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Minutes of the Financial Stability Oversight Council

Held March 2, 2016

PRESENT: 

Jacob J. Lew, Secretary of the Treasury and Chairperson of the Financial Stability Oversight 

Council (Council)

Janet Yellen, Chair, Board of Governors of the Federal Reserve System (Federal Reserve) 

Martin J. Gruenberg, Chairperson, Federal Deposit Insurance Corporation (FDIC) 

Mary Jo White, Chair, Securities and Exchange Commission (SEC)

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

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

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

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

Debbie Matz, Chairman, National Credit Union Administration (NCUA) 

Roy Woodall, Independent Member with Insurance Expertise 

Richard Berner, Director, Office of Financial Research (OFR), Department of the Treasury 

(nonvoting member) 

Michael McRaith, Director, Federal Insurance Office, Department of the Treasury (non-voting 

member) 

John P. Ducrest, Commissioner, Louisiana Office of Financial Institutions (non-voting member) 

Adam Hamm, Commissioner, North Dakota Insurance Department (non-voting member) 

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

Division (non-voting member)

GUESTS: 

Department of the Treasury (Treasury)

Sarah Bloom Raskin, Deputy Secretary of the Treasury 

Antonio Weiss, Counselor to the Secretary

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

Eric Froman, Deputy Assistant General Counsel for the Council 

Mark Kaufman, Counselor to the Deputy Secretary

Board of Governors of the Federal Reserve System

Daniel K. Tarullo, Governor 

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

Federal Deposit Insurance Corporation

Jason Cave, Special Advisor to the Chairman for Supervisory Matters

Securities and Exchange Commission

Nathaniel Stankard, Deputy Chief of Staff
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Commodity Futures Trading Commission

Lawranne Stewart, Special Counsel

Consumer Financial Protection Bureau

Ron Borzekowski, Assistant Director for Research

Federal Housing Finance Agency

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

Comptroller of the Currency

Jennifer Kelly, Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank 

Examiner

National Credit Union Administration

Scott Borger, Senior Economist

Office of the Independent Member with Insurance Expertise

Diane Fraser, Senior Policy Advisor

Office of Financial Research

Stacey Schreft, Deputy Director for Research and Analysis

Federal Insurance Office

Steven Seitz, Deputy Director (Financial Stability)

Louisiana Office of Financial Institutions

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

North Dakota Insurance Department

Mark Sagat, Counsel and Manager, 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:

Update on Market Developments

• Tim Clark, Deputy Director, Division of Banking Supervision and Regulation, Federal 

Reserve

• Ramin Toloui, Assistant Secretary for International Finance, Treasury

2016 Annual Report

• Trent Reasons, Director of Analysis, Treasury

• Erik Heitfield, Assistant Director, Research and Statistics, Federal Reserve
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Annual Reevaluation of Nonbank Financial Company Designation

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

• Bruce Saul, Senior Policy Analyst, Federal Insurance Office, Treasury

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

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

questions)

Update on Review of Asset Management Products and Activities

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

Treasury

• Charles Cohen, Deputy Director of Analysis, Treasury 

• Stephen Ledbetter, Director of Policy, Treasury

• Lyndsay Huot, Deputy Director of Policy, Treasury (available for questions)

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

Reserve (available for questions)

Executive Session

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

approximately 1:06 P.M. (EST). He outlined the meeting agenda, which had previously been 

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

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

(2) the Council’s 2016 annual report; (3) the annual reevaluation of a previously designated 

nonbank financial company, MetLife, Inc. (MetLife), (4) an update on the Council’s review of 

asset management products and activities; and (5) consideration of, and a vote on, a resolution 

approving the minutes of the Council’s meeting on January 28, 2016.

