1

Minutes of the Financial Stability Oversight Council

May 30, 2019

PRESENT: 

Steven T. Mnuchin, Secretary of the Treasury and Chairperson of the Financial Stability 

Oversight Council (Council)

Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System (Federal 

Reserve) 

Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation (FDIC) (by telephone)

Jay Clayton, Chairman, Securities and Exchange Commission (SEC)

J. Christopher Giancarlo, Chairman, Commodity Futures Trading Commission (CFTC)

Kathleen Kraninger, Director, Consumer Financial Protection Bureau (CFPB)

Mark Calabria, Director, Federal Housing Finance Agency (FHFA)

Joseph Otting, Comptroller of the Currency, Office of the Comptroller of the Currency (OCC)

(by telephone)

Rodney Hood, Chairman, National Credit Union Administration (NCUA)

Thomas E. Workman, Independent Member with Insurance Expertise 

Steven Seitz, Director, Federal Insurance Office (FIO), Department of the Treasury (non-voting 

member)

Charles G. Cooper, Commissioner, Texas Department of Banking (non-voting member) (by 

telephone)

Eric Cioppa, Superintendent, Maine Bureau of Insurance (non-voting member)

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

Division (non-voting member)

GUESTS: 

Department of the Treasury (Treasury)

Brent McIntosh, General Counsel

Heath Tarbert, Acting Under Secretary for International Affairs

Craig Phillips, Counselor to the Secretary

Bimal Patel, Deputy Assistant Secretary for the Council

Eric Froman, Principal Deputy Assistant General Counsel (Banking and Finance) and Executive 

Director of the Council

Howard Adler, Senior Advisor, Office of Domestic Finance

Stephen Ledbetter, Director of Policy, Office of the Financial Stability Oversight Council

Board of Governors of the Federal Reserve System

Randal Quarles, Vice Chairman for Supervision

Andreas Lehnert, Director, Division of Financial Stability

Federal Deposit Insurance Corporation

Travis Hill, Senior Advisor to the Chairman
2

Securities and Exchange Commission

Jeffrey Dinwoodie, Senior Counsel and Policy Advisor for Market and Activities-Based Risk

Commodity Futures Trading Commission

Michael Gill, Chief of Staff

Consumer Financial Protection Bureau

Hallee Morgan, Attorney-Advisor

Federal Housing Finance Agency

Sandra Thompson, Deputy Director, Division of Housing Mission and Goals

Comptroller of the Currency

Robert Phelps, Deputy Comptroller for Supervision Risk Management

National Credit Union Administration

Andrew Leventis, Chief Economist

Office of the Independent Member with Insurance Expertise

Charles Klingman, Senior Policy Advisor 

Office of Financial Research (OFR)

Kipp Kranbuhl, Acting Assistant Secretary for Financial Institutions, Treasury

Stacey Schreft, Deputy Director for Research and Analysis 

Federal Insurance Office

Kevin Meehan, Senior Insurance Regulatory Policy Analyst

Texas Department of Banking

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

Maine Bureau of Insurance

Mark Sagat, Assistant Director, Financial Policy and Legislation, National Association of 

Insurance Commissioners

Maryland Office of the Attorney General, Securities Division

Christopher Staley, Counsel, North American Securities Administrators Association

PRESENTERS:

Proposed Interpretive Guidance on Nonbank Financial Company Designations

• Bimal Patel, Deputy Assistant Secretary for the Council, Treasury

• Mark Schlegel, Attorney-Advisor, Treasury (available for questions) 
3

U.S. Nonfinancial Corporate Credit and Leveraged Lending

• Craig Phillips, Counselor to the Secretary, Treasury

• Richard Farber, Senior Advisor, Treasury (available for questions)

Equity Market Structure

• Brett Redfearn, Director, Division of Trading and Markets, SEC

• Richard Farber, Senior Advisor, Treasury (available for questions)

Executive Session

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

approximately 3:04 P.M.

