ANNUAL REPORT

FINANCIAL STABILITY OVERSIGHT COUNCIL

2022
Financial Stability Oversight Council 1

The Financial Stability Oversight Council (Council) was established by the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank Act) and is charged with three primary purposes:

1. To identify risks to the financial stability of the United States (U.S.) that could arise from the 

material financial distress or failure, or ongoing activities, of large, interconnected bank holding 

companies or nonbank financial companies, or that could arise outside the financial services 

marketplace.

2. To promote market discipline by eliminating expectations on the part of shareholders, creditors, 

and counterparties of such companies that the U.S. government will shield them from losses in 

the event of failure.

3. To respond to emerging threats to the stability of the U.S. financial system.

Pursuant to the Dodd-Frank Act, the Council consists of ten voting members and five nonvoting 

members and brings together the expertise of federal financial regulators, state regulators, and an 

insurance expert appointed by the President.

The voting members are:

•	 the Secretary of the Treasury, who serves as the Chairperson of the Council;

•	 the Chair of the Board of Governors of the Federal Reserve System;

•	 the Comptroller of the Currency; 

•	 the Director of the Consumer Financial Protection Bureau;

•	 the Chair of the Securities and Exchange Commission;

•	 the Chairman of the Federal Deposit Insurance Corporation;

•	 the Chairman of the Commodity Futures Trading Commission;

•	 the Director of the Federal Housing Finance Agency;

•	 the Chairman of the National Credit Union Administration; and

•	 an independent member having insurance expertise who is appointed by the President and 

confirmed by the Senate for a six-year term.

The nonvoting members, who serve in an advisory capacity, are:

•	 the Director of the Office of Financial Research;

•	 the Director of the Federal Insurance Office;

•	 a state insurance commissioner designated by the state insurance commissioners;

•	 a state banking supervisor designated by the state banking supervisors; and

•	 a state securities commissioner (or officer performing like functions) designated by the state 

securities commissioners.

The state insurance commissioner, state banking supervisor, and state securities commissioner serve 

two-year terms. 

Financial Stability Oversight Council
2 2022 FSOC // Annual Report

Statutory Requirements for the Annual Report

Section 112(a)(2)(N) of the Dodd-Frank Act requires that the Council’s annual report address the 

following:

1) the activities of the Council;

2) significant financial market and regulatory developments, including insurance and accounting 

regulations and standards, along with an assessment of those developments on the stability of the 

financial system;

3) potential emerging threats to the financial stability of the United States;

4) all determinations made under Section 113 or Title VIII and the basis for such determinations;

5) all recommendations made under Section 119 and the result of such recommendations; and

6) recommendations—

a) to enhance the integrity, efficiency, competitiveness, and stability of United States financial 

markets;

b) to promote market discipline; and

c) to maintain investor confidence.

Approval of the Annual Report

This annual report was approved by the voting members of the Council on December 16, 2022.

Abbreviations for Council Member Agencies and Member Agency Offices

•	 Department of the Treasury (Treasury)

•	 Board of Governors of the Federal Reserve System (Federal Reserve)

•	 Office of the Comptroller of the Currency (OCC)

•	 Consumer Financial Protection Bureau (CFPB)

•	 Securities and Exchange Commission (SEC)

•	 Federal Deposit Insurance Corporation (FDIC)

•	 Commodity Futures Trading Commission (CFTC)

•	 Federal Housing Finance Agency (FHFA)

•	 National Credit Union Administration (NCUA)

•	 Office of Financial Research (OFR)

•	 Federal Insurance Office (FIO)
Table of Contents 3

Table of Contents

1 Member Statement .................................................................................5

2 Executive Summary................................................................................... 7

Box A: Stress in Global Markets......................................................................................................................13

3 Vulnerabilities, Significant Market Developments, 

and Council Recommendations................................................................17

3.1 Financial Risks............................................................................................................17

3.1.1 Commercial Real Estate......................................................................................................................... 17

3.1.2 Residential Real Estate ..........................................................................................................................19

Box B: The Rapid Rise of Mortgage Rates...................................................................................................... 22

3.1.3 Nonfinancial Corporate Credit............................................................................................................... 23

3.1.4 Short-term Wholesale Funding Markets............................................................................................... 26

3.1.5 Digital Assets........................................................................................................................................ 32

3.2 Financial Institutions................................................................................................. 35

3.2.1 Large Bank Holding Companies........................................................................................................... 35

Box C: The Impact of Interest Rate Risk on Banks, Insurance Companies, and Pension Funds..................... 38

3.2.2 Investment Funds................................................................................................................................. 42

Box D: The Protection Gap and Insurance ..................................................................................................... 49

3.2.3 Central Counterparties......................................................................................................................... 50

Box E: Recent Developments in Commodities Markets ................................................................................. 54

3.3 Financial Market Structure ........................................................................................56

3.3.1 Treasury Markets.................................................................................................................................. 56

3.3.2 Alternative Reference Rates................................................................................................................. 59

3.3.3 Provision of Financial Services by Nonbank Financial Institutions........................................................61

3.4 Operational and Technological Risk..........................................................................66

3.4.1 Cybersecurity........................................................................................................................................ 66

Box F: Cyber Risk Data Collection.................................................................................................................. 68

3.4.2 Third-Party Service Providers............................................................................................................... 70

Box G: The Use of Artificial Intelligence (AI) in Financial Services ..................................................................72

3.5 Climate-related Financial Risk................................................................................... 73

4 Council Activities and Regulatory Developments..................................... 78

4.1 Council Activities....................................................................................................... 78
4 2022 FSOC // Annual Report

4.1.1 Risk Monitoring and Regulatory Coordination.......................................................................................78

4.1.2 Determinations Regarding Nonbank Financial Companies...................................................................79

4.1.3 Operations of the Council......................................................................................................................79

4.2 Safety and Soundness............................................................................................... 79

4.2.1 Enhanced Capital and Prudential Standards and Supervision...............................................................79

4.2.2 Dodd-Frank Act Stress Tests ................................................................................................................ 80

4.2.3 Resolution Planning and Orderly Liquidation ........................................................................................81

4.2.4 Insurance...............................................................................................................................................81

4.3 Financial Infrastructure, Markets, and Oversight ......................................................82

4.3.1 Climate-Related Financial Risks ........................................................................................................... 82

4.3.2 Digital Assets, Payment Systems, and Technological Innovation ......................................................... 83

4.3.3 Derivatives, Swap Data Repositories, Regulated Trading Platforms, Central Counterparties, 

 and Financial Market Utilities............................................................................................................... 85

4.3.4 Securities and Asset Management....................................................................................................... 85

4.3.5 Accounting Standards ...........................................................................................................................87

4.3.6 Bank Secrecy Act/Anti-Money Laundering Regulatory Reform..............................................................87

4.4 Mortgages and Consumer Protection ......................................................................88

4.4.1 Mortgages and Housing Finance.......................................................................................................... 88

4.4.2 Consumer Protection............................................................................................................................ 88

4.5 Data Scope, Quality, and Accessibility ......................................................................89

4.5.1 Data Scope ........................................................................................................................................... 89

4.5.2 Data Quality.......................................................................................................................................... 89

5 Select Council Member Agency Publications on Financial 

and Regulatory Developments ................................................................ 91

6 Abbreviations .........................................................................................93

7 Glossary.................................................................................................. 97

8 List of Charts ........................................................................................ 103

9 Endnotes................................................................................................107
Member Statement 5

The Honorable Kamala D. Harris

President of the Senate

United States Senate

The Honorable Charles E. Schumer

Majority Leader

United States Senate

The Honorable Mitch McConnell

Republican Leader

United States Senate

Jerome H. Powell

Chair

Board of Governors of the Federal Reserve System

Rohit Chopra

Director

Consumer Financial Protection Bureau

Martin J. Gruenberg

Acting Chairman

Federal Deposit Insurance Corporation

Sandra L. Thompson

Director

Federal Housing Finance Agency

Thomas E. Workman

Independent Member Having Insurance Expertise

Financial Stability Oversight Council

The Honorable Nancy Pelosi

Speaker of the House

United States House of Representatives

The Honorable Kevin McCarthy

Republican Leader

United States House of Representatives

Janet L. Yellen

Secretary of the Treasury

Chairperson, Financial Stability Oversight Council

Michael J. Hsu

Acting Comptroller of the Currency

Office of the Comptroller of the Currency

Gary Gensler

Chair

Securities and Exchange Commission

Rostin Behnam

Chairman

Commodity Futures Trading Commission

Todd M. Harper

Chairman

National Credit Union Administration

1 Member Statement 

In accordance with Section 112(b)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection 

Act, for the reasons outlined in the annual report, I believe that additional actions, as described below, 

should be taken to ensure financial stability and to mitigate systemic risk that would negatively affect 

the economy: the issues and recommendations set forth in the Council’s annual report should be 

fully addressed; the Council should continue to build its systems and processes for monitoring and 

responding to emerging threats to the stability of the U.S. financial system, including those described 

in the Council’s annual report; the Council and its member agencies should continue to implement the 

laws they administer, including those established by, and amended by, the Dodd-Frank Act, through 

efficient and effective measures; and the Council and its member agencies should exercise their 

respective authorities for oversight of financial firms and markets so that the private sector employs 

sound financial risk management practices to mitigate potential risks to the financial stability of the 

United States.

Executive Summary 7

in the Treasury market as measured by the 

Merrill Lynch Option Volatility Estimate (MOVE) 

index to reach levels last seen in early 2020. The 

dollar’s exchange value against a basket of major 

currencies appreciated notably and remains 

at two-decade highs. Corporate bond spreads 

widened to levels near longer-run historical 

averages. Broad equity market indexes dropped 

considerably, and the CBOE Volatility Index 

(VIX), which provides a market estimate of the 

expected volatility of the Standard and Poor’s 

(S&P 500) Index, periodically rose above 30, a 

level commonly considered as elevated by market 

participants.

Reflecting greater market volatility, liquidity in 

fixed-income markets has declined, although 

investors continue to be able to execute trades, 

albeit at somewhat higher costs. Bid-ask spreads 

in Treasury markets widened, and market depth 

measures worsened, though levels are much 

lower than seen in March 2020. Liquidity in other 

markets deteriorated, particularly those most 

directly affected by commodity and agricultural 

price shocks. Corporate bond bid-ask spreads 

also widened, although they remained below 

the levels seen at the onset of the COVID-19 

pandemic.

Nonfinancial firms, commercial real estate 

borrowers, and municipalities faced higher 

borrowing costs in capital markets. Even so, 

bank lending remains robust, and in particular, 

lending to nonbank financial institutions (NBFIs) 

continued to increase notably. In the residential 

real estate market, mortgage rates rose sharply, 

the rate of house price increases slowed, and 

prices dropped in some markets. As a result, 

while aggregate mortgage credit grew, the pace 

of new mortgage originations decelerated amid 

higher rates.

Some commodity markets experienced significant 

strains, especially at the onset of Russia’s war 

against Ukraine. The price of oil rose notably, and 

natural gas prices jumped sharply, particularly 

The Council’s 2022 annual report reviews 

significant financial market developments, 

describes potential emerging threats to U.S. 

financial stability, identifies vulnerabilities in the 

financial system, and makes recommendations 

to mitigate them. Significant unaddressed 

vulnerabilities could potentially disrupt the 

provision of critical financial services, such as 

the clearing of payments, provision of liquidity, 

and the availability of credit needed to support 

economic activity. The annual report also 

summarizes notable regulatory developments 

and reports on the activities of the Council.

Since last year’s report, U.S. economic growth 

has slowed, reflecting a confluence of factors, 

including the unprovoked Russian war against 

Ukraine in February and the Federal Reserve’s 

tightening of monetary policy to reduce inflation. 

Russia’s war has caused the deaths of tens of 

thousands of people and displaced millions 

more, and energy and food prices have climbed. 

Meanwhile, supply chain disruptions lingered 

even as the acute phase of the COVID-19 

pandemic passed. Global growth also slowed 

amid heightened economic uncertainty and 

contributed to financial and economic stress.

Inflation rose globally, and the Federal Reserve 

and other major central banks tightened 

monetary policy. The target range for the federal 

funds rate was at its effective lower bound at the 

beginning of 2022, and by November, the Federal 

Reserve had raised the target range to 3.75% to 

4%. The Federal Reserve also began to reduce 

the size of its balance sheet, which had expanded 

notably due to its response to the market turmoil 

at the onset of the COVID-19 pandemic in March 

2020.

Financial conditions tightened sharply as 

Treasury yields rose, corporate and mortgage 

risk spreads widened, and equity prices fell. The 

10-year nominal U.S. Treasury security yield 

rose to its highest level since 2007. Economic 

uncertainty led to implied interest rate volatility 

2 Executive Summary
8 2022 FSOC // Annual Report

spirals at U.S. levered intermediaries appeared 

to be absent. U.S. central counterparties for 

commodities ably managed the heightened 

volatility witnessed earlier this year, and initial 

and variation margins built up to guard against 

risk. Households still have significant savings, 

and aggregate household balance sheets are 

solid. Businesses have considerable cash buffers 

and can service debt burdens. That said, a shock 

leading to unexpected interest rate increases or 

other market turmoil could lead to increases in 

defaults or difficulties servicing debt burdens, 

including for residential or commercial real estate 

exposures.

The Council has identified 14 specific financial 

vulnerabilities. This report reviews these 

vulnerabilities, which fall into a range of broader 

categories: financial risks, financial institutions, 

financial market structure, operational and 

technological risks, and climate-related financial 

risk. This report also describes the Council’s 

recommendations for mitigating the identified 

vulnerabilities.

Financial Risks

The Council has identified five vulnerabilities 

associated with market and credit risk: 

Commercial Real Estate, Residential Real Estate, 

Nonfinancial Corporate Credit, Short-term 

Wholesale Funding Markets, and Digital Assets.

Because of their scale and leverage, the 

commercial real estate (CRE) and residential real 

estate sectors have the potential to increase risks 

to U.S. financial stability significantly. Uncertain 

economic conditions and rising borrowing 

costs have increased risk in both sectors. The 

Council recommends supervisors and financial 

institutions monitor exposures and ensure the 

adequacy of credit loss allowances.

Rising interest rates and slower economic 

growth have led to an increase in the credit risk 

of some nonfinancial corporate borrowers. If 

credit quality worsened significantly, a potential 

wave of defaults could lead to large redemptions 

at investment funds with significant liquidity 

mismatches, and in turn, disrupt market 

functioning. The Council recommends that 

in the European market. Global agricultural 

commodity prices surged, with the price of wheat, 

a major export good for Ukraine and Russia, 

increasing relatively more than other products. 

Pressures in the London nickel market led to 

price spikes and a multi-day trading halt at one 

exchange.

The decline in traditional asset prices was 

magnified in crypto-asset markets. Widely-traded 

crypto-assets experienced sharp price drops, 

with Bitcoin losing more than half of its value, 

and there were runs at multiple algorithmic 

stablecoins. Meanwhile, in November, cryptoexchange FTX and some affiliated firms declared 

bankruptcy. Alongside these developments, 

consumer and investor complaints about 

crypto activities continue to mount. While the 

scale of crypto-asset activities has increased 

significantly in recent years, interconnections 

with the traditional financial system are currently 

relatively limited, so these events left little imprint 

on broader financial markets.

In the United Kingdom (UK), a steep rise in 

UK government bond (gilt) yields following 

the announcement of a new fiscal package in 

September 2022 led to broad-based forced selling 

by leveraged UK liability-driven investment funds. 

In line with its financial stability objective, the 

Bank of England purchased gilts to help restore 

market functioning and reduce any risks from 

contagion to credit conditions for households and 

businesses. This targeted action helped to limit 

spillovers, including to U.S. markets.

Amid heightened geopolitical and economic 

shocks and persistent inflation, risks to the U.S. 

economy and financial stability have increased 

even as the financial system has exhibited 

resilience to date. The U.S. banking system has 

significantly higher capital and liquidity levels 

than before the 2008 financial crisis, which has 

increased its ability to absorb potential losses and 

disruptions in funding markets. Asset valuation 

pressures have moderated, leaving markets less 

susceptible to an abrupt repricing of risk. The 

U.S. markets and financial firms largely shrugged 

off the volatility prompted by the leveragedinduced forced selling in the UK. More generally, 

despite the wave of shocks this year, destabilizing 
Executive Summary 9

Financial Institutions

The Council has identified vulnerabilities related 

to three types of financial institutions: Large Bank 

Holding Companies (BHCs), Investment Funds, 

and Central Counterparties (CCPs).

Large BHCs perform essential banking functions 

such as providing credit to commercial and retail 

borrowers, helping firms raise capital, hedging 

risk, providing asset management and custody 

services, and facilitating clearing and settlement. 

The stability of these organizations is critical to 

the global financial system. Large BHCs face a 

challenging environment that includes rising 

interest rates, increased concerns about the 

economic outlook and its potential impact on 

credit quality, and continued cyber security 

threats. The Council recommends that banks and 

banking supervisors assess the adequacy of their 

capital, including unrealized losses on securities 

portfolios. The Council encourages agencies and 

financial institutions to ensure their stress-testing 

methodologies reflect plausible tail risks given 

changing economic conditions. The Council also 

recommends that banking agencies continue 

monitoring bank exposures to NBFIs, including 

assessing how banks manage their exposure to 

leverage in the nonbank financial sector.

The Council has identified vulnerabilities 

in hedge funds, open-end funds, certain 

collective investment funds, and money market 

funds (MMFs) due to their scale, leverage, 

interconnectedness, and ability to engage in 

liquidity and maturity transformation. Some 

of these vulnerabilities have the potential to 

amplify shocks, including recent unexpectedly 

persistent inflation and the associated rise in 

interest rates. The Council supports the initiatives 

by the SEC and other agencies to address risks in 

hedge funds, including proposed data collection 

improvements for Form PF. The Council will 

continue to review the findings of its Hedge Fund 

Working Group (HFWG) as they are developed. 

The Council recommends that the SEC and 

other relevant regulators consider whether 

additional steps should be taken to address these 

vulnerabilities. In light of the growth of collective 

investment funds (CIFs), regulators should 

consider whether the regulatory differences 

between the regimes governing CIFs and mutual 

member agencies continue to monitor leverage 

and encourage entities exposed to corporate 

credit risk to review their risk-rating methods 

and, if applicable, assess the adequacy of their 

allowances for credit losses.

Short-term wholesale funding markets are critical 

for financing U.S. businesses and the government. 

Reflecting ongoing market volatility and shifts 

in monetary policy, the Council recommends 

close monitoring of short-term funding market 

conditions and actions to mitigate vulnerabilities, 

and supports efforts by financial regulators to 

strengthen market functioning, including during 

periods of stress. Where a lack of data prevents 

close monitoring, proposals should be developed 

to collect the necessary data, such as the efforts 

by the OFR to improve the collection and 

transparency of non-centrally cleared bilateral 

repo markets data.

The Council’s Report on Digital Asset Financial 

Stability Risks and Regulation, published in 

October, concluded that crypto-asset activities 

could pose risks to the stability of the U.S. 

financial system if their interconnections with 

the traditional financial system and their scale 

grow without appropriate regulation. The 

existing regulatory structure covers large parts 

of the crypto-asset ecosystem. The Council 

emphasizes the importance of continued 

enforcement of existing rules and regulations in 

applying these existing authorities. The report 

also identifies gaps in the regulation of cryptoasset activities in the United States. To address 

the gaps in the regulatory framework, the Council 

recommends the passage of legislation providing 

for rulemaking authority for federal financial 

regulators over the spot market for crypto-assets 

that are not securities, steps to address regulatory 

arbitrage, and an assessment of whether vertically 

integrated market structures can or should 

be accommodated under existing laws and 

regulations. Finally, the Council recommends 

bolstering its members’ capacities related to data 

and to the analysis, monitoring, supervision, and 

regulation of crypto-asset activities.
10 2022 FSOC // Annual Report

sector should seek continual improvements that 

strengthen the Treasury market to keep pace 

with changing technology and trading patterns 

to ensure that the Treasury market continues to 

fulfill these vital purposes. The Council supports 

efforts by Treasury to improve transparency in 

post-trade transactions in the cash market for 

Treasury securities.

Since 2013, the Council has identified LIBOR as 

a key risk to financial stability, bank safety and 

soundness, and market integrity. Most LIBOR 

rates are no longer published, and the remaining 

U.S. dollar (USD) LIBOR rates are similarly due 

to end as of June 30, 2023, marking the end of 

LIBOR. Given the large volume of legacy USD 

LIBOR contracts outstanding, the Council advises 

firms to take advantage of any existing contractual 

terms or opportunities for renegotiation 

to transition their remaining legacy LIBOR 

contracts before June 30, 2023. The Council 

advises responsible parties to communicate 

any outstanding decisions regarding the rates to 

which outstanding legacy LIBOR contracts will 

transition and any necessary conforming changes 

well in advance of June 2023.

NBFIs increasingly provide financial services 

traditionally provided by banks. The 

emergence of nonbank financial institutions 

in certain markets has increased competition, 

fostered innovation, and enhanced access to 

capital markets. However, it has introduced 

vulnerabilities related to leverage and liquidity 

mismatches to the broader financial system, 

and rising interest rates or a broader economic 

downturn could further amplify these 

vulnerabilities. The Council recommends that 

member agencies leverage existing authority 

to ensure that the same activity with the same 

risk, when conducted by different entities, has 

the same regulatory outcome. The Council also 

encourages relevant federal and state regulators 

to continue coordinating closely to collect 

data, identify risks, and strengthen oversight of 

nonbank companies involved in the origination 

and servicing of residential mortgages. This year, 

the Council’s nonbank mortgage servicing task 

force was re-established to analyze nonbank 

servicer risks and concerns. Finally, the Council 

recommends agencies ensure that the largest and 

funds increase the risks of regulatory arbitrage. 

Meanwhile, the Council supports the SEC’s 

efforts to improve the resilience and transparency 

of MMFs and strengthen short-term funding 

markets. The Council will continue to monitor 

initiatives relating to MMF reforms.

Since the 2008 financial crisis, firms have become 

increasingly incentivized through regulatory 

reforms to use CCPs instead of bilateral contracts, 

making CCPs key actors in the global financial 

system. Central clearing protects against defaults 

among counterparties whose failure could 

threaten financial stability but simultaneously 

makes the central counterparty vulnerable to 

a shock. For example, earlier in the year, as 

commodity price volatility surged following 

Russia’s war against Ukraine, several commodityfocused CCPs were forced to raise initial margins 

suddenly and substantially. Despite the stress 

on some CCPs, there was limited impact on 

the broader financial system. The Council 

recommends that the CFTC, Federal Reserve, 

and SEC continue to coordinate the supervision 

of all CCPs designated by the Council as financial 

market utilities (FMUs) that are systemically 

important. CCP supervisory agencies should 

continue to work with the FDIC to support 

CCP resolution planning. In addition, member 

agencies should continue working with global 

counterparts and international standard-setting 

bodies to identify and address areas of concern. 

Finally, the Council encourages cooperation 

in the oversight and regulation of systemically 

important CCPs, and continued progress in 

advancing recovery and resolution planning for 

systemically important CCPs.

Financial Market Structure

The Council has identified three vulnerabilities 

associated with financial market structures: 

Treasury Markets, Alternative Reference Rates, 

and the Provision of Financial Services by 

Nonbank Financial Institutions.

The Treasury market plays a critical role in 

financing the federal government, supporting 

the broader financial system, and implementing 

monetary policy. While the Treasury market 

has shown resilience in the face of increased 

uncertainty and volatility in 2022, the official 
Executive Summary 11

to coordinate third-party service provider 

examinations, working collaboratively with 

states, and identifying additional ways to support 

information sharing among state and federal 

regulators. The Council recommends Congress 

pass legislation that ensures that the FHFA, 

NCUA, and other relevant agencies have adequate 

examination and enforcement powers to examine 

certain services of third-party service providers to 

banking organizations.

Climate-related Financial Risk

Climate change is an emerging threat to U.S. 

financial stability. The physical and transition 

risks associated with climate change could 

contribute to financial instability through 

numerous channels, including financial 

intermediaries experiencing significant losses, 

the impairment of financial market functioning, 

or the sudden and disruptive repricing of 

assets. Climate-related financial risks can affect 

households, communities, businesses, and 

governments by damaging property, impeding 

business activity, impacting income, and altering 

the value of assets and liabilities. These risks may 

lead financial institutions or insurance providers 

to pull back from credit or insurance provisions, 

potentially amplifying the initial climate-related 

shock and harming financial stability. Over the 

last year, Council members have made significant 

progress in improving their capacity to assess 

and address climate-related financial risks. The 

Council supports member agencies’ continued 

efforts to: address climate-related data gaps; 

promote consistent, comparable, and decisionuseful disclosures; improve assessments of 

climate-related financial risks and vulnerabilities; 

and incorporate climate-related financial 

risks into their risk management practices and 

supervisory expectations for regulated entities 

where appropriate.

Council Activities

The Council, as charged by the Dodd-Frank Act, 

works to identify risks to U.S. financial stability, 

promote market discipline, and respond to 

emerging threats to the financial stability of the 

U.S. financial system. It serves as a vital forum for 

collaboration, discussion, risk analysis, and policy 

formulation among the U.S. financial stability 

most complex nonbank mortgage companies are 

prepared should delinquencies and subsequent 

foreclosures increase as interest rates rise.

Operational Risk and Technological 

Risk

The Council has identified cybersecurity and 

third-party service providers as vulnerablities.

A grave cybersecurity incident could potentially 

threaten the stability of the U.S. financial system 

through at least three channels: (1) disrupting 

key institutions with few or no substitutes, such 

as central banks, exchanges, payment clearing 

and settlement systems, or other critical service 

providers; (2) compromising the integrity of 

data that is critical to the stable functioning of 

financial firms and the system; and (3) causing 

a loss of confidence among a broad set of 

market participants. Thus far, there have been 

few successful cyberattacks against the U.S. 

financial system related to Russia’s war against 

Ukraine, and they have proven to be negligible 

in both disruption and impact. Maintaining 

and improving the cybersecurity resilience 

of the financial sector requires continuous 

assessment of cyber vulnerabilities and close 

cooperation across firms and governments 

within the U.S. and internationally. The Council 

supports ongoing partnerships between federal 

and state government agencies, private firms, 

and international partners. It encourages the 

Financial and Banking Information Infrastructure 

Committee (FBIIC) to continue working 

closely with member and state agencies, the 

Department of Homeland Security (DHS), law 

enforcement, and industry partners to conduct 

regular cybersecurity exercises. The Council 

recommends that agencies carefully consider 

how to share information, including confidential 

supervisory and classified information, and 

supports additional work to understand and 

mitigate the financial stability risks associated 

with cybersecurity.

The Council has identified the financial 

sector’s concentrated dependency on a limited 

number of third-party service providers as a 

potential risk to financial stability. The Council 

supports federal banking regulators continuing 
12 2022 FSOC // Annual Report

recommendations identified in the Council’s 

climate report.

The Council identified digital assets as a priority 

area in February 2022. In response to the 

directive in Executive Order 14067, Ensuring 

Responsible Development of Digital Assets, the 

Council published its Report on Digital Asset 

Financial Stability Risks and Regulation on 

October 3, 2022. The report details the Council’s 

findings and recommendations, as discussed 

in Section 3.1.5. The Council’s Digital Assets 

Working Group met regularly throughout 2022 

and coordinated the drafting process.

The Council has advanced efforts to assess and 

address financial stability risks in all four priority 

areas and also continues to focus on other 

vulnerabilities identified in this year’s report. For 

more information on the Council’s priorities and 

activities in 2022, please refer to Section 4.1.

and regulatory community. In 2022, the Council 

has focused on four key priorities to address risks 

and vulnerabilities in the financial system: (1) 

nonbank financial intermediation, (2) Treasury 

market resilience, (3) climate-related financial 

risk, and (4) digital assets.

The Council continues to assess the 

vulnerabilities posed by three types of NBFIs: 

open-end mutual funds, hedge funds, and money 

market funds. In February, the Council issued a 

public statement describing the risks associated 

with NBFIs and expressing support for continued 

efforts to mitigate those risks. Of particular 

note, over the last year, the Council’s HFWG has 

developed an interagency risk monitoring system 

to assess hedge fund-related risks to U.S. financial 

stability. In addition, in June 2022, the Council 

restarted the Nonbank Mortgage Servicing Task 

Force meetings.

Enhancing the resiliency of the Treasury market 

remains a priority for the Council. The Council 

continues to support efforts across the U.S. 

Treasury and through the Interagency Working 

Group on Treasury Market Surveillance (IAWG) 

to strengthen the Treasury market. The Council’s 

work through the HFWG and Open-end Fund 

Working Group, for example, is helping inform 

the IAWG’s assessment of how funds’ leverage 

and liquidity risk management practices affect the 

Treasury market.

Climate-related financial risk is another key 

priority for the Council. Since 2021 the Council 

has been leading and coordinating an interagency 

response to climate-related risks to the financial 

system. In October 2021, the Council published 

its Report on Climate-Related Financial Risk, 

which recommended the formation of two 

committees – a staff-level Climate-related 

Financial Risk Committee (CFRC), which has 

met regularly since February 2022, and an 

external advisory committee, the Climaterelated Financial Risk Advisory Committee 

(CFRAC), which was established in October 

2022. The CFRC has served as a key forum for 

interagency information sharing, coordination, 

and capacity building to help fill data gaps, 

improve the assessment of climate-related risks, 

and advance agencies’ efforts to implement the 
Executive Summary 13

reserve buffers and EME preemptive monetary 

policy tightening. However, high inflation and 

continued monetary tightening in advanced 

economies may cause risk-adjusted yield 

differentials between EMEs and advanced 

economies to narrow. Further capital outflows 

and currency depreciations could curtail funding 

sources for EME governments and corporations 

and, in vulnerable EMEs with elevated debt 

levels, could result in debt-service difficulties in 

the face of higher interest rates.

The global economy is facing headwinds to 

growth and grappling with higher inflation, posing 

heightened financial stability risk. Russia’s war 

against Ukraine has complicated the global 

macroeconomic outlook, adding stresses to an 

already challenging economic environment 

coming out of the COVID-19 pandemic. Different 

paces of monetary tightening have contributed to 

currency movements, and the dollar has 

appreciated broadly against both advanced and 

emerging market currencies (Figure A.1). 

Russia’s war against Ukraine has led to a severe 

energy crisis in Europe and other parts of the 

world that is detrimentally impacting economic 

activity. In China, the lockdowns associated with 

the zero COVID policy have contributed to 

slowing growth, and the country’s property 

sector, a significant component of economic 

activity and historically a key driver of Chinese 

economic growth, is weakening. The 

International Monetary Fund (IMF) projects weak 

global growth in 2022 to persist into 2023.

A.1 Nominal Trade-Weighted U.S. Dollar Index

Index

95

100

105

110

115

120

125

95

100

105

110

115

120

125

Jan 2020 Jul 2020 Jan 2021 Jul 2021 Jan 2022 Jul 2022

Advanced

Broad

Emerging Markets

Oct-2022-As Of: 31 Index

Source: Federal 

Reserve, Haver 

Analytics 

Note: Indexed to 100 as of Dec. 31, 2020.

Box A: Stress in Global Markets

The various stresses in the global economy have 

led to capital outflows from EMEs in 2022 (Figure 

A.2). The impact of these external factors on 

EMEs has been tempered in part by their 

generally large stock of foreign exchange 

A.2 Portfolio Flows to EMEs

0 -1.25

200

400

600

800

2015 2016 2017 2018 2019 2020 2021 2022

EMBIG spread (left axis)

Basis Points

Equity Flows (right axis)

Bond Flows (right axis)

2022-OctAs Of: 

-0.75

-0.25

0.25

0.75

Percent of Assets

Source: EPFR, 

Bloomberg, L.P.

Note: Bars show monthly averages of weekly 

flow data, line shows monthly average of 

daily Spread data.

Rising commodity prices have helped mitigate 

the fragilities of EMEs that are commodity 

exporters. But this mitigation will reverse should 

commodity prices stabilize. In addition, 

commodity-importing countries constitute a far 

larger share of total EME GDP than commodity 

exporters (Figure A.3). Many of these countries 

are facing energy and food insecurity that can 

potentially lead to social unrest and political 

instability.
14 2022 FSOC // Annual Report

Box A: Stress in Global Markets (continued)

EME stresses are unlikely to threaten U.S. 

financial stability unless a broad EME financial 

crisis were to occur. Financial stresses in EMEs 

could impact the U.S. financial system through 

losses on investors’ exposures to EME assets 

and other channels.

Decelerating growth and high inflation have also 

affected many advanced economies in 2022. 

These economies have experienced significant 

currency depreciation versus the dollar. Most 

advanced economies have flexible, fully floating 

exchange rates and accordingly have not 

undertaken currency intervention as EMEs have. 

In one notable exception, Japan intervened in 

currency markets in September to support the 

yen over concerns about depreciation. Yield 

differentials have widened between Japan and 

other advanced economies as Japan has notably 

continued an accommodative monetary policy 

and yield curve control (YCC) at a time when 

other major advanced economies have raised 

interest rates (Figure A.4). Ongoing depreciation 

pressure could create challenges to the YCC 

policies moving forward.

A.4 Advanced Economies 10-Year Sovereign Yields

Percent Percent

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5

Jan 2017 Feb 2018 Mar 2019 Apr 2020 May 2021 Jun 2022

United States

United Kingdom

Germany

Japan

2022-Oct-As Of: 31

Source: U.S. Treasury, Deutsche Bundesbank, Ministry of Finance 

Japan, Bank of England, Haver Analytics

High levels of debt in China in public, corporate, 

and household balance sheets could cause 

financial distress and be a catalyst for wider EME 

stress. China’s economy is slowing significantly 

amid sporadic COVID-19 lockdowns and troubles 

in the real estate sector—a pillar of the Chinese 

economy, with real estate-based lending 

equivalent to 45% of China’s GDP and mortgagebased household debt amounting to 35% of 

China’s GDP.1 Property developers are facing 

cash flow problems that hinder their ability to finish 

construction projects, contributing to a sharp 

deterioration in confidence in the real estate 

sector. The renminbi has depreciated against 

the dollar, reflecting both slowing growth in China 

and interest rate differentials. Capital outflows 

have persisted but remain orderly. The Chinese 

authorities have taken some steps to support 

the property sector, especially encouraging 

local governments to facilitate the completion of 

ongoing construction projects, which has been 

a source of social unrest. However, these steps 

have so far been more cautious than in the past, 

in part reflecting the difficult tradeoff of supporting 

growth and mitigating moral hazards. Difficulties 

in the real estate sector could cause strains across 

China’s financial system, including at banks, 

nonbanks, corporate bond markets, and local 

government finances.

A.3 Shares of Commodity Importers and Exporters

0

25

50

75

100

0

25

50

75

100

2021

Percent Percent

Commodity Exporters

Commodity Importers

As Of: 2021

Source: UN Comtrade, Haver Analytics, FSOC calculations
Executive Summary 15

Advanced economy sovereigns are facing 

lesser strains than EMEs in terms of servicing 

debt, and while currency depreciation may 

contribute to inflation, the impact is likely modest. 

For advanced economies that export more to 

the United States than they import, currency 

depreciation against the dollar may provide 

some positive impetus to growth through the 

trade channel. Real factors, including the energy 

crisis in Europe, have been the predominant 

weight on growth and the associated decline 

in European assets and rise in corporate bond 

spreads over the past several months. Direct 

U.S. exposures to advanced economies are 

significant, suggesting potentially sizable 

spillovers to U.S. financial stability. However, 

financial sectors in these economies generally 

retain substantial buffers that support their 

resilience to shocks.

The challenges facing the global economy 

require careful calibration of macroeconomic 

policies. In September, the Bank of England 

(BOE) was forced to intervene in the UK 

sovereign bond market due to the sharp 

increase in interest rates after the UK announced 

a significantly expansionary government 

budget. This intervention was made necessary 

in part because levered UK pension funds 

were reportedly forced to sell sovereign bond 

holdings in order to meet margin requirements 

on their derivatives holdings. While this is not 

seen as a risk for U.S. pension funds due to 

differences in regulation and structure, it is one 

example of how higher interest rates and slower 

growth trajectories have contributed to financial 

stability challenges abroad, even in advanced 

economies.

Vulnerabilities, Significant Market Developments, and Council Recommendations 17

sheet invested in CRE loans. Widespread CRE 

distress could pressure such banks and tighten 

credit availability and economic growth. In 

extreme cases, CRE credit losses can lead to 

outright bank failures, particularly for banks with 

high exposure to CRE loans.

CRE Loan Performance

Banks hold a significant market share of CRE 

loans at 50%, with the rest held by various 

financial institutions such as insurance 

companies, commercial mortgage-backed 

securities, and debt funds, and CRE is the largest 

loan category at almost one-half of U.S. banks.4

 

The delinquency rate on CRE loans held by U.S. 

banks was modest at 0.74% in Q2 2022, near 2019 

pre-pandemic lows.5

3.1 Financial Risks

3.1.1 Commercial Real Estate

Commercial real estate (CRE) loans totaled 

almost $5.4 trillion as of Q2 2022,2 and CRE 

represents a significant portion of the assets of 

many financial institutions. While CRE lending 

is a key function of the financial sector, the 

Council has identified certain risks related to CRE 

lending. In a period of stress, high concentrations 

of CRE loans can expose financial institutions 

to significant credit risk. For example, many 

depository failures during the 2008 financial crisis 

were related to CRE loans.3

Although the CRE market performed relatively 

well in 2022, it faces a more uncertain outlook 

given elevated inflation, rising interest rates, a 

slowing economy, and the potential for structural 

changes in behaviors due to the COVID-19 

pandemic. High inflation and interest rates could 

lead to decreasing cash flows and property values 

in the CRE market, and these properties may be 

worth less than the lender assumed when the 

property was financed. If the value decline is 

sufficiently steep, especially compared with the 

property valuation at the time of financing, lender 

credit losses will likely occur. Slowing economic 

growth negatively affects demand for almost 

all types of CRE properties, and the COVID-19 

pandemic’s negative after-effects continue to 

linger, particularly for office properties in large 

cities.

As losses from a CRE loan portfolio accumulate, 

eroding the lender’s capital, they can spill over 

to the broader financial system through two 

mechanisms. First, asset sales of financially 

distressed individual properties can lower overall 

market valuations, affecting adjoining property 

values and leading to more distress and a broader 

downward CRE valuation spiral. Second, many 

CRE loans are owned by banks. Among them, 

small- and medium-sized banks have a higher 

proportion of their loan book or their balance 

3 Vulnerabilities, Significant Market 

Developments, and Council Recommendations
18 2022 FSOC // Annual Report

Delinquency rates on conduit commercial 

mortgage-backed securities (CMBS) 

increased substantially during the initial 

phase of the COVID-19 pandemic but 

improved in 2021 and 2022 (Figure 3.1.1.1).

In September 2022, the overall commercial 

mortgage-backed securities conduit CMBS 

delinquency rate fell to 3.8% after reaching 

a high of 7.8% in July 2020. The delinquency 

rate in the hotel and lodging sector remained 

elevated at 6.8% but is well below the 

COVID-19 pandemic peak of 20.5% (Figure 

3.1.1.2). In addition, the delinquency rate 

in office properties remained below the 

pre-pandemic level, improving to 2.3% in 

September 2022. However, structural changes 

in the demand for office space can lead to 

weaker credit quality for loans secured by 

office properties over the long term.

CRE Sectors

While the CRE market has largely recovered 

from stressed levels during the COVID-19 

pandemic, significant uncertainties remain 

in certain CRE sectors. Industrial and 

multifamily property sectors performed 

well in 2022, but parts of the shopping mall 

sector are weak amid changing consumer 

preferences, including the continued 

expansion of online shopping.

The industrial property sector, mostly 

warehouse and distribution centers, 

experienced low vacancy rates amid strong 

demand for space in 2022 (Figure 3.1.1.3). 

However, demand related to warehouse and 

e-commerce distribution centers is showing

signs of slowing.6

 Similarly, the vacancy rate

in the multifamily sector was near a 20-year

low in Q2 2022, but the pace of construction

has been brisk, especially in rapidly growing

regions.

