of the Council’s nonbank financial company designation authority. She 

noted that under this authority, the Council may designate a nonbank financial company for 

supervision by the Federal Reserve and prudential standards if the Council determines that 

material financial distress at the company, or the company’s activities, could pose a threat to 

U.S. financial stability. She stated that the proposed nonbank financial company designation 

guidance seeks to establish a durable process for the Council’s designations under section 113 of 

the Dodd-Frank Act. She said that the proposal would enhance the Council’s ability to address 

risks to U.S. financial stability, provide transparency to the public and to firms that are reviewed 

for potential designation, and ensure a rigorous and clear designation process.

Ms. Lee stated that under the proposal, the Council would follow a two-stage process for 

nonbank financial company designations. She said that during stage 1, a company would be 

subject to preliminary analysis, based primarily on information available to the Council through 

public and regulatory sources, and would be notified during the process. She said that if the 

company is selected for additional review, the Council would engage with the company 

extensively during stage 2 as the Council assesses potential risks to financial stability. She said 

that after stage 2, the Council may make a proposed designation, after which the company may 

request an oral hearing. She stated that after any hearing, the Council may vote to make a final 

designation. She said that the Council would encourage a designated company or its regulators 

to take steps to mitigate the identified risks. She said that the Council would reevaluate the 

designation at least annually, including further engagement with the firm and its regulators, and 

would rescind the designation if the Council determines that the company no longer meets the 

statutory standards for designation. 

Ms. Lee stated that the proposed nonbank financial company designation guidance addresses 

only the Council’s procedures related to designations. She said that the risk factors the Council 

would consider are described in the separate proposed analytic framework document. She said 

that the proposed nonbank financial company designation guidance does not include two analytic 

factors that were added to the existing guidance in 2019: statements that the Council would 

consider the likelihood of a company’s distress and that the Council would conduct a cost-benefit 

analysis of each designation. She said that this change was intended to help enable the Council 

to use its statutory authorities as appropriate while maintaining rigorous procedural protections 

for companies that are reviewed for potential designation.
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Ms. Lee stated in conclusion that the two proposals, if adopted, would result in a more 

transparent and effective risk-monitoring process for the Council and would bolster the Council’s 

ability to identify, assess, and address potential risks to U.S. financial stability. 

Following the presentation, the Chairperson invited other Council members to comment.

Chair Powell stated that he supported the proposed nonbank financial company designation 

guidance and proposed analytic framework document. He said that he would vote to approve the 

two proposals for release for public comment. He stated that over a decade had passed since the 

Dodd-Frank Act gave the Council the power to designate nonbank financial companies. He said 

that during that time, the Council had gained insight into such designations. He noted that the 

financial system had continued to evolve, and he said that this evolution underscored that no 

single solution can address every financial stability risk. He said that it was appropriate for the 

Council to regularly assess its toolkit and consider how best to use its full range of tools to 

respond to systemic risks, whether the risk arises from an activity, an event, or a firm. He said 

that he supported the Council’s proposal to publish the analytic risk framework for the first time. 

He said that it provides an overview of how the Council identifies and assesses risks and 

delineates the range of authorities available to the Council under the Dodd-Frank Act. He said 

that it also emphasizes that the actions the Council may take will depend on the nature of the risk 

it intends to address. He said that the nonbank financial company designation guidance 

describes the Council’s method for determining whether to designate a nonbank financial 

company. He noted that the proposal provides for several stages of analysis rooted in the 

analytic risk framework before a designation is approved. He stated that he believed the changes 

proposed by the Council would create a balanced approach to addressing potential risks to U.S. 

financial stability and ensure that all the tools available to the Council remain on an equal 

footing. 