The Chairperson began by welcoming Mark Calabria, the Director of the FHFA, and Rodney 

Hood, the Chairman of the NCUA, to their first meeting as members of the Council. The 

Chairperson thanked J. Christopher Giancarlo, Chairman of the CFTC, for his service. The 

Chairperson also thanked Craig Phillips, Counselor to the Secretary at Treasury, for his work. 

The Chairperson then outlined the meeting agenda, which had previously been distributed to the 

members together with other materials. The agenda for the executive session of the meeting 

included (1) a presentation on the Council’s proposed interpretive guidance on nonbank financial 

company designations; (2) an update on U.S. nonfinancial corporate credit and leveraged 

lending; (3) an update on equity market structure; and (4) a vote on the minutes of the Council’s 

meeting on March 6, 2019.

1. Proposed Interpretive Guidance on Nonbank Financial Company Designations

The Chairperson then introduced the first agenda item, a presentation on the Council’s proposed 

interpretive guidance on nonbank financial company designations, which the Council had 

approved on March 6, 2019. The Chairperson turned to Bimal Patel, Deputy Assistant Secretary 

for the Council at Treasury.

Mr. Patel stated that the public comment period for the proposed interpretive guidance had 

closed on May 13. He noted that the Council had received 26 comment letters, and he described 

the types of commenters, including industry advocacy groups, other advocacy organizations, and 

financial companies. Mr. Patel stated that 20 of the commenters generally supported the 

proposed interpretive guidance, including the proposal for the Council to prioritize its work to 

identify and address potential risks to U.S. financial stability using an activities-based approach 

(ABA) and the Council’s proposed analytical enhancements to the nonbank financial company 

designation process. Mr. Patel noted that six commenters were generally opposed to the 

proposal, arguing it would limit the Council’s tools for addressing risks to financial stability.

Mr. Patel then highlighted several issues that numerous comment letters had addressed. For 

example, he described the comments regarding the Council’s proposed methodology and process 

for assessing risks under the ABA; the proposed changes to the Council’s nonbank financial 

company designation process and analysis. He noted that several commenters supported the 

Council’s extensive engagement with existing primary regulatory agencies under the proposal. 
4

Mr. Patel also noted certain areas where commenters had requested further detail, including the 

Council’s approach to voting on transitions in the ABA and designations processes and the 

Council’s definitions of certain terms in the guidance. In addition, he described comments 

supporting and opposed to the proposed designation “off-ramp” under the guidance. Mr. Patel 

concluded by stating that staff supporting the Council would work together to review the 

comment letters and consider potential changes to the guidance, with the goal of publishing final 

interpretive guidance by the end of 2019. 

2. U.S. Nonfinancial Corporate Credit and Leveraged Lending

The Chairperson then introduced the second agenda item, an update on U.S. nonfinancial 

corporate credit and leveraged lending. He introduced Craig Phillips, Counselor to the Secretary

at Treasury, who described recent market developments and highlighted the ongoing 

collaboration among financial regulators on this topic. 

Mr. Phillips noted that the Council had discussed nonfinancial corporate credit and leveraged 

lending at its previous meeting, on March 6, 2019, and that the President’s Working Group on 

Financial Markets had subsequently discussed this topic. He described banks’ exposures to 

leveraged lending, stating that the exposures were relatively limited and that there did not appear 

to be significant concentrations. He noted, however, that outstanding leveraged loans are 

relatively high compared to U.S. gross domestic product, and that further research was needed. 

He stated that Treasury and other agencies would continue to work together to assess this issue. 

He also highlighted the importance of assessing risks related to collateralized loan obligations 

and funds with exposures to leveraged loans. Finally, he noted analytical challenges related to 

data availability and definitional questions regarding leveraged loans.

3. Equity Market Structure

The Chairperson then introduced the third agenda item, a presentation on equity market 

structure. He turned to Jay Clayton, Chairman of the SEC, and Brett Redfearn, Director of the 

Division of Trading and Markets at the SEC, for the presentation.

