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Minutes of the Financial Stability Oversight Council

December 4, 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) Jay 

Clayton, Chairman, Securities and Exchange Commission (SEC) 

Heath P. Tarbert, 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 

Dino Falaschetti, Director, Office of Financial Research (OFR), Department of the Treasury 

(non-voting member) 

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

member) 

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)

Justin Muzinich, Deputy Secretary of the Treasury 

Bimal Patel, Assistant Secretary for Financial Institutions 

Kipp Kranbuhl, Principal Deputy Assistant Secretary for Financial Markets 

Howard Adler, Deputy Assistant Secretary for the Council 

Eric Froman, Assistant General Counsel (Banking and Finance) 

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

Executive Director of the Council 

Board of Governors of the Federal Reserve System

Randal Quarles, Vice Chairman for Supervision 

Andreas Lehnert, Director, Division of Financial Stability 
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Federal Deposit Insurance Corporation

Travis Hill, Deputy to the Chairman for Policy 

Securities and Exchange Commission

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

Risk 

Commodity Futures Trading Commission

Jaime Klima, Chief of Staff and Chief Operating Officer 

Consumer Financial Protection Bureau

Ryan Kelly, Financial Analyst 

Federal Housing Finance Agency

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

Comptroller of the Currency

Morris Morgan, 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 

Federal Reserve Bank of New York

John Williams, President and Chief Executive Officer (by telephone) 

Office of Financial Research

Alexander Pollock, Principal Deputy Director for Research and Analysis 

Federal Insurance Office

Bruce Saul, Senior Insurance Regulatory Policy Analyst 

Texas Department of Banking

Michael Townsley, Policy Counsel, Conference of State Bank Supervisors (CSBS) (by 

telephone) 

Maine Bureau of Insurance

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

Insurance Commissioners 
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PRESENTERS: 

Repurchase Agreement Market Developments

• James Clouse, Deputy Director, Monetary Affairs, Federal Reserve 

• Nathaniel Wuerffel, Senior Vice President, Federal Reserve Bank of New York 

• Michael Hsu, Associate Director, Division of Supervision and Regulation, Federal 

Reserve (available for questions)

2019 Annual Report 

• Stephen Ledbetter, Director of Policy, Office of the Council, and Executive Director of 

the Council, Treasury 

Final Interpretive Guidance on Nonbank Financial Company Determinations 

• Howard Adler, Deputy Assistant Secretary for the Council, Treasury 

Executive Session 

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

approximately 3:53 P.M. 

The Chairperson began by outlining the meeting agenda, which had previously been distributed 

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

meeting included repurchase agreement market developments. 

1. Repurchase Agreement Market Developments 

The Chairperson then introduced the first agenda item, a presentation on repurchase agreement 

market developments. The Chairperson introduced James Clouse, Deputy Director of the 

Division of Monetary Affairs at the Federal Reserve, and Nathaniel Wuerffel, Senior Vice 

President at the Federal Reserve Bank of New York. 

Mr. Clouse began by describing the decision in January 2019 by the Federal Open Market 

Committee (FOMC) to continue operating in an ample reserves regime. He explained that under 

this regime, administered rates were the primary means of control over the federal funds rate and 

other short-term interest rates. He stated that the ample reserves regime provided a sufficient 

supply of reserves so that short-term changes in demand for or supply of reserves do not result in 

large moves in the federal funds rate. He noted that the FOMC monitored a wide range of 

information to determine the appropriate level of reserves in an ample reserves regime. He then 

stated that there was significant volatility in repurchase agreement (repo) rates in mid-September 

2019. He attributed the market volatility to a number of factors, including large corporate tax 

payments and the settlement of Treasury security auctions. He stated that the Federal Reserve 

continued to study the reasons for the volatility. 
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Mr. Wuerffel then described the Federal Reserve’s response to the September 2019 repo market 

volatility. He noted that in September 2019, the Federal Reserve had conducted term and 

overnight repos to ease pressures in the repo market and to limit the risk of spillover to the 

federal funds market. He noted that the Federal Reserve’s repo operations (1) supplied funding 

and reserves and (2) influenced short-term interest rates. He noted that the Federal Reserve’s 

repo operations had resulted in a decrease in the federal funds rate. He stated that in October 

