Full text of Press Releases of the United States Department of the Treasury : Volume 370

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TREASURY DEPARTMENT LIBRARY

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TREASUR~ l,Is:¥ARl MENT

Treas.
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10

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v. 370

Department of the Treasury

PRESS RELEASES

The following numbers were not used:
2399 and 2407

* Numbers

2334, 2335, and 2337 are listed
out of order because they are dated April
1st instead of March 31 st

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

OFFICE OF PUBlJC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
March 2, 1998

Contact: Paul Elliott/Treasury (202) 622-2960
Bill Luecht/CDFI Fund (202) 622-8042

CDFI FUND ISSUES 1997 ANNUAL REPORT
Fund Receives Unqualified Audit Opinion
The Department of the Treasury's Community Development Financial Institutions
(CDFI) Fund today released its 1997 Annual Report, "New Direction for Community
Development". The annual report includes an unqualified opinion of the CDFI Fund's
financial statements from the independent accounting firm of KPMG Peat Marwick LLP.
The financial statements cover the period from the inception of the Fund (September
23, 1994) through fIscal year 1997 (September 30, 1997).
"This unqualified opinion is a very significant achievement for a new organization,"
said Treasury Under Secretary John D. Hawke, Jr. "Since its inception just over three years
ago, the CDFI Fund has helped numerous communities leverage private funds for investment.
The Fund is focused on strengthening its structure to ensure sound operation in the years
ahead."
The annual report illustrates the year's activities, including the work undertaken by
Community Development Financial Institutions and Bank Enterprise Awardees who received
awards from the CDFI Fund. The report also notes that the CDFI Fund identified several
material weaknesses in its own procedures, and the report details the steps being taken to
correct these problems. For example, the Fund now has in place a new management team
including a new Director, Deputy Director for Management/Chief Financial Officer and
Deputy Director for Policy and Programs. Other new roles include an awards manager and
staff accountant.
The KPMG audit report recognizes several problems in the CDFI Fund's operations
during 1997 including material weaknesses in the Fund's internal controls and noncompliance
related to the lack of a formal Federal Managers Financial Integrity Act process and
compliance with the Federal Managers Improvement Act. In general, the audit recommends
that the Fund proceed with the steps it has been taking to strengthen management and
procedures at the Fund.
RR-2261
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"As we look at 1998, the CDFI Fund is well positioned to help communities across the
country to recognize their economic potential," said Director Ellen Lazar. "As a new
organization, we have a number of challenges to address, and I am confident that we now have
in place a management structure and internal controls that will guarantee the integrity of this
important program."
Copies of the CDFI Fund annual report are available on the department's website under
Treasury Report page at http://www . ustreas.gov.
-30-

DEPARTMENT

OF

THE

1REASURY

TREASURY

NEWS

OffiCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622·2960

EMBARGOED UNTIL 8:15AM EST

Text as Prepared for Delivery
March 2, 1998

"Building Emerging Markets in America's Inner Cities"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
National Council for Urban Economic Development
Washington, DC
March 2, 1998

Thank you. I'm glad to have this opportunity to speak with you this morning and to be able to
thank you for your work in finding new ways to serve America's economically distressed
communities and bring low income families into the mainstream. I spend a lot of my time working
to make the global capital market work effectively so that investment, capital, information and
know-how flow freely to the places where they can be most effective in creating wealth and
opportunity. And there is no more important capital market than the market here at home.
I. An Historic Challenge

Your work in these issues is of special importance right now, for three reasons.
First, it is a special moment for the American economy:
unemployment and inflation are among their lowest in a generation,
our rate of national savings, though still too low, has doubled in five years -- from 3.4
percent in 1992 to 7.2 percent;
we are investing ever larger amounts in American companies and their workers;
real wages and household incomes have at last started to catch up the ground that had
been lost since the 1970s;
RR-2262

Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

•

and, lest we forget, the budget deficit is no more.

As a result of the deficit reductions we have seen in this decade, more than one trillion dollars in
capital that would otherwise have been invested in the sterile asset of government paper has
instead been invested in America's future: in our productive businesses, in our workers, in our
cities and in our homes.
The second reason why your work is especially important today follows from the first. For, when
the competition in international markets was less intense, when the economy was not growing as
fast as it should have been -- in those days it was all too possible to leave untapped the human and
economic resources of our inner cities. The same cannot be said today.
Now that American companies must work to preserve their new edge in global markets, now that
issues of capacity and full employment has become more important -- unleashing the buried talent
and productive capacity of these areas is not just a moral necessity but an economic one. Our
country has to worry about emerging markets. But none are more important than the emerging
markets within our own borders.
A third reason why your efforts are so important today relates to the much greater appreciation
we now have today, in America and across the world, of the private sector as the greatest
contributor to growth. As Robert Kennedy once said, "to ignore the potential contribution of
private enterprise is to fight the war on poverty with a single platoon, while great armies are left
to stand aside." Propositions become cliches because they capture truth; a hand-up really is better
than a hand-out.
Since 1996 this nation has been following a fundamentally different approach to welfare policy
than we have for a very long time. Over time we will see the results of this experiment. While this
change is controversial, no-one can disagree with the idea that at a time when we are putting new
stress on the importance of self-reliance among the poor it becomes even more critical to increase
the scope for economic opportunity in the districts where these people live.
II. A Many-Sided Approach

A decade or two ago it would have been unlikely that a senior Treasury official would be
addressing a group such as this one. But I hope to have already made clear why a concern about
the future of our economy mandates a concern about the future of our inner cities and other
disadvantaged communities. At Treasury we know that a more inclusive America will be a richer,
more productive America. And we know that finance is a key tool for achieving that goal.
In a minute I will be describing three important pieces of our strategy. But it might be helpful to
start with a little about the rationale for these initiatives
There are some who wonder why the Treasury -- or any other part of government, for that matter

2

-- should be seeking to intervene in this way. Surely, they ask, if there are viable investment and
lending opportunities in these communities the market will find them by itself? Yet experience
suggests that it will not.
The world over, private financial markets fail when it comes to very poor. You could say that
mainstream banks do not seek out poor communities -- because that is not where the money is.
Market psychology and other barriers tend artificially to restrict the flow of capital to certain
neighborhoods or to minority groups, creating clear market failures. Yet if you deprive the people
of these districts of the chance to lend or save and they are a good deal more likely to stay that
way. The First Lady likes to say it takes a village to raise a child. Equally it takes capital to build a
successful village.

Since the earliest days of this Administration we have been working -- domestically and
internationally -- to democratize the access to capital. And our largest contribution to improving
capital access in America has come through our greatly enhanced commitment to the Community
Reinvestment Act.
A Revitalized eRA

America does much to help its banks. And it is right that they help America. That is why we have
worked vigorously to promote an effective CRA and to promote fair lending in every part of this
nation. We have stood firm against attempts to undermine the CRA -- it has become a real, but
unsung, success story.
Since 1992, nonprofit community groups estimate that the private sector has pledged to make
more than $270 billion in CRA loans -- which is fully 85% of the loan commitments made since
CRA was passed in 1977. In 1996 alone, large commercial banks made nearly $18 billion in
community development loans. All told, community development loans by national banks have
more than quadrupled in the past four years.
David Coulter, the CEO of Bank America Corporation, San Francisco reported recently on the
success of community reinvestment programs that BofA has developed and applied, both
nationally and in niche markets. Neighborhood Advantage, a system of low-and moderate income
home loans has been particularly successful at helping to infuse capital into distressed
communities. Since 1990, BofA has profitably lent more than $10 billion as part of the program to
borrowers in communities across the western United States And Bank of America is hardly
alone. With the prompting provided by the eRA and the Home Mortgage Disclosure Act,
mainstream banks across the country have developed -- and made money from -- similar schemes
We have seen recently in New York, and other major American cities, that even small steps -- the
mending of a window, the planting of a garden, the repainting of a graffitied wall -- can yield
huge dividends in reduced crime rates and other benefits The same applies, many times over, to

3

the families that are finally able to put a down payment on a new home. In community after
community, we are learning what increased home-ownership can do to foster a sense of pride and
belonging in some of the poorest neighborhoods in the land.
As has been highlighted in the President's National Initiative on Race, race is a major problem.
America continues to face deep racial problems. But we can take profound satisfaction in the
great improvements in access to capital for minorities that has been achieved through enhanced
scrutiny and transparency under the Home Mortgage Disclosure Act.
Data for 1996, produced as a result of that Act, showed that since 1993, conventional home
mortgage lending to African Americans has increased by 67.2 percent, lending to Hispanics has
risen 48.5 percent, and lending in low and moderate income areas is up 37.9 percent. All this, in a
period in which the entire market grew only 18 percent.
It is possible to glean in all of these figures a new paradigm in community regeneration strategies - one that is less government-driven, more collaborative and creative. Truly it might be said that a
quiet revolution has been underway in the approach taken to these areas. Public sector and
nonprofit organizations are working shoulder to shoulder with mainstream banks and other
financial institutions to bring affordable credit and private sector investment to distressed districts
and transform their prospects.

The CDFI Fund
Yet, inevitably there are thing that banks will have trouble doing. This is especially true of those
early investments in new markets, or forgotten communities where the social returns can be
particularly large relative to the private ones.
Throughout our history the government has been a force for innovation in pushing back the
frontiers of American financial markets. As Eugene Ludwig, the Comptroller of the Currency,
recently pointed out, if the credit terms of 1776 still applied in today's Washington, only a handful
of people would qualifY for a bank loan. Even 125 years ago, it was more or less unheard offor
national banks to offer home mortgage loans. The pioneering efforts of the FHA led to the home
mortgage industry we know today. More recently, we at Treasury have continued that tradition
of innovation in issuing the first inflation-indexed bonds
In his 1992 Presidential campaign Bill Clinton championed another new idea -- the notion of a
network of financial service institutions to expand access to credit and financial services in lower
income urban, rural and Native American communities. And with the Community Development
Financial Institutions Fund the President's vision is becoming a reality. Investments are flowing
to communities and making a difference in the lives of low income families
A successful COF! is perhaps best compared to a niche venture capital firm that deploys its
superior knowledge of an emerging market niche to invest and manage risk better than other

4

investors. COFls are often "early birds" or "market scouts" who see the market potential of
overlooked customer segments. But there is a clear market test involved. Like other frontier
investors, COFls cannot sUivive unless they find paying customers. They must make loans and
investments that are repaid. And, in the end, they must aim to be supplanted. By definition,
COFIs' customers are not yet fully served by the market. But the end goal is always to change the
psychology of the marketplace to catalyze more investment by the private sector.
Thus far, the Fund has made two rounds of awards under the BEA and COFI programs. In the
COFI Program, 80 COFls, including national intermediaries, have been awarded over $75 million
in grants, loans, equity investments and technical assistance. The CDFI awards will be leveraged
3-4 times in the short term alone.
In the BEA Program, the Fund has made 92 awards worth $30 million to insured depository
institutions who have increased their investments in COFls or increased their direct lending and
other services to low income communities. These institutions have provided over $130 million in
assistance to COFls and $143 million in direct assistance to distressed communities. The third
round of awards will be made this year, and the Fund is also launching a training and technical
assistance round to help further build capacity in the field.
Like any other new institution, the COFI Fund has had its share of growing pains. I am happy to
say that the Fund was recently given an unqualified audit for its activities since inception. That
audit confirmed, however, that there were material weaknesses in the Fund's financial oversight in
previous years -- weaknesses that the Fund has already taken steps to correct. I am convinced
that the COFI Fund is now well positioned to build on the vital progress it has already achieved in
some of the poorest communities in the land.
A few individual case studies tell the story better than any statistics:
Nancy Stratton, of Port Hadlock, Washington, used a loan in 1996 from the Cascadia
Revolving Fund, a Seattle-based COF!, to open her in-home day care center. Cascadia
has received a $600,000 grant from the COFI Fund to broaden its service to low-income
people like Nancy throughout Washington and Oregon.
or there is the single mother of three in Charlotte, North Carolina who recently moved to
escape an abusive spouse and found it impossible to service the debts caused by her
children's past medical expenses on her modest salary as a teacher's aide The School
Workers Federal Credit Union was able to arrange a debt consolidation loan and help her
manage her debts -- to the point where she has now been able to make a $1500 down
payment on a house Thanks to the $1 )0,000 grant from the COFI Fund it received last
year, this Credit Union is now poised to help many others work their way out of debt
This year, to build on these and countless other successes, we will be seeking to pass legislation in
the Congress to extend the Fund's authorization and increase its appropriation, from $80 million

)

in FY '98 to $125 million in FY '99. We will be pursuing both of these simultaneously.
The Fund's enabling legislation authorized appropriations for the Fund through FY '98, and we
will be seeking permanent extension of that authorization. In addition, we will be seeking changes
to permit the Fund to launch a new program to support state-run Capital Access Programs that
match loan loss reserves set aside by financial institutions to enable them to make more difficult
small business loans. We believe that this is an important new initiative that will be a real benefit
to financial institutions. small businesses, and states.
We will shortly be submitting this legislation to the Congress. Later this week, the VAIHUD
appropriations subcommittee in the House will hold hearings, and next week, the Senate
subcommittee will hold hearings. Hearings in the authorizing committees will follow.
Let me be clear: both the extension of the Fund's authorities and the $125 million appropriation
are top Treasury priorities. The COFI Fund is a sound investment for America's communities. and
we urge Congress to give it full support. No good business idea or budding entrepreneur should
fail simply because they could not get a loan.
Targeted tax incentives

Capital access is very important. But there also have to be the right kind of incentives to obtain
and use capital. That is why a third important piece of our strategy to revive the power of the
market for low-income families and communities has been the use of targeted tax incentives.
Briefly, since 1992 we have proposed and enacted:
a new "brownfields" tax incentive to help spur the private sector to clean up and put back
into productive use environmentally contaminated properties in distressed communities;.
two rounds of Empowerment Zones and new incentives to invest in our Nation's Capital;
special wage credits for hiring those who have the hardest time in the labor force
particularly families coming off welfare;
and we made the low income housing tax credit permanent, helping to create 80-90,000
units of affordable housing every year.
Since the President made this credit permanent in 1993, states have put in place improved
allocation systems and demand for the credits has soared. As a result the credit's efficiency has
improved by 38%, and demand outstrips supply by 3 to I. In the Presidents' FY '99 budget we
have proposed expanding the low income housing tax credit by 40 percent, which will mean
another 180,000 units of affordable housing over the next five years

III. Concluding Remarks -- the Challenge Ahead

6

All of these initiatives -- an expanding and innovating COFI Fund, a more focused CRA, and our
carefully targeted tax incentives -- are the vital microeconomic counterpart to the sound
macroeconomic policies we have pursued these past five years. Both are aimed at the same core
goal: bringing more economic opportunities and higher living standards to every American.
Our commitment to sound policies, both at the macro and a micro level has already paid
important dividends in some of America's most disadvantaged communities. But we must do
more. And we must work together to do it. Our efforts can help jump start growth in your
communities, but only if we have partners like you. Your organizations make the critical
difference in community after community across the country. I applaud your hard work, and your
success. Thank you very much.

--30--

7

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

EMBARGOED UNTIL 1 P.M. EST
Text as Prepared for Delivery
March 2, 1998

TREASURY ACTING FISCAL ASSISTANT SECRETARY DONALD V. HAMMOND
HOUSE GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE ON
GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY

Mr. Chairman, Mr. Kucinich, and members of the subcommittee, thank you for the
opportunity to appear today to discuss the Government Waste, Fraud, and Error Reduction Act
of 1998. Treasury is committed to improving debt management for the government and
welcomes this opportunity to provide our views. I also would like to thank the subcommittee
for its continued interest and commitment toward improving Federal debt collection practices.
I should note that the process of implementing debt collection is a challenging one. The
Department is working diligently to collect what is due, but we must realize the complexities
involved and that we can only act to maximize what we collect.
Attached to this statement, is a section by section commentary on the February 17,
1998 discussion draft of this legislation. At this hearing, the Department of the Treasury
intends to limit its comments to portions of this legislation that substantially impact Treasury
missions and operations. This hearing provides an excellent opportunity to explore those areas
where legislative initiatives could help in meeting the goal of improving the collection of
delinquent nontax debt owed to the Federal government.
Treasury believes that certain provisions of this proposed legislation will assist the
government in complying with existing statutes to recover non-tax delinquent debt. However,
there are also provisions that may prove controversial, have {.;erverse effects or be
operationally difficult for the government to administer. The implementation of the Debt
Collection Improvement Act is designated as a Presidential Management Priority as part of the
President's FY 1999 budget submission to Congress.
RR-2263

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This designation strengthens the implementation of the Debt Collection Improvement Act by
coordinating governmentwide compliance, and reporting of that compliance with the Office of
Management and Budget. Accordingly, the Treasury Department views implementation of the
DCIA as a top priority and is working with OMB and the other Federal agencies to ensure
successful implementation.
I am pleased to share with you highlights of our analysis of the proposed Government
Waste, Fraud, and Error Reduction Act of 1998. This legislation proposes to amend the
Prompt Payment Act. The Prompt Payment Act requires executive departments and agencies
to pay commercial obligations within specified discrete time periods and to pay penalties when
those time constraints are not met. The proposed legislation would transfer the responsibility
of reporting and administering the Act from the Office of Management and Budget to the
Department of the Treasury. Additionally, the amendment is designed to reflect current and
future payment environments in which most payments and invoices will be transmitted
electronicall y. This change is designed to encourage agencies to implement innovative
payment technology that promotes electronic payments, required under the Debt Collection
Improvement Act, and to combine sound business practices with good cash management.
Because of the close relationship between the provisions in the Debt Collection Improvement
Act, which Treasury is already responsible for implementing, and the Prompt Payment Act,
administrative efficiencies will be achieved if this legislative proposal is enacted.
Next, in the area of improving Federal Debt Collection Practices, we support the
provisions of the draft proposal that would expand the types of Federal payments available to
collect past due child support through Treasury's administrative offset program. Executive
Order 13019 provides for the collection of delinquent child support obligations from persons
who may be entitled or eligible to receive certain Federal payments by offsetting those
payments through Treasury's administrative offset program. The addition of certain Federal
benefit payments to those Federal payments already available for offset is consistent with the
goal of promoting the health, education, and well being of children.
In general, we support provisions of the draft proposal that further our goal of relying
on the experience and expertise of private sector professionals to provide debt collection
services to Federal agencies. However, we are concerned about provisions that would preempt
state law in this area, and we believe that sllch preemption should not be enacted before fully
evaluating the impact on state law and commercial practices. I refer the committee to our
specific comments on these provisions in the attached addendum.
Having discussed several highlights in the draft legislation which we believe assist our
efforts to recover delinquent debts and improve Federal payment systems, there are several
components which Treasury would find problematic if enacted. For instance, the proposed
legislation rewrites the existing DCIA provision on barring delinquent debtors from obtaining
loans to also bar delinquent debtors from obtaining Federal permits or licenses, Federal
contracts, and Federal employment. The DCIA already empowers the government with tools
2

to collect the delinquent debts of Federal employees. Continued Federal employment would
enable the government to continue recovering delinquent debts from Federal employees.
Enactment of this sectiol1 would ultimately weaken the government's ability to collect these
funds and would be difficult to administer. In addition, the absolute prohibition against
awarding any Federal permit or license to a delinquent debtor is overly broad and may create
serious enforcement burdens. There are many instances where the administration of such a
blanket prohibition would not be in the best interest of the government though in specific,
targeted circumstances could be a useful tool for some agencies.
Similarly, the subcommittee proposes to eliminate the DCIA provision requiring the
Department of the Treasury to issue regulations implementing the administrative wage
garnishment provisions of the law. Enactment of this provision, I believe, would delay
implementation of the administrative wage garnishment provision of the Debt Collection
Improvement Act. Wage garnishment is an action of enormous impact on delinquent debtors.
I believe that if Treasury is absolved from constructing governmentwide regulations for
administrative wage garnishment. respective Federal agencies will likely see a need to develop
their own regulations in order effectively to protect the government's liability. With the
resultant proliferation of separate regulations, the result could be a prolonged period of time
before wage garnishment can be applied effectively across the government and may not result
in uniform application. Further, the Department of the Treasury issued a Notice of Proposed
Rule Making on this subject on November 21, 1997 and plans to issue a final rule in April.
Thus, we believe this provision is not necessary.
We are also concerned with expanding Federal authorities which impact existing
commercial practices. For example, the provision of this legislation that would create a lien
on any real property owned by a debtor and thus create clouds on titles throughout the country
could significantly and adversely affect the transfer of all real property. This provision may
have far reaching implications for the lending community, title companies, and other sectors
involved in real estate transactions and we recommend consultation with these affected groups.
The creation of a seven year lien may interfere with an agency's ability to write-off debt and
report such debts to the IRS as discharged.
Finall y, with regard to debt and loan sales, Treasury is in the process of establishing an
Office of Privatization to provide guidance to Federal agencies on the appropriate manner to
conduct asset dispositions. Treasury believes that a properly administered program of nontax
debt sales can be a very effective debt management tool. The provisions of the legislation that
would alter the Secretary's existing authority to review the terms of all debt sales and that
would require sale of new loans and delinquent nontax debt at certain set time intervals could
impede the effective implementation of Treasury's privatization policy. We also note that a
mandatory requirement that loans be sold after the lapse of a statutorily prescribed period may
serve to encourage delinquencies, as debtors may believe that their opportunity to compromise
a debt through negotiations with a note purchaser may increase.

3

This concludes my remarks. We appreciate the subcommittees' continued interest in
the success of Treasury's debt collection efforts and look forward to working together to
continuously improve Federal debt collection and payment practices. We also look forward to
working with your staffs on this bill, and other draft proposals intended to improve the
collection of Federal debts in an environment of public support and improve Federal payment
systems. I would be pleased to address any questions you have regarding Treasury's position
on the draft legislation.
-30-

ADDENDUM To TREASURY TESTIMONY OF MARCH 2.1998

H.R. - Government Waste. Fraud. and Error Reduction Act of 1998

[Discussion

draft of February 17, 1998]

Ii1kl - General Management Improvements

Sec. 101 - Repeal of Obsolete Provisions Relating to Financial Statements of Agencies
Comments: We support this technical change and suggest that the proposed bill also

strike subsection (h) of 31 U.S.c. 3515 as obsolete.
Title II - Improving Federal Debt Collection Practices
Sec. 201 - Miscellaneous technical corrections
•

(a) Child Support Enforcement
Comments: We support the expansion of the Federal payments available to collect

past-due child support through Treasury's administrative offset program.
•

(b) Charges by Debt Collection Contractors
Comments: This provision would provide clarity and consistency in the fees that may

be charged for the collection of debt owed to the Federal government. It would also
preempt State laws that might iimit the amounts that can be received by federal debt
collection contractors. We believe that before any such preemption is enacted there
should be consultation with States to assess fully the impact of this provision on State
laws and commercial practices. Consistent with Executive Order 12612 issued by
President Reagan on October 26, 1987, appropriate officials and organizations
representing the States should be consulted in developing national standards that
potentially limit the policy making discretion of the States.
•

(c) Background Checks of Contractor Employees

RR-2264

Comments: This provision would shift the costs associated with the performance of
background checks from agencies currently paying for them to the private collection
contractor, and in turn, to the debtor as the costs associated with the collection of a debt may,
in most circumstances, be passed on to the debtor. We therefore support this provision. This
section should be modified, however, to ensure that the background check performed by the
contractor meets Treasury or other contracting agency standards and that any background
checks performed are made available, on request, to Treasury or the contracting agency.
•

(d) Debt Sales
Comments: We are concerned with the readiness of Federal agencies to comply with a
requirement to sell debt and about the role of Treasury in government-wide debt sales
in light of initiatives underway by interagency groups such as the Federal Credit Policy
Working Group. We are also concerned about the relationship the DCJA provisions on
debt sales may have to administration privatization initiatives. We suggest deferral of
enactment of this position pending further internal administration coordination on this
issue and discussions with interested parties in the legislative branch.

•

(e) Repeal of Requirement to Issue Wage Garnishment Regulations
Comments: We believe this provision is not necessary and could result in a lack of
consistent standards and procedures. Treasury issued a Notice of Proposed Rulemaking
on wage garnishment on November 21, 1997 and expects to issue a final rule in April,
1998.

•

<0 Verification of Debtor Employment Information by Private Collection
Contractors
Comments: We believe additional background is needed regarding the impact of this
provision on State laws and State commercial practices. As noted in our comments to
subsection (b) of this section, consistent with Executive Order 12612 issued by
President Reagan on October 26. 1987, appropriate officials and organizations
representing the States should be consulted in developing national standards that
potentially limit the policy making discretion of the States.

•

(g) Clerical Amendment (Tax Refund Offset)
Comments: We support this clerical amendment and ~uggest an additional clerical
amendment re-numbering this section which currently has two paragraphs (h)(1).

•

(h) Correction of References to Executive or Legislative Agency

2

Comments: We support a correction that would strike "executive or legislative" agency
each place it appears and substitute "executive, judicial, or legislative agency." This
change has already been accomplished, however, in the specific sections listed in the
draft proposal.
•

(i) Correction of References to Federal Agency

Comments: Changing the term "Federal agency" to "agency" does not provide needed
clarification on what is meant by the term "Federal agency." For purposes of
consistency and clarity, we suggest changing the term "Federal agency" to "executive,
judicial or legislative" agency where appropriate.
Sec 202 - Barring Delinquent Debtors from Obtaining Federal Loans
Comments: We suggest that input be obtained from the Department of Justice (DOJ)
regarding the impact this provision would have on other laws that govern Federal
contracts and Federal employment. Denial of Federal employment to a delinquent
debtor may, on the one hand, motivate the debtor to pay and is consistent with a desire
not to reward those who owe delinquent debt with Federal employment. On the other
hand, Federal employment of an otherwise qualified individual who owes a debt would
provide a readily available source of repayment. In the area of denial of licenses and
permits, we are concerned that the language may be too broad and thus difficult to
administer. For example, it may not be beneficial to enforce this provision against an
individual seeking a permit to enter a national park. We suggest a requirement that
standards be issued by Treasury under which agencies could determine whether
imposition of such a bar would be in the best interest of the government.
Sec. 203 - Collection and compromise of nontax debts
•

(a) Use of Private Collection Contractors and Federal Debt Collection Centers.
Comments: The requirement for Treasury to refer debt to the person(s) Il1Q.S1 successful
in collecting the type of debt may impose unreasonable burdens because of the
difficulty of making such a determination in particular cases. It would also conflict
with the requirement to maintain competition. We suggest that such success be a factor
to be taken into account in determining the person most appropriate to collect the debt.
Administrative costs are generally borne by the contractor and built in to the contract
pnce.
We support giving States the option of requesting that Treasury refer child support
debts to private collection contractors.

3

•

(b) Limitation on Discharge Before Use of Private Collection Contractor or Debt
Collection Center
Comments: If this section is directed at the actions the Financial Management Service

or other government debt collection centers must take before terminating collection
action on a debt, we suggest adding referral to the Department of Justice as an
alternative prior to terminating collection action. If this section is directed at creditor
agencies, it may be too broad in that it does not exclude debts that are exempt from
cross-servicing, for example, debts in litigation or foreclosure. One way to narrow the
scope would be to exempt debts that are exempt from cross-servicing. We also suggest
clarification of what is meant by "termination."