The office property market may face the most 

uncertainty, with the prospect of weak future 

demand as return-to-office plans evolve and 

users decide how much space they need. At 

the onset of the COVID-19 pandemic, net 

absorption turned negative for the first time 

in a decade, as commercial office space that 

was vacated or supplied by new construction 

3.1.1.3 Vacancy Rate by Property Type

Source: CoStar, Haver 

Analytics

Note: Gray bars signify NBER recessions.

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

2006 2009 2011 2014 2017 2019 2022

Office

Industrial

Multifamily

Retail

Percent As Of: 2022 Q3 Percent

3.1.1.1 Conduit CMBS Delinquency and Foreclosure Rate

0

2

4

6

8

10

0

2

4

6

8

10

Jan 2005 Dec 2007 Nov 2010 Oct 2013 Oct 2016 Sep 2019 Aug 2022

Percent Percent

Foreclosure / 

60+ Days

Delinquency

Real Estate Owned

-2022SepAs Of: 

Source: JPMorgan, 

Trepp

Note: 60+ Days Delinquent includes Foreclosure/Real 

Estate Owned.

3.1.1.2 Delinquency Rate by Property Type

Source: JPMorgan, Trepp

0

4

8

12

16

20

24

0

4

8

12

16

20

24

Jan 2005 Dec 2007 Nov 2010 Oct 2013 Oct 2016 Sep 2019 Aug 2022

Percent Percent

Multifamily

Lodging

Office

Industrial

Retail

As Of: Sep -2022
Vulnerabilities, Significant Market Developments, and Council Recommendations 19

exceeded what was leased or absorbed by tenants. 

Net absorption of office space improved in 2022 

but remained tepid. The drop in demand for 

office space has contributed to an increase in 

vacant space. Through Q2 2022, the U.S. office 

vacancy rate, at 12.3%, remained well above 

pre-pandemic levels. Further, office property 

sales prices and rent growth have lagged behind 

other property types. Low absorption, softening 

rents, and elevated vacancy rates suggest weak 

demand, but the effects of structural change 

in the office sector are still evolving. Office 

property demand may take time to stabilize as 

tenants navigate remote work decisions, adjust 

how much space they need, and make leasing 

decisions. In addition, a slow return to densely 

populated urban office centers could reduce 

the desirability of office properties and even 

nearby retail space. This may be especially true 

for older, less desirable office spaces with fewer 

modern amenities. Finally, softening economic 

conditions could lead to additional stress amid a 

structural shift in the office property sector.

Recommendations

Rising interest rates, uncertain economic 

conditions, continuing weakness in urban 

commercial real estate, and the possibility that 

some post-pandemic changes in demand for 

CRE will become permanent have heightened 

concerns about CRE. The Council recommends 

supervisors and financial institutions continue 

to monitor CRE exposures and concentrations, 

ensure the adequacy of credit loss allowances, 

assess CRE underwriting standards, and review 

contingency planning for a possible increase in 

delinquencies.

3.1.2 Residential Real Estate

Residential real estate is a significant part of the 

U.S. economy, comprising almost 15% of real 

GDP through residential fixed investments and 

consumption spending on housing services.7 

Recognizing the importance of residential real 

estate, the Council has identified downside 

risks to housing from rising mortgage rates, 

including pressure on home prices and increased 

delinquencies.

A sharp decrease in home prices could negatively 

affect homeowners’ net wealth, weaken consumer 

confidence, and increase the likelihood or depth 

of a broader slowdown in the U.S. economy. At 

the same time, a weaker labor market could 

increase delinquency or foreclosure rates, putting 

additional negative pressure on home prices. 

Nonbank mortgage companies could also face 

acute liquidity strains in the event of widespread 

delinquencies (see Section 3.3.3). Nevertheless, 

a variety of factors should mitigate spillovers 

from a potential decline in home prices. First, 

mortgage underwriting standards remain high, 

with the median credit score of newly originated 

mortgages standing at 773 in Q2 2022, an increase 

from below 750 in the years before the 2008 

financial crisis.8

 Second, there is little evidence 

to date that a surge in speculative activity drove 

recent house price increases. The rapid rise in 

house prices experienced since the onset of the 

pandemic was likely in part attributable to a shift 

in the demand for housing.9

 Finally, delinquency 

rates remain subdued, and the equity of current 

mortgage holders is strong. As of Q2 2022, 92.7% 

of all outstanding mortgages had 20% or more 

equity – an all-time high since 2000.10
20 2022 FSOC // Annual Report

There is evidence of significant cooling of 

the U.S. housing market. By July 2022, both 

the Case-Shiller and FHFA indices reported 

a decline in home prices (Figure 3.1.2.1). 

At the same time, mortgage originations 

have moderated, and refinance activity has 

declined significantly (Figure 3.1.2.2). Based 

on the National Mortgage Database (NMDB®), 

mortgage refinancing has fallen to $351 

billion in Q1 2022, a 57% drop from Q1 2021, 

and existing home sales fell to a seasonally 

adjusted annual rate of 4.7 million units in 

September 2022, down from the 6.5 million 

units in January.11 This is the lowest pace of 

home sales since June 2020.

Much of this recent contraction can be 

attributed to the rapid increase in mortgage 

rates. Mortgage rates have more than 

doubled over the past year, with the 30-year 

fixed-rate mortgage (FRM) rate exceeding 

7% in October, the highest level in 20 years. 

Despite this recent increase in mortgage rates, 

home prices remain elevated relative to their 

long-term trend (Figure 3.1.2.3). The rapid 

increase in mortgage rates and elevated home 

prices have worsened housing affordability 

problems (see Box B).

3.1.2.1 Monthly House Price Growth

-1

0

1

2

3

-1

0

1

2

3

2012 2014 2016 2018 2020 2022

Percent As of: Aug-2022 Percent

FHFA Home Price Index

Case-Shiller Home Price Index

Note: SA. Month-overmonth percentage 

change. 

Source: S&P CoreLogic Real Estate Data, FHFA, 

Haver Analytics

3.1.2.2 Residential Purchase and Refinance Levels

0

300

600

900

1200

1500

2

3

4

5

6

2015 2016 2017 2018 2019 2020 2021 2022

30 Year Mortgage 

Rate (left axis)

Percent Billions of US$

Source: NMDB®, Freddie Mac Primary 

Refinance (right axis)

Purchase (right axis)

As Of: 2022 Q1

Source: NMDB®, Freddie Mac Primary Mortgage Survey

3.1.2.3 Real House Prices Relative to Long-Term Trend

60

80

100

120

140

160

180

60

80

100

120

140

160

180

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

3.1.2.3 Real House Prices Relative to Long -Term Trend

Index As Of: 2022 Q2 Index

Source: FHFA, BLS, 

FRED

Note: Not seasonally adjusted, real terms. Trend is 

estimated using data from 1975 Q3 through 2012 Q2 

(trough-to-trough).
Vulnerabilities, Significant Market Developments, and Council Recommendations 21

Mortgage-backed securities (MBS) markets 

have experienced similar cooling. Agency 

residential mortgage-backed securities 

(RMBS) issuances fell to $401 billion in 

Q3 2022, a 52% decline relative to Q3 

2021.12 Additionally, spreads have widened 

materially, with the spread between the 

30-year current coupon MBS and 10-year 

U.S. Treasury note hitting its highest level 

since 2008 (Figure 3.1.2.4). At the same 

time, liquidity in the agency MBS market 

deteriorated over the summer of 2022.13

Increased volatility in MBS markets could 

lead to further significant investment losses 

by certain market participants, put further 

pressure on mortgage rates, and lead to a 

sharper decline in home prices. Further 

losses for fixed-income investors carrying 

MBS securities at market value could lead 

to outflows and sales by asset managers 

facing liquidity strains. Additionally, a 

further widening in MBS spreads could 

lead to deleveraging by mortgage real estate 

investment trusts (mREITS), adding strains on 

MBS spreads and overall market liquidity.

Recommendations

With rising interest rates and a slowdown 

in economic growth creating the potential 

for a softening of the housing market, the 

Council recommends supervisors and 

financial institutions continue to monitor 

residential real estate exposures and ensure 

the adequacy of credit loss allowances. 

Federal and state agencies should enhance 

or establish information-sharing protocols 

to enable collaboration and communication 

in response to the increased risk in 

residential real estate and mortgages. The 

Council acknowledges the changing market 

environment and encourages member 

agencies to review existing loss mitigation 

options of their regulated entities, including 

assessing the affordability and sustainability 

of available home retention solutions, such 

as modifications, in a higher interest rate 

environment. The results of such a review 

should inform supervisory responses by 

member agencies.

Source: Bloomberg, 

L.P. 

Note: Spread to 10-Year Treasury.

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

2005 2008 2011 2014 2017 2020

Percent As Of: 31 -Oct-2022 Percent

3.1.2.4 30-Year MBS Spread
22 2022 FSOC // Annual Report

Box B: The Rapid Rise of Mortgage Rates

The mortgage interest rate is a key factor affecting 

housing market affordability. For a standard 

30-year fixed-rate mortgage, the interest rate rose 

to over 7% in October 2022, up almost 400 basis 

points from the prior year (Figure B.1). This is the 

largest year-on-year increase observed in the last 

40 years and the highest level since 2002.

Source: Freddie Mac Primary Mortgage Market Survey, FRED

B.1 Mortgage Rate (30-Year Fixed-Rate Average)

0

5

10

15

20

0

5

10

15

20

1972 1982 1992 2002 2012 2022

Percent Oct-2022-As Of: 27 Percent

riskiness of the collateral on mortgages through 

changes in equity valuations and mark-to-market 

loan-to-value ratios for existing mortgages.

As interest rates rise, the maximum loan amount 

a borrower can afford under a fixed monthly 

payment falls when facing a binding debt service 

payment constraint. For example, a borrower 

who can afford a maximum $1,000 monthly 

mortgage payment faces a change in borrowing 

power from $237,000 to $167,000 as rates for a 

30-year fixed-rate mortgage increase from 3% to 

6%, a drop of $70,000 or 30%. Alternatively, if a 

borrower maintains a loan amount of $237,000, 

the monthly payment would increase by 42%, 

from $1,000 to $1,421. Accordingly, increasing 

interest rates may reduce house prices through 

demand channels.

While future mortgage interest rates are 

uncertain, current forward rates indicate the 

possibility that mortgage rates could remain 

elevated in the medium-term. Although the 

current expected monetary policy path is priced 

into current mortgage rates, deviations from 

expectations will likely cause changes to mortgage 

interest rates. In particular, changes to long-run 

inflation expectations and the Federal Reserve’s 

MBS holdings may significantly impact mortgage 

rate volatility and direction, and a further 

significant increase in mortgage rates could 

increase the risk to financial stability.

There are two possible ways that the “ability 

to pay” channel could create risks to financial 

stability. First, facing higher interest rates, 

payment-constrained potential borrowers may 

place lower bids on the market or exit the market, 

which could reduce housing asset values through 

the demand channel. Second, the resulting 

valuation changes may affect perceptions of the 
Vulnerabilities, Significant Market Developments, and Council Recommendations 23

3.1.3 Nonfinancial Corporate Credit

Well-functioning corporate credit markets 

facilitate efficient capital formation and allow 

investors to direct capital to fund economic 

growth.14 However, financial stability risks 

arise when companies cannot service their 

obligations, and the financial sector cannot 

absorb losses from defaults and downgrades. 

For example, investment funds that hold 

corporate credit and have significant 

liquidity mismatches may experience large 

redemptions, which could disrupt market 

functioning. Additionally, financial stability 

risks may occur if market participants are 

unwilling or unable to provide intermediation 

during times of stress. Thus far, corporations 

and investors have managed to weather 

the recent increase in interest rates despite 

increased funding costs and significant 

investment losses. Nevertheless, if the sharp 

increase in interest rates leads to widespread 

debt servicing problems, credit markets could 

experience a further repricing of risk and 

disruptions to financial stability.

Nonfinancial corporate debt as a percent of 

GDP has decreased from its peak in early 2020 

but remains elevated relative to pre-pandemic 

levels (Figure 3.1.3.1).15 While many firms 

increased their leverage during the early 

COVID-19 pandemic period by drawing 

on their lines of credit in an abundance of 

caution, many companies reduced their 

leverage in the second half of 2020 to more 

normalized levels. Still, leverage remains 

elevated, especially within industries most 

impacted by the COVID-19 pandemic, 

including the airline, hospitality and 

leisure, and restaurant sectors. Some public 

companies have large cash buffers that can 

mitigate some of the risk created by elevated 

leverage levels, but higher leverage levels 

generally equate to a higher risk of default.

3.1.3.1 Nonfinancial Corporate Debt as Percent of GDP

20

30

40

50

60

20

30

40

50

60

1980 1985 1990 1995 2000 2005 2010 2015 2020

Percent As Of: 2022 Q2 Percent

Source: Federal Note: Gray bars signify NBER recessions.

Reserve, Haver 

Analytics
24 2022 FSOC // Annual Report

Corporate Debt Markets

In 2020 and 2021, corporations took 

advantage of historically low-interest rates 

by issuing record amounts of corporate debt 

(Figure 3.1.3.2). Corporate bond yields have 

since risen markedly, and by mid-October, 

both investment grade and high-yield bond 

yields were well above their 20-year average 

(Figure 3.1.3.3). In light of the less favorable 

financing conditions, corporate bond 

issuances have fallen markedly; in Q3 2022, 

investment grade issuances fell by 17%, while 

high-yield issuances fell by 81% compared 

to Q3 2021. Nevertheless, the increase in 

interest rates has not led to material spillovers 

to corporate credit market functioning, and 

corporate credit spreads remain in line with 

their longer-term average (Figure 3.1.3.4). 

Additionally, many corporations have 

extended the maturity of their debt, which 

should mitigate near-term refinancing risks 

(Figure 3.1.3.5).

3.1.3.2 Gross Issuance of Corporate Bonds

Trillions of US$

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

2006 2008 2010 2012 2014 2016 2018 2020 YTD

2022

Investment Grade

High-Yield

As Of: Oct -2022 Trillions of US$

Source: Refinitiv, 

SIFMA

Note: Includes all non-convertible corporate debt, 

MTNs, and Yankee bonds, but excludes all issues with 

maturities of one year or less and CDs. 2022 figures 

are through October.

3.1.3.3 Corporate Bond Yields

0

3

6

9

12

0

3

6

9

12

2012 2014 2016 2018 2020 2022

3.1.3.3 Corporate Bond Yields

Percent Percent

Investment-Grade

High-Yield

As Of: 31 2022-OctSource: ICE Data 

Indices, FRED

Note: Dotted lines represent 20-year average.

3.1.3.4 Corporate Bond Spreads

0

3

6

9

12

0

3

6

9

12

2012 2014 2016 2018 2020 2022

Percent Percent

Investment-Grade

High-Yield

As Of: 31-Oct-2022

Source: ICE Data 

Indices, FRED

Note: Dotted lines represent 20-year average.
Vulnerabilities, Significant Market Developments, and Council Recommendations 25

Note: Includes bonds, loans, and revolving credit 

facilities that are rated by S&P Global Ratings. Excludes 

debt maturing after 2027. 

Source: S&P Global 

Ratings Research

Billions of US$

0

200

400

600

800

1000

1200

0

200

400

600

800

1000

1200

2022.2H 2023 2024 2025 2026 2027

Billions of US$

Investment Grade

High-Yield

2022-Jul-As Of: 01

3.1.3.5 Maturity Profile of U.S. Nonfinancial Corporate Debt Corporate debt investors also face risks in a 

rising rate environment. Over the last several 

years, investors have been willing to purchase 

longer-term debt in exchange for higher 

yields. However, the interest rate sensitivity of 

fixed-rate debt increases as the instrument’s 

maturity lengthens, exposing investors to 

greater market value declines as rates rise. 

The recent increase in interest rates has led 

to significant investment losses, as indicated 

by the ICE BofA US Corporate Total Return 

Index, which was down 19.2% year-to-date as 

of October 31, 2022. Moreover, fixed-income 

investors, including open-end funds, could 

accumulate further losses if rates continue to 

increase (see Section 3.2.2).

Leveraged Loan Markets

High-yield issuers that obtained financing 

through leveraged loans pay variable interest 

on their outstanding obligations. In the 

event of rising rates, these companies may 

struggle to make payments as their debt 

service burden increases, especially if they 

do not hedge their interest rate exposure. 

In addition, deteriorating macroeconomic 

conditions can further impact these 

companies’ ability to service debt.

The leveraged lending market has 

experienced rapid growth since 2011, with 

U.S. institutional loans exceeding $1.4 trillion 

as of September 2022 (Figure 3.1.3.6). 

Covenant-lite loans, which have fewer 

investor protections, continue to represent 

most new loan issuances. The widespread 

use of covenant-lite loans could reduce the 

amount of technical defaults through less 

frequent covenant violations. However, when 

combined with weaker credit quality, weaker 

financial maintenance covenants in leveraged 

loans may lead to lower recovery rates in the 

event of a default (see Section 3.3). Thus far, 

leveraged loan default rates have remained 

below pre-pandemic levels.16

Recommendations

Rising interest rates, the continued 

effects of the COVID-19 pandemic, and 

the slowdown in economic growth have 

increased nonfinancial corporate credit 

3.1.3.6 Institutional Leveraged Loans Outstanding

Trillions of US$

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2006 2008 2010 2012 2014 2016 2018 2020 2022

As Of: 2022 Q3 Trillions of US$

Note: Includes all loans including those not included 

in the LSTA/TRLPC mark-to-market service. Primarily 

institutional tranches.

Source: S&P LCD
26 2022 FSOC // Annual Report

vulnerabilities demonstrated at the onset of the 

COVID-19 pandemic.17

Other investment funds operating as lenders in 

the short-term funding markets include dollardenominated non-U.S. domiciled (so-called 

“offshore”) MMFs, bank-sponsored short-term 

investment funds (STIFs), local government 

investment pools, private liquidity funds, and 

ultrashort bond funds. Like MMFs, these 

intermediaries perform liquidity and maturity 

transformation, can contribute to fragilities 

in the short-term funding markets, and have 

experienced large outflows amid financial stress.

Many of these intermediaries, including 

government MMFs, prime and tax-exempt MMFs 

offered to retail investors, offshore MMFs, STIFs, 

and private liquidity funds, maintain stable net 

asset values (NAVs). These products may obtain 

a stable share price by using amortized cost 

accounting for calculating the NAV, arriving at a 

fixed share price of, for example, $1.00. Stable 

NAV funds are typically limited in the risk they 

can take, but when short-term interest rates rise 

sharply or portfolio assets lose value for other 

reasons, the market value of a fund’s shares 

may fall below the typical stable NAV. The rising 

possibility of losses in a stable NAV fund may 

prompt investor concerns and redemptions 

that can cause a fund to sell assets to meet 

redemptions, potentially straining markets for 

short-term instruments.

risk. If credit quality worsened significantly, a 

potential wave of defaults could lead to large 

redemptions at investment funds with significant 

liquidity mismatches, and in turn disrupt market 

functioning. The Council recommends that 

member agencies, in order to assess and reinforce 

the ability of the financial sector to manage severe 

simultaneous losses, continue to monitor levels 

of nonfinancial business leverage, trends in asset 

valuations, and potential implications for the 

entities they regulate. The Council encourages 

entities exposed to corporate credit risk to review 

their risk-rating methods in light of the uncertain 

economic environment and, if applicable, assess 

the adequacy of their allowance for credit losses.

3.1.4 Short-term Wholesale Funding Markets

Short-term wholesale funding markets provide 

essential financing for businesses, financial 

intermediaries, state and local governments, 

and the federal government. These markets are 

critical for implementing monetary policy and 

supporting financial market liquidity. They are 

also highly interconnected with systemically 

important financial institutions that borrow 

and lend in these markets. In addition, some 

key intermediaries in these markets perform 

significant liquidity and maturity transformation 

and are vulnerable to runs. These features 

contribute to fragilities in the short-term funding 

markets that can affect financial stability.

The Role of Money Market Funds as Short-term 

Lenders

U.S. domiciled money market funds (MMFs) are 

major lenders in the short-term funding markets. 

As described in (Section 3.2.2), MMFs contribute 

to funding market vulnerabilities by performing 

liquidity and maturity transformation. In both 

2008 and 2020, prime and tax-exempt MMFs 

experienced heavy redemptions, contributing to 

dislocations in the short-term funding markets. 

These events led to extraordinary policy responses 

in 2008, when the Federal Reserve established 

liquidity facilities and the U.S. Treasury provided 

a temporary guarantee of MMFs, and in 2020 

when the Federal Reserve again established 

facilities to stabilize short-term funding markets. 

In February 2022, the SEC published proposed 

amendments to MMF rules to address the 
Vulnerabilities, Significant Market Developments, and Council Recommendations 27

Unsecured Lending

Commercial paper (CP) is an important 

source of unsecured short-term funding used 

by both nonfinancial and financial firms. 

Negotiable certificates of deposit (NCDs) 

are a means for banks to obtain short-term 

unsecured funding in capital markets. CP 

and NCD markets have grown over the past 

year and reached $1.1 trillion and $700 

billion in September 2022 (Figure 3.1.4.1).18 

There has also been a significant shift in the 

composition of the CP outstanding in recent 

years, as the amount issued by domestic 

nonfinancial firms has declined while the 

amount issued by foreign financial firms has 

increased (Figure 3.1.4.2). The CP investor 

base has also shifted over time, with MMFs’ 

share declining but remaining significant 

and nonfinancial firms increasing their 

direct investment (Figure 3.1.4.3). While CP 

spreads have been somewhat volatile in 2022, 

they are not indicating crisis-level concerns 

regarding liquidity or credit (Figure 3.1.4.4).

3.1.4.1 CP and NCDs Outstanding

0.3

0.6

0.9

1.2

1.5

2018 2019 2020 2021 2022

Trillions of US$ As Of: Sep-2022 Trillions of US$

1.5

1.2

0.9

0.6

0.3

Outstanding NCDs with <1 Yr Maturity 

CP Outstanding

2017

Note: Not seasonally adjusted. Domestic includes CP 

issued in the U.S. by entities with foreign parents.

Source: Federal 

Reserve, Haver 

Analytics, DTCC 

Solutions LLC

3.1.4.2 CP Outstanding by Issuer Type

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

Jan 2004 Oct 2007 Jul 2011 Apr 2015 Jan 2019 Oct 2022

Trillions of US$ As Of: Oct-2022 Trillions of US$

Domestic Financial

Domestic Nonfinancial

Foreign Financial

ABCP

Other

Foreign Nonfinancial

Note: Not seasonally adjusted. Domestic includes CP 

issued in the U.S. by entities with foreign parents.

Source: Federal 

Reserve, Haver 

Analytics

3.1.4.3 CP Investors

0

20

40

60

80

100

0

20

40

60

80

100

1990 1994 1998 2002 2006 2010 2014 2018 2022

Percent Percent

Money Market Funds

Funding Corporations

Nonfinancial Corporates

State & Local Governments

Other

As Of: 2022 Q2

Source: Federal Reserve, Haver Analytics
28 2022 FSOC // Annual Report

Note: Spread to 3-Month Overnight Index Swap (OIS) 

rate.

Source: Federal 

Reserve, Refinitiv, 

Haver Analytics

-1

0

1

2

3

4

-1

0

1

2

3

4

Jan 2020 Sep 2020 May 2021 Jan 2022 Sep 2022

Percent Percent

A2/P2-Rated Nonfinancial 

AA-Rated ABCP

AA-Rated Financial

AA-Rated Nonfinancial

2022-Oct-As Of: 31

3.1.4.4 3-Month CP Interest Rate Spreads As investors tend to buy and hold these shortterm instruments to maturity, demand for 

secondary market liquidity is usually low, and 

dealers face little incentive to intermediate 

and support secondary markets. Hence, 

when demand for liquidity rises sharply, such 

as during the “dash for cash” in March 2020, 

these markets cannot accommodate large 

volumes of sales requests from investors, such 

as prime MMFs. At the same time, financial 

institutions that depend on these markets as 

a source of funding may be unable to obtain 

new funding as these short-term instruments 

mature. This creates a channel for financial 

instability between the institutions seeking 

funding and the institutional investors 

providing the funds, contributing to the 

fragility of the short-term funding markets. In 

March 2020, the Federal Reserve established a 

Commercial Paper Funding Facility to ensure 

that firms were able to roll over their CP based 

on the severe market disruption, illustrating 

the vulnerability that this market can create 

and the importance of ensuring that it is 

properly functioning during market stress.

Secured Lending

The repurchase agreement (repo) market is 

an important source of short-term wholesale 

funding, and repo markets play a critical role 

in Treasury market liquidity and monetary 

policy implementation. Repos are a form 

of secured lending in which an investor 

receives securities as collateral in exchange 

for cash, with an agreement to repurchase the 

securities at a later date at a specified price.19 

Large bank-affiliated dealers serve as the 

primary intermediaries in the repo market by 

borrowing from cash lenders, such as MMFs, 

and lending to entities that employ leverage, 

such as hedge funds.20 Dealers also borrow 

in the repo market to finance their own 

securities holdings. In addition, large banks 

may rely on repo markets in times of stress 

to obtain quick access to cash rather than 

liquidate assets.

Over the past year, repo market rates 

increased along with the increase in Federal 

Reserve policy rates. However, the Secured 

Overnight Financing Rate (SOFR) and Tri-
Vulnerabilities, Significant Market Developments, and Council Recommendations 29

Party General Collateral Rate (TGCR) have 

generally been slightly below the Overnight 

Reverse Repo Facility (ON RRP) rate, 

indicating ample cash available for lending 

(Figure 3.1.4.5). Repo borrowing totaled 

$6.1 trillion, of which non-Federal Reserve 

borrowing represented $3.8 trillion as of Q2 

2022 (Figure 3.1.4.6).21 The market consists 

of two main segments: tri-party repo, in 

which settlement occurs within the custodial 

accounts of a clearing bank, and bilateral 

repo, which typically refers to all activity not 

settled within the tri-party system. Bilateral 

repo consists of transactions cleared through 

the Fixed Income Clearing Corporation 

(FICC) and those that are not centrally 

cleared. Repo trading volumes in the tri-party 

and centrally cleared bilateral repo markets 

have been relatively stable over the past two 

years, as represented by the roughly $300 

billion in daily volumes for the TGCR and 

$600 billion making up the remainder used 

for the Secured Overnight Financing Rate 

SOFR (Figure 3.1.4.7). Included in the SOFR 

volumes are FICC’s sponsored repo service, 

which has been an important way for nonFICC members to access centrally cleared 

bilateral repo markets (Figure 3.1.4.8).

Less is known about the aggregate size of the 

non-centrally cleared bilateral repo market, 

which is the subject of a data collection pilot 

initiated by the OFR in 2022. For the pilot, 

nine participants voluntarily shared data 

on their non-centrally cleared bilateral repo 

agreement transactions with the OFR for 

three days in June 2022. The insights from 

this pilot collection will also help support 

ongoing research about overall market 

stability and vulnerabilities that may emerge. 

The OFR pilot collection is designed to 

prepare industry participants and the OFR for 

permanent data collection under a future final 

rule, which will capture data on an ongoing 

basis across market participants.

Repo markets may impact financial stability, 

given their size and the prominent role 

played by systemically important financial 

institutions and utilities. Many repo market 

participants are vulnerable to funding or 

3.1.4.5 Repo Rates

0

1

2

3

4

5

6

0

1

2

3

4

5

6

Jan 2019 Oct 2019 Jul 2020 Apr 2021 Jan 2022 Oct 2022

SOFR

TGCR

Percent As Of: 31-Oct-22 Percent

Note: TGCR = Tri-party General Collateral Rate; SOFR = 

Secured Overnight Financing Rate.

Source: FRBNY

3.1.4.6 Repo Borrowing Outstanding

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

2012 2014 2016 2018 2020 2022

Trillions of US$ Trillions of US$

Federal Reserve

Other

As Of: 2022 Q2

Note: Federal Reserve repo borrowing primarily 

consists of ON-RRP facility. 

Source: Federal 

Reserve, Haver 

Analytics

3.1.4.7 Repo Volumes

0

300

600

900

1200

1500

0

300

600

900

1200

1500

Jan 2019 Dec 2019 Nov 2020 Oct 2021 Sep 2022

SOFR 

TGCR

Billions of US$ 2022-Oct-As Of: 31 Billions of US$

Note: TGCR = Tri-Party General Collateral Rate; SOFR = 

Secured Overnight Financing Rate.

Source: FRBNY
30 2022 FSOC // Annual Report

Note: Average daily volume. Breakdown of repo 

lending and repo borrowing unavailable prior to April 

2020.

Source: DTCC

Billions of US$

0

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700

Jul 2019 Aug 2020 Sep 2021 Oct 2022

Aggregate

Repo Lending

Repo Borrowing 

2022-As Of: Oct Billions of US$

3.1.4.8 Sponsored Repo Activity liquidity shocks and may transmit stress to 

other repo market participants and broader 

short-term funding markets. For example, 

MMFs and open-end funds, which are net 

lenders in the repo market, may pull back 

from the market during periods of market 

stress to raise cash to meet redemptions. At 

the same time, leveraged investors, such 

as hedge funds and mortgage real estate 

investment trusts (mREITS), may face a 

sudden tightening in financing terms or be 

unable to roll over financing. As a result, 

leveraged investors may be forced to sell 

assets quickly, which can depress asset prices, 

lead to a further tightening in financing terms, 

and force further deleveraging. In addition, 

CCPs, which tend to reduce strains in repo 

markets and improve market functioning by 

reducing counterparty risk, could become 

a source of strain if multiple large clearing 

members defaulted on their obligations to the 

clearing house simultaneously. This could 

force the CCP to liquidate a large amount of 

collateral in a way that may be challenging for 

the underlying market.22

Repo markets, and in particular tri-party 

repo, have undergone significant structural 

changes since the 2008 financial crisis, 

making them safer.23 These changes helped 

streamline some repo operations, and higher 

collateral quality has helped reduce exposure 

to counterparty risk. Nevertheless, recent 

episodes of stress in repo markets, particularly 

in September 2019, and to a lesser extent, in 

March 2020, highlighted how problems in 

the repo market could quickly transmit or 

exacerbate stress in the financial system.

In July 2021, the Federal Reserve established 

two repo facilities, one standing repo 

facility (SRF) for primary dealers and 

depository institutions and one for foreign 

and international monetary authorities 

(FIMA Repo Facility).24 Initially, the SRF 

only included primary dealers, but the 

Federal Reserve has, over time, added 

certain depository institutions that can 

apply for access. Both of these facilities 

allow counterparties to obtain funds from 

the Federal Reserve by pledging securities, 
Vulnerabilities, Significant Market Developments, and Council Recommendations 31

including U.S. Treasuries, agency debt, 

and agency mortgage-backed securities 

for the SRF but only U.S. Treasuries for the 

FIMA Repo Facility, thus supporting market 

functioning by serving as a backstop source 

of secured funding. These facilities support 

effective monetary policy implementation as 

their primary objective, limiting the potential 

for pressures in overnight interest rates.

The Federal Reserve also operates the ON 

RRP. The ON RRP places a floor under 

overnight interest rates by providing an 

alternative investment opportunity for eligible 

counterparties when overnight repo rates fall 

below the rate offered at the ON RRP.25 Over 

the past year, the ON RRP has seen usage 

expand to over $2 trillion amid low repo 

rates relative to other short-term rates and 

limited alternative investments for ON RRP 

participants (Figure 3.1.4.9). Nonetheless, 

private market rates and volumes in the 

overnight Treasury repo market have been 

relatively stable over the past year.

As we look ahead, the increase in the supply 

of U.S. Treasury securities to private sector 

investors may require higher levels of repo 

financing. Accordingly, ensuring a robust 

and smooth functioning repo market will be 

critical to maintaining liquidity in the market 

for Treasury securities and other financial 

markets more broadly.

Recommendations

In light of the ongoing market volatility 

and shifts in monetary policy, the Council 

recommends member agencies closely 

monitor short-term funding market 

conditions and take actions to mitigate 

vulnerabilities. The Council supports efforts 

by financial regulators to strengthen shortterm funding markets and support orderly 

market functioning, including during periods 

of heightened market stress. Where lack 

of data prevents close monitoring, Council 

members should develop proposals to collect 

the necessary data, such as the efforts by the 

OFR to improve collection and transparency 

of non-centrally cleared bilateral repo 

markets data.

3.1.4.9 Overnight Reverse Repo Facility

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan 2020 Jul 2020 Jan 2021 Jul 2021 Jan 2022 Jul 2022

Trillions of US$ 2022-Oct-As Of: 31 Trillions of US$

Source: FRED, FRBNY
32 2022 FSOC // Annual Report

3.1.5 Digital Assets

In February 2022, the Council identified 

digital assets as a priority area. In October, 

the Council released its Report on Digital 

Asset Financial Stability Risks and Regulation

in response to Executive Order 14067, 

Ensuring Responsible Development of 

Digital Assets.

26 The report found that 

financial stability vulnerabilities fall into two 

categories with respect to digital assets. The 

first category arises from interconnections 

between the digital asset ecosystem and 

the traditional financial system. Such 

interconnections would broaden the effects 

of shocks that originate inside the digital 

asset ecosystem. The second category covers 

a set of vulnerabilities primarily confined 

to the digital asset ecosystem, including the 

potential for drops in asset prices, financial 

exposures via interconnections inside that 

ecosystem, operational vulnerabilities, 

funding mismatches, risk of runs, and the 

use of leverage. Each vulnerability within 

the digital asset ecosystem has the potential 

to operate independently, but they are likely 

to interact as they do in traditional financial 

markets.

The digital asset ecosystem has grown 

substantially in scale and scope in recent 

years. However, crypto-asset prices fell 

broadly over the past year, including major 

assets such as Bitcoin (Figure 3.1.5.1) 

and Ethereum, and prominent crypto 

platforms such as Blockfi, Voyager Digital, 

and Celsius Network experienced severe 

financial problems and subsequently filed for 

bankruptcy. In November, crypto-exchange 

FTX and some affiliated firms declared 

bankruptcy. The exchange could not meet 

withdrawal requests from customers, which 

followed reports that the exchange had 

loaned billions of dollars of customer funds to 

Alameda Research, an affiliated crypto trading 

firm, and that a significant amount of those 

funds were missing or lost.27 In its bankruptcy 

filing, the new CEO of FTX identified many 

problems including a lack of trustworthy 

financial information, compromised systems 

integrity, faulty regulatory oversight abroad, 

and concentrated control of the business.28 

3.1.5.1 Bitcoin Price

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

Jan 2018 Dec 2018 Dec 2019 Dec 2020 Nov 2021 Nov 2022

Thousands of US$ 2022-Nov-As Of: 30 Thousands of US$

Source: Bloomberg, L.P.
Vulnerabilities, Significant Market Developments, and Council Recommendations 33

reveals that fraud and scams are a significant 

problem in crypto-asset markets: 40% of the 

8,300 crypto-asset complaints received between 

October 2018 – September 2022 were marked 

by consumers as a complaint about a “fraud or 

scam.”34 The crypto-asset fraud reports from the 

Federal Trade Commission’s (FTC) Consumer 

Sentinel show similar trends: between January 

1, 2021 – March 31, 2022, the FTC reported that 

over 46,000 people lost more than $1 billion worth 

of crypto-assets due to scams and fraud, with 

an overall median loss of approximately $2,600. 

Crypto-asset losses reported to the FTC in 2021 

were nearly sixty times more than in 2018.35 The 

SEC has received over 23,000 tips, complaints, 

and referrals since fiscal year 2019 involving 

crypto-asset activities. Common subjects of these 

reports to the SEC include initial “coin” or “token” 

offerings, crypto-asset wallet access issues, 

crypto-asset platform operational issues, pricing 

and manipulation, and high-yield investment 

schemes that purport to involve crypto-asset 

trading and mining.36

However, the turmoil in the crypto-assets 

ecosystem did not have notable effects on 

the traditional financial system. The current 

regulatory framework, and the limited overall 

scale of crypto-asset activities, have helped 

largely insulate traditional financial institutions 

from the acute instability seen in the crypto-asset 

ecosystem. While crypto-asset interconnections 

with the traditional financial system are 

relatively limited, they could increase rapidly. 

Participants in the crypto-asset ecosystem and 

the traditional financial system have explored or 

created a variety of interconnections. Notable 

sources of potential interconnections include 

stablecoin issuers’ reserve assets held by 

traditional financial institutions. Crypto-asset 

trading platforms may also have the potential 

for greater interconnections by providing a wide 

variety of services, including leveraged trading 

and asset custody, to a range of retail investors 

and traditional financial institutions. Other 

connections between traditional finance and 

the crypto-asset ecosystem could arise through 

increased consumer access to crypto-assets, 

including through certain traditional money 

services businesses.

The problems at FTX precipitated price decreases 

in Bitcoin and other crypto-assets, but thus far 

have had a limited impact on the broader U.S. 

financial system.

The crypto downturn has negatively impacted 

many investors. Documentation from bankruptcy 

proceedings of recently failed crypto-asset 

platforms provides qualitative insight into 

individuals whose crypto-asset holdings faced 

substantial losses and, in some cases, lost 

their entire life savings.29 For example, survey 

data suggest that 46% of crypto-asset owners 

reported their investments did worse than 

they expected, versus only 15% who said they 

did better than expected.30 According to one 

survey, the percentage of Americans comfortable 

investing in crypto-assets reportedly dropped 

to about 21% in 2022 from 35% in 2021.31 The 

steepest drop came among millennials: almost 

30% of American investors between the ages of 

26 and 51 are comfortable investing in cryptoassets, down 20 percentage points from the 

50% who reported being comfortable in 2021. 

The decline in investor enthusiasm may be 

attributed to a number of market characteristics, 

including price volatility, fraud, and lack of 

compliance with disclosure and market integrity 

requirements among crypto-asset market 

participants.

Past surveys about crypto-asset ownership have 

focused on the percentage of surveyed people 

who hold any amount of crypto-assets, not on 

where most crypto-assets are concentrated. 

Industry metrics show a high concentration of 

crypto-asset ownership among the top 1% of 

asset holders. This is true for many governance 

tokens and stablecoins, and outstanding tokens 

held by the top 1% exceed 95% in several cases. 

While survey data from the Federal Reserve shows 

that 29% of crypto-asset investors make less 

than $50,000 per year, there are indications that 

the majority of crypto-assets are held by a few 

wealthy entities, colloquially known as “whales.”32

Fraud can cause or exacerbate financial 

instability, and state securities regulators 

consistently identify crypto-assets as one of the 

most common subjects of enforcement actions.33 

The CFPB’s Consumer Complaint Database 
34 2022 FSOC // Annual Report

regulator having visibility into the risks across 

the entire business. To address the risk of 

regulatory arbitrage, the Council recommends 

continued coordination, legislation addressing 

the risks posed by stablecoins, legislation relating 

to regulators’ authorities to have visibility into 

and supervise the activities of all of the affiliates 

and subsidiaries of crypto-asset entities, and 

appropriate service provider regulation.

Third, a number of crypto-asset trading platforms 

have proposed offering retail customers direct 

access to markets by vertically integrating the 

services provided by intermediaries such as 

broker-dealers or futures commission merchants. 

Financial stability and investor protection risks 

may arise from retail investors’ exposure to some 

practices often proposed by vertically integrated 

trading platforms, such as automatically and 

rapidly closing out customer positions. Therefore, 

the Council recommends that member agencies 

assess the impact of potential vertical integration 

by crypto-asset firms.

Finally, the Council recommends that Council 

members continue to build capacities related to 

data and the analysis, monitoring, supervision, 

and regulation of crypto-asset activities. The 

Council’s report on digital assets describes these 

recommendations in greater detail.

Recommendations

Council members have continued to enforce 

existing rules and regulations applicable 

to crypto-asset activities over the past year, 

including actions related to unregistered offers 

and sales of crypto-asset securities, episodes 

of fraud and market manipulation, and false 

and misleading statements made directly or by 

implication, concerning the availability of federal 

deposit insurance for a given product. These are 

violations of the law, and have given customers 

the impression that they are protected by the 

government safety net when that protection 

does not exist. The Council’s Report on Digital 

Asset Financial Stability Risks and Regulation

recommends that members continue to enforce 

existing laws and, in doing so, consider a set 

of general principles described in the report, 

including the principle of same activity, same risk, 

and same regulatory outcome.