2019, the FOMC had reaffirmed its policy implementation in the ample reserves regime, 

including ensuring ample reserves through purchases of Treasury bills at least through the 

second quarter of 2020. He stated that the Federal Reserve was also conducting term and 

overnight repos at least through January 2020. He stated that the Federal Reserve’s open market 

operations had been effective, and that the federal funds rate was within the FOMC’s target 

range and that pressures in money markets had receded. He also described changes over time in 

the total amount of reserves in the banking system. He concluded by highlighting that it was 

typical for there to be temporary pressures on money market rates around the end of the calendar 

year, and that the Federal Reserve was monitoring conditions and would adjust its repo 

operations as necessary. He concluded by noting that the Federal Reserve would continue to 

conduct research on the causes of the recent dislocations in money markets. 

Council members then asked questions and had a discussion, including the reasons for the 

significant decrease in total reserves in mid-September and potential causes of the repo market 

volatility. 

2. Other Business 

The Chairperson then noted that Treasury had hosted a meeting with regional banks regarding 

the transition away from the London Interbank Offered Rate (LIBOR) to the Secured Overnight 

Financing Rate (SOFR). He stated that he would work with the other Council member agencies 

to understand issues related to the transition. 

The Chairperson adjourned the executive session of the meeting at approximately 4:13 P.M. 

Public Session 

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

4:18 P.M. 

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

Council’s 2019 annual report, (2) a vote on the Council’s final interpretive guidance on nonbank 

financial company determinations, and (3) a vote on the minutes of the Council’s meeting on 

November 7, 2019. 

1. 2019 Annual Report 

The Chairperson then turned to the first agenda item, the Council’s 2019 annual report. The 

Chairperson noted that the Council’s annual report was the product of extensive analysis and 
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collaboration across the Council’s member agencies. He stated that the report provided the 

Council’s assessment for the public of the Council’s view of potential risks across the financial 

system, and included recommendations to enhance the integrity, efficiency, competitiveness and 

stability of U.S. financial markets. The Chairperson stated that the report highlighted recent 

accomplishments and areas where further work was needed. 

The Chairperson then introduced Stephen Ledbetter, Director of Policy in the Office of the 

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

report’s findings and recommendations. 

Mr. Ledbetter began by stating that the Council reports annually to Congress on significant 

financial market and regulatory developments, potential emerging threats to U.S. financial 

stability, and the Council’s activities. He noted that the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act) requires the annual report to include Council 

recommendations to enhance U.S. financial markets, promote market discipline, and maintain 

investor confidence. He stated that this report noted the continued strength of the U.S. economy, 

as reflected in low unemployment rates, low corporate and consumer delinquency and default 

rates, and financial conditions that were broadly stable. 

Mr. Ledbetter stated that, according to the report, overall risks to U.S. financial stability 

remained moderate. He noted that the report nonetheless emphasized the importance of 

remaining vigilant regarding potential emerging threats to financial stability, and discussed 

potential vulnerabilities and recommendations for addressing them. Mr. Ledbetter then provided 

a brief summary of key topics discussed in the report. 

Mr. Ledbetter first focused on cybersecurity risks. He stated that the report discussed the 

increasing reliance of the financial system on information technology, and the increased risk that 

institutions may experience a severe cybersecurity event. He noted that the report included a 

number of recommendations, including that Council member agencies continue information 

technology and cybersecurity examinations of financial institutions and infrastructure. He stated 

that the report also encouraged continued cooperation across government agencies and the 

private sector through the use of existing partnerships, such as the Financial and Banking 

Information Infrastructure Committee. 