Sec. 204 - Wage Garnishment
Comments: We suggest that input be obtained from the Department of Labor regarding

the impact of this proposal on the anti-alienation provisions of the Employee
Retirement Income Security Act (ERISA) (29 U.S.C. 1056(d» and other laws and
policies relating to pension plans. It may be prudent to gain some experience
administratively garnishing wages before this authority is expanded.

Sec. 205 - Establishment of Liens
Comments: We believe this provision should be given further study because it could

have extraordinarily far reaching and disruptive consequences for the lending
community, for title companies, for property owners and for others involved in real
estate transactions. Such a provision could potentially create clouds on title to real
property throughout the country and create significant burdens for affected parties.
Additionally, the creation of a seven year lien may interfere with an agency's ability to
write-off debt and report such debts to the IRS as discharged.
Title III - Sale of Debts Owed to United States
Sec. 301 - Authority to Sell Debts
•

(a) Sales Authorized
Comments: We believe that the provision requiring agencies to "maximize the

proceeds" from sales is unnecessary, may create a basis for unsuccessful bidders to
raise protests to sales, and may place unintended limits on creative sales vehicles. We
suggest that the language give agencies discretion to conduct sales in the manner the
agency determines to be most appropriate, and shall give consideration to whether the
4

manner chosen will maximize proceeds.
Sec. 302 - Requirement to Sell Certain Debts
Comments: We believe that a mandatory requirement to sell debt at a statutorily
specified time after a loan is disbursed, whether or not the loan is delinquent, would
not be in the best interest of the United States and may in fact encourage delinquencies.
For example, purchasers may bid less for debts that they know the government is under
a mandate to sell. Some debts, such as Department of Education student loans, may
increase in value over time and thus an early sale may not result in the greatest return.
We are also concerned that mandated sales would not allow sufficient time for Federal
agencies to fully pursue the collection tools available to them. Aggressive
implementation of the collection tools available to Federal agencies, such as wage
garnishment and administrative offset, may result in greater receipts than sale.
Additionally, a requirement for mandatory sale could create a perverse incentive for
debtors to allow their debts to become delinquent in the hope that the obligation may be
sold at a discount to a purchaser who would have an incentive to compromise.
Furthermore, if these provisions are applied to debt under the U.S. government's
foreign assistance programs, they could hamper recognition of the U.S. foreign policy
concerns, as well as efforts to maximize debt collections in the long run.
Finall y, it is premature to mandate such provisions, especially pertaining to the sale of
performing loans, until the administration has more time to determine how these
requirements would be part of the broader privatization strategy.
Title IV - Treatment of High Value Debts
Sec. 401 - Annual Report on High Value Debts
Comments: Clarification is needed regarding whether or not this requirement is limited
to high value debts in a delinquent status and this provision should exclude tax debt.
Sec. 402 - Debarment from Obtaining Federal Loans
Comments: We believe this provision is unnecessary as Section 3720B already bars
delinquent debtors from loan eligibility regardless of the amount of the debt.
Sec. 403 - Inspector General Review
Comments: Clarification is needed regarding whether this is limited to delinquent high
value debt, and as to the relationship between this provision and the requirement that
agencies seek approval from DO] on all compromises of debt in excess of $100,000.
Additionally, this provision should exclude tax debt.
5

Sec. 404 - Requirement to seek seizure and forfeiture of assets securing high value debts
Comments: We are concerned that there may be circumstances in which prompt
seizure and forfeiture of collateral would not be desirable (e.g., environmentally
damaged property). Additionally, we have concern about how this provision would tie
in, if at all, with sec. 206, which provides that a delinquent debt establishes a lien on
the debtor's real property. In addition, the use of the term "forfeiture" raises serious
questions about its relationship to the asset forfeiture laws employed in connection with
drug and money laundering enforcement. We therefore would strongly suggest
consultation with the Department of Justice.
Title V - Federal Payments
Sec. 501 - Transfer of Responsibility to Secretary of the Treasury with Respect to Prompt
Payment
Comments: We support this transfer of responsibility. Treasury already has a
significant role in implementing the Prompt Payment Act. This would provide
Treasury with the flexibility to conform prompt pay requirements to new payment
technologies.
Sec. 502 - Promoting electronic payments
Comments: These amendments would provide needed flexibility to promote innovative
payment technologies. However, a provision requiring vendors to pay interest is not
necessary and could create an administrative burden on agencies.

--30--

DEPARTMENT

OF

THE

TREASURY

NEWS

TREASURY

omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE

Text as Prepared for Delivery

Remarks of John D. Hawke, Jr.
Under Secretary of the Treasury for Domestic Finance
to the National Association of State Treasurers
Hyatt Regency Capitol Hill
March 2, 1998

I am delighted to be with you today. We at the Treasury Department have an important
community of intere:;t with State Treasurers, and it is important that we continue to have open
and forthright discussions about the many issues of mutual interest that we deal with.
Today I want to talk to you about our efforts to implement a law that was passed by
Congress in 1996 that will have profound implications not only for the way in which the federal
government makes its payments, but ultimately for the states as well. We call it EFT '99.
The law itself is disarmingly simple It requires that beginning January 1, 1999, the federal
government make all of its payments, other than tax refunds, electronically To further this
mandate it requires that all new recipients of federal payments (again, excluding tax refunds) who
have bank accounts and who come on stream after July 26, 1996, receive their payments by
electronic funds transfer (EFT)
The law also imposes some significant responsibilities on the Secretary of the Treasury. It
directs the Secretary to develop standards and rules for hardship waivers from the mandatory
requirements of EFT '99, and it further directs him to ensure that individuals who are required to
receive their payments electronically have, for that purpose, access to an account at a financial
institution at reasonable cost and with the same consumer protections as other account holders.
In September of 1997 we published for comment a proposed rule to implement EFT '99
that addresses many of the issues raised by the new law.
RR-2265
-1-

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

During the comment period we held public hearings in four cities, and by the close of the period
we had received over 200 written comments on our proposal. While time does not pennit me to
discuss all of the issues and comments, I would like to share with you our present thinking on two
key issues: waiver policy and account access
In considering waivers, we wanted to be responsive to two conflicting considerations:
First, we recognized that there will be a great many perfectly legitimate reasons for exempting
recipients from the requirement of mandatory EFT. A heavy handed implementation of the
mandate could not only impose significant hardships on individuals, but could very quickly
undermine the base of support for the program. On the other hand, excessive liberality in the
granting of waivers could significantly vitiate the tremendous cost savings for the public that we
expect from the implementation of EFT '99.
With these thoughts in mind, we proposed the following:
•

For individuals who became eligible for Federal payments before July 26, 1996 and
who have an account at a financial institution, the requirement to receive payments
by EFT will be waived if such a requirement would impose a hardship due to a
physical disability or geographic barrier.

•

Individuals who do not have bank accounts, and who will be provided access to an
account by Treasury, will have an additional basis for a waiver ifusing such an
account would impose a financial hardship. In order to assure access to an
account, we are providing a time-limited waiver for all such individuals, until the
earlier of January I, 2000, or the date on which Treasury determines that such an
account is ready to be made available to them.

•

Federal agencies will not be required to use EFT when political, financial, or
communications infrastructure does not support payment by EFT in certain
overseas locations.

•

Finally, waivers will be available where a cost-benefit analysis does not justify
making small or non-recurring payments by EFT and where EFT payments would
conflict with military, law enforcement, or national security interests.

A great many of the comments we received in the rulemaking addressed the question of
waivers, and we are giving careful attention to the scope of the waiver provisions in connection
with the development of the final rule. I think it is safe to say that our guiding principle will be
liberality. We do not want to cause disruption, inconvenience, or financial hardship to payments
recipients, a great many of whom are seniors who are not familiar or comfortable with new
banking technology. We firmly believe that in the future the population of payments recipients
will be more and more comfortable with EFT, and that our long range objective of moving from
paper to electronics will be realized in the fullness of time.

-2-

This is borne out by our experience with those recipients who have newly come on stream since
July 1996. Since that time over 85% of all new Social Security annuitants have signed up for
direct EFT payments, reflecting a high degree of acceptance of the program.
We also face a daunting challenge in fulfilling our mandate to assure access to an account
at a financial institution for all EFT recipients. The major challenge here is how to serve the
"unbanked." We estimate that more than I 0 million recipients of federal payments do not have
bank accounts. How do we assure that these Americans will be able to realize the benefits of
EFT?
The ideal, of course, would be a competitive marketplace in which financial institutions
throughout the country offered low-cost electronic accounts that could be used to receive and
access federal EFT payments. While we see some interest among banks in offering such an
account, the availability of such accounts is not yet so widespread that we can rely solely on
private initiatives to satisfy our mandate.
Accordingly, we propose to design such an account -- we call it the Electronic Transfer
Account, or ETA -- and to engage a number of banks to offer the account in defiued regions of
the country. We will ask banks to bid on specifications that we will prescribe, and their bids will
be framed in terms of the monthly fee they will charge recipients to use the ETA. While we have
not yet fixed the design of the account -- and will not do so until we have given the public an
opportunity to comment on a specific proposed design -- I think it is safe to say that it will be an
all-electronic account that will receive only EFT deposits, and from which withdrawals can be
made by debit card through ATMs or at points of sale. We expect that within the scope of the
monthly service charge there will be a specified number of withdrawals that can be made without
additional service charge. Beyond this we are still considering whether other features should be
added.
Once again, we see somewhat conflicting pressures here. On one hand, the ETA has great
potential to serve as a vehicle for introducing the unbanked to mainstream financial services. For
this reason we have been urged to add other features of conventional bank accounts, beyond the
basic functions of receiving and accessing payments, such as a means for making electronic thirdparty payments or a means for accumulating savings. On the other hand, the more "bells and
whistles" we add to the ETA, the greater the cost is likely to be for all ETA holders, including
those who do not want anything beyond the basic function of the account. In addition, the more
attractive we make the ETA, the greater the potential it has to draw existing accounts out of the
private banking system. This could serve not only to stifle development of competitive
alternatives, but would raise understandable concerns about competition from the federal
government.
One thing has become eminently clear from the work we have done to date on EFT '99:
there is a great need to educate the public about the enormous benefits of EFT. I firmly believe
that as payments recipients come to appreciate the safety and convenience of EFT they will

-3-

actively seek out suppliers of accounts that will meet their needs. To this end we have initiated an
extensive public education campaign to communicate to our recipients the desirability of
converting to electronic payments and to inform them about the ETA and their other choices
under EFT '99.
We are urging banks to launch their own education efforts, because we believe there is an
enormous untapped market out there, comprised of more than 10 million Americans who have a
regular source of income, but for whom the costs of a conventional paper-based bank account are
disproportionately high.
It also seems clear to me that the EFT '99 initiative has important implications for the

states. You, as do we, make millions of payments each month -- salary payments, retirement and
other benefit payments, vendor payments, and the like. As you well know, there are tremendous
costs savings available from EFT. We estimate that the cost of making a paper payment is 43
cents, while an EFT payment costs only two cents. As the population of federal payments
recipients becomes more and more accustomed to EFT as the result of our implementation of
EFT '99, there will undoubtedly be spillover benefits for the states. EFT '99 not only provides an
"ice-breaking" model for the states to adopt legislation moving their own payments programs to
EFT, but as the ETA takes hold as a prototype for a basic electronic banking service, it will also
otTer a vehicle for the states.
--30--

-4-

I)

E ., ..\ R T l\ I E 1'4 T 0 F " TilE T I~ E ..\ S II I{ \'

1REASURY

NEWS

omCE OFPUBUCAlTAIRS -1500 PENNSYLVANIA AVENUE, N.W.' WASIDNGTON, D.C.' 20220' (202) 6%2-2960

FOR IMMEDIATE RELEASE
Remarks as Prepared for Delivery
March 2, 1998

SECRETARY ROBERT E. RUBIN
REMARKS BEFORE THE INSTITUTE OF INTERNATIONAL BANKERS
It is a pleasure to speak with you today. I would like to discuss a topic that I know is very
important to aU of you as the representatives of global financial institutions; and that is, the issues
around the global financial system, both in the short term as we address the current crisis in Asi~ and
over the longer term as we build the architecture to help prevent future financial crisis, and better
manage them when they occur.
To begin, it is important to put the efforts to strengthen the global financial system in the
context of the development of the international financial markets and the global economy. I witnessed
these developments closely when I was in investment banking and I know that all of you all have lived
this in your own finns. Here in the United States, over the last 20 years, many businesses have gone
from being predominantly domestic to being true global entities, and developing countries have gone
from having little impact on our economic well being to absorbing over 40% of our exports.
However, just as these developments have brought great opportunities, there have also been new
risks, as we saw in Mexico in 1994 and now in Asia. I believe that the economic well-being of all
nations in the global economy in the years and decades ahead will be very much affected by our ability
to make the most of those opportunities and to effectively manage the risks.
The interdependence of today' s global economy has been brought home to all of us by the
recent situation in Asia. As you well know, financial instability in Asia has potential impacts for
economies around the world by weakening the affected countries' currencies, which affects the
competitiveness of companies outside the country, and the countries' ability to buy foreign goods
and services. Moreover, if the problem were to spread to developing countries around the globe, the
potential impact could be much more severe. By doing everything sensible to help these countries
get back on track, we're obviously helping these countries, but at the same time we are very much
protecting and promoting our own interests, by reviving these countries as markets for exports, by
promoting stronger currencies in these countries, and by enormously reducing the probability of a
contagion that could so severely impact all of us.
RR-2266

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As we consider how to deal with the crisis, it is important to remember one common element:
In each country where crisis has occurred the financial crisis was either triggered by, or exacerbated
by, flaws in the financial sectors of the affected nations. Although circumstances obviously vary in
individual countries, all had close links between governments, banks and corporations which led to
fundamentally unsound investments by corporations financed by unsound lending by banks.
Moreover, financial systems had inadequate financial regulation and supervision, financial institutions
lacked transparency, which masked the extent of the problem, undercutting the effectiveness of
market discipline. In short, the essential underpinnings to a modem financial system were either weak
relatively nonexistent. These conditions existed at a time when vast amounts of capital flowed into
these countries - arguably with a serious underweighting of the risks involved -- and the combination
of these vast flows of capital and badly flawed financial sectors proved to be combustible.

That is why the focal point of efforts to restore financial stability in these countries, led by the
IMF. has been each nation's financial sector, and other structural refonns. These are not austerity
programs.
The fundamental objectives of these reforms are to restore financial stability and confidence,
attract new flows of capital, restore economic growth and promote stronger and more stable
exchange rates. While financial assistance may be critical to provide the necessary breathing room
for these nations, the key is for nations to implement internal reforms.
We have a long way to go and a great deal to do before we can feel secure that the period of
instability is over and these countries are back on a path of solid growth. However, the countries in
the region have great underlying strengths~ such as rugh savings rates, a strong work ethic and a
commitment to education, and, combined with the reforms, that should provide the basis for a
successful resolution over time. In our view, Thailand and Korea are implementing reform and are
on a constructive path, with both Korea's new President Kim and the now several months old new
government of Thailand giving all indications of strong commitments to reform. The Indonesian
situation has been more complicated, but in all three countries, the answer is the same: sustained
adherence to refonn programs that will remedy problems and restore confidence. The other key in
Asia is Japan, and, as we discussed at the G-7 finance ministers meeting in London, a return of
domestic demand led growth and confidence in Japan, through pursuit of appropriate policies, could
contnbute greatly to the recovery in 'Japan's Asian neighbors, and Japan's failure to accomplish these
objectives is a major impediment to Asia's recovery.

Even if we work to solve or to deal with these immediate problems in Asia, we are very much
focused on the question of the longer-term architecture in the global financial system, both to better
improve prevention and to better deal with crises when they occur. The global economy and the
global financial markets, as you well know, have grown very rapidly in recent years and have become
far more sophisticated.
At the same time, however, the institutions that were created 50 years ago at Bretton Woods
to deal with the issues of the global economy and the global financial markets, have changed far less.
2

It is our view that the architecture needs to become as modem as the marketplace. At Treasury. we
have been working very intensely with the Federal Reserve Board on these enormously complex
issues, and we've been working with finance ministries and central banks around the world to start
to build international consensus. These are deeply complicated problems, and major steps forward
will take time. Having said that, in our view, it is absolutely necessary that those major steps take
place.
We win be looking at changes in the architecture within the context of six objectives:
promoting more efficient global markets; increasing disclosure and transparency; strengthening
financial systems, both globally and in individual economies; improving domestic policy management;
rethinking the role of the international community in financial crises; and appropriate burden-sharing
by the private sector. Let me say a few words about that last point, which is often approached
through the prism of moral hazard.
We believe, that investors and creditors should bear the full consequences of their actions.
And as you know, in Asia numerous banks, investment banking firms and others, have taken or will
be taking enormous losses as a result of the instability and the problems in that part of the world.
Having said that, as a by-product of the program to restore financial stability, some creditors
will may be shielded in some measure from the full consequences of their actions and addressing this

issue as fully as practical is a high priority for us as we work to strengthen the future architecture.
Let me now tum to two, what I would call micro domestic issues, that are of interest to your
institutions. Our efforts to strengthen financial systems have not centered solely on countries
elsewhere. We have been working hard to strengthen our own domestic financial sector as well. As
you know, the Treasury has put forward a financial modernization proposal that would remove
outmoded baniers to competition in financial services, and pennit banks, securities firms and
insurance companies to affiliate with one other. I think most would agree that these reforms are long
overdue.
Within the context of removing financial barriers, however, we also strongly believe financial
institutions should be able to choose the organizational structure that best meets their business needs.
This means, for example, that banks should be able to conduct their full range of financial activities
through either a subsidiary of the bank or an affiliate of a bank holding company.
While I cannot say for certain what may happen this year on the Hill, I think it is very
important that Congress work through the competing interests surrounding this issue and develop
sound, forward-looking legislation - which will benefit consumers. businesses and communities
around the country.
We are also keenly focused on the computer problems associated with the year 2000, an issue
of enormous importance for financial service finns around the globe. Because of the increased
integration of the world's economy, the Bank for International Settlements is concerned that
3

problems in a single location could rapidly affect others if payments fail to move as expected.

In the United States, financial regulators are working closely with the private sector in order
to reduce the potential for major systemic failures due to the year 2000 problem. The SEC now
requires public companies to disclose material year 2000 computer problems in their public
statements. Bank regulators review each bank's year 2000 implementation efforts during routine
inspections, and have already taken several enforcement actions against institutions that have failed
to take appropriate steps to deal with the problem.

I think there is room for concern, however, based on numerous anecdotal reports about the
lack afprogress with respect to the year 2000 issue in many other countries, including some advanced
industrial nations. In order to urge other countries to address this matter in a systematic fashion, I
have raised the issue with my colleagues in the G-7 and elsewhere and the matter will be part of the
G-7 Binningham summit agenda when we meet in May. But governments alone cannot not solve
the problem, and I support each of you to urge your home offices to consider whether existing year
2000 implementation efforts need to be augmented in the coming months.
Before I conclude, let me emphasize that the international financial service firms that you
represent will have important roles to play in building an international financial system for the 21 st
century. When you establish a presence in a developing country) you bring in experience, expertise,
and new capital, which helps strengthen its financial sector. At the same time, your experience and
expertise can be applied to how these nations develop regulatory systems and the other underpinnings
of a modem financial sector which I mentioned earlier. It is in your interest to help these nations build
stronger financial sectors, much as it is in the interest of the countries themselves and of the overall
global economy.
In conclusion, let me go back to something I said earlier. The global economy offers inunense
opportunities for businesses and workers around the globe., but also contains risks. Working to make
the most of those opportunities, while effectively managing the risks, must be a high priority for all
orus in the private and public sectors. The task before us is complex and difficult. But by working
together on these issues ofimrnense importance to the international financial system, we will promote
a healthy global economy in the years and decades ahead to the benefit of all of us. Thank you very
much.
-30-

4

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
March 02, 1998

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
March 05, 1998
June 04, 1998
9127946RO

Term :
Issue Date:
Maturity Date:
CUSIP Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:

Low
High
Average

Discount
Rate

Investment
Rate 1/

Price

------

----------

------

98.706
98.706
98.706

5.258%
5.258%
5.258%

5.120%
5.120%
5.120%

Tenders at the high discount rate were allotted

58%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive

$

43,687,943
1,355,441

$

5,129,448
1,355,441

PUBLIC SUBTOTAL

45,043,384

6,484,889

Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

4,284,955

4,284,955

823,000

823,000

o

o

TOTAL
1/

Accepted

Tendered

Tender Type

$

50,151,339

Equivalent coupon-issue yield.

RR-2267

http://www.publicdl·bt.tfl·:lS.gov

$

11,592,844

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
March 02, 1998

CONTACT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:

182-Day Bill
March 05, 1998
September 03, 1998
912795AH4
RANGE OF ACCEPTED COMPETITIVE BIDS:

Low
High
Average

Discount
Rate

Investment
Rate 1/

Price

------

----------

------

5.110%
5.125%
5.125%

5.318%
5.334%
5.334%

97.417
97.409
97.409

Tenders at the high discount rate were allotted

65%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered

Tender Type
Competitive
Noncompe:itive

$

31,467,739
1,107,205

$

3,934,819
1,107,205

PUBLIC SUBTOTAL

32,574,944

5,042,024

Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

3,535,000

3,535,000

2,242,000

2,242,000

o

o

TOTAL
1/

Accepted

Equivale~:

$

38,351,944

coupon-issue yield.

RR-2268

hup://www.publicdl.lJUn·as.gov

$

10,819,024

DEPARTMENT

OF

THE

TREASURY

NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960

EMBARGOED UNTIL 10:30 A.M. EST
Text as Prepared for Delivery
March 3, 1998

TREASURY SECRETARY ROBERT E. RUBIN
SENATE APPROPRIATIONS SUBCOMMITTEE ON FOREIGN OPERATIONS

Mr. Chairman, members of this Committee, it is a pleasure to appear before you today to

discuss funding for the International Monetary Fund in the context of U.S. leadership in the global
economy and the situation in Asia. I would also like to bring you up to date on the international
response to the crisis and our efforts to modernize the architecture of the international financial
markets to better prevent financial crises, or better manage them should they occur.
Mr. Chairman, as you well know, we live in a new era of the global economy and global
financial markets. Twenty years ago, the vast majority of our businesses were predominantly
domestic. Now many are global entities. Developing countries have gone from having little
impact on our economic well being to absorbing over 40 percent of our exports. Our leadership
in international financial institutions such as the IMF has played a key role in these developments
that have contributed so much the economic well being of our workers, farmers, and businesses.
But with the opportunities have come risks. Strong and effective U.S. leadership on the
issues of the global economy is essential if we are to make the most of these opportunities, and
effective manage the risks; and whether or not we provide that leadership will profoundly affect
our national economic and security interests in the years ahead.
The need to exercise U.S. leadership in the global economy to protect and promote our
interests has been brought home by the recent situation in Asia. We have critical economic and
national security interests in Asia. Thirty percent of U. S. exports go to Asia, supporting millions
of U.S. jobs, and we now export more to Asia than Europe. In states like California, Oregon and
Washington, exports to Asia account for more than half of each state's total exports. Financial
instability, economic distress, and depreciating currencies all have direct effects on the pace of our
exports to the region, the competitiveness of our goods and services in world markets, the
growth of our economy and, ultimately, the well-being of American workers. Moreover, if the
problem were to spread to developing countries around the globe, the potential impact to our
RR-2269
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,

economy could be severe. By doing everything sensible to help these Asian countries get back on
track, we support our exports to the region and help strengthen their currencies, which helps the
competitiveness of our goods in world markets and we reduce the risk that financial instability will
spread to other developing countries.
In addition, the United States also has critical national security interests in seeing a
restoration of financial stability in the region. We have 100,000 troops based in Asia, 37,000 on
the Korean peninsula alone. As the members of this committee know well, financial stability and
prosperity promotes social stability and peace -- both in Asia and throughout the globe.
The United States has exercised very strong leadership throughout this situation to help
resolve the Asian crises. In Thailand, we saw the signs of problems early on and we moved with
the IMF to put into place a reform program which the Thai government is currently implementing.
In Korea, the situation deteriorated very rapidly and by Christmas the Korean banking sector was
on the verge of systematic default. Treasury and the Fed worked together over a very few days to
catalyze the participation of banks on three continents to refinance short term loans in order to
give Korea breathing room to address its economic problems. In Indonesia, just this week
President Clinton has sent former Vice-President Mondale as a personal representative to
encourage Indonesia to make the critical reforms necessary to succeed. More broadly, we also
have been part of an important international effort to encourage countries outside of the region to
put policies in place to limit their vulnerability to crises.
Through all of this, the United States has strongly supported the IMF, as the central
institution in the effort to resolve the financial crises in Asia. The IMF programs have been
focused predominantly on structural reforms, to address the specific causes of the crisis in each
nation. These reforms include reshaping the relationships between banks, the government, and
commercial entities; financial sector regulations; trade liberalization; and appropriate monetary
and fiscal policies. These are not austerity programs, though they do involve macro-economic
policy regimes necessary to regain financial market confidence.
The IMF is the right institution to be at the center of this effort for three important
reasons. First, it has the expertise to shape effective reform programs. Second, it has the
leverage to require a country to accept conditions that no assisting nation could require on its
own. Finally, it internationalizes the burden. Moreover, our contributions to the IMF have not
cost the taxpayer one dime in fifty years. When the IMF draws on our commitments, we receive
an interest bearing offsetting claim on the IMF of equal value. There are no budget outlays under
CBO scoring and no increase in the deficit, or reduction in resources for other spending priorities.
Today we ask you to support two critical requests: an increase in our IMF quota
subscription, and U.S. participation in an augmented back-up facility, the New Arrangements to
Borrow, to supplement the IMF's resources, if needed, to deal with crises such as this one.
We need this money as quickly as possible, because right now the IMF does not have

2

sufficient funds to deal with a truly major crisis and it is in our economic interest to have that
vulnerability exist for as little time as possible. As a result of the recent situation in Asia, the
IMF's normal financial resources are approaching a historically low level. At the moment, the
IMF has about $45 billion in uncommitted resources, but only $10-15 billion is available because
an amount we estimate at $30-35 billion must be held in reserve to accommodate withdrawals by
members. In addition, the IMF has access to roughly $23 billion in the General Arrangements to
Borrow, for a total of$33 to $38 billion of total lending capacity. To give you a sense of how
inadequate that amount could be, in the last six months alone the IMF's commitment in these Asia
programs amounted to some $35 billion. The IMF might not have the capacity to respond
effectively if that crisis were to deepen, spread to developing countries throughout the globe, or a
new crisis were to develop in the near term. Even if the $3.5 billion for the NAB alone is
approved, we still remain exposed with the IMF not having sufficient resources to deal with a
truly major crisis. The U. S. contribution totaling $18 billion will leverage a total amount of about
$90 billion in usable resources. Ifwe don't act, neither the quota nor the NAB will come into
effect. However, once we act the rest of the world will act very quickly. At the last IMF
replenishment, in 1992, all of the other countries acted within six days of action by the U.S.
Congress.
The probability of a serious reversal in the Asia situation and contagion to developing
countries around the world, or of a new crisis in the short term, may be small. But, these
occurrences are possible and the consequences could be immense. We cannot afford to take the
risk that such events could start to unfold and the IMF not have the capacity to try to cope
effectively. Again, the full IMF funding is needed now, to protect our interests. Moreover,
failure to support fully the IMF now could shake confidence in American leadership in the global
economy just at a time when confidence and American leadership are so important in reestablishing stability in Asia.
Some have suggested that we should not advance new monies to the IMF unless it agrees
to attach certain conditions to its reform programs. We agree with the importance of many of
their objectives. And I believe we can work out constructive measures responsive to them, but
there are practical limitations on what can be done.
Mr. Chairman, even as we work to secure this funding and to solve the immediate
problems in Asia, we are working to strengthen the architecture for the international financial
system. While the global economy and the global financial markets have grown very rapidly and
become very sophisticated in recent years, the institutions for preventing and dealing with these
crisis has changed far less. We need to make that architecture as modem as the markets. At
Treasury, we have been working with the Federal Reserve Board on these enormously complex
issues. And we are working to develop international consensus. But, these are deeply
complicated problems and major steps forward will take time.
One criticism that has arisen with respect to the international response to the situation is
that providing financial assistance to these countries shields investors from the consequences of
3

bad decisions. This, the so-called moral hazard issue, concerns us as well. We do not believe that
international efforts to resolve financial crises should protect investors or creditors from the
consequences of their actions and as you know numerous banks, investors and creditors have
taken or will take huge losses in Asia. However, a byproduct of the international assistance effort
may be that some creditors will be shielded from the full consequences of their actions.
Addressing this issue is a high priority for us as we work to strengthen the international
architecture, but is also extremely complicated.
Mr. Chairman, before I conclude, let me say a few words about the status of the situation
in Asia. As a result of U.S. leadership and prompt action by the IMF and other international
organizations, the spread of instability to other developing nations was limited after an initial
burst. In the countries where instability has occurred, there is a long way to go and a great deal
to do before we can feel secure that the period of instability is over and these countries are back
on a path of solid growth. The countries in the region have great underlying strengths, such as
high savings rates, a strong work ethic, and a commitment to education and that combined with
strong reform programs, should provide the basis for a successful resolution over time. Thailand
and Korea are on a constructive path of reform -- though there are great challenges ahead -- and
that is the best path for Indonesia as well. In the meantime, it is critical that we have an IMF with
the capacity to respond further -- or in other developing countries -- if necessary.