In addition, though the existing regulatory system 

covers large parts of the crypto-asset ecosystem, 

the report notes three gaps in the regulation of 

crypto-asset activities in the United States.

First, the spot markets for crypto-assets that are 

not securities are subject to limited direct federal 

regulation. As a result, those markets may not 

be subject to a regulatory framework designed to 

ensure orderly and transparent trading, prevent 

conflicts of interest and market manipulation, 

and protect investors and the financial system 

more broadly. To address this regulatory gap, 

the Council recommends that Congress pass 

legislation that provides for explicit rulemaking 

authority for federal financial regulators over 

the spot market for crypto-assets that are not 

securities. The Council recommends that this 

rulemaking authority should not interfere 

with or weaken market regulators’ current 

jurisdictional remits. Legislation should provide 

for enforcement and examination authority to 

ensure compliance with these rules.

Second, crypto-asset market businesses do not 

have a consistent or comprehensive regulatory 

framework and can engage in regulatory 

arbitrage. Some crypto-asset businesses may 

have affiliates or subsidiaries operating under 

different regulatory frameworks, with no single 
Vulnerabilities, Significant Market Developments, and Council Recommendations 35

3.2 Financial Institutions

3.2.1 Large Bank Holding Companies

Large bank holding companies (BHCs)37

comprise the majority of banking assets in 

the U.S., with global systematically important 

banks (G-SIBs) comprising the majority of 

U.S. banking assets (Figure 3.2.1.1). Large 

BHCs are critical to the U.S. financial system, 

performing essential banking functions such 

as providing credit to commercial and retail 

borrowers, helping firms raise capital and 

hedge risk, and providing asset management 

and custody services. These companies also 

fill a central role in facilitating retail and 

wholesale payments on a global scale and 

clearing large volumes of transactions in repo 

markets. The stability of these operations is 

critical to the global financial system. Due to 

their interconnectedness to global financial 

markets, large BHCs are also subject to 

material risks from counterparty exposures 

and emerging global climate-related risks that 

could have greater relevance to the broader 

financial ecosystem.

Bank Capital and Liquidity

In the early stages of the COVID-19 pandemic, 

fiscal stimulus from the Coronavirus Aid, 

Relief, and Economic Security (CARES) Act 

and monetary stimulus measures from the 

Federal Reserve injected trillions of dollars 

into the U.S. economy. This resulted in 

significant deposit inflows, which helped 

to increase banks’ capital and liquidity 

levels. These actions helped to avert severe 

economic stress and a wave of defaults that 

would have weakened these institutions 

considerably during the COVID-19 pandemic. 

The economic and policy initiatives 

undertaken during and after the 2008 

financial crisis,38 which set stronger capital 

and liquidity requirements for banks and 

gave existing supervisors greater authority 

to restrict leverage, also contributed to 

this outcome. Bank common equity tier 1 

(CET1) capital ratios and return on average 

assets dropped in the months after the initial 

COVID-19 outbreak as banks added to credit 

loss reserves in anticipation of loan losses 

(Figures 3.2.1.2 and 3.2.1.3). As the stimulus 

3.2.1.1 Total Assets by BHC Type/IHC

0

2

4

6

8

10

12

14

16

0

2

4

6

8

10

12

14

16

G-SIBs Large

Complex

Large

Noncomplex

Other IHCs

Trillions of US$ Trillions of US$

Source: FR Y -9C

As Of: 2022 Q2

Source: FR Y-9C

3.2.1.3 Return on Assets

-1

0

1

2

3

-1

0

1

2

3

2010 2012 2014 2016 2018 2020 2022

G-SIBs

Other

Large Complex

Large Noncomplex

3.2.1.3 Return on Assets

Percent As Of: 2022 Q2 Percent

Note: Quarterly, seasonally-adjusted annual rate. 

Return on assets is equal to net income divided by 

average assets.

Source: FR Y-9C

3.2.1.2 Common Equity Tier 1 Ratios

4

6

8

10

12

14

16

4

6

8

10

12

14

16

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

Large Noncomplex

G-SIBs

Large Complex

Other

Percent of RWA As Of: 2022 Q2 Percent of RWA

Note: Tier 1 common capital is used as the numerator 

of the CET1 ratio prior to 2014:Q1 for G-SIBs and 

large complex BHCs, and prior to 2015:Q1 for large 

noncomplex and other BHCs. The denominator is riskweighted assets (RWA). Shaded areas indicate NBER 

recessions.

Source: FR Y-9C, 

Haver Analytics
36 2022 FSOC // Annual Report

took effect and loans performed better than 

expected, banks released reserves, which 

helped improve their capital and profitability 

levels.

Large BHCs have sound capital and liquidity 

positions as several large BHCs had increased 

earnings retention rates and credit loss 

reserves to meet higher risk-based capital 

requirements and boost resilience. Following 

the 2022 Comprehensive Capital Analysis 

and Review (CCAR), several large U.S. banks, 

including G-SIBs, were required to hold 

higher stress capital buffers beginning in 

Q4 2022. In addition, some G-SIBs will also 

have to meet a higher G-SIB capital surcharge 

beginning in Q1 2023.

Bank profitability declined somewhat in 

2022 as banks increased loan loss provisions 

amid higher uncertainty about the economic 

outlook. But banks report that rising interest 

rates will support their profitability going 

forward, as higher rates will lead to higher 

interest revenues on new loans and existing 

floating rate assets.

Since 2019, large BHCs retained more 

earnings to build capital levels as risks to 

capital grew and some BHCs were also 

subject to temporary restrictions on their 

capital distributions in 2020 and 2021 (Figure 

3.2.1.4). 

Tightening Financial Conditions

Financial conditions tightened in 2022 in 

response to rising inflation. Investment 

portfolios are at risk as rates rise, particularly 

portfolios where duration was extended over 

the last two years to offset net interest margin 

(NIM) compression (see Box C). The high 

proportion of securities classified as heldto-maturity (HTM) at G-SIBs has helped 

to offset unrealized losses in accumulated 

other comprehensive income (AOCI) related 

to their market-sensitive available-for-sale 

(AFS) securities portfolio (Figures 3.2.1.5 and

3.2.1.6).

Aggregate banks’ survey responses from the 

July 2022 Senior Loan Officer Opinion Survey 

3.2.1.4 Payout Rates at U.S. G-SIBs

0

50

100

150

200

0

50

100

150

200

2014 2015 2016 2017 2018 2019 2020 2021 2022

Percent of NIAC Billions of US$

NIAC (right axis)

Note: Payout rates are the ratios of stock repurchases plus cash dividends to 

Common Stock Cash Dividends 

(left axis)

Stock Repurchases 

(left axis)

As Of: 2022 Q2

Note: Payout rates are the ratios of stock repurchases 

plus cash dividends to net income available to common 

shareholders (NIAC). NIAC is net income minus 

preferred dividends. 2022 data represents YTD data 

through Q2.

Source: FR Y-9C

3.2.1.5 AOCI as a Percent of Equity

-20

-15

-10

-5

0

5

-20

-15

-10

-5

0

5

2014 2015 2016 2017 2018 2019 2020 2021 2022

G-SIBs

Large Complex

Large Noncomplex

Other

Percent As Of: 2022 Q2 Percent

Note: Accumulated other comprehensive income 

(AOCI).

Source: FR Y-9C

3.2.1.6 Held-to-Maturity Securities

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

2010 2012 2014 2016 2018 2020 2022

G-SIBs

Large Noncomplex

Other

Large Complex

Percent of Investment 

Securities

Percent of Investment 

As Of: 2022 Q2 Securities

Note: Investment securities are held-to-maturity 

securities plus available-for-sale securities. 

Source: Call Report
Vulnerabilities, Significant Market Developments, and Council Recommendations 37

constitute over 50% of non-interest expenses. 

Smaller banks face similar challenges. Coupled 

with the disruption caused by the COVID-19 

pandemic and resulting changes in work and 

return-to-office dynamics, staffing management 

has grown more complex. Banks continue 

leveraging new technology and innovative 

products and services to meet evolving 

operational needs, customer demands, and 

expectations. Digitalizing the financial services 

industry presents myriad risks and points of 

disruption for traditional banks, which could 

impact long-term profitability if risks are not 

adequately managed.

Operational and technology risks are already 

elevated at many large BHCs. Introducing new 

products and processes can exacerbate challenges 

in addressing legacy issues. Banks operate in 

an increasingly complex environment due to 

the adoption of these new products, services, 

and delivery channels, as well as expanded 

relationships with fintech companies and other 

third parties. These activities may result in 

increased operational risks related to innovation 

or the failure to implement appropriate controls 

and risk management frameworks.

While banks are critically dependent on 

information technology to conduct business 

operations, threats to their information 

technology are increasing. The finance and 

insurance industries were subject to the 

most cyberattacks of any industry from 2015 

to 2020.39 The current geopolitical situation 

further heightens the importance of cyber threat 

monitoring and effective defensive capabilities. 

Banks’ increasing reliance on third-party 

relationships, development, and adoption of 

innovative products, services, and technologies, 

and ongoing changes to banks’ staffing and 

operating environment, may increase operational 

risk.

Recommendations

Large BHCs face a challenging environment that 

includes rising interest rates, increased concerns 

about the economic outlook and its potential 

impact on credit quality, and continued cyber 

security threats. The Council recommends 

banking supervisors continue to ensure that 

indicate an overall net tightening in lending 

standards and a net weakening in loan demand. 

In their outlook for the second half of 2022, banks 

reported expecting to tighten lending standards 

across all loan categories, which stands in stark 

contrast to the January 2022 survey when banks 

expected to further ease lending standards over 

2022. The most cited reasons for expecting to 

tighten standards were an expected deterioration 

in borrowers’ debt-servicing capacity due to 

inflation, an expected reduction in risk tolerance, 

and an expected decline in collateral values.

Nevertheless, bank lending remains robust, 

and in particular, lending to nonbank financial 

institutions (NBFIs) continued to increase 

notably. Credit quality measures show limited 

credit risk on these loans, but because NBFIs 

rely primarily on their bank credit lines to meet 

unexpected liquidity needs, loan commitments 

can experience sudden, correlated drawdowns. 

These drawdowns could generate liquidity 

pressures at large banks during times of financial 

stress.

The vulnerabilities of U.S. banks to the Russian 

war against Ukraine appear to be limited. 

Before the war, banks maintained relatively 

small footprints in Russia and Ukraine, and 

their outstanding loans to borrowers in those 

countries were small. Exposures of large banks 

to counterparties that are active in commodity 

markets increased markedly, but banks appear 

to have managed risks amid the extremely 

high volatility seen in these markets since the 

beginning of the war. However, several indirect 

channels could pose risks for U.S. banks, 

including heightened volatility in asset markets; 

disruptions in payment, clearing, and settlement 

systems due to sanctions; and interconnections 

with large European banks, which could be 

adversely affected through the impact of the 

conflict on the European economy.

Operational and Technological Risks

While rising interest rates may benefit net interest 

margins, inflation and a tight labor market 

are increasing operating costs. In addition, 

heightened competition for highly-skilled and 

high-paid workers is driving efficiency measures 

at the largest banks, where salaries and benefits 
38 2022 FSOC // Annual Report

Higher interest rates may affect the resilience of 

banks, insurance companies, and pension funds 

as the Federal Reserve tightens monetary policy 

to bring down above-target inflation.

Banks

Higher interest rates have various effects on 

bank profits and capital. On the one hand, banks 

may benefit from higher interest rates due to an 

increase in their NIM as higher rates are passed 

through more quickly to bank assets like floatingrate securities and loans than to bank liabilities 

like deposits and debt (Figure C.1).40 However, a 

rapid increase in rates may decrease profitability 

for banks with larger shares of long duration 

holdings like longer-term fixed-income securities 

or mortgage loans. Further, higher rates cause 

mark-to-market losses on available-for-sale (AFS) 

fixed-income securities, reducing banks’ tangible 

equity capital. For some of the largest banks, 

these losses also reduce their regulatory capital.

C.1 Bank NIM and Fed Funds Rates: 2013 - 2022

0.0

0.1

0.3

0.4

0.5

0.6

0.8

0.9

1.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2013Q1 2014Q3 2016Q1 2017Q3 2019Q1 2020Q3 2022Q1

NIM

Eff Fed. Funds

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Percent As Of: 2022 Q2 Percent

Source: Call Report, Federal Reserve

banks maintain adequate capital and liquidity, 

sound interest rate risk management practices, 

and well-developed operational resiliency plans. 

The Council encourages banks and supervisors 

to focus their monitoring efforts on the impact of 

interest rate risk on bank capital, including the 

impact of unrealized losses on their securities 

portfolios. The Council supports the continued 

use of stress testing to assess risks to banks, 

noting that banking agencies and financial 

institutions should ensure that their stresstesting methodologies adequately account for 

plausible tail risks, given the current economic 

environment. Models calibrated to recent data 

may not fully capture forward-looking risk. The 

Council recommends that banking agencies 

continue monitoring bank exposures to NBFIs, 

including assessing how banks manage their 

exposure to leverage or liquidity mismatch in the 

nonbank financial sector.

Box C: The Impact of Interest 

Rate Risk on Banks, Insurance 

Companies, and Pension Funds

Under current accounting rules, declines in the 

market value of held-to-maturity (HTM) securities 

do not impact banks’ tangible equity capital or 

regulatory capital, and many banks have shifted 

their securities portfolios from AFS to HTM with 

unrealized losses or gains being amortized 

over the life of the securities, resulting in an 
Vulnerabilities, Significant Market Developments, and Council Recommendations 39

Insurance Companies

Life insurers’ liabilities generally have longer 

effective duration than life insurers’ assets. As a 

result, gradually rising interest rates may have a 

positive effect on the profitability of life insurers. 

One way to estimate life insurer interest rate risk 

is to measure the sensitivity of insurers’ stock 

returns to changes in long-term interest rates 

(Figure C.3). However, the most recent 

estimates show the sensitivity is not statistically 

significant.

C.3 Realized Interest Rate Risk Hedging by Life Insurers:

2008 - 2022

-1.50

-0.75

0.00

0.75

-1.50

-0.75

0.00

0.75

2008 2010 2012 2014 2016 2018 2020 2022

Realized Gamma Sample Average

2008 - 2022

Gamma Gamma

Zero Gamma

As Of: Sept 2022

Source: Thomson Reuters 

Tick History

Note: Realized gamma is the daily coefficient 

from a regression of five-minute returns on 

a market capitalization-weighted index of 

life insurers on five-minute return on a 10Y 

Treasury Index controlling for five-minute 

returns on the S&P500 index. See Brunetti, 

Foley-Fisher and Verani (2022) “What Do 

High-Frequency Insurer Stock Prices Tell Us 

About Their Interest Rate Risk Management?”, mimeo for more details. Confidence 

intervals are constructed by subsampling 

returns within each day. A gamma below 

zero indicates that insurance companies did 

not hedge the change in interest rates and 

would benefit from rising long-term interest 

rates. 

adjustment to yield. However, banks can face 

economic losses due to revaluation effects on 

HTM securities and other long-term fixed-rate 

assets, such as first and junior-lien residential 

real estate loans. Additionally, declines in the 

value of securities and fixed-rate assets can have 

material impacts on the equity market value of 

the firm.41

The largest U.S. banks have shifted their asset 

mix in recent years, creating more exposure to 

changes in long-term rates and securities losses. 

For example, long-term securities have increased 

as a percentage of banks’ balance sheets from 

8% in Q2 2014 to 14% in Q2 2022 (Figure C.2). In 

nominal terms, the value of long-term securities 

increased from about $1.2 trillion to about $3.0 

trillion during this same period. However, banks 

have also reduced their dependence on shortterm wholesale funding over the past several 

years, and they have experienced significant 

growth in stable deposits, which may have 

boosted NIMs and helped offset the impact of 

securities losses by delaying the pass-through of 

rates to depositors.42

C.2 Bank Asset Composition: 2014 and 2022

8 7

9

76

14

8

7

72

2014 Q2 2022 Q2

Long-term securities

RRE

Other securities

Other

Source: FR Y-9C Note: Long-term securities are defined as 

securities that mature or reprice in more than 

five years. RRE loans include first and junior 

lien mortgage loans.

One salient source of life insurer interest rate 

risk is that some liabilities can be redeemed 

earlier than expected. Insurance products, such 

as whole life and deferred fixed annuities, often 

can be “surrendered,” meaning the savings can 

be withdrawn early, though sometimes subject 

to a penalty. Since these products often also 

have a guaranteed minimum return, the incentive 
40 2022 FSOC // Annual Report

Box C: The Impact of Interest Rate Risk on Banks, Insurance Companies, 

and Pension Funds (continued)

invested in various asset classes, such as fixedincome, equity, or alternative investments, which 

include hedge funds, private equity, real assets, 

and private credit. If plan assets are sufficient to 

cover the present value of future liabilities, the 

plan is said to be fully funded.

Interest rate changes affect the present value 

of pension assets and liabilities. A fully funded 

plan can fully match the duration of its liabilities 

to immunize itself against interest rate shocks. 

DB plans use strategies to manage interest 

rate risk, such as derivative instruments and 

liability-driven investments (LDI),43 but can also 

be exposed to interest rate risk from derivatives. 

The overall interest rate risk for private, state, and 

local DB plans differs due to different rules and 

regulations.

Public pension funds discount obligations at the 

expected return of plan assets, following 

Government Accounting Standards Board 

accounting rules. The relatively high discount 

rates allowed lower contributions, which led to 

substantial underfunding. The underfunding, 

exacerbated by higher liabilities under the recent 

low-interest rate environment, in turn, 

incentivized sponsors to invest further in risky 

alternatives in a reach for yield (Figure C.5). 

Some pension fund boards allowed the use of 

leverage, repurchase agreements, and 

derivatives instruments to boost returns.44 In the 

event that fast-changing interest rates sufficiently 

affect the value of collateral, these funds could 

need to sell assets such as Treasuries to cover 

these positions since the funds’ cash holdings 

are usually limited.45

for surrendering can depend on the level of 

interest rates and market volatility. A large, 

quick increase in interest rates can lead to an 

unexpected large wave of surrenders, which is 

referred to as disintermediation risk. Higherthan-expected surrender rates could force 

insurers to sell assets while rising interest rates 

are pushing down market prices, forcing insurers 

to realize losses to meet higher redemptions. 

Significant realized losses could prompt 

institutional investors to re-evaluate their funding 

to life insurers’ nontraditional liabilities, potentially 

contributing to increased liquidity stresses.

Pension Funds

Defined benefit (DB) pension plans, which are 

offered through private, state and local, and 

federal employers, continue to play a major role 

in the U.S. retirement system, accounting for over 

$17 trillion in pension entitlements as of June 

2022 (Figure C.4).

C.4 U.S. Total Retirement Entitlements

0

2000

4000

6000

8000

10000

12000

14000

0

2000

4000

6000

8000

10000

12000

14000

Billions of US $ As Of: 2022 Q2 Billions of US $

IRAs DC

Plans

Private-Sector

DB Plans

Federal DB

Plans

Annuity

Reserves

State

and Local

Government

DB Plans

11,669*

9,253

3,817

3,236

581

9,597

3,805

2,185 5,118

4,479

1,646

2,204

Retirement Assets Unfunded Liabilities

Source: ICI Note: For definitions of categories, see Table 

1 and 2 in the US Retirement Market, Second 

Quarter 2022 ICI statistical report. Components may not add to the total because of 

rounding. 

* Data are estimated.

Defined benefit plans promise a regular 

retirement income that typically depends on age, 

tenure, and final salary. To meet these promises, 

plan sponsors set aside financial assets that are 
Vulnerabilities, Significant Market Developments, and Council Recommendations 41

Private DB plans discount pension benefit 

obligations using investment-grade corporate 

bond yields and adhere to stricter funding rules. 

As a result, they are more likely to use interest 

rate immunization strategies, though most funds 

still rely on long bond portfolios over LDI 

strategies.46 Since the average duration of their 

liabilities is a little over 10 years, U.S. private 

pensions can achieve their target duration in the 

large and more liquid 10-year U.S. Treasury bond 

market and the corporate bond market (Figure 

C.6). Beyond their effect on funding levels, 

interest rate increases may accelerate the shift 

away from DB plan schemes. As pension buyouts become more attractive, sponsors’ 

incentives to engage in pension risk transfers

(PRT)47 to life insurance companies increase. 

Following a PRT, pension liabilities are 

irrevocably transferred to insurers, along with the 

associated interest rate risk.

C.6 Private DB Total Assets by Z.1 Category

Unallocated Insurance 

Contracts

Debt Securities

Pension Funds Contributions 

Receivable

Claims of Pension Fund on 

Sponsor

Alternative Investments

Corporate and Foreign Bonds

Agency- and Mortgages

GSE-Backed Securities

Treasury Securities Mutual Fund Shares

Short Term Assets Corporate Equities

Billions of US$ As Of: 2022 Q2 Billions of US$

0

1000

2000

3000

4000

5000

6000

7000

0

1000

2000

3000

4000

5000

6000

7000

2015 2016 2017 2018 2019 2020 2021 2022

Source: Financial 

Accounts of the United 

States

Note: Alternative investments include hedge 

funds, private funds, and other unclassified assets as reported in the Census 

QSPP. Short term assets include checkable 

deposits and currency, time and savings deposits, money market fund shares, security 

repurchase agreements, and open market 

paper. Private equity is included in corporate 

equities.

C.5 State and Local DB Total Assets by Z.1 Category

Alternative Investments

Municipal Securities

Corporate and

Foreign Bonds

Agency- and Mortgages

GSE-Backed Securities

Treasury Securities Mutual Fund Shares

Short Term Assets Corporate Equities

Billions of US$ As Of: 2022 Q2 Billions of US$

0

1000

2000

3000

4000

5000

6000

7000

0

1000

2000

3000

4000

5000

6000

7000

2015 2016 2017 2018 2019 2020 2021 2022

Source: Financial 

Accounts of the United 

States

Note: Alternative investments include hedge 

funds, private funds, and other unclassified assets as reported in the Census 

QSPP. Short term assets include checkable 

deposits and currency, time and savings deposits, money market fund shares, security 

repurchase agreements, and open market 

paper. Private equity is included in corporate 

equities.
42 2022 FSOC // Annual Report

3.2.2 Investment Funds

Investment funds play a critical intermediary 

role in the U.S. financial system, promoting 

economic growth through efficient capital 

formation and providing vital funding to 

the U.S. economy. While recognizing these 

benefits, the Council has identified certain 

vulnerabilities related to investment funds, 

whose assets have increased significantly 

over the past decade (Figure 3.2.2.1). Hedge 

funds, open-end mutual funds, collective 

investment funds, and money market funds 

all play unique and critical roles in the 

financial system but also carry their own set of 

risks to financial stability.

Hedge Funds

Hedge funds have come to play a more 

prominent role in certain markets in recent 

years. The hedge fund industry has grown 

considerably over the last five years, with 

gross assets rising from approximately $6.4 

trillion in Q4 2016 to approximately $9.8 

trillion in Q4 2021.48 Over the same period, 

qualifying hedge funds’ presence in the 

critically important short-term funding 

markets and the U.S. Treasury market has 

increased markedly. Between Q4 2016 and 

Q4 2021, qualifying hedge fund exposures to 

U.S. Treasuries increased by 55%, while their 

repo and reverse repo exposures increased by 

92%.49

From the perspective of systemic risk, there 

are three main channels through which hedge 

funds can create risks to financial stability: 

(1) by causing or contributing to market 

disruptions through large asset liquidations; 

(2) by transmitting risks to counterparties 

that are large, highly interconnected financial 

institutions; or (3) by reducing financial 

intermediation, which could, under certain 

conditions, potentially impair market 

functioning.

A common thread for each channel is hedge 

funds’ use of leverage. During periods of 

market stress, leveraged funds can face 

internal or external pressure to liquidate their 

positions. An initial shock can create losses 

for a fund that lead to margin or collateral 

3.2.2.1 Investment Company Asset Growth

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

1990 1995 2000 2005 2010 2015 2020

Trillions of US$ Trillions of US$

Closed-End Funds

ETFs

Equity Mutual Funds

Bond/Hybrid Mutual Funds

MMFs

UITs

As Of: 2022 Q2

Source: ICI Note: Excludes non ’40 Act ETPs.
Vulnerabilities, Significant Market Developments, and Council Recommendations 43

calls, which may lead the fund to liquidate its 

positions. This liquidation can, in turn, lead 

to adverse price changes in the assets the 

fund holds, leading to further margin calls, 

additional losses on existing positions, and 

tighter risk management.

Similarly, the counterparty or prime broker 

could reduce or cut off its funding exposure 

to the fund instead of demanding additional 

margin or collateral. If a counterparty 

becomes concerned about the riskiness of a 

fund, it may refuse to roll over the funding and 

force the fund to liquidate its positions.

Finally, the counterparty’s exposure to a 

distressed fund can also act as a transmission 

channel through which the fund’s losses 

inflict losses on the counterparty and 

broadly disrupts the financial system. 

This vulnerability is particularly salient if 

the counterparty fails to implement the 

appropriate practices to manage the risk of its 

exposure to the fund.

Hedge funds’ use of leverage varies widely 

by the type of investment strategy the fund 

uses. At the aggregate level, the median 

gross notional exposure (GNE) to net asset 

value (NAV) ratio for qualifying hedge funds 

stood at 1.9x, while the median gross asset 

value (GAV) to NAV ratio stood at 1.4x as of 

Q4 2021. However, this aggregate statistic 

masks the significant heterogeneity in funds’ 

use of leverage across different strategies. 

For example, relative value, global macro, 

and multi-strategy funds use much more 

leverage than other funds. As a result, those 

three fund strategies reported asset-weighted 

average GNE/NAV ratios of 27.1x, 32.9x, 

and 16.0x and GAV/NAV ratios of 7.0x, 4.2x, 

and 3.4x in Q4 2021 (Figures 3.2.2.2 and 

3.2.2.3). Additionally, leverage appears to be 

concentrated among a small number of large 

hedge funds, with 25 funds accounting for 

55% of hedge fund derivatives value and 49% 

of hedge fund borrowing (Figure 3.2.2.4).

3.2.2.2 GNE/NAV

0

10

20

30

40

0

10

20

30

40

3.2.2.2 GNE/NAV

Leverage As Of: 2021 Q4 Leverage

Macro Relative

Value

Managed

Futures/

CTA

MultiStrategyInv. In

other

Funds

Other Credit Equity Event

Driven

Source: SEC Form PF Statistics Report

3.2.2.3 GAV/NAV

Macro Relative

Value

Managed

Futures/

CTA

MultiStrategyInv. In

other

Funds

Other Credit Equity Event

Driven

0

2

4

6

8

0

2

4

6

8

Leverage As Of: 2021 Q4 Leverage

Source: SEC Form PF Statistics Report

3.2.2.4 Hedge Fund Industry Concentration

0

20

40

60

80

100

0

20

40

60

80

100

Net Asset

Value

Gross Asset

Value

Gross

Notional

Borrowing Derivative

Value

Percent Percent

Source: SEC Form PF Statistics Report

Top 10 Top 11-25 Top 26-50 Other

As Of: 2021 Q4

Source: SEC Form PF Statistics Report
44 2022 FSOC // Annual Report

the Interagency Working Group on Treasury 

Market Surveillance (IAWG) and is currently 

considering policy options to mitigate the risks it 

has identified.

Open-end Funds

Open-end funds can create risks to financial 

stability by engaging in liquidity and maturity 

transformation. They allow daily redemptions 

while potentially investing in less-liquid assets. 

These two features can amplify and transmit stress 

in the U.S. financial system. Investors may be 

incentivized to redeem ahead of others because 

the remaining investors in the fund bear the cost 

of meeting large-scale redemptions, creating a 

first-mover advantage. Funds’ asset sales can 

lead to asset price declines, transmit stress to 

previously unaffected market participants, and 

ultimately create broader market disruptions.

In February 2022, the Council’s Open-end Fund 

Working Group presented updated findings 

on potential financial stability risks associated 

with these funds, concluding that open-end 

funds were one of the significant contributors 

to the financial system disruptions experienced 

in March 2020. Unprecedented investor 

redemptions drove the large volume of asset 

liquidations for fixed-income open-end funds. 

As a result, U.S. open-end funds were among the 

largest recorded net sellers of U.S. Treasuries, U.S. 

municipal bonds, and possibly U.S. corporate 

debt during this period. The impact of these asset 

sales on U.S. fixed-income markets, together 

with sales by other investors, was magnified 

by challenging liquidity and stressed trading 

conditions. While open-end funds were not the 

sole or primary cause of market stress, the size of 

their asset liquidations indicates that they were 

one of the significant contributors to this stress.

The events of March 2020 and the more 

prominent role of leveraged funds in Treasury 

markets underscore the importance of assessing 

hedge funds’ impact on market functioning 

during stress periods. At the same time, no single 

regulator has all the information necessary to 

evaluate the complete risk profiles of hedge 

funds. While the SEC’s Form PF data and hedge 

fund exams provide some information, other 

information on hedge fund activities comes 

indirectly from insight gained through regulatory 

oversight of their counterparties.

To enhance regulators’ abilities to assess hedge 

fund-related risks in systemically important 

markets, the Council re-established the Hedge 

Fund Working Group (HFWG) in 2021. In 

February 2022, the HFWG presented its analysis 

of hedge fund financial stability risks to the 

Council using activity in the Treasury markets 

during March 2020 and the failure of Archegos 

Capital Management, a family office employing 

levered strategies also used by hedge funds, as 

case studies. The HFWG found that hedge funds 

were among the three largest categories of sellers 

of Treasury securities in March 2020, along 

with foreign institutions and open-end mutual 

funds. Hedge funds materially contributed to the 

Treasury market disruption during this period 

but were not the sole cause. The HFWG also 

found that the failure of Archegos transmitted 

material stress to large, interconnected financial 

institutions.50 Since then, the HFWG has 

developed an interagency risk monitoring 

framework based on quantitative and qualitative 

information to identify potential risks to 

financial stability posed by hedge fund activity 

and communicate those risks to the relevant 

regulators.

The HFWG also identified gaps in the availability 

of data related to hedge funds, and Council 

member agencies are taking steps to address 

these gaps. For example, the SEC and the 

CFTC proposed amendments to Form PF, the 

primary regulatory data source on the private 

fund industry. The SEC also proposed a new 

requirement that certain advisers to hedge 

funds report timely information about events 

that indicate significant distress at a fund. 

Moreover, the HFWG coordinates its work with 
Vulnerabilities, Significant Market Developments, and Council Recommendations 45

Open-end funds continue to pose risks to U.S. 

financial stability. While U.S. mutual funds 

have seen notable investor outflows this year, 

these funds remain important investors in 

the U.S. debt markets that were disrupted in 

March 2020. U.S. mutual funds have seen 

investor outflows of $718 billion year-to-date 

through September 2022, with equity fund 

outflows totaling $260 billion and bond-fund 

outflows totaling $395 billion (Figures 3.2.2.5

and 3.2.2.6).

51 Rising interest rates create 

challenges for fixed-income funds, where the 

inverse relationship between bond prices and 

interest rates can lead to losses. In contrast 

to outflows from mutual funds, equity and 

bond exchange-traded funds (ETFs) took in 

a combined total of $414 billion during the 

same period.52 Even after the outflows, U.S. 

mutual funds remain one of the top investors 

in U.S. Treasuries, municipal bonds, and 

corporate bonds.

In November 2022, the SEC voted to propose 

amendments to better prepare open-end 

funds for stressed conditions and mitigate 

the dilution of shareholders’ interests.53 The 

rule and form amendments would enhance 

how funds manage their liquidity risks, 

require mutual funds to implement liquidity 

management tools, and provide more timely 

and detailed reporting of fund information. 

Among other things, the proposal would 

require open-end funds to use a liquidity 

management tool called “swing pricing,” 

which is a method to allocate costs stemming 

from inflows or outflows to the investors 

engaged in that activity rather than diluting 

other shareholders.

Collective Investment Funds

Collective investment funds (CIFs) include 

common trust funds for personal trusts 

and collective investment trusts (CITs) 

offered to tax-qualified retirement plans. 

Certain funds have grown relative to other 

investment options in retirement plans, 

especially for 401(k) and other participantdirected plans. CIFs can be daily valued and 

traded like shares of mutual funds, but at the 

same time, are perceived as lower cost and 

more flexible than investments in mutual 

3.2.2.6 Monthly Bond Mutual Fund Flows

-300

-200

-100

0

100

200

-300

-200

-100

0

100

200

2017 2018 2019 2020 2021 2022

Billions of US$ Billions of US$

Tax-Exempt

Taxable

As Of: Sep-2022

Source: ICI, Haver Note: Net fund flows.

Analytics

3.2.2.5 Monthly Equity Mutual Fund Flows

-150

-100

-50

0

50

100

-150

-100

-50

0

50

100

2017 2018 2019 2020 2021 2022

Billions of US$ Billions of US$

Global Equity

Domestic Equity

As Of: Sep-2022

Source: ICI, Haver Note: Net fund flows.

Analytics
46 2022 FSOC // Annual Report

funds. Although CIFs and mutual funds are 

both pooled investment vehicles managed 

collectively in accordance with a common 

investment strategy, they are subject to 

different regulatory regimes. For example, 

by statute, qualifying CIFs are subject to 

prudential oversight by banking regulators, 

are not required to be registered under federal 

securities laws, and must be administered 

by a bank acting as a fiduciary. Additionally, 

the vast majority of funds invested in CITs 

are retirement funds subject to the Employee 

Retirement Income Security Act (ERISA) and 

related regulations promulgated thereunder. 

Despite these requirements, additional 

regulation of open-end funds, such as the 

liquidity risk management proposal discussed 

above, may make mutual funds more costly 

compared to other CIFs, including CITs, and 

has the potential to encourage growth of CIFs. 

Money Market Funds

MMFs serve as intermediaries between 

investors seeking daily liquidity with limited 

principal volatility and entities with shortterm funding needs. As of September 30, 

2022, total U.S. MMF net assets were $5.1 

trillion, up 1.3% from a year earlier (Figure 

3.2.2.7). There are three main types of MMFs. 

First, government and Treasury MMFs, 

which had net assets of $4.0 trillion at the 

end of September 2022, invest in obligations 

of the U.S. government and federal agencies 

and repurchase agreements backed by 

government securities and account for 79% 

of U.S. MMF assets under management. 

Second, prime MMFs, which had net assets of 

around $980 billion at the end of September 

2022, hold a variety of short-term taxable 

obligations issued by corporations, banks, 

and governments along with repurchase 

agreements and asset-backed commercial 

paper and account for 19% of U.S. MMF assets 

under management. Finally, tax-exempt 

MMFs, which primarily hold obligations of 

state and local governments, had net assets 

of about $110 billion at the end of September 

2022 and account for approximately 2% of U.S. 

MMF assets under management.

3.2.2.7 MMFs Total Net Assets by Fund Type

0

1

2

3

4

5

6

0

1

2

3

4

5

6

Jan 2013 Jun 2015 Nov 2017 Apr 2020 Sep 2022

Trillions of US$ Trillions of US$

Prime

Tax-Exempt

Government & Treasury

As Of: Sep-2022 

Source: SEC Form N-MFP
Vulnerabilities, Significant Market Developments, and Council Recommendations 47

All MMFs engage in liquidity and maturity 

transformation. Prime and tax-exempt funds 

hold a variety of short-term obligations issued 

by financial and non-financial corporations, 

governments, municipalities, and assetbacked structures, as well as provide funding 

through repos (Figure 3.2.2.8). As discussed 

in Section 3.1.4, some of these instruments 

can become illiquid amid financial stress. 

MMFs provide liquidity to investors by 

offering redemptions on demand. In certain 

funds, this liquidity mismatch contributes 

during times of stress to an incentive for 

investors to be the first to redeem, which may 

lead to runs on MMFs and dislocations in 

short-term funding markets.

Large-scale outflows from prime MMFs 

during the early stages of the COVID-19 

pandemic contributed to stress in shortterm funding markets. These events 

underscored that prime MMFs continued 

to have structural vulnerabilities that can 

create or transmit stress to short-term funding 

markets. In contrast, government MMFs 

typically experience asset inflows during 

market stress as investors seek the most 

conservative and liquid investment option. 

To address the vulnerabilities in prime and 

tax-exempt MMFs, in February 2022, the 

SEC proposed amendments to certain rules 

to improve the resilience and transparency 

of MMFs.54 A main goal of the proposal is to 

eliminate investors’ incentive for preemptive 

redemptions from certain types of MMFs 

and to strengthen MMFs’ liquidity buffers, 

to help ensure they are available to be used 

in times of stress. In addition, under the 

proposal, certain MMFs would be required 

to implement swing pricing policies and 

procedures to ensure that redeeming 

investors bear the liquidity costs of their 

redeeming decisions.

Prime MMFs have experienced significant 

growth over the past year. Much of this 

recent growth has been driven by retail 

prime funds, which have grown by $96 

billion, or 45%, for the twelve-month period 

that ended September 30, 2022. Prime 

funds have become more attractive to retail 

3.2.2.8 Prime MMF Exposures

0

20

40

60

80

100

0

20

40

60

80

100

2018 2019 2020 2021 2022

Percent of Assets Percent of Assets

CD & Time Deposits

Financial CP

Govt & Treasury

As Of: Sep-2022

Asset-Backed

Nonfinancial CP & Other

Source: SEC Form N-MFP
48 2022 FSOC // Annual Report

investors, given the recent increase in rates 

and poor performance of other asset classes. 

Institutional prime funds have experienced 

more modest growth, increasing by $10.1 

billion, or 1.5%, over this same period.

MMFs have assumed a more defensive 

position in the current environment of 

expected interest rate increases. More 

specifically, MMFs have materially reduced 

the weighted average maturity of their 

portfolios by investing in shorter-duration 

securities (Figure 3.2.2.9). By investing in 

shorter-duration securities, funds have been 

able to reinvest cash in higher-yielding assets 

and offer higher returns to their investors. As 

a result, gross yields for prime retail funds 

have risen from 0.16% at year-end 2021 to 

3.19% as of September 2022 (Figure 3.2.2.10).

The asset composition of MMFs has 

continued shifting towards repo holdings 

over the past year. MMFs’ repo investments 

stood at $2.7 trillion in September 2022, 

or 54% of total assets, compared to 45% of 

MMFs’ total assets in September 2021 and 

22% in September 2020. MMFs’ use of the 

Federal Reserve’s overnight reverse repo 

facility (ON RRP) has continued trending 

upwards. As of September 30, 2022, MMFs’ 

ON RRP investments totaled $2.2 trillion, or 

44% of total assets, up from $1.4 trillion, or 

29% of total assets, twelve months earlier.55 

In contrast, MMFs have continued reducing 

their investments in sponsored repos, which 

FICC centrally clears. MMFs’ sponsored repo 

investments totaled $64 billion at the end of 

September 2022, down from the peak of $276 

billion as of year-end 2019.

Recommendations

The Council supports the initiatives by the 

SEC and other agencies to address risks 

in hedge funds, including proposed data 

collection improvements for Form PF. The 

Council will continue to review the findings 

of the Hedge Fund Working Group as they are 

developed. The Council recommends that the 

SEC and other relevant regulators consider 

whether additional steps should be taken to 

address these vulnerabilities.

3.2.2.9 MMF Weighted Average Maturity

0

10

20

30

40

50

60

0

10

20

30

40

50

60

Jan 2018 Mar 2019 May 2020 Jul 2021 Sep 2022

Days Days

Treasury

Government

Prime Retail

Prime Institutional

As Of: Sep-2022

Source: SEC Form N-MFP

3.2.2.10 Prime MMF Gross Yields

0

1

2

3

4

0

1

2

3

4

Jan 2018 Dec 2018 Nov 2019 Oct 2020 Sep 2021 Aug 2022

Percent Percent

Prime Retail

Prime Institutional

As Of: Sep-2022

Source: SEC Form N-MFP
Vulnerabilities, Significant Market Developments, and Council Recommendations 49

Box D: The Protection Gap 

and Insurance

Insurance plays an important role in the 

U.S. financial system and economy, allowing 

individuals and firms to engage in economic 

activity while managing the financial risks 

associated with their activities.56 Insurance also 

typically creates financial incentives through 

underwriting, pricing, and contract features that 

encourage insureds to manage and mitigate risk. 

