Minutes of the Financial Stability Oversight Council

Held October 1, 2010 

PRESENT: 

Timothy F. Geithner, Secretary of the Treasury and Chairperson of the Financial Stability 

Oversight Council 

Sheila Bair, Chairperson, Federal Deposit Insurance Corporation 

Ben Bernanke, Chairman, Board of Governors of the Federal Reserve System 

Edward DeMarco, Acting Director, Federal Housing Finance Agency 

Gary Gensler, Chairman, Commodity Futures Trading Commission 

Debbie Matz, Chairman, National Credit Union Administration 

Mary Schapiro, Chairman, Securities and Exchange Commission 

John Walsh, Acting Comptroller of the Currency 

William Haraf, Commissioner, California Department 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 Wolin, Deputy Secretary 

Jeffrey Goldstein, Under Secretary for Domestic Finance 

Amias Gerety, Senior Adviser 

Laurie Schaffer, Assistant General Counsel (Banking and Finance) 

Federal Deposit Insurance Corporation

Art Murton, Director, Division of Insurance and Research 

Board of Governors of the Federal Reserve System

Daniel Tarullo, Governor 

Federal Housing Finance Agency

Mario Ugoletti, Special Advisor 

Commodity Futures Trading Commission

Cyrus Amir-Mokri, Senior Counsel to the Chairman 

National Credit Union Administration

David Marquis, Executive Director 

Securities and Exchange Commission

Ricardo Delfin, Special Counsel to the Chairman 
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Comptroller of the Currency

Tim Long, Senior Deputy Comptroller 

Federal Reserve Bank of New York

William Dudley, President and Chief Executive Officer 

Executive Session 

Secretary Geithner called the executive session of the meeting of the Financial Stability 

Oversight Council (Council) to order at 1:30 p.m. The Chairperson welcomed his fellow 

Council members to the first meeting of the Council. In his opening remarks, the Chairperson 

highlighted the precedential nature of the Council. The Chairperson discussed the importance of 

the collaborative nature of the Council and of preserving the independent authority of the 

member agencies of the Council. 

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

member agencies together with copies of the resolutions and other materials. The agenda for the 

meeting included the following subjects: (1) systemic risk monitoring process; (2) criteria for 

designating nonbank financial firms for supervision by the Board of Governors of the Federal 

Reserve System (Federal Reserve); and (3) consideration of resolutions approving: (a) the bylaws of the Council; (b) publication of an Advanced Notice of Proposed Rulemaking (ANPR) 

regarding the criteria for designating nonbank financial firms for supervision by the Federal 

Reserve; (c) publication of a request for comments regarding implementation of the prohibition 

on proprietary trading and sponsoring and investing in private equity and hedge funds; and (d) 

the transparency policy of the Council. The Chairperson indicated that the first two items on the 

agenda would be discussed in the executive session and that the resolutions would be considered 

in the open session of the meeting. 

1. Discussion of Systemic Risk Monitoring Process 

The Chairperson turned to the agenda item regarding the systemic risk monitoring process and 

asked the members to discuss how the Council should perform this function, how the Council’s 

annual report to Congress regarding systemic risk should be constructed, and what reports their 

agencies currently publish. 

The members discussion included consideration of establishing a rotating regularly scheduled 

discussion of risk in major components of the financial system in preparation for building the 

annual report to Congress and of making the Deputies Committee or a committee composed of 

senior staff of the member agencies responsible for identifying, and gathering information about, 

issues related to systemic risk and insuring that reports are presented to the Council. The Council 

also discussed that systemic risk monitoring process should take into account economic 

conditions affecting the financial services industry and related risk issues. It was also suggested 

that the Council establish a mechanism to facilitate bringing issues to the Council quickly 

through a coordination process established in the Council’s secretariat function. 

The members described the type of reports that their respective agencies publish. 
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2. Discussion of Designations 

The Chairperson then turned to the agenda item regarding the Advanced Notice of Proposed 

Rulemaking (ANPR) for designations of nonbank financial firms. The Chairperson described 

the ANPR seeking comment regarding the criteria for designation set forth in the Dodd-Frank 

Act. The members of the Council also discussed the statutory framework for designations of 

financial market utilities and the anticipated rulemaking process for such designations. 

3. Other Matters 

The Council members also discussed, and expressed support for, the proposed transparency 

policy for the Council that was distributed to the members in advance of the meeting and was 

scheduled for consideration as part of the meeting’s Open Session. The Council members also 

considered whether principles should be established regarding consultation among the Council 

members in light of the new requirements for consultation and coordination among the agencies 

in the Dodd-Frank Act. The FDIC and SEC agreed to work together to develop a set of draft 

principles. 

In addition, the members discussed the appropriate level of confidentiality of Council 

information and requested that appropriate staff from each of the member agencies review and 

discuss confidentiality-related issues. 

Chairmen Schapiro and Gensler then discussed the report issued by the SEC and CFTC on the 

market event of May 6, 2010. Chairmen Schapiro and Gensler provided the Council with an 

overview of the report. 