Mr. Chairman, as I said earlier, we live in an era of global financial markets and a global
economy which presents both opportunities and risks for American workers, farmers and
businessmen. Within that context, and to come again to the point of this hearing, we cannot
afford to take the risk -- however small the probability -- that a major crisis develops while the
IMF is without the capacity to respond, and so we should provide the full $18 billion IMF funding
requested now.
-30-

DEPARTMENT

OF

THE
II

TREASURY

NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C•• 20220. (202) 622.2960

EMB.ARGCXD UNTIL 2:30 P.M.
M.a..rc:h :3, 1998

CONTACT:

Office of Financing
202/219-3350

'l'REASORY' S WUlCLY BILL OFFElUNG

The Trea.ury will auction two series of Treasury bills totaling
approximately $13,500 million, to be ~~sueci March 12, 1998. !hi:. o!!uinq will
result in a paydown for thti Treasury of about $2,325 million, a.s the maturing
publicly held weekly bills are outst-andjnq in the amount of $15,824 million.
In addition to the public holciinqa, Federal Reserve Banks for t.haU own
aC:C:O\Ulta hold $7,372 million of the maturing bills)' which may be refunded. at the
we..iqhted averaqa discount rate of accepted competitive bmdars. Amounts issued
to these accounta will be in addition to the offerinq amount.
F~ ae.erve a&nka hold $2,586 ~llion aa aqenta for foreign and
intamation.al. mcnetary authoritie., which may be retund.ecl within the offering
amcunt at the weighted average discount rate of accepted competitive tanciara.
Additional amounts may be isauecl for such accounts if the aggregate amount o~
new bid.a ezeeecla the ~r.9'ate amount of maturing bills.

Tenders for the bills w~ll be received at Federal Re.erve Banks and
at tlw Bureau of the Public Debt, Washinqton, D.C. This offer:inq
of Treaaury securities is governed :by the terms and conciitiOIl!S set forth in the
Ullilo:m otterinq Circular (31 CFR iart 356, as a.mandad) for the sal. and. .i.ssue
by the Trea:sury to the public of marketable Trea:sury bills, nobul, and bonds.
Bz~che. ~

Oet.a.ila ilbout
hiqhliqhb.

e~ch

of the new .. curitiell .re qiven in the attached. offering

000

Attachment

RR-22iO

HIGHLIGlI'l'S Oli' TREASURY

O~i"&RING8

OF WEEKLY BILLS

TO BE ISSUED MARCH 12, 1990

.

March 3, 199B

Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,250 .lliion
Oe8oripti~1 of Offaring:
Tera and ~ of .ecurity . . . . . . . . . . . . . . . . . . .
CU8(P nUll.ber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illsue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original i •• ue date . . . . . . . . . . . . . . . . . . . . . . . . .
CUr£ently outstanding . . . . . . . . . . . . . . . . . . . . . . .
~nl.ua bid . .aunt . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The following rules apply to all BQcurities

~l-day bill
t127SJ4 68 8
.u.roh 9, 1990
March 12, 1998
June 11, 1990
December II, 1997
$11,321 IIlillion
$10,000
$ 1,000
~entioned

fn ,250

million

l02-day bill
912795 AJ a
March 51, 1998
March 12, 1990
September 10, 1998
March 12, 1998
$10,000
.$ 1,000

above:

8ubeission of Bids:
Noncompetitive bid...........

. Accepted in full up to ~1,OOO,OOO at the avorage
di8count rate of accepted competitivQ bidM.
Competitive bids . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
HUat be expresaed as a discount rat. with three d~c~mals 1n
increment. of .005\, e.g., 7.100', 7.105'.
(2)
Net long position for each bidder suet be reported whan the
sum of the to~l bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3)
Net long position must be determined a8 of one hal£-houx
prior to the closing time for receipt of competitive tenders.
~i.UD

Recoqniced Bid
at a Single yield . . . . . . . . . . . . . . . . . . . . . . . . 35\ of public offering

~lmWD

Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35' of pub1ic offering

Receipt of Tenders:
Noncompetitive tenders . . . . . . . . . . . . . . . . . . . . . . . Prior to 12:00 noon Eaatexn Standard time on auction day
Competitive tenders . . . . . . . . . . . . . . . . . . . . , .... Prior to 1:00 p .•. Eastern Standard time on auction day
Payment

~eraa

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Full payaent with tender or by charge to a funds account
at e Federal Reserve Bank on issue date

To: 20009

From: TREASURY PUBLIC AFFAIRS

DEPARTMENT

OF

THE
II

4-2-9B 4:49pm

p. 1 of 10

TREASURY

NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C•• 20220. (202) 622.2960

EMBARGOED UNTIL MARCH 4, 1998
12:01 AM

Contact: Beth Weaver
(202) 622-2960

TREASURY RELEASES PROGRESS REPORT ON TAGGANTS
The Treasury Department released today its Progress Report on the Study of Marking,
Rendering Inert, and Licensing of Explosive Materials as required by the Anti-Terrorism and
Effective Death Penalty Act of 1996.
The Progress Report marks another step in the Clinton Administration's efforts to give
law enforcement the tools it needs to reduce violent crime through bomb detection and
investigation of criminal misuse of explosives.
"Detection and identification technologies hold great promise for helping law enforcement
prevent bombings and catch bombers," said Treasury Under Secretary for Enforcement Raymond
W. Kelly. "We're working to ensure that the ultimate use of taggants is as effective and safe as
possible. "
The report identifies and evaluates a number of promising technologies, commonly known
as taggants, that could be used to trace explosives used in bombings. The next steps outlined in
the report will enable Treasury to determine the best uses of these technologies, including those
commonly known as taggants.

As part of the review, ATF contracted with the National Academy of Sciences (NAS) to
conduct a paral1el study, which will be issued tomorrow. ATF and Treasury already are working
on several of the areas identified in the NAS review for further study.
-30-

RR-2271

Fur press releases, speeches, public schedules and official biographies, call our 24.1zour fax line at (202) 622-2040

6)

DEPARTMENT

OF

THE

'IREASURY ~_.~~

TREASURY

NEW S

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220. (202) 622.2960

EMBARGOED UNTIL 10 A.M. EST
Text as Prepared for Delivery
March 4, 1998

TREASURY UNDER SECRETARY FOR DOMESTIC FINANCE JOHN D. HAWKE, JR.
HOUSE BANKING AND FINANCIAL SERVICES SUBCOMMITTEE
ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT
Chairwoman Roukema and Members of the Subcommittee, thank you for the
opportunity to appear before you today to discuss the Treasury Department's progress in
implementing
EFT '99, the law that requires the Federal government to make its paymentsJJy electronic
funds transfer (EFT) after January 1, 1999. This Congressional mandate, which excludes only
tax refunds, will have far reaching implications for the millions of Americans who receive
government payments. I commend the Subcommittee for the interest it has shown in carrying
out this legislation in a manner that truly benefits all Federal payment recipients.
The Department's approach to implementing EFT '99 has been characterized by
outreach to all affected parties. We have met with interested organizations throughout the
country; we held public hearings in four cities, all of which were very well attended by a
diverse audience; and over the course of a 90-day comment period on our proposed
implementing regulation, which was published September 16, 1997, we received and have
analyzed over 200 comment letters. We are keenly aware that the many stakeholders in this
process have important views to share, and we have made every effort to hear those views. I
will discuss more about our outreach and public education efforts later in my remarks.
Today I will address some of the major elements of our work on EFT '99, and in the
course of my testimony I will respond to the questions that have been raised by the
Subcommittee.
Implementation Status

As you know, EFT '99 has four key elements:
•
RR-2272

After July 26, 1996, all Federal payments (except

tax

refunds) to newly eligible

Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

recipients who have bank accounts must be made by EFT.

•

After January 1, 1999, all Federal payments, again with the exception of tax
refunds, must be made by EFT.

•

The Secretary of the Treasury is directed to assure that all recipients who are
required to receive payments electronically will, for that purpose, have access to
an account at a financial institution at reasonable cost, and with the same
consumer protections as other account holders at that financial institution.

•

The Secretary is authorized to grant waivers from the requirement of mandatory
EFT where the conversion from paper checks would impose hardships, or where
waivers are otherwise necessary.

As I stated before the full Committee last September, four principles serve as our
guideposts as we move through the implementation process:
•

The transition from a paper-based system to an electronic transfer system should
be accomplished with the interests of recipients ranking of paramount importance.

•

Private sector competition for the business of handling Federal payments should be
maximized, in order to ensure that recipients not only have a broad range of
payment services and service providers from which to choose, but also that they
receive their payments at a reasonable cost, with substantial consumer protections,
and with the greatest possible convenience, efficiency, and security.

•

All recipients, and especially those having special needs -- the elderly, individuals
with physical, mental, educational or language barriers, those living in remote or
rural communities -- should not be disadvantaged or caused hardship by the
transition to electronic payments

•

The EFT '99 program should, to the maximum extent possible, seek to bring into
the mainstream of our financial system those millions of Federal payment recipients
who currently do not have bank accounts

The goal of the Department of the Treasury is to issue payments by a method that will
provide the best service to recipients at the lowest possible cost to taxpayers, while maintaining
the greatest degree of transaction security Treasury has been issuing electronic payments for
more than two decades, and we believe there are compelling advantages to this means of payment
delivery. Not only does EFT provide signitlcant cost savings for the government
-- paper payments cost us 43 cents apiece, while electronic payments cost only 2 cents -- but EFT
is substantially more secure and, for most recipients more convenient, than paper checks. In FY
1997, Treasury's Financial Management Service issued more than 850 million payments on behalf

2

of non-defense agencies, including benefit, salary and vendor payments as well as tax refunds,
grants and loans. Today, over two-thirds of nontax payments are made electronically.
The evidence is strong, moreover, that electronic direct deposit has a wide degree of
acceptance among payments recipients. Of payments disbursed by Treasury, 95% of Federal
salary and allotment payments, about 80% of OPM retirement payments, 70% of Social Security's
OASI payments, and over 65% of Veterans' Administration and Railroad Retirement Board
payments are already being made by EFT. Moreover, 85% percent of all ~ Social Security
recipients are signing up for EFT. We are seeing the same progress with respect to other types of
government payments. For example, the number of vendor payments made electronically since
FY 1996 has grown by 120 percent. These numbers give us great confidence for the future,
because they strongly suggest that there is an increasing level of comfort with and acceptance of
EFT among Americans, and they strongly indicate that time will take us closer and closer to the
goal of an electronic payments environment.
Status of EFT '99 Efforts
Since the passage of EFT '99 in April 1996, Treasury has made significant progress in its
implementation efforts. We published an interim rule that was effective July 26, 1996, and we are
currently drafting the final implementing rule, which will be published this spring.
The major issues that have emerged in our rulemaking concern the scope of the waiver
provisions, and the structure and availability of the Electronic Transfer Account (ETA), which is
the means by which we propose to fulfill our mandate to assure the availability of a reasonable
cost account. We are giving serious consideration to all of the comments we received, and I am
providing the Subcommittee today with a detailed summary of the comment letters.

In our proposed rule, we indicated that waivers from the requirement of mandatory EFT
would be available, among other reasons, for individuals who certify that EFT would impose a
hardship because of a physical disability or geographic barrier, or, in the case of an individual who
does not have a bank account, that EFT would impose a financial hardship. We also proposed to
draw a distinction between recipients coming on stream after July 1996 (the date of our interim
regulation implementing the requirement that all new recipients with bank accounts receive
payments by EFT) and those who were receiving Federal payments before that date.
Many of those providing comments urged us to extend waivers as well to individuals with
mental disabilities and literacy or language barriers, and questions were raised as to the
appropriateness of a distinction between existing and new recipients with respect to the
availability of waivers. We are giving the most careful consideration to all of these comments,
and I think it is very likely that we will not only expand the scope of waivers, but will work to
simplify the procedures for invoking waivers.
3

Let me elaborate on our thinking in this regard, because we believe it is critically
important that the Congress understand and share our approach. There is an obvious tension
between realizing the long-range objectives of EFT '99 -- maximizing both the cost savings to the
government and the benefits of increased security and convenience for recipients from the move
to electronic payments -- while avoiding disruption, hardship, inconvenience and apprehension on
the part of payment recipients. We are very purposefully attempting to resolve this tension by
giving primacy to the interests of recipients, while laying the groundwork for full implementation
of EFT over the long term. We have a strong conviction that even with a liberal waiver policy the
transition to EFT will come about quite effectively in the fullness of time, as more and more
citizens become familiar and comfortable with new electronic payments technology and recognize
the benefits of EFT.
Electronic Transfer Accounts

At present electronic payments may only be deposited into accounts at financial
institutions. The most complex issue confronting us in implementing EFT '99 is how to meet the
needs of the approximately 10 million Federal payment recipients who do not have accounts at
financial institutions. While there are many reasons why these individuals do nN have bank
accounts, the overwhelming reason is that the overall cost of a conventional bank checking
account is disproportionate to their financial resources. The rapidly developing environment of
electronic banking, with its sharply reduced costs for all participants in the payments system,
presents the prospect of offering unbanked recipients a means of enjoying basic banking service at
a very low cost. Our objective is to realize this prospect.
While we are still in the process of formulating the ETA, there are several considerations
that are currently guiding our thinking about how we fulfill our mandate to assure the availability
of a reasonably priced account for Federal payments recipients:
•

We intend to create an Electronic Transfer Account that will be offered by
federally-insured financial institutions selected, initially at least, through a process
of competitive bidding in defined regions of the country. We will prescribe a
uniform design for the account. We are presently exploring a process by which
smaller institutions, such as community banks and credit unions, which may not
have the capacity to otTer the ETA throughout one of the defined regions, could
elect to become providers of ET As within the communities they serve under
substantially the same terms as those fixed in the competitive bidding process. No
institution will be required to otTer ETAs, however.

•

We will also provide that in states in which there are Electronic Benefit Transfer
programs up and running, unbanked recipients may, at their option, elect to receive
their payments through such a program. Today 30 states have operating EBT
systems -- 16 statewide

4

•

The ET A will be designed principally to provide a low-cost means of receiving and
accessing Federal payments The account will be offered to recipients at a basic
monthly service charge that will be determined in the competitive bidding.
Recipients who may find even this charge to be a hardship will be entitled to a
waiver that will allow them to continue to receive checks.

•

While the ET A is being designed principally for recipients who do not have their
own bank accounts, we are exploring ways to avoid disadvantaging those Federal
payment recipients who were previously unbanked and who may have signed up
for accounts being offered in anticipation of EFT '99 taking effect even before the
ET A became available. In this connection we are keenly sensitive to the need to
strike a proper balance between offering a useful account to those who need it, and
avoiding the creation of disincentives to the private sector to provide competitive
and innovative alternative electronic banking products. We believe it is of great
importance that financial institutions develop their own approaches to serving the
needs of payments recipients in an electronic environment.

A major question for us is what features we should design into the ETA beyond the basic
ability to receive and access Federal payments Our primary objective, of course, is to keep the
cost of the account as low as possible, while making it attractive to unbanked payment recipients.
In this regard, we recognize that if we were to add additional features the basic cost of the
account could be increased for all recipients, including those who have no need for or interest in
the additional features This could raise issues of cross-subsidization among ETA holders, which
would be of great concern to us It may be, however, that there are some features that can be
added at only modest incremental cost -- perhaps on a pay-per-use basis -- that would help to
encourage unbanked recipients in the financial services mainstream, and we are giving careful
thought to these Our current thinking is that at least the following features would be included
within the basic monthly charge for the ETA
payments~

•

unlimited receipt of Federal electronic

•

debit card access, with some specified number of free ATM withdrawals and
unlimited point-of-sale purchases, including cash-back
no minimum balance requirement.
on-line balance inquiry,
one free replacement card per

year~

and

toll-free access to customer service, 24 hours a day, seven days a week.
We plan to develop a proposed ETA structure in March and then publish it for public

5

comment for 30 days After evaluating the comments, we will detennine the final design of the
account and then initiate the process of competitive bidding
Implementation Time Frame

The Subcommittee has asked that we address the question whether we will be able to meet
the January 1, 1999 deadline for full implementation of EFT '99, and if not whether we will be
requesting legislation to delay the effective date.
Let me assure the Subcommittee that we have been working hard to realize the objective
of a January 1, 1999 effective date, and we presently see no reason to legislate a change in that
date. For many millions of payments recipients who have bank accounts, the transition to EFT
should not present problems, and for those banked recipients who may face some hardship in the
transition our regulation setting forth the availability of waivers will be in place well in advance of
the effective date. To delay the effective date generally would, we believe, needlessly delay
realization of much of the benefit of EFT '99.
As we signaled in our Notice of Proposed Rulemaking, however, there is a substantial
likelihood that the ETA will not be available by January 1, 1999, and thus unbanked recipients
may not by that date have available a facility for receiving electronic payments It was for this
reason that we originally proposed to grant a waiver until the earlier of January I, 2000, or when
the ETA becomes available, to those recipients who certified that they did not have a bank
account. In our subsequent deliberations, however, particularly with our colleagues at the Social
Security Administration, we have become concerned about the logistical burdens that could result
from a requirement for such written certifications from recipients who want to invoke any of the
various waivers available.
As the result of our continuing discussions with SSA, we believe we have jointly
developed possible approaches to these problems For example, we could consider granting an
automatic waiver, requiring no written certification, for those who want to wait for the ETA, until
the earlier of January I, 2000 or the time the ET A is available nationwide. In addition, we could
provide the agencies flexibility with respect to the process for the invocation of waivers, in order
to avoid the need to deal with an avalanche of paper -- for example, by establishing a presumption
that waivers have been invoked by recipients from whom no response is received after the agency
has informed them of the options available to them under the regulation.
Public Education

We firmly believe that for EFT '99 to succeed, a significant public education effort is
essential. Payments recipients not only must be informed of the requirements of the new law, but
they must be fully and fairly infonned of their options. Above all, they must be educated on the
benefits of EFT in general, the attributes of the ETA, and the process for bringing about the
conversion. We need to get across emphatically the message that no one's payments will be

6

interrupted or withheld because of the transition, and we must give those recipients who have
apprehensions about the program the comfort of knowing that waivers will be liberally available.
In short, we recognize that effective communication is a key to success for any new program, and
we are putting a great deal of time, energy and financial resources into conveying the appropriate
messages to recipients.
Treasury has conducted extensive market research to learn more about the characteristics
of the recipient population, and we will be using that information to craft an effective, nationwide
public education campaign. Our most recent market research, which took the form of focus
groups around the country, tested various EFT '99 messages that may be used in the public
education campaign. The purpose was to ensure the appropriateness of language, cultural
sensitivities, ease of understanding, and overall appeal of the messages we hope to use in the
campaign. We recognize that it is crucial to the success of EFT '99 that we make available to
stakeholder groups and the public clear and easily intelligible information about the requirements
of the legislation.
Components of the campaign include messages to current check recipients about the
requirement to convert to EFT payments, the safety and convenience of EFT, and the procedure
for signing up for EFT. Another key aspect is educating those check recipients without accounts
at financial institutions how to obtain and maintain a bank account. We want to assure that all
payment recipients, particularly those without bank accounts, know that they do not have to give
up checks until the ETA is available to them, and we want them to understand the scope of the
waivers that will be available. We do not want recipients to be stampeded into choices that are
not right for them, and this message will be key to the campaign and to any literature that we
distribute.
Treasury has undertaken extensive outreach efforts in furtherance of this campaign,
including meetings with consumer and community-based organizations, government vendors,
financial trade associations, and both bank and non-bank providers of payments services. We
have placed a heavy emphasis on working through and with consumer and community groups in
our public education efforts, as these groups represent and interact directly with payment
recipients on an ongoing basis Our outreach effort through these organizations, which has
become a key component of our campaign, began in earnest with a meeting last November here in
Washington that included interactive workshops and other discussions to help Treasury better
understand recipients' diverse needs A second forum, which was also widely attended, was held
in Los Angeles in December to hear community organizations' perspectives on the needs of those
in their communities
A grassroots public outreach effort will involve identifying hundreds of local community
organizations that will assist our efforts in reaching current check recipients. I believe this effort
is critical to the success of converting current check recipients, both banked and unbanked, to
electronic payments. For instance, an ad hoc Financial Services Education Coalition has
convened in response to the need for EFT '99 materials. Also, a new pamphlet, entitled "What

7

YOII Need to Know About Your Federal COl'emmellt Payment," has been printed and is being
distributed to recipients to clarify any confusion that may be created by EFT '99. As of the last
week of February, 455,000 copies of the English version and 8,500 copies of the Spanish version
of this brochure have been requested by financial institutions, community-based organizations, and
consumer organizations for their constituents. Over one million copies have been printed and are
ready to be distributed free of charge to those who are interested.
Treasury continues to meet with Federal agencies to develop EFT implementation plans.
These meetings enable us to educate agencies on the provisions of the Act and also provide a
forum for agencies to inform us of any potential problems with EFT implementation. We have
obtained additional agency feedback from interagency policy workgroups that were formed to
address major EFT conversion issues such as international payments, disaster payments, and
vendor payments.
In summary, the objectives of this campaign will be to work closely with the grassroots
community, the private sector and other Federal agencies, to educate consumers so that they can
make good choices, and to minimize disruption to recipients while adding value to the way they
conduct their finances. Seamless coordination is a necessity if the public education campaign is
going to succeed Each entity must work in collaboration with the other, providing
reinforcement, assistance and a shared set of objectives. Under the leadership of the Treasury
Department, we are confident that this will happen.
Conclusion

The Treasury Department believes that EFT '99 provides an important opportunity for us
to provide the high quality of service that our customers deserve, and at the same time to lower
the cost of government to taxpayers
Thank you, once again, for the opportunity to report on the progress of EFT '99 as well
as the challenges that lie ahead I will be glad to answer any questions the Subcommittee may
have
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DEPARTl\1ENT

lREASURY

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NEWS

OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

EMBARGOED UNTIL 10:00 AM
Text as Prepared for Delivery
March 4, 1998
Mary E. Chaves
Director, International Debt Policy
U.S. Treasury Department
Before the
House International Relations Committee
I appreciate the opportunity to testify on behalf of the Treasury Department regarding H.R.
2870, the proposed Tropical Forest Conservation Act of 1998. This legislation would help protect
tropical forests in developing countries through a combination of U. S. debt reduction and debtor
government creation oflocal funds to preserve, maintain, and restore tropical forests.
The fundamental objectives underlying this legislation are clearly laudable. The Treasury
Department supports both efforts to preserve tropical forests and the concept of linking debt
reduction to environmental objectives. The original Enterprise for the Americas Initiative (EAI), and
our current buyback/swap program encompass such linkage.

