F I N A N C I A L S T A B I L I T Y 

OVERSIGHT COUNCIL

1500 PENNSYLVANIA AVENUE, NW | WASHINGTON, D.C. 20220
Financial Stability Oversight Council 1

The Financial Stability Oversight Council (Council) was established by the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank Act) and is charged with three primary purposes:

1. 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.

2. To promote market discipline by eliminating expectations on the part of shareholders, creditors, 

and counterparties of such companies that the U.S. government will shield them from losses in 

the event of failure.

3. To respond to emerging threats to the stability of the U.S. financial system.

Pursuant to the Dodd-Frank Act, the Council consists of ten voting members and five nonvoting 

members and brings together the expertise of federal financial regulators, state regulators, and an 

insurance expert appointed by the President. 

The voting members are:

• the Secretary of the Treasury, who serves as the Chairperson of the Council;

• the Chair of the Board of Governors of the Federal Reserve System;

• the Comptroller of the Currency; 

• the Director of the Consumer Financial Protection Bureau;

• the Chair of the Securities and Exchange Commission;

• the Chairman of the Federal Deposit Insurance Corporation;

• the Chairman of the Commodity Futures Trading Commission;

• the Director of the Federal Housing Finance Agency;

• the Chairman of the National Credit Union Administration; and

• an independent member having insurance expertise who is appointed by the President and 

confirmed by the Senate for a six-year term.

The nonvoting members, who serve in an advisory capacity, are:

• the Director of the Office of Financial Research;

• the Director of the Federal Insurance Office;

• a state insurance commissioner designated by the state insurance commissioners;

• a state banking supervisor designated by the state banking supervisors; and

• a state securities commissioner (or officer performing like functions) designated by the state 

securities commissioners.

The state insurance commissioner, state banking supervisor, and state securities commissioner serve twoyear terms.

Financial Stability Oversight Council
2 2021 FSOC // Annual Report

Statutory Requirements for the Annual Report

Section 112(a)(2)(N) of the Dodd-Frank Act requires that the Council’s annual 

report address the following:

i. the activities of the Council;

ii. 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;

iii. potential emerging threats to the financial stability of the United 

States; 

iv. all determinations made under Section 113 or Title VIII, and the 

basis for such determinations;

v. all recommendations made under Section 119 and the result of such 

recommendations; and

vi. recommendations—

I. to enhance the integrity, efficiency, competitiveness, and stability 

of United States financial markets;

II. to promote market discipline; and

III. to maintain investor confidence.

 

Approval of the Annual Report

This annual report was approved unanimously by the voting members of the 

Council on December 17, 2021.

Abbreviations for Council Member Agencies and Member Agency Offices

• Department of the Treasury (Treasury)

• Board of Governors of the Federal Reserve System (Federal Reserve)

• Office of the Comptroller of the Currency (OCC)

• Consumer Financial Protection Bureau (CFPB)

• Securities and Exchange Commission (SEC)

• Federal Deposit Insurance Corporation (FDIC)

• Commodity Futures Trading Commission (CFTC)

• Federal Housing Finance Agency (FHFA)

• National Credit Union Administration (NCUA)

• Office of Financial Research (OFR)

• Federal Insurance Office (FIO)
Table of Contents 3

Table of Contents

1 Member Statement ..................................................... 7

2 Executive Summary ..................................................... 9

3 Financial Developments............................................. 19

3.1 Household Finance ...............................................................................19

3.2 Nonfinancial Business Finance..............................................................23

3.2.1 Corporate Debt ...............................................................................................23

3.2.2 Small Business Debt........................................................................................27

3.2.3 Equities ...........................................................................................................28

3.3 Government Finance.............................................................................31

3.3.1 Treasury Market ..............................................................................................31

Box A: IAWG Work on Treasury Market Resilience........................................... 35

3.3.2 Municipal Bond Market................................................................................... 36

3.4 Financial Markets ................................................................................39

3.4.1 Wholesale Funding Markets: Unsecured Borrowing..........................................39

3.4.2 Wholesale Funding Markets: Secured Borrowing .............................................41

3.4.3 Derivatives Markets ........................................................................................ 48

3.4.3.1 Futures ............................................................................................... 48

3.4.3.2 Exchange-Traded Options................................................................... 53

3.4.3.3 OTC Derivatives.................................................................................. 55

3.4.3.4 Derivatives Intermediaries and Platforms ............................................57

3.4.4 Commodities Market........................................................................................59

3.4.5 Residential Real Estate Markets...................................................................... 64

3.4.5.1 Residential Housing Finance................................................................ 64

Box B: The Rapid Rise in House Prices ............................................................69

3.4.5.2 Government-Sponsored Enterprises and the Secondary 

 Mortgage Market ................................................................................71

3.4.6 Commercial Real Estate Market.......................................................................74

3.5 Financial Institutions............................................................................ 77

3.5.1 Bank Holding Companies and Depository Institutions...................................... 77

3.5.1.1 Bank Holding Companies and Dodd-Frank Act Stress Tests ............... 77

3.5.1.2 Insured Commercial Banks and Savings Institutions............................ 86

3.5.1.3 U.S. Branches and Agencies of Foreign Banks..................................... 88

3.5.1.4 Credit Unions ..................................................................................... 89

3.5.2 Nonbank Financial Companies ........................................................................ 93
4 2021 FSOC // Annual Report

3.5.2.1 Securities Broker-Dealers................................................................... 93

3.5.2.2 REITs ................................................................................................. 94

3.5.2.3 Money Market Funds.......................................................................... 95

3.5.2.4 Registered Investment Companies ..................................................... 98

Box C: Nonbank Financial Intermediation & Council Initiatives .......................102

3.5.2.5 Alternative Funds ..............................................................................105

Box D: Failure of Archegos Capital Management............................................109

3.5.2.6 Pension Funds................................................................................... 111

3.5.2.7 Insurance Companies........................................................................112

3.5.2.8 Specialty Finance..............................................................................114

3.6 Financial Market Structure, Alternative Reference Rates, 

and Financial Innovation ..................................................................... 116

3.6.1 Market Structure: Central Counterparty Clearing ...........................................116

Box E: LIBOR Transition.................................................................................120

3.6.2 Financial Innovation ......................................................................................123

3.6.2.1Digital Assets.....................................................................................123

3.6.2.2 Peer-to-Peer Payments ....................................................................124

3.6.2.3 Digital Lending .................................................................................124

3.6.2.4 Use of Technology in Financial Services ............................................124

3.6.2.5 Reliance of Financial Institutions on Third-Party Service Providers....125

3.7 Global Economic and Financial Developments .....................................126

3.7.1 Foreign Exchange Market ..............................................................................126

3.7.2 Advanced Economies.....................................................................................127

3.7.3 Emerging Market and Developing Economies.................................................132

4 Council Activities and Regulatory Developments... 137

4.1 Council Activities ................................................................................137

4.1.1 Risk Monitoring and Regulatory Coordination.................................................137

Box F: Climate-Related Financial Risk............................................................137

4.1.2 Determinations Regarding Nonbank Financial Companies and 

 Activities-Based Approach.............................................................................140

4.1.3 Operations of the Council...............................................................................140

4.2 Safety and Soundness........................................................................141

4.2.1 Enhanced Capital and Prudential Standards and Supervision.........................141

4.2.2 Dodd-Frank Act Stress Tests and Stress Capital Buffer..................................143

4.2.3 Resolution Planning and Orderly Liquidation...................................................144

4.2.4 Insurance.......................................................................................................144

4.3 Financial Infrastructure, Markets, and Oversight..................................147

4.3.1 Derivatives, Swap Data Repositories, Regulated Trading Platforms, 

 and Central Counterparties ............................................................................147
Table of Contents 5

4.3.2 Securities and Asset Management.................................................................149

4.3.3 Accounting Standards....................................................................................151

4.3.4 Bank Secrecy Act/Anti-Money Laundering Regulatory Reform .......................152

4.4 Mortgages and Consumer Protection .................................................152

4.4.1 Mortgages and Housing Finance....................................................................152

4.4.2 Consumer Protection .....................................................................................154

4.5 Data Scope, Quality, and Accessibility.................................................154

4.5.1 Data Scope....................................................................................................154

4.5.2 Data Quality...................................................................................................155

5 Potential Emerging Threats, Vulnerabilities, 

and Council Recommendations................................157

5.1 Climate-Related Financial Risk............................................................157

5.2 Nonfinancial Business: Corporate Credit..............................................157

5.3 Financial Markets ..............................................................................158

5.3.1 Short-Term Wholesale Funding Markets.........................................................158

5.3.2 Residential Real Estate Market ......................................................................160

5.3.3 Commercial Real Estate Market.....................................................................161

5.4 Financial Institutions...........................................................................161

5.4.1 Large Bank Holding Companies .....................................................................161

5.4.2 Investment Funds ..........................................................................................162

5.5 Financial Market Structure, Operational Challenges, 

and Financial Innovation .....................................................................163

5.5.1 Central Counterparties...................................................................................163

5.5.2 Alternative Reference Rates...........................................................................165

5.5.3 Financial Market Structure.............................................................................167

5.5.4 Cybersecurity ................................................................................................168

5.5.5 Data Gaps and Challenges .............................................................................170

5.5.6 Financial Innovation .......................................................................................171

5.5.6.1 Digital Assets....................................................................................171

Box G: Stablecoins ........................................................................................173

5.5.6.2 Use of Technology in Financial Services ............................................174

5.6 Managing Vulnerabilities amid Uneven and Volatile Global Growth ......175

6 Abbreviations ........................................................... 177

7 Glossary.................................................................... 183

8 List of Charts ........................................................... 193
6 2021 FSOC // Annual Report
Member Statement 7

Janet L. Yellen

Secretary of the Treasury

Chairperson, Financial Stability Oversight Council

Michael J. Hsu

Acting Comptroller of the Currency

Office of the Comptroller of the Currency

Gary Gensler

Chair

Securities and Exchange Commission

Rostin Behnam

Acting Chairman

Commodity Futures Trading Commission

Todd M. Harper

Chairman

National Credit Union Administration

Jerome H. Powell

Chair

Board of Governors of the Federal Reserve System

Rohit Chopra

Director

Consumer Financial Protection Bureau

Jelena McWilliams

Chairman

Federal Deposit Insurance Corporation

Sandra L. Thompson

Acting Director

Federal Housing Finance Agency

 Thomas E. Workman

Independent Member Having Insurance Expertise

Financial Stability Oversight Council

The Honorable Nancy Pelosi

Speaker of the House

United States House of Representatives

The Honorable Kevin McCarthy

Republican Leader

United States House of Representatives

The Honorable Kamala D. Harris

President of the Senate

United States Senate

The Honorable Charles E. Schumer

Majority Leader

United States Senate

The Honorable Mitch McConnell

Republican Leader

United States Senate

In accordance with Section 112(b)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection 

Act, for the reasons outlined in the annual report, I believe that additional actions, as described below, 

should be taken to ensure financial stability and to mitigate systemic risk that would negatively affect 

the economy: the issues and recommendations set forth in the Council’s annual report should be fully 

addressed; the Council should continue to build its systems and processes for monitoring and responding 

to emerging threats to the stability of the U.S. financial system, including those described in the Council’s 

annual report; the Council and its member agencies should continue to implement the laws they 

administer, including those established by, and amended by, the Dodd-Frank Act, through efficient and 

effective measures; and the Council and its member agencies should exercise their respective authorities 

for oversight of financial firms and markets so that the private sector employs sound financial risk 

management practices to mitigate potential risks to the financial stability of the United States.

1 Member Statement 
8 2021 FSOC // Annual Report
Executive Summary 9

The United States economy has continued to 

rebound over the past year from disruptions related 

to the COVID-19 pandemic, supported by monetary 

and fiscal policy, substantial progress in vaccination, 

and broadly accommodative financing conditions. 

The acute financial crisis that occurred at the onset 

of the pandemic in 2020 has moved farther into 

the rear-view mirror, though the Council continues 

to focus on vulnerabilities in the financial system 

induced or made more salient by that episode.

Financing conditions have been accommodative 

for nonfinancial firms, commercial real estate 

(CRE) borrowers, and municipalities borrowing 

in the capital markets. Similarly, households have 

had relatively strong access to consumer credit and 

residential mortgage loans. However, somewhat 

tight conditions have continued to prevail for small 

businesses and bank-dependent CRE borrowers 

as a result of pandemic-induced uncertainties. In 

addition, residential real estate borrowers with 

low credit scores or undocumented incomes have 

relatively more difficulty accessing credit, in line 

with pre-pandemic standards.

The normalization of financial conditions since 

spring 2020 in part reflected the effectiveness 

of extraordinary measures taken by the Federal 

Reserve to support the functioning of a wide range 

of financial markets and institutions. By the end of 

2020, the take-up of many of the Federal Reserve’s 

lending facilities had fallen to very low levels, and 

the Federal Reserve ceased new operations of most 

of these facilities in late 2020 and early 2021. 

The financial condition of households and 

businesses has been bolstered significantly by the 

substantial direct monetary support and forbearance 

on federally backed mortgages and student loans 

provided for by the Coronavirus Aid, Relief, and 

Economic Security Act (CARES Act) and American 

Rescue Plan Act of 2021 (ARP Act). Recently, 

however, many households that rent their residences 

have come under pressure following the end of 

the Center for Disease Control (CDC) eviction 

moratorium in August, and homeowners and 

student loan borrowers may come under pressure in 

coming months as forbearance arrangements expire. 

Additionally, households with members employed 

in sectors particularly hard-hit by the pandemic 

continue to face significant stresses. On the business 

side, credit quality has broadly remained strong 

over the past year, though delinquencies remained 

elevated on certain types of CRE loans, particularly 

loans on properties located in central business 

districts. The outlook for small businesses has 

improved over the past year, but compared to larger 

firms they remain more vulnerable, particularly to 

pandemic-driven disruptions.

Asset valuation pressures have grown in several 

markets over the past year amidst an improvement 

in the macroeconomic outlook and low interest 

rates. Broad equity market indexes have reached 

record highs and corporate bond spreads remain at 

low levels by historical standards. In the residential 

real estate market, rapid price gains also reflect very 

strong demand. Looking forward, the evolution of 

asset prices will depend on investor risk appetite, 

the outlook for inflation, continued progress in 

containing the virus, and the pace of the ongoing 

economic recovery. 

The rapid pace of the economic recovery this year 

was accompanied by growing pains, evidenced by 

supply chain problems or rising prices in many 

markets. Amid the national vaccination campaign, 

demand for many goods and services grew faster 

than supply in the short run. As a result, commodity 

markets and associated derivatives recorded 

volatile prices. Inflation has risen, and inflation 

compensation measures rose in financial markets. 

Lastly, supply chain bottlenecks and materials 

shortages affected a number of sectors. 

Some episodes in financial markets this year 

generated unusually high volatility. A surge of 

interest by retail investors in certain equities such 

2 Executive Summary
10 2021 FSOC // Annual Report

as GameStop Corp. that were widely discussed on 

social media led to elevated volatility in equity, 

options, and securities lending markets at the 

beginning of the year. This episode highlighted 

evolving considerations related to financial 

innovations that have eased access to these markets. 

Digital assets have also seen a surge of interest 

since the onset of the pandemic, and the values 

of those assets have been highly volatile over the 

past year. Another episode involved the failure 

of the family investment fund Archegos, which 

led to large losses for some banks. This episode 

highlighted the importance of counterparty credit 

risk management practices and relatively limited 

visibility into the activities of highly levered private 

investment vehicles. In February, the Treasury 

market experienced a sudden drop in liquidity 

conditions that only slowly reversed. This episode 

underscored the importance of inter-agency efforts 

to improve the resilience of Treasury markets. 

Finally, cyberattacks affected two major firms in 

commodity markets, though the effects of these 

attacks on markets were ultimately limited.

In addition, the toll of climate change has continued 

to mount. According to the National Oceanic and 

Atmospheric Administration’s National Centers for 

Environmental Information, 2020 was a “historic 

year of extremes” for the United States. The year 

2020 witnessed 22 billion-dollar-or-greater weather 

and climate disasters, a record number of such 

events, which caused a combined $95 billion in 

damages. Physical harm caused by such events and 

the process of transitioning to a low greenhouse 

gas economy together are an emerging threat to 

economic activity and to the U.S. financial system. 

President Biden issued Executive Order 14030, 

Climate-Related Financial Risk, on May 20, 2021, 

directing the Secretary to engage with Council 

members on climate-related financial risks and 

report on the Council’s activities. 

Council Initiatives 

A key goal of the Council and its member agencies 

is to monitor vulnerabilities to U.S. financial 

stability so that abrupt and unpredictable changes 

in economic or financial conditions—“shocks”—do 

not disrupt the ability of the financial system to meet 

the demand for financial services. Vulnerabilities 

include structural weaknesses in the financial system 

and its regulatory framework. Vulnerabilities in the 

financial system can amplify the impact of an initial 

shock, potentially leading to substantial disruptions 

in the provision of financial services, such as the 

clearing of payments, the provision of liquidity, and 

the availability of credit.

Regulatory reforms after the 2008 financial crisis 

strengthened the ability of the financial system 

to withstand a shock or an economic downturn. 

However, risks to U.S. financial stability today 

are elevated compared to before the pandemic. 

The outlook for global growth is characterized 

by elevated uncertainty, with the potential for 

continued volatility and unevenness of growth across 

countries and sectors. The financial crisis in March 

2020 at the onset of the pandemic has also made 

some vulnerabilities more salient. That experience 

showed that asset liquidation pressures can be 

amplified by liquidity mismatches and the leverage 

of certain nonbank financial intermediaries such as 

hedge funds. That episode also demonstrated that 

pressures on dealer intermediation can limit the 

availability of liquidity during times of market stress. 

This year, the Council has identified a set of 

priorities for addressing risks and vulnerabilities in 

the U.S. financial system.

One priority is climate change. The Council first 

discussed climate-related financial risks at its March 

2021 meeting, at which members highlighted 

a broad set of initiatives being undertaken at 

individual agencies and organizations. The Council 

views climate-related financial risks as an emerging 

threat to the financial stability of the United States. 

The Council and its members have the responsibility 

to assess the magnitude of these risks and take 

appropriate measures to ensure the resilience of 

the financial system. The Council issued a Report

on Climate-Related Financial Risk on October 21, 

2021 that identified steps the Council and financial 

regulators can take to promote the resilience of the 

financial system to climate-related financial risks. 

These steps include expanding capacity, improving 

data and measurement, enhancing disclosure of 

climate-related risks, assessing the scale of potential 

vulnerabilities, and making appropriate adjustments 

in regulatory and supervisory tools. 
Executive Summary 11

Another priority is addressing vulnerabilities in 

nonbank financial intermediation. Intermediation 

by nonbanks provides essential funding that 

underpins the United States economy. However, 

the acute financial market stress that occurred in 

March 2020 highlighted the potential for liquidation 

pressures to be amplified by prime money market 

funds (MMFs) and open-end mutual funds because 

of the liquidity risk in their business models, and 

by hedge funds because of their use of leverage. 

Over the past year, the Council has established an 

open-end fund working group and re-established a 

hedge fund working group, in order to better share 

data and identify risks associated with both kinds of 

nonbanks. The structural vulnerabilities of MMFs 

were the subject of a statement by the Council on 

June 11, 2021, which emphasized the importance of 

reforms to improve the resilience and functioning of 

short-term funding markets. The Council expressed 

support for the SEC’s engagement on this critical 

issue and will continue to monitor this initiative. 

Resilience of the U.S. Treasury market is an 

additional key priority. A deep and liquid Treasury 

market is essential for a strong U.S. economy, is 

critical to the entire financial system, supports the 

U.S. dollar as the world’s reserve currency, and is the 

benchmark for asset classes globally. Through the 

Inter-Agency Working Group for Treasury Market 

Surveillance (IAWG), and in close coordination 

with the Council, federal agencies are working to 

understand the deterioration in the liquidity of the 

Treasury market in March 2020 and commonalities 

with other recent episodes of stress. As discussed 

in the November 2021 Staff Progress Report, the 

IAWG is analyzing specific policy steps that could 

improve the Treasury market’s resilience, including 

improving data quality and availability, bolstering 

the resilience of market intermediation, evaluating 

expanded central clearing, and enhancing trading 

venue transparency and oversight.

Of course, these priorities are not the only 

challenges to financial stability. It is critical that 

the Council continue to identify and address other 

vulnerabilities. For example, the rapid growth of 

digital assets, including stablecoins and lending and 

borrowing on digital asset trading platforms, is an 

important potential emerging vulnerability. Other 

significant vulnerabilities reviewed regularly in 

recent annual reports include the LIBOR transition, 

cybersecurity risks, the growth of nonfinancial 

corporate credit, and the importance of large banks 

and central counterparties in the U.S. financial 

system.

Summary of Risks and Vulnerabilities 

Climate-Related Financial Risk

In assessing the risks to the financial system, this 

year the Council has focused on financial risks 

related to climate change. These risks can be 

grouped into two broad categories: physical risks 

and transition risks.

Physical risks refer to the harm to people and 

property arising from acute climate-related disaster 

events, as well as longer-term chronic phenomena 

such as higher average temperatures and sea level 

rise. Physical risks have direct effects on households, 

businesses, and other entities located where those 

risks are realized, as well as to the set of financial 

institutions and investors connected to those 

impacted. These effects create climate-related 

financial risks in several ways. Increased legal and 

operational risks may also occur. In response, 

creditors may pull back from impacted regions, 

potentially amplifying the initial impact of a natural 

disaster and creating further financial and economic 

strain. 

Transition risks refer to stresses to certain 

institutions or sectors arising from the shifts 

in policy, consumer and business sentiment, or 

technologies associated with the changes necessary 

to limit climate change. As countries fulfill their 

commitments and transition to a low-greenhouse 

gas economy, changes in public policy, the adoption 

of new technologies, and shifting consumer and 

investor preferences all have the potential to impose 

costs on some firms and communities even as they 

reduce overall climate risks. As a result, the ability 

of impacted firms to meet their financial obligations 

may decrease. Therefore, the economic effects 

associated with a transition may transmit through 

the financial sector and the economy in ways that 

weaken the resilience of financial institutions or the 

financial sector. The impact of these changes is likely 

to be more sudden and disruptive if the changes 
12 2021 FSOC // Annual Report

occur in a disorderly way owing to substantial delays 

in action or abrupt changes in policy. 

The Council recognizes the critical importance of 

taking prompt action to improve the availability 

of data and measurement tools, enhance 

assessments of climate-related financial risks 

and vulnerabilities, and incorporate climaterelated risks into risk management practices and 

supervisory expectations for regulated entities, 

where appropriate. In addition, financial regulators, 

consistent with their mandates and authorities, 

should also promote consistent, comparable, and 

decision-useful disclosures that allow investors 

and financial institutions to take climate-related 

financial risks into account in their investment and 

lending decisions. Through these actions, financial 

regulators can both promote financial-sector 

resilience and help the financial system support 

an orderly economy-wide transition to net-zero 

emissions. The Council provided more detailed 

recommendations to Council members in its Report 

on Climate-Related Financial Risk.

Corporate Credit

The average leverage of nonfinancial corporations 

is elevated relative to historical standards. Since 

the onset of the pandemic, many firms increased 

their leverage but have subsequently retraced those 

increases. However, in some industries leverage 

remains elevated compared to pre-pandemic 

averages, including the airline, hospitality and 

leisure, and restaurant sectors. 

The potential risks to financial stability from 

nonfinancial business borrowing depend in part on 

the ability of businesses to service their obligations, 

the ability of the financial sector to absorb losses 

from defaults and downgrades, and the continued 

willingness of market participants to provide 

intermediation during times of stress. 

Elevated leverage has been accompanied by rising 

valuations in U.S. equities and corporate bonds. 

These valuation pressures make these markets 

vulnerable to a major repricing of risk, increased 

volatility, and weakening balance sheets of financial 

and nonfinancial businesses. Sharp reductions in 

the valuations of different assets could heighten debt 

rollover risk. 

The Council recommends that member 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 the ability of the 

financial sector to manage severe, simultaneous 

losses. Regulators and market participants should 

also continue to assess ways in which leveraged 

nonfinancial corporate borrowers and elevated asset 

prices may amplify stresses in the broader market in 

the event of a rapid repricing of risk or a slowdown 

in economic activity.

Short-Term Wholesale Funding Markets

Wholesale funding markets provide essential shortterm funding to businesses, local governments, and 

financial intermediaries. Developments in these 

markets can have implications for financial stability 

and the implementation of monetary policy. 

Certain MMFs can amplify stress in short-term 

funding markets by liquidating assets in those 

markets to meet redemptions. The gap between the 

liquidity of prime and tax-exempt MMF assets and 

the availability of daily redemptions contributes to 

a so-called first mover advantage. Investors have an 

incentive to be the first to redeem in order to avoid 

losses, which would be borne by the remaining 

investors. 

In repurchase agreement (repo) markets, recent 

episodes of stress have included large spikes in repo 

rates in September 2019 and in March 2020. The 

2019 episode has been attributed to technical and 

seasonal factors, while the 2020 episode came at the 

onset of the pandemic amidst intense selling in the 

cash Treasury market. Reliance on repo funding 

by leveraged investors, such as hedge funds and 

mortgage real estate investment trusts (mREITs), 

can amplify stress in short-term funding markets in 

response to deleveraging pressure, because many 

of the assets sold at declining prices are the same 

types of assets used as collateral in repo funding. 

The complexity of interactions involving leveraged 

participants raises concerns regarding their role in 

amplifying funding stresses.

The Council commends steps taken over the past 

year by member agencies to understand the nature 

of structural vulnerabilities of MMFs and potential 
Executive Summary 13

reform options, including the release of a report by 

the President’s Working Group on Financial Markets 

(PWG) in December 2020 and the request for 

public comment by the SEC in February 2021. The 

Council recommends that regulators continue to 

consider these structural vulnerabilities, including 

the vulnerability to large-scale redemptions in prime 

and tax-exempt MMFs and the vulnerabilities posed 

by leveraged investors relying on short-term funding, 

and take appropriate measures to mitigate these 

vulnerabilities.

Residential Real Estate Market

Nonbank mortgage companies have come to play a 

large role in residential mortgage markets but are 

often subject to key vulnerabilities. Many nonbank 

mortgage companies rely on short-term funding 

and therefore remain vulnerable to adverse market 

conditions. In addition, many mortgage companies 

have limited loss-absorbing capacity in the face of 

adverse economic shocks. Disruption to nonbank 

mortgage companies could interrupt mortgage 

servicing operations, especially for nonperforming 

loans, and might have knock-on effects on these 

servicers’ mortgage originations in the residential 

real estate market. 

The Council commends steps taken by the 

Government National Mortgage Association 

(Ginnie Mae) and the Conference of State Bank 

Supervisors over the past year to understand options 

for standards and regulations for nonbank mortgage 

companies to address these vulnerabilities. The 

Council recommends that relevant federal and state 

regulators continue to coordinate closely to collect 

data, identify risks, and strengthen oversight of 

nonbank companies involved in the origination and 

servicing of residential mortgages. 

Commercial Real Estate Market

The COVID-19 pandemic continues to substantially 

weigh on CRE properties in central business districts 

(CBDs). Depending on the course of the pandemic 

and the long-run demand for CBD properties, 

if acute stress were to emerge in CRE markets, 

asset sales from financially distressed individual 

properties could lead to a cycle of lower valuations 

and more distress. Defaults on CRE loans would 

result in losses to banks, which hold a sizable 

portion of CRE loans, and potentially lead to tighter 

credit availability.

The Council recommends that regulators continue 

to monitor CRE asset valuations, the level of CRE 

concentration at banks, and the performance 

of CRE loans. The Council recommends that 

regulators continue to encourage banks and other 

entities to bolster, as needed, their loss-absorption 

capacity by strengthening their capital and liquidity 

buffers commensurate with the levels of CRE 

concentration on their balance sheets.

Large Bank Holding Companies

The 2008 financial crisis demonstrated that 

financial distress at a large, complex, interconnected 

bank holding company (BHC) has the potential 

to affect global financial markets and amplify 

tightening of credit conditions. Since then, large 

and complex U.S. financial institutions have built up 

stronger capital and liquidity positions and become 

significantly more resilient. Today, some uncertainty 

regarding the outlook of credit quality at banks 

remains, given the unknown path that the pandemic 

will take, and the ongoing economic recovery. Banks 

could also once again face challenges to their ability 

to build capital through retained earnings, given the 

current low interest rate environment. In addition, 

the failure of Archegos this past year highlighted the 

importance of maintaining adequate counterparty 

credit risk management practices. 

The Council recommends that financial regulators 

continue to require that the largest financial 

institutions maintain sufficient capital and liquidity 

to enhance their resilience against economic and 

financial shocks. The Council also recommends 

that regulators continue to monitor and assess 

the impact of rules on financial institutions and 

financial markets— including, for example, on 

market liquidity and capital—and ensure that BHCs 

are appropriately monitored based on their size, 

risk, concentration of activities, and offerings of 

new products and services. In addition, the Council 

recommends that regulators continue to review 

counterparty credit risk management and capital 

practices at financial institutions.
14 2021 FSOC // Annual Report

Investment Funds

Investment funds play a critical intermediary 

role in the U.S. economy, promoting economic 

growth through efficient capital formation. 

While recognizing these benefits, the Council 

has identified certain vulnerabilities related to 

redemption risk in certain open-end funds. Since 

some fixed-income markets have limited liquidity, 

particularly during periods of market stress, openend mutual funds holding mostly fixed-income 

instruments may be vulnerable to run risks. The 

Council has focused in particular on whether the 

structure of open-end funds results in greater selling 

pressure than if investors held the fixed-income 

instruments directly. 

The Council has also identified a vulnerability 

related to the use of leverage by investment funds, 

which is most widespread among hedge funds, 

depending on their sizes and investment strategies. 

Leverage can allow investment funds to hedge risk 

or increase exposures, depending on the activities 

and strategies of the fund. However, in a period of 

stress, leverage can magnify losses or lead to margin 

calls, which can cause funds to liquidate assets at a 

size and speed that disrupt the underlying markets.

The Council plans to review the findings of the 

hedge fund and open-end fund working groups as 

they are developed. The Council supports initiatives 

by the SEC and other agencies to address risks in 

investment funds. The Council also supports data 

collection and analytical work by member agencies 

aimed at the identification of potential emerging 

risks. The Council recommends that the SEC 

and other relevant regulators consider whether 

additional steps should be taken to address these 

vulnerabilities.

Central Counterparties

Although central counterparties (CCPs) provide 

significant benefits to market functioning and 

financial stability, they can also introduce strains 

to the financial system. While CCPs have multilayered provisions in their rulebooks to address 

default and plans for recovery from events that 

threaten their ability to maintain critical services as 

a going concern, the inability of a CCP to meet its 

obligations arising from the default of one or more 

clearing members or from non-default losses could 

strain the surviving members of the CCP and, more 

broadly, the financial system. At the same time, 

CCPs’ rulebooks and internal risk management 

frameworks are designed to reduce these risks by 

imposing liquidity and resource requirements on 

clearing members that can increase with market 

volatility. In addition, both the CFTC and SEC 

maintain active risk surveillance programs of 

CCPs’ and intermediaries’ risk management and 

receive daily or weekly reports on positions, risk 

measures, margins, collateral, and default resources. 

Supervisory stress tests involving multiple CCPs can 

also be, and have been, an important tool in the 

assessment of risks.

The Council recommends that the CFTC, Federal 

Reserve, and SEC continue to coordinate in the 

supervision of all CCPs designated by the Council 

as systemically important financial market utilities 

(FMUs). Relevant agencies should continue to 

evaluate whether existing standards for CCPs are 

sufficiently robust to mitigate threats to financial 

stability from both default and non-default losses. 

These agencies should pay particular attention 

to, and seek to balance, the tradeoff between 

counterparty risk and liquidity risk. Agencies that 

regulate clearing members should continue to assess 

those firms’ liquidity risk management practices 

and capabilities. The agencies should continue to 

assess the effectiveness of guidance or standards 

on managing margin payments and exposure to 

CCPs. Finally, the Council encourages regulators 

to continue to advance recovery and resolution 

planning for systemically important FMUs and to 

coordinate in designing and executing supervisory 

stress tests of multiple systemically important CCPs.

Alternative Reference Rates

After years of planning and preparation, the 

transition away from LIBOR is entering a critical 

stage. The Council has identified certain risks 

for this transition period. One risk relates to the 

selection of new reference rates. The Council advises 

market participants to conduct a comprehensive 

evaluation of the market depth and design of 

any alternative reference rate and notes the 

recommendation of the Secured Overnight 

Financing Rate (SOFR) by the Alternative Reference 

Rates Committee (ARRC). A rate based on small 
Executive Summary 15

transaction volume, especially if much lower than 

the volume of instruments that reference a given 

rate, could introduce risks if the rate is susceptible 

to volatility and disruption during times of market 

stress. A second risk relates to the possibility of 

continued issuance of instruments that create 

or extend LIBOR exposure, which would be 

inconsistent with guidance from U.S. regulators and 

unnecessarily increase exposures to a rate that will 

soon cease. A third risk relates to legacy contracts 

without robust fallback provisions in the event of 

LIBOR’s cessation, which will create risks for market 

participants if they do not take feasible actions to 

transition these contracts.

End dates for LIBOR have now been set, and U.S. 

regulators have issued guidance on the LIBOR 

transition, most recently in October 2021. Market 

participants should act with urgency to address 

their existing LIBOR exposures and transition 

to robust and sustainable alternative rates. The 

Council commends the efforts of the ARRC and 

recommends that it continue to facilitate an orderly 

transition to alternative reference rates. Member 

agencies should determine whether regulatory relief 

is necessary to encourage market participants to 

address legacy LIBOR portfolios. Member agencies 

should also continue to use their supervisory 

authority to understand the status of regulated 

entities’ transition from LIBOR, including their 

legacy LIBOR exposure and plans to address that 

exposure.

Financial Market Structure

Advances in information and communications 

technologies, as well as regulatory developments, have 

altered the structure of financial markets over the 

past decade. The Council and member agencies are 

closely monitoring how changes in market structure 

have affected the robustness and efficiency of capital 

markets and the stability of the financial system. 

Interlinkages among dollar funding markets:

Since the 2008 financial crisis, new regulations on 

bank capital and liquidity, structural reforms in 

MMFs, and a new operating environment for bankaffiliated broker-dealers have fundamentally altered 

how market participants interact and the various 

interlinkages among the federal funds market, 

the repo market, and the Eurodollar market. 

There are benefits from interdependencies among 

markets, including enhanced price discovery and 

more options for hedging risks. At the same time, 

interdependencies create transmission risks from 

volatile or inaccurate pricing that have the potential 

to amplify market shocks across different markets.

Pressures on dealer intermediation: Traditionally, 

market-making and arbitrage mechanisms involving 

securities dealers have helped in the orderly 

functioning of the secondary market for Treasuries 

and mortgage-backed securities (MBS). However, 

issuance volumes have increased, especially for 

Treasury securities. In addition, with large banks 

having taken action to limit balance sheet growth in 

light of capital requirements designed to constrain 

leverage, major bank-affiliated broker-dealers 

have reduced the portion of their balance sheet 

that is allocated to trading and repo transactions. 

Together, these developments may have contributed 

to episodes of illiquidity in Treasury, MBS, and 

corporate bond markets in March 2020. 

Role of non-traditional market participants: Nontraditional market participants, including principal 

trading firms, play an increasingly important role 

in securities and other markets. These firms may 

improve liquidity and investor outcomes under 

normal circumstances, but they may also introduce 

new potential risks. For instance, the trading 

strategies that non-traditional market participants 

employ and the incentives and constraints that 

they operate under may not be as well understood, 

leading to uncertainty about how these firms might 

behave during periods of market stress. 

Disruptive events in securities markets: An episode 

of stress in the Treasury market in February is a 

recent example of occasional abrupt disruptions 

to asset prices and liquidity conditions that have 

occurred in securities markets. These episodes may 

signal a vulnerability regarding the resilience of key 

financial markets, rooted in the financial structure 

of trading in these markets. 

Consideration of central clearing in the U.S. 

Treasury market: Significant parts of the Treasury 

market are not centrally cleared. Expansion of 

central clearing could have a range of benefits, 

including reducing chains of settlement failures 
16 2021 FSOC // Annual Report

and counterparty risk concerns, and increasing 

the provision of dealer liquidity. Expanded 

central clearing could also have a number of costs, 

necessitating careful study to understand whether 

more widespread central clearing would benefit 

Treasury market resilience. 

The Council recommends that member agencies 

continue to review market structure issues that 

may contribute to market volatility in key markets, 

including short-term funding, Treasuries, MBS, and 

corporate bond markets, and study the interlinkages 

between them. Market participants should also 

regularly assess how market developments affect 

the risk profile of their institutions. The Council 

recommends that financial regulators continue to 

monitor and evaluate ongoing changes that might 

have adverse effects on markets, including on 

market integrity and liquidity, or that might underlie 

flash events. In the Treasury market, the Council 

recommends that agencies consider whether an 

increase in central clearing would enhance the 

resilience of the market, taking into consideration 

the factors limiting central clearing to date, and 

assess the likely impact on liquidity of such an 

increase. 

Cybersecurity

The financial sector, like other critical sectors, 

is vulnerable to ransomware and other malware 

attacks, denial of service attacks, data breaches, and 

other events. A destabilizing cybersecurity incident 

could potentially threaten the stability of the U.S. 

financial system by disrupting a key financial service 

or utility, causing a loss of confidence among a 

broad set of customers or market participants, or 

compromising the integrity of critical data. 

The implementation of teleworking strategies 

using virtual private networks, virtual conferencing 

services, and other technologies can increase 

cybersecurity vulnerabilities, insider risks, and other 

operational exposures. At the same time, financial 

institutions have increased their reliance on thirdparty service providers for teleworking tools and 

services. The interdependency of these networks 

and technologies supporting critical operations 

magnifies cyber risks, threatening the operational 

risk mitigation capabilities not just at individual 

institutions, but also of the financial sector as a 

whole.

The Council recommends that federal and state 

agencies continue to monitor cybersecurity risks 

and conduct cybersecurity examinations of financial 

institutions and financial infrastructures to ensure, 

among other things, robust and comprehensive 

cybersecurity monitoring, especially in light of 

new risks posed by the pandemic, ransomware 

incidents, and supply chain attacks. The unique 

and complex threats posed by cyber risks also 

require the public and private sectors to cooperate 

to identify, understand, and protect against these 

risks. The Council supports the continued use 

and enhancement of public-private partnerships 

to identify and mitigate cybersecurity risks. The 

Council also supports agency efforts to increase 

the efficiency and effectiveness of cybersecurity 

examinations across relevant agencies.

Data Gaps and Challenges

Episodes of acute financial stress in 2008 and 2020 

have exposed several major gaps and deficiencies in 

the range and quality of data available to financial 

regulators to identify emerging risks in the financial 

system. These gaps and shortcomings include 

firm-level structure and ownership information, 

transaction data in certain important financial 

markets, and limitations in financial statement 

reporting for certain types of institutions. Often, 

the usefulness of data is limited by institutional or 

jurisdictional differences in reporting requirements. 

Gaps and legacy processes may inhibit data sharing. 

The Council recommends that regulators and 

market participants continue to work together to 

improve the coverage, quality, and accessibility 

of financial data, as well as improve data sharing 

among relevant agencies. These partnership efforts 

include implementing new standardized or digital 

identifiers; developing and linking data inventories; 

and implementing industry standards, protocols, 

and security for secure data sharing. The Council 

also recommends that member agencies support 

adoption and use of standards in mortgage data, 

including consistent terms, definitions, and data 

quality controls, which will make transfers of loans 

or servicing rights less disruptive to borrowers and 

investors. The Council recommends that member 
Executive Summary 17

agencies continue to work to harmonize domestic 

and global derivatives data for aggregation and 

reporting and ensure that appropriate authorities 

have access to the trade repository data needed to 

fulfill their mandates.

Financial Innovation

Financial innovation can offer considerable benefits 

to consumers and providers of financial services 

by reducing the cost of certain financial services, 

increasing the convenience of payments, and 

potentially increasing the availability of credit. But 

innovation can also create new risks that need to be 

understood. 

Digital Assets

Digital assets are a prominent example of financial 

innovation that present potential benefits and risks. 

Regulatory attention and coordination are critically 

important in light of the quickly evolving market for 

these assets. Because speculation appears to drive 

the majority of digital asset activity at this time, the 

price of digital assets may be highly volatile. Digital 

assets may also be subject to the risk of operational 

failures, fraud, and market manipulation. For 

example, though stablecoins are marketed with the 

claim that they will maintain a stable value, they 

may be subject to widespread redemptions and asset 

liquidations if investors doubt the credibility of that 

claim. In addition, digital assets pose risks through 

direct or indirect connections with banking services, 

financial markets, and financial intermediaries. 

For instance, the potential for the increased use of 

stablecoins as a means of payment raises a range 

of prudential concerns. If stablecoin issuers do not 

honor a request to redeem a stablecoin, or if users 

lose confidence in a stablecoin issuer’s ability to 

honor such a request, runs on the arrangement 

could occur that may result in harm to users and 

the broader financial system. Finally, digital assets 

also pose risks related to illicit financing, national 

security, cybersecurity, privacy, and international 

monetary and payment system integrity.

The Council recommends that federal and state 

regulators continue to examine risks to the financial 

system posed by new and emerging uses of digital 

assets and coordinate to address potential issues that 

arise from digital assets. The Council has reviewed 

the Report on Stablecoins published by the PWG, 

the FDIC, and the OCC on November 1, 2021 (PWG 

Report on Stablecoins), and recommends that 

member agencies consider the recommendations 

in that report. The Council will further assess 

and monitor the potential risks of stablecoins and 

recommends that its members consider appropriate 

actions within each member’s jurisdiction to 

address those risks while continuing to coordinate 

and collaborate on issues of common interest. The 

Council will also be prepared to consider steps 

available to it to address risks outlined in the PWG 

Report on Stablecoins in the event comprehensive 

legislation is not enacted.

The Use of Technology in Financial Services

Financial firms’ rapid adoption of technological 

innovations in recent years may increase operational 

risks, including those associated with financial 

institutions’ use of third-party service providers. For 

example, if critical services are outsourced, financial 

or operational failures or faults at a key service 

provider could disrupt the activities of multiple 

financial institutions or financial markets. 

Technology has increasingly enabled retail investors 

to participate at higher rates in U.S. equity markets, 

as evidenced by the growth in self-directed trading. 

Innovations that democratize access to trading 

markets can offer positive outcomes, such as 

increasing the diversity of market participants. 

However, vulnerabilities may also emerge, including 

increased price volatility and the manipulation 

of markets driven by social media, which existing 

policy and enforcement tools may not be designed to 

address. 

The Council encourages agencies to continue to 

monitor the effects of new financial products and 

services on consumers, regulated entities, and 

financial markets, and evaluate their potential 

effects on financial stability. The Council 

encourages continued coordination among federal 

and state financial regulators to support responsible 

financial innovation and competitiveness, to 

promote consistent regulatory approaches, and to 

identify and address potential risks that arise from 

such innovation.
18 2021 FSOC // Annual Report

Managing Vulnerabilities amid Uneven and Volatile 

Global Growth

The outlook for global growth is characterized 

by elevated uncertainty, with the potential for 

continued volatility and unevenness of growth 

across countries and sectors. Risks include the 

possibility of higher-than-expected inflation leading 

to higher interest rates, causing losses at some 

financial institutions, higher borrowing costs, and 

the global economic recovery to lose momentum; 

the possibility that financial vulnerabilities in 

China could lead to a hard landing and weigh on 

the global economy; and the possibility that the 

ongoing pandemic could continue to cause volatility 

in economic activity, including economic shutdowns 

and reopenings. 

Volatile or uneven global growth could affect 

the U.S. financial system in a few ways. Losses at 

financial institutions in advanced foreign economies 

could spill over to the U.S. financial system through 

direct exposures and counterparty risks. The direct 

consequences of a Chinese hard landing for U.S. 

financial stability appear manageable since direct 

U.S. exposures to the Chinese financial sector are 

more limited. However, U.S. economic performance 

could be affected indirectly if developments in 

China or other countries weigh on the global 

economy or global market confidence. 

The Council recommends that member agencies 

ensure that the financial institutions they oversee 

are attentive to the risks posed by uneven or volatile 

global growth, including higher levels of inflation 

and interest rates, stress at foreign financial 

institutions including banks and nonbanks, and 

changes in global economic activity and market 

confidence. Supervisors should review in particular 

the risks faced by large banks with global footprints 

and trading operations. Market regulators should 

review available steps that could be taken in 

anticipation of increased stress in funding markets if 

global funding flows become more volatile. 
Financial Developments 19

3 Financial Developments

3.1 Household Finance

Stresses on households have moderated 

significantly over the past year, aided by 

extraordinary policy actions, improving 

economic conditions, and some lessening 

in the severity of the COVID-19 pandemic. 

Government policies—including enhanced 

unemployment insurance and direct stimulus 

payments—have supported household balance 

sheets, helping many households build up a 

buffer of liquid assets. Credit growth remains 

concentrated among borrowers with prime 

credit scores, and the share of mortgages and 

consumer loans in delinquency or forbearance 

has declined steadily. Nonetheless, some 

households, such as those still in forbearance or 

delinquency and those with members employed 

in sectors particularly hard-hit by the pandemic, 

continue to face significant stresses. 

Household debt has grown at a moderate pace 

over the past decade, reaching a total of $17 

trillion in the second quarter of 2021. While 

this is a record level of debt in nominal terms, 

the corresponding ratio of household debt to 

disposable personal income is well below its 

2007 peak and is slightly below pre-pandemic 

levels (Chart 3.1.1). This ratio moved up and 

down notably over the course of the pandemic, 

driven by changes in incomes, some of which 

came from federal aid programs. The personal 

savings rate, which spiked in April 2020 and 

March 2021 following the disbursement of 

household stimulus payments, remained well 

above its long-term average through much of 

2021 before returning to its long-term average 

in September 2021 (Chart 3.1.2).

In the years leading up to the pandemic, the 

household debt service ratio remained at fairly 

low levels, which can be attributed to rising 

incomes and years of relatively low interest 

rates. Since the onset of the pandemic, this 

ratio has declined to record lows as interest 

0

40

80

120

160

0

40

80

120

160

1995 1998 2001 2004 2007 2010 2013 2016 2019

3.1.1 Household Debt as a Percent of Disposable Personal Income

Percent As Of: 2021 Q2 Percent

Source: BEA, Federal 

Reserve, Haver Analytics

Note: Other Household Credit includes 

debts of both households and nonprofits.

Other Household Credit

Consumer Credit

Mortgages

3.1.2 Household Personal Savings Rate

Percent As Of: Sep-2021 Percent

Note: Ratio of personal saving to 

Source: BEA, FRED disposable personal income.

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

2015 2016 2017 2018 2019 2020 2021

1990–Present 

Average

3.1.1 Household Debt as a Percent of Disposable Personal Income

3.1.2 Household Personal Savings Rate
20 2021 2021 FSOC // FSOC // Annual Report Annual Report

40

50

60

70

80

40

50

60

70

80

1990 1994 1998 2002 2006 2010 2014 2018

1990–Present 

Average

3.1.4 Owners’ Equity as Share of Household Real Estate

Percent Percent

Source: Federal Reserve, 

Haver Analytics

As Of: 2021 Q2

Note: Gray bars signify NBER recessions.

0

250

500

750

1000

1250

1500

1750

0

250

500

750

1000

1250

1500

1750

2003 2006 2009 2012 2015 2018 2021

3.1.5 Components of Consumer Credit

Billions of US$ As Of: 2021 Q3 Billions of US$

Source: FRBNY Consumer Credit 

Panel/Equifax, Haver Analytics

Auto Loans Credit Card Debt

Student Loans

Other Household Debt

Note: Other includes consumer finance and 

retail loans. Gray bars signify NBER recessions. 

3.1.3 Household Debt Service Ratio

Percent As Of: 2021 Q2 Percent

Note: Ratio of debt service payments to 

disposable personal income. Seasonally 

adjusted. Gray bars signify NBER recessions.

Source: Federal Reserve,

Haver Analytics

6

8

10

12

14

6

8

10

12

14

1990 1994 1998 2002 2006 2010 2014 2018

3.1.4 Owners’ Equity as Share of Household Real Estate

3.1.5 Components of Consumer Credit

3.1.3 Household Debt Service Ratio rates fell further and federal relief programs 

raised disposable personal incomes (Chart 

3.1.3). Aided by strong house price growth, the 

share of owners’ equity in household real estate 

continued to increase from its lows in 2012 and 

has recently exceeded the range that prevailed 

in the early 2000s (Chart 3.1.4). The increase 

in house prices over the past year has been 

particularly notable, with annualized growth 

rates exceeding 20 percent in recent months 

(see Box B).

Household net worth has increased notably in 

the last decade, driven by stock market and real 

estate gains; this has been particularly true for 

high-net-worth and high-income households. 

However, household net worth declined by 

5.6 percent in the first quarter of 2020 as the 

stock market fell sharply. Household net worth 

has since rebounded to all-time highs, as stock 

prices recovered from initial pandemic-related 

economic and financial market uncertainty and 

as house prices grew rapidly. 

Consumer credit—which consists primarily of 

credit card debt, auto loans, student loans, and 

installment loans—has grown over the past 

decade to account for about one-quarter of 

total household debt. This faster pace of growth 

compared to mortgage debt has been driven by 

student and auto loans. Since the onset of the 

pandemic, credit card balances have declined, 

while student loan and auto loan balances have 

increased (Chart 3.1.5). 

Over the past decade, borrowers with prime 

credit scores have accounted for almost all 

the growth in loan balances. This trend has 

continued through the pandemic, as the steady 

growth in mortgages for prime borrowers has 

more than offset their notable declines in 

credit card balances. By contrast, after holding 

steady in the years prior to the pandemic, total 

loans for subprime borrowers have decreased 

in 2020 and 2021, with mortgages, auto loans, 

and credit card debt all contributing to the 

decline. This decrease is largely attributable to 

relatively tight lending standards for subprime 

borrowers over the past decade. However, 
Financial Developments 21

0

2

4

6

8

10

0

2

4

6

8

10

Mar:2020 Jun:2020 Sep:2020 Dec:2020 Mar:2021 Jun:2021 Sep:2021

Nonbanks

Banks

Total

3.1.6 Percentage of Mortgages in Forbearance

Percent Percent

Source: Mortgage Bankers Association

As Of: 26-Sep-2021

3.1.6 Percentage of Mortgages in Forbearance COVID-19 relief programs may have also led to 

a reduction in the number of borrowers being 

classified as subprime. For example, the CARES 

Act provision requiring loans in forbearance 

programs to be reported as non-delinquent to 

credit bureaus may have led to an upward shift 

in credit scores at the bottom of the credit score 

distribution. 

Credit standards have generally eased over the 

past year, increasing market access for some 

households. According to the July 2021 Senior 

Loan Officer Opinion Survey (SLOOS), banks 

have, on net, eased standards on credit cards 

and auto loans over the second quarter of 2021. 

After tightening at the start of the pandemic, 

standards for consumer loans and mortgages 

are now close to or below their pre-pandemic 

levels for prime borrowers and generally 

somewhat tighter than their pre-pandemic 

levels for subprime borrowers.

The economic impact of COVID-19 on 

household finances was mitigated by several 

government actions, including enhanced 

unemployment benefits, direct stimulus 

payments, loan forbearance, and the federal 

eviction moratorium. The share of mortgages 

in forbearance increased sharply in the second 

quarter of 2020 and has declined steadily 

thereafter (Chart 3.1.6). 
22 2021 2021 FSOC // FSOC // Annual Report Annual Report

Credit record data show notable decreases 

in the delinquency rates of major forms of 

household credit during the pandemic (Chart 

3.1.7). Forbearance programs likely contributed 

to these declines, as loans in these programs 

are reported as non-delinquent to credit 

bureaus upon enrollment. Notably, student 

loan delinquency rates declined sharply, 

which can be attributed to the Department of 

Education’s decision to suspend interest and 

monthly payments on all federally held loans 

and report all student loans eligible for CARES 

Act forbearances as current. Federal, state, and 

local policy interventions, which counteracted 

to some degree the income and employment 

shocks stemming from the pandemic, also likely 

helped lower these delinquency rates.

Nonetheless, the share of mortgages in 

some form of non-payment remains elevated 

compared to the years immediately preceding 

the COVID-19 pandemic. Mortgage forbearance 

is scheduled to expire at the end of 2021 for 

about 50 percent of mortgages currently in 

forbearance. These mortgage borrowers show 

signs of being under some financial strain. They 

are more likely to have suffered income losses in 

the past year, to work in industries particularly 

hard-hit by the pandemic, and to have belowaverage credit scores at origination. The 

expiration of extended unemployment benefits 

and mortgage forbearance programs may 

lead to an increase in mortgage delinquency 

rates. Eviction rates, which fell sharply in 2020, 

may increase meaningfully in the coming 

months with the lifting of the federal eviction 

moratorium and as state moratoria roll off. 

According to the Census Bureau’s Household 

Pulse Survey, approximately 15 percent of 

renters were in arrears in October with around 

42 percent of these renters expecting to be 

evicted in the next two months. Similarly, 

borrowers in auto loan forbearance may be 

vulnerable to the expiration of extended 

unemployment insurance. 

0

4

8

12

16

0

4

8

12

16

2003 2006 2009 2012 2015 2018 2021

3.1.7 Transition to Delinquency (30+ Days) by Loan Type

Percent As Of: 2021 Q3 Percent

Source: FRBNY Consumer Credit 

Panel/Equifax, Haver Analytics

Student Loans

Auto Loans

Note: Four-quarter moving sum. Student loan 

data are not reported prior to 2004 due to uneven 

reporting. Other includes consumer finance and 

retail loans. Gray bars signify NBER recessions. 

Credit Card Debt

Other Household Debt

3.1.7 Transition to Delinquency (30+Days) by Loan Type
Financial Developments 23

3.2.1.2 Corporate Leverage: Debt / EBITDA

Ratio Ratio

Source: Bloomberg, L.P.

Note: Ratio of debt-to-EBITDA for companies included 

in Bloomberg Barclays Investment Grade and HighYield Indices. Gray bars signify NBER recessions.

As Of: 2021 Q2

2

3

4

5

6

2

3

4

5

6

2000 2005 2010 2015 2020

Investment Grade

High-Yield

3.2 Nonfinancial Business Finance

3.2.1 Corporate Debt 

Many indicators of corporate balance sheet 

health have improved since the onset of the 

COVID-19 pandemic. Low interest rates, 

coupled with the strong rebound in earnings, 

helped improve corporate debt servicing 

indicators, leverage metrics, and overall credit 

quality. Nevertheless, business leverage remains 

elevated relative to historical standards and 

firms in sectors particularly hard-hit by the 

pandemic continue to show strain. 

For several years before the pandemic, 

nonfinancial corporate debt grew more 

quickly than nominal gross domestic product 

(GDP). In the first half of 2020, corporate debt 

increased further while GDP fell, causing the 

corporate-debt-to-GDP ratio to spike to an 

all-time high. This ratio has since declined as 

GDP has recovered and debt growth has slowed 

(Chart 3.2.1.1). Corporate debt levels relative 

to earnings also increased sharply early in 

the pandemic before declining more recently 

(Chart 3.2.1.2). 

3.2.1.2 Corporate Leverage: Debt / EBITDA

20

30

40

50

60

20

30

40

50

60

1980 1985 1990 1995 2000 2005 2010 2015 2020

3.2.1.1 Nonfinancial Corporate Credit as Percent of GDP

Percent Percent

Source: Federal Reserve, 

Haver Analytics

As Of: 2021 Q2

Note: Gray bars signify NBER recessions.

3.2.1.1 Nonfinancial Corporate Credit as Percent of GDP
24 2021 2021 FSOC // FSOC // Annual Report Annual Report

Although corporate debt growth has been 

outpaced by GDP or earnings growth since the 

early months of the pandemic, overall debt and 

leverage levels are still elevated. However, a 

number of factors such as continued low interest rates and recovering earnings partially mitigate the burden of this debt. As of the second 

quarter of 2021, the interest coverage ratio—

the ratio of earnings to interest expense—is 

near the middle of its historical distribution for 

publicly traded corporations (Chart 3.2.1.3). 

Additionally, the share of debt due within one 

year is at a moderate level, as many firms have 

refinanced debt to lower interest rates and 

extend maturities. Firms continue to maintain 

significant holdings of liquid assets, which serve 

as a buffer against future drops in revenue or 

interest rate increases (Chart 3.2.1.4). 

In 2020 an increasing number of high-yield 

firms defaulted on debt obligations, with the 

trailing four quarter default rate peaking at 

8.8 percent in the third quarter of 2020 (Chart 

3.2.1.5). While this increase represented the 

highest default rate in over ten years, it was well 

below forecasts made at the onset of the pandemic, when the three major rating agencies 

projected the U.S. high-yield corporate default 

rate would peak at between 12-15 percent in early 2021. The pace of defaults has since declined 

considerably, with U.S. corporate defaults 

totaling just $10 billion in the first nine months 

of 2021 compared with $159 billion for the 

full-year 2020. Consistent with the more favorable outlook, ratings upgrades have outpaced 

downgrades in recent quarters, and in the first 

three quarters of 2021, the number of upgrades 

at Moody’s exceeded downgrades by a record 

factor of 2.5 to one. 

Despite the more optimistic outlook, some 

firms still face difficulties servicing their debt. 

Moreover, debt levels relative to earnings 

have remained elevated for firms in sectors 

particularly hard-hit by the pandemic such 

as airlines, hotels, restaurants, and leisure. 

However, elevated debt levels in these sectors 

may partly be attributed to firms issuing 

3.2.1.3 Interest Coverage Ratios

Ratio Ratio

Source: Bloomberg, L.P.

Note: Ratio of earnings-to-interest expenses for companies 

included in Bloomberg Barclays Investment Grade and HighYield Indices. Gray bars signify NBER recessions.

As Of: 2021 Q2

0

2

4

6

8

10

0

2

4

6

8

10

2000 2005 2010 2015 2020

Investment Grade

High-Yield

0

4

8

12

16

20

0

40

80

120

160

200

2007 2009 2011 2013 2015 2017 2019 2021

Default Rate (right axis)

3.2.1.5 U.S. Corporate Defaults

Billions of US$ Percent

Source: Moody's 

Investors Service, OFR

As Of: 2021 Q3

Total Defaulted Debt 

(left axis)

Note: Issuer weighted 12-month trailing default 

rate for speculative grade U.S. corporates. 

3.2.1.4 Nonfinancial Corporations Liquid Assets

Percent of Total Assets Percent of Total Assets

Source: Federal Reserve, 

Haver Analytics

Note: Liquid assets includes foreign deposits, checkable deposits and 

currency, time and savings deposits, money market fund shares, 

security repurchase agreements, debt securities, and mutual fund 

shares. Gray bars signify NBER recessions.

As Of: 2021 Q2

2

3

4

5

6

7

8

9

2

3

4

5

6

7

8

9

1980 1985 1990 1995 2000 2005 2010 2015 2020

3.2.1.3 Interest Coverage Ratios 

3.2.1.5 U.S. Corporate Defaults 

3.2.1.4 Nonfinancial Corporations Liquid Assets 
Financial Developments 25

-50

-25

0

25

50

75

100

-50

-25

0

25

50

75

100

1992 1996 2000 2004 2008 2012 2016 2020

Easing Tightening

Easing Tightening

Large and Middle-Market Firms

Small Firms

3.2.1.6 Bank Business Lending Standards

Percent Percent

Source: Federal Reserve Senior 

Loan Officer Opinion Survey

Note: Represents net percentage of banks reporting 

tightening standards for C&I loans. Large and middlemarket firms are those with annual sales of $50 million 

or more. Gray bars signify NBER recessions.

As Of: 2021 Q3

3.2.1.6 Bank Business Lending Standards additional debt to build their liquidity buffers 

given the uncertain outlook.

The Federal Reserve’s SLOOS indicates 

that banks’ willingness to lend to businesses 

has increased so far this year, with the net 

percentage of respondents reporting an easing 

of standards reaching its highest level ever in the 

July 2021 survey (Chart 3.2.1.6). This reflects a 

sharp reversal in credit conditions from mid2020, when respondents reported a significant 

tightening of standards for loans disbursed 

outside of the Small Business Administration’s 

Paycheck Protection Program (PPP). 

After surging in March 2020 to levels not seen 

since the 2008 financial crisis, investmentgrade corporate bond spreads declined 

steadily and are now slightly below their prepandemic levels (Chart 3.2.1.7). Spreads 

on high-yield corporate bonds have likewise 

declined significantly since the market stress 

in March 2020 and are now at very low levels 

(Chart 3.2.1.8). These low spreads reflect in 

part the more favorable credit outlook. Market 

conditions early in the pandemic improved 

following the announcement of the Federal 

Reserve’s Primary Market Corporate Credit 

Facility and Secondary Market Corporate Credit 

Facility (Corporate Credit Facilities). 0

2

4

6

8

10

0

2

4

6

8

10

2005 2007 2009 2011 2013 2015 2017 2019 2021

Hundreds

3.2.1.7 Investment Grade Corporate Bond Spreads

Source: ICE Data Indices, 

ICE BofA US, FRED

Percent As Of: 30-Sep-2021 Percent

Note: The ICE BofA Option-Adjusted Spreads (OASs) are the 

calculated spreads between a computed OAS index of all 

bonds in a given rating category and a spot Treasury curve. 

BBB US Corporate Index 

Single-A US Corporate Index

AA US Corporate Index

3.2.1.7 Investment Grade Corporate Bond Spreads

0

5

10

15

20

25

0

5

10

15

20

25

2005 2007 2009 2011 2013 2015 2017 2019 2021

3.2.1.8 High-Yield Corporate Bond Spreads

Source: ICE Data Indices, 

ICE BofA US, FRED

Percent As Of: 30-Sep-2021 Percent

Note: The ICE BofA Option-Adjusted Spreads (OASs) are the 

calculated spreads between a computed OAS index of all 

bonds in a given rating category and a spot Treasury curve. 

Single-B US Corporate Index

BB US Corporate Index

3.2.1.8 High-Yield Corporate Bond Spreads
26 2021 2021 FSOC // FSOC // Annual Report Annual Report

Consistent with generally accommodative 

financing conditions following the market 

turmoil of early 2020, issuances of investment 

grade corporate bonds have been robust, over 

the past year, with investment grade companies 

issuing a record $1.9 trillion of corporate bonds 

in 2020 and a further $1.2 trillion in the first 

nine months of 2021. Additionally, issuances of 

high-yield bonds have been robust as financing 

conditions remain substantially accommodative. 

In the first nine months of 2021, high-yield 

bond issuances have totaled a record $408 

billion on top of the record $424 billion issued 

in 2020 (Chart 3.2.1.9). 

A substantial fraction of this issuance has 

been used to refinance debt at more favorable 

rates, as borrowing rates are near-record-low 

levels. Firms have also used issuance proceeds 

to increase their cash buffers and to pay down 

their substantial credit line draws from the first 

half of 2020. As of the second quarter of 2021, 

nonfinancial corporate holdings of cash and 

cash-like instruments were 38 percent higher 

than year-end 2019.

Trillions of US$

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

2006 2008 2010 2012 2014 2016 2018 2020

Investment Grade

High-Yield

3.2.1.9 Gross Issuance of Corporate Bonds

Trillions of US$

Source: Refinitiv, 

SIFMA

As Of: Sep-2021

Note: Includes all non-convertible corporate debt, MTNs, and 

Yankee bonds, but excludes all issues with maturities of one 

year or less and CDs. 2021 figures are through September.

3.2.1.9 Gross Issuance of Corporate Bonds
Financial Developments 27

Billions of US$

0

150

300

450

600

750

0

150

300

450

600

750

2006 2008 2010 2012 2014 2016 2018 2020

Institutional

3.2.1.11 Leveraged Loan Issuance

Billions of US$

Source: S&P LCD

As Of: 30-Sep-2021

Pro-Rata

Note: 2021 figures are through September.

2.5

5.0

7.5

10.0

12.5

2.5

5.0

7.5

10.0

12.5

2011 2013 2015 2017 2019 2021

HundredsHundreds

3.2.1.10 Leveraged Loan Spreads

Source: S&P LCD

Percent As Of: 30-Sep-2021 Percent

Note: Spread-to-maturity for syndicated loans 

included in the S&P LCD Leveraged Loan Index. 

3.2.1.11 Leveraged Loan Issuance

3.2.1.10 Leveraged Loan Spreads Institutional leveraged loan issuance came 

to a halt in March 2020 as spreads widened 

significantly. Since then, spreads have tightened 

to the low levels seen before the pandemic 

(Chart 3.2.1.10). Even as spreads tightened in 

the second half of 2020, issuance of leveraged 

loans remained subdued (Chart 3.2.1.11). 

However, issuance rebounded to record pace 

through the first nine months of 2021, with 31 

percent of institutional issuances consisting 

of refinancing transactions. Demand from 

collateralized loan obligations (CLOs), the 

main purchaser of syndicated loans, has 

been robust in the first nine months of 2021, 

with year-to-date issuance exceeding the 

previous record set in 2018. After peaking in 

September 2020, the leveraged loan default 

rate has steadily declined to below 1 percent in 

September 2021. Similarly, the monthly number 

of loan downgrades in September reached its 

lowest level since 2012. 

3.2.2 Small Business Debt

Small businesses were hit hard by the 

pandemic, especially in service industries 

such as restaurants and entertainment. Many 

small businesses had to close, in some cases 

permanently, due to the economic disruptions 

caused by COVID-19. However, easing of social 

distancing measures, expansion of vaccine 

distribution, advances in therapeutics, and 

support from government policies improved 

the economic outlook for surviving small 

businesses. Nonetheless, small businesses 

remain more vulnerable relative to larger firms.

The Small Business Administration’s PPP, 

supported by the Federal Reserve’s Paycheck 

Protection Program Liquidity Facility, provided 

multiple rounds of support to small businesses, 

totaling over $270 billion in 2021 and almost 

$800 billion overall. These funds were crucial 

to the survival of many small businesses as 

economic activity dropped precipitously at the 

onset of the pandemic. As of September 26, 

2021, 61 percent of all PPP loans have been fully 

or partially forgiven and it is projected that a 

large majority of PPP loans will ultimately be 

forgiven. 
28 2021 2021 FSOC // FSOC // Annual Report Annual Report

3.2.3.1 Performance of U.S. Stock Indices

Percent As Of: 30-Sep-2021

3.2.3.1 Performance of U.S. Stock Indices

-50

-25

0

25

50

75

100

-50

-25

0

25

50

75

100

Jan:2020 Jul:2020 Jan:2021 Jul:2021

Percent

Source: Bloomberg, L.P. Note: Indexed to 31-Dec-2019.

Nasdaq Composite

S&P 500

Russell 2000

Aided by PPP loans, lending to small businesses 

rebounded after declining sharply at the 

onset of the pandemic. Despite the continued 

vulnerability of many small businesses, lending 

remains at roughly pre-pandemic levels. For 

instance, the PayNet Small Business Lending 

Index in September 2021 was at levels similar to 

those observed in summer 2019. Loan demand 

remains weak. According to the National 

Federation of Independent Business Small 

Business Economic Trends Survey, the percent 

of small business owners borrowing on a 

regular basis fell from 29 percent in December 

2019 to 20 percent in September 2021.

