TREASURY DEPARTMENT NEWS 

U.S. International Reserve Position

Federal, State Partners Convene to Discuss Ongoing
Anti-Fraud Efforts in Housing Markets

WASHINGTON – This morning, Treasury Secretary Tim Geithner hosted Attorney General Eric Holder, Housing and Urban Development (HUD) Secretary Shaun Donovan, Federal Trade Commission (FTC) Chairman Jon Leibowitz, Financial Crimes Enforcement Network (FinCEN) Director Jim Freis and attorneys general from 12 states to discuss emerging trends and proactive strategies to combat fraud against consumers in the housing markets as well as best practices to bolster coordination across state and federal agencies. This meeting follows up on an announcement by the Obama Administration in April of a multi-agency crackdown on foreclosure rescue scams and loan modification fraud designed to protect homeowners from predatory financial practices.

"A clear lesson of this financial crisis is that American consumers need better protection against fraud," said Treasury Secretary Tim Geithner. "And while we will prosecute anyone who violated the law, going forward we will not wait for problems to peak before we respond. The Obama Administration is acting preemptively, across federal agencies and alongside state governments, to stop consumer fraud."

Treasury, FinCEN, and DOJ, HUD, and FTC have committed to taking proactive measures to curb abuse by coordinating information and resources across agencies to maximize targeting and efficiency in fraud investigations. This includes alerting financial institutions to emerging schemes, stepping up enforcement actions and educating consumers to help those in financial trouble avoid becoming the victims of a loan modification or foreclosure rescue scam.

"Our efforts to attack mortgage fraud must be, and are, concerted and coordinated," said Attorney General Holder. "Working together, we can send a clear and straightforward message: Those who prey on vulnerable American homeowners cannot hide from the hand of the law. If you perpetrate mortgage fraud, we will find you and we will bring you to justice."

"At HUD, we firmly believe that the first line of defense is an informed consumer, and that's why we're working with our state and local partners on the ground, particularly housing counselors, to increase consumer awareness and give homeowners and homebuyers a trusted place to turn for assistance," said Secretary Donovan. "HUD has also requested $37 million in our FY2010 budget to combat fraud by training industry partners and giving FHA access to state-of-the-art fraud detection tools, as well as to help curb discrimination through increases in HUD's fair housing activities."

The FTC today announced two new law enforcement actions in a continuing crackdown on mortgage foreclosure rescue and loan modification scams, bringing to 22 the number of these cases the Commission has filed since the housing crisis began.  The FTC also announced developments in similar pending mortgage-related actions, several of which have involved coordinated case work from FinCEN.

 "Today's challenging economy presents an opportunity for con artists who prey upon financially distressed consumers.  The Federal Trade Commission and our state and federal partners will continue to bring law enforcement actions to stop this insidious fraud," FTC Chairman Leibowitz said.  "If you're worried about keeping your home, avoid any company that asks for a large fee in advance, guarantees that they'll stop a foreclosure or modify a loan, or tells you to stop paying your mortgage company and to pay them instead."

Illegal and predatory practices in the mortgage market are rampant in the wake of the recent financial crisis, including many fraudulent television ads that run on prominent networks promising simple solutions to complex financial problems. Federal and state officials discussed patterns of fraud in today's meeting and best practices for addressing them early, before American families suffer further financial harm.

Participating in today's meeting were attorneys general Dustin McDaniel, Arkansas; Terry Goddard, Arizona; Richard Blumenthal, Connecticut; Lisa Madigan, Illinois; Tom Miller, Iowa; Doug Gansler, Maryland; Chris Koster, Missouri; Catherine Cortez Masto, Nevada; Roy Cooper, North Carolina; Richard Cordray, Ohio (by phone); Patrick Lynch, Rhode Island; Rob McKenna, Washington (by phone). Collectively, these offices have taken action on scores of fraud cases in the housing markets and opened hundreds of investigations to date.

Statements from these attorneys general follow:

"Mortgage rescue schemes are becoming an epidemic -- preying on families facing foreclosure in exploding numbers. These mortgage rescue scams raise false hopes and then cruelly exploit them, which is why my office is fighting them and welcomes the federal government as a strong ally. Connecticut has adopted a landmark ban on upfront fees for mortgage repair schemes -- a model for national action in the battle against exploitation of consumers seeking to save their homes. I proposed and fought for it, and will enforce it vigorously. Today's meeting is an historic step toward a powerful alliance of state and federal law enforcers battling scammers who profit on homeowners facing foreclosure." - Connecticut Attorney General Richard Blumenthal

"Homeowners should never pay an upfront fee for help with negotiating a loan modification. If you're asked to pay an upfront fee, that's a sure sign you're dealing with a scavenger whose only goal is to con you out of money you can't afford to lose, and who will ultimately rob you of any opportunity to save your home with the help of legitimate organizations." - Illinois Attorney General Lisa Madigan

"Mortgage foreclosure rescue scams ask consumers to pay hundreds of dollars up-front for so-called rescue from foreclosure, but they just take your money and do nothing to help.  The scam puts the homeowner deeper into a financial hole and does nothing to save the home.  In fact, the scam often diverts consumers from getting the real help they need such as from the free Iowa Mortgage Help Hotline sponsored by our office." – Iowa Attorney General Tom Miller

"An unfortunate result of the country's current economic situation is the exponential increase in the number of disreputable companies and individuals eager to strip homeowners of their most valuable asset. I am pleased that our federal partners are working with the Attorneys General to help shut these operations down and keep millions of families in their homes." - Maryland Attorney General Douglas F. Gansler 

"In Missouri we have zero tolerance for people who prey on those in serious risk of losing their homes. We will continue to aggressively pursue businesses that engage in mortgage-relief scams to stop them from operating in Missouri." - Missouri Attorney General Chris Koster

"This federal and state partnership is an important continuing effort to bring relief and justice to Nevadans from mortgage fraud." - Nevada Attorney General Catherine Cortez Masto

"Foreclosure scams cost homeowners time and money, two things you can't afford to lose when you're fighting to save your home. We're cracking down on foreclosure scammers who take homeowners' money but do little or nothing to help them." – North Carolina Attorney General Roy Cooper

"Consumer education is the new burglar alarm and state-federal cooperative enforcement is the deadbolt that will protect homeowners from today's crooks – fraudsters who claim to offer mortgage relief." - Washington Attorney General Rob McKenna

Treasury Issues Debt Management Guidance
on the Supplementary Financing Program

Washington – The U.S. Department of Treasury today issued the following statement on the Supplementary Financing Program:

"Treasury currently anticipates that the balance in the Treasury's Supplementary Financing Account will decrease in the coming weeks to $15 billion, as outstanding Supplementary Financing Program bills mature and are not rolled over. This action is being taken to preserve flexibility in the conduct of debt management policy."

TREASURY INTERNATIONAL CAPITAL DATA FOR JULY

WASHINGTON – The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for July 2009. The next release, which will report on data for August 2009, is scheduled for October 16, 2009.

Net foreign purchases of long-term securities were $15.3 billion.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $7.4 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $4.5 billion. Foreign holdings of Treasury bills increased $14.4 billion.

Banks' own net dollar-denominated liabilities to foreign residents decreased $85.7 billion.

Monthly net TIC flows were negative $97.5 billion. Of this, net foreign private flows were negative $131.3 billion, and net foreign official flows were $33.8 billion.

Complete data are available on the Treasury website at www.treas.gov/tic

Note: The data for lines 22-32, and especially line 29, include data from a number of institutions previously reporting only quarterly as nonbanks, but which are now reporting monthly as banking entities. This change in reporter classification affects data going back to October 2008.

Vice President Biden Holds Middle Class Task Force Meeting on
College Access and Affordability

www.AStrongMiddleClass.gov

THE WHITE HOUSE
Office of the Vice President

SYRACUSE, NY - The White House Task Force on Middle Class Families, chaired by Vice President Joe Biden, held a meeting at Syracuse University in New York to discuss ways to help families save and pay for college. The meeting, "Making College More Accessible and Affordable for Middle Class Families," also highlighted specific improvements the Administration is making to the overall process of paying for college.

The Vice President was joined today by Secretary of Treasury Timothy Geithner, Secretary of Education Arne Duncan, Syracuse University Chancellor Nancy Cantor, State University of New York Chancellor Nancy Zimpher and other higher education experts.

"I know how challenging it is for parents and students who are trying to save or pay for college," said Vice President Biden. "We should be making this process easier, not more difficult, and we're starting by tearing down barriers so that middle class families have the means to send their kids to college."

Earlier this year, the Task Force held its first college affordability discussion in St. Louis, Missouri. At this meeting, the Vice President asked the Treasury Department to look into 529 plans and find ways to make them more effective and reliable for middle class families. A 529 plan, offered by states, provides a convenient, tax-preferred way for families to save for college, and works much like ROTH IRAs, wherein contributions are made with after-tax income, returns accumulate tax free and distributions can be for qualified educational expenses without taxes. Based on a study of best plan management practices, the Treasury Department today provided recommendations that can be implemented now to make 529 plans more accessible, effective and reliable for the middle class. To view the full study and recommendations, please go to:

http://www.treas.gov/press/releases/docs/529.pdf.

"Today, we have identified several ways to make these plans more effective and reliable for middle class families," said Secretary of Treasury Geithner. "By encouraging all states to offer low-fee, age-based index funds and by encouraging greater competition among state plans, we can help make the dream of a college education a reality for millions of middle class families."  

"We have to educate our way to a better economy. That's why we have an agenda to make college affordable and accessible to everyone - recent high school graduates, adults wanting to improve their careers, laid-off workers needing new job skills," said Secretary of Education Duncan. "As the President told high school students yesterday, if you drop out of school, you're not just quitting on yourself, you're quitting on your country. We also want to send the message that we're not quitting on you. We're providing the resources you need to go to college and succeed there."

The complicated and intrusive Free Application for Federal Student Aid (FAFSA) creates an obstacle to college affordability.  By asking 153 questions, many of which have little or no impact on student aid eligibility, FAFSA imposes an unnecessary ordeal on 16 million students and parents every year, and more than a million students who are eligible for student aid fail to fill out the form.  While the Administration is currently seeking legislation removing 29 of the most difficult questions from the form, it is also streamlining the form by tailoring it to individual students, skipping unnecessary questions, and allowing many students to electronically retrieve their tax information from the IRS and enter it into the online FAFSA. Two key members of the Task Force, the National Economic Council (NEC) and the Council of Economic Advisors (CEA), today released a report discussing the need to simplify the process of applying for federal student aid, describing President Obama's plan for simplification and analyzing the potential impact of such improvements on Pell Grant recipients. To view the NEC/CEA report, please go to:

http://www.whitehouse.gov/assets/documents/FAFSA_Report.pdf.

Today, the Task Force also released a full staff report diagnosing the existing barriers to higher education in America and highlighting ways for middle class families to better access higher education.

The staff report examines factors that limit students' access to higher education, including income inequality, mobility, cost of college, and debt load. The report reiterates the Administration's belief that a student's merit should be the determining factor in getting into, and graduating from, a good school, because a clear pathway to a college education is a clear pathway into the middle class.  President Obama has set a goal that by 2020, America should once again lead the world in the proportion of adults with a college degree.  A central goal of the Middle Class Task Force is to ensure that public policy is helping middle class families to realize their aspirations.  The President, the Vice President and the Middle Class Task Force are committed to making sure that every student has the opportunity to earn a postsecondary credential or degree.

The full staff report is attached, or go to:

http://www.whitehouse.gov/assets/documents/MCTF_staff_report_barriers_to_college_FINAL.pdf.   

Treasury Secretary Timothy F. Geithner
As Prepared for Delivery
White House Task Force on Middle Class Families Meeting on College
Access and Affordability
Syracuse University, Syracuse, New York

Mr. Vice President, Secretary Duncan, Chancellor Cantor, I am pleased to join you today to discuss the importance of college education and college affordability to the U.S. economy and American families. This subject is touching close to home these days because next week I'll be dropping my daughter off at college. 

But besides the personal significance, college affordability is central to two key economic trends.  Over the past generation, we have gone from a nation of savers to one of borrowers. We have devoted too many resources to consumption and not enough to investment. During this same period, we have also lost our global educational lead. While we once outpaced all other advanced economies in the percentage of our population that graduated from high school and college, much of the rest of the economically developed world has now caught up or surpassed us.

Americans are already on the way to reversing the first of these trends.  After years of taking on too much debt, Americans are starting to save again.  The saving rate has climbed from a low 1.2 percent at the beginning of 2008 to an average of 5 percent during the second quarter of this year.  The Administration has sought to help encourage greater savings by devoting a substantial portion of the Recovery Act to providing a tax cut for 95 percent of American working families and additional support for the unemployed. People are using these resources to pay off their debts and rebuild their savings.