Mr. Redfearn began by describing key characteristics of current equity markets. He noted 

factors including extremely high transaction speeds; widespread use of varying algorithmic 

trading strategies; market fragmentation and complexity; the ownership structure of exchanges; 

competitive dynamics and pricing structures in various areas, including market access and 

market data; and increasing market concentration in market making, trading, financing, 

clearance, and custody. He then highlighted examples of extraordinary market volatility, and he 

described measures the SEC and other regulators had put in place to address those types of 

issues. In particular, he described the SEC’s Market Access Rule, which generally requires 

broker-dealers to implement risk-management controls and supervisory procedures that control 

the access they provide to markets, and Regulation Systems Compliance and Integrity, which 

generally requires certain SEC-regulated markets and other market utilities to have certain 

measures in place concerning their systems resiliency and security, provide certain notifications 

to their members and to the SEC upon the occurrence of systems disruptions and other events, 

and conduct systems testing, among other things. He also noted other measures the SEC had 
5

implemented, including certain restrictions on short sales in certain circumstances; a “limit up–

limit down” mechanism adopted by the Financial Industry Regulatory Authority (FINRA) and 

the securities exchanges that prevents certain trades from occurring outside of specified price 

bands; and market-wide circuit breakers that have been updated by FINRA and the securities 

exchanges. 

Mr. Redfearn then described the “maker-taker” exchange pricing model. He explained that in 

this pricing model, exchanges offer rebates to providers of liquidity (“makers” of liquidity) in 

order attract limit orders and compete for market share, and charge a transaction fee to market 

participants who trade against resting orders (or “takers” of liquidity). He described several 

concerns that have been raised related to maker-taker pricing, including whether the SEC’s 

current regulation of exchange pricing models is effective; incentives that lead to potential 

conflicts of interest; the possibility that rebates could contribute to excessive intermediation; and 

the potential for increasing complexity and market fragmentation. Mr. Redfearn then described 

the SEC’s transaction fee pilot rulemaking, which is intended to generate data to test the effects 

of existing exchange pricing models. He stated that data from the pilot program would be used 

to facilitate an empirical evaluation of existing exchange pricing models and whether they are 

furthering statutory goals. 

Mr. Redfearn then described issues relating to market data and market access. He noted that 

currently, in U.S. equity markets, the provision of market access and market data is not uniform 

and could be described broadly as a two-tiered system: proprietary data streams and access 

services sold by exchanges that are fast, content-rich, and expensive; and public data feeds that 

are slower and provide less-extensive data. He pointed out concerns that have been raised 

related to the effectiveness and fairness of this structure, including asymmetric information and 

access across different types of market participants, additional implicit trading costs for those 

using inferior services, a potential lack of competition in the provision of these services, and 

continued cost escalation, which could foster additional consolidation. He noted ways in which 

data asymmetries can affect retail investors. Mr. Redfearn then stated that the SEC staff is 

evaluating potential regulatory responses to these market data and access issues. He concluded 

by noting that the United States has the largest, deepest, most vibrant equity markets in the 

world, and that regulators must be vigilant, monitor their functioning, and identify ways to 

improve them.

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

risks arising from algorithmic trading and concentration; the rapid changes in equity market 

structure over the last 20 years; the potential for market-making issues in the futures markets; 

and the importance of ongoing collaboration among regulators on these issues.

4. Other Business

Before concluding the meeting, the Chairperson asked Director Calabria and Chairman Hood 

about their priorities in their new positions. Director Calabria noted his focus on issues related to 

housing finance reform, and Chairman Hood highlighted his attention to cybersecurity issues at 

credit unions.
6

5. Resolution Approving the Minutes of the Meeting Held on March 6, 2019

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

minutes attached hereto of the meeting held on March 6, 2019 of the Council are hereby 

approved.

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

The Council approved the resolution by unanimous vote.

The Chairperson adjourned the meeting at approximately 3:34 P.M.