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Minutes of the Financial Stability Oversight Council

Held July 16, 2013

PRESENT: 

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

Oversight Council (Council)

Ben Bernanke, Chairman, 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) 

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

Edward DeMarco, Acting Director, Federal Housing Finance Agency (FHFA)

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

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

Roy Woodall, Independent Member with Insurance Expertise

Richard Berner, Director, Office of Financial Research, Department of the Treasury (non-voting 

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)

John Huff, Director, Missouri Department of Insurance, Financial Institutions, and Professional 

Registration (non-voting member)

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

State, Securities Division (non-voting member) 

GUESTS: 

Department of the Treasury 

Neal S. Wolin, Deputy Secretary

Mary J. Miller, Under Secretary for Domestic Finance

Christopher J. Meade, General Counsel

Amias Gerety, Deputy Assistant Secretary for FSOC

Patrick Pinschmidt, Executive Director of the Council

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, Deputy Director for Complex Financial Institutions Monitoring

Securities and Exchange Commission 

Jennifer B. McHugh, Senior Advisor to the Chair

Commodity Futures Trading Commission

Eric Juzenas, Chief Operating Officer and Senior Counsel
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Consumer Financial Protection Bureau

Ron Borzekowski, Senior Economist in Research, Markets, and Regulations

Federal Housing Finance Agency 

Mario Ugoletti, Special Advisor to the Director

National Credit Union Administration 

John Worth, Chief Economist

Office of the Comptroller of the Currency 

Paul Nash, Senior Deputy Comptroller

Office of the Independent Member with Insurance Expertise

Diane Fraser, Senior Policy Advisor

Federal Reserve Bank of New York

William Dudley, President and Chief Executive Officer (participating by phone)

Office of Financial Research

Matthew Reed, Chief Counsel

Federal Insurance Office

John Nolan, Deputy Director (Financial Stability)

Louisiana Office of Financial Institutions

Margaret Liu, Senior Vice President, Conference of State Bank Supervisors

Missouri Department of Insurance, Financial Institutions, and Professional Registration 

Mark Sagat, Counsel and Manager, Financial Policy and Legislation, National Association of 

Insurance Commissioners

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

Joseph Brady, General Counsel, North American Securities Administrators Association

PRESENTERS:

Market Volatility

• Richard Berner, Director, Office of Financial Research, Treasury

• Norm Champ, Director, Division of Investment Management, SEC

• Gregg Berman, Associate Director, Office of Analytics and Research, SEC

Money Market Mutual Fund Reform

• Norm Champ, Director, Division of Investment Management, SEC

• Craig Lewis, Chief Economist and Director, Division of Economic and Risk Analysis,

SEC
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Nonbank Financial Company Designations 

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

• Patrick Pinschmidt, Executive Director of the Council, Treasury

• John Nolan, Deputy Director (Financial Stability), Federal Insurance Office, 

Treasury

• Scott Alvarez, General Counsel, Federal Reserve

• George Sacco, Senior Analyst, FHFA

• Michael McRaith, Director, Federal Insurance Office, Treasury

Annual Report Recommendations

• Trent Reasons, Senior Policy Advisor, Treasury

• Patrick Pinschmidt, Executive Director of the Council, Treasury 

Executive Session 

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

approximately 1:07 P.M. (EDT). He then outlined the meeting agenda, which had been 

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

The agenda for the meeting included the following subjects: (1) a presentation on market 

volatility; (2) an update on money market mutual fund (MMF) reform; (3) nonbank financial 

companies designations and the advancement of a nonbank financial company that was

considered in stage 2 to stage 3 of the evaluations process; (4) an update on recommendations 

from the Council’s 2013 annual report; and (5) consideration of, and a vote on, a resolution 

approving the minutes of the Council’s meeting on June 3, 2013. 

1. Market Volatility

The Chairperson introduced the first agenda item, which was a presentation on recent market 

volatility. He asked Richard Berner, Director of the Office of Financial Research at Treasury;

Norm Champ, Director of the Division of Investment Management at the SEC; and Gregg

Berman, Associate Director of the Office of Analytics and Research at the SEC, to give a

presentation. After the presentation, members of the Council asked questions and had a 

discussion. 

2. MMF Reform Update

The Chairperson turned to the next agenda item, regarding an update on the SEC’s proposal on 

MMF reform, and asked Mary Jo White, Chair of the SEC, to introduce the topic. After Chair 

White’s introduction, Norm Champ, Director of the Division of Investment Management at the 

SEC, and Craig Lewis, Chief Economist and Director of the Division of Economic and Risk 

Analysis at the SEC, gave a presentation. Mr. Champ provided an overview of the SEC’s June 

5, 2013, proposed rule for MMF reform. He explained that the proposed rule set forth two 

alternatives for amending the rules that govern MMFs. The first alternative proposal is floating net 

asset value, and would require MMFs to sell and redeem shares based on the current market-based 

value of the securities in their underlying portfolios, rounded to the fourth decimal place. The second 

alternative proposal is liquidity fees and gates, and would require an MMF to impose a liquidity fee 

(unless the fund’s board determines that it is not in the best interest of the fund) if the fund’s liquidity 
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levels fall below a specified threshold and would permit a fund to suspend redemptions temporarily 

under the same circumstances. Mr. Champ stated that the SEC is seeking public comments on each 

alternative standing alone, as well as on the possibility of combining the two alternatives. Following 

the presentation, the members of the Council asked questions and had a discussion. 