After rapidly deteriorating during the first 

half of 2020, small business loan performance 

has improved in recent months, supported 

by PPP funding, other government support, 

and improving economic conditions. PayNet’s 

measure of short-term delinquencies has 

declined steadily since the summer of 2020 

and is now below its pre-pandemic levels. The 

PayNet longer-term delinquency rate has also 

declined considerably. The share of Census 

Small Business Pulse Survey respondents 

reporting that they expect to need financial 

assistance within the next six months has 

decreased so far in 2021, with particularly 

notable declines in the accommodation and 

food services sector.

3.2.3 Equities 

U.S. equity prices have increased significantly 

over the past year (Chart 3.2.3.1). The gains 

have been driven by strong earnings results, 

reassessments of the potential for future 

earnings growth, historically low interest rates, 

supportive monetary and fiscal policies, and a 

more positive economic outlook. The strong 

pace of initial public offerings (IPOs), including 

the increased use of special purpose acquisition 

companies (SPACs), also signals increased 

investor risk appetite in U.S. equity markets. 

Starting in November 2020, positive vaccine 

news and the potential for further fiscal 

stimulus prompted market participants to 

revise their outlook for the U.S economy, which 

drove cyclicals and small caps to outperform 
Financial Developments 29

0

20

40

60

80

100

0

20

40

60

80

100

2006 2008 2010 2012 2014 2016 2018 2020

3.2.3.3 S&P 500 Volatility

Index Index

Source: Bloomberg, L.P.

As Of: 24-Sep-2021

Implied Volatility Realized Volatility

Note: 30-day realized and implied volatility. 

3.2.3.3 S&P 500 Volatility

3.2.3.2 S&P 500 Forward Price-to-Earnings

P/E As Of: 30-Sep-2021

3.2.3.2 S&P 500 Forward Price-to-Earnings

10

15

20

25

30

10

15

20

25

30

2017 2018 2019 2020 2021

10-Year Average

Forward Price-to-Earnings

P/E

Source: Bloomberg, L.P.

companies with longer-duration cash flows, 

such as major tech companies. This rotation 

accelerated in the first quarter of 2021, when 

longer-dated Treasury yields rose sharply, as 

investors adopted a more optimistic view of 

the U.S. economic recovery amid additional 

government support, successful vaccine 

distribution efforts, and continued business 

reopenings. By September 30, 2021 the S&P 

500 was up 15 percent since the beginning of 

the year. Recently, the spread of the COVID-19 

Delta variant has weighed on investor sentiment 

at times but has been offset by positive 

developments in COVID-19 caseloads among 

advanced economies and the Food and Drug 

Administration’s full approval of the Pfizer 

vaccine. 

Earnings estimates have improved over the 

year. Nearly nine in ten firms beat consensus 

profit forecasts throughout the first and second 

quarters, and full-year 2021 earnings per share 

estimates have been revised sharply upwards. 

Meanwhile, in qualitative corporate earnings 

commentary, companies have generally adopted 

an optimistic stance on the U.S. economic 

recovery, while identifying some headwinds, 

including higher input costs, labor shortages, 

and global supply chain disruptions. Amid the 

rosier outlook for corporate profits, the S&P 

500’s 12-month forward price-to-earnings ratio 

remained elevated relative to its pre-pandemic 

average (Chart 3.2.3.2). 

Realized equity market volatility has largely 

stayed within typical pre-pandemic levels over 

the past year (Chart 3.2.3.3). However, optionimplied volatility has remained elevated relative 

to pre-pandemic levels through the first nine 

months of 2021, a potential sign of forwardlooking uncertainty by investors. Even as 

aggregate realized volatility has receded, several 

stocks that were the subject of social-media 

attention (such as GameStop Corp. and AMC 

Entertainment Holdings Inc.) have experienced 

extreme movements in their share prices. On 

June 7, 2021, the SEC announced that “in light 

of the ongoing volatility in certain stocks,” it is 

monitoring “if there have been any disruptions 

292
30 2021 2021 FSOC // FSOC // Annual Report Annual Report

YTD Since YE 2019 5 Year (Annualized)

U.S. Indices

S&P 500 14.7% 33.3% 14.7%

Nasdaq Composite 12.1% 61.0% 22.1%

Russell 2000 11.6% 32.1% 12.0%

Other Major Indices

Topix 12.5% 17.9% 8.9%

FTSE 100 9.7% -6.0% 0.5%

Euro Stoxx 50 13.9% 8.1% 6.2%

DAX 11.2% 15.2% 7.7%

Emerging Markets

MSCI Emerging Market Index -3.0% 12.4% 6.8%

Brazil (Bovespa) -6.8% -4.0% 13.7%

India (S&P BSE Sensex) 23.8% 43.3% 16.2%

MSCI China -17.4% 4.6% 7.3%

Onshore China (CSI 300) -6.6% 18.8% 8.4%

Taiwan (TAIEX) 14.9% 41.2% 13.1%

South Korea (KOSPI) 7.2% 39.6% 8.5%

3.2.3.5 Returns in Selected Equities Indices

Source: Bloomberg, L.P.

As Of: 30-Sep-2021

Billions of US$

0

50

100

150

200

250

300

0

20

40

60

80

100

120

2016 2017 2018 2019 2020 2021

Deal Value (left axis)

3.2.3.4 SPAC Issuances

Count

Source: Bloomberg, L.P.

As Of: 2021 Q3

Deal Count (right axis)

of the market, manipulative trading, or other 

misconduct.” Additionally, on October 14, 2021, 

the SEC published its Staff Report on Equity 

and Options Market Structure Conditions in 

Early 2021, which focused on the January 2021 

trading activity of GameStop Corp. 

One sign of strong investor appetite for risk 

in U.S. equity markets has been the recent 

growth of SPAC IPOs, which raised a record 

$92 billion in the first quarter of 2021 

(Chart 3.2.3.4). SPAC IPOs slowed in the 

second and third quarters of 2021 after the 

SEC released communications highlighting 

investor protection issues, liability risks for 

sponsors and managers, and considerations 

on the accounting treatment of warrants. 

While SPACs provide a structure for increased 

participation in private company acquisitions, 

they are inherently speculative investments. 

Companies going public via SPACs are subject 

to limited due diligence, financial reporting, 

and disclosure requirements (see Section 

3.5.2.8). SPACs have generally underperformed 

the broader market, with the IPOX SPAC Index 

trailing the S&P 500 by 24 percentage points 

year-to-date through September 30, 2021. 

Outside the United States, global bourses 

have also generally rallied over the past year. 

Significant disparities in index composition, 

political developments, and COVID-19 

vaccination efforts and related activity 

restrictions were key factors differentiating 

performance (Chart 3.2.3.5). Major indices 

in other advanced economies rallied in the 

first nine months of 2021 but continue to 

underperform U.S. indices. Within emerging 

markets, Chinese equities have notably 

underperformed in 2021, with the MSCI 

China Index and the Shanghai-Shenzhen 

CSI 300 Indices declining by 17 percent and 

6.6 percent year-to-date, respectively. The 

underperformance of Chinese equities can 

be partly attributed to the broader regulatory 

clampdown in China and increased regulatory 

scrutiny in the U.S., including the 2020 Holding 

Foreign Companies Accountable Act, enhanced 

disclosure requirements, and the potential for 

delistings. 

3.2.3.5 Returns in Selected Equities Indices

3.2.3.4 SPAC Issuances
Financial Developments 31

0

25

50

75

100

125

150

0

25

50

75

100

125

150

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

CBO July 2021 

Baseline Projection Historical

3.3.1.2 Federal Debt Held by the Public

Percent of GDP Percent of GDP

Note: Data for fiscal years. 

Source: CBO, Haver Analytics Years after 2020 are projected.

-20

-15

-10

-5

0

5

10

-20

-15

-10

-5

0

5

10

1980 1990 2000 2010 2020 2030

3.3.1.1 Federal Budget Surplus/Deficit

Percent of GDP Percent of GDP

Note: Data for fiscal years. Years after 

Source: CBO, Haver Analytics 2020 are projected as of July 2021.

Historical

Projected

3.3 Government Finance

3.3.1 Treasury Market

Since early 2020, Congress has enacted several 

rounds of fiscal assistance to help mitigate 

the impact of COVID-19 and enable a robust 

recovery. These programs, which totaled $5.8 

trillion through September 2021, have pushed 

the primary deficit and the amount of public 

debt outstanding to recent highs ( Charts 

3.3.1.1, 3.3.1.2). In July 2021, the Congressional 

Budget Office projected that public debt would 

rise to 106 percent of GDP in 2031 as compared 

to 103 percent of GDP in 2021 and 66 percent of 

GDP in 2011. While the credit ratings for U.S. 

sovereign debt published by Standard & Poor’s 

(S&P), Moody’s, and Fitch have remained 

unchanged at AA+, Aaa, and AAA, respectively, 

Fitch revised its outlook from stable to negative 

in 2020, citing the deterioration in U.S. public 

finances and the absence of a credible fiscal 

consolidation plan. 

3.3.1.2 Federal Debt Held by the Public

3.3.1.1 Federal Budget Surplus/Deficit
32 2021 2021 FSOC // FSOC // Annual Report Annual Report

Billions of US$ As Of: 29-Sep-2021

3.3.1.4 Treasury General Account Balance

0

250

500

750

1000

1250

1500

1750

2000

0

250

500

750

1000

1250

1500

1750

2000

2015 2016 2017 2018 2019 2020 2021

Billions of US$

Source: Federal Reserve, Haver Analytics

3.3.1.4 Treasury General Account Balance

Billions of US$

3.3.1.3 Net Issuance of Treasury Securities

Billions of US$

Source: U.S. Department of the 

Treasury, Bureau of the Fiscal 

Service, SIFMA, Haver Analytics

As Of: 2021 Q3

Note: Includes marketable 

securities only.

-1000

0

1000

2000

3000

-1000

0

1000

2000

3000

2015 2016 2017 2018 2019 2020 2021

Bills

Notes and Bonds

Net

At the beginning of the COVID-19 pandemic, 

Treasury issued a record amount of Treasury 

securities, with net issuance totaling $2.8 

trillion in the second quarter of 2020 (Chart 

3.3.1.3). The increase in net issuance came 

primarily in the form of Treasury bills, which 

lowered the weighted average maturity of 

marketable debt from 69 months in March 2020 

to 62 months in June 2020. At the same time, 

the Treasury General Account at the Federal 

Reserve increased significantly, as Treasury 

maintained a higher cash balance given the 

considerable uncertainty regarding the timing 

of COVID-19 related outlays relative to more 

normal periods (Chart 3.3.1.4). Net issuance 

of Treasury securities tapered off between the 

third quarter of 2020 and the third quarter of 

2021. During this period, bill supply declined 

by $1.4 trillion and coupon supply increased by 

$3.2 trillion, as Treasury termed out its debt, 

which pushed the weighted average maturity of 

marketable debt to a multi-decade high of 72 

months as of September 2021. 

The decline in Treasury bill supply came in 

anticipation of the reinstatement of the debt 

ceiling in August. In the fall, the yields on 

certain Treasury bills—maturing just past 

the date at which the Treasury estimated it 

would exhaust its extraordinary measures—

were modestly elevated for a time, as investors 

reduced exposures to securities that could be at 

risk for delayed payments. 

Between September 2020 and September 

2021, foreign holdings of U.S. sovereign 

debt increased by 6.8 percent to $7.6 trillion. 

European countries accounted for the majority 

of the increase in Treasury holdings. Over 

the past year, the European Union (EU), 

the United Kingdom (UK), and Switzerland 

increased holdings of Treasury securities by 

$153 billion, $138 billion, and $41 billion, 

respectively. Japan continues to be the largest 

foreign holder of U.S. sovereign debt, with 

$1.3 trillion in holdings as of September 2021. 

China, the second largest foreign holder of U.S. 

Treasury securities, has maintained its holdings 

at approximately $1.0 trillion. 

3.3.1.3 Net Issuance of Treasury Securities
Financial Developments 33

Percent As Of: 30-Sep-2021

3.3.1.6 10-Year TIPS Yield and Breakeven

Source: U.S. Department 

of the Treasury

-3

-2

-1

0

1

2

3

4

-3

-2

-1

0

1

2

3

4

2016 2017 2018 2019 2020 2021

Percent

10-Year Breakeven

Treasury InflationProtected Securities

Note: Breakeven represents the difference 

between the nominal and TIPS yield. 

Percent As Of: 30-Sep-2021

3.3.1.5 U.S. Treasury Yields

Source: U.S. Department of the Treasury

0

1

2

3

4

5

0

1

2

3

4

5

2010 2012 2014 2016 2018 2020

Percent

10-Year

2-Year 

3.3.1.6 10-Year TIPS Yield and Breakeven

3.3.1.5 U.S. Treasury Yields Longer-dated U.S. Treasury yields, which 

remained at historically low levels through 

2020, rose in the first quarter of 2021, as 

investors adopted a more optimistic view of 

the U.S. economic recovery while pricing in 

higher expected inflation over the longer-term. 

Between December 31, 2020 and March 31, 

2021, the yield on the 10-year Treasury rose by 

81 basis points (Chart 3.3.1.5). Longer-dated 

Treasury yields largely stabilized in the second 

quarter before declining steadily, given reduced 

optimism on the pace of the economic recovery 

due to the spread of the COVID-19 Delta 

variant and Federal Reserve communication 

about the outlook for monetary policy. By 

September 30, 2021, the 10-year yield had fallen 

to 1.49 percent, a decline of 48 basis points 

from March 31, 2021. Shorter-dated Treasury 

yields remained anchored at or near the zero 

lower bounds since the start of the pandemic, 

with the yield on the 2-year Treasury standing at 

0.28 percent as of September 30, 2021. 

Real yields, which fell to historically low levels 

in 2020, were little changed on a year-overyear basis through September 2021 (Chart 

3.3.1.6). The historically low yield on Treasury 

Inflation Protected Securities (TIPS), coupled 

with the increase in nominal yields, pushed the 

10-year breakeven inflation rate to a multiyear 

high of 2.53 percent on May 11, 2021. The 

breakeven inflation rate has since declined to 

below 2.4 percent, as the decline in nominal 

yields over the summer outpaced the decline 

in real yields. While the breakeven rate can 

provide information about investors’ inflation 

expectations, it is an imperfect indicator 

given that the breakeven inflation rate is also 

influenced by the risk premium. 
34 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

10

20

30

40

0

10

20

30

40

Jan:2020 Jun:2020 Nov:2020 Apr:2021 Sep:2021

3.3.1.7 Intraday Volatility for 10-Year Treasury Yields

Basis Points Basis Points

Source: Bloomberg, L.P.

As Of: 24-Sep-2021

99th Percentile

95th Percentile

Intraday Volatility

Note: Intraday volatility calculated as daily high yield 

minus daily low yield on 10-year Treasury notes. 

Percentiles based on January 2005–September 2021. 

Broadly speaking, U.S. Treasury market 

liquidity conditions have been relatively 

stable since the stress observed in the spring 

of 2020. However, on February 25, 2021, 

the Treasury market experienced an abrupt 

decline in liquidity conditions in conjunction 

with record high trading volumes, as market 

participants were reportedly repositioning. 

On the afternoon of the 25th, market liquidity 

deteriorated, and yields sharply spiked 

following a disappointing Treasury auction 

(Chart 3.3.1.7). While the event was shortlived, market depth did not fully recover for 

several weeks. Similar to previous episodes 

of diminished Treasury market liquidity, the 

February 25 event raised concerns regarding 

Treasury market resilience. 

3.3.1.7 Intraday Volatility for 10-Year Treasury Yields
Financial Developments 35

Box A: IAWG Work on Treasury Market Resilience

The Treasury market is the deepest and most liquid 

fixed income market in the world. In recent years there 

have been several episodes in which liquidity abruptly 

deteriorated. These events are important to consider 

given the Treasury market’s growing size and its critical 

importance for both the official and private sectors. For 

example, by issuing Treasury securities, the Treasury 

Department seeks to finance the government at the 

lowest cost to the taxpayer over time. The Federal 

Reserve uses the Treasury market to implement 

monetary policy and seeks efficient and effective 

transmission of its actions to the broader financial 

system. Treasury securities also support the broader 

financial system by serving as a source of safe and liquid 

assets that support the efficient, stable flow of capital and 

credit, and by establishing a benchmark credit-risk-free 

yield curve. To ensure that the Treasury market continues 

to reliably fulfill its crucial roles, the agencies responsible 

for overseeing the market are pursuing a program of 

analysis and policy reform to strengthen the resilience of 

Treasury market structure.

The Treasury market has multiple segments, including 

cash securities, repo, and derivatives. Different agencies 

have different regulatory responsibilities for the Treasury 

market and the agencies collaborate to ensure effective 

surveillance and coordinated policymaking in a group 

called the Inter-Agency Working Group for Treasury 

Market Surveillance (IAWG), which consists of staff from 

the Treasury, Federal Reserve, FRBNY, SEC, and CFTC. 

The joint staffs are analyzing specific policy steps that 

could strengthen the market. On November 8, 2021, the 

IAWG published a Staff Progress Report on the areas of 

focus.

While the Treasury market has experienced several 

recent episodes of stress, the market disruption in 

March 2020 in particular has been well documented, 

including in the Council’s 2020 annual report. March 

2020 was unique and unprecedented in nature, but 

has some commonalities with other recent market 

disruptions, including the October 2014 flash rally and 

the September 2019 repo market disruption. In February 

2021, a similar disruption occurred amid a sudden and 

sizeable shift in investor positioning. The February 2021 

liquidity disruption was relatively short-lived and did not 

require official sector intervention, but it shared common 

characteristics with the previous episodes including:

• A sudden decline in market depth and 

intermediation capacity;

• Abnormally high trading volumes associated with a 

shift in crowded investor positioning; and

• Lack of visibility by both the official sector and the 

broader market in terms of the flows that were 

driving the market disruption at the time.

The IAWG staffs have looked across these episodes and 

created principles that should guide public policy when 

pursuing improvements in Treasury market resilience 

including:

• Resilient and elastic liquidity; 

• Transparency that fosters public confidence, fair 

trading, and a liquid market;

• Prices that reflect prevailing and expected economic 

and financial conditions;

• Economic integration across cash, funding, and 

derivatives markets;

• Financing that does not pose a significant threat to 

financial stability; and

• Infrastructure that operates effectively and efficiently.

With these established principles as a guide, the IAWG 

has identified workstreams for further study and policy 

considerations to improve Treasury market resilience 

and work towards better meeting the principles laid out 

above. These workstreams are considering:

• Improving data quality and availability;

• Improving resilience of market intermediation;

• Evaluating expanded central clearing; 

• Enhancing trading venue transparency and 

oversight; and

• Examining effects of leverage and fund liquidity risk 

management practices.

The IAWG plans to take a comprehensive and 

collaborative approach to exploring these workstreams 

and evaluating potential next steps. These efforts will 

complement the Council’s work on open-end mutual 

funds and hedge funds as well as align with the 

broad agenda laid out by the Financial Stability Board 

regarding core bond markets and nonbank financial 

intermediation.
36 2021 2021 FSOC // FSOC // Annual Report Annual Report

-50

-40

-30

-20

-10

0

10

20

30

-50

-40

-30

-20

-10

0

10

20

30

2010 2012 2014 2016 2018 2020

3.3.2.2 Monthly Municipal Bond Mutual Fund Flows

Billions of US$ Billions of US$

Source: ICI, Haver Analytics

As Of: Sep-2021

Note: Net fund flows.

3.3.2.2 Municipal Bond Mutual Fund Flows

Billions of US$

0

100

200

300

400

500

600

0

100

200

300

400

500

600

2006 2008 2010 2012 2014 2016 2018 2020

Revenue

General Obligation

3.3.2.1 Municipal Bond Issuance

Billions of US$

Source: Refinitiv, 

SIFMA

As Of: Sep-2021

Note: Excludes maturities of less than 13 

months. 2021 figures are through September.

3.3.2.1 Municipal Bond Issuance 3.3.2 Municipal Bond Market

Municipal bond issuers have taken advantage 

of strong market conditions over the past year 

to issue debt at or near record high volume. 

Accommodative financing conditions were 

supported by the improvement in the economic 

outlook, inflows to municipal bond funds, and a 

low interest rate environment. 

Municipal debt issuance reached $359 billion 

during the first nine months of 2021, following 

a record annual issuance of $485 billion in 2020 

(Chart 3.3.2.1). New money issuance totaled 

$236 billion in the first nine months of 2021, up 

20 percent.compared to the first nine months 

of 2020. The shift toward new money bonds 

came as increased federal aid and improved 

revenue forecasts led state and local authorities 

to greenlight new projects, including projects 

to address aging critical infrastructure. The 

issuance of municipal bonds as taxable debt has 

increased significantly over the past few years, 

reaching a high of 31 percent of municipal 

bonds issued in 2020, partly attributable to 

changes to the tax code in 2017 that prohibited 

tax-exempt advance refunding. While still at 

historically high levels, during the first nine 

months of 2021, taxable debt issuance dropped 

to 24 percent of all new municipal offerings, 

likely due in part to the shift toward new money 

bond issues as well as increased use of forward 

delivery tax-exempt debt to effect refinancings 

as an alternative to taxable advance refundings.

The strong pace of municipal bond issuance 

has been supported by municipal bond funds, 

the largest institutional buyer of municipal 

securities. These funds have seen robust inflows 

since mid-2020, following very large but shortlived outflows at the onset of the pandemic. 

Cumulative net inflows totaled $75 billion 

in the first nine months of 2021, the highest 

level in over 15 years, following $39 billion 

in cumulative net inflows over 2020 (Chart 

3.3.2.2). 

Municipal borrowing costs have fallen, and 

spreads fell to historically low levels through 

the first nine months of 2021. The ratio of 10-

year AAA-rated general obligations to 10-year 
Financial Developments 37

-10

-5

0

5

10

15

20

25

-10

-5

0

5

10

15

20

25

1998 2001 2004 2007 2010 2013 2016 2019

3.3.2.4 Changes in State and Local Government Tax Revenues

Percent Percent

Source: U.S. Census 

Bureau, Haver Analytics

Note: Data represents year-over-year percentage 

change. Revenue measures includes revenues from 

property, individual income, corporate income, and sales 

taxes. Gray bars signify NBER recessions.

As Of: 2021 Q2

3.3.2.3 Municipal Bonds to U.S. Treasuries

Source: Municipal Market 

Advisors, Bloomberg, L.P.

0

50

100

150

200

250

300

350

400

0

50

100

150

200

250

300

350

400

2015 2016 2017 2018 2019 2020 2021

Percent As Of: 30-Sep-2021 Percent

Note: Percentage of municipal yields against equivalent Treasury 

yields. Bloomberg's BVAL AAA Benchmark replaced MMA as the 

provider for municipal yields on September 1, 2010. 

2005–Present Average

10-Year AAA 

3.3.2.4 Changes in State and Local Government Tax Revenues

3.3.2.3 Municipal Bonds to U.S. Treasuries Treasury yields, which spiked to 340 percent in 

March 2020, was reported at 74 percent as of 

September 30, 2021 (Chart 3.3.2.3). The sharp 

tightening of spreads can be partly attributed to 

steps taken by the Federal Reserve that helped 

restore investor confidence, including the 

announcement that it would expand the Money 

Market Mutual Fund Liquidity Facility (MMLF) 

and the Commercial Paper Funding Facility 

(CPFF) to accept certain short-term municipal 

securities as eligible collateral, and that it 

would create the Municipal Liquidity Facility 

(MLF). In light of the significant improvement 

in borrowing conditions, participation in 

the MLF was ultimately limited and the MLF 

ceased purchasing notes on December 31, 2020. 

Only the state of Illinois and the Metropolitan 

Transportation Authority of New York accessed 

the facility. 

Municipal revenue growth has rebounded 

sharply through the second quarter of 2021 

(Chart 3.3.2.4). Revenue had contracted in the 

second quarter of 2020 amid delayed tax filings 

and an abrupt contraction in economic activity. 

Over the past year, expectations for continued 

negative fiscal impacts from COVID-19 have 

significantly subsided, in light of the vaccine-led 

economic reopening and federal fiscal support 

for households from the CARES and ARP Acts. 

Higher property values have also lifted revenues 

through greater property tax intakes. Revenue 

losses were also ultimately limited partly by the 

pandemic’s disproportionate impact on lowerwage earnings and services consumption, which 

tend to account for a smaller share of state and 

local revenue.

Aggregate reserve fund balances have declined 

only slightly through fiscal year 2021 compared 

to the record high reached in 2019, according 

to the National Association of State Budget 

Officers. States were able to keep reserve funds 

relatively stable in aggregate by relying on 

unassigned surpluses, spending cuts, hiring 

freezes, and support provided by the CARES 

Act to offset pandemic spending needs. The 

ARP Act also included $350 billion of direct 

aid to state, local, territorial, and tribal 

governments. 

373
38 2021 FSOC // Annual Report

Downgrades in the municipal sector have been 

limited, in light of the relatively steady reserve 

fund balances and the rapid recovery in revenue. 

The relatively slow pace of rating downgrades may 

also be partly attributed to the forward-looking 

nature of credit ratings. In 2020, downgrades 

represented 4 percent of Fitch’s credit reviews, 

while S&P downgraded approximately 4 percent 

of its municipal ratings universe. Rating agencies 

have reversed the negative ratings outlook for most 

municipal sectors. While the recent rebound in 

invested asset prices supported improved pension 

funding ratios, longer-term challenges around 

pension and retiree health care liabilities remain a 

concern in the market. In addition, the pandemic 

and the emergence of the Delta variant continue 

to raise uncertainty about commuting patterns, 

hospitality, and tourism.

Public sector employment declined sharply 

despite the rebound in revenues. State and local 

employment fell by 1.4 million people, or 6.9 

percent, from February 2020 to February 2021, due 

to pessimistic budget forecasts and reduced hiring 

needs. Social distancing restrictions and school 

closures disproportionately impacted workers in 

the education sector, including K-12 schools and 

higher education institutions. While state and local 

employment has since rebounded, it remains below 

pre-pandemic levels through September 2021. 

Despite initial concerns regarding pension funding 

at the onset of the COVID-19 pandemic, most state 

and local employers met their pension contribution 

requirements. According to the Pension Plan 

Database, approximately three-quarters of funds 

have met or exceeded their actuarially determined 

employer contribution requirement in fiscal year 

2020. 

Puerto Rico

The fiscal crisis of Puerto Rico remains distinctive 

in a sector with few defaults historically. The Puerto 

Rico debt adjustment process has continued over the 

past year. 

The Puerto Rico Oversight, Management, and 

Economic Stability Act (PROMESA), enacted in 

June 2016, established the Financial Oversight 

and Management Board for Puerto Rico (FOMB). 

The FOMB has the authority to designate Puerto 

Rico instrumentalities to be subject to its oversight. 

Further, the FOMB has the authority to file 

and litigate bankruptcy-like cases on behalf of 

the Commonwealth or any covered territorial 

instrumentality. Debt restructuring cases filed 

under Title III of PROMESA remain pending for 

the Commonwealth and certain other Puerto Rico 

instrumentalities.

The FOMB has filed a number of proposed 

Plans of Adjustment to adjust the debts of the 

Commonwealth of Puerto Rico, including 

a proposed resolution of Puerto Rico’s 

pension liabilities during the pendency of the 

Commonwealth’s PROMESA Title III case. The 

FOMB filed a Modified Eighth Amended Plan of 

Adjustment for the Commonwealth on November 

7, 2021. This Modified Eighth Amended Plan 

of Adjustment includes a post-debt adjustment 

debt sustainability analysis for Puerto Rico. If 

approved, it would reduce over $33 billion of 

Commonwealth and instrumentality debt claims 

to approximately $18 billion of cash payments and 

new debt instruments, in addition to payments from 

contingent value instruments.

The PROMESA Title III case of the Puerto Rico 

Electric Power Authority (PREPA) also remains 

pending as of September 2021. PREPA’s 2021 Fiscal 

Plan requires it to transfer management of its 

main operating assets to private service providers. 

A service contract for PREPA’s transmission and 

distribution system began in June 2021 by LUMA 

Energy, a consortium of U.S. and Canadian private 

corporations. PREPA is currently engaged in the 

selection process for a private operator for some of 

its generation assets.

The Commonwealth’s 2021 Fiscal Plan, certified by 

the FOMB, projects real economic growth to average 

0.4 percent annually over the next eight years, mostly 

due to various forms of federal assistance. This 

projected economic growth, in combination with 

required fiscal measures and structural reforms, are 

expected to contribute to an average annual predebt service surplus of $1.3 billion over the next five 

years, up from an expected $578 million in the 2020 

Fiscal Plan.
Financial Developments 39

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

2004 2008 2012 2016 2020

3.4.1.1 CP Outstanding by Issuer Type

Trillions of US$ As Of: Sep-2021 Trillions of US$

Domestic Financial

Domestic Nonfinancial

Foreign Financial

ABCP

Other

Foreign Nonfinancial

Source: Federal Reserve, 

Haver Analytics

Note: Not seasonally adjusted. Domestic includes 

CP issued in the U.S. by entities with foreign parents.

3.4.1.1 CP Outstanding by Issuer Type General fund collections by the Commonwealth 

fell sharply at the onset of the pandemic but 

have since rebounded. General fund collections 

were 2.6 percent higher in fiscal year 2021 

(ended June 30, 2021) compared to 2019. The 

2021 Fiscal Plan forecasts that outmigration, 

rising healthcare costs, and the phase-out of 

federal aid will lead to annual deficits starting 

in 2036—five years later than projected in the 

2020 plan.

3.4 Financial Markets 

3.4.1 Wholesale Funding Markets: Unsecured 

Borrowing

Commercial Paper

The commercial paper (CP) market is an 

important source of unsecured funding for 

financial and nonfinancial companies to meet 

current operating needs. CP is a financial 

instrument with maturity up to 270 days, 

with approximately 80 percent of CP having 

a maturity of less than 21 days. Firms relying 

on the CP market for funding are susceptible 

to changing market conditions during the 

rollover period. In mid-March 2020, the U.S. CP 

market was severely disrupted amid economic 

uncertainty arising from the COVID-19 

pandemic. Federal Reserve actions, including the 

establishment of the Commercial Paper Funding 

Facility (CPFF) on March 17, 2020, helped 

stabilize the CP market, and firms have since 

been able to roll-over debt at favorable terms.

The size of the CP market declined in the 

months following the initial COVID-19 market 

shock, with total CP outstanding falling by $88 

billion, or 8.4 percent, between year-end 2019 

and September 2020 (Chart 3.4.1.1). Issuances 

have since picked up, and by September 2021, 

the total amount of CP outstanding totaled $1.1 

trillion, up 12 percent from September 2020 as 

investors’ appetite for CP improved. 

Since year-end 2019, there has been a 

significant shift in the composition of CP 

outstanding. The share of CP outstanding 

issued by domestic nonfinancial companies 

steadily declined from 19 percent at year-end 

2019 to 11 percent as of September 2021. In 
40 2021 2021 FSOC // FSOC // Annual Report Annual Report

-1

0

1

2

3

4

-1

0

1

2

3

4

Jan:2020 Jul:2020 Jan:2021 Jul:2021

3.4.1.3 3-Month CP Interest Rate Spreads

Percent As Of: 30-Sep-2021 Percent

A2/P2-Rated Nonfinancial 

AA-Rated ABCP

AA-Rated Financial

AA-Rated Nonfinancial

Source: Federal Reserve, 

Bloomberg, L.P.

Note: Spread to 3-Month 

Overnight Index Swap (OIS) rate.

3.4.1.3 3-Month CP Interest Rate Spreads

0

20

40

60

80

100

0

20

40

60

80

100

1990 1994 1998 2002 2006 2010 2014 2018

Money Market Funds

3.4.1.2 CP Investors

Percent As Of: 2021 Q2 Percent

Source: Federal Reserve, Haver Analytics

Nonfinancial Corporates

State & Local Governments

Other

Funding Corporations

3.4.1.2 CP Investors contrast, foreign financial companies, which 

are the largest issuers of CP, saw their share of 

the CP outstanding increase from 31 percent 

to 40 percent over the same period. This 

reflects a longer-term trend of foreign financial 

companies increasing their usage of the U.S. 

CP market to meet their dollar funding needs. 

For comparison, foreign financial companies 

accounted for 9.1 percent of the CP market at 

the end of 2005. The share of CP market issued 

by other participants has remained fairly stable 

over the past two years, and as of September 

2021, asset-backed commercial paper (ABCP), 

domestic financial, and foreign nonfinancial 

issuers accounted for 24 percent, 19 percent, 

and 5.6 percent of the CP market, respectively. 

The CP investor base is diverse, with financial 

and nonfinancial corporations, state and 

local authorities, MMFs, and other investment 

vehicles all participating in the CP market 

(Chart 3.4.1.2). While MMFs’ share has 

declined considerably since the implementation 

of MMF reforms in 2016, they are still among 

the largest investors in the CP market. In 

March 2020, prime MMFs sought to reduce CP 

holdings and raise cash in response to realized 

and expected investor redemptions (see Section 

3.5.2.3). After the establishment of the CPFF 

and the MMLF, conditions among prime MMFs 

stabilized. Funds have maintained a fairly stable 

share of assets invested in CP. 

Ample liquidity conditions, particularly for 

financials, and strong investor demand are 

reflected in the low spreads of the 90-day 

CP rate to the overnight index swap (OIS) 

rate (Chart 3.4.1.3). Over the past year, 

the quarterly average spreads on 90-day AA 

Nonfinancial CP declined from 3 to -3 basis 

points, spreads on 90-day A2/P2 Nonfinancial 

CP declined from 24 to 11 basis points, and 

spreads on 90-day AA Financial CP narrowed 

from 6 to 2 basis points.

Bank Deposits

Deposits can be a stable source of funding for 

banks, although the stability of different types 

of deposits can vary. Rate sensitive deposits, 
Financial Developments 41

-30

-20

-10

0

10

20

30

-30

-20

-10

0

10

20

30

2007 2009 2011 2013 2015 2017 2019 2021

3.4.1.4 Commercial Bank Deposit Growth

Percent As Of: Sep-2021 Percent

Total Deposits

Source: Federal Reserve Note: Year-over-year percentage change.

Large Time Deposits

3.4.1.4 Commercial Bank Deposit Growth such as brokered certificates of deposit (CDs), 

listing service deposits, and large-denomination 

deposits, are considered riskier sources of 

funding than retail deposits because balances 

can be volatile if customers find more appealing 

rates elsewhere. Credit sensitive deposits, such 

as uninsured deposits and municipal deposits, 

may also be a riskier source of funding because 

balances can be volatile if customers have 

concerns about the credit quality of the bank.

Since the start of the pandemic, total deposits 

at U.S. commercial banks have grown 

significantly. Total deposits at U.S. commercial 

banks increased by $2.9 trillion in 2020 and 

a further $1.4 trillion in the first nine months 

of 2021 to stand at nearly $18 trillion as of 

September 2021. Much of the increase in bank 

deposits was driven by insured retail deposits 

and operational corporate deposits, which are 

relatively stable sources of funding. In contrast, 

large time deposits, which include wholesale 

CDs, declined by over 11 percent on a yearover-year basis through September 2021 (Chart 

3.4.1.4). The increase of bank deposits, coupled 

with the shift in the composition of bank 

deposits, has likely resulted in a more stable 

funding base. 

3.4.2 Wholesale Funding Markets: Secured 

Borrowing

The repo market is an important source 

of secured financing for dealers and other 

financial institutions and is an important venue 

for the implementation of monetary policy. 

Well-functioning repo markets support liquidity 

and price discovery in cash markets, helping 

to improve the efficient allocation of capital 

and to reduce the funding costs of firms in the 

real economy. However, firms reliant on repo 

financing may be vulnerable to funding shocks, 

particularly during periods of market stress. 

Repo borrowing, as reported in the Financial 

Accounts of the United States, totaled $4.8 

trillion as of the second quarter of 2021, up 

from $4.1 trillion a year earlier. The market 

consists of two main segments: tri-party repo, 

in which settlement occurs within the custodial 

accounts of a clearing bank, and bilateral 
42 2021 2021 FSOC // FSOC // Annual Report Annual Report

3.4.2.2 Sponsored Repo Activity

Billions of US$

0

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700

Jul:2019 Jan:2020 Jul:2020 Jan:2021 Jul:2021

Aggregate

Repo Lending

Repo Borrowing 

3.4.2.2 Sponsored Repo Activity

Billions of US$

Source: DTCC

As Of: Sep-2021

Note: Average daily volume. Breakdown of repo lending 

and repo borrowing unavailable prior to April 2020. 

0

300

600

900

1200

1500

0

300

600

900

1200

1500

Apr:2018 Apr:2019 Apr:2020 Apr:2021

SOFR 

TGCR

3.4.2.1 Repo Volumes

Billions of US$ As Of: 30-Sep-2021 Billions of US$

Source: FRBNY

Note: TGCR = Tri-Party General Collateral Rate;

SOFR = Secured Overnight Financing Rate.

3.4.2.1 Repo Volumes repo, which typically refers to all activity not 

settled within the tri-party system, including 

bilateral repo transactions cleared through 

the Fixed Income Clearing Corporation 

(FICC) and bilateral repo that is not centrally 

cleared. Primary dealers, which are trading 

counterparties of FRBNY, are active in both 

segments of the market, and often act as 

borrowers in the tri-party segment, and both 

borrowers and lenders in the bilateral segments. 

SOFR and Tri-party General Collateral Rate 

(TGCR) volumes, which temporarily spiked 

at the onset of the pandemic, have remained 

relatively steady over the past year (Chart 

3.4.2.1).1 Similarly, the total volume at FICC’s 

sponsored repo service, which is a subset of 

SOFR volume, has declined from its March 

2020 peak and is now below pre-pandemic 

levels (Chart 3.4.2.2). Sponsored repo 

allows cash lenders, such as MMFs, and repo 

borrowers, such as hedge funds, to participate 

in the FICC-cleared bilateral segment. The 

service also allows sponsoring members to 

minimize balance sheet usage by netting their 

repo lending and borrowing. While clearing 

sponsors guarantee sponsored members 

obligations, the growth of sponsored repo 

increases overall market exposure to FICC as a 

central counterparty.
Financial Developments 43

Primary dealer cash borrowing in the repo 

market stood at $2.4 trillion as of September 

29, 2021, largely unchanged from the previous 

year (Chart 3.4.2.3). Of this borrowing, over 

90 percent was collateralized by Treasuries 

or agency MBS (Chart 3.4.2.4). Focusing on 

the aggregate tri-party market, where primary 

dealers are the main borrowers, 86 percent of 

repo transactions were backed by Treasuries 

or agency MBS at the end of September 2021. 

Median haircuts on collateral used in tri-party 

repo transactions were relatively flat for the year 

across most collateral classes. 

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2014 2015 2016 2017 2018 2019 2020 2021

3.4.2.4 Primary Dealer Repo Collateral

Trillions of US$ Trillions of US$

Source: FRBNY, Haver Analytics

As Of: 29-Sep-2021

Equities

Other

Corporates

Agency MBS

Agency Debt

U.S. Treasuries

Note: U.S. Treasuries includes 

TIPS. Other includes ABS.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2014 2015 2016 2017 2018 2019 2020 2021

3.4.2.3 Primary Dealer Repo Agreements

Trillions of US$ As Of: 29-Sep-2021 Trillions of US$

Source: FRBNY, Haver Analytics

Overnight/Continuing

Term

3.4.2.4 Primary Dealer Repo Collateral

3.4.2.3 Primary Dealer Repo Agreements
44 2021 2021 FSOC // FSOC // Annual Report Annual Report

Billions of US$ As Of: 2021 Q1

3.4.2.6 Repo Borrowing of Qualifying Hedge Funds

250

500

750

1000

1250

1500

250

500

750

1000

1250

1500

2014 2015 2016 2017 2018 2019 2020

Billions of US$

Source: SEC Form PF 

Statistics Report

Note: Repo borrowing as reported 

on Question 43 of Form PF. 

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2014 2015 2016 2017 2018 2019 2020 2021

3.4.2.5 Primary Dealer Reverse Repo Agreements

Trillions of US$ As Of: 29-Sep-2021 Trillions of US$

Source: FRBNY, Haver Analytics

Overnight/Continuing

Term

Similarly, cash lending by primary dealers in 

the repo market (reverse repo) was unchanged 

over the past year, totaling $1.9 trillion on 

September 29, 2021 (Chart 3.4.2.5). However, 

the share of primary dealer reverse repo that is 

lent overnight has continued to increase, and 

as of the end of September 2021, overnight 

repo lending accounted for 51 percent of 

outstanding reverse repo agreements compared 

with 39 percent five years prior. Primary dealers 

typically lend to leveraged investors, such as 

hedge funds, in the segment of the bilateral 

repo market that is not centrally cleared. Hedge 

fund repo borrowing declined from its prepandemic peak, but remained elevated in the 

aftermath of the March 2020 market stress. As 

of the first quarter of 2021, hedge funds’ repo 

borrowing totaled $1.0 trillion (Chart 3.4.2.6). 

3.4.2.6 Repo Borrowing of Qualifying Hedge Funds

3.4.2.5 Primary Dealer Reverse Repo Agreements
Financial Developments 45

Over the past year, repo market rates were 

low and stable, in part because of the ample 

liquidity in funding markets (Chart 3.4.2.7). 

Participation at the Federal Reserve’s Overnight 

Reverse Repurchase Agreement Facility (ONRRP) has been high, with take-up in excess 

of $1.6 trillion on September 30, 2021 (Chart 

3.4.2.8). The increase in participation has 

largely been driven by MMFs, as the facility 

provides an alternative investment vehicle for 

MMFs amid the declining supply of Treasury 

bills and low money market rates. 

On July 28, 2021, the Federal Reserve 

announced a Standing Repo Facility (SRF) 

and a permanent repo facility for foreign and 

international monetary authorities (FIMA repo 

facility), which are intended to support the 

effective implementation of monetary policy 

and smooth market functioning. The SRF 

allows primary dealers and eligible depository 

institutions to borrow in overnight repo backed 

by Treasury or agency securities. In March of 

2020, the U.S. Treasury market experienced 

extraordinary volumes of selling by a broad 

range of investors, including foreign official 

accounts. To address global funding pressures 

that may affect U.S. financial conditions, the 

FIMA repo facility allows foreign central banks 

and international accounts to raise funds 

against their holdings of Treasury securities 

maintained in custody at the FRBNY. Both 

facilities will operate similar to the temporary 

operations that helped stabilize market 

functioning at the onset of the pandemic. The 

facilities should act as backstops in money 

markets to dampen upward pressures in repo 

markets that may spill over to the federal funds 

market, as was the case in September 2019.2

Wholesale Funding Markets: Securities Lending

Securities lending plays an important role 

in financial market functioning. Securities 

lending transactions involve the temporary 

transfer of a security by one party (the lender) 

to another (the borrower) in exchange for 

cash or non-cash collateral. In addition to 

broker-dealers using rehypothecated securities 

from customers’ margin accounts for lending, 

0

1

2

3

4

5

6

0

1

2

3

4

5

6

Jan:2019 Jul:2019 Jan:2020 Jul:2020 Jan:2021 Jul:2021

SOFR

TGCR

3.4.2.7 Repo Rates

Percent Percent

Source: FRBNY

As Of: 30-Sep-2021

Note: TGCR = Tri-party General Collateral Rate;

SOFR = Secured Overnight Financing Rate.

0

300

600

900

1200

1500

1800

0

300

600

900

1200

1500

1800

2017 2018 2019 2020 2021

3.4.2.8 ON-RRP Participation

Billions of US$ Billions of US$

Source: FRBNY

As Of: 30-Sep-2021

Note: Overnight Reverse 

Repurchase Agreement Facility.

3.4.2.7 Repo Rates

3.4.2.8 ON-RRP Participation
46 2021 2021 FSOC // FSOC // Annual Report Annual Report

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2015 2016 2017 2018 2019 2020 2021

3.4.2.9 Value of Securities on Loan

Trillions of US$ Trillions of US$

Source: Markit

As Of: 30-Sep-2021

Note: Data is based on a 

survey of agent-based lenders.

Foreign Markets

U.S. Market

other lenders consist of large institutional 

investors, including mutual funds, pension 

plans, and insurers. Initial borrowers of 

securities are typically broker-dealers or 

banks. They generally do not retain borrowed 

securities, but re-lend them to the ultimate 

borrowers of securities, which include hedge 

funds, derivatives traders, and market makers. 

Lenders generally use a securities lending 

agent to facilitate loans, although some may 

lend securities directly to a borrower. Banks 

that specialize in providing custodial services 

for securities are the most common lending 

agents, and some asset managers also perform 

this function. For lenders, securities lending is 

generally used to enhance income. Lenders can 

generate additional income by receiving a fee 

from the transactions’ borrowers or reinvesting 

the cash collateral if the borrower posts cash 

collateral. Most security lending arrangements 

allow the borrower to return the borrowed 

securities on short notice in exchange for the 

collateral posted. 

Centralized monitoring of securities lending 

activities is difficult due to the lack of 

comprehensive, standardized statistics on 

securities lending activities. Instead, data on the 

securities lending market is based on surveys. 

According to the Markit survey of agent-based 

lenders, the estimated value of securities on 

loan globally was $3.1 trillion at the end of 

September 2021, up from $2.5 trillion at the 

end of September 2020 (Chart 3.4.2.9). Most 

of the growth during the period occurred in 

the last quarter of 2020 and the first quarter 

of 2021, as equity markets experienced short 

squeezes and the demand for borrowing 

government bonds rose. U.S. securities continue 

to account for the majority of global securities 

on loan, accounting for 58 percent of global 

securities on loan as of the end of September 

2021. 

Equities and government bonds continue to 

account for most of the estimated value of 

securities on loan in the United States. As of 

September 30, 2021, government bonds totaled 

$811 billion or 46 percent of securities on loan 

3.4.2.9 Value of Securities on Loan
Financial Developments 47

while equities totaled $646 billion or 36 percent 

of the total amount of securities on loan (Chart 

3.4.2.10). Notably, borrowers’ use of cash 

collateral rose in 2021 after reaching a new low 

at the end of 2020. The estimated share of cash 

posted as collateral to borrow securities globally 

has stabilized slightly above 35 percent as of the 

end of September 2021 (Chart 3.4.2.11). 

In the U.S., reinvestment of cash collateral 

from securities lending was estimated to be 

$747 billion at the end of the second quarter of 

2021, up from about $649 billion at the end of 

the second quarter of the previous year (Chart 

3.4.2.12). The mean and median weighted 

average maturity of cash reinvestment portfolios 

were reported at 70 days and 63 days in the 

second quarter of 2021, respectively. 

0

50

100

150

200

250

300

0.0

0.4

0.8

1.2

1.6

2.0

2.4

2005 2007 2009 2011 2013 2015 2017 2019 2021

3.4.2.12 U.S. Securities Lending Cash Reinvestment

Trillions of US$ Days

Source: The Risk 

Management Association

Mean WAM (right axis)

Median WAM (right axis)

As Of: 2021 Q2

Note: Data is based on a 

survey of agent-based lenders.

Total Cash Reinvestment 

(left axis)

25

30

35

40

45

50

25

30

35

40

45

50

2015 2016 2017 2018 2019 2020 2021

3.4.2.11 Securities Lending Cash Collateral

Percent Percent

Source: Markit

As Of: 30-Sep-2021

Note: Data is based on a 

survey of agent-based lenders.

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

2015 2016 2017 2018 2019 2020 2021

3.4.2.10 Value of U.S. Securities on Loan

Trillions of US$ Trillions of US$

Source: Markit

As Of: 30-Sep-2021

Note: Data is based on a 

survey of agent-based lenders.

Equities

Corporate Bonds

Government Debt

Other

ETFs

3.4.2.12 U.S. Securities Lending Cash Reinvestment

3.4.2.11 Securities Lending Cash Collateral

3.4.2.10 Value of U.S. Securities on Loan
48 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

20

40

60

80

100

0

20

40

60

80

100

2012 2014 2016 2018 2020

3.4.2.13 U.S. Securities Lending Cash Reinvestment Collateral

Percent of Total Percent of Total

Source: The Risk Management 

Association, OFR

As Of: 2021 Q2

Note: Nongovernment repos have collateral of whole 

loans, equity, and corporate debt. Other includes ABS, 

funding agreements, other funds, and other vehicles. 

Data is based on a survey of agent-based lenders.

Nongovernment Repo

Corporate Securities

Other

Government Repo

Money Market Funds

Commercial Paper

Bank Deposits

0

1

2

3

4

5

6

0

1

2

3

4

5

6

2016 2017 2018 2019 2020 2021

3.4.3.1 U.S. Futures Markets Volume

Billions of Contracts Billions of Contracts

Source: CFTC

As Of: 2021 Q3

Note: 2016–2020 figures represent full year 

volumes. 2021 figure represents year-todate volume through September 30, 2021. 

3.4.2.13 U.S. Securities Lending Cash Reinvestment Collateral 

3.4.3.1 U.S. Futures Markets Volume 

In terms of the composition of cash 

reinvestment portfolios, the estimated share 

allocated to repos backed by non-government 

collateral was 29 percent at the end of the 

second quarter of 2021, up from 26 percent 

at the end of the second quarter of 2020. 

This increase is mainly due to the rise of repo 

backed by equity and non-investment grade 

corporate collateral. The share of bank deposit 

and government repo fell to 15 percent and 9.2 

percent, respectively, from 16 percent and 9.8 

percent one year earlier. The estimated share 

of cash reinvestment portfolios allocated to CP 

declined to 8.0 percent at the end of the second 

quarter of 2021 from 8.7 percent at the end of 

the second quarter of 2020 (Chart 3.4.2.13).

3.4.3 Derivatives Markets

3.4.3.1 Futures

The U.S. futures markets attract broad 

participation from domestic and international 

market participants seeking to hedge or 

manage risk and invest or speculate in U.S. 

markets. Commercial participants routinely use 

the commodity markets for hedging and risk 

management activities. Financial intermediaries 

and other non-commercial participants, who 

provide liquidity and order book depth in 

U.S. futures markets, have increased their 

participation.

In 2020, a record 4.5 billion futures contracts 

were executed across all U.S. exchanges (Chart 

3.4.3.1). 2021 volumes are on a similar pace, 

with 3.4 billion contracts traded through 

the first nine month of 2021. Interest rate 

futures continued to account for a large 

share of futures market activity, comprising 

approximately 38 percent of contracts traded 

to date in 2021. Equity index futures comprised 

17 percent of total volume, and energy futures 

comprised 20 percent, notably in crude oil, 

gasoline, and natural gas. Agriculture, base 

metals, and industrial metal futures were each 

approximately 10 percent of total volume. 

But using another measure of market activity, 

open interest, defined as the total notional 

amount of outstanding contracts, activity 

declined in 2020 (Chart 3.4.3.2). This decline 

0

5

10

15

20

25

30

0

5

10

15

20

25

30

2016 2017 2018 2019 2020 2021

3.4.3.2 U.S. Futures Markets Open Interest

Trillions of US$ Trillions of US$

Source: CFTC

As Of: 30-Sep-2021

Note: Open interest as of 

September 30 for all years.

3.4.3.2 U.S. Futures Markets Open Interest
Financial Developments 49

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

Gold Crude Oil S&P 500 Corn Silver Soybean

2021 Range

9/30/2021

5-Year Average

3.4.3.3 Futures 60-Day Historical Volatility

Percent Percent

Source: Bloomberg, L.P.

As Of: 30-Sep-2021

in open interest can be largely attributed to 

reduced open interest in short-term interest rate 

futures, which account for a disproportionate 

share the total notional amount outstanding. 

Between year-end 2019 and year-end 2020, open 

interest in Eurodollar futures declined by $1.8 

trillion. Open interest in Eurodollar futures 

and the broader futures market increased 

slightly in 2021 but remain below 2019 levels. 

Volatility levels were elevated in 2021 for certain 

commodity futures. Realized volatility levels for 

agricultural futures, such as corn and soybean 

futures, were particularly elevated as these asset 

classes saw a record run-up in prices followed 

by fairly significant mean reversion (Chart 

3.4.3.3). In contrast, realized volatility in S&P 

500 futures was subdued relative to the past five 

years on average. 

3.4.3.3 Futures 60-Day Historical Volatility
50 2021 2021 FSOC // FSOC // Annual Report Annual Report

3.4.3.5 Futures Transaction Volume – Leaderboard

Source: CFTC

Futures Contract Number of 

Contracts (YTD)

1. 3-Month Eurodollars 439 Million

2. 10-Year Treasury Notes 357 Million

3. E-Mini S&P 500 Stock Index 300 Million

4. 5-Year Treasury Notes 209 Million

5. WTI Crude Oil 183 Million

6. Micro E-Mini NASDAQ 100 174 Million

7. Micro E-Mini S&P 500 Index 161 Million

8. E-Mini NASDAQ 100 Index 103 Million

9. U.S. Treasury Bonds 86 Million

10. 2-Year U.S. Treasury Notes 82 Million

Note: Total futures volume through September 30, 2021.

0

1

2

3

4

5

0

1

2

3

4

5

2016 2017 2018 2019 2020 2021

Currencies

Energy

Metals

Stock Indices

Treasuries

3.4.3.4 Micro Futures Contracts Open Interest

Billions of US$ Billions of US$

Source: CFTC

As Of: 30-Sep-2021

Note: Open interest as of September 30 for all years.

3.4.3.5 Futures Transaction Volume – Leaderboard

3.4.3.4 Micro Futures Contracts Open Interest Smaller-sized “micro” futures have expanded 

significantly since 2018, particularly futures 

on stock indices, such as the S&P 500, Nasdaq 

100, Dow Jones Industrial Average, or Russell 

2000 indices (Chart 3.4.3.4). The Micro 

E-Mini S&P 500 and the Micro E-Mini Nasdaq 

100 are now among the most actively traded 

futures contracts (Chart 3.4.3.5). However, 

when adjusted for contract size, micro futures’ 

trading volumes are still significantly lower 

than their larger E-mini counterparts. Dollar 

volumes for Micro E-Mini S&P 500 and Micro 

E-mini Nasdaq 100 futures were approximately 

5.3 percent and 17 percent of E-mini contracts 

through the first nine months of 2021, 

respectively.
Financial Developments 51

12/29/20151/29/20162/29/20163/31/20164/30/20165/31/20166/30/20167/31/20168/31/20169/30/201610/31/201611/30/201612/31/20161/31/20172/28/20173/31/20174/30/20175/31/20176/30/20177/31/20178/31/20179/30/201710/31/201711/30/201712/31/20171/31/20182/28/20183/31/20184/30/20185/31/20186/30/20187/31/20188/31/20189/30/201810/31/201811/30/201812/31/20181/31/20192/28/20193/31/20194/30/20195/31/20196/30/20197/31/20198/31/20199/30/201910/31/201911/30/201912/31/20191/31/20202/29/20203/31/20204/30/20205/31/20206/30/20207/31/20208/31/20209/30/202010/31/202011/30/202012/31/20201/31/20212/28/20213/31/20214/30/20215/31/20216/30/20217/31/20218/31/2021

-1000

-750

-500

-250

0

250

500

750

1000

-1000

-750

-500

-250

0

250

500

750

1000

2016 2017 2018 2019 2020 2021

Billions of US$ As Of: 28-Sep-2021

3.4.3.7 U.S. Treasury Futures Open Interest: Leveraged Funds

Billions of US$

Note: Net notional amount of open interest. 10-Year includes 

10-Year and 10-Year Ultra Treasury Note Futures; 30-Year 

includes Treasury Bond and Ultra Treasury Bond Futures.

5-Year

2-Year

30-Year

10-Year

Source: CFTC, 

Haver Analytics

12/29/2015 12/29/2016 12/29/2017 12/29/2018 12/29/2019 12/29/2020

-1000

-750

-500

-250

0

250

500

750

1000

-1000

-750

-500

-250

0

250

500

750

1000

2016 2017 2018 2019 2020 2021

Billions of US$ As Of: 28-Sep-2021

3.4.3.6 U.S. Treasury Futures Open Interest: Asset Manager

Billions of US$

Source: CFTC, 

Haver Analytics

Note: Note: Net notional amount of open interest. 10-Year 

includes 10-Year and 10-Year Ultra Treasury Note Futures; 30-

Year includes Treasury Bond and Ultra Treasury Bond Futures.

5-Year

2-Year

30-Year

10-Year

3.4.3.7 U.S. Treasury Futures Open Interest: Leveraged Funds

3.4.3.6 U.S. Treasury Futures Open Interest: Asset Manager Positioning in Treasury Futures 

In U.S. Treasury futures, asset managers and 

leveraged funds have significantly changed 

their positions over the past year (Chart 3.4.3.6, 

3.4.3.7). Asset managers, including pension 

and other long-only unleveraged funds, have 

historically been long futures across the 

Treasury curve, while leveraged funds have 

been short futures across the curve. However, 

since the onset of the COVID-19 pandemic, 

asset managers have reduced their net long 

positions and in early 2021, these investors 

became net short in the 10-year for the first 

time since 2017. Similarly, leveraged funds have 

reduced their net short positions, and were net 

long the 10-year contract for much of 2021. 

For asset managers, one potential explanation 

for the positioning change is that with interest 

rates at the zero-lower bound, hedging demand 

has fallen. The decline in leveraged funds’ net 

short positions can be partly attributed to an 

unwinding of the cash-futures basis trade since 

March 2020. Ample liquidity in the financial 

system has diminished the profitability of this 

trading strategy.
52 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

20

40

60

80

100

0

20

40

60

80

100

Jan:2019 Jul:2019 Jan:2020 Jul:2020 Jan:2021 Jul:2021

3.4.3.9 Bitcoin Futures and Reference Index Volume

Thousands of Bitcoin Thousands of Bitcoin

Source: Bloomberg L.P., 

Bitcoinity.org

As Of: Sep-2021

CME CF Bitcoin Real-Time Index

CME Futures Volume

Note: Average daily volume. Incudes CME Bitcoin and Micro 

Bitcoin volumes converted into bitcoin equivalents. Spot volumes 

are Bitcoin/USD pairs from underlying spot exchanges referenced 

by the CME CF Bitcoin Real-Time Index. 

0

15

30

45

60

75

90

0

15

30

45

60

75

90

Jan:2019 Jul:2019 Jan:2020 Jul:2020 Jan:2021 Jul:2021

3.4.3.8 CME Bitcoin Futures Open Interest 

Thousands of Bitcoin

Source: Bloomberg, L.P.

As Of: 30-Sep-2021

Note: Includes Bitcoin Futures and Micro Bitcoin 

Futures contracts. Open interest converted into Bitcoin 

equivalents using respective futures contract units. 

Thousands of Bitcoin

3.4.3.9 Bitcoin Futures and Reference Index Volume

Digital Asset Futures

U.S.-regulated digital asset futures and options 

markets have expanded over the last several 

years, both in terms of open interest and 

volumes as well as in terms of the number of 

product offerings. However, open interest in 

Chicago Mercantile Exchange (CME) Bitcoin 

futures generally declined over the first nine 

months of 2021 (Chart 3.4.3.8). Similarly, CME 

Bitcoin futures volumes declined over the same 

period, with levels comparable to spot exchange 

volumes reported by underlying exchanges 

that determine the CME CF Bitcoin Real-Time 

Index, to which the futures contracts settle 

(Chart 3.4.3.9). Volatility in bitcoin futures 

markets remains elevated relative to other asset 

classes. 

3.4.3.8 CME Bitcoin Futures Open Interest
Financial Developments 53

Millions of Contracts As Of: Sep-2021

3.4.3.12 Exchange-Traded Equity Option Volume

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

Jan:2019 Jul:2019 Jan:2020 Jul:2020 Jan:2021 Jul:2021

Millions of Contracts

Source: Options Clearing Corp. 

Note: Average daily volume. Includes 

FLEX, excludes index and ETF options. 

Put Options

Call Options

3.4.3.12 Exchange-Traded Equity Option Volume

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Dec:2019 Dec:2020 Mar:2021 Jun:2021 Sep:2021

3.4.3.11 Growth of the ESG Indices Futures Markets

Billions of US$ Billions of US$

Source: CFTC

As Of: 30-Sep-2021

0

5

10

15

20

25

0

5

10

15

20

25

2008 2010 2012 2014 2016 2018 2020

Futures

Options

Index

Swaps

3.4.3.10 Growth of USD ESG and Emissions Derivatives Markets

Billions of US$ Billions of US$

Source: CFTC

As Of: 30-Sep-2021

3.4.3.11 Growth of the ESG Indices Futures Markets

3.4.3.10 Growth of USD ESG and Emissions Derivatives Markets Emission and ESG Futures

During the past few years, emission and 

environmental, social, and governance (ESG) 

derivatives markets have grown rapidly as 

several state and regional carbon cap-and-trade 

markets have been established and investors 

have sought ESG products (Chart 3.4.3.10). 

Designated contract markets (DCMs) have 

listed over 100 emissions futures contracts and 

the number is expected to continue to increase. 

Another significant development is the growth 

of ESG index futures. As of September 2021, 

ESG index futures exceeded $3.1 billion in 

notional value (Chart 3.4.3.11).

3.4.3.2 Exchange-Traded Options

Equity Options

There are sixteen registered national securities 

exchanges that list and trade standardized 

equity options. Transactions in securities-based 

standardized options are all centrally cleared 

by the Options Clearing Corporation, which is 

the issuer and guarantor of each standardized 

options contract. Because Options Clearing 

Corp. generally only accepts exchange-traded 

contracts for clearing, standardized options 

only trade on exchanges. In addition to 

standardized options, bespoke options trade 

over-the-counter (OTC) on a bilateral basis, but 

generally are not centrally cleared.

The volume of activity in exchange-traded 

equity options has been volatile over the 

past year. Average daily volume of exchangetraded equity options peaked early in the year, 

reaching a record high of 31 million contracts 

in January 2021 (Chart 3.4.3.12). Some reports 

indicate that the increase in volume was 

driven, in part, by an increase in retail investor 

participation. Broker-dealers enhanced options 

trading offerings, including mobile app-based 

trading, and lowered or eliminated trading 

commissions. Some of the increase in volume 

was also attributable to options on “meme 

stocks” that attracted considerable social media 

attention in January and February 2021, with 

many experiencing elevated trading volume and 

increasing share prices that exceeded broader 

market movements. 
54 2021 2021 FSOC // FSOC // Annual Report Annual Report

10

20

30

40

50

60

70

10

20

30

40

50

60

70

Corn

Wheat

Soybean

Sugar

Cotton

Lean Hogs

WTI

Copper

Gold

Silver

9/30/2021

5 Year Average 1 Year Range

3.4.3.15 3-Month Implied Volatility for Select Commodities Options

Percent Percent

Source: Bloomberg, L.P.

As Of: 30-Sep-2021

0

250

500

750

1000

1250

1500

0

250

500

750

1000

1250

1500

2015 2016 2017 2018 2019 2020 2021

3.4.3.14 Options on Futures: Volume

Millions of Contracts Millions of Contracts

Source: CFTC

Other Options

Eurodollar Options

As Of: Sep-2021

YTD

54 2021 FSOC // Annual Report

3.4.3.15 3-Month Implied Volatility for Select Commodities Options

3.4.3.14 Options on Futures: Volume

While overall volume has stabilized during 

the first nine months of 2021, it remains 

significantly above pre-pandemic levels. 

Total exchange-traded equity option volume, 

excluding options on ETFs and index options, 

was 255 percent higher in the first nine months 

of 2021 compared to the first nine months 

of 2019. As of July 30, 2021, there were over 

4,200 equity securities underlying exchangetraded equity options and over 4,300 series 

listed for trading. Options Clearing Corp. 

required approximately $116 billion in total 

initial margin as of the second quarter of 2021, 

compared to $76 billion in the second quarter 

of 2020. 

Options on Futures 

Over the past five years, open interest for U.S. 

options on futures averaged approximately $37 

trillion on a non-delta adjusted basis (Chart 

3.4.3.13). Notional exposures to options on 

futures are concentrated in the highly liquid 

benchmark CME 3-month Eurodollar interest 

rate contract. Options on futures volumes fell 

in 2020, which can be primarily attributed to a 

decline in Eurodollar futures amid prospects 

for a continued low-rate environment. Volumes 

are on pace to be slightly higher in 2021 but 

Eurodollar option volumes remain subdued 

given the low-rate environment (Chart 

3.4.3.14).

The implied volatility in agricultural 

commodity options was slightly elevated but 

within historic norms despite weather and 

supply chain disruptions over the past year 

(Chart 3.4.3.15). The range of implied volatility 

for silver contracts was unusually wide due 

to the spike in retail trading in February and 

March of 2021. 

0

10

20

30

40

50

60

0

10

20

30

40

50

60

2016 2017 2018 2019 2020 2021

3.4.3.13 Options on Futures: Open Interest

Trillions of US$ Trillions of US$

Source: CFTC

As Of: Sep-2021

3.4.3.13 Options on Futures: Open Interest
Financial Developments 55

Trillions of US$

0

10

20

30

40

0

200

400

600

800

1000

2000 2003 2006 2009 2012 2015 2018 2021

Notional Amounts 

(left axis)

3.4.3.16 Global OTC Positions

Trillions of US$

Source: BIS, Haver Analytics

As Of: 2021 Q2

Gross Market Values 

(right axis)

Gross Credit Exposures 

(right axis)

3.4.3.16 Global OTC Positions 3.4.3.3 OTC Derivatives

Global OTC Derivatives Markets

As of June 2021, the notional amount of global 

OTC derivative positions totaled $610 trillion, 

a 0.5 percent increase compared to June 

2020 (Chart 3.4.3.16). At the same time, the 

gross market value of OTC derivatives, which 

measures the amounts at risk, fell to $13 trillion 

as of June 2021, an 18 percent decrease over the 

year. Interest rate derivatives, which accounted 

for 80 percent of derivatives on a notional 

basis and 71 percent of derivatives on a gross 

market value basis, saw the largest decrease 

in gross market value. Gross credit exposures, 

which adjust gross market values for legally 

enforceable bilateral netting agreements (but 

not for collateral), also decreased, from $3.2 

trillion in June 2020 to $2.7 trillion in June 

2021.

Global OTC options decreased slightly to 

around $58 trillion as of June 2021. Interest 

rate option contracts represent the bulk of that 

figure, totaling approximately $42 trillion in 

notional outstanding. The notional amount 

of OTC equity options as of June 2021 was 

approximately $3.7 trillion, remaining below 

the peak of $8.5 trillion in June 2008. 

As discussed in Box D, equity-linked total 

return swaps allow market participants to 

obtain synthetic exposures to individual 

equity securities. While there are limited, high 

frequency data on these swaps, the Bank for 

International Settlements’s Semiannual OTC 

Derivatives Report provides insight into the size 

of the global OTC equity derivative market. 

Over the past ten years, the notional amount 

of equity-linked OTC derivatives has remained 

fairly stable, totaling $7.5 trillion as of June 

2021 (Chart 3.4.3.17). Nevertheless, there has 

been a significant shift in the composition of 

equity-linked OTC derivatives, with derivatives 

referencing U.S. equities becoming increasingly 

popular. As of June 2021, the notional amount 

of OTC derivatives referencing U.S. equities 

totaled $3.6 trillion, nearly double the amount 

outstanding as of year-end 2010.

Trillions of US$

0

2

4

6

8

10

12

0

2

4

6

8

10

12

2000 2003 2006 2009 2012 2015 2018 2021

3.4.3.17 Global OTC Equity Derivatives Outstanding

Trillions of US$

Source: BIS, Haver Analytics

As Of: 2021 Q2

Note: Gross notional amounts outstanding. 