Mr. Ledbetter noted that a second issue highlighted in the report was the anticipated cessation or 

degradation of LIBOR and the importance for markets of the transition to alternative reference 

rates. He stated that the report noted the risks to institutions that fail to adequately prepare for 

the transition away from LIBOR, and discussed the work of the Alternative Reference Rates 

Committee and others to facilitate the transition. He noted that the report also included 

recommendations regarding the importance of market participants formulating and executing 

transition plans, and of Council member agencies using their authorities to identify and mitigate 

risks from potential dislocations during the transition process. 
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Mr. Ledbetter stated that a third issue discussed in the report was the increase in borrowing and 

leverage by nonfinancial businesses. He noted that by several measures, leverage was elevated 

relative to historical averages. He stated that this increased borrowing reflected, in part, the 

strong performance of the U.S. economy and expectations for continued economic growth. He 

noted that strong interest coverage and liquidity positions had allowed businesses to service their 

debts with low delinquency rates. Mr. Ledbetter stated that the report noted the potential for 

conditions to change. He noted that any potential impact on financial stability depended on a 

number of factors, including the severity of market losses and the extent to which market 

participants are adequately capitalized and hold liquid assets. He stated that the report therefore 

made a number of recommendations, including that agencies continue to monitor levels of 

nonfinancial business leverage, trends in asset valuations, and potential implications for the 

entities they regulate, in order to assess and reinforce their ability to manage losses. 

Mr. Ledbetter stated that a fourth issue discussed in the report was the risk associated with the 

increasing share of residential mortgages originated and serviced by nonbanks. He noted that the 

report discussed the potential fragility of the nonbank business model, and included a 

recommendation that federal and state regulators coordinate in collecting data, identifying risks, 

and strengthening oversight of nonbank mortgage companies. 

Mr. Ledbetter noted that a fifth issue discussed in the report was the growth of technological 

innovations in the financial system, including the growth of digital assets and distributed ledger 

technologies. He stated that the report noted that, if digital assets were to become widely 

adopted as a means of payment or a store of value, disruptions could affect the wider economy. 

Mr. Ledbetter noted that the report therefore encouraged continued coordination among U.S. 

financial regulators, including through the Council’s digital asset and distributed ledger 

technology working group, to promote consistent regulatory approaches and to identify and 

address potential risks. 

As a sixth issue, Mr. Ledbetter noted that the report reaffirmed the Council’s view regarding the 

urgency of housing finance reform. He noted that the report recommended that the FHFA 

continue to develop capital and other prudential requirements for Fannie Mae and Freddie Mac 

to help inform their application to future secondary market housing entities, upon completion of 

housing finance reforms. He stated that the report also recommended that regulators and market 

participants take steps to encourage a larger role for private capital in the housing finance 

system. 

Finally, Mr. Ledbetter stated that the report discussed some of the actions that Council member 

agencies had taken to enhance the efficiency of financial regulation by tailoring regulation to the 

risks posed by firms and activities. He stated that the report recommended that federal and state 

regulators continue to work together to evaluate regulatory overlap and duplication, modernize 

outdated regulations and, where authority exists, continue to tailor regulations based on the size 

and complexity of financial institutions. Mr. Ledbetter concluded by stating that the report was a 

collaborative effort among Council members and member agencies. 
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After Mr. Ledbetter’s remarks, the Chairperson presented to the Council the following resolution 

approving the annual report: 

WHEREAS, the Financial Stability Oversight Council (the “Council”) under section 112 of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) is 

required to annually report to and testify before Congress on (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 of the Dodd-Frank Act, and the basis for 

such determinations; (5) all recommendations made under section 119 of the Dodd-Frank Act 

and the result of such recommendations; and (6) recommendations (a) to enhance the integrity, 

efficiency, competitiveness, and stability of U.S. financial markets; (b) to promote market 

discipline; and (c) to maintain investor confidence; and 

WHEREAS, the staffs of the Council members and their agencies prepared the attached 2019 

annual report of the Council (the “2019 Annual Report”) pursuant to section 112 of the 

DoddFrank Act, and members of the Council have reviewed and commented on the attached 

report. 