However, not all risks are fully covered, creating 

a protection gap, which is the difference between 

insured losses and total economic losses from 

a particular event risk.57 This gap is growing 

for some risks, such as those related to climate 

change or cyber incidents, and may expose more 

of the financial system and economy without full 

coverage for those risks.

Sectors of the economy that have historically 

relied on readily available insurance coverage, 

such as housing and lending activities, may be 

forced to internalize the liability and physical risk 

associated with these activities if the protection 

gap widens and no other alternatives for 

managing risk are available. One estimate of the 

protection gap for climate-related catastrophes 

concludes that 62% of potential economic losses 

are not insured in North America, compared with 

78% in Europe, 86% in Latin America, and 91% in 

Asia.58

As a result of the increased likelihood and 

severity of losses and less insurance coverage, 

commercial insureds may have to spend more 

resources absorbing and mitigating business risks 

like cyber incidents, business interruption, or 

property damage, passing those costs on to their 

customers. For example, while cyber insurance 

coverage is available, recent ransomware attacks 

have caused a tightening of underwriting 

standards among insurers and lower coverage 

amounts. This underwriting tightening may 

provide incentives for insureds to strengthen 

their cybersecurity defenses and be more resilient 

to cyberattacks and may reduce the insurance 

sector’s exposure, but it also leaves more of the 

The Council is encouraged by the SEC’s continued 

engagement regarding potential reforms of 

open-end funds, including its recently proposed 

amendments regarding open-end fund liquidity 

risk management, swing pricing, and fund 

reporting, and looks forward to reforms that 

robustly address the financial stability risks from 

SEC-registered open-end funds. The Council 

should also consider whether congruent reforms 

are needed for open-end funds not subject 

to SEC regulation. For example, in light of 

inconsistent reporting across different regimes, 

regulators should consider whether additional 

data reporting is necessary to obtain appropriate 

information concerning these funds so that 

the Council can gain a better understanding 

of whether the regulatory differences between 

the regimes governing CIFs and mutual funds 

increase the risks of regulatory arbitrage.

In February 2022, the SEC proposed reforms for 

MMFs that would increase the minimum liquidity 

requirements for these funds, require some MMFs 

to adopt swing pricing, and remove provisions 

that tie an MMF’s ability to impose liquidity fees 

and redemption gates under rule 2a-7 to a decline 

in the fund’s liquidity below identified thresholds. 

The Council supports the SEC’s efforts to improve 

the resilience and transparency of MMFs and 

strengthen short-term funding markets. The 

Council will continue to monitor initiatives 

relating to MMF reforms. These reforms will be 

considered in the broader context of regulatory 

efforts to strengthen short-term funding markets 

and support orderly market functioning.

The Council encourages pension regulators and 

the Financial Accounting Standards Board (FASB) 

to improve the quality, timeliness, and depth 

of pension financial statements and portfolio 

holdings disclosures.
50 2022 FSOC // Annual Report

Box D: The Protection Gap 

and Insurance (continued)

3.2.3 Central Counterparties

Since the 2008 financial crisis, regulatory reforms 

have increased the use of central counterparties 

(CCPs) instead of bilateral contracts, making 

them key actors in the global financial system. 

Under central clearing, parties to a financial 

contract enter into two matched contracts with 

the CCP that offset one another, with the CCP 

ensuring the performance of open contracts. 

Central clearing protects against defaults among 

counterparties that could threaten financial 

stability but also concentrates the risk of default 

at the central counterparty. As a result, although 

CCPs provide significant benefits to market 

functioning and financial stability, they can also 

create potential risks to the financial system. 

The inability of a CCP to meet its obligations 

arising from the default of one or more clearing 

members or non-default losses could strain the 

surviving members of the CCP and, more broadly, 

the financial system. The stress on the financial 

system depends on several factors, including the 

size of the CCP and its interconnectedness with 

other financial institutions.

CCPs’ risk management frameworks are 

structured to ensure they have sufficient 

resources to cover member defaults by 

mutualizing counterparty credit risk. A CCP 

reduces settlement risks by netting offsetting 

transactions between multiple counterparties and 

reduces financial risk by:

• requiring margin deposits;

• providing independent valuation of trades 

and collateral;

• monitoring the creditworthiness of the member firms; and

• providing a guarantee fund that can be used 

to cover losses that exceed a defaulting member’s collateral on deposit.

A key part of a CCP’s risk management framework 

is the collection of initial margin and default fund 

contributions to protect the clearinghouse in 

the event of a clearing member’s default. CCPs 

typically adjust initial margin requirements in 

response to changes in market conditions. For 

instance, a CCP may increase initial margin 

requirements in response to high price volatility. 

Variation margin is another key component of 

risk uninsured. For example, Lloyds of London 

estimates that the global cost for cyber incidents 

is roughly $400 billion, and the potential 

protection gap for a significant incident is as 

much as 90%.59

As climate-related disasters grow more frequent 

and severe, insurers may require that insureds 

retain more of this exposure through product 

features like named storm deductibles, caps on 

coverage, exclusions, and limitations for certain 

perils. In addition, insurers may exit certain 

regions or lines of business. For an individual 

insured, this may alter the price and location of 

a home purchase or create other unintended 

economic barriers.

Additional analysis is needed to measure gaps in 

insurance coverage, explain how the gaps could 

threaten financial stability, and assess whether 

there are alternatives to insurance that could 

effectively mitigate those financial stability risks.
Vulnerabilities, Significant Market Developments, and Council Recommendations 51

a CCP’s risk management framework that 

offsets changes in current exposures resulting 

from changes in market prices. To determine 

the variation margin, which is typically 

collected and paid out in cash, positions are 

marked to market, and the profit or loss for 

each position is calculated. If the position 

has a loss, the member must pay a variation 

margin; if the position has a profit, the 

member receives a variation margin. To cover 

defaults greater than a defaulting member’s 

resources, a CCP may set aside some of its 

capital and establish a mutualized guarantee/

default fund. If a clearing member defaults, 

CCPs will use their default procedures, likely 

liquidating the defaulting member’s cleared 

positions and collateral. In the event that 

a CCP realizes losses associated with the 

default of a clearing member that exceeds the 

defaulting firm’s resources, the CCP may draw 

on its mutualized guarantee fund to cover 

those losses or impose special assessments on 

its clearing members.

U.S. CCPs

In the U.S., the Depository Trust & Clearing 

Corporation (DTCC) is the primary provider 

of clearing services for cash securities 

through its subsidiaries, the FICC and the 

National Securities Clearing Corporation 

(NSCC).60 Required contributions to MBSD’s 

and NSCC’s clearing funds, which spiked 

at the onset of the COVID-19 pandemic, 

remained elevated through Q2 2022 relative 

to pre-pandemic levels. As of June 30, 2022, 

clearing fund requirements across the DTCC’s 

three clearing services totaled $40.3 billion, 

down $3.8 billion from June 30, 2021 (Figure 

3.2.3.1).

Most U.S. exchange-traded derivatives are 

cleared through the Chicago Mercantile 

Exchange (CME), the Intercontinental 

Exchange (ICE) Clear U.S., and the Options 

Clearing Corp (OC Corp). CME and ICE Clear 

U.S. provide clearing services for futures and 

options on futures, while OC Corp mainly 

provides clearing services for exchangetraded equity options. The initial margin 

posted against futures and options remains 

elevated relative to pre-pandemic levels, with 

3.2.3.1 DTCC Clearing Fund Requirements

0

10

20

30

40

50

60

0

10

20

30

40

50

60

2016 2017 2018 2019 2020 2021 2022

Billions of US$ Billions of US$

FICC: MBSD

NSCC

FICC: GSD

As Of: 2022 Q2

Source: PFMI Quantitative Disclosures, Clarus FT
52 2022 FSOC // Annual Report

the margin at OC Corp, CME, and ICE Clear 

U.S. totaling $294.3 billion (Figure 3.2.3.2). 

Within the over-the-counter (OTC) derivative 

markets, most U.S. dollar interest rate swaps 

are cleared through LCH Ltd. or CME, while 

most credit default swaps (CDS) are cleared 

through ICE Clear Credit, ICE Clear Europe, 

or LCH SA. The required initial margin for 

interest rate swaps and credit default swaps 

totaled $300.2 billion as of June 30, 2022, 

up $11.1 billion from the prior year (Figure 

3.2.3.3).

Commodity Market Volatility

As noted in Box E, commodity price volatility 

surged following Russia’s war against Ukraine, 

forcing several commodity-focused CCPs to 

raise initial margins substantially. Despite 

the sudden increase in margins in February 

and March 2022, there was limited impact 

on the broader financial system. However, 

several lessons can be learned from this 

stress. High commodity prices and volatility 

can hamper commercial activity and key 

participants’ willingness or ability to hedge 

price risk in derivatives markets or engage in 

market-making activity, which could impact 

commodities supplies to the market and the 

economy.

CCP Stress Test Results

Although increased margin demands may 

have put a temporary strain on the liquidity of 

some members, these events helped alleviate 

concerns about potential CCP defaults 

going forward. As a result, the banks’ CCP 

probability of default estimates, as reflected in 

the Federal Reserve’s CCAR, have decreased 

substantially from their levels in Q1 2020.

Additional evidence is derived from the March 

10, 2022, release of stress tests performed 

on 7 of 13 CCPs considered systemically 

important in more than one jurisdiction (SI>1 

CCPs). The seven SI>1 CCPs operate a total 

of 15 service lines, all of which were tested 

in coordination with their regulator. The 

analysis was based on default and non-default 

loss scenarios potentially extreme enough 

to require recovery and resolution tools. 

Although there are limitations to the analysis 

3.2.3.2 Initial Margin: U.S. Exchange Traded Derivatives

0

100

200

300

400

0

100

200

300

400

2016 2017 2018 2019 2020 2021 2022

Billions of US$ Billions of US$

ICE Clear US

Options Clearing Corp.

CME

As Of: 2022 Q2

Note: Initial margin required as reported in quantitative 

disclosures; includes house and client accounts.

Source: PFMI 

Quantitative 

Disclosures, Clarus FT

3.2.3.3 Initial Margin: Centrally Cleared OTC Derivatives

0

100

200

300

400

0

100

200

300

400

2016 2017 2018 2019 2020 2021 2022

Billions of US$

Credit Default Swaps

Interest Rate Swaps

As Of: 2022 Q2 Billions of US$

Note: Initial margin required as reported in quantitative 

disclosures; includes house and client accounts. 

Interest rate swaps margin includes LCH Ltd. and CME. 

CDS margin include CME, ICC, ICEU, and LCH SA). CME 

ceased clearing CDS in March 2018. 

Source: PFMI 

Quantitative 

Disclosures, Clarus FT
Vulnerabilities, Significant Market Developments, and Council Recommendations 53

risk management practices and capabilities. 

CCP supervisory agencies should continue to 

work with the FDIC to support CCP resolution 

planning.

Council member agencies should continue 

working with global counterparts and 

international standard-setting bodies to identify 

and address areas of concern. The Council 

encourages continued engagement with foreign 

regulators to address the potential for inconsistent 

regulatory requirements or supervision that 

pose risks to U.S. financial stability. The Council 

encourages cooperation in the oversight and 

regulation of SI>1 CCPs and consideration of 

appropriate resources for SI>1 CCP resolution.

The Council also encourages agencies to continue 

monitoring and assessing interconnections 

among CCPs, their clearing members, and other 

financial institutions. CCPs should ensure 

they can manage risks associated with sudden 

volatility and that participants are prepared to 

meet their liquidity needs to fund higher margin 

calls during periods of stress.

In addition, while margin requirements have 

increased significantly in the aftermath of 

Russia’s war against Ukraine, agencies should 

continue analyzing and monitoring the impacts 

of regulatory risk management frameworks in 

cleared, uncleared, and related securities markets 

and their impact on systemically important 

intermediaries and clients.

Finally, the Council encourages regulators to 

continue advancing recovery and resolution 

planning for FMUs and SI>1 CCPs and to 

continue coordinating the design and execution 

of supervisory stress tests of these entities.

that mean the results of these stress tests should 

be interpreted cautiously, all the CCP service lines 

could absorb all of the losses.61 About half of the 

15 CCP service lines had to use recovery tools, 

but none needed resolution. For non-default 

losses, a cyber theft scenario was considered, 

and resolution authorities would have needed 

to trigger resolution for the majority of CCPs to 

generate sufficient resources to cover the loss. 

In another non-default scenario, the liquidity 

arrangements of one CCP were insufficient.

CCP Resolution

Although CCP failures are rare, they require 

sufficient resolution planning and preparedness 

to continue critical functions to maintain U.S. 

financial stability. Accordingly, the Council has 

designated five CCPs as financial market utilities 

(FMUs) that are systemically important because 

the failure of or a disruption to the functioning 

of the FMU could threaten financial stability. In 

addition, 13 CCPs from 10 jurisdictions were 

identified as SI>1 CCPs, including three U.S. 

CCPs. Regulators have taken steps for these SI>1 

CCPs to enhance their preparedness, including 

setting up crisis management groups with 

cooperation agreements to support resolution 

planning and resolvability assessments. These 

CCPs have also prepared and submitted plans to 

their primary regulators outlining potential paths 

for recovery and orderly wind down. However, 

it is important to note these CCP orderly winddown plans consider cessation of critical services. 

Furthermore, recovery and orderly wind-down 

plans may fail, which could create serious 

financial stability concerns for the United States 

in the absence of readily available substitutes.

Recommendations

The Council recommends that the CFTC, 

Federal Reserve, and SEC continue to coordinate 

the supervision of all CCPs designated by the 

Council as FMUs that are systemically important. 

Relevant agencies should continue to evaluate 

whether existing standards for CCPs are 

sufficiently robust to mitigate threats to financial 

stability from default and non-default losses. 

The agencies should pay particular attention to 

the tradeoff between counterparty and liquidity 

risks. Agencies that regulate clearing members 

should continue to assess those firms’ liquidity 
54 2022 FSOC // Annual Report

commodities, notably oil, are priced in U.S. 

dollars, and historically a stronger dollar puts 

downward pressure on commodities prices. 

Additionally, price pressure was tempered by 

continued lockdowns in China and increasingly 

tight worldwide financial conditions.

Commodities and commodities derivatives 

markets have experienced several bouts of 

volatility over the last few years. As a result, 

commodity-focused CCPs have raised margin 

requirements significantly. Despite significant 

volatility, trading remained orderly on U.S. 

exchanges. However, disorderly trading in the 

London Metal Exchange’s (LME) nickel contract 

led to the suspension of the nickel market in 

March. Although LME is not regulated by any 

U.S. entity, its decision to suspend trading raises 

broader questions about the role and design of 

trade suspensions.

Commodities prices, which generally fell at the 

onset of the COVID-19 pandemic, have since 

rebounded sharply. Aggressive monetary and 

fiscal stimulus accelerated a sharp rebound in 

aggregate demand. At the same time, supply for 

many commodities continued to be constrained 

by logistical bottlenecks, bad weather, and rising 

input costs. As a result, by the end of August 

2021, almost all energy, metals, and agricultural 

markets exceeded pre-pandemic price levels, 

and many were trading at multi-year highs. For 

the most part, markets steadied through the 

fall of 2021, as the emergence of the Omicron 

variant, continued lockdowns in China, and more 

restrictive monetary policies tempered bullish 

expectations for commodities.

Just before and after the Russian war against 

Ukraine began on February 24, 2022, prices for 

markets with the potential for supply disruptions 

from the region, such as crude oil, natural gas, 

and wheat, rose sharply from already elevated 

levels (Figure E.1). European natural gas markets 

were especially affected since Europe imports a 

significant amount of natural gas from Russia. 

While European economies have since reduced 

their reliance on Russian gas, natural gas prices 

remain significantly elevated as Russia continues 

to interrupt supplies. At about the same time, 

monetary tightening by the Federal Reserve led to 

multi-year highs in the U.S. dollar. Many 

E.1 Relative Price of Selected Futures Contracts

0

70

140

210

280

350

420

0

70

140

210

280

350

420

Aug 2021 Nov 2021 Jan 2022 Mar 2022 Jun 2022 Aug 2022 Oct 2022

Index Index

Wheat

Copper

Dutch NG

Henry Hub NG

WTI

As Of: 31-Oct-2022

Source: CFTC

Box E: Recent Developments in Commodities Markets

Derivatives Clearing

Elevated commodities market volatility has led to 

material increases in initial margin levels at CCPs 

(Figure E.2). Total collateral for futures and 

options contracts rose roughly $50 billion in 

February and March 2022, with further margin 

increases in interest rate derivatives as many 

central banks worldwide began successive rate 

increases.

E.2 Aggregate Initial Margin by Asset Class

0

50

100

150

200

250

300

350

400

0

50

100

150

200

250

300

350

400

Feb 2020 Oct 2020 Jun 2021 Feb 2022 Oct 2022

E .2 Aggregate Initial Margin by Asset Class

Billions of US$ Billions of US$

IRS

F&O

CDS

As Of: 31-Oct-2022

Source: CFTC
Vulnerabilities, Significant Market Developments, and Council Recommendations 55

The geographical distribution of margin increases 

highlighted the regional impact of the war in 

Ukraine, with increases highly concentrated in 

Europe-based clearinghouses (Figure E.3). By 

the fall of 2022, total collateral held by registered 

CCPs exceeded $700 billion, significantly higher 

than during the peak of the COVID-19 pandemic. 

During this period, variation margin payments, 

which represent the day-to-day changes in 

portfolio value, rose to approximately $50 billion 

per day, similar to those seen early in the 

COVID-19 pandemic.62

E.3 Aggregate Initial Margin by Region 

0

50

100

150

200

250

300

350

400

0

50

100

150

200

250

300

350

400

Feb 2020 Aug 2020 Mar 2021 Sep 2021 Apr 2022 Oct 2022

Billions of US$ Billions of US$

US

UK

Europe

As Of: 31-Oct-2022

Source: CFTC

LME Nickel Market

On March 8, 2022, the LME suspended trading 

in the nickel market following unprecedented 

price increases in the 3-month nickel contract.63 

The LME also retroactively canceled all contracts 

executed on the morning of March 8, ceased 

publication of nickel prices, and deferred delivery 

of physically settled nickel contracts. LME’s 

decision to suspend trading was partly due to 

concerns that the extreme volatility had created 

a systemic risk to the market.64 More specifically, 

there were serious concerns about market 

participants’ ability to meet margin calls, raising 

the significant risk of multiple defaults.

The suspension raises a broader question 

about the role and design of trade suspensions. 

Although such measures can help mitigate risks 

to financial stability by reducing liquidity stress, 

interruptions to trading and price discovery may 

carry significant costs, including loss of price 

transparency, which is important for valuation, 

settlement, and risk management. It also 

constrains participants’ ability to enter into or 

close out positions and mitigate their exposures.

The increase in initial margin levels was most 

pronounced for derivative products directly 

affected by recent events. Normalized margin 

levels are shown for futures products most 

impacted by Russia’s war against Ukraine (Figure 

E.4). While some initial margin requirements for 

products were increased in advance of Russia’s 

invasion, the pace of margin increases accelerated 

post invasion, with margin levels on certain 

contracts tripling over a few months. Margin 

requirements for most products have since fallen. 

However, margin levels for European gas futures 

remain elevated, which can be attributed to 

ongoing supply disruptions and continued 

volatility going into the winter heating season.

E.4 Normalized Margin of Futures Contracts

0

1

2

3

4

5

0

1

2

3

4

5

Oct 2021 Jan 2022 Apr 2022 Jul 2022 Oct 2022

Index Index

Wheat

Ruble

US NG

Dutch NG

WTI

As Of: 31-Oct-2022

Source: CFTC
56 2022 FSOC // Annual Report

3.3 Financial Market Structure

3.3.1 Treasury Markets

The Treasury market plays a critical role 

in financing the federal government, 

supporting the broader financial system, and 

implementing monetary policy. The market 

remains the deepest and most liquid market 

in the world and a central component of the 

financial system. However, recent episodes 

of challenging liquidity conditions in the 

secondary Treasury market, including in 

September 2019 and March 2020, highlight 

market vulnerabilities and illustrate the need 

to consider policies that enhance Treasury 

market resilience. The sheer size of the total 

Treasury market, at $24 trillion marketable 

outstanding and $670 billion of average 

daily trading volume over the past year as of 

September 2022, requires close monitoring 

and vigilance, as a breakdown in market 

functioning would have significant financial 

stability implications.

In FY 2022, the federal deficit declined to 

around $1.4 trillion, half of the $2.8 trillion 

deficit in FY 2021, based on a decline in 

fiscal spending related to the COVID-19 

pandemic.65 Treasury net marketable 

borrowing, however, increased from around 

$1.4 trillion in FY 2021 to $1.7 trillion in FY 

2022, due primarily to the need to rebuild 

the cash balance after the prior debt limit 

episode (Figure 3.3.1.1). In July 2022, the 

Congressional Budget Office projected that 

public debt would remain relatively stable as 

a percent of GDP over the next few years at 

just below 100% before increasing again to 

110% by 2032 (Figure 3.3.1.2). In the near 

term, net marketable borrowing was forecast 

to increase by around $1 trillion over the next 

two years, which will need to be absorbed by 

private sector investors. Adding to the supply 

of Treasury debt to the private sector are the 

maturities of the Federal Reserve holdings 

of Treasury securities, which contributed to 

the need to raise an additional $150 billion in 

privately-held net marketable borrowing in 

FY 2022.

3.3.1.1 Net Issuance of Treasury Securities

Billions of US$ Billions of US$

-1000

0

1000

2000

3000

-1000

0

1000

2000

3000

2015 2016 2017 2018 2019 2020 2021 2022

Bills

Notes and Bonds

Net

As Of: 2022 Q3

Note: Includes 

marketable securities 

only.

Source: U.S. Department of the Treasury, 

Bureau of the Fiscal Service, SIFMA, Haver 

Analytics

3.3.1.2 Federal Debt Held by the Public

0

25

50

75

100

125

150

0

25

50

75

100

125

150

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

CBO July 2022

Baseline Projection Historical

Percent of GDP As Of: 2022 Percent of GDP

Note: Data for fiscal years. Years after 2021 are 

projected.

Source: CBO, Haver 

Analytics
Vulnerabilities, Significant Market Developments, and Council Recommendations 57

During 2022, nominal Treasury yields rose 

substantially as 2-year yields increased 

over 350 basis points to above 4.5% (Figure 

3.3.1.3). The increase was primarily the result 

of the Federal Reserve increasing the target 

range for the federal funds rate. However, the 

Treasury curve also flattened significantly 

and inverted with 2-year yields rising above 

10-year yields for the first time since 2019, a 

spread commonly viewed as one indicator of 

recession risk.

Economic and monetary policy uncertainty, 

combined with the disruptive impact of 

Russia’s war against Ukraine, resulted 

in substantial Treasury yield volatility, 

leading to lower levels of trading liquidity 

across the global financial system (Figure 

3.3.1.4). The lower Treasury market liquidity 

was particularly acute in the short- and 

intermediate-term tenors, which are more 

sensitive to the policy rate path (Figure 

3.3.1.5). As a result, trading costs in the 

Treasury market have been somewhat higher 

as depth has declined, bid-ask spreads 

widened, and measures of price dispersion 

have increased. Nonetheless, while the cost of 

trading has increased, given the higher yield 

volatility, trading volumes have remained 

robust (Figure 3.3.1.6). Market participants 

continue to note that the Treasury market 

continues to function smoothly and that they 

can still execute trades effectively.

Treasury Market Resilience

The Treasury market has shown resilience 

in the face of increased uncertainty and 

volatility in 2022. To ensure that the Treasury 

market continues to fulfill its vital purpose, it 

is important to seek continual improvements 

that strengthen the Treasury market to keep 

pace with the changing size of the market, 

technology, and trading patterns. Multiple 

agencies and organizations have regulatory 

and oversight responsibilities for the Treasury 

market. To ensure effective surveillance and 

coordinated policymaking, these groups 

collaborate through the Inter-Agency Working 

Group for Treasury Market Surveillance 

(IAWG), which consists of the Treasury, 

Federal Reserve, SEC, CFTC, and the Federal 

3.3.1.3 U.S. Treasury Yields

Percent

0

1

2

3

4

5

0

1

2

3

4

5

2012 2014 2016 2018 2020 2022

As Of: 31-Oct-2022 Percent

10-Year

2-Year

Source: U.S. Department of the Treasury

3.3.1.4 Intraday Volatility for 10-Year Treasury Yields

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

Jan 2017 Feb 2018 Mar 2019 Apr 2020 May 2021 Jun 2022

Basis Points As Of: 31-Oct-2022 Basis Points

99th Percentile

95th Percentile

Intraday Volatility

Note: 5-day moving average. Intraday volatility 

calculated as daily high yield minus daily low yield on 

10-year Treasury notes. Percentiles based on January 

2005–October 2022. Dec. 5, 2018 is included in the 

data despite the market being closed.

Source: Bloomberg, 

L.P.

3.3.1.5 MOVE Index and 2-Year Treasury Yield

Index

0

1

2

3

4

5

0

30

60

90

120

150

180

Jan 2019 Apr 2020 Jul 2021 Oct 2022

MOVE Index (left axis)

2-Year (right axis)

As Of: 31-Oct-2022 Percent

Source: FRED, Bloomberg, L.P.
58 2022 FSOC // Annual Report

Source: FINRA

0

1

2

3

4

5

6

0

1

2

3

4

5

6

Dec 2018 Sep 2019 Jun 2020 Mar 2021 Dec 2021 Sep 2022

Trillions of US$ As Of: 31-Oct-2022 Trillions of US$

3.3.1.6 Total TRACE Treasury Weekly Trading Volumes Reserve Bank of New York (FRBNY). On 

November 8, 2021, the IAWG published a Staff 

Progress Report, which identified specific 

principles and workstreams the joint staffs 

are pursuing to improve Treasury market 

resilience, including bolstering the resilience 

of market intermediation, improving data 

quality and availability, evaluating expanded 

central clearing, and enhancing trading venue 

transparency and oversight.66

Since the 2021 Staff Progress Report, 

significant additional progress has been 

achieved.67 On November 10, 2022, the 

IAWG released another Staff Progress Report 

detailing the steps taken over the past year.68 

For example, in 2022, the SEC proposed three 

rules to (1) enhance oversight of and public 

disclosures by Treasury trading platforms, 

(2) require certain market participants 

that act as liquidity providers to register as 

dealers and comply with other laws and 

regulatory obligations, and (3) enhance 

risk management practices for central 

counterparties while expanding central 

clearing requirements for Treasury securities 

transactions.

The FRBNY released a working paper 

examining the considerations for expanded 

all-to-all trading in the Treasury market. The 

working paper, All-to-All Trading in the U.S. 

Treasury Market, discusses the benefits and 

challenges of a potential Treasury market 

structure where all participants can trade 

directly.69 The Federal Reserve has also 

added depository institution counterparties 

to the standing repo facility, an important 

development for ensuring repo market 

functioning in stressed environments. The 

Federal Reserve has also required certain 

depository institutions to begin reporting 

Treasury transactions data in the Trade 

Reporting and Compliance Engine (TRACE).

In addition to the new bank reporting to 

TRACE, significant progress has also been 

made by Treasury and the OFR regarding 

additional data collection and transparency. 

For example, OFR conducted a pilot program 

designed to prepare industry participants 
Vulnerabilities, Significant Market Developments, and Council Recommendations 59

3.3.2 Alternative Reference Rates

LIBOR is a key risk to financial stability, bank 

safety and soundness, and market integrity due to 

the decline in the underlying markets that LIBOR 

was meant to represent, the ability to manipulate 

LIBOR rates, and the vast scale of derivatives 

tied to LIBOR. The remaining U.S. dollar (USD) 

LIBOR rates are due to end as of June 30, 2023, 

marking the end of LIBOR.71 The financial 

exposures to USD LIBOR rates are sizeable: the 

Alternative Reference Rates Committee (ARRC) 

has estimated that USD LIBOR was used in $223 

trillion of financial contracts as of Q1 2021, and it 

is also used extensively in nonfinancial contracts.

and the OFR for a permanent data collection 

of non-centrally-cleared bilateral repo market 

transactions. Likewise, the Financial Industry 

Regulatory Authority (FINRA) made several 

announcements regarding enhancements to 

Treasury transaction data in TRACE, such as 

reducing the reporting timeframe, improving 

execution timestamps, and increasing the 

frequency of and the information included 

in aggregate public data releases. Treasury 

conducted a request for information (RFI) on 

additional transparency for secondary market 

transactions in the Treasury market. Based, in 

part, on feedback received in the RFI, Treasury 

proposed releasing transaction data for onthe-run nominal coupons, with end-of-day 

dissemination and with appropriate cap sizes.70

Although significant steps have been taken 

toward enhancing Treasury market resilience, 

additional work is ongoing. The rapid increase 

in interest rates this year will cause government 

financing costs to increase and will create losses 

for some investors. Technological changes in 

trading also continue to present new risks that 

need to be monitored and understood. The 

Council acknowledges the need to be flexible in 

order for public policy to evolve alongside the 

evolution of the Treasury market and expects 

significant further progress to be made to bolster 

market resilience.

Recommendations

The Council recommends that member agencies 

continue to review Treasury market structure 

issues that may contribute to liquidity challenges 

in Treasury markets in the context of the ongoing 

growth of Treasury debt outstanding and the 

evolution of technology and counterparties 

providing market liquidity. Policies should 

be considered for improving data quality 

and availability, bolstering the resilience of 

market intermediation, evaluating expanded 

central clearing, and enhancing trading venue 

transparency and oversight.

The Council also supports and encourages efforts 

by Treasury to continue to enhance collection 

and transparency in post-trade transactions in the 

cash market for Treasury securities.
60 2022 FSOC // Annual Report

Council member agencies have worked 

with the ARRC to address the risks USD 

LIBOR poses. Following guidance issued 

by the Federal Reserve, FDIC, and OCC to 

stop most use of LIBOR, activity in Agency 

ARM MBS, private floating rate notes, swaps, 

and futures has shifted toward using the 

Secured Overnight Financing Rate (SOFR), 

the rate recommended by the ARRC as 

the replacement for USD LIBOR (Figure 

3.3.2.1). SOFR is published by the FRBNY in 

conjunction with the OFR and reflects the cost 

of borrowing in the repo market collateralized 

by Treasury securities.72 In derivatives 

markets, activity in SOFR-linked products has 

accelerated. For example, SOFR swaps now 

account for around 90% of daily volumes of 

interest rate risk traded in the outright linear 

swaps market, and average daily volumes in 

SOFR futures are growing to surpass that of 

Eurodollar futures. In cash markets, nearly 

all new transactions in agency ARM MBS 

and private floating rate notes have moved to 

SOFR (Figure 3.3.2.2).

Many lending products have adopted Term 

SOFR, which is derived from the activity in 

futures markets for SOFR.73 The ARRC has 

recognized the use of Term SOFR for certain 

cash products, particularly business loans, 

but has recommended limiting the use of 

Term SOFR in derivatives and most other 

cash markets. If more cash products were to 

reference Term SOFR, it likely would cause 

an increase in Term SOFR derivatives, which 

could lead to a decline in the overnight 

SOFR derivatives markets. The ARRC’s 

recommendations are intended to ensure 

the financial system’s stability by avoiding 

use that is not in proportion to, or materially 

detracts from, the depth of transactions in 

the underlying SOFR derivatives market that 

are essential to the construction of the Term 

SOFR.

Credit-sensitive alternatives to SOFR, which 

are based on the same or similar markets 

to those that underlie LIBOR, have been 

relatively little used by market participants. 

The Council has continued to advise lenders, 

borrowers, and other market participants 

3.3.2.1 Progress in Transition to SOFR

0

20

40

60

80

100

0

20

40

60

80

100

Jan 2021 Apr 2021 Jul 2021 Oct 2021 Jan 2022Apr 2022 Jul 2022

Total Private 

Floating Rate 

Note Issuance

Total Swaps 

Risk Traded

Total Agency 

ARM MBS 

Issuance

Percent Percent

Futures Trading 

As Of: Sep-2022

Source: Black Knight-eMBS, Bloomberg Finance L.P., and Clarus Financial 

Technology

3.3.2.2 Syndicated Lending

0

25

50

75

100

0

50

100

150

200

 Sep

2021

 Nov

2021

 Jan

2022

Mar

2022

May

2022

July

2022

Sep

2022

SOFR as a percent of Total (right axis) 

Billions of US$ As Of: Oct-2022 Percent

SOFR (left axis)

LIBOR (left axis)

Note: Excludes loans without an identical base rate, 

foreign currency, and prime loans.

Source: LCD, an 

offering of PitchBook 

Data, and Refinitiv LLC
Vulnerabilities, Significant Market Developments, and Council Recommendations 61

effectively communicated rates and conforming 

changes where applicable.

Council members have emphasized that 

derivatives and capital markets should continue 

moving to SOFR, a broad and robust measure of 

borrowing rates. While the Council recognizes 

the usefulness of Term SOFR in certain business 

lending transactions, it endorses the ARRC’s 

recommendations to limit the use of Term SOFR 

in other markets and strongly encourages market 

participants to limit the usage of Term SOFR in 

derivatives and most other cash markets.

3.3.3 Provision of Financial Services by Nonbank 

Financial Institutions

Nonbank financial institutions are increasingly 

providing financial services traditionally 

provided by banks. The emergence of nonbank 

financial institutions in certain markets has 

fostered increased competition and innovation 

and has increased access to capital markets 

for households and corporations. However, 

the growth of nonbank financial institutions 

in certain marketplaces may introduce new 

risks to the broader financial system. Given 

the multifaceted nature of nonbank business 

activities, these risks present themselves 

differently across consumer products, business 

lending, and mortgage origination and servicing.

to consider SOFR-based rates and to conduct a 

comprehensive evaluation before adopting any 

alternative rate, warning that rates based on small 

transaction volumes, especially if much lower 

than the volume of instruments that reference a 

given rate, could introduce risks. While banks will 

not be criticized solely for choosing a different 

rate,74 a number of Council members have 

emphasized concerns with such credit-sensitive 

rates being referenced in capital or derivatives 

markets.

While new contracts have primarily transitioned 

to using SOFR, existing or “legacy” LIBOR 

contracts still exist. More recent cash products 

referencing USD LIBOR have contractual fallback 

language, and most uncleared derivatives 

adhered to the International Swaps and 

Derivatives Association’s Interbank Offered Rate 

(ISDA IBOR) protocol to fall back to SOFR when 

LIBOR ends, but many older LIBOR contracts 

do not. Federal legislation passed this year has 

addressed the risk posed by these contracts and 

will significantly reduce the risks associated 

with the end of LIBOR. Market participants 

must also ensure that they are operationally 

prepared for a large number of legacy LIBOR 

contracts due to transition over a short period 

next year. Accordingly, the ARRC has encouraged 

market participants to actively transition legacy 

contracts ahead of June 2023. The ARRC is also 

working with DTCC and key market participants 

to enhance DTCC’s Legal Notice System (LENS) 

to ensure that rate changes in legacy LIBOR 

securities can be effectively communicated to 

investors.75

Recommendations

In light of the large volume of legacy USD LIBOR 

contracts outstanding, the Council advises firms 

to take advantage of any existing contractual 

terms or opportunities for renegotiation 

to transition their remaining legacy LIBOR 

contracts before June 30, 2023. The Council 

advises responsible parties to communicate 

any outstanding decisions regarding the rates 

that outstanding legacy LIBOR contracts will 

transition to and any conforming changes well 

in advance of June 2023. The Council also 

encourages securities issuers and trustees to use 

the enhanced LENS system to ensure they have 
62 2022 FSOC // Annual Report

Nonbank Mortgage Companies

In recent years, mortgage servicing activity 

has notably shifted out of the banking 

sector and into nonbank mortgage servicing 

companies. As of the second quarter of 2022, 

nonbank companies service 55% of U.S. 

mortgages compared to 6% in 2011 (Figure 

3.3.3.1). Individual nonbank mortgage 

servicing companies have also grown: as of 

the second quarter of 2022, nonbank servicing 

volume at the largest 10 nonbank servicers 

averaged approximately $430 billion and, in 

aggregate, represented 34% of the residential 

mortgage market. These same figures for the 

largest 10 nonbank servicers at the end of 

2014 were an average portfolio of $180 billion 

and a collective 18% total market share.76

The nonbank mortgage origination sector 

has also increased dramatically in recent 

years, marked by growth in the total number 

of companies, origination volumes, and 

the largest nonbank mortgage originators’ 

market share. Since 2017, the total number of 

nonbank mortgage originators has increased 

by 26%,77 driven primarily by adding over 

1,700 smaller regional companies (Figure 

3.3.3.2).78 However, the largest source of loan 

origination growth has occurred at companies 

operating nationwide. Over the same period, 

nonbank mortgage originators operating 

nationwide saw their origination volume grow 

205%, and their market share increased from 

30% to 44% of all nonbank originations.79 

With mortgage originations declining from 

their 2021 highs, there is evidence of nonbank 

mortgage originators beginning to loosen 

underwriting standards and innovate on 

product offerings to maintain origination 

volume.

Though their business models vary, most 

nonbank mortgage companies rely on 

short-term wholesale funding, making them 

vulnerable to rollover risk.80 In addition, 

many nonbank mortgage companies 

have limited capital and loss-absorbing 

capacity despite investing in difficult-tovalue mortgage servicing rights. Mortgage 

servicers could face acute liquidity strains in 

the event of widespread delinquencies. In 

Source: Inside Mortgage Finance; Federal Reserve, Report to Congress on 

the Effect of Capital Rules on Mortgage Servicing Assets, June 2016

3.3.3.1 Transition of Mortgage Servicing Assets from Banks to 

Nonbanks: 2011 – Q2 2022

Bank

45%

Bank

73%

Bank

93%

Non-Bank

7%

Non-Bank

27%

Non-Bank

55%

2011 2014 2Q 2022

Source: NMLS MCR, CSBS

3.3.3.2 Nonbank Mortgage Originators Number of Companies, 

Origination Volumes & Market Share: 2017 – 2021

2017 2021 Change

State Licenses

Companies 

Reporting

Market Share

Companies 

Reporting

Market Share

Organization 

Growth

Licensee 

Growth

Market Share

1 9,542 21% 10,889 10% -1% 15% -52%

2-25 2,595 26% 4,338 24% 89% 67% -9%

26-50 163 23% 230 22% 102% 41% -3%

50+ 63 30% 73 44% 205% 16% 46%

Total 12,363 15,530 109% 26%
Vulnerabilities, Significant Market Developments, and Council Recommendations 63

some cases, servicers have an obligation to 

make payments to the investor regardless 

of whether the borrower makes a mortgage 

payment and must repurchase the mortgage 

out of its MBS pool. During this period, the 

mortgage servicer must also continue making 

insurance payments, tax payments, and 

occasionally homeowners’ association fees. 

During a crisis, widespread delinquencies 

could threaten the viability of nonbank 

mortgage servicers because there can be a 

substantial amount of time during which the 

nonbank mortgage servicers must forward 

these payments before the relevant mortgage 

guarantor reimburses them.

Looking forward, nonbank mortgage 

companies could come under significant 

pressure in the face of an economic downturn 

and an increasing interest rate environment. 

Rising interest rates will reduce mortgage 

origination volumes, adversely impacting 

earnings. Given their large market share, 

this has the potential to restrict financing 

in the housing market and interrupt 

mortgage servicing operations, especially 

for nonperforming loans, and might have 

secondary effects on these servicers’ 

mortgage originations in the residential real 

estate market.

Nonbank Business Lending

Nonbank lenders play an increasingly 

significant role in providing credit to 

nonfinancial businesses. The growth in 

private debt has been partly fueled by 

the retreat of banks from certain lending 

activities. At the same time, yield-seeking 

institutional investors have been willing to 

assume higher credit and liquidity risks.