Other Equities

U.S. Equities

3.4.3.17 Global OTC Equity Derivatives Outstanding
56 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700

2016 2017 2018 2019 2020 2021

3.4.3.20 Commodity Swaps: Open Interest

Billions of US$ Billions of US$

Source: CFTC

As Of: Sep-2021

Note: Estimated notional value. 

Figures as of end of September. 

Agricultural

Energy

Soft

Metals

0

100

200

300

400

500

0

2

4

6

8

10

2014 2015 2016 2017 2018 2019 2020 2021

3.4.3.19 Derivatives Notional Amount Outstanding

Trillions of US$ Trillions of US$

Source: CFTC

Interest Rate Swaps

(right axis)

Index CDS

(left axis)

As Of: 24-Sep-2021

Note: Weekly Swaps Report not issued between Dec. 22, 

2018 and Jan. 26, 2019 due to a lapse in government 

funding. Excludes security-based swaps.

3.4.3.20 Commodity Swaps: Open Interest

3.4.3.19 Derivatives Notional Amount Outstanding

Interest Rate and Credit Default Swaps

The volume of activity in credit default swap 

(CDS) markets, which peaked in the March 

2020 market stress, has since declined to below 

pre-pandemic levels (Chart 3.4.3.18). Interest 

rate swap volumes, in contrast, rose significantly 

in early 2021, amid an increase in British 

Pound- and Euro-denominated swaps traded 

in the United States due to Brexit. Since then, 

interest rate swap volumes have returned to prepandemic, pre-Brexit levels. 

Concurrently, the notional amount of OTC 

derivatives outstanding rose during the 

COVID-19 market stress but has since returned 

to pre-pandemic levels (Chart 3.4.3.19). The 

notional amount of index CDS outstanding 

peaked at $5.7 trillion in the last week of March 

2020, a nearly 50 percent increase from yearend 2019 while interest rate swaps outstanding 

peaked at over $300 trillion in the first week of 

March 2020, a 20 percent increase from yearend 2019. By the end of September 2021, the 

notional amount of index CDS and interest rate 

swaps declined to $5.1 trillion and $269 trillion, 

respectively.

Commodity Swaps 

The use of swaps referencing energy and other 

commodities has seen notable growth this past 

year (Chart 3.4.3.20). This activity reflects 

changing commodity market conditions in 

which demand for many commodities has 

grown faster than supply, amid the reopening 

of the economy. Additionally, exchange traded 

product (ETP) participation in the commodity 

swap market has also been increasing in 

tandem with the growth of ETP assets under 

management (AUM). 

Energy swaps have driven much of the recent 

growth in the commodity swaps market, as 

crude oil and natural gas markets have rallied 

significantly since they reached lows at the 

onset of the COVID-19 pandemic. Similarly, 

the notional value of swaps referencing gold 

rose to over $50 billion between February and 

March 2021 despite gold falling to a 52-week 

low of $1,678 per troy ounce on March 8, 2021. 

0

3

6

9

12

15

0.0

0.2

0.4

0.6

0.8

1.0

2015 2016 2017 2018 2019 2020 2021

3.4.3.18 Derivatives Notional Volume

Trillions of US$ Trillions of US$

Source: CFTC, ISDA

As Of: 24-Sep-2021

Note: 12-week moving-averages. Excludes securitybased swaps. ISDA adjusted numbers since Nov 2020. 

Credit Default Swaps

(left axis)

Interest Rate Swaps

(right axis)

3.4.3.18 Derivatives Notional Volume
Financial Developments 57

0

100

200

300

400

500

0

100

200

300

400

500

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

3.4.3.22 Customer Margin Funds Held at FCMs

Billions of US$ Billions of US$

Source: CFTC

Foreign Futures

Swaps

U.S. Futures

As Of: Sep-2021

Note: Includes CFTC registered FCMs.

0

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700

2016 2017 2018 2019 2020 2021

3.4.3.21 Commodity Index Swaps Gross Notional Value

Billions of US$ Billions of US$

Source: CFTC

As Of: Sep-2021

Note: Estimated notional value. 

Figures as of end of September.

3.4.3.22 Customer Margin Funds Held at FCMs

3.4.3.21 Commodity Index Swaps Gross Notional Value Other market segments, such as agriculture 

swaps, have also seen increases in notional 

value. Underlying prices in key markets such as 

corn, soybeans, and wheat all saw large rallies in 

the first half of 2021 due to anticipated supply 

issues caused by drought and increased demand 

amid the reopening of retail food and beverage 

shops.

Similarly, the gross notional value of swaps 

referencing commodity indices has also 

increased over the last year. As of September 

2021, the notional value of swaps referencing 

commodity indices totaled $551 billion, up $151 

billion from September 2020 (Chart 3.4.3.21). 

3.4.3.4 Derivatives Intermediaries and Platforms

Futures Commission Merchants 

FCMs collect funds from customers to margin 

centrally cleared futures, options on futures, 

and swap transactions. In addition to managing 

the deposit and withdrawal of customer margin 

funds with CCPs, FCMs guarantee the financial 

performance of their customers to the CCP. 

The total amount of required client margin 

funds held by FCMs has remained elevated over 

the past year. The amount of margin held by 

FCMs spiked in March 2020, due to increased 

trading volumes and increases in CCP and FCM 

margin requirements. While market volatility 

has since subsided, the total amount of required 

client margin held by FCMs remained elevated, 

totaling $456 billion in September 2021 (Chart 

3.4.3.22).

Over the last two decades, the number of 

FCMs holding customer funds has declined 

considerably, with the number of FCMs clearing 

futures for clients falling from over 100 in 2002 

to 49 as of September 2021; 22 of these are bank 

affiliated. The number of FCMs that reported 

holding segregated client funds for centrally 

cleared swaps decreased from 23 at year-end 

2014 to 15 as of September 2021; all of these are 

bank affiliated. The pace of consolidation in 

the FCM industry has slowed since 2015 and the 

number of FCMs clearing swaps and futures for 

customers remained relatively consistent over 

the last several years.
58 2021 2021 FSOC // FSOC // Annual Report Annual Report

3.4.3.25 Concentration of Swap Positions for Registered SDs

Source: CFTC

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

Q3

2014

Q3

2015

Q3

2016

Q3

2017

Q3

2018

Q3

2019

Q3

2020

Q3

2021

Percent As Of: 2021 Q3 Percent

Note: Positions between two Swap Dealers (SDs) in the same 

category (e.g., Top 3 or Top 5) are double-counted (i.e., a trade 

between the #1 SD and #3 SD would be counted twice).

Top 3 Top 5 Top 10

3.4.3.24 FCM Concentration: Customer Swap Balances

Source: CFTC

0

25

50

75

100

0

25

50

75

100

2014 2015 2016 2017 2018 2019 2020 2021

Percent Percent

As Of: 2021 Q3

Note: Represents the amount of funds an FCM is required 

to segregate for customers who trade cleared swaps.

Top 3 Top 5 Top 10

3.4.3.23 FCM Concentration: Customer Futures Balances

Source: CFTC

Percent As Of: 2021 Q3 Percent

Note: Represents total amount of funds that an FCM is 

required to segregate on behalf of customers who are 

trading futures and options on futures at US exchanges. 

0

25

50

75

100

0

25

50

75

100

2014 2015 2016 2017 2018 2019 2020 2021

Top 3 Top 5 Top 10

3.4.3.25 Concentration of Swap Positions for Registered SDs

3.4.3.24 FCM Concentration: Customer Swap Balances

3.4.3.23 FCM Concentration: Customer Futures Balances Between the first quarter of 2014 and the third 

quarter of 2021, the top five FCM clearing 

members at futures exchanges held between 

48 and 60 percent of client margin for futures 

products, and the top five FCM swap clearing 

members held between 68 and 78 percent 

of client margin for swaps products (Charts 

3.4.3.23, 3.4.3.24).

Swap Dealers

The number of registered swap dealers (SDs) 

stood at 112 as of August 2021, an increase 

from the 80 at the end of 2013. As of the third 

quarter of 2021, the top three SDs accounted 

for 28 percent of swap positions and the top ten 

SDs accounted for 53 percent of swap positions 

(Chart 3.4.3.25). Since 2017, the concentration 

of swap contracts with the largest SDs has 

declined slightly.
Financial Developments 59

Billions of US$ As Of: Sep-2021

3.4.3.26 SEF Trading Volumes: Interest Rate Swaps

Source: CFTC

Percent

Note: Average daily notional volume. Data have 

been adjusted to correct a DDR data issue.

30

40

50

60

70

80

0

250

500

750

1000

1250

Jan:18 Jan:19 Jan:20 Jan:21

Share of Total Volume 

(right axis)

On-SEF Interest Rate 

Swap Volume (left axis)

3.4.3.26 SEF Trading Volumes: Interest Rate Swaps Swap Execution Facilities

The notional amount of interest rate swaps 

executed on swap execution facilities (SEFs) fell 

considerably in the second half of 2020 and by 

December 2020, the average daily volume fell to 

$216 billion. Since then, SEF trading volumes 

have been robust and average daily volume 

rose to nearly $600 billion in September 2021. 

The share of interest rate swaps executed on 

SEFs has trended upward in recent years, and 

in September 2021 approximately 65 percent 

of interest rate swaps were executed on SEFs 

(Chart 3.4.3.26). 

During the March 2020 market stress, the value 

of index CDS traded on SEFs roughly doubled 

to reach record levels. Index CDS SEF trading 

has since returned to pre-pandemic levels, 

averaging $42 billion in September 2021. The 

share of index CDS swaps trading that occurred 

on SEFs has remained relatively stable at around 

80 percent (Chart 3.4.3.27). 

3.4.4 Commodities Market

Commodity prices increased significantly 

over the past year amid the manufacturingled global economic recovery (Chart 3.4.4.1). 

Higher commodity prices likely fed into 

elevated readings of the U.S. Producer Price 

Index. Factors that drove higher commodity 

price include significant weather events, China’s 

engagement and disengagement in acquiring 

large quantities of agriculture and metal 

commodities, supply chain bottlenecks, and 

labor shortages.

Billions of US$ As Of: Sep-2021

3.4.3.27 SEF Trading Volumes: CDS Index

Source: CFTC

50

60

70

80

90

100

0

20

40

60

80

100

Jan:18 Jan:19 Jan:20 Jan:21

On-SEF CDS Index 

Volume (left axis)

Share of Total Volume 

(right axis)

Percent

Note: Average daily notional volume. Excludes security-based 

swaps. Data have been adjusted to correct a DDR data issue.

3.4.3.27 SEF Trading Volumes: CDS Index

50

100

150

200

250

50

100

150

200

250

2016 2017 2018 2019 2020

3.4.4.1 Relative Performance of Commodity Indices

Index Index

Source: S&P GSCI, Haver Analytics

Industrial Metals

Precious Metals

As Of: 24-Sep-2021

Agriculture & Livestock

Energy

Note: S&P GSCI Spot Indices. 

Indexed to 100 as of January 1, 2016. 

3.4.4.1 Relative Performance of Commodity Indices
60 2021 2021 FSOC // FSOC // Annual Report Annual Report

60

80

100

120

140

160

180

60

80

100

120

140

160

180

Jan:2020 Jul:2020 Jan:2021 Jul:2021

3.4.4.3 Relative Performance of Industrial Metals

Index As Of: 30-Sep-2021 Index

Aluminum

Copper

Zinc

Nickel

Source: S&P GSCI, Haver Analytics

Note: S&P GSCI Spot Indices. 

Indexed to 100 as of January 2, 2020. 

60

80

100

120

140

160

60

80

100

120

140

160

Sep:2020 Dec:2020 Mar:2021 Jun:2021 Sep:2021

3.4.4.2 Relative Performance of Precious Metals

Index Index

Source: Bloomberg, L.P. 

As Of: 30-Sep-2021

Silver

Gold

Palladium

Platinum

Note: Indexed to 100 as of 

September 30, 2020. 

3.4.4.3 Relative Performance of Industrial Metals

3.4.4.2 Relative Performance of Precious Metals Precious and Industrial Metals

Precious metals prices have been volatile 

since the onset of the COVID-19 pandemic. 

Silver, platinum, and palladium rallied in 

late 2020 and early 2021 and then generally 

retraced those gains. Gold remained relatively 

range-bound over the past year, after having 

experienced significant bouts of volatility in 

2020 (Chart 3.4.4.2). 

Precious metals with industrial applications 

outperformed gold in late 2020 and early 

2021 due to increased demand and supply 

constraints. Platinum and palladium, which are 

used in the production of catalytic converters, 

rallied, as demand from auto manufacturers 

increased with the global economic recovery. 

Supply constraints, including the flooding of 

two mines operated by Norilsk, the world’s 

largest palladium producer, pushed palladium 

prices to all-time highs in early May. Between 

early May and the end of September 2021, 

platinum and palladium prices declined by 

approximately 20 percent and 36 percent, 

respectively, as imbalances between supply and 

demand receded. 

Base metal prices rebounded over the past year 

and are now generally above pre-pandemic 

levels (Chart 3.4.4.3). On the demand side, 

the rally in industrial metals prices has 

been supported by the recovery in global 

manufacturing, expectations for increased 

infrastructure spending, strong Chinese 

demand amidst its production-led recovery, and 

a lower dollar. Downward pressure on supply 

has come from logistic bottlenecks, rising 

freight costs, and regional labor disruptions. 

Tariffs also continue to weigh on supply, as 

Russia has placed duties on aluminum exports, 

and U.S. Section 232 import tariffs on steel and 

aluminum remained in place. Decarbonization 

efforts have also contributed to price increases, 

as demand for copper has increased, and China 

has committed to cut steel output. Finally, the 

Chinese government has become increasingly 

involved in the base metals market over the past 

year, and has released state inventories with the 

explicit goal of lowering prices and reducing 

speculative activity. 
Financial Developments 61

50

75

100

125

150

175

200

50

75

100

125

150

175

200

Jan:2020 Jul:2020 Jan:2021 Jul:2021

3.4.4.4 Relative Performance of Agriculture Products

Index Index

Source: S&P GSCI, Haver Analytics

As Of: 24-Sep-2021

Cotton

Wheat

Live Cattle

Coffee

Lean Hogs

Corn

Soybeans

Note: S&P GSCI Spot Indices. 

Indexed to 100 as of January 3, 2020. 

3.4.4.4 Relative Performance of Agriculture Products Agriculture Markets

In the second half of 2020 and the first half of 

2021, prices for many agricultural commodities 

rose sharply: poor weather in the U.S. and 

South America reduced supply and export 

demand for U.S. products was strong (Chart 

3.4.4.4). Corn, soybeans, and lean hog prices 

have fallen from their June 2021 peaks, but 

remain elevated relative to pre-pandemic levels. 

Production in the U.S. agricultural sector 

was diminished greatly over the past year 

by drought, extreme heat, and wildfires. 

According to the U.S. Drought Monitor, by 

September 2021, 48 percent of the continental 

U.S. was classified as experiencing moderate 

to exceptional drought on the Palmer Index, 

which measures the balance between moisture 

demand and moisture supply (Chart 3.4.4.5). 

The Condition Monitoring Observer Reports 

system reported severe impacts from the 

enduring drought to farming and ranching 

operations. These impacts included increased 

stress on plants and animals, water shortage, 

increased fire risks, and poor air quality mostly 

in the west and northern plains.

South America has also experienced poor 

weather conditions, disrupting production of 

crops including coffee, corn, sugarcane, and 

oranges. Central and Southern Brazil have 

experienced their worst drought conditions in 

almost a century, resulting in crop losses, water 

scarcity, and increased fires in the Amazon 

rainforest and Pantanal wetlands. 

Lumber producers have struggled to meet 

demand amidst these weather conditions. 

Wildfires in Western Canada and the Pacific 

Northwest have destroyed softwood timber 

frequently used by mills that supply U.S. 

homebuilders. In addition to wildfires, the 

lumber supply chain has been challenged by 

labor shortages over the past year. Meanwhile, 

demand for lumber in housing and retail 

markets has increased since the onset of the 

pandemic. This surging demand, coupled 

with lumber supply constraints, pushed 

lumber prices to an all-time high of $1,686 per 

thousand board feet on May 7, 2021 before 

Percent As Of: 28-Sep-2021

3.4.4.5 U.S. Drought Conditions

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

2016 2017 2018 2019 2020 2021

Percent

Source: University of Nebraska-Lincoln

Moderate Drought

Abnormally Dry

Severe Drought Exceptional Drought

Extreme Drought

Note: Limited to Continental U.S.

3.4.4.5 U.S. Drought Conditions
62 2021 2021 FSOC // FSOC // Annual Report Annual Report

Millions of Barrels As Of: Aug-2021

3.4.4.7 U.S. Crude Oil Production & Inventories

4

6

8

10

12

14

16

900

1000

1100

1200

1300

1400

1500

2010 2012 2014 2016 2018 2020

Millions of Barrels

Source: EIA, Haver Analytics

Note: Crude oil production presented 

as millions of barrels per day.

Crude Oil Production 

(right axis)

Crude Oil Inventories 

(left axis)

0

500

1000

1500

2000

0

500

1000

1500

2000

Jan:2019 Jul:2019 Dec:2019 Jul:2020 Dec:2020 Jun:2021

3.4.4.6 CME Lumber Futures

Contract Price, US$ Contract Price, US$

Source: CME, Haver Analytics

As Of: 30-Sep-2021

Note: US$ per 1,000 board feet.

3.4.4.7 U.S. Crude Oil Production & Inventories

3.4.4.6 CME Lumber Futures falling to $628 as of September 30, 2021 (Chart 

3.4.4.6). Plants and sawmills have increased 

their capacities and multiple firms have 

announced expansions or new facilities, as the 

higher priced products allow for additional and 

easier financing. 

Livestock prices have appreciated considerably 

over the past year. At the onset of the pandemic, 

demand for live cattle and hogs collapsed as a 

result of packing plant closures and reduced 

downstream demands from restaurants and 

others. Since then, livestock prices have risen, 

as animal producers have gradually adjusted 

their inventories, packing plants increased 

safety measures, and wholesalers, retailers, 

and restaurants adjusted to shifts in consumer 

preferences. Supply and demand fundamentals 

have generally returned to pre-pandemic 

patterns with two notable differences. First, 

wholesale beef and pork prices are about 50 

percent above pre-pandemic levels. Second, 

China has significantly increased its demand for 

pork imports.

The meat processing firm JBS S.A. was the 

victim of a cyberattack impacting their internal 

data network on May 30, 2021, resulting in the 

closure of most JBS U.S. operations for nearly 

two days. JBS is the largest meat processor in 

the world; on the days that JBS was affected, 

total daily U.S. hog slaughter was down 12 

percent and cattle slaughter was down 20 

percent. The closure caused CME Lean 

Hog and Live Cattle prices to move sharply 

lower. Prices rebounded when JBS resumed 

operations.

Energy Markets

Increased demand amid the global economic 

recovery pushed up energy prices significantly 

in the first nine months of 2021. While U.S. 

crude oil production has increased in the past 

year, it remains below pre-pandemic levels 

(Chart 3.4.4.7). Additionally, the Organization 

of Petroleum Exporting Countries (OPEC) and 

OPEC+ has been slow to restore production 

following cuts in the spring of 2020. On July 

14, 2021, after a long period of negotiations, 
Financial Developments 63

Price Per Barrel ($)

3.4.4.8 WTI Crude Oil Futures Curve

30

40

50

60

70

80

30

40

50

60

70

80

1 7 13 19 25 31 37 43 49 55

Price Per Barrel ($)

Source: Bloomberg, L.P.

Note: CME WTI Crude Oil Futures. X axis 

represents the number of months until expiry. 

9/30/2020

9/30/2019

9/30/2021

3.4.4.8 WTI Crude Oil Futures Curve OPEC+ reached an agreement to increase oil 

production, with an immediate increase of 

400,000 barrels per day beginning in August 

2021. 

U.S. crude oil inventory levels have fallen 

over the past year in order to meet short-term 

demand. The slow return of supply has led to 

higher prices and steep backwardation in crude 

oil markets (Chart 3.4.4.8). In September 2021, 

WTI crude oil was trading at its highest price 

since 2018. Similar trends have materialized 

in the U.S. gas market. Increased demand 

coupled with depressed production led to steep 

backwardation and a sharp increase in natural 

gas prices (Chart 3.4.4.9). 

U.S. energy markets experienced two major 

bouts of volatility in 2021. First, a February 

2021 winter storm brought extreme cold 

temperatures to the mid-continent from 

Minnesota to Texas. The storm strained 

natural gas operations and electricity grids 

that operate in market structures that 

disincentivize excess capacity and redundancies 

to address load surges. The high space-heating 

demand combined with fuel disruptions to 

power generators led to forced blackouts and 

a disruption in power for more than four 

million customers across Texas. The extreme 

cold lasted about a week, so the impact on 

the March natural gas contract was minimal. 

However, natural gas spot prices rose sharply, 

and regional basis spreads widened significantly 

(Chart 3.4.4.10). By February 17, the Henry 

Hub spot price rose to nearly $25 per MMBtu, 

a 600 percent increase over the week, and in 

Oneok, Oklahoma, natural gas reportedly 

traded at $1,250 per MMBtu. 

The second major event in energy markets 

was the ransomware cyberattack on Colonial 

Pipeline on May 6 and 7, 2021. The pipeline 

is the largest pipeline system in the United 

States and provides the east coast with around 

45 percent of its fuel, a total of approximately 

2.5 million barrels a day. The shutdown led to 

long lines at gas stations, as drivers scrambled 

to refill their tanks. Gasoline futures spiked 

higher on Monday, May 9, but ended the day 

0

5

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15

20

25

0

5

10

15

20

25

Sep:2020 Dec:2020 Mar:2021 Jun:2021 Sep:2021

3.4.4.10 U.S. Natural Gas Prices

Contract Price, US$ Contract Price, US$

Source: Bloomberg, L.P.

As Of: 30-Sep-2021

Front Month Future

Spot Price

3.4.4.10 Natural Gas Spot and Futures Price

US$ Per MMBtu

3.4.4.9 Natural Gas Futures Curve

1.5

2.5

3.5

4.5

5.5

6.5

1.5

2.5

3.5

4.5

5.5

6.5

1 6 11 16 21 26 31 36 41 46 51 56

9/30/2019

US$ Per MMBtu

Source: Bloomberg, L.P.

9/30/2020

9/30/2021

Note: NYMEX Henry Hub Natural Gas Futures. X 

axis represents the number of months until expiry. 

3.4.4.9 Natural Gas Futures Curve
64 2021 2021 FSOC // FSOC // Annual Report Annual Report

Index As Of: Aug-2021

3.4.5.1 House Prices by Census Division

Source: FHFA

0

100

200

300

400

500

600

0

100

200

300

400

500

600

1991 1995 1999 2003 2007 2011 2015 2019

Index

Mountain

Pacific

West South Central

South Atlantic

West North Central

Total U.S.

New England

East South Central

Middle Atlantic

East North Central

Note: Purchase-only, seasonally adjusted, nominal, 

constant-quality price index. Indexed to January 1991.

3.4.5.1 House Prices by Census Division

off slightly from the prior business day’s close. 

Oil, gasoline, and diesel prices fell sharply on 

Thursday, May 13, 2021, after Colonial Pipeline 

announced the schedule for operations to 

restart. 

In addition, European natural gas prices surged 

in the fall of 2021, as a recovery in demand 

and tight Russian supply has led to seasonally 

low inventories (Chart 3.4.4.11). The recent 

dynamics in European gas markets have raised 

concerns of potential shortages in the winter, 

which could amplify inflationary pressures, 

curtail industrial production, and potentially 

undermine the European recovery. In October, 

the EU published a “toolbox” of measures for 

national authorities to protect consumers and 

industry amid the spike in energy prices.

3.4.5 Residential Real Estate Markets

3.4.5.1 Residential Housing Finance

House prices have risen rapidly, gaining 18 

percent from August 2020 to August 2021 

according to the seasonally adjusted, purchaseonly FHFA House Price Index® (HPI). Among 

census divisions, gains were highest in the 

Mountain division, which posted a 26 percent 

increase over the same period (Chart 3.4.5.1). 

The majority of the U.S., including nearly all 

of the largest 100 metropolitan statistical areas, 

experienced positive annual growth. Annual 

gains appear to have reached their peaks in 

most areas and although the pace of gains is 

declining, price growth is still extremely high. 

Box B discusses the rise in house prices, the 

factors behind price increases, the state of 

valuation pressures, and how housing finance 

conditions compare to the 2000s housing 

bubble. 

The volume of home sales has been volatile over 

the past two years. Existing home sales, which 

fell to 4.0 million units on a seasonally adjusted, 

annualized basis in May 2020 amid pandemicdriven lockdowns, rebounded sharply in the 

second half of 2020. Existing home sales peaked 

in October 2020 at 6.7 million units, the highest 

level since 2006, and have since retreated to 

6.3 million units in September 2021 (Chart 

0

5

10

15

20

25

30

0

5

10

15

20

25

30

2000 2003 2006 2009 2012 2015 2018 2021

3.4.4.11 European & U.S. Natural Gas Prices

US$ Per MMBtu US$ Per MMBtu

Source: World Bank Group, Bloomberg, L.P.

As Of: Sep-2021

Europe

United States

3.4.4.11 European & U.S. Natural Gas Prices
Financial Developments 65

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

62

63

64

65

66

67

68

69

2015 2016 2017 2018 2019 2020 2021

Homeownership Rate

(left axis)

Rental Vacancy Rate

(right axis)

3.4.5.4 Homeownership and Vacancy Rates

Percent Percent

Source: U.S. Census Bureau, Current 

Population Survey/Housing Vacancy Survey

As Of: 2021 Q3

Note: Data are non-seasonally 

adjusted quarterly percentages.

3.4.5.2). New home sales have followed a similar 

pattern. Overall, total home sales remain 

elevated compared to pre-pandemic trends. 

Single family housing starts, which fell sharply 

at the onset of the COVID-19 pandemic, 

rebounded in the second half of 2020 (Chart 

3.4.5.3). Despite the increase in housing 

prices, the growth in housing starts stalled 

out in the first eight months of 2021, as the 

shortage of labor and building materials limited 

homebuilders’ ability to ramp up production. 

Increasing new housing supply remains a 

longstanding challenge for the U.S., as new 

housing starts have not kept up with rising 

household demand for many years. 

According to the Census Bureau, the national 

homeownership rate was 65 percent in the third 

quarter of 2021, slightly above pre-pandemic 

levels (Chart 3.4.5.4). The spike in the reported 

homeownership rate in mid-2020 was largely 

attributed to data collection challenges during 

the COVID-19 pandemic. During this period, 

in-person interviews were suspended and most 

of the survey was conducted by telephone. In 

the rental market, vacancy rates have declined, 

falling from a five-year average of 6.8 percent 

to 5.8 percent in the third quarter of 2021. The 

pandemic has led to a rise in demand for single 

family rentals, as households have reconsidered 

their housing arrangements. In addition, 

eviction moratoria have likely put downward 

pressure on rental vacancy rates by keeping 

some households in their existing rental units.

-20

-10

0

10

20

30 1/1/2000 1/1/2003 1/1/2006 1/1/2009 1/1/2012 1/1/2015 1/1/2018 1/1/2021

0.0

0.5

1.0

1.5

2.0

2.5

2000 2003 2006 2009 2012 2015 2018 2021

House Price Changes

(right axis)

3.4.5.3 New Housing Starts and Price Changes

Millions of Housing Units Percentage Change

Source: U.S. Census Bureau, 

FHFA, Haver Analytics

As Of: Aug-2021

Note: Data are seasonally adjusted annual rates. House 

Price Changes series is the year-over-year percentage 

change of the FHFA National House Price Index. 

Housing Starts

(left axis)

3.4.5.3 New Housing Starts and Price Changes

3.4.5.4 Homeownership and Vacancy Rates

3.0

4.0

5.0

6.0

7.0

8.0

0.0

0.3

0.6

0.9

1.2

1.5

2005 2008 2011 2014 2017 2020

Existing Home Sales 

(right axis)

New Home Sales 

(left axis)

3.4.5.2 Home Sales

Millions of Units Millions of Units

Source: NAR, Census Bureau, 

Haver Analytics

As Of: Sep-2021

Note: Series are seasonally adjusted annual rates and 

are expressed in millions of single-family housing units. 

3.4.5.2 Home Sales
66 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

300

600

900

1200

1500

2.5

3.0

3.5

4.0

4.5

5.0

2015 2016 2017 2018 2019 2020 2021

30-Year Mortgage Rate 

(left axis)

3.4.5.6 Mortgage Originations and Rates

Percent Billions of US$

Source: NMDB®, 

Bankrate.com

As Of: 2021 Q1

Refinance (right axis)

Purchase (right axis)

Note: Quarterly originations represent all 1-4 family 

homes with first-lien, closed-end residential mortgages.

0

20

40

60

80

100

0

20

40

60

80

100

2001 2004 2007 2010 2013 2016 2019

3.4.5.7 Purchase Origination Volume by Credit Score

Percent of Originations Percent of Originations

Source: NMDB®

As Of: 2021 Q2

Note: Based on all-borrower VantageScore 3.0 for first-lien, 

closed-end residential purchase mortgages; excludes territories.

<601

601-660

661-780

>780

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8

2005 2007 2009 2011 2013 2015 2017 2019 2021

30-Year Fixed Rate 

Mortgage Average

Spread to 10-Year 

Treasury

3.4.5.5 30-Year Fixed Rate Mortgage Rate and Spread

Percent Percent

Source: Bankrate.com, Bloomberg, L.P.

As Of: 24-Sep-2021

3.4.5.6 Mortgage Originations and Rates

3.4.5.7 Purchase Origination Volume by Credit Score

3.4.5.5 30-Year Fixed Rate Mortgage Rate and Spread Mortgage Originations, Servicing, and Loan 

Performance

The average rate on a 30-year fixed rate 

mortgage fell sharply in the spring of 2020 

and remained at historically low levels through 

the first nine months of 2021 (Chart 3.4.5.5). 

Throughout late 2020 and early 2021, the 

spread between primary mortgage rates and 

Treasury yields tightened to levels roughly in 

line with pre-pandemic averages. Low rates 

appear to have boosted refinancing activity. 

Based on the National Mortgage Database 

(NMDB®), refinance originations remained 

robust into 2021, rising to $788 billion in the 

first quarter of 2021, as mortgage rates reached 

their lowest levels in decades (Chart 3.4.5.6). 

This represents a 95 percent increase yearover-year compared to $404 billion in the first 

quarter of 2020. Over the same period, home 

purchase originations increased 35 percent 

from $233 billion to $314 billion. 

Credit quality of new purchase mortgages 

remained relatively strong through the second 

quarter of 2021 (Chart 3.4.5.7). 52 percent of 

borrowers had scores in the middle of the credit 

spectrum (VantageScore 3.0 scores between 

661 and 780) stood at 52 percent in the second 

quarter of 2021, similar to recent trends. Prior 

to the COVID-19 pandemic the share attributed 

to the highest credit quality group (borrowers 

with scores at or above 781) was fairly stable 

at below 30 percent. Their share increased 

materially in 2020, as the highest quality 

borrowers accounted for 38 percent of the 

market as of the end of 2020 but decreased back 

to 32 percent as of the second quarter of 2021. 

The percentage of borrowers in the lowest score 

categories (below 661) initially declined at the 

onset of the COVID-19 pandemic but has since 

returned to pre-pandemic levels.

Non-depository institutions have been 

expanding their share of the mortgage 

origination market in recent years. The 

nonbank share of total originations reached 

approximately 60 percent in 2020. Many of 

these nonbank mortgage companies continue 

to rely on short-term wholesale funding and 
Financial Developments 67

0

1

2

3

4

5

6

0

1

2

3

4

5

6

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

3.4.5.9 Mortgage Delinquency

Percent As Of: 2021 Q2 Percent

Note: Quarterly percentage of all mortgage 

Source: NMDB loans that are not closed or terminated. ®

In process of 

foreclosure, 

bankruptcy or 

deed-in-lieu

90 to 180 Days 

Past Due

30 or 60 Days 

Past Due

0

20

40

60

80

100

0

20

40

60

80

100

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

3.4.5.8 Shares of Mortgages by Equity Percentage

Percent Percent

Source: NMDB®

As Of: 2021 Q2

Note: Quarterly percentage of all mortgage 

loans that are not closed or terminated.

Percentage of mortgages with 

20% or more equity

5 to <20%

0 to <5%

<0%

3.4.5.9 Mortgage Delinquency

3.4.5.8 Shares of Mortgages by Equity Percentage may have limited ability to absorb shocks. 

Among depository institutions, larger 

depository institutions—those with more than 

$10 billion in assets—have increased their share 

of originations in recent years compared to 

smaller institutions. 

Amid rapidly rising house prices, home equity 

continued to strengthen. As of the second 

quarter of 2021, 94 percent of active mortgages 

had 20 percent or more of positive equity, and 

nearly all mortgages had at least 5 percent of 

positive equity, (Chart 3.4.5.8). Over the past 

two decades, positive equity reached its lowest 

point in the second quarter of 2012, with only 

62 percent of borrowers holding equity of 20 

percent or more. Before that, borrower equity 

positions were at their strongest in the first 

quarter of 2006, at the height of the housing 

bubble. 

Delinquency rates on residential mortgage 

loans have remained low over the past year. 

In response to the pandemic, federal and 

state governments enacted a series of public 

assistance policies, including through the 

CARES Act in 2020 and the ARP Act in 2021. 

These policies have supported household 

incomes, suspended foreclosures and evictions, 

and offered flexibility in home purchase 

and mortgage acquisition processes. Under 

the CARES Act, borrowers with a federally 

backed mortgage have been able to request 

temporary forbearance on mortgage payments. 

If the loans were current when they entered 

forbearance, servicers were required to report 

these loans as current to credit bureaus. 

Conversely, borrowers that entered forbearance 

in arrears could cure delinquency status 

by bringing their loans current during the 

forbearance period. As a result, credit bureau 

data show that the 30- or 60-day delinquency 

rate dropped from 1.9 percent in the first 

quarter of 2020 to 0.8 percent in the second 

quarter of 2021 (Chart 3.4.5.9). Similarly, 

the 90-to-180-day delinquency rate dropped 

from 0.8 to 0.5 percent in the same period. 

These credit bureau reports can differ from 

other mortgage performance data depending 
68 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

Mar:2020 Jun:2020 Sep:2020 Dec:2020 Mar:2021 Jun:2021

3.4.5.10 Forbearance Rates by Investor Type

Percent As Of: Aug-2021 Percent

Note: Rates are the weekly percentage of servicing 

Source: NMDB portfolio volume in forbearance by investor type over time. ®

FHA, VA, and RHS

Total

GSE

Other (PLS, Portfolio, etc.)

on how forbearance is treated. For example, 

the Mortgage Bankers Association’s National 

Delinquency Survey, based on reports from 

mortgage servicers rather than credit bureau 

data, estimated a 4.0 percent seriously 

delinquent rate in the second quarter of 2021, 

an increase of 2.3 percentage points from the 

first quarter of 2021. Finally, the percentage of 

loans in the process of foreclosure, bankruptcy, 

or deed-in-lieu has also remained stable at 0.2 

percent from the second quarter of 2020 to the 

second quarter of 2021. 

Forbearance rates remain elevated relative 

to before the pandemic when forbearance 

options were more limited. Total single-family 

forbearance rates were 1.0 percent in March 

2020, peaked at 6.7 percent in May 2020, 

and have fallen to 2.3 percent as of August 

2021 (Chart 3.4.5.10). Forbearance rates 

were higher for certain loan types, including 

Federal Housing Administration (FHA), U.S. 

Department of Veterans Affairs (VA), and Rural 

Housing Service (RHS) loans. 

The credit scores of many mortgage borrowers 

have improved during the pandemic from 

several factors, including mortgage loan 

forbearance, lower credit usage of credit lines, 

and fiscal support to household incomes. The 

median credit score of mortgage borrowers 

continued to increase in 2021, rising 3 points 

from December 2020 to July 2021, according 

to Experian VantageScore 3.0 data. Only 11.5 

percent of mortgage borrowers had their credit 

scores decrease by 20 points or more during 

that period. 

3.4.5.10 Forbearance Rates by Investor Type
Financial Developments 69

House prices have risen substantially since the onset 

of the pandemic. The FHFA House Price Index®, 

for example, has increased 18 percent from August 

2020 to August 2021 (Chart B.1). In comparison, 

from 2012 to 2019 prices increased by an average of 

nearly 6 percent annually. 

Overall, rising prices have been the result of a 

significant increase in demand for homeownership, 

while the supply of housing for sale has, overall, been 

relatively inelastic. On the demand side, historically 

low interest rates have reduced debt servicing 

costs for households, shifting up the number of 

households that are able to afford a given house 

price. The pandemic has also increased the amount 

of time that Americans spend at home, inducing 

many households to consider homeownership or the 

purchase of second homes. 

The imbalance between supply and demand is 

evident in the decline of total inventory, which fell 

by nearly 50 percent between December 2019 

and August 2021 (Chart B.2). The deficit in the 

supply of housing is estimated to have risen rapidly 

and reached 3.8 million units at the end of 2020, 

according to a Freddie Mac study. After the onset of 

the pandemic, the volume of houses actively listed 

for sale declined rapidly and housing starts were 

interrupted for a time, amid stay-at-home orders and 

other pandemic-related concerns. Since then, new 

listings have recovered and the number of homes for 

sale has stabilized, but at a low level. 

A number of factors may have contributed to 

downward pressure on supply, including higher 

prices for construction materials, forbearance 

programs, and foreclosure moratoria which have 

enabled some households to remain homeowners 

and prevented houses from coming to market. 

Research at the Federal Reserve has suggested that 

the combination of high house price appreciation 

and a tighter housing market has been driven largely 

by the surge in demand.3 New for-sale listings would 

have to expand by 20 percent for price growth to 

return to a pre-pandemic pace. Given that the supply 

of new listings, and particularly new construction, is 

not easily expanded, the housing market will likely 

remain tight in the short run. 

Box B: The Rapid Rise in House Prices

-10

-5

0

5

10

15

20

25

-10

-5

0

5

10

15

20

25

2012 2014 2016 2018 2020

Case-Shiller Home Price Index

FHFA Home Price Index

B.1 House Price Growth

Percent Percent

Source: S&P CoreLogic Real Estate 

Data, FHFA, Haver Analytics

As of: Aug-2021

Note: Year-over-year 

percentage change. 

B.1 House Price Growth

0

500

1000

1500

2000

2500

0

500

1000

1500

2000

2500

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

New Listings

Total Inventory

B.2 Inventory of Homes Listed for Sale

Thousands Thousands

Source: Redfin, Haver Analytics

As of: Aug-2021

Note: Seasonally adjusted.

B.2 Inventory of Homes Listed for Sale 
70 2021 FSOC // Annual Report

The most recent episode in which house prices 

have increased at an elevated pace was the mid2000s housing bubble. This parallel naturally raises 

questions about financial stability risks arising from 

valuation pressures. One measure of valuation 

pressure, the price-to-rent ratio, has risen significantly 

since the beginning of the pandemic. How this 

measure compares to its peak in 2006 depends on 

the house price index used (Chart B.3). For example, 

the price-to-rent ratio is high but remains below the 

peak of this measure in 2006 using the S&P CaseShiller Index. The higher peak of the S&P Case-Shiller 

Index in 2006 is likely caused by that index placing 

more weight on higher-valued homes compared to 

the FHFA House Price Index®, due to conforming 

loan limits on mortgages purchased by the Federal 

National Mortgage Association (Fannie Mae) and 

Federal Home Loan Mortgage Corporation (Freddie 

Mac) that underlie the FHFA index. In addition, the 

price-to-rent ratio is not necessarily as elevated once 

the low level of yields on Treasury securities is taken 

into consideration.

Valuation pressures raise the risk that house prices 

may decline, as they did after the 2000s housing 

bubble. In assessing the vulnerability of borrowers to 

this risk, mortgage borrowers today are likely better 

able to avoid defaulting after a house price shock 

compared to borrowers after the housing bubble. 

Default by mortgage borrowers is often the result of 

a double trigger consisting of both a decline in house 

prices and a decline in income, so that a borrower 

can neither afford mortgage payments nor repay 

their debt in full by selling the property. The inability 

of borrowers to make their payments after the 2000s 

housing bubble was a reflection, in part, of the poor 

underwriting standards and risky mortgages that 

were prevalent at the time, in addition to widespread 

unemployment. Obtaining mortgage credit was much 

easier in that period for borrowers who had low 

credit scores, difficult-to-document income, or high 

debt payments relative to their incomes. Commonly 

available risky mortgage products included pick-apay and negative amortization contracts. In contrast, 

post-financial crisis reforms have required lenders 

to make a reasonably good faith determination of 

borrowers’ ability to repay their loans. An additional 

distinction between the two episodes of house 

price growth is the relatively smaller presence of 

speculative activity over the past year. Further, 

policies at the federal level have provided greater 

stability to the housing market today, including active 

policy outreach, improved consumer protections, and 

quick responses when potential financial stress has 

risen.

Going forward, the course of the pandemic will be a 

key driver of household income and housing market 

trends. The expiration of forbearance arrangements 

may put stress on some households and cause more 

houses to come on the market. Finally, obstacles 

to new construction and affordability issues are 

longstanding challenges that will continue to put 

pressure on the financial positions of American 

homebuyers. 

80

100

120

140

160

180

200

80

100

120

140

160

180

200

1996 2001 2006 2011 2016 2021

B.3 Price-to-Rent Ratios

Index Index

Source: S&P CoreLogic Real Estate 

Data, FHFA, BLS, Haver Analytics

As of: Aug-2021

Note: Seasonally adjusted; indexed 

to January 1996. Rental data are 

owners’ equivalent rent.

Case-Shiller Home Price Index

FHFA House Price Index

B.3 Price-to-Rent Ratios

Box B: The Rapid Rise in House Prices (continued)
Financial Developments 71

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

3.4.5.12 RMBS Issuance

Trillions of US$ Trillions of US$

Source: FHLMC, FNMA, GNMA, NCUA, 

FDIC, Bloomberg, L.P., Dealogic, 

Thomson Reuters, SIFMA

As Of: Sep-2021

Non-Agency

Agency

Note: 2021 figures are 

through September.

YTD

0

20

40

60

80

100

0

20

40

60

80

100

1998 2001 2004 2007 2010 2013 2016 2019

3.4.5.11 Mortgage Originations by Product

Percent of Originations As Of: 2020 Q4 Percent of Originations

FHA, VA & RHS 

GSE

Private Portfolio 

and Securitized

Note: Quarterly data for first-lien, 

Source: NMDB closed-end residential mortgages. ®

3.4.5.12 RMBS Issuance

3.4.5.11 Mortgage Originations by Product 3.4.5.2 Government-Sponsored Enterprises and the 

Secondary Mortgage Market

The federal government continues to back 

the majority of new mortgages either directly 

through the FHA, the VA, and the RHS under 

the United States Department of Agriculture, 

or indirectly through Fannie Mae and Freddie 

Mac (the Enterprises). The federal government 

share of mortgage originations—which 

averaged 82 percent over the past decade—

was 88 percent in the fourth quarter of 2020 

(Chart 3.4.5.11). This share has increased since 

the onset of COVID-19, as the government 

stabilized markets with various financial actions 

that helped provide liquidity to primary and 

secondary markets. 

New mortgages not securitized by the 

Enterprises or into Ginnie Mae securities 

continue to be held mostly in lender portfolios, 

rather than securitized in private MBS known 

as non-agency residential mortgage-backed 

securities (RMBS). According to the Securities 

Industry and Financial Markets Association 

(SIFMA), non-agency RMBS issuance totaled 

$74 billion in the first nine months of 2021 

compared to approximately $200 billion for the 

full-year 2020 (Chart 3.4.5.12). In comparison, 

agency RMBS issuance was over $2.5 trillion 

in the same period, exceeding total RMBS 

issuance in any year during this century except 

in 2003 and 2020.

The federal government has continued to 

support housing markets over the past year. The 

FHFA, CFPB, and the Department of Housing 

and Urban Development have continued to 

work together to provide assistance under the 

CARES and ARP Acts in the form of temporary 

mortgage relief, payment suspensions, 

protection for renters, remittance transfers, 

and informational resources (see Section 

4.4.1). In addition, the Federal Reserve has 

continued to purchase agency MBS to sustain 

the smooth functioning of the market for those 

securities, and to support progress toward the 

Federal Reserve’s maximum employment and 

price stability goals. The Federal Reserve’s 

agency MBS purchases totaled approximately 
72 2021 2021 FSOC // FSOC // Annual Report Annual Report

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mar:2020 Jul:2020 Nov:2020 Mar:2021 Jul:2021

3.4.5.13 Cumulative MBS Purchases by the Federal Reserve

Trillions of US$ Trillions of US$

Source: FRBNY

As Of: 24-Sep-2021

UMBS

GNMA

Note: Cumulative purchases beginning in March 2020. Weekly series 

are aggregated from daily Agency MBS operations in the TBA pool.

3.4.5.13 Cumulative MBS Purchases by the Federal Reserve $1.4 trillion through the end of 2020 and $2.4 

trillion by the end of September 2021 (Chart 

3.4.5.13). 

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac, which are in their 

14th year of conservatorship, are an important 

source of liquidity to the mortgage market and 

stability to the housing market.

After the onset of the pandemic, FHFA 

instructed the Enterprises to take a variety 

of critical actions to support borrowers and 

renters, such as suspending foreclosures and 

evictions in Enterprise-backed properties in 

forbearance. The Enterprises also initially 

offered single-family borrowers 12 months of 

forbearance, but the deepening impacts of 

the pandemic required targeted actions to 

stem growing concerns about borrowers who 

would not be financially capable of resuming 

their prior mortgage payments after the 

standard forbearance period ends. As a result, 

on February 25, 2021, FHFA announced, 

on a limited basis, the availability of an 

additional three-month extension of COVID-19 

forbearance, up to a total of 18 months of 

forbearance. FHFA had previously announced 

on February 9, 2021 that the Enterprises would 

offer one three-month extension.

To address borrowers’ needs after the 

forbearance period ends, the Enterprises 

have used two existing workout solutions, 

Payment Deferral and Flex Modification, 

in addition to reinstatement or repayment 

plans, for borrowers who continue to have a 

financial hardship. Under Payment Deferral, 

the borrower resumes original payments, and 

the forborne amounts are placed in a noninterest-bearing balloon until the loan prepays 

or matures. COVID Payment Deferral has the 

same terms as the existing Payment Deferral 

option. Under Flex Modification, the monthly 

loan payment is reduced by extending the term 

to 40 years and, in some cases, the interest 

rate may be reduced. On June 30, 2021 FHFA 

announced that Flex Modification terms 

would be adjusted for COVID-19 hardships to 
Financial Developments 73

make interest rate reduction possible for eligible 

borrowers, regardless of the borrower’s loanto-value ratio. Previously, only borrowers with 

mark-to-market loan-to-value ratios greater than 

or equal to 80 percent were eligible for a possible 

interest rate reduction. If a borrower uses either 

of these workout solutions, they become eligible 

to refinance their mortgage after making three 

on-time payments. These solutions will enable a 

larger share of borrowers more time to resume their 

monthly payment or receive a meaningful payment 

reduction. 

FHFA also continued support this year for 

multifamily borrowers and tenants adversely 

impacted by the COVID-19 pandemic. On July 28, 

2021, FHFA announced that tenants of multifamily 

properties with mortgages backed by the Enterprises 

who are subject to eviction for nonpayment of rent 

must be given a 30-day notice to vacate before 

the tenant can be required to leave the unit. This 

requirement applies to all Enterprise-backed 

multifamily properties, regardless of whether the 

loan is in forbearance.

On September 24, 2021, FHFA announced the 

Enterprises will continue to offer COVID-19 

forbearance to qualifying multifamily property 

owners as needed, subject to the continued 

tenant protections FHFA has imposed during 

the pandemic. This is the fourth extension of the 

programs, which were set to expire September 

30, 2021. Property owners with Enterprise-backed 

multifamily mortgages can enter a new or, if 

qualified, modified forbearance for up to six months 

if they experience a financial hardship due to the 

COVID-19 emergency.

The Enterprises continued to be profitable through 

the COVID-19 pandemic. Through the first half of 

2021, the Enterprises have recorded over $19 billion 

in net income, compared to about $5 billion in the 

same period the year before. Income over the past 

year was primarily driven by the surge in refinances 

due to low interest rates and supported in part by 

an Adverse Market Refinance Fee of 50 basis points 

on mortgages with balances above $125,000. FHFA 

announced that the Enterprises would implement 

this fee on December 1, 2020, in order to cover 

losses projected as a result of the pandemic. FHFA 

announced the elimination of the fee as of August 

1, 2021, in recognition of the success of policies 

that had reduced the impact of the pandemic on 

households. 

Affordable Housing

In 2021, FHFA, in partnership with the other federal 

agencies, began a targeted focus on increasing 

the nation’s affordable housing supply. To support 

underserved markets, FHFA announced that the 

Enterprises may each invest up to $850 million 

annually in the Low-Income Housing Tax Credit 

(LIHTC) equity market. Previously, each Enterprise 

was limited to $500 million of investment annually 

in the LIHTC market. Within this $850 million 

annual funding cap, any investments above $425 

million in a given year are required to be in areas 

that have been identified by FHFA as markets that 

have difficulty attracting investors. This marks an 

increase in the amount of investment under the 

cap that must be made in targeted transactions that 

either support housing in Duty to Serve-designated 

rural areas, preserve affordable housing, support 

mixed-income housing, provide supportive housing, 

or meet other affordable housing objectives.

Credit Risk Transactions

Since 2013, FHFA has encouraged the Enterprises 

to transfer a meaningful amount of credit risk to 

private investors through credit risk transfer (CRT) 

transactions. CRTs help to protect taxpayers from 

potentially large credit-related losses in severely 

stressful economic scenarios. From the inception 

of the Enterprises’ single-family CRT programs 

in 2013 through the end of 2020, Fannie Mae and 

Freddie Mac have transferred a portion of credit risk 

on $4.1 trillion of unpaid principal balance, with a 

combined risk-in-force of about $137 billion.

In September 2021, FHFA published a notice 

of proposed rulemaking that would amend the 

Enterprise regulatory capital framework by refining 

the leverage buffer and the risk-based capital 

treatment of CRT transactions. These amendments 

are intended to facilitate an environment where 

leverage is not the binding capital constraint for 

the Enterprises and where the Enterprises have 

incentives to distribute acquired credit risk to 

private investors through CRT rather than to buy 
74 2021 FSOC // Annual Report

and hold that risk. Through the first three quarters 

of 2021, Freddie Mac has already transferred $12 

billion of risk-in-force on $543 billion of unpaid 

principal balance. Additionally, although it had not 

entered into any new CRT transactions since the first 

quarter of 2020, Fannie Mae resumed entering into 

new CRT transactions in the fourth quarter of 2021. 

Federal Home Loan Banks

The Federal Home Loan Banks (FHLBs) continue 

to serve as an important source of liquidity for 

financial institutions in the mortgage market and 

to exhibit strong financial performance. The main 

assets of the FHLBs are advances, loan products 

FHLBs extend to their members to help them meet 

short- and long-term liquidity and housing finance 

needs. Advances reached a post-2008 peak of 807 

billion in the first quarter of 2020, increasing by 26 

percent from year-end 2020 as a result of members’ 

liquidity needs induced by the onset of the 

pandemic. As market volatility subsided and liquidity 

needs decreased, advances fell by 54 percent, to 

$370 billion, by June 30, 2021.

Mortgage holdings purchased by the FHLBs from 

their members have also decreased due to greater 

prepayment activity and less attractive yields. 

From March 31, 2020, to June 30, 2021, mortgages 

decreased $18 billion to $57 billion. Reflecting the 

lower holdings of advances and mortgages, total 

assets at the FHLBs declined from $1,259 billion on 

March 31, 2020 to $738 billion as of June 30, 2021. 

The financial performance of the FHLBs remains 

solid. The FHLBs reported aggregate net income 

of $2.4 billion in the year ended June 30, 2021, 

moderately down compared to $2.9 billion earned 

in the previous four-quarter period, reflecting lower 

asset holdings. Retained earnings continued to grow 

at the FHLBs, increasing to $22 billion on June 30, 

2021, an all-time high for the FHLB System. 

3.4.6 Commercial Real Estate Market

The CRE market is slowly recovering from 

pandemic-induced disruptions. Increasing 

vaccination levels and the lifting of pandemicimposed travel restrictions and social distancing 

requirements have supported recovery of many 

CRE properties. Significant uncertainties remain, 

though, especially for properties that depend on 

office workers or business travelers. Return to office 

plans continue to evolve, particularly in light of the 

COVID-19 Delta variant. 
Financial Developments 75

0

2

4

6

8

10

12

0

2

4

6

8

10

12

2001 2004 2007 2010 2013 2016 2019

National Cap Rate

National Cap Rate Spread

3.4.6.3 Average Capitalization Rates and Spreads

Percent Percent

Source: Real Capital Analytics, 

Bloomberg, L.P.

As Of: Sep-2021

Note: Dotted lines represent 

2001–present averages.

0

2

4

6

8

10

0

2

4

6

8

10

2005 2007 2009 2011 2013 2015 2017 2019 2021

3.4.6.2 Conduit CMBS Delinquency and Foreclosure Rate

Percent As Of: Sep-2021 Percent

Source: JPMorgan, Trepp

Foreclosure / 

Real Estate 

Owned

60+ Days 

Delinquent

Note: 60+ Days Delinquent includes 

Foreclosure/Real Estate Owned. 

-30

-20

-10

0

10

20

30

-30

-20

-10

0

10

20

30

2005 2008 2011 2014 2017 2020

3.4.6.1 Commercial Property Price Growth

Percent Percent

Source: Real Capital Analytics, 

Bloomberg, L.P.

Retail

Industrial

National

As Of: Sep-2021

Note: Year-over-year price change.

Office: Central Business District

Apartment

Office

3.4.6.3 Average Capitalization Rates and Spreads

3.4.6.2 Conduit CMBS Delinquency and Foreclosure Rate

3.4.6.1 Commercial Property Price Growth

The volume of CRE transactions rebounded 

in 2021, after a sharp decline at the onset 

of the pandemic. According to Real Capital 

Analytics, CRE deal volume totaled a record 

$450 billion in the first three quarters of 2021, 

with apartment and industrial property sales 

driving volume during this period. CRE deal 

volume remains subdued in the market for 

office properties in central business districts. 

Transaction volumes also remain below 

pre-pandemic levels for retail and lodging 

properties, many of which are also located in 

central business districts and rely on office 

workers or business travelers. In contrast, CRE 

price growth has rebounded more evenly across 

sectors, and price growth overall reached 16 

percent for the twelve months ended September 

2021, the fastest pace in over twenty years 

(Chart 3.4.6.1). Nevertheless, prices for offices 

in central business districts remained depressed 

through September 2021. 

Delinquency rates have declined from the peak 

they reached in 2020, but remain elevated, 

especially on lodging and hotel properties. 

By September 2021, the overall rate of serious 

delinquency (60+ days past due) on conduit 

commercial mortgage-backed securities 

(CMBS) had fallen to 5.2 percent after reaching 

a high of 7.4 percent in July 2020 (Chart 

3.4.6.2). Delinquency rates on lodging and 

retail properties remained elevated at 13.9 and 

8.0 percent, respectively. In contrast, industrial, 

multifamily, and office properties had 

delinquency rates of 0.7 percent, 1.9 percent, 

and 2.2 percent, respectively. 

CRE capitalization rates—the ratio of a 

property’s annual net operating income to its 

price—remained low by historical standards 

through the first nine months of 2021 (Chart 

3.4.6.3). However, the risk premia in CRE—

as measured by the spread between CRE 

capitalization rates and the 10-year Treasury 

yield—remained elevated relative to historical 

standards. By this measure, CRE valuations do 

not appear to be stretched on a relative basis. 
76 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

50

100

150

200

250

300

350

400

0

50

100

150

200

250

300

350

400

2004 2006 2008 2010 2012 2014 2016 2018 2020

3.4.6.4 CMBS Issuance

Billions of US$ Billions of US$

Source: Inside 

Mortgage Finance

As Of: Sep-2021

Agency 

Non-Agency

Note: 2021 figures are through September. 

Agency includes multifamily CMBS.

3.4.6.4 CMBS Issuance Outstanding CRE loans totaled $5.0 

trillion as of the second quarter of 2021, 

a 5.2 percent increase year-over-year and 

equal to approximately 22 percent of GDP, 

according to the Financial Accounts of the 

United States. Fannie Mae, Freddie Mac, 

and Ginnie Mae continue to be the most 

significant players in multifamily lending, and 

collectively hold 48 percent of total outstanding 

multifamily mortgages either in portfolio or 

in securitization pools of CMBS. The growth 

of CRE loans held by banks and life insurance 

companies has slowed over the past year, with 

year-over-year CRE loan growth at banks 

and insurance companies declining from 5.6 

percent and 6.7 percent to 2.9 percent and 3.1 

percent, respectively. 

CMBS issuance has rebounded strongly, with 

agency and non-agency issuances hitting a 

record $321 billion through the first nine 

months of 2021 (Chart 3.4.6.4). The increased 

issuance of CMBS was particularly concentrated 

in multifamily agency CMBS, where issuances 

in the first nine months of 2021 already 

exceeded the previous full-year record hit in 

2020. Somewhat slower issuance of conduit 

CMBS deals has been offset by a record pace 

of relatively short-term floating rate CRE 

securitization deals, such as CMBS deals backed 

by single asset or single borrowers (which tend 

to be highly rated and strongly underwritten), 

and CRE collateralized loan obligations. 

The CMBS issuance volume is an indication 

of the improved economic outlook, strong 

investor demand for yield, and confidence in 

the recovery of CRE, even with the pandemicinduced risks that remain for many properties. 
Financial Developments 77

0

2

4

6

8

10

12

14

16

0

2

4

6

8

10

12

14

16

G-SIBs Large

Complex

Large

Noncomplex

Other IHCs

3.5.1.2 Total Assets by BHC Type/IHC

Trillions of US$ Trillions of US$

Source: FR Y-9C

As Of: 2021 Q2

3.5.1.1 Categorization of Large U.S. BHCs

Source: Federal Reserve

Description U.S. Domestic Banking Org.

Category I

(U.S. G-SIBs)

Bank of America JPMorgan Chase

Bank of New York Mellon Morgan Stanley

Citigroup State Street

Goldman Sachs Wells Fargo

Category II

(Large complex, ≥$700b Total assets, or ≥ 

$75b in Cross-Jurisdictional Activity)

Northern Trust

Category III

(Large complex, ≥$250b Total assets or ≥ $75b 

in NBA, wSTWF, or Off-balance sheet exposure)

Capital One Truist Financial

Charles Schwab U.S. Bancorp

PNC Financial

Category IV

(Large noncomplex, other firms with $100b 

to $250b Total assets)

Ally Financial Huntington

American Express KeyCorp

Citizens Financial M&T Bank

Discover Regions Financial

Fifth Third

Note: Northern Trust is in Category II due to its cross-jurisdictional activity. 

Synchrony Financial dropped out of Category IV in 2021:Q2 and did not participate 

in the 2020 or 2021 stress tests.

3.5.1.2 Total Assets by BHC Type/IHC

3.5.1.1 Categorization of Large U.S. BHCs 3.5 Financial Institutions

3.5.1 Bank Holding Companies and Depository 

Institutions

3.5.1.1 Bank Holding Companies and Dodd-Frank 

Act Stress Tests 

Bank holding companies (BHCs) are 

companies that have control over any bank or 

any company that is a BHC. BHCs may also 

be financial holding companies. Subsidiaries 

of BHCs may also include nonbanks such 

as broker-dealers, investment advisers, or 

insurance companies. Under the “tailoring 

rules” issued by the federal banking agencies 

in 2019, capital and standardized liquidity 

requirements for BHCs increase with risk, 

size, and complexity. The largest BHCs with 

total consolidated assets above $100 billion fall 

into four categories: U.S. global systemically 

important banks (G-SIBs) (Category I); two 

categories of large complex BHCs (Categories 

II and III); and large noncomplex BHCs 

(Category IV) (Chart 3.5.1.1). Other BHCs 

with total consolidated assets less than $100 

billion are not subject to supervisory stress test 

requirements, the liquidity coverage ratio, or 

the net stable funding ratio. Foreign banking 

organizations (FBOs) with sizeable operations 

in the United States must hold all non-branch 

interests in U.S. subsidiaries in an intermediate 

holding company (IHC). 

As of the second quarter of 2021, BHCs in the 

United States (excluding IHCs) held nearly 

$22 trillion in assets. The eight U.S. G-SIBs 

account for 66 percent of this total. Six large 

complex BHCs account for 10 percent, and nine 

large noncomplex BHCs account for 7 percent. 

All other BHCs account for the remaining 17 

percent (Chart 3.5.1.2). 

Capital Adequacy

Adequate capital supports banks’ ability to 

lend in an economic downturn by providing a 

buffer to absorb loan losses, declines in market 

value of securities and trading portfolios, 

counterparty defaults, and operational 

and legal costs. Due to regulatory reforms 

introduced after the 2008 financial crisis, 

BHCs entered the COVID-19 pandemic with 
78 2021 2021 FSOC // FSOC // Annual Report Annual Report

3.5.1.5 Payout Rates at U.S. G-SIBs

Source: FR Y-9C

0

50

100

150

200

0

50

100

150

200

2014 2015 2016 2017 2018 2019 2020 2021

Percent of NIAC As Of: 2021 Q2 Billions of US$

NIAC (right axis)

Note: Net income available to common shareholders 

(NIAC) is net income minus preferred dividends. 

2021 data represents YTD data through Q2.

Common Stock Cash Dividends 

(left axis)

Stock Repurchases 

(left axis)

0

4

8

12

16

20

0

4

8

12

16

20

BAC BK C GS JPM MS STT WFC

2021 Q1

2021 minimum including U.S. 

G-SIB surcharge

Source: FR-Y9C

2020 Q2

3.5.1.4 Common Equity Tier 1 Ratios at U.S. G-SIBs

Percent of RWA As Of: 2021 Q2 Percent of RWA

2021 Q2

4

6

8

10

12

14

16

4

6

8

10

12

14

16

2001 2004 2007 2010 2013 2016 2019

3.5.1.3 Common Equity Tier 1 Ratios

Percent of RWA As Of: 2021 Q2 Percent of RWA

Source: FR Y-9C, 

Haver Analytics

Note: Tier 1 common capital is used as the numerator of the CET1 ratio 

prior to 2014:Q1 for G-SIBs and large complex BHCs, and prior to 

2015:Q1 for large noncomplex and other BHCs. The denominator is 

risk-weighted assets (RWA). Shaded areas indicate NBER recessions.

G-SIBs

Large Complex

Large Noncomplex

Other

3.5.1.5 Payout Rates at U.S. G-SIBs

3.5.1.4 Common Equity Tier 1 Ratios at U.S. G-SIBs

3.5.1.3 Common Equity Tier 1 Ratios more than double pre-2008 financial crisis 

levels of aggregate risk-based equity capital. 

These higher capital levels allowed banks to 

continue to lend to households and businesses 

and to absorb significant increases in loan loss 

provisions as the pandemic unfolded. 

As of the second quarter of 2021, common 

equity tier 1 (CET1) ratios surpassed prepandemic levels across all four groups of BHCs, 

more than reversing the drop in the second 

quarter of 2020 (Chart 3.5.1.3). The CET1 

ratio, defined as the ratio of CET1 capital to 

total risk-weighted assets (RWAs), is a risk-based 

capital requirement. Capital positions have 

improved as BHCs have released significant 

portions of the loan loss provisions they booked 

at the onset of the pandemic. In addition, RWAs 

have decreased as businesses have repaid credit 

lines they drew, and households have paid down 

credit card balances. Despite significant stress 

during the first half of 2020, U.S. G-SIBs have 

exceeded Basel III standards for the minimum 

risk-based capital requirement ratios, including 

the G-SIB surcharge and stress capital buffer 

(SCB) (Chart 3.5.1.4). 

Stock repurchases have rebounded at U.S. 

G-SIBs in 2021 as restrictions imposed at the 

onset of the pandemic have rolled off (Chart 

3.5.1.5). Aggregate payout rates, defined as 

the sum of stock repurchases and common 

stock dividends, increased leading up to 2020 

and then decreased during the second half 

of 2020 and the first half of 2021, relative 

to pre-pandemic levels. In 2020, all U.S. 

G-SIBs announced a voluntary suspension 

of share buybacks, and the Federal Reserve 

temporarily halted stock repurchases for banks 

with more than $100 billion in total assets 

and capped dividends payments for all BHCs 

at 2019 levels as part of the June 2020 stress 

test results. Following favorable stress test 

results in December 2020, the Federal Reserve 

announced it would permit BHCs to resume 

share repurchases during the first quarter of 

2021, allowing common stock dividends and 

share repurchases that in aggregate did not 

exceed the average quarterly profits during the 
Financial Developments 79

-1

0

1

2

3

-1

0

1

2

3

2010 2012 2014 2016 2018 2020

3.5.1.7 Return on Assets

Percent As Of: 2021 Q2 Percent

Source: FR Y-9C

Note: Quarterly, seasonally-adjusted annual rate. Return on 

assets is equal to net income divided by average assets.

Other

Large Noncomplex 

Large Complex

G-SIBs

0

2

4

6

8

10

0

2

4

6

8

10

BAC BK C GS JPM MS STT WFC

3.5.1.6 Supplementary Leverage Ratios at U.S. G-SIBs

Percent As Of: 2021 Q2 Percent

Source: FR Y-9C, 

Call Report

Note: Enhanced SLR is only required for the G-SIBs. The ratio is equal to tier 1 

capital divided by total assets plus off-balance sheet exposures. The ratio 

excludes Treasury securities and reserves from the denominator during 

2020:Q2 and 2021:Q1, reflecting a temporary change to the SLR rule to ease 

strains in the Treasury market resulting from the COVID-19 pandemic.

2021 Q1

2020 Q2

Minimum

2021 Q2

3.5.1.7 Return on Assets

3.5.1.6 Supplementary Leverage Ratios at U.S. G-SIBs past year. In March 2021, the Board announced 

that the temporary restrictions on distributions 

would be lifted for firms that remained above 

minimum risk-based capital requirements in 

the 2021 stress test. Stress test results were 

released in June 2021, and all BHCs subject 

to the stress test maintained adequate poststress capital levels. As a result, temporary 

restrictions on capital distributions were lifted 

and distributions remain governed by the rules 

set forth in the SCB framework. 

U.S. G-SIBs’ supplementary leverage ratios 

during the first half of 2021 were comparable 

to pre-pandemic levels (Chart 3.5.1.6). The 

supplementary leverage ratio (SLR) is a nonrisk-based capital adequacy measure defined 

as the ratio of tier 1 capital to total assets, 

plus certain off-balance sheet exposures. The 

SLR applies to large complex BHCs and an 

enhanced version of the SLR applies to U.S. 

G-SIBs. Expanding balance sheets since the 

start of the COVID-19 pandemic have put 

downward pressure on SLRs. The Federal 

Reserve introduced a temporary modification to 

the SLR rule, which was subsequently extended 

to depository institutions through a joint 

interagency rulemaking, that allowed BHCs 

to exclude Treasury securities and reserves at 

the Federal Reserve from the denominator 

of the ratio until March 31, 2021. Those 

temporary modifications provided flexibility to 

certain banks to continue to accept customer 

deposits and provide credit to households and 

businesses. 