3. Nonbank Financial Company Designations 

The Chairperson then introduced the agenda item regarding nonbank financial company 

designations. He called on Felton Booker, Senior Advisor for Banking Supervision and 

Regulation at the Federal Reserve, to present on a nonbank financial company that was 

considered in stage 2 of the evaluation process for designations and was being considered for 

advancement to stage 3. After the presentation, members of the Council asked questions and had 

a discussion. Following the completion of the presentation and the discussion, the Chairperson 

presented to the Council the following resolution approving the advancement of the nonbank 

financial company to stage 3 of the evaluation process. 

“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 (the “Determination Standards”) could pose a threat to the financial 

stability of the United States; and 

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

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

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

transactions and relationships of the company with other significant nonbank financial 

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

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

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

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

such company would have on the availability of credit in such communities; (F) the extent to 

which assets are managed rather than owned by the company, and the extent to which ownership 

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

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

company is already regulated by one or more primary financial regulatory agencies; (I) the 

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

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

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

WHEREAS, the Council issued a final rule (the “Final Rule”) and accompanying interpretive 

guidance (the “Interpretive Guidance”), codified at 12 C.F.R. Part 1310, that describes the 

criteria and the processes and procedures by which the Council will determine that a nonbank 

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

prudential standards under the DFA; and
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WHEREAS, the Interpretive Guidance describes a three-stage process that the Council expects 

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

determination; and

WHEREAS, the staffs of the Council Members and their Agencies have evaluated a set of 

nonbank financial companies under stage 1, which consisted of the application of uniform 

quantitative thresholds to identify nonbank financial companies for further evaluation; and

WHEREAS, in stage 2, the staffs of the Council Members and their Agencies have analyzed a 

nonbank financial company identified in stage 1, based on a wide range of quantitative and 

qualitative information available to the Council, primarily through public and regulatory 

sources; and

WHEREAS, based on such stage 2 evaluation, the staffs of the Council Members and their 

Agencies recommend that the Council approve the advancement of a nonbank financial company

that was considered in stage 2 to stage 3 of the evaluation process, which will include an 

evaluation of information collected directly from such nonbank financial company, with a focus 

on whether such nonbank financial company being considered in stage 3 could pose a threat to 

U.S. financial stability under one or both of the Determination Standards; and

WHEREAS, in furtherance of the evaluation of the nonbank financial company advanced to stage

3 of the evaluation process, the Council intends to make certain information requests, coordinate 

and consult with certain regulatory agencies, and take certain other actions, which actions the 

Council deems appropriate to delegate to the Deputies Committee, pursuant to §§ XXX.6(i) and 

XXX.7(a) of the Rules of Organization of the Council. 

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby authorizes the advancement 

of a nonbank financial company that was considered in stage 2 (identified in an attachment 

hereto) to stage 3 of the evaluation process, and authorizes the staffs of the Council Members 

and their Agencies to begin the stage 3 evaluation process.

BE IT FURTHER RESOLVED, that the Council hereby approves the form of the attached 

notification letter required by the Final Rule (12 C.F.R. § 1310.21) and authorizes a letter in 

such form to be sent to the nonbank financial company advancing to stage 3 of the evaluation 

process.

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 any such 

notification letter. 

BE IT FURTHER RESOLVED, that in accordance with §§ XXX.6(i) and XXX.7(a) of the Rules of 

Organization of the Council, the Council hereby delegates authority to the Deputies Committee, 

operating by consensus, to (1) prepare, approve, and cause to be transmitted requests for 

information to the nonbank financial company advancing to stage 3 of the evaluation process, 

(2) prepare, approve, and cause to be transmitted requests for information to, and engage in 
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coordination and consultations with, the primary financial regulatory agencies (as defined in 

§ 2(12) of the DFA) or foreign regulatory authorities with respect to the nonbank financial 

company advancing to stage 3 of the evaluation process, and (3) take other actions, in each case 

as the Deputies Committee may deem necessary or appropriate for the purpose of evaluating the 

nonbank financial company in stage 3 of the evaluation process in accordance with the DFA, the 

Final Rule, and the Interpretive Guidance.”

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

The Council approved the resolution by unanimous vote.

Following the vote, the Chairperson called on Patrick Pinschmidt, Executive Director of the 

Council at Treasury, and John Nolan, Deputy Director (Financial Stability) of the Federal 

Insurance Office at Treasury, to provide an overview of the written materials that had been 

submitted to the Council by a nonbank financial company subject to a proposed designation. 

Scott Alvarez, General Counsel of the Federal Reserve, and George Sacco, Senior Analyst at the 

FHFA, were available to answer questions. Mr. Pinschmidt and Mr. Nolan also provided an 

update on the process and preparations for the oral hearing for a nonbank financial company 

subject to a proposed designation. After the presentation, the members of the Council asked 

questions and had a discussion.

The Chairperson then called on Michael McRaith, Director of the Federal Insurance Office at 

Treasury, to give a presentation on the International Association of Insurance Supervisors’

process for the designation of global systemically important insurers. Following the 

presentation, Council members asked questions and had a discussion. 

4. Annual Report Recommendations Update

The Chairperson next introduced the agenda item regarding an update on recommendations from

the Council’s 2013 annual report. He asked Trent Reasons, Senior Policy Advisor at Treasury, 

and Patrick Pinschmidt, Executive Director of the Council at Treasury, to give the presentation. 

Mr. Reasons and Mr. Pinschmidt provided an update on the actions taken and planned with 

respect to the recommendations made in the annual report. After the presentation, the members 

of the Council asked questions and had a discussion.

 

5. Resolution Approving the Minutes of the Meeting held on June 3, 2013

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

minutes attached hereto of the meeting held on June 3, 2013 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 2:30 P.M. (EDT).