Private credit, defined as direct lending 

by nonbanks to nonfinancial businesses, 

makes up a growing segment of nonfinancial 

business lending. Estimates place the size of 

the global private credit market at over $1.2 

trillion as of year-end 2021, up from roughly 

$600 billion five years earlier (Figure 3.3.3.3). 

Investors typically receive higher interest rates 

as compensation for the loans’ lower liquidity 

and higher credit risk. Businesses have, 

Source: Preqin

3.3.3.3 Global Private Debt AUM

0.00

0.25

0.50

0.75

1.00

1.25

1.50

0.00

0.25

0.50

0.75

1.00

1.25

1.50

2000 2003 2006 2009 2012 2015 2018 2021

Trillions of US$ As Of: 2021 Trillions of US$
64 2022 FSOC // Annual Report

at times, benefited from increased access, 

limited disclosure requirements, and faster 

execution in private credit markets.

The opacity of private credit markets makes 

it difficult for regulators to assess the buildup 

of risks in these markets. However, there are 

indications that interconnections between 

private credit markets and the broader 

financial system have increased. For example, 

some private equity firms, active in private 

credit markets, are acquiring life insurers 

or assuming life business through owned 

reinsurers to access and leverage longterm assets. This intersection may increase 

interconnectivity among nonbank lenders, 

insurers, and the broader financial sector 

while exposing a growing investor base to 

lending activities that may be subject to less 

regulatory scrutiny.

While the demand from nonbank investors 

has helped support capital formation, it 

may have also led to a deterioration of credit 

quality among syndicated loan issuers. 

Notably, the number of large corporate 

highly leveraged deals, measured by total 

debt to EBITDA of six times or higher, has 

trended higher (Figure 3.3.3.4). At the same 

time, firms have increased their reliance on 

optimistic revenue growth projections and 

cost savings synergies, as evidenced by the 

number of loan transactions with EBITDA 

adjustments (Figure 3.3.3.5). Finally, when 

combined with weaker credit quality, weaker 

financial maintenance covenants in leveraged 

loans may mean lower recovery rates.

The market’s growth has been supported by 

increased demand for yield from institutional 

investors, mainly in the form of collateralized 

loan obligations (CLOs), which had a total of 

$910 billion outstanding in 2022.81 The capital 

structure of CLOs has improved since the 

2008 financial crisis, and the highest-rated 

CLO tranches are better positioned to absorb 

losses. However, underlying loans held in 

these portfolios are more vulnerable because 

borrowers generally have less subordinated 

debt outstanding that could be a cushion 

against potential losses. Additionally, 

Note: Includes issuers with EBITDA>$50M. Media and 

telecom loans excl. Prior to 2011, 2007-2021 data is 

annual; 2022 data is through Q3. 

Source: S&P LCD

3.3.3.4 Distribution of Leveraged Loan Debt/EBITDA Ratios

Percent

0

20

40

60

80

100

0

20

40

60

80

100

2007 2009 2011 2013 2015 2017 2019 2021

Percent

Note: Includes issuers with EBITDA>$50M. Media and telecom loans 

Less than 4.00x

4.00x – 4.99x

5.00x – 5.99x

6.00x or higher

As Of: 2022 Q3

Note: Media and telecom loans excluded prior to 2011. 

Excludes existing tranches of add-ons, amendments 

& restatements with no new money, as well as DIPs, 

second liens and unsecured transactions. EBITDA 

adjusted for prospective cost savings or synergies.

Source: S&P LCD

3.3.3.5 Leveraged Loan Transactions with EBITDA Adjustments

Percent

0

10

20

30

40

50

60

0

10

20

30

40

50

60

2007 2010 2013 2016 2019 2022

M&A Transactions

LBO Transactions

All Transactions

Adjustments

As Of: 2022 Q3 Percent
Vulnerabilities, Significant Market Developments, and Council Recommendations 65

conducted by different entities, has the same 

regulatory outcome. Where gaps in the legislative 

framework prevent implementing that principle, 

the Council encourages the agencies to develop 

proposals to address them.

The Council recommends that relevant federal 

and state regulators continue to coordinate 

closely to collect data, identify risks, and 

strengthen oversight of nonbank companies 

involved in the origination and servicing of 

residential mortgages. In June, the Council 

restarted regular meetings of its Nonbank 

Mortgage Servicing Task Force, which discusses 

and analyzes nonbank servicer risks and 

concerns. In addition, to promote confidence 

and improve safety and soundness for nonbanks, 

FHFA and Ginnie Mae finalized and released 

updated Enterprise seller/servicer and Ginnie 

Mae issuer requirements on August 17, 2022. 

Following the release of FHFA’s and Ginnie Mae’s 

updated requirements, state regulators reviewed 

the CSBS Model State Regulatory Prudential 

Standards for Nonbank Mortgage Servicers issued 

in July 2021 and determined their standards 

remain substantially aligned with FHFA’s and 

Ginnie Mae’s requirements.

The Council supports these recent actions and 

encourages regulators to take additional steps 

available to them within their authorities to 

address the potential risks of nonbank mortgage 

companies. Relevant regulators should ensure 

that the largest and most complex nonbank 

mortgage companies are prepared should 

delinquencies and foreclosures increase as 

interest rates rise. In addition, the Council 

recommends that relevant federal and state 

regulators continue to enhance or establish 

information-sharing protocols to enable 

collaboration and communication in responding 

to distress at a mortgage servicer.

The Council supports enhanced data collection 

on nonbank lending to nonfinancial businesses to 

provide additional insight into the potential risks 

associated with the increase in private credit.

CLOs are much more limited in their capacity 

to support the lowest-rated assets in the loan 

market, a group that will increase if downgrades 

increase.

Fintech & Consumer Products

Technological advances and the growth of fintech 

firms have the potential to increase efficiency, 

introduce new product offerings, and broaden 

access to financial services. Many new entrants 

in the nonbank financial services markets offer 

their products entirely or mostly online, reducing 

the need for and costs of a brick-and-mortar 

operation. The COVID-19 pandemic further 

accelerated the fintech industry’s growth as 

customers shifted away from brick-and-mortar 

operations to digital channels. However, these 

firms may not be subject to the same type 

of financial services regulation with which 

incumbent financial service providers must 

comply, which could create financial stability 

risks.

Buy Now, Pay Later

Buy now, pay later (BNPL) refers to a wide array 

of retail financing, but the most ubiquitous and 

popular model is the four-payment, no-interest 

product, sometimes referred to as “pay-in-four” 

or “split pay.” These short-term unsecured loans 

allow consumers to split purchases into four 

equal interest-free installments at the point of 

sale, with the first installment due at checkout.82 

BNPL’s popularity has soared in recent years, 

with the volume of BNPL loans originating in the 

U.S. rising from $2 billion in 2019 to $24 billion in 

2021.83 For some consumers, the loan may offer 

cheaper and more readily available financing than 

a credit card but present the risk of taking on too 

much debt in small increments or incurring late 

fees. Additionally, BNPL underwriting standards 

are looser, and BNPL borrowers are more than 

twice as likely to have an overdraft compared to 

all adults.84 Delinquencies in the sector are rising; 

10.5% of borrowers were charged at least one late 

fee in 2021, up from 7.8% in 2020.85

Recommendations

The Council recommends that member 

agencies leverage existing authority to ensure 

that the same activity with the same risk, when 
66 2022 FSOC // Annual Report

question the safety or liquidity of their assets 

or transactions, leading to the significant 

withdrawal of assets or activity from the markets. Additionally, a cybersecurity incident 

involving the theft of sensitive data has privacy implications for consumers, which could 

lead to identity theft and fraud, resulting in a 

loss of confidence.

Foreign Conflicts

The financial sector is potentially vulnerable to 

foreign conflicts and the activities of nation-state 

actors – either directly or indirectly – due to its 

interconnectedness with global financial markets 

and reliance on international digital networks. 

Therefore, the U.S. financial system relies on 

the cyber resiliency of domestic institutions 

and its international partners to protect the U.S. 

economy.

The Russian war against Ukraine has been 

accompanied by an increase in the number of 

cyberattacks against the U.S. by pro-Russian 

groups.86 The U.S. cyber defenses were bolstered 

by the Department of Homeland Security’s 

(DHS) Cybersecurity and Infrastructure Security 

Agency’s (CISA) “Shields Up” program and 

the ongoing effort of the G7 Cyber Expert 

Group (CEG), which is co-chaired by the 

U.S. Department of the Treasury’s Office of 

Cybersecurity and Critical Infrastructure 

Protection (OCCIP). OCCIP is the mandated 

secretariat of the Financial and Banking 

Information Infrastructure Committee (FBIIC), 

and has hosted classified and unclassified 

briefings with its private sector Financial 

Services Sector Coordinating Council (FSSCC) 

counterparts on the elevated Russian threat. 

Additionally, OCCIP has produced a “Lessons 

Learned” series to discuss best practices. These 

programs helped public and private sector 

financial institutions adopt a heightened posture 

by focusing on key threats.

Thus far, there have been few successful 

cyberattacks against the U.S. financial system 

related to Russia’s war against Ukraine, and they 

have proven to be negligible in both disruption 

and impact.87 On October 25, 2022, Russian 

hacktivist Killnet conducted a distributed denialof-service (DDoS) attack on the U.S. Treasury, 

3.4 Operational and Technological 

Risk

3.4.1 Cybersecurity

The financial sector is vulnerable to malicious 

cyber incidents, including ransomware, other 

malware attacks, denial-of-service attacks, data 

breaches, and non-malicious cyber incidents. 

Such incidents, if not prevented or mitigated, 

can affect tens or even hundreds of millions of 

Americans and result in financial losses totaling 

billions of dollars due to disruption of operations, 

theft, and recovery costs.

Although the U.S. financial system has not 

experienced a destabilizing cybersecurity 

incident, such an incident could potentially 

threaten the stability of the U.S. financial system 

through at least three channels:

• First, the incident could disrupt key institutions with few or no substitutes, such as 

central banks, exchanges, sovereign and 

subsovereign creditors, including U.S. state 

and local governments, custodian banks, and 

payment clearing and settlement systems. It 

could also disrupt other providers of critical 

services such as fund administrators, pricing 

or other data providers, specialty software 

providers, or cloud service providers.

• Second, the incident could compromise the 

integrity of critical data and disrupt the stable 

functioning of financial institutions and the 

financial system. If data is corrupted on a 

sufficiently large scale, it could lead firms not 

to trust their internal information and information they are receiving from counterparties and thus disrupt system functionality. A 

significant data corruption event would pose 

further problems if a systemically important 

failing firm had to be resolved. Determining 

the accuracy of records or ascertaining the 

financial standing of various counterparties, 

depositors, and obligors may not be possible, 

which would impede the firm’s resolution.

• Third, a cybersecurity incident that causes a 

loss of confidence at a key financial institution could cause customers or participants to 
Vulnerabilities, Significant Market Developments, and Council Recommendations 67

strengthen their security controls to mitigate 

the risk of an operational disruption from a 

ransomware event, many also have turned to 

cyber insurance as a tool to mitigate financial 

losses from ransomware attacks. A reported 

83% of financial services organizations have at 

least some cyber insurance coverage against 

ransomware.100

Insider Threat

Cybersecurity researchers have noted the rise of 

malicious insiders in the last year. For example, 

one report predicted that up to “25 per cent of 

ransomware attacks in 2022 will be deployed 

by insiders, compared to less than 2 per cent in 

2021.”101 The motive for such insiders appears 

to be either monetary—as cybergangs will pay 

high prices for insider access—or employee 

discontent.102 Furthermore, even with the rise 

in attacks involving malicious insiders, social 

engineering attacks targeting non-malicious and 

accidental insiders remain a common attack 

vector that exploits users’ lack of awareness and 

training to compromise systems. As a result, 

the financial sector has paid more attention to 

developing insider threat mitigation programs, 

often mirroring the core components of the 

National Institute of Standards and Technology 

(NIST) Cybersecurity Framework: Identify, 

Protect, Detect, Respond, and Recover.103 As 

explained in SIFMA’s Insider Threat Best 

Practices Guide, “every component in an 

insider threat mitigation program should have 

a distinctly human element. While external 

cybersecurity threats can often be prevented 

or detected primarily through technical tools, 

those technological tools are insufficient to 

avoid many insider threats. In many cases, the 

only signals of an impending insider attack 

are commonly exhibited human behaviors 

that foreshadow the attacker’s intent.”104 Thus, 

protecting against insider threats requires a 

holistic approach that involves “technology, legal 

advice, policy development, physical security, risk 

awareness and training, and counterintelligence 

resources.”105

Supply Chain

The past year has also highlighted the importance 

of reviewing the resiliency of the sector’s supply 

chain. In December 2021, the widely used 

consisting of low-level DDoS activity targeting 

Treasury’s critical infrastructure nodes.88 Similar 

DDoS activity was then observed a couple of 

days later across U.S. financial services firms. 

Despite the wide net of the attack, no operational 

disruption occurred due in part to the sector’s 

coordination and speedy information-sharing 

policies.

International partners are also susceptible to 

cyberattacks. For example, on February 15, 2022, 

the web portal of Ukraine’s defense ministry 

and the banking and terminal services at several 

large state-owned lenders were disrupted in the 

largest DDoS attacks to hit Ukraine to date.89 

Despite its scale, the disruption was brief and 

limited in scope. Although the Kremlin denied 

involvement, the U.S. government publicly 

attributed the incident to Russia.90

Russia is by no means the only foreign 

government seeking to disrupt the financial sector 

to achieve geopolitical goals. China is a prevalent 

malicious actor in this space, often using the 

financial sector as both a vehicle for gathering 

information and an attack vector. For example, 

in November 2021, Taiwan’s financial sector was 

hit by a months-long cyber espionage campaign 

attributed to the Chinese state-sponsored group 

APT10.91 Attackers ran malicious code on local 

systems and installed a remote access Trojan 

(RAT) that allowed them to maintain persistent 

remote access to the infected systems, monitor 

communications, and exfiltrate data.

Ransomware

Ransomware is a highly visible and costly threat 

to U.S. financial firms.92 93 Ransomware attacks 

continue to rise worldwide as ransomware as a 

service (RaaS)94 lowers the technical bar.95 RaaS 

has allowed more cyber criminals to deploy 

ransomware with lower costs, higher payouts, and 

wider profit margins.96 The use of ransomware 

by nation-states and hacktivists continues to rise, 

though these hackers tend to have lower payouts 

and more ransomware-related data leaks.97 The 

financial system remains a high-value target for 

cybercriminals, with 55% of financial services 

firms targeted in the last year,98 and ransomwarerelated data leaks in financial services almost 

doubled.99 As financial firms have sought to 
68 2022 FSOC // Annual Report

Box F: Cyber Risk Data Collection

Council member agencies made significant 

strides in 2022 in their efforts to collect better 

data for managing cyber risk.108 The SEC, OCC, 

Federal Reserve, FDIC, and NCUA all proposed 

or finalized rules that will improve the cyber 

data available to the agencies and allow them to 

respond more quickly to cyber incidents.

In February, the SEC proposed a rule that would 

require investment advisers to report “significant” 

cyber incidents to the SEC on a confidential basis 

within 48 hours after determining an incident 

occurred.109 Investment advisers would be 

required to report incidents that significantly 

disrupt the adviser’s ability to maintain critical 

operations or lead to unauthorized access to 

adviser information where the compromised 

data could substantially harm the adviser or a 

client. The rule aims to help the SEC monitor 

cyber incidents at investment advisers and 

assess potential systemic risks stemming from 

cyber risk. The data would be collected using a 

new form, ADV-C, creating a structured data set 

that would be comparable across incidents and 

allow the SEC to improve its risk assessment and 

monitoring of cyber risk.

In March, the SEC proposed a rule requiring 

public companies to disclose material 

cybersecurity incidents within four business 

days after the registrant determines it has 

experienced a material incident.110 According 

to the proposed rule, a cybersecurity incident 

is an unauthorized occurrence on a company’s 

information systems that jeopardizes the 

information system’s confidentiality, integrity, or 

availability. A cybersecurity incident is material if 

there is a substantial likelihood that a reasonable 

shareholder would consider it important to an 

investment or voting decision. Examples include 

accidental data exposure, data breaches, and 

unauthorized access to systems to steal or alter 

data.

Apache Log4j logging library was found to have 

a vulnerability through which attackers could 

infiltrate a network using Log4j and insert their 

own Java code into the infected services.106 Well 

into 2022, opportunistic cybercriminals and 

nation-state actors (e.g. Chinese and Iranian 

attack groups) used this vulnerability to steal data 

and money. As standards move towards requiring 

the disclosure of exploitation within days of 

discovery, it will become increasingly important 

to address cyber incidents in downstream 

products more quickly. The sector should remain 

vigilant, thoroughly vet its supply chain, and be 

ready to respond immediately to new threats.107
Vulnerabilities, Significant Market Developments, and Council Recommendations 69

In April, a rule issued by the OCC, Federal 

Reserve, and FDIC became effective that requires 

banking organizations to notify their primary 

federal regulator of certain cyber incidents as 

soon as possible and no later than 36 hours after 

determining that an incident has occurred.111 

The rule defines a computer-security incident 

as an occurrence that results in actual harm 

to an information system or the information 

contained within it. Banks are generally required 

to provide notice of incidents that have materially 

disrupted or degraded—or are reasonably likely 

to materially disrupt or degrade—the viability of 

a banking organization’s operations, its ability 

to deliver banking products and services, or 

the stability of the financial sector. Examples of 

cyber incidents that banks are required to report 

include large-scale distributed denial-of-service 

(DDoS) attacks that disrupt customer access for 

an extended period, cyberattacks that disable 

banking operations for an extended period, and 

ransomware attacks that encrypt a core banking 

system.

The NCUA issued a proposed rule in July 

that requires federally insured credit unions 

(FICU) to notify the agency within 72 hours 

after a reportable cyber incident has occurred. 

The definition of “reportable cyber incident” 

encompasses substantial cyber incidents such 

as the exposure of sensitive data, disruptions of 

vital member services, and serious impacts on 

operational systems and processes.112

The agencies’ actions are important steps forward 

in their efforts to understand and manage 

financial stability risks from cyberattacks. If 

adopted, the SEC’s proposed rule for investment 

advisors would create the first structured 

cyber data set collected by a member agency, 

providing opportunities for improved analytics 

and risk monitoring. However, additional 

information beyond what is collected through 

cyber incident notification rules may be useful 

for Council member agencies’ efforts to monitor 

and assess cyber risk. For example, information 

about technology services provided to financial 

institutions, operational volumes supported, and 

the interconnectedness and interdependencies of 

those services could be useful in gauging systemwide cyber risk.
70 2022 FSOC // Annual Report

Recommendations

Maintaining and improving the cybersecurity 

resilience of the financial sector requires 

continuous assessment of cyber vulnerabilities 

and close cooperation across firms and 

governments within the U.S. and internationally. 

Building on the work of the Financial and Banking 

Information Infrastructure Committee (FBIIC), 

Financial Services Sector Coordinating Council 

(FSSCC), and Financial Services Information 

Sharing and Analysis Center (FS-ISAC) to 

promote interagency information sharing 

related to cyber risk, the Council recommends 

undertaking additional work to understand and 

mitigate cyber-related financial stability risks.

The Council supports the ongoing partnerships 

between state and federal agencies and private 

firms, including FBIIC, the FSSCC, and FS-ISAC. 

Sharing timely and actionable cybersecurity 

information can reduce the risk of cybersecurity 

incidents and mitigate the impacts of those 

that do occur. The Council encourages FBIIC 

to continue working closely with Council 

member agencies, state agencies, DHS, law 

enforcement, and industry partners to conduct 

regular cybersecurity exercises recognizing 

interdependencies with other sectors, such as 

telecommunications and energy. The Council 

recommends that agencies carefully consider 

how to share information, including confidential 

supervisory information and classified 

information.

Financial institutions have rapidly adopted 

innovative technologies, including cloud 

computing and artificial intelligence (AI). The 

Council supports the domestic efforts of the FBIIC 

Technology Working Group, which examines 

how financial institutions are using emerging 

technologies that may introduce new cyber 

vulnerabilities into critical financial services 

infrastructure. The Council also supports the 

international effort by the G7 CEG Emerging 

Threats/Opportunities Workstream to address 

how new technologies, such as AI and quantum 

computing affect the global financial system.

3.4.2 Third-Party Service Providers

Financial institutions have steadily increased 

their reliance on service providers for a broad 

range of information technology services, from 

video conferencing and collaboration software 

to banking platforms that support internal 

operations and business lines. In certain cases, 

a financial institution’s use of these third-party 

services supports critical functions or services at 

the financial institutions, such as core banking 

and general ledger. The Council has identified 

the financial sector’s concentrated dependency 

on a limited number of service providers, such as 

cloud service providers, for critical information 

technology services as a potential risk to financial 

stability.

Cloud Services

According to a survey conducted in 2021 by the 

American Bankers Association (ABA), more than 

90% of surveyed banks stated that they maintain 

at least some data, applications, or operations in 

the cloud.113 However, of those surveyed, more 

than 80% indicated they were in the “adoption” or 

“early adoption” phase concerning cloud services, 

with only 5% of respondent banks describing their 

cloud use as mature.

According to a more recent survey, over twothirds of the surveyed banks want at least 

30% of their applications and data to be in the 

cloud in three years.114 This would represent 

approximately triple the number of banks that 

had achieved this level of cloud adoption at the 

time of the survey.115 Similarly, a 2021 consulting 

company survey of banks, including North 

American financial institutions, estimated an 

average of 8% of all banking workloads were 

cloud-based.116 This same survey indicated 24% 

of respondent banks located in North America 

had partially migrated some core services to the 

cloud.117

Industry research often cites “misconfiguration” 

by cloud service users, such as financial 

institutions, as the most common cause of 

data breaches.118 Common misconfigurations 

can impact overall operational resilience 

because misconfigurations could be exploited 

by malicious actors to negatively affect the 

confidentiality, integrity, or availability of the 

services used by some or all customers of the 

technology service provider. In particular, 

customers of cloud servicers are, in many cases, 
Vulnerabilities, Significant Market Developments, and Council Recommendations 71

be capable of identifying and understanding 

the line between the service provider’s 

responsibilities and the client’s to manage the 

risks of its particular cloud deployment. One 

major report concluded: “Shared responsibility 

masks the uneven maturity of organizations 

and technologies on the user side of that shared 

line, producing much more of a zigzag than a 

clean line of responsibility.”121 The challenge of 

managing shared responsibility resources may 

be particularly acute for small and mediumsized financial institutions that must compete 

for limited IT staffing resources, which could 

eventually leave the industry on an uneven 

footing in terms of resilience and security.

Errors or mistakes in software development, 

deployment, and maintenance relative to 

contracted underlying technology services can 

potentially cause service outages at the service 

providers. For example, an entire cloud service 

provider’s region suffered an outage in December 

2021 that disrupted several of the cloud service 

provider’s services. The outage was caused by 

an unexpected internal system behavior that 

ultimately congested the network, leading to 

further cascading issues resulting in the outage.122 

The outage lasted several hours while the cloud 

service provider’s engineers identified and 

resolved the problems and made upgrades to 

prevent the same type of issue from occurring 

again. Although the compromise of SolarWinds 

software used for managing and monitoring 

on-premises and hosted cloud infrastructures 

(December 2020) yielded no known operational 

resilience impact to cloud service customers, 

the incident revealed weaknesses in identity 

and access management and privileged access 

management that the threat actor used across 

numerous customers’ cloud environments.123, 124 

Exploitations like this could enable other malicious 

activity that could potentially affect the operational 

resilience of the users of those services.

Recommendations

The Council supports the ongoing collaboration 

of member agencies to examine third-party 

service providers and the services they provide 

to the financial system. The agencies continue 

to enhance their supervisory programs for 

responsible for configuring various aspects of 

those services, depending on whether customers 

are using the software as a service (SaaS), 

platform as a service (PaaS), or infrastructure 

as a service (IaaS).119 Financial institutions 

can misconfigure PaaS and SaaS applications 

through inappropriate user access, application 

deployment, and data backup settings; 

however, IaaS provides the opportunity for the 

misconfiguration of data center resources more 

foundationally.

Prosecutors stated that an individual behind a 

major incident in 2019 scanned for common 

misconfigurations among a leading cloud 

services provider’s clients to identify potential 

victims.120 Although the incident itself involved 

many complex factors in addition to the 

misconfiguration issue, the perpetrator of this 

incident identified 30 similar misconfigurations 

that she was able to exploit to steal data and 

illicitly install crypto-asset mining software, 

showing that exploitation of common 

misconfigurations can be easily replicated across 

a cloud service’s customers. Each aspect of 

running applications in the IaaS environment 

requires bespoke decisions at the design, 

implementation, and monitoring stages. These 

bespoke designs also require experienced 

personnel in cybersecurity, financial institution 

business processes, and cloud architecture.

Leveraging technology service providers, 

especially cloud service providers, can give 

financial institutions flexibility and scalability in 

their IT environments. However, some IT skills 

associated with traditional financial services’ 

IT environments are not easily transferrable to 

cloud environments. Similarly, skills associated 

with one provider or service do not necessarily 

translate across other providers. As a result, 

financial institutions may need to reskill or hire 

new talent as they use new technology service 

providers.

Many service providers adhere to a shared 

responsibility model for security and system 

configuration that requires clients to take on 

some responsibilities for managing applications, 

data, user access, and workloads. A client must 
72 2022 FSOC // Annual Report

cyber-related controls in key areas such as 

core processing, payment services, and cloud 

computing.

The Council supports continued risk 

identification associated with service providers’ 

roles in the financial sector and their potential 

impact on financial stability. The Council also 

recommends that federal banking regulators 

continue coordinating third-party service 

provider examinations, work collaboratively with 

states, and identify additional ways to support 

information sharing among state and federal 

regulators.

The authority to supervise third-party service 

providers varies across financial regulators. To 

further enhance third-party service provider 

information security and address other critical 

regulatory challenges, the Council recommends 

that Congress pass legislation that ensures that 

the FHFA, NCUA, and other relevant agencies 

have adequate examination and enforcement 

powers to oversee third-party service providers.

Artificial Intelligence (AI) is a set of technologies 

that have been around for decades. However, its 

use in financial services has increased in recent 

years thanks to more advanced algorithms, 

and data storage and processing power 

improvements.

There is no single accepted definition of AI, but 

it is often considered software that performs 

tasks previously done by humans. For example, 

a common type of AI is machine learning, which 

updates its responses based on additional data 

with little or no human intervention. There is 

significant variety in AI methodologies and uses, 

and there is not always a stark difference between 

AI and more traditional quantitative modeling.

AI offers significant benefits, such as reducing 

costs and improving efficiencies, identifying 

more complex relationships, and improving 

performance/accuracy. Financial institutions 

use AI for various tasks, ranging from fraud 

prevention and detection to customer service, 

document review, and retail credit underwriting. 

Some institutions use AI extensively, while others 

take a more limited approach. Even within a 

single institution, AI may be used to varying 

degrees in different areas.

The use of AI, though, introduces certain risks. 

Potential risks associated with AI include 

safety-and-soundness risks – such as cyber and 

model risks – and consumer compliance risks. 

In addition, specific requirements to prevent 

discrimination or bias that apply to tools, models, 

or processes used in consumer compliance also 

apply to AI.

Many AI approaches operate as “black boxes,” 

which can create challenges in explaining how 

the technology produces its output. This lack 

of “explainability” can make it difficult to assess 

the systems’ conceptual soundness, increasing 

uncertainty about their suitability and reliability. 

Box G: The Use of Artificial 

Intelligence (AI) in Financial Services
Vulnerabilities, Significant Market Developments, and Council Recommendations 73

A particular concern related to AI explainability is 

the possibility that AI systems with explainability 

challenges could produce and possibly mask 

biased or inaccurate results. This could affect, 

for example, consumer protection issues such 

as fair lending. There are techniques to address 

explainability challenges, which have their own 

strengths and weaknesses.

Data play a very important role in AI because 

of the high volumes of data typically involved 

and because data often play a larger role in 

driving the specifications – that is, determining 

which variables are to be included and how they 

are included – than in traditional quantitative 

modeling. Data used for AI may come from 

a wider variety of sources and may be less 

structured (e.g., a collection of documents instead 

of a formal dataset). With AI, data may also have 

to be processed at higher frequencies. Thus, data 

controls are vital to sound AI, including data 

quality, suitability, and security/privacy. Another 

potential issue with AI approaches is that they 

can be “overfit,” which means they may adhere 

too closely to the data on which they were trained 

and not apply as well (or “generalize”) to new 

conditions.

In March 2021, the Federal Reserve, OCC, 

CFPB, FDIC, and NCUA issued an RFI on 

AI to help them understand its use by their 

supervised institutions and solicit views from 

a wide range of stakeholders. In the RFI, those 

agencies also noted some existing regulations 

and guidance that apply to the use of AI. The 

agencies received over 100 comment letters on 

the RFI—from bankers, consumer advocates, 

vendors, academics, and others—whose feedback 

has been very helpful to supervisors as they 

consider potential future policy steps for financial 

institutions’ use of AI.

3.5 Climate-related Financial Risk

In October 2021, the Council identified climate 

change as an emerging and increasing threat to 

U.S. financial stability for the first time. Broadly 

speaking, climate-related financial risks are 

grouped into two categories: physical risks and 

transition risks.

Physical risks generally refer to the harm to 

people and property that can arise from acute 

climate-related weather events like droughts, 

floods, wildfires, heatwaves, and hurricanes, 

or chronic changes over time, such as higher 

average temperatures, changes in precipitation 

patterns, sea level rise, persistent drought, 

degradation of arable land, or ocean acidification. 

Transition risks generally refer to stresses to 

certain institutions or sectors that may arise 

from the shift towards a lower greenhouse gas 

(GHG) or net-zero economy, including changes 

in policy, consumer and business sentiment, or 

technological advances. The impact of transition 

risks may result in added costs for some firms 

and communities even as they reduce the overall 

risk associated with physical risks. In addition, if 

the transition is delayed or disorderly, the impact 

on firms, market participants, individuals, and 

communities is more likely to be disruptive.

Climate-related financial risk can manifest in the 

form of traditional risks such as credit, market, 

liquidity, operational, or legal risks. However, 

member agencies are in the early stages of 

understanding the specific channels through 

which climate-related impacts can manifest as 

financial risks.

Climate-related financial risks could contribute to 

financial instability through numerous channels, 

including financial intermediaries experiencing 

significant losses, impairment of financial market 

functioning, or the sudden and disruptive 

repricing of assets. Physical and transition risks 

associated with climate change will likely affect 

households, communities, businesses, and 

governments by damaging property, impeding 

business activity, impacting income, and altering 

the value of assets and liabilities.125 These effects 

may be transmitted and amplified further via 

interconnections in the economy and financial 
74 2022 FSOC // Annual Report

Physical Risks

Real estate is emerging as an area of particular 

scrutiny because of its critical role in the 

economy and financial system, and the numerous 

transmission channels through which physical 

risk could affect it.

Climate-related events like wildfires and flooding 

may result in damage that can reduce the value 

of real estate. This may impact households126

and owners of commercial real estate, increasing 

the probability of default and associated loss. 

As markets factor these risks into pricing, real 

estate exposed to physical risk could lose market 

value even without direct damage.127 Because 

households of lower socio-economic status are 

often exposed to greater climate risk,128 this could 

further exacerbate existing disparities in housing 

values, for example, in low- or moderate-income 

areas or majority-minority census tracts, thus 

eroding generational wealth. Additionally, it 

might also increase the costs associated with 

housing, for example, insurance premiums and 

the frequency and cost of repairs, thus further 

increasing the homeownership challenges for 

low-income communities.

system. As a result, the financial sector may 

experience credit and market risks associated 

with loss of income, defaults, changes in the 

values of assets, inadequate liquidity, operational 

risks associated with disruptions to infrastructure 

or other channels, or legal risks. These outcomes 

may lead financial institutions and insurance 

providers to pull back from credit or insurance 

provisions, potentially amplifying the initial 

climate-related shock and threatening financial 

stability (Figure 3.5.1).

Given the breadth of transmission channels 

through which climate-related financial risk could 

materialize, work is underway to understand 

better and quantify the potential impacts on 

financial institutions and markets. The staff-level 

Climate-related Financial Risk Committee (CFRC) 

and Council member agencies are working to 

build capacity, address data gaps, and improve 

methodological approaches to risk monitoring 

(see Section 4.1.1).

3.5.1 Transmission Channels Linking Climate Risks to Financial Stability

CLIMATE RISKS

IMPACT ON ECONOMIC 

SECTORS AND 

MACROECONOMY

FEEDBACK LOOP 

THAT MAY 

ADVERSELY 

AFFECT ECONOMIC 

AND FINANCIAL 

STABILITY

IMPACTS ON 

FINANCIAL 

INSTITUTIONS AND 

MARKETS

Transition risks

• Technological changes

• Policy shifts

• Changes in consumer preference

Physical risks

• Chronic (e.g., sea level rise)

• Acute (e.g., hurricanes)

• Damages to property

• Business interruption

• Effects on household and business income

• Feedback across economy through

product and labor markets

• Credit and market risks

• Liquidity risks

• Operational risks

• Legal risks

• Amplification through interconnections

and correlated exposures

Source: FSOC
Vulnerabilities, Significant Market Developments, and Council Recommendations 75

Given the potential impacts on housing 

and mortgage markets, regions with a 

significant amount of real estate exposed 

to high levels of physical risk warrant close 

monitoring. For example, climate change 

has caused a doubling of forest fire areas 

in the western United States between 1984 

and 2015.129 Recent analysis suggests 71.8 

million residential properties are already at 

risk of wildfire, and this number is expected 

to increase to 79.8 million by 2050, with a 

significant concentration of risks in some 

geographic areas (Figure 3.5.2).130 For 

example, California, the most populous state, 

has the second-highest wildfire incidence.131 

As another example, flooding is also an 

increasing threat to U.S. real estate, with 23.5 

million properties at risk, which, by some 

estimates, is expected to rise to approximately 

26 million properties over the next 30 years.132 

Flood risk is also concentrated in some 

geographic areas, with properties along 

the Gulf and East Coasts likely to be most 

impacted by flooding (Figure 3.5.3). 133

Role of Insurance

Insurers play an important role in the financial 

system in absorbing losses stemming from 

physical risks. However, the increasing 

incidence and severity of extreme weather 

could affect the solvency of insurers134 and 

the cost and availability of coverage for 

homeowners and businesses. In response to 

rising insured losses, some insurers are raising 

rates, increasing policy exclusions, avoiding 

renewals in unprofitable markets, and 

implementing higher deductibles in areas with 

significant exposure to extreme weather.135 

These increases in premiums and changes in 

market coverage are affecting the affordability 

and availability of insurance coverage for 

consumers in affected areas.136 137 In some 

cases, government-run insurance programs 

may step in where private insurance coverage 

is insufficient, but these programs may also 

be forced to raise rates to remain solvent, 

affecting the availability and affordability 

of insurance.138 From 2011 to 2021, nearly 

half of the economic damages from natural 

disasters in the United States were uninsured, 

resulting in a protection gap of 44%, or $435 

The 5th National Risk Assessment: Fueling the Flames l © First Street Foundation 

National Overview

Oklahoma, and Florida. There are lower 

counts of historic wildfires in California 

than some other areas across the country 

(such as those in northeast Nevada), but 

the wildfire burn probabilities nevertheless 

tend to be elevated in California.

In addition to informing probable ignition 

locations in the model, past wildfires also 

influence the model through their impact 

on the fuels which future potential wildfires 

may consume. Areas which have been 

burned relatively recently in the past are 

less likely to burn, or may have less intense 

flame lengths within the model as now 

there are less fue

potential wildfire

of historical obse

likelihood means 

have relatively hig

in the fuels used 

specific reductio

smaller disturbed 

Among properties with risk, annual 

likelihood of wildfire today

0 2.67

No data

0.55

Source: First Street Foundation, The 5th National Risk Assessment, 2022

The 5th National Risk Assessment: Fueling the Flames l © First Street Foundation 12

National Overview

Oklahoma, and Florida. There are lower 

counts of historic wildfires in California 

than some other areas across the country 

(such as those in northeast Nevada), but 

the wildfire burn probabilities nevertheless 

tend to be elevated in California.

In addition to informing probable ignition 

locations in the model, past wildfires also 

influence the model through their impact 

on the fuels which future potential wildfires 

may consume. Areas which have been 

burned relatively recently in the past are 

less likely to burn, or may have less intense 

flame lengths within the model as now 

there are less fuels present which future or 

potential wildfires may use. The influence 

of historical observations on ignition 

likelihood means that while an area may 

have relatively high risk levels, disturbances 

in the fuels used in the model allow for 

specific reductions of risk within those 

smaller disturbed areas.

The percentage increase between the 

current year and 30 years into the future in 

the average burn probabilities of properties 

with at least 0.03% risk is at least 100% in 

many of the counties across the country. 

Among properties with risk, annual 

likelihood of wildfire in 30 years

0 5.99

No data

0.55

Among properties with risk, annual 

likelihood of wildfire today

0 2.67

No data

0.55

3.5.2 Residential Properties at Risk of Wildfire – Percent Increase 

in Annual Likelihood by 2050

Among properties with risk, annual 

likelihood of wildfire in 30 years

0

0

0.55

0.55

5.99

No data

Among properties with risk, annual 

likelihood of wildfire today

2.67

No data

Source: First Street Foundation, The First National Flood Risk Assessment, 

2020 

First Street Foundation l The First National Flood Risk Assessment: Defining America’s Growing Risk I © 1st Street Foundation, Inc 2020 11

National Overview

WA

+6.0%

OR

+6.2%

MT

+4.7%

ID

+7.7%

NV

+6.1%

CA

+5.5%

AZ

+1.6%

NM

+0.7%

CO

+2.4%

WY

+5.7%

UT

+6.9%

ND

+2.4%

SD

+0.6%

NE

-0.3%

KS

+0.9%

OK

-1.6%

TX

+15.9%

AR

+1.7%

LA

+69.7%

MS

+9.8%

AL

+6.2%. GA

+9.9%

FL

+18.6%

SC

+16.7%

NC

TN +12.1%

+3.2%

KY.

+3.2%

IN

+4.4%

IL

+4.4%

MO

+1.8%

IA

0%

MN

+1.6%

WI

+2.8%

MI

+4.5%

OH

+5.4%

PA

+4.0%

WV

+1.5% VA

+13.1%

MD

+14.8%

DC

+8.8%

DE

+21%

NY

+11.9%

VT

+2.1%

ME

+7.6%

NH

+4.6% MA

+11.4%

RI

+14.7% CT

+9.7%

NJ

+19.1%

-30% 0 +60% +260%

Percent Change in Properties at 

Substantial Risk, 2020-2050*

No data

* Substantial risk is calculated as inundation 1 cm or more to the building in the 100 return period (1% annual risk). See methodology for full model details.

Flood risk change over time 3.5.3 Projected Increase in Properties with Substantial Flood Risk

Percent Change in Properties at 

Substantial Risk, 2020-2050
76 2022 FSOC // Annual Report

billion.139 Ultimately, an increasing number 

of properties may become uninsurable due 

to the increasing severity and frequency of 

climate-related events and the associated 

changes in insurance policy structure, pricing, 

and availability.

These uninsured losses have the potential to 

spill over to other parts of the financial system 

and real economy. Figure 3.5.4 depicts a 

flow-of-risk ‘waterfall’ to help visualize how 

the losses could flow through a stack of lossabsorption layers. In the event of an extreme 

climate-related disaster, insurance companies 

take the first loss net of deductibles if the 

specific peril is covered. Non-covered losses 

will adversely affect the impacted entities, 

likely including borrowers who differ in ability 

and willingness to absorb these remaining 

losses. Any resulting defaults will push losses 

into other parts of the financial system, 

including losses to originators, securities 

purchasers, and providers of risk mitigation 

products. Government programs may provide 

assistance to individuals, businesses, or 

others suffering losses at any given stage, 

potentially shifting losses to the government 

and ultimately to the taxpayer. Bottom-up 

exercises for specific regions, assets, and 

types of peril are needed to understand the 

potential financial impact of physical risks.