Profitability

Profitability is a key method for BHCs to 

improve capital positions. Profitability 

rebounded in 2021, driven in part by the 

release of substantial amounts of the loss 

provisions that BHCs had built in 2020 after 

the onset of the pandemic (Chart 3.5.1.7). 

Strong non-interest income, including from 

trading and investment bank activity, also lifted 

net income among large BHCs. However, net 

interest margins have declined significantly 

relative to pre-pandemic levels, attributable 

in part to a decline in interest rates and to 
80 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

5

10

15

20

25

0

5

10

15

20

25

2001 2004 2007 2010 2013 2016 2019

3.5.1.10 Deposit Growth, All Commercial Banks

Percent As Of: Jun-2021 Percent

Source: Federal Reserve, 

Haver Analytics 

Note: Statistical Release H.8, “Assets and Liabilities of 

Commercial Banks in the United States.” Seasonally adjusted 

values. Year-over-year percentage change.

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

3.5.1.9 Sources of Funding at G-SIBs and Large-Complex

Percent of Total Liabilities As Of: 2021 Q2 Percent of Total Liabilities

Long-Term Funding

Core Deposits

Source: 

FR Y-9C

Note: ST funding: liabilities with maturities =< 1 yr, trading liabilities, repos, CP, and foreign deposits. 

LT funding: other borrowed money, subordinated notes and large time deposits with maturities > 1 

yr. Core deposits: demand deposits, noninterest-bearing balances, transaction accounts, money 

market deposits and time deposits <$250,000. Gray bars signify NBER recessions.

Short-Term Funding

1

2

3

4

5

6

1

2

3

4

5

6

2010 2012 2014 2016 2018 2020

Other

Large Noncomplex

Large Complex

G-SIBs

3.5.1.8 Net Interest Margins

Percent As Of: 2021 Q2 Percent

Source: FR Y-9C

Note: Quarterly, seasonally-adjusted annual rate. Net 

interest margin is equal to net interest income divided 

by the quarterly average of interest-earning assets. 

3.5.1.10 Deposit Growth, All Commercial Banks

3.5.1.9 Sources of Funding at G-SIBs and Large-Complex

3.5.1.8 Net Interest Margins compositional shifts in banks’ balance sheets 

(Chart 3.5.1.8). Looking forward, though 

profitability has rebounded in 2021, downside 

risks include limited loan growth, a low interest 

rate environment, and potential moderation in 

trading and investment banking activity. 

Funding Sources

BHCs continue to have fairly stable funding 

sources. After the 2008 financial crisis, BHCs 

reduced reliance on short-term wholesale 

funding, which funding exposed them to 

significant liquidity and solvency risks in the 

event of disruptions in interbank markets. As 

the use of short-term funding has declined, 

more stable funding sources, such as core 

deposits, have increased markedly (Chart 

3.5.1.9). This more stable funding mix helped 

BHCs avoid significant funding disruptions 

during the onset of the COVID-19 pandemic. 

Deposit growth has moderated in 2021 but 

remains elevated relative to pre-pandemic 

growth rates (Chart 3.5.1.10). Deposits 

increased rapidly in 2020, as many corporate 

firms drew down credit lines and deposited the 

funds to establish bigger cash buffers. Fiscal 

programs have bolstered retail deposit growth 

through 2021. Deposits stand at $17.1 trillion as 

of June 2021, about $4 trillion higher than prepandemic levels. 
Financial Developments 81

0

2

4

6

8

0

2

4

6

8

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

3.5.1.13 Delinquency Rates on Selected Loans

Percent As Of: 2021 Q2 Percent

Source: FRY-9C, 

Call Report 

Note: Seasonally adjusted. Includes all loans in domestic 

and foreign offices. Auto loans became available in 2011 

Q1. Gray bars signify NBER recessions.

Credit Card

Auto

C&I

0

4

8

12

16

20

0

4

8

12

16

20

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

3.5.1.12 Delinquency Rates on Real Estate Loans

Percent As Of: 2021 Q2 Percent

Source: FR Y-9C

Note: Includes all loans in domestic and foreign 

offices. Gray bars signify NBER recessions.

Commercial 

Real Estate

Residential 

Real Estate

0.00

0.25

0.50

0.75

1.00

1.25

1.50

0.00

0.25

0.50

0.75

1.00

1.25

1.50

2010 2012 2014 2016 2018 2020

3.5.1.11 Effective Deposit Rates by BHC Category

Rates As Of: 2021 Q2 Rates

Source: Call Report

Note: Effective deposit rates are defined as the ratio of the 

annualized quarterly-average interest expense on deposits and the 

one-quarter lag of the quarterly-average deposit balances.

Other

Large Noncomplex

Large Complex

G-SIBs

3.5.1.13 Delinquency Rates on Selected Loans

3.5.1.12 Delinquency Rates on Real Estate Loans

3.5.1.11 Effective Deposit Rates by BHC Category Deposit rates have remained at low levels in 

2021, having fallen in 2020 with the decline 

in short-term interest rates. G-SIBs continue 

to have materially lower effective deposit rates 

than large complex and large noncomplex 

banks (Chart 3.5.1.11). 

Asset Quality

Asset quality at BHCs has improved, despite 

the challenges presented to businesses and 

households by the pandemic. Fiscal relief, 

forbearance, higher vaccination rates, and the 

broad reopening of the economy mitigated 

BHCs’ credit risk in the second half of 2020 and 

the first half of 2021. Delinquency rates remain 

subdued on residential and CRE loans relative 

to recent business cycles, due in part to more 

conservative underwriting practices and higher 

lending standards in the mortgage market, 

as well as legislative or voluntary forbearance 

actions that have provided debt service relief to 

some borrowers (Chart 3.5.1.12). Delinquency 

rates on credit cards and auto loans stand near 

their lowest historic levels, as the consumer 

sector has benefited from fiscal stimulus. While 

delinquency rates on commercial and industrial 

(C&I) loans inched up in 2020, they fell in 2021 

and remain significantly lower than in previous 

business cycles (Chart 3.5.1.13). 

Banks tightened standards after the onset of 

the pandemic but have since unwound that 

tightening at least partially. In July 2021, banks 

reported in the SLOOS that their lending 

standards had eased for all loan categories 

relative to July 2020. Banks were also asked in 

the SLOOS about the current level of lending 

standards relative to the midpoint of the 

range in standards since 2005, a period that 

encompasses very tight standards after the 2008 

financial crisis and very loose standards before 

that crisis. Banks, on balance, reported that their 

lending standards on C&I loans are currently 

at the eased end of the range of standards 

between 2005 and the present. In contrast, for 

subprime consumer loans and most categories 

of commercial or residential mortgages, banks 

reported currently having relatively tighter 

levels of lending standards on net. 
82 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

2010 2012 2014 2016 2018 2020

3.5.1.16 Loans to Nondepository Financial Institutions

Percent of Total Loans Percent of Total Loans

Source: FR Y-9C

As Of: 2021 Q2

Other

Large Noncomplex

Large Complex

G-SIBs

-30

-20

-10

0

10

20

30

40

-30

-20

-10

0

10

20

30

40

2001 2004 2007 2010 2013 2016 2019

3.5.1.15 C&I Loan Growth, All Commercial Banks

Percent As Of: Jun-2021 Percent

Source: Federal Reserve, 

Haver Analytics 

Note: Statistical Release H.8, “Assets and Liabilities 

of Commercial Banks in the United States.” Yearover-year percentage change.

0

2

4

6

8

10

12

0

2

4

6

8

10

12

2013 2014 2015 2016 2017 2018 2019 2020 2021

3.5.1.14 Provisions to Loans Ratios at BHCs

Percent As Of: 2021 Q2 Percent

Credit Cards

Other Consumer

Residential Real Estate

Commercial Real Estate

C&I

Source: FR Y-9C

Note: Excludes Barclays, Credit 

Suisse, Deutsche Bank, and UBS.

3.5.1.16 Loans to Nondepository Financial Institutions

3.5.1.15 C&I Loan Growth, All Commercial Banks

3.5.1.14 Provisions to Loans Ratios at BHCs Loan loss provisions have been volatile over the 

past two years. During the first three quarters 

of 2020, banks provisioned for large loan 

losses, more than doubling their pre-pandemic 

allowances, though a significant part of this 

increase is due to the current expected credit 

losses (CECL) accounting change. Vaccine 

development and broad-scale accessibility, along 

with fiscal support and the broad reopening of 

the economy, significantly improved the outlook 

for loan losses and reduced uncertainty about 

those losses. As a result, BHCs have reduced 

their allowances for loan losses during the 

fourth quarter of 2020 and first half of 2021 

(Chart 3.5.1.14). 

C&I loans outstanding have shrunk in recent 

data amid repayment of credit draws taken out 

at the onset of the pandemic and forgiveness of 

PPP loans, though some of the weakness can be 

attributed to substitution effects. The average 

year-over-year growth of C&I loans exceeded 

15 percent from April through December 

2020, slowed to about 7 percent during the first 

quarter of 2021, and fell to negative 15 percent 

in the second quarter of 2021 (Chart 3.5.1.15). 

U.S. G-SIBs’ lending to nondepository 

financial institutions has significantly outpaced 

commercial lending to nonfinancial firms since 

2010, and now accounts for about 11 percent of 

U.S. G-SIBs’ total loans (Chart 3.5.1.16). 
Financial Developments 83

0

50

100

150

200

0

50

100

150

200

BAC BK C GS JPM MS STT WFC

3.5.1.19 Liquidity Coverage Ratios at U.S. G-SIBs

Percent As Of: 2021 Q2 Percent

Source: LCR Disclosures 

from each banks’ websites

Note: The solid line represents the 

regulatory minimum.

2021 Q1

2021 Q2

2020 Q2

0

3

6

9

12

15

0

3

6

9

12

15

2010 2012 2014 2016 2018 2020

3.5.1.18 Selected Liquid Assets at All BHCs 

Percent of Assets Percent of Assets

Source: FR Y-9C, FR 2900

As Of: 2021 Q2

Reserve Balances

Fannie Mae and Freddie Mac MBS

Treasury Securities

Ginnie Mae MBS

Note: Not seasonally adjusted. 

5

10

15

20

25

30

35

5

10

15

20

25

30

35

2010 2012 2014 2016 2018 2020

3.5.1.17 High-Quality Liquid Assets by BHC Type

Percent of Assets Percent of Assets

Source: FR Y-9C

As Of: 2021 Q2

Note: HQLA is estimated by adding excess reserves to an 

estimate of securities that qualify for HQLA. Haircuts and 

level 2 asset limitations are incorporated into the estimate.

Other

Large Noncomplex

Large Complex

G-SIBs

3.5.1.19 Liquidity Coverage Ratios at U.S. G-SIBs

3.5.1.18 Selected Liquid Assets at All BHCs

3.5.1.17 High-Quality Liquid Assets by BHC Type Liquidity Management

Liquidity positions at BHCs have improved over 

the past year. High-quality liquid assets reached 

historically high levels during the first quarter 

of 2021 as BHCs increased their holdings 

of reserves, Treasury securities, and agency 

mortgage-backed securities (Chart 3.5.1.17). 

Levels decreased slightly in the second quarter 

but remain high by historical standards. The 

Federal Reserve’s asset purchase program 

has increased the amount of reserves in the 

banking system significantly since the onset of 

the pandemic (Chart 3.5.1.18). 

Inflows of relatively stable insured retail deposits 

helped alleviate liquidity pressures from large 

credit line drawdowns. U.S. G-SIBs maintained 

liquidity coverage ratios (LCR) well above the 

100 percent requirement as stress peaked during 

the first half of 2020 (Chart 3.5.1.19). LCRs 

remain similar to pre-pandemic levels, with U.S. 

G-SIBs ranging between 4 and 38 percentage 

points above the required 100 percent of net 

outflows in the second quarter of 2021. 
84 2021 2021 FSOC // FSOC // Annual Report Annual Report

Index As Of: 29-Jun-2021

3.5.1.22 Bank Stock Performance

Source: Yahoo! Finance, 

Bloomberg, L.P. 

50

75

100

125

150

175

200

50

75

100

125

150

175

200

Jan:2019 Jun:2019 Dec:2019 Jun:2020 Dec:2020 Jun:2021

Large Noncomplex

Large Complex

G-SIBs

Index

Note: January 2, 2019 = 100. EU Bank Stock Index created from 

stock prices for the following banks: BCS, BNPQY, CS, ACA, DB, 

SAN, UBS. All indexes are created by equally weighting banks.

S&P 500

EU Bank Stock Index

Other

3.5.1.21 Duration Gap

Source: Call Report, 

Haver Analytics

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2001 2004 2007 2010 2013 2016 2019

Years As Of: 2021 Q2 Years

Note: Duration gap is the approximate weighted-average 

time of cash inflows less the approximate weighted-average 

time of cash outflows. Gray bars signify NBER recessions.

Other

Large Noncomplex

Large Complex

G-SIBs

0

10

20

30

40

50

60

0

10

20

30

40

50

60

2010 2012 2014 2016 2018 2020

3.5.1.20 Held-to-Maturity Securities 

Percent of Investment 

Securities

Percent of Investment 

As Of: 2021 Q2 Securities

Source: Call Report, 

Haver Analytics

Note: Investment securities are held-to-maturity 

securities plus available-for-sale securities. 

Other

Large Noncomplex

Large Complex

G-SIBs

3.5.1.22 Bank Stock Performance

3.5.1.21 Duration Gap

3.5.1.20 Held-to-Maturity Securities At the end of 2019, large complex and large 

noncomplex BHCs significantly reduced the 

share of investment securities classified as 

held-to-maturity investment securities as the 

tailoring rules went into effect. The tailoring 

rules allowed most large complex and large 

noncomplex BHCs to opt out of including 

accumulated other comprehensive income 

from available-for-sale accounts in their capital 

calculation. As a result, most large complex 

and some large noncomplex BHCs shifted 

their entire holdings of securities from held-tomaturity into available-for-sale accounts, where 

they remain today (Chart 3.5.1.20). In late 2020 

and early 2021, the share of G-SIB investment 

securities classified as held-to-maturity 

increased markedly, as firms transferred a 

significant portion of their available-for-sale 

securities and deployed their significant deposit 

inflow into longer term investments. The 

preference for held-to-maturity securities by 

G-SIBs reflects their desire to minimize the 

impact that accumulated other comprehensive 

income from available-for sale securities has 

on the calculation of CET1 capital. Other 

regulatory requirements that may incentivize 

investment in held-to-maturity securities over 

available-for-sale securities include the impact 

that available-for-sale securities can have 

on the G-SIB score calculation and on the 

determination of the stress capital buffer.

The duration gap, which reflects the difference 

between the timing of cash inflows from assets 

and the timing of cash outflows from liabilities, 

increased during the past year across all four 

BHC categories as BHCs acquired long-term 

Treasuries and agency MBS amid large deposit 

inflows (Chart 3.5.1.21). The duration gap is a 

measure of interest rate risk; a larger, positive 

duration gap implies that if rates rise, assets will 

lose more value than liabilities, thus pressuring 

BHC capital.

Market Perception of Value and Risk

Market perceptions of BHC values have grown 

over the past year (Chart 3.5.1.22). Large BHC 

stock prices have mostly recovered from the 

sharp declines in valuations that occurred in 
Financial Developments 85

Basis Points As Of: Jun-2021

3.5.1.25 5-Year CDS Premiums Select Foreign Banks

Source: Markit

0

100

200

300

400

500

0

100

200

300

400

500

2010 2012 2014 2016 2018 2020

Basis Points

Santander

Credit Suisse

Barclays

Note: Monthly averages.

Deutsche Bank

Société Générale

BNP Paribas

Basis Points As Of: Jun-2021

3.5.1.24 5-Year CDS Premiums Select U.S. G-SIBs

Source: Markit

0

100

200

300

400

500

0

100

200

300

400

500

2010 2012 2014 2016 2018 2020

Basis Points

Note: Monthly averages.

Wells Fargo 

JPMorgan Chase

Morgan Stanley

Goldman Sachs

Citigroup

Bank of America

Percent As Of: Jun-2021

3.5.1.23 Price-to-Book for Select U.S. G-SIBs 

Source: SNL

0

50

100

150

200

250

300

0

50

100

150

200

250

300

2008 2010 2012 2014 2016 2018 2020

Percent

Note: Month-end values.

Wells Fargo 

JPMorgan Chase

Morgan Stanley

Goldman Sachs

Citigroup

Bank of America

3.5.1.25 5-Year CDS Premiums Select Foreign Banks

3.5.1.24 5-Year CDS Premiums Select U.S. G-SIBs

3.5.1.23 Price-to-Book for Select U.S. G-SIBs March 2020. BHC stock prices have posted 

similar cumulative gains to the broader S&P 

500. Additionally, price-to-book ratios of U.S. 

G-SIBs have trended higher over the past year, 

after having declined materially during the first 

quarter of 2020 (Chart 3.5.1.23). 

Consistent with growth in their market valuations, market perceptions of risk at BHCs have 

remained low over the past year. CDS spreads 

of U.S. G-SIBs, a measure of default risk, have 

almost returned to pre-pandemic levels. In 

large part, the lower CDS spreads that prevailed 

before the onset of the COVID-19 pandemic 

reflect the strong liquidity and capital positions of BHCs (Chart 3.5.1.24). CDS spreads 

of foreign G-SIBs performed similarly to U.S. 

G-SIBs with the exception of Deutsche Bank, 

which experienced the largest increase in CDS 

spreads among foreign G-SIBs, exceeding 200 

basis points (Chart 3.5.1.25).

Stress Tests and Capital Planning

The Federal Reserve’s stress tests are intensive 

assessments of the capital adequacy of the 

largest U.S. BHCs and U.S. IHCs of foreign 

banking organizations. The Federal Reserve’s 

stress testing framework includes supervisory 

and company-run stress tests, the sizing of each 

firm’s stress capital buffer requirement, and an 

assessment of the practices that the firms use to 

assess their capital needs. The supervisory stress 

test is conducted by the Federal Reserve, and 

the supervisory scenarios are designed by the 

Federal Reserve. The Federal Reserve consults 

with the FDIC and the OCC on these scenarios, 

which are also used for company-run stress tests 

by national banks, state nonmember banks, and 

federal savings associations. 

During the period of significant economic 

uncertainty related to the pandemic, the 

Federal Reserve took several actions to preserve 

the resilience of the banking system and those 

actions were informed by analysis stemming 

from the Federal Reserve’s stress tests. In June 

2020, the Federal Reserve required BHCs and 

IHCs subject to stress testing requirements to 

temporarily suspend share repurchases and 
86 2021 2021 FSOC // FSOC // Annual Report Annual Report

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0.5

1.0

1.5

2.0

2.5

3.0

0

30

60

90

120

150

180

2005 2008 2011 2014 2017 2020

3.5.1.27 FDIC-Insured Failed Institutions 

Number of Institutions As Of: 2020 Percent

Note: No FDIC-insured institutions 

failed during 2005, 2006, and 2018.

Source: BEA, FDIC, 

Haver Analytics

Number of Institutions (left axis)

Assets of Failed Institutions as a 

Percent of Nominal GDP (right axis)

0

4

8

12

16

0

4

8

12

16

2013

18

2014

30

2015

31

2016

33

2017

34

2018

35

2019

18

2020

33

2021

23

Post-Stress DFAST

Pre-Stress

3.5.1.26 Initial and Stressed Capital Ratios

Percent of RWA Percent of RWA

Source: Federal 

Reserve

Note: Regulatory minimum is 5% pre-2016 and 4.5% from 2016 

onwards. For DFAST 2013-2015, bars show Tier 1 Common Capital 

Ratio. DFAST 2016-2021 bars show Common Equity Tier 1 Ratio. The 

x-axis labels represent the number of banks tested within a given year.

Post-Stress CCAR

Regulatory Minimum

3.5.1.27 FDIC-Insured Failed Institutions

3.5.1.26 Initial and Stressed Capital Ratios limited dividend payouts to 2019 levels. In 

addition, the Federal Reserve required large 

banks to re-evaluate and resubmit their longterm capital plans in November 2020. Following 

a second round of stress tests in December, the 

Board limited firms’ capital distributions to 

levels based on their average quarterly earnings 

during the past year. 

The Federal Reserve announced in June 

2021 that none of the 23 BHC and IHCs that 

were tested dropped below minimum capital 

requirements on a post-stress basis. The 

aggregate CET1 ratio among those tested 

declined from 13.0 percent in the fourth 

quarter of 2020 to its minimum of 10.6 percent 

as part of the severely adverse scenario. The 

aggregate CET1 ratio remains well above 

the required minimum levels throughout 

the projection horizon. (Chart 3.5.1.26). 

Loan losses as a fraction of average loans 

were comparable to loan losses in previous 

annual stress testing exercises. The temporary 

restrictions on dividends and share repurchases 

were lifted following the announcement of the 

2021 stress test results. Capital distributions 

remain governed by the SCB framework, which 

automatically limits capital distributions for 

BHCs that fall below their capital requirements 

in the stress scenarios.

3.5.1.2 Insured Commercial Banks and Savings 

Institutions

As of the second quarter of 2021, the banking 

industry included 4,953 FDIC-insured 

commercial banks and savings institutions with 

total assets of nearly $23 trillion. During 2020, 

168 institutions were absorbed by mergers, 

while eight new institutions were added. Ten 

additional institutions opened in 2021 as of 

September 30, 2021 and 28 institutions were 

absorbed by mergers as of the second quarter of 

2020. Failures of insured depository institutions 

are down significantly since the 2008 financial 

crisis. Although four institutions failed in 2020, 

no banks failed through the second quarter of 

2021 (Chart 3.5.1.27).

The FDIC’s ‘problem bank’ list included 56 

institutions—slightly more than 1 percent of all 
Financial Developments 87

-1200

-800

-400

0

400

800

1200

-1200

-800

-400

0

400

800

1200

2006 2008 2010 2012 2014 2016 2018 2020

Noninterest Income

Net Interest Income

Noninterest Expense

Provisions

3.5.1.28 Commercial Bank and Thrift Net Income

Billions of US$ Billions of US$

Source: FDIC

Note: Includes all commercial banks and 

thrift institutions. All items are annualized. 

As Of: 2021 Q2

Realized Gains/Losses

Net Income

3.5.1.28 Commercial Bank and Thrift Net Income institutions—at the end of 2020, in comparison 

to 51 banks in the prior year. Banks on this 

list have financial, operational, or managerial 

weaknesses that require corrective action in 

order to operate in a safe and sound manner. 

Developments at insured commercial banks 

and savings institutions were similar to the 

developments at large BHCs. Total assets 

increased by $1.6 trillion between the second 

quarter of 2020 and the second quarter of 

2021. Loans and leases declined by $134 

billion during that period. Loan portfolios 

that declined include C&I loans, 1-4 family 

residential real estate loans, and credit 

card loans, which were down $360 billion, 

$36 billion, and $16 billion, respectively. 

Loan portfolios that grew include nonfarm, 

nonresidential CRE loans, and construction 

and development loans, which increased by 

$49 billion and $13 billion, respectively. The 

decline in the C&I portfolio was driven by a 

combination of repayments of lines of credit 

by businesses and paydowns and forgiveness of 

PPP lending. Banks increased their investment 

securities portfolio by $1.2 trillion since the 

second quarter of 2020. U.S. Treasury securities 

balances were up by 41 percent and mortgagebacked securities were up by 28 percent 

compared to the second quarter of 2020. Cash 

and due from accounts also grew $635 billion, 

or 22 percent, driven by a large inflow of 

deposits, and now represent 15 percent of total 

assets, up from 14 percent a year ago. 

Net income for all U.S. commercial banks and 

savings institutions totaled $147 billion during 

the first six months of 2021, a 297 percent 

increase from the first six months of 2020, 

driven by a decline in loan loss provisions (Chart 

3.5.1.28). Net interest income fell by 4.0 percent 

in the first half of 2021 due to interest income 

declines outpacing interest expense declines. 

Interest-earning assets grew 8.2 percent since 

June 2020; however, many of these assets are lowyielding, such as cash and due froms. 

The long-term trend of banking industry 

consolidation continued in 2019 and 2020, as 

the 10 largest and 100 largest institutions held 
88 2021 2021 FSOC // FSOC // Annual Report Annual Report

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1

2

3

4

0

1

2

3

4

2004 2006 2008 2010 2012 2014 2016 2018 2020

3.5.1.30 U.S. Branches and Agencies of Foreign Banks: Assets

Trillions of US$ Trillions of US$

Source: Federal Reserve, 

Haver Analytics

As Of: 2021 Q2

Reserve Balances

Net Due from Related Institutions

Securities Purchased with Repos & 

Fed Funds Sold

Cash and Balances Due from 

Depository Institutions (Excluding 

Reserve Balances) 

Other Assets

Non-C&I Loans

C&I Loans

Note: Other assets includes government 

securities, ABS, and other trading assets.

0

5

10

15

20

25

0

5

10

15

20

25

1984 1989 1994 1999 2004 2009 2014 2019

Number of Insured 

Depository Institutions 

(right axis)

3.5.1.29 Total Assets of Largest Insured Depository Institutions

Trillions of US$ Count (‘000s)

Source: FFIEC Call Report

As Of: 2021 Q2

Top 11-100 IDIs (left axis)

Other IDIs (left axis)

Top 10 IDIs (left axis)

Note: Fourth quarter data was used for years 1984-

2020 and second quarter data was used for 2021.

3.5.1.30 U.S. Branches and Agencies of Foreign Banks: Assets

3.5.1.29 Total Assets of Largest Insured Depository Institutions over 50 percent and 82 percent of total industry 

assets, respectively (Chart 3.5.1.29). As of the 

second quarter of 2021, the total number of 

banks and savings associations decreased to 

4,951, which is a historical low.

3.5.1.3 U.S. Branches and Agencies of Foreign 

Banks

As of June 30, 2021, assets of U.S. branches and 

agencies of foreign banks totaled $2.6 trillion, 

accounting for roughly 11 percent of total 

U.S. banking assets. Following a first quarter 

increase, asset levels fell in the second quarter, 

leaving them little changed year-over-year 

(Chart 3.5.1.30). 

Reserve balances for U.S. branches and 

agencies of foreign banks totaled $794 billion 

and comprised 31 percent of total assets as of 

the second quarter of 2021. Reserve balances 

increased $154 billion or 24 percent from the 

prior year. While reserve balances decreased 

after the first quarter, they remain elevated 

compared to pre-pandemic levels. 

Reverse repos and fed funds sold at U.S. 

branches and agencies of foreign banks 

decreased by $26 billion or 8.6 percent from 

June 30, 2020 to June 30, 2021. Reverse repos 

represented 11 percent of total assets at U.S. 

branches and agencies of foreign banks, 

compared to 12 percent of total assets one year 

prior. The $26 billion reduction in reverse 

repos was partly driven by the relative level of 

repo rates versus interest on excess reserves, 

creating an incentive for firms to leave excess 

liquidity in reserves as opposed to reverse repo.

As of June 30, 2021, total loan balances 

accounted for approximately 30 percent of total 

assets at U.S. branches and agencies of foreign 

banks. Non-C&I lending constituted a slightly 

larger portion of overall lending than C&I 

lending, reversing a historic trend. Compared 

to June 30, 2020, C&I loans decreased $104 

billion or 21 percent. The year-over-year C&I 

loan decrease is a function of utilization rates 

and funded balances normalizing from elevated 

levels, reflective of customer pay downs. C&I 

loan balances are now roughly in line with 
Financial Developments 89

0

1

2

3

4

0

1

2

3

4

2004 2006 2008 2010 2012 2014 2016 2018 2020

3.5.1.31 U.S. Branches and Agencies of Foreign Banks: Liabilities

Trillions of US$ Trillions of US$

Source: Federal Reserve, 

Haver Analytics

As Of: 2021 Q2

Deposits & Credit Balances

Securities Sold with Repos & Fed Funds Purchased

Other Liabilities

Net Due to Related Depository Institutions

Note: Other liabilities includes transaction accounts, 

non-transaction accounts, and other borrowed money.

3.5.1.31 U.S. Branches and Agencies of Foreign Banks: Liabilities pre-pandemic trends. In addition, C&I loan 

origination generally remains muted, likely due 

to uncertainty in the economic outlook and 

related efforts to reduce risk exposures.

Deposits and credit balances represent 45 

percent of total liabilities for U.S. branches and 

agencies of foreign banks as of June 30, 2021 

(Chart 3.5.1.31). Deposits and credit balances 

remain virtually unchanged year-over-year 

but are elevated compared to pre-pandemic 

levels. Net due to related depository institutions 

decreased $31 billion or 5.9 percent from 

June 30, 2020. The year-over-year decrease is 

attributable to the elevated baseline level that 

was driven in part by substantial borrowing by 

foreign head offices at their central banks’ dollar 

auctions, largely funded via the Federal Reserve’s 

liquidity swap lines. These borrowings flowed 

downstream to U.S. branches and agencies of 

foreign banks during the initial pandemic stress 

to support local operations and meet dollar 

liquidity needs. Since then, funding from head 

offices decreased substantially as conditions 

improved. Securities sold with repos and federal 

funds purchased increased $44 billion or 8.8 

percent between June 30, 2020, and June 30, 

2021. Repos totaled 21 percent of total liabilities 

for U.S. branches and agencies of foreign banks 

and remain unchanged year-over-year.

3.5.1.4 Credit Unions 

Credit unions are member-owned, not-forprofit, depository institutions. As of the second 

quarter of 2021, there were 5,029 federally 

insured credit unions with aggregate assets of 

$1.98 trillion. 

The credit union industry currently serves 

just over 127 million members. The industry 

is dominated in number by institutions with 

relatively small financial footprints compared 

to other depositories. Nearly two-thirds of 

credit unions had assets under $100 million, 

and 22 percent of credit unions had assets 

under $10 million. There were 1,361 credit 

unions with assets between $100 million and $1 

billion, and 392 credit unions with assets over 

$1 billion. These smaller institutions account 

for the bulk of institutions but a very modest, 
90 2021 2021 FSOC // FSOC // Annual Report Annual Report

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0

50

100

-100

-50

0

50

100

2006 2008 2010 2012 2014 2016 2018 2020

Net Income

3.5.1.32 Credit Union Income

Billions of US$ Billions of US$

Source: NCUA

As Of: 2021 Q2

Noninterest Income

Net Interest Income

Note: Federally-insured credit 

unions. Values are annualized. 

Noninterest Expense

Provisions Realized Gains/Losses 

on Investments

3.5.1.32 Credit Union Income and shrinking, share of assets and members. 

For example, credit unions with less than $100 

million in assets account for 65 percent of the 

number of institutions but less than 5 percent of 

industry assets, while credit unions with more 

than $1 billion in assets account for 72 percent 

of system-wide assets and 67 percent of credit 

union members. Consolidation in the credit 

union industry has continued, particularly 

among smaller institutions, in line with longrunning trends among depository institutions. 

The COVID-19 pandemic has presented the 

credit union system with numerous challenges. 

However, the data show that the industry has 

remained on a relatively solid financial footing. 

Net income at consumer credit unions summed 

to $21 billion on an annualized basis in the 

second quarter of 2021, a sharp increase from 

just $9.4 billion over the same period in 2020 

(Chart 3.5.1.32). Strong income gains have 

been supported by sizeable declines in systemwide provisions for loan, lease, and credit loss 

expenses in recent quarters. Interest income 

declined $3.0 billion, or 4.9 percent, over the 

year to $58 billion, reflective of compressed 

margins due to continued low interest rates. 

The net interest margin among credit unions 

declined to 257 basis points from 288 basis 

points a year earlier. In contrast, non-interest 

income increased 24 percent over the year to 

$27 billion, mainly due to growth in other 

operating income, which includes income from 

the sale of residential mortgages. 

The amount of outstanding loans at credit 

unions increased by a moderate 5.0 percent 

over the year to nearly $1.2 trillion. That growth 

is down somewhat from the 6.6 percent pace 

recorded during the same period a year earlier. 

The average outstanding loan balance for a 

credit union member is currently $16,156. 

Credit union real estate loans, which represent 

roughly half of the credit union industry’s loan 

portfolio, increased 6.1 percent in the most 

recent four-quarter period, with a particularly 

strong gain in fixed-rate first mortgages. Auto 

loans, which represent one-third of the credit 

union loan portfolio, grew 3.9 percent over 
Financial Developments 91

the year ended June 30, 2021. Loans for new 

autos edged down over that period, but loans 

for used autos increased a solid 6.5 percent, 

a result of strong nationwide demand for 

preowned vehicles. Credit card loan balances 

edged down by 1.7 percent over the past year as 

many consumers, aided by government stimulus 

payments during the pandemic, paid off credit 

card debt. 

Despite the ongoing economic stresses of 

the pandemic, overall loan performance has 

been quite strong and has largely mirrored 

performance of consumer loan portfolios 

at other credit institutions. The system-wide 

delinquency rate stood at 46 basis points in 

the latest quarter, down 12 basis points from 

a year earlier. The delinquency rates on fixedrate real estate loans and auto loans stood at 

36 basis points and 31 basis points, respectively. 

The delinquency rate on credit cards, roughly 

5 percent of total credit union loans, was just 

77 basis points in the latest quarter, down 60 

basis points from early 2020. Income support 

from federal relief payments, enhanced 

unemployment benefits, and loan forbearance 

programs helped credit union members stay 

current on loan obligations. 

The credit union system experienced a return 

on average assets (ROAA) of 112 basis points at 

an annual rate in the second quarter of 2021, 

double the return recorded a year earlier. That 

strong rate of return is skewed toward the very 

largest institutions. The median ROAA across 

all federally insured credit unions was 46 basis 

points.

Based on a number of standard measures, 

smaller credit unions have continued to 

underperform larger credit unions. ROAA 

at the smaller institutions averaged just 33 

basis points on an annualized basis in the 

second quarter of 2021, while ROAA at credit 

unions with more than $1 billion in assets was 

127 basis points. At the same time, the loan 

delinquency rate for smaller credit unions was 

82 basis points in the second quarter of 2021, 

compared to 46 basis points at the $1 billionplus institutions.
92 2021 2021 FSOC // FSOC // Annual Report Annual Report

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60

70

80

90

100

50

60

70

80

90

100

2006 2008 2010 2012 2014 2016 2018 2020

3.5.1.33 Loans as a Percent of Total Deposits

Percent of Total Assets Percent of Total Assets

Source: NCUA

As Of: 2021 Q2

3.5.1.33 Loans as a Percent of Total Deposits One hallmark of the pandemic for financial 

institutions has been a surge in deposits due 

to multiple rounds of government stimulus 

payments and the sharp rise in the personal 

saving rate resulting from curtailed spending 

options stemming from COVID-19 restrictions. 

Credit unions have been no exception to this 

trend. Insured shares and deposits at credit 

unions increased $224 billion, or 15 percent, 

over the past year. With this influx of funds, the 

loan-to-share ratio at credit unions stood at 70 

percent in the second quarter of 2021, down 

from 76 percent a year earlier (Chart 3.5.1.33). 

The overall investment share of the asset side 

of credit union balance sheets stood at 22 

percent in the second quarter of 2021, up from 

18 percent a year earlier. Cash and equivalents 

(assets with a maturity of three months or less) 

rose 23.8 percent from a year earlier. The asset 

share of these liquid assets stood at 13 percent 

in the latest quarter, up from 10 percent at the 

onset of the pandemic. The increase in cash 

and equivalents, along with the general rise 

in share deposits, has fortified the liquidity 

position of credit unions during the pandemic. 

The industry-wide net worth ratio in the second 

quarter was 10.17 percent, a decrease of 29 basis 

points from a year earlier. A primary driver of 

this decline has been elevated share growth. 

However, the credit union industry remains well 

capitalized; under statutory guidelines, a credit 

union is considered “well capitalized” if it holds 

a net worth ratio at or above 7 percent, and 95 

percent of credit unions currently exceed this 

threshold. 

The pandemic remains ongoing, and the 

economic outlook is still somewhat uncertain. 

Despite very low delinquency rates, significant 

deterioration in loan outcomes is a material 

risk. In the past, macroeconomic shocks have 

affected industry loan performance only after 

a significant lag. Given the typical lag and 

the fact that the labor market still remains 

far from maximum employment, weakening 

loan performance is a distinct risk for the year 

ahead. Going forward, NCUA is focusing on 

ensuring that the credit union system and 
Financial Developments 93

0

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4

6

8

2005 2007 2009 2011 2013 2015 2017 2019 2021

5

10

15

20

25

3.5.2.3 Broker-Dealer Assets and Leverage

Trillions of US$ Ratio

Source: FINRA

As Of: 2021 Q2

Note: Leverage is the ratio of total 

assets to total regulatory capital. 

Total Assets (left axis) Leverage (right axis)

0

100

200

300

400

500

0

100

200

300

400

500

2009 2011 2013 2015 2017 2019 2021

3.5.2.2 Broker-Dealer Revenues and Net Income

Billions of US$ Billions of US$

Source: FINRA

As Of: 2021 Q2

Net Income

Total Revenue

3000

3500

4000

4500

5000

3000

3500

4000

4500

5000

2009 2011 2013 2015 2017 2019 2021

3.5.2.1 Number of Broker-Dealers

Number of Firms As Of: 2021 Q2 Number of Firms

Source: FINRA

3.5.2.3 Broker-Dealer Assets and Leverage

3.5.2.2 Broker-Dealer Revenues and Net Income

3.5.2.1 Number of Broker-Dealers the Share Insurance Fund are prepared to 

weather any remaining economic fallout related 

to the pandemic. The NCUA is encouraging 

its regulated credit unions to focus on the 

fundamentals of capital, asset quality, earnings 

and liquidity, particularly as certain temporary 

government assistance programs come to an end.

3.5.2 Nonbank Financial Companies

3.5.2.1 Securities Broker-Dealers

As of June 2021, there were approximately 3,500 

securities broker-dealers registered with the 

SEC, a decline of 1.6 percent from year-end 

2020, reflecting a steady decline since 2009 

(Chart 3.5.2.1). 

Broker-dealer aggregate revenues declined 

modestly in 2020 (Chart 3.5.2.2). Increases in 

underwriting, fees, and trading were offset by 

decreased interest income. However, declines in 

expenses, including decreased interest expense, 

led to an 85 percent increase in net income in 

2020. Net income was robust in the first half 

of 2021, totaling $52 billion compared to $85 

billion for the full-year 2020. 

Total assets in the U.S. broker-dealer industry 

increased to $5.2 trillion as of the second 

quarter of 2021 but were well below the peak 

of $6.8 trillion in 2007 (Chart 3.5.2.3). The 

U.S. broker-dealer sector remains relatively 

concentrated, with the ten largest brokerdealers accounting for over 50 percent of 

industry assets. Broker-dealer leverage, typically 

obtained through the use of secured lending 

arrangements such as repos and securities 

lending transactions, has held relatively steady 

since 2015. 
94 2021 2021 FSOC // FSOC // Annual Report Annual Report

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600

800

0

200

400

600

800

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

3.5.2.5 mREIT Financial Assets

Billions of US$ Billions of US$

Source: Federal Reserve, 

Haver Analytics

As Of: 2021 Q2

Agency & GSE-Backed Securities

Mortgages

Other

0

5

10

15

20

25

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1

2

3

4

5

2009 2011 2013 2015 2017 2019 2021

BHC Leverage (right axis)

FBO Leverage (right axis)

3.5.2.4 Broker-Dealer Assets and Leverage by Affiliation

Trillions of US$ Ratio

Source: FINRA

As Of: 2021 Q2

FBO Total Assets (left axis)

BHC Total Assets (left axis)

Note: Data covers BHC and FBO-affiliated 

broker-dealers that are among the 25 largest 

broker-dealers by assets at year-end 2020. 

3.5.2.5 mREIT Financial Assets

3.5.2.4 Broker-Dealer Assets and Leverage by Affiliation Most large U.S. broker-dealers are affiliated 

with U.S. BHCs, IHCs or FBOs. Among this 

group of broker-dealers, aggregate assets for 

BHC-affiliated broker-dealers have increased 

steadily since 2015 (Chart 3.5.2.4). The 

aggregate leverage ratio for large BHCaffiliated broker-dealers rose from 13.5 percent 

in the fourth quarter of 2019 to 14.2 percent in 

the second quarter of 2021, while the aggregate 

leverage ratio for large FBO-affiliated brokerdealers fell from 9.6 percent to 8.4 percent.

3.5.2.2 REITs

Real estate investment trusts (REITs) are 

companies that own or finance incomeproducing real estate across a range of property 

sectors. Broadly speaking, REITs can be broken 

down into two major categories: equity REITs, 

which typically own and operate incomeproducing real estate, and mREITs, which 

provide financing for purchasing or originating 

mortgages and MBS. mREITs can be further 

divided into agency mREITs, which invest in 

agency MBS, and non-agency mREITs, which 

invest in a broad range of mortgage-related 

assets. 

mREITs tend to deploy significantly more 

leverage than equity REITs, and the amount of 

leverage used by mREITs is largely dependent 

on the credit quality and liquidity of the 

underlying investments. mREITs typically 

fund their operations through the short-term 

repo markets, and the combination of high 

leverage and short-term borrowing can lead 

to considerable funding risk. In addition to 

funding risk, non-agency mREITs can be 

exposed to credit and liquidity risks. In normal 

market conditions, these risks typically do not 

extend to agency mREITs. 

mREIT financial assets, which fell sharply in the 

first quarter of 2020, have remained fairly stable 

over the past year (Chart 3.5.2.5). As of the 

second quarter of 2021, mREIT financial assets 

totaled $508 billion, with agency and GSEbacked securities accounting for 37 percent of 

financial assets. mREIT repo borrowing, which 

is often used to finance MBS spread trading, 

totaled $211 billion in the second quarter of 
Financial Developments 95

0

1

2

3

4

5

6

0

1

2

3

4

5

6

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

3.5.2.7 MMF Assets by Fund Type

Trillions of US$ Trillions of US$

Source: SEC

As Of: Sep-2021

Prime

Tax-Exempt

Government

Index As Of: 30-Sep-2021

3.5.2.6 REIT Stock Performance

25

50

75

100

125

150

175

25

50

75

100

125

150

175

Jan:2020 Jun:2020 Nov:2020 Apr:2021 Sep:2021

Index

Source: NAREIT, 

Bloomberg, L.P.

Note: Indexed to 100 as of year-end 2019; mREITs represents the FTSE 

Nareit Mortgage REITs Index; Equity REITs represents the FTSE Nareit

Equity REITs Index; Financials represents the S&P 500 Financials Subindex.

S&P 500

Financials

Equity REITs

mREITs

3.5.2.7 MMF Assets by Fund Type

3.5.2.6 REIT Stock Performance 2021, significantly below its pre-pandemic peak 

of $379 billion as of the fourth quarter of 2019. 

During the walling by nearly 70 percent 

between March 4 and April 3, 2020 (Chart 

3.5.2.6). Improved liquidity conditions in 

MBS markets have helped mREIT stock 

prices partially retrace their March 2020 

losses. Nevertheless, the recovery of mREIT 

stock prices stalled in mid-2021, which can be 

partially attributed to the flattening of the yield 

curve. In contrast to mREITs, equity REITs 

have retraced their pre-pandemic losses and, as 

of September 2021, the FTSE NAREIT Equity 

REITs Index was 6.5 percent above year-end 

2019 levels. Industrial and apartment focused 

REITs have led the recovery, while office, 

lodging, and retail focused REITs generally 

remain below pre-pandemic levels. 

3.5.2.3 Money Market Funds

MMFs are a type of mutual fund that are 

generally used by investors to manage their cash 

needs. SEC rules distinguish between retail 

MMFs, which are limited to individual investors, 

and institutional funds, which do not require 

investors to be natural persons. Retail MMFs 

and government MMFs may price their shares at 

a stable net asset value (NAV), while prime and 

tax-exempt institutional MMFs are required to 

price their shares at a floating NAV.

There has been a multiyear shift in assets from 

prime and tax-exempt MMFs to government 

MMFs since the implementation of MMF 

reforms in October 2016. This trend became 

more pronounced at the onset of the pandemic 

due to a shift in risk preferences by investors. 

While growth normalized over the rest of 2020, 

government MMF assets rose in 2021, driven by 

an increased preference for cash-like holdings 

among investors. Government fund assets were 

$4.1 trillion, or 81 percent of MMF assets as of 

September 2021 (Chart 3.5.2.7). 

In contrast to government MMFs, prime 

funds experienced large outflows in March 

2020, as structural vulnerabilities contributed 

to increased redemptions, while outflows 

continued at a more measured pace over the 
96 2021 FSOC // Annual Report

past year. Prime fund assets have declined by $122 

billion or 12 percent for the twelve months ended 

September 2021. A major driver of this decline 

is the conversion of prime MMFs to government 

MMFs. Challenges in maintaining attractive yields 

in a low-rate environment, renewed concerns about 

the riskiness of prime funds, and the possibility of 

future regulatory changes may also be contributing 

to declines in prime MMF assets. The PWG released 

a Report on MMFs in December 2020 that presented 

several options to mitigate the vulnerabilities of 

prime MMFs. In February 2021, the SEC issued 

a request for comment on this report. At the 

international level, the Financial Stability Board 

(FSB) released a report on policy proposals to 

enhance MMF resilience in October 2021, which is 

intended to inform any jurisdiction-specific reforms 

of its members. 

The asset composition of MMFs has shifted towards 

repo holdings over the past year. Repo assets of 

MMFs stood at $2.3 trillion in September 2021, 

accounting for 45 percent of total assets, compared 

to 21 percent of MMF total assets in September 

2020. This increase in repo assets has come even as 

MMFs have reduced their investments in sponsored 

repos, which are centrally cleared by FICC, to $92 

billion at the end of September 2021 from $272 

billion at the end of 2019. MMFs have significantly 

increased their investments in the Federal Reserve’s 

Overnight Reverse Repurchase Agreement Facility 

(ON-RRP). The ON-RRP is a supplementary policy 

tool used by the Federal Reserve to set the floor for 

money market rates and target the federal funds rate 

within the range set by the FOMC. MMFs generally 

place cash with the ON-RRP when better investment 

opportunities are not available. MMF take-up of 

the ON-RRP was around zero at the beginning of 

the year when the rate paid on investments was 

0.00 percent and reached a high of $1.4 trillion 

on September 30, 2021 after the rate was raised to 

0.05 percent in June. Recently, MMFs have received 

significant inflows as some banks take steps to 

limit deposit growth at the same time that a falling 

supply of Treasury bills has created fewer investment 

opportunities. 

MMFs remain significant investors in Treasury bills, 

despite low prevailing interest rates and decreased 

supply since the debt ceiling’s reinstatement at the 

end of July. As of the end of September 2021, MMFs 

directly held $1.7 trillion, or around 34 percent of 

total industry assets, in Treasury securities. 

Asset yields across all types of MMFs declined in 2021, 

following the path of short-term rates. For example, 

the average gross 7-day yield on prime institutional 

MMFs dropped to 0.09 percent in September 2021 

from 0.20 percent in September 2020. The difference 

between the MMFs’ gross and net yields, which 

represents total industry revenues, has declined 

sharply amid the fall in interest rates. The decline in 

revenues can be attributed to many MMF sponsors 

waiving their fees and reimbursing fund expenses to 

keep yields paid to investors above zero. 
Financial Developments 97

10

20

30

40

50

60

10

20

30

40

50

60

2011 2013 2015 2017 2019 2021

3.5.2.9 Weighted Average Maturities by Fund Type

Days Days

Source: SEC

Government

Prime

Tax-Exempt

As Of: Sep-2021

Note: Weighted by fund size.

10

20

30

40

50

60

70

10

20

30

40

50

60

70

2017 2018 2019 2020 2021

3.5.2.8 Liquid Asset Shares of Prime MMFs

Percent of Total Assets Percent of Total Assets

Source: SEC 

As Of: Sep-2021

Daily Liquid - Retail

Weekly Liquid - Retail

Daily Liquid - Institutional

Weekly Liquid - Institutional

3.5.2.9 Weighted Average Maturities by Fund Type

3.5.2.8 Liquid Asset Shares of Prime MMFs Daily and weekly liquid assets of prime MMFs 

remained well above regulatory minimums, 

though prime MMFs are nevertheless 

susceptible to runs as demonstrated in March 

2020. Prime institutional MMFs’ daily liquid 

assets (the share of assets convertible to cash 

within one business day) averaged 51 percent 

of assets in the last week of September 2021, 

around the same level reported in September 

2020 and substantially above the 10 percent 

required by SEC rules. Weekly liquid assets for 

prime institutional MMFs averaged 63 percent 

in September 2021, also at approximately the 

same level reported in September 2020 and well 

above the 30 percent minimum required under 

SEC rules (Chart 3.5.2.8). 

The sensitivity of funds to changes in market 

interest rates, as measured by the weighted 

average maturity (WAM) of fund assets, has 

declined in 2021 after having risen amidst the 

decline in interest rates at the onset of the 

COVID-19 pandemic. The recent decline in 

part reflects the change in the composition 

of assets towards overnight repo assets. WAMs 

remain well below the 60-day maximum 

permitted under SEC rules (Chart 3.5.2.9). 

One measure of the credit sensitivity of MMF 

portfolios, the weighted average life (WAL) of 

fund assets, has declined slightly over the past 

year. While the WAM is based on the date of 

the next interest repricing of each asset, the 

WAL is based on the final maturity date of 

assets. MMFs that have higher WALs are subject 

to increased risk when spreads rise. Average 

WALs have declined to 50 days in September 

2021 from 59 days in September 2020 for prime 

institutional funds, and from 101 days to 77 days 

for government funds over the same period. 

These averages were well below the 120-day 

maximum permitted under SEC rules.

Finally, the long-term trend towards 

consolidation in the MMF sector has continued 

in 2021. Over the last decade, the number 

of MMFs declined from 673 in November 

2010 to 314 in September 2021, including 189 

government MMFs, 61 tax-exempt MMFs, and 

64 prime MMFs. As of September 2021, the five 
98 2021 2021 FSOC // FSOC // Annual Report Annual Report

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50

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-25

0

25

50

2017 2018 2019 2020 2021

3.5.2.12 Monthly Equity Mutual Fund Flows

Billions of US$ Billions of US$

Source: ICI, Haver Analytics

As Of: Sep-2021

Note: Net fund flows.

-300

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200

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0

100

200

2017 2018 2019 2020 2021

3.5.2.11 Monthly Bond Mutual Fund Flows

Billions of US$ Billions of US$

Source: ICI, Haver Analytics

As Of: Sep-2021

Tax-Exempt

Taxable

Note: Net fund flows.

0

5

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15

20

25

30

35

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25

30

35

1980 1985 1990 1995 2000 2005 2010 2015 2020

3.5.2.10 Net Assets of the Investment Company Industry

Trillions of US$ As Of: 2021 Q3 Trillions of US$

Closed-End Funds

ETFs

Equity Mutual Funds

Bond/Hybrid Mutual Funds

MMFs

Source: ICI, Federal Reserve, SEC

UITs

Note: Excludes non ’40 Act ETPs. 

3.5.2.12 Monthly Equity Mutual Fund Flows

3.5.2.11 Monthly Bond Mutual Fund Flows

3.5.2.10 Net Assets of the Investment Company Industry largest MMF complexes managed 54 percent of 

total assets, up from approximately 46 percent 

at year-end 2015. 

3.5.2.4 Registered Investment Companies

Mutual Funds

Mutual funds are investment vehicles that pool 

money from many investors, invest in a variety 

of securities or assets, and give investors daily 

redemption rights. As of September 30, 2021, 

net assets of equity, bond, and hybrid mutual 

funds totaled $21.4 trillion, or approximately 65 

percent of total U.S. investment company assets. 

Over the past year, bond mutual funds have 

experienced steady inflows while equity 

mutual funds have experienced outflows. 

These developments are in line with trends 

that were in place before the pandemic but 

were interrupted in March 2020, when mutual 

funds experienced large outflows, including a 

record $255 billion from bond funds. Excluding 

MMFs, U.S. mutual funds’ net assets increased 

by 9.3 percent in the first nine months of 2021 

after increasing 12 percent in 2020 (Chart 

3.5.2.10). Overall, since April 2020, bond 

mutual funds have taken in $796 billion while 

equity funds experienced net redemptions of 

$855 billion, through September 2021 (Charts 

3.5.2.11, 3.5.2.12). 

Bank loan mutual funds, which are a subset 

of fixed income funds, offer investors daily 

redemptions and hold assets with lengthy 

settlement periods. Between November 2018 

and December 2020, cumulative outflows from 

bank loan mutual funds totaled $77 billion, or 

more than 55 percent of AUM. Outflows from 

bank loan funds surged dramatically in March 

2020, as the early days of the pandemic raised 

concerns that borrowers would be unable to 

service their debt in an economic downturn. 

During times of significant market stress, some 

assets may take longer to sell and settle than the 

redemption period offered to a fund’s investors. 

In 2021, expectations of the likelihood of future 

interest rate increases led to stronger interest 

in floating rate notes. Bank loan funds took 

in $26 billion in the first nine months of 2021, 
Financial Developments 99

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250

500

750

1000

1250

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250

500

750

1000

1250

2016 2017 2018 2019 2020 2021

3.5.2.15 Cumulative Fixed Income Fund Flows

Billions of US$ Billions of US$

Source: Morningstar, Inc.

As Of: Sep-2021

Note: Cumulative net fund flows. Includes 

taxable and municipal bond funds. 

Passively Managed ETPs

Actively Managed ETPs

Passively Managed Mutual Funds

Actively Managed Mutual Funds

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0

1000

2000

-2000

-1000

0

1000

2000

2016 2017 2018 2019 2020 2021

3.5.2.14 Cumulative Equity Fund Flows

Billions of US$ Billions of US$

Source: Morningstar, Inc.

As Of: Sep-2021

Passively Managed ETPs

Actively Managed ETPs

Passively Managed Mutual Funds

Actively Managed Mutual Funds

Note: Cumulative net fund flows. Includes U.S., 

international, sector, and nontraditional equity funds. 

-30

-20

-10

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20

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20

2017 2018 2019 2020 2021

3.5.2.13 Monthly Bank Loan and High-Yield Mutual Fund Flows

Billions of US$ Billions of US$

Source: Morningstar, Inc.

As Of: Sep-2021

Note: Net fund flows.

High-Yield

Bank Loan

3.5.2.15 Cumulative Fixed Income Fund Flows

3.5.2.14 Cumulative Equity Fund Flows

3.5.2.13 Monthly Bank Loan and High-Yield Mutual Fund Flows breaking the trend of outflows that had been 

in place for 26 consecutive months through 

December 2020. Meanwhile, high-yield bond 

mutual fund flows strongly recovered after 

March 2020 to post full-year 2020 net inflows of 

$33 billion but saw $4.0 billion in net outflows 

for the first nine months of 2021 (Chart 

3.5.2.13). 

Investors continued to move away from actively 

managed equity mutual funds and towards 

lower-cost, index-based equity funds and 

exchange traded products (ETPs). According to 

Morningstar, passively managed mutual funds 

and ETPs represented 51 percent of equity fund 

assets as of September 2021, up from 25 percent 

at year-end 2009. Since 2016, inflows to passively 

managed equity mutual funds and ETPs totaled 

a combined $1.9 trillion, while their actively 

managed counterparts saw outflows of $1.5 

trillion (Chart 3.5.2.14). Passively managed 

equity mutual funds, which saw steady inflows 

between 2016 and 2019, have experienced 

outflows since March 2020 with investors 

favoring passively managed ETPs. Between 

March 2020 and September 2021, passively 

managed equity mutual funds recorded net 

outflows totaling $116 billion while passively 

managed ETPs recorded $611 billion of net 

inflows. 

In contrast to actively managed equity funds, 

actively managed bond funds have continued 

to experience inflows (Chart 3.5.2.15). 

Nevertheless, passively managed funds continue 

to gain market share and as of September 

2021, passively managed bond mutual funds 

and ETPs represented 31 percent of bond fund 

assets, up from 12 percent at year-end 2009. 

Exchange-Traded Products 

Exchange-traded products include ETFs 

registered under the Investment Company 

Act of 1940 (Investment Company Act), ETPs 

registered with the CFTC as commodity 

pools that primarily hold commodities or 

physical metals, and exchange-traded notes. By 

September 2021, ETFs, which constitute most 

ETP assets, accounted for 20 percent of U.S. 
100 2021 2021 FSOC // FSOC // Annual Report Annual Report

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100

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-60

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20

60

100

2017 2018 2019 2020 2021

3.5.2.18 Monthly ETP Flows: Equity Funds

Billions of US$ Billions of US$

Source: Morningstar, Inc.

As Of: Sep-2021

Note: Net fund flows.

-40

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0

20

40

-40

-20

0

20

40

2017 2018 2019 2020 2021

3.5.2.17 Monthly ETP Flows: Fixed Income Funds

Billions of US$ Billions of US$

Source: Morningstar, Inc.

As Of: Sep-2021

Tax-Exempt

Taxable

Note: Net fund flows.

0

2

4

6

8

0

2

4

6

8

2009 2011 2013 2015 2017 2019 2021

3.5.2.16 ETP Assets by Category of Investment

Trillions of US$ Trillions of US$

Source: Morningstar, Inc.

As Of: Sep-2021

Equity

Fixed Income

Commodities

Other

3.5.2.18 Monthly ETP Flows: Equity Funds

3.5.2.17 Monthly ETP Flows: Fixed Income Funds

3.5.2.16 ETP Assets by Category of Investment investment company assets, up from 12 percent 

in 2015 and 7.6 percent in 2010. 

ETPs continue to grow at a faster pace than 

many other SEC-registered investment vehicles. 

After rising 24 percent in 2020, ETP assets rose 

a further 21 percent over the first nine months 

of 2021, settling at $6.6 trillion in September 

2021 (Chart 3.5.2.16). 

In contrast to mutual funds, both equity and 

fixed income ETPs have experienced relatively 

steady net monthly inflows over the last few 

years. The most significant exception came at 

the onset of the COVID-19 pandemic, when 

fixed income ETPs experienced record monthly 

outflows, totaling $21 billion or 2.3 percent of 

assets. Following the immediate dislocation 

caused by the COVID-19 pandemic, the market 

stabilized and fixed income ETPs experienced 

inflows totaling $356 billion between April 2020 

and September 2021 (Chart 3.5.2.17). Despite 

the March 2020 market turmoil, equity ETP 

flows remained positive, totaling $16 billion in 

March and $664 billion between April 2020 and 

September 2021 (Chart 3.5.2.18). 
Financial Developments 101

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10

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-5

0

5

10

2017 2018 2019 2020 2021

3.5.2.19 Monthly Inverse and Leveraged ETP Flows

Billions of US$ Billions of US$

Source: Morningstar, Inc.

As Of: Sep-2021

Inverse

Leveraged

Note: Net fund flows.

3.5.2.19 Monthly Inverse and Leveraged ETP Flows Inflows to leveraged and inverse ETPs spiked 

in March and April 2020 amid heightened 

market volatility associated with the onset of the 

COVID-19 pandemic and leveled off thereafter, 

continuing into 2021 (Chart 3.5.2.19).

The industry remains concentrated, as the 

three largest managers account for over 78 

percent of ETP assets, and the top ten managers 

account for 93 percent. Over the first nine 

months of 2021, the number of available ETPs 

increased 12 percent in addition to the 2.0 

percent increase in 2020. 

Actively managed ETPs are a small but growing 

part of the industry. Active ETPs attracted 

11 percent of all ETP inflows in the first nine 

months of 2021, despite holding only 3.3 

percent of all ETP assets as of year-end 2020. 

During this period, sponsors launched 211 new 

active ETPs, compared to 122 passive ETPs.
102 2021 FSOC // Annual Report

Intermediation between borrowers and savers in 

the U.S. economy occurs both through the banking 

system and through a variety of nonbank financial 

institutions (NBFIs). These intermediation activities 

provide essential funding that underpins the U.S. 

economy. However, the acute financial market stress 

that occurred in March 2020 highlighted the potential 

for NBFIs to amplify liquidity pressures in the financial 

system. The Council is evaluating the vulnerabilities 

posed by three types of NBFIs: MMFs, open-end 

mutual funds, and hedge funds. 

Money Market Funds

As a key participant in short-term funding markets, 

MMFs provide funding for businesses, local 

governments, and other market participants in 

support of the U.S. economy. Stresses in shortterm funding markets can therefore impact other 

economically significant borrowers and the broader 

economy. Some types of MMFs may amplify stresses 

in short-term funding markets because of the liquidity 

transformation they engage in. Many MMF investors 

have a low tolerance for principal losses and liquidity 

restrictions and use MMFs as a cash management 

tool. MMFs offer shareholder redemptions on 

at least a daily basis, even though a potentially 

significant portion of portfolio assets may not be 

easily converted into cash within a day without a 

reduction in value. If a MMF does sell portfolio assets 

at a discount, the fund’s remaining shareholders 

generally bear those losses. These factors can lead 

to greater redemptions if investors believe they will be 

better off by redeeming earlier than other investors—a 

so-called “first mover” advantage—when there is a 

perception that the fund may suffer a loss in value 

or liquidity. While a fund’s board of directors can 

generally impose fees or gates on redemptions if 

weekly liquid assets comprise less than 30 percent 

of total assets, approaching this threshold may itself 

spark widespread redemptions. 

In March 2020, in response to escalating concerns 

about the economic impact of the pandemic, 

market participants liquidated risky assets in favor 

of low-risk liquid holdings. These liquidity pressures 

affected prime and tax-exempt MMFs through intense 

redemption requests and a drop in assets under 

management (see Section 3.5.2.3). Affected MMFs 

experienced significant redemptions that, through 

the sale of assets to meet redemptions, contributed 

to dislocations in short-term funding markets. 

While no MMFs imposed fees or gates or failed to 

meet redemptions during this time, MMF outflows 

contributed to a rapid deterioration of conditions in 

short-term funding markets that prompted the official 

sector to provide support. On March 18, 2020, the 

Federal Reserve, with Treasury approval, established 

the MMLF with $10 billion of credit protection from 

Treasury’s Exchange Stabilization Fund. The facility 

was designed to assist prime and tax-exempt MMFs 

in meeting demands for redemptions and enhance 

overall market functioning and the provision of credit 

to households, businesses, and municipalities. In 

part due to the establishment of this facility, outflows 

from prime and tax-exempt MMFs subsided and 

conditions in short-term funding markets improved, 

supporting access to credit and the recovery in 

market conditions and economic activity. 

In response to this episode, the PWG released 

the Overview of Recent Events and Potential 

Reform Options for Money Market Funds (PWG 

Report) in December 2020. The PWG Report on 

MMFs described potential policy measures while 

not recommending a specific course of action. 

The PWG Report on MMFs emphasized that future 

reforms should, individually or in combination, 

address structural vulnerabilities in MMFs, improve 

the resilience and functioning of short-term funding 

markets, and reduce the likelihood that official-sector 

interventions and taxpayer support will be needed 

to halt future MMF runs and address stresses in 

short-term funding markets more generally. The SEC 

published a request for public comment on potential 

policy measures and briefed the Council on the 

comments it received. The Council is supportive of 

Box C: Nonbank Financial Intermediation & Council Initiatives
Financial Developments 103

Box C: Nonbank Financial Intermediation & Council Initiatives (continued)

the SEC’s engagement and will continue to monitor 

this initiative in the broader context of efforts by 

financial regulators to strengthen short-term funding 

markets and support orderly market functioning, 

including during periods of heightened market stress.

Open-End Mutual Funds

Open-end mutual funds may also pose a vulnerability 

by amplifying asset liquidation pressures. Openend funds allow investors to redeem shares daily at 

NAV, with payment of redemption proceeds required 

within seven days, though settlement typically occurs 

within two trading days. If these funds invest in assets 

with less liquidity or longer settlement periods, they 

are engaging in liquidity transformation. Open-end 

funds process buy and sell orders at NAV as of the 

next market close, a practice known as forward 

pricing. This NAV may not consider all transaction 

costs associated with a redemption, including 

market impact and trading costs, if such costs have 

not yet been incurred. Instead, these costs may be 

passed on to the remaining investors in the fund 

and could give rise to a first-mover advantage. This 

effect may be more significant for open-end funds 

invested in relatively less-liquid assets. As a result, 

the vulnerability posed by open-end funds is that they 

may amplify asset liquidation pressures when facing 

large outflows.

At the onset of the pandemic, open-end funds, 

particularly those focused on fixed income, 

experienced significant outflows. While funds 

generally managed their liquidity and no fund 

suspended redemptions, their liquidity needs may 

have contributed to broader market stress. Further 

study is needed to understand how funds managed 

their liquidity during this period.

The Council has established the Open-End Fund 

Working Group, an interagency staff level working 

group, to consider the risks posed to financial stability 

arising from open-end fund liquidity and redemption 

features. The group will evaluate whether additional 

action is necessary and may formulate and present 

recommendations to the Council as appropriate.

Hedge Funds

Hedge funds are not subject to regulatory liquidity 

guidelines and therefore may invest in assets 

of varying liquidity profiles, consistent with their 

disclosures to investors. They may also restrict 

investors’ ability to redeem, which may better align 

investor liquidity with asset liquidity. 

However, hedge funds are also not subject to the 

leverage restrictions imposed on MMFs and openend funds. While actual risk exposure depends on 

various factors, leverage can magnify the impact of 

asset price movements on a fund’s net assets and 

performance. If faced with collateral or margin calls 

due to significant changes in asset prices, a hedge 

fund may be forced to sell assets to satisfy those 

demands. Assets purchased with borrowed shortterm funds may be particularly vulnerable to selling 

pressure in stress conditions if short-term borrowing 

becomes unavailable and positions need to be 

unwound quickly. A disorderly liquidation of positions 

could in turn have a significant price effect on assets, 

and potentially impact previously unaffected market 

participants. Additionally, the exposures created by 

leverage establish interconnections to other market 

participants through which financial stress could be 

transmitted to the broader financial system.

Prior to the pandemic, borrowing and the use of 

leverage increased among the most leveraged hedge 

funds. At the same time, hedge funds increased 

their exposures to U.S. Treasuries, as some funds 

employed trading strategies designed to exploit 

pricing discrepancies between products or securities 

that tended to trade with very high correlation. In 

March 2020, some funds sold assets in order to 

reduce their leverage, which may have amplified price 

declines in certain markets, including the Treasury 

market. Overall, funds markedly reduced their 

exposures to Treasuries and interest rate derivatives. 
104 2021 2021 2021 FSOC // FSOC // FSOC // Annual Report Annual Report Annual Report

Box C: Nonbank Financial Intermediation & Council Initiatives (continued)

Like other market participants, hedge funds likely 

benefited from the extraordinary official sector 

interventions to stabilize markets. 

Partly in response to the March 2020 market turmoil, 

the Council reestablished the Hedge Fund Working 

Group (HFWG). A primary objective of the HFWG is 

to update the Council’s assessment of potential risks 

to financial stability from hedge funds, their activities, 

and their interconnections with other market 

participants. The HFWG will also seek to establish a 

risk monitoring framework to identify potential risks to 

financial stability and communicate these risks to the 

relevant regulatory agencies.
Financial Developments 105

3.5.2.20 Hedge Fund Gross and Net Assets

1.0

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Leverage: GAV/NAV 

(right axis)

3.5.2.20 Hedge Fund Gross and Net Assets

Trillions of US$ Leverage

Source: SEC Form PF, OFR

As Of: 2021 Q1

Net Assets (left axis)

Gross Assets (left axis)

Note: Qualifying Hedge Fund gross and net assets 

as reported on Form PF Questions 8 and 9. 