1. Update on Market Developments

The Chairperson introduced the first agenda item and turned to Tim Clark, Deputy Director of 

the Division of Banking Supervision and Regulation at the Federal Reserve, who presented an 

update on recent developments related to the European banking sector. Mr. Clark described 

various market indicators of potential stress related to European banks, including share price 

performance, credit default swap spreads, and contingent capital yields. Mr. Clark noted that 

factors driving a weak outlook for European banks included a slowdown in global growth, the 

low interest rate environment, exposures to emerging markets, and exposures to the energy 

sector. He stated that there were no signs at this time of significant liquidity stress on European 

banks, especially the largest banks, although he noted that increased market volatility or any 

credit rating downgrades could pose potential risks. He also noted that European banks would be 

required to continue to build capital before additional regulatory requirements under the Basel III 

standards become effective in 2019. Following the presentation, members of the Council asked 

questions and had a discussion, including regarding exposures of U.S. banks. Mr. Clark noted 

that direct exposures of U.S. global systemically important banks to the largest European banks 

are modest, but that indirect exposures could be more significant in the event of market 

disruptions. He explained that the Federal Reserve monitors these and other exposures, 

including through stress tests. 
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Later in the meeting, Ramin Toloui, Assistant Secretary for International Finance at Treasury, 

presented on European economic developments. Mr. Toloui noted that while euro-area gross 

domestic product growth has improved, it remains too weak and inflation is significantly below 

the European Central Bank’s target. He described recent European developments related to 

migrant-related government spending, as well as risks including the potential for the United 

Kingdom to leave the European Union, ongoing negotiations between Greece and its creditors, 

and political developments throughout the region. Council members then asked questions and 

had a discussion.

2. 2016 Annual Report

The Chairperson introduced Trent Reasons, Director of Analysis at Treasury, and Erik Heitfield, 

Assistant Director for Research and Statistics at the Federal Reserve, to present on the next 

agenda item, the Council’s 2016 annual report. Mr. Reasons noted that there had been extensive 

engagement with staffs from across the Council member agencies in drafting the report. Mr. 

Heitfield described structural vulnerabilities and emerging threats to financial stability that could 

be included in the report. Members of the Council then asked questions and had a discussion, 

including regarding the presentation of certain risks in the report and the importance of focusing 

both on new issues and on ongoing risks that have been addressed in the Council’s previous 

annual reports.

3. Annual Reevaluation of Designated Nonbank Financial Company

The Chairperson then introduced the next agenda item, the annual reevaluation of a nonbank 

financial company, MetLife, that the Council had designated in 2014 under section 113 of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act. The Chairperson noted that this 

was the first annual review of the designation of MetLife. He introduced Steven Seitz, Deputy 

Director (Financial Stability) of the Federal Insurance Office, and Bruce Saul, Senior Policy 

Analyst at the Federal Insurance Office. Mr. Seitz explained that under the Dodd-Frank Act, the 

Council is required at least annually to reevaluate each previous designation and rescind a 

designation if the Council determines that the company no longer meets the statutory standards

for designation. He noted that annual reevaluations focus on material changes with respect to the 

companies or the markets in which they operate. Mr. Seitz also noted that staff had contacted 

MetLife in October 2015 to invite the company to meet with staff and submit materials for the 

annual reevaluation, and he stated that the company had submitted a letter requesting a rescission 

of its designation but had not requested a meeting with staff. He said that staff had consulted 

with certain of the company’s state and federal regulators, including its lead state insurance 

regulator, during the annual reevaluation. He then presented on the analysis and conclusions 

related to MetLife, including staff’s review of information submitted by the company to the 

Council during the annual reevaluation. He noted that MetLife had announced a plan to pursue a 

separation of certain of its businesses but that the structure and completion of the transaction 

were uncertain. Mr. Saul then explained the threat the company’s material financial distress 

could pose to U.S. financial stability arising from market participants’ exposures to MetLife and 

potential asset liquidations by MetLife in the event of liquidity strains at the company. Mr. Saul 

also described potential risks arising from the company’s substitutability and resolvability, and 
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he noted the company’s existing regulatory scrutiny. Based on the analysis, and in light of the 

standard for designations under section 113, staff recommended that the Council not rescind its 

final determination with respect to MetLife. The Chairperson then asked whether there were any 

questions. Michael McRaith, Director of the Federal Insurance Office, expressed his agreement 

with and support for the staff analysis and recommendation that the designation not be rescinded. 

The Chairperson then presented to the Council the following resolution regarding the 

reevaluation of the Council’s determination regarding MetLife.