At the bottom of the flow-of-risk ‘waterfall,’ 

creditors may be exposed to uncovered 

losses. Given their central role in the financial 

system and real estate market, banks and 

government-sponsored enterprises (GSEs) 

exposures to uncovered losses are particularly 

worth monitoring. As the GSEs’ mortgagerelated portfolio has increased in the years 

following the 2008 financial crisis, their overall 

exposure to climate-related financial risk may 

also have increased. In light of increasing 

flood and fire risk and changing dynamics 

in insurance markets, additional attention 

should be placed on monitoring the overlap 

between such physical risks and mortgage 

debt. And ultimately, it will be necessary to 

understand how these physical risks translate 

into financial risks to assess the resulting U.S. 

financial stability risks fully.

Source: FSOC

3.5.4 Flow-of-Risk ‘Waterfall’

Physical climate shock

May be chronic (higher temperatures) 

or acute (severe storms)

Potential government assistance programs

Insurance coverage 

(net of deductibles)

Number of borrowers covered, degree 

of coverage, and contract details

Borrower equity buffer

Ability and willingness to repay debt

Creditors

Including originators and any 

purchasers/providers of risk 

mitigation
Vulnerabilities, Significant Market Developments, and Council Recommendations 77

large banks proposed by the Federal Reserve, 

OCC, and FDIC. The Council recommends state 

and federal agencies continue to collect data 

on and study climate-related financial risks and 

how they might factor into appropriately tailored 

supervisory expectations of regulated entities’ risk 

management practices.

Financial regulators should continue to promote 

consistent, comparable, and decision-useful 

disclosures that allow investors and financial 

institutions to consider climate-related financial 

risks in their investment and lending decisions. 

Examples include the SEC’s proposed rules 

to enhance and standardize climate-related 

disclosures for investors and the National 

Association of Insurance Commissioners’ (NAIC) 

updated Climate Risk Disclosure Survey.

The Council recommends enhanced coordination 

of data and risk assessment through the CFRC. 

The CFRC provides a forum for interagency 

information sharing, coordination, and capacity 

building. The newly established Climate-related 

Financial Risk Advisory Committee (CFRAC) will 

leverage expertise outside of the government to 

understand climate-related financial risk.

Transition Risks

In addition to the work underway to better 

understand physical risk and its implications 

for the financial system, Council members are 

making progress in identifying and developing a 

variety of methodologies to measure transition 

risks.

One approach to estimating financial institutions’ 

exposures to transition risk relies on metrics 

such as GHG emissions. For example, facilitylevel emissions data could be matched against 

loan-level banking data to indicate large bank 

exposure to higher-emitting borrowers. However, 

emissions may be a noisy indicator of transition 

risk. For example, the impacts of policies to 

reduce emissions may vary significantly across 

sectors, policy designs, and degrees of abatement. 

Forward-looking approaches such as scenario 

analysis that take these factors into account are 

potentially more reliable but could be more 

complex and require analyzing how changes 

in climate variables may impact the type and 

amount of future economic activity.

Council members continue collaborating toward 

more granular, forward-looking methodologies to 

assess transition risk exposures.

Recommendations

The Council supports actions by member 

agencies to improve the availability of data for 

assessing climate-related financial risks such as 

the CFTC’s RFI about the climate-related financial 

risk associated with derivatives markets,140 FIO’s 

proposed data collection from large writers of 

homeowners insurance on their underwriting 

metrics and related insurance policy 

information,141 and the OFR’s work of the Climate 

Data Hub.142 The Council recommends state and 

federal agencies coordinate to identify, prioritize, 

and procure data necessary for monitoring 

climate-related financial risk.

The Council supports efforts to improve 

assessments and risk management of climaterelated financial risks and vulnerabilities, 

including the Federal Reserve’s pilot climate 

scenario analysis exercise and the principles on 

climate-related financial risk management at 
78 2022 FSOC // Annual Report

enabling interagency staff to learn from one 

another on emerging best practices. Targeted 

working groups are focused on addressing data 

gaps and identifying priority data needs for 

member agencies, including working closely 

with the OFR’s Climate Data Hub, advancing 

collective understanding of scenario analysis, and 

investigating metrics for risk assessment.

The CFRAC, established by the Council in October 

2022, will help the Council receive information 

and analysis on climate-related financial risks 

from a broad array of stakeholders. The CFRAC’s 

initial members include stakeholders from 

a wide range of backgrounds, including the 

financial services industry, non-governmental 

research institutions, climate-related data and 

analytics providers, non-profit organizations, and 

academia. Committee members with expertise 

in climate data and analysis will support the 

Council and its member agencies in their efforts 

to translate climate-related risks into economic 

and financial impacts.

Nonbank Financial Intermediation

The Council continues to evaluate the 

vulnerabilities posed by three types of nonbank 

financial institutions (NBFIs): open-end mutual 

funds, hedge funds, and MMFs. At the February 

4, 2022, Council meeting, staff from member 

agencies updated the Council on their progress 

in analyzing and addressing the vulnerabilities 

associated with these three types of NBFIs 

through working groups and member agency 

rulemaking. At that meeting, the Council also 

issued a public statement supporting ongoing 

member agency work on NBFIs.

Since the February 2022 meeting, the Council’s 

Hedge Fund Working Group has deepened its 

engagement with the IAWG, addressed certain 

data gaps, and developed a risk monitoring 

system to assess hedge fund-related risks to 

the U.S. financial stability. The working group 

presented its first risk assessment based on a pilot 

version of the monitoring system to the Council at 

4.1 Council Activities

4.1.1 Risk Monitoring and Regulatory 

Coordination

The Dodd-Frank Act charges the Council with 

the responsibility to identify risks to U.S. financial 

stability, promote market discipline, and respond 

to emerging threats to the stability of the U.S. 

financial system. The Council also has a duty to 

facilitate information sharing and coordination 

among member agencies and other federal and 

state agencies regarding financial services policy 

and other developments.

The Council regularly examines significant 

market developments and structural issues 

within the financial system. This risk monitoring 

process is facilitated by the Council’s Systemic 

Risk Committee (SRC), whose participants are 

primarily member agency staff in supervisory, 

monitoring, examination, and policy roles. The 

SRC serves as a forum for member agency staff 

to identify and analyze potential risks that may 

extend beyond any agency’s jurisdiction.

Climate-related Financial Risk

The Council recognizes the critical importance 

of continuing to assess climate-related financial 

risks to the financial system and promote the 

resilience of the financial system to those risks. 

In October 2021, the Council published a Report 

on Climate-Related Financial Risk, which 

recommended the formation of two committees 

– a staff-level CFRC and an external advisory 

committee, the CFRAC.

The CFRC began meeting regularly in February 

2022 and serves as an active forum for interagency 

information sharing, coordination, and capacity 

building. Given the known gaps in climaterelated financial data, the continuing evolution in 

methodologies to assess risk, and the challenges 

of translating climate data into potential financial 

impacts, the CFRC plays an important role in 

4 Council Activities and Regulatory Developments
Council Activities and Regulatory Developments 79

that the Council deems appropriate when 

evaluating those companies.

As of the date of this report, no nonbank financial 

companies are subject to a final determination by 

the Council under Section 113 of the Dodd-Frank 

Act or are under review in Stage 1 or Stage 2 of the 

Council’s designation process.

4.1.3 Operations of the Council

The Dodd-Frank Act requires the Council to 

convene no less than quarterly. The Council 

held eight meetings in 2022, including at least 

one each quarter. The meetings bring Council 

members together to discuss and analyze 

market developments, potential threats to 

financial stability, and financial regulatory 

issues. Although the Council’s work frequently 

involves confidential supervisory and sensitive 

information, the Council is committed 

to conducting its business as openly and 

transparently as practicable. Consistent with 

the Council’s transparency policy, the Council 

opens its meetings to the public whenever 

possible. The Council held a public session at 

four of its meetings in 2022. Approximately every 

two weeks, the Council’s Deputies Committee, 

composed of senior representatives of Council 

members, convenes to discuss the Council’s 

agenda and to coordinate and oversee the work of 

the Council’s six other staff-level committees. The 

other staff-level committees are the CFRC; the 

Data Committee; the Financial Market Utilities 

and Payment, Clearing, and Settlement Activities 

Committee; the Nonbank Financial Companies 

Designations Committee; the Regulation and 

Resolution Committee; and the Systemic 

Risk Committee. As noted in Section 4.1.1, 

the Council also established its first advisory 

committee, the CFRAC, in 2022. The Council 

adopted its FY 2023 budget in September 2022.

4.2 Safety and Soundness

4.2.1 Enhanced Capital and Prudential Standards 

and Supervision

On November 23, 2021, the Federal Reserve, 

OCC, and FDIC issued a final rule that requires a 

banking organization to notify its primary Federal 

regulator of any “computer-security incident” 

the July 28, 2022, Council meeting and a second 

assessment based on the completed system at the 

November 4, 2022, meeting.

In addition, in June 2022, the Council restarted 

meetings of its Nonbank Mortgage Servicing 

Task Force, a staff-level working group including 

staff from member agencies and additional 

government agencies, such as the Department of 

Housing and Urban Development. The Nonbank 

Mortgage Servicing Task Force will facilitate 

interagency coordination and additional market 

monitoring of the risks posed to U.S. financial 

stability by nonbank mortgage servicers.

Digital Assets

As part of its responsibility to identify emerging 

risks to U.S. financial stability, the Council has 

monitored and discussed developments in 

the digital assets ecosystem as that ecosystem 

has developed. In February 2022, the Council 

identified digital assets as a priority area. In 

October 2022, the Council published a Report 

on Digital Asset Financial Stability Risks and 

Regulation in response to Executive Order 14067, 

Ensuring Responsible Development of Digital 

Assets, which called on the Council to produce 

a report outlining the specific financial stability 

risks and regulatory gaps posed by various types 

of digital assets and provide recommendations 

to address such risks. The report details the 

Council’s findings and recommendations (see 

Section 3.1.5). The Council’s Digital Assets 

Working Group met regularly and coordinated 

throughout the drafting process.

4.1.2 Determinations Regarding Nonbank 

Financial Companies

One of the Council’s statutory authorities is 

to subject a nonbank financial company to 

supervision by the Federal Reserve and enhanced 

prudential standards if the company’s material 

financial distress—or nature, scope, size, scale, 

concentration, interconnectedness, or mix of its 

activities—could pose a threat to U.S. financial 

stability. The Dodd-Frank Act sets forth the 

standard for the Council’s determinations 

regarding nonbank financial companies and 

requires the Council to consider ten specific 

considerations and any other risk-related factors 
80 2022 FSOC // Annual Report

and maintains the minimum net worth ratio is 

considered well-capitalized. The final rule also 

made several amendments to update the NCUA’s 

October 29, 2015, risk-based capital final rule, 

including addressing asset securitizations issued 

by credit unions, clarifying the treatment of 

off-balance sheet exposures, deducting certain 

mortgage servicing assets from a complex credit 

union’s risk-based capital numerator, revising the 

treatment of goodwill, and amending other asset 

risk weights.

On March 31, 2022, the FDIC issued a request 

for comment (RFC) regarding the application of 

the laws, practices, rules, regulations, guidance, 

and statements of policy that apply to merger 

transactions involving one or more insured 

depository institutions, including the merger 

between an insured depository institution and 

a noninsured institution. The FDIC sought 

comments regarding the effectiveness of the 

existing framework in meeting the requirements 

of Section 18(c) of the Federal Deposit Insurance 

Act (known as the Bank Merger Act).

On July 28, 2022, the Federal Reserve issued 

a proposed rule to implement the Adjustable 

Interest Rate (LIBOR) Act. The proposed rule 

would establish benchmark replacements for 

contracts governed by United States law that 

reference certain tenors of USD LIBOR (the 

overnight and 1-, 3-, 6-, and 12-month tenors) 

and that do not have terms that provide for 

the use of a clearly defined and practicable 

replacement benchmark rate following the first 

London banking day after June 30, 2023. The 

proposed rule also would provide additional 

definitions and clarifications consistent with the 

Adjustable Interest Rate (LIBOR) Act.

4.2.2 Dodd-Frank Act Stress Tests 

On June 23, 2022, the Federal Reserve released 

the results of its annual bank stress test, which 

showed that banks continue to have strong 

capital levels, allowing them to continue lending 

to households and businesses during a severe 

recession. A total of 34 banks were required 

to participate in the 2022 stress test. All banks 

tested remained above their minimum capital 

requirements, despite total projected losses of 

$612 billion. Under stress, the aggregate common 

that rises to the level of a “notification incident,” 

as soon as possible and no later than 36 hours 

after the banking organization determines that a 

notification incident has occurred. The final rule 

also requires a bank service provider to notify 

each affected banking organization customer as 

soon as possible when the bank service provider 

determines that it has experienced a computersecurity incident that has caused, or is reasonably 

likely to cause, a material service disruption or 

degradation for four or more hours. The final 

rule defines a “notification incident” to include 

a computer-security incident that has materially 

disrupted or degraded, or is reasonably likely 

to materially disrupt or degrade, the viability of 

a banking organization’s operations, its ability 

to deliver banking products and services, or the 

stability of the financial sector.

On December 10, 2021, the Federal Reserve 

issued a letter to remind supervised firms of safe 

and sound practices for counterparty credit risk 

management in light of the Archegos Capital 

Management default. The letter noted that in light 

of the Archegos default and the context of firms’ 

relationships with investment funds, the Federal 

Reserve is issuing guidance to remind firms of 

the supervisory expectations in Interagency 

Supervisory Guidance on Counterparty Credit 

Risk Management and to make firms and 

industry participants aware of practices that may 

be inconsistent with safe and sound banking 

practices.

On December 23, 2021, the NCUA issued a 

final rule providing a simplified measure of 

capital adequacy for federally insured, naturalperson credit unions (credit unions) classified 

as complex (those with total assets greater than 

$500 million). Under the final rule, a complex 

credit union that maintains a minimum net 

worth ratio and that meets other qualifying 

criteria is eligible to opt into the complex credit 

union leverage ratio (CCULR) framework if it has 

a minimum net worth ratio of nine percent. A 

complex credit union that opts into the CCULR 

framework need not calculate a risk-based capital 

ratio under the NCUA Board’s October 29, 2015, 

risk-based capital final rule, as amended on 

October 18, 2018. A qualifying complex credit 

union that opts into the CCULR framework 
Council Activities and Regulatory Developments 81

Furthermore, in 2022, the Federal Reserve and 

FDIC hosted Crisis Management Group (CMG) 

meetings for U.S. G-SIBs to discuss home and host 

resolvability assessments for the firms to facilitate 

cross-border resolution planning.

4.2.4 Insurance

FIO assists the Secretary of the Treasury in 

administering the Terrorism Risk Insurance 

Program, created under the Terrorism Risk 

Insurance Act of 2002, as amended. In June 2022, 

Treasury published a Report on the Effectiveness 

of the Terrorism Risk Insurance Program (TRIP). 

In the report, Treasury concluded that TRIP 

has remained effective in making terrorism 

risk insurance available and affordable in the 

insurance marketplace and that the market for 

terrorism risk insurance has been relatively stable, 

with few observable changes over time in the 

relevant benchmarks.

During 2022, all 50 states, the District of 

Columbia, and the U.S. territories completed the 

adoption of the NAIC’s Credit for Reinsurance 

Model law and regulation, creating nationally 

streamlined reinsurance supervision. The NAIC 

adopted the 2022 Group Capital Calculation 

template and Instructions and an updated 

Liquidity Stress Testing Framework. The NAIC 

also updated its Financial Condition Examiners 

Handbook, utilized in all NAIC Accredited 

jurisdictions, with additional guidance related to 

cybersecurity and ransomware attacks impacting 

insurers.

The NAIC made efforts to address the prolonged 

low-interest rate environment and the 

subsequent search for investment yield in the 

insurance sector. The NAIC adopted Actuarial 

Guidelines 53, which requires asset adequacy 

testing of complex assets supporting certain 

policyholder liabilities for life insurers. Similarly, 

the NAIC increased transparency and reporting 

requirements related to residual investment 

tranches. The NAIC also increased the authority 

of state regulators through the Purposes and 

Procedures Manual of the NAIC Investment 

Analysis Office, related to insurers’ assets that 

would not be eligible for reporting as a bond.

equity tier 1 capital ratio is projected to decline 

by 2.7 percentage points to a minimum of 9.7%, 

which is still more than double the minimum 

requirement.

4.2.3 Resolution Planning and Orderly Liquidation

Under the Dodd-Frank Act, the U.S. Bankruptcy 

Code is the statutory first option for resolution in 

the event of the failure of a financial company. 

Section 165(d) of the Dodd-Frank Act requires 

nonbank financial companies designated by 

the Council for supervision by the Federal 

Reserve and certain BHCs—including certain 

foreign banking organizations (FBOs) with U.S. 

operations—to periodically submit plans to the 

Council, Federal Reserve, and FDIC for their rapid 

and orderly resolution under the U.S. bankruptcy 

code in the event of material financial distress 

or failure. The Federal Reserve and FDIC review 

each plan and may jointly determine that a 

plan is not credible or would not facilitate an 

orderly resolution of the company under the U.S. 

bankruptcy code. Since the resolution planning 

requirements took effect in 2012, U.S. G-SIBs and 

certain other firms have improved their resolution 

strategies and governance, refined their estimates 

of liquidity and capital needs in resolution, and 

simplified their legal structures. These changes 

have made these firms more resilient and 

resolvable.

In December 2021, the Federal Reserve and FDIC 

received targeted resolution plan submissions 

from 16 covered companies in categories II and III 

of the agencies’ large bank regulatory framework. 

On July 1, 2022, the Federal Reserve and FDIC 

received resolution plan submissions from 55 

foreign banking organizations in category IV of 

the agencies’ large bank regulatory framework, 

consisting of 50 reduced resolution plans and five 

full resolution plans. On September 29, 2022, the 

Federal Reserve and FDIC provided feedback to 

Truist Financial Corporation regarding its initial 

resolution plan submitted on September 29, 2021. 

At that time, the Federal Reserve and FDIC also 

announced that they anticipate issuing guidance 

in 2023, which would be made available for public 

comment, to assist the triennial full filers that are 

not already the subject of resolution planning 

guidance.
82 2022 FSOC // Annual Report

On December 16, 2021, the OCC issued draft 

principles designed to support the identification 

and management of climate-related financial 

risks by banks with more than $100 billion in 

total consolidated assets. Consistent with the 

Council’s Report on Climate-Related Financial 

Risk, the OCC identified the effects of climate 

change and the transition to a low-carbon 

economy as presenting emerging risks to banks 

and the financial system. The draft principles 

provide a high-level framework for the safe and 

sound management of exposures to climaterelated financial risks, consistent with the existing 

risk management framework described in existing 

OCC rules and guidance.

In April 2022, the NAIC Executive Committee 

adopted a revised climate risk disclosure survey 

consistent with the international Task Force 

on Climate-Related Financial Disclosures 

framework. The survey is currently administered 

jointly by 15 states and the District of Columbia 

to all licensed insurers that write at least $100 

million in direct premiums annually within 

those markets and applies group-wide (i.e., 

the disclosure captures information across the 

footprint of the group, not just the legal entities 

in these jurisdictions), capturing approximately 

80% of the total U.S. market. Initial filings under 

the new survey are due in November 2022. In 

2022, the NAIC also adopted changes to the 

Property Casualty Risk‐Based Capital Formula 

to include projected modeled wildfire losses in 

the information reported to regulators and are 

developing a proposed capital charge for severe 

convective storms. The NAIC also established 

a Catastrophe Model Center of Excellence to 

provide model documentation, education, and 

training and conduct applied research using 

catastrophe models to address regulatory climate 

risk and resilience priorities.

On March 30, 2022, the FDIC issued an RFC on 

draft principles that would provide a high-level 

framework for the safe and sound management 

of exposure to climate-related financial risks. 

Although all financial institutions, regardless of 

size, may have material exposures to climaterelated financial risks, these draft principles are 

intended for the largest financial institutions, 

those with over $100 billion in total consolidated 

As private markets have expanded over the last 

decade, alternative asset management firms have 

reshaped their business models and increased 

involvement in the life insurance sector. Some 

alternative asset managers have increased their 

access to books of annuities and life insurance 

through acquisitions of insurers, while others 

have used reinsurance to contractually assume 

assets and liabilities associated with insurance 

businesses. In light of the ongoing and expanding 

presence of private equity-owned insurers in the 

life insurance space, the NAIC adopted a list of 

13 considerations pertaining to the ability of state 

insurance regulators to adequately monitor and 

assess the risks of these new entrants. The NAIC 

also adopted new reporting requirements in the 

investment schedules for investment transactions 

with related parties. In addition to capturing 

direct loans in related parties, it will also capture 

information involving securitizations (or other 

similar investments) where the related party is 

a sponsor/originator, along with whether the 

underlying investment is in a related party.

The NAIC also updated the Own Risk Solvency 

Assessment guidance manual to incorporate 

elements of the International Association of 

Insurance Supervisors’ Common Framework 

for the Supervision of Internationally Active 

Insurance Groups. Finally, the NAIC added new 

reporting requirements to gather additional 

data on the insurance industry’s use of 

cryptocurrencies, though such directly held 

digital assets are not considered admitted assets 

for capital purposes.

4.3 Financial Infrastructure, 

Markets, and Oversight

4.3.1 Climate-Related Financial Risks

On August 31, 2021, following the May 20, 2021, 

Executive Order on Climate-Related Financial 

Risk, FIO issued a RFI to solicit public input on 

FIO’s future work relating to the insurance sector 

and climate-related financial risks. The request 

also sought input on how FIO’s data collection 

and dissemination authorities can best be used 

by FIO in support of these priorities, as well as 

to monitor and assess the insurance sector and 

climate-related financial risks.
Council Activities and Regulatory Developments 83

of sequential and capacity-building efforts. 

FIO’s initial steps are intended to consolidate 

foundational knowledge that can be used in 

future years to develop more comprehensive 

approaches to address climate-related financial 

risks.

On December 2, 2022, the Federal Reserve invited 

comments on proposed principles providing 

a high-level framework for the safe and sound 

management of exposures to climate-related 

financial risks for large banking organizations, 

those with more than $100 billion in total assets. 

They are substantially similar to proposals issued 

by the OCC and FDIC. The Federal Reserve 

intends to work with those agencies to promote 

consistency in the supervision of large banks 

through final interagency guidance.

4.3.2 Digital Assets, Payment Systems, and 

Technological Innovation

On November 18, 2021, the OCC issued an 

interpretive letter regarding the authority of 

a bank to engage in certain cryptocurrency 

activities. The interpretive letter clarified that 

the activities addressed in prior OCC interpretive 

letters (i.e., OCC Interpretive Letters 1170, 1172, 

and 1174) are legally permissible for a bank to 

engage in, provided the bank can demonstrate, 

to the satisfaction of its supervisory office, that it 

has controls in place to conduct the activity in a 

safe and sound manner. The letter further stated 

that a bank should notify its supervisory office, 

in writing, of its intention to engage in any of the 

activities addressed in the interpretive letters. The 

bank should not engage in the activities until it 

receives written notification of the supervisory 

office’s non-objection. In deciding whether to 

grant supervisory non-objection, the supervisory 

office will evaluate the adequacy of the bank’s 

risk management systems, controls, and risk 

measurement systems to enable the bank to 

engage in the proposed activities safely and 

soundly.

In December 2021, the NCUA issued a letter to 

federally insured credit unions (FICUs) to provide 

clarity about the already existing authority of 

FICUs to establish relationships with third-party 

providers that offer digital asset services to the 

FICUs’ members (including services provided 

assets. The draft principles are substantively 

similar to those issued by the OCC in December 

2021 and are intended to support efforts by large 

financial institutions to focus on key aspects of 

climate-related financial risk management.

On April 11, 2022, the SEC proposed rule 

changes that would require registrants to provide 

certain climate-related information in their 

registration statements and annual reports. The 

proposed rules would provide investors with 

more consistent, comparable, and decisionuseful climate-related information by requiring a 

registrant to provide disclosures on the oversight 

and governance undertaken by its board and 

management, risk management, and strategy with 

respect to climate-related risks; the registrant’s 

climate-related targets or goals, if any; certain 

disclosure related to greenhouse gas emissions; 

and the current impact of climate-related events 

and transition activities on the registrant’s 

consolidated financial statements and related 

expenditures.

On September 29, 2022, the Federal Reserve 

announced that six of the nation’s largest banks 

would participate in a pilot climate scenario 

analysis exercise designed to enhance the ability 

of supervisors and firms to measure and manage 

climate-related financial risks. The pilot exercise 

will be launched in early 2023 and is expected 

to conclude around the end of the year. The 

Federal Reserve anticipates publishing insights 

gained from the pilot at an aggregate level, 

reflecting what has been learned about climate 

risk management practices and how insights from 

scenario analysis will help identify potential risks 

and promote risk management practices. No 

firm-specific information will be released. There 

will be no capital or supervisory implications 

from the pilot.

On October 18, 2022, FIO issued an RFC on a 

proposed collection of data from property and 

casualty insurers regarding current and historical 

underwriting data on homeowners’ insurance 

to assess the potential for major disruptions 

of private insurance coverage in regions of the 

country that are particularly vulnerable to the 

impacts of climate change. This work builds 

on FIO’s 2021 climate RFI and will be part 
84 2022 FSOC // Annual Report

assess the safety and soundness, financial 

stability, and consumer protection implications 

without considering each crypto-related activity 

on an individual basis. Therefore, the FDIC 

requested all FDIC-supervised institutions that 

are considering engaging in crypto-related 

activities to notify the FDIC of their intent and 

to provide all necessary information that would 

allow the FDIC to engage with the institution 

regarding related risks. The letter advised that 

any FDIC-supervised institution that is already 

engaged in crypto-related activities should 

promptly notify the FDIC and encouraged 

institutions notifying the FDIC to also notify their 

state regulator.

On July 29, 2022, the FDIC issued a Fact Sheet 

for the public and an Advisory to FDIC-insured 

institutions regarding FDIC deposit insurance and 

dealings with crypto companies to address certain 

misrepresentations about FDIC deposit insurance 

related to crypto-assets. The Fact Sheet stated 

that some crypto companies have represented to 

their customers that their products are eligible 

for FDIC deposit insurance coverage, which may 

lead customers to believe, mistakenly, that their 

money or investments are safe. The FDIC noted 

in the Advisory that inaccurate representations 

about deposit insurance by non-banks, including 

crypto companies, may confuse nonbank 

customers and cause them to mistakenly believe 

they are protected against any type of loss.

On August 16, 2022, the Federal Reserve issued a 

supervisory letter to supervised firms providing 

additional information for banking organizations 

engaging or seeking to engage in crypto-assetrelated activities. The letter outlined the steps 

Federal Reserve-supervised banks should take 

before engaging in crypto-asset-related activities, 

such as assessing whether such activities are 

legally permissible and determining whether 

any regulatory filings are required. Additionally, 

the letter stated that Federal Reserve-supervised 

banking organizations should notify the Federal 

Reserve before engaging in crypto-asset-related 

activities. The letter also emphasized that Federal 

Reserve-supervised banking organizations should 

have adequate systems and controls in place to 

conduct crypto-asset-related activities in a safe 

and sound manner prior to commencing such 

activities.

by third parties to allow FICU members to buy, 

sell, and hold uninsured digital assets with 

the third-party provider outside of the FICU), 

provided certain conditions are met. The letter 

stated that FICUs must comply with applicable 

laws and should follow safe-and-sound business 

practices in the provision of digital asset services 

through third-party arrangements. FICUs should 

fully evaluate the risks involved with digital 

asset activities, including legal risks, reputation 

risks, and economic risks. The letter stated that 

in light of the rapidly changing technological 

environment and the variety of digital asset 

products and services available, FICUs should 

actively monitor that they, and the thirdparty service providers they facilitate member 

relationships with, remain in ongoing compliance 

with all laws. FICUs should ensure that effective 

risk measurement, monitoring, and control 

practices are in place to successfully manage such 

third-party arrangements once established.

On March 31, 2022, the SEC issued Staff 

Accounting Bulletin No. 121, which expresses 

the views of the staff regarding the accounting 

for obligations to safeguard crypto-assets an 

entity holds for platform users. The bulletin is 

applicable to, among other entities, those that file 

reports pursuant to Sections 13(a) or 15(d) of the 

Exchange Act and entities that have submitted or 

filed a registration statement under the Securities 

Act or the Exchange Act that is not yet effective.

On April 7, 2022, the FDIC issued a financial 

institution letter to address the engagement 

by FDIC-supervised institutions in cryptorelated activities. The letter stated that cryptorelated activities may pose significant safety 

and soundness risks and financial stability and 

consumer protection concerns. Moreover, 

these risks and concerns are evolving as cryptorelated activities are not yet fully understood. 

The FDIC noted that there is little consistency 

in the definitions associated with many cryptoassets and crypto-related activities, which makes 

it difficult to categorically identify these assets 

and activities. Further, the structure and scope 

of these activities are rapidly changing and 

expanding. As a result, of the dynamic nature 

of crypto-related activities, it is difficult for 

institutions, as well as the FDIC, to adequately 
Council Activities and Regulatory Developments 85

The amendments updated the set of interest 

rate swaps that are required to be submitted for 

clearing pursuant to the CEA and the CFTC’s 

regulations to a derivatives clearing organization 

(DCO) that is registered under the CEA or to a 

DCO that has been exempted from registration 

under the CEA, to reflect the market shift away 

from swaps that reference IBORs to swaps that 

reference RFRs.

On October 5, 2022, the Federal Reserve issued 

a proposed rule to amend the requirements 

relating to operational risk management in the 

Federal Reserve’s Regulation HH, which applies 

to certain financial market utilities that have been 

designated as systemically important (designated 

FMUs) by the Council under Title VIII of the 

Dodd-Frank Act. The proposal would update, 

refine, and add specificity to the operational 

risk management requirements in Regulation 

HH to reflect changes in the operational risk, 

technology, and regulatory landscapes in which 

designated FMUs to operate since the Federal 

Reserve last updated the risk management 

requirements in 2014. The proposal would also 

adopt specific incident-notification requirements.

4.3.4 Securities and Asset Management

On February 8, 2022, the SEC issued a proposed 

rule to amend certain rules that govern money 

market funds under the Investment Company Act 

of 1940. The proposed amendments are designed 

to improve the resilience and transparency of 

money market funds. The proposal would remove 

the liquidity fee and redemption gate provisions 

in the existing rule, which would eliminate 

an incentive for preemptive redemptions 

from certain money market funds and could 

encourage funds to more effectively use their 

existing liquidity buffers in times of stress. The 

proposal would also require institutional prime 

and institutional tax-exempt money market 

funds to implement swing pricing policies and 

procedures to require redeeming investors to bear 

the liquidity costs of their decisions to redeem. 

The SEC also proposed to increase the daily liquid 

asset and weekly liquid asset minimum liquidity 

requirements to 25% and 50%, respectively, to 

provide a more substantial buffer in the event 

of rapid redemptions. The proposal would 

amend certain reporting requirements on Forms 

On August 19, 2022, the Federal Reserve approved 

final guidelines for Federal Reserve Banks to 

utilize in evaluating requests for access to Federal 

Reserve Bank master accounts and services. The 

final guidelines followed a supplemental notice 

and proposed guidelines that were issued on 

March 8, 2022.

4.3.3 Derivatives, Swap Data Repositories, 

Regulated Trading Platforms, Central 

Counterparties, and Financial Market Utilities

On May 11, 2022, the SEC issued a proposed set 

of rules (Regulation SE) and forms under the 

Exchange Act that would create a regime for the 

registration and regulation of security-based 

swap execution facilities (SBSEFs) and address 

other issues relating to security-based swap (SBS) 

execution generally. One of the rules proposed as 

part of Regulation SE would implement a part of 

the Dodd-Frank Act that is intended to mitigate 

conflicts of interest at SBSEFs and national 

securities exchanges that trade SBS. Other rules 

proposed as part of Regulation SE would address 

the cross-border application of the Exchange 

Act’s trading venue registration requirements 

and the trade execution requirement for SBS. In 

addition, the SEC proposed to amend an existing 

rule to exempt, from the Exchange Act definition 

of “exchange,” certain registered clearing agencies 

as well as registered SBSEFs that provide a 

marketplace only for SBS. The SEC also proposed 

a new rule that, while affirming that an SBSEF 

would be a broker under the Exchange Act, 

would exempt a registered SBSEF from certain 

broker requirements. Finally, the SEC proposed 

certain new rules and amendments to its Rules 

of Practice to allow persons who are aggrieved by 

certain actions by an SBSEF to apply for review 

by the SEC. The SEC also withdrew all previously 

proposed rules regarding these subjects.

On August 24, 2022, the CFTC issued a final rule 

modifying its existing interest rate swap clearing 

requirement regulations under applicable 

provisions of the Commodity Exchange Act 

(CEA) due to the global transition from reliance 

on certain interbank offered rates (IBORs) (e.g., 

LIBOR) that have been, or will be, discontinued 

as benchmark reference rates to alternative 

reference rates, which are predominantly 

overnight, nearly risk-free reference rates (RFRs). 
86 2022 FSOC // Annual Report

commodity pool operator or commodity trading 

adviser. As with the February 17, 2022, proposed 

rule, the amendments are designed to enhance 

the Council’s ability to monitor systemic risk and 

bolster the SEC’s regulatory oversight of private 

fund advisers and investor protection efforts. 

In connection with the amendments to Form 

PF, the SEC proposes to amend a rule under 

the Investment Advisers Act of 1940 to revise 

instructions for requesting a temporary hardship 

exemption.

Treasury Market Structure

On March 18, 2022, the SEC issued a proposed 

rule to amend Rule 3b-16 under the Exchange 

Act, which defines certain terms used in the 

statutory definition of “exchange” under Section 

3(a)(1) of the Exchange Act to include systems 

that offer the use of non-firm trading interest 

and communication protocols to bring together 

buyers and sellers of securities. In addition, the 

SEC re-proposed amendments to its regulations 

under the Exchange Act, which were initially 

proposed in September 2020, to enable alternative 

trading systems (ATSs) to take into consideration 

systems that may fall within the definition of 

“exchange” because of the amendments proposed 

in 2022. The SEC re-proposed, with certain 

revisions, amendments to its regulations for 

ATSs that trade government securities as defined 

under Section 3(a)(42) of the Exchange Act or 

repurchase and reverse repurchase agreements 

on government securities. The SEC also proposed 

to amend Form ATS-N for NMS Stock ATSs, which 

would require existing NMS Stock ATSs to amend 

their existing disclosures. In addition, the SEC 

proposed to amend the fair access rule for ATSs. 

The SEC also proposed to require electronic filing 

of and to modernize Form ATS-R and Form ATS, 

which would require existing Form ATS filers to 

amend their existing disclosures. Further, the 

SEC re-proposed amendments to its regulations 

regarding systems compliance and integrity 

to apply to ATSs that meet certain volume 

thresholds in U.S. Treasury Securities or in a debt 

security issued or guaranteed by a U.S. executive 

agency or government-sponsored enterprise.

On April 18, 2022, the SEC issued a proposed rule 

to further define the phrase “as a part of a regular 

business” as used in the statutory definitions 

N-MFP and N-CR to improve the availability 

of information about money market funds, as 

well as make certain conforming changes to 

Form N-1A to reflect the proposed changes to 

the regulatory framework for these funds. In 

addition, the SEC proposed rule amendments 

to address how money market funds with stable 

net asset values should handle a negative interest 

rate environment. Finally, the SEC proposed rule 

amendments to specify how funds must calculate 

weighted average maturity and weighted average 

life.

On February 17, 2022, the SEC issued a proposed 

rule to amend Form PF, the confidential reporting 

form for certain SEC-registered investment 

advisers to private funds, to require current 

reporting upon the occurrence of key events. 

The proposed amendments also would decrease 

the reporting threshold for large private equity 

advisers and require these advisers to provide 

additional information to the SEC about the 

private equity funds they advise. Finally, the SEC 

proposed to amend requirements concerning 

how large liquidity advisers report information 

about the liquidity of funds they advise. The 

proposed amendments are designed to enhance 

the Council’s ability to monitor systemic risk and 

bolster the SEC’s regulatory oversight of private 

fund advisers and investor protection efforts.

On February 24, 2022, the SEC issued a proposed 

rule to shorten the standard settlement cycle 

for most broker-dealer transactions from two 

business days after the trade date (T+2) to one 

business day after the trade date (T+1). To 

facilitate a T+1 standard settlement cycle, the SEC 

also proposed new requirements for processing 

institutional trades by broker-dealers, investment 

advisers, and certain clearing agencies. These 

requirements are designed to protect investors, 

reduce risk, and increase operational efficiency. 

The SEC proposed to require compliance with 

a T+1 standard settlement cycle, if adopted, by 

March 31, 2024.

On September 1, 2022, the SEC and CFTC issued a 

proposed rule to amend Form PF, the confidential 

reporting form for certain SEC-registered 

investment advisers to private funds, including 

those that also are registered with the CFTC as a 
Council Activities and Regulatory Developments 87

Value Hedging – Portfolio Layer Method.” ASU 

2022-01 establishes the portfolio-layer method, 

which expands an entity’s ability to achieve fair 

value hedge accounting for hedges of financial 

assets in a closed portfolio.

On March 31, 2022, the FASB issued Accounting 

Standards Update (ASU) 2022-02, “Financial 

Instruments – Credit Losses (Topic 326): Troubled 

Debt Restructurings and Vintage Disclosures.” 

ASU 2022-02 eliminates the accounting guidance 

for troubled debt restructurings by creditors that 

have adopted Accounting Standards Codification 

(ASC) Topic 326 and enhances disclosures for 

certain loan refinancings and restructurings when 

a borrower is experiencing financial difficulty.

4.3.6 Bank Secrecy Act/Anti-Money Laundering 

Regulatory Reform

On March 16, 2022, the OCC issued a final rule 

amending its suspicious activity report (SAR) 

regulations to harmonize its legal authority 

to issue exemptions from its SAR regulations 

with Financial Crimes Enforcement Network’s 

(FinCEN) preexisting authority. The rule 

establishes processes for the OCC to facilitate 

changes related to SAR regulations required by 

the Anti-Money Laundering Act of 2020 and grant 

relief to banks that develop innovative solutions 

intended to meet Bank Secrecy Act requirements 

more efficiently and effectively.

On September 30, 2022, FinCEN issued a final 

rule requiring certain entities to file with FinCEN 

reports that identify two categories of individuals: 

the beneficial owners of the entity and individuals 

who have filed an application with specified 

governmental authorities to create the entity 

or register it to do business. These regulations 

implement Section 6403 of the Corporate 

Transparency Act, enacted as part of the National 

Defense Authorization Act for Fiscal Year 2021, 

and describe who must file a report, what 

information must be provided, and when a report 

is due. These requirements are intended to help 

prevent and combat money laundering, terrorist 

financing, corruption, tax fraud, and other illicit 

activity while minimizing the burden on entities 

doing business in the United States.

of “dealer” and “government securities dealer” 

under Sections 3(a)(5) and 3(a)(44), respectively, 

of the Exchange Act. The proposed rules would 

define three qualitative standards designed to 

more specifically identify activities of certain 

market participants who assume dealer-like roles, 

specifically, persons whose trading activity in 

the market “has the effect of providing liquidity” 

to other market participants. In addition, 

proposed Rule 3a44-2, which would apply only to 

government securities dealers, would include a 

quantitative standard. This quantitative standard 

would establish a bright-line test, under which 

a person engaging in certain specified levels of 

activity would be deemed to be buying and selling 

government securities “as a part of a regular 

business,” regardless of whether it meets any of 

the qualitative standards. A person whose activity 

meets the quantitative or any of the qualitative 

standards would be a dealer and so subject to 

the Exchange Act registration requirements, 

regardless of whether the liquidity provision is a 

chosen consequence of its activities.