3.5.2.5 Alternative Funds

Hedge Funds

Approximately 1,850 hedge funds and 570 

hedge fund advisers have enhanced Form PF 

reporting requirements with the SEC. These 

large, qualifying hedge funds have an aggregate 

NAV of $3.7 trillion in the first quarter of 2021. 

This represents a 28 percent increase from the 

first quarter of 2020. The gross asset value (GAV) 

of qualifying hedge funds—which reflects the 

effect of leverage obtained through cash and 

securities borrowing—totaled $7.1 trillion, a 14 

percent increase year-over-year (Chart 3.5.2.20). 

There are various measures of aggregated 

leverage for hedge funds, including measures 

of off-balance sheet exposures. GAV divided by 

NAV, which stood at 2.2 in the first quarter of 

2020, fell to 1.9 as of the first quarter of 2021. 

The mean gross leverage ratio for qualifying 

hedge funds, as measured by gross notional 

exposure (GNE) divided by NAV, was 5.1 in the 

first quarter of 2021, down from 5.2 in the first 

quarter of 2020. When interest rate derivatives 

are excluded, the mean qualifying hedge fund 

GNE/NAV leverage ratio was 3.1, unchanged 

from the first quarter of 2020. 

The aggregate level of hedge fund borrowing 

has increased significantly in recent years. 

As of the first quarter of 2021, hedge fund 

borrowing totaled $3.2 trillion, up from $2.1 

trillion at year-end 2016. Over this same period, 

repo borrowing grew from $0.7 trillion to $1.0 

trillion while prime broker borrowing grew 

from $1.1 trillion to $1.7 trillion. 

Hedge funds deploy a wide range of strategies 

and are invested in various products and asset 

classes. As of the first quarter of 2021, qualifying 

hedge funds’ GNE totaled $24 trillion, of which 

$15 trillion, or 64 percent, were attributed to 

rates products (interest rate derivatives, U.S. 

government debt, repo, and other sovereign 

debt) or foreign exchange (FX) products. Equity 

and credit products accounted for 27 percent of 

GNE, and all other asset classes accounted for 

the remaining 9 percent of exposures. 
106 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

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2000

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3000

2005 2008 2011 2014 2017 2020

3.5.2.21 Private Equity AUM

Billions of US$ Billions of US$

Source: Preqin

As Of: 31-Dec-2020

Unrealized Value

Dry Powder

3.5.2.21 Private Equity AUM According to eVestment data, which covers a 

smaller percentage of the hedge fund industry 

when compared to Form PF, the hedge fund 

industry experienced net outflows of $59 

billion, or roughly 2 percent of AUM in 2020 

and net inflows of $30 billion, or 1 percent 

of AUM, over the first nine months of 2021. 

Outflows in 2020 were concentrated in macro, 

directional credit, and long-short equity hedge 

funds. These categories reported outflows of 

approximately $48 billion in 2020 and a further 

$15 billion in the first nine months of 2021. 

After experiencing sizable outflows in 2019 and 

2020, multistrategy funds saw $20.7 billion of 

inflows in the first nine months of 2021. Eventdriven funds continued to experience strong 

inflows, reporting inflows of $6.0 billion in the 

first six months of 2021. Hedge fund returns, as 

provided by the Hedge Fund Research’s HFRI 

Fund Weighted Composite Index, stood at 11.8 

percent in 2020 and 9.7 percent year-to-date 

through September 30, 2021. 

Private Equity

According to the SEC’s most recent Private 

Funds Statistics Report, the GAV of private 

equity funds in the United States totaled $4.8 

trillion in the first quarter of 2021, a 27 percent 

increase from the first quarter of 2021. The 

funds’ NAV totaled $4.3 trillion, a 26 percent 

increase over that same period. These figures 

cover over 15,000 private equity funds, for 

which over 1,400 private equity advisers filed 

information on Form PF. Data from Preqin, 

which covers less of the industry but provides 

a longer time series for comparison, shows 

the significant growth in the private equity 

industry over the last several years (Chart 

3.5.2.21). Between year-end 2015 and year-end 

2020, private equity AUM roughly doubled, a 

significantly higher growth rate relative to the 

preceding five years when private equity AUM 

grew by approximately 25 percent. The recent 

growth of the industry can be largely attributed 

to capital fundraising by private equity 

managers. Between 2016 and 2020, managers 

raised $1.4 trillion compared to $650 billion 

between 2011 and 2015. 
Financial Developments 107

0

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200

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0

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100

150

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250

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

YTD

3.5.2.22 M&A Loan Volume for Private Equity-Backed Issuers

Billions of US$ Billions of US$

Source: S&P LCD

As Of: 30-Sep-2021

LBO

Non-LBO

3.5.2.22 M&A Loan Volume for Private Equity-Backed Issuers The private equity industry remains 

concentrated. Among private equity advisers 

filing Form PF—which are defined as those 

with $2 billion or more in AUM—large private 

equity advisers made up 25 percent in first 

quarter of 2021 and managed 76 percent of 

gross assets. Pension funds are the largest 

beneficial owners of funds managed by large 

private equity advisers, accounting for 28 

percent of net assets; other private funds 

account for 20 percent, foreign official sector 

investors account for 12 percent, and insurance 

companies account for 5.8 percent. 

Acquisition-related activity backed by private 

equity trended upwards from 2015 to 2018, 

peaking at $230 billion in 2018, before slowing 

in 2019 to $150 billion (Chart 3.5.2.22). Private 

equity merger and acquisition (M&A) activity 

fell dramatically at the onset of the pandemic, 

with sponsored M&A loan volume totaling 

just $4 billion between March and May 2020 

compared to $36 billion over the same period 

in 2019. Private equity M&A activity has since 

picked up considerably, totaling $217 billion 

year-to-date through September 30, 2021. 

Leveraged buyouts (LBOs) accounted for 68 

percent of private equity M&A activity in 2021 

compared to 62 percent of M&A activity over 

the preceding ten years. 

Private equity managers are major participants 

in private debt markets, which primarily involve 

direct lending to borrowers backed by private 

equity sponsors. Private equity activity in private 

debt markets also includes real estate loan 

origination and asset-based lending. Between 

year-end 2015 year-end 2020, global private debt 

AUM roughly doubled to over $1 trillion. The 

growth in private debt has been partly fueled 

by the retreat of banks from certain lending 

activities coupled with search for yield by 

institutional investors. Private equity’s increased 

involvement in private debt has been a factor in 

its recent emergence and expansion in the U.S. 

life insurance industry. Some private equity 

firms are acquiring life insurers or assuming 

life business (through owned reinsurers), in 

order to access and leverage long-term assets. In 
108 2021 FSOC // Annual Report

addition to supporting the private credit business of 

their private equity firm owners such arrangements 

may also generate investment management 

fee income. This intersection may increase 

interconnectivity among nonbank lenders, insurers, 

and the broader financial sector while exposing a 

growing investor base to lending activities that may 

be subject to less regulatory scrutiny.
Financial Developments 109

Archegos Capital Management was a family office 

that failed in March 2021, causing several large 

financial institutions to incur material losses. While 

Archegos’ failure did not pose a risk to financial 

stability, potential spillovers might have been more 

significant if the failure had occurred during a period 

of market stress. The episode highlighted potential 

deficiencies in counterparty credit risk management 

and margining practices. In addition, the episode 

highlighted gaps in transparency regarding the 

security-based swap market, and also served as a 

reminder of the limited visibility into the activities and 

leverage of private investment vehicles. 

Background

Archegos was established as a family office in 

2012 to manage the assets of a former hedge fund 

manager.4 In addition to holding long positions in 

cash securities, Archegos gained exposure, and 

additional turns of leverage, through the use of OTC 

equity derivatives, including total return swaps. From 

June 2020 leading up to its default, the office’s gross 

market value grew rapidly amid strong performance 

of the underlying securities. Its exposures were 

concentrated in a limited number of U.S. and Chinese 

technology and media companies. 

Beginning on March 22, 2021, price declines in 

certain stocks to which Archegos was exposed 

triggered significant margin calls. Two days later, 

Archegos notified its counterparties that it was unable 

to meet additional margin calls.5 After negotiations 

for an orderly wind down failed, Archegos’ 

counterparties issued notices of default and began 

liquidating their separate positions. These largescale liquidations exacerbated the price declines in 

a number of stocks, wiping out $35 billion in market 

capitalization in a single day. 

Archegos’ failure ultimately led to over $10 billion 

in counterparty credit losses across multiple large 

financial institutions. Losses were particularly 

concentrated at Credit Suisse and Nomura, which 

reported losses of $5.5 billion and $2.9 billion, 

respectively. While Morgan Stanley avoided major 

losses by unwinding some of Archegos’ positions 

before the default event and thus materially reducing 

its exposures to Archegos and the stocks in its 

portfolio, it still reported a loss of nearly $1 billion. 

Counterparty Credit Risk Management and Margining 

Practices

Archegos’ failure highlighted potential deficiencies in 

counterparty credit risk management and margining 

practices at large financial institutions. Reports have 

noted weak margining practices by at least one of 

Archegos’ counterparties that allowed Archegos 

to take on excessive leverage and amplify losses.6

Because of static margining at the firm, Archegos did 

not have to increase its margin as the value and risk 

of its position grew, even while it received variation 

margin when the underlying value of the securities 

increased. Figure D.1 provides an illustration: as the 

value of a security increases from $100 to $140, the 

holder of the swap receives $40 of variation margin 

payments while its $20 of initial margin is unchanged. 

The result is known as margin erosion, as the equity 

position provided by the initial margin falls from 20 

percent to 14.3 percent. In the case of Archegos, by 

December 2020, its average swap margins at Credit 

Suisse had fallen to just 6.9 percent under the static 

margining method.7 While dynamic margining models 

Box D: Failure of Archegos Capital Management

US$

0

40

80

120

160

0

40

80

120

160

Share Price at Inception $40 Increase in Share Price

Position size: $100

Initial margin

$20 = 14.3%

Initial margin

$20 = 20%

Position size: $140

$40 variation 

margin paid

Financed: $80 Financed: $120

D.1 Static Margin Model Example

US$

D.1 Static Margin Model Example
110 2021 FSOC // Annual Report

Box D: Failure of Archegos Capital Management (continued)

might have provided better risk management, it is 

important to note that dynamic models must also be 

appropriately calibrated in terms of risk coverage and 

severity. 

The episode also highlighted that margining practices 

should be accompanied by close monitoring 

of a client’s aggregate portfolio composition, 

concentration, and exposures to other firms. 

According to earnings calls and news media reports, 

some firms were not aware of the positions Archegos 

had taken with other firms. These reports have also 

suggested that a number of firms are reviewing 

their stress testing methodologies in response 

to the episode. Finally, at least at one firm, other 

contributing factors included a lack of stature in 

independent second line of defense risk management 

functions, poorly defined communication channels or 

escalation protocols, or red flags that were ignored 

despite multiple and persistent breaches of shortfall 

limits of counterparty stress tests.8 Notably, Archegos 

also had a history of risky and improper behavior, 

including insider trading charges relating to its key 

official. 

Security-Based Swaps 

At the time of Archegos’ failure, there was no 

requirement to report security-based swaps to a 

swap data repository (SDR). Consequently, there 

was little reliable data available to counterparties or 

regulators on the buildup of Archegos’ equity swap 

positions. Additionally, the lack of public reporting 

on security-based swaps meant that Archegos’ 

counterparties were unaware of the amount of swaps 

written on a select number of equity securities. 

The SEC had adopted rules related to securitybased swaps to increase transparency and reduce 

risks in this market, but these rules had not been 

fully implemented at the time of Archegos’ failure. 

Security-based swap dealers and major securitybased swap participants began registering with 

the SEC on October 27, 2021. The registration 

requirements include new counterparty protections, 

requirements for capital and margin, and internal 

risk management requirements. Additionally, new 

post-trade transparency rules went into effect on 

November 8, 2021 and require security-based swap 

transaction data to be reported to an SDR. SDRs 

will be required to disseminate data about individual 

security-based swap transactions to the public by 

February 22, 2022. 

Family Offices

As a family office, Archegos was not subject to the 

Investment Advisers Act of 1940 (Advisers Act) by 

statute, and therefore did not make certain regulatory 

filings. As a result, regulators have limited direct 

insight into family offices’ portfolios, leverage, or 

counterparty exposures, though firms that deal with 

family offices can request such information in the 

course of their business relationships. The Archegos 

episode demonstrated the potential importance of 

high frequency and granular information of this kind 

in order to understand the activities and leverage 

of private investment vehicles, including some 

family offices. While the typical family office uses 

leverage sparingly, the Archegos event highlighted 

the potential for the accumulation and management 

of large, complex, and highly leveraged portfolios to 

occur with limited regulatory reporting. 
Financial Developments 111

3.5.2.6 Pension Funds

Defined benefit pension plans are significant 

holders of financial assets. As of the second quarter 

of 2021, total pension fund entitlements funded 

by assets of U.S. private and public defined benefit 

pensions were $11 trillion, 16 percent higher than 

one year earlier. At the same time, defined benefit 

pension fund entitlements rose to nearly $17 trillion, 

a 2.7 percent increase compared to the second 

quarter of 2020. 

Sponsors of pension plans strive to keep pace 

with the benefits owed to beneficiaries. However, 

sustained, low interest rates may decrease the 

income produced by debt securities and increase the 

present value of pension liabilities, generating large 

funding deficits. Although sponsors may respond 

to growing shortfalls by increasing contributions, 

they often respond by increasing the risk profile of 

their asset allocations. Already experiencing large 

deficits in recent years, public pension plans have 

significantly increased their allocations to illiquid 

asset classes, such as hedge funds, private equity 

funds, and real estate. While sudden redemptions 

are generally rare as retirement cohorts are typically 

more predictable, plans could be forced to sell assets 

at depressed prices, further stressing their financial 

position.

It is difficult to analyze the direct impact of the 

COVID-19 pandemic on defined benefit pension 

plans in the aggregate because the disclosure 

requirements differ between single-employer private 

plans, multiemployer plans, and public plans. For 

example, disclosures concerning a defined benefit 

pension plan’s return assumptions and investment 

strategies may have a different level of granularity, 

be in a different format, and cover a different period 

than disclosures concerning similarly situated funds. 

However, some indirect effects of the pandemic can 

be seen in that some sponsors of public pension 

plans have announced significant pension plan 

contributions in 2021 and 2022 given the sponsors’ 

improved financial positions. Additionally, the 

ARP Act of 2021 allows certain financially troubled 

multiemployer plans to apply for special financial 

assistance.

Single-Employer Private Plans 

According to the Milliman Corporate Pension 

Funding Study, the funded ratio of the 100 largest 

single-employer private defined benefit plans rose to 

88.4 percent as of year-end 2020, compared to 87.5 

percent as of year-end 2019. The funded percentage 

of a plan is its assets relative to the estimated value 

of plan liabilities. Milliman estimates that the 100 

largest corporate defined benefit pension plans in 

the United States had an aggregate funded ratio of 

97.2 percent at the end of September 2021.

Multiemployer Plans 

Milliman estimates that the aggregated funded 

percentage of multiemployer private defined 

benefit plans as of June 30, 2021 was 92 percent, up 

from 88 percent at year-end 2020. While the 2019 

Pension Benefit Guaranty Corporation (PBGC) 

report estimated that PBGC’s Multiemployer 

Program would likely become insolvent in fiscal year 

2026, new projections that reflect the enactment 

of the ARP Act and associated assistance now 

estimate insolvency to occur outside of the ten-year 

projection period, with a mean projection year of 

2055.

Public Plans 

According to Milliman, the aggregate funded 

status of the 100 largest U.S. public defined benefit 

plans in June 2021 was 82.6 percent, up from 71 

percent in June 2020. In addition, public pension 

fund sponsors are permitted to assume investment 

returns based on their own long-run expectations by 

the relevant accounting rules. Accordingly, pension 

funds that do not meet their assumed return may 

be overstating their current funded status. These 

return assumptions may be higher than recent 

average investment returns, and, in recent years, 

several large public pension funds have revised longterm investment return expectations downward. 

According to the Center for Retirement Research 

at Boston College, the aggregate ratio of assets to 

liabilities for public plans rose from 72.8 percent to 

74.7 percent between June 2020 and June 2021. The 

average actuarially determined contribution was 

estimated to rise from 21.3 percent to 22.0 percent 

of payroll in this same period.
112 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

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80

100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

3.5.2.24 Insurance Industry Net Income

Billions of US$ Billions of US$

Source: NAIC

As Of: 2020

Health

Life

P&C

3.5.2.24 Insurance Industry Net Income

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

2002 2005 2008 2011 2014 2017 2020

3.5.2.23 Public Plan Allocation to Alternative Assets

Percent As Of: 2020 Percent

Source: publicplansdata.org

Real Estate

Other Alternative

Private Equity

Hedge Fund

Note: Includes public plans that reported investment 

allocations from 2002-2020. Simple average. 

3.5.2.23 Public Plan Allocation to Alternative Assets Underfunded public pension funds are a 

significant source of fiscal pressure on several 

U.S. states, territories, and municipalities. 

Seventeen large pension funds were less than 60 

percent funded as of June 30, 2021. To increase 

expected returns and meet benefit obligations, 

public pension funds have steadily increased 

their exposure to alternative assets for years 

(Chart 3.5.2.23). 

3.5.2.7 Insurance Companies

The insurance industry provides an array of 

important financial services to individuals 

and businesses in the United States. The 

U.S. insurance industry is composed of 

approximately 4,500 operating insurance 

companies, of which approximately 2,600 

are licensed as property and casualty (P&C) 

carriers, 1,200 are licensed as health insurers, 

and 700 are licensed as life insurance 

companies. Many of these are affiliated through 

common ownership in the form of a holding 

corporation or parent insurance company. 

P&C and life insurance companies are 

significant sources of capital for the economy 

and are among the largest investors in several 

key asset classes. According to the Financial 

Accounts of the United States compiled by 

the Federal Reserve, P&C and life insurance 

companies are the largest investors in corporate 

and foreign bonds. As of the second quarter 

of 2021 they hold $4.2 trillion, or 27 percent, 

of outstanding bonds. Insurance companies 

are also major investors in mutual funds and 

equities, with holdings of $1.8 trillion and $1.0 

trillion, respectively. 

All three industry sectors reported positive 

net income in 2020, with results broadly 

comparable to the previous year (Chart 

3.5.2.24). The following sections provide an 

overview of the performance of each insurance 

sector in view of the COVID-19 pandemic.

U.S. Life Insurance Industry 

The COVID-19 crisis negatively impacted 

the operating performance of life insurance 

companies, mainly through higher claims, 

lower product sales, and, to a lesser extent, the 
Financial Developments 113

effects of lower sustained interest rates that resulted 

in spread compression and actuarial assumption 

“true ups” of reserves for interest-sensitive products. 

Credit conditions improved following the March 2020 

market stress, largely due to Federal Reserve actions 

that improved consumer and business confidence, 

helping to stabilize credit markets and averting severe 

funding strains and widespread losses. 

On the asset side, anticipated credit impairments 

did not occur in asset classes such as corporate 

bonds, CRE, CLOs, and other alternative 

investments. Although corporate bond downgrades 

caused some deterioration in the quality of 

insurance company investment portfolios, this 

resulted in only modest changes in the composition 

of insurance company bond portfolios. 

On the liability side, the pandemic resulted in 

increased reserves to reflect higher expected 

mortality and morbidity rates. However, life insurers 

benefitted from results of annuity, health, and longterm care products. Life insurers’ dependence on 

non-traditional liabilities, notably funding from the 

FHLBs, has grown significantly since the onset of 

the pandemic. The single largest FHLB client is now 

a life insurance company.

The low interest rate environment continues to 

present significant challenges to the U.S. life 

insurance subsector. Over the past years some life 

insurance companies have increased investments 

in less liquid, more complex, and higher credit 

risk assets in a “reach for yield.” As an example, 

some life insurers have increased their exposure to 

alternative investments such as private equity funds. 

Low interest rates also affect a life insurer’s reserves 

and, in turn, its capital. Persistently low rates could 

continue to pressure life insurers’ earnings as 

maturing bonds are reinvested at lower rates and 

may spur increased investments in illiquid assets 

with higher credit risk. Life insurance companies 

hedge against changes in interest rates, but the 

continuation of low interest rates may spur the exit 

of more incumbent insurers from some lines of 

insurance. Low interest rates have also contributed 

to increased instances of private equity firms (which 

generally have expertise in investing in higher 

credit risk assets) acquiring U.S. life insurance 

companies or assuming blocks of life insurance 

business through reinsurance agreements. Such 

business acquisitions align with the business models 

of private equity firms, that is, seeking to create 

incremental yield, leveraging in-house private 

credit expertise, leveraging offshore reinsurance 

operations, and generating investment fee income.

U.S. P&C Insurance Industry 

The initial worst-case scenario loss estimates for 

the P&C subsector as a result of the pandemic did 

not materialize in 2020. P&C insurers experienced 

pandemic-related losses in multiple lines, including 

business interruption, event cancellation, travel, 

workers’ compensation, and professional liability. 

P&C insurance companies benefited from a 

favorable loss experience in some personal and 

commercial lines, in part resulting from reduced 

economic activity. For example, a significant 

reduction in auto claims drove strong underwriting 

results in personal lines and prompted some auto 

insurers to offer reduced premiums or credits in 

response. This trend largely reversed in the first half 

of 2021; loss ratios weakened at 14 of the 20 largest 

auto insurers as a result of increased activity. 

Numerous coverage disputes in connection with 

COVID-19 business interruption losses have been 

brought to court, and many remain pending. So far, 

most courts have agreed with the insurers’ position 

that coverage is precluded by the lack of COVID19-related physical damage at the policyholders’ 

premises, or by explicit virus exclusions in the 

policies. However, the ultimate outcome of many of 

these lawsuits remains to be seen.

The P&C subsector will likely benefit from 

favorable market conditions in commercial lines 

with premium pricing continuing to exceed loss 

cost trends. However, additional losses related to 

COVID-19 are expected to emerge in the longer tail 

third-party liability lines, particularly in the director 

and officers and general liability coverages.

U.S. Health Insurance Industry 

The health insurance subsector significantly 

outperformed expectations in 2020 amid the 

COVID-19 pandemic, and posted particularly 

strong financial performance, as individuals delayed 

routine and elective medical care and procedures. 
114 2021 2021 FSOC // FSOC // Annual Report Annual Report

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350

Jan:2018 Jan:2019 Jan:2020 Jan:2021

3.5.2.27 AAA Securitization Spreads

Basis Points Basis Points

Source: JPMorgan

As Of: 30-Sep-2021

Private Student Loan 3-Year

Equipment 3-Year

Subprime Auto 2-Year

Prime Auto 3-Year

Credit Card 3-Year

0.0

1.0

2.0

3.0

4.0

0.0

1.0

2.0

3.0

4.0

2001 2004 2007 2010 2013 2016 2019

3.5.2.26 Business Loans and Leases Outstanding

Trillions of US$ As Of: Aug-2021 Trillions of US$

Source: Federal Reserve,

Haver Analytics

Commercial Banks

Finance Companies

Note: Loans and leases owned and securitized. Series 

break in December 2010 due to change in data collection 

methodology. Gray bars signify NBER recessions.

0.0

0.5

1.0

1.5

2.0

0.0

0.5

1.0

1.5

2.0

2001 2004 2007 2010 2013 2016 2019

3.5.2.25 Consumer Loans and Leases Outstanding

Trillions of US$ As Of: Aug-2021 Trillions of US$

Source: Federal Reserve,

Haver Analytics

Note: Loans and leases owned and securitized. Series breaks 

in December 2010 and December 2015 due to change in data 

collection methodology. Gray bars signify NBER recessions.

Commercial Banks

Finance Companies

3.5.2.27 AAA Securitization Spreads

3.5.2.26 Business Loans and Leases Outstanding

3.5.2.25 Consumer Loans and Leases Outstanding However, those delayed claims could impact the 

subsector as utilization returns to normal and 

individuals seek medical care they previously 

delayed.

3.5.2.8 Specialty Finance

Specialty finance companies are non-depository 

institutions that provide loans to consumers and 

businesses. The amount of financing activity by 

specialty finance companies decreased modestly 

over the past year. Specialty finance companies 

held $758 billion of consumer loans and leases 

and $328 billion of business loans and leases as 

of August 2021 (Charts 3.5.2.25, 3.5.2.26). 

While specialty finance companies account 

for a relatively small share of overall consumer 

lending, they have a significant footprint in 

certain types of consumer lending activities 

such as auto lending. Compared to banks, 

which generally have more stable sources of 

funding such as deposits, specialty finance 

companies are more reliant on wholesale 

funding and the securitization market.

Asset-Backed Securities 

After the significant pandemic-induced market 

disruption in March and April of 2020, the 

asset-backed securities (ABS) market recovered 

quickly, driven in part by the Federal Reserve’s 

establishment of the Term Asset-Backed 

Securities Loan Facility (TALF). Spreads 

tightened significantly since the announcement 

of TALF, and ABS issuance resumed. Since the 

first half of 2020, spread tightening continued 

for virtually all major ABS asset classes, and 

senior tranche spreads of major ABS products 

are at or near multi-year lows as of September 

2021 (Chart 3.5.2.27). For instance, spreads 

on AAA-rated tranches of 2-year maturity 

subprime auto loan ABS tightened from 75 

basis points in June 2020 to just 10 basis points 

as of September 30, 2021. 

Tight spreads of ABS created favorable funding 

market conditions for specialty finance 

companies, and issuance of ABS in 2021 is 

running at a record pace and significantly 

higher compared to the same period in 2020. 

ABS issuance totaled $168 billion over the first 
Financial Developments 115

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300

350

2006 2008 2010 2012 2014 2016 2018 2020

3.5.2.28 ABS Issuance

Billions of US$ Billions of US$

Source: Thomson Reuters, SIFMA

As Of: Sep-2021

Credit Card

Auto

Equipment

Note: Figures are as of year end through 2020. 

2021 figures are through September.

Student Loans

Other

3.5.2.28 ABS Issuance nine months of 2021, exceeding the $201 billion 

issued over the full-year 2020 (Chart 3.5.2.28). 

Of note, some of the ABS sectors particularly 

hit by the pandemic-induced market disruption, 

such as aircraft lease ABS and, to a lesser 

degree, subprime auto ABS, have not only 

resumed issuance but are experiencing robust 

market demand. 

Special Purpose Acquisition Companies 

While special purpose acquisition companies 

(SPACs) raised a record amount of capital in 

2020, 2021 issuance through September 30, 

2021 exceeded that level, with $137 billion 

raised in 549 transactions; more than 90 

percent of issuances occurred in the United 

States. SPACs have driven the robust U.S. equity 

primary market issuance over the past three 

quarters, representing 53 percent of total IPO 

issuances. 

However, the pace of SPAC IPOs slowed 

materially in the second and third quarters 

of 2021 following a price correction among 

pre-merger SPACs and SEC communications 

that highlighted investor protection issues, 

liability risks for sponsors and managers, and 

accounting treatment of SPAC warrants. 
116 2021 2021 FSOC // FSOC // Annual Report Annual Report

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2016 2017 2018 2019 2020 2021

3.6.1.1 DTCC Clearing Fund Requirements

Billions of US$ Billions of US$

Source: PFMI Quantitative 

Disclosures, Clarus FT

FICC: MBSD

NSCC

FICC: GSD

As Of: 2021 Q2

3.6.1.1 DTCC Clearing Fund Requirements 3.6 Financial Market Structure, 

Alternative Reference Rates, and 

Financial Innovation

3.6.1 Market Structure: Central Counterparty 

Clearing

Cash Securities Clearing

In the United States, the Depository Trust & 

Clearing Corporation (DTCC) is the dominant 

provider of clearing services for cash securities 

through its subsidiaries, the Fixed Income 

Clearing Corporation (FICC) and National 

Securities Clearing Corporation (NSCC). 

FICC consists of two divisions, the Government 

Securities Division (GSD) and the MortgageBacked Securities Division (MBSD). GSD 

provides CCP services for its customers with 

respect to the U.S. government securities 

market, and MBSD provides CCP services to 

the U.S. mortgage-backed securities market. 

NSCC serves as a CCP for virtually all broker-tobroker trades involving equities, corporate and 

municipal debt, ADRs, ETPs, and UITs. 

DTCC clearing fund requirements, which 

spiked at the onset of the COVID-19 pandemic, 

remained elevated through the first quarter 

of 2021. As of June 30, 2021, clearing fund 

requirements across the three clearing services 

totaled $44 billion, unchanged compared 

to June 30, 2020 (Chart 3.6.1.1). In the 

first quarter of 2021, MBSD’s clearing fund 

requirement totaled $21 billion, up $10 billion 

from the prior year. The increase in MBSD’s 

clearing fund requirement can be primarily 

attributed to the extension of durations in 

members’ to be announced (TBA) portfolios. 

Initial margin at MBSD has since declined, 

totaling $14 billion as of June 30, 2021. 
Financial Developments 117

0.0

0.5

1.0

1.5

2.0

0.0

0.5

1.0

1.5

2.0

DTCC GSD DTCC MBSD DTCC NSCC

3.6.1.2 Maximum Uncovered Exposure for DTCC 

Billions of US$ Billions of US$

2020 Q1

2015 - 2019

As Of: 2021 Q1

Note: Peak uncovered exposure for 

preceding 12 months as reported on 

question 6.5.4 of PFMI quarterly disclosures.

2021 Q1

Source: PFMI Quantitative 

Disclosures, Clarus FT

3.6.1.2 Maximum Uncovered Exposure for DTCC The maximum backtesting deficiency, or 

margin breach, at DTCC’s FICC clearing 

services fell for the twelve months ended March 

31, 2021 as market volatility observed in the 

first quarter of 2020 rolled off (Chart 3.6.1.2). 

In contrast, NSCC reported a backtesting 

deficiency of $1.1 billion on January 22, 2021, 

the largest since public disclosure began in the 

third quarter of 2015. In its quarterly Principles 

for Financial Market Infrastructures (PFMI) 

disclosure, NSCC attributed the backtesting 

deficiency mainly to a single security exhibiting 

idiosyncratic risk. 

During the week of January 25, 2021, NSCC 

observed unusually high volumes and volatility 

in GameStop Corp. and other securities that 

had been popularized on internet message 

boards. Activity in these “meme stocks” was 

concentrated in certain clearing members 

primarily serving retail investors. On January 

27, 2021, NSCC made intraday margin calls 

to 36 clearing members totaling $6.9 billion, 

bringing the total required margin across all 

members to $26 billion. Of the $6.9 billion, 

$2.1 billion were intraday mark-to-market calls, 

while the remaining $4.8 billion was an excess 

capital premium charge.9 The capital premium 

charge is intended to discourage clearing 

members from taking on more risk in their 

portfolios at NSCC than their capital levels can 

reasonably support. Because clearing members’ 

ratios of excess risk versus capital were not 

driven by individual clearing member actions, 

but by extreme volatility in individual cleared 

equities, NSCC waived the capital premium 

charge for all clearing members. 

In February 2021, DTCC proposed settling 

securities trades in one day instead of the 

current market practice of two days. Reducing 

settlement time will allow NSCC to reduce the 

amount of margin it collects from its members; 

DTCC estimated a 25 percent reduction. DTCC 

noted it has the operational capability to settle 

securities trades same-day but said market 

participants were generally against it because of 

the loss of netting benefits, an increase in failed 

trades, and funding difficulties.
118 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

100

200

300

400

500

600

700

800

0

200

400

600

800

2016 2017 2018 2019 2020 2021

3.6.1.5 Initial Margin by Segregation Type

Billions of US$ Billions of US$

House

Customer

As Of: 2021 Q2

Source: PFMI Quantitative 

Disclosures, Clarus FT

Note: Initial margin required as reported in quantitative disclosures; 

includes exchange-traded derivatives (Options Clearing Corp., CME, 

and ICUS), interest rate swaps (LCH Ltd. and CME), and CDS (CME, 

ICC, ICEU, and LCH SA). CME ceased clearing CDS in March 2018. 

0

100

200

300

400

0

100

200

300

400

2016 2017 2018 2019 2020 2021

3.6.1.4 Initial Margin: Centrally Cleared OTC Derivatives

Billions of US$ Billions of US$

Source: PFMI Quantitative 

Disclosures, Clarus FT

Credit Default Swaps

Interest Rate Swaps

As Of: 2021 Q2

Note: Initial margin required as reported in quantitative disclosures; 

includes house and client accounts. Interest rate swaps margin 

includes LCH Ltd. and CME. CDS margin include CME, ICC, 

ICEU, and LCH SA). CME ceased clearing CDS in March 2018. 

0

100

200

300

400

0

100

200

300

400

2016 2017 2018 2019 2020 2021

3.6.1.3 Initial Margin: U.S. Exchange Traded Derivatives

Billions of US$ Billions of US$

ICE Clear US

Options Clearing Corp.

CME

As Of: 2021 Q2

Source: PFMI Quantitative 

Disclosures, Clarus FT

Note: Initial margin required as reported in quantitative 

disclosures; includes house and client accounts.

3.6.1.5 Initial Margin by Segregation Type

3.6.1.4 Initial Margin: Centrally Cleared OTC Derivatives

3.6.1.3 Initial Margin: U.S. Exchange Traded Derivatives On September 3, 2021, DTCC increased NSCC’s 

minimum clearing fund deposit from $10,000 

to $250,000. NSCC stated that the purpose of 

the change was to address the risk that NSCC 

becomes under-margined in circumstances 

where a member is subject to the minimum 

required fund deposit amount and experiences 

an abrupt increase in clearing activity following 

a period of low or no clearing activity. 

Derivatives CCPs

The vast majority of U.S. exchange-traded 

derivatives are cleared through CME, ICE Clear 

US, and the Options Clearing Corp. CME and 

ICE Clear US provide clearing services for 

futures and options on futures while Options 

Clearing Corp. mostly provides clearing services 

for exchange-traded equity options. Within 

the OTC derivatives markets, most U.S. dollar 

(USD) interest rate swaps are cleared through 

LCH Ltd. or CME, while most CDS are cleared 

through ICE Clear Credit, ICE Clear Europe, or 

LCH SA. 

On an aggregate basis, initial margin posted 

against derivatives positions peaked at the 

onset of the pandemic, totaling $619 billion 

at the end of the first quarter of 2020. Initial 

margin posted against derivatives has since 

fallen slightly but remains elevated relative to 

pre-pandemic levels (Charts 3.6.1.3, 3.6.1.4). 

The size and speed of initial margin changes 

is highly dependent on the relative shifts of 

underlying product volatility, calibrations of 

margin models relative to that volatility, and 

changes in the size and composition of clearing 

member portfolios. Over the last five years, the 

share of initial margin attributed to clearing 

members’ house accounts has slowly decreased, 

from 35 percent in the second quarter of 2016 

to 30 percent in the second quarter of 2021 

(Chart 3.6.1.5). 

Analysis continues on the events of March 2020, 

including the impact of volatility upon margin 

during the stressed period, as well as potential 

interactions between margined markets and 

the financial system as a whole. International 

work on this topic was spurred by analysis by 
Financial Developments 119

50

60

70

80

90

100

50

60

70

80

90

100

2014 2015 2016 2017 2018 2019 2020 2021

3.6.1.6 Average Clearing Rates for OTC Trading

Percent Percent

Source: CFTC

As Of: 2021 Q3

Note: Gross notional of new transactions. 

Excludes security-based swaps.

Index CDS Interest Rate Swaps

3.6.1.6 Average Clearing Rates for OTC Trading the Financial Stability Board which, late in 

2020, published a Holistic Review of the March 

Market Turmoil and recommended further 

work in a number of areas. Reports based on 

this additional analysis are scheduled to be 

released near the end of this year. 

Clearing Rates for OTC Derivatives

Clearing rates in the United States were broadly 

similar to global clearing rates. In the third 

quarter of 2021, 94 percent of new interest rate 

swaps were centrally cleared, while 80 percent 

of CDS on credit indexes were centrally cleared 

(Chart 3.6.1.6). Central clearing has become 

prevalent throughout the world as clearing 

mandates have been introduced in a number 

of jurisdictions for the most standardized 

products, including interest rate swaps and 

CDS on credit indexes. In recent years, margin 

requirements for uncleared swaps have, in some 

cases, made cleared swaps more cost-efficient. 

Over the last several years, clearing rates on 

new CDS on credit indexes trended downwards. 

The decline in clearing rates between 2016 and 

2019 can primarily be attributed to an increase 

in the volume of credit swaptions, total return 

swaps on credit indexes, and other exotic 

credit products for which clearing is not widely 

available. 
120 2021 FSOC // Annual Report

The Council continues to support an orderly transition 

from USD LIBOR to alternative reference rates, in 

order to mitigate risks and ensure smooth market 

functioning. The Council recommends that market 

participants only utilize alternative reference rates 

with robust underlying transaction volumes and in 

a way that is fit for the purpose of the rate’s design. 

The ARRC has recommended the use of SOFR, as 

it provides a robust rate which is suitable for use in 

a wide array of products and is based on a large 

volume of underlying transactions.

Since the Council’s 2020 annual report, there have 

been several important developments in the transition 

from USD LIBOR. With LIBOR’s end dates now 

certain, market participants should act with urgency 

to address their existing LIBOR exposure and 

transition to robust and sustainable alternative rates.

Greater Certainty on LIBOR’s Cessation

LIBOR cessation dates were proposed in December 

2020 by the ICE Benchmark Administration (IBA). 

The cessation date of December 31, 2021 was 

proposed for all tenors of LIBOR calculated in EUR, 

CHF, JPY, GBP and for one-week and two-month 

USD LIBOR. The cessation date of June 30, 2023 

was proposed for the remaining tenors of USD LIBOR 

(overnight, one-month, three-months, six-months, 

and 12-months). 

IBA confirmed these LIBOR cessation dates, after a 

consultation period, on March 5, 2021, and the UK 

Financial Conduct Authority (FCA) issued a formal 

statement that announced, “the future cessation 

or loss of representativeness of the 35 LIBOR 

benchmark settings.” The FCA’s announcement 

was considered an index cessation event by 

International Swaps and Derivatives Association 

(ISDA) and resulted in the determination of the fixed 

spread adjustment between LIBOR and SOFR for all 

currency tenors. This adjustment is to be used for 

the transition of legacy derivatives adhering to ISDA’s 

interbank offer rate (IBOR) Fallbacks Protocol, or 

new derivatives using ISDA’s revised definitions. The 

ARRC adopted the use of ISDA’s spread adjustments 

for fallbacks to legacy cash instruments. For legacy 

contracts where SOFR is selected as the transition 

rate, the setting of the fixed spread adjustment to 

SOFR will allow the transition to a uniform spread 

adjustment and provides greater clarity to market 

participants on the performance of these legacy 

LIBOR contracts at LIBOR’s cessation.

The Federal Reserve, FDIC, and OCC issued 

guidance in November 2020, in anticipation of the 

setting of cessation dates for LIBOR. This guidance 

stated that entering into new contracts that use USD 

LIBOR as a reference rate after December 31, 2021 

would create safety and soundness risks. In October 

2021, a Joint Statement on Managing the LIBOR 

Transition was issued by the Federal Reserve, FDIC, 

OCC, CFPB, and NCUA, in conjunction with state 

bank and state credit union regulators. The statement 

emphasized the expectation that supervised 

institutions with LIBOR exposure continue to progress 

toward an orderly transition away from LIBOR. The 

statement also provided clarification on the meaning 

of new LIBOR contracts, considerations when 

assessing appropriateness of alternative reference 

rates, and expectations for fallback language. 

Utilization of Alternative Rates

The Council has continued to advise lenders, 

borrowers, and other market participants to consider 

SOFR-based rates and conduct a comprehensive 

evaluation before adopting any alternative reference 

rate. Such an evaluation would, at a minimum, review 

any alternative rate’s fitness for the purpose of its use, 

ensure that the rate is based on a sufficiently active 

market with sufficient transaction volumes, assess the 

adequacy of the representativeness of the underlying 

interest, and evaluate the resilience of the rate 

during times of stress. Individual institutions should 

review how alternative rates fit into their internal risk 

management guidelines, business strategies, and risk 

appetite. In a public meeting of the Council in June 

Box E: LIBOR Transition
Financial Developments 121

Box E: LIBOR Transition (continued)

2021, several Council members emphasized their 

concerns about credit-sensitive rates being used as 

reference rates in capital and derivatives markets. 

Similarly, the International Organization of Securities 

Commissions (IOSCO) Board in September 2021 

called attention to the importance of assessing the 

size of the market underlying a rate in relation to the 

volumes traded on it and noted that IOSCO would 

closely monitor the IOSCO compliance of creditsensitive rates. 

Adoption of SOFR as a reference rate has increased 

over the past year. The amount of activity in SOFR 

futures has risen substantially, as measured by 

volume and open interest (Charts E.1, E.2). However, 

SOFR futures volumes still only equal a small 

proportion of the volume of Eurodollar futures (which 

are LIBOR-based derivatives). In other markets, 

a small number of leveraged loan agreements 

benchmarked against SOFR were announced for 

the first time in September 2021. Earlier in the year, 

trade groups representing corporate borrowers had 

expressed demand for greater availability of loan 

agreements based on SOFR, as noted in an exchange 

of public letters between those groups and the 

Treasury, Federal Reserve, FRBNY, CFTC, and SEC. 

In interdealer trading, the “SOFR First” initiative was 

announced in June by a subcommittee of the CFTC. 

This initiative encouraged a prioritization of interdealer 

trading in SOFR rather than LIBOR and set July 26, 

2021 as a date when it would be appropriate for 

interdealer brokers to adopt SOFR. 

Following the adoption of this change in 

interdealer trading conventions, the ARRC formally 

recommended the CME’s SOFR term rates. In 

endorsing the CME’s Term SOFR Rate, the ARRC 

has set out a limited set of recommended use cases. 

To protect against the outsized growth of term SOFR 

derivatives, CME’s licensing agreement for the rate 

restricts its use to cash products and derivatives 

that hedge those cash products, and certain 

securitizations with underlying assets tied to SOFR 

term rates. ARRC continues to recommend that 

market participants use overnight SOFR and SOFR 

averages where possible and appropriate.

Legacy Contracts Without Robust Fallback Provisions

Legacy contracts that lack robust fallback provisions 

may be silent on the transition of the interest rate 

benchmark or contain fallback language that is 

considered infeasible. Market participants have 

received greater clarity about the treatment of 

these contracts. On April 7, 2021, New York State 

enacted ARRC-endorsed legislation to help transition 

contracts governed by New York law to a SOFRbased rate after LIBOR’s cessation or in the event 

0

2

4

6

8

0

1

2

3

4

May:2018 Feb:2019 Nov:2019 Aug:2020 May:2021

As a Percent of Eurodollar 

Volume (right axis)

E.1 SOFR Futures Volume

Millions of Contracts Percent

Source: CME, Bloomberg, L.P.

As Of: Sep-2021

3-Month SOFR Futures 

(left axis)

1-Month SOFR Futures 

(left axis)

E.1 SOFR Futures Volume

0

2

4

6

8

10

0

250

500

750

1000

1250

May:2018 Feb:2019 Nov:2019 Aug:2020 May:2021

As a Percent of Eurodollar 

Open Interest (right axis)

E.2 SOFR Futures Open Interest

Millions of Contracts Percent

Source: CME, Bloomberg, L.P.

As Of: Sep-2021

3-Month SOFR Futures 

(left axis)

1-Month SOFR Futures 

(left axis)

E.2 SOFR Futures Open Interest 
122 2021 FSOC // Annual Report

Box E: LIBOR Transition (continued)

LIBOR is declared unrepresentative by the regulatory 

supervisor for the administrator of LIBOR, the 

FCA. The state of Alabama also passed legislation 

substantively identical to the New York bill the same 

month. However, it is unclear how effective such laws 

will be in fully addressing the transition for contracts 

subject to their requirements, and legal issues may 

remain for contracts governed by the laws of other 

jurisdictions. Congress has deliberated federal 

legislation to address these issues. 

Accounting Considerations

FASB is monitoring the global reference rate reform 

initiatives to identify areas of generally accepted 

accounting practices (GAAP) that may need to be 

amended in response to those initiatives. In March 

2020, FASB issued ASU 2020-04, Reference Rate 

Reform (Topic 848): Facilitation of the Effects of 

Reference Rate Reform on Financial Reporting, and 

in January 2021, issued ASU 2021-01 on SCOPE. 

The guidance provides temporary optional relief 

from existing accounting requirements related to 

contracts and other transactions where the reference 

rate is expected to be discontinued. This guidance is 

meant to simplify evaluations of high-volume contract 

modifications, and transition hedge accounting 

relationships that would otherwise be required to be 

terminated. The guidance is generally effective from 

March 12, 2020 to December 31, 2022. FASB is 

evaluating whether to extend the sunset date of Topic 

848 in response to the new expected cessation date 

(June 30, 2023) for certain tenors of USD LIBOR. The 

guidance also allows eligible held-to-maturity (HTM) 

debt securities that reference an eligible reference 

rate to be sold and or transferred to available-for-sale 

or trading categories if they were classified as HTM 

before January 1, 2020.
Financial Developments 123

3.6.2 Financial Innovation 

3.6.2.1 Digital Assets

Investor interest in digital assets in the United States 

has continued to increase, although high volatility 

in the prices of these assets may be limiting wider 

adoption. There are indications that institutional 

investor interest has risen over the past several years, 

including increased open interest in digital-assetlinked futures and investor statements to the media, 

though data remain incomplete. Access to digital 

assets has continued to expand in 2021 as several 

large online and mobile payment platforms enabled 

users to maintain exposure to a limited number 

of digital assets alongside dollar-based activity. 

Two U.S. listed bitcoin futures exchange-traded 

funds launched in October 2021, with one product 

attracting the fastest billion-dollar fundraising 

on record. However, the use of digital assets as 

an investment instrument remains limited. The 

prices of many digital assets are far more volatile 

than the prices of traditional assets and may not 

be appropriate for many investors. It appears that 

speculation continues to drive the majority of digital 

asset activity, though it is unclear what percentage 

of transactions may directly tie to economic 

activity given the pseudonymous nature of many 

transactions. Finally, growing awareness of the 

energy demands of proof-of-work protocols, which 

continue to power the majority of digital assets as 

measured by market capitalization, have shaped 

conversations around sustainability and future 

developments.

Digital assets continued to evolve over the course 

of 2021, with significant development occurring 

in projects that are broadly described as “DeFi,” a 

term derived from so-called decentralized finance. 

DeFi applications generally claim to replace central 

financial intermediaries in traditional financial 

infrastructure with automatic code execution, 

though degrees of centralized project control may 

vary. Users of these services face risk of loss due 

to market value fluctuations, operational issues, 

and cybersecurity threats, among other risks. 

Participants who use DeFi to borrow additional 

digital assets to leverage their exposure face 

considerable market risk from volatile market 

prices. Price volatility amplifies the potential risk 

that borrowers may need to liquidate their positions 

to meet minimum margin calls. There is currently 

uncertainty about whether such liquidations of 

assets could be broadly correlated across many 

accounts and the extent to which liquidations in 

one digital asset could lead to spillover effects 

across other digital assets. Varying collateralization 

standards and operational standards exacerbate 

these market and liquidation risks, warranting 

additional scrutiny from lenders. 

Stablecoins are digital assets that are designed 

to maintain a stable value relative to a national 

currency or other reference assets (see Box G). 

The market capitalization of stablecoins issued by 

the largest stablecoin issuers exceeded $127 billion 

as of October 2021. This amount reflects a nearly 

500 percent increase over the preceding twelve 

months. At the time of publication of this report, 

stablecoins are predominantly used in the United 

States to facilitate trading, lending, and borrowing 

of other digital assets. For example, stablecoins allow 

market participants to engage in speculative digital 

asset trading; to move value easily between digital 

asset platforms and applications; and to store and 

transfer value associated with digital asset trading, 

lending, and borrowing within the distributed 

ledger environment. Stablecoins that are generally 

created, or “minted,” in exchange for fiat currency 

are often advertised as being supported or backed 

by a variety of “reserve assets.” The reserves of these 

stablecoins, however, may not be subject to rigorous 

audits and the quality and quantity of collateral may 

not, in some cases, correspond to the issuer’s claims. 

Likewise, stablecoins that maintain their value 

through algorithmic mechanisms are potentially 

subject to failure due to market pressures, 

operational failures, and other risks. 

DeFi projects and stablecoin arrangements may 

implicate the jurisdiction of the SEC, the CFTC, 

and other authorities. Depending on their 

structure, stablecoins, or certain parts of stablecoin 

arrangements, may be one or a combination of 

securities, commodities, and derivatives. Moreover, 

much of the trading, lending, and borrowing activity 

currently fueled by stablecoins on digital asset 

trading platforms and within DeFi similarly may 

constitute either or both of securities and derivatives 

transactions that must be conducted in compliance 
124 2021 FSOC // Annual Report

with federal securities laws and the Commodity 

Exchange Act (CEA), including applicable 

regulations. To the extent that a given stablecoin 

activity falls within the jurisdictions of the SEC and 

CFTC, it must be conducted in compliance with 

applicable provisions of the federal securities laws, 

the CEA, and associated regulations, as applicable.

3.6.2.2 Peer-to-Peer Payments 

Consumers continue to embrace peer-to-peer 

payment services, and the COVID-19 pandemic 

has further highlighted the potential benefits of 

mobile contactless payment options. Peer-to-peer 

payment services allow for the transfer of funds 

between two parties using mobile apps. Some peerto-peer payment services have expanded capabilities 

beyond simply facilitating transactions between 

peers, which has allowed them to, for example, 

help facilitate government assistance payments. 

The apps are typically linked to debit or credit card 

accounts and other types of bank accounts, thereby 

allowing the funding transfers to proceed through 

bank-maintained payment networks. Although 

some service providers are relatively new companies, 

banks and other financial service providers are also 

entering the market and have reported significant 

consumer participation and transaction volume. 

3.6.2.3 Digital Lending 

The pandemic further accelerated the adoption 

of digital lending, which involves the provision of 

loans through online, electronic platforms. Health 

concerns and public health restrictions caused 

many banks and credit unions to temporarily 

close or restrict access to branches. Some smaller 

institutions, in particular, expanded their online 

services to meet customer needs and to compete 

with large banks and fintech lenders. While online 

applications and automated credit decisions have 

been common in lending to retail customers, loans to 

small and medium-sized businesses had lagged in this 

regard. The need to rapidly process PPP applications 

accelerated digital lending to small and mediumsized businesses. According to data released by the 

Small Business Administration on May 31, 2021, 

approximately 95 percent of PPP lenders were banks 

with less than $10 billion in assets and credit unions, 

demonstrating a role for smaller, traditional financial 

institutions in digital lending. 

Recent years have witnessed significant growth in 

point-of-sale financing services, also known as “buy 

now, pay later” (BNPL) services. These unsecured 

loans permit consumers to finance an online 

purchase and repay the loan through an installment 

plan. The loan is an integrated payment option on a 

retailer’s website and is often offered at zero interest. 

Merchants and service providers report that the 

product increased conversion from cart to purchase, 

increased order values, and lowered the number of 

abandoned carts. For some consumers, the loan may 

offer cheaper and more readily available financing 

than a credit card but present the risk of taking on 

too much debt in small increments or incurring late 

fees. McKinsey & Company estimates that BNPL 

financing generated 10 percent of unsecured loan 

balances in 2020 and grew by 15 percent during 

2020, despite a decline of 11 percent in other 

unsecured consumer lending balances over the same 

period. This market share is forecasted to continue 

growing. Early entrants to the market emerging with 

significant market share have largely been nonbank 

financial technology companies, though some banks 

and at least one major card network have announced 

plans to launch their own competing products.

3.6.2.4 Use of Technology in Financial Services

Technological capabilities are a significant 

differentiator in the highly competitive market for 

financial services. Over recent years, several large 

technology and e-commerce firms entered, or 

explored entering, the financial services market, 

often through business relationships with banks. 

Some of these technology and e-commerce 

companies have characteristics that could allow 

them to grow quickly in the financial services 

market, including large customer networks, broad 

name recognition, and access to client data. In other 

cases, new firms may seek to use technology as a 

competitive advantage to achieve rapid growth in an 

area traditionally dominated by banks. Banks and 

traditional financial services companies may also 

seek to develop or acquire similar advances to their 

existing offerings through in-house development or 

through relationships with third parties.

The integration of new technology improves 

products and services by some measures but may 

also present new risks. For example, new technology 
Financial Developments 125

and systems can help to evaluate and determine the 

creditworthiness of potential borrowers, benefiting 

financial institutions and customers by expanding 

access to credit and shortening the approval process. 

At the same time, automated processing of loan 

applications may introduce algorithmic biases 

when evaluating creditworthiness. In this case, 

lenders may need to manage new risks, including 

operational changes from the implementation of the 

new technology and its impact on credit evaluation 

models. This includes consideration of compliance 

risks to ensure that new technologies reliant on 

algorithmic methods adhere to fair lending laws. 

3.6.2.5 Reliance of Financial Institutions on Third-Party 

Service Providers

Financial institutions have increased their use of 

third-party service providers to supplement or 

increase capabilities. This dynamic has accelerated 

during the COVID-19 pandemic, as institutions 

are utilizing third parties to support widespread 

remote work capabilities, increase technological 

capacity, and maintain operations. These business 

relationships may be with entities that specialize 

in the use of technology in financial services (see 

Section 3.6.2.4). 

While the use of third-party service providers can 

have advantages, financial institutions that contract 

with a third-party service provider may expose 

themselves to additional risks if the third party is not 

appropriately managed when performing services 

on behalf of the financial institution. As large 

service providers gain market share and some service 

providers become more specialized, concentration 

risk may increase. This is of particular concern 

where many institutions rely on the same third-party 

provider for key services and may introduce hidden 

concentration risk into the supply chain. Additional 

challenges to effective risk management can occur 

as third-party service providers further subcontract 

services, which may make oversight more complex for 

both the financial institution and regulatory agencies. 

Some regulators, including the FHFA and NCUA, 

continue to have limited authority to regulate 

or supervise third-party service providers. The 

NCUA, for example, continues to have no authority 

to supervise credit union service organizations 

(CUSOs) for compliance with federal consumer 

financial protection laws and regulations, the Bank 

Secrecy Act and other anti-money laundering 

laws, or with prudential standards. As discussed 

in Section 4.4.2, the NCUA issued a final rule in 

October 2021 expanding the lending activities 

permitted by CUSOs. 

Financial institutions are expected to appropriately 

manage and evaluate the risks associated with 

each third-party relationship, as engaging a third 

party to perform functions does not relieve a 

financial institution of its own legal and regulatory 

obligations. Financial institutions should conduct 

appropriate due diligence before entering into 

a third-party relationship and exercise effective 

oversight and management throughout the life of 

the relationship.
126 2021 2021 FSOC // FSOC // Annual Report Annual Report

-20

-15

-10

-5

0

5

10

-20

-15

-10

-5

0

5

10

3.7.1.3 YTD Change in USD Exchange Rates, EMEs

Percent Percent

Source: Federal 

Reserve, Wall Street 

Journal, Haver Analytics

As Of: 30-Sep-2021

Note: Percent change relative to end-2020. Chinese renminbi (RMB), Korean 

won (KRW), Indian rupee (INR), Indonesian rupiah (IDR), Mexican peso (MXN), 

South African rand (ZAR), Russian ruble (RUB), Argentine peso (ARS), Turkish 

lira (TRY), Brazilian real (BRL). Positive indicates appreciation of listed currency.

3.7.1.2 Nominal U.S. Dollar Trade-Weighted Index

Index Index

Source: Federal Reserve, Haver Analytics

As Of: 30-Sep-2021

98

99

100

101

102

103

104

105

98

99

100

101

102

103

104

105

Jan:2021 Mar:2021 May:2021 Jul:2021 Sep:2021

Emerging Markets

Broad

Advanced

0

100

200

300

400

500

0

100

200

300

400

500

Jan:20 Apr:20 Jul:20 Oct:20 Jan:21 Apr:21 Jul:21

3.7.1.1 Federal Reserve Swap Lines

Billions of US$ Billions of US$

Source: Federal Reserve

As Of: 29-Sep-2021

Note: Wednesday levels.

3.7.1.3 YTD Change in USD Exchange Rates, EMEs

3.7.1.2 Nominal U.S. Dollar Trade-Weighted Index

3.7.1.1 Federal Reserve Swap Lines 3.7 Global Economic and Financial 

Developments

3.7.1 Foreign Exchange Market

Following sudden financial market strains 

in early 2020 and subsequent extraordinary 

actions taken by central banks and 

governments, pressure on the dollar subsided 

for the remainder of the year. The nominal 

broad trade-weighted dollar depreciated by 7.3 

percent in the second half of 2020, weakening 

against both advanced economy and emerging 

market currencies. Dollar funding markets 

experienced significant strains in March 2020 as 

investors sought the safety of the dollar and the 

premium to obtain dollar funding increased. 

Expansion and enhancement of dollar liquidity 

swap lines by the Federal Reserve and other 

central banks led to a stabilization in these 

markets and retracement of dollar funding 

premiums. After reaching almost $450 billion 

at the end of May, outstanding drawings on all 

Federal Reserve swap lines declined to about 

$18 billion at the end of 2020 and fell further to 

$340 million as of September 29, 2021 (Chart 

3.7.1.1). Meanwhile, the FX swap basis for major 

currencies have narrowed to pre-pandemic 

levels.

The dollar has strengthened 3.1 percent on a 

nominal trade-weighted basis over the first nine 

months of 2021. In the first quarter of 2021, 

the dollar appreciated by 0.9 percent against 

a basket of advanced economy currencies 

and 1.8 percent against a basket of emerging 

market currencies. The dollar briefly weakened 

against advanced economy currencies in June, 

but subsequent appreciation in July more than 

offset the second quarter fall (Chart 3.7.1.2). 

The dollar generally appreciated against 

emerging market economies, although modestly 

depreciating against a few year-to-date (Chart 

3.7.1.3). Continued pressures on emerging 

market currencies have reflected in part a 

lack of vaccination progress, developments 

regarding new COVID-19 variants, relative 

utilization of policy support, and pre-existing 

macroeconomic strains in a few specific 

instances. 
Financial Developments 127

Percent As Of: Oct-2021

3.7.2.1 Advanced Economies Real GDP Growth 

-12

-8

-4

0

4

8

-12

-8

-4

0

4

8

2005 2008 2011 2014 2017 2020 2023

Percent

Source: IMF WEO, 

Haver Analytics

Note: Annual change in GDP, constant prices. Dotted lines 

represent the October 2021 projections for 2021-2023.

Euro Area

Japan

United States 

United Kingdom

3.7.1.4 Real U.S. Dollar Trade-Weighted Index

Index Index

Source: Federal Reserve, 

Haver Analytics

As Of: Sep-2021

Note: Index shown as a share of its 20-year average. Real USD 

Trade-Weighted Index is a weighted average of the FX value of 

the USD against the currencies of a broad group of major U.S. 

trading partners. Gray bars signify NBER recessions.

80

90

100

110

120

80

90

100

110

120

2001 2004 2007 2010 2013 2016 2019

3.7.2.1 Advanced Economies Real GDP Growth

3.7.1.4 Real U.S. Dollar Trade-Weighted Index The real broad dollar index is 3.2 percent 

stronger on net in 2021 through the end of 

September and remains relatively strong from a 

historical perspective. Notably, the real tradeweighted dollar stands 7.2 percent above its 

20-year average in this same period, having 

moderated since its peak in April of last year 

(Chart 3.7.1.4). 

3.7.2 Advanced Economies

Economic activity in advanced economies, 

which fell sharply at the onset of the COVID-19 

pandemic, rebounded in 2021, and the 

International Monetary Fund (IMF) projects 

that advanced economies will grow by 5.2 

percent in 2021. The rebound in economic 

growth can be attributed to COVID-19 

mitigation efforts, including vaccination 

programs and continued policy support. Real 

GDP in the UK, U.S., euro area, and Japan is 

projected to rise by 6.8 percent, 6.0 percent, 

5.0 percent, and 2.4 percent, respectively 

(Chart 3.7.2.1). Despite this rebound in 

economic activity, the emergence of more 

virulent COVID-19 variants, as well as persistent 

supply chain effects and a potential earlier 

than projected central bank liftoff, introduce 

significant downside risks. 
128 2021 2021 FSOC // FSOC // Annual Report Annual Report

-4

-2

0

2

4

6

8

-4

-2

0

2

4

6

8

2011 2013 2015 2017 2019 2021

3.7.2.4 Advanced Economy Headline Inflation Rate

Percent Percent

Source: Bloomberg, L.P.

As Of: Sep-2021

Note: Data represents year-over-year 

percentage change in headline inflation. 

Euro Area

Japan

United States 

United Kingdom

1.0

1.5

2.0

2.5

3.0

3.5

40

60

80

100

120

140

2007 2009 2011 2013 2015 2017 2019 2021

3.7.2.3 Advanced Economy Interest Expense and Government Debt

Percent of GDP Percent of GDP

Source: IMF Fiscal Monitor

Interest Expense 

(right axis)

Government Debt 

(left axis)

As Of: Apr-2021

Note: 2021 projected. 

0

10

20

30

40

0

10

20

30

40

USA CAN GBR FRA DEU ITA JPN AEs

3.7.2.2 Discretionary Fiscal Response to the COVID-19 Pandemic

Percent of GDP Percent of GDP

Source: IMF

Equity, Loans, and Guarantees

Additional Spending & 

Foregone Revenue

As Of: Oct-2021

Note: IMF Database of Country Fiscal Measures 

in Response to the COVID-19 Pandemic. 

3.7.2.4 Advanced Economy Headline Inflation Rate

3.7.2.3 Advanced Economy Interest Expense and Government Debt

3.7.2.2 Discretionary Fiscal Response to the COVID-19 Pandemic Advanced economies have taken significant 

measures to support long-term economic 

recovery, relying on a combination of direct 

fiscal stimulus programs, such as wage subsidies 

and cash payments, and liquidity support in the 

form of loans, asset purchases, and guarantees 

(Chart 3.7.2.2). While direct fiscal spending 

programs have increased headline government 

debt levels meaningfully, interest expense has 

remained stable given the low interest rate 

environment (Chart 3.7.2.3). In addition, 

the economic recovery was supported by 

unprecedented easing by major central banks, 

which helped keep global financial conditions 

historically accommodative in the first nine 

months of 2021. 

Headline inflation rates were elevated in most 

advanced economies through the first nine 

months of 2021 (Chart 3.7.2.4). This increase 

was driven by a variety of factors, including an 

increase in commodity prices, supply chain 

disruptions, and labor shortages. In September, 

concerns over inflationary pressures pushed 

nominal yields higher.
Financial Developments 129

Index As Of: 2021 Q3

3.7.2.6 Real GDP for Select Euro Area Economies

Source: European Commission, 

Haver Analytics

75

80

85

90

95

100

105

75

80

85

90

95

100

105

2019:Q4 2020:Q2 2020:Q4 2021:Q2

Index

Germany

France

Italy

Spain

Note: Seasonally adjusted real GDP. 

Indexed to 100 as of 2019:Q4.

Percent As Of: Sep-2021

3.7.2.5 Euro Area Business and Consumer Surveys

Source: European 

Commission, Haver Analytics

60

70

80

90

100

110

120

130

-40

-30

-20

-10

0

10

20

30

2013 2014 2015 2016 2017 2018 2019 2020 2021

Index

Economic Sentiment (right axis)

Industrial Confidence (left axis)

Consumer Confidence (left axis)

Note: Confidence surveys calculated by subtracting 

the percentage of negative responses from the 

percentage of favorable responses. For economic 

sentiment index, 100 = long-term average.

3.7.2.6 Real GDP for Select Euro Area Economies

3.7.2.5 Euro Area Business and Consumer Surveys Euro Area

Euro area output fell slightly in the fourth 

quarter of 2020 and the first quarter of 2021, as 

the surge of COVID-19 cases and reimposition 

of restrictions hindered the economic recovery. 

However, euro area economic sentiment quickly 

recovered over the winter and now stands well 

above pre-pandemic levels (Chart 3.7.2.5). 

The recovery resumed in the second quarter 

of 2021, and euro area real GDP growth rose 

by 2.2 percent quarter-over-quarter in the 

third quarter. Nevertheless, economic activity 

remains hindered, with third quarter output 

trailing pre-pandemic levels in most Euro area 

countries (Chart 3.7.2.6). 

The ECB continues to deploy a range of 

unconventional monetary tools to help support 

the euro area economy. As part of the Pandemic 

Emergency Purchase Programme, the ECB has 

purchased €1.4 trillion of public and private 

sector securities through September 2021 and 

is expected to purchase an additional €550 

billion until at least the end of March 2022. 

On September 9, the ECB announced it would 

move to a “moderately lower pace” from the 

€80 billion per month level it had conducted 

since March. The program, which supplements 

the continued asset purchase programme, has 

helped preserve favorable financing conditions 

and support the smooth transmission of 

monetary policy. At the same time, the ECB has 

maintained a bank deposit rate of -0.5 percent 

and conducted a monetary policy strategic 

review, agreeing to a symmetric inflation target 

of 2.0 percent over the medium term. As a 

result, the ECB revised its forward guidance 

in July 2021, noting that it expects key interest 

rates to remain at current or lower levels, until 

it sees inflation reaching 2.0 percent, well ahead 

of the end of its projection horizon. However, 

according to September ECB staff projections, 

the projection horizon reading for inflation is 

1.5 percent, well below the 2.0 percent target.

In July 2021, the EU began disbursing 

funds to member states under its historic 

NextGenerationEU (NGEU) plan. The plan, 

which was officially proposed in May 2020, was 
130 2021 2021 FSOC // FSOC // Annual Report Annual Report

Percent As Of: 30-Sep-2021

3.7.2.7 Euro Area 10-Year Sovereign Yields

Source: Reuters, Haver Analytics

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5

Jan:2018 Jan:2019 Jan:2020 Jan:2021

Percent

Spain

France

Germany

Greece

Italy

Portugal

3.7.2.7 Euro Area 10-Year Sovereign Yields established to help member states’ economic 

recovery from COVID-19 while also supporting 

the green and digital transition. In total, the 

European Commission is permitted to borrow 

up to €806.9 billion on behalf of member 

states. The EU’s Recovery and Resilience 

Facility accounts for the bulk of the NGEU 

spending, with €338 billion allocated to be 

dispersed as grants and €385.8 billion to be 

dispersed as loans. The facility should provide 

heavily indebted member states additional 

fiscal space to support economic recovery from 

the COVID-19 pandemic. As of October 2021, 

the European Commission had approved 19 

member state plans. 

In the second quarter of 2021, the euro area 

general government debt totaled €11.6 trillion, 

a 6 percent increase year-over-year. While the 

euro area debt-to-GDP decreased from 101 

percent to 98.3 percent in the second quarter, 

it exceeds the 94.4 percent recorded one year 

prior. This increase in debt can be attributed 

to the financing needs of the policy measures 

adopted to mitigate financial fallout from 

the pandemic. Core and periphery euro area 

sovereign bond yields remain historically 

low, and as of September 30, all 10-year euro 

area sovereign bonds were trading with yields 

below one percentage point (Chart 3.7.2.7). 

The continued low yields and tight sovereign 

credit spreads can be primarily attributed 

to accommodative monetary policy and the 

introduction of the EU-wide fiscal relief 

package, in addition to low rates of inflation, 

expected inflation, and economic growth. 

United Kingdom

UK activity rebounded strongly in the spring 

and summer of 2021, as the government made 

progress on its vaccination program and lifted 

COVID-19 restrictions. UK real GDP rose by 

1.3 percent in the third quarter, following a 5.5 

percent increase in the second quarter of 2021. 