It is also important that America regain its global educational lead.  This is critical to the health of our overall economy because a better-educated workforce is a more productive and innovative one.  One way to gauge the extent to which we have fallen behind is to look at two groups of Americans. Among 55-to-60 year olds today, we have the highest high school and college graduation rates of any advanced economy in the world. Yet among today's 25-to-34 year olds, we are below average for high school graduation and in the middle of the pack for college graduation.

A college education is one of the best investments a family can make.  Beyond the many intangible rewards, economists estimate that college graduates earn 50 percent more than otherwise similar high school graduates over the course of their lifetimes.

The Administration has sought to boost college attainment by including an American Opportunity Tax Credit in the Recovery Act. The credit provides up to $2,500 to help offset the cost of tuition and other expenses of college and is expected to save nearly 5 million low- and moderate-income families $9 billion between now and the end of 2010.

As the Vice President has said, we are also working to implement, expand or improve a wide array of other government programs that encourage education savings and increase college enrollment. Today I want to highlight one program in particular, Section 529 savings plans. 

These plans can be an immensely effective way for Americans to save for college. They are generally administered by the states, and they allow people to put aside money for college and enjoy investment earnings that are free of federal taxes and, in some cases, receive state tax benefits, as well. When state tax benefits are included, a typical middle class family can accumulate 25 percent more in 529 accounts than they can in a typical taxable savings account.

But in a report being issued by Treasury today, we find that these accounts are not being broadly used by Americans who could benefit from them. For example, only 5 percent of families with children in the middle of the income distribution have 529 accounts, while nearly one third of those in the top 5 percent of the distribution have them. The report makes a series of recommendations to expand their use, lower investment fees and make them safer for Americans across a wide range of incomes.

Helping Americans save more for college will help more go to college. Helping Americans save more generally will help the overall economy. Only by pursuing both aims and reversing the unfortunate trends of the past generation will we achieve the President's goal of a new foundation for growth and a sustainable prosperity for all Americans.

Statement by Secretary Geithner at the G-20 Meeting of Finance Ministers and Central Bank Governors

Good afternoon.  My thanks and compliments to Chancellor Darling and his team for hosting this meeting.  The United States looks forward to welcoming the Prime Minister and the Chancellor to Pittsburgh , along with the Leaders and Finance Ministers of the G-20, in just a few weeks. 

On April 2, facing the greatest challenge to the world economy in generations, the G-20 gathered here in London and committed to an unprecedented program of policies to restore growth and reform the international financial system. Those actions have pulled the global economy back from the edge of the abyss.  The financial system is showing signs of repair.  Growth is now underway. 

However, we still face significant challenges ahead.  Unemployment is unacceptably high.    Conditions for a sustained recovery led by private demand are not yet established.  The classic errors of economic policy during crises are that governments tend to act too late with insufficient force and then put the brakes on too early. We are not going to repeat those mistakes.

We need to provide sustained support for growth and financial repair until we have in place a strong foundation for recovery.  But that strategy will not be effective unless we can make fully credible our commitment to reverse those actions as soon as conditions permit.  This means our strategies will need to evolve as we move from crisis response to recovery, from rescuing the economy to repairing and rebuilding the foundation for future growth.   

We must lay a foundation for a more balanced and sustainable pattern of future growth, both within and across countries. In the United States , we are going through a necessary and fundamentally healthy transition, raising savings rates and borrowing less from the rest of the world.  As this happens, we need to see a complementary shift in countries outside the United States toward stronger domestic demand-led growth. 

Alongside this growth imperative, we need to bring greater urgency to the financial reform agenda. 

We have broad agreement on a very strong set of principles and objectives for building a more stable global financial system.  But we need to move now to put that framework in place.  That will require actions at the national level to implement stronger rules of the game, but also more rapid progress internationally in reaching agreement on the details of more rigorous standards that create a more level playing field. In the United States , we are moving forward to legislate reforms designed to protect consumers and investors and create a more stable, more resilient financial system. 

These are far reaching and comprehensive reforms, because fundamental change is necessary.  The great failure of regulation was the failure to prevent the build up of excess leverage and risk within and alongside the banking system. 

Our strategy is to put in place stronger constraints on risk taking across the financial system, to bring comprehensive oversight to key institutions and to critical markets, such as derivatives, to reform the securities markets, and to provide the tools necessary to wind down firms that fail.

The fundamental test of reform is to make the system resilient enough to withstand future storms. 

Toward this effort, we outlined here the critical elements of a stronger international capital standard for banks.  Our objective is to reach agreement by the end of next year on a new standard that will raise capital and liquidity requirements and dampen rather than amplify future credit and asset price bubbles.  Financial activities which present the most risk should have higher capital requirements.  And the major globally active financial institutions, those firms that present the greatest risk of systemic crisis, should be held to more demanding standards.

A crucial part of financial reform is to change compensation practices.  On February 4 of this year, the President of the United States first outlined a set of proposals to reform compensation practices, both for institutions that receive exceptional financial assistance and for all banks.  These proposals were designed to constrain excess risk taking by making sure that compensation is tied to risk and long-term performance.  We have proposed, and the House has already passed, legislation to require firms to submit compensation practices to an approval by shareholders.  And the Federal Reserve and other bank supervisors will enforce these standards through the supervisory process. 

We welcome the support we found here in Europe and among the G-20 for compensation reform as part of comprehensive reform of the financial system.  Stronger capital standards are not a substitute for compensation reform.  Compensation reform is a necessary part of building a more stable system.

In addition to capital and compensation, more work needs to be done on over-the-counter derivatives and cross-border resolution frameworks.

Another critical part of the reform agenda is building stronger international financial institutions.  We must provide the resources and tools necessary to support development and provide insurance against future crises.  But this is not just about resources.  We need these institutions to play a greater role in preventing future crises, with stronger surveillance by the IMF.  We need the multilateral development banks to focus their efforts on the key priorities of fighting poverty, supporting higher productivity in agriculture, building the institutions necessary for private investment and growth, and facilitating the transition to a green economy. And we must reform the institutions' governance structures to better reflect the important role of emerging market and developing economies.

Let me close by saying that, as we look toward the G-20 Summit in Pittsburgh , we need to bring the sense of common purpose and urgency that we demonstrated at the peak of the crisis to the challenges of restoring growth and to reforming the financial system.  We have made a lot of progress, but we have a ways to go.  We can't let momentum for reform fade as the crisis recedes.

Thank you.

Statement of Treasury Secretary Tim Geithner on the Administration’s New Retirement Security Initiatives

"Today, the Administration announced steps we are taking to make it easier for working families to save, particularly for retirement.  Working Americans should be able to retire with dignity and security, but nearly half of the nation's workforce has little or nothing beyond Social Security benefits to get by on in old age.  The measures we are announcing today will give more choices to families who want to save, and will complement the Administration's legislative proposals to expand retirement savings.  Just as the Administration is dedicated to reviving the economy and getting people back to work, so too it is dedicated to helping put retirement security within the reach of all Americans."

REPORTS

Treasury Highlights Recovery Act Impact

Report Details Cumulative, State-by-State Data on Treasury's Recovery Act Programs, Including $66.1 Billion in Tax Benefits to Date for Individuals, Families, Businesses

WASHINGTON – As part of an effort to highlight the success of the American Recovery and Reinvestment Act (Recovery Act) in revitalizing communities across the country, the U.S. Department of the Treasury today released a report providing state-by-state data on Treasury program funding. The report, issued around the 200 day anniversary of the Recovery Act, details funds provided to states, local communities, and families through a variety of programs, including the Making Work Pay Tax Credit, payments for renewable energy production, funds for affordable housing development, and Build America Bonds.

"In 200 days, the Recovery Act has made significant progress in revitalizing our communities and providing the basis for economic growth," said Treasury Deputy Secretary Neal Wolin. "Through innovative programs established by the Recovery Act, the Treasury Department has provided tax relief to millions of families, supported increased development of affordable housing and clean energy projects, and provided new tools for states and communities to fund much needed infrastructure projects."

Highlights of the impact from Treasury's Recovery Act programs during the first 200 days include:

·         $66.1 billion in estimated tax benefits provided to individuals, families, and businesses through the implementation of various tax provisions.  The Making Work Pay credit has been a significant element of these provisions.

·         $502 million in payments made to promote renewable energy production throughout the country

·         $2.3 billion provided to 37 states to spur the development of affordable housing

·         $28.2 billion in Build America Bonds issuances to help 37 states finance a variety of public improvement projects

The report also provides information on the First Time Homebuyer's Tax Credit, the $250 one- time stimulus payments, New Markets Tax Credits, Qualified School Construction Bonds, and Recovery Zone Bonds. The comprehensive report is available here. Additional information on Treasury's Recovery Act programs follows:

Making Work Pay Tax Credit:  In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act provides a credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. The tax credit is calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

Recovery Zone Bonds:  Recovery Zone Economic Development Bonds are one type of taxable Build America Bond that allow state and local governments to obtain lower borrowing costs through a new direct federal payment subsidy, for 45 percent of the interest, to finance a broad range of qualified economic development projects, such as job training and educational programs. Recovery Zone Facility Bonds are a type of traditional tax-exempt private activity bond that may be used by private businesses in designated recovery zones to finance a broad range of depreciable capital projects. Both of these are allocated directly to counties and large municipalities

Qualified School Construction Bonds:  Investors who buy these bonds receive tax credits worth 100 percent of the interest, allowing state and local governments to obtain financing without having to pay any interest.  States may directly issue the bonds on behalf of eligible schools or provide school districts with the authority to issue the bonds within the state.

Qualified Energy Conservation Bonds: These bonds are authorized under an expanded tax credit bond program of the Recovery Act of 2009 for states and large local governments based on population data.  The bonds are tax credit bonds that provide a federal subsidy for repair and rehabilitation of public schools and related authorized purposes through a federal tax credit to investors intended to cover 70 percent of the interest on the bonds.

Build America Bonds: Under the Build America Bonds program, Treasury makes a direct payment to the state or local governmental issuer in an amount equal to 35 percent of the interest payment on the Build America Bonds.  Potential investors include pension funds that traditionally do not hold tax exempt bonds and foreign investors.  These investors have been important additions to the market for municipal debt.

One-time $250 Payments: Treasury's Financial Management Service, in coordination with the Social Security Administration, the Railroad Retirement Board, and the Department of Veterans Affairs, have issued more than 54 million Economic Recovery payments to beneficiaries totaling more than $13 billion.

Community Development Financial Institutions:  The CDFI Fund makes monetary awards (grants, loans and other investments) on a competitive basis to certified CDFIs. A CDFI is a specialized financial institution that works in low-income communities or serves individuals or businesses that lack access to mainstream financial institutions. Among many financial services, CDFIs provide capital to small businesses and micro-enterprises; mortgage loans to first-time homebuyers; financing to support the development of affordable housing projects and community facilities; and retail banking services to the unbanked.

New Markets Tax Credit:  With the increased investment authority made available through the Recovery Act, this program incentivizes private-sector capital investment in distressed communities across the country to create jobs, stimulate economic growth, and jumpstart the lending necessary for financial stability.  The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year period.

Affordable Housing Payments:  Under this program, state housing agencies that apply receive funds to finance the construction or refurbishment of qualified affordable housing developments.  Applicants agree to forgo tax credits down the line in favor of an immediate payment. Through this program, the Treasury Department works with state housing agencies to jump start the development or renovation of qualified affordable housing across the country. 

Renewable Energy Payments: The Recovery Act authorized Treasury to make direct payments to companies that create and place in service renewable energy facilities.  Previously, these companies could file for a tax credit to cover a portion of the renewable energy project's cost. Under the new program, applicants would agree to forgo tax credits down the line in favor of an immediate payment.

First Time Homebuyer's Tax Credit: Taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before December 1 have a special option available for claiming the tax credit either on their 2008 tax returns or on their 2009 tax returns next year.  The maximum credit is $8,000.

Stronger Capital and Liquidity Standards for Banking Firms

To read the Treasury Department's policy statement, "Principles for Reforming the U.S. and International Regulatory Capital Framework for Banking Firms," please visit link.

Stronger capital and liquidity standards for banking firms:

·         Capital requirements should be designed to protect the stability of the financial system, not just the solvency of individual banking firms, including banks, bank holding companies, financial holding companies and large, interconnected firms.

·         Capital requirements for all banking firms should be increased, and capital requirements for financial firms that could pose a threat to overall financial stability should be higher than those for other banking firms.

·         The regulatory capital framework should put greater emphasis on higher quality forms of capital that enable banking firms to absorb losses and continue operating as going concerns.