On October 25, 2022, the SEC issued a proposed 

rule to amend the standards applicable to covered 

clearing agencies for U.S. Treasury securities 

to require that such covered clearing agencies 

have written policies and procedures reasonably 

designed to require that every direct participant 

of the covered clearing agency submit for 

clearance and settlement all eligible secondary 

market transactions in U.S. Treasury securities 

to which it is a counterparty. In addition, the 

SEC proposed additional amendments to the 

Covered Clearing Agency Standards with respect 

to risk management. These requirements are 

designed to protect investors, reduce risk, and 

increase operational efficiency. Finally, the SEC 

proposed to amend the broker-dealer customer 

protection rule to permit margin required and on 

deposit with covered clearing agencies for U.S. 

Treasury securities to be included as a debit in the 

reserve formulas for accounts of customers and 

proprietary accounts of broker-dealers, subject to 

certain conditions.

4.3.5 Accounting Standards

On March 28, 2022, the Financial Accounting 

Standards Board (FASB) issued ASU 2022-01, 

“Derivatives and Hedging (ASC Topic 815): Fair 
88 2022 FSOC // Annual Report

by (1) eliminating the Non-Performing Loan 

liquidity add-on that existed in the previous 

requirements and (2) requiring a liquidity buffer 

that can be drawn on during times of stress; and 

incorporating lessons learned from the COVID-19 

pandemic, including establishing requirements to 

address origination pipeline risk, as the previous 

requirements focused primarily on mortgage 

servicing.

On August 31, 2022, FHFA announced it would 

conduct a comprehensive review of the Federal 

Home Loan Bank (FHLBank) System beginning 

in the fall of 2022. As part of the review process, 

FHFA hosted two public listening sessions and 

a series of regional roundtable discussions to 

consider and evaluate the mission, membership 

eligibility requirements, and operational 

efficiencies of the FHLBanks. FHFA heard from 

stakeholders on the FHLBanks’ role or potential 

role in addressing housing finance, community 

and economic development, affordability, and 

other related issues.

4.4.2 Consumer Protection

On May 17, 2022, the CFPB issued a circular that 

addresses prohibited practices on claims about 

FDIC insurance. The circular noted that firms 

may violate federal law if they misuse the name 

or logo of the FDIC or make false or misleading 

representations about deposit insurance. The 

issue has taken on renewed importance with the 

emergence of financial technologies – such as 

crypto-assets, including stablecoins – and the 

risks posed to consumers if they are lured to these 

or other financial products or services through 

misrepresentations or false advertising.

On June 2, 2022, the FDIC issued a final rule 

to implement section 18(a)(4) of the Federal 

Deposit Insurance Act. Section 18(a)(4) prohibits 

any person from misusing the name or logo of 

the FDIC or from engaging in false advertising 

or making knowing misrepresentations about 

deposit insurance. The FDIC has observed an 

increasing number of instances where financial 

services providers or other entities or individuals 

have misused the FDIC’s name or logo or have 

made false or misleading representations about 

deposit insurance. The final rule establishes 

the process by which the FDIC will identify and 

4.4 Mortgages and Consumer 

Protection 

4.4.1 Mortgages and Housing Finance

On December 8, 2021, the CFPB issued a final 

rule amending Regulation Z, which implements 

the Truth in Lending Act, generally to address the 

anticipated sunset of LIBOR, which is expected 

to be discontinued for most U.S. dollar (USD) 

tenors in June 2023. Some creditors currently 

use USD LIBOR as an index for calculating rates 

for open-end and closed-end products. The 

CFPB amended the open-end and closed-end 

provisions to provide examples of replacement 

indices for LIBOR indices that meet certain 

Regulation Z standards. The CFPB also 

amended Regulation Z to permit creditors for 

home equity lines of credit (HELOCs) and card 

issuers for credit card accounts to transition 

existing accounts that use a LIBOR index to a 

replacement index on or after April 1, 2022, if 

certain conditions are met. This final rule also 

addressed change-in-terms notice provisions 

for HELOCs and credit card accounts and how 

they apply to accounts transitioning away from 

using a LIBOR index. Lastly, the CFPB amended 

Regulation Z to address how the rate reevaluation 

provisions applicable to credit card accounts 

apply to the transition from using a LIBOR index 

to a replacement index.

On March 16, 2022, FHFA issued a final rule 

amending the Enterprise Regulatory Capital 

Framework (ERCF) by refining the prescribed 

leverage buffer amount and credit risk transfer 

securitization framework for Fannie Mae and 

Freddie Mac. The final rule also made technical 

corrections to various provisions of the ERCF that 

was published on December 17, 2020.

On August 17, 2022, FHFA and Ginnie Mae 

finalized and released updated Enterprise seller/

servicer and Ginnie Mae issuer requirements. 

The Enterprise seller/servicer requirements 

were updated to promote confidence and 

improve safety and soundness for nonbanks by 

enhancing the definitions of capital and liquidity; 

more accurately capturing liquidity needs by 

differentiating by remittance type; reducing 

procyclicality in the liquidity requirements 
Council Activities and Regulatory Developments 89

In October 2020, the Financial Stability Board 

(FSB) transferred the role of international 

governance body for the UTI, UPI, and CDE to 

the Regulatory Oversight Committee (ROC). 

The ROC is a group of more than 70 regulatory 

authorities worldwide that oversee the Global 

LEI Foundation (GLEIF). In December 2021, the 

responsibility for providing secretariat services to 

the ROC was transferred from the FSB to the OFR, 

with support from the People’s Bank of China. 

ROC secretariat staff play an important role in the 

day-to-day mechanics of regulatory governance 

of the LEI, UPI, UTI, and CDE.

4.5.2 Data Quality

Improving the quality of LEI data is important to 

building market confidence in the value of the 

LEI. Therefore, considerable attention is directed 

to this challenge by the Council members that are 

represented on the ROC, including the Federal 

Reserve, OCC, CFPB, SEC, FDIC, CFTC, and 

OFR. A focus of Council members is the work 

on “Level 2” LEI data. This is data submitted by 

legal entities acquiring an LEI regarding their 

“direct accounting consolidating parent” and 

their “ultimate accounting consolidating parent.” 

This past year, the ROC has continued to focus on 

improving the quality of Level 2 LEI data, among 

other elements of LEI reference data. Level 2 

LEI data provides the direct counterparties to a 

transaction and the affiliated entities and can 

improve the ability to perform a risk assessment 

of the transaction counterparties

Additionally, this past year, the ROC continued 

to work closely with the GLEIF as the GLEIF 

continues to develop its LEI digital strategy. 

Toward this purpose, Council members 

contributed to the ROC’s analysis of a new work 

item proposal under Technical Committee 

68 of the International Organization for 

Standardization (ISO) to develop Part 3 of the 

LEI standard (ISO 17442). This proposal, which 

was put forth by the GLEIF, pertains to what 

the GLEIF refers to as “verifiable LEIs” (vLEIs). 

vLEIs provide automated remote verification 

of legal entities owning LEIs –– that is, they 

cryptographically prove that an LEI is owned by 

the organization signing with or presenting the 

credential.

investigate conduct that may violate section 18(a)

(4), the standards under which such conduct 

will be evaluated, and the procedures which the 

FDIC will follow when formally and informally 

enforcing the provisions of section 18(a)(4).

On August 11, 2022, the CFPB issued a circular 

confirming that financial companies may violate 

federal consumer financial protection law when 

they fail to safeguard consumer data. The circular 

provides guidance to consumer protection 

enforcers, including examples of when firms 

can be held liable for lax data security protocols. 

The CFPB noted that it is increasing its focus 

on the potential misuse and abuse of personal 

financial data. As part of this effort, the circular 

explains how and when firms may be violating 

the Consumer Financial Protection Act with 

respect to data security. Specifically, financial 

companies are at risk of violating the Act if they 

fail to have adequate measures to protect against 

data security incidents. The circular also provides 

examples of widely implemented data security 

practices. While the circular does not suggest 

that particular security practices are specifically 

required under the Act, it notes some examples 

where the failure to implement certain data 

security measures might increase the risk that a 

firm’s conduct triggers liability under the Act.

4.5 Data Scope, Quality, and 

Accessibility

4.5.1 Data Scope

Global adoption of the Legal Entity Identifier 

(LEI), which enables the unique and transparent 

identification of legal entities participating in 

financial transactions, continues to grow. In 

the United States, the LEI is used in regulatory 

reporting mandated by the Federal Reserve, 

CFPB, SEC, CFTC, and OFR, among others.

Once OTC derivative transaction data are brought 

together across jurisdictions, the LEI, unique 

transaction identifier (UTI), unique product 

identifier (UPI), and the harmonized critical data 

elements (CDE) fields can improve the ability to 

monitor financial stability through analysis of 

counterparty exposure and risk positioning at 

various levels of aggregation.

Select Council Member Agency Publications on Financial and Regulatory Developments 91

FHFA. Annual Performance Plan for Fiscal Year 

2023. Washington: FHFA, 2022. https://www.

fhfa.gov/AboutUs/Reports/ReportDocuments/

FY2023_APP.pdf.

FHFA. August 2022 Foreclosure Prevention, 

Refinance, and Federal Property Manager’s 

Report. Washington: FHFA, 2022. https://www.

fhfa.gov/AboutUs/Reports/ReportDocuments/

August2022-FPR-Refi-FPM-Report.pdf.

FIO. Annual Report on the Insurance Industry. 

Washington: FIO, 2022. https://home.treasury.

gov/system/files/311/2022%20Federal%20

Insurance%20Office%20Annual%20Report%20

on%20the%20Insurance%20Industry%20

%281%29.pdf.

FIO. Report on the Effectiveness of the 

Terrorism Risk Insurance Program. Washington: 

FIO, 2022. https://home.treasury.gov/system/

files/311/2022%20Program%20Effectiveness%20

Report%20%28FINAL%29.pdf.

Federal Reserve. Financial Stability Report (May 

2022). Washington: Federal Reserve, 2022. 

https://www.federalreserve.gov/publications/

files/financial-stability-report-20220509.pdf.

Federal Reserve. Financial Stability Report 

(November 2022). Washington: Federal 

Reserve, 2022. https://www.federalreserve.

gov/publications/files/financial-stabilityreport-20221104.pdf.

Federal Reserve. Supervision and Regulation 

Report (May 2022). Washington: Federal 

Reserve, 2022. https://www.federalreserve.

gov/publications/files/202205-supervision-andregulation-report.pdf.

CFPB. Buy Now, Pay Later: Market trends 

and consumer impacts. Washington: CFPB, 

2022. https://www.consumerfinance.gov/dataresearch/research-reports/buy-now-pay-latermarket-trends-and-consumer-impacts/.

CFPB. Complaint Bulletin: An analysis of 

consumer complaints related to cryptoassets. Washington: CFPB, 2022. https://www.

consumerfinance.gov/data-research/researchreports/complaint-bulletin-analysis-of-consumercomplaints-related-to-crypto-assets/.

CFPB. The Convergence of Payments and 

Commerce: Implications for Consumers. 

Washington: CFPB, 2022. https://www.

consumerfinance.gov/data-research/researchreports/the-convergence-of-payments-andcommerce-implications-for-consumers/.

CFPB. Supervisory Highlights (Issue 28, Fall 

2022). Washington: CFPB, 2022. https://

www.consumerfinance.gov/data-research/

research-reports/supervisory-highlights-issue28-fall-2022.

FDIC. FDIC Quarterly Banking Profile (Third 

Quarter 2022). Washington: FDIC, 2022. 

https://www.fdic.gov/analysis/quarterly-bankingprofile/qbp/2022sep/.

FDIC. 2022 Risk Review. Washington: FDIC, 

2022. https://www.fdic.gov/analysis/riskreview/2022-risk-review.html.

FDIC. Supervisory Insights. Washington: 

FDIC, 2022. https://www.fdic.gov/regulations/

examinations/supervisory/insights/past.html.

FHFA. 2021 Report to Congress. Washington: 

FHFA, 2022. https://www.fhfa.gov/AboutUs/

Reports/ReportDocuments/FHFA-2021-AnnualReport-to-Congress.pdf.

5 Select Council Member Agency Publications 

on Financial and Regulatory Developments
92 2022 FSOC // Annual Report

Federal Reserve. Supervision and Regulation 

Report (November 2022). Washington: Federal 

Reserve, 2022. https://www.federalreserve.

gov/publications/files/202211-supervision-andregulation-report.pdf.

FSOC. Report on Digital Assets Financial 

Stability Risks and Regulation. Washington: 

FSOC, 2022. https://home.treasury.goc/system/

files/261/FSOC-Digital-Assets-Report-2022.pdf.

OCC. Interest Rate Risk Statistics Report. 

Washington: OCC, 2022. https://occ.gov/

publications-and-resources/publications/

interest-rate-risk-statistics-reports/files/interestrate-risk-statistics-report-fall-2022.html.

OCC. Semiannual Risk Perspective. 

Washington: OCC, 2022. https://www.occ.

gov/publications-and-resources/publications/

semiannual-risk-perspective/index-semiannualrisk-perspective.html.

OFR. 2022 Annual Report to Congress. 

Washington: OFR, 2022. Report Forthcoming. 

SEC. Money Market Funds in the Treasury 

Market. Washington: SEC, 2022. https://www.

sec.gov/files/mmfs-treasury-market-090122.pdf.

SEC. Prime MMFs’ Asset Composition and 

Asset Sales. Washington: SEC, 2022. https://

www.sec.gov/files/mmf-asset-sales-2023-jun-23.

pdf.

SEC. Private Funds Statistics. Washington: 

SEC, 2022. https://www.sec.gov/divisions/

investment/private-funds-statistics.

U.S. Department of the Treasury. Enhancing the 

Resilience of the U.S. Treasury Market: 2022 

Staff Progress Report. Washington: Treasury, 

2022. https://home.treasury.gov/system/

files/136/2022-IAWG-Treasury-Report.pdf.
Abbreviations 93

CFTC Commodity Futures Trading 

Commission

CIF Collective Investment Funds

CISA Cybersecurity and Infrastructure 

Security Agency

CIT Collective Investment Trusts

CLO Collateralized Loan Obligation

CMBS Commercial Mortgage-Backed Security

CME Chicago Mercantile Exchange Inc.

CMG Crisis Management Group

Council Financial Stability Oversight Council

CP Commercial Paper

CPMI Committee on Payments and Market 

Infrastructures

CRE Commercial Real Estate

CSBS Conference of State Bank Supervisors

DB Defined Benefit

DCO Derivatives Clearing Organization

DDoS Distributed Denial of Service

DHS Department of Homeland Security

Dodd-Frank 

Act

Dodd-Frank Wall Street Reform and 

Consumer Protection Act

DSB Derivatives Service Bureau

DTCC Depository Trust & Clearing 

Corporation

EBITDA Earnings Before Interest, Taxes, 

Depreciation, and Amortization

EME Emerging Market Economy

ERCF Enterprise Regulatory Capital 

Framework

ERISA Employee Retirement Income Security 

Act

ETF Exchange-Traded Fund

ABA American Bankers Association

ABCP Asset-Backed Commercial Paper

AFS Available For Sale

AI Artificial Intelligence

AOCI Accumulated Other Comprehensive 

Income

ARM Adjustable-Rate Mortgage

ARM MBS Adjustable-Rate Mortgage 

Mortgage-Backed Security

ARRC Alternative Reference Rates 

Committee

ATS Alternative Trading System

BHC Bank Holding Company

BNPL Buy Now, Pay Later

BOE Bank of England

CARES Act Coronavirus Aid, Relief, and Economic 

Security Act

CBDC Central Bank Digital Currency

CCAR Comprehensive Capital Analysis and 

Review

CCP Central Counterparty

CCULR Complex Credit Union Leverage Ratio

CD Certificate of Deposit

CDE Critical Data Element

CDS Credit Default Swap

CEA Commodity Exchange Act

CEG Cyber Expert Group

CET1 Common Equity Tier 1 Capital

CFPB Consumer Financial Protection Bureau

CFRC Climate-related Financial Risk 

Committee

CFRAC Climate-related Financial Risk Advisory 

Committee

6 Abbreviations
94 2022 FSOC // Annual Report

Ginnie Mae Government National Mortgage 

Association

GLEIF Global LEI Foundation

GNE Gross Notional Exposure

GSD Government Securities Division

GSE Government-Sponsored Enterprise

G-SIB Global Systemically Important Bank

HELOC Home Equity Line of Credit

HFWG Hedge Fund Working Group

HTM Held-to-maturity

IaaS Infrastructure as a Service

IAWG Inter-Agency Working Group for 

Treasury Market Surveillance

IBORs Interbank Offered Rates

IHC Intermediate Holding Company

IMF International Monetary Fund

IOSCO International Organization of Securities 

Commissions

ISDA International Swaps and Derivatives 

Association

ISDA IBOR International Swaps and Derivatives 

Association’s Interbank Offered Rate

ISO Organization for Standardization

LDI Liability-driven Investments

LEI Legal Entity Identifier

LENS Legal Notice System

LIBOR London Interbank Offered Rate

LME London Metal Exchange

MBS Mortgage-Backed Security

MBSD Mortgage-Backed Securities Division

MMF Money Market Mutual Fund

MOVE Merrill Lynch Option Volatility Estimate

mREIT Mortgage REITs

MSR Mortgage Servicing Right

NAIC National Association of Insurance 

Commissioners

Exchange 

Act Securities Exchange Act of 1934

Fannie Mae Federal National Mortgage Association

FASB Financial Accounting Standards Board

FBIIC Financial and Banking Information 

Infrastructure Committee

FBO Foreign Banking Organization

FDIC Federal Deposit Insurance Corporation

Federal 

Reserve

Board of Governors of the Federal 

Reserve System

FHFA Federal Housing Finance Agency

FHLBank Federal Home Loan Bank

FICC Fixed Income Clearing Corporation

FICU Federally Insured Credit Union

FIMA Foreign and International Monetary 

Authority

FinCEN Financial Crimes Enforcement Network

FINRA Financial Industry Regulatory Authority

FIO Federal Insurance Office

FMU Financial Market Utility

FOMC Federal Open Market Committee

FRBNY Federal Reserve Bank of New York

Freddie 

Mac

Federal Home Loan Mortgage 

Corporation

FRM Fixed-Rate Mortgage

FSB Financial Stability Board

FS-ISAC Financial Services Information Sharing 

and Analysis Center

FSOC Financial Stability Oversight Council

FSSCC Financial Services Sector Coordinating 

Council

FX Foreign Exchange

GAV Gross Asset Value

GCF General Collateral Financing

GDP Gross Domestic Product

GHG Greenhouse Gas
Abbreviations 95

NAV Net Asset Value

NBFI Nonbank Financial Institution

NCDs Negotiable Certificates of Deposit

NCUA National Credit Union Administration

NIM Net Interest Margin

NIST National Institute of Standards and 

Technology

NMDB National Mortgage Database

NMS National Market System

NSCC National Securities Clearing 

Corporation

OCC Office of the Comptroller of the 

Currency

OC Corp Options Clearing Corporation

OCCIP Office of Cybersecurity and Critical 

Infrastructure Protection

OFR Office of Financial Research

ON RRP Overnight Reverse Repurchase 

Agreement Facility

OTC Over-the-Counter

PaaS Platform as a Service

P&C Property and Casualty

PRT Pension Risk Transfer

RaaS Ransomware as a Service

REIT Real Estate Investment Trust

Repo Repurchase Agreement

RFI Request for Information

RFRs Risk-Free Reference Rates

RMBS Residential Mortgage-Backed Security

ROC Regulatory Oversight Committee

RWAs Risk-Weighted Assets

S&P Standard & Poor’s

SaaS Software as a Service

SBS Security-Based Swap

SBSEF Security-Based Swap Execution Facility

SD Swap Dealer

SDR Swap Data Repository

SEC Securities and Exchange Commission

SI>1 CCPs

CCPs Considered Systemically 

Important in More than One 

Jurisdiction

SIFMA Securities Industry and Financial 

Markets Association

SOFR Secured Overnight Financing Rate

SRC Systemic Risk Committee

SRF Standing Repo Facility

STIFs Short-term Investment Funds

TRACE Trade Reporting and Compliance 

Engine

TR Trade Repository

Treasury U.S. Department of the Treasury

TRIP Terrorism Risk Insurance Program

UK United Kingdom 

UPI Unique Product Identifier

USD U.S. dollar

UTI Unique Transaction Identifier

VIX Chicago Board Options Exchange 

Market Volatility Index

vLEI Verifiable LEIs

YCC Yield Curve Control

Glossary 97

Corporation’s delivery versus payment repo 

service.

Central Counterparty (CCP)

An entity that interposes itself between 

counterparties to contracts traded in one or 

more financial markets, becoming the buyer to 

every seller and the seller to every buyer, thereby 

ensuring the performance of open contracts.

Clearing Bank

A BHC subsidiary that facilitates payment and 

settlement of financial transactions, such as 

check clearing, or facilitates trades between the 

sellers and buyers of securities or other financial 

instruments or contracts.

Collateral

Any asset pledged by a borrower to guarantee 

payment of a debt.

Collateralized Loan Obligation (CLO)

A securitization vehicle backed predominantly by 

commercial loans.

Commercial Paper (CP)

Short-term (maturity of up to 270 days), 

unsecured corporate debt.

Common Equity Tier 1 Capital (CET1)

A regulatory capital measure which includes 

capital with the highest loss-absorbing capacity, 

such as common stock and retained earnings.

Common Equity Tier 1 Capital Ratio

A ratio which divides common equity tier 1 

capital by total risk-weighted assets. The ratio 

applies to all banking organizations subject to the 

Revised Capital Rule.

Accumulated Other Comprehensive Income 

(AOCI)

Accumulated Other Comprehensive Income 

typically includes unrealized gains and losses in 

available for sale securities; actuarial gains and 

losses in defined benefit plans; gains and losses 

on derivatives held as cash flow hedges; and gains 

and losses resulting from translating the financial 

statements of foreign subsidiaries.

Affiliate

In general, a company is an affiliate of another 

company if: (1) either company consolidates 

the other on financial statements prepared 

in accordance with U.S. Generally Accepted 

Accounting Principles, the International 

Financial Reporting Standards, or other similar 

standards; (2) both companies are consolidated 

with a third company on financial statements 

prepared in accordance with such principles or 

standards; (3) for a company that is not subject 

to such principles or standards, consolidation 

as described above would have occurred if 

such principles or standards had applied; or 

(4) a primary regulator determines that either 

company provides significant support to, or is 

materially subject to the risks or losses of, the 

other company.

Asset-Backed Commercial Paper (ABCP)

Short-term debt which has a fixed maturity of 

up to 270 days and is backed by some financial 

asset, such as trade receivables, consumer debt 

receivables, securities, or auto and equipment 

loans or leases.

Bilateral Repo

A repo between two institutions in which 

negotiations are conducted directly between 

the participants or through a broker, and in 

which the participants must agree on the specific 

securities to be used as collateral. The bilateral 

repo market includes both non-cleared trades 

and trades cleared through Fixed Income Clearing 

7 Glossary
98 2022 FSOC // Annual Report

for the level of the overnight federal funds rate. 

The FRBNY then uses open market operations 

to influence the rate so that it trades within the 

target range.

Financial and Banking Information 

Infrastructure Committee (FBIIC)

The FBIIC consists of 18 member organizations 

from across the financial regulatory community, 

both federal and state. It was chartered under 

the President’s Working Group on Financial 

Markets following September 11, 2001 to improve 

coordination and communication among 

financial regulators, enhance the resilience of 

the financial sector, and promote public-private 

partnership.

Financial Market Utility (FMU)

An entity, as defined in the Dodd-Frank Act, 

that, subject to certain exclusions, “manages or 

operates a multilateral system for the purpose 

of transferring, clearing, or settling payments, 

securities, or other financial transactions among 

financial institutions or between financial 

institutions and the person.”

Fiscal Year

Any 12-month accounting period. The fiscal year 

for the federal government begins on October 1 

and ends on September 30 of the following year; it 

is named after the calendar year in which it ends.

Futures Contract

An agreement to purchase or sell a commodity 

for delivery in the future: (1) at a price that is 

determined at the initiation of the contract; (2) 

that obligates each party to the contract to fulfill 

the contract at the specified price; (3) that is used 

to assume or shift price risk; and (4) that may be 

satisfied by delivery or offset.

Government-Sponsored Enterprise (GSE)

A corporate entity with a federal charter 

authorized by law, but which is a privately owned 

financial institution. Examples include the 

Federal National Mortgage Association (Fannie 

Mae) and the Federal Home Loan Mortgage 

Corporation (Freddie Mac).

Comprehensive Capital Analysis and Review 

(CCAR)

An annual exercise by the Federal Reserve to 

ensure that institutions have robust, forwardlooking capital planning processes that account 

for their unique risks and sufficient capital 

to continue operations throughout times of 

economic and financial stress.

Credit Default Swap (CDS)

A financial contract in which one party agrees to 

make a payment to the other party in the event 

of a specified credit event, in exchange for one or 

more fixed payments.

Defined Benefit (DB) Plan

A retirement plan in which the cost to the 

employer is based on a predetermined formula 

to calculate the amount of a participant’s future 

benefit. In defined benefit plans, the investment 

risk is borne by the plan sponsor.

Digital Asset

Digital asset refers to two categories of products: 

“central bank digital currencies” (CBDCs) 

and crypto-assets. Crypto-assets are privatesector digital assets that depend primarily on 

cryptography and distributed ledger or similar 

technology.

Duration

The sensitivity of the prices of bonds and other 

fixed-income securities to changes in the level of 

interest rates.

Emerging Market Economy (EME)

Although there is no single definition, emerging 

market economies are generally classified 

according to their state of economic development, 

liquidity, and market accessibility. This report has 

grouped economies based on the classifications 

used by significant data sources such as the 

MSCI and Standard & Poor’s, which include, for 

example, Brazil, China, India, and Russia.

Federal Funds Rate

The interest rate at which depository institutions 

borrow overnight from lenders in the federal 

funds market. The FOMC sets a target range 
Glossary 99

market abuse and financial fraud; and provision 

of higher-quality and more accurate financial 

data.

Leveraged Loan

While numerous definitions of leveraged lending 

exist throughout the financial services industry, 

generally a leveraged loan is understood to be a 

type of loan that is extended to companies that 

already have considerable amounts of debt and/

or have a non-investment grade credit rating or 

are unrated and/or whose post-financing leverage 

significantly exceeds industry norms or historical 

levels.

LIBOR

A rate based on submissions from a panel of 

banks. LIBOR is intended to reflect the rate at 

which large, globally-active banks can borrow on 

an unsecured basis in wholesale markets.

Loan-to-Value Ratio

The ratio of a loan amount to the value of the asset 

that the loan funds is typically expressed as a 

percentage. This is a key metric when considering 

a mortgage’s collateralization level.

Margin

In the context of clearing activity, collateral that 

is collected to protect against current or potential 

future exposures resulting from market price 

changes or in the event of a counterparty default.

Money Market Mutual Fund (MMF)

A type of mutual fund which invests in short-term, 

high-quality, liquid securities such as government 

bills, CDs, CP, or repos.

Mortgage-Backed Security (MBS)

An asset-backed security backed by a pool of 

mortgages. Investors in the security receive 

payments derived from the interest and principal 

payments on the underlying mortgages.

Mortgage Servicing Company

A company that acts as an agent for mortgage 

holders by collecting and distributing mortgage 

cash flows. Mortgage servicers also manage 

Gross Domestic Product (GDP)

The broadest measure of aggregate economic 

activity, measuring the total value of all final 

goods and services produced within a country’s 

borders during a specific period.

Gross Notional Exposure (GNE)

The sum of the absolute values of long and 

short notional amounts. The “notional” amount 

of a derivative contract is the amount used to 

calculate payments due on that contract, just as 

the face amount of a bond is used to calculate 

coupon payments.

Initial Margin

Collateral that is collected to cover potential 

changes in the value of each participant’s 

position (that is, potential future exposure) over 

the appropriate closeout period in the event the 

participant defaults.

Interest Rate Swap

A derivative contract in which two parties swap 

interest rate cash flows on a periodic basis, 

referencing a specified notional amount for 

a fixed term. Typically, one party will pay a 

predetermined fixed rate while the other party 

will pay a short-term variable reference rate 

which resets at specified intervals.

Intermediate Holding Company (IHC)

A company established or designated by a foreign 

banking organization (FBO) under the Federal 

Reserve Board’s Regulation YY. Regulation 

YY requires that an FBO with U.S. non-branch 

assets of $50 billion or more must hold its entire 

ownership interest in its U.S. subsidiaries, with 

certain exclusions, through a U.S. IHC.

Legal Entity Identifier (LEI)

A 20-character alpha-numeric code that connects 

to key reference information which enables 

clear and unique identification of legal entities 

participating in global financial markets. The LEI 

system is designed to facilitate many financial 

stability objectives, including improved risk 

management in firms; better assessment of 

microprudential and macroprudential risks; 

expedition of orderly resolution; containment of 
100 2022 FSOC // Annual Report

on purely a bilateral basis or could involve some 

degree of intermediation by a platform that 

is not required to register as an exchange. An 

OTC trade could, depending on the market and 

other circumstances, be centrally cleared or 

bilaterally cleared. The degree of standardization 

or customization of documentation of an OTC 

trade will depend on the whether it is cleared and 

whether it is traded on a non-exchange platform 

(and, if so, the type of platform).

Primary Dealer

A financial institution that is a trading 

counterparty of the FRBNY. Primary dealers are 

expected to participate in open market operations 

conducted by the Federal Reserve and to bid 

on a pro-rata basis in all Treasury auctions at 

reasonably competitive prices.

Public Debt

All debt issued by Treasury and the Federal 

Financing Bank, including both debt held by 

the public and debt held in intergovernmental 

accounts, such as the Social Security Trust Funds. 

Not included is debt issued by government 

agencies other than Treasury.

Qualifying Hedge Fund

A hedge fund advised by a Large Hedge Fund 

Adviser that has a net asset value (individually or 

in combination with any feeder funds, parallel 

funds, and/or dependent parallel managed 

accounts) of at least $500 million as of the last day 

of any month in the fiscal quarter immediately 

preceding the adviser’s most recently completed 

fiscal quarter. Large Hedge Fund Advisers are 

advisers that have at least $1.5 billion in hedge 

fund assets under management.

Real Estate Investment Trust (REIT)

An operating company which manages incomeproducing real estate or real estate-related assets. 

Certain REITs also operate real estate properties 

in which they invest. To qualify as a REIT, a 

company must have three-fourths of its assets and 

gross income connected to real estate investment 

and must distribute at least 90 percent of its 

taxable income to shareholders annually in the 

form of dividends.

defaults, modifications, settlements, foreclosure 

proceedings, and various notifications to 

borrowers and investors.

Mortgage Servicing Right (MSR)

The right to service a mortgage loan or a portfolio 

of mortgage loans.

Municipal Bond

A bond issued by states, cities, counties, 

local governmental agencies, or certain 

nongovernment issuers to finance certain general 

or project-related activities.

Net Asset Value (NAV)

An investment company’s total assets minus its 

total liabilities.

Net Interest Margin (NIM)

Net interest income as a percent of interestearning assets.

Open Market Operations

The purchase and sale of securities in the open 

market by a central bank to implement monetary 

policy.

Operational Resilience

The ability of an entity’s personnel, systems, 

telecommunications networks, activities, or 

processes to resist, absorb, and recover from 

or adapt to an incident that may cause harm, 

destruction, or loss of ability to perform missionrelated functions.

Option

A financial contract granting the holder the 

right but not the obligation to engage in a future 

transaction on an underlying security or real 

asset. The most basic examples are an equity 

call option, which provides the right but not the 

obligation to buy a block of shares at a fixed price 

for a fixed period, and an equity put option, which 

similarly grants the right to sell a block of shares.

Over-the-Counter (OTC)

A method of trading which does not involve a 

registered exchange. An OTC trade could occur 
Glossary 101

institutional investors. Examples include large 

checkable and time deposits, brokered CDs, CP, 

Federal Home Loan Bank borrowings, and repos.

Stablecoins

Digital assets that purport to maintain a stable 

value relative to a national currency or other 

reference asset or assets.

Swap

An exchange of cash flows with defined terms and 

over a fixed period, agreed upon by two parties. A 

swap contract may reference underlying financial 

products across various asset classes including 

interest rates, credit, equities, commodities, and 

FX.

Swap Data Repository (SDR)

A person that collects and maintains information 

or records with respect to transactions or 

positions in, or the terms and conditions of, swaps 

entered into by third parties for the purpose of 

providing a centralized recordkeeping facility 

for swaps. In certain jurisdictions, SDRs are 

referred to as trade repositories. The Committee 

on Payments and Settlement Systems and 

IOSCO describe a trade repository as “an entity 

that maintains a centralized electronic record 

(database) of transaction data.”

Swap Dealer (SD)

Section 1a(49) of the Commodity Exchange Act 

defines the term “swap dealer” (SD) to include 

any person who: (1) holds itself out as a dealer in 

swaps; (2) makes a market in swaps; (3) regularly 

enters into swaps with counterparties as an 

ordinary course of business for its own account; 

or (4) engages in any activity causing the person 

to be commonly known in the trade as a dealer or 

market maker in swaps.

Syndicated Loan

A loan to a commercial borrower in which 

financing provided by a group of lenders. The 

loan package may have a revolving portion, a 

term portion, or both.

Repurchase Agreement (Repo) 

The sale of a security combined with an 

agreement to repurchase the security, or a 

similar security, on a specified future date at a 

prearranged price. A repo is a secured lending 

arrangement.

Risk-Weighted Assets (RWAs)

A risk-based concept used as the denominator of 

risk-based capital ratios (common equity tier 1, 

tier 1, and total). The total RWAs for an institution 

are a weighted total asset value calculated from 

assigned risk categories or modeled analysis. 

Broadly, total RWAs are determined by calculating 

RWAs for market risk and operational risk, as 

applicable, and adding the sum of RWAs for onbalance sheet, off-balance sheet, counterparty, 

and other credit risks.

Rollover Risk

The risk that as an institution’s debt nears 

maturity, the institution may not be able to 

refinance the existing debt or may have to 

refinance at less favorable terms.

Secured Overnight Financing Rate (SOFR)

A broad measure of the cost of borrowing cash 

overnight collateralized by Treasury securities. 

The rate is calculated as a volume-weighted 

median of transaction-level tri-party repo data 

as well as GCF repo transaction data and data on 

bilateral Treasury repo transactions.

Securities Lending/Borrowing

The temporary transfer of securities from one 

party to another for a specified fee and term, in 

exchange for collateral in the form of cash or 

securities.

Securitization

A financial transaction in which assets such 

as mortgage loans are pooled, securities 

representing interests in the pool are issued, and 

proceeds from the underlying pooled assets are 

used to service and repay the securities.

Short-term Wholesale Funding

Short-term funding instruments not covered by 

deposit insurance which are typically issued to 
102 2022 FSOC // Annual Report

Tri-Party Repo

A repo in which a clearing bank acts as third-party 

agent to provide collateral management services 

and to facilitate the exchange of cash against 

collateral between the two counterparties.

Underwriting Standards

Terms, conditions, and criteria used to determine 

the extension of credit in the form of a loan or 

bond.

Variation Margin

Funds that are collected and paid out to reflect 

current exposures resulting from actual changes 

in market prices.

VIX (Chicago Board Options Exchange Market 

Volatility Index)

A standard measure of market expectations of 

short-term volatility based on S&P equity index 

option prices.

Yield Curve

A graphical representation of the relationship 

between bond yields and their respective 

maturities.
List of Charts 103

8

A.1 Nominal Trade-Weighted U.S. Dollar Index.......................................................................................................13

A.2 Portfolio Flows to EMEs....................................................................................................................................13

A.3 Shares of Commodity Importers and Exporters................................................................................................14

A.4 Advanced Economies 10-Year Sovereign Yields ...............................................................................................14

3.1.1.1 Conduit CMBS Delinquency and Foreclosure Rate...........................................................................................18

3.1.1.2 Delinquency Rate by Property Type..................................................................................................................18

3.1.1.3 Vacancy Rate by Property Type ........................................................................................................................18

3.1.2.1 Monthly House Price Growth........................................................................................................................... 20

3.1.2.2 Residential Purchase and Refinance Levels .................................................................................................... 20

3.1.2.3 Real House Prices Relative to Long-Term Trend .............................................................................................. 20

3.1.2.4 30-Year MBS Spread .........................................................................................................................................21

B.1 Mortgage Rate (30-Year Fixed-Rate Average).................................................................................................. 22

3.1.3.1 Nonfinancial Corporate Debt as Percent of GDP ............................................................................................. 23

3.1.3.2 Gross Issuance of Corporate Bonds ................................................................................................................ 24

3.1.3.3 Corporate Bond Yields..................................................................................................................................... 24

3.1.3.4 Corporate Bond Spreads................................................................................................................................. 24

3.1.3.5 Maturity Profile of U.S. Nonfinancial Corporate Debt ...................................................................................... 25

3.1.3.6 Institutional Leveraged Loans Outstanding..................................................................................................... 25

3.1.4.1 CP and NCDs Outstanding................................................................................................................................27

3.1.4.2 CP Outstanding by Issuer Type.........................................................................................................................27

3.1.4.3 CP Investors......................................................................................................................................................27

3.1.4.4 3-Month CP Interest Rate Spreads .................................................................................................................. 28

List of Charts 
104 2022 FSOC // Annual Report

3.1.4.5 Repo Rates....................................................................................................................................................... 29

3.1.4.6 Repo Borrowing Outstanding .......................................................................................................................... 29

3.1.4.7 Repo Volumes.................................................................................................................................................. 29

3.1.4.8 Sponsored Repo Activity.................................................................................................................................. 30

3.1.4.9 Overnight Reverse Repo Facility....................................................................................................................... 31

3.1.5.1 Bitcoin Price..................................................................................................................................................... 32

3.2.1.1 Total Assets by BHC Type/IHC.......................................................................................................................... 35

3.2.1.2 Common Equity Tier 1 Ratios........................................................................................................................... 35

3.2.1.3 Return on Assets.............................................................................................................................................. 35

3.2.1.4 Payout Rates at U.S. G-SIBs............................................................................................................................. 36

3.2.1.5 AOCI as a Percent of Equity ............................................................................................................................. 36

3.2.1.6 Held-to-Maturity Securities.............................................................................................................................. 36

C.1 Bank NIM and Fed Funds Rates: 2013 - 2022.................................................................................................. 38

C.2 Bank Asset Composition: 2014 and 2022........................................................................................................ 39

C.3 Realized Interest Rate Risk Hedging by Life Insurers: 2008 - 2022 ................................................................ 39

C.4 U.S. Total Retirement Entitlements.................................................................................................................. 40

C.5 State and Local DB Total Assets by Z.1 Category .............................................................................................. 41

C.6 Private DB Total Assets by Z.1 Category............................................................................................................ 41

3.2.2.1 Investment Company Asset Growth ................................................................................................................ 42

3.2.2.2 GNE/NAV.......................................................................................................................................................... 43

3.2.2.3 GAV/NAV.......................................................................................................................................................... 43

3.2.2.4 Hedge Fund Industry Concentration................................................................................................................ 43

3.2.2.5 Monthly Equity Mutual Fund Flows.................................................................................................................. 45

3.2.2.6 Monthly Bond Mutual Fund Flows................................................................................................................... 45
List of Charts 105

3.2.2.7 MMFs Total Net Assets by Fund Type .............................................................................................................. 46

3.2.2.8 Prime MMF Exposures......................................................................................................................................47

3.2.2.9 MMF Weighted Average Maturity .................................................................................................................... 48

3.2.2.10 Prime MMF Gross Yields.................................................................................................................................. 48

3.2.3.1 DTCC Clearing Fund Requirements..................................................................................................................51

3.2.3.2 Initial Margin: U.S. Exchange Traded Derivatives............................................................................................ 52

3.2.3.3 Initial Margin: Centrally Cleared OTC Derivatives............................................................................................ 52

E.1 Relative Price of Selected Futures Contracts................................................................................................... 54

E.2 Aggregate Initial Margin by Asset Class.......................................................................................................... 54

E.3 Aggregate Initial Margin by Region ................................................................................................................ 55

E.4 Normalized Margin of Futures Contracts ........................................................................................................ 55

3.3.1.1 Net Issuance of Treasury Securities................................................................................................................. 56

3.3.1.2 Federal Debt Held by the Public ...................................................................................................................... 56

3.3.1.3 U.S. Treasury Yields..........................................................................................................................................57

3.3.1.4 Intraday Volatility for 10-Year Treasury Yields...................................................................................................57

3.3.1.5 MOVE Index and 2-Year Treasury Yield.............................................................................................................57

3.3.1.6 Total TRACE Treasury Weekly Trading Volumes............................................................................................... 58

3.3.2.1 Progress in Transition to SOFR ........................................................................................................................ 60

3.3.2.2 Syndicated Lending ......................................................................................................................................... 60

3.3.3.1 Transition of Mortgage Servicing Assets from Banks to Nonbanks: 2011 – Q2 2022...................................... 62

3.3.3.2 Nonbank Mortgage Originators Number of Companies, Origination Volumes & Market Share: 2017 – 2021. 62

3.3.3.3 Global Private Debt AUM................................................................................................................................. 63

3.3.3.4 Distribution of Leveraged Loan Debt/EBITDA Ratios....................................................................................... 64

3.3.3.5 Leveraged Loan Transactions with EBITDA Adjustments................................................................................. 64
106 2022 FSOC // Annual Report

3.5.1 Transmission Channels Linking Climate Risks to Financial Stability .................................................................74

3.5.2 Residential Properties at Risk of Wildfire – Percent Increase in Annual Likelihood by 2050...........................75

3.5.3 Projected Increase in Properties with Substantial Flood Risk ..........................................................................75

3.5.4 Flow-of-Risk ‘Waterfall’.....................................................................................................................................76
Endnotes 107

1 FRBNY calculations of People’s Bank of China data accessed via CEIC. https://www.ceicdata.com/en.

2 Board of Governors of the Federal Reserve System, Z.1 – Financial Accounts, Tables L.219 and L.220 

as of 2Q2022. https://www.federalreserve.gov/releases/z1/. Pre-pandemic is Q4 2019 unless otherwise noted.