A pickup in consumer spending drove much of 

that growth, with household consumption rising 

by 7.3 percent and 2.0 percent in the second 

and thirds quarter of 2021, respectively. 
Financial Developments 131

-3

-2

-1

0

1

2

3

-3

-2

-1

0

1

2

3

2005 2008 2011 2014 2017 2020

3.7.2.8 Japanese Consumer Price Inflation

Percent Percent

Source: Bank of Japan, 

Haver Analytics

As Of: Sep-2021

Note: Data represents year-over-year percentage 

change. CPI excludes fresh food and is adjusted for the 

consumption tax increase that took effect in April 2014.

3.7.2.8 Japanese Consumer Price Inflation The UK government launched a series of 

programs, which largely ended this year, to 

support households and businesses through 

the COVID-19 pandemic. As of May 31, 2021, 

aggregate lending under the UK’s three 

business loan schemes totaled £79 billion and 

as of September 14, total claims under the UK’s 

Coronavirus Job Retention Scheme totaled £69 

billion. These programs have helped support 

employment, and as of September 2021, the UK 

unemployment rate stood at 4.3 percent. 

Similar to other advanced economies, UK 

inflation has risen above 2 percent in recent 

months. While the pickup in inflation was 

primarily attributed to higher goods prices, 

the UK has experienced an increase in service 

sector inflation. In October 2021, the Bank of 

England (BOE) warned that it would have to act 

to curb inflationary pressure, causing markets 

to anticipate a potential November rate hike. 

The BOE also announced that it has lowered 

the level of the Bank Rate at which it would 

begin to reduce its stock of purchased assets, 

thereby allowing its balance sheet to start 

shrinking earlier than market participants had 

expected.

Japan

While Japanese economic activity has 

rebounded, the recovery has been more 

subdued relative to other advanced economies, 

with real GDP by just 0.4 percent in the second 

quarter of 2021 before declining by 0.8 percent 

in the third quarter of 2021. The relative 

underperformance of the Japanese recovery 

may be partly attributed to the reintroduction 

of emergency measures to stem the spread 

of the virus and the delayed vaccination 

program, in addition to the economy’s lower 

potential growth due to its rapidly aging and 

falling population. Japanese inflation has 

picked up in recent quarters but remains well 

below 2.0 percent (Chart 3.7.2.8). 

Prior to the pandemic, the Bank of Japan (BOJ) 

eased its monetary stance by switching from 

date-based forward guidance to open-ended 

policy, noting that it expected to keep policy 
132 2021 2021 FSOC // FSOC // Annual Report Annual Report

0

2

4

6

8

10

0

2

4

6

8

10

Aggregate Asia Europe Latin

America

Middle East Africa

3.7.3.1 EME GDP Growth

Percent Percent

Source: IMF WEO

As Of: Oct-2021

2010–2019 Average 

2021 Projected

3.7.3.1 EME GDP Growth

-40

0

40

80

120

160

-40

0

40

80

120

160

2010 2012 2014 2016 2018 2020

3.7.2.9 Japan 10-Year Government Bond Yield

Basis Points Basis Points

Source: Bloomberg, L.P.

As Of: 30-Sep-2021

3.7.2.9 Japan 10-Year Government Bond Yield rates at current levels or to reduce them so long 

as uncertainties remained regarding reaching 

the 2 percent inflation target. The BOJ has 

maintained its policy rate at -0.1 percent since 

January 2016. In addition, the BOJ continued to 

follow its policy of yield curve control whereby 

the BOJ will purchase Japanese government 

bonds (JGBs) so that the 10-year JGB yield 

remains at around zero percent. Since the 

introduction of the BOJ’s yield curve control 

policy in 2016, the yield on 10-year JGBs has 

remained little changed (Chart 3.7.2.9). 

On March 26, 2020, the BOJ announced that 

it would enhance monetary easing through 

a number of policy measures, including 

increasing purchases of JGBs, easing access 

to U.S. dollar funds, purchasing CP and 

corporate bonds, establishing a new operation 

to provide loans against corporate debt, and 

actively purchasing exchange-traded funds and 

Japanese REITs. 

At subsequent meetings, the BOJ announced 

the expansion of its CP and corporate bond 

purchase programs along with the introduction 

of a new operation to support bank lending 

to small and medium-sized enterprises. In 

addition, the BOJ has announced it will launch 

a climate change scheme by the end of 2021, 

which is expected to last until 2030. Under this 

scheme, the BOJ will offer funds to banks that 

extend green and sustainability-linked loans, as 

well as invest in green bonds and sustainabilitylinked bonds.

3.7.3 Emerging Market and Developing 

Economies

Emerging market economies, which 

experienced a sharp contraction in economic 

output in the first half of 2020, are projected 

to rebound sharply in 2021. According to the 

IMF’s October 2021 WEO update, emerging 

and developing economies are projected to 

grow by 6.4 percent in 2021 (Chart 3.7.3.1). 

In aggregate, emerging Asian economies are 

projected to continue to outperform other 

emerging market economies, with the region 

projected to grow by 7.2 percent in 2021. 

Despite significant COVID-19 outbreaks in 
Financial Developments 133

0

150

300

450

600

750

900

0

150

300

450

600

750

900

2005 2007 2009 2011 2013 2015 2017 2019 2021

YTD

3.7.3.3 Emerging Market Non-Local Bond Issuance

Billions of US$ Billions of US$

Source: Dealogic

As Of: 30-Sep-2021

Note: Bonds have maturities greater than one-year and have been 

internationally marketed or placed. “Public” includes issuance by municipal 

and state-owned enterprises. 2021 figures are through September.

Private

Public

Sovereign

3.7.3.2 Emerging Market Sovereign Bond Spreads

Source: JP Morgan, Haver Analytics

0

200

400

600

800

1000

0

200

400

600

800

1000

2013 2014 2015 2016 2017 2018 2019 2020 2021

Basis Points As Of: 30-Sep-2021 Basis Points

Latin America

Europe

Asia

Note: JP Morgan EMBI+ Sovereign 

Spreads indices for each region. 

3.7.3.3 Emerging Market Non-Local Bond Issuance

3.7.3.2 Emerging Market Sovereign Bond Spread Latin America, the region is expected to 

rebound sharply in 2021, with projected GDP 

growth reaching 6.3 percent compared to an 

average of 2.0 percent between 2010 and 2019. 

While headline emerging market GDP has 

rebounded strongly, the economic recovery 

has not been uniform. Commodity producers, 

which were particularly hard hit in the early 

stages of the pandemic, have rebounded with 

the increased demand for raw materials. In 

contrast, emerging market economies reliant 

on tourism continue to struggle and have 

seen a deterioration in external balances. 

Additionally, limited vaccine access in certain 

emerging market economies may weigh on 

growth prospects, particularly if the spread of 

more virulent COVID-19 variants stresses local 

health infrastructure. Inflationary pressures 

have prompted some central banks to raise 

policy rates, which, combined with a potential 

tightening of global financial conditions, 

could introduce additional stress in emerging 

economies.

Spreads on USD-denominated sovereign bonds 

have compressed markedly since the March 

2020 market stress, with Latin American, 

Asian, and European spreads returning to 

pre-pandemic levels (Chart 3.7.3.2). The 

compression of sovereign bond spreads, which 

can be attributed to improved risk sentiment 

and accommodative financial conditions, has 

helped support emerging market global bond 

issuances. In 2020, non-local emerging market 

bond issuances totaled $795 billion, up from 

$709 billion the previous year. The strong pace 

of issuances continued in 2021, with yearto-date issuances totaling $654 billion as of 

September 30, 2021 (Chart 3.7.3.3). 

Similarly, emerging market economies 

experienced strong foreign investor portfolio 

inflows in the second half of 2020 (Chart 

3.7.3.4). By the fourth quarter, portfolio flows 

hit a record $201 billion, with equity inflows 

totaling $82 billion and debt inflows totaling 

$120 billion. As of the second quarter of 2021, 

portfolio flows and foreign direct investment 

made up 24 percent and 37 percent of foreign 

-300

-150

0

150

300

450

600

-300

-150

0

150

300

450

600

2011 2013 2015 2017 2019 2021

Other

3.7.3.4 Foreign Investor Inflows to EMEs

Billions of US$ Billions of US$

Source: IMF, Haver Analytics

As Of: 2021 Q2

Portfolio Flows

Foreign Direct Investment Net Flows

3.7.3.4 Foreign Investor Inflows to EMEs
134 2021 2021 FSOC // FSOC // Annual Report Annual Report

Percent As Of: 2021 Q3

3.7.3.6 Chinese Real GDP Growth and its Components

Source: China National Bureau 

of Statistics, Haver Analytics

-20

-10

0

10

20

30

-20

-10

0

10

20

30

2016 2017 2018 2019 2020 2021

Agriculture

Services

Manufacturing

Total

Percent

Note: Year-over-year percentage change. 

-150

-75

0

75

150

225

300

-150

-75

0

75

150

225

300

2011 2013 2015 2017 2019 2021

3.7.3.5 Foreign Investor Portfolio Inflows to EMEs, by Region

Billions of US$ Billions of US$

Source: IMF, Haver Analytics

As Of: 2021 Q2

Emerging Markets (ex-China)

China

3.7.3.6 Chinese Real GDP Growth and its Components

3.7.3.5 Foreign Investor Portfolio Inflows to EMEs, by Region investor flows into emerging market economies, 

respectively. Portfolio flows into China have 

driven the recent increase in foreign investor 

inflows, accounting for approximately two 

thirds of total foreign investor portfolio inflows 

for the three quarters ended December 31, 2020 

(Chart 3.7.3.5). 

China 

At the onset of the pandemic, Chinese 

authorities imposed strict containment 

measures, which led to a sharp decline in 

economic activity. These containment efforts 

helped mitigate the spread of COVID-19 and 

ultimately allowed for a full reopening of the 

Chinese economy. At the same time, an increase 

in external demand for goods allowed for a 

sharp rebound in Chinese manufacturing, 

and Chinese economic growth outpaced 

global economic growth in 2020 (Chart 

3.7.3.6). However, household consumption 

lagged the broader recovery, and in 2020, 

Chinese household consumption fell by 4 

percent despite the increase in overall GDP. 

In September 2021, China’s official producer 

price index climbed nearly 11 percent from a 

year earlier, exceeding forecasts and reaching 

the highest level since November 1995, as coal 

prices and other commodity costs soared. 
Financial Developments 135

Percent As Of: Sep-2021

3.7.3.8 Chinese Credit Growth

Source: PBOC, CCDC, 

Haver Analytics, Staff 

Calculations

5

10

15

20

25

5

10

15

20

25

2013 2014 2015 2016 2017 2018 2019 2020 2021

Total Social Financing (New Definition)

Total Social Financing (Old Definition)

Percent

Note: Calculated as the year-over-year percentage change in total 

social financing (TSF) flows since 2002. TSF refers to the total volume 

of financing provided by the financial system to the real economy. TSF 

(old definition) excludes loan write-offs, ABS of depository institutions, 

and local government special bonds.

0

50

100

150

200

250

0

50

100

150

200

250

2008 2010 2012 2014 2016 2018 2020

3.7.3.7 Credit to the Chinese Nonfinancial Private Sector 

Percent of GDP As Of: 2021 Q1 Percent of GDP

Source: China National Bureau of 

Statistics, BIS, Haver Analytics Note: Rolling 4-quarter sum of GDP.

Nonbank Lending

Bank Lending

3.7.3.8 Chinese Credit Growth 

3.7.3.7 Credit to the Chinese Nonfinancial Private Sector Prior to the COVID-19 pandemic, Chinese 

authorities were taking steps to encourage 

financial deleveraging, leading to a stabilization 

in the level of credit provided to the 

nonfinancial private sector as a percent of GDP 

(Chart 3.7.3.7). Chinese regulators paused this 

deleveraging campaign as authorities tried to 

balance COVID-19-related credit support with 

longer-term financial stability goals. With the 

stabilization of the Chinese economy, regulators 

have since normalized their monetary policy 

and credit growth has returned to prepandemic levels (Chart 3.7.3.8).

Recent events have highlighted the tensions 

Chinese regulators face in introducing market 

discipline. In the spring, reports emerged of 

a potential default by China Huarong Asset 

Management Co., the largest of China’s four 

“bad banks” established in 1999 to manage 

nonperforming loans in the aftermath of 

the Asian Financial Crisis. In light of this, 

Huarong’s $21 billion of dollar bonds traded 

at a significant discount despite the fact that 

the firm carried an A and A- rating from Fitch 

and S&P in the first quarter, which raised 

investor uncertainty around government 

support for state-linked firms. Ultimately, 

Huarong announced in August that it would be 

recapitalized by state investors, which reversed 

the effect of contagion to other state-owned 

enterprises. 

Additionally, China Evergrande Group, the 

world’s most indebted property developer, 

has experienced significant distress in recent 

months, with the firm warning that it “has 

risks of defaults on borrowings.” Evergrande 

had about $20 billion in dollar denominated 

bonds outstanding and in early September, 

its 2022 dollar bonds were trading at less than 

30 cents on the dollar. On September 16, 

Evergrande’s main unit applied to suspend 

trading of its onshore corporate bonds 

following a downgrade. Stress has spilled over 

into the broader offshore dollar bond market, 

with yields spiking past levels seen at the onset 

of the COVID-19 pandemic. Additionally, 

the event has highlighted fears over China’s 
136 2021 FSOC // Annual Report

heavily leveraged real estate sector, which, by 

some estimates, amounts to almost 30 percent of 

its economy. A slowdown in China’s real estate 

market could also trigger spillover effects in global 

commodity markets, where China accounts for 

almost half or more than half of steel, copper, and 

iron ore consumption.

Chinese authorities have launched a crackdown 

on various industries in recent months, with 

particular focus on the “platform economy”, or 

internet companies operating a range of services; 

cryptocurrency; and for-profit education. In 

November 2020, Chinese technology company Ant 

Group’s initial public offering in Shanghai and 

Hong Kong was suspended, with the Shanghai 

Stock Exchange citing as the cause Ant’s inability 

to meet listing conditions and information 

disclosure requirements. Since then, authorities 

have introduced anti-monopoly legislation against 

multiple technology companies, including the 

e-commerce company Alibaba and the ride-hailing 

firm Didi. Financial regulators subsequently 

barred banks and online payment firms from using 

cryptocurrency for payment or settlement in May 

2021 and banned cryptocurrency transactions and 

mining in September. Moreover, in its July “double 

reduction policy”, the government ordered private 

businesses to suspend online and offline tutoring 

classes for children from kindergarten through 

ninth grade.
Council Activities and Regulatory Developments 137

4.1 Council Activities

4.1.1 Risk Monitoring and Regulatory Coordination

The Dodd-Frank Act charges the Council with 

the responsibility to identify risks to U.S. financial 

stability, promote market discipline, and respond 

to emerging threats to the stability of the U.S. 

financial system. The Council also has a duty to 

facilitate information sharing and coordination 

among member agencies and other federal and state 

agencies regarding financial services policy and 

other developments. 

The Council regularly examines significant market 

developments and structural issues within the 

financial system. This risk monitoring process 

is facilitated by the Council’s Systemic Risk 

Committee (SRC), whose participants are primarily 

member agency staff in supervisory, monitoring, 

examination, and policy roles. The SRC serves as 

a forum for member agency staff to identify and 

analyze potential risks, which may extend beyond 

the jurisdiction of any one agency. The Council’s 

Regulation and Resolution Committee (RRC) 

also supports the Council in its duties to identify 

potential gaps in regulation that could pose risks to 

U.S. financial stability.

As part of its responsibility to identify risks to U.S. 

financial stability, the Council has considered 

climate-related financial risks over the past year. The 

Council first discussed these risks at its March 2021 

meeting, at which members highlighted a broad set 

of work beginning or underway at individual agencies 

and organizations. In October 2021, the Council 

published a Report on Climate-Related Financial 

Risk, issued in response to the directive in Executive 

Order 14030, Climate-Related Financial Risk, to the 

Secretary of the Treasury to engage Council members 

on this topic and report on the Council’s activities. 

The report details the Council’s finding that climate 

change is an emerging threat to the financial stability 

of the United States (see Box F). 

4 Council Activities and Regulatory 

Developments

Box F: Climate-Related Financial Risk

There is broad scientific consensus that climate 

change is driven by greenhouse gas (GHG) 

emissions caused by human activity. According to 

the Intergovernmental Panel on Climate Change, 

climate change is impacting every region of the 

Earth’s climate, these impacts are intensifying, and 

some of these impacts, such as sea-level rise, are 

likely to be irreversible. Increasing adverse effects 

from climate change to households, communities, 

and businesses will likely exacerbate climaterelated risks to the U.S. and global financial 

systems if not addressed. 

Climate-related financial risks can be grouped 

into two broad categories: physical risks and 

transition risks.

Physical risks refer to the harm to people and 

property arising from acute, climate-related 

disaster events such as hurricanes, wildfires, 

floods, and heatwaves, as well as longer-term 

chronic phenomena such as higher average 

temperatures, changes in precipitation patterns, 

sea level rise, and ocean acidification.

Transition risks refer to stresses to certain 

institutions or sectors arising from the shifts 

in policy, consumer and business sentiment, 

or technologies associated with the changes 

necessary to limit climate change. One key 

category of policy changes associated with 

transition risks are those directed at incentivizing 

or requiring reductions in GHG emissions. A 
138 2021 FSOC // Annual Report

Box F: Climate-Related Financial Risk (continued)

variety of economic mechanisms could be used to 

lower GHG emissions. These mechanisms could 

include regulation, such as a Clean Electricity 

Standard, carbon taxation, or subsidization of 

green products. Depending on the stringency of 

the standard and related incentives, subsidies, or 

penalties, such regulatory mechanisms would raise 

the implicit price of carbon by varying degrees. 

This can incentivize the transition of GHG-intensive 

production processes, products, or services to lowerGHG states. While these regulatory tools can facilitate 

the achievement of climate-related goals, there may 

be associated climate-related financial risks.

As the United States and other countries 

undertake the transition to a less GHG-intensive 

economy, changing public policies, adoption of 

new technologies, and shifting consumer and 

investor preferences have the potential to impact 

the allocation of capital in their economies. If 

these changes occur in a disorderly way owing to 

substantial delays in action or abrupt unanticipated 

changes in policy, their impact on households, 

communities, businesses, and other entities is likely 

to be more sudden and disruptive. 

From Climate-Related Physical Risks to Financial Risks

Increased frequency and severity of acute physical 

risk events and longer-term chronic phenomena 

associated with climate change are expected to 

lead to increased economic and financial costs. 

For example, the Network of Central Banks and 

Supervisors for Greening the Financial System 

(NGFS), an international organization of which 

the FRB and OCC are members, has developed 

scenarios that the private and public sectors can use 

in their analysis of climate-related financial risks. The 

NGFS scenario for potential outcomes under current 

policies shows a substantial increase in the segment 

of the U.S. population annually subject to heatwaves, 

with consequent potential effects on productivity 

and other factors, and shows a sizable increase in 

the annual damages associated with tropical storms 

(Charts F.1, F.2). 

Physical risks have direct effects on households, 

communities, businesses, and other entities where 

those risks are realized, as well as to the financial 

institutions and investors to which they are linked, 

thereby creating a variety of climate-related financial 

risks. For example, insurers of property, hazard, flood, 

and other property-related risks are directly exposed 

to these risks. To reduce their potential losses, 

insurers may seek to increase premiums or withdraw 

from at-risk markets, which may lead to reduced 

affordability or availability of insurance coverage in 

vulnerable regions of the country. Such responses by 

0

10

20

30

40

50

0

10

20

30

40

50

2020 2030 2040 2050

Percent Change

F.1 Annual Expected Damage from Tropical Cyclones

Percent Change

Source: NGFS CA 

Climate Impact Explorer Note: Percent change in annual damages under 

NGFS current policies scenario; relative to 2020.

97.5th Percentile

Median

As Of: Jun-2021

F.1 Annual Expected Damage from Tropical Cyclones

0

5

10

15

20

25

0

5

10

15

20

25

2020 2030 2040 2050

Percent Change

F.2 Fraction of Population Exposed to Heatwaves

Percent Change

Source: NGFS CA 

Climate Impact Explorer

Note: Change in fraction of U.S. population annually 

exposed to heatwaves under NGFS current policies 

scenario. Percent change relative to 1986-2006 average.

97.5th Percentile

Median

As Of: Jun-2021

F.2 Fraction of Population Exposed to Heatwaves
Council Activities and Regulatory Developments 139

Box F: Climate-Related Financial Risk (continued)

insurers may affect the economic and financial health 

of households, businesses, and governments in these 

communities. 

In addition, increased actual damages to properties 

associated with physical risks may lower the value 

of collateral or the income generated by such 

properties, posing credit and market risks to banks, 

insurers, pension plans, and others. Increased legal, 

operational, and liquidity risks may also occur. In 

response, creditors may pull back from impacted 

regions, amplifying the initial harmful impact of the 

climate-related disaster events and creating further 

financial and economic strains. Further, if investors’ 

expectations about physical risks shift suddenly, 

this could contribute to an abrupt repricing event in 

certain asset classes. If leveraged institutions are 

exposed to that repricing event, that could transmit 

risk more broadly through the financial system.

From Climate-Related Transition Risks to Financial Risks

As countries transition to a low-GHG economy, 

the underlying drivers of transition risk—changes 

in public policy, adoption of new technologies, and 

shifting consumer and investor preferences—all 

have the potential to impose added costs on some 

households, communities, businesses, and other 

entities even as they reduce overall climate risks. 

As a result, impacted firms may have less ability to 

meet their financial obligations. Economic sectors 

that produce the majority of GHG emissions—the 

transportation sector (including household and 

business motor vehicles), electricity generation, and 

heavy manufacturing, for example—may witness 

sizable shifts in modes of production. This process 

may lead some businesses to experience losses 

and decline, while other businesses may succeed in 

adapting to new modes of production and expand. 

The shifts in economic and financial risks will likely 

be broadly felt, as, for example, sectors most directly 

affected by reductions in GHG emissions pass 

on increased costs through supply chains and to 

consumers.

As a result, the economic effects associated with 

transitions may be transmitted through the financial 

sector and the economy in ways that could challenge 

the resilience of financial institutions or the financial 

sector if firms do not manage the risk appropriately. 

Financial risks associated with transitions to a lowGHG economy likely increase if such transitions 

are delayed and occur in an unanticipated, abrupt 

manner. In such a scenario, financial markets could 

experience dramatic movements in response to 

unexpected changes, potentially resulting in a large 

decline in the values of assets. 

Financial Risks Associated with a Disorderly Transition

A disorderly transition to a low-GHG economy 

increases risks to financial stability. A disorderly 

transition could occur because of delays in mitigating 

the drivers of climate change, large and unpredictable 

policy changes, or sharp differences in approaches 

across countries, among other possibilities. To 

highlight potential considerations, the NGFS has 

developed disorderly transition scenarios. For 

example, one scenario involves delays in policy 

steps to mitigate climate change, which may boost 

uncertainty regarding the ultimate impact of possible 

policy changes on economic activity and asset 

values. Moreover, delays and years of complacency 

eventually require larger, more disruptive policy 

adjustments in the scenario, which would likely have 

more dramatic effects on economic activity and asset 

values. Risks to financial stability would likely be 

most contained if policies to facilitate the transition 

begin early, are communicated clearly, and follow an 

orderly, predictable path, thereby assisting a smooth 

transition for economic and financial actors, as well 

as households and businesses. It is considerably 

more difficult to judge the magnitude of risks to 

financial stability in a disorderly transition in which the 

economy and markets are forced to react to large, 

unanticipated changes in policy.

Analysis and preparation for such a scenario are 

needed in light of the current lack of international 
140 2021 2021 FSOC // FSOC // Annual Report Annual Report

Box F: Climate-Related Financial Risk (continued)

or even domestic agreement on a coherent 

set of policies for achieving stated climate 

objectives. Financial authorities around the 

world have recognized the need to consider 

a disorderly transition in analyzing climaterelated financial risks. For example, the French 

Autorité de Contrôle Prudentiel et de Résolution 

considered two disorderly scenarios in its 2021 

assessment, and the Bank of England’s 2021 

Biennial Exploratory Scenario on financial risks 

from climate change included a late transition that 

highlighted the attendant risks.

The Council is also evaluating the vulnerabilities 

posed by three types of NBFIs: open-end mutual 

funds, hedge funds, and MMFs. Over the past 

year, the Council has established an open-end 

fund working group and re-established a hedge 

fund working group in order to better share data 

and identify risks associated with both kinds of 

nonbanks. The structural vulnerabilities of MMFs 

were the subject of a statement by the Council on 

June 11, 2021, which emphasized the importance of 

reforms to improve the resilience and functioning of 

short-term funding markets. The Council expressed 

support for the SEC’s engagement on this critical 

issue and will continue to monitor this initiative. 

4.1.2 Determinations Regarding Nonbank Financial 

Companies and Activities-Based Approach

One of the Council’s statutory authorities is to 

subject a nonbank financial company to supervision 

by the Federal Reserve and enhanced prudential 

standards if the company’s material financial 

distress—or nature, scope, size, scale, concentration, 

interconnectedness, or mix of its activities—could 

pose a threat to U.S. financial stability. The DoddFrank Act sets forth the standard for the Council’s 

determinations regarding nonbank financial 

companies and requires the Council to consider 

ten specific considerations and any other riskrelated factors that the Council deems appropriate 

when evaluating those companies. The Council’s 

final interpretive guidance, issued in 2019, makes 

modifications to the processes the Council 

intends to follow if it were to consider making 

a determination to subject a nonbank financial 

company to supervision by the Federal Reserve. The 

guidance also describes the approach the Council 

intends to take in prioritizing its work to identify 

and address potential risks to U.S. financial stability 

using an activities-based approach.

As of the date of this report, no nonbank financial 

companies are subject to a final determination by 

the Council under Section 113 of the Dodd-Frank 

Act or are under review in Stage 1 or Stage 2 of the 

Council’s designation process. 

4.1.3 Operations of the Council

The Dodd-Frank Act requires the Council to 

convene no less than quarterly. The Council 

held seven meetings in 2021, including at least 

one each quarter. The meetings bring Council 

members together to discuss and analyze market 

developments, potential threats to financial stability, 

and financial regulatory issues. Although the 

Council’s work frequently involves confidential 

supervisory and sensitive information, the Council 

is committed to conducting its business as openly 

and transparently as practicable. Consistent with the 

Council’s transparency policy, the Council opens 

its meetings to the public whenever possible. The 

Council held a public session at four of its meetings 

in 2021. Approximately every two weeks, the 

Council’s Deputies Committee, which is composed 

of senior representatives of Council members, 

convenes to discuss the Council’s agenda and to 

coordinate and oversee the work of the Council’s 

five other committees. The other committees are 

the Data Committee; the Financial Market Utilities 

and Payment, Clearing, and Settlement Activities 

Committee; the Nonbank Financial Companies 
Council Activities and Regulatory Developments 141

Designations Committee; the RRC; and the SRC. 

The Council is forming two additional committees 

in connection with its work on climate-related 

financial risk. The Council adopted its twelfth 

budget in 2021. 

4.2 Safety and Soundness

4.2.1 Enhanced Capital and Prudential Standards and 

Supervision

On December 8, 2020, the Federal Reserve issued a 

final rule to amend the Federal Reserve’s assessment 

rule, Regulation TT, pursuant to Section 318 of the 

Dodd-Frank Act to address amendments made by 

section 401 of the Economic Growth, Regulatory 

Relief, and Consumer Protection Act (EGRRCPA). 

The final rule raises the minimum threshold for 

being considered an assessed company from $50 

billion to $100 billion in total consolidated assets for 

BHCs and savings and loan holding companies, and 

adjusts the amount charged to assessed companies 

with total consolidated assets between $100 billion 

and $250 billion to reflect changes in supervisory 

and regulatory responsibilities resulting from 

EGRRCPA.

On January 6, 2021, the OCC, Federal Reserve, and 

FDIC issued a final rule that applies to advanced 

approaches banking organizations with the aim 

of reducing both interconnectedness within the 

financial system and systemic risks. As a general 

matter, the final rule requires deduction from a 

banking organization’s regulatory capital for certain 

investments in unsecured debt instruments issued by 

foreign or U.S. G-SIBs for the purposes of meeting 

minimum total loss-absorbing capacity requirements 

and, where applicable, long-term debt requirements, 

or for investments in unsecured debt instruments 

issued by G-SIBs that are pari passu or subordinated 

to such debt instruments.

On February 3, 2021, the Federal Reserve issued 

a final rule tailoring the requirements in the 

Federal Reserve’s 2011 capital plan rule based 

on risk. Specifically, as indicated in the Federal 

Reserve’s October 2019 rulemaking that updated the 

prudential framework for large BHCs and U.S. IHCs 

of FBOs (tailoring rules), the final rule modifies 

the capital planning, regulatory reporting, and 

stress capital buffer requirements for firms subject 

to “Category IV” standards under that framework. 

To be consistent with recent changes to the Federal 

Reserve’s stress testing rules, the final rule makes 

other changes to the Federal Reserve’s stress testing 

rules, Stress Testing Policy Statement issued in 2019, 

and regulatory reporting requirements, such as the 

assumptions relating to business plan changes and 

capital actions and the publication of companyrun stress test results for savings and loan holding 

companies. The final rule also applies the capital 

planning and stress capital buffer requirements 

to covered saving and loan holding companies 

subject to Category II, Category III, and Category IV 

standards under the tailoring rules.

On February 11, 2021, the OCC, the Federal 

Reserve, and the FDIC issued a final rule that 

implements a stable funding requirement, known 

as the net stable funding ratio (NSFR), for 

certain large banking organizations. The final 

rule establishes a quantitative metric, the NSFR, 

to measure the stability of the funding profile of 

certain large banking organizations and requires 

these banking organizations to maintain minimum 

amounts of stable funding to support their assets, 

commitments, and derivatives exposures over a 

one-year time horizon. The NSFR is designed 

to reduce the likelihood that disruptions to a 

banking organization’s regular sources of funding 

will compromise its liquidity position, promote 

effective liquidity risk management, and support 

the ability of banking organizations to provide 

financial intermediation to businesses and 

households across a range of market conditions. 

The NSFR supports financial stability by requiring 

banking organizations to fund their activities with 

stable sources of funding on an ongoing basis, 

reducing the possibility that funding shocks would 

substantially increase distress at individual banking 

organizations. The final rule applies to certain 

large U.S. depository institution holding companies, 

depository institutions, and U.S. IHCs of FBOs, 

each with total consolidated assets of $100 billion or 

more, together with certain depository institution 

subsidiaries (together, covered companies). Under 

the final rule, the NSFR requirement increases in 

stringency based on risk-based measures of the toptier covered company. U.S. depository institution 

holding companies and U.S. IHCs subject to the 
142 2021 FSOC // Annual Report

final rule are required to publicly disclose their 

NSFR and certain components of their NSFR every 

second and fourth calendar quarter for each of the 

two immediately preceding calendar quarters. In 

addition, the final rule amended certain definitions 

in the agencies’ liquidity coverage ratio rule that are 

also applicable to the NSFR.

On May 10, 2021, the OCC, the Federal Reserve, 

and the FDIC issued a proposed rule under section 

39 of the Federal Deposit Insurance Act that would 

establish requirements for tax allocation agreements 

between institutions and their holding companies 

in a consolidated tax filing group. The proposal 

is intended to promote safety and soundness by 

preserving depository institutions’ ownership rights 

in tax refunds and ensuring equitable allocation of 

tax liabilities among entities in a holding company 

structure. Under the proposal, national banks, state 

banks, and savings associations that file tax returns 

as part of a consolidated tax filing group would be 

required to enter into tax allocation agreements 

with their holding companies and other members 

of the consolidated group that join in the filing of 

a consolidated group tax return. The proposal also 

describes specific mandatory provisions in these 

tax allocation agreements, including provisions 

addressing the ownership of tax refunds received.

Actions Relating to CARES Act and Federal Reserve 

Facilities

On December 31, 2020, the NCUA issued a final 

rule amending its regulation governing assessment 

of an annual operating fee to federal credit unions 

(FCUs). First, for purposes of calculating the annual 

operating fee, the final rule made amendments to 

exclude from total assets any loan an FCU reports 

under the Small Business Administration’s PPP or 

similar future programs approved for exclusion 

by the NCUA. Second, the final rule eliminates 

regulatory references to the Credit Union System 

Investment Program and the Credit Union 

Homeowners Affordability Relief Program, both of 

which no longer exist. Third, the final rule amends 

the period used for the calculation of an FCU’s 

total assets. Under the final rule, total assets will be 

calculated as the average total assets reported on 

the FCU’s previous four Call Reports available at 

the time the NCUA approves the agency’s budget 

for the upcoming year, adjusted for any excludable 

programs as determined by the NCUA.

On March 24, 2021, in response to the enactment of 

the Consolidated Appropriations Act of 2021 (CAA), 

the NCUA issued an interim final rule to conform 

the NCUA’s regulations to the statutory changes 

made by the CAA. Specifically, the CAA extended 

several enhancements to the NCUA’s Central 

Liquidity Facility (CLF), which were first enacted by 

the CARES Act. This rule amended the NCUA’s CLF 

regulation to reflect these extensions. It also extends 

the withdrawal from CLF membership provisions 

that the NCUA included in the April 2020 interim 

final rule that made the aforementioned regulatory 

changes related to the CARES Act.

On April 17, 2020, the Federal Reserve issued an 

interim final rule to except certain loans made 

through June 30, 2020, which are guaranteed 

under the PPP, from the requirements of the 

Federal Reserve Act and the associated provisions 

of the Federal Reserve’s Regulation O. The Federal 

Reserve issued two additional interim final rules 

to extend the exception when Congress approved 

extensions to the PPP. On May 21, 2021, to reflect 

a further extension approved by Congress and to 

automatically capture any further extensions, the 

Federal Reserve issued an interim final rule to 

extend this exception to such loans made through 

March 31, 2022.

Additional Regulatory Actions in Response to 

COVID-19

On December 2, 2020, the OCC, Federal Reserve, 

and the FDIC issued an interim final rule to 

mitigate temporary transition costs on banking 

organizations related to COVID-19. The rule 

permits national banks, savings associations, state 

banks, BHCs, savings and loan holding companies, 

and U.S. branches and agencies of foreign banking 

organizations with under $10 in total assets as of 

December 31, 2019, to use asset data as of December 

31, 2019, in order to determine the applicability of 

various regulatory asset thresholds during calendar 

years 2020 and 2021. For the same reasons, the 

Federal Reserve temporarily revised the instructions 

to a number of its regulatory reports to provide that 

community banking organizations may use asset 

142 2021 FSOC // Annual Report
Council Activities and Regulatory Developments 143

data as of December 31, 2019, in order to determine 

reporting requirements for reports due in calendar 

years 2020 or 2021.

On December 4, 2020, the NCUA issued a proposed 

rule to amend its regulations by removing the 

prohibition on the capitalization of interest in 

connection with loan workouts and modifications. 

The NCUA determined that the prohibition on 

authorizing additional advances to finance unpaid 

interest may be overly burdensome and, in some 

cases, hamper a federally insured credit union’s 

(FICU’s) good-faith efforts to engage in loan 

workouts with borrowers facing difficulty because 

of the economic disruption that the COVID-19 

pandemic has caused. It further determined that 

advancing interest may avert the need for alternative 

actions that would be more harmful to borrowers. 

The proposed rule would establish documentation 

requirements to help ensure that the addition 

of unpaid interest to the principal balance of a 

mortgage loan does not hinder the borrower’s 

ability to become current on the loan. The proposed 

change would apply to workouts of all types of 

member loans, including commercial and business 

loans.

On December 16, 2020, the Federal Reserve 

announced the extension of its temporary U.S. 

dollar liquidity swap lines and the FIMA repo facility 

through September 30, 2021. These facilities were 

temporarily established in March 2020 to ease 

strains in global dollar funding markets resulting 

from the COVID-19 shock and mitigate the effect 

of such strains on the supply of credit to households 

and businesses, both domestically and abroad. The 

Federal Reserve indicated that a further extension 

would help sustain recent improvements in global 

U.S. dollar funding markets by serving as an 

important liquidity backstop. The Federal Reserve 

also indicated that the FIMA repo facility would 

help continue to support the smooth functioning of 

the U.S. Treasury market by providing an alternative 

temporary source of U.S. dollars other than sales 

of securities in the open market. The FIMA repo 

facility was made a standing facility on July 28, 2021.

On December 22, 2020, the NCUA extended the 

effective date of its temporary final rule, issued 

in April 2020, which modified certain regulatory 

requirements to help ensure that federally insured 

credit unions (FICUs) remain operational and can 

properly conduct appropriate liquidity management 

to address economic conditions caused by the 

COVID-19 pandemic. Specifically, the rule issued 

in April 2020 temporarily raised the maximum 

aggregate amount of loan participations that a 

FICU may purchase from a single originating 

lender to the greater of $5,000,000 or 200 percent 

of the FICU’s net worth. The rule also temporarily 

suspended limitations on the eligible obligations 

that a federal credit union (FCU) may purchase 

and hold. In addition, given physical distancing 

practices necessitated by COVID-19, the rule tolled 

the required timeframes for the occupancy or 

disposition of properties not being used for FCU 

business or that have been abandoned. Unless 

extended, each of these temporary modifications 

would expire on December 31, 2020. Due to 

the continued impact of COVID-19, the NCUA 

determined it was necessary to extend the effective 

period of these temporary modifications until 

December 31, 2021.

On March 22, 2021, the OCC, Federal Reserve, and 

FDIC issued an interim final rule to support and 

facilitate the timely implementation and acceptance 

of the Congressionally authorized Emergency 

Capital Investment Program (ECIP) for Treasury 

to make capital investments in low- and moderateincome community financial institutions. The 

rule provides that preferred stock issued under 

ECIP qualifies as additional tier 1 capital and that 

subordinated debt issued under ECIP qualifies as 

tier 2 capital under the agencies’ capital rule.

4.2.2 Dodd-Frank Act Stress Tests and 

Stress Capital Buffer

Section 165(i)(2) of the Dodd-Frank Act, as revised 

by EGRRCPA, requires certain large financial 

companies to conduct periodic stress tests.

On February 12, 2021, the Federal Reserve and OCC 

released economic and financial market scenarios 

for use in stress tests for covered institutions. The 

supervisory scenarios include baseline and severely 

adverse scenarios, as described in the agencies’ final 

rule that implements stress test requirements of the 

Dodd-Frank Act. Rules state that the agencies will 

provide scenarios to covered institutions by February 
144 2021 FSOC // Annual Report

15 of each year. Covered institutions are required 

to use the scenarios to conduct periodic stress tests. 

The results of the company-run stress tests will assist 

the agencies in assessing the risk profile and capital 

adequacy of covered institutions.

In March 2020, the Federal Reserve simplified its 

capital framework with the stress capital buffer 

requirement, which integrates the results from the 

supervisory stress test with its non-stress capital 

requirements into one forward-looking and risksensitive framework. This framework replaced the 

quantitative portion of the Board’s Comprehensive 

Capital Analysis and Review (CCAR) framework. 

Stress Capital Buffers resulting from the 2021 

stress test went into effect for the largest firms on 

October 1, 2021.

4.2.3 Resolution Planning and Orderly Liquidation

Under the framework of the Dodd-Frank Act, 

resolution under the U.S. bankruptcy code is the 

statutory first option in the event of the failure of 

a financial company. Section 165(d) of the DoddFrank Act requires nonbank financial companies 

designated by the Council for supervision by the 

Federal Reserve and certain BHCs—including 

certain FBOs with U.S. operations—to periodically 

submit plans to the Federal Reserve, the FDIC, and 

the Council for their rapid and orderly resolution 

under the U.S. bankruptcy code in the event 

of material financial distress or failure. These 

submissions are also referred to as living wills. The 

Federal Reserve and FDIC review each plan and 

may jointly determine that a plan is not credible 

or would not facilitate an orderly resolution of the 

company under the U.S. bankruptcy code. Since 

the resolution planning requirements took effect 

in 2012, U.S. G-SIBs and certain other firms have 

improved their resolution strategies and governance, 

refined their estimates of liquidity and capital needs 

in resolution, and simplified their legal structures. 

These changes have made these firms more resilient 

and resolvable.

On December 9, 2020, the Federal Reserve and 

FDIC announced several resolution plan actions. 

First, the agencies confirmed that weaknesses 

previously identified in the resolution plans for 

several large foreign banks have been remediated. 

Second, the agencies finalized guidance for the 

resolution plans of certain large foreign banks. This 

final guidance modifies the proposed guidance, 

which was issued in March 2020, in several ways. 

The agencies tailored their expectations around 

resolution capital and liquidity, derivatives and 

trading activity, as well as payment, clearing, and 

settlement activities. The scope of the guidance 

was also modified to generally cover foreign 

banks in category II of the agencies’ large bank 

regulatory framework. And third, the agencies 

provided information for large foreign and domestic 

banks that will inform the content of their next 

resolution plans, which are now due December 

17, 2021. In particular, these targeted plans will 

be required to include core elements of a firm’s 

resolution strategy—such as capital, liquidity, and 

recapitalization strategies—as well as how each 

firm has integrated changes to, and lessons learned 

from, its response to COVID-19 into its resolution 

planning process. The information applies to 

foreign and domestic banks in categories II and III 

of the large bank regulatory framework.

As of July 1, 2021, the U.S. G-SIBs submitted public 

and confidential sections of their resolution plans 

to the Federal Reserve and FDIC. On July 19, 2021, 

the Federal Reserve and FDIC released the public 

sections of these firms’ resolution plans on the 

agencies’ respective websites. The agencies will 

review both the confidential and public portions of 

the resolution plans.

Furthermore, in 2021, the Federal Reserve and 

FDIC hosted Crisis Management Group (CMG) 

meetings for U.S. G-SIBs to discuss home and host 

resolvability assessments for the firms to facilitate 

cross-border resolution planning.

4.2.4 Insurance

NAIC/State Developments

On December 9, 2020, NAIC members adopted 

revisions to existing holding company model 

legislation to implement the Group Capital 

Calculation (GCC) and Liquidity Stress Test (LST). 

The model legislation revisions have since been 

adopted by at least six states. The GCC is a groupwide capital reporting and assessment framework 

including insurers, financial, and nonfinancial 

businesses within an insurance group. The LST for 
Council Activities and Regulatory Developments 145

large life insurance groups meeting the scoping 

criteria provides lead state regulators with more 

insights into the groups’ liquidity risk. Until adoption 

of the legislative revisions, states will use existing 

examination authority to conduct the stress test.

On August 14, 2021, NAIC members voted to expose 

for comment a requirement that the GCC and 

LST would become NAIC Accreditation standards, 

effective January 1, 2026. All states that were the 

group wide supervisor for a U.S. group operating in 

either the UK or the EU were encouraged to adopt 

the model legislation to enable the GCC for yearend 2022. During the summer of 2021, 25 insurance 

groups participated in a trial implementation of the 

GCC, reporting their results to lead state supervisors 

to inform anticipated refinements to GCC reporting 

in 2022. In 2021, 22 life insurance groups filed an 

LST using 2020 data.

Throughout 2021, states continued to adopt the 

NAIC Credit for Reinsurance Model Legislation 

and Regulation, which modifies state reinsurance 

rules in light of the U.S.–EU and U.S.–UK Covered 

Agreements. To facilitate implementation of these 

models in the states, the NAIC adopted additional 

changes to the Uniform Application Checklist for 

Certified Reinsurers and a new Uniform Checklist 

for Reciprocal Jurisdiction Reinsurers. Similarly, 

revisions were also adopted to the Process for 

Evaluating Qualified and Reciprocal Jurisdictions. 

The NAIC also adopted several changes impacting 

regulators’ authorities in an insurer receivership, 

specifically updates to the Insurance Holding 

Company System Regulatory Act (#440) and 

the Insurance Holding Company System Model 

Regulation with Reporting Forms and Instructions 

(#450) to make explicit the regulatory authority 

that an insurance commissioner has relative to the 

continuation of essential services of an insurance 

company from an affiliate during a receivership, and 

adopted a Guideline for Administration of Large 

Deductible Policies in Receivership and a Guideline 

for Definition of Reciprocal State in Receivership 

Laws, to clarify regulator authority within the 

receivership process. 

The NAIC also adopted revisions to statutory 

accounting rules and interpretations, specifically 

SSAP No. 25—Affiliates and Other Related Parties 

(SSAP No. 25), relating to insurer transactions with 

affiliates, which clarifies that an ownership interest 

greater than 10 percent in a reporting entity results 

in a related party designation, regardless of any 

disclaimer of control or affiliation. Additionally, 

SSAP No. 25 now requires identification of an 

insurer’s material controlling party and reporting 

on a new Schedule Y, Part 3, which captures all 

entities with ownership greater than 10 percent and 

denotes the ultimate controlling parties of those 

entities and entities they in turn control.

The NAIC adopted Interpretation 21-01 to address 

statutory accounting for cryptocurrencies to clarify 

that directly held cryptocurrencies do not meet 

the definition of either cash or admitted assets. 

The NAIC also updated Risk Based Capital (RBC) 

factors to expand the number of different RBC bond 

factors to allow for more granularity and updated 

historical data on defaults and recoveries and 

updated real estate factors and longevity risk-factors. 

Additionally, the NAIC revised filing requirements 

to the NAIC Securities Valuation Office to capture 

private rating letter rationale reports; and the 

NAIC updated its Financial Condition Examiners 

Handbook and Financial Analysis Handbook, 

utilized in all states, relating to long-term care 

insurance, cyber security assessments, and 

information technology assessments.

States continue to make progress in adopting new 

or revised core regulatory standards. As of October 

2021, 16 states have adopted the 2020 revisions 

to the NAIC’s Suitability in Annuity Transactions 

Model Regulation, and it is pending in six states. 

The revisions clarify that all recommendations by 

agents and insurers must be in the best interest 

of the consumer and that agents and carriers may 

not place their financial interest ahead of the 

consumer’s interest in making the recommendation. 

As of October 21, 18 states have adopted some form 

of the NAIC’s Insurance Data Security Model Law, 

which establishes standards for insurer data security 

and for investigation of and notification to state 

insurance regulators of a cybersecurity event. 
146 2021 FSOC // Annual Report

Covered Agreements

The Bilateral Agreement between the U.S. and the 

EU on Prudential Measures Regarding Insurance 

and Reinsurance, generally known in the United 

States as the U.S.–EU Covered Agreement, was 

signed by the parties in September 2017, and entered 

into force on April 4, 2018. The U.S.–UK Covered 

Agreement, substantively similar to the agreement 

with the EU, was signed by the parties in December 

2018, and entered into force on December 31, 2019. 

Both agreements were negotiated by Treasury’s 

FIO in coordination with the Office of the United 

States Trade Representative, pursuant to the Federal 

Insurance Office Act of 2010 (FIO Act).

The NAIC Credit for Reinsurance Model Law and 

Regulation, as amended in 2019, provides a basis 

for U.S. states to revise their credit for reinsurance 

measures for purposes of achieving consistency with 

the covered agreements and avoiding a potential 

preemption determination under the FIO Act. 

During the past year there has been meaningful 

state-level progress in adopting such revisions, with 

over 45 states having now amended their credit for 

reinsurance frameworks based on the amended 

Model Law (although fewer have so far completed 

revisions based on the amended Model Regulation). 

Under the covered agreements, if U.S. insurance 

supervisors do not develop and implement a 

group capital assessment applicable to U.S. groups 

with insurance operations in the EU and UK, 

regulators from those jurisdictions could impose 

their domestic group capital requirements on 

such groups. In addition, regulators may not be 

precluded from imposing collateral requirements 

on U.S. reinsurers assuming business from insurers 

in those jurisdictions. In December 2020, the NAIC 

adopted its GCC through revisions to the Insurance 

Holding Company System Model Act and Insurance 

Holding Company System Model Regulation in 

part to implement the group capital assessment 

contemplated by the covered agreements. 

Climate-Related Financial Risk

Executive Order 14030 on Climate-Related Financial 

Risk (May 20, 2021) instructed the Secretary of the 

Treasury to direct FIO “to assess climate-related 

issues or gaps in the supervision and regulation 

of insurers, including as part of the Council’s 

analysis of financial stability, and to further assess, 

in consultation with States, the potential for major 

disruptions of private insurance coverage in regions 

of the country particularly vulnerable to climate 

change impacts.” 

To this end, FIO issued a request for information 

(FIO Climate RFI) in August 2021 to solicit public 

comment on the insurance sector and climaterelated financial risks. The FIO Climate RFI 

seeks public comment on FIO’s three proposed 

priorities: (1) assessing climate-related issues or 

gaps in the state insurance regulatory framework; 

(2) assessing the potential for major disruptions of 

private insurance coverage in U.S. markets that are 

particularly vulnerable to climate change impacts, 

as well as facilitating mitigation and resilience for 

disasters; and (3) increasing FIO’s engagement on 

climate-related issues and leveraging the insurance 

sector’s ability to help achieve climate-related goals. 

FIO expects that responses to the FIO Climate RFI 

will help inform its assessment of the implications 

of climate-related financial risks for the insurance 

sector and help FIO to better understand: (1) 

which data elements are necessary to accurately 

assess climate risk; (2) which data elements remain 

unavailable; and (3) how FIO could collect this data 

under its statutory data collection authorities and 

make it available to stakeholders as needed. 

Terrorism Risk Insurance Program 

FIO assists the Secretary of the Treasury in 

administering the Terrorism Risk Insurance 

Program created under the Terrorism Risk 

Insurance Act of 2002, as amended. 

In June 2021, Treasury published a Study on the 

Competitiveness of Small Insurers in the Terrorism 

Risk Insurance Marketplace. In the study, 

Treasury detailed numerous market differences 

between small and larger (non-small) insurers 

and concluded that small insurers are significant 

participants in the market for terrorism risk 

insurance in the United States. 
Council Activities and Regulatory Developments 147

International Association of Insurance Supervisors 

Update

To assess the effects of the COVID-19 pandemic 

on global insurers and insurance sectors, the 

International Association of Insurance Supervisors 

(IAIS) repurposed its 2020 Global Monitoring 

Exercise (GME), focusing on the resulting 

economic impact. Data were collected from a pool 

of 60 insurance groups and regulatory agencies 

in 28 jurisdictions, for the purpose of assessing 

the financial impact of the pandemic at both the 

company and sector level, as well as informing 

insurance supervisors’ responses. Three different 

data collections provided the IAIS with four 

quarterly data points for its monitoring and forwardlooking analysis. The results of this work were 

published in a December 2020 special edition of the 

IAIS Global Insurance Market Report, addressing 

the effects of the COVID-19 pandemic on the global 

insurance sector in the first six months of 2020. 

The IAIS concluded that despite the volatility in the 

financial markets during this period, “the global 

insurance sector has remained both financially and 

operationally resilient,” although acknowledging 

that the pandemic’s ultimate impact on the 

insurance sector and its policyholders remains 

uncertain.

For 2021, the GME has returned to its primary 

purpose. The IAIS has completed a two-year (yearend 2019 and 2020) regular sector-wide monitoring 

and individual insurer monitoring data collection. 

The Holistic Framework for the Assessment and 

Mitigation of Systemic Risk in the Insurance Sector 

collective discussion was held in September 2021, 

following completion in June of the phase 1 (or 

baseline) implementation self-assessment of the 

Holistic Framework. In 2022, the IAIS is still on 

course to complete the outstanding implementation 

assessment items and finalize the assessment’s 

findings.

The second year of the International Capital 

Standard monitoring period is currently underway, 

and the IAIS will be evaluating submissions that 

included optional reporting targeted at improving 

the market adjusted valuation methodology. In 

May 2021, the IAIS published its definition of 

comparable outcomes as well as the six high-level 

principles applicable to comparability. FIO, the 

Federal Reserve, and the U.S. states through the 

NAIC are engaged with the IAIS on development 

of appropriate criteria for the comparability 

assessment. The IAIS plans to publish a public 

consultation on the draft criteria by the second 

quarter of 2022. 

4.3 Financial Infrastructure, Markets, and 

Oversight

4.3.1 Derivatives, Swap Data Repositories, Regulated 

Trading Platforms, and Central Counterparties

On November 9, 2020, the CFTC issued a final rule 

amending the margin requirements (the CFTC 

margin rule) for bilaterally cleared swaps for SDs 

and major swap participants (MSPs) for which 

there is not a prudential regulator. The CFTC 

margin rule mandated the collection and posting of 

variation margin and initial margin under a phased 

compliance schedule extending from September 1, 

2016, to September 1, 2020. Pursuant to this final 

rule, the CFTC amended the compliance schedule 

to further delay the compliance date for entities with 

smaller average daily aggregate notional amounts 

of swaps and certain other financial products 

from September 1, 2021, to September 1, 2022, to 

avoid market disruption due to the large number 

of entities being required to comply by September 

1, 2021, as a result of the adoption of a July 2020 

interim final rule extending the compliance date for 

certain groups of entities.

On November 25, 2020, the CFTC issued a final 

rule amending its regulations for real-time public 

reporting and dissemination requirements for 

SDRs, derivatives clearing organizations (DCOs), 

SEFs, DCMs, SDs, MSPs, and swap counterparties 

that are neither SDs nor MSPs. The final rule also 

made revisions that, among other things, change 

the “block trade” definition and the block swap 

categories, update the block thresholds and cap 

sizes, and address issues market participants have 

had in publicly reporting certain types of swaps. 

On November 25, 2020, the CFTC issued a final 

rule amending its regulations that establish swap 

data recordkeeping and reporting requirements 

for SDRs, DCOs, SEFs, DCMs, SDs, MSPs, and swap 

counterparties that are neither SDs nor MSPs. The 
148 2021 FSOC // Annual Report

final rule gives the CFTC, for the first time, access 

to uncleared margin data, thereby significantly 

improving the CFTC’s ability to monitor for systemic 

risk. The final rule also finalized revisions that, 

among other things, streamline the requirements 

for reporting new swaps, define and adopt swap 

data elements that harmonize with international 

technical guidance, and reduce reporting burdens 

for reporting counterparties that are not SDs or 

MSPs. 

On November 25, 2020, the CFTC issued a final rule 

amending its regulations to improve the accuracy 

of data reported to, and maintained by, SDRs, and 

to provide enhanced and streamlined oversight of 

SDRs and data reporting generally. The final rule 

also finalized revisions that, among other things, 

modify existing requirements for SDRs to establish 

policies and procedures to confirm the accuracy 

of swap data with both counterparties to a swap 

and require reporting counterparties to verify 

the accuracy of swap data pursuant to those SDR 

procedures. The final rule also updates existing 

requirements related to corrections for data errors 

and certain provisions related to SDR governance.

On November 30, 2020, the CFTC issued a final 

rule amending the regulations governing which 

swaps are exempt from the clearing requirement 

set forth in applicable provisions of the Commodity 

Exchange Act (CEA). These amendments exempt 

from the clearing requirement swaps entered 

into by certain central banks, sovereign entities, 

international financial institutions, BHCs, savings 

and loan holding companies, and community 

development financial institutions.

On December 18, 2020, the CFTC issued a final rule 

amending certain parts of its regulations relating 

to the execution of package transactions on SEFs 

and the resolution of error trades on SEFs. These 

matters were the subject of relief in certain noaction letters from CFTC staff.

On December 22, 2020, the SEC issued a final 

substituted compliance order for Germany, which 

provides that certain German firms that are 

registered with the SEC as security-based swap 

dealers and major security-based swap participants 

conditionally may satisfy certain requirements under 

the Exchange Act by complying with comparable 

German and EU requirements. The SEC issued final 

substituted compliance orders for France on July 26, 

2021, and for the UK on July 30, 2021. 

On January 11, 2021, the CFTC issued a final 

rule amending its part 38 regulations to address 

the potential risk of a DCM’s trading platform 

experiencing a market disruption or system anomaly 

due to electronic trading. The final rules set forth 

three principles applicable to DCMs concerning: 

the implementation of exchange rules applicable to 

market participants to prevent, detect, and mitigate 

market disruptions and system anomalies associated 

with electronic trading; the implementation of 

exchange-based pre-trade risk controls for all 

electronic orders; and the prompt notification 

by DCMs to CFTC staff of any significant market 

disruptions on their electronic trading platforms. 

In addition, the final rules include acceptable 

practices, which provide that a DCM can comply 

with these principles by adopting and implementing 

rules and risk controls reasonably designed to 

prevent, detect, and mitigate market disruptions and 

system anomalies associated with electronic trading.

On January 14, 2021, the CFTC issued a final rule 

conforming regulations concerning speculative 

position limits to the relevant Dodd-Frank Act 

amendments to the CEA. Among other regulatory 

amendments, the CFTC adopted: new Federal 

spot month limits for 16 new physical commodity 

derivatives and certain associated derivatives; 

updated single month and all-months-combined 

limits for the nine agricultural contracts that already 

were subject to Federal position limits under the 

previous framework as well as certain associated 

derivatives; new and amended definitions for 

use throughout the position limits regulations, 

including a revised definition of “bona fide hedging 

transaction or position” and a new definition of 

“economically equivalent swaps”; amended rules 

governing exchange-set limit levels and grants of 

exemptions therefrom; a new streamlined process 

for bona fide hedging recognitions for purposes 

of Federal position limits; new enumerated bona 

fide hedges; and amendments to certain regulatory 

provisions that would eliminate Form 204 while 

also enabling the CFTC to leverage and receive 
Council Activities and Regulatory Developments 149

cash-market reporting submitted directly to the 

exchanges by market participants.

On January 25, 2021, the CFTC issued a final rule 

amending the CFTC margin rule. The final rule 

permits the application of a minimum transfer 

amount of up to $50,000 for each separately 

managed account of a legal entity that is a 

counterparty to an SD or MSP in an uncleared 

swap transaction and to permit the application 

of separate minimum transfer amounts for initial 

margin and variation margin.

On April 13, 2021, the CFTC issued a final 

rule amending its regulations governing 

bankruptcy proceedings of commodity brokers. 

The amendments are intended to update those 

regulations to reflect current market practices 

and lessons learned from past commodity broker 

bankruptcies.

On May 7, 2021, the SEC approved the registration 

of DTCC Data Repository (U.S.), LLC as a 

security-based swap data repository (SBSDR). The 

registration of the first SBSDR is the final condition 

precedent for the compliance schedule previously 

established by the SEC for Regulation SBSR, 

which governs regulatory reporting and public 

dissemination of security-based swap transactions. 

Accordingly, security-based swap transaction 

reporting will commence on November 8, 2021 and 

public dissemination will begin on February 14, 

2022.

In 2021, the FDIC and CFTC continued to 

host CMG meetings for two U.S. CCPs that are 

considered systemically important in more than one 

jurisdiction. In addition, the FDIC and SEC hosted 

the inaugural CMG meeting for a third U.S. CCP 

considered systemically important in more than one 

jurisdiction. The CMGs generally discuss matters 

relevant to CCP resolution planning. Processes for 

cooperation and sharing information, both during 

a crisis and for purposes of resolution planning 

and resolvability, are set forth in the cooperation 

arrangements that are specific to the CMG. 

Cooperation arrangements for the inaugural CMG 

are underway, and they are complete for the two 

previously established CMGs.

The FDIC, Federal Reserve, CFTC, and SEC 

participate in an ongoing program of joint work 

with the Bank of England to share analyses and 

discuss policy formulation in relation to the 

resolution of CCPs. To date, the group’s work has 

been facilitating work towards the development 

of prototype resolution strategies for these CCPs. 

Going forward, the group seeks to facilitate 

progression from the development of resolution 

strategies to detailed operational planning.

On May 26, 2021, the NCUA issued a final rule 

amending its rules regarding the use of derivatives 

by federal credit unions (FCUs). The final rule 

is intended to modernize the NCUA’s derivatives 

rules and make them more principles-based, while 

retaining key safety and soundness components. 

The amendments are intended to provide more 

flexibility for FCUs to manage interest rate risk 

through the use of derivatives.

4.3.2 Securities and Asset Management

On December 21, 2020, pursuant to a final rule, 

the SEC issued a new exemptive rule under the 

Investment Company Act designed to address 

the investor protection purposes and concerns 

underlying section 18 of the Act and to provide 

an updated and more comprehensive approach 

to the regulation of funds’ use of derivatives 

and the other transactions addressed by the new 

rule. In addition, the SEC adopted new reporting 

requirements designed to enhance the SEC’s ability 

to effectively oversee funds’ use of and compliance 

with the new rule, and to provide the SEC and 

the public additional information regarding 

funds’ use of derivatives. Finally, the SEC adopted 

amendments under the Investment Company Act to 

allow leveraged/inverse ETFs that satisfy the rule’s 

conditions to operate without the expense and 

delay of obtaining an exemptive order. The SEC, 

accordingly, rescinded certain exemptive relief that 

had been granted to these funds and their sponsors.

On January 6, 2021, pursuant to a final rule, 

the SEC issued a new rule under the Investment 

Company Act to address valuation practices and 

the role of the board of directors with respect to 

the fair value of the investments of a registered 

investment company or business development 

company. The rule provides requirements for 
150 2021 FSOC // Annual Report

determining fair value in good faith for purposes of 

the Act. This determination involves assessing and 

managing material risks associated with fair value 

determinations; selecting, applying, and testing fair 

value methodologies; and overseeing and evaluating 

any pricing services used. The rule permits a 

fund’s board of directors to designate certain 

parties to perform the fair value determinations, 

who will then carry out these functions for some 

or all of the fund’s investments. This designation 

is subject to board oversight and certain reporting 

and other requirements designed to facilitate the 

board’s ability to effectively oversee this party’s fair 

value determinations. The rule includes a specific 

provision related to the determination of the fair 

value of investments held by unit investment trusts, 

which do not have boards of directors. The rule also 

defines when market quotations are readily available 

under the Act. The SEC also adopted a separate rule 

providing the recordkeeping requirements that will 

be associated with fair value determinations and 

rescinded previously issued guidance on the role of 

the board of directors in determining fair value and 

the accounting and auditing of fund investments.

On February 10, 2021, the SEC published a request 

for comment on potential reform measures to 

improve the resilience of MMFs, as PWG issued in 

December 2020.

On March 5, 2021, the SEC issued a final rule 

adopting amendments under the Advisers Act to 

update the rules that govern investment adviser 

marketing. The amendments create a merged 

rule to replace both the advertising and cash 

solicitation rules. These amendments reflect market 

developments and regulatory changes since the 

advertising rule’s adoption in 1961 and the cash 

solicitation rule’s adoption in 1979. The SEC also 

adopted amendments to Form ADV to provide the 

SEC with additional information about advisers’ 

marketing practices.

On March 15, 2021, in light of demand for climate 

change information and questions about whether 

current disclosures adequately inform investors, 

the SEC launched a request for public input from 

investors, registrants, and other market participants 

on climate change disclosure. 

On April 5, 2021, the SEC issued interim final 

rules implementing the disclosure and submission 

requirements of the Holding Foreign Companies 

Accountable Act (HFCAA). The HFCAA requires 

that the SEC identify companies in violation of 

the HFCAA based on fiscal years beginning after 

December 18, 2020. The SEC anticipates beginning 

to make such identifications in early 2022 shortly 

after completion of such companies’ fiscal years, 

which is the soonest the identification can be made 

under the HFCAA. Securities of companies that 

are so identified for three consecutive years will be 

prohibited from trading on an exchange or in the 

over-the-counter market, beginning as early as 2024.

On April 9, 2021, the SEC issued a final rule 

amending Regulation National Market System 

(Regulation NMS) under the Exchange Act to 

modernize the national market system for the 

collection, consolidation, and dissemination of 

information with respect to quotations for and 

transactions in national market system stocks (NMS 

information). Specifically, the SEC expanded the 

content of NMS information that is required to be 

collected, consolidated, and disseminated as part 

of the national market system under Regulation 

NMS and amended the method by which such 

NMS information is collected, calculated, and 

disseminated, by seeking to create a competitive 

environment for the dissemination of NMS 

information via a decentralized consolidation model 

with competing consolidators.

On May 26, 2021, the OCC adopted as final a 

previously released interim final rule on withdrawal 

periods for collective investment funds (CIFs). 

Under the final rule, a national bank or federal 

savings association that administers a CIF invested 

primarily in real estate or other assets that are 

not readily marketable may require a prior notice 

period, not to exceed one year, to withdraw an 

account from a CIF. A bank that requires a prior 

notice period for withdrawals must withdraw an 

account from the CIF within the prior notice period 

or, if permissible under the CIF’s written plan, 

within one year after the date on which notice was 

required. As an exception to the above, a bank may 

request the OCC’s approval for extensions to the 

standard withdrawal period if certain criteria are 
Council Activities and Regulatory Developments 151

met. The final rule revised one of the criteria for 

OCC approval of an extension under the interim 

final rule, so that the bank must “represent” that 

it will act upon the withdrawal request as soon as 

practicable.

4.3.3 Accounting Standards

Section 4013 (Temporary Relief from Troubled 

Debt Restructurings) of the CARES Act, enacted 

on March 27, 2020, was subsequently extended 

by The Consolidated Appropriations Act of 2021 

(CAA), which was signed into law on December 27, 

2020. Financial institutions, including insurance 

companies, that have loan restructurings meeting 

eligibility requirements under the CARES Act, have 

an option to suspend the application of accounting 

and disclosure requirements for troubled debt 

restructurings (TDRs) set forth in ASC Subtopic 

310-40, Receivables – Troubled Debt Restructurings 

by Creditors. A loan restructuring is eligible for an 

election under Section 4013 if the restructuring is in 

response to the COVID-19 pandemic, the loan was 

not more than 30 days past due on December 31, 

2019, and the restructuring was executed between 

the applicable period: March 1, 2020 and the earlier 

of 60 days after the termination of the COVID-19 

national emergency or January 1, 2022. 

Initially, on March 22, 2020, various federal financial 

institution regulatory agencies issued an Interagency 

Statement on Loan Modifications and Reporting 

for Financial Institutions Working with Customers 

Affected by the Coronavirus. On April 7, 2020, the 

interagency regulators revised their statement on 

the interaction between Section 4013 of the CARES 

Act and whether loans restructured by creditors 

in response to the pandemic are TDRs under ASC 

310-40. The election for a non-Section 4013 loan 

restructuring is available when the modification is 

short term (not to exceed six months) and made on 

a good-faith basis as a response to the pandemic, 

and the loan was not a prior TDR and is less than 

30 days past due on contractual payments when the 

modification was granted or program relief offering 

was implemented. In addition, a governmentmandated modification or a deferral program 

related to the pandemic does not represent a TDR 

because the lender did not choose to provide a 

concession. For example, a state program requiring 

institutions to suspend mortgage payments within 

that state for a specified period does not represent a 

TDR. If a lender defers payment, this may result in 

no contractual payments being past due, and such 

loans would not be considered past due during the 

period of deferral. 

Section 4014 of the CARES Act, Optional 

Temporary Relief from Current Expected Credit 

Losses, includes provisions that provide optional 

temporary relief from certain accounting 

requirements related to application of the CECL 

methodology by insured depository institutions 

(as defined in Section 3 of the Federal Deposit 

Insurance Act), credit unions regulated by the 

NCUA, and BHCs. Section 4014 states that no 

financial institution will be required to comply with 

ASU 2016-13, the CECL methodology for estimating 

allowances for credit losses, during the period 

beginning March 27, 2020 to the earlier of: (1) the 

first day of an eligible financial institution’s fiscal 

year that begins after the date when the COVID-19 

national emergency is terminated; or (2) January 1, 

2022 (as amended by the CAA). 