Gary Gensler, Chair of the SEC, stated that he would support the two proposals. He said that 

history provides numerous examples of instances when tremors in one corner of the financial 

system or at one financial institution spill out into the broader economy. He said that these risks 

can originate not only from the banking sector, as had occurred in the previous six weeks, but 

also outside of the banking sector. He reviewed events surrounding the failure of Long-Term 

Capital Management in 1998. He noted that the 2008 financial crisis was much greater in 

magnitude, and said it was another example of systemic risk emanating from both the banking 

sector and the nonbank sector. He noted that millions of people lost their jobs and small 

businesses failed across the United States during the 2008 financial crisis. He said that 

Congress, in response, established the Council and tasked it with important authorities and 

mandates to better guard against systemic risk, recognizing that risks can emanate from both 

banks and nonbank financial companies. He noted that Congress gave the Council the authority 

to designate nonbank financial companies and said that such designation would subject them to 

the regulation and supervision of the Federal Reserve. He said that effective regulation of 

nonbank financial companies designated by the Council is essential to prevent risk spreading to 

the U.S. economy and helps to prevent imposing the cost of the failure of financial entities onto 

taxpayers. 
13

Chair Gensler said that the proposals, if finalized, would reinvigorate the Council’s designation 

process in accordance with its statutory authorities. He expressed support for the comment by 

the Chairperson and Chair Powell that designation is just one tool in the Council’s toolkit. He 

said that each member agency has important roles within its authority to enhance the resiliency 

of the U.S. financial system. He noted that the SEC was collaborating with other member 

agencies to further this goal, by working to enhance the resiliency of the U.S. Treasury market, 

money market funds, open end funds, private funds, clearinghouses, and dealers, and with regard 

to cybersecurity. He added that the SEC had adopted rules to shorten the settlement cycles in 

securities by half. He stated that the Council should build upon the work of the Council’s Hedge 

Fund Working Group. He said that this would involve examining large, interconnected, highly 

levered hedge funds, the associated repo markets for financing, the prevalence of low to zero 

haircuts in such funding, and the extension of leverage from banks and prime brokers. He said in 

conclusion that while it is not possible to remove risk from the U.S. financial system, the Council 

should continue its efforts to identify, manage, and guard against such risks to protect the 

American public.

Chairman Gruenberg stated that he supported the two proposals and believed that they would 

advance the purposes of the Council. He said that the proposals provide transparency into how 

the Council identifies and evaluates risk and they propose a workable framework to use the full 

array of the Council’s tools. He said that the analytic framework for financial stability risk 

identification, assessment, and response outlines the types of risks the Council seeks to monitor, 

flags key transmission channels for those risks to affect the broader financial system, and 

describes the broad range of tools available to the Council for addressing systemic risks, beyond 

the regulatory and supervisory work of the member agencies. He said that he viewed this 

document as the most thorough description of the Council’s approach that had been shared 

publicly. He said that he welcomed this transparency and the opportunity for public comment, 

so that the Council can consider whether it is reviewing the appropriate set of risks and

transmission channels. He said that he also supported the proposed revisions to the Council’s 

guidance for nonbank financial company designations. He said that past crises had demonstrated 

the need for the Council to be prepared to use all its statutory tools to prevent damage to the U.S. 

financial system. He said that designating nonbank financial companies for enhanced 

supervision is one of the Council’s available tools, and he stated that the proposals would 

improve the Council’s ability to use this tool credibly and effectively. He stated that the 

proposed designation guidance would assign responsibility to the Council’s staff-level Systemic 

Risk Committee for regular monitoring and reporting about nonbank financial firms that may 

pose a risk to financial stability and merit further review. He said that the proposals would also 

leverage the work of the Council’s other working groups and committees that bring together 

experts from multiple agencies to undertake specialized risk reviews. He said that this process 

would create a credible systematic review of potential risks in firms across the U.S. financial 

system and enable the Council to utilize effectively all the tools within its authority. 

Michael Hsu, Acting Comptroller of the Currency, stated that he supported the two proposals. 