3 Antoniades, A. “Commercial Bank Failures During the Great Recession: The Real (Estate) Story” BIS 

Working Papers No. 530 (2015, November) https://www.bis.org/publ/work530.pdf.

4 FDIC. Data based on calculations using FFIEC Reports of Condition and Income.

5 FDIC. FDIC Quarterly. Volume 16, Number 3, Washington: FDIC, 2022. https://www.fdic.gov/analysis/

quarterly-banking-profile/fdic-quarterly/index.html.

6 “America’s Red-Hot Warehouse Market Shows Signs of Cooling.” Wall Street Journal (October 14, 

2022). https://www.wsj.com/articles/americas-red-hot-warehouse-market-shows-signs-of-cooling11665739801?mod=business_minor_pos19 and “E-Commerce Warehouse Market Starts to Cool” Wall 

Street Journal (October 18, 2022). https://www.wsj.com/articles/e-commerce-warehouses-commercialproperty-hot-spots-start-to-cool-11666051637.

7 U.S. Bureau of Economic Analysis.

8 Federal Reserve Bank of New York. Quarterly Report on Household Credit and Debt. New York: FRB 

NY, 2022. https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2022Q2.

9 FSOC 2021 Annual Report. Washington: FSOC, 69-70, 2021. https://home.treasury.gov/system/

files/261/FSOC2021AnnualReport.pdf.

10 Federal Housing Finance Agency. National Mortgage Database. 2022.

11 National Association of Realtors. Existing Home Sales. 2022. https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales.

12 SIFMA. “US Mortgage Backed Securities Statistics.” (November 7, 2022). https://www.sifma.org/resources/research/us-mortgage-backed-securities-statistics/.

13 JPMorgan. North American Fixed-Income Strategy. U.S. Fixed Income Markets Weekly: Agency MBS, 

(September 30, 2022).

14 Bank for International Settlements. Establishing viable capital markets. Basel: BIS, 2019. https://www.

bis.org/publ/cgfs62.pdf.

15 Board of Governors of the Federal Reserve System. Nonfinancial Corporate Business; Debt Securities 

and Loans; Liability, Level. 2022. Distributed by Federal Reserve Economic Data. https://fred.stlouisfed.org/series/BCNSDODNS.

16 Moody’s Analytics. Default & Recovery Analytics. 2022.

17 Securities and Exchange Commission. Money Market Fund Reforms. Proposed Rule, Washington: 

SEC, 87 Federal Register, No. 26 (February 8, 2022).

18 DTCC Solutions LLC, an affiliate of The Depository Trust & Clearing Corporation. This publication 

includes data licensed from DTCC Solutions LLC, an affiliate of The Depository Trust & Clearing 

Corporation. Neither DTCC Solutions LLC nor any of its affiliates shall be responsible for any errors 

9 Endnotes
108 2022 FSOC // Annual Report

or omissions in any DTCC data included in this publication, regardless of the cause and, in no event, 

shall DTCC or any of its affiliates be liable for any direct, indirect, special or consequential damages, 

costs, expenses, legal fees, or losses (including lost income or lost profit, trading loses and opportunity costs) in connection with this publication.

19 Baklanova, Viktoria, Isaac Kuznits, and Trevor Tatum. 2021. “Primer: Money Market Funds and the 

Repo Market.” SEC, Washington, (February 18, 2021). https://www.sec.gov/files/mmfs-and-the-repomarket-021721.pdf.

20 Rising interest rates may negatively impact the market value of firms’ securities portfolios, resulting in 

diminished availability or more expensive repo financing for these portfolios.

21 The Federal Reserve is also a significant participant in the repo market. The Overnight Reverse Repo 

Facility (ON RRP) balance was $2.329 trillion as of June 30, 2022. See: Federal Reserve Bank of New 

York. Overnight Reverse Repurchase Agreements: Treasury Securities Sold by the Federal Reserve 

in the Temporary Open Market Operations. 2022. Distributed by Federal Reserve Economic Data. 

https://fred.stlouisfed.org/series/RRPONTSYD.

22 For a discussion of vulnerabilities at central counterparties that are important to repo markets, see: 

Board of Governors of the Federal Reserve System. Financial Stability Report. Washington: Federal 

Reserve, 2021. https://www.federalreserve.gov/publications/files/financial-stability-report-20211108.pdf.

23 For additional information regarding the development of repo markets, their role in the 2008 financial 

crisis, and post-2008 reforms, see: Mullin, John. 2020. “The Repo Market is Changing (and What Is 

a Repo, Anyway?).” Federal Reserve Bank of Richmond. https://www.richmondfed.org/publications/

research/econ_focus/2020/q1/federal_reserve.

24 For additional descriptions of these facilities, see: Afonso, Gara, et al. 2022. “The Fed’s Latest Tool: 

A Standing Repo Facility.” Federal Reserve Bank of New York Liberty Street Economics, (January 13, 

2022). https://libertystreeteconomics.newyorkfed.org/2022/01/the-feds-latest-tool-a-standing-repofacility/ and Board of Governors of the Federal Reserve System. Foreign and International Monetary 

Authorities (FIMA) Repo Facility. Washington, Federal Reserve, 2022. https://www.federalreserve.gov/

monetarypolicy/fima-repo-facility.htm.

25 Federal Reserve Bank of New York. 2022. “Repo and Reverse Repo Agreements.” Federal Reserve 

Bank of New York. https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements. For additional discussion of the Federal Reserve’s 

standing repo and ON RRP facilities in current monetary policy implementation, see: Ennis, Huberto 

and Jeff Huther. 2021. “The Fed’s Evolving Involvement in the Repo Markets.” Federal Reserve Bank 

of Richmond Economic Brief 21, no. 31 (September). https://www.richmondfed.org/publications/research/economic_brief/2021/eb_21-31.

26 The White House. Ensuring Responsible Development of Digital Assets. Washington, D.C.: Exec. 

Order No. 14067, 3 C.F.R. 87 Fed. Reg. 14143. March 9, 2022, https://www.whitehouse.gov/

briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/.

27 Weil, Jonathan. 2022. “FTX Disclosed Related-Party Transactions but Didn’t Name Names.” Wall 

Street Journal (November 18, 2022). https://www.wsj.com/articles/ftx-disclosed-related-party-transactions-but-didnt-name-names-11668750387.

28 Declaration of John J. Ray III in Support of Chapter 11 Petitions and First Day Pleadings, In re: FTX 

Trading Ltd., et al., No. 22-11068-JTD (Bankr. D. Del. Nov. 17, 2022). https://oversight.house.gov/sites/

democrats.oversight.house.gov/files/2022-11-18.RK%20to%20Bankman-Fried%20and%20Ray-FTX%20

re%20FTX%20Crypto.pdf.

29 White, Molly. 2022. “Excerpts from letters to the judge in the Voyager Digital bankruptcy case.” blog.

mollywhite.net, (July 23, 2022). https://blog.mollywhite.net/voyager-letters/. (See, e.g., Doc 108, filed 

July 19, 2022: “I write as an unsecured creditor who has deposited her entire life savings into the 

USDC stablecoin under the consistent confirmation of CEO Stephen Ehrlich that we owned our assets. 
Endnotes 109

I would have NEVER in a million years taken my hard earned money and put it into an asset that I 

believed I was not the custodian of. I am not a gambler...”) and White, Molly. 2022. “Excerpts from 

letters to the judge in the Celsius Network bankruptcy case.” blog.mollywhite.net, (July 22, 2022). 

https://blog.mollywhite.net/celsius-letters/.

30 Faverio, Michelle, and Navid Massarat. 2022. “46% of Americans who have invested in cryptocurrency say it’s done worse than expected.” Pew Research Center, (August 23, 2022). https://www.pewresearch.org/fact-tank/2022/08/23/46-of-americans-who-have-invested-in-cryptocurrency-say-its-doneworse-than-expected/.

31 Royal, James. 2022 “Popularity of Cryptocurrency Plummets among Millennials in 2022.” Bankrate, (September 28, 2022). https://www.bankrate.com/investing/cryptocurrency-popularity-declines-among-millennials-survey-shows.

32 Federal Reserve. Economic Well-Being of U.S. Households in 2021. Washington: Federal Reserve, 

2022. https://www.federalreserve.gov/publications/files/2021-report-economic-well-being-us-households-202205.pdf and Kharif, Olga. 2020. “Bitcoin Whales’ Ownership Concentration Is Rising 

During Rally.” Bloomberg, New York (November 8, 2020). https://www.bloomberg.com/news/articles/2020-11-18/bitcoin-whales-ownership-concentration-is-rising-during-rally.

33 NASAA. 2022 “NASAA Reveals Top Investor Threats for 2022.” NASAA, Washington, (January 

10, 2022), https://www.nasaa.org/61477/nasaa-reveals-top-investor-threats-for-2022/ and NASAA. 

2022. NASAA 2022 Enforcement Report, Washington, 2022. https://www.nasaa.org/wp-content/uploads/2022/09/2022-Enforcement-Report-FINAL.pdf, pp. 5, 14-16.

34 CFPB. 2022. Complaint Bulletin: An Analysis of Consumer Complaints Related to Crypto-Assets. 

Washington: CFPB. https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin_crypto-assets_2022-11.pdf.

35 Fletcher, Emma. 2022. “Reports show scammers cashing in on crypto craze.” FTC Consumer Protection Data Spotlight, (June 3, 2022). https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze.

36 FSOC. Report on Digital Asset Financial Stability Risks and Regulation. Washington: FSOC, 2022. 

https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf.

37 This includes BHCs with total consolidated assets above $100 billion, including U.S. global systematically important banks (G-SIBs), large complex BHCs, large noncomplex BHCs, and other BHCs.

38 Examples include the Housing and Economic Recovery Act (2008), the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (2010), and Basel III (2010).

39 Jones, Alexander. 2022. “Banks Remain Uniquely Vulnerable to Sophisticated Cyber-Attacks”. International Banker (June 28, 2022). https://internationalbanker.com/technology/banks-remain-uniquely-vulnerable-to-sophisticated-cyber-attacks/.

40 As documented in the academic literature, a rising rate environment often leads to increases in NIM 

(Samuelson, 1945). Many loans are variable rate and automatically reprice, and historically, banks with 

a strong deposit franchise have been able to delay the pass-through of rates on deposits (Drechsler, 

Savov, and Schnabl, 2021) and Samuelson, Paul. 1945. “The Effect of Interest Rate Increases on the 

Banking System.” American Economic Review 35: 16-27. Drechsler, Itamar, Alexi Savov, and Phillip 

Schnabl. 2021. “Banking on Deposits: Maturity Transformation without Interest Rate Risk.” Journal of 

Finance 76, no. 3 (June): 1091-1143. https://doi.org/10.1111/jofi.13013.

41 Banks are also exposed negatively to interest rate risk in the sense that the market value of their equity tends to fall when interest rates increase (Flannery and James, 1984; English, Van den Heuvel and 

Zakrajsek, 2018). Paul (2022) extends this work and shows that banks’ stock prices fall in response 

to unexpected increases in rates but rise if term premia increase. Flannery, Mark J., and Christopher 

M. James. 1984. “The Effect of Interest Rate Changes on the Common Stock Returns of Financial 

Institutions.” Journal of Finance 39, no.4 (September): 1141-1153. https://doi.org/10.2307/2327618. 
110 2022 FSOC // Annual Report

English, William B., Skander Van den Heuvel, and Egon Zakrajsek. 2018. “Interest Rate Risk and Bank 

Equity Valuations.” Journal of Monetary Economics 98, issue C (September 12, 2018). https://doi.

org/10.1016/j.jmoneco.2018.04.010. Paul, Pascal. 2022. “Banks, Maturity Transformation, and Monetary Policy,” Federal Reserve Bank of San Francisco Working Paper 2020-07. https://doi.org/10.24148/

wp2020-07.

42 This evidence is consistent with Driscoll and Judson (2013), who show that deposit rates are likely to 

lag increases in policy and market rates in tightening cycles. and, Driscoll, John C., and Ruth Judson. 

2013. “Sticky Deposit Rates.” FEDS Working Paper no. 2013-80 (October 10, 2013). https://dx.doi.

org/10.2139/ssrn.2357993.

43 Liability-driven investing (LDI) is an investment strategy focused on making asset allocation decisions 

based on the current and future liabilities of the pension plan using, for example, laddered bond portfolios, interest rates swaps, or repurchase agreements.

44 Limited data disclosures make it difficult to quantify the size or the use of these contracts. According to recent reports, some of the largest funds such as California Public Employees’ Retirement 

System (CALPERS) and Teacher Retirement System of Texas, now allow limited borrowing against 

assets to meet their expected rate of return targets Rabouin, Dion, and Heather Gillers. 2022. “Pension Funds Plunge Into Riskier Bets—Just as Markets Are Struggling.” Wall Street Journal, June 26, 

2022. https://www.wsj.com/articles/pension-funds-plunge-into-riskier-betsjust-as-markets-are-struggling-11656274270.

45 On average, PPFs held less than 0.8% in cash allocations.

46 Industry reports state that the overall size of the LDI market in the U.S is between $1.2 - $1.9 trillion 

dollars (for all clients). According to preliminary data from eVestment, about half of these products are 

bought by corporate sponsors and involved long bond portfolios.

47 During the 2012 to 2020 period, corporate sponsors transferred around $100 billion in pension 

obligations to insurance companies (Klinger et al., 2022). Klinger, Sven, Suresh M. Sundaresan, 

and Michael A. Moran. 2022. “Corporate Pension Risk Transfers.” (June 15, 2022). https://dx.doi.

org/10.2139/ssrn.4137429.

48 Securities and Exchange Commission, Division of Investment Management, Analytics Office. Private 

Fund Statistics. Washington: SEC, 2021. https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2021-q4.pdf.

49 The term “qualifying hedge funds” refers to funds with at least $500 million of net assets as of the last 

fiscal quarter. 

50 As a family office, Archegos was not subject to the Investment Advisers Act of 1940 by statute, and 

therefore did not make certain regulatory filings.

51 Year-to-date outflows from hybrid funds totaled $64 billion. ICI, Trends in Mutual Fund Activity: Monthly Trends in Mutual Fund Investing, Washington: ICI, September 2022. https://www.ici.org/research/

stats/trends.

52 Ibid.

53 Securities and Exchange Commission. “SEC Proposes Enhancements to Open-End Fund Liquidity 

Framework,” 2022-199, November 2, 2022. https://www.sec.gov/news/press-release/2022-199.

54 The comment period for proposed money market reforms ended on April 11, 2022. Among the proposed rule changes was the removal of the liquidity fee and redemption gate provisions and the requirement for certain money market funds to implement swing pricing policies and procedures. While 

fees and gates were intended to disincentivize runs on money market funds and preserve liquidity, 

these provisions instead may have incentivized investor redemptions and negatively altered fund 

manager behavior. Even though no money market fund imposed a fee or gate in March 2020, some 

investors may have feared that if they were not the first to exit their fund, there was a risk that they 
Endnotes 111

could be subject to gates or fees, and this anticipatory, risk-mitigating perspective potentially further 

accelerated redemptions. During the comment period, several banks and industry groups submitted 

comments on the proposed amendments, many expressing concerns with swing pricing. SEC. Money 

Market Fund Reforms. Proposed Rule, Washington: SEC, 87 Federal Register, no. 26 (February 8, 

2022). https://www.federalregister.gov/documents/2022/02/08/2021-27532/money-market-fund-reforms.

55 SEC Form N-MFP, OFR Money Market Fund Monitor. https://www.financialresearch.gov/money-market-funds/.

56 Insurance is important for financial risk management, but there are other options such as hedging 

through financial derivatives or withdrawing from activities where insurance is not available that individuals and firms use to manage risk.

57 The protection gap will always exist because the private insurance industry does not offer insurance 

to cover all economic losses.

58 AIR Worldwide Corporation. Global Modeled Catastrophe Losses. Boston: AIR, 2020. https://www.

air-worldwide.com/siteassets/Publications/WhitePapers/documents/2020airglobalmodeledcatastrophelosses.pdf.

59 Lloyd’s. Closing the gap: Insuring your business against evolving cyber threats. London: Lloyd’s, June 

2017. https://assets.lloyds.com/assets/pdf-lloyds-cyber-closing-the-gap-full-report-final/1/pdf-lloyds-cyber-closing-the-gap-full-report-final.pdf and The Geneva Association. Understanding and Addressing 

Global Insurance Protection Gaps. Zurich: The Geneva Association, April 2018. https://www.genevaassociation.org/sites/default/files/research-topics-document-type/pdf_public/understanding_and_

addressing_global_insurance_protection_gaps.pdf. Swiss Re Institute. Cyber insurance: strengthening resilience for the digital transformation. Zurich: Swiss Re Institute, November 2022. https://www.

swissre.com/dam/jcr:6fd9f6dd-4631-4d9f-9c3b-5a3b79b321c0/2022-11-08-sri-expertise-publicationcyber-insurance-strengthening-resilience.pdf.

60 FICC consists of two divisions, the Government Securities Division (GSD) and the Mortgage-backed 

Securities Division (MBSD). GSD provides CCP services for its customers for the U.S. government 

securities market, and MBDS provides CCP services to the U.S. mortgage-backed securities market. 

NSCC serves as a CCP for virtually all broker-to-broker trades involving equities, corporate and municipal debt, American depositary receipts, exchange-traded products, and unit investment trusts.

61 Central Counterparty Financial Resources for Recovery and Resolution. Washington: FSB, 2022. 

https://www.fsb.org/2022/03/central-counterparty-financial-resources-for-recovery-and-resolution/.

62 Internal CFTC calculations.

63 The London Metal Exchange. Member Notice: Suspension of LME Nickel Market. London: LME (March 

8, 2022). https://www.lme.com/api/sitecore/MemberNoticesSearchApi/Download?id=9be362b4-fa9e41d5-b6a0-c4f1e7892e4c.

64 The London Metal Exchange. Member Notice: Nickel Market Update. London: LME (March 8, 2022). 

https://www.lme.com/api/sitecore/MemberNoticesSearchApi/Download?id=7f00b96e-136a-4896-9a43-

f57e671dffea.

65 Congressional Budget Office. Monthly Budget Review: September 2022. Washington: CBO, 2022. 

https://www.cbo.gov/publication/58493.

66 Inter-Agency Working Group on Treasury Market Surveillance. Recent Disruptions and Potential 

Reforms in the U.S. Treasury Market: A Staff Progress Report. Washington: U.S. Department of the 

Treasury, 2021. https://home.treasury.gov/news/press-releases/jy0470.

67 U.S. Department of the Treasury. “Remarks by Under Secretary for Domestic Finance Nellie Liang at 

the Securities Industry and Financial Markets Association’s Prudential and Capital Board Subcommittee.” New York, September 22, 2022. https://home.treasury.gov/news/press-releases/jy0970.
112 2022 FSOC // Annual Report

68 U.S. Department of the Treasury. “Inter-Agency Working Group Releases New Report on Treasury 

Market Resilience Efforts,” November 10, 2022. https://home.treasury.gov/news/press-releases/jy1091.

69 Federal Reserve Bank of New York. All-to-All Trading in the U.S. Treasury Market. New York: Federal 

Reserve Bank of New York, 2022. https://www.newyorkfed.org/research/staff_reports/sr1036.

70 U.S. Department of the Treasury. “Remarks by Under Secretary for Domestic Finance Nellie Liang at 

the 2022 Treasury Market Conference,” New York, November 16, 2022. https://home.treasury.gov/

news/press-releases/jy1110.

71 The remaining LIBOR contracts include 1-day, 1-month, 3-month, 6-month, and 12-month. The UK 

Financial Conduct Authority has noted that it could compel the administrator of LIBOR to produce a 

“synthetic” USD LIBOR rate for a temporary period of time after June 2023, but that this rate would 

not be representative of the market that LIBOR is meant to reflect and would only be published to aid 

the transition of legacy USD LIBOR contracts issued outside of the United States that otherwise would 

have difficulties being renegotiated by June 2023. Similar synthetic versions of yen and sterling LIBOR have been published this year. Financial Conduct Authority. “FCA announces decision on cessation of 1- and 6-month synthetic sterling LIBOR at end-March 2023,” September 9, 2022, https://www.

fca.org.uk/news/statements/fca-decision-cessation-1-6-month-synthetic-sterling-libor.

72 Federal Reserve Bank of New York. Secured Overnight Financing Rate Data. 2022. Published by the 

Federal Reserve Bank of New York. https://www.newyorkfed.org/markets/reference-rates/sofr.

73 CME term rates are produced for 1-, 3-, 6-, and 12-month tenors.

74 See 12 U.S.C. 5805

75 More information on the LENS system and the ARRC’s work with DTCC can be found in the ARRC’s 

Legacy LIBOR Playbook, published on July 11, 2022. Alternative Reference Rates Committee, New 

York Fed. LIBOR Legacy Playbook. New York: ARRC, 2022. https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2022/LIBOR_Legacy_Playbook.pdf. More information on the DTCC’s 

resources regarding revisions to the LENS system can be found at https://www.dtcc.com/settlement-and-asset-services/issuer-services/libor-transition.

76 Inside Mortgage Finance. https://www.insidemortgagefinance.com/.

77 Nunes, F. Some Lenders Won’t Survive the Purchase Mortgage Market of 2022. Housing Wire, April 

14, 2022. https://www.housingwire.com/articles/some-lenders-wont-survive-the-purchase-mortgagemarket-of-2022/.

78 Smaller regional companies are those that are licensed in 2-25 states.

79 Finkelstein, B. “Nonbanks Dominate Top 2021 Mortgage Lender List.” National Mortgage News, 

March 28, 2022. https://www.nationalmortgagenews.com/list/nonbanks-dominate-top-2021-mortgagelender-list.

80 The FHFA is considering allowing nonbanks mortgage companies to have access to advances from 

the FHLBanks which would be an additional liquidity source. This proposal is in the comment period 

with listening sessions scheduled for end of Q3 2022.

81 National Association of Insurance Commissioners. U.S. Insurers’ CLO Exposure Continues Double-Digit Increase for Year-End 2021 Albeit at a Slower Pace. Capital Market Special Report; Kansas City, MO: 

NAIC, 2021, p. 6. https://content.naic.org/sites/default/files/capital-markets-special-reports-CLO-YE%20

2021.pdf.

82 Consumer Financial Protection Bureau. The Convergence of Payments and Commerce: Implications 

for Consumers. Washington: CFPB, 2022. https://files.consumerfinance.gov/f/documents/cfpb_convergence-payments-commerce-implications-consumers_report_2022-08.pdf.
Endnotes 113

83 Consumer Financial Protection Bureau. Buy Now, Pay Later: Market Trends and Consumer Impacts. 

Washington: CFPB, 2022. https://files.consumerfinance.gov/f/documents/cfpb_buy-now-pay-later-market-trends-consumer-impacts_report_2022-09.pdf.

84 Moody’s Analytics. Buy Now, Pay Later... Hopefully. New York: Moody’s, 2022. https://www.

moodysanalytics.com/articles/pa/2022/buy_now_pay_later_hopefully.

85 Consumer Financial Protection Bureau. Buy Now, Pay Later.

86 Microsoft. Special Report: Ukraine: An overview of Russia’s cyberattack activity in Ukraine. Redmond: 

2022. https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RE4Vwwd.

Orenstein, Mitchell. 2022. “Russia’s Use of Cyberattacks: Lessons from the Second Ukraine War.” 

Foreign Policy Research Institute (June 7, 2022). https://www.fpri.org/article/2022/06/russias-use-ofcyberattacks-lessons-from-the-second-ukraine-war/.

87 Cybersecurity and Infrastructure Security Agency. FBI Releases PIN on Ransomware Straining Local 

Governments and Public Services. Washington: CISA, 2022. https://www.cisa.gov/uscert/ncas/current-activity/2022/03/31/fbi-releases-pin-ransomware-straining-local-governments-and-public.

88 Lawder, David. 2022. “U.S. Treasury thwarted attack by Russian hacker group last month-official.” 

Reuters (November 1, 2022). https://www.reuters.com/article/usa-treasury-cyber-idCAKBN2RR36W.

89 Feiner, Lauren. 2022. “Cyberattack hits Ukrainian banks and government websites.” CNBC (February 23, 2022). https://www.cnbc.com/2022/02/23/cyberattack-hits-ukrainian-banks-and-government-websites.html.

90 Blinken, Antony J. “Attribution of Russia’s Malicious Cyber Activity Against Ukraine.” Press Statement, 

Department of State. Washington, May 10, 2022. https://www.state.gov/attribution-of-russias-malicious-cyber-activity-against-ukraine/.

91 Carnegie Endowment for International Peace. Timeline of Cyber Incidents Involving Financial Institutions. Washington: Carnegie Endowment for International Peace, 2022. https://carnegieendowment.

org/specialprojects/protectingfinancialstability/timeline.

92 Mahendru, Puja. 2022. “The State of Ransomware in Financial Services 2022.” Sophos, August 

10, 2022. https://news.sophos.com/en-us/2022/08/10/the-state-of-ransomware-in-financial-services-2022/.

93 G7. Fundamental Elements of Ransomware Resilience for the Financial Sector. G7, 2022. 

https://www.bundesbank.de/resource/blob/745304/67440393f3e0b53ea417c874eafe14e7/

mL/2022-10-13-g7-fundamental-elements-ransomware-data.pdf.

94 Palo Alto Networks, Unit 42. Ransomware Threat Report 2022. Santa Clara: Unit 42, 2022. https://

www.paloaltonetworks.com/content/dam/pan/en_US/assets/pdf/reports/2022-unit42-ransomware-threat-report-final.pdf.

95 Baker, Kurt. 2022. “Ransome As A Service (RAAS) Explained.” Crowdstrike (February 7, 2022). 

https://www.crowdstrike.com/cybersecurity-101/ransomware/ransomware-as-a-service-raas/.

96 Microsoft. Microsoft Digital Defense Report. Redmond: Microsoft, 2021. https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RWMFIi?id=101738.

97 Ibid.

98 Mahendru, Puja. 2022. “The State of Ransomware in Financial Services 2022.”

99 CrowdStrike Intelligence. 2022 Global Threat Report. Sunnyvale: CrowdStrike, 2022. https://

go.crowdstrike.com/rs/281-OBQ-266/images/Report2022GTR.pdf.

100 Mahendru, Puja. 2022. “The State of Ransomware in Financial Services 2022.”
114 2022 FSOC // Annual Report

101 Kumar, Ajay. 2022. “Insider Risks, Ransomware and Nation-state Attacks Could Worsen the Risk 

Landscape in 2022.” CPO Magazine (May 11, 2022). https://www.cpomagazine.com/cyber-security/

insider-risks-ransomware-and-nation-state-attacks-could-worsen-the-risk-landscape-in-2022/.

102 Ibid.

103 NIST. 2018. “Framework for Improving Critical Infrastructure Cybersecurity, Version 1.1.” Gaithersburg, MD: NIST, 2018. https://nvlpubs.nist.gov/nistpubs/CSWP/NIST.CSWP.04162018.pdf.

104 Securities Industry and Financial Markets Association. INSIDER THREAT BEST PRACTICES GUIDE, 

2ND EDITION. New York: SIFMA, 2018. https://www.sifma.org/wp-content/uploads/2018/02/insider-threat-best-practices-guide.pdf, pp. 5-6.

105 Ibid. p. 16.

106 CrowdStrike Intelligence. 2022 Global Threat Report. https://go.crowdstrike.com/rs/281-OBQ-266/

images/Report2022GTR.pdf.

107 G7. Fundamental Elements for Third Party Cyber Risk Management in the Financial Sector. G7: 

2022. https://www.bundesbank.de/resource/blob/624828/91c47c36b53ca366e2950881591de0ab/

mL/2022-10-13-g7-fundamental-elements-cybersecurity-data.pdf.

108 Earlier this year, Congress also recognized the importance of cyber incident reporting when it enacted the Cyber Incident Reporting for Critical Infrastructure Act (CIRCIA), signed by President Biden in 

March 2022. Cybersecurity and Infrastructure Security Agency. CYBER INCIDENT REPORTING FOR 

CRITICAL INFRASTRUCTURE ACT OF 2022 (CIRCIA). Washington: CISA, 2022. https://www.cisa.gov/

circia.

109 Securities and Exchange Commission. Cybersecurity Risk Management for Investment Advisers, 

Registered Investment Companies, and Business Development Companies. Proposed Rule, Washington: SEC, 87 Federal Register, no.46 (March 9, 2022). https://www.federalregister.gov/documents/2022/03/09/2022-03145/cybersecurity-risk-management-for-investment-advisers-registered-investment-companies-and-business.

110 Securities and Exchange Commission. Cybersecurity Risk Management, Strategy, Governance, and 

Incident Disclosure. Proposed Rule, Washington: SEC, 87 Federal Register, no. 56 (March 23, 2022). 

https://www.federalregister.gov/documents/2022/03/23/2022-05480/cybersecurity-risk-management-strategy-governance-and-incident-disclosure.

111 Federal Deposit Insurance Corporation, Federal Reserve System, and Office of the Comptroller of the 

Currency. Computer-Security Incident Notification Requirements for Banking Organizations and Their 

Bank Service Providers. Washington, 86 Federal Register, no. 66424 (November 23, 2021). https://

www.federalregister.gov/documents/2021/11/23/2021-25510/computer-security-incident-notification-requirements-for-banking-organizations-and-their-bank.

112 National Credit Union Administration. Cyber Incident Notification Requirements for Federally Insured 

Credit Unions. Proposed Rule, Washington: NCUA, 87 Federal Register, no. 45029 (July 27, 2022). 

https://www.federalregister.gov/documents/2022/07/27/2022-16013/cyber-incident-notification-requirements-for-federally-insured-credit-unions.

113 American Bankers Association. Cloud Computing in the U.S. Banking Industry. 2021. ABA. https://

www.aba.com/member-tools/industry-solutions/insights/cloud-computing-in-the-us-banking-industry.

114 Publicis Sapient, and Google Cloud. Future of Cloud in Banking: How leading banks accelerate digital 

transformation with cloud. Paris: Publicus Sapient, 2022. https://www.publicissapient.com/industries/

financial-services/google-cloud-banking-report.

115 Ibid.
Endnotes 115

116 Accenture. Banking Cloud Altimeter Volume 1: What does it mean to be a bank in the cloud? Dublin: 

Accenture, 2022. https://bankingblog.accenture.com/banking-cloud-altimeter-magazine/volume-1-

what-does-banking-cloud-mean.

117 Ibid.

118 Cloud Security Alliance. The State of Cloud Security 2020 Report: Understanding Misconfiguration 

Risk. Seattle: CSA, 2020. https://cloudsecurityalliance.org/blog/2020/05/05/the-state-of-cloud-security-2020-report-understanding-misconfiguration-risk/.

119 IBM Cloud Education. 2021. “IaaS versus PaaS versus SaaS.” IBM Cloud Learn Hub (September 2, 

2021). https://www.ibm.com/cloud/learn/iaas-paas-saas.

120 Seals, Tara. 2022. “Capital One Attacker Exploited Misconfigured AWS Databases.” Dark Reading, 

(June 20, 2022). https://www.darkreading.com/attacks-breaches/capital-one-attacker-exploited-misconfigured-aws-databases.

121 Herr, Trey, et al. 2021. “Broken trust: Lessons from Sunburst.” Atlantic Council: Breaking Trust, (March 

2021). https://www.atlanticcouncil.org/in-depth-research-reports/report/broken-trust-lessons-from-sunburst/.

122 Amazon Web Services. 2021. “Summary of the AWS Service Event in the Northern Virginia (USEAST-1) Region.” AWS, (December 10, 2021). https://aws.amazon.com/message/12721/.

123 Columbus, Louis. 2021. “SolarWinds breach exposes hybrid multicloud security weaknesses.” 

Venturebeat, (May 16, 2021). https://venturebeat.com/2021/05/15/solarwinds-breach-exposes-hybrid-multi-cloud-security-weaknesses/.

124 For further reading on identity and access management (IAM) and privileged access management 

(PAM), see: Abdullahi, Aminu. 2021. “IAM vs PAM: What Are the Differences?” CIO Insight, (November 3, 2021). https://www.cioinsight.com/security/iam-vs-pam/.

125 For a fuller description of these channels, see: FSOC. Report on Climate-Related Financial Risk. 

Washington: FSOC, 2021. https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf.

126 Cerdá, José J., and Raluca A. Roman. “Climate Change and Consumer Finance: A Very Brief Literature Review.” Federal Reserve Bank of Philadelphia Working Paper Series, October 2021. https://

www.semanticscholar.org/paper/Climate-Change-and-Consumer-Finance%3A-A-Very-Brief-CanalsCerd%C3%A1-Roman/e20e43476df7235ed6f8e6d9dc3d9f7edd8bf959.

127 Addoum, Jawad M., Piet Eichholtz, Eva Steiner, and Erkan Yönder. 2021. “Climate Change and Commercial Real Estate: Evidence from Hurricane Sandy.” http://dx.doi.org/10.2139/ssrn.3206257.

128 For further information, see Staff Reports, Federal Reserve Bank of New York, Understanding the Linkages between Climate Change and Inequality in the United States, No. 991 (November 2021). https://

www.newyorkfed.org/research/staff_reports/sr991.html.

129 Abatzoglou, John T., and A. Park Williams. “Impact of anthropogenic climate change on wildfire 

across western US forests.” Proceedings of the National Academy of Sciences 113, no. 42 (2016): 

11770-11775. https://doi.org/10.1073/pnas.1607171113.

130 Risk Factor. “Risk across the United States: Fire Factor.” Risk Factor, November 2022, https://riskfactor.com/. See also endnotes 131 and 132. For further detail on sources and methodology, see: First 

Street Foundation. First Street Foundation Wildfire Model. New York: FSF, May 2022. https://assets.

firststreet.org/uploads/2022/05/First_Street_Foundation_Wildfire_Technical_Methodology.pdf. Figure 3.5.2 is reproduced by permission from the First Street Foundation report. The 5th National Risk 

Assessment: Fueling the Flames. New York: FSF, 2022. https://doi.org/10.5281/zenodo.6564773.

131 U.S. Department of Agriculture. Wildfire Likelihood. 2022. https://wildfirerisk.org/explore/2/06/.

132 “Learn how risks are calculated.” Risk Factor, November 2022. https://riskfactor.com/.
116 2022 FSOC // Annual Report

133 For further detail on methodology, see: First Street Foundation. First Street Foundation Flood Model. 

New York: FSF, 2020. https://assets.firststreet.org/uploads/2020/06/FSF_Flood_Model_Technical_

Documentation.pdf. Figure 3.5.3 is reproduced by permission from the First Street Foundation report. 

The First National Flood Risk Assessment: Defining America’s Growing Risk. New York: FSF, 2020. 

https://doi.org/10.5281/zenodo.4740940.

134 See, for example, recent bankruptcies in Louisiana. Finch, Michael. 2022. “Ninth insurer in Louisiana 

goes under; here’s what it means for 1,500 open claims.” Nola.com, (September 26, 2022). https://

www.nola.com/news/business/article_70791e32-3dc1-11ed-98d3-57c09e5237a1.html.

135 Zawacki, Tim. 2022. “US Property & Casualty Insurance Market Report: Climate, cyberrisks to drive 

expansion.” S&P Global, New York, (August 23, 2022). https://www.spglobal.com/marketintelligence/

en/news-insights/research/us-p-and-c-insurance-market-report-climate-cyberrisks-to-drive-expansion.

136 Center for Insurance Policy and Research. Extreme Weather and Property Insurance: Consumer 

Views. Kansas City: CIPR, 2021. https://content.naic.org/sites/default/files/CIPR%20Consumer%20

property%20ins%20report%208-21_0.pdf.

137 The highest increases in home insurance rates were 18.5%, 18.1%, and 17.5%, in Arkansas, Washington, 

and Colorado, respectively, according to recent analysis: Howard, Pat. 2022. “Home insurance prices 

are rising even faster than inflation.” Policygenius (July 12, 2022). https://www.policygenius.com/

homeowners-insurance/home-insurance-pricing-report-july-2022/.

138 For example, the majority of the flood insurance in the United States is provided by the National Flood 

Insurance Program. However, the increased incidence and cost of flooding is also putting increasing pressure on the National Flood Insurance Program to meet its obligations. While the NFIP was 

largely solvent until the early 2000s, its financial condition has deteriorated since that time. Changes 

to NFIP’s risk rating methodology in 2021 to improve their financial position have resulted in higher 

premiums for policyholders with 9% of policyholders dropping their coverage. See: The Coalition for 

Sustainable Flood Insurance. An Evaluation of Risk Rating 2.0 Impacts on National Flood Insurance 

Program Affordability. CSFI, 2022. https://csfi.info/wp-content/uploads/2022/09/CSFI-White-Paper-An-Evaluation-of-Risk-Rating-2.0-Impacts-on-National-Flood-Insurance-Program-Affordability.pdf

and Frank, Thomas. 2022. “Hundreds of thousands drop flood insurance as rates rise.” Climate 

Wire, (August 17, 2022). https://www.eenews.net/articles/hundreds-of-thousands-drop-flood-insuranceas-rates-rise/.

139 Swiss Re Group. 2022. “How natural catastrophes are impacting 10 countries and the world.” Swiss 

Re Group, Armonk, (March 30, 2022). https://www.swissre.com/risk-knowledge/mitigating-climate-risk/

natcat-country-profiles-infographic.html#/countries/us.

140 Request For Information, Climate-Related Financial Risk, Commodity Futures Trading Commission, 

Federal Register Vol. 87, No. 110 (June 2022). https://www.cftc.gov/sites/default/files/2022/06/2022-

12302a.pdf.

141 Agency Information Collection Activities; Proposed Collection; Comment Request; Federal Insurance 

Office Climate-Related Financial Risk Data Collection, 87 Fed. Reg. 64,134 (October 21, 2022). https://

www.federalregister.gov/documents/2022/10/21/2022-22880/agency-information-collection-activities-proposed-collection-comment-request-federal-insurance.

142 OFR Fact Sheet, Climate Data and Analytics Hub, Office of Financial Research. (June, 2022). https://

www.financialresearch.gov/press-releases/files/OFR_Climate_data_and_analytics_hub_fact_sheet.pdf.
FINANCIAL STABILITY

OVERSIGHT COUNCIL

1500 PENNSYLVANIA AVENUE, NW | WASHINGTON, D.C. 20220