·         The rules used to measure risks embedded in banks' portfolios and the capital required to protect against them must be improved. Risk-based capital requirements should be a function of the relative risk, including systemic risk, of a banking firm's exposures, and risk-based capital rules should better reflect a banking firm's current financial condition.

·         The procyclicality of the regulatory capital and accounting regimes should be reduced and consideration should be given to introducing countercyclical elements into the regulatory capital regime.

·         Banking firms should be subject to a simple, non-risk-based leverage constraint.

·         Banking firms should be subject to a conservative, explicit liquidity standard.

·         Stricter capital and liquidity requirements for the banking system should not be allowed to result in the re-emergence of an under-regulated non-bank financial sector that poses a threat to financial stability.

·         A comprehensive agreement on new international capital and liquidity standards should be reached by December 31, 2010 and should be implemented in national jurisdictions by December 31, 2012.

Fact Sheet: Treasury Amends Cuban Assets Control Regulations
To Implement the President’s Initiative on
Family Visits, Remittances, and Telecommunications

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) today issued a final rule amending the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR), to implement the President's initiative of April 13, 2009, to reach out to the Cuban people in support of their desire to freely determine their country's future, promote greater contact between separated family members in the United States and Cuba, and increase the flow of remittances and information to the Cuban people. 

Today's amendments to the CACR change the rules in three major areas:  (1) family visits; (2) family remittances; and (3) telecommunications.  These amendments also make certain technical and conforming changes to the CACR.

Family visits.  OFAC has eased restrictions on travel-related transactions for visits to "close relatives" who are nationals of Cuba by issuing a general license. 

Remittances.  OFAC has also eased restrictions on remittances (including from inherited blocked accounts) to "close relatives" who are nationals of Cuba by issuing a general license.

Telecommunications.  Certain telecommunications services, contracts, related payments, and travel-related transactions are authorized by general licenses.  The CACR amendments ease the telecommunications rules in three broad areas, as well as allow travel-related transactions for the specific purpose of conducting business in all three areas. 

New general license for TSRA travel-related transactions.  The new amendments to the CACR also implement provisions of the Omnibus Appropriations Act, 2009.  Pursuant to section 620 of the Omnibus Appropriations Act, 2009, which amended the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), there is a new general license for travel-related transactions incident to agricultural and medical sales under TSRA. 

You may view the amended CACR here: http://www.federalregister.gov/inspection.aspx

Treasury, Energy Announce $500 Million in Recovery Act Awards for Clean Energy Projects

Initial Round of Cash Assistance for Wind, Solar Projects in Eight States
Will Create Jobs, Increase Development

WASHINGTON– Marking a major milestone in the effort to spur private sector investments in clean energy and create new jobs for America's workers, Treasury Secretary Tim Geithner and Energy Secretary Steven Chu today announced $502 million in the first round of awards from an American Recovery and Reinvestment Act (Recovery Act) program that provides cash assistance to energy production companies in place of earned tax credits. The new funding creates additional upfront capital, enabling companies to create jobs and begin construction that may have been stalled until now.

"The Recovery Act is investing in our long-term energy needs while creating jobs in communities around the country," said Treasury Secretary Tim Geithner. "This renewable energy program will spur the manufacture and development of clean energy in urban and rural America, allowing us to protect our environment, create good jobs and revitalize our nation's economy."

Said Secretary Chu: "These grants will help America's businesses launch clean energy projects, putting Americans back to work in good construction and manufacturing jobs.  The initiative will help double our renewable energy capacity over the next few years and make sure America leads the world in creating the clean energy economy of the future."

Created under Section 1603 of the Recovery Act, the program is expected to provide more than $3 billion in financial support for clean energy projects by providing direct payments in lieu of tax credits.  These payments will support an estimated 5,000 bio-mass, solar, wind, and other types of renewable energy production facilities in all regions of the country over the life of the program.  As a result of this first round of funding, more than 2,000 Americans will have access to jobs in the renewable energy industry – both in construction and in manufacturing – while moving the nation closer to meeting the Administration's goal of doubling renewable energy generation in the next few years.

The Treasury Department opened the application process for the 1603 program on July 31, 2009 and is today making the first awards in half the statutorily mandated turnaround time of 60 days. The following is a chart of projects funded as part of today's announcement. Additional awards under the program will be announced in the coming weeks.

Treasury Targets FARC Operative and Affiliated Companies

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) today designated Jose Cayetano Melo Perilla for materially assisting the narcotics trafficking activities of, and acting for or on behalf of, the Revolutionary Armed Forces of Colombia (FARC), a drug trafficking organization.  OFAC also today named four entities that are owned, controlled, or directed by, or act for or on behalf of, Jose Cayetano Melo Perilla. Today's action, pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act), is OFAC's tenth set of designations against the FARC under the Kingpin Act since 2004.  These designations under the Kingpin Act freeze any assets the five designees may have under U.S. jurisdiction and prohibit U.S. persons from conducting financial or commercial transactions with them.  

"Although recent actions by the Colombian Government have undercut the FARC significantly, it continues to be the leading trafficker of narcotics out of Colombia," said Adam J. Szubin, Director of OFAC.  "Today's designation builds on our longstanding campaign against the FARC by targeting a key trafficker and money launderer."

The FARC was identified by the President as a significant foreign narcotics trafficker, or drug kingpin, pursuant to the Kingpin Act on May 29, 2003.  The State Department designated the FARC as a Specially Designated Global Terrorist in 2001 pursuant to Executive Order 13224 and as a Foreign Terrorist Organization in 1997.

Jose Cayetano Melo Perilla, a Colombian national and resident of Costa Rica, is a narcotics trafficker and important financial contact for the FARC's 27th Front, which is led by Luis Eduardo Lopez Mendez (a.k.a. "Efren Arboleda"). Lopez Mendez ultimately reports to the FARC's chief of military operations and Commander of the Eastern Bloc, Victor Julio Suarez Rojas (a.k.a. "Mono Jojoy").  Suarez Rojas and Lopez Mendez were previously designated by OFAC on February 18, 2004, and November 1, 2007, respectively.

Also designated today are the following companies owned by Melo Perilla: Carillanca Colombia Y Cia S en CS, a Colombian company dedicated to hydroponic agriculture; Carillanca S.A., a Costa Rican company involved in tomato cultivation; Carillanca C.A., a company located in Venezuela whose focus is real estate and construction; and Parqueadero De La 25-13, a commercial parking lot located in Bogota, Colombia.

Today's action continues ongoing efforts under the Kingpin Act to apply financial measures against significant foreign narcotics traffickers and their organizations worldwide.  In addition to the 82 drug kingpins designated by the President, 498 businesses and individuals have been designated pursuant to the Kingpin Act since June 2000.  Today's designation would not have been possible without support from the Drug Enforcement Administration.

Penalties for violations of the Kingpin Act include civil penalties of up to $1.075 million per violation, criminal penalties for corporate officers up to 30 years in prison and $5 million in fines, and criminal fines for corporations up to $10 million.  Other individuals face up to 10 years in prison for criminal violations of the Kingpin Act and fines determined pursuant to Title 18 of the United States Code.

REPORTS

Treasury International Capital (TIC) Data for June

WASHINGTON – The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for June 2009. The next release, which will report on data for July 2009, is scheduled for September 16, 2009.

Net foreign purchases of long-term securities were $90.7 billion.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $71.3 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $19.5 billion. Foreign holdings of Treasury bills decreased $11.3 billion.

Banks' own net dollar-denominated liabilities to foreign residents decreased $82.9 billion.

Monthly net TIC flows were negative $31.2 billion. Of this, net foreign private flows were negative $27.7 billion, and net foreign official flows were negative $3.5 billion.

Complete data are available on the Treasury website at www.treas.gov/tic.

###

REPORTS

Heriberto Lazcano Lazcano (alias "Lazca")

Miguel Angel Trevino Morales (alias "Cuarenta")

Today's action is the latest in a series of coordinated efforts by the U.S. government to neutralize and dismantle Mexico's violent drug cartels.　 The Department of Justice, in coordination with the Drug Enforcement Administration (DEA),　has　today announced new　drug trafficking　charges against Miguel Angel Trevino Morales. In June 2009, the Department of Justice charged 19 of the drug cartels' top lieutenants, including Jorge Costilla Sanchez, Ezequiel Cardenas Guillen, Heriberto Lazcano Lazcano, and Miguel Trevino Morales with drug trafficking-related crimes.　 Today, the State Department announced rewards of up to $5 million each, for information leading to the capture or conviction of 10 Gulf Cartel and Los Zetas leader, including Ezequiel Cardenas Guillen, Heriberto Lazcano Lazcano and Miguel Trevino Morales. The State Department is also offering a $5 million reward for Jorge Costilla Sanchez. In 2008, Jorge Costilla Sanchez, Ezequiel Cardenas Guillen, Heriberto Lazcano Lazcano, and Miguel Trevino Morales were previously charged with drug trafficking crimes in the District of Colombia. Jorge Costilla Sanchez and Ezequiel Cardenas Guillen are also subjects of drug trafficking charges in the Southern District of Texas. The Mexican Attorney General's Office also announced rewards of up to $2.4 million dollars (30,000,000 pesos), per individual, for information leading to their capture.　　

In 2007, the Gulf Cartel was identified as a significant foreign narcotics trafficker pursuant to the Kingpin Act.　 The Gulf Cartel is responsible for the smuggling and distribution of significant amounts of cocaine and marijuana to the United States.　 Jorge Eduardo Costilla Sanchez and Ezequiel Cardenas Guillen direct the Gulf Cartel's trafficking and sale of narcotics and ensure the flow of illicit proceeds earned from the drug trade back to the Gulf Cartel's coffers.　 Ezequiel Cardenas Guillen is the brother of Osiel Cardenas Guillen, who was identified as a significant foreign narcotics trafficker in 2001. Osiel Cardenas Guillen was extradited from Mexico to the United States in January 2007.

Los Zetas were identified under the Kingpin Act in 2009. Heriberto Lazcano Lazcano and Miguel Angel Trevino Morales, as leaders of Los Zetas, control drug smuggling operations and battle rival cartels trying to expand into Gulf Cartel/Zeta territory.　 Historically, Los Zetas are considered to be the armed-wing of the Gulf Cartel, but they often operate independently.

Treasury's OFAC is responsible for an ongoing effort under the Kingpin Act to apply financial measures against significant foreign narcotics traffickers worldwide.　 Since June 2000, more than 475 businesses and individuals associated with 82 drug kingpins have been designated by OFAC. Designation action freezes any assets the designees may have under U.S. jurisdiction and prohibits U.S. persons from conducting transactions or dealings in the property interests of the designated individuals and entities

Penalties for violations of the Kingpin Act range from civil penalties of up to 1.075 million per violation to more severe criminal penalties.　 Criminal penalties for corporate officers may include up to 30 years in prison and fines of up to $5 million.　 Criminal fines for corporations may reach $10 million. Other individuals face up to ten years in prison for criminal violation of the Kingpin Act and fines pursuant to Title 18 of the United States Code.

　

　

　

Treasury Secretary Timothy F. Geithner Written Testimony
before the House Financial Services Committee

Chairman Frank, Ranking Member Bachus, and members of the Financial Services Committee, thank you for the opportunity to testify before you today about the Administration's plan for financial regulatory reform.

On June 17, President Obama unveiled a sweeping set of regulatory reforms to lay the foundation for a safer, more stable financial system; one that properly delivers the benefits of market-driven financial innovation while safeguarding against the dangers of market-driven excess.

The President's plan focuses on the essential reforms. It addresses the core causes of the current economic crisis. It addresses the areas critical to confronting future vulnerabilities. And, in pursuing what amounts to the most extensive overhaul of our financial regulatory regime in decades, it makes clear to the American people that their government, at an early stage in this new Administration, is intent on fixing the basic regulatory flaws that caused extensive damage to families and businesses.

Over the past five weeks, in Congress and in the press, among legislators and business leaders, academics and advocates, the Administration's proposals have spurred an important and sometimes heated debate about how best to reform the financial regulatory system. That debate is to be expected, and is welcome. While crafting our plan, the Administration sought input from all points of view, considered all options and heard many of the opinions being expressed today.

We understand that on any issue this complex and this important there will be areas where parties genuinely disagree, and we look forward to refining our recommendations through the legislative process.

But there should be no disagreement on the need to act.　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　

Over the past two years, we have faced the most severe financial crisis since the Great Depression. The damage has been indiscriminate and unforgiving. Millions of Americans have lost their jobs; families have lost their homes; small businesses have shut down; students have deferred college educations; and seniors have shelved retirement plans. Some of our largest financial institutions failed; others came under extraordinary pressure; and many of the securities markets that are critical to the flow of credit broke down.