He said that revising the guidance on nonbank financial company designations is important to 

improve the balance and transparency of the Council’s work. He stated that the new proposed 

analytic framework would make it easier for the Council to explain its analysis of potential risks 

and create an opportunity for richer public input. He said that the two proposals would help 
14

make clear that the Council has access to all the tools provided to it by the Dodd-Frank Act so 

that it can monitor and address risks to U.S. financial stability effectively. He said that recent 

events had underscored the importance to all Americans of having a sound and resilient financial 

system and the importance of the Council having access to the broad range of tools that Congress 

provided it. He said that it is also appropriate that the Council provide transparency to the public 

about how it might consider using these tools. He said that he supported the publication of the 

two documents for public comment in furtherance of these goals. 

Todd Harper, Chairman of the NCUA, stated that he supported the Council’s reconsideration of 

the framework and the process by which it may designate a nonbank financial company. He said 

that the statutory intent of the Dodd-Frank Act was to give the Council a range of flexible tools 

to address potential threats to U.S. financial stability. He noted that this toolkit includes the 

authority to designate a nonbank financial company for consolidated supervision and enhanced 

prudential standards by the Federal Reserve when circumstances warrant it. He said that the 

previous guidance on nonbank financial company designations, finalized in 2019, needlessly 

hampers the ability of the Council to consider and use this tool and establishes an overly lengthy 

and complicated process with various hurdles to doing so. He said that the proposed designation 

guidance is clear, credible, balanced, and consistent and represents a substantial improvement in 

this process. He said that the events of the prior month had provided a reminder that problems at 

one financial institution can develop rapidly and spread into the U.S. financial system. He stated 

that the Council needs to be nimble and proactive in order to be effective, and he expressed his 

support for publishing both proposals. 

Rohit Chopra, Director of the CFPB, expressed a concern that the official sector may experience 

regulatory amnesia when confronting the dangers in the U.S. financial system. He said that 

while the 2008 financial crisis damaged the lives of families across the country, memories 

sometimes fade quickly, including in Washington. He said that a key lesson of the 2008 

financial crisis was the lack of attention paid to systemically important financial institutions that 

were not traditional commercial banks. He noted that major nonbank financial companies were 

not subject to many key requirements that banks faced. He said that after the failure of Lehman 

Brothers, the United States entered into a process that resulted in large bailouts of other financial 

institutions. He said that a key post-crisis reform was the authority granted to the Council to 

designate nonbank financial companies for Federal Reserve supervision and prudential 

standards. He noted that no nonbank financial companies are currently designated by the 

Council. He said that it was reasonable to believe that nonbank financial companies meeting the 

criteria for designation continued to exist. He said that market participants had started to believe 

that the Council lacks credibility with respect to nonbank financial company designation, but he 

said that the Council was taking an important step in the meeting to change this. He stated that 

in 2019, the Council effectively repealed the ability to designate these institutions by adding an 

array of dubious process strictures. He said that two former Secretaries of the Treasury and two 

former Chairs of the Federal Reserve, including Secretary Yellen, predicted that the changes 

would weaken the designation authority. He stated that the two proposals the Council would 

vote on in the meeting, if finalized, would create a clear path for the Council to identify and 

designate nonbank financial companies. He said that this step would help to change the 

perception of market participants that the Council is not fulfilling its statutory mandate. He said 

that this step would also accelerate efforts to identify potential shadow banks for potential 
15

designation. He said that the Council would be better positioned to conduct rigorous analysis of 

risks in a number of sectors, including nonbank mortgage companies, hedge funds and others, 

which he said could potentially lead to designation. He concluded by stating that nonbank 

supervision is one of the CFPB’s most important functions. 

Thomas Workman, the Council’s independent member with insurance expertise, stated that he 

supported issuing the two proposals. 