The executive session of the meeting ended and the open session commenced. 

Open Session 

Secretary Geithner called the open session of the meeting of the Council to order. After remarks 

made by each member of the Council, the Chairperson presented four resolutions for 

consideration by the Council. 

1. Resolution regarding Rules of Organization of the Council 

The Chairperson presented to the Council the following resolution approving the Rules of 

Organization of the Council as distributed to the Council. 

“WHEREAS, the Financial Stability Oversight Council (the “Council”) was established July 21, 

2010, pursuant to section 111(a) of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (the “DFA”); and 

WHEREAS, the purposes of the Council are to identify risks to the financial stability of the 

United States 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; to promote market discipline, by 

eliminating expectations on the part of shareholders, creditors, and counterparties of such 
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companies that the Government will shield them from losses in the event of failure; and to 

respond to emerging threats to the stability of the United States financial system; and 

WHEREAS, section 111(e)(2) of the DFA requires the Council to adopt such rules as may be 

necessary for the conduct of the business of the Council; and 

WHEREAS, such rules will describe the Council's authorities, organizational structure, and the 

rules by which the Council takes actions; and 

WHEREAS, the staffs of the Council Agencies have prepared “Rules of Organization for the 

Financial Stability Oversight Council;” and 

WHEREAS, staff from the Council Agencies recommend that the Council publish the “Rules of 

Organization for the Financial Stability Oversight Council” as set forth in the attached Federal 

Register document. 

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby adopts the attached “Rules of 

Organization for the Financial Stability Oversight Council” and authorizes the Chairperson, or 

his designee, to cause the “Rules of Organization for the Financial Stability Oversight Council” 

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

his designee. 

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 

attached Federal Register document to ensure that the Council can issue this document in the 

Federal Register, and to take such other actions and issue such other documents incident and 

related to the foregoing as they deem necessary or appropriate to fulfill the Council's objectives 

in connection with its publication.” 

The Chairperson asked for a motion to approve the Rules of Organization which was made and 

seconded. The Council then approved the resolution by unanimous voice vote. 

2. Resolution regarding publication of the Advanced Notice of Proposed Rulemaking 

seeking comments regarding the criteria and analytical framework for designation of 

nonbank financial firms 

The Chairperson presented to the Council the following resolution approving the publication of 

the Advanced Notice of Proposed Rulemaking seeking comments regarding the criteria and 

analytical framework for designation of nonbank financial firms in the form previously 

distributed to the Council. 

“WHEREAS, the Financial Stability Oversight Council (the “Council”) was established by the 

Dodd-Frank Wall Street Reform and Consumer Protection Act (the “DFA”) for the purposes of 

“(A) ...identify[ing] risk to the financial stability of the United States 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; (B) . . . promot[ing] market discipline, by eliminating expectations on the part of 

shareholders, creditors, and counterparties of such companies that the Government will shield 

them from losses in the event of failure; and (C) . . . respond[ing] to emerging threats to the 

stability of the United States financial system;” and 

WHEREAS, section 113 of the DFA gives the Council the authority to require that a nonbank 

financial company be supervised by the Board of Governors of the Federal Reserve System and 

subject to prudential standards if the Council determines that material financial distress at such 
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a firm, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the 

activities of the firm, could pose a threat to the financial stability of the United States; and 

WHEREAS, under the provisions of the DFA, in making a determination on whether the 

company should be subject to supervision by Board of Governors of the Federal Reserve System, 

the Council must consider a number of factors including (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 1 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 staffs of the Council Agencies have prepared an advance notice of proposed 

rulemaking (“ANPR”) that, consistent with the DFA; seeks to gather information as the Council 

begins to develop the criteria and analytical framework by which it will designate nonbank 

financial companies for enhanced supervision under the DFA; and 

WHEREAS, staff from the Council Agencies recommend that the Council publish the ANPR as 

set forth in the attached Federal Register document. 

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby authorizes the Chairperson, or 

his designee, to cause the attached ANPR to be published in the 

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

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 

attached Federal Register document to ensure that the Council can issue this document in the 

Federal Register, and to take such other actions and issue such other documents incident and 

related to the foregoing as they deem necessary or appropriate to fulfill the Council's objectives 

in connection with its publication.” 

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

The Council then approved the resolution by unanimous voice vote. 

3. Resolution regarding publication of a request for comments in connection with the 

Council’s study on implementation of the prohibition on proprietary trading and 

sponsoring and investment in private equity and hedge funds. 