HR. 2870 closely follows that of the EAl, through which the United States provided $875
million in debt reduction to seven Latin American and Caribbean countries. This program generated
$154 million in local currency funds for the environment and child survival, with over 700 grass roots
projects funded to date -- ranging from reforestation projects and the rehabilitation of critical
watersheds to environmental projects for homeless children. Decisions on how these funds will be
used will continue to be made by combination public/private boards within the debtor countries, and
to be monitored by a similar public/private board here in Washington.
One of the U.S. environmental NGOs has called the EAl the best kept secret in Washington.
We're glad its good work in this Hemisphere is being recognized. Local funds created through debt
reduction in 1991-1993 will continue to generate funds for the environment and child development
for many more years.
Recently, in an effort to continue the EAl program, the Administration proposed, and
Congress approved, a buyback/swap program for the region. Under this program, USAID debt is
sold at its government asset value, based on its expected net present value. The sale can occur either
to the debtor country (through a buyback) or to a third party (through a swap). No U.S. budget cost
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is incurred through these transactions. The debtor country receives a debt reduction benefit, and in
turn provides local.currency resources to support environmental, child survival, development, or
investment programs.
We have received expressions of interest in this program from Jamaica, the Dominican
Republic, and Guatemala, and have just completed a debt buyback by Peru. Peru's transaction
permitted it to repurchase USAID debt for one-third of its face value, while generating $23 million
for local environment and child survival programs. We believe authority for buybacks or swaps
would be a useful addition to H.R. 2870 that could significantly reduce its budget cost.
The Administration's FY 1999 budget request for debt restructuring programs focuses
primarily on international efforts to assist the poorest countries. This includes up to 67 percent debt
reduction under the current Naples Terms within the Paris Club of creditor governments. For those
countries requiring additional relief, the Paris Club will provide up to 80 percent debt reduction in
combination with debt relief from multilateral creditors under the heavily indebted poorest countries
debt initiative, known as RIPe. In addition, the Administration is seeking appropriations to support
full forgiveness of concessional debt for poorest African countries which qualify with strong reform
efforts under the President's Africa Initiative.
In considering H.R 2870, the Administration will want to review how this legislation might
complement existing debt reduction programs. We are also concerned that support for this legislation
not take resources from existing debt and environmental programs, which we believe are a priority.
The Global Environment Facility
In particular, the Administration is seeking $300 million in FY 1999 appropriations for the
Global Environment Facility, known as the GEF. This includes $192.5 million to clear GEF arrears
and $107.5 million for a first contribution to a new replenishment. The pilot phase of the GEF and
negotiations for the first independent GEF occurred during the Bush Administration. It has continued
to receive strong bipartisan support during the Clinton Administration.
The GEF is the foremost international organization helping developing and Eastern European
countries conserve the world's remaining forests and their biological diversity. The GEF also assists
in addressing degradation of international waters and fisheries; pollution from inefficient energy use;
and destruction of the ozone layer. In the forestry sector, the GEF works for the kind of policy
reforms and law enforcement that allow programs like the EAI to have sustained positive impacts
The GEF is implementing major forest projects in over 40 countries and supporting better forest
management capacity in many more.
The GEF is our top environmental priority and our top arrears clearance priority among the
multilateral banks for FY 1999 funding. Its arrears are the highest of any of the international financial
institutions. We believe it is crucial to clear all Global Environment Facility arrears and to authorize
and contribute to the second GEF replenishment this year We therefore encourage strong

2

Congressional support for our funding request for the GEF for FY 1999 as a key element of U. s.
international environmental programs.
Possible Modifications to H.R. 2870
We believe the proposed Tropical Forest Conservation Act of 1998 could attractively
complement our current programs in future years. We want to work with the Committee as this
legislation moves forward to consider a number of issues, including whether to continue to focus
action on concessional debt, as we have in the past, or to also include action on other debt, as
suggested in this legislation. The Administration could conceivably use this legislation to complement
action under existing programs for poorest countries and as a new benefit for lower middle income
countries with heavy debt burdens in all regions of the world. However, we believe the
Administration should have the flexibility to adjust the degree of debt reduction and to utilize debt
buybacks or swaps where appropriate for more creditworthy countries.
Finally, some of the proposed eligible countries for FY 1999 and 2000 are already receiving
benefits under existing debt reduction programs, or have little remaining U. S debt. A broader scope
for action would permit the Administration to take into account both the relative need for debt
reduction and the potential for tropical forest benefit in individual countries in designing a final
program for implementation.
I would like to thank the Committee for the opportunity to comment on the proposed Tropical
Forest Conservation Act of 1998. We look forward to working with you as this legislation moves
forward.
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DEPARTMENT

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OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

EMBARGOED UNTIL 3 P.M. EST
Text as Prepared for Delivery
March 4, 1998

TREASURY SECRETARY ROBERT E. RUBIN
HOUSE APPROPRIATIONS SUBCOMMITTEE ON TREASURY,
POSTAL SERVICE AND GENERAL GOVERNMENT

Mr. Chairman, members of the Committee, I appreciate the opportunity to testify on the

Treasury Department's fiscal year 1999 budget request. With me today is Nancy Killefer, our
Assistant Secretary for Management and Chief Financial Officer.
Treasury is requesting $12.3 billion in fiscal year 1999 an increase of7.2 percent over FY
1998. This increase is necessary to maintain current operations by supporting mandatory cost
increases and meeting anticipated workload requirements in FY 1999; to invest in critical capital
improvements for future efficiencies and program improvements and for addressing future
workload growth; and to accomplish important program enhancements.
Our request is critical to supporting Treasury's important and wide-ranging mission. The
Treasury plays a key role in the core functions of government, including tax administration,
revenue collection, law enforcement, financial management, tax policy, banking policy,
international economic policy and domestic economic policy. As just a few examples, we fight
narcotics trafficking and money laundering through Customs and other agencies, and manage the
federal government's debt structure at the Bureau of Public Debt. We manufacture and protect
the nation's currency, proces!: the federal paychecks for millions of Americans, and help develop
policies related to the budget, the nation's tax structure, international economic matters, and inner
city economic development.
With such a broad portfolio, we take very seriously the notion that we must continually
seek new ways to improve services and lower costs. Towards meeting these purposes, our
budget request supports Treasury's Strategic Plan and provides a performance plan for each of
Treasury's. primary missions and we, and I as Secretary, have worked to make GPRA not a

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required exercise, but rather a live, integral part of our thinking to improve how we fulfill our
many missions. More broadly, we believe that we must not do anything that threatens the fiscal
discipline so many have worked so hard to restore in this country, and which has been critical to
the strong economic conditions of the past five years.
We've already provided the Committee detailed presentation material on the extent of our
fiscal year 1999 request. Let me now highlight four areas - departmental offices, the IRS, law
enforcement, and the year 2000 problem.
First, let me discuss Departmental Offices. Departmental Offices contain the policy
groups that are meeting greatly increased challenges in the current environment: tax policy, which
is developing the regulations to implement the tax cuts, loophole closers and simplifications of last
year's budget; international economic policy, which is providing leadership for the United States
and the world in response to the short and long-tenn issues of financial instability in the global
economy; economic policy, which is deeply involved in international economic issues, entitlement
reform, and the economic initiatives in the President's budget; and law enforcement, which has
expanded policy and oversight objectives.
In addition, Departmental Offices contain the central management functions for all of

Treasury, and in furtherance of our very serious focus on management, human resources,
technology, and, of special interest with respect to budgetary matters, embarkation on a five year
restoration and repair program of the historic Treasury Department building, these functions are
being enhanced.
Second, let me tum to the Internal Revenue Service.
Shortly after I first became Secretary, I became aware of serious problems at the IRS. In
many cases, those problems came to my attention as a result of the work and diligence of this
Committee. Over the last two and a half years we have been engaged in a highly intensified
process of change and reform at the IRS that has led to dramatic change with respect to
technology - though that is just the beginning of getting to where we need to go -- increased
electronic filing, improved telephone service and a greatly strengthened taxpayer advocate.
Perhaps most importantly, and symbolizing our commitment to thoroughgoing change, we
brought on board a new type of Commissioner, Charles Rossotti, who had extensive experience as
a CEO in the private sector, with expertise in computer systems.
However, while important steps have been taken, the great bulk of the challenges lies
ahead. Just as these problems took a long time to develop, it is going to take a great deal of time
and effort by all of us to build the kind of IRS that the taxpayers deserve. We are committed to
working with you to accomplish that goal. Our budget request includes a series of items to
advance this effort.
First, our request includes additional resources to improve customer service, including
2

increasing and improving the quality of telephone access, rewriting of notices and forms,
expanding the taxpayer advocate staff, and implementing Citizen Advocacy Panels.
Second, our request positions the IRS to move forward with implementing the
Modernization Blueprint, which is absolutely a requisite to improvements in customer service,
efficiency, tax compliance and financial reporting. On a broader front, the budget provides seed
funding as the Service moves more fully to implement its new organizational concept.
Finally, our request includes important restoration of funding for essential business-line
investments. This funding has been deferred and reallocated over the past two years to address
immediate Year 2000 requirements, about which I will say a few words in a moment. However,
significant needs still exist for these investments in order to replace critical items such as aging
computer equipment for front line examination personnel. This investment is essential to our goal
of providing efficient compliance operations and effective service to taxpayers.
Let me tum now to our budget request for Treasury's law enforcement activities. I spoke
before this Committee last week on this subject, but I want to reiterate several key points.
As this committee well knows, Treasury has extensive and critical law enforcement

responsibilities executed by Customs, the Secret Service, Alcohol, Tobacco and Firearms, the
IRS, FINCEN, and the Federal Law Enforcement Training Center. To strengthen these critical
efforts, the President's FY 1999 budget for Treasury law enforcement bureaus totals $3.204
billion, an increase of $172 million or 5.7 percent above last year. We need this increase to meet
certain mandatory cost increases, and to enhance our activities in combating narcotics trafficking,
reducing illegal firearms trafficking to young people, improving Presidential protection and White
House security, investigating financial crimes, and training law enforcement officers.
Mr. Chairman, in my testimony last week, you raised the issue with respect to the

comparison with Justice. The Administration throughout the budget process has made what it felt
was the optimal allocation of scarce resources within the constraints of fiscal discipline, but as you
now go through your examination, this committee might wish to direct an analysis of that
comparison. I will observe that both the Justice Department and the law enforcement missions at
Treasury are critical and that the cooperation and coordination between Treasury and Justice law
enforcement, both at head qUaI ters and in the field, is working well, which has too often not been
the case.
We at Treasury have enormous pride in the quality and esprit of our law enforcement
bureaus, and we are committed to fully supporting them, as in the Secret Service decision to
enhance White House security, ATF's reforms and its defense against strident attacks by the
NRA, and the securing of appropriate funding. Our law enforcement budget has, over the past
five years had an increase of27.9 percent, compared to 20.6 percent for non-defense
discretionary, and this committee has contributed greatly to that result.

3

Finally, Mr. Chairman, let me say a word about an issue of pressing importance to our
nation and one on which we are keenly focused at Treasury: the Year 2000 date change problem.
As you know, many computer systems rely on two digit dates as a result of a short cut computer
programmers widely used until recently. The year 2000 would be entered as "00" but interpreted
as "1900." As a result, these computers will not be able to execute many required functions
properly as of January 1,2000. As an agency with massive computer system activities second
only to the Defense Department in the federal government, this issue is one of the highest
priorities to us. I meet bi-weekly with Assistant Secretary Nancy Killefer and our highly
respected Treasury CIO to track progress and focus on problems.
Our FY 1999 budget includes $253 million to address this problem at Treasury.
Treasury's date change needs are also part of the Administration's FY 1998 Supplemental Budget
Request. We have identified close to $200 million in additional needs in the current year that
must be funded if we are to complete the fixes in time, but the supplemental proposed by the
Administration includes additional flexibility of up to $250 million in order to fund these
requirements. To date, we have identified new requirements of approximately $175 million that
need to be addressed this fiscal year. We look forward to working together with the Committee
in addressing these critical requirements.
In both the private and public sectors, cost estimates and time lines on Y2K compliance
have exceeded expectations. So that we can meet this challenge in time, Treasury is focussing on
only those systems most critical to its mission. The challenge is enormous, but we have made
significant progress thus far and continue to be on schedule for almost all our mission critical
systems.
Mr. Chairman, let me conclude on a personal note. Throughout my experience in
government, which includes two years at the National Economic Council, and three years at
Treasury, I have been continually impressed by the intelligence, professionalism and dedication of
the people with whom I've had the opportunity to work.

A Secretary of any Department faces a lot of challenges, including a multitude of policy
issues, and has to make judgements about priorities. When I was first nominated to be Treasury
Secretary I had dinner with a former Treasury official who had served with two administrations
and who advised me that my highest priority should be to focus on maintaining and building on
the excellence of this institution. He was absolutely right. And we have been intensely focused
on management issues in my tenure and it is in that spirit that I ask you to approve our budget
request. Let me also say that I have been continually impressed by the capability, the
professionalism. and the commitment of the people at Treasury and the Bureaus, and they deserve
our support on their work to fulfill their wide range of responsibilities in serving the American
people. I also feel that in my time at Treasury this Committee has made a major contribution to
the management of Treasury through its constructive and knowledgeable analysis and review, and
through its support for funding. Thank you very much and I look forward to working with all of
you in the future as we face our challenges.
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From: TREASURY PUBLIC AFFAIRS
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FOR IMMEDIATE RELEASE
March 3, 1998

(20~) 622-2960

Contact: Hamilton Dix
(202) 622-2960

RUBIN TO SPEAK AT NEW YORK SAVINGS BONDS KICKOFF
Treasury Secretary Robert E. Rubin will kickoff New York's annual Savings Bonds
campaign at noon, Friday, March 6. in the Grand Ballroom of the Plaza Hotel. Fifth Avenue at
Central Park South.
U.S. Treasurer Mary Ellen Withrow will join Secretary Rubin at the luncheon sponsored
by the Grenter New York Savings Bonds Committee and hosted by the committee's 1998
Chairman Frank N. Newman. Chairman of Bankers Trust Company.
55 million Americans own more than 800 million Savings Bonds worth $186 billion. 15
million Americans purchase Savings Bonds every year an.d 6.7 million purchase through their
employers' payroll savings plan.
Interested media may set up beginning at 11 a.m. and photo identitication is required.
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.

TOTAL P.Ol

DEPARTMENT

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OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlllNGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
March 4, 1997

Contact: Kelly Crawford
(202) 622-2960

STATEl\1ENT BY TREASURY SECRETARY ROBERT E. RUBIN ON THAILAND

I welcome the favorable IMF Board review of Thailand's Stand-by program completed
today. We are encouraged by the progress of the Thai authorities in implementing their
IMF-supported economic program, and commend the strengthened measures outlined in the latest
Letter of Intent. These measures have been well received by the financial markets, and we
welcome the fact that major international banks have been playing a constructive role in Thailand
by extending their short-term claims to Thai banks.
As a sign of our continued confidence in the commitment of the Thai Government to
reform, the United States would be prepared, if circumstances warrant, to support additional IMF
financing for Thailand in the form of access to the IMF's Supplemental Reserve Facility. This step
is designed to reinforce the positive developments in Thailand by making it clear that access to
additional resources will be provided, if needed. Thailand now has substantial reserves and
significant amounts of official support in the pipeline. The international community has a strong
stake in the success of Thailand's reform program, and the United States will continue to play an
active role in supporting those efforts.
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DEPARTMENT

lREASURY

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THE

TREASURY

NEWS

EMBARGOED UNTIL 9 A.M. EST
Text as Prepared for Delivery
March 5, 1998
TREASURY SECRETARY ROBERT E. RUBIN
HOUSE APPROPRIATIONS SUBCOMMITTEE ON VA, HUD AND
INDEPENDENT AGENCIES

Mr. Chairman, members of the Subcommittee, it is a pleasure to speak with you today
about our Fiscal Year 1999 budget request for the Community Development Financial
Institution Fund. I am pleased to be joined today by Ellen Lazar, the new Director of the
COFI Fund.
The President's budget for FY99 includes $125 million for the COFI Fund. This
funding is a critical component of our strategy to promote private sector-led economic growth
in economically distressed areas.
Since taking office, one of President Clinton's highest priorities has been to foster
growth in economically distressed communities. I have long thought -- and I know President
Clinton shares this belief -- that this is an issue of vital importance to all of us -- no matter
where we live or what our incomes may be. It is a fundamental national economic issue,
because our country will never reach its full economic potential, unless we deal with the
problems of the inner city and other economically distressed communities. Just think of the
difference it would make in terms of increasing productivity and standards of living while
reducing the costs connected with social problems if we can bring the residents of these areas
into the economic mainstream.
The Administration's strategy has three components: investing in people, through
education, and training; strengthening public safety; and fostering economic and community
development. At Treasury, we are energetically involved in this effort by bringing our broad
expertise in the capital markets to bear on these issues. One of the most important components
of our strategy is the COFI Fund, which made its first round of awards in July 1996.

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..

<

In CDFI, I believe we have a new, more market-driven approach in fostering
economic growth in economically distressed areas. In many respects, we are witnessing a quiet
revolution in the approach taken to these issues by helping the public sector and non-profit
organizations work with mainstream banks and other financial institutions to create jobs and
promote growth. The Fund's aim is to expand access to credit and financial services in lower
income urban, rural and Native American communities, areas where one of the biggest
obstacles to economic development is a lack of access to mainstream sources of private sector
capital for jobs and growth because residents are turned down by financial institutions. In
short, the COFI Fund is helping to provide capital to promote private sector activity in
communities across the country.
The COFI Fund has two main programs: the COFI program, which is designed to
assist specialized community development financial institutions, and the Bank Enterprise
Award program, which rewards financial institutions that are increasing their lending and
providing more financial services in distressed communities. Both programs pursue strategies
designed to meet unique local needs to help each community deal with its particular
circumstances, whether it is helping people buy a house, or start a business, with the goal of
moving all Americans into the economic mainstream.
The program is still young. but we are already seeing signs of success. Thus far we
have awarded $75 million to nearly 80 COFls around the country. As required by law, these
dollars are matched one-to-one with non-Federal dollars by COFI award recipients. As a
result, these investments will leverage at least twice the amount of capital awarded and
sometimes more.
These investments are making a difference. For example, Bethex Federal Credit Union
in the South Bronx, a small financial institution originally founded in 1970 by welfare
recipients, received a $100,000 grant from the COFI Fund to expand its financial services and
increase its business lending. Over the past 18 months. Bethex' membership has grown from
1.270 to 3,000 and its assets have increased from $1.6 million to $3 million. In addition,
Bethex has launched a "School Banking" program to encourage savings among students.
Let me describe the impact that the Fund had on one individual. Andrew Fuentes of
San Antonio was too ill to return to his construction job. At his wife's suggestion, he made a
table and set of chairs for their empty kitchen out of some old wood. Soon afterward, Mr.
Fuentes was selling his furniture to friends and began making furniture full time. Andrew
approached several banks for a loan to expand his business. but was turned down because of
his credit history. He eventually applied for and obtained a $3,000 loan from ACCION
Texas, a local 1996 COFI awardee and this loan allowed him to expand his inventory and
double his sales.
With respect to the BEA program. more banks and thrifts than ever before are reaching
out to their communities and investing in COFIs. This year we received 104 applications, a 40
2

percent increase over last year's applications. Moreover, many of the awardees are choosing
to reinvest the awards they receive for past performance back into community development
projects. They are by no means required to do so. The Fund's $30 million in BEA investments
have already leveraged $273 million in bank activities. In this way, the CDFI Fund is getting
increased private sector leverage for federal dollars.
Citibank, for example, which was awarded $227,250 for providing investments of $1.5
million to 13 organizations serving distressed communities throughout the United States, is
using its award to help build the capacity and skills of CDFIs.
As with any new organization there have been some growing pains. Let me emphasize
that congressional oversight has been useful in helping the Fund strengthen its internal
controls and procedures. I believe we have dealt with those problems effectively and we will
continue to improve procedures as this program grows and matures. In fact, the fund was
recently given an unqualified audit for its activities since inception. We are moving this
program forward with the new leadership of Ellen Lazar, who I believe brings to the job the
dedication, experience and energy needed to implement the CDFI Fund's important work in
the years ahead.
Mr. Chairman, we now have a vision that makes sense, a program that is up and
running, and money that has begun to flow to communities and make a difference in people's
lives. Since its inception, CDFI has enjoyed bipartisan support and I look forward to working
with all of you to reauthorize it next year and secure stable and adequate funding going
forward so that communities across the country can continue to benefit from the Fund's work.
And that is a very good investment in the long-term economic well being of not only the
people who live in those areas, but all of us. Thank you very much.
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EMBARGOED UNTIL 11 A.M. EST
Text as Prepared for Delivery
March 5, 1998

TREASURY DEPUTY ASSISTANT SECRETARY JONATHAN GRUBER
HOUSE EDUCATION AND THE WORKFORCE SUBCOMMITTEE ON
POSTSECONDARY EDUCATION, TRAINING AND LIFE-LONG LEARNING

Thank you for allowing me to come before you today to talk about the Treasury
Department's study of the financial viability of the government-guaranteed student Federal Family
Education Loan (FFEL) program. Last fall, the Office of Economic Policy at the Treasury
Department was asked by the National Economic Council to consider in particular the costs and
net returns to banks participating in this program under today's rules and the potential impact of
the interest rate change scheduled for July 1, 1998.
My office then undertook an intensive analysis of the functioning of the FFEL program for
large, for-profit lenders. Although we recognize the diversity of participants in this market, we
chose this particular focus because these institutions span the markets in which other lenders
operate, and represent the majority of loan origination today.
Our analysis is based on consultation with a number of large originators, holders, and
guarantors of student loans, as well as several other banks that finance and follow the student loan
business. We also talked with numerous outside experts, including Wall Street analysts of this
industry, academic experts on the banking industry, and staff at the Federal Reserve. We relied as
well on the helpful earlier analysis done by the Congressional Research Service. The basic results
of our analysis are as follows:
•

Under the current structure, banks earn returns well above the target rate of return that
they would require to participate in the FFEL program.

•

Under the interest rate change as currently scheduled, however, banks would earn returns
somewhat below that target.

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•

There are inefficiencies associated with the mismatch of (long-term) student loan interest
rates and (short-term) bank financing under the proposed formula. Therefore, joint
benefits could be realized to students and lenders from moving back to a short-term index.

•

An alternative rate setting formula, suggested by some, that returned the index for student
loans to the short-term rate, while holding students at the same interest rate that they
would face if the scheduled law change were to take place, would provide a competitive
rate of return for banks and maintain bank participation in the program.

The analysis that underlies these conclusions included several steps. The first is to
calculate the net income of student loan lenders. The gross income of these lenders is simply
determined by the legislated interest rate. We then subtract from this net income several types of
costs:
•

Cost of matchedfunds: To finance this loan to students, lenders must raise their own
capital funds; the largest cost offsetting the income from student loans is this cost of
raising "matched funds". The vast majority of these funds are raised in one of two ways:
by direct borrowing, which generally takes place at some markup over a short term
interest rate; or securitization, whereby lenders create securities which are directly backed
by their Treasury-bill denominated student loans. We obtained a number of quotes for
both these types of matched funding under today's system, and the costs were very close
to each other.
After the scheduled interest rate change, however, there will be an important mismatch
between the stream of payments from students (which is tied to a long term index) and the
sources of bank financing (which are tied to short term interest rates). This mismatch
introduces risk into lenders' portfolios, since they can't be sure that the income flowing in
from students will match the required payments that banks must make to their financiers.
Banks can shed this risk by "swapping" -- i.e. giving up -- their long-term income for
income that is tied to a short-term index. The price for doing so is some extra "hedging
cost" that is paid to the swap dealer who is willing to bear this risk for the banks. We
talked with several major financial institutions, who provided estimates of the cost of the
required swaps.

•

Servicing and overhead costs: These consist of the expenses of running the student loan
portfolio, including a share of expenses such as general management, legal, accounting,
human resources, and marketing costs, plus direct costs for servicing the loan such as
expenses for collections, borrower correspondence, reporting and account maintenance,
and filing guarantee claims. Servicing costs may vary among lenders depending on the
size of lenders and the efficiency of their operations; larger lenders probably are more
efficient owing to economies of scale, while smaller lenders often sell the loans to
secondary markets or contract for servicing.
2

•

Default: The possibility of default on loans in repayment also implies some cost to lenders.
This cost is small, however, because the federal government guarantees all loans, with
banks bearing only two percent of the risk.

•

Fees: Another cost for lenders is the one-time 0.5 percent origination fee paid by loan
originators to the Department of Education. We spread the cost of this fee over the
average life of a loan to obtain its annual cost. In addition to this origination fee, holders
of consolidation loans must pay to the Federal Government a rebate fee, calculated on an
annual basis, equal to 1.05 percent of the loan principal plus interest.

•

Prepayment: Lenders offering student loans face a risk of prepayment of loans attributable
to defaults, loan consolidation, and advance payments from borrowers. Prepayment
reduces the life of a loan, thereby increasing the over-the-life cost of certain fixed
expenses, e.g., origination support. Consequently, lenders may face a prepayment risk
that results in a cost to them. Many financial experts, however, think that prepayment
costs are not large for student loans.

We then subtract the sum of these costs from the return to the student loan, to obtain the
net income on assets before tax. The second step in our analysis is then to compare this net
income to the banks "target" rate of return, or the rate of return that banks require to continue to
participate in the student loan program.

As I noted earlier, banks finance the vast majority of their student loans by raising
offsetting funding, either by borrowing or by securitizing. But regulatory requirements, and
generally safe and prudent bank practice, requires that some part of the loan be financed by the
banks' own capital, or equity. This equity in turn, must earn a competitive rate of return to
maintain investment in the bank. Thus, ultimately, the target rate of return on a student loan is
determined by the share of the loan that must be financed by the banks own capital
(capitalization), times the rate of return required on that equity capital. That is, the desire of
banks to participate in the FFEL program will be determined by whether they can earn a
competitive rate of return on the capital that they must keep to offset the loan itself.
We assume a range for both of the key variables that pin down the bank's target rate of
return, the level of capitalization and the rate of return on equity. The minimum level of
capitalization required by regulators for a student loans, which are a very safe asset compared to
others held by banks, is on the order of 2%. However, regulators also require that, across all their
assets, banks have 4-5% capitalization. Moreover, banks today have capitalization of over 7%.
Our assumption for capitalization for the report is 4-5%, the overall regulatory requirement across
all assets. This is well above the minimum capitalization required by banks to offset their student
loans, but it is also below the average capitalization today for banks.

3

Our assumption for rates of return on equity capital is a range of 10-14% after-tax. The
upper bound of this range is slightly above the average return on equity for the 10 largest banks
over the past five years, a period of historically high returns on equity. The middle of this range
represents the longer run historical average. The lower bound represents both consideration that
student loans are less risky than average, so that they may require a lower return on equity capital
on the margin, and the fact that these loans may function to some extent as a "loss leader" to
attract later business as students borrow for other reasons. Combining our range of capitalization
and rate of return on equity capital assumptions, we estimate a "target" rate of return on assets of
between 0.8 and 1.15 percent.
The third step in our analysis was to compare the actual rates of return on assets for
lenders to this target rate of return, over time, for several different policy scenarios. To reiterate
and expand on what I said earlier, our results from doing so are as follows:
•

Under the current structure, banks earn returns well above their target range, at about
1.63 percent.

•

Under the scheduled interest rate change, banks would earn returns somewhat below their
target range, at about 0.53 percent on average over the next five years. Such a reduction
need not imply an immediate crisis in the market for guaranteed student loans, but it could
be problematic for lenders in the longer term.

•

There are inefficiencies associated with the mismatch of (long-term) student loan interest
rates and (short-term) bank financing under the scheduled change. Therefore, joint
benefits could be realized to students and lenders from moving back to a short-term index.

•

We then consider an alternative rate setting formula that has been suggested by some:
returning the index for student loans to the short-term rate, while holding students at the
same interest rate that they would face if the scheduled law change were to take place.
We find that over the next five years, "holding students harmless" in this way would result
in an average rate of return on assets to banks of 0.85 percent, which is at the bottom of
their range of target rates of return, and thus could maintain bank participation in the
program.

•

We also confirmed the significant differences in lender costs for loans in-school and inrepayment, as is recognized by the current 0.6 percent differential between the interest rate
charged to students in school and in repayment. Continuing to include such a differential
between the interest rates charged in school and in repayment would be an effective means
of addressing the underlying cost differences in these two cases.

