2021 ANNUAL REPORT

1 FINANCIAL STABILITY OVERSIGHT COUNCIL1500 PENNSYLVANIA AVENUE, NW | WASHINGTON, 20220 FINANCIAL STABILITY OVERSIGHT COUNCILFINANCIAL STABILITY OVERSIGHT COUNCIL 2021 ANNUAL REPORT2021 ANNUAL REPORT1 Financial Stability Oversight CouncilThe 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 To promote market discipline by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the government will shield them from losses in the event of To respond to emerging threats to the stability of the financial 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.

2 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 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 state insurance commissioner, state banking supervisor, and state securities commissioner serve two-year Stability Oversight Council2021 FSOC // ANNUAL Report2 Statutory Requirements for the ANNUAL ReportSection 112(a)(2)(N) of the Dodd-Frank Act requires that the Council s ANNUAL REPORT address the following:i.

3 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; andvi. recommendations I. to enhance the integrity, efficiency, competitiveness, and stability of United States financial markets;II. to promote market discipline; andIII. to maintain investor confidence. Approval of the ANNUAL ReportThis ANNUAL REPORT was approved unanimously by the voting members of the Council on December 17, 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)3 Table of ContentsTable of Contents1 Member Statement.

4 72 Executive Summary ..93 Financial Developments .. Household Finance .. Nonfinancial Business Finance .. Corporate Debt .. Small Business Debt .. Equities .. Government Finance .. Treasury Market ..31 Box A: IAWG Work on Treasury Market Municipal Bond Market .. Financial Markets .. Wholesale Funding Markets: Unsecured Borrowing .. Wholesale Funding Markets: Secured Borrowing .. Derivatives Markets .. Futures .. Exchange-Traded Options .. OTC Derivatives .. Derivatives Intermediaries and Platforms .. Commodities Market .. Residential Real Estate Markets .. Residential Housing Finance ..64 Box B: The Rapid Rise in House Prices .. Government-Sponsored Enterprises and the Secondary Mortgage Market .. Commercial Real Estate Market .. Financial Institutions .. Bank Holding Companies and Depository Institutions .. Bank Holding Companies and Dodd-Frank Act Stress Tests.

5 Insured Commercial Banks and Savings Institutions .. Branches and Agencies of Foreign Credit Unions .. Nonbank Financial Companies ..932021 FSOC // ANNUAL Securities REITs .. Money Market Funds .. Registered Investment Companies ..98 Box C: Nonbank Financial Intermediation & Council Initiatives .. Alternative Funds ..105 Box D: Failure of Archegos Capital Pension Funds .. Insurance Companies .. Specialty Finance .. Financial Market Structure, Alternative Reference Rates, and Financial Innovation .. Market Structure: Central Counterparty Clearing ..116 Box E: LIBOR Transition .. Financial Innovation .. Digital Assets .. Peer-to-Peer Payments .. Digital Lending .. Use of Technology in Financial Services .. Reliance of Financial Institutions on Third-Party Service Providers .. Global Economic and Financial Developments .. Foreign Exchange Market.

6 Advanced Economies .. Emerging Market and Developing Economies ..1324 Council Activities and Regulatory Developments .. Council Activities .. Risk Monitoring and Regulatory Coordination ..137 Box F: Climate-Related Financial Risk .. Determinations Regarding Nonbank Financial Companies and Activities-Based Approach .. Operations of the Council .. Safety and Soundness .. Enhanced Capital and Prudential Standards and Supervision .. Dodd-Frank Act Stress Tests and Stress Capital Buffer .. Resolution Planning and Orderly Insurance ..14 Financial Infrastructure, Markets, and Derivatives, Swap Data Repositories, Regulated Trading Platforms, and Central Counterparties ..1475 Table of Securities and Asset Management .. Accounting Standards .. Bank Secrecy Act/Anti-Money Laundering Regulatory Reform .. Mortgages and Consumer Protection .. Mortgages and Housing Finance.

7 Consumer Protection .. Data Scope, Quality, and Accessibility .. Data Scope .. Data Quality ..1555 Potential Emerging Threats, Vulnerabilities, and Council Recommendations .. Climate-Related Financial Risk .. Nonfinancial Business: Corporate Credit .. Financial Markets .. Short-Term Wholesale Funding Markets .. Residential Real Estate Market .. Commercial Real Estate Market .. Financial Institutions .. Large Bank Holding Companies .. Investment Funds .. Financial Market Structure, Operational Challenges, and Financial Innovation .. Central Counterparties .. Alternative Reference Rates .. Financial Market Structure .. Cybersecurity .. Data Gaps and Challenges .. Financial Innovation .. Digital Assets ..171 Box G: Stablecoins .. Use of Technology in Financial Services .. Managing Vulnerabilities amid Uneven and Volatile Global Growth ..1756 Abbreviations ..1777 Glossary.

8 1838 List of Charts ..1932021 FSOC // ANNUAL Report67 Member Statement 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 RepresentativesThe Honorable Kevin McCarthy Republican Leader United States House of RepresentativesThe Honorable Kamala D.

9 Harris President of the Senate United States SenateThe Honorable Charles E. Schumer Majority Leader United States Senate The Honorable Mitch McConnell Republican Leader United States SenateIn 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 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 Member Statement 2021 FSOC // ANNUAL Report89 Executive SummaryThe 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.

10 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 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 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.