As a country, we now know that our financial system failed in its most basic responsibility to be stable and resilient enough to provide credit while protecting consumers and investors.

We now know that our regulatory regime permitted an excessive build-up of leverage, both outside the banking system and within the banking system; that the shock absorbers critical to preserving the stability of the financial system – capital, margin, and liquidity cushions in particular – were inadequate to withstand the force of the global recession; and that they left the system too weak to withstand the failure of major financial institutions.

We now know that millions of Americans were left without adequate protection against financial predation, especially in the mortgage and consumer finance areas; and that many were unable to evaluate the risks associated with borrowing to support the purchase of a home, a car, or an education.

And, we know that the United States entered this crisis without an adequate set of tools to contain the risk of broader damage to the economy and to manage the failure of large, complex financial institutions.

As a result, American families have made essential changes and they expect their government to do the same. There exists today a national mandate, not seen in years, to reform our outdated and ineffective regulatory system.

Still, despite that reality, there are some who suggest we are trying to do too much too soon, and that we should wait until the crisis has definitively receded. Others say we do not need comprehensive change or that it will destroy innovation. And with respect to consumer protection in financial services, there are even those who contend we should leave things as they are.

That is not surprising. Every financial crisis of the last generation has sparked some effort at reform, but past attempts began too late, after the will to act had subsided.

That cannot happen this time.

The reforms proposed by the President are necessary. They would substantially alter the ability of financial institutions to escape regulation, to choose which regulator suits them best, to shape the content of future regulation and to continue the financial practices that were lucrative for parts of the industry for a time, but that ultimately proved so damaging. That is why we have to act, and why we need to deliver real, meaningful change.

The Administration welcomes the commitment of this Committee and your counterparts in the Senate, as well as other key committees and the Congressional leadership, to pass legislation this year. And the Administration is moving aggressively to help advance the overall process.

In the weeks following the President's announcement, we have delivered detailed legislative language to Congress on virtually all of our proposals: on the enhanced regulation of our largest, most interconnected financial firms; on the supervision and regulation of federal depository institutions; on new resolution authority; on payments and settlement systems;　 on investor protection;　 on private fund registration; on executive compensation; 　on securitization and credit rating agencies; and on the proposed new Financial Services Oversight Council and Consumer Financial Protection Agency (CFPA).

We are also working to put in place reforms that do not require legislation. We have used the President's Working Group on Financial Markets to pull together all government agencies that oversee elements of the financial system to formulate more detailed proposals for implementing the comprehensive reforms outlined by the President.　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　

By now the details of our plan are widely known and so I would like to provide some additional context by explaining our key priorities for reform.

Consumer Protection

Let me begin with a pressing concern for this Committee – building strong protections for consumers, and ensuring they can understand the risks and rewards associated with the products sold to them. I know you will soon be marking up legislation on this issue.

There is broad agreement that consumer protection needs to be stronger. Achieving this objective requires mission focus, market-wide coverage, and consolidated authority, none of which exist in today's system.

That is why we are proposing one agency for one market place with one mission – protecting consumers.

The case for the Consumer Financial Protection Agency is clear.

First, non-banks such as mortgage brokers and large independent mortgage companies, consumer credit companies and pay-day loan operations, currently operate under no federal supervision. No federal agency sends consumer protection examiners into these institutions to review their files or interview their salespeople. No federal regulator collects information from them, except for limited mortgage data.

In the years before the crisis, capital flowed heavily to these unsupervised non-banks in large measure because they enjoyed the advantage of weak consumer oversight. Banks were left with the untenable choice of lowering their standards to compete or giving up market share.

The proposed CFPA would fix this problem and ensure a level playing field by extending the reach of federal oversight to all financial firms, no matter whether they are banks or non-banks.

Second, even where federal oversight exists, standards are weakened by the ability of banks and thrifts to choose the regulator that will have the least restrictive oversight of consumer protection, something we also saw in the years leading up to the current crisis.

The President's proposal would correct this by consolidating responsibility for consumer protection into one agency, meaning financial institutions would no longer be able to shop for the weakest regulator and pursue a race to the regulatory bottom.　　　　　　　　　　　　　　　　　　　　　　　　　　　

Third, the banking agencies responsible for implementing and enforcing consumer protection have higher priorities. The agencies' primary focus is the safety and soundness of the institutions they oversee. As a matter of mission and internal organization, they are focused on the effect of a bank's products and practices on the bank itself, rather than the effect on consumers. That is why the CFPA would have as its sole mission examining how a product or practice affects consumers.

Importantly, nothing in the CFPA's mission or authority would conflict with or undermine the safety and soundness of banking institutions. Our proposal ensures cooperation with prudential regulators by placing one of them on the board of directors and requiring examiners to exchange examination reports.

Making banks act fairly and transparently with their customers only enhances their safety and soundness. Market-wide jurisdiction of the CFPA will ensure that banks are not forced to choose between lowering their standards and giving up market share.

Finally, the government agencies that have responsibility for consumer financial protection are limited in their ability to do something about the problems they encounter because they have only one set of authorities available to them, instead of the full range, from rule-writing to supervision to enforcement. This leads to inertia and finger-pointing in place of action. And it makes any action taken less likely to be effective.

For example, when it comes to credit cards, the Federal Reserve has substantial power to write rules but has little authority to enforce them outside of bank holding companies, while the Office of the Comptroller of the Currency has little authority to write rules but wide power to enforce them. As concerns about fairness and transparency emerged, each agency looked to the other to act and, in the end, not enough was done.

Even in cases where agencies have what, in principle, should be the more flexible authority to issue regulatory guidance to institutions, they are hampered by the fact that several agencies have similar authority.

In the case of subprime mortgages, it took the federal banking agencies until June 2007 to reach final consensus on supervisory guidance imposing even general standards on subprime mortgages. By then it was too late.

Our consumer protection proposal would put an end to this problem by giving the CFPA consolidated authority to write rules, supervise compliance and take enforcement action when there are violations.

It is time for a level playing field for financial services competition based on strong rules, not based on exploiting consumer confusion. Our proposal achieves that by ensuring consumer choice, preserving innovation, strengthening depository institutions, reducing regulatory costs, and increasing national regulatory uniformity and accountability.　

Financial Stability

Our second priority was creating a more stable financial system by strengthening supervision and regulation of financial firms.

That necessarily begins with higher capital requirements. The most important thing to lowering risk in the financial system is stronger capital cushions.

The Committee is well aware that in the years leading up to this crisis, as rising asset prices, particularly in housing, concealed a sharp deterioration of some of the underwriting standards for loans, risks built up substantially while capital cushions did not. The nation's largest financial firms, already highly leveraged, became increasingly dependent on unstable sources of short-term funding.

These firms did not plan for the potential demands on their liquidity during a crisis. And when asset prices started to fall and market liquidity froze, they were forced to pull back from lending, limiting credit for households and businesses.

Looking back it is clear that regulators did not require firms to hold sufficient capital to cover risks from their trading assets, high-risk loans, and off-balance sheet commitments.

Under our plan, that will change. Financial firms will be required to follow the example of millions of families across the country that are saving more money as a precaution against bad times. They will be required to keep more capital and liquid assets on hand and, importantly, the biggest, most interconnected firms will be required to keep even bigger cushions.

Now, higher capital requirements are an important step towards longer-term stability, but they are only the first step.

While many of the financial firms at the center of this crisis were under some form of federal supervision and regulation, that oversight did not do enough. A patchwork of supervisory responsibility, loopholes that allowed some institutions to shop for the weakest regulator, and the rise of new financial institutions and instruments that were almost entirely outside the government's supervisory framework left regulators largely blind to emerging dangers and without the tools needed to address them.

That is why we propose evolving the Federal Reserve's authority to create a single point of accountability for the consolidated supervision of all large, interconnected firms whose failure could threaten the stability of the system, regardless of whether they own an insured depository institution. This is a role the Fed plays today, given its supervision and regulation of bank holding companies, including all major U.S. commercial and investment banks.　

While our plan gives some new authority – along with necessary accountability – to the Fed, it also takes some away. That includes transferring the Fed's consumer protection responsibility to the CFPA and requiring the Fed to receive written approval from the Secretary of the Treasury before exercising its emergency lending authority.

Alongside the new role played by the Fed, there must also be a mechanism to look at the system as a whole for dangers, given that risk can emerge from almost any quarter.

That is why we are proposing a Financial Services Oversight Council to bring together the heads of all of the major federal financial regulatory agencies. This Council will improve coordination of policy and resolution of disputes among the agencies. It will have a significant consultative role to play in helping preserve financial stability. And, most importantly, it will have the power to gather information from any firm or market to help identify emerging risks.

Improving the supervision and regulation of financial firms broadly also requires reducing the ability of depository institutions to choose their regulator and regulatory framework. To address this problem, we have proposed eliminating the thrift and thrift holding company charter and removing other loopholes in the Bank Holding Company Act.

Market Oversight

The third priority that guided our decision making was establishing comprehensive regulation of financial markets.

The current financial crisis emerged after a long and remarkable period of growth and innovation.　 New instruments, such as over-the-counter (OTC) derivatives, allowed risks to be spread quickly and widely, enabling investors to diversify their portfolios in new ways and enabling banks and other companies to shed exposures that had once resided on their balance sheets.　

However, the OTC derivatives markets, which were thought to efficiently promote dispersion of risk to those most able to bear it, instead became a major channel of contagion through the financial sector in the crisis.　 When fear spread that any institution could fail, the markets for risk transfer and liquidity froze – making it difficult for all financial institutions to maintain daily operations.

Two weeks ago, I testified at a joint hearing of this committee and the House Agriculture Committee on our comprehensive regulatory framework for the OTC derivatives markets. I outlined how our plan would provide strong regulation and transparency for all OTC derivatives regardless of whether the derivative is customized or standardized. In addition, I discussed how our plan will provide for strong supervision and regulation of all OTC derivative dealers and all other major participants in the OTC derivative markets.

We intend very soon to send up draft legislation on derivatives to implement our proposal.

Alongside reforms in the derivatives market, we also propose enhanced regulation of the securitization markets.

In the years preceding the crisis, mortgages and other loans were aggregated with similar loans and sold in tranches to a large and diverse pool of new investors with different risk profiles. Securitization, by breaking down the traditional relationship between borrowers and lenders, created various conflicts of interest that market discipline failed to correct.

Loan originators failed to require sufficient documentation of income and ability to pay.　 Securitizers failed to set high standards for the loans they were willing to buy, encouraging underwriting standards to sag.　 Investors were overly reliant on credit rating agencies, whose procedures proved no match for the complexity of the instruments they were rating.　 In each case, lack of transparency prevented market participants from understanding the full nature of the risks they were taking.

In response, the President's plan requires securitization sponsors to retain five percent of the credit risk of securitized exposures; it requires transparency of loan level data and standardization of data formats to better enable investor due diligence and market discipline; and, with respect to credit rating agencies, it ends the practice of allowing them to provide consulting services to the same companies they rate, requires these agencies differentiate between structure and other products, and requires disclosure of any "ratings shopping" by issuers.

Crisis Resolution

Our fourth priority was addressing the basic vulnerabilities in our capacity to manage future crises.

The United States came into the current crisis without an adequate set of tools to contain the risk of broader damage to the economy and to manage the failure of large, complex financial institutions. That left the government with extremely limited choices when faced with the failure of the largest insurance company in the world and one of the largest U.S. investment banks.

That is why, in addition to addressing the root causes of our current crisis, we must also act preemptively to provide the government better tools to manage future crises. To do that, we have proposed a new resolution authority for financial firms whose disorderly failure would threaten the stability of the financial system.　

Our proposal is modeled on the existing FDIC resolution regime for banks. This exception allows the FDIC to depart from the least cost resolution standard only when financial stability is at risk. Similarly, our resolution authority would only be for extraordinary times and would be subject to very strict governance and control procedures.

Any costs to the taxpayer from the use of this authority would be recovered through ex post assessments on large financial firms. As such, it will reduce moral hazard by allowing the government to resolve failing large, interconnected financial institutions in a way that imposes costs on owners, creditors and counterparties, making them more vigilant and prudent.

No one should assume that the government will step in and bail them out if their firm fails.　

In addition, we propose that the biggest firms prepare, continuously update, and periodically provide to regulators a credible plan for their rapid resolution in the event of severe financial distress. This would create incentives for firms to better monitor and simplify their organizational structure and would better prepare the government, as well as the firm's investors, creditors, and counterparties, for the possibility of a firm's collapse.

The key test of these reforms will be whether we make this system strong enough to withstand the stress of future recessions and the failure of large institutions.

Level Playing Field Internationally

The final priority of the Administration was working with our global partners to raise international regulatory standards and improve international cooperation.

As we have witnessed during this crisis, financial stress can spread easily and quickly across national boundaries. Yet, regulation is still set largely in a national context. Without consistent supervision and regulation, financial institutions will tend to move their activities to jurisdictions with looser standards, creating a race to the bottom and intensifying systemic risk for the entire global financial system.

The United States is playing a strong leadership role in efforts to coordinate international financial policy through the G-20, the Financial Stability Board, and the Basel Committee on Banking Supervision. Alongside our partners, we are proposing that the international banking regulators responsible for setting capital requirements take forward their work on reforming capital ratios to more effectively constrain leverage in the future. More broadly, we will call on the international banking regulators to develop proposals by the end of this year for countries to have the necessary tools to quickly resolve failures of cross-border financial firms.

Conclusion

Over the past six months, in responding to the current economic crisis, the Obama Administration has taken extraordinary action.

We moved quickly to restore confidence in the banking system. Without first stabilizing and repairing the financial system, broader economic recovery would not be possible. In doing so, we have increased transparency and disclosure, helping to bring billions of dollars of private capital into banks so they could safeguard against a deeper recession, and enabling some banks who took taxpayer funds to start paying back the government.

We worked to ease the housing crisis by helping to bring mortgage rates down to historic lows and establishing new programs to allow responsible homeowners to refinance into affordable mortgages or alter at-risk loans and help homeowners lower their monthly mortgage payments. Estimates indicate that up to 3 to 4 million homeowners will be offered trial loan modifications under the Administration's program.

We worked to offset the dramatic contraction in demand by working with Congress to put in place the most sweeping economic recovery package in our nation's history – a comprehensive program of immediate tax incentives for businesses and households, support for state and local governments, and investments in critical economic priorities, from infrastructure and energy to health care and education. The Recovery Act was designed to provide a sustained boost to economic demand, concentrated over a two year period and, as designed, the largest effects on the spending side will come in the next six months.

Through the G-20 and G-8, we are working with the major economies of the world on a coordinated program of macroeconomic stimulus and financial stabilization, alongside regulatory reform. This has amounted to the most aggressive international response to any financial crisis in the last fifty years, implemented with unprecedented speed and breadth.

Because of these steps, in just six months, the Administration has substantially reduced the risk of a much deeper and more prolonged recession. We have begun stabilizing an economy that in January was in a free-fall. And we have seen improvements that have been more substantial and have come more quickly than expected when we were designing our response in December and January. Business and consumer confidence has started to improve, housing markets have begun to stabilize, the cost of credit has fallen significantly and credit markets are starting to open up.

But there is still a long way to go. We have a lot more work to do to lay the foundation for a more sustainable recovery, with the gains more broadly shared among all Americans, and central to that effort is passing comprehensive regulatory reform legislation by the end of the year.　

We simply cannot afford inaction on this issue. We cannot afford a situation where we leave in place vulnerabilities that will sow the seeds for future crises, and prevent our financial system from functioning properly.　

The United States is the world's most vibrant and flexible economy, in large measure because our financial markets and our institutions create a continuous flow of new products, services and capital. That makes it easier to turn a new idea into the next big company.

America's tradition of innovation has been vital to our prosperity. The reforms proposed in the Administration's plan are designed to strengthen our markets by restoring confidence and accountability, while preserving that tradition of innovation.

In the weeks and months ahead I look forward to working this Committee to help pass regulatory reform legislation and, in turn, build a stronger American economy.

Thank you.

　

　

U.S. Fact Sheet: First Cabinet-level Meeting of Economic Track of U.S.-China Strategic and Economic Dialogue

　

The first cabinet-level meeting of the U.S.–China Strategic and Economic Dialogue addressed a range of critical bilateral and global economic, environmental and diplomatic issues.　 The Economic Track of the Dialogue, chaired by Treasury Secretary Timothy Geithner and China 's Vice Premier Wang Qishan, laid out a framework for U.S.-China cooperation to steer a course of sustainable and balanced global growth.　 That framework of cooperation has four pillars: macroeconomic and structural policies to achieve sustainable and balanced growth, promoting more resilient, open, and market-oriented financial systems, strengthening trade and investment ties, and strengthening the international financial architecture.　 Twelve U.S. Cabinet officials and agency heads joined Secretary Geithner for two days of economic discussions with Vice Premier Wang and a distinguished delegation of Chinese ministry and agency heads.

Promoting a Strong Recovery and More Balanced Growth. The most urgent issue for citizens of both nations is recovery from the global economic crisis and the resumption of sustained growth in jobs and incomes. The United States and China have responded to the global economic crisis with comprehensive stimulus measures and financial stability plans that have boosted confidence and supported demand.　 Both countries pledged to maintain their strong policy responses until recovery is secured.

The two sides noted that these economic programs are working.　 In the United States , confidence has returned, and there are signs that the economy has bottomed out and will start to grow in the second half of the year. 　 China 's economy reached the bottom of its cycle in the first quarter and has already started to rebound. U.S. and Chinese external imbalances are declining.

Recognizing that continued close cooperation between the United States and China is critical to the health of the world economy, the two sides committed to policies that would lead to more sustainable and balanced growth in the future.　 U.S. policy will reinforce and sustain recent gains in private savings rates and will bring the fiscal deficit down to a sustainable level by 2013, which in turn means a smaller role for the U.S. consumer in driving global growth than in the past half decade. China 's policies in turn will aim to increase the contribution of domestic consumption to economic growth through measures such as strengthening and extending the social safety net, reform of the health care system, strengthening public and private pensions, and increasing minimum subsistence grants for the poor.　 China 's measures to develop the services sector and shift towards lighter industries will be an important part of this process.　 These policies will also shift China away from heavy industry towards a less energy- and carbon-intensive growth path over time.

As U.S. savings rise, a Chinese economy that is powered by domestic demand growth and greater household consumption will contribute to stronger, more sustainable, and more balanced global economic growth.

Promoting More Resilient, Open, and Market-Oriented Financial Systems. 　Achieving sustainable and more balanced growth in both economies will depend on more resilient and efficient financial systems.　 Although the two countries face different challenges in their financial systems, successful reform of both will be equally important to global financial resilience and rebalancing.

The United States is committed to stronger regulation and supervision of its financial system.

China will take a series of measures to build a more market-based financial system. 　China will promote consumer finance; allow foreigners to invest more in China's capital markets by accelerating the allocation of Qualified Foreign Institutional Investor quotas to $30 billion; increase the number of joint-venture securities companies that can participate in brokerage, proprietary trading　 and advisory services; allow foreign banks incorporated in China to underwrite corporate bonds on China's inter-bank market on the same basis as Chinese banks; and promote the listing of qualified overseas companies on Chinese stock markets and of Chinese companies on U.S. stock markets.　

The United States welcomed China 's plans to liberalize interest rates.　 Higher deposit interest rates will result in more efficient use of capital by firms, supporting the rebalancing of the economy away from investment in capital- and carbon-intensive industries and towards household consumption.　

The United States is committed to strengthening its financial system. Further development and reform of the Chinese financial sector, including liberalizing interest rates and providing a wider variety of financial products and services, will promote the shift to a more domestic-demand and consumption-driven economy.　 It will also create new opportunities for U.S. financial services firms.　

Strengthening Trade and Investment. The United States and China are among the biggest beneficiaries of the global trading system and share a common interest in ensuring that global trade and investment remain open and rules-based.　　 China and the United States reiterated their commitments in the G-20 to resist protectionist measures during this global economic crisis, complete an ambitious Doha trade round, and continue to dismantle barriers to trade and investment.

China intends to undertake several key measures that will create new opportunities for U.S. firms and workers through increased trade and investment over time.　 China announced its intention to further open its service markets to private investment and decentralize its foreign investment reviews, including by raising over time the dollar threshold of foreign investments that requires central government review. 　Chinese authorities also clarified that foreign-invested enterprises would be treated the same as domestic producers in qualifying for government procurement of goods and agreed to intensify efforts to join the WTO Government Procurement Agreement.

Strengthening the International Financial Architecture. The United States and China recognized the critical role that the international financial institutions play in responding to crisis and ensuring sustainable and balanced growth.　 The United States and China agreed to work together to ensure China 's full engagement and representation in the design of key multilateral agreements and groupings, such as the G20, the Financial Stability Board, and the international financial institutions. 　Both countries agreed to work together constructively and cooperatively to promote reforms that strengthen the legitimacy of these institutions and to ensure that they have the resources and the effectiveness necessary to their task.　

The work of global rebalancing will require sustained cooperation bilaterally and multilaterally.　 The first meeting of the U.S.-China S&ED has established a strong framework for cooperation into the future.

　

　

ACT SHEET: Administration’s Regulatory Reform Agenda Moves Forward:
New Independence for Compensation Committees

Today, as part of its push for comprehensive regulatory reform, Treasury delivered draft legislation to Congress that would take steps to ensure that compensation committees are independent in fact, not just in name.　 Compensation committees are responsible for negotiating executive compensation arrangements that protect long-term shareholder value.　 Yet some compensation committees may not be fully independent of management--for example, because the directors themselves stand to gain from the decisions of executives.　 And even where the members of the committee are independent of management, they may lack the tools to bargain effectively with executives over complex compensation decisions or may receive advice from consultants or legal counsel that face conflicts of interest.

The Administration's proposed legislation takes three important steps to ensure that compensation committees have the independence and expert assistance they need to serve their important role:　

First, the legislation requires that members of the compensation committee meet exacting new standards for independence, just as Sarbanes-Oxley did for members of audit committees.

Second, to ensure that committees are receiving objective advice, the legislation requires that any compensation consultants and legal counsel they hire be independent from management.

Finally, the legislation requires that compensation committees be given the authority and funding to hire independent compensation consultants, outside counsel, and other advisers who can help ensure that the committee bargains for pay packages in the best interests of shareholders. At the same time, it requires that if the committee decides not to use its own compensation consultant, it explain that decision to shareholders.　　

I. To ensure that compensation committees setting executive pay are independent from management, the Administration will require that compensation committee members meet stronger standards for independence.

Directors responsible for ensuring that executive pay is in the best interest of shareholders should not have financial conflicts with management. Some directors have financial relationships with the company and its executives that may compromise their independence.　 Studies have linked some of the most controversial pay practices, such as option backdating, with the absence of independent directors on the board.　 A study by Lucian Bebchuk of Harvard, Yaniv Grinstein of Cornell and Urs Peyer of INSEAD, for example, concluded that backdating is "correlated with . . . CEO influence over internal decision-making processes," such as "the lack of a majority of independent directors on the board."^[i]　 Current law does not prohibit these conflicted directors from sitting on the committees that set executive pay at American companies.

Strict independence standards have curbed abusive accounting practices.　 The Administration's legislation would require that compensation committee members meet strict independence standards--just as Sarbanes-Oxley did for audit committees.　 The independence of audit committees has been a critical factor in restoring investors' confidence in American companies.　 For example, academic studies have linked increased audit committee independence with the reduced incidence of　 the most abusive accounting practices, such as the practice of "managing" the company's earnings in order to satisfy financial analysts' expectations.^[ii]

While stock exchanges have set independence standards, they may not go far enough to ensure shareholder interests are protected: The major stock exchanges now require that compensation committee members meet certain minimum standards for independence, and studies have indicated that directors who meet these minimum standards may be better guardians of shareholder interests.^[iii]　 But under New York Stock Exchange standards, directors can still be considered independent even if they receive up to $100,000 in outside compensation from the company--in addition to directors' fees.　 And a director who owns or operates a business receiving up to $1 million in revenue from the company is considered independent under these standards.　

II. The Administration will give compensation committees the authority and funding to retain their own compensation consultants and counsel to help them set compensation packages that protect shareholder interests.

Compensation committees can be at a disadvantage in setting pay due to a lack of independent expertise.　　 Compensation committees may negotiate pay at a significant disadvantage because executives use compensation consultants to advocate for their views -- while the committee may not have access to experts of their own.　 Under those circumstances, it is unsurprising that academic studies have repeatedly established a link between the use of compensation consultants and higher pay.　 A study by Chris Armstrong and Christopher Ittner of the University of Pennsylvania and David Larcker of Stanford found that the use of consultants was most closely correlated with higherCEO pay most when other shareholder protections are weakest, noting that "compensation consultants provide a mechanism for CEOs of companies with weak governance to extract and justify excess pay."^[iv]

　Providing compensation committees with access to independent consultants can level the playing field in a way that protects shareholder interests. Directors themselves have long recognized that management's use of consultants without comparable access on the part of compensation committees may compromise their ability to establish compensation packages that protect shareholder interests.　 In 2003, a blue-ribbon panel established by the National Association of Corporate Directors recommended that compensation committees be given access to their own consultants.^[v]　 The Business Roundtable's own "Executive Compensation Principles" make clear that "the compensation committee should have independent, experienced expertise available to provide advice on executive compensation arrangements and plans."^[vi]　

Just as compensation committees need access to their own compensation consultants to protect shareholder interests, committees should have the authority to hire legal counsel and other advisers that report only to the committee. For the same reasons that compensation committees need the assistance of their own compensation consultant in order to ensure that executive pay is designed to protect shareholder interests, directors also need help from independent legal counsel when bargaining with executives over compensation.　 Many companies have already authorized their compensation committees to retain independent counsel as they see fit, and giving the committee this authority has long been considered a best practice among corporate governance experts.^[vii] In 2003, the well-respected group of top corporate lawyers and academics that comprised the American Bar Association Task Force on Corporate Responsibility concluded that compensation committees should have the authority to hire independent counsel,^[viii] while two prominent academics found it to be a "necessary conclusion" that "the independent directors of a public company have their own legal counsel."^[ix]　

III.　 The Administration will ensure that compensation consultants and outside counsel that work for compensation committees are independent from management.

Compensation consultants sometimes also provide non-compensation related services to companies and stand to profit when executives agree to use their firms for those services. 　In 2003, the Conference Board's Commission on Public Trust and Private Enterprise, which included both former CEOs and public officials such as John Snow, concluded that major financial scandals were frequently accompanied by the "excessively close relationship between executives and compensation consultants who recommend to the board appropriate levels of executive compensation."^[x]　 In December 2007, the House Committee on Oversight and Government Reform conducted a comprehensive survey of conflicts among compensation consultants, noting further that there appears to be a correlation between the retention of compensation consultants with significant conflicts of interest and levels of CEO pay.　　 The report's key findings indicated that:

Compensation consultant conflicts of interests are "pervasive," affecting at least 113 of the Fortune 250 companies;

The fees "earned by compensation consultants for providing other services often far exceed those earned for advising on executive compensation;"

Some compensation consultants received "over $10 million" in 2006 to provide non-compensation related services; according to the committee, "[o]ne Fortune 250 company paid a compensation consultant over $11 million for other services in 2006, over 70 times more" than for compensation services; and

Over two-thirds of the Fortune 250 companies that hired compensation consultants with conflicts of interest did not disclose the conflicts in their SEC filings.^[xi]

This legislation recognizes that compensation consultants provide valuable services to companies, while ensuring that advice given directly to compensation committees is independent. While consulting firms offer expertise to companies on emerging best practices across a wide range of business contexts, an independent review of management's proposals is also needed to ensure that compensation is structured in order to maximize long-term shareholder value.　 As a result, this legislation allows the SEC to strike the appropriate balance between the need for companies to have the benefit of expertise and for compensation committee members to receive independent advice.

　　
[i] See, e.g., Lucian Bebchuk, Yaniv Grinstein, and Urs Peyer, Lucky CEOs and Lucky Directors (June 2009), at 3.

[ii] April Klein, Audit Committees, Board of Director Characteristics, and Earnings Management (October 2006).

[iii] Sanjai Bhagat & Brian J. Bolton, Sarbanes-Oxley, Governance and Performance (March 2009).

[iv] Chris Armstrong et al., Economic Characteristics, Corporate Governance, and the Influence of Compensation Consultants on Executive Pay Levels (June 2008).

[v] NACD Blue Ribbon Commission, Report on Executive Compensation and the Role of the Compensation Committee (2003).

[vi] The Business Roundtable, Executive Compensation Principles (2007).

[viii] Report of the American Bar Association Task Force on Corporate Responsibility (March 2003).

[ix] Geoffrey C. Hazard, Jr. & Edward B. Rock, A New Player in the Boardroom: The Emergence of the Independent Directors' Counsel, 59 Bus. Law. 1389 (August 2004).

[x] James Fanto, Whistleblowing and the Public Director: Countering Corporate Inner Circles 83 Or. L. Rev. 435 (2004) (quoting The Conference Board, Commission on Public Trust and Private Enterprise 2 (January 2003)).

[xi] Majority Staff of the United States House of Representatives Committee on Oversight and Government Reform, Executive Pay: Conflicts of Interest Among Compensation Consultants (December 2007).

　

Treasury International Capital (TIC) Data for May

WASHINGTON – The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for May 2009. The next release, which will report on data for June 2009, is scheduled for August 17, 2009.

Net foreign purchases of long-term securities were negative $19.8 billion.

Net foreign purchases of long-term U.S. securities were $7.9 billion. Of this, net purchases by private foreign investors were $31.3 billion, and net purchases by foreign official institutions were negative $23.4 billion.

U.S. residents purchased a net $27.7 billion of long-term foreign securities.　

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $37.2 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $9.8 billion. Foreign holdings of Treasury bills increased $53.1 billion.

Banks' own net dollar-denominated liabilities to foreign residents decreased $39.2 billion.

Monthly net TIC flows were negative $66.6 billion. Of this, net foreign private flows were negative $82.2 billion, and net foreign official flows were $15.6 billion.　

Complete data are available on the Treasury website at www.treas.gov/tic.

　

　

Fact Sheet: Administration's Regulatory Reform Agenda Moves Forward: Legislation for the Registration of Hedge Funds Delivered to Capitol Hill

Continuing its push to establish new rules of the road and make the financial system more fair across the board, the Administration today delivered proposed legislation to Capitol Hill to require all advisers to hedge funds and other private pools of capital, including private equity and venture capital funds, to register with the Securities and Exchange Commission (SEC). In recent years, the United States has seen explosive growth in a variety of privately-owned investment funds, including hedge funds, private equity funds, and venture capital funds. At various points in the financial crisis, de-leveraging by such funds contributed to the strain on financial markets.　 Because these funds were not required to register with regulators, the government lacked the reliable, comprehensive data necessary to monitor funds' activity and assess potential risks in the market. 　The Administration's legislation would help protect investors from fraud and abuse, provide increased transparency, and provide the information necessary to assess whether risks in the aggregate or risks in any particular fund pose a threat to our overall financial stability.

Protect Investors From Fraud And Abuse

Require Advisers To Private Investment Funds to Register With The SEC.　 Although some advisers to hedge funds and other private investment funds are required to register with the Commodity Futures Trading Commission (CFTC), and some register voluntarily with the SEC, current law generally does not require private fund advisers to register with any federal financial regulator. The Administration's legislation would, for the first time, require that all investment advisers with more than $30 million of assets under management to register with the SEC.　 Once registered with the SEC, investment advisers to private funds will be subject to important requirements such as:

Substantial regulatory reporting requirements with respect to the assets, leverage, and off-balance sheet exposure of their advised private funds

Disclosure requirements to investors, creditors, and counterparties of their advised private funds

Strong conflict-of-interest and anti-fraud prohibitions

Robust SEC examination and enforcement authority and recordkeeping requirements

Requirements to establish a comprehensive compliance program

Require Increased Disclosure Requirements. The Administration's legislation would require that all investment funds advised by an SEC-registered investment adviser be subject to recordkeeping requirements; requirements with respect to disclosures to investors, creditors, and counterparties; and regulatory reporting requirements.

Protect Financial System From Systemic Risk

Monitor Hedge Funds For Potential Systemic Risk. Under the Administration's legislation, the regulatory requirements mentioned above would include confidential reporting of amount of assets under management, borrowings, off-balance sheet exposures, counterparty credit risk exposures, trading and investment positions, and other important information relevant to determining potential systemic risk and potential threats to our overall financial stability. The legislation would require the SEC to conduct regular examinations of such funds to monitor compliance with these requirements and assess potential risk. In addition, the SEC would share the disclosure reports received from funds with the Federal Reserve and the Financial Services Oversight Council. This information would help determine whether systemic risk is building up among hedge funds and other private pools of capital, and could be used if any of the funds or fund families are so large, highly leveraged, and interconnected that they pose a threat to our overall financial stability and should therefore be supervised and regulated as Tier 1 Financial Holding Companies.

　

　

Secretary Geithner Joins U.S. –UAE Business Council
to Discuss the Importance of Education
Policy in the Drive for Economic Growth

ABU DHABI – Treasury Secretary Tim Geithner joined HE Sheikha Lubna Al Qasimi, United Arab Emirates (UAE) Minister of Foreign Trade, today for a breakfast event hosted by the U.S.-UAE Business Council to recognize the importance of education policy in the Middle East in the drive for global economic growth.

The open dialogue provided Secretary Geithner and the UAE representatives with the opportunity to share views on the priorities and commitments of both the United States and the UAE, regarding the importance of developing a highly-educated work force within the context of sustainable economic growth.

"Just one month ago, President Obama reminded us that we must recognize that education and innovation will be the currency of the 21st century," said Secretary Geithner. "The group we have here with us today embodies that reality. It is conversations like this that move us one step closer to the President's commitment to deepen ties between business leaders, foundations and social entrepreneurs in the United States and Muslim communities around the world."

The event brought together a dozen people representing the UAE's economy, trade and education sectors.　 Attendees included HE Reem Al Hashemi, UAE Minister of State; HE Ahmed Al Sayegh, Chairman of the Masdar Initiative; and Aldar Academies and Fahad Saeed Al Raqbani, Deputy Director General of the Abu Dhabi Council for Economic Development.

"The UAE is one of the world's most open and dynamic economies," said Sheikha Lubna Al Qasimi. "The UAE's future sustainable economic growth will be derived from a concerted effort to develop and harness human capital.　 Education is therefore a fundamental economic policy pillar. This commitment to education has resulted in highly effective collaborative relationships with first-rate, American institutions, such as Harvard University, Johns Hopkins University, the Massachusetts Institute of Technology and New York University."

Other areas of the morning's discussion included:

The vision and strategy of creating a knowledge-based economy

Aligning the education sector with development goals

The challenges in meeting future needs in talent and labor

The role of women and young people in a country's economic development

Secretary Geithner's visit to Abu Dhabi is part of a week-long trip also including visits to London, England; Jeddah and Yanbu, Saudi Arabia and Paris, France.　 One of the objectives for Secretary Geithner on his visit to the Gulf is to further evaluate the contribution and significance of education within the framework of economic growth and sustainability.

 

 

 

Statement from Treasury Secretary Geithner on the Presidential Task Force on the Auto Industry

The U.S. Department of the Treasury today released the following statement from Secretary Tim Geithner as the government scales back its day-to-day involvement in the auto industry:

"With the emergence of both General Motors and Chrysler from bankruptcy, we enter a new phase of the government's unprecedented and temporary involvement in the automotive industry.

"I am very proud of the work done by the Auto Task Force, under the leadership of Steven Rattner and Ron Bloom, to help oversee the efficient, fair and commercial restructuring of two great American companies.

"With GM's restructuring complete, Steven Rattner, whose leadership and vision were invaluable to the Auto Task Force's efforts, has decided to transition back to private life and his family in New York City.  We are extremely grateful to Steve for his efforts in helping to strengthen GM and Chrysler, recapitalize GMAC, and support the American auto industry.  I hope that he takes another opportunity to bring his unique skills to government service in the future.

"Ron Bloom will assume leadership of the Task Force's activities as the government transitions its role away from day-to-day restructuring to monitoring this vital industry and protecting the substantial investment the American taxpayers have made in GM, Chrysler, and GMAC.

"Because of the President's commitment to this industry and the deep sacrifices of all stakeholders, GM and Chrysler have achieved a quick restructuring, and the economy avoided the devastation that would have accompanied their liquidation.  Now, with day-to-day management of these companies in the hands of the private sector, the American taxpayers have a better chance of recouping their investment in these companies.

"There is still much work ahead to ensure that GM and Chrysler re-emerge as stronger, more competitive companies.  President Obama has made it perfectly clear that it is the responsibility of their private boards of directors and management teams to deliver that result.  And thanks to the hard work of Steve, Ron, and the entire Auto Task Force, they have a much better chance today of rebuilding those companies and making them once again symbols of American success."

 

 

.S.-China Strategic and Economic Dialogue to be held July 27-28, 2009 in Washington, D.C.

Two-Day Meeting Co-Hosted by U.S Departments of State and Treasury to Focus on Addressing Mutual Challenges, Opportunities and Promoting U.S.-China Cooperation

WASHINGTON – The U.S. Departments of Treasury and State today announced that the first joint meeting of the U.S.-China Strategic and Economic Dialogue will be held in Washington, D.C. from July 27-28, 2009.

The Dialogue will focus on addressing the challenges and opportunities that both countries face on a wide range of bilateral, regional and global areas of immediate and long-term strategic and economic interests. This first meeting of the Dialogue will also set the stage for intensive, ongoing and future bilateral cooperative mechanisms.

Secretary of State Hillary Rodham Clinton and Treasury Secretary Timothy F. Geithner will be joined for the Dialogue by their respective Chinese Co-Chairs, State Councilor Dai Bingguo and Vice Premier Wang Qishan.

The schedule of press events will include but are not limited to an opening session on Monday, July 26 and a joint U.S.-China press conference on Tuesday, July 27.

 

Fact Sheet: Administration’s Regulatory Reform Agenda
Moves Forward
Legislation for Strengthening Investor Protection Delivered to Capitol Hill

To view the Legislative Language, please visit link.

Continuing its push to establish new rules of the road and make the financial system more fair for consumers and investors, the Administration today delivered proposed legislation to strengthen the SEC's authority to protect investors. The legislation outlines steps to establish consistent standards for all those who provide investment advice about securities, to improve the timing and the quality of disclosures, and to require accountability from securities professionals.   The legislation would also establish a permanent Investor Advisory Committee to keep the voice of investors present at the SEC.

Fairness

Establish Consistent Standards for Broker-Dealers and Investment Advisers:  Under current law, different standards apply for broker-dealers and investment advisers – even though many investors rely on the investment advice of broker-dealers in the same manner as an investment adviser.  The Administration's legislation would give the SEC authority to require a fiduciary duty for any broker, dealer, or investment adviser who gives investment advice about securities, aligning the standards based on activity, instead of based on legal distinctions that are no longer meaningful.  In addition, the SEC would be empowered to examine and ban forms of compensation that encourage financial intermediaries to steer investors into products that are profitable to the intermediary, but are not in the investors' best interest. 

Authority to Restrict or Limit Mandatory Arbitration:  Although arbitration may be a reasonable option for many consumers to accept after a dispute arises, mandating a particular venue and up-front method of adjudicating disputes – and eliminating access to courts – may unjustifiably undermine investor interests.  The Administration's legislation would give the SEC authority to prohibit mandatory arbitration clauses in broker-dealer, municipal securities dealer, and investment advisory agreements.

Disclosure

Authority to Require Disclosure Prior to Purchase of a Fund:  Currently most fund disclosures and prospectuses are not required to be delivered to investors until after a transaction is complete.  Our legislation would give the SEC authority to regulate the quality and timing of disclosures.  For example, the SEC could require a concise summary prospectus and a simple disclosure showing the costs of a fund in a comparative context prior to the completion of a sale. 

Consumer Testing of Disclosures and Rules:  The Administration's legislation would clarify the SEC's authority to conduct consumer testing and encourage it to do so, in order to create more effective and clearer disclosures and to better assess its rules and programs.

Accountability

Expand Protections for Whistleblowers:  The SEC should gain the authority to establish a fund to pay whistleblowers for information that leads to enforcement actions resulting in significant financial awards.  Currently, the SEC has the authority to compensate sources that provide evidence leading to a successful insider trading cases; that authority should be extended to other types of securities law violations.  This authority will encourage insiders and others with strong evidence of securities law violations to bring that evidence to the SEC and improve its ability to enforce the securities laws.  The Administration supports the creation of this fund using monies that the SEC collects from enforcement actions that are not otherwise distributed to investors.

Harmonize Liability Standards so that the SEC Can Pursue those who Aid and Abet Securities Fraud:  The SEC currently has the ability to pursue actions against those who aid and abet securities fraud in cases brought under the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940, but not under the Securities Act of 1933 nor the Investment Company Act of 1940.  The Administration's legislation closes this gap to create consistent remedies that the SEC can seek and eliminates significant limitations on the SEC's ability to pursue serious misconduct.  The Administration's legislation also clarifies the legal standard for aiding and abetting and makes clear that the SEC can obtain penalties under any of its aiding and abetting provisions.

Require Accountability of Securities Professionals throughout the Financial Services Industry:  Under current law, an individual barred from being an investment adviser because of serious misconduct could still apply to become a broker-dealer.   The Administration's legislation would give the SEC authority to remove regulated persons from all aspects of the securities industry rather than just a specific segment.

Investor Engagement

Establish a Permanent Investor Advisory Committee:  The SEC has recently established an Investor Advisory Committee, made up of a diverse group of well-respected investors, to advise on the SEC's regulatory priorities, including issues concerning new products, trading strategies, fee structures, and the effectiveness of disclosure.  The Investor Advisory Committee would be made permanent by this legislation.

 

Secretary Timothy F. Geithner before the House Financial Services and Agriculture Committees
Joint Hearing on Regulation of OTC Derivatives
 

Chairman Frank, Ranking Member Bachus, Chairman Peterson, Ranking Member Lucas, members of the Financial Services and Agriculture Committees, thank you for the opportunity to testify today about a key element of our financial regulatory reform package – a comprehensive regulatory framework for the over-the-counter (OTC) derivatives markets.

Over the past two years, we have faced the most severe financial crisis in generations. Some of our largest financial institutions failed.  Many of the securities markets that are critical to the flow of credit in our financial system broke down.  Banks came under extraordinary pressure.  And these forces magnified the overall downturn in the housing market and the broader economy. 

President Obama, working with the Congress, has taken extraordinary steps to stabilize the economy and to repair the damage to the financial system.  As we continue to put in place conditions for economic recovery, we need to lay the foundation for a safer, more stable financial system in the future. 

This financial crisis has exposed a set of core problems with our financial system.  The system permitted an excessive build-up of leverage, both outside the banking system and within the banking system. 

The shock absorbers that are critical to preserving the stability of the financial system – capital, margin, and liquidity cushions in particular – were inadequate to withstand the force of the global recession, and they left the system too weak to withstand the failure of major financial institutions.

 In addition, millions of Americans were left without adequate protection against financial predation, particularly in the mortgage and consumer finance areas.  Many were unable to evaluate the risks associated with borrowing to support the purchase of a home or to sustain a higher level of consumption. 

The United States entered this crisis without an adequate set of tools to contain the risk of broader damage to the economy and to manage the failure of large, complex financial institutions. 

Many forces contributed to these problems.  Household debt rose dramatically as a share of total income, financed by a willing supply of savings from around the world.  Risk management practices at financial firms failed to keep abreast of the rising complexity of financial instruments.  Compensation rose to exceptionally high levels in the financial sector, with rewards for executives unmoored from an assessment of long-term risk for the firm, thus mis-aligning the incentive structures in the system.  Our framework of financial supervision and regulation, designed in a different era for a more simple bank-centered financial system, failed in its most basic responsibility to produce a stable and resilient system for providing credit and protecting consumers and investors.

The Administration proposed in June a comprehensive set of reforms to address the problems in our financial system that were at the core of this crisis and to reduce the risk of future crises. 

We proposed to establish a new Consumer Financial Protection Agency with the power to establish and enforce protections for consumers on a wide array of financial products. 

We proposed to put in place more conservative constraints on risk taking and leverage through higher capital requirements for financial institutions and stronger cushions in the core market infrastructure. 

We proposed to extend the scope of regulation beyond the traditional banking sector to cover all firms who play a critical role in market functioning and the stability of the financial system. 

We proposed to put in place stronger tools for managing the failure of large, complex financial institutions by adapting the resolution process that now exists for banks and thrifts.

We proposed to reduce the substantial opportunities for regulatory arbitrage that our system permitted by consolidating safety and soundness supervision for federal depository institutions, eliminating loopholes in the Bank Holding Company Act, moving toward convergence of the regulatory frameworks that apply to securities and futures markets, and establishing more uniform standards and enforcement of standards for financial products and activities across the system.

And we proposed to work with other countries to establish strong international standards, so the reforms we put in place here are matched and informed by similarly effective reforms elsewhere.

Any regulatory reform of magnitude requires deciding how to strike the right balance between financial innovation and efficiency, on the one hand, and stability and protection, on the other.  We failed to get this balance right in the past.  The reforms that we propose seek to shift the balance by creating a more resilient financial system that is less prone to periodic crises and credit and asset price bubbles, and better able to manage the risks that are inherent in innovation in a market-oriented financial system. 

We consulted widely with members of Congress, consumer advocates, academic experts, and former regulators in shaping our recommendations.  And we look forward to refining these recommendations through the legislative process.

One of the most significant developments in our financial system during recent decades has been the substantial growth and innovation in the markets for derivatives, especially OTC derivatives. 

Because of their enormous scale and the critical role they play in our financial markets, establishing a comprehensive framework of oversight for the OTC derivative markets is crucial to laying the foundation for a safer, more stable financial system.

A derivative is a financial instrument whose value is based on the value of an underlying "reference" asset.  The reference asset could be a Treasury bond or a stock, a foreign currency or a commodity such as oil or copper or corn, a corporate loan or a mortgage-backed security.  Derivatives are traded on regulated exchanges, and they are traded off exchanges or over the counter. 

The OTC derivative markets grew explosively in the decade leading up to the financial crisis, with the notional amount or face value of the outstanding transactions rising more than six-fold to almost $700 trillion at the market peak in 2008.  Over this same period, the gross market value of OTC derivatives rose to more than $20 trillion. 

Although derivatives bring substantial benefits to our economy by enabling companies to manage risks, they also pose very substantial challenges and risks. 

Under our existing regulatory system, some types of financial institutions were allowed to sell large amounts of protection against certain risks without adequate capital to back those commitments.  The most conspicuous and most damaging examples of this were the monoline insurance companies and AIG.  These firms and others sold huge amounts of credit protection on mortgage-backed securities and other more complex real-estate related securities without the capacity to meet their obligations in an economic downturn. 

Banks were able to get substantial regulatory capital relief from buying credit protection on mortgage-backed securities and other asset-backed securities from thinly capitalized, special purpose insurers subject to little or no initial margin requirements.

The apparent ease with which derivatives permitted risk to be transferred and managed during a period of global expansion and ample liquidity led financial institutions and investors to take on larger amounts of risk than was prudent.

The complexity of the instruments that emerged overwhelmed the checks and balances of risk management and supervision, weaknesses that were magnified by systematic failures in judgment by credit rating agencies.  These failures enabled a substantial increase in leverage, outside and within the banking system.

Because of a lack of transparency in the OTC derivatives and related markets, the government and market participants did not have enough information about the location of risk exposures in the system or the extent of the mutual interconnections among large firms.  So, when the crisis began, regulators, financial firms, and investors had an insufficient basis for judging the degree to which trouble at one firm spelled trouble for another.  This lack of visibility magnified contagion as the crisis intensified, causing a very damaging wave of deleveraging and margin increases, and contributing to a general breakdown in credit markets. 

Market participants and investors used derivatives to evade regulation, or to exploit gaps and differences in regulation, and to minimize the tax consequences of investment strategies. 

The lack of transparency in the OTC derivative markets combined with insufficient regulatory policing powers in those markets left our financial system more vulnerable to fraud and potentially to market manipulation.

These problems were not the sole or the principal cause of the crisis, but they contributed to the crisis in important ways.  They need to be addressed as part of comprehensive reform.  And they cannot be adequately addressed within the present legislative or regulatory framework.

In designing its proposed reforms for the OTC derivative markets, the Administration has attempted to achieve four broad objectives:

	Preventing activities in the OTC derivative markets from posing risk to the stability of the financial system;
	Promoting efficiency and transparency of the OTC derivative markets;
	Preventing market manipulation, fraud, and other abuses; and
	Protecting consumers and investors by ensuring that OTC derivatives are not marketed inappropriately to unsophisticated parties.

Our proposals have been carefully designed to provide a comprehensive approach.  The plan will provide for strong regulation and transparency for all OTC derivatives, regardless of the reference asset, and regardless of whether the derivative is customized or standardized.  In addition, our plan will provide for strong supervision and regulation of all OTC derivative dealers and all other major participants in the OTC derivative markets.

We propose to achieve this with the following broad steps:

First, we propose to require that all standardized derivative contracts be cleared through well-regulated central counterparties and executed either on regulated exchanges or regulated electronic trade execution systems. 

Central clearing involves the substitution of a regulated clearinghouse between the original counterparties to a transaction.  After central clearing, the original counterparties no longer have credit exposure to each other – instead they have credit exposure to the clearinghouse only.  Central clearing of standardized OTC derivatives will reduce risks to those on both sides of a derivative contract and make the market more stable.  With careful supervision and regulation of the margin and other risk management practices of central counterparties, central clearing of a substantial proportion of OTC derivatives should help to reduce risks arising from the web of bilateral interconnections among our major financial institutions.  This should help to constrain threats to financial stability.

Second, through capital requirements and other measures, we propose to encourage substantially greater use of standardized OTC derivatives and thereby to facilitate substantial migration of OTC derivatives onto central clearinghouses and exchanges. 

We will propose a broad definition of "standardized" OTC derivatives that will be capable of evolving with the markets and will be designed to be difficult to evade.  We will employ a presumption that a derivative contract that is accepted for clearing by any central counterparty is standardized.  Further attributes of a standardized contract will include a high volume of transactions in the contract and the absence of economically important differences between the terms of the contract and the terms of other contracts that are centrally cleared. 

We also will require that regulators carefully police any attempts by market participants to use spurious customization to avoid central clearing and exchanges.  In addition, we will raise capital and margin requirements for counterparties to all customized and non-centrally cleared OTC derivatives.  Given their higher levels of risk, capital requirements for derivative contracts that are not centrally cleared must be set substantially above those for contracts that are centrally cleared.

Third, we propose to require all OTC derivative dealers, and all other major OTC derivative market participants, to be subject to substantial supervision and regulation, including conservative capital requirements; conservative margin requirements; and strong business conduct standards.  Conservative capital and margin requirements for OTC derivatives will help ensure that dealers and other major market participants have the capital needed to make good on the protection they have sold.

Fourth, we propose steps to make the OTC derivative markets fully transparent.  Relevant regulators will have access on a confidential basis to the transactions and open positions of individual market participants.  The public will have access to aggregated data on open positions and trading volumes. 

To bring about this high level of transparency, we will require the SEC and CFTC to impose recordkeeping and reporting requirements (including an audit trail) on all OTC derivatives.  We will require that OTC derivatives that are not centrally cleared be reported to a regulated trade repository on a timely basis.

These reforms will bring OTC derivative trading into the open so that regulators and market participants have clear visibility into the market and a greater ability to assess risks in the market.  Increased transparency will improve market discipline and regulatory discipline, and will make the OTC derivative markets more stable.

Fifth, we propose to provide the SEC and CFTC with clear authority for civil enforcement and regulation of fraud, market manipulation, and other abuses in the OTC derivative markets.

Sixth, we will work with the SEC and CFTC to tighten the standards that govern who can participate in the OTC derivative markets.  We must zealously guard against the use of inappropriate marketing practices to sell derivatives to unsophisticated individuals, companies, and other parties.

Finally, we will continue to work with our international counterparts to help ensure that our strict and comprehensive regulatory regime for OTC derivatives is matched by a similarly effective regime in other countries. 

Turning our proposals into law will require that a number of difficult judgments be made.  Some of these judgments involve assigning jurisdiction over particular transactions or particular market participants to particular regulatory agencies. We have been working with the SEC and the CFTC over the past few months to develop a sensible allocation of duties.  We have made great progress in narrowing the outstanding issues, and intend to send up draft legislation that will provide for a clear allocation of oversight authority between the SEC and CFTC.  In making these decisions, we are striving to utilize each agency's expertise, eliminate gaps in regulation, eliminate uncertainty about which agency regulates which types of derivatives, and maximize consistency of the regulatory approach of the two agencies.

Our plan will help prevent the OTC derivative markets from threatening the stability of the overall financial system.

By requiring central clearing of all standardized derivatives and by requiring all OTC derivative dealers and all other significant OTC market participants to be strictly supervised by the federal government, to maintain substantial capital buffers to back up their obligations, and to comply with prudent initial margin requirements, the regulatory framework that we seek to put in place should help lower systemic risk.

Our plan will help make the derivatives markets more efficient and transparent.

By requiring all standardized derivatives to be cleared through regulated central counterparties and executed on regulated exchanges or through regulated electronic trade execution systems and by requiring that detailed information about all types of derivatives be readily available to regulators, our plan will help ensure that the government is not caught--as it was in this crisis--with insufficient visibility into market activity, risk concentrations, and connections between firms.

Our plan will help prevent market manipulation, fraud and other abuses by providing full information to regulators about activity in the OTC derivative markets and by providing the SEC and the CFTC with full authority to police the markets. 

Finally, our plan will help protect investors by taking steps to prevent OTC derivatives from being marketed inappropriately to unsophisticated parties. 

As Congress moves to craft legislation to reform our financial system, we are moving quickly to advance the overall process. 

Following the release of our White Paper on financial regulatory reform in mid-June, we sent up detailed legislative language for the establishment of the Consumer Financial Protection Agency. 

We have used the President's Working Group on Financial Markets to pull together all government agencies that oversee elements of the financial system to begin the process of formulating more detailed proposals for implementing the comprehensive reforms outlined by the President.

The SEC is moving forward to put in place new rules to govern credit-rating agencies, which failed to adequately assess the risks of mortgage-backed and other structured securities at the center of the crisis.

The CFTC has announced hearings on whether to impose limits on speculation in energy derivatives in order to dampen price swings, and to require new disclosures by derivative traders.

SEC Chairman Schapiro and CFTC Chairman Gensler were recently on Capitol Hill testifying together about progress in coordinating their agencies' approaches to derivatives and developing a reasonable division of labor in the oversight of these markets.     

We welcome the commitment of the Congressional leadership and of the key committees to move forward with legislation this year.  This is an enormously complex project.  It is important that we get it right.  And we need a comprehensive approach. 

This crisis caused enormous damage to trust and confidence in the U.S. financial system and to the American economy. 

We share responsibility for fixing the system and we can only do that with comprehensive reform. 

We look forward to working with you to achieve that objective.

 

Treasury Announces $486 Million in Recovery Act Funds to Create Jobs,
Provide Affordable Housing

With Funds from Fourth Award Round, More Than $1 Billion Obligated to Date under Innovative Recovery Program to Help Local Communities  

WASHINGTON – As part of the Obama Administration's effort to create jobs and ease pressures on the housing market, the U.S. Department of the Treasury today announced $486 million in American Recovery and Reinvestment Act (Recovery Act) funding to spur the development of affordable housing units in Alabama, Arkansas, Connecticut, Georgia, Louisiana, Maryland, Massachusetts, Montana, New Hampshire, New Mexico, the Virgin Islands, and Vermont.    

"Today's announcement of housing funds demonstrates how the Recovery Act is putting our nation on the path to economic stability, one community at a time," said Treasury Deputy Secretary Neal Wolin.  "This initiative will help spur construction and development, create much needed jobs, and increase the availability of affordable housing for families around the country."

The labor and housing crises in this country are deeply inter-connected. Since their peak level at the beginning of 2006, housing starts have fallen almost 80 percent. Houses currently under construction are at a 13-year low, down more than 60 percent from the peak in the first quarter of 2006. This collapse has led to severe job losses in the residential building and specialty trades sector related to housing, with employment down by nearly one-third -- a loss of over one million jobs.  Such losses not only indicate significant problems in the residential construction sector, but also suggest that the need for affordable housing has risen markedly during the recession. 

In response, the Treasury Department and the Department of Housing and Urban Development have been implementing new efforts designed to help families while providing important assistance to homebuilders.  Specifically, Treasury has launched an innovative program that will provide more than $3 billion from the Recovery Act to put people to work building quality, affordable housing for individuals and families affected by the current crisis.

The Treasury Department will work with state housing agencies to jump start the development or renovation of qualified affordable housing for families across the country.  Under this program, after meeting certain eligibility requirements, state housing agencies will receive funding to construct affordable housing developments. 

Today, the Treasury Department is announcing the fourth round of recipients: $36 million in Alabama; $29 million in Arkansas; $34 million in Connecticut; $76 million in Georgia; $114 million in Louisiana; $44 million in Maryland; $51 million in Massachusetts; $16 in Montana;  a second round for $17 million in New Hampshire bringing the total to nearly $28 million; $38 million in New Mexico; $20 million to the Virgin Islands; and $10 million to Vermont.

The funds announced today are the fourth round in a series of awards based on a rolling application process.  The Treasury Department anticipates making similar announcements in the coming weeks.  To view the terms and conditions for the Treasury application, please click here.

Recovery Act Awards for Affordable Housing Projects in Lieu of Housing Tax Credits (in order of application submission)
State	Amount Awarded
Kansas Housing Resources Corporation	$           23,185,466
Ohio Housing Finance Agency	$           21,250,000
Puerto Rico Housing Finance Authority	$           99,555,290
Michigan State Housing Development Authority	$           78,310,613
Wisconsin Housing & Economic Development  Authority	$           115,827,117
Washington Finance Housing Commission	$           10,979,349
New Hampshire Housing Finance Authority	$           10,289,626  (1st round – 6/4/09)
	$           17,423,436 (2nd  round – 7/10/09)
Iowa  Finance Authority	$           72,772,712
Rhode Island Housing and Mortgage Finance Corporation	$           36,811,103
Maine State Housing Authority	$             4,142,789
Indiana Housing and Community Development Authority	$            164,011,126
Missouri Housing Development Commission	$            17,000,000
Tennessee Housing Development Agency	$            53,035,205
DC Department Housing and Community Development	$            33,770,695
Arkansas Development Finance Authority	$            29,170,283
Virgin Islands Housing Finance Authority	$            20,246,499
New Mexico Mortgage Finance Authority	$            38,250,000
Vermont Housing Finance Agency	$            10,281,430
Maryland Community Development Administration	$            44,054,729
Alabama Housing Finance Authority	$            36,456,058
Georgia Housing and Finance Authority	$            75,952,358
Montana Board of Housing	$            15,510,979
Connecticut Housing Finance Authority	$            34,000,136
Massachusetts Dept. of Housing and Community Development	$           50,814,102
Louisiana Housing Finance Agency	$         114,065,141
Total	$   1,227,166,242

 

 

 

Monthly Data for U.S. Department of the Treasury. This information has recently been updated, and is now available.

Quarterly Data for U.S. Department of the Treasury. This information has recently been updated, and is now available.

U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets totaled $81,694 million as of the end of that week, compared to $81,350 million as of the end of the prior week.

I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)

 

	June 19, 2009
A. Official reserve assets (in US millions unless otherwise specified) 1	Euro	Yen		Total
(1) Foreign currency reserves (in convertible foreign currencies)				81,694
(a) Securities	9,790	13,482		23,272
of which: issuer headquartered in reporting country but located abroad				0
(b) total currency and deposits with:
(i) other national central banks, BIS and IMF	11,202	6,581		17,782
ii) banks headquartered in the reporting country				0
of which: located abroad				0
(iii) banks headquartered outside the reporting country				0
of which: located in the reporting country				0
(2) IMF reserve position 2	11,987
(3) SDRs 2	9,373
(4) gold (including gold deposits and, if appropriate, gold swapped) 3	11,041
--volume in millions of fine troy ounces	261.499
(5) other reserve assets (specify)	8,239
--financial derivatives
--loans to nonbank nonresidents
--other (foreign currency assets invested through reverse repurchase agreements)	8,239
B. Other foreign currency assets (specify)
--securities not included in official reserve assets
--deposits not included in official reserve assets
--loans not included in official reserve assets
--financial derivatives not included in official reserve assets
--gold not included in official reserve assets
--other

 

II. Predetermined short-term net drains on foreign currency assets (nominal value)

 

			Maturity breakdown (residual maturity)
		Total	Up to 1 month	More than 1 and up to 3 months	More than 3 months and up to 1 year
1. Foreign currency loans, securities, and deposits
--outflows (-)	Principal
	Interest
--inflows (+)	Principal
	Interest
2. Aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps)
(a) Short positions ( - ) 4		-121,950	-90,126	-31,824
(b) Long positions (+)
3. Other (specify)
--outflows related to repos (-)
--inflows related to reverse repos (+)
--trade credit (-)
--trade credit (+)
--other accounts payable (-)
--other accounts receivable (+)

 

III. Contingent short-term net drains on foreign currency assets (nominal value)

 

		Maturity breakdown (residual maturity, where applicable)
	Total	Up to 1 month	More than 1 and up to 3 months	More than 3 months and up to 1 year
1. Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falling due within 1 year
(b) Other contingent liabilities
2. Foreign currency securities issued with embedded options (puttable bonds)
3. Undrawn, unconditional credit lines provided by:
(a) other national monetary authorities, BIS, IMF, and other international organizations
--other national monetary authorities (+)
--BIS (+)
--IMF (+)
(b) with banks and other financial institutions headquartered in the reporting country (+)
(c) with banks and other financial institutions headquartered outside the reporting country (+)
Undrawn, unconditional credit lines provided to:
(a) other national monetary authorities, BIS, IMF, and other international organizations
--other national monetary authorities (-)
--BIS (-)
--IMF (-)
(b) banks and other financial institutions headquartered in reporting country (- )
(c) banks and other financial institutions headquartered outside the reporting country ( - )
4. Aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency
(a) Short positions
(i) Bought puts
(ii) Written calls
(b) Long positions
(i) Bought calls
(ii) Written puts
PRO MEMORIA: In-the-money options 11
(1) At current exchange rate
(a) Short position
(b) Long position
(2) + 5 % (depreciation of 5%)
(a) Short position
(b) Long position
(3) - 5 % (appreciation of 5%)
(a) Short position
(b) Long position