On February 25, 2021, the FDIC issued a final 

rule amending the risk-based deposit insurance 

assessment system applicable to all large insured 

depository institutions (IDIs), including highly 

complex IDIs, to address the temporary deposit 

insurance assessment effects resulting from 

certain optional regulatory capital transition 

provisions relating to the implementation of the 

CECL methodology. The final rule removes the 

double counting of a specified portion of the 

CECL transitional amount or the modified CECL 

transitional amount, as applicable (collectively, the 

CECL transitional amounts), in certain financial 

measures that are calculated using the sum of Tier 1 

capital and reserves and that are used to determine 

assessment rates for large or highly complex IDIs. 

The final rule also adjusts the calculation of the loss 

severity measure to remove the double counting of a 

specified portion of the CECL transitional amounts 

for a large or highly complex IDI. The final rule 

does not affect regulatory capital or the regulatory 

capital relief provided in the form of transition 

provisions that allow banking organizations to 
152 2021 FSOC // Annual Report

phase in the effects of CECL on their regulatory 

capital ratios.

On July 1, 2021, the NCUA issued a final rule 

to facilitate the transition of federally insured 

credit unions (FICUs) to the CECL methodology 

required under GAAP. The final rule provides 

that, for purposes of determining a FICU’s net 

worth classification under the Prompt Corrective 

Action regulations, the NCUA will phase-in the 

day-one adverse effects on regulatory capital that 

may result from adoption of CECL. Consistent with 

regulations issued by the other federal banking 

agencies, the final rule will temporarily mitigate the 

adverse PCA consequences of the day-one capital 

adjustments of CECL, while requiring that FICUs 

account for CECL for other purposes, such as Call 

Reports. The final rule also provides that FICUs 

with less than $10 million in assets are no longer 

required to determine their charges for loan losses 

in accordance with GAAP. These FICUs may instead 

use any reasonable reserve methodology (incurred 

loss), provided that it adequately covers known and 

probable loan losses.

4.3.4 Bank Secrecy Act/Anti-Money Laundering 

Regulatory Reform

Effective January 1, 2021, the Anti-Money 

Laundering Act of 2020 (AML Act) amended 

the Bank Secrecy Act (BSA), initiating the most 

significant revision of the United States’ framework 

for anti-money laundering and countering the 

financing of terrorism (AML/CFT) since 2001. The 

Anti-Money Laundering Act requires establishing 

AML/CFT priorities; improving coordination and 

sharing of information; encouraging technological 

innovation; and reinforcing the risk-based approach 

to AML/CFT. The AML Act also requires the 

establishment of uniform beneficial ownership 

reporting requirements and a secure, nonpublic 

database at the Financial Crimes Enforcement 

Network (FinCEN) to maintain this information 

to improve transparency for national security, 

intelligence, and law enforcement agencies and 

discourages the use of shell corporations as a tool to 

disguise and move illicit funds. 

The AML Act contains numerous provisions 

according to which FinCEN, in consultation 

with other federal agencies (including the 

federal banking agencies), must conduct studies, 

review regulations and guidance, and propose 

rulemakings. Relevant to the rulemakings, FinCEN 

must promulgate regulations to carry out national 

AML/CFT priorities. The federal banking agencies 

plan to amend their BSA compliance program to 

conform to changes implemented by FinCEN. In 

addition, FinCEN, in consultation with the federal 

banking agencies, must promulgate regulations 

for beneficial ownership information reporting 

requirements. Other provisions of the AML Act 

require FinCEN, in consultation with federal 

banking agencies, to conduct studies and review 

regulations and guidance to identify those that 

may be outdated, redundant or otherwise do not 

promote a risk-based AML/CFT regime for financial 

institutions, and propose rulemakings addressing 

automated system testing procedures, sharing 

reports with foreign affiliates, no-action letters, 

whistleblower protections, AML/CFT requirements 

for art and antiquities dealers and more.

The Financial Action Task Force (FATF) is the intergovernmental body that sets standards and promotes 

effective implementation of legal, regulatory, 

and operational measures for combating money 

laundering, terrorist financing and the financing 

of proliferation, and other related threats to the 

integrity of the international financial system. In 

collaboration with other international stakeholders, 

the FATF also works to identify national-level 

vulnerabilities to protect the international financial 

system from misuse.

Amendments to certain FATF recommendations 

and interpretive notes were adopted on October 

23, 2020, related to identifying, assessing, and 

mitigating the risks of potential breaches, nonimplementation, or evasion of targeted financial 

sanctions. On September 14, 2020, the FATF 

published the Virtual Assets Red Flag Indicators of 

Money Laundering and Terrorist Financing, and 

on June 29, 2021, the Guidance on Proliferation 

Financing Risk Assessment and Mitigation.

4.4 Mortgages and Consumer Protection 

4.4.1 Mortgages and Housing Finance

On December 17, 2020, the FHFA issued a final 

rule that establishes risk-based and leverage capital 
Council Activities and Regulatory Developments 153

requirements for the Enterprises. The final rule 

also makes conforming amendments to definitions 

in FHFA’s regulations governing assessments and 

minimum capital and removes the Office of Federal 

Housing Enterprise Oversight’s regulation on capital 

for the Enterprises.

On December 21, 2020, the FHFA issued a final rule 

on the 2021 housing goals for the Enterprises. The 

Federal Housing Enterprises Financial Safety and 

Soundness Act of 1992 requires FHFA to establish 

annual housing goals for mortgages purchased 

by the Enterprises. The housing goals include 

separate categories for single-family and multifamily 

mortgages on housing that is affordable to lowincome and very low-income families, among other 

categories. The final rule established benchmark 

levels for each of the housing goals for 2021.

On December 29, 2020, the CFPB issued final rules 

related to qualified mortgage (QM) loans. Creditors 

are required under the law to make a determination 

that consumers have the ability to repay a mortgage 

loan before extending the loan. Loans that meet 

legal standards for QM loans are presumed to be 

loans for which consumers have such an ability 

to repay. With certain exceptions, Regulation Z 

(which implements the Truth in Lending Act) 

requires creditors to make a reasonable, good faith 

determination of a consumer’s ability to repay 

any residential mortgage loan, and loans that 

meet Regulation Z’s requirements for “qualified 

mortgages” obtain certain protections from liability. 

Regulation Z contains several categories of QMs, 

including the General QM category and a temporary 

category (Temporary GSE QMs) of loans that are 

eligible for purchase or guarantee by the Enterprises 

while they are operating under the conservatorship 

or receivership of the FHFA. One rule amends 

the General QM loan definition in Regulation Z 

by removing the General QM loan definition’s 43 

percent DTI limit and replacing it with a pricebased threshold. The second rule creates a new 

category of QMs (Seasoned QMs) for first-lien, 

fixed-rate covered transactions that have met certain 

performance requirements, are held in portfolio 

by the originating creditor or first purchaser for a 

36-month period, comply with general restrictions 

on product features and points and fees, and meet 

certain underwriting requirements. The CFPB’s 

primary objective in the rulemaking was to ensure 

access to responsible, affordable mortgage credit 

by adding a Seasoned QM definition to the existing 

QM definitions. Earlier, on October 26, 2020, the 

CFPB issued a final rule extending the sunset date 

of the Temporary QM until the earlier of the exit 

from conservatorship or the mandatory compliance 

date with the amended General QM loan definition.

On February 17, 2021, the CFPB issued a final rule 

to amend Regulation Z, as mandated by section 

108 of EGRRCPA. The amendments exempt certain 

insured depository institutions and insured credit 

unions from the requirement to establish escrow 

accounts for certain higher-priced mortgage loans.

On May 4, 2021, the FHFA issued a final rule 

that requires the Enterprises to develop plans to 

facilitate their rapid and orderly resolution in the 

event FHFA is appointed receiver. A resolution 

planning rule represents part of FHFA’s ongoing 

effort to develop a robust prudential regulatory 

framework for the Enterprises, including capital, 

liquidity, and stress testing requirements, as well 

as enhanced supervision, which will be critical to 

FHFA’s supervision of the Enterprises, particularly 

in the event of an exit from conservatorship. 

Requiring the Enterprises to develop resolution 

plans is intended to support FHFA’s efforts as 

receiver for the Enterprises to, among other things, 

minimize disruption in the national housing 

finance markets by providing for the continued 

operation of an Enterprise’s core business lines 

by a limited-life regulated entity; and ensure that 

private-sector investors in Enterprise securities, 

including Enterprise debt, stand to bear losses in 

accordance with the statutory priority of payments 

while minimizing unnecessary losses and costs to 

these investors. In addition, resolution planning is 

intended to help foster market discipline in part 

through FHFA publication of “public” sections of 

Enterprise resolution plans.

On June 30, 2021, the CFPB issued a final rule to 

amend Regulation X (the Real Estate Settlement 

Procedures Act) to assist mortgage borrowers 

affected by the COVID-19 emergency. The final 

rule establishes temporary procedural safeguards 

to help ensure that borrowers have a meaningful 
154 2021 FSOC // Annual Report

opportunity to be reviewed for loss mitigation 

before the servicer can make the first notice 

or filing required for foreclosure on certain 

mortgages. In addition, the final rule temporarily 

permits mortgage servicers to offer certain 

loan modifications made available to borrowers 

experiencing a COVID-19-related hardship based 

on the evaluation of an incomplete application. The 

CFPB also finalized certain temporary amendments 

to the early intervention and reasonable diligence 

obligations that Regulation X imposes on mortgage 

servicers.

On August 25, 2021, FHFA issued a notice of 

proposed rulemaking that would establish GSE 

housing goals for 2022-2024. FHFA proposed two 

new single-family home purchase subgoals to replace 

the existing low-income areas subgoal. A new 

minority census tract subgoal is designed to improve 

access to fair and sustainable mortgage financing in 

communities of color.

On September 27, 2021, FHFA issued a notice 

of proposed rulemaking that would amend the 

Enterprise Regulatory Capital Framework by 

refining the leverage buffer and the risk-based 

capital treatment of CRT transactions. The 

proposed amendments are intended to reduce 

taxpayer risk by incentivizing the Enterprises to 

distribute acquired credit risk to private investors 

through CRT rather than to buy and hold that risk.

4.4.2 Consumer Protection

On January 19, 2021, the CFPB issued a final rule to 

revise Regulation F, which implements the Fair Debt 

Collection Practices Act (FDCPA). The final rule 

addresses certain activities by debt collectors, as that 

term is defined in the FDCPA. Among other things, 

the final rule clarifies the information that a debt 

collector must provide to a consumer at the outset 

of debt collection communications, prohibits debt 

collectors from bringing or threatening to bring a 

legal action against a consumer to collect a timebarred debt, and requires debt collectors to take 

certain actions before furnishing information about 

a consumer’s debt to a consumer reporting agency.

On April 22, 2021, the CFPB issued an interim final 

rule to amend Regulation F that addresses certain 

debt collector conduct associated with an eviction 

moratorium issued by the CDC in response to the 

global COVID-19 pandemic. The interim final 

rule requires that debt collectors provide written 

notice to certain consumers of their protections 

under the CDC eviction moratorium and prohibit 

misrepresentations about consumers’ ineligibility for 

protection under such moratorium.

On October 27, 2021, the NCUA issued a final rule 

that amends the NCUA’s CUSO regulation. The rule 

expands the list of permissible activities and services 

for CUSOs to include originating any type of loan 

that a federal credit union may originate. The 

NCUA’s authority to regulate or supervise CUSOs 

has remained unchanged.

4.5 Data Scope, Quality, and Accessibility

4.5.1 Data Scope

Evolution of the LEI and Other Data Standards

Global adoption of the Legal Entity Identifier (LEI) 

continues to grow. As of October 2021, more than 

1.9 million LEIs have been issued by 40 approved 

operational issuers. Some 32 percent of these were 

issued in the United States, with 13 percent issued to 

U.S.-based entities. The total number of LEIs issued 

represents a year-to-date increase of 10 percent, 

following a 15 percent increase in 2020. 

The increasing adoption of the LEI continues 

to be driven by its use in financial regulation. In 

the United States, the LEI is used in regulatory 

reporting mandated by the OFR, the CFTC, the 

CFPB, and the SEC, among others. Beginning in 

January 2018, EU regulators mandated the use of 

the LEI by entities involved in securities and OTC 

derivatives transactions, as part of the revised 

Markets in Financial Instruments Directive (MiFID 

II) — resulting in the most significant growth in LEI 

adoption to date. 

Future expansion could also be supported by the 

growing interest of some large financial institutions 

in utilizing the LEI for purposes other than 

regulatory compliance and reporting. In the future, 

such expansion could lead in turn to the LEI being 

used (or evaluated for use) more extensively outside 

of the financial industry. Further use of the LEI 

in financial regulation can be expected to lead to 
Council Activities and Regulatory Developments 155

modest future global increases in the number of 

LEIs issued.

The Unique Transaction Identifier (UTI), 

the Unique Product Identifier (UPI), and the 

harmonized Critical Data Elements (CDE) for OTC 

derivatives transaction reporting were developed by 

the FSB and jointly by the Committee on Payments 

and Market Infrastructures and the International 

Organization of Securities Commissions (CPMIIOSCO). These new data standards, when combined 

with the LEI, improve the ability of market 

regulators and authorities with financial stability 

interests to monitor the accumulation of risk in 

historically opaque OTC derivatives markets.

Reporting of Standardized Derivatives Data 

In 2020 and 2021, the Council’s members developed 

and published the technical requirements for 

the UPI and CDE. Another major milestone was 

the approval in October 2020 of the UPI as a new 

International Organization for Standardization 

(ISO) standard (ISO 4914), with support and input 

from Council members. It is expected that the 

UPI will become available for global application 

sometime in the latter half of 2022.

The UPI allows derivatives regulators and their 

counterparts to better monitor emerging risks 

by categorizing different types of derivatives 

transactions. The Derivatives Service Bureau, a 

subsidiary of the Association of National Numbering 

Agencies, is the UPI service provider (i.e., it receives 

and stores product-specific attributes and assigns 

UPI codes to each OTC derivatives product). 

In May 2021, the integration of the CDE for OTC 

derivatives reporting into the ISO 20022 repository 

represented another major achievement. Council 

members began working on this effort in 2014 with 

CPMI-IOSCO and continued this work within the 

FSB. Like the UTI and UPI, the CDE will be used 

by regulators in multiple jurisdictions in their 

respective OTC derivative transaction reporting 

regimes. Council members completed this work 

in partnership with the Society for Worldwide 

Interbank Financial Telecommunication (SWIFT), 

which is the Registration Authority for ISO 20022.

New Industry Standard

Separately, the Financial Instrument Global 

Identifier was approved by the American National 

Standards Institute (ANSI) as a U.S. standard, 

following analysis and approval by the Accredited 

Standards Committee X9, Inc. (ASC X9), an ANSIaccredited standards development organization. The 

OFR and CFTC, as Council members and members 

of ASC X9, were active contributors to the analysis 

of this new free and open standard, which is now 

available for industry use.

Role of the ROC 

In October 2020, the FSB transferred the role of 

international governance body for three new sets 

of financial regulatory reporting data standards to 

the Regulatory Oversight Committee (ROC) (at 

which time the committee previously known as the 

“LEI ROC” became known simply as the “ROC”). 

The ROC is a group of more than 70 regulatory 

authorities from around the world that oversee the 

Global LEI Foundation (GLEIF), with additional 

authorities acting as observers. The GLEIF is a notfor-profit organization that serves as the Global LEI 

System’s “central operating unit,” helping ensure the 

system’s operational integrity by setting standards 

under which the “local operating units” (i.e., the 

entities that issue LEIs) work. 

4.5.2 Data Quality

Improving LEI Data Quality 

Improving the quality of LEI data is important 

to building market confidence in the value of the 

LEI. Therefore, considerable attention is directed 

to this challenge by the Council members that are 

represented on the ROC, including the OFR, SEC, 

CFTC, CFPB, FDIC, OCC, and Federal Reserve. 

Council members continued their efforts to 

review and improve the quality of reference data 

in the LEI system, particularly with regard to U.S. 

entities. For example, Council members led ROC 

efforts to strengthen the front-end edit checks to 

ensure that reference data on new and renewed 

LEI registrations meet minimum data quality 

standards. In particular, the Federal Reserve, OCC 

and FDIC are working with the GLEIF and state 

authorities to ensure that the quality of registration 

authority, legal jurisdiction, and entity legal form 
156 2021 FSOC // Annual Report

are proper for U.S. commercial and savings banks 

and certain other banking-related entities. Federal 

Reserve analysis of U.S. business registry data has 

identified opportunities to enhance the quality 

and transparency of LEI reference data for entities 

whose data corroboration relies on information 

from those business registries. Such opportunities 

would also improve the degree to which data 

corroboration can be done on a ‘straight-through 

processing’ basis.

One area of particular interest to these Council 

members is the ongoing work on “Level 2” LEI 

data. This is data submitted by legal entities 

acquiring a LEI regarding their “direct accounting 

consolidating parent” and their “ultimate 

accounting consolidating parent.” Level 2 LEI data 

reveals the direct counterparties to a transaction, 

and affiliated entities, thereby improving the ability 

of such entities to perform a risk assessment of the 

transaction counterparties. 

This past year, the ROC has continued to focus on 

improving the quality of Level 2 LEI data, among 

other elements of LEI reference data. The Council 

is committed to its members’ participation on the 

ROC and working with the GLEIF to ensure the 

quality of LEI data is high enough to make it useful 

for industry participants and regulators.

5
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 157

5.1 Climate-Related Financial Risk

Climate change is an emerging threat to the 

financial stability of the United States. Climaterelated financial risks can be grouped into two 

broad categories: physical risks and transition risks.

Physical risks refer to the harm to people and 

property arising from acute climate-related 

disaster events such as hurricanes, wildfires, floods, 

and heatwaves, as well as longer-term chronic 

phenomena such as higher average temperatures, 

changes in precipitation patterns, sea level rise, 

and ocean acidification. Physical risks have direct 

effects on households, communities, businesses, and 

other entities where those risks are realized, as well 

as to the financial institutions and investors they 

are linked to, thereby creating a variety of climaterelated financial risks. For example, property and 

casualty insurers are directly exposed to these risks. 

In addition, increased actual damages to properties 

associated with physical risks may lower the value 

of collateral or the income generated by such 

properties, posing credit and market risks to banks, 

insurers, pension plans, and others. Increased legal, 

operational, and liquidity risks may also occur. In 

response, creditors may pull back from impacted 

regions, amplifying the initial harmful impact of the 

climate-related disaster event and creating further 

financial and economic strains. 

Transition risks refer to stresses to certain 

institutions or sectors arising from the shifts 

in policy, consumer and business sentiment, or 

technologies associated with the changes necessary 

to limit climate change. As countries transition to 

a low-greenhouse gas economy, changes in public 

policy, adoption of new technologies, and shifting 

consumer and investor preferences all have the 

potential to impose added costs on some firms and 

communities even as they reduce overall climate 

risks. As a result, impacted firms may have less 

ability to meet their financial obligations. Therefore, 

the economic effects associated with a transition 

may be transmitted through the financial sector 

and the economy in ways that could challenge the 

resilience of financial institutions or the financial 

sector. If these changes occur in a disorderly way 

owing to substantial delays in action or abrupt 

changes in policy, their impact is likely to be more 

sudden and disruptive. 

Recommendations

The Council recognizes the critical importance of 

taking prompt action to improve the availability of 

data and measurement tools, improve assessments 

of climate-related financial risks and vulnerabilities, 

and incorporate climate-related risks into risk 

management practices and supervisory expectations 

for regulated entities, where appropriate. In 

addition, financial regulators should also promote 

consistent, comparable, and decision-useful 

disclosures that allow investors and financial 

institutions to take climate-related financial risks 

into account in their investment and lending 

decisions. Through these actions, Council members 

can promote financial-sector resilience and support 

an orderly transition to a net-zero emissions 

economy. The Council provided more detailed 

recommendations to Council members in its Report 

on Climate-Related Financial Risk.

5.2 Nonfinancial Business: Corporate Credit

The average leverage of nonfinancial corporations 

is elevated relative to historical standards. Since 

the onset of the pandemic, many firms increased 

their leverage but have subsequently retraced those 

increases. However, in some industries leverage 

remains elevated compared to pre-pandemic 

averages, including the airline, hospitality and 

leisure, and restaurant sectors. The potential risks 

to financial stability from nonfinancial business 

borrowing depend in part on the ability of 

businesses to service their obligations. Currently, 

the vulnerabilities of high leverage are moderated 

by elevated liquidity buffers at many firms and low 

debt servicing costs given low interest rates. Still, 

5 Potential Emerging Threats, Vulnerabilities, 

and Council Recommendations
158 2021 FSOC // Annual Report

businesses with floating rate debt are vulnerable to 

an increase in servicing costs should interest rates 

rise. 

The risks to financial stability from corporate 

leverage also depend on the ability of the 

financial sector to absorb losses from defaults 

and downgrades, and the continued willingness 

of market participants to provide intermediation 

during times of stress. Corporate borrowers may be 

exposed to changing market conditions when they 

need to refinance debt as it matures. Another key 

factor is whether or not the increases in business 

debt have been raised by corporations that were 

able to use the additional debt to strengthen their 

earnings potential, which would reduce debt 

servicing problems. 

Elevated leverage has been accompanied by rising 

valuations in U.S. equities and corporate bonds. 

These valuation pressures make these markets 

vulnerable to a major repricing of risk, increased 

volatility, and weakening balance sheets of financial 

and nonfinancial businesses. Sharp reductions in 

the valuations of different assets could heighten debt 

rollover risk. 

Debt overhang problems could affect the ongoing 

economic recovery. In extreme situations when 

debt servicing problems are widespread, credit 

markets remain vulnerable to a repricing of risk 

and disruptions to financial stability. A large wave 

of bankruptcies could stress resources at courts and 

make it harder for firms to obtain critical debtor-inpossession financing. Such outcomes could preclude 

timely debt restructuring for many firms, potentially 

forcing them into liquidation. In comparison to 

debt restructurings, liquidations typically lead to 

greater economic losses from the ensuing declines 

in employment and capital spending. Moreover, 

creditors may suffer bigger losses from liquidation, 

potentially contributing to a further tightening in 

overall credit conditions.

Recommendations

The Council recommends that member 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 the ability of the financial sector 

to manage severe, simultaneous losses. Regulators 

and market participants should continue to monitor 

and analyze the exposures, loss-absorbing capacity, 

and incentives of different types of stakeholders. 

This includes the direct and indirect exposures of 

holders of U.S. nonfinancial corporate credit, the 

potential amplification of liquidation pressures in 

fixed income markets by open-end mutual funds if 

a significant episode of stress were to develop, the 

effects of evolving loan covenant and documentation 

requirements, and the potential effects of markto-market losses and credit rating downgrades. 

Regulators and market participants should 

also continue to assess ways in which leveraged 

nonfinancial corporate borrowers and elevated asset 

prices may amplify stresses in the broader market in 

the event of a rapid repricing of risk or a slowdown 

in economic activity.

5.3 Financial Markets

5.3.1 Short-Term Wholesale Funding Markets

In normal times, wholesale funding markets 

provide essential short-term funding to businesses, 

local governments, and financial intermediaries. 

Developments in the short-term wholesale funding 

markets can have implications for financial stability, 

and for the implementation of monetary policy. 

Money Market Funds

MMFs supply funding to short-term wholesale 

funding markets by investing in debt issued by both 

banks and nonbanks. Certain types of MMFs can 

amplify stress in those markets by liquidating assets 

in order to meet redemptions. Other short-term 

funds, including short-term collective investment 

funds, can amplify stress in similar ways. Many of the 

short-term instruments held by MMFs, particularly 

prime MMFs, may have limited liquidity especially 

during times of stress, constraining their ability to 

sell assets quickly without losses. At the same time, 

MMFs offer shareholders daily redemptions. This 

liquidity gap contributes to a so-called first mover 

advantage, in which investors have an incentive 

to be the first to redeem in order to avoid losses, 

which would be borne by the remaining investors. 

The heavy redemptions that occurred in 2008 and 

2020 led in both instances to extraordinary policy 

responses, including the establishment of liquidity 

facilities by the Federal Reserve in both episodes, 
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 159

and a temporary guarantee of MMFs by the U.S. 

Treasury in 2008. While post-2008 reforms allow 

for a fund to impose fees or gates on redemptions 

if their weekly liquid assets fall below 30 percent of 

their balance sheet, the experience in March 2020 

shows that approaching this threshold may itself 

spark widespread redemptions.

Repo Market

Repo funding is an important form of short-term 

wholesale funding, and repo markets are critical 

not only to financial stability but also to the 

implementation of monetary policy.

Repo markets have undergone significant structural 

changes since the 2008 financial crisis. These 

changes helped streamline some repo operations 

and reduced exposures to counterparty risk. 

Nevertheless, recent episodes of stress in repo 

markets have included large spikes in repo rates in 

September 2019 and in March 2020, each stemming 

from a different set of factors. The 2019 episode has 

been attributed to technical and seasonal factors, 

including an increase in demand for funds to 

finance new Treasury settlements and quarterly tax 

payments by corporations that decreased available 

funds. The 2020 episode came at the onset of the 

pandemic. The repo market was affected by intense 

selling in the cash Treasury market by the official 

sector and foreign investors, by open-end funds to 

meet redemptions, and by hedge funds and other 

leveraged investors adjusting to changes in risks or 

covering losses and margin calls. These episodes 

have highlighted the connections that repo markets 

have to the rest of the financial system and to a 

broad range of financial actors. 

The reliance on repo funding by leveraged 

participants like hedge funds and mREITs makes 

them vulnerable to funding risks. When these 

leveraged participants face margin calls, either 

because of an external shock to the repo market or 

investor concerns about their profitability, the need 

to deleverage can increase pressure on asset prices 

and lead to more margin calls. Because many of the 

assets sold at declining prices are the same types 

of assets used as collateral in repo funding, asset 

sales also create an adverse feedback loop to further 

deleverage. The complexity of interactions involving 

leveraged participants raises concerns regarding 

their role in amplifying funding stresses.

In July 2021, the Federal Reserve announced 

the establishment of a standing domestic repo 

facility. The facility serves as a backstop in money 

markets to support the effective implementation of 

monetary policy and smooth market functioning. 

As a backstop, the facility addresses pressures 

in overnight funding markets that could spill 

over to the federal funds markets and impair the 

implementation and transmission of monetary 

policy. Counterparties for this facility include 

primary dealers and will be expanded over time to 

include eligible depository institutions. 

In addition, the Federal Reserve also established 

in July 2021 the FIMA repo facility. By creating a 

backstop source of temporary dollar liquidity for 

FIMA account holders, the facility can help address 

pressures in global dollar funding markets that 

could otherwise affect financial market conditions 

in the United States, including in repo markets. Its 

role as a liquidity backstop also helps to support 

the smooth functioning of financial markets more 

generally.

Recommendations

In response to the redemptions faced by prime 

MMFs in 2020 and the impacts they had on shortterm wholesale funding markets, the PWG released 

the PWG Report on MMFs in December 2020. The 

PWG Report on MMFs emphasized that future 

reforms should address structural vulnerabilities 

in MMFs, improve the resilience and functioning 

of short-term funding markets, and reduce the 

likelihood that official-sector interventions and 

taxpayer support will be needed to halt future 

MMF runs or address stresses in short-term funding 

markets more generally. On February 4, 2021, the 

SEC published a request for public comment on the 

potential policy measures identified in the PWG 

Report on MMFs and briefed the Council on the 

comments it received regarding the potential reform 

options. 

The Council commends these steps and will 

continue to monitor initiatives relating to MMF 

reform. Keeping in mind the interconnectedness 

of financial institutions and markets, potential 
160 2021 FSOC // Annual Report

reforms will be considered in the broader context of 

efforts by financial regulators to strengthen shortterm funding markets and support orderly market 

functioning, including during periods of heightened 

market stress.

The Council recommends that regulators consider 

these structural vulnerabilities, including the 

vulnerability to large-scale redemptions in prime 

and tax-exempt MMFs (as well as other shortterm funds with similar characteristics, such as 

short-term collective investment funds), and any 

role that leveraged nonbank entities may have 

played in the repo market, and, if warranted, take 

appropriate regulatory measures to mitigate these 

vulnerabilities. For example, to the extent that 

leveraged nonbank entities obtain leverage through 

uncleared bilateral repos, relevant Council members 

should consider whether additional data collection is 

necessary.

5.3.2 Residential Real Estate Market

Nonbank mortgage companies play a significant 

role in the housing finance system. In recent 

years, nonbank mortgage companies originated 

most new mortgages and serviced a large portion 

of all mortgage debt outstanding. They have a 

particularly large footprint in the provision of credit 

to low- and moderate-income borrowers, and they 

provide competition and liquidity in the market for 

mortgage servicing rights. 

Nonbank mortgage companies heavily rely on 

short-term funding, making them vulnerable to an 

abrupt disruption in their ability to operate should 

lenders re-evaluate their willingness to provide that 

funding. In addition, many mortgage companies 

have limited loss absorbing capacity in the face of 

adverse economic shocks. Disruption to nonbank 

mortgage companies could interrupt mortgage 

servicing operations, especially for nonperforming 

loans, and might have knock-on effects on these 

servicers’ mortgage originations in the residential 

real estate market. 

Concerns about potential strains on nonbank 

mortgage companies were raised at the beginning 

of the pandemic, when financial conditions 

deteriorated, and these companies were obligated 

to advance payments for borrowers under 

forbearance. In response, federal agencies issued 

guidance and provided clarification on servicer 

advance obligations that, in some cases, limited 

the duration of required advances. Ginnie Mae 

established a liquidity facility for its servicers that 

provides a last resort financing option, though 

that facility saw limited uptake. Ultimately, these 

companies did not experience significant financial 

stress, but they remain vulnerable to adverse market 

conditions because a future shock may not be 

accompanied by the same surge in refinancing that 

has provided these companies with extra revenue or 

by extraordinary fiscal support for households that 

likely relieved some potential stress on servicers. 

Looking forward, in light of the valuation increases 

in residential real estate markets since mid-2020, 

mortgage companies could come under pressure 

if housing prices were to decline and contribute to 

a rise in delinquencies. Mortgage companies may 

also need to deal with a rise in foreclosures from 

historically low levels, as forbearance policies roll off 

in coming months. 

Recommendations

The Council recommends that relevant federal and 

state regulators continue to coordinate closely to 

collect data, identify risks, and strengthen oversight 

of nonbank companies involved in the origination 

and servicing of residential mortgages. Regulators 

and market participants have taken steps to address 

the potential risks stemming from nonbanks. In 

July 2021, Ginnie Mae issued a request for input 

on eligibility requirements for its mortgagebacked securities issuers, bolstering net worth and 

liquidity standards, and a minimum risk-based 

capital ratio for nonbank servicers. In July 2021, 

the Conference of State Bank Supervisors released 

model state regulatory prudential standards for 

nonbank mortgage servicers. The Council supports 

these recent actions and encourages regulators 

to take additional steps available to them within 

their jurisdiction to address the potential risks of 

nonbank mortgage companies. Relevant regulators 

should ensure that the largest and most complex 

nonbank mortgage companies are prepared should 

foreclosure rates rise as forbearance agreements 

expire. In addition, the Council recommends 

that relevant federal and state regulators develop 
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 161

and establish an information-sharing framework 

to enable collaboration and communication in 

responding to distress at a mortgage servicer. 

Regulators should also develop and implement 

coordinated resolution planning requirements for 

large and complex nonbank mortgage companies.

5.3.3 Commercial Real Estate Market

Considerable uncertainty remains about which 

CRE sectors may recover completely following 

the pandemic and which sectors face permanent 

shifts in demand. The pandemic continues to 

substantially weigh on office occupancy in central 

business districts. A permanent shift toward 

teleworking may reduce demand for office space, 

including in city centers. Such a change would drive 

economic activity away from city centers and affect 

other types of properties located in those areas, 

including apartments, restaurants, and retail spaces. 

Hotel mortgage delinquencies also continue to 

be elevated, as business travel remains depressed. 

Outside of central business districts, the retail sector 

more generally has experienced years of decline 

as consumers have gradually shifted toward online 

shopping. The pandemic may have accelerated 

this trend, and retail mortgages continue to have 

elevated delinquency rates. 

Permanent downward changes in cash flows will 

lead to permanent declines in valuations in certain 

sectors, and eventually, holders of CRE will realize 

losses. If these losses accumulate gradually, they are 

unlikely to trigger large disruptions to the financial 

system. If losses are more rapid, though, stress in 

CRE markets could spill over to other parts of the 

financial system through two mechanisms. First, 

asset sales from financially distressed individual 

properties can lower valuations, spilling over into 

adjoining property values, leading to more distress 

and a general downward spiral on CRE valuations. 

Second, a significant proportion of CRE loans is 

currently held on balance sheets of banks, with 

small and mid-size banks’ loan holdings more 

likely to be concentrated in CRE. Distress in CRE 

properties makes these banks vulnerable to losses, 

with the potential to tighten credit and dampen the 

economic recovery. If these valuation pressures and 

asset sales do not remain localized, a widespread 

decline in the valuation of underlying CRE 

properties could lead to sluggish economic growth. 

Recommendations

The Council recommends that regulators continue 

to monitor CRE asset valuations, the level of CRE 

concentration at banks, and the performance 

of CRE loans. Regulators should also monitor 

exposures, loss-absorbing capacity, and the 

incentives of banks and other nonbank entities that 

hold CRE loans, including mREITs, debt funds, and 

insurance companies. The Council recommends 

that regulators continue to encourage banks and 

other entities to bolster, as needed, their loss 

absorption capacity by strengthening their capital 

and liquidity buffers commensurate with the levels 

of CRE concentration on their balance sheets.

5.4 Financial Institutions

5.4.1 Large Bank Holding Companies

Large BHCs are critical to the U.S. financial system, 

performing essential banking functions such as 

the provision of credit to commercial and retail 

borrowers. Given the central role that BHCs play 

in retail and wholesale payment systems, strong 

financial conditions at BHCs help ensure that firms 

can continue their operations even in times of 

market stress. Large BHCs also help financial and 

nonfinancial firms hedge their risk exposures in 

the derivatives markets. Lastly, several specialized 

financial services, such as tri-party repo and mutual 

fund accounting services, are concentrated in the 

largest BHCs. 

Large and complex U.S. financial institutions 

entered the pandemic more resilient than they were 

prior to the 2008 financial crisis. This resilience 

has been achieved, in part, by maintaining higher 

levels of capital; holding higher levels of liquid assets 

to meet peak demands for funding withdrawals; 

implementing better risk management practices; 

and developing plans for recovery and orderly 

resolution. 

The results of the 2021 Dodd-Frank Act Stress Test 

show that large firms have sufficient capital levels 

to absorb losses during stressful conditions. Over 

the past year, the capital positions of large BHCs 

have improved. Capital positions have benefited 
162 2021 FSOC // Annual Report

from a strong recovery in revenue, and a decline 

in risk-weighted assets as business borrowers have 

continued to repay credit lines they drew down 

in the spring of 2020. Capital positions have also 

benefited from the release of significant portions of 

the loan loss reserves that banks built after the onset 

of the pandemic, reflecting an improved outlook 

for asset quality, and supported to a large degree by 

fiscal and monetary policy and progress in public 

health. Nevertheless, some uncertainty for the credit 

outlook remains, given the unknown path that the 

pandemic will take, and the ongoing economic 

recovery.

Banks also face long-run challenges to their 

ability to build capital through retained earnings. 

Historically low interest rates are, for the third time 

in a generation, pushing down net interest margins. 

On the other hand, if interest rates were to rise 

sharply, banks and other financial institutions could 

incur losses on fixed rate assets. Trading operations 

support profitability at the largest banks but tend 

to be volatile and trading risks must be managed 

appropriately. The importance of maintaining 

adequate counterparty credit risk management and 

margining practices was highlighted this past year 

by the failure of Archegos, which led to very large 

losses at some banks.

Recommendations

The Council recommends that financial regulators 

continue to require that the largest financial 

institutions maintain sufficient capital and liquidity 

to enhance their resilience against economic and 

financial shocks. The Council recommends that 

regulators continue to monitor capital adequacy for 

these banks. 

The Council also recommends that regulators 

continue to monitor and assess the impact of rules 

on financial institutions and financial markets— 

including, for example, on market liquidity and 

capital—and ensure that BHCs are appropriately 

monitored based on their size, risk, concentration 

of activities, and offerings of new products and 

services. 

The Council further recommends that the 

appropriate regulatory agencies continue to review 

resolution plans submitted by large financial 

institutions; provide feedback and guidance to 

such institutions; and ensure there is an effective 

mechanism for resolving large, complex institutions.

In reviewing the failure of Archegos, the Council 

recommends that regulators continue to review 

counterparty credit risk management, capital 

practices, and margining policies at financial 

institutions.

5.4.2 Investment Funds

Investment funds play a critical intermediary 

role in the U.S. economy, promoting economic 

growth through efficient capital formation. 

While recognizing these benefits, the Council 

has identified certain vulnerabilities related to 

investment funds. 

One vulnerability involves redemption risk at 

certain open-end funds, which may lead to asset 

liquidations that contribute to disruptions in 

important financial markets. The level of this risk 

is a function of, among other things, the liquidity 

of the underlying assets, the widespread practice 

of settling investor redemptions within two days, 

the effectiveness of the fund’s management of its 

liquidity, and the potential for an investor to enjoy 

a first-mover advantage. For example, although 

both equity and fixed income open-end funds offer 

daily redemptions to investors, some fixed-income 

markets are less liquid than equity markets and thus 

funds holding mostly fixed-income instruments 

may face greater vulnerability to run risks than 

funds holding mostly equities. During periods of 

significant financial stress, as investor perception 

and sentiment about overall economic and market 

conditions change, these funds—like other investors 

such as insurance companies, pension funds, and 

individual investors—may be inclined to directly sell 

these fixed-income instruments for cash. 

The Council has focused in particular on the 

question of whether the structure of open-end funds 

results in greater selling pressure than if investors 

held the fixed-income instruments directly. 

This past year, the Council formed the Open-End 

Fund Working Group to assess potential financial 

stability risks associated with open-end funds, with 

a focus on liquidity risks. In particular, the working 
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 163

group is reviewing the role of open-end funds in the 

financial stability disruptions of 2020, and the extent 

to which intense redemptions and asset liquidations 

by some funds contributed to disruptions in the 

U.S. Treasury, corporate debt, and municipal debt 

markets. This working group seeks to evaluate these 

risks and their impact on the broader financial 

system, and to consider additional policy options 

that could further mitigate such risks following the 

SEC’s adoption of liquidity rules in 2016.

A second vulnerability relates to the use of 

leverage by investment funds. The use of leverage 

is most widespread among hedge funds but varies 

significantly among hedge funds of different 

sizes and investment strategies. Leverage can 

allow investment funds to hedge risk or increase 

exposures, depending on the activities and 

strategies of the fund. However, in a period of stress, 

leverage can magnify losses or lead to margin calls, 

which can cause funds to liquidate assets at a size 

and speed that disrupt the underlying markets.

The Council has re-established a Hedge Fund 

Working Group this past year in order to better 

share data and update the Council’s assessment of 

potential financial stability risks from hedge funds. 

The working group will also seek to establish a risk 

monitoring framework to identify potential risks 

to financial stability and communicate these risks 

to the relevant regulatory agencies. This working 

group is also reviewing the experience of hedge 

funds at the onset of the pandemic and the ways in 

which these funds contributed to Treasury market 

volatility, including their liquidation of Treasury 

securities and Treasury derivatives. 

Recommendations 

The Council plans to review the findings of the 

hedge fund and open-end fund working groups as 

they are developed. The Council supports initiatives 

by the SEC and other agencies to address risks in 

investment funds. The Council also supports data 

collection and analytical work by member agencies 

aimed at the identification of potential emerging 

risks. The SEC implemented several data collection 

efforts and has established additional reporting 

requirements for investment funds. As a result, 

there is now significantly more data available to 

regulators to monitor and analyze developments 

concerning fund liquidity, leverage, and risk-taking. 

The Council recommends that the SEC and other 

relevant regulators consider whether additional steps 

should be taken to address these vulnerabilities.

5.5 Financial Market Structure, Operational 

Challenges, and Financial Innovation

5.5.1 Central Counterparties

The benefits of CCPs include improved 

transparency, the application of centralized 

risk management and standardized margin 

methodologies, multilateral netting, and clear, 

predetermined procedures for the allocation 

of counterparty credit losses. Central clearing 

mandates have increased the volume of cleared 

OTC derivatives trades, both in absolute terms and 

relative to the size of the markets. As discussed 

in the November 2021 Staff Progress Report, the 

IAWG on Treasury Market Surveillance continues 

to evaluate whether expanded central clearing 

in Treasury cash or repo markets will enhance 

Treasury market resilience (see Box A).

The safety and efficiency of CCPs across a broad 

set of jurisdictions have been improved by the 

implementation of the CPMI-IOSCO PFMI—which 

set forth international principles for CCPs and other 

types of financial market infrastructures.

There have also been advances in the development 

of plans for CCP recovery. In connection with 

those CCPs designated as systemically important 

FMUs by the Council, the CFTC requires the CCPs 

that it supervises to maintain recovery and orderly 

wind-down plans pursuant to CFTC regulations. 

The CFTC has reviewed and provided guidance on 

these recovery plans. The SEC has also approved 

recovery and orderly wind-down plans for the CCPs 

it supervises.

Although CCPs provide significant benefits to 

market functioning and financial stability, they 

can also introduce strains to the financial system. 

The inability of a CCP to meet its obligations 

arising from the default of one or more clearing 

member, or from non-default losses, could strain the 

surviving members of the CCP and, more broadly, 

the financial system. The overall market impact 

of these demands depends on the size of the CCP 
164 2021 FSOC // Annual Report

and its interconnectedness with other systemically 

important financial institutions. 

CCPs’ risk management frameworks are designed 

to ensure that they have sufficient pre-funded 

resources to cover a member default and, in the case 

of systemically important CCPs, multiple member 

defaults. To mitigate their risk, CCPs impose 

liquidity and resource requirements on clearing 

members that can increase with market volatility or 

other stressors. The first line of defense of the CCP 

is often through initial margin requirements which, 

to achieve adequate risk coverage, are inherently 

procyclical. Initial margin models, however, also 

have features that mitigate procyclicality, including 

the use of historical and theoretical stress scenarios 

even during low volatility periods, to dampen the 

sensitivity of initial margin to changes in market 

volatility.

Intraday margin calls may affect the liquidity 

positions of CCP members, and in extreme cases 

could affect their capital positions as well. Some 

recent episodes, including during the March 2020 

financial strains, have highlighted liquidity risk 

management contingencies that CCP members 

should monitor. For example, in January 2021, the 

margin requirement of one member of the NSCC 

increased by $3.0 billion as a result of a surge of 

activity related to interest by retail investors in 

certain securities discussed on social media. NSCC’s 

decision to waive certain margin requirements likely 

saved this member from default (see Section 3.6.1).

The Central Counterparty Risk and Governance 

Subcommittee of the CFTC’s Market Risk 

Advisory Committee published various reports 

in 2021 on CCP risk management. Members of 

this subcommittee, which is composed of central 

counterparties, clearing members and other 

market participants, generally agreed on the need 

for credit and liquidity stress testing and on stress 

testing and margining practices. Subcommittee 

members indicated that further work is required 

to understand what steps could be taken to reduce 

the impact on the financial system if a CCP 

were to come under financial strain, including 

capital management practices at CCPs, default 

management, and CCP transparency. A number of 

regulatory efforts have focused on monitoring and 

quantifying potential systemic risks. Both the CFTC 

and SEC maintain active risk surveillance programs 

of CCPs’ and intermediaries’ risk management and 

receive daily or weekly reports of positions, risk 

measures, margins, collateral, and default resources.

In addition to risk surveillance programs, 

supervisory stress tests involving multiple CCPs can 

be an important tool in this assessment. Supervisory 

stress tests can, for example, help shed light on 

the risks and vulnerabilities related to potential 

failures of the largest clearing members. Because 

these clearing members are often active across many 

markets, such failures could create exposures across 

multiple CCPs.

Recommendations

The Council recommends that the CFTC, Federal 

Reserve, and SEC continue to coordinate in the 

supervision of all CCPs designated by the Council 

as systemically important FMUs. Relevant agencies 

should continue to evaluate whether existing 

standards for CCPs are sufficiently robust to mitigate 

threats to financial stability from both default 

and non-default losses. These agencies should pay 

particular attention to, and seek to balance, the 

tradeoff between counterparty risk and liquidity 

risk. Agencies that regulate clearing members 

should continue to assess those firms’ liquidity risk 

management practices and capabilities. 

Member agencies should continue working with 

global counterparts and international standardsetting bodies to identify and address areas of 

common concern. The Council encourages 

continued engagement with foreign regulators to 

address the potential for inconsistent regulatory 

requirements or supervision that pose risks to 

U.S. financial stability. The Council encourages 

cooperation in the oversight and regulation of FMUs 

across jurisdictions.

The Council also encourages agencies to continue 

to monitor and assess interconnections among 

CCPs, their clearing members, and other financial 

institutions. While margin requirements have 

increased significantly in the aftermath of the 

financial fallout from the COVID-19 pandemic, 

agencies should continue to analyze and monitor the 

impact of regulatory risk management frameworks 
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 165

in cleared, uncleared, and related securities 

markets and their impact on systemically important 

intermediaries and clients.

Finally, the Council encourages regulators to 

continue to advance recovery and resolution 

planning for systemically important FMUs and to 

coordinate in designing and executing supervisory 

stress tests of multiple systemically important CCPs.

5.5.2 Alternative Reference Rates

After years of planning and preparation, the 

transition away from LIBOR is entering a critical 

stage. With end dates for LIBOR now set, and with 

U.S. regulators having issued guidance, market 

participants should act with urgency to address 

their existing LIBOR exposures and transition 

to robust and sustainable alternative rates. The 

Council has identified certain risks for this critical 

transition period. 

One risk relates to the selection of new references 

rates. The ARRC—a group of financial market 

participants convened by the Federal Reserve and 

FRBNY—recommends SOFR as the alternative 

reference rate. SOFR is based on a deep market 

whereas some other alternative rates are based on 

a smaller number of transactions. A rate based on 

a small volume of transactions, especially if much 

lower than the volume of instruments that reference 

a given rate, could introduce risks if the rate is 

susceptible to volatility and disruption during times 

of market stress. In addition, it is important to 

consider whether the use of such a rate is fit for the 

purpose of the rate’s design. In a public meeting of 

the Council in June 2021, several Council members 

emphasized their concerns about credit-sensitive 

rates being used as reference rates in capital and 

derivatives markets.

A second risk relates to the continued issuance of 

instruments that create or extend LIBOR exposure. 

With LIBOR cessation dates set, it is important that 

financial institutions cease issuance of instruments 

tied to LIBOR as soon as practicable. In November 

2020, the FRB, OCC, and FDIC issued guidance 

that their regulated entities should cease entering 

into new contracts that use USD LIBOR as a 

reference rate as soon as practicable and, in any 

event, no later than December 31, 2021. In October 

2021, the Federal Reserve, FDIC, OCC, CFPB, and 

NCUA, in conjunction with state bank and state 

credit union regulators, issued a Joint Statement on 

Managing the LIBOR Transition that emphasized 

the expectation that supervised institutions with 

LIBOR exposure continue to progress toward an 

orderly transition away from LIBOR. The ARRC 

also recommended in October 2021 that market 

participants “act now to slow their use of” USD 

LIBOR before the end of the year. Continued 

issuance of instruments that create or extend LIBOR 

exposure—even those that mature prior to cessation 

of LIBOR including in particular instruments 

that routinely are rolled over or extended—is 

inconsistent with guidance from regulators and 

recommendations from the ARRC, delays the 

inevitable work required to transition to alternative 

rates, and unnecessarily increases exposures to a 

rate that will cease to be published in the future. 

A third risk relates to legacy contracts without robust 

fallback provisions in the event of LIBOR’s cessation. 

Market participants with significant exposure to 

USD LIBOR maturing after cessation dates will 

be vulnerable if they do not take action, where 

feasible, to transition these contracts. The state of 

New York has enacted legislation to help transition 

such legacy contracts governed by New York law to 

SOFR. The state of Alabama also passed legislation 

substantively identical to the New York bill. However, 

it is unclear how effective these laws will be in fully 

addressing the transition for contracts subject to 

their provisions, and legal issues may remain for 

contracts governed by the laws of other jurisdictions. 

Contractual fallback provisions may not contemplate 

the need for an alternative rate or may include 

provisions that probably cannot be operationalized 

in the event of LIBOR’s cessation, like the polling of 

LIBOR panel banks by the issuer. In addition, while 

new floating rate note issuances have increasingly 

included more robust contract fallback language, 

some new issuances in 2021 still did not include 

these provisions, putting issuers and investors at 

risk. Securitized products are further complicated, 

as legacy contracts may require the consent of all 

parties to amend the transaction and new issuance 

continues to use legacy language that may not be 

feasible to implement. Revising the documents for 

these products would require significant effort and 
166 2021 FSOC // Annual Report

expense, and in most cases, it may not be possible 

to contact and obtain the required consent from all 

parties involved; the slow adoption of more robust 

fallback language in these instruments, therefore, 

presents a particular risk.

Consumer exposures to LIBOR, most commonly 

through adjustable-rate mortgages, present a special 

set of considerations in addition to those discussed. 

Noteholders will need to take care in working to 

ensure that consumers are treated fairly and that the 

transition is explained clearly. The ARRC is working 

with consumer groups, lenders, investors, and 

regulators to achieve a smooth LIBOR transition. 

On June 4, 2020, the CFPB issued a Notice of 

Proposed Rulemaking and FAQs relating to the 

LIBOR transition. The CFPB is continuing work on 

the final rule, which would amend Regulation Z to 

address the anticipated expiration of LIBOR and 

expects to issue it in January 2022. The FAQs pertain 

to compliance with existing CFPB regulations for 

consumer financial products and services impacted 

by the anticipated LIBOR discontinuation and 

resulting need to transition to other indices.

Recommendations

With the cessation dates for LIBOR set and with 

U.S. regulators having issued guidance, market 

participants should execute plans to transition to 

alternative reference rates. Market participants 

should understand the exposure of their firms 

to LIBOR in every business and function, assess 

the impact of LIBOR’s cessation or degradation 

on existing contracts, and take available steps to 

remediate risks from existing contracts that do not 

have robust fallback provisions to transition the 

contract to an appropriate alternative rate. It is 

also important that participants consider potential 

LIBOR exposure in services provided by third 

parties, such as contract servicing, systems, and 

models. Market participants should evaluate whether 

any new agreements contain sufficiently robust 

fallback provisions, such as those endorsed by the 

ARRC, to mitigate risk that the contract’s interest 

rate benchmark becomes unavailable. Market 

participants should monitor legal developments that 

address the transition of contracts tied to LIBOR 

that lack fallback provisions or for which parties 

failed to negotiate an alternative rate. Market 

participants that do not execute plans for this 

transition could face significant legal, operational, 

and economic risks. 

Financial institutions should cease issuing 

instruments linked to LIBOR as soon as practicable 

and no later than December 31, 2021. In selecting 

a reference rate to replace LIBOR, the Council 

recommends that market participants only utilize 

alternative reference rates with deep underlying 

volumes and use alternative reference rates in ways 

that are fit for the purpose of the rates’ designs. 

The ARRC has recommended SOFR because it 

provides a robust rate, suitable for use in most 

products and with underlying transaction volumes 

that are unmatched by other LIBOR alternatives. 

The Federal Reserve, OCC, and FDIC previously 

communicated that a supervised institution may use 

any reference rate for its loans that the institution’s 

management determines is appropriate based on its 

funding model and customer needs, while several 

Council members have emphasized that derivatives 

and capital markets should move to SOFR given its 

robustness. The Council advises lenders, borrowers, 

and other market participants to consider the use 

of SOFR-based rates. If market participants use 

a rate other than SOFR, they should ensure that 

they understand how their chosen reference rate is 

constructed, be aware of any fragilities associated 

with that rate, and use strong fallback provisions in 

their contracts. Market participants should conduct 

a comprehensive evaluation before adopting any 

alternative reference rate. Such an evaluation 

would, at a minimum, review the alternative rate’s 

fitness for purpose, ensure that the rate is based 

on a sufficiently active market with sufficient 

transaction volumes, assess the adequacy of the 

representativeness of the underlying interest, and 

evaluate the resilience of the rate during times 

of stress. Individual institutions should review 

how alternative rates fit into their internal risk 

management guidelines, business strategies, and risk 

appetite. 

The Council commends the efforts of the ARRC and 

recommends that it continue to facilitate an orderly 

transition to alternative reference rates. Council 

member agencies should determine whether 

regulatory relief is required to encourage market 
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 167

participants to address legacy LIBOR portfolios. 

Council member agencies should also continue to 

use their supervisory authority to understand the 

status of regulated entities’ transition from LIBOR, 

including their legacy LIBOR exposure and plans to 

address that exposure.

5.5.3 Financial Market Structure

Advances in information and communications 

technologies, as well as regulatory developments, 

have altered the structure of financial markets 

over the last decade. The Council and member 

agencies are closely monitoring how changes in 

market structure have affected the robustness and 

efficiency of capital markets and the stability of the 

financial system. The extreme volatility in financial 

markets after the onset of the pandemic last year has 

further emphasized the importance of ensuring that 

appropriate market structures are in place so that 

financial markets can function effectively during 

stress events.

Interlinkages Among Dollar Funding Markets

Some market participants are active in both secured 

and unsecured short-term funding markets. 

Commercial banks and the FHLBs operate in 

the secured repo market as well as the unsecured 

federal funds market. Other institutions operate 

only in certain markets: MMFs lend in the repo 

and the Eurodollar markets but cannot participate 

in the federal funds market, while borrowing 

options in dollar funding markets may be limited 

to the repo market for some entities such as hedge 

funds. In addition, since the 2008 financial crisis, 

new regulations on bank capital and liquidity, 

structural reforms in MMFs, and a new operating 

environment for bank-affiliated broker-dealers have 

fundamentally altered how market participants 

interact and the various interlinkages among the 

federal funds market, the repo market, and the 

Eurodollar market. Given the myriad of participants 

and strong interlinkages between them, disruptions 

in one market can transmit to another. 

There are benefits from interdependencies among 

markets, including enhanced price discovery and 

more options for hedging risks. At the same time, 

interdependencies create transmission risks from 

volatile or inaccurate pricing that have the potential 

to amplify shocks across different markets.

Pressures on Dealer Intermediation

Traditionally, market-making and arbitrage 

mechanisms involving securities dealers have helped 

in the orderly functioning of the secondary market 

for Treasury and MBS. Bank-affiliated brokerdealers are also the principal participants in the 

tri-party and general collateral finance repo markets 

that use these securities as collateral. 

However, two developments in recent years have 

raised the volume of transactions relative to dealer 

intermediation capacity. First, issuance volumes 

of these marketable securities, especially Treasury 

securities, have increased significantly, and the 

pace of issuance has risen further since the onset 

of the pandemic. Second, large banks have taken 

action to limit balance sheet growth in light of 

capital requirements designed to constrain leverage, 

resulting in major bank-affiliated broker-dealers 

having reduced the portion of their balance sheet 

that is allocated to trading and repo transactions. 

Together, these developments may have contributed 

to episodes of illiquidity in Treasury, MBS, and 

corporate bond markets in March 2020. Market 

disruptions not only have implications for financial 

stability but also affect the implementation of 

monetary policy. 

Role of Non-Traditional Market Participants

Non-traditional market participants, including 

principal trading firms, play an increasingly 

important role in securities and other markets. 

These firms may improve liquidity and investor 

outcomes under normal circumstances, but 

they may also introduce new potential risks. For 

instance, the trading strategies that non-traditional 

market participants employ and the incentives and 

constraints that they operate under may not be as 

well understood, leading to uncertainty about how 

these firms might behave during periods of market 

stress. 

Disruptive Events in Securities Markets

An episode of stress in the Treasury market in 

February 2021 is a recent example of occasional 

abrupt disruptions to asset prices and liquidity 
168 2021 FSOC // Annual Report

conditions in securities markets. Other examples 

include but are not limited to episodes in the 

Treasury market in March 2020 and October 2014, 

in the equity market in May 2010, and some other 

less serious episodes more recently in gold and OTC 

markets. Trading strategies may have contributed to 

these episodes, though assessing these contributions 

is difficult because the details of trading strategies 

and operations are generally proprietary. The 

continued occurrence of these episodes may signal 

a vulnerability regarding the resilience of key 

financial markets. 

Consideration of Central Clearing in the U.S. 

Treasury Market

Significant parts of the Treasury market are not 

centrally cleared, including transactions between 

dealers and their customers, and transactions on 

market platforms involving principal trading firms. 

Expansion of central clearing could have a range 

of benefits, including reducing chains of settlement 

failures and counterparty risk concerns in times of 

stress. In addition, to the extent that dealers hold 

more capital against bilaterally cleared trades than 

centrally cleared trades, central clearing could 

improve their ability to provide liquidity particularly 

for repos. Whether more widespread central 

clearing would benefit Treasury market resilience 

is a question that must be studied carefully, like any 

significant change in market structure. Study of 

these questions should include understanding the 

factors that have limited central clearing to date, 

including concerns regarding increased costs and 

operational burdens. 

Recommendations 

The Council recommends that member agencies 

continue to review market structure issues that 

may contribute to market volatility in key markets, 

including short-term funding, Treasuries, MBS, and 

corporate bond markets, and study the interlinkages 

between them. Market participants should also 

regularly assess how market developments affect 

the risk profile of their institutions. The Council 

recommends that financial regulators continue to 

monitor and evaluate ongoing changes that might 

have adverse effects on markets, including on 

market integrity and liquidity, or that might underly 

flash events. In the Treasury market, the Council 

recommends that agencies consider whether an 

increase in central clearing would enhance the 

resilience of the market and assess the potential 

impact on liquidity of such an increase. 

5.5.4 Cybersecurity

The financial sector, like other critical sectors, 

is vulnerable to ransomware and other malware 

attacks, denial of service attacks, data breaches, 

and other events. Such incidents have the potential 

to impact tens or even hundreds of millions of 

Americans and result in financial losses of billions 

of dollars due to disruption of operations, theft, and 

recovery costs. 

Ransomware attacks continue to rise worldwide, with 

cyber criminals targeting critical infrastructure, 

small businesses, hospitals, and schools. Over 

the past year, firms victimized by ransomware 

attacks include Colonial Pipeline and the meat 

processing firm JBS. The ongoing drumbeat of these 

cyberattacks is evidence of the danger they present 

to the U.S. economy and financial system. While the 

attacks on Colonial and JBS only briefly affected 

commodity markets, a destabilizing cybersecurity 

incident could potentially threaten the stability 

of the U.S. financial system through at least three 

channels: 

First, the incident could disrupt a key financial 

service or utility for which there is little or 

no substitute. This could include attacks on 

central banks; exchanges; sovereign and subsovereign creditors, including U.S. state and local 

governments; custodian banks, payment clearing 

and settlement systems; or other firms or services 

that lack substitutes or are sole service providers. 

Second, the incident could compromise the integrity 

of critical data. Accurate and usable information 

is critical to the stable functioning of financial 

firms and the system; if such data is corrupted 

on a sufficiently large scale, it could disrupt the 

functioning of the system. The loss of such data also 

has privacy implications for consumers and could 

lead to identity theft and fraud, which in turn could 

result in a loss of confidence.

Third, a cybersecurity incident that causes a loss 

of confidence among a broad set of customers 
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 169

or market participants could cause customers or 

participants to question the safety or liquidity of 

their assets or transactions, and lead to significant 

withdrawal of assets or activity.

Looking ahead, a greater prevalence of teleworking 

compared with the pre-pandemic period could 

result in vulnerabilities from that source remaining 

elevated. The implementation of teleworking 

strategies using virtual private networks, virtual 

conferencing services, and other technologies 

can increase cybersecurity vulnerabilities, insider 

risks, and other operational exposures. Firms have 

increased their reliance on third-party service 

providers to implement these strategies, and for a 

variety of other services as well (see Section 3.6.2.5). 

The interdependency of networks and technologies 

supporting critical operations magnifies cyber 

risks, threatening the operational capabilities of 

individual institutions and the financial sector as 

a whole. Rapid adoption of new technologies and 

interconnected platforms used to support hybrid 

work models have enhanced the efficient provision 

of financial services but have simultaneously 

increased complexity of information technology and 

operations. 

Recommendations

Improving the cybersecurity and operational 

resilience of the financial sector requires continuous 

assessment of cyber vulnerabilities and critical 

connections across firms. Sustained senior-level 

commitment to mitigate cybersecurity risks and 

their potential systemic implications is necessary at 

both member agencies and private firms. 

The Council recommends that federal and state 

agencies continue to monitor cybersecurity risks 

and conduct cybersecurity examinations of financial 

institutions and financial infrastructures. These 

actions aim to ensure, among other things, robust 

and comprehensive cybersecurity monitoring, 

incident response and recovery processes, 

considering new risks posed by the pandemic, 

ransomware incidents, and supply chain attacks. 

The Council encourages continued cooperation 

across government agencies and private firms to 

improve cybersecurity and operational resilience. 

Controls that may help organizations improve 

include adoption of immutable backups and 

stronger authentication and authorization controls. 

Controls such as these help organizations mitigate 

the risk of cybersecurity incidents at any one 

organization, and enhance the financial sector’s 

cybersecurity posture overall.

The Council supports the ongoing work of 

partnerships between government agencies and 

private firms, including the Financial and Banking 

Information Infrastructure Committee (FBIIC), 

the Financial Services Sector Coordinating Council, 

and the Financial Services Information Sharing 

and Analysis Center (FS-ISAC). These partnerships 

focus on improving the financial sector’s ability 

to rapidly respond to and recover from significant 

cybersecurity incidents, thereby reducing the 

potential for such incidents to threaten the stability 

of the financial system and the broader economy.

The Council recommends that the FBIIC continue 

to promote processes to strengthen response and 

recovery efforts, including efforts to address the 

systemic implications of significant cybersecurity 

incidents. The FBIIC should continue to work 

closely with the Department of Homeland Security, 

law enforcement, and industry partners to carry 

out regular cybersecurity exercises recognizing 

interdependencies with other sectors, such as 

telecommunications and energy. 

The Council further recommends that agencies 

work to improve information sharing among private 

firms and government partners. Sharing timely and 

actionable cybersecurity information can reduce 

the risk that cybersecurity incidents occur and 

can mitigate the impacts of those that do occur. 

Treasury and relevant agencies should carefully 

consider how to appropriately share information 

and, where possible, continue efforts to declassify 

(or downgrade classification of) information 

on incidents, consistent with national security 

imperatives. The Council encourages efforts to 

enhance information sharing with the FS-ISAC 

and its growing community of financial sector 

institutions. 

Financial institutions are rapidly adopting new 

technologies, including cloud computing and 

artificial intelligence. The Council supports the 
170 2021 FSOC // Annual Report

efforts of the FBIIC Technology Working Group, 

which examines the extent to which financial 

services firms using emerging technologies 

introduce new cyber vulnerabilities into the 

financial services critical infrastructure. The 

Council recommends agencies consider how such 

emerging technologies change the sector’s risk 

profile and consider the need for any corresponding 

change to supervision and regulation. The growing 

use of artificial intelligence by financial institutions 

was the subject of a joint request for information 

by the Federal Reserve, CFPB, FDIC, NCUA, and 

OCC in March 2021 to gain input from stakeholders 

including financial institutions, trade associations, 

consumer groups, and others. 

5.5.5 Data Gaps and Challenges

Episodes of acute financial stress in 2008 and 2020 

have exposed several major gaps and deficiencies in 

the range and quality of data available to financial 

regulators to identify emerging risks in the financial 

system. These gaps and shortcomings include 

firm-level structure and ownership information; 

transaction data in certain important financial 

markets, including short-term funding, securities 

lending arrangements, repo contracts, Treasury 

securities, and OTC derivatives; and limitations in 

financial statement reporting for certain types of 

institutions. Areas of financial innovation are often 

not well captured by existing data, particularly if 

they involve firms that are subject to limited or 

no oversight by financial regulators. In addition, 

this past year, the failure of the family investment 

fund Archegos has raised questions about whether 

there is adequate transparency to assess the market 

impacts of private investment vehicles, including 

family funds. Financial institutions may benefit from 

collecting more granular and higher-frequency 

disclosures, as available measures may not be 

capturing important risks. Often, the usefulness 

of existing data is limited by institutional or 

jurisdictional differences in reporting requirements. 

These types of inconsistencies can create challenges 

for data sharing and increase the reporting burden 

on market participants. 

Data gaps can present vulnerabilities to the financial 

system. For example, incomplete data on Treasury 

market developments can cause market participants 

to pull back out of uncertainty in volatile market 

conditions, reducing liquidity provision and 

amplifying volatility. Progress has been made on 

this front. Treasury market data are now reported to 

TRACE by broker-dealer FINRA members, though 

publicly available information is still limited and 

other participants such as banks do not yet report 

data.

Council member agencies have worked with each 

other, regulators in other jurisdictions, and financial 

companies on developing standards and protocols 

and carrying out data collection initiatives. Staff of 

the OFR, CFTC, SEC, Federal Reserve, FDIC, OCC, 

and CFPB, as members of the Regulatory Oversight 

Committee, meet regularly with their international 

regulatory counterparts on the ROC to oversee 

implementation of the LEI, UTI, UPI, and CDE 

standards. Member agencies have also been working 

to facilitate the adoption of LEIs and Universal 

Loan Identifiers for mortgage loans. 

Recommendations

High-quality financial data is an essential input 

into the financial regulatory process. The Council 

and member agencies rely on data collected from 

market participants to monitor developments in the 

financial system, identify potential risks to financial 

stability, and prioritize and execute supervisory 

and examination work. The Council encourages 

member agencies to collaborate and expand their 

data resources and analytical capabilities to assess 

interconnectedness and concentration risks in their 

respective areas of responsibility. 

The establishment of uniform market standards 

for digital reporting, assurance, and collection 

enhances the usefulness of market data and reduces 

the reporting, access, and analysis burdens on 

market participants. The failure to adopt broadly 

shared granular data standards for financial 

products, transactions, and entities can lead to 

unnecessary costs and inefficiencies, such as 

duplicate reporting, and may impede the ability to 

aggregate data for risk-management and reporting 

purposes. The Council recommends that regulators 

and market participants continue to partner to 

improve the scope, quality, and accessibility of 

financial data, as well as data sharing among 
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 171

relevant agencies. These partnership efforts include 

implementing new standardized identifiers such as 

the UTI, UPI, and CDE; developing and linking data 

inventories; and implementing industry standards, 

protocols, and security for secure data sharing. 

Broader adoption of the LEI by financial market 

participants continues to be a Council priority. The 

LEI enables unique and transparent identification of 

legal entities participating in financial transactions. 

ULIs will make it possible to track loan records 

through a loan’s life cycle. The Council recommends 

that member agencies update their regulatory 

mortgage data collections to include LEI and 

ULI fields. The Council also recommends that 

member agencies promote adoption and use of 

standards in mortgage data, including consistent 

terms, definitions, and data quality controls, which 

will make transfers of loans or servicing rights 

less disruptive to borrowers and investors. Finally, 

the LEI remains under consideration for a role in 

authenticating digital identities. 

Important initiatives are underway at member 

agencies that will improve the functioning of 

financial markets. Among these is the collection of 

repo transaction data, which is used to create SOFR 

benchmark rates for use by market participants. The 

Council recommends that member agencies continue 

to work to harmonize domestic and global derivatives 

data for aggregation and reporting and ensure 

that appropriate authorities have access to trade 

repository data needed to fulfill their mandates. 