The Chairperson presented to the Council the following resolution approving the publication a 

request for comments in connection with the Council’s study on implementation of the 

prohibition on proprietary trading and sponsoring and investment in private equity and hedge 

funds in the form previously distributed to the Council. 
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“WHEREAS, the Financial Stability Oversight Council (the “Council”) under the provisions of 

section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “DFA”) is 

required to study and make recommendations on implementing the section 619 provisions; and 

WHEREAS, section 619 of the DFA (commonly referred to as the “Volcker Rule”) generally 

prohibits banking entities from engaging in proprietary trading and from maintaining certain 

relationships with hedge funds and private equity funds; and 

WHEREAS, to assist the Council in conducting the study and formulating its recommendations 

concerning the Volcker Rule, the staffs of the Council Agencies have prepared a “Notice and 

Request for Information” seeking public comment on the implementation of the Volcker Rule; 

and 

WHEREAS, staff from the Council Agencies recommend that the Council publish the “Notice 

and Request for Information” as set forth in the attached Federal Register document. 

NOW, THEREFORE, BE IT RESOLVED, that the Council hereby authorizes the Chairperson, or 

his designee, to cause the attached “Notice and Request for Information” to be published in the 

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

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 

attached Federal Register document to ensure that the Council can issue this document in the 

Federal Register, and to take such other actions and issue such other documents incident and 

related to the foregoing as they deem necessary or appropriate to fulfill the Council's objectives 

in connection with its publication.” 

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

The Council then approved the resolution by unanimous voice vote. 

4. Resolution regarding a policy on transparency for the Council 

The Chairperson presented to the Council the following resolution approving the policy on 

transparency in the form previously distributed to the Council. 

“WHEREAS, the Financial Stability Oversight Council (the “Council”) is committed to 

conducting its business in an open and transparent manner to the extent practicable; and 

WHEREAS, the Council plans to make its meetings open to the press and to the public via a live 

webstream, except as necessary in certain circumstances; and 

WHEREAS, the Council plans to release minutes of meetings after each meeting and, as part of 

its annual report to Congress under the DFA, will report on compliance with its transparency 

policy; and 

WHEREAS, the Council recognizes that some meetings may be closed to the public in order for 

Council members to discuss supervisory and other market-sensitive data, including information 

about individual firms, transactions and markets; and 

WHEREAS, the staffs of the Council Agencies have prepared the attached “Transparency 

Policy;” and 

WHEREAS, staffs from the Council Agencies recommend that the Council publish on the 

Council’s website the “Transparency Policy” as set forth in the attached document. 
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NOW, THEREFORE, BE IT RESOLVED, that the Council hereby adopts the attached 

“Transparency Policy” to be published on the Council’s website, in a form and manner 

acceptable to the Chairperson, or his designee. 

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 

attached document to ensure that the Council can publish this document on the Council’s 

website, and to take such other actions incident and related to the foregoing as they deem 

necessary or appropriate to fulfill the Council's objectives in connection with its publication.” 

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

The Council then approved the resolution by unanimous voice vote. 

The Chairperson then asked for a motion to adjourn the meeting which was made and seconded. 

The Chairperson adjourned the meeting at approximately 3:30 p.m. (EDT). 

 
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OTHER ACTIONS OF THE COUNCIL 

Notational vote approving initial budget 

 The voting members of the Financial Stability Oversight Council, currently serving 

approved unanimously through a notational vote on November 9, 2010, the following resolution: 

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

budget request attached hereto is hereby approved. 

Estimated FSOC Expenses for FY11 

Category Expense 

Salaries and Expenses $4,434,676 

IT Operations & Maintenance $420,000 

IT One-time Development $2,180,000 

Other Administrative $400,000 

Total: $7,434,676

Recurring Costs: $5,254,676 

One-Time IT Support Costs: $2,180,000 

• This budget request seeks funds to cover initial start-up for the FSOC. As the FSOC 

continues to develop, it is expected that there may be a need for additional staffing, which 

would require a supplemental budget request during 2011. 

• The salaries and expenses estimate assumes salary and benefits costs for 17 employees 

for administrative, legal, and policy support of the Council. 

• IT support: one-time start up costs include funding to support web site development and 

records management software. 

• Other administrative includes funding for overheard costs associated with FSOC support, 

including procurement services and renting space. 

Funding and Governance of FSOC Budget 

Under Section 118 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 

Act), “any expenses of the Council shall be treated as, and paid by, the Office of Financial 

Research.” Under Section 155 of the Act, the Office of Financial Research (OFR) and therefore 

the FSOC will be funded by transfers from the Federal Reserve for the first two years after 

enactment. After two years, the statute stipulates that expenses of OFR and therefore FSOC will 

be funded through assessments on bank holding companies with greater than $50B in assets and 
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nonbank financial companies supervised by the Federal Reserve. Assessments will be set 

through regulation by the Treasury Secretary, with the approval of the Council. 

Pursuant to section 3(a)(3)(B)(i) of the FSOC’s Rules of Organization, the budget for the FSOC 

shall be proposed by the Chairperson and shall be adopted as the annual budget of the FSOC 

upon an affirmative vote of the majority of the voting members then serving. The Rules of 

Organization also state that the first annual budget shall be proposed for the FSOC no later than 

November 30, 2010. Under 3(a)(3)(A) of the FSOC’s Rules of Organization, the FSOC shall 

periodically review the expenses of the FSOC and the Chairperson shall submit a report of 

expenses no later than September 1 of each year.