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby approves the 2019 Annual 

Report and authorizes the Chairperson, or his designee, to take such actions as they may deem 

necessary or appropriate to transmit the 2019 Annual Report to Congress and to release it to the 

public; and 

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 2019 

Annual Report and to take such other actions as they may deem necessary or appropriate to 

prepare the report for transmittal to Congress and release to the public. 

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

The Council approved the resolution by unanimous vote. 

2. Final Interpretive Guidance on Nonbank Financial Company Determinations 

The Chairperson then introduced the next agenda item, the Council’s final interpretive guidance 

on nonbank financial company determinations. The Chairperson stated that the final interpretive 

guidance represented the culmination of nearly two years of work by Council members and their 

staff. He stated that the Council was making these changes after review of public comments 

regarding the proposed guidance, which he stated were largely positive. He stated that the final 

interpretive guidance enhanced how the Council identified, assessed, and responded to potential 

risks to U.S. financial stability. The Chairperson noted that the final interpretive guidance 

prioritized an activities-based approach that would rely on existing regulators to address potential 
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risks to financial stability. He also noted that the guidance enhanced the Council’s process for 

evaluating nonbank financial companies for potential designation. 

The Chairperson then introduced Howard Adler, Deputy Assistant Secretary for the Council at 

Treasury, to provide an overview of the final interpretive guidance. 

Mr. Adler began by noting that the final interpretive guidance would replace the Council’s 

existing interpretive guidance on nonbank financial company determinations, which was adopted 

in 2012. Mr. Adler stated that in March 2019, the Council issued proposed interpretive guidance 

for public comment. He noted that the Council had received 26 comments, most of which 

supported the Council’s proposal. 

Mr. Adler stated that the final guidance described the approach the Council intended to take in 

using an activities-based approach. He noted that the key focus of the guidance was on the 

Council working with relevant financial regulators to identify products, activities, or practices 

that could raise potential risks to financial stability and to address those risks, leveraging the 

expertise of primary financial regulatory agencies. Mr. Adler stated that the guidance also 

included reforms designed to enhance the analytical rigor and transparency of the process the 

Council intended to follow if it were to consider designating a nonbank financial company, 

including a cost-benefit analysis, the consideration of the likelihood of the company’s material 

financial distress, and pre- and post-designation off-ramps. He noted that the guidance stated 

that the Council would be most likely to pursue entity-specific nonbank designations only in rare 

instances, such as if the products, activities, or practices of a company that pose a potential threat 

to U.S. financial stability are outside the jurisdiction or authority of financial regulatory agencies. 

Mr. Adler stated that the guidance emphasized the importance of market discipline as a 

mechanism for addressing potential risks to U.S. financial stability. 

Mr. Adler stated that the guidance would establish a two-step process for the activities-based 

approach. He stated that the Council would first monitor markets to identify and assess potential 

risks to U.S. financial stability. Mr. Adler noted that if, in the first step, the Council identifies a 

risk to financial stability, then in the second step the Council would work with relevant 

regulators to seek the implementation of actions intended to address the potential risks. He noted 

that in response to comments, the guidance provided detail regarding how the Council would 

take into account the risk profiles and business models of market participants engaging in the 

products, activities, or practices under evaluation. 

Mr. Adler stated that the final guidance also required a cost-benefit analysis if the Council seeks 

to issue any formal, nonbinding recommendations to a regulator under section 120 of the 

DoddFrank Act. He noted that this cost-benefit analysis would be performed either by the 

existing regulator or by the Council, depending on circumstances. Mr. Adler stated that if a 

potential threat cannot be addressed through an activities-based approach, the Council may 

evaluate a nonbank financial company for a potential determination. 
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Mr. Adler stated that the guidance would make several changes to enhance the analytical rigor 

and transparency of the nonbank designation process. He noted that the guidance condensed the 

previous three-stage designation process into two stages, by eliminating the previous stage 1. He 

further noted that the Council would perform a cost-benefit analysis under the guidance prior to 

designating any nonbank financial company. Mr. Adler stated that only if the expected benefits 

from the designation justify the expected costs would the Council make the designation. He 

noted that the Council would also assess the likelihood of a nonbank financial company’s 

material financial distress when evaluating the firm for a potential designation. He stated that 

both the cost-benefit analysis and assessment of likelihood had been revised in the final guidance 

to provide greater clarity about how the Council would perform those analyses. 