The Council encourages pension regulators and 

FASB to improve the quality, timeliness, and depth 

of disclosures of pension financial statements and 

portfolio holdings.

The Council recommends that member agencies 

review steps that could be taken to improve 

transparency about the activities of leveraged 

investment vehicles including family offices and 

determine any financial stability implications of 

those activities. The Council commends the steps 

taken by the SEC to implement new rules related to 

security-based swaps. 

Finally, as noted in Section 5.1, the Council 

recognizes the critical importance of taking prompt 

action to improve the availability of data and 

measurement tools pertaining to climate-related 

financial risks. 

5.5.6 Financial Innovation

Financial innovation can offer considerable benefits 

to consumers and providers of financial services 

by reducing the cost of certain financial services, 

increasing the convenience of payments, and 

potentially increasing the availability of credit. But 

innovation can also create new risks that need to be 

understood. 

5.5.6.1 Digital Assets

The development of digital assets and the use 

of associated distributed ledger technology may 

present the opportunity to promote innovation and 

further modernization of financial infrastructure. 

Regulatory attention and coordination are 

critically important in light of the quickly evolving 

market for digital assets. As with all technological 

advances, the advances associated with digital assets 

are accompanied by both benefits and risks, and 

regulation should seek to balance innovation with the 

risks it presents, including those to financial stability. 

Digital asset arrangements vary widely. The risk 

posed by each depends, among other things, on 

the structure of the asset’s consensus mechanism, 

and the risk management practices of participants. 

Digital assets have garnered interest as a potential 

tool for developing new products, services, and 

infrastructures; however, it appears that speculation 

drives the majority of digital asset activity at this 

time. Like all highly speculative investments, the 

prices of some digital assets may be highly volatile. 

In general, digital assets may also be subject to the 

risk of fraud and market manipulation. Digital 

asset networks can be international in scope and 

include a diverse set of participants, including nontraditional financial service providers, heightening 

illicit financing and national security risks related to 

anti-money laundering, tax compliance, sanctions, 

and use of digital assets in ransomware attacks. 

The significant number of counterparties could 

introduce complexities in governance structures 

and incentives, as well as transfer risk to other 

components of the system. Digital asset networks 

may also be subject to operational risks, including 

disruptions to the technologies that underlie the 
172 2021 FSOC // Annual Report

platform and cybersecurity. These events could 

prove disruptive to users and, in an extreme case, 

undermine confidence in the system as a whole.

The use of leverage to obtain exposure to highly 

volatile digital assets increases the risk of a fire sale 

in the underlying asset: a decrease in asset values 

could trigger a cycle of sales to meet margin calls 

and further price declines, possibly spilling into 

other digital assets. Participants may use various 

arrangements to obtain leveraged investments in 

digital assets, including through some decentralized 

finance (DeFi) arrangements. Links between 

traditional financial institutions, markets, and 

infrastructure to various digital assets and DeFi 

projects may create a channel for a risk event in digital 

assets to spread to the broader financial system.

Stablecoins have been an important part of digital 

asset development over the past few years. Some 

stablecoin arrangements are already sizeable, and 

many stablecoins are growing. A run on stablecoins 

during strained market conditions may have 

the potential to amplify a shock to the economy 

and the financial system. Today, stablecoins are 

predominantly used in the United States to facilitate 

trading, lending, and borrowing of other digital 

assets. There could also be various risks from the 

use of a stablecoin as a payment system, including 

operational, settlement, and liquidity risks (see 

Box G). Risks to payment systems, if not properly 

managed, can present financial stability risks, given 

the importance of a well-functioning payments 

system in facilitating commercial activities.

Recommendations 

The Council recommends that federal and state 

regulators continue to examine risks to the financial 

system posed by new and emerging uses of digital 

assets, including risks from connections with 

banking services, financial markets, and financial 

intermediaries, arising directly or indirectly; risks 

to consumers, investors, and businesses associated 

with potential losses or instability in market 

prices; illicit financing risks; risks to national 

security; cybersecurity and privacy risks; and risks 

to international monetary and payment system 

integrity. The Council encourages coordination 

among U.S. financial regulators to address risks 

arising from digital assets. 

The Council has reviewed the Report on Stablecoins

published by the PWG, the FDIC, and the OCC on 

November 1, 2021, and recommends that its member 

agencies consider the recommendations in that 

report. The Council will further assess and monitor 

the potential risks of stablecoins and recommends 

that its members consider appropriate actions within 

each member’s jurisdiction to address those risks 

while continuing to coordinate and collaborate on 

issues of common interest. The Council will also be 

prepared to consider steps available to it to address 

risks outlined in the PWG Report on Stablecoins in 

the event comprehensive legislation is not enacted. 

The Council recommends that state and federal 

regulators review available regulations and tools that 

could be applied to digital assets and their experience 

to date in using those tools. 
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 173

The PWG, along with the FDIC and the OCC, recently 

issued an interagency Report on Stablecoins

to examine the current regulation of stablecoins, 

identify risks posed by stablecoins, and develop 

recommendations for addressing those risks. 

Stablecoins are digital assets that are designed to 

maintain a stable value relative to a national currency 

or other reference assets. As discussed in Section 

3.6.2.1, the market capitalization of stablecoins 

issued by the largest stablecoin issuers exceeded 

$127 billion as of October 2021, reflecting a nearly 

500 percent increase over the preceding twelve 

months. Today, stablecoins are predominantly used 

in the United States to facilitate trading, lending, and 

borrowing of other digital assets.

Proponents of stablecoins believe that stablecoins 

could become widely used by households and 

businesses as a means of payment. If well-designed 

and appropriately regulated, stablecoins could 

support faster, more efficient, and more inclusive 

payments options. The transition to broader use of 

stablecoins as a means of payment could occur 

rapidly due to network effects or relationships 

between stablecoins and existing user bases or 

platforms. The potential for the increased use of 

stablecoins as a means of payment raises a range 

of prudential concerns, in addition to concerns 

regarding market integrity, investor protection, and 

illicit finance. 

A stablecoin requires users’ confidence in order 

to serve as a reliable store of value or means of 

payment. This confidence could be undermined by 

factors including the use of reserve assets that fall 

in price or become illiquid; a failure to appropriately 

safeguard reserve assets; a lack of clarity regarding 

the redemption rights of stablecoin holders; and 

operational risks related to cybersecurity and the 

collecting, storing, or safeguarding of data.

The failure of a stablecoin to perform according to 

expectations would harm users of that stablecoin and 

could pose systemic risk. The mere prospect of a 

stablecoin not performing as expected could result 

in a “run” on the stablecoin, i.e., a self-reinforcing 

cycle of redemptions and fire sales of reserve assets. 

Moreover, failures or disruptions may not be isolated. 

For example, where stablecoin arrangements rely on 

digital asset trading platforms for various functions—

such as to distribute stablecoins, enable conversion 

into national currency, and facilitate arbitrage 

mechanisms—failures or disruptions to the digital 

asset trading platform could disrupt the stablecoin, 

and vice versa. Fire sales of reserve assets could 

disrupt critical funding markets, depending on the 

type and volume of reserve assets involved. Risks to 

the broader financial system could rapidly increase 

as well, particularly in the absence of prudential 

standards.

The transfer mechanisms used in stablecoin 

arrangements (and potentially other aspects of the 

arrangements’ activities) can provide opportunities 

for efficient payment processing but also can pose 

risks to their participants and the broader financial 

system. Payment stablecoins face many of the same 

basic risks as traditional payment systems, including 

credit risk, liquidity risk, operational risk, risks arising 

from improper or ineffective system governance, and 

settlement risk. These risks may remain inadequately 

addressed for stablecoin arrangements due to the 

lack of consistent risk-management standards, 

the number of key parties that may be involved, 

and operational complexity. When not managed 

comprehensively, these risks can make payment 

systems less available and less reliable for users, 

and they can create financial shocks or operate as a 

channel through which financial shocks spread.

The potential for an individual stablecoin to scale 

rapidly raises additional sets of policy concerns 

regarding concentration of economic power. First, a 

stablecoin issuer or a key participant in a stablecoin 

arrangement (e.g., a custodial wallet provider) could 

pose systemic risk if widely adopted at rapid scale. 

This means that the failure or distress of such an 

Box G: Stablecoins
174 2021 FSOC // Annual Report

entity could adversely impact financial stability and 

the real economy. Second, the combination of a 

stablecoin issuer or wallet provider and a commercial 

firm could lead to an excessive concentration 

of power to the detriment of broader market 

competition. Third, a stablecoin that becomes widely 

adopted as a means of payment could present 

concerns about anti-competitive effects. For example, 

users of a widely adopted stablecoin might face 

undue frictions or costs in the event that they choose 

to switch to other payment services or products. 

Concerns about anti-competitive effects are thus 

likely to be greater absent interoperability standards 

for stablecoins and stablecoin arrangements.

Today, stablecoins are not subject to a consistent 

set of prudential regulatory standards that address 

their risks. The number of different key parties 

that may be involved in an arrangement and the 

operational complexity of these arrangements pose 

challenges for supervisory oversight. Critical creation, 

governance, and payment functions could be widely 

distributed among the jurisdictions of different 

domestic and international regulators. In such 

fragmented systems and under conditions of rapid 

growth and change, regulation and supervision are 

more complex, less efficient, and more susceptible to 

arbitrage.

Altogether, the benefits and potential risks associated 

with stablecoins and other digital assets underscore 

the importance of U.S. regulators adopting an 

approach to digital assets that will provide for 

responsible innovation in a manner that is safe 

and fair and complies with all applicable laws. A 

comprehensive regulatory framework promotes 

responsible innovation and functional payment 

systems, regardless of the underlying technology.

5.5.6.2 Use of Technology in Financial Services

Technology companies providing financial services 

are another source of innovation in financial 

markets (see Section 3.6.2.4). Innovative technology 

companies may offer benefits to the financial system 

such as fostering inclusion and improving small 

business access to credit. These companies may 

seek to compete directly with incumbent financial 

service providers, and their market presence could 

grow significantly. Currently, these firms may not 

be subject to the same types of financial services 

regulations that govern incumbent financial service 

providers. 

One area in which technology companies have been 

active is in the provision of third-party services for 

financial firms. In general, financial institutions 

that contract with a third-party service provider are 

exposed to risk that a third-party service provider 

is unable to perform as intended. Concentration 

in the use of technological innovations may 

increase operational risks associated with financial 

institutions’ use of third-party service providers. 

When technology innovations rely on relatively few 

companies to provide supporting infrastructure, 

the risk grows that financial or operational failures 

or faults at companies providing supporting 

infrastructure could disrupt the activities of 

multiple financial institutions or financial markets. 

In addition, business relationships with technology 

firms, depending on the products and services 

offered, may introduce other risks relating to 

compliance, BSA/AML, and reputation that require 

a commensurate risk management framework.

Finally, technology has increasingly enabled retail 

investors to participate at higher rates in U.S. 

equity markets, particularly in day trading and 

self-directed trading. This trend has accelerated 

during the COVID-19 pandemic. Innovations that 

democratize access to trading markets and increase 

the diversity of participants can have positive 

benefits. However, some emerging vulnerabilities 

may have been highlighted by the January 2021 

episode of market volatility, which involved heavy 

trading in certain equities, including GameStop 

Box G: Stablecoins (continued)
Potential Emerging Threats, Vulnerabilities, and Council Recommendations 175

Corp., that were discussed widely on social media. In 

this episode, asset price movements do not appear 

to have had any systemic impacts. However, sudden 

asset price movements unrelated to fundamental 

news could represent a vulnerability if they lead to 

cascading impacts by causing asset liquidations or 

putting stress on financial institutions. This episode 

raises the question of how social media coordination 

compares to other more traditional forms of 

coordination that existing policy tools are designed 

to address. 

Recommendations

The Council encourages financial regulators to 

continue to be proactive in evaluating new products 

and services and in monitoring how responsible 

innovation can benefit investors and consumers, 

regulated entities, and financial markets. The 

Council also encourages relevant authorities to 

evaluate the potential effects of new financial 

products and services on financial stability, 

including risks relating to operations, compliance, 

BSA/AML, and reputation. Agencies should ensure 

that their supervision, including monitoring and 

data collection systems, identifies risks associated 

with financial innovations. To ensure comprehensive 

visibility into innovation across the financial system 

and avoid regulatory fragmentation, regulators 

should share relevant information on financial 

innovation as appropriate with the Council and 

other agencies. 

The authority to supervise third-party service 

providers varies across financial regulators. To 

further enhance third-party service provider 

information security and address other critical 

regulatory challenges, the Council recommends 

that Congress pass legislation that ensures that 

the FHFA, NCUA, and other relevant agencies 

have adequate examination and enforcement 

powers to oversee third-party service providers. 

The importance of ensuring adequate powers 

of this kind was underscored this past year by 

the expansion of lending activities permitted by 

credit union service organizations. The Council 

also recommends that federal banking regulators 

continue to coordinate third-party service provider 

examinations, work collaboratively with states, and 

identify additional ways to support information 

sharing among state and federal regulators. 

The Council encourages continued coordination 

among federal and state regulators to 

support responsible financial innovation and 

competitiveness, promote consistent regulatory 

approaches, and identify and address potential risks 

that arise from such innovation.

5.6 Managing Vulnerabilities amid Uneven 

and Volatile Global Growth

Global economic activity in the COVID-19 era 

has been unusually volatile, with periods of 

economic shutdowns followed by rapid growth amid 

reopening. Looking forward, the outlook for global 

growth is characterized by elevated uncertainty, with 

the potential for continued volatility and unevenness 

of growth across countries and sectors. Financial 

institutions may need to manage the exposure of 

their businesses to vulnerabilities that could arise in 

this uncertain macroeconomic environment. 

Amid the rapid pace of the global economic 

recovery over the past year, supply constraints 

and labor shortages have become widespread and 

particularly severe in some sectors such as auto 

production and have led to higher inflation in many 

countries. This experience raises the risk that the 

recent surge in inflation will continue to be higher 

than expected, particularly if supply constraints 

are more severe and persist longer than currently 

anticipated. The advent of higher inflation also 

raises the question of whether longer-term inflation 

expectations of households and businesses will 

rise or become unanchored. If higher inflation 

or inflation expectations were to lead to higher 

policy rates and longer-term yields, borrowing costs 

for households and businesses could rise, while 

financial institutions might experience losses on 

their existing asset holdings. As a result, the global 

economic recovery could lose momentum. A rapid 

or unexpected rise in interest rates could induce 

particularly sharp contractionary forces.

Overall, financial vulnerabilities in China are 

high. China’s increased use of macroprudential 

regulations have tightened liquidity conditions—
176 2021 FSOC // Annual Report

especially for property developers, many of 

whom are overleveraged. Over the past year, the 

required recapitalization of China Huarong Asset 

Management Co. and the rapidly deteriorating 

financial condition of China Evergrande Group, 

one of China’s largest and most indebted property 

developers, have highlighted the tensions that 

Chinese regulators face in balancing the need to 

reduce medium- and long-term financial stability 

risks while limiting spillovers to the real economy 

and the financial system. Given the ample resources 

available to the Chinese authorities, there is a 

good chance that the Chinese authorities will be 

successful in limiting spillovers. However, were a 

hard landing to occur in China, it could be expected 

to include a decline in Chinese asset valuations 

and stress in the Chinese banking sector. Such 

developments would likely have substantial negative 

impacts on the global economy and financial system, 

given the size of the Chinese economy, its demand 

for commodities, and its centrality to global supply 

chains. 

The pandemic also continues to directly shape the 

global growth outlook. The potential development 

of more virulent COVID-19 variants carries the risk 

of further volatility in economic activity, including 

economic shutdowns and reopenings, possibly 

in a piecemeal fashion, or further supply chain 

disruptions. Many advanced foreign economies have 

used fiscal powers to help smooth out the effects 

of this volatility so far in the pandemic but may 

face difficulty balancing the appropriate level and 

duration of further support against longer-run debt 

sustainability. The global vaccination campaign 

will limit the likelihood of further shutdowns, but 

vaccination has been uneven across countries. The 

generally weaker vaccination rates in emerging 

market economies (EMEs) pose greater risks to 

the outlook for their recoveries. EMEs may also 

experience stresses as they deal with potentially 

volatile capital flows against the backdrop of uneven 

global growth and possible policy spillovers from 

large, advanced economies. 

Volatile or uneven global growth could affect 

the U.S. financial system in a few ways. Losses at 

financial institutions in advanced foreign economies 

caused by slow or interrupted growth, or from longrun debt sustainability issues, could spill over to 

the U.S. financial system through direct exposures 

and counterparty risks. Direct U.S. exposures to 

the Chinese financial sector are more limited, and 

therefore the direct consequences of a Chinese 

hard landing for U.S. financial stability appear 

manageable. However, U.S. economic performance 

could be affected indirectly if developments in 

China or other countries weigh on the global 

economy or global market confidence. Finally, with 

nonbank financial institutions playing an increasing 

role in financing foreign activity, the toolkits for 

addressing risks related to these institutions and 

their effect on the U.S. may not be as well developed 

as those for dealing with the risks stemming from 

banks.

Recommendations

The Council recommends that member agencies 

ensure that the financial institutions they oversee 

are attentive to the risks posed by uneven or volatile 

global growth, including higher levels of inflation 

and interest rates, stress at foreign financial 

institutions including banks and nonbanks, and 

changes in global economic activity and market 

confidence. Supervisors should review in particular 

the risks faced by large banks with global footprints 

and trading operations. Market regulators should 

review available steps that could be taken in 

anticipation of potential volatility in global funding 

flows that might increase stress in funding markets 

or engender deleveraging or large-scale asset sales. 
Abbreviations 177

ABCP Asset-Backed Commercial Paper

ABS Asset-Backed Security

Advisers Act Investment Advisers Act of 1940

AML Anti-Money Laundering

AML Act Anti-Money Laundering Act of 2020

ANSI American National Standards Institute

ARP Act American Rescue Plan Act of 2021

ARRC Alternative Reference Rates Committee 

ASC X9 Accredited Standards Committee X9, Inc.

AUM Assets Under Management

BHC Bank Holding Company

BIS Bank for International Settlements

BNPL Buy Now, Pay Later

BOE Bank of England 

BOJ Bank of Japan

BSA Bank Secrecy Act

C&I Commercial and Industrial

CAA Consolidated Appropriations Act of 2021

CARES Act Coronavirus Aid, Relief, and Economic Security Act of 2020

CBD Central Business District

CCAR Comprehensive Capital Analysis and Review

CCP Central Counterparty 

CD Certificate of Deposit

CDC Center for Disease Control

CDE Critical Data Elements

CDS Credit Default Swap

CEA Commodity Exchange Act

CECL Current Expected Credit Losses

CET1 Common Equity Tier 1 

CFPB Consumer Financial Protection Bureau

CFT Countering the Financing of Terrorism

CFTC Commodity Futures Trading Commission

CIF Collective Investment Funds

CLF Central Liquidity Facility

CLO Collateralized Loan Obligation

CMBS Commercial Mortgage-Backed Security

CME Chicago Mercantile Exchange Inc.

CMG Crisis Management Group

Council Financial Stability Oversight Council

CP Commercial Paper

CPFF Commercial Paper Funding Facility

CPMI Committee on Payments and Market Infrastructures

6 Abbreviations
178 2021 FSOC // Annual Report

CRE Commercial Real Estate

CUSO Credit Union Service Organizations

DCM Designated Contract Market

DFAST Dodd-Frank Act Stress Tests

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act

DTCC Depository Trust & Clearing Corporation

DTI Total Monthly Debt to Total Monthly Income

EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortizatio

ECB European Central Bank

ECIP Emergency Capital Investment Program

EGRRCPA Economic Growth, Regulatory Relief, and Consumer Protection

EME Emerging Market Economy

Enterprises Fannie Mae and Freddie Mac

ESG Environmental, Social, and Governance

ETF Exchange-Traded Fund

ETN Exchange-Traded Note

ETP Exchange-Traded Product

EU European Union

Exchange Act Securities Exchange Act of 1934

Fannie Mae Federal National Mortgage Association

FASB Financial Accounting Standards Board

FATF Financial Action Task Force

FBIIC Financial and Banking Information Infrastructure Committee

FBO Foreign Banking Organization

FCA Financial Conduct Authority

FCM Futures Commission Merchant

FCU Federal Credit Union

FDCPA Fair Debt Collection Practices Act

FDIC Federal Deposit Insurance Corporation

Federal Reserve Board of Governors of the Federal Reserve System

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FHLB Federal Home Loan Bank

FICC Fixed Income Clearing Corporation

FICO Fair Isaac Corporation

FICU Federally Insured Credit Union

FIMA Repo Facility Repo Facility for Foreign and International Monetary Authority

FinCEN Financial Crimes Enforcement Network 

FIO Federal Insurance Office

FIO Act Federal Insurance Office Act of 2010

FMU Financial Market Utility

FOMB Financial Oversight and Management Board for Puerto Rico

FOMC Federal Open Market Committee

FRBNY Federal Reserve Bank of New York

Freddie Mac Federal Home Loan Mortgage Corporation

n

 Act
Abbreviations 179

FSB Financial Stability Board

FS-ISAC Financial Services Information Sharing and Analysis Center

FSOC Financial Stability Oversight Council

FX Foreign Exchange

G-SIB Global Systemically Important Bank

GAAP Generally Accepted Accounting Principles

GAV Gross Asset Value

GCC Group Capital Calculation

GDP Gross Domestic Product

GHG Greenhouse Gas

Ginnie Mae Government National Mortgage Association

GLEIF Global LEI Foundation

GME Global Monitoring Exercise

GNE Gross Notional Exposure

GSE Government-Sponsored Enterprise

GSD Government Securities Division

HFCAA Holding Foreign Companies Accountable Act

HFWG Hedge Fund Working Group

HTM Held-to-maturity

IAIS International Association of Insurance Supervisors

IAWG Inter-Agency Working Group for Treasury Market Surveillance

IBA ICE Benchmark Administration

IBOR Interbank Offer Rate

IDIs Insured Depository Institutions

IHC Intermediate Holding Company

IMF International Monetary Fund

Investment Company Act Investment Company Act of 1940

IPO Initial Public Offering

IOSCO International Organization of Securities Commissions

ISDA International Swaps and Derivatives Association

ISO International Organization for Standardization

JGB Japanese Government Bond

LCR Liquidity Coverage Ratio

LEI Legal Entity Identifier 

LEI ROC Legal Entity Identifier Regulatory Oversight Committee

LIHTC Low-Income Housing Tax Credit

LST Liquidity Stress Test

M&A Merger and Acquisition

MBS Mortgage-Backed Security

MBSD Mortgage-Backed Securities Division

MiFID II Markets in Financial Instruments Directive

MLF Municipal Liquidity Facility

MMLF Money Market Mutual Fund Liquidity Facility

MMF Money Market Mutual Fund

mREIT Mortgage REITs
180 2021 FSOC // Annual Report

MSP Major Swap Participant

NAIC National Association of Insurance Commissioners

NAV Net Asset Value

NBFI Nonbank Financial Institution

NCUA National Credit Union Administration

NGEU NextGenerationEU

NGFS Network of Central Banks and Supervisors for Greening the Financial System

NMDB® National Mortgage Database

NMS National Market System

NSCC National Securities Clearing Corporation

NSFR Net Stable Funding Ratio

OCC Office of the Comptroller of the Currency

OFR Office of Financial Research

OIS Overnight Index Swaps

ON-RRP Overnight Reverse Repurchase Agreement Facility

OPEC Organization of Petroleum Exporting Countries

OPEC+ OPEC and non-OPEC Participating Countries

OTC Over-the-Counter

P&C Property and Casualty

PBGC Pension Benefit Guaranty Corporation

PFMI Principles for Financial Market Infrastructures

PPP Paycheck Protection Program

PROMESA Puerto Rico Oversight, Management, and Economic Stability Act

PWG President’s Working Group on Financial Markets

PWG Report on Stablecoins PWG, FDIC, and OCC Report on Stablecoins

QM Qualified Mortgage

RBC Risk Based Capital

REIT Real Estate Investment Trust

Repo Repurchase Agreement

RMBS Residential Mortgage-Backed Security

ROAA Return on Average Assets

RRC Regulation and Resolution Committee

RWA Risk-Weighted Asset

S&P Standard & Poor’s

SA-CCR Standardized Approach for Counterparty Credit Risk

SBSDR Security-Based Swap Data Repository

SCB Stress Capital Buffer

SD Swap Dealer

SDR Swap Data Repository

SEC Securities and Exchange Commission

SEF Swap Execution Facility

SIFMA Securities Industry and Financial Markets Association

SLOOS Senior Loan Officer Opinion Survey

SLR Supplementary Leverage Ratio

SOFR Secured Overnight Financing Rate
Abbreviations 181

SRC Systemic Risk Committee

SRF Standing Repo Facility

SPAC Special Purpose Acquisition Company

SWIFT Society for Worldwide Interbank Financial Telecommunications

TALF Term Asset-Backed Securities Loan Facility 

TBA To Be Announced

TDR Troubled Debt Restructurings

TGCR Tri-party General Collateral Rate

TIPS Treasury Inflation-Protected Securities

Treasury U.S. Department of the Treasury

UK United Kingdom 

ULI Universal Loan Identifier

UPB Unpaid Principal Balance

UPI Unique Product Identifier

USD U.S. Dollar

USDA U.S. Department of Agriculture

UTI Unique Transaction Identifier

VA U.S. Department of Veterans Affairs

WAL Weighted Average Life

WAM Weighted Average Maturity

WEO World Economic Outlook

WTI West Texas Intermediate

YTD Year-to-Date
182 2021 FSOC // Annual Report
Glossary 183

7 Glossary

(2) both companies are consolidated with a third 

company on financial statements prepared in 

accordance with such principles or standards; (3) 

for a company that is not subject to such principles 

or standards, consolidation as described above 

would have occurred if such principles or standards 

had applied; or (4) a primary regulator determines 

that either company provides significant support to, 

or is materially subject to the risks or losses of, the 

other company.

Asset-Backed Commercial Paper (ABCP)

Short-term debt which has a fixed maturity of up 

to 270 days and is backed by some financial asset, 

such as trade receivables, consumer debt receivables, 

securities, or auto and equipment loans or leases.

Asset-Backed Security (ABS)

A fixed-income or other type of security which is 

collateralized by self-liquidating financial assets that 

allows the holder of the security to receive payments 

that depend primarily on cash flows from the assets.

Backwardation

Backwardation is when the current spot price is 

trading higher than the futures price. It is most 

easily identified by a downward sloping forward 

curve. Backwardation, sometimes called inversion 

for other commodities, is the opposite of contango. 

Contango is when the back end of the futures curve 

is priced higher than the nearby months and when 

spot prices rise to converge to futures prices. Crude 

oil is normally in backwardation while natural gas is 

normally in contango. 

Bilateral Repo

A repo between two institutions in which 

negotiations are conducted directly between the 

participants or through a broker, and in which the 

participants must agree on the specific securities 

to be used as collateral. The bilateral repo market 

includes both non-cleared trades and trades cleared 

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income 

typically includes unrealized gains and losses in 

available for sale securities; actuarial gains and 

losses in defined benefit plans; gains and losses 

on derivatives held as cash flow hedges; and gains 

and losses resulting from translating the financial 

statements of foreign subsidiaries.

Additional Tier 1 Capital

A regulatory capital measure that may include items 

such as noncumulative perpetual preferred stock 

and mandatory convertible preferred securities 

that satisfy the eligibility criteria in the Revised 

Capital Rule, as well as related surplus and minority 

interests.

Advanced Approaches Capital Framework

The Advanced Approaches capital framework 

requires certain banking organizations to use 

an internal ratings-based approach and other 

methodologies to calculate risk-based capital 

requirements for credit risk and advanced 

measurement approaches to calculate risk-based 

capital requirements for operational risk. The 

framework applies to large, internationally active 

banking organizations—generally those that 

are G-SIBs or with at least $700 billion in total 

consolidated assets or at least $75 billion in crossjurisdictional activity with at least $250 billion 

in total consolidated assets or at least $10 billion 

in total on-balance sheet foreign exposure—and 

includes the depository institution subsidiaries of 

those firms.

Affiliate

In general, a company is an affiliate of another 

company if: (1) either company consolidates 

the other on financial statements prepared 

in accordance with U.S. Generally Accepted 

Accounting Principles, the International Financial 

Reporting Standards, or other similar standards; 
184 2021 FSOC // Annual Report

through Fixed Income Clearing Corporation’s 

delivery versus payment repo service.

Central Counterparty (CCP)

An entity that interposes itself between 

counterparties to contracts traded in one or more 

financial markets, becoming the buyer to every seller 

and the seller to every buyer, thereby ensuring the 

performance of open contracts. 

Clearing Bank

A BHC subsidiary that facilitates payment and 

settlement of financial transactions, such as check 

clearing, or facilitates trades between the sellers and 

buyers of securities or other financial instruments or 

contracts.

Collateral

Any asset pledged by a borrower to guarantee 

payment of a debt.

Collateralized Loan Obligation (CLO)

A securitization vehicle backed predominantly by 

commercial loans.

Commercial Mortgage-Backed Security 

(CMBS)

A security which is collateralized by a pool of 

commercial mortgage loans and makes payments 

derived from the interest and principal payments on 

the underlying mortgage loans.

Commercial Paper (CP)

Short-term (maturity of up to 270 days), unsecured 

corporate debt.

Commercial Paper Funding Facility (CPFF)

A funding backstop established by the Federal 

Reserve under section 13(3) of the Federal Reserve 

Act to facilitate the issuance of term commercial 

paper by eligible issuers. The CPFF is structured as a 

credit facility to a special purpose vehicle.

Common Equity Tier 1 Capital (CET1)

A regulatory capital measure which includes capital 

with the highest loss-absorbing capacity, such as 

common stock and retained earnings.

Common Equity Tier 1 Capital Ratio

A ratio which divides common equity tier 1 capital 

by total risk-weighted assets. The ratio applies to all 

banking organizations subject to the Revised Capital 

Rule.

Comprehensive Capital Analysis and Review 

(CCAR)

An annual exercise by the Federal Reserve to ensure 

that institutions have robust, forward-looking capital 

planning processes that account for their unique 

risks and sufficient capital to continue operations 

throughout times of economic and financial stress. 

Credit Default Swap (CDS)

A financial contract in which one party agrees to 

make a payment to the other party in the event of a 

specified credit event, in exchange for one or more 

fixed payments. 

Defined Benefit Plan

A retirement plan in which the cost to the employer 

is based on a predetermined formula to calculate 

the amount of a participant’s future benefit. In 

defined benefit plans, the investment risk is borne 

by the plan sponsor.

Defined Contribution Plan

A retirement plan in which the cost to the employer 

is limited to the specified annual contribution. In 

defined contribution plans, the investment risk is 

borne by the plan participant. 

Digital Asset

A digital asset is an electronic representation of 

value that may be issued or transferred using 

distributed ledger technology, including blockchain 

technology. Ownership may be established through 

cryptographic means. Digital assets include 

instruments that may qualify under applicable U.S. 

laws as securities, commodities, and security- or 

commodity-based instruments such as futures or 
Glossary 185

swaps. Other industry terms used for these assets 

include cryptocurrencies, crypto assets, virtual 

currencies, digital currencies, stablecoins, and 

crypto tokens.

Dodd-Frank Act Stress Tests (DFAST)

Annual stress tests required by the Dodd-Frank Act 

for national banks and federal savings 

associations with total consolidated assets of more 

than $10 billion. 

Dry Powder 

The amount of capital that has been committed to a 

private capital fund minus the amount that has been 

called by the general partner for investment.

Duration

The sensitivity of the prices of bonds and other 

fixed-income securities to changes in the level of 

interest rates. 

Emerging Market Economy (EME)

Although there is no single definition, emerging 

market economies are generally classified according 

to their state of economic development, liquidity, 

and market accessibility. This report has grouped 

economies based on the classifications used by 

significant data sources such as the MSCI and 

Standard & Poor’s, which include, for example, 

Brazil, China, India, and Russia. 

Exchange-Traded Product (ETP)

An investment fund or note that is traded on an 

exchange. ETPs offer continuous pricing—unlike 

mutual funds, which offer only end-of-day pricing. 

ETPs are often designed to track an index or a 

portfolio of assets. ETPs include: (1) exchangetraded funds (ETFs), which are registered as 

investment companies under the Investment 

Company Act of 1940 (’40 Act); (2) non-’40 Act 

pooled investment vehicles, which are generally 

trust or partnership vehicles that do not invest in 

securities; and (3) exchange-traded notes (ETNs), 

which are senior debt instruments issued by 

financial institutions that pay a return based on the 

performance of a “reference asset.”

Federal Funds Rate

The interest rate at which depository institutions 

lend reserve balances to other depository 

institutions overnight. The FOMC sets a target range 

for the level of the overnight federal funds rate. The 

Federal Reserve Bank of New York then uses open 

market operations to influence the rate so that it 

trades within the target range. 

FICO Score

A measure of a borrower’s creditworthiness based 

on the borrower’s credit data; developed by the Fair 

Isaac Corporation.

Financial and Banking Information 

Infrastructure Committee (FBIIC)

The FBIIC consists of 18 member organizations 

from across the financial regulatory community, 

both federal and state. It was chartered under 

the President’s Working Group on Financial 

Markets following September 11, 2001 to improve 

coordination and communication among financial 

regulators, enhance the resilience of the financial 

sector, and promote public-private partnership. 

Financial Market Infrastructure (FMI)

A multilateral system among participating financial 

institutions, including the operator of the system, 

used for the purposes of recording, clearing, or 

settling payments, securities, derivatives, or other 

financial transactions. Under the Dodd-Frank Act, 

certain FMIs are recognized as FMUs. 

Financial Market Utility (FMU)

An entity, as defined in the Dodd-Frank Act, that, 

subject to certain exclusions, “manages or operates a 

multilateral system for the purpose of transferring, 

clearing, or settling payments, securities, or other 

financial transactions among financial institutions 

or between financial institutions and the person.”

Fiscal Year

Any 12-month accounting period. The fiscal year for 

the federal government begins on October 1 and 

ends on September 30 of the following year; it is 

named after the calendar year in which it ends.
186 2021 FSOC // Annual Report

Futures Contract

An agreement to purchase or sell a commodity 

for delivery in the future: (1) at a price that is 

determined at initiation of the contract; (2) that 

obligates each party to the contract to fulfill the 

contract at the specified price; (3) that is used 

to assume or shift price risk; and (4) that may be 

satisfied by delivery or offset. 

General Collateral Finance (GCF)

An interdealer repo market in which the Fixed 

Income Clearing Corporation plays the role of CCP. 

Trades are netted at the end of each day and settled 

at the tri-party clearing bank. See Tri-party Repo.

Government-Sponsored Enterprise (GSE)

A corporate entity with a federal charter authorized 

by law, but which is a privately owned financial 

institution. Examples include the Federal National 

Mortgage Association (Fannie Mae) and the Federal 

Home Loan Mortgage Corporation (Freddie Mac).

Gross Domestic Product (GDP)

The broadest measure of aggregate economic 

activity, measuring the total value of all final goods 

and services produced within a country’s borders 

during a specific period.

Gross Notional Exposure (GNE)

The sum of the absolute values of long and short 

notional amounts. The “notional” amount of a 

derivative contract is the amount used to calculate 

payments due on that contract, just as the face 

amount of a bond is used to calculate coupon 

payments. 

Haircut

The discount, represented as a percentage of par or 

market value, at which an asset can be pledged as 

collateral. For example, a $1,000,000 bond with a 5 

percent haircut would collateralize a $950,000 loan. 

The purpose of a haircut is to provide a collateral 

margin for a secured lender.

High-Quality Liquid Asset 

An asset—such as a government bond—which is 

considered eligible as a liquidity buffer in the U.S. 

banking agencies’ liquidity coverage ratio. Highquality liquid assets should be liquid in markets 

during times of stress and, ideally, be central bank 

eligible.

Initial Margin

Collateral that is collected to cover potential 

changes in the value of each participant’s position 

(that is, potential future exposure) over the 

appropriate closeout period in the event the 

participant defaults.

Initial Public Offering (IPO)

The first time a company offers its shares of capital 

stock to the general public.

Institutional Leveraged Loan

The term portion of a leveraged loan that is sold to 

institutional investors.

Interest Rate Swap

A derivative contract in which two parties swap 

interest rate cash flows on a periodic basis, 

referencing a specified notional amount for a fixed 

term. Typically, one party will pay a predetermined 

fixed rate while the other party will pay a short-term 

variable reference rate which resets at specified 

intervals.

Intermediate Holding Company (IHC)

A company established or designated by an FBO 

under the Federal Reserve Board’s Regulation YY. 

Regulation YY requires that an FBO with U.S. nonbranch assets of $50 billion or more must hold its 

entire ownership interest in its U.S. subsidiaries, 

with certain exclusions, through a U.S. IHC.

Legal Entity Identifier (LEI)

A 20-character alpha-numeric code that connects to 

key reference information which enables clear and 

unique identification of legal entities participating 

in global financial markets. The LEI system is 

designed to facilitate many financial stability 

objectives, including improved risk management 
Glossary 187

in firms; better assessment of microprudential 

and macroprudential risks; expedition of orderly 

resolution; containment of market abuse and 

financial fraud; and provision of higher-quality and 

more accurate financial data.

Leveraged Buyout (LBO) 

An acquisition of a company financed by a private 

equity contribution combined with borrowed funds, 

with debt constituting a significant portion of the 

purchase price.

Leveraged Loan

While numerous definitions of leveraged lending 

exist throughout the financial services industry, 

generally a leveraged loan is understood to be a type 

of loan that is extended to companies that already 

have considerable amounts of debt and/or have a 

non-investment grade credit rating or are unrated 

and/or whose post-financing leverage significantly 

exceeds industry norms or historical levels. 

LIBOR 

A rate based on submissions from a panel of banks. 

LIBOR is intended to reflect the rate at which large, 

globally-active banks can borrow on an unsecured 

basis in wholesale markets. 

Liquidity Coverage Ratio (LCR)

A standard to ensure that covered companies 

maintain adequate unencumbered, high-quality 

liquid assets to meet anticipated liquidity needs for a 

30-day horizon under a standardized liquidity stress 

scenario.

Loan-to-Value Ratio

The ratio of the amount of a loan to the value of 

the asset that the loan funds, typically expressed as 

a percentage. This is a key metric when considering 

the level of collateralization of a mortgage. 

Major Swap Participant

A person that is not a swap dealer and maintains 

a substantial position in swaps, creates substantial 

counterparty exposure, or is a financial entity that is 

highly leveraged and not subject to federal banking 

capital rules.

Margin

In the context of clearing activity, collateral that 

is collected to protect against current or potential 

future exposures resulting from market price 

changes or in the event of a counterparty default. 

Money Market Mutual Fund Liquidity Facility 

(MMLF)

A facility established by the Federal Reserve under 

section 13(3) of the Federal Reserve Act that 

provides funding to U.S. depository institutions and 

bank holding companies to finance their purchases 

of certain types of assets from MMFs under certain 

conditions. The MMLF is intended to assist MMFs in 

meeting demands for redemptions by investors and 

to foster liquidity in the markets for the assets held 

by MMFs.

Money Market Mutual Fund (MMF)

A type of mutual fund which invests in short-term, 

high-quality, liquid securities such as government 

bills, CDs, CP, or repos. 

Mortgage-Backed Security (MBS)

An ABS backed by a pool of mortgages. Investors 

in the security receive payments derived from the 

interest and principal payments on the underlying 

mortgages. 

Mortgage Servicing Company

A company which acts as an agent for mortgage 

holders by collecting and distributing mortgage 

cash flows. Mortgage servicers also manage defaults, 

modifications, settlements, foreclosure proceedings, 

and various notifications to borrowers and investors.

Mortgage Servicing Right (MSR)

The right to service a mortgage loan or a portfolio 

of mortgage loans. 

Municipal Bond

A bond issued by states, cities, counties, local 

governmental agencies, or certain nongovernment 

issuers to finance certain general or project-related 

activities.
188 2021 FSOC // Annual Report

Net Asset Value (NAV)

An investment company’s total assets minus its total 

liabilities.

Net Interest Margin (NIM)

Net interest income as a percent of interest-earning 

assets.

Net Stable Funding Ratio (NSFR)

A liquidity standard to promote the funding 

stability of internationally active banks, through the 

maintenance of stable funding resources relative to 

assets and off-balance sheet exposures.

Open Market Operations

The purchase and sale of securities in the open 

market by a central bank to implement monetary 

policy.

Operational Resilience

The ability of an entity’s personnel, systems, 

telecommunications networks, activities or processes 

to resist, absorb, and recover from or adapt to an 

incident that may cause harm, destruction, or loss of 

ability to perform mission-related functions.

Option

A financial contract granting the holder the 

right but not the obligation to engage in a future 

transaction on an underlying security or real asset. 

The most basic examples are an equity call option, 

which provides the right but not the obligation to 

buy a block of shares at a fixed price for a fixed 

period, and an equity put option, which similarly 

grants the right to sell a block of shares.

Overnight Reverse Repurchase Agreement 

Facility (ON RRPF)

A supplementary policy tool that the Federal Reserve 

uses to set the floor on rates to keep the federal 

funds rate in the target range set by the FOMC. 

Over-the-Counter (OTC)

A method of trading which does not involve a 

registered exchange. An OTC trade could occur on 

purely a bilateral basis or could involve some degree 

of intermediation by a platform that is not required 

to register as an exchange. An OTC trade could, 

depending on the market and other circumstances, 

be centrally cleared or bilaterally cleared. The 

degree of standardization or customization of 

documentation of an OTC trade will depend on 

the whether it is cleared and whether it is traded 

on a non-exchange platform (and, if so, the type of 

platform). 

Primary Dealer

A financial institution that is a trading counterparty 

of the Federal Reserve Bank of New York. Primary 

dealers are expected to make markets for the 

Federal Reserve Bank of New York on behalf of its 

official accountholders as needed, and to bid on a 

pro-rata basis in all Treasury auctions at reasonably 

competitive prices.

Prudential Regulation

Regulation aimed at ensuring the safe and sound 

operation of financial institutions, set by both state 

and federal authorities. 

Private Debt

Private debt markets refers to direct lending, mostly 

to middle-market borrowers, by non-depositories 

such as hedge funds, private equity funds, insurance 

companies, business development companies, and 

other alternative asset managers. Key private debt 

categories include direct lending, distressed debt, 

mezzanine, special situations, and venture debt. 

Public Debt

All debt issued by Treasury and the Federal 

Financing Bank, including both debt held by 

the public and debt held in intergovernmental 

accounts, such as the Social Security Trust Funds. 

Not included is debt issued by government agencies 

other than Treasury.

Qualifying Hedge Fund

A hedge fund advised by a Large Hedge Fund 

Adviser that has a net asset value (individually or in 

combination with any feeder funds, parallel funds, 

and/or dependent parallel managed accounts) of 

at least $500 million as of the last day of any month 
Glossary 189

in the fiscal quarter immediately preceding the 

adviser’s most recently completed fiscal quarter. 

Large Hedge Fund Advisers are advisers that have at 

least $1.5 billion in hedge fund AUM.

Real Estate Investment Trust (REIT)

An operating company which manages incomeproducing real estate or real estate-related assets. 

Certain REITs also operate real estate properties in 

which they invest. To qualify as a REIT, a company 

must have three-fourths of its assets and gross 

income connected to real estate investment and 

must distribute at least 90 percent of its taxable 

income to shareholders annually in the form of 

dividends.

Repurchase Agreement (Repo) 

The sale of a security combined with an agreement 

to repurchase the security, or a similar security, on a 

specified future date at a prearranged price. A repo 

is a secured lending arrangement. 

Residential Mortgage-Backed Security (RMBS)

A security which is collateralized by a pool of 

residential mortgage loans and makes payments 

derived from the interest and principal payments on 

the underlying mortgage loans.

Risk-Weighted Assets (RWAs)

A risk-based concept used as the denominator of 

risk-based capital ratios (common equity tier 1, tier 

1, and total). The total RWAs for an institution are a 

weighted total asset value calculated from assigned 

risk categories or modeled analysis. Broadly, total 

RWAs are determined by calculating RWAs for 

market risk and operational risk, as applicable, and 

adding the sum of RWAs for on-balance sheet, offbalance sheet, counterparty, and other credit risks.

Rollover Risk

The risk that as an institution’s debt nears maturity, 

the institution may not be able to refinance the 

existing debt or may have to refinance at less 

favorable terms.

Run Risk

The risk that investors lose confidence in an 

institution—stemming from concerns about 

counterparties, collateral, solvency, or related 

issues—and respond by pulling back their funding.

Secured Overnight Financing Rate (SOFR)

A broad measure of the cost of borrowing cash 

overnight collateralized by Treasury securities. The 

rate is calculated as a volume-weighted median 

of transaction-level tri-party repo data as well as 

GCF Repo transaction data and data on bilateral 

Treasury repo transactions. 

Securities Lending/Borrowing

The temporary transfer of securities from one party 

to another for a specified fee and term, in exchange 

for collateral in the form of cash or securities.

Securitization

A financial transaction in which assets such as 

mortgage loans are pooled, securities representing 

interests in the pool are issued, and proceeds from 

the underlying pooled assets are used to service and 

repay the securities.

Security-Based Swap Dealer

A person that holds itself out as a dealer in securitybased swaps, makes a market in security-based 

swaps, regularly enters into security-based swaps 

with counterparties, or engages in any activity 

causing it to be known as a dealer or market maker 

in security-based swaps; does not include a person 

entering into security-based swaps for such person’s 

own account. 

Short-Term Wholesale Funding

Short-term funding instruments not covered by 

deposit insurance which are typically issued to 

institutional investors. Examples include large 

checkable and time deposits, brokered CDs, CP, 

Federal Home Loan Bank borrowings, and repos.

Special Purpose Acquisition Company (SPAC)

Companies formed through an IPO to raise funds 

to purchase businesses or assets to be acquired after 

the IPO.
190 2021 FSOC // Annual Report

Stablecoins

Stablecoins are digital assets that are designed 

to maintain a stable value relative to a national 

currency or other reference assets.

Supplementary Leverage Ratio (SLR)

Tier 1 capital of an advanced approaches banking 

organization divided by total leverage exposure. All 

advanced approaches banking organizations must 

maintain an SLR of at least 3 percent. The SLR is 

effective January 1, 2018, and organizations must 

calculate and publicly disclose their SLRs beginning 

March 31, 2015. 

Swap

An exchange of cash flows with defined terms and 

over a fixed period, agreed upon by two parties. A 

swap contract may reference underlying financial 

products across various asset classes including 

interest rates, credit, equities, commodities, and FX. 

Swap Data Repository (SDR)

A person that collects and maintains information 

or records with respect to transactions or positions 

in, or the terms and conditions of, swaps entered 

into by third parties for the purpose of providing 

a centralized recordkeeping facility for swaps. In 

certain jurisdictions, SDRs are referred to as trade 

repositories. The Committee on Payments and 

Settlement Systems and IOSCO describe a trade 

repository as “an entity that maintains a centralized 

electronic record (database) of transaction data.”

Swap Dealer

Section 1a(49) of the Commodity Exchange Act 

defines the term “swap dealer” (SD) to include any 

person who: (1) holds itself out as a dealer in swaps; 

(2) makes a market in swaps; (3) regularly enters 

into swaps with counterparties as an ordinary course 

of business for its own account; or (4) engages in any 

activity causing the person to be commonly known 

in the trade as a dealer or market maker in swaps. 

Swap Execution Facility (SEF)

Section 1a(50) of the Commodity Exchange Act 

defines the term “swap execution facility” as a 

trading system or platform in which multiple 

participants have the ability to execute or trade 

swaps by accepting bids and offers made by multiple 

participants in the facility or system, through 

any means of interstate commerce, including any 

trading facility, that: (a) facilitates the execution of 

swaps between persons; and (b) is not a designated 

contract market.

Swaption

An option granting the right to enter into a swap. 

See Option and Swap.

Syndicated Loan

A loan to a commercial borrower in which financing 

provided by a group of lenders. The loan package 

may have a revolving portion, a term portion, or 

both

Tier 1 Capital 

A regulatory capital measure comprised of common 

equity tier 1 capital and additional tier 1 capital. See 

Common Equity Tier 1 Capital and Additional Tier 1 

Capital.

Tier 2 Capital 

A regulatory capital measure which includes 

subordinated debt with a minimum maturity of 

five years and satisfies the eligibility criteria in the 

Revised Capital Rule.

Time Deposits

Deposits that the depositor generally does not have 

the right to withdraw before a designated maturity 

date without paying an early withdrawal penalty. A 

certificate of deposit (CD) is a time deposit.

Total Capital 

A regulatory capital measure comprised of tier 1 

capital and tier 2 capital. See Tier 1 Capital and Tier 

2 Capital.

Tri-Party Repo

A repo in which a clearing bank acts as third-party 

agent to provide collateral management services and 

to facilitate the exchange of cash against collateral 

between the two counterparties.
Glossary 191

Total Return Swap

A derivative contract in which one counterparty 

receives the total return (interest payments and any 

capital gains or losses) from a specified reference 

asset and the other counterparty receives a specified 

fixed or floating cash flow that is not related to the 

creditworthiness of the reference asset. 

Underwriting Standards

Terms, conditions, and criteria used to determine 

the extension of credit in the form of a loan or 

bond.

Variation Margin

Funds that are collected and paid out to reflect 

current exposures resulting from actual changes in 

market prices.

VIX (Chicago Board Options Exchange Market 

Volatility Index)

A standard measure of market expectations of shortterm volatility based on S&P 500 option prices. 

Weighted Average Life (WAL) 

A weighted average of the maturities of all securities 

held in a MMF’s portfolio. 

Weighted Average Maturity (WAM)

A weighted average of the time to maturity on all 

loans in an asset-backed security.

Yield Curve

A graphical representation of the relationship 

between bond yields and their respective maturities.
192 2021 FSOC // Annual Report
List of Charts 193

3.1.1 Household Debt as a Percent of Disposable Personal Income.............................19

3.1.2 Household Personal Savings Rate......................................................................19

3.1.3 Household Debt Service Ratio........................................................................... 20

3.1.4 Owners’ Equity as Share of Household Real Estate ........................................... 20

3.1.5 Components of Consumer Credit ...................................................................... 20

3.1.6 Percentage of Mortgages in Forbearance...........................................................21

3.1.7 Transition to Delinquency (30+Days) by Loan Type ........................................... 22

3.2.1.1 Nonfinancial Corporate Credit as Percent of GDP ............................................23

3.2.1.2 Corporate Leverage: Debt / EBITDA ................................................................23

3.2.1.3 Interest Coverage Ratios ................................................................................24

3.2.1.4 Nonfinancial Corporations Liquid Assets ........................................................24

3.2.1.5 U.S. Corporate Defaults .................................................................................24

3.2.1.6 Bank Business Lending Standards..................................................................25

3.2.1.7 Investment Grade Corporate Bond Spreads.....................................................25

3.2.1.8 High-Yield Corporate Bond Spreads ................................................................25

3.2.1.9 Gross Issuance of Corporate Bonds ............................................................... 26

3.2.1.10 Leveraged Loan Spreads ..............................................................................27

3.2.1.11 Leveraged Loan Issuance..............................................................................27

3.2.3.1 Performance of U.S. Stock Indices..................................................................28

3.2.3.2 S&P 500 Forward Price-to-Earnings ............................................................. 29

3.2.3.3 S&P 500 Volatility ......................................................................................... 29

3.2.3.4 SPAC Issuances ............................................................................................ 30

3.2.3.5 Returns in Selected Equities Indices.............................................................. 30

3.3.1.1 Federal Budget Surplus/Deficit........................................................................31

3.3.1.2 Federal Debt Held by the Public ......................................................................31

3.3.1.3 Net Issuance of Treasury Securities ................................................................32

3.3.1.4 Treasury General Account Balance..................................................................32

3.3.1.5 U.S. Treasury Yields....................................................................................... 33

3.3.1.6 10-Year TIPS Yield and Breakeven ................................................................. 33

3.3.1.7 Intraday Volatility for 10-Year Treasury Yields................................................. 34

3.3.2.1 Municipal Bond Issuance .............................................................................. 36

3.3.2.2 Municipal Bond Mutual Fund Flows............................................................... 36

3.3.2.3 Municipal Bonds to U.S. Treasuries ................................................................37

3.3.2.4 Changes in State and Local Government Tax Revenues..................................37

3.4.1.1 CP Outstanding by Issuer Type........................................................................39

3.4.1.2 CP Investors .................................................................................................. 40

3.4.1.3 3-Month CP Interest Rate Spreads............................................................... 40

3.4.1.4 Commercial Bank Deposit Growth ..................................................................41

3.4.2.1 Repo Volumes.................................................................................................42

3.4.2.2 Sponsored Repo Activity ................................................................................42

3.4.2.3 Primary Dealer Repo Agreements.................................................................. 43

3.4.2.4 Primary Dealer Repo Collateral...................................................................... 43

3.4.2.5 Primary Dealer Reverse Repo Agreements .................................................... 44

3.4.2.6 Repo Borrowing of Qualifying Hedge Funds ................................................... 44

8 List of Charts 
194 2021 FSOC // Annual Report

3.4.2.7 Repo Rates.................................................................................................... 45

3.4.2.8 ON-RRP Participation.................................................................................... 45

3.4.2.9 Value of Securities on Loan ........................................................................... 46

3.4.2.10 Value of U.S. Securities on Loan ...................................................................47

3.4.2.11 Securities Lending Cash Collateral................................................................47

3.4.2.12 U.S. Securities Lending Cash Reinvestment..................................................47

3.4.2.13 U.S. Securities Lending Cash Reinvestment Collateral ................................. 48

3.4.3.1 U.S. Futures Markets Volume ........................................................................ 48

3.4.3.2 U.S. Futures Markets Open Interest............................................................... 48

3.4.3.3 Futures 60-Day Historical Volatility................................................................ 49

3.4.3.4 Micro Futures Contracts Open Interest .......................................................... 50

3.4.3.5 Futures Transaction Volume – Leaderboard................................................... 50

3.4.3.6 U.S. Treasury Futures Open Interest: Asset Manager......................................51

3.4.3.7 U.S. Treasury Futures Open Interest: Leveraged Funds...................................51

3.4.3.8 CME Bitcoin Futures Open Interest.................................................................52

3.4.3.9 Bitcoin Futures and Reference Index Volume ..................................................52

3.4.3.10 Growth of USD ESG and Emissions Derivatives Markets .............................. 53

3.4.3.11 Growth of the ESG Indices Futures Markets ................................................. 53

3.4.3.12 Exchange-Traded Equity Option Volume ....................................................... 53

3.4.3.13 Options on Futures: Open Interest................................................................ 54

3.4.3.14 Options on Futures: Volume ......................................................................... 54

3.4.3.15 3-Month Implied Volatility for Select Commodities Options .......................... 54

3.4.3.16 Global OTC Positions.................................................................................... 55

3.4.3.17 Global OTC Equity Derivatives Outstanding .................................................. 55

3.4.3.18 Derivatives Notional Volume......................................................................... 56

3.4.3.19 Derivatives Notional Amount Outstanding .................................................... 56

3.4.3.20 Commodity Swaps: Open Interest ............................................................... 56

3.4.3.21 Commodity Index Swaps Gross Notional Value .............................................57

3.4.3.22 Customer Margin Funds Held at FCMs .........................................................57

3.4.3.23 FCM Concentration: Customer Futures Balances......................................... 58

3.4.3.24 FCM Concentration: Customer Swap Balances ............................................ 58

3.4.3.25 Concentration of Swap Positions for Registered SDs ................................... 58

3.4.3.26 SEF Trading Volumes: Interest Rate Swaps...................................................59

3.4.3.27 SEF Trading Volumes: CDS Index..................................................................59

3.4.4.1 Relative Performance of Commodity Indices ...................................................59

3.4.4.2 Relative Performance of Precious Metals....................................................... 60

3.4.4.3 Relative Performance of Industrial Metals...................................................... 60

3.4.4.4 Relative Performance of Agriculture Products.................................................61

3.4.4.5 U.S. Drought Conditions .................................................................................61

3.4.4.6 CME Lumber Futures......................................................................................62

3.4.4.7 U.S. Crude Oil Production & Inventories ..........................................................62

3.4.4.8 WTI Crude Oil Futures Curve ......................................................................... 63

3.4.4.9 Natural Gas Futures Curve ............................................................................ 63

3.4.4.10 Natural Gas Spot and Futures Price ............................................................. 63

3.4.4.11 European & U.S. Natural Gas Prices ............................................................. 64

3.4.5.1 House Prices by Census Division ................................................................... 64

3.4.5.2 Home Sales................................................................................................... 65

3.4.5.3 New Housing Starts and Price Changes......................................................... 65

3.4.5.4 Homeownership and Vacancy Rates .............................................................. 65
List of Charts 195

3.4.5.5 30-Year Fixed Rate Mortgage Rate and Spread ............................................. 66

3.4.5.6 Mortgage Originations and Rates................................................................... 66

3.4.5.7 Purchase Origination Volume by Credit Score ................................................ 66

3.4.5.8 Shares of Mortgages by Equity Percentage ....................................................67

3.4.5.9 Mortgage Delinquency....................................................................................67

3.4.5.10 Forbearance Rates by Investor Type ............................................................ 68

B.1 House Price Growth..............................................................................................69

B.2 Inventory of Homes Listed for Sale ......................................................................69

B.3 Price-to-Rent Ratios.............................................................................................70

3.4.5.11 Mortgage Originations by Product.................................................................71

3.4.5.12 RMBS Issuance ............................................................................................71

3.4.5.13 Cumulative MBS Purchases by the Federal Reserve......................................72

3.4.6.1 Commercial Property Price Growth.................................................................75

3.4.6.2 Conduit CMBS Delinquency and Foreclosure Rate ..........................................75

3.4.6.3 Average Capitalization Rates and Spreads......................................................75

3.4.6.4 CMBS Issuance..............................................................................................76

3.5.1.1 Categorization of Large U.S. BHCs ................................................................. 77

3.5.1.2 Total Assets by BHC Type/IHC........................................................................ 77

3.5.1.3 Common Equity Tier 1 Ratios..........................................................................78

3.5.1.4 Common Equity Tier 1 Ratios at U.S. G-SIBs...................................................78

3.5.1.5 Payout Rates at U.S. G-SIBs ...........................................................................78

3.5.1.6 Supplementary Leverage Ratios at U.S. G-SIBs...............................................79

3.5.1.7 Return on Assets ............................................................................................79

3.5.1.8 Net Interest Margins ...................................................................................... 80

3.5.1.9 Sources of Funding at G-SIBs and Large-Complex......................................... 80

3.5.1.10 Deposit Growth, All Commercial Banks ........................................................ 80

3.5.1.11 Effective Deposit Rates by BHC Category ......................................................81

3.5.1.12 Delinquency Rates on Real Estate Loans .......................................................81

3.5.1.13 Delinquency Rates on Selected Loans ...........................................................81

3.5.1.14 Provisions to Loans Ratios at BHCs ...............................................................82

3.5.1.15 C&I Loan Growth, All Commercial Banks.......................................................82

3.5.1.16 Loans to Nondepository Financial Institutions................................................82

3.5.1.17 High-Quality Liquid Assets by BHC Type....................................................... 83

3.5.1.18 Selected Liquid Assets at All BHCs............................................................... 83

3.5.1.19 Liquidity Coverage Ratios at U.S. G-SIBs...................................................... 83

3.5.1.20 Held-to-Maturity Securities ......................................................................... 84

3.5.1.21 Duration Gap ............................................................................................... 84

3.5.1.22 Bank Stock Performance ............................................................................. 84

3.5.1.23 Price-to-Book for Select U.S. G-SIBs ........................................................... 85

3.5.1.24 5-Year CDS Premiums Select U.S. G-SIBs.................................................... 85

3.5.1.25 5-Year CDS Premiums Select Foreign Banks................................................ 85

3.5.1.26 Initial and Stressed Capital Ratios................................................................ 86

3.5.1.27 FDIC-Insured Failed Institutions................................................................... 86

3.5.1.28 Commercial Bank and Thrift Net Income.......................................................87

3.5.1.29 Total Assets of Largest Insured Depository Institutions ................................ 88

3.5.1.30 U.S. Branches and Agencies of Foreign Banks: Assets................................. 88

3.5.1.31 U.S. Branches and Agencies of Foreign Banks: Liabilities............................. 89

3.5.1.32 Credit Union Income .................................................................................... 90

3.5.1.33 Loans as a Percent of Total Deposits ........................................................... 92
196 2021 FSOC // Annual Report

3.5.2.1 Number of Broker-Dealers............................................................................. 93

3.5.2.2 Broker-Dealer Revenues and Net Income ...................................................... 93

3.5.2.3 Broker-Dealer Assets and Leverage .............................................................. 93

3.5.2.4 Broker-Dealer Assets and Leverage by Affiliation .......................................... 94

3.5.2.5 mREIT Financial Assets................................................................................. 94

3.5.2.6 REIT Stock Performance ............................................................................... 95

3.5.2.7 MMF Assets by Fund Type............................................................................. 95

3.5.2.8 Liquid Asset Shares of Prime MMFs...............................................................97

3.5.2.9 Weighted Average Maturities by Fund Type ....................................................97

3.5.2.10 Net Assets of the Investment Company Industry .......................................... 98

3.5.2.11 Monthly Bond Mutual Fund Flows ................................................................ 98

3.5.2.12 Monthly Equity Mutual Fund Flows .............................................................. 98

3.5.2.13 Monthly Bank Loan and High-Yield Mutual Fund Flows ................................ 99

3.5.2.14 Cumulative Equity Fund Flows ..................................................................... 99

3.5.2.15 Cumulative Fixed Income Fund Flows .......................................................... 99

3.5.2.16 ETP Assets by Category of Investment........................................................100

3.5.2.17 Monthly ETP Flows: Fixed Income Funds ....................................................100

3.5.2.18 Monthly ETP Flows: Equity Funds ...............................................................100

3.5.2.19 Monthly Inverse and Leveraged ETP Flows .................................................101

3.5.2.20 Hedge Fund Gross and Net Assets .............................................................105

3.5.2.21 Private Equity AUM.....................................................................................106

3.5.2.22 M&A Loan Volume for Private Equity-Backed Issuers .................................107

D.1 Static Margin Model Example.............................................................................109

3.5.2.23 Public Plan Allocation to Alternative Assets ................................................112

3.5.2.24 Insurance Industry Net Income...................................................................112

3.5.2.25 Consumer Loans and Leases Outstanding..................................................114

3.5.2.26 Business Loans and Leases Outstanding ...................................................114

3.5.2.27 AAA Securitization Spreads........................................................................114

3.5.2.28 ABS Issuance.............................................................................................115

3.6.1.1 DTCC Clearing Fund Requirements................................................................116

3.6.1.2 Maximum Uncovered Exposure for DTCC......................................................117

3.6.1.3 Initial Margin: U.S. Exchange Traded Derivatives...........................................118

3.6.1.4 Initial Margin: Centrally Cleared OTC Derivatives...........................................118

3.6.1.5 Initial Margin by Segregation Type ................................................................118

3.6.1.6 Average Clearing Rates for OTC Trading........................................................119

E.1 SOFR Futures Volume.........................................................................................121

E.2 SOFR Futures Open Interest ..............................................................................121

3.7.1.1 Federal Reserve Swap Lines .........................................................................126

3.7.1.2 Nominal U.S. Dollar Trade-Weighted Index.....................................................126

3.7.1.3 YTD Change in USD Exchange Rates, EMEs ..................................................126

3.7.1.4 Real U.S. Dollar Trade-Weighted Index ..........................................................127

3.7.2.1 Advanced Economies Real GDP Growth ........................................................127

3.7.2.2 Discretionary Fiscal Response to the COVID-19 Pandemic ............................128

3.7.2.3 Advanced Economy Interest Expense and Government Debt.........................128

3.7.2.4 Advanced Economy Headline Inflation Rate...................................................128

3.7.2.5 Euro Area Business and Consumer Surveys..................................................129

3.7.2.6 Real GDP for Select Euro Area Economies.....................................................129

3.7.2.7 Euro Area 10-Year Sovereign Yields ..............................................................130

3.7.2.8 Japanese Consumer Price Inflation...............................................................131
List of Charts 197

3.7.2.9 Japan 10-Year Government Bond Yield .........................................................132

3.7.3.1 EME GDP Growth..........................................................................................132

3.7.3.2 Emerging Market Sovereign Bond Spread.....................................................133

3.7.3.3 Emerging Market Non-Local Bond Issuance .................................................133

3.7.3.4 Foreign Investor Inflows to EMEs ..................................................................133

3.7.3.5 Foreign Investor Portfolio Inflows to EMEs, by Region...................................134

3.7.3.6 Chinese Real GDP Growth and its Components.............................................134

3.7.3.7 Credit to the Chinese Nonfinancial Private Sector .........................................135

3.7.3.8 Chinese Credit Growth .................................................................................135

F.1 Annual Expected Damage from Tropical Cyclones ...............................................138

F.2 Fraction of Population Exposed to Heatwaves.....................................................138
198 2021 FSOC // Annual Report

Endnotes

1 SOFR is a blended rate that measures overnight Treasury repo rates in the tri-party and FICCcleared segments. TGCR, which is also published by FRBNY, measures overnight Treasury 

repo rates only in the non-cleared tri-party segment. 

2 In mid-September 2019, overnight money market rates spiked and exhibited significant 

volatility, amid a large drop in reserves due to the corporate tax date and increases in net 

fcouter issuance. See Sriya Anbil, Alyssa Anderson, and Zeynep Senyuz, What Happened in 

Money Markets in September 2019?, FEDS Notes, (Feb. 27, 2020), available at: https://www.

federalreserve.gov/econres/notes/feds-notes/what-happened-in-money-markets-in-september-2019-20200227.html

3 See Eliot Anenberg and Daniel Ringo, Housing Market Tightness During COVID-19: Increased 

Demand or Reduced Supply?, FEDS Notes, (Jul. 8, 2021), available at: https://www.federalreserve.gov/econres/notes/feds-notes/housing-market-tightness-during-covid-19-increaseddemand-or-reduced-supply-20210708.htm.

4 The Dodd-Frank Act amended the Advisers Act to exclude family offices from regulation under 

the Advisers Act. The exclusion is limited to a family office that: 1) provides investment advice 

only to “family clients”; 2) is wholly owned by family clients and is exclusively controlled by 

family members and/or family entities; and 3) does not hold itself out to the public as an investment adviser.

5 See Paul, Weiss, Rifkind, Wharton & Garrison LLP, Credit Suisse Group Special Committee of 

the Board of Directors Report on Archegos Capital Management, (Jul. 29, 2021), p. 123, available at: https://www.credit-suisse.com/about-us/en/reports-research/archegos-info-kit.html

6 Ibid, p. 40-43.

7 Ibid, p. 22.

8 Ibid, p. 20.

9 For example, Robinhood saw its clearing fund requirement rise from $0.7 billion at end of day 

January 27 to $3.7 billion at start of day January 28. Robinhood attributed $2.2 billion of this 

$3.0 billion margin call to the capital premium charge. See Vladimir Tenev, CEO of Robinhood 

Markets, Inc., Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and 

Retail Investors Collide: Testimony before the House Committee on Financial Services, (Feb. 

18, 2021), p. 9, available at: https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-

wstate-tenevv-20210218.pdf .
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