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

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

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

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

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

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

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

and 

WHEREAS, section 113(d) of the DFA requires the Council not less frequently than annually to 

reevaluate each determination regarding a nonbank financial company under section 113 and 

rescind any such determination if the Council determines that the nonbank financial company no 

longer meets the standards for a determination under section 113; and 

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

and Guidance”), codified at 12 C.F.R. Part 1310, and adopted supplemental procedures on 

February 4, 2015, that describe the processes and procedures by which the Council will 

reevaluate each currently effective determination; and

WHEREAS, on December 18, 2014, the Council made a final determination, in accordance with 

the DFA and the Rule and Guidance, that MetLife, Inc. (“MetLife”) shall be supervised by the 

Federal Reserve and shall be subject to enhanced prudential standards under the DFA; and 

WHEREAS, in connection with the Council’s reevaluation of its determination regarding 

MetLife, the Council provided MetLife an opportunity to submit written materials to the Council 

to contest the Council’s determination and to meet with the staffs of the Council Members and 

their Agencies; and 

WHEREAS, MetLife submitted materials to the Council in connection with the Council’s 

reevaluation of its determination regarding MetLife; and

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

public and regulatory sources, as well as information submitted to the Council by MetLife; and 

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

Agencies recommend that the Council not rescind its determination regarding MetLife; and 
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WHEREAS, the members of the Council have considered the issues and the record in connection 

with the following actions.

NOW, THEREFORE, BE IT RESOLVED, that, based on the information, considerations, and 

analysis set forth in the attached “Notice and Explanation of the Basis for the Financial Stability 

Oversight Council’s Decision Not To Rescind its Determination Regarding MetLife, Inc.” (the 

“Reevaluation Notice”), and on a review of the administrative record, the Council hereby does 

not rescind its determination, pursuant to section 113 of the DFA, that material financial distress 

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

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

accordance with Title I of the DFA.

BE IT FURTHER RESOLVED, that the Council hereby authorizes the Reevaluation Notice to be 

sent to MetLife and its primary financial regulatory agencies.

BE IT FURTHER RESOLVED, that the Council hereby delegates authority to the Chairperson, 

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

Reevaluation Notice.”

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

The Council approved the resolution by a vote of 9 to 1, with Mr. Woodall dissenting.

4. Update on Review of Asset Management Products and Activities

The Chairperson then introduced the next agenda item, an update on the staff evaluation of 

potential risks to financial stability arising from asset management products and activities. He 

noted that the purpose of this discussion was to discuss potential risks to financial stability and 

potential next steps. The Chairperson then introduced Patrick Pinschmidt, Deputy Assistant 

Secretary and Executive Director of the Council at Treasury, to provide an overview of the staff 

work.

Mr. Pinschmidt noted that staff had worked on an interagency basis to identify key areas of 

potential financial stability risks for potential next steps. He said that staff would work to enable 

the Council to issue a public statement in the spring providing a progress update on these efforts. 

Mr. Pinschmidt then introduced Charles Cohen, Deputy Director of Analysis at Treasury. Mr. 

Cohen presented on the interagency staff’s analysis of potential liquidity and redemption risks 

arising from asset management products and activities, including factors affecting the materiality 

of those potential risks. He also described proposed rules regarding fund liquidity risk 

management that the SEC had issued for public comment, and explained potential means for 

addressing potential financial stability concerns. Stephen Ledbetter, Director of Policy at 

Treasury, then presented on the interagency staff analysis regarding potential risks to financial 

stability arising from leverage at investment vehicles. He also described factors affecting the 

materiality of those risks in hedge funds and in registered funds. He explained regulations and 

practices that directly or indirectly limit funds’ leverage. He then described potential next steps 

and limitations on existing data regarding leverage.
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The Council then asked questions and had a discussion, including regarding the importance of 

additional data to assess potential risks arising from leverage and areas of regulatory 

fragmentation or gaps. Mr. Pinschmidt then explained the staff’s analysis of potential risks 

arising from securities lending, service provider concentrations, and resolvability and transition 

planning.

5. Resolution Approving the Minutes of the Meeting held on January 28, 2016

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

minutes attached hereto of the meeting held on January 28, 2016 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 2:57 P.M. (EST).