•

Finally, we note that the uncertainties involved in this exercise point out the difficulties
with regulatory determination of student loan interest rates. An alternative approach
4

would be to use a more market-based mechanism for determining these rates. For the
student loan program, this could mean using some form of auction system to determine
who would receive the rights to originate student loans. The successful experience of the
Health Education Assistance Loan (HEAL) program using an auction system for
allocating the insurance authority for HEAL loans suggests that some form of auction
could be considered for the Federal Family Education Loan program.
I hope that this summary has served to explain the basic structure of our analysis and our
most important conclusions. I am happy to answer any further questions that you have about this
report.
-30-

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
March 5, 1998

Contact: Peter Hollenbach
(202) 219-3302

PUBLIC DEBT OPENS BOOK-ENTRY CONVERSION WINDOW FOR
STRIPPED U.S. TREASURY BEARER SECURITIES

Treasury's Bureau of the Public Debt announced today that it is opening a 6-month window to
allow holders of physically stripped U.S. Treasury bearer principal pieces to convert them to
book-entry. The window will open April 6, 1998 and close October 9, 1998.
Called BECCS, (BEarer Corpora ConversionS), the new program offers holders of the principal
portions, or corpora, of U.S. Treasury bearer securities that were stripped of all non-callable
coupons an opportunity to convert their stripped corpora to book-entry form. BECCS securities
will be maintained in the commercial book-entry system.
BECCS benefits holders of physical corpora by eliminating the costs associated with the storage
and safe keeping of physical securities. Book-entry also eliminates the risk of loss or destruction
of these paper securities. Some 14,000 stripped corpora worth $6.2 billion are held by the
public: this represents approximately 75% of the $8.6 billion in unmatured bearer principal.
Bearer corpora that are not subject to call will be converted to zero coupon book-entry securities
which are transferable within BECCS.
Callable Bearer corpora, (therefore redeemable on call by the Treasury before maturity) that are
submitted with all associated callable coupons will also be converted to zero coupon book-entry
securities which are transferable within BECCS. The associated callable coupons will be linked
with the BECCS security and cannot be separately traded. If callable bearer corpora are not
submitted with all of their associated coupons, the corpus will be converted to non-transferable
zero coupon book-entry securities within BECCS. Each individual callable coupon submitted
will be converted to a non-transferable coupon within the existing CUBES program.
Public Debt is also reopening the CUBES (Coupons Under Book-Entry Safekeeping) window for
the same 6-month period. CUBES lets holders of stripped bearer coupons convert them to bookentry and makes them readily transferable. Participation in the BECCS program is not a
prerequisite to convert coupons to CUBES. The first CUBES window was opened in 1987 and
reopened several times to offer additional opportunities for holders of coupons previously
stripped from bearer Treasury securities the opportunity to convert those coupons to book-entry
form.
(more)

RR-2279
http://www.pubUcdebltreas.gov

-2Depository institutions interested in participating in the BECCS or CUBES program should
contact either Grace Jaiman or JoAnna Grever of the Federal Reserve Bank of New York at
(212) 720-8183 as soon as possible for more information on how to present the corpora and
coupons. Entities other than depository institutions that hold stripped Treasury coupons and
wish to convert those corpora and coupons to book-entry form under the BECCS and CUBES
programs must arrange for the conversion through a depository institution.
Participating institutions will be charged a fee of$4.00 for each corpus or coupon converted and
must bear the full cost and risk associated with the delivery of the securities to the Federal
Reserve Bank of New York.
BECCS and CUBES are part of an ongoing effort to convert all outstanding paper securities to
book-entry form. Holders of fully constituted bearer and registered paper securities can also
convert their holdings to safe. convenient book-entry form and hold them in the commercial
system or Treasury Direct.
000

PA-314

BECCS & CUBES 1998 OPEN SEASON
- Questions & Answers 1.

What is BECCS?

BECCS stands for BEarer Corpora ConversionS. BECCS is a new program that
allows owners of stripped bearer corpora to convert these holdings to electronic
book-entry form.

2.

Why is Treasury offering BECCS?

The program is being offered to assist holders of stripped bearer certificates.
Holding investments in bearer form is risky. Bearer securities, whether stripped
or not, are prone to theft and consequently institutions who safe keep these
certificates incur a high cost to store and insure them. The BECCS program, like
its predecessor CUBES, was established to address this problem.

3.

What is a stripped bearer corpus?

A bearer security that has had all of its coupons removed (Le. stripped). The
prinCipal portion is known as a corpus (plural, corpora).

4.

What is a bearer security?

An engraved paper certificate (also known as a definitive security) that does not
have an owner's name inscribed on it. There are no ownership records
maintained for a bearer security. Ownership of a bearer security transfers by
physical delivery of the certificate to another party. The interest payments for a
bearer security are made by presenting a physical bearer coupon for payment.
These coupons were originally attached and are associated with a corpus.
Each coupon shows its payment due date and amount. An owner gets his or her
interest payment by detaching the coupon and presenting it for redemption on or
after the redemption date.
Public Debt stopped the original issue of bearer securities in 1983. There are no
bearer certificates for any U.S. Treasury marketable security that was auctioned
after 1982. There are currently only eighteen U.S. Treasury bonds left that were
available in bearer form. The last bearer bond is subject to call on November 15,
2006 and will mature (if not called) on November 15, 2011.

5.

What is CUBES?

CUBES stands for Coupons Under Book-Entry Safekeeping. CUBES is a
program that has been in existence since 1987 which allows owners to convert
their detached bearer coupons to book-entry form.

BECCS & CUBES 1998 OPEN SEASON
- Questions & Answers 6.

Why were the coupons detached?

Some investors would detach their future due coupons and sell them. These
coupons would be bought and sold at a discount until they matured. Upon
maturity, the owners would present the coupons for payment.

7.

What are "Open Seasons?"

We will only accept detached coupons and stripped corpora for CUBES or
BECCS conversions during pre-announced open seasons. We have had three
previous open seasons for CUBES conversion in 1987, 1992 and 1996. During
these previous CUBES open seasons, we would only accept detached bearer
coupons that were not subject to call. For the combined BECCS and CUBES
Open Season, which will run from April 6, 1998 to October 9, 1998, we will
accept both callable and non-callable detached coupons and stripped bearer
corpora. These bearer instruments will only be accepted for BECCS and
CUBES conversions at the Federal Reserve Bank of New York.

8.

What does "callable" mean?

When Treasury "calls" an issue it is declared matured before its stated maturity
date. Once called, the issue will cease to earn interest and the principal will be
redeemed. A security has to be designated callable when it is first issued. The
callable period is usually the last five years.
An example of a callable issue is the 14% U.S. Treasury Bond 2006-11. This
bond is subject to call on an interest payment date on or after November 15,
2006 and, unless it is called, will mature on November 15, 2011. This bond's
interest payments are guaranteed up to and including the call date of November
15, 2006. The interest payments after November 15, 2006, because this issue
can be called after this date, may not be paid and these payments are referred to
as, "Callable."

9.

What securities will be eligible for BECCS conversion?

Any stripped bearer security that won't mature or be subject to call until after
November 15, 1998 will be accepted for BECCS conversion.

10.

How many stripped bearer corpora are in circulation?

We do not have exact numbers because holders do not inform Treasury when
they strip their bearer securities. We estimate, though, that there are 14,000
stripped bearer corpora in circulation with a total principal amount of $6.2 billion.
The typical stripped corpora has a face value of either $100,000 or $1,000,000.
2

BECCS & CUBES 1998 OPEN SEASON
- Questions & Answers 11.

Will there be a processing fee charged for BECCS and CUBES
conversions?

Yes, participants will be charged a separate and non-refundable conversion fee
of $4.00 for each coupon and each corpus conversion transaction processed.
Specifically, the fee will be charged as follows:
•

each non-callable corpus will be charged a transaction fee of $4.00;

•

each callable corpus submitted with all of its associated callable coupons will
be charged one transaction fee of $4.00;

•

each callable corpus submitted missing one or more of its associated callable
coupons will be charged a $4.00 transaction fee for the corpus, plus a $4.00
fee for each separate callable coupon converted; and

•

each detached coupon, whether callable or not, will be charged a $4.00
transaction fee.

12.

Where are the BECCS and CUBES accounts maintained?

Both BECCS and CUBES are maintained exclusively in the commercial bookentry system operated through the Federal Reserve. Any financial institution or
other entity that does not maintain a securities account directly at the Federal
Reserve, can submit detached coupons and stripped corpora through a financial
institution with a direct account.

13.

What are the advantages of BECCS and CUBES conversions?

BECCS and CUBES benefits holders of physical corpora and detached coupons
by eliminating the costs associated with the storage and safekeeping of physical
securities. Book-entry also eliminates the risk of loss or destruction of these
paper securities.

14.

Why are conversions limited to open seasons?

There are not enough detached coupons and stripped corpora in circulation to
justify offering continuous conversion services.

3

BECCS & CUBES 1998 OPEN SEASON
- Questions & Answers 15.

Can a BECCS security be reissued in definitive form?

No, we believe that offering definitive reissuance for BECCS defeats the purpose
of the program and that the overall demand for definitive securities is practically
non-existent.
16.

Can a BECCS security be combined with its detached interest
payments (i.e. reconstituted)?

No, reconstitution is not permitted under this program.
17.

What about investors who own regular bearer and registered
securities?

Investors can submit these definitive securities at any time for conversion to
book-entry by presenting it to a Federal Reserve Bank or to their broker or
financial institution.

4

DEPARTMENT

OF

THE

lREASURY

TREASURY

NEWS

omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

EMBARGOED FOR RELEASE AT 9: 15 A.M. EST
March 6, 1998
REMARKS BY GARY GENSLER
ASSISTANT SECRETARY OF THE TREASURY
THE BOND MARKET ASSOCIATION ANNUAL MEETING
BOCA RATON, FLORIDA

I would like to thank The Bond Market Association for this opportunity to talk with you today.
am going to discuss the framework in which the Treasury addresses debt management and
outline some of the key challenges likely to confront us in the near term.
Goals
Treasury debt management has three principal goals.
•
First is sound cash management, assuring that Treasury cash balances are sufficient at all
times.
•
Second is achieving the lowest cost financing for the taxpayers, and
•
Third is the promotion of efficient capital markets.
Guiding Principles
In achieving these goals. a number of interrelated principles guide us.
First is maintaining the "risk free" status of Treasury securities. This is accomplished through
prudent fiscal discipline. and lest we forget the budget crisis of three years ago, timely increases
in the statutory debt limit. Ready market access at the lowest cost to the Government is an
essential component of debt management
Second is maintaining the consistency and predictability in our financing program. Treasury
issues securities on a regular schedule with set auction procedures. This reduces uncertainty and
helps minimize our overall cost of borrowing. Related to this principle, Treasury does not seek
to time markets. Our sheer size does not practically permit an opportunistic approach. Over the
long run. moreover. it is unlikely that we could consistently and successfully time markets. In
RR-2280
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

addition, any attempt to time markets inevitably would be perceived as signaling Administration
views on interest rates and the economy.
Third, Treasury is committed to ensuring market liquidity. The U.S. capital markets are the
largest and most efficient in the world. Treasury securities are the principal hedging instruments
across the markets. Liquidity promotes both efficient capital markets and lower Treasury
borrowing costs.
Fourth, Treasury finances across the yield curve, appealing to the broadest range of investors. A
balanced maturity structure also mitigates refunding risks. In addition, providing a pricing
mechanism for interest rates across the yield curve further promotes efficient capital markets.
Borrowing Needs and Sources
Let me turn to a brief discussion of our borrowing needs and sources.

At the start of the Clinton Administration the deficit was estimated to be $320 billion for 1998.
OMB now projects it to be around $10 billion and the CBO released estimates this week which
suggest a modest surplus. As a result of the deficit reductions we have seen in this decade. more
than one trillion dollars in capital -- which would otherwise have been borrowed by the U.S.
Government -- has been made available to help build America's future.
The decrease in the Government's net borrowing needs has been dramatic. Last year, net
Treasury borrowing from the public represented only a 6% share of total borrowing in the credit
markets. This compares with a nearly 60 % share in 1992. At this time, the financing accounts,
which largely support direct student loans, are the greatest contributor to net borrowing needs.
They are estimated to require approximately $16 billion in each of this year and next year.
Of course, our gross borrowing needs remain significant. This year, about $510 billion of
privately held coupon securities mature. Next year, $505 billion will mature. In addition, there
are currently $494 billion of privately held Treasury bills outstanding.
The bulk of our borrowing needs continues to be met through marketable debt issued to private
investors. The issuance of non-marketable securities. however, has been filling an increasing
share of our borrowing needs. Municipalities have been significant net purchasers of Treasury's
state and local government series ("SLGS") securities. Due to recently declining yields, they
have been refunding increasing amounts of their debt. We raised $16 billion of net new cash
from SLGS last year and estimate that we will raise at least twice that amount this year.
The Federal Reserve System's portfolio also has been absorbing an increasing share of our
declining financing needs. The System expands its Treasury portfolio in line with the growth in
demand for bank reserves and currency. The Federal Reserve System's outright holdings of
Treasury securities increased by $28 billion last year. This year, the System has been
purchasing nearly one third of our bill auctions, up from approximately one quarter just two
years ago.

Financing Tools
I would like to turn now to a discussion of the fmancing tools that we have at our disposal to
manage the Federal debt in the new fiscal environment. Let me review some brief thoughts on
issue sizes, issuance cycles, instruments offered, auction rules, and debt repurchases.
Issue sizes have been the principal tool used over the years to address changes in financing
needs. The Treasury has varied the sizes of weekly bill offerings to respond to seasonal changes
in cash balances, and generally has made gradual changes in the sizes of coupon issues to assure
consistency and predictability. The issue sizes of notes and bonds, however, are now back to the
levels which existed in 1992. Over that same period, the debt market has grown significantly.
We recognize that this has presented challenges for market participants. The important
relationship between issue size and liquidity is constantly considered. This week, we balanced
these concerns when we cut the size of the 3 month bill auction while maintaining the size of the
6 month bill. In addition, issue sizes could be adjusted by changing the treatment of foreign
official awards in coupon auctions. Instead of treating such awards as "add-ons," we could
include them in the amount offered to the public, as we currently do in bill auctions.
Issuance cycles are determined largely by cash management needs. In addition, we also take into
consideration the desire for a regular schedule of large liquid issues across the yield curve.
Therefore, while issuance cycles are adjusted less often than issue sizes, it will continue to be
appropriate to adjust them from time to time.

The specific instruments offered by Treasury have changed over time in response to market
demands. The 4 year notes were discontinued in 1991 and 7 year notes were discontinued in
1993. Many in the audience remember the 20-year bond, which was discontinued in 1986. On
the other hand, we initiated stripping of coupon securities in 1985.
We also are committed to the further development of inflation indexed securities. We believe
that they provide an important diversification vehicle for both Treasury borrowing needs and
investors. They also help promote capital markets in providing a pricing mechanism for real
interest rates.
We customarily use Cash Management bills to bridge low points in cash balances. The
Government's receipts and outlays have significant seasonal swings. The largest swings attend
tax receipt dates, particularly in April. Monthly fluctuations in fiscal results have varied as much
as $140 billion.
Treasury auction rules strive to ensure that Treasury rates are determined by the market and are
the lowest cost to the taxpayers. The availability of auction awards on a noncompetitive basis
and rules restricting award amounts help to promote broad distribution of Treasury securities.
We also reopen bills on a regular basis and coupon securities, from time to time, to promote
market liquidity. In addition, we are encouraged by the results of single-price auctions of 2 and 5

year notes.
The Borrowing Advisory Committee and several market participants have suggested that the
Treasury consider open market buy-backs. This will be considered versus alternative financing
tools, in light of the likelihood and potential amount of cost savings, the effect on the market for
off-the-run securities, the duration and mechanics of any such plan, and it's possible budget
sconng.
Summary
To help focus the discussion around these various financing tools, let me summarize a few
points. The present issuance schedule and most recent issue sizes for coupon securities would
approximately fund Qur maturing notes this year and next year. While recent issue sizes of bills
have been at a seasonal low for an extended period, they are expected to increase modestly later
this year. As our financing schedule is currently structured, however, we do not expect any net
funding from bills this year or next. As mentioned earlier, SLGS will provide significant net
funding this year. Assuming OMB budget projections, even if SLGS provide no net new funding
next year, we will be roughly in balance for the next two years.
As you can see, we face interesting new challenges at Treasury. I look forward to your
questions. Thank you.
-30-

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

EMBARGOED FOR RELEASE AT 3:00 PM
March 5, 1998

Contact: Peter Hollenbach
(202) 219-3302

PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR FEBRUARY 1998

The Bureau of the Public Debt announced activity figures for the month of February 1998, of
securities within the Separate Trading of Registered Interest and Principal of Securities program
(STRIPS).
Dollar Amounts in Thousands
$1,220,100,790

Principal Outstanding
(Eligible Securities)
Held in Un stripped Form

$987,496,101

Held in Stripped Form

$232,604,689
$10,230,358

Reconstituted in February

The accompanying table gives a breakdo\\TI of STRIPS activity by individual loan description. The
balances in this table are subject to audit and subsequent revision. These monthly figures are included
in Table VI of the Monthly Statement of the Public Debt, entitled "Holdings of Treasury Securities in
Stripped Form:"
The STRIPS data along with the new Mont h(v Statement of the Public Debt, is available on Public
Debt's Internet homepage at: www.publicdebt.treas.gov.Awide range of information about the
public debt and Treasury securities is also available on the homepage.

RR-2281

000

PA-315

http://www.publicdebt.treas.gov

TABLE VI· HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, FEBRUARY 28,1998

Principal Amount Outstanding In Thousands

Corpus
STRIP

Loan Description

Maturity Date

Treasury Bonds'
CUSiP
9128100M7
D08
DRS
OU9
DN5
DPO
DS4
DT2
DV7
DW5
DX3
DYI
DZ8
EA2
EBO
EC8
ED6
EE4
EFI
EG9
EH7
EJ3
EKO
EL8
EM6
EN4
EP9
EQ7
ES3
ET1
EV6
EW4
EX2
EYO
EZ7
FAI
FS9
Total Treasury Bonds .....

Interest Rate:
11·5/8
12
10-3/4
9·3/8
11·3/4
11-1/4
10-5/8
9-7/8
9·114
7·1/4
7-112
8-3/4
8·718
9·1/8
9
8·7/8
8-1/8
8·1/2
8·3/4
8-3/4
7·7/8
8-118
8·1/8
8
7·1/4
7·5/8
7-1/8
6·1/4
7-1/2
7·5/8
6-7/8
6
6·3/4
6-112
6-5/8
6-3/8
6-118

......

912803 AS9
ADS
AG8
AJ2
912800 M7
912803 M1
AC7
AE3
AFO
AH6
AK9
Al7
AM5
AN3
AP8
A06
AR4
AS2
ATO
AU7
AV5
AW3

AXl
AY9
Al6
BAO

sse
BC6
SD4
BE2
BF9
BG7
SH5
BJ1
BK8
Bl6
BM4

Reconstituted
Total
Outstanding

CUSIP

11/15/04
05/15/05
08/15/05
02115/06
11/15/14
02115/15
08/15/15
11115/15
02115/16
05115/16
11/15/16
05115/17
08/15/17
05115/18
11/15/18
02115/19
08115/19
02115/20
05115/20
08115/20
02115/21
05/15/21
08115/21
11/15/21
08115/22
11115/22
02115/23
08115/23
11115/24
02115/25
08115/25
02115/26
08115/26
11115/26
02115/27
08115/27
11/15/27

Portion Held In
Unstnpped Form

Portion He!d In
Stnppe1 Form

This Month

I

8.301,806
4,260,758
9.269,713
4,755.916
6,005.584
12,667,799
7.149.916
6,899,859
7,266,854
18,823.551
lB,864.448
18.194,169
14,016.858
8,708.639
9.032.870
19.250.798
20.213,832
10.228.868
10,158.883
21,418.606
11.113,373
11.958.888
12,163,482
32,798.394
10,352.790
10.699.626
18.374.361
22.909.044
11,469.662
11,725.170
12,602.007
12.904.916
10.893.818
11.493.177
10.456.071
10,735,756
22.518.905

4.863.406
2,942,108
7.231.313
4.745.100
2.719.184
11,407.479
6.650.076
5.491.859
6,711.654
18.261.151
17.945.328
8.003.929
7,770,458
2.961.439
1,950.670
5.330.798
17.699.592
5,080.868
3.344.323
5.043,406
10,073.373
4,606.248
5,115.802
7,594.844
8.826.390
2,922026
10.779.161
18.215.828
2.968.542
2.681.970
11,439.127
12.555.816
10.189.018
11.159.977
8.924.871
10,410.956
22.398,905

3438.400
1.318.650
2.038.400
10.816
3286.400
1.260.320
499.840
1.408.000
555.200
562.400
919.120
10 190.240
6 246.400
5747.200
7082200
13 920.000
2514.240
5 148.000
6814.560
16 375200
1.040.000
7 352.540
7.047.680
25 203. 550
1.526400
7.i77.6CO
7 555 200
~ E93.216
8501.120
S 043.200
1.162.880
349.100
704.800
333.200
1 531.200
324 800
120.000

238.400
261.900
66.400
0
377.600
408.480
128.960
81.600
137.600
0
49840
340.160
230.400
44.800
163
363.200
197.440
53.200
71.520
466240
88.000
60.160
662}20
980AOO
151.200
144000
432.000
308416
345.360
348.800
718.720
133.500
216.000
0
54.400
0

480.659.167

307.016.995

173 04 2.172

8.325.216

aoo

a

TABLE VI - HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM. FEBRUARY 28.1998 - Continued

Treasury Notes'
CUSIP
Senes
B
912827 WE8
WN8
C
WW8
0
XE7
A
XN7
B
XW7
C
3H3
AK
3K6
Al
YES
0
3P5
AM
3R1
AN
3U4
Y
A
YN6
YW6
B
ZE5
C
ZN5
0
3M2
X
ZX3
A
3WO
S
A85
B
B92
C
0
025
F49
A
B
G55
3J9
M
314
N
303
P
3S9
0
3V2
C
J78
A
B
l83
N81
A
P89
B
088
C
R87
0
A
S86
T85
B
U83
C
V82
0
W81
A
X80
B
Y55
C
Z62
0
2JO
B
2U5
C
3EO
0
B
3X8

PrincIpal Amount OutstandIng In Thousands

Corpus
STRIP
CUSIP

loan DescriptIon

Interest Rate.
9
9-1/4
8-7/8
8-7/8
9-1/8

8
5-3/4
5-5/8
7-7/8
5-5/8
5-5/8
5-3/8
8-1/2
8-7/8
8-3/4
8-1/2
5-3/4
7-3/4
5-3/8

8
7-7/8
7-1/2
7-1/2
6-3/8
5-7/8
5-3/4
5-3/4
5-5/8
5-1/2
6-1/4
5-3/4
5-7/8
7-1/4
7-1/4
7-7/8
7-1/2
6-1/2
6-1/2
5-7/8
5-5/8
6-7/8

7
6-1/2
6-1/4
6-5/8
6-1/8
5-1/2

Total
OutstandIng

912820 AN7
AP2
AOO
AR8
AS6
AT4
CB1
C07
AU1
CGO
CJ4
CM7
AV9
AW7
AX5
AY3
CF2
AZO
CPO
BA4
BB2
BCO
B08
BE6
CC9
CE5
CH8
CK1
CN5
BF3
BG1
BH9
BJ5
BK2
BlO
BM8
BN6
BP1
B09
BR7
BS5
BTJ
BUO
BW6
BX4
CA3
C08

912820 BZ9
eV8
CL9

PortIon Held ,n
Stnpped Form

2.978.200
4.175.200
4.214.400
1,905600
3.536,000
3.214,950
217,600
217,600
3.963.200
185.600
99,200
0
2.512.800
4.830.400
3.916.000
4,043.600
0
3.135.200
0
3.331,175
3.296,000
4.152.960
1.716.880
1,259,200
35,200
76,000
200,000
0
0
481.472
431,200
193,600
8.800
523,200
0
560
0
0
4,800
4.160
0
0
0
60.160
20.800
20.800
0

4.000
66.400
9.600
62,400
16.000
128.650
0
0
14.400
0
0
0
20,800
1,600
61,920
51.600
0
5,600
0
138,300
460.800
88,560
99,440
24,000
1,600
0
6,400
0
0
201,472
0
0
152,000
0
289.600
0
0
0
0
0
0
0
0
0
0
0
0

10131/99
11115/99

10.n3.960

11130/99

17.051,198
16.747.040
17.502.031
10.673.033
10.496.230
11.080,646
11,519.682
16.036.088
11,312.802
15.362.228
12.398.083
12.339.185
24.226.102
11.714.397
23,859.015
12.806.814
11,737.284
12,120580
12.052.433
13.100.643
23.562.691
28.011.028
12.955.077
14.440.372
13.346.467
14.373.760
13.834,754
14.739.504
15002.580
15209920
15513.587
16.015.475
22.740.446
22459.675
13.103.678
13958.186
25 636.803
13583.412

6.187.187
7.167.446
5,688.475
7.814.023
6.511.103
6,948.694
17,269.687
16.606,347
6.810,760
16.865,598
16,647,840
17.502.031
8.160.233
5.665.830
7,164,646
7,476,082
16,036.088
8,177,602
15.362.228
9.066.908
9.043,185
20.073.142
9.997,517
22,599.815
12.771,614
11,661,284
11.920,580
12.052.433
13,100,643
23,081,219
27,579.828
12.761.477
14.431.572
12.823.267
14,373.760
13.834,194
14.739.504
15.002.580
15.205.120
15.509.427
16.015.475
22.740.446
22.459.675
13.043.518
13.937.386
25.616.003
13.583.412

6,8049401

639.086.884

58.962,517

1,905.142

16938.273
16043.663
8.410286

16.938.273
16.043.663
8.410.286

0
0
0

0
0
0

41 392.222

41.392.222

a

0

987.496.101

232604.689

10.230.358

08/15/98
11115/98
02115/99
05115/99
08/15/99
09130/99

12131/99
01131/00
02115/00
05115/00
08115/00
11115/00
11115/00
02115/01
02115/01
05/15/01
08115/01
11115/01
05115/02
08/15/02
09130102
10131/02
11130102
12131/02
01131/03
02115/03
08115/03
02115/04
05115/04
08115/04
11115/04
02115/05
05115/05
08115/05
11115/05
02115/06
05115/06
07/15/06
10115/06
02115/07
05115/07
08115/07
02115/08

07/15/02

01/15/07
01115/08

Total Infiatlon-Indexed Notes
Grand Total

1220100 790 I

NOle On tlie .c:tJ'1 wor1(day 01 eac." month Table VI will be avallatle a~er 3 00 p m eaSle-n
PuDIIC Deot's weOslte at t'l!!D ItwNW putlhCOeO! treas gall

I

PortIon Held In
Unstnpped Form

9.165.387
11.342.646
9.902.875
9.719.623
10.047.103
10.163.644
17.487.287
16.823.947

05/15/98

Total Treasury Notes.
Treasury Infiatlon-Indexed Notes
Series Interest Rate
CUSIP
9128273A8
J
3-5/8
A
2M3
3-3/8
A
3T7
3-5/8

ReconstItuted
ThIs Month

Maturity Date

flrr.€

=., me Comme~:e Departmenfs EconomiC Bulletin 80arO (EBB) and on the Bureau of the

For more Information abou! E:5 ca:: (202) 482"~3 Tne Oalances In thiS lable are Subject to audit and subsequent adjustments

DEPARTMENT

OF

THE

TREASURY

NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622.2960

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
March 5, 1998

Ellen W. Lazar, Director
Community Development Financial Institutions Fund
House Subcommittee on VA, HUD, and Independent Agencies
Hearing on FY 1999 Appropriations

Chairman Lewis, Congressman Stokes and distinguished members of the Subcommittee, it is a
distinct pleasure to be before you today and represent the Community Development Financial
Institutions Fund. I am Ellen Lazar and I have been the Director of the Fund for two months.
Before I begin my testimony, I would like to introduce you to other members of the Fund who
are with me: Paul Gentille, Deputy Director for Management/Chief Financial Officer of the
Fund and Maurice Jones, Deputy Director for Policy and Programs at the Fund.
I would like to begin by thanking Chairman Lewis, Ranking Member Stokes and other
members of the Committee for your continued support for the Community Development
Financial Institutions Fund. For your efforts, the Treasury Department and I are deeply
gratefuL The funding you provide is making a difference in the lives of people that are often
left out of the economic mainstream.
The CDFI Fund, which was authorized by the Community Development and Regulatory
Improvement Act of 1994, was created to address the critical problems of urban, rural and
Native American communities that often lack adequate access to capital. Access to capital is
an essential ingredient for creating and retaining jobs, developing affordable housing,
revitalizing and maintaining neighborhoods, building local economies, and enabling people to
realize their hopes and dreams. There are significant capital gaps in distressed communities,
and this market niche is not often recognized or well understood. This makes it difficult for
conventional sources of capital to effectively serve low income people.

RR-2282
1
For press releases, speeches, public schedules and official biographies, call our 24.1zour fax line at (202) 622·2040
.