Following the discussion, the Chairperson presented to the Council the following resolution 

approving the proposed analytic framework for financial stability risk identification, assessment, 

and response:

WHEREAS, the Council’s duties under section 112 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act include monitoring the financial services marketplace in order to 

identify potential threats to U.S. financial stability; recommending to the member agencies 

general supervisory priorities and principles reflecting the outcome of discussions among the 

member agencies; identifying gaps in regulation that could pose risks to the financial stability

of the United States; requiring supervision by the Board of Governors of the Federal Reserve

System for nonbank financial companies that may pose risks to the financial stability of the 

United States in the event of their material financial distress or failure, or because of their 

activities; and making recommendations to primary financial regulatory agencies to apply new 

or heightened standards and safeguards for financial activities or practices that could create or 

increase risks of significant liquidity, credit, or other problems spreading among bank holding 

companies, nonbank financial companies, and United States financial markets; and

WHEREAS, the staffs of the Council members and their agencies have prepared a proposed 

analytic framework (the Proposed Analytic Framework) that describes the approach the 

Council expects to take in identifying, assessing, and responding to certain potential risks to 

U.S. financial stability; and

WHEREAS, the staffs of the Council members and their agencies recommend that the Council 

approve and publish the Proposed Analytic Framework.

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby approves the Proposed 

Analytic Framework and authorizes the Chairperson, or her designee, to cause the Proposed 

Analytic Framework to be published in the Federal Register, in a form and manner acceptable 

to the Chairperson, or her 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 her designee, to make technical, nonsubstantive, or conforming changes to the text of the 

Proposed Analytic Framework to ensure that it can be published in the Federal Register; to 

extend the due date for public comments on the Proposed Analytic Framework; and to take such 

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

Chairperson, or her designee, deems necessary or appropriate to fulfill the Council’s objectives
16

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.

The Chairperson then presented to the Council the following resolution approving the proposed 

guidance regarding nonbank financial company determinations:

WHEREAS, the Council’s duties under section 112 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (the Dodd-Frank Act) include monitoring the financial services 

marketplace in order to identify potential threats to U.S. financial stability; identifying gaps in 

regulation that could pose risks to the financial stability of the United States; and requiring 

supervision by the Board of Governors of the Federal Reserve System (the Federal Reserve) for 

nonbank financial companies that may pose risks to the financial stability of the United States in 

the event of their material financial distress or failure, or because of their activities; and

WHEREAS, section 113 of the Dodd-Frank Act authorizes the Council to determine that a 

nonbank financial company shall be supervised by the Federal Reserve and shall be subject to 

prudential standards if the Council determines 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 the financial stability of the United States; and

WHEREAS, on December 4, 2019, the Council approved interpretive guidance (the 2019 

Interpretive Guidance) that described the approach the Council intended to take in prioritizing 

its work to identify and address potential risks to U.S. financial stability and in making

determinations regarding nonbank financial companies under section 113 of the Dodd-Frank 

Act; and

WHEREAS, the staffs of the Council members and their agencies have prepared proposed 

interpretive guidance (the Proposed Guidance) that would replace the 2019 Interpretive 

Guidance and that describes the process the Council intends to take in determining whether to 

subject a nonbank financial company to Federal Reserve supervision and prudential standards; 

and

WHEREAS, the staffs of the Council members and their agencies recommend that the Council 

approve and publish the Proposed Guidance.

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby approves the Proposed 

Guidance and authorizes the Chairperson, or her designee, to cause the Proposed Guidance to

be published in the Federal Register, in a form and manner acceptable to the Chairperson, or 

her 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 her designee, to make technical, nonsubstantive, or conforming changes to the text of the 

Proposed Guidance to ensure that it can be published in the Federal Register; to extend the due 
17

date for public comments on the Proposed Guidance; and to take such other actions and issue 

such other documents incident and related to the foregoing as the Chairperson, or her 

designee, deems 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.

2. Resolutions Approving the Minutes of the Meetings Held on February 10, 2023, March 

12, 2023, and March 24, 2023

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

attached hereto of the meeting held on February 10, 2023 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.

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

attached hereto of the meeting held on March 12, 2023 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.

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

attached hereto of the meeting held on March 24, 2023 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 12:01 P.M.