Mr. Adler stated that the guidance would also increase the Council’s engagement with 

companies and their existing regulators before and during the designation process. He noted that 

the increased engagement would provide a company with a potential pre-designation “off-ramp.” 

He noted that the guidance also included procedures intended to clarify the post-designation 

“off-ramp.” In addition, Mr. Adler stated that in response to public comments, the guidance 

required a vote of the Council to advance from the activities-based approach to consideration of 

a nonbank financial company for potential designation. 

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

interpretive guidance on nonbank financial company determinations: 

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

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

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

the Council member agencies general supervisory priorities and principles reflecting the 

outcome of discussions among the member agencies; identifying gaps in regulation that could 

pose risks to the financial stability of the United States; and making recommendations to 

primary financial regulatory agencies to apply new or heightened standards and safeguards for 

financial activities or practices that could create or increase risks of significant liquidity, 

credit, or other problems spreading among financial companies and markets; and 

WHEREAS, section 113 of the Dodd-Frank Act authorizes 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 prudential standards if the 

Council determines that material financial distress at the company, or the nature, scope, size, 

scale, concentration, interconnectedness, or mix of the activities of the company, could pose a 

threat to the financial stability of the United States; and 

WHEREAS, on April 3, 2012, the Council approved a final rule, with accompanying 

interpretive guidance (the “2012 Interpretive Guidance”), that describe the manner in which 

the Council intended to apply the statutory standards and considerations, and the processes 

and procedures that the Council intended to follow, in making determinations regarding 

nonbank financial companies under section 113 of the Dodd-Frank Act; and 
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WHEREAS, on February 4, 2015, the Council issued supplemental procedures relating to 

nonbank financial company determinations (the “Supplemental Procedures”), which 

supplemented its final rule and the 2012 Interpretive Guidance; and 

WHEREAS, on June 8, 2015, the Council published staff guidance (the “Stage 1 Guidance”) 

pursuant to the Supplemental Procedures explaining how certain quantitative thresholds were 

calculated in Stage 1 of the Council’s process for identifying nonbank financial companies for 

potential determination under section 113 of the Dodd-Frank Act; and 

WHEREAS, on March 13, 2019, the Council issued proposed interpretive guidance (the 

“Proposed Interpretive Guidance”) that would replace the 2012 Interpretive Guidance, the 

Supplemental Procedures, and the Stage 1 Guidance, and that described the approach the 

Council proposed to take in (1) prioritizing its work to identify and address potential risks to 

U.S. financial stability using an activities-based approach and (2) enhancing the analytical 

rigor and transparency in the processes the Council would follow if it were to consider making 

a determination under section 113 of the Dodd-Frank Act; and 

WHEREAS, in response to the public comments received on the Proposed Interpretive 

Guidance, the staffs of Council members and their agencies have prepared final interpretive 

guidance (the “Final Interpretive Guidance”); and 

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

approve and publish the Final Interpretive Guidance. 

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

Interpretive Guidance, which supersedes and replaces the 2012 Interpretive Guidance, and 

authorizes the Chairperson, or his designee, to cause the Final Interpretive Guidance to be 

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

designee, and to otherwise make it available to the public as the Chairperson, or his designee, 

deems appropriate. 

BE IT FURTHER RESOLVED, that the Supplemental Procedures and the Stage 1 Guidance 

are hereby rescinded. 

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 Final Interpretive Guidance to ensure that it can be 

published in the Federal Register, and to take such other actions and issue such other 

documents incidental and related to the foregoing as the Chairperson, or his designee, 

deems necessary or appropriate to fulfill the Council’s objectives in connection with 

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

The Council approved the resolution by unanimous vote. 

3. Resolution Approving the Minutes of the Meeting Held on November 7, 2019 

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

minutes attached hereto of the meeting held on November 7, 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 4:32 P.M.