Despite the great strides that have been made as a result of a strengthened Community
Reinvestment Act in promoting access to credit in underserved neighborhoods, market
imperfections still keep capital out of these communities. Today, low income communities are
faced with many challenges -- such as moving families from welfare to work, providing basic
financial literacy skills, and training unskilled workers to become job ready.
For example, there is the single mother of three in Charlotte, North Carolina who recently
moved to escape an abusive spouse but found it impossible to service the debts caused by one
of her children's past medical expenses on her modest salary as a teacher's aide. The School
Workers Federal Credit Union was able to arrange a debt consolidation loan and help her not
only better manage her debts but also begin a savings program. She has now been able to
make a $1500 down payment on a house. Thanks to the $150,000 grant from the CDFI Fund
it received last year, this Credit Union is now poised to help many others work their way out
of debt and into asset building for their future.
The CDFI Fund represents a new direction in community development. The Fund's programs
leverage limited public dollars to build the capacity of private sector institutions to finance
community development needs, and the programs help forge partnerships between
communities and mainstream financial institutions. The Fund's efforts are designed to tum
dysfunctional markets into well functioning local economies.
The President and Congress working in partnership created the Fund in 1994. The Fund's
vision, and its approach represent a true innovation as a Federal initiative. We are now
beginning to see the first glimmer of what the Fund can accomplish by assisting communities
to realize their potential.
BUILDING STRONG AND EFFECTIVE MANAGEMENT SYSTEMS

The Department's and my top priorities will continue to be strengthening management and
internal systems and procedures of the Fund. Understanding the importance of a sound
management and program infrastructure, I wish to assure you that I and the Department are
committed to developing and implementing the necessary improvements to the Fund's financial
and program management, reporting systems. internal controls, operating procedures, and
awards monitoring. The Fund's new leadership is committed to improving financial
management and awards monitoring by ensuring strong program and financial structure,
effective internal controls, and increasing the use of information technology.
To date, we have already made significant strides toward achieving these objectives. I am
very pleased to report to the Subcommittee that in the Fund's first financial audit for Fiscal
Years 1995 through 1997, it received an unqualified opinion which means that our auditors
opined that our financial statements fairly and accurately present the financial position of the
Fund. As expected, the audit confirmed our own findings that the Fund had material
weaknesses in prior fiscal years. Using the Fund's FMFIA and audit processes and corrective
2

action plans, we will correct all material weaknesses and findings during FY 1998. As noted
in our Annual Report, the Fund is taking critical steps to strengthen and build its management
structure and staff. In the first quarter of 1998, a Deputy Director for Management/Chief
Financial Officer, with significant financial management experience in government, was
appointed. The Fund has also moved swiftly to fill other management positions that are
critical for ensuring proper internal controls and accountability including an awards manager,
an accountant, a Deputy Director for Policy and Programs and program managers for each
program.
A priority for the Fund during FY 1998 and FY 1999 will be to recruit, develop and retain
high caliber staff. The Fund requires a highly trained staff due to the complexities and
diversity of the community development finance industry. We will reduce our reliance on
outside contractors and enhance our in-house capacity and expertise to meet the needs of the
community development field. Special emphasis is being placed on the recruitment and hiring
of additional Fund staff and the dramatic reduction of the utilization of outside contractors.
The Fund is committed to managing for results and I am planning to lead our management in a
rigorous review of the Fund's current 5 year strategic plan, goals and performance measures
within the next couple of months. If appropriate, I will revise our 5 year strategic plan and
goals. I intend to show an important linkage between the Fund's goals and measures and those
goals and measures we require from our awardees. Our strategic plan will be accomplished
with appropriate Congressional consultation, as required by GPRA, and I look forward to
working with the Committee on this important planning process.
PROGRAM OVERVIEW AND PRINCIPLES

The Fund seeks to promote economic revitalization and community development through
investment in and assistance to community development financial institutions (CDFIs) and
through encouraging insured depository institutions to invest in CDFls and increase lending,
investment and services within distressed communities. The Fund's programs are built on
several key principles. First, stimulation of private markets is critical for rebuilding
economically distressed areas. Second, building the capacity of community based institutions
is critical for providing localities with the tools necessary to serve many underserved
communities. And third, an initiative that promotes private sector strategies to achieve public
policy goals must be based on performance and maximizing impact. The Fund has four
programs that collectively address these principles: Its two main programs - the Community
Development Financial Institutions (CDFI) Program and the Bank Enterprise Award (BEA)
Program; and its other initiatives, the Training Program, Technical Assistance Program, and
the Presidential Awards for Excellence in Microenterprise Development.
Stimulating Private Markets
The CDFI Program seeks to stimulate markets and spark economic activity by funding
organizations that emphasize private sector market discipline. The Fund makes investments in,
3

and provides technical assistance to, COFIs. CDFIs are private for-profit and nonprofit
financial institutions with community development as their primary mission. COFIs include
community development banks, community development credit unions, non-profit loan funds,
micro-enterprise loan funds, and community development venture capital funds.
During its 1996 and 1997 rounds, the Fund awarded a total of $75.5 million in assistance to
nearly 75 COFIs serving urban, rural and Native American communities. These investments
will leverage new capital and generate new community development activity over the next
several years.
The COFI Program also stimulates private investment by requiring that all financial assistance
be matched on at least a one-to-one basis from sources other than the Federal government. As
a result, the vast majority of all matching funds are raised from private sector sources. For
example, during the 1996 funding round, nearly three-quarters of our awardees derived all of
their matching funds from private sources including banks, corporations, foundations and
individuals.
Collectively, 1996 and 1997 COFI Program awardees are located in 30 states and the Oistrict
of Columbia. Half of the awardees serve predominantly urban areas, one-third serve
predominantly rural areas, and the balance serve a combination of the two. These
organizations provide a wide range of lending products, investments and services within their
communities. They finance affordable housing projects, small businesses, microenterprises,
and community facilities. Awardees are selected based on factors including potential
community development impact, financial strength, organizational capacity, and quality of
their business plan.
The Fund's 1996 investment in Northeast Ventures of Duluth, Minnesota illustrates how the
Fund sparks economic activity. Larry Van Iseghem is a chemist with an environmental
mission. Larry's company, located in a rural and declining region of eastern Minnesota,
developed and brought to market an environmentally benign, water based coating for heating
and cooling equipment which adds energy efficiency to furnaces and air conditioners while
preventing corrosion. An early investment by Northeast Ventures allowed Mr. Iseghem to
start his company and to expand and move into development of new products. "Some potential
investors were wary of my ideas, because they weren't sure environmental benefits and
economic viability could go together," Larry explains, "Northeast Ventures Corporation didn't
consider this a liability, but a plus. Environmental responsibility is one of their criteria."
In addition to CDFIs, traditional financial institutions playa key role in community
development lending and investing. The Bank Enterprise Award (BEA) Program stimulates
private markets by providing incentives for banks and thrifts to invest in CDFIs and to increase
their community development lending, investment and service activities within distressed
communities. In 1996 and 1997, the CDFI Fund made 92 awards totaling $30 million under
the BEA Program. During these rounds, BEA awardees collectively provided $130 million in
4

financial and technical assistance to CDFIs and generated $140 million in loans, investments
and services within high poverty neighborhoods. The Program has served awardees in 24
states and the District of Columbia. The Program has awarded funds to banks and thrifts as
small as $21 million in total assets to as large as $320 billion in total assets. Program
participants represent a broad spectrum of the industry including national banks, state chartered
commercial banks, Federal savings banks and thrifts, mutual savings banks and credit card
banks.
The Bank of America Community Development Bank (B of A) was awarded $1.6 million in
the 1996 funding round for increasing its multifamily housing, commercial real estate and
business loans in distressed communities across California. The Bank made nearly $25 million
in loans in targeted neighborhoods meeting the BEA Program's distress criteria, including $9.5
million in commercial real estate loans, $13.2 million in multifamily loans, and $2.2 million in
business loans. The Bank projects that these loans will generate more than 185 units of
affordable housing and 300 jobs. B of A's increased multifamily lending activity has helped
provide a vital source of affordable housing for low-income families in targeted neighborhoods
in San Francisco, Modesto, and Los Angeles, including the projects described below:
•

•

a $2.6 million construction loan to support the acquisition and rehabilitation of a
deteriorated residential hotel in San Francisco's Tenderloin neighborhood into 58 units
of quality affordable housing for formerly homeless individuals; and
a $6.8 million loan to support construction of a new 79-unit apartment building located
in Downtown Los Angeles. The building serves households earning less than 60% of
Los Angeles County's median income.

In addition to significantly increasing its lending activity in eligible distressed neighborhoods activity that qualified it for its award - B of A, together with Bank of America, F.S.B., has
invested its entire combined Bank Enterprise Award back into the community. $1.1 million of
the award money has been used to established the Bank of America Leadership Academy, a
nine-month program that provides training for senior management of community development
organizations. The B of A Leadership Academy is funded jointly by Bank of America
Community Development Bank, Bank of America, F.S.B., and the Local Initiatives Support
Corporation (a certified CDFI and a 1996 CDFI Program awardee); and is conducted by the
Development Training Institute. The B of A Leadership Academy is funded for three ninemonth programs. Each session trains 35 executive directors or senior staff of communitybased development organizations that are at least five years old and have completed at least
three projects.
An additional 20 percent of the combined awards will go to the Low Income Housing Fund, a
certified CDFI and a 1996 CDFI Program awardee which provides loans for very low-income
housing development across the country.
Capacity Building
5

The Fund builds the financial capacity of COFIs by providing financial assistance in the form
of equity investments, grants, loans or deposits to enhance the capital base -- or the financial
muscle -- of these organizations to make loans, investments, provide technical assistance or
otherwise address unmet community development needs. Unlike programs in which resources
are provided for specific projects, under the COFI Program the Fund invests in COFIs as
institutions in order to promote their long-term viability and ability to serve distressed
communities.
Appalbanc, a multifaceted COFI that serves 85 extremely distressed counties in West Virginia,
Kentucky, Tennessee, and Virginia, has developed an effective strategy to promote housing
development and homeownership. Since its inception, Appalbanc and its affiliates have
financed the development or rehabilitation of more than 20,000 homes. The $1.33 million in
assistance provided by the COFI Fund will be used to expand Appalbanc's activities in this
very needy region.
The Fund builds the organizational capacity of CDFIs through several mechanisms. First, as
part of the CDFI Program funding rounds, the Fund conducts "debriefings" with each applicant
that was turned down for funding. Through this debriefing, applicants are given valuable
feedback about the strengths and weaknesses of their organizations as observed by those
involved in reviewing their requests for funding. Many of these organizations have used the
information from these debriefings to address their weaknesses, build on the strengths of their
operations and improve performance.
Second, the Fund provided assistance to two national intermediaries in 1997 who will provide
intensive financial and technical assistance to small, nascent and growing CDFls. CDFI
Intermediaries are organizations that focus their financing activities primarily on other CDFls.
By providing financial assistance to specialized intermediaries, the Fund strengthens its
capacity to support the development and enhancement of the CDFI industry. Together, the
two national intermediaries selected by the Fund in 1997 are expected to serve nearly 200
CDFIs over the next five years.
Finally, this year the Fund will launch two new initiatives to build the organizational capacity
of CDFIs and other organizations engaged in community development finance activities. The
first initiative is a $5 million technical assistance program that will provide grant monies to
CDFIs for capacity building activities. The second initiative is a new training program that
will enhance skill development among CDFls and other members of the financial services
industry that are engaged in community development finance activities. The Fund expects to
provide up to $15 million for this program.
The Fund expects to publish a Notice of Funds Availability regarding the first round of the
technical assistance program this month. Later in 1998, the Fund will launch the second prong
of this strategy. It will select organizations to provide, on the Fund's behalf, training to
CDFIs and other members of the financial services industry.
6

By building the capacity of CDFIs, the Fund helps these organizations to enhance the
economic well being of people in their communities.
Promoting Performance and Impact
The Fund's investments are making a difference in communities. For example, one 1996
CDFI Program Awardee, Cascadia Revolving Fund, made a loan to Nancy Stratton of Port
Haddock, WA to open a day care center in her home. Nancy knew that her previous credit
problems and lack of business experience would prevent her from obtaining financing through
traditional sources. Cascadia worked with Nancy to refine her business plan and make a loan
to help her start a now successful business. A 1996 BEA Program Awardee, Central Bank of
Kansas City, was awarded $99,869 for increasing its deposit-taking activities and consumer
and commercial real estate, housing, and business loans in distressed neighborhoods. During
the first six months of 1996, this bank provided more than $8.3 million in loans and services.
In addition to facilitating neighborhood redevelopment through its single- and multi-family
housing activities, the bank made a significant loan to help a major manufacturer and employer
remain in the community.
As you know, the Fund also promotes performance and impact by requiring all CDFls selected
to receive assistance to enter into an agreement to meet performance goals. These
performance goals are tailored to each CDFI based on its Comprehensive Business Plan.
Performance goals may be based on the amount of lending or investment activity projected, the
number of people to receive technical assistance, or other measures of a CDFI's success in
meeting its community development objectives. The performance levels for each CDFI are
intended to be challenging and are based on the projections made in an Awardee's application
for funding, the amount of assistance provided by the Fund, and the CDFI's financial and
organizational capacity.

In the Fund's Bank Enterprise Award Program, the Fund encourages performance by requiring
awardees to fully complete their projected activities before their awards will be disbursed.
Thus, each Federal dollar disbursed has already made an impact within a local community
before it is received by an Awardee.
The Fund also encourages performance within the CDFI industry by promoting best practices.
For example, the Fund's Presidential Awards for Excellence in Microenterprise Development
is a non-monetary program that recognizes and seeks to bring attention to organizations that
have demonstrated excellence in promoting micro entrepreneurship. By recognizing
outstanding microenterprise organizations, the Presidential Awards seek to promote sound
lending practices and bring wider public attention to the important role and successes of
microenterprise development especially in enhancing economic opportunities among women,
low income people, and minorities who have historically lacked access to traditional sources of
credit.
7

We are beginning to see the impact that the Fund can make in underserved communities and
among people that are often left out of the economic mainstream. This year, the Fund will be
launching an impact analysis project that will provide valuable information on how the Fund's
investments have created benefits within communities. As part of demonstrating impact, the
Fund will continue to expand its communication tools, including development of a web site
and publication of regular newsletters designed to publicize information about community
development finance industry trends and best practices, as well as the Fund's activities.
In FY 1998, the Fund was appropriated $80 million. The Fund intends to use these funds on
the Core Component of the CDFI Program, the Intermediary Component of the CDFI
Program, the BEA Program, a new Technical Assistance Program and a new Training
Program. The Fund expects to use $5.5 million for its operations.
The Fund has established key goals with respect to its program activities. Under the CDFI
Program, the Fund will seek to increase the cumulative number of CDFls receiving financial
and technical assistance under the CDFI Program. For this purpose, the Fund has requested a
budget increase in FY 1999 to $125,000,000.
Increased funding will allow the Fund to increase the cumulative number of CDFls receiving
financial and technical assistance under the CDFI program. Financial assistance to CDFls
enhances private sector capacity, directly addresses community development financing needs in
distressed communities, and strengthens CDFI's long term capacity to help restore healthy
private market activity. The increased funding will also be used to expand the BEA Program,
training program and technical assistance program and in part to help accelerate the
development of a secondary market for community development loans.
Summary

Mr. Chairman, members of the Committee, thank you for giving me this opportunity to
provide an overview of the Fund's mission, it's accomplishments and plans for the future. I
also look forward to working with you over the course of this year's appropriations process. I
would be very pleased to respond to any questions you may have about my testimony or about
the Fund and its activities.

8

DEPARTMENT

OF

THE

TREASURY

NEWS

1REASURY

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
March 5, 1998

Statement by Treasury Secretary Robert E. Rubin on IMF Legislation
I welcome the House Banking Committee's action today to support full funding for the IMF.
This is a very significant step and I express my appreciation to the Members of the Committee
for working with us on these important issues.

It is particularly important that we received strong bipartisan support for both an increase in our
IMF quota subscription and our participation in the New Arrangements to Borrow. We urge
Congress to act quickly to strengthen the resources of the IMF so that we have the capacity to
deal with risks to financial stability around the world.

-30-

RR--2283

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DEPARTl\IENT

OF

THE

lREASURY ~

TREASURY

NEW S

17809~~"""""""""""""""".

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlflNGTON, D.C .• 20220. (202) 622-2960

EMBARGOED UNTIL 1:20 p.m. EST
Text as Prepared for Delivery
March 6, 1998
TREASURY SECRETARY ROBERT E. RUBIN
GREATER NEW YORK VOLUNTEER COMMITTEE
ANNUAL U.S. SAVINGS BOND KICKOFF LUNCHEON
THE PLAZA HOTEL, NEW YORK CITY
I want to thank you all for being here today to kick-off this year's Savings Bond
Campaign. and to honor the individuals and finns who contributed so much time and effort to
make last year's campaign a success.
Let me start by personally thanking Frank Bennack for the outstanding job he did leading
the New York Campaign last year.
This year, Frank Newman has agreed to lead the Campaign. Let me present this
Appointment Certificate to Frank. Under his leadership, I know we'll have a successful
campaign.
Next, I'd like to ask Russell Deyo to join me. They represent Johnson&Johnson, which is
the country's participation leader this year, with 78 percent of their employees buying bonds and
which has been a strong supporter of Savings Bonds for years. It's a great pleasure to present you
\\'ith our Golden Eagle Award for the tremendous job all of you did with last year's campaign.
In January I presented the Golden Eagle Award to Harry Kamen of Metropolitan Life,
which has also done an outstanding job in promoting the use of Savings Bonds by their
employees, and Dave Levene of Met Life is here with us today.
Since we are here today because of Savings Bonds, which are about our economy, I
would like to use our time together to discuss the state of our economy today, the steps we need
to take to foster a strong economy for the future, including by responding to the financial
situation in Asia, and the problem of financial instability more instability more generally, and the
important role of Savings Bonds to our economic well-being. Overall, we have much to feel good
about, with respect to our country's economy, but -- at least in my view -- serious issues we need
to face.
RR-2284
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To start with the economy, today, the United States has the strongest major economy in
the world, and we are viewed as a country that has put its economic house in order.
Unemployment is 4.7 percent and it has been under 6 percent for the last three years. The
economy has generated over 14 million new jobs over the last five years, inflation has remained
low and real wages are rising.
On the private sector side, this success has been critically fueled by the remarkable job
American business has done over the past decade in restoring its competitiveness in a broad array
of industries, after having been written off by much of the world in the proceeding decade. On
the public sector side, key and indispensable to the economic conditions of the past five years has
been an economic strategy grounded in fiscal responsibility, beginning with the deficit reduction
act of 1993, opening markets, and for the longer term, public investment in our people to
promote productivity.
It seems to me that the key now is not to let the progress we have made mask the
challenges we face in building a prosperous economy and society for the years and decades
ahead. If the United States were a business, and we were enjoying a period of success such as the
past five years, we would think about what might be the vulnerabilities to our competitive
position five, ten or fifteen years from now, and then we would position ourselves to meet those
challenges. That is exactly what we have tried to do in this Administration, and in that context,
I'd like to discuss five principal challenges that I believe we must meet to continue our present
economic success in the years and decades ahead, in addition to the private sector maintaining its
com peti ti veness.

First. we must remain diligent in keeping our nation's fiscal house in order. The President
has made what I believe is a sensible proposal on what to do with budget surpluses: put the
money away until we address Social Security reform. What we must not do is anything -including tax cuts that are not fully paid for - to threaten the fiscal discipline we have worked so
hard to restore. Fiscal discipline is not an easy path, but I believe it is the essential path.
Second, we must continue to work to improve education in all of its aspects, but
especially our public school system. In today' s global economy, education is the key to
prosperity for an individuaL and for a country. This Administration has focused intensely on
improving education from K-12 and beyond by expanding Head Start, proposing volunteer
national standards, proposir.g in the present budget funding for school construction and hiring
more teachers to reduce class size, and post secondary school tuition tax credits enacted last year.
But, last week's report that American high school students ranked third to last in math and
science in a global survey indicates how much needs to be done.
Third, we face the challenge of the tremendous social costs and loss of productivity that
results from having millions of Americans left out of the economic mainstream -- a problem that
is most closely associated with our inner cities. This is a problem that affects all of us, no matter
where we live or what our incomes may be. The Administration has focused on a three part

2

program -- investing in people, strengthening public safety, and expanding access to capital -- to
foster growth in economically distressed areas.
When I was still in the White House, a reporter from a well respected European weekly
interviewed me, and at the end, said that our economy was doing very well but that ten or twenty
years from now we'd be a second tier economy. I asked why he thought that. and he said the
answer was our public schools and our inner cities. My own view, now that I've spent five years
focusing on our economy and economies around the world. is that we have tremendous strengths
and a great potential in a global economy, but we do need to more effectively deal with the
critical issues that reporter identified if we are to fully realize that potential.
Fourth, we must continue to be deeply engaged in providing leadership on the issues of
international economic policy. A successful strategy on these issues includes three components:
first. opening markets and trade liberalization: second, promoting growth and reform in the
developing world and transitional countries: and third, dealing with the problems of financial
instability and crisis, both when they occur. and in the long term by strengthening the architecture
of the international financial system. Let me discuss the third point of financial instability for a
few minutes.
I experienced the development of the international financial markets and the global
economy when I was in investment banking and I know that many of you all have lived this in
your own businesses. Over the last 20 years. most of your businesses have gone from being
predominantly domestic to being true global entities. and developing countries have gone from
being largely irrelevant to our economic well being to absorbing over 40% of our exports.
However. just as these developments have brought great opportunities. there have also been new
risks. as we saw in Mexico in 1994 and now in Asia. I believe that our economic well-being in
the years and decades ahead will be critically affected bv our ability to make the most of those
opportunities and to effectively manage the risks.
.,

..

wi

.-

The interdependence of today' s global economy -- and the need to exercise U.S.
leadership to protect and promote our interests -- has been brought home by the recent situation
in Asia. As you well know. economic instability in Asia has weakened affected countries'
markets for our goods and has weakened their currencies. which can adversely affect the
competitiveness of our goods around the world. Moreover. if the problem were to spread to
developing countries around the globe, it would exacerbate these effects and the potential impact
to our economy could be severe. By doing everything sensible to help these Asian countries get
back on track, we support our exports to the region and help strengthen their currencies, which
helps the competitiveness of our goods in world markets and reduces the risk that financial
instability will spread to other developing countries.
The United States has exercised very strong leadership throughout this situation to help
resolve the Asian crises. We have worked with individual nations to contain the crisis, and
through all of this, the United States has strongly supported the IMF, which has been the central

3

institution in the effort to resolve the financial crises in Asia through reform programs focused
predominantly on structural reforms to address the specific causes of the crisis in each nation.
We are working with Congress at the same time to gain the necessary funding for our
contribution to the IMF to help enable the IMF to have the capacity to respond if the crisis were
to worsen or spread. While we think the risks of that happening are low. ifit does happen the
international community needs to have the capacity to respond effectively.
Even as we work to secure this fundin s and to solve the immediate problems in Asia. we
are working to build a new architecture for the international financial system. While the global
economy and the global finanl:ial markets have grown \'ery rapidly and become very
sophisticated in recent years. the institutions for preventing and dealing with these crisis has
changed far less. At Treasury. we have been working with the Federal Reserve Board to make
that architecture as modem as the markets. But. these are deeply complicated problems and major
steps forward will take time.
As the situation in Asia demonstrates. U.S. leadership in the global economy is critical to
our own well-being. Yet one of the lessons I draw from the past few months is that there needs to
be a redoubled effort by all of us to communicate with the American public the dynamics of the
new global economy and the importance of U.S. leadership in the global economy to our well
being. I am deeply concerned that public support for forward looking international economic
policies may be moving backwards at a time when this country's economic. national security and
geopolitical interests require just the opposite.
One of the real problems that stands in the way of building support for a forward-looking
international agenda is that the benefits of globalism are not evenly shared. One troubling facet
of the global economy is that workers with high skills and in high-value added industries are
doing very welL but low-skilled workers and workers with low education are not doing very well.
Ultimately. this is an issue we need to address if we are to build support for flexible labor
markets. trade liberalization and maintaining leadership in the global economy. And the way to
address it is to have forward looking domestic policies that compliment forward looking
international policies.
Our final challenge must be to make it easier for families to save and for the nation to
expand its savings. For the nation. more sa\ ings means more investment and greater
productivity. For families. that translates into higher wages and greater opportunity.
Increasing the savings rate has been a high priority for President Clinton -- and
encouraging Americans to buy Savings Bonds plays a crucial role in our efforts. The work you
are doing with the Savings Bonds program helps make your employees lives more secure
financially. You help get them to focus on their future needs -- a first home, perhaps, or
children's education or a secure retirement. And then. you help them to take action. And it also
helps the nation increase its savings rate. both directly and because the Savings Bond campaign is

4

also an education campaign on the importance of saving. As part of this, Savings Bonds have a
special role in introducing the concept of saving to kids. I can remember when I was very young,
and I received my first Savings Bond from my grandfather -- and that introduced me to the
concept of saving, and Savings Bonds are still widely used by parents and grandparents as gifts to
their kids and grandchildren.
In conclusion. let me say that the United States is well positioned to maintain a strong
economy for the future and to be a leader in the global economy. But our success depends on
business doing what it must to maintaill its competitiveness and government doing what it must
to address the issues I have discussed. If we work together. we can keep the economy on the
right track and meet the challenges of the new century. Thank you very much.
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5

DEPARTMENT

OF

THE

TREASURY

~~17~89~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

................................

OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlDNGTON, D.C. _ 20220 - (202) 622.2960

Monthly Release of U.S. Reserve Assets

March 6, 1998

The Treasury Department today released U.S. reserve assets data for the month of
February 1998.
As indicated in this table, U.S. reserve assets amounted to $70,628 million at the end
of February 1998, up from $70,003 million in January 1998.

End
of
Month

Total
Reserve
Assets

Gold
Stock II

Special
Drawing
Rights

2/ 'J/

Foreign
Currencies 11

Reserve
Position
in IMF 2/

ESF

System

13,975

16,945

18,039

14,106 17,124

18,135

l.2.2E
January

70,003r

ll,046r

9,998

February

70,628p

11,046p

10,217

II Valued at $42.2222 per fine troy ounce.

Z.I Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a
weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.

'J/ Includes allocations of SDRs by the IMF plus transactions in SDRs.
~I

Includes holdings of Treasury and Federal Reserve System; beginning November 1978,
these are valued at current market exchange rates or, where appropriate, at such other
rates as may be agreed upon by the parties to the transactions.

p Preliminary
r

Revised

RR-2285

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D EPA R T 1\1 E N T

0 F

THE

lREASURY ((I))

T REA SUR Y

NEW S

1789

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE., N.W.• WASIllNGTON, D.C.• 20220. (202) 622·2960

EMBARGOED UNTil.. 9:15 AM
Text as Prepared for Delivery
March 9, 1998
"On The IMF and the Capital Account"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
International Monetary Fund
Washington, DC
Thank you. It's good to see so many old friends. Let me start by applauding the International
Monetary Fund for organizing this conference. Some would consider it strange for the IMF to
stick its head above the parapet on this question at a time when many are questioning the benefits
of free and open global financial markets (and a good few are questioning the benefits of the
IMF.) I consider it timely - and absolutely essential. If there is one lesson to be drawn from the
events of the recent past, it is that capital account issues are here to stay -- and they are issues
with which the Fund will increasingly have to deal Its charter ought to give it the tools to
accomplish that task.
The emergence oftoday's global financial markets can be likened to the invention of the jet
airplane We can go where we want to go much more quickly, we can get there more
comfortably, more cheaply and most of the time more safely -- but the crashes when they occur
are that much more spectacular.
We regulate air safety No-one sensible is against jet airplanes But everyone sensible is for new
kinds of regulations because they exist We have seen too many financial crises in these last years
of the century, crises that have come at unacceptable costs to the people in the countries affected
by them Those catastrophes add urgency to the challenge of promoting safety and stability.
There ....;11 no doubt be a full and vigorous debate on the best way to realize the opportunities of a
world of free-flowing capital - and manage the risks I don't aspire to any kind of conclusive
synthesis today. But let me offer five observations for your consideration.
1. Vulnerability to Crises Begins at Home

If we are to piece together the lessons of the recent crises and devise an effective approach to
these issues it will be important to start from the right place. Some conjure a specter haunting the
RR-2286
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world's governments: the global capital markets whose advances they cannot resist, whose
sudden rejections they cannot survive. The facts of the most recent financial crises tell a different
story.
The truth is that the crises that have occurred have disproportionately involved the judgments of
countries' own citizens Careful studies by the G-I 0 and the ItviF of the crises in the European
exchange rate mechanism and the Mexican peso crisis were able to attribute only a small fraction
of the capital flows involved to speculative trades by foreigners. This research was given added
support by leffFrankel and Sergio Schmuckler's observation that the Mexican Bolsa., dominated
by Mexican residents' transactions, responded much more quickly to the crisis than foreign
investor-dominated closed-end mutual funds I understand that these studies have been echoed in
the very recent IMF study into the behavior of hedge funds in Asia.
Where foreign capital has been involved it has most often been foreign capital that governments
have sought actively to attract:
•

we saw this in Mexico, with the increasing resort to issuing dollar-denominated Tesobollos
to put off adjustment day at home;

•

we saw it in Thailand, in the tax breaks on off-shore foreign borrowing and other domestic
incentives for Thai banks to take on unsustainable amounts of foreign debt;

•

we saw it in Korea, where discriminatory controls kept long-term capital out, and ushered
short-term capital in

Before we come to the issue of placing controls on foreign borrowing, we should be considering
the strong macroeconomic fundamentals that are critical to sustaining the confidence of a
countries' own citizens -- and the kind of domestic safeguards needed to avoid dangerous
practices associated ,,;th reckless pursuit of low cost capital A better place to begin in drawing
lessons from these events is that it is a bad idea for governments to reach excessively for capital,
panJcularly if a disproportionate amount of that capital is denominated in foreign currency and is
short-term and high ~;eldm£
2. Successful Liberalization Depends on Sound Domestic Pr<lctices
The case for capital account liberalization is a case for capital seeking the highest productivity
investments We have seen in recent months In ASia -- as at many points in the past in other
countries -- the danger of opening up the capital account v. hen incentives are distorted and
domestic regulation and supervision is inadequate Inflows in search of fairly valued economic
opportunities is one thing Inflows in search of government guarantees or undertaken in the belief
that they are immune from the standard risks are quite another
The right response to these experiences is much less to slow the pace of capital account
liberalization than to accelerate the pace of creatmg an environment in which capital will flow to

.,

its highest return use. And one of the best ways to accelerate the process of developing such a
system it to open up to foreign financial service providers, and all the competition, capital and
expertise which they bring with them. The recently concluded global financial services agreement
demonstrates that countries recognize these beneficial effects of external liberalization.
Mexico took the second route in 1995 -- and has since reaped the benefits in rapid growth and a
strengthened domestic financial system. It is striking that the countries that are currently faring
best in Asia are those that have responded in the same way. Both the Korean and the Thai reform
programs include sweeping liberalization of the domestic economy in addition to radical financial
sector reform -- and both look to foreign competition and participation as a way of supporting
those efforts. By contrast, some of the countries in the region that continue to look vulnerable are
those that have seemed unwilling or unable to tackle domestic distortions - and, indeed, have
looked increasingly to the quick fix of capital controls instead.
The critical point is that when a country takes the more basic precautions that should be part of
any liberalization process - when a country has the proper supervisory and regulatory practices in
place -- these have enormous potential to control the more risky forms of borrowing. Countries
need to adapt and develop standards and rules to ensure safety and sound practice within a more
liberalized system. Matched books, for example, is all very well: it means little if companies are
taking on foreign currency debt service commitments on the basis of domestic assets that will not
generate the ability to repay.
Effective prudential banking standards are especially vital. The Basle Committee has recently
developed core principles for effective banking super\;sion that can serve as a blueprint for steps
to improve supervision at the national level loseo is working on a similar project. But the
major responsibility lies \l,;th national governments Of particular importance is ensuring that
.investment decisions and capital flows are not dIstorted by explicit or implicit government
guarantees
In short, governments can respond to the inventIon of jet airplane by lengthening the runway or by
banning jet landings It is obvious which is better
3. The IMF Has A Critical Role in

Promotin~

Optn and Stable Financial Systems

In Mexico, in Asia. and throughout the world the 1\1F has become increasingly involved in
helping countries reahze the opportunities of global capital markets -- and manage the risks. That
involvement has been de facto We need to make It de Jure That is why we have supported
speedy codification of its role in this area through the Amendment of the Fund's Articles of
Agreement to include capital account Iiberahzallon
This is not about bureaucratic tidiness It is about ensuring that the IMF is in a position to respond
to the challenges raised by the crises of recent years -- by working with countries to ensure that
countries open their capital accounts in a way that best protects them. and the international
financial system as a whole, from financial crises and the contagion which such crises can cause.
3

Each country must choose the approach that is right for them. Amending the Articles is entirely
consistent with this. Under the proposed approach, countries will accept the obligation to
liberalize the capital account fully, but what that means precisely will be up to them to decide in
cooperation with the IMF. Until they are ready, they could avail themselves of transitional
arrangements as approved by the Fund. They would simply have to commit not to backtrack
without IMF approval.
I am open-minded about the appropriate phasing of liberalization. But it is worthwhile noting
some of the potential drawbacks of capital controls:
•

they can., in the wrong hands, be a way to avoid necessary policy adjustments, and thus a
sure-fire route to prolonging and exacerbating the costs of those adjustments;

•

they can undennine the goal of domestic liberalization by introducing new economic
distortions and creating scope for official rent-seeking and corruption.

Even those countries most associated with "successful" use of short-term controls recognize that
the drawbacks mount over time and do not see the controls as a permanent feature of the
landscape Once again, the end objective must be to reform those aspects of the domestic
environment which leave scope for dangerous imbalances to develop in the first place.
I worry that ingenious arguments for speed bumps or other forms of capital controls are a little
like the arguments developed over the past two centuries for the scientific tariff They are
logically correct They relate to circumstances that are empirically relevant. But they are almost
certainly invoked more frequently on behalf of the wrong policies than the right ones In a
different context the question has been asked whether. if It was discovered that ten percent of
alcoholics could drink again without ill effects. it would be a service or a disservice to publicize
this discovery

It has been for too long that IMF could have stood for "It'S mostly fiscal" In today's world, the
preoccupation needs to be much more with helping countries grapple with the challenge of
building a sound domestic financial system that can handle international capital
4. The Global Financial S)'stem "·ill

Onl~·

Succted if it is Safe for Failure

The challenge of buildmg a safe and effiCIent global financIal system starts with the efforts of
domestic authorities It surely does not end there We all need to look at the international financial
system and do what we can to change it so we don't have cnses like this every three years. There
will never be enough money in the world to respond in any kind of official lender oflast resort
function to all the crises that potentially can come in developing countries and industrial countries
as global capital flows increase. That cannot be the way forward
I think some of the elements of a better solution are clear

4

Greater transparency
If one were writing a history of the American capital market I would suggest to you that the
single most important innovation shaping that capital market was the idea of generally accepted
accounting principles. We need that internationally. It is a minor, but not insignificant, triumph of
the IMF that in Korea somebody who teaches a night school class in accounting told me that he
normally has 22 students in his winter term and this year he has 385. We need that at the
corporate level. We need that at the national level. And we need that transparency to apply to
central banks. In particular, we must recognize that it means nothing for a central bank to report
its reserves if it does not report the encumbrances on those reserves.

Strengthening domestic financial systems
In keeping with my earlier comments, we need to focus our attention on strengthening financial
systems, both globally and at the level of individual countries. That means improved prudential
standards and the promotion of effective financial infrastructure. But the ingredients of sound
banking systems go well beyond a list of internationally recognized standards - it means
cultivating a credit culture, sound supervision, limits on the quality of assets at a banks' disposal,
and effective controls on self-dealing.

Creditor responsibility
We need to have an architecture in place. so that policy makers do not confront the choice
between uncontrolled chaos and confusion and large bailouts which is too often the choice they
confront today. That has got a microeconomic dimension and a macroeconomic dimension.
Countries need bankruptcy laws. And they need effective judicial institutions to enforce them.
That is part of being pan of a global capital market We also need procedures for dealing with
situations where countries get themselves into very profound financial difficulties at the sovereign
level.
We need systems that are consistent v..;th legal procedures around the world We need systems
that can handle failure because until the svstem is safe for failure. we will not be able to count on
success We consider the American financial system to be strong. not because all of its
institutions succeed. but in large pan. at least. because the failure of one does not jeopardize the
whole. We need to build more systems like that For world capital markets to function properly.
investors must make investments based on the fundamentals of national economies, and not the
likelihood of international rescues The enormously difficult anal)1ical challenge -- for the IMF,
for all of us -- is to find a way to build such a system safely. and without undermining the stability
we are aiming to promote.
5. The Interests of Capital Are not the Only IntereSIS That Count

One theme of my remarks today has been the need for governments and the international
community collectively to consider the system as a whole in responding to the challenges of a
5

global financial market. That means working to strengthen domestic and international financial
systems. And it means working to develop effective safeguards against crises and effective
mechanism for dealing with crises when they take place. But what it cannot mean - what it must
not mean, is focusing solely on the concerns of capital: be it domestic or international.
A focus on stabilizing capital flows is a means to a more ultimate objective. It is not an end in
itself. In working to promote free flows of capital we must not neglect the broader risks they
pose to the people this new global economy is meant to serve -- and the environment in which
those people live. As capital becomes so much more mobile than labor there are legitimate
concerns that companies will exploit that greater mobility by playing off competing jurisdictions
against one an other. The fear is that we will find ourselves in a race to the bottom -- a bottom in
which governments cannot promote fair taxes, uphold fair labor standards or protect the
environment.
That is not the world we want to build. And it is not the world we are building. That is why we
are working with other countries to promote global cooperation against corporate and legal tax
havens. That is why we are working actively in the OEeD on the issue of tax competition. It is
why we have worked, within the IMF and the other IFIs to ensure that the concerns of labor and
the environment get a fair hearing in devising refonn programs and sustainable development
strategies. And it is why fair labor and environmental standards have played a core role in our
bilateral and multilateral trade liberalization initiatives
None of these questions has easy answers. But we neglect them at our peril. These past years we
have been laying the first foundations of a truly global economy Trade, investment, capital,
infonnation and know-how are flowing more freely than ever before to the places where they can
be most effective in creating wealth But events in Asia are a further reminder that the tide of
global integration brings serious challenges in its wake The potential is breathtaking. It will
require a new network of policies and institutional arrangements to ensure that this potential is
realized And it will, most definitely, depend on an etlective 1~1F Thank you.
-30-

6

DEPARTMENT

IREASURY

OF

THE

TREASURY

NEWS

omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
March 10, 1998

Testimony of the Honorable John D. Hawke, Jr.
Under Secretary of the Treasury for Domestic Finance
On S. 1405
Financial Regulatory Relief and Economic Efficiency Act of 1997
Before the
Committee on Banking, Housing, and Urban Affairs
United States Senate
March 10, 1998

Mr. Chairman, Senator Sarbanes, Members of the Committee. Thank you for this
opportunity to present the Administration's views on S. 1405, the Financial Regulatory Relief
and Economic Efficiency Act of 1997.
Mr. Chairman, I would like to commend you, Senators Shelby and Mack, and the
other Senators who introduced S. 1405. Your commitment to rationalizing the regulation of
our nation's financial institutions is longstanding. In 1996, the Administration was pleased to
support final passage of the Economic Growth and Regulatory Paperwork Reduction Act of
1996. That legislation demonstrated that Congress and the Administration, working together,
could achieve meaningful reductions in the regulatory burden on depository institutions without
sacrificing the safety and soundness of those institutions or important protections for our
nation's consumers and communities. We welcome the opportunity to work with you on
additional meaningful reforms.
The Administration is particularly pleased that S. 1405 does not propose to weaken the
Community Reinvestment Act. Under CRA, insured depository institutions have become
increasingly important sources of capital for the revitalization of our nation's low- and
moderate-income neighborhoods, bringing billions of dollars in investments to local
economies. As the Committee knows, all the banking agencies have made a determined effort
to rework their CRA rules to emphasize performance over paperwork.
RR-2287
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In 1996, the Administration urged Congress to allow time for these changes to take effect, and
the results have validated Congress's decision to do so. As one ABA official has put it, the
new CRA regulations "reduced record keeping, exams went quicker, and banks now know
what is required of them." CRA is working.

I should note that the Administration has taken additional steps to reduce regulatory
burden. Examples include directing each agency to undertake a line-by-line review of its
regulations to streamline procedures, eliminate redundant requirements, and write rules in
plain English. In addition, the Administration encouraged the OCC and OTS to streamline
their examination process for smaller, well-capitalized, well-managed institutions.
I am attaching to my testimony a section-by-section analysis of the bill setting forth our
understanding of each provision and the Administration's position on it. Rather than repeat
that discussion in my testimony, I will highlight some areas we believe to be of particular
comfort or concern.
A.

Removal of Interest Rate Restrictions

Section 102 of the bill would authorize banks and thrifts to offer NOW accounts for
businesses and repeal existing prohibitions on their paying interest on demand deposits.
Section 102 would thereby eliminate a needless government control on the price banks pay for
funding, consistent with earlier elimination of Regulation Q ceilings on rates paid on deposit
accounts. The result should be more efficient resource allocation. Moreover, small
businesses, including minority-owned businesses, stand to benefit significantly from
increasing the rate they earn on deposits from zero to a market rate. Larger firms are better
able to earn interest through corporate sweep accounts or price concessions on other bank
products in order to offset the below-market rate earned on deposits. The Administration
therefore supports permitting depository institutions to pay interest on demand deposits with an
appropriate transition period to allow banks to adjust their funding sources to reflect the new
market rate.
Section 10 1 would permit the Federal Reserve to pay interest on reserves that banks are
required to hold at the Fed. The Fed would pay a rate or rates not to exceed "the general level
of short-term interest rates," thereby eliminating a cost to banks that is not imposed on their
non-bank competitors. Banks can reduce this cost, but only if they expend resources to avoid
it through sweep accounts and other machinations. In addition, the Federal Reserve believes
that the payment of interest on reserves should help to reduce the volatility of the federal funds
rate and resulting inefficiencies in short-term credit markets, thereby making monetary policy
easier to implement through open market operations.
However, the effect of section 101 is to shift significant revenues from the taxpayers
to the banking industry. Given the many high priority claims we and the Congress have on
scarce budget resources, and the current high level of earnings in the banking industry, we do
not believe that there is sufficient reason to make this change at this time.

B.

Refonn for Savings Associations

S. 1405 contains several helpful reforms for savings associations. Section 104 would
repeal a requirement that the Office of Thrift Supervision (OTS) require 30 days notice of any
dividend paid by a savings association that is a subsidiary of a savings and loan holding
company. No similar statutory notice requirement applies to savings associations owned by
individuals or bank holding companies, though OTS has imposed a notice requirement under
other authority. The OTS now would like to waive the notice requirement for adequately
capitalized, highly-rated savings associations, regardless of their ownership structure, and
section 104 would allow it to do so.
We support this step but note that although section 104 repeals the notice requirement
for savings associations, it leaves in place a dividend approval requirement for national banks.
In addition, section 106 would permit the OTS to approve interstate acquisitions of
savings associations by savings and loan holding companies on the same basis as intrastate
acquisitions. As a result, savings and loan holding companies would not have to comply with
certain state laws, such as age and concentration requirements. We support this provision but
note that it would continue a disparity in the treatment of interstate acquisitions between bank
holding companies acquiring banks and savings and loan holding companies acquiring thrifts.
C. Elimination of Unnecessary Bureaucracy

Section 306 would eliminate the Thrift Depositor Protection Oversight Board and direct
the Secretary of the Treasury to assume the Board's remaining responsibilities -- overseeing
the Resolution Funding Corporation for the next 30 years, and serving as a nonvoting member
of the Affordable Housing Advisory Board until the Advisory Board terminates in October
1998. The Department of the Treasury proposed this change last year.
Terminating the Oversight Board would eliminate the costs associated with preparing
mandated agency filings -- such as Privacy Act reports and Federal Managers Financial
Integrity Act reports -- over the remaining 33 years of the Board's life. Similar legislation
passed both the House and Senate last year and is now awaiting conference on a provision
unrelated to elimination of the Board.

o.

Federal Home Loan Banks

We have fundamental concerns about the provisions in S.1405 that affect the Federal
Home Loan Bank System. Our concerns are two-fold. First, we believe that there must be
comprehensive reform of the Federal Home Loan Bank System, and that piecemeal
amendments make such reform more difficult both conceptually and politically. Second, we
believe that some of the FHLB amendments in S. 1405 would be poor public policy in any
context.

The Federal Home Loan Bank System's role in financial markets has changed
significantly in recent years. The development of the secondary mortgage market and the
authorization of adjustable-rate mortgages have eroded the System's original public purpose.
The System's balance sheet, however, has been growing rapidly. At the end of 1997, the
System had nearly $360 billion in assets, but only $200 billion of those assets were advances.
About $150 billion of the System's assets were investment securities unrelated to the System's
mission -- a sort of money market fund for the benefit of System members managed by the
System and funded with debt securities subsidized by taxpayers.
In the early 1990s, the Federal Home Loan Banks pointed to the combination of
diminished demand for member advances and the fixed $300 million a year REFCorp
obligation as a justification for building large investment portfolios. Since that time, there has
been a steady increase in the demand for member advances, but the Federal Home Loan Banks
have increased rather than decreased their investment portfolios. While the higher dividend
rates that result from the investment portfolios may help retain members in the System, these
investments do not contribute to the Federal Home Loan Banks' public purpose and are
unnecessary to fund a REFCorp obligation that is small in comparison to the overall size of the
System. Thus, any meaningful Federal Home Loan Bank legislation must include eliminating
investments that do not directly serve the mission or safety and soundness of the system, better
ensuring that advances to members are used to further their intended purpose; rationalizing the
rules for FHLB membership; and reforming the capital structure of the Banks.
The FHLB provisions of S. 1405 do not serve these goals. For example, section 118
provides the Federal Home Loan Banks exemptions or special treatment with regard to Federal
Reserve daylight overdraft regulations. Exemptions from daylight overdraft regulations could
give the Federal Home Loan Banks a price advantage with regard to intra-day credit. Such
advantage would serve no public purpose, could add risk to the payments system, and would
create an unfair advantage for FHLBanks over both depository institutions and other GSEs.
Some of the FHLB provisions in section 119 that devolve decision making from the
Finance Board to the Federal Home Loan Banks. such as eliminating Finance Board approval
for Federal Home Loan Bank directors' salaries and Federal Home Loan Bank dividends, may
be appropriate. However, it is inappropriate to give the FHLBanks greater autonomy absent
other changes that would make the system both sounder and more accountable.
E.

Consumer Protection Issues

In the Economic Growth and Regulatory Paperwork Reduction Act of 1996, Congress
made some progress in the consumer protection area. Reform of the Truth in Lending Act and
the Real Estate Settlement Procedures Act (RESPA) required the elimination of duplicative and
needlessly burdensome requirements in the home mortgage lending process. These
improvements will serve the interests of both consumers and the industry by reducing
information overload and the costs of loan originations.
S. 1405, however, proposes several reforms that we believe would tilt the balance

against consumers. We have serious concerns about the following provisions that would
weaken important consumer protections.
Section 206 would permit a settlement service provider to pay an "affinity group" for a
written or oral endorsement in an advertisement or mailing if the service provider clearly
disclosed the payment in its first written communication to the consumer.
We have concerns that, under the existing statutory regime, such changes could spawn
sham affinity groups seeking to avoid RESPA' s anti-kickback provisions. It would be difficult
to distinguish between bona fide and sham affinity groups. Moreover, the Committee has
requested recommendations on fundamental statutory reform to RESPA and TILA. Any
affinity group exemption proposal should be considered in that context.
Section 402 would amend TILA by (1) eliminating the repayment period and number of
installments as terms that trigger disclosure requirements (regarding the down payment, terms
of repayment, and APR) in closed-end credit advertisements; (2) eliminating disclosure of the
highest possible APR in advertisements for open-end, variable-rate, home-secured credit; and
(3) providing that instead of including current disclosure requirements, credit advertisements
on radio or television in those media could state basic rate information, give a toll free
number, and state that further information is available upon request.
We have concerns about section 402. We believe that consumers receive valuable
information through advertising disclosures, and that this change would curtail that
information. We understand that a nearly 40-organization Mortgage Reform Task Force,
formed as a result of Section 210 I of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996, is looking into this issue as well as the issues raised in Section 206.
We believe the agencies and this working group should be allowed to finish their assignment
before legislative language is enacted.
Section 204 would repeal a statute that prohibits banks from "tying" -- that is, requiring
a customer to purchase one product in order to receive another or to receive a better price on
another. In order to avoid disrupting traditional banking relationships, the anti-tying statute
already allows banks to tie traditional bank products -- allowing depositors to receive
preferential rates on loans, for example. The statute also authorizes the Federal Reserve to
grant further exceptions by regulation or case-by-case. We oppose repealing this prohibition.
We are aware of no evidence that it has imposed unreasonable burdens that the Federal
Reserve has been unable to address through its exemptive authority.
F.

Reform for National Banks

S. 1405 contains several burden-reducing provisions for banks. For example, section
110 expedites the procedure by which a national bank may reorganize to become a subsidiary
of a holding company, section III provides national banks with the flexibility to stagger the
eJection process of members of their boards of directors, and section 112 provides procedures
by which a national bank could merge with nonbank subsidiaries or affiliates.

The Administration also supports section 113 which clarifies that banks can purchase
their own stock. Current law prohibits a national bank from owning or holding its own stock
except to prevent a loss on a debt previously contracted and sold or disposed of within six
months. The OCC has interpreted this language to permit national banks to acquire their own
stock for certain legitimate corporate purposes. Legitimate purposes include reducing capital
when consistent with safety and soundness and called for by either market conditions or
internal operations, or holding stock in order to offer it to employees as part of a stock sharing
plan.
Clarifying that banks can purchase their own stock is especially important now, when
banks find themselves flush with liquidity. In such circumstances, banks are more likely to
make marginal loans. Section 113 would make it easier for banks to choose the alternative of
buying back their own stock. Indeed, we further recommend that Congress consider repealing
the current restriction altogether.
G.

Relief for the Regulators

Two sections of S. 1405 are intended to relieve burdens not on the financial services
industry but rather on its regulators. We believe that each provision should be eliminated or
modified. The first, section 304, would repeal the requirement that each federal banking
regulator submit an annual report to Congress concerning the differences among the regulators'
capital and accounting standards. We believe that this reporting requirement is an important
means for the regulators to identify and harmonize any differences that develop in their capital
rules. We believe that capital regulation is an area where consistency is important. As an
alternative, we propose allowing the regulators the option of producing one joint report each
year, rather than four separate reports. To the extent that the capital standards become and
remain truly consistent, the report should be simple to prepare.
The other provision, section 302, would repeal the requirement that the federal banking
regulators develop jointly a method for insured depository institutions to provide, to the extent
feasible, supplemental disclosure of the esti mated fair market value of assets and liabilities in
any financial report. We have concerns about eliminating this requirement. Repeal could be
read as a retreat from the current trend toward better disclosure.
CONCLUSION
We look forward to working with the Committee as this bill makes its way through the
legislative process. Working together, we can eliminate regulatory burden while maintaining
important and necessary public protections.
I would be glad to respond to any questions the Committee may have.
-30-

DEPARTMENT

OF

THE

TREASURY

1789

OrnCE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960

FOR IMMEDIATE RELEASE
Remarks as Prepared For Delivery
March 9, 1998

Contact: Beth Weaver
(202) 622-2960

STATEMENT OF UNDER SECRETARY RAYMOND W. KELLY

Good afternoon. Thank you, Ernie, for your kind introduction. I want to begin by
acknowledging the tremendous support that Senators Gregg and Hollings have provided on the
issues of child exploitation and especially, for their support of the National Center for Missing and
Exploited Children.
Their leadership and initiative in establishing the Cyber Tipline is the reason we are all here
today. This TipLine will give investigators additional tools to identify those responsible for using
the Internet to prey on children. Treasury law enforcement stands ready to fully participate in this
effort.
We, at the Treasury Department are proud of our relationship with the National Center for
Missing and Exploited Children. Both the U.S. Customs Service and the U.S. Secret Service
have worked in partnership with the Center to combat the scourge of child exploitation, both
domestically and internationally.
Since 1987. Customs has investigated the leads provided by the Center on child
pornography from the Center's Child Pornography Tip Line. And, in Fiscal Year 1997, Customs'
enforcement against child pornography on the Internet resulted in 162 convictions and 167
seizures. Customs continues to make arrests each week.
Long before the Internet. Customs was making child pornography cases against importers
who tried to smuggle the material into the US The Internet is a faster. cheaper and safer way
for child pornographers to move their products As a result. child pornographers have found it to
be a preferred medium for carrying out their illicit activities. That's why, Customs created the
Cyber Smuggling Center to combat this phenomenon.
Over 60 percent of all child pornographic materials seen and seized by Customs are of
international origin. Because of the international movement of pornographic materials, each of
Customs J35 national and international offices has at least one investigator trained to identify and
develop child pornography cases.
RR-2288

FQT' press reh;us~5, speer:h~j, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040

Customs has trained police officers, judges, border guards and prosecutors in child
exploitation in several countries. This training has generated numerous electronic leads between
u.s. Customs and its counterparts all over the world.
The Secret Service also lends its expertise to this fight. The Secret Service provides
valuable forensic support to State and local law enforcement as well as the Center in the areas of
age progression drawing, voice analysis. handwriting analysis, polygraph exams and chemical
analysis of materials.
We at Treasury understand the profound importance of the Internet and have no interest in
limiting its reach.
In order to strike a proper balance between access to the Internet for legitimate purposes,
but prevention of exploitive activities, the continued partnership between the private sector and
law enforcement is critical.
Thank you.

-30-

PUBLIC DEBT/WASH DC

Mar 9 '98

Fax:202-219-3365

14:15

P.Ol

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC

FOR IMMEDIATE RELEASE
March 09, 19 98

CONTACT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:

91-Day Bill
March 12, 1998
June 11, 1998
912794658

RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
-----Low
High
Average

Investment
Rate 1/

4.965%

5.098~

4.975%
4.970%

5 .110~
5.102%

Tenders at tne high

Price

----------

disco~~t

-----98.745
98.742
98.744

rate were allotted

AMOUNTS TENDERED AND ACCEPTED (in

Tender Type

29~.

thousands)

Tendered

Competitivi:
Noncompetitive

$

33,808.442

Accepted

1,235,619

4,363,037
1,235,519

PUBLIC Su"BTOTAL

35,044,061

5,598,656

Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

3,716,780

3,716,780

679,421
180,579

679,421
180,579

TOTAL

$

39,620,841

1/ Equivalent coupon-issue yield.

RR-2289
http:/"V''Vw. pub licdebt. trc:ls.goY

$

-----------------

$

lO,175,436

Mar 9 '98

Fax:202-219-3365

PUELIC DEET/WRSH DC

P.O:

14:16

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Was.hington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC

FOR IMMEDIATE RELEASE
March 09, 1998

CONTACT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
March 12, 1998
September 10, 1998

Term:
Issue Date:
Maturity Date:
CUSH Number:

91279SAJO

RANGE OF ACCEPTED COMPETITIVE BrDS:
Discount
Rate
------

Low
High
Average

5.000%

Investment
Rate 1/

Price

----------

------

5.201\S.212%5.212%

S.OlO\-

5.010%

97.472
97.467

97.467

Tenders at the high discount rate were allotted
AMOUNTS

87\.

TENDERED AND ACCEPTED (in thousands)

Tender Type

Tendered

Competitive
Noncompetitive

$

PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Insc.
Refunded Maturing
Additional .~ounts
TOT.?U..

$

31,841,625
1,109,857

Accepted
$

4,552,517
1, 109,857

32.951,492

5,662,374

3,655,000

3,655,000

1,603,579
426,421

1.,603,579
426,421

----------------38,636,482

l/ Equivalent coupon-issue yield.

RR-2290
h((p:/"~·ww.publicdcbt.tre:ls.gov

$

ll,347,374

DEPARTMENT

OF

THE

TREASURY

~/78~9. . . . . . . . . . . . . ..

. . . . . . . . . . . . . .

OFFICE OF PUBUC AFFAIRS • 1500 PENNS\1..VANlA AVENUE, N.W. • WASHINGTON, D.C .• 20220 • (202) 622-2960

EMBARGOED UNTIL 10 A.M. EST

Text as Prepared for Delivery
March 11, 1998

CREDIT UNIONS

Testimony of the Honorable Richard S. Carnell
Assistant Secretary of the Treasury
for Financial Institutions

Before the Committee on Banking and Financial Services
U.S. House of Representatives

l\1arch 11, 1998
RR-2291
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TABLE OF CONTENTS
I.

THE TREASURY'S STUDY OF CREDIT UNIONS .................................................. 1
A.

THE TREASURY'S LEGISLATIVE RECOMMENDATIONS TO
STRENGmEN mE SAFETY AND SOUNDNESS OF mE CREDIT

UNION SySTEM .................................................................................................... 2

1.
2.

3.

4.
B.

II.

2
4

4
4
5
8

OrnER PERTINENT RECCHvtMENDATIONS.............................................................. 10
1.
Retaining the NCUA's Role in Administering the

2.

C.

Capital Requirements and Prompt Corrective Action ................................
Other Capital-Related Reforms .................................................................
a.
Risk-Based Capital Requirement for Complex
Credit Unions. ...............................................................................
h.
Treatment of Certain Equity Investments in
Corporate Credit Unions ...............................................................
Reforms Related to the National Credit Union Share
Insurance Fund .........................................................................................
Credit Unions' Access to Emergency Liquidity ........................................

Share Insurance Fund ............................................................................. 10
Continuing to Permit Credit Unions to Treat Their
I Percent Deposit in the Share Insurance Fund as
an Asset ................................................................................................. 10

THE IMPORTANCE OF ENACTrN(i THESE SAFETY AND SOUNDNESS
REFf)RMS Nc)w................................................................................................... 11

THE COMMON BOND OF CREDIT UNION MEMBERSHIP.............................. 13
A.

THE COMMON B()ND RE()l JIREMENT AS A DISTIN(iUISHING
CHARACTERISTIC

()F

CREDIT UNI( )NS..................................................................

13

C< )MM()N B( )NOS. ....................................................... 14

B.

THE DIFFERENT TYPES

C.

MARKET DYNAMICS ........................................................................................... 15

I.
2.
3.
4.
D.

()f

Technological Factors. ............................................................................
Demographic Factors. .............................................................................
Safety and Soundness Factors.................................................................
Managerial Factors .................................................................................

15
16
16
17

GENERAL PRINCIPLES ......................................................................................... 17

1.

Reaffirm Credit Unions' Role in Serving People
of Modest Means.................................................................................... 18

VII

2.
3.
4.
5.
6.

E.

III.

Correct Perverse Incentives to Abandon Occupationand Association-Based Federal Credit Union Charters ...........................
Preserve a Meaningful Common Bond as a
Characteristic of Credit Unions ...............................................................
Assure Safety and Soundness. .................................................................
Take Account of Market Dynamics. ........................................................
Protect-Existing Credit Union Members and Membership
Groups ...................................................................................................

18
19
20
20
20

NEXT STEP.S. ....................................................................................................... 21

CONCLUSIONS. ......................................................................................................... 21

SUMMARY
The TreasUly's testimony deals with two main topics: (1) the safety and
soundness reforms recommended in our recent Congressionally mandated report on credit
unions; and (2) the common bond of credit union membership.
THE TREASURY'S RECOMMENDED SAFETY AND SOUNDNESS REFORMS

Our report recommended that Congress take several steps to make federally
insured credit unions and the National Credit Union Share Insurance Fund even safer,
sounder, and more resilient.

Capital Requirements and Prompt Corrective Action
Credit unions hold over $300 billion in federally insured deposits. But unlike all
other federally insured depository institutions, they are not currently subject to capital
requirements or to a system of prompt corrective action.
We recommend that Congress require federally insured credit unions to have 6
percent net worth to total assets in order to be in good standing. We also recommend
requiring credit unions to set aside, as retained earnings, a small percentage of their gross
income if they have less than 7 percent net worth. Credit unions' balance sheets indicate
that credit unions themselves recognize the wisdom of maintaining such capital levels.
Of the federally insured credit unions operating at the end of 1996, 96 percent had more
than 6 percent net worth, and those credit unions held 98 percent of total credit union
assets.
We further recommend that Congress establish a system of prompt corrective
action for credit unions. This system would be a streamlined version of that currently
applicable to all FDIC-insured institutions, and would be specifically tailored to credit
unions as not-for-profit, member-owned cooperatives.

Other Capital-Related Reforms
We recommend that Congress direct the N CU A to develop an appropriate riskbased capital requirement for complex credit unions. This risk-based requirement would
take account of risks that the simple 6 percent net worth requirement does not adequately
cover -- risks that may be appreciable only at a small subset of credit unions.
We also recommend that Congress direct the NCUA to require federally insured
credit unions to deduct from their net worth for purposes of regulatory capital
requirements and prompt corrective action, certain investments in equity securities issued
by corporate credit unions. The goal is for each level of the credit union system to have

11

sufficient capital for the risks undertaken at that level and, more specifically, to help
ensure that a corporate credit union's losses do not cascade to its member credit unions.
Reforms Involving the National Credit Union Share Insurance Fund
We propose the following reforms relating to the Share Insurance Fund:
•

Requiring more timely and accurate calculation of the Fund's equity ratio -- i.e.,
the ratio of the Fund's reserves to the total amount of the deposits that the Fund
insures -- the standard measure of the Fund's health. The NCUA's method of
measuring the equity ratio generally overstates the reserves actually available.

•

Not permitting distributions to dissipate the Fund's reserves when the Fund's ratio
of high-quality, liquid net reserves to the total deposits that the Fund insures (the
available-assets ratio) falls below 1 percent.

•

Requiring federally insured credit unions with more than $50 million in total assets
to adjust their 1 percent deposit in the Fund semi-annually (instead of just
annually).

•

Giving the NCUA some discretion to adjust the premium rate according to the
Fund's financial needs.

•

Imposing a premium if the Fund's equity ratio falls below 1.2 percent, in keeping
with the NCUA's longstanding practice.

•

Giving the NCUA discretion to let interest on the Fund's reserves increase the
Fund's equity ratio to 1.5 percent from the current ceiling of 1.3 percent. This
change would permit the Fund to accumulate additional investment earnings in
good times that would increase its resiliency during economic downturns. The
NCUA would remain free to distribute as dividends any reserves above 1.3
percent, or to use part of the Fund's earnings to increase the reserve ratio and
distribute the rest as a dividend on credit unions' 1 percent deposit.
Credit Unions' Access to Emergency Liquidity

Congress created the Central Liquidity Facility (CLF) in 1978 to serve as a
governmental lender of last resort for credit unions. We are concerned that the CLF
could not handle the very sort of systemic crisis for which it was designed. The eLF has
little capital of its own, and appropriations Acts have allowed it to lend credit unions no
more than $600 million. Considering that credit unions hold over $300 billion in

11I

deposits, the CLF would need billions upon billions of dollars in lending authority to be
assured of having the resources to cany out its original purpose. Even as the eLF faces
these constraints, credit unions have access to a governmental lender of last resort with
unlimited borrowing authority: the Federal Reserve System.
Accordingly, we recommend: that Congress discontinue the CLF; that larger
credit unions take the modest steps needed to line up access to emergency liquidity
through the discount window; and that Congress direct the NCVA to periodically assess
federally insured credit unions' potential needs for liquidity and their options for
obtaining it.
The Importance of Enacting These Safety and Soundness Reforms Now
N ow is an excellent time to enact these safety and soundness safeguards -- with
the economy strong and credit unions flourishing. Our proposed changes involve little
cost or burden to credit unions today, yet they could pay enormous dividends in more
difficult times.
Moreover, as credit unions increase in size and complexity and compete directly
with banks and thrifts, Congress needs to ensure that comparable safeguards apply to
credit unions' risk-taking. The safeguards applicable today fall short of being
comparable. And if the ultimate outcome of the cunent debate over the common bond is
to provide greater flexibility, allowing the continued emergence of larger, less closely knit
credit unions, it will be all the more important to have adequate safeguards in place.
THE COMMON BOND OF CREDIT UNION 1\1EMBERSHIP

General Principles
Between the polar-opposite outcomes of having no common bond requirement and
requiring all members of a credit union to share a single, tightly defined common bond,
are an array of possible policies. We suggest that Congress consider possible policies in
light of the following principles:

I.

Reaffirm Credit Unions' Role in Serving People of Modest Means

Credit unions have historically had a special role in serving people of modest
means. The Federal Credit Union Act reflects this public purpose: it is an "Act ... to
make more available to people of small means credit for provident purposes." We
believe that federal policy towards credit unions should continue to promote this
objective.

IV

2.

Correct Perverse Incentives to Abandon Occupation- and AssociationBased Federal Credit Union Charters

A stringent federal common bond requirement serves no public purpose if it
merely prompts credit unions to switch to state charters with a looser common bond
requirement (or none at all). Similarly, a stringent occupational or associational common
bond requirement serves no public purpose if it simply prompts credit unions to switch to
broad, geographically based charters. We believe that public policy should avoid creating
perverse incentives to seek one type of credit union charter over another, particularly if
the upshot is to encourage credit unions to select charters that weaken the affinity among
their members.
3.

Preserve a Meaningful Common Bond as a Characteristic of Credit
Unions

We see the common bond requirement as a distinguishing characteristic of credit
unions -- one that helps set them apart from banks and thrifts, and that reinforces their
other defining characteristics: their cooperative structure, democratic governance, notfor-profit orientation, and public purpose of serving people of modest means. Weakening
the common bond might well put strain on credit unions' cooperative, not-for-profit
orientation, including their willingness to pay special attention to members of lesser
means.
4.

Assure Safety and Soundness

With the rise of larger, more impersonal credit unions, fonnal safeguards and
effective supervision become all the more imp0l1ant.
5.

Take Account of Market Dynamics

Economies of scale in providing technology-based services, downsizing, the large
number of workers at finns too small to support their own credit union, and the safety and
soundness benefits of diversification lend weight to pennitting credit unions to expand
beyond a single membership group. Yet other market factors -- such as the credit riskreducing influence of a sense of affinity, and the dubious incentives credit union
managers may have to increase the size of their credit unions -- suggest limits on the
economic case for attenuating the common bond requirement. Flexibility on the common
bond requirement should be tempered by the other principles outlined here.

v
6.

Protect Existing Credit Union Members and Membership Groups

In adding new membership groups pursuant to NCVA policy, credit unions acted
in good faith. Disenfranchising existing credit union members or membership groups
would not serve the public interest.
Next Steps
We look forward to working with the Committee to develop legislation dealing
with the common bond requirement. We suggest that such legislation should:
grandfather all existing credit union members and membership groups added before the
Supreme Court ruling, and permit such membership groups to add new members; include
the safety and soundness reforms outlined in the Treasury report; and preserve a
meaningful common bond requirement while providing reasonable flexibility for credit
unions to include additional groups within their membership.

CREDIT UNIONS
Testimony of Richard S. Carnell
Assistant Secretary of the Treasury
Before the Committee on Banking and Financial Services
United States House of Representatives
Mr. Chairman, Congressman Lafalce, Members of the Committee. I appreciate this
opportunity to present the Treasury's views on two topics involving credit unions. First, the
safety and soundness reforms recommended in the Treasury's recent Congressionally mandated
report on credit unions. Second, the common bond of credit union membership, including the
implications of the decision rendered by the Supreme Court two weeks ago.
As not-for-profit depository institutions, credit unions add something special to our
financial system. They give their members an alternative, cooperative structure for depositing
savings and obtaining credit and other financial services. The credit union ideal is one of mutual
self-help.

I. THE TREASURY'S STUDY OF CREDIT UNIONS
By a statute enacted in September 1996, Congress required the Treasury to study and
report on a series of issues involving credit unions (a list that did not, incidentally, include the
common bond requirement). In preparing our report, we consulted widely with the National
Credit Vnion Administration (NCVA), the four federal banking agencies, the major credit union,
bank, and thrift trade associations, consumer groups, and credit union officials. We made on-site
visits, and we sought and received public comments. As specifically required by Congress, we
assembled an interagency team of experienced federal bank and thrift examiners to assist us in our
evaluation of the ten largest corporate credit unions. We published our report last December.
A.

THE TREASURY'S LEGISLATIVE RECOMMENDATIONS TO STRENGTHEN THE SAFETY
AND SOUNDNESS OF THE CREDIT UNION SYSTEM

Our report found that credit unions and their deposit insurance fund appear to be in strong
financial condition. We did make several recommendations for Congressional action to
strengthen the long-term safety and soundness of the credit union system.

l.

Capital Requirements and Prompt Corrective Action

Strong capital requirements and prompt corrective action are foundations of modern
safety and soundness supervision of federally insured depository institutions. Capital
requirements help ensure that such institutions have a sufficient buffer to absorb unforseen losses

2
without in tum imposing losses on depositors or the deposit insurance fund. 1 Prompt corrective
action is a capital-based approach to supervision aiming to resolve capital deficiencies before they
grow into large problems. As a federally insured depository institution's capital declines below
required levels, an increasingly more stringent set of safeguards applies. The goal is to minimize
(and, if possible, avoid) losses to the deposit insurance fund. Prompt corrective action has applied
to all FDIC-insured depository institutions since 1992, and the results have been good.
Although credit unions hold over $300 billion in federally insured deposits, they are not
currently subject to capital requirements in the sense of needing to have a given ratio of capital to
assets in order to be in good standing. Credit unions must set aside as regular reserves (a form of
retained earnings) a small percentage of their gross income until their regular reserves reach a
level approximating 4 percent of total assets. But this is not a capital requirement; credit unions
need not reach or maintain that level. The rule in question is perhaps best described as an
earnings-retention requirement.
Nor are credit unions subject to a system of prompt corrective action. The NCVA has
informal policies analogous to some aspects of such a system, but has no regulations or even
formal guidelines for taking corrective action regarding a troubled credit union.
We recommend that Congress require federally insured credit unions to have 6 percent net
worth to total assets in order to be in good standing. 2 We also recommend that credit unions set
aside, as retained earnings, a small percentage of their gross income if they have less than 7
percent net worth.
Credit unions' balance sheets indicate that credit unions themselves recognize the wisdom
of maintaining such capital levels. Of the federally insured credit unions operating at the end of
1996, 96 percent had more than 6 percent net worth, and those credit unions held 98 percent of
total credit union assets. Moreover, 93 percent of credit unions had more than 7 percent net
worth, and those credit unions held 93 percent of total credit union assets.
We also recommend that Congress establish a system of prompt corrective action for
credit unions. This system would be a streamlined version of that currently applicable to all
FDIC-insured institutions, and would be specifically tailored to credit unions as not-for-profit,

I Requiring depository institutions to have adequate capital also helps counteract the moral hazard of
deposit insurance (i.e., the tendency of deposit insurance to pennit or encourage insured depository institutions to
take excessive risks -- risks that they would not take in a free market). Capital is like the deductible on an
insurance policy: the higher the deductible. the greater the incentive to avoid loss. Adequate capital gives a
depository institution's O\\l1erS incentives compatible with the interests of the insurance fund because the fund
absorbs losses only after the institution has exhausted its capital and thus eliminated the economic value of the
O\mers'investment.

2 This

statutory requirement would not apply to new credit unions that had not existed for a given number
of years or reached a specified asset size.

3
member-owned cooperatives. It would thus, for example, not include provisions keyed to the
existence of capital stock, since credit unions have no capital stock.
Such a system of prompt corrective action would protect the National Credit Union Share
Insurance Fund and the taxpayers who stand behind it; it would also benefit credit unions and the
credit union system. It would reinforce the commitment of credit unions and the NCUA to
resolve net worth deficiencies promptly, before they become more serious. It would promote fair,
consistent treatment of similarly situated credit unions. It should reduce the number and cost of
future credit union failures. In so doing, it should conserve the resources of the Share Insurance
Fund, make the Fund even more resilient, and make more money available for lending to credit
union members. And it would respect and complement the cooperative character of credit unions.
2.

Other Capital-Related Reforms
a.

Risk-Based Capital Requirement for Complex Credit Unions

We recommend that Congress direct the NCUA to develop an appropriate risk-based
capital requirement for complex credit unions. This risk-based requirement would supplement the
simple 6 percent net worth requirement and could take account of risks -- such as interest-rate
risk or contingent liabilities -- that may be appreciable only at a small subset of credit unions.
h.

Treatment of Certain Equity Investments in Corporate Credit Unions

Corporate credit unions are specialized financial institutions that provide services to, and
are cooperatively owned by, their member credit unions. They serve their members primarily by
lending or otherwise investing their member credit unions' excess funds. They also provide
services comparable to those offered by bankers' banks or to the correspondent services that large
commercial banks traditionally provided to smaller banks. U.S. Central Credit Union is a
corporate credit union serving 38 of the 40 other corporate credit unions.
The three-tier cooperative structure of the credit union system -- regular credit unions,
corporate credit unions, and U.S. Central -- creates an interdependence risk among the various
levels. Specifically, a credit union's deposits at its corporate credit union, and its equity
investment in that institution, are assets on its books. At the same time, the credit union's
corporate credit union carries these funds on its balance sheet as deposits (largely uninsured) and
capital, respectively. If a corporate credit union were to fail, its member credit unions could face
losses on their deposits or equity investments, which would reduce their own capital. This
interdependence means that each level of the credit union system must have sufficient capital for
the risks undertaken so as not to pose a risk of losses cascading to the level below it.
Accordingly, we recommend that federally insured credit unions deduct from their net
worth (for purposes of regulatory capital requirements and prompt corrective action) paid-in
capital issued by a corporate credit union and some portion of member capital accounts at a

4
corporate credit union. Paid-in capital is the lowest priority instrument issued by a corporate
credit union. If the corporate credit union were to fail, holders of paid-in capital would have to
stand in line behind all creditors, all depositors, and all other equity holders; they would receive
nothing unless all these other claimants received payment in full. Membership capital is the
second lowest priority instrument issued by a corporate credit union. Holders would stand in line
behind all creditors, all depositors, and all equity holders other than holders of paid-in capital.

3.

Reforms Related to the National Credit Union Share Insurance Fund

We propose a series of reforms relating to the National Credit Vnion Share Insurance
Fund.
First, we recommend requiring more timely and accurate calculation of the Fund's equity
ratio -- i.e., the ratio of the Fund's reserves to the total amount of the deposits that the Fund
insures -- the standard measure of the Fund's health. We are concerned that the NCVA's method
of measuring the equity ratio generally overstates the reserves actually available. The NeVA
calculates the equity ratio monthly by dividing the Fund's reserve balance for the month by the
previous year-end total of insured deposits. Thus each year-end equity ratio is calculated using a
denominator that may be up to 12 months old, which tends to inflate the ratio. For example, at
year-end 1996, the Share Insurance Fund had $3.4 billion in reserves and insured $275.5 billion in
deposits, which implied an equity ratio of 1.24 percent. However, the NCVA calculated the
Fund's year-end 1996 equity ratio as 1.3 percent by dividing the year-end 1996 total Fund
reserves by the year-end 1995 total insured deposits.
Be~ause the NCVA must, under current law, distribute dividends to member credit unions
whenever the Share Insurance Fund's equity ratio exceeds 1.3 percent, the NCVA's procedure
has led it to pay dividends when the Fund's equity ratio, properly measured, was actually less than
1.3 percent. Paying dividends under such circumstances dissipates the Fund's reserves without
good reason. We accordingly recommend that Congress require the NCVA to correct this noncontemporaneous measurement of the equity ratio.

Second, we recommend not permitting distributions to dissipate the Fund's reserves when
the Fund's ratio of high-quality, liquid net reserves to the total deposits that the Fund insures (the
available-assets ratio) falls below I percent. The equity ratio, unlike the available assets ratio,
does not reflect the actual composition of the Share Insurance Fund's assets. When credit unions
come under stress (e.g., during an economic recession), illiquid assets acquired from failed or
troubled institutions will tend to increase at the expense of liquid assets -- leaving the Fund less
able to provide cash assistance to other ailing credit unions. We recommend that Congress
require the Share Insurance Fund to maintain an available assets ratio of 1.0 percent of insured
deposits. Should the available assets ratio fall below this level, the NCVA would not be permitted
to pay dividends even if the Fund's equity ratio were to exceed 1.3 percent.

5
Third, we recommend requiring federally insured credit unions with more than $50 million
in total assets to adjust their 1 percent deposit in the Fund semi-annually (instead of just annually).
Such institutions account for just 12 percent of all credit unions but hold 76 percent of total credit
union dt:posits. Semi-annual adjustments by such credit unions will help ensure that the 1 percent
deposit keeps pace with their deposit growth.
Fourth, in place of the current rule that fixes any insurance premium at 1112 of 1 percent
of insured shares, we recommend giving the NCVA some discretion to adjust the premium rate
according to the Fund's financial needs.
Fifth, we recommend imposing a premium if the Fund's equity ratio falls below l.2
percent, in keeping with the NCVA's longstanding practice.
Sixth, we recommend giving the NCVA discretion to let interest on the Fund's reserves
increase the Fund's equity ratio to 1.5 percent. The Federal Credit Union Act currently imposes a
rigid 1.3 percent ceiling on the Fund's reserve ratio. The change proposed here would permit the
Fund to accumulate additional investment earnings in good times that would increase its resiliency
during economic downturns. This flexibility would likewise better enable the NCUA to protect
the Fund -- as well as protect credit unions' 1 percent deposit -- from possible future losses. The
NCVA would, of course, remain free to distribute as dividends any reserves above 1.3 percent
(and any interest earned on those reserves). It could also use part of the earnings to increase the
reserve ratio and distribute the rest.

4.

Credit Unions' Access to Emergency Liquidity

Our final major legislative proposal involves credit unions' access to emergency liquidity.
During normal times, credit unions with excess cash deposit that cash at their corporate credit
union, and credit unions that need additional cash borrow it from their corporate credit union.
The corporate credit union system does a good job of reallocating excess liquidity among credit
UnIons.
But we are concerned that during a financial crisis (whether in the financial system
generally or in the credit union system specifically) the credit union system would have only
limited access to outside liquidity. The sort of systemic demand for liquidity that we have in mind
is an extraordinary event. Our financial system is healthy -- as healthy as it has been in years -and even in the future such a crisis would be unlikely. But the potential for such an event is still
sufficiently real that Congress, the Administration, and the NeVA have a responsibility for
making sure that it could be handled if it did arise. Corporate credit unions are not set up to
handle such a systemic crisis. 3

During such a crisis, liquidity would becomc scarcc. Deposits at corporate credit unions would fall. as
their member credit unions withdrew money to meet their own needs for cash -- thus reducing corporate credit
unions' lending capacity even as demand for liquidity increased. Potential outside sources ofliquidity, such as
.3

6
Recognizing the potential vulnerability of the credit union system, Congress created the
Central Liquidity Facility (eLF) in 1978 to serve as a governmental lender of last resort for credit
unions. 4 But we are concerned that the eLF itself could not handle such a crisis.
First, the CLF has little capital of its own. The statute establishing the CLF contemplated
that credit unions would invest directly in the CLF, but few credit unions actually joined. So
during the 1980s, the CLF implemented the so-called redeposit program, which allows credit
unions to join the eLF through their corporate credit unions without anyone putting up any cash.
Through a complex series of accounting transactions involving corporate credit unions, U.S.
Central, and the CLF (diagramed on page 121 of the Treasury report), entries are recorded to
show stock purchases, although no funds actually change hands. These transactions artificially
inflate the parties' balance sheets, without giving the CLF any real capital.
Second, Congressional appropriations Acts have allowed the CLF to lend no more than
$600 million to credit unions. Considering that credit unions hold over $300 billion in deposits,
the CLF would need billions upon billions of dollars in lending authority to be assured of having
the resources to carry out its original purpose.
Even as the CLF faces these constraints, credit unions have access to a governmental
lender oflast resort with unlimited borrowing authority: the Federal Reserve System. In 1978,
when Congress created the CLF, credit unions had no access to the Federal Reserve discount
window. But now any credit union that offers checking (share draft) accounts is eligible to
borrow at the discount window.
Against this background, our report recommends that Congress discontinue the eLF. We
also recommend that credit unions, particularly larger credit unions, take the modest steps needed
to line up discount window access. This simply involves filing some paperwork with the Federal
Reserve bank; credit unions need not pre-pledge collateral. Our basic idea is that if a systemic
crisis involving widespread demand for liquidity did arise, large credit unions could turn to the
Fed, leaving corporate credit unions free to provide liquidity to small credit unions. It is just this
type of emergency -- a systemic crisis involving widespread demand for liquidity -- that the CLF
cannot handle.
We also recommend that Congress direct the NCUA to (1) periodically assess federally
insured credit unions' potential needs for liquidity and their options for obtaining it, and (2) share

lines of credit at other financial institutions or acccss to thc capital markets, would be of uncertain reliability
during such a crisis. And most corporate crcdit unions are gcncrally not eligible to borrow from the Federal
Reserve discount window because thcy availthcmsclvcs of the bankers' bank exemption from reserve
requircments.
4 The CLF is a mixed-o\\l1ership govcmment corporation within the NCUA. Thc CLF has authority to
borrow over $ J 7 billion, and the Justice Dcpartment' s Office of Legal Counsel has stated that the full faith and
credit of the United States backs such borrowing.

7
with the Federal Reserve banks information relevant to making discount-window advances to
such credit unions.

B.

OTHER PERTINENT RECOMMEND ATIONS

1.

Retaining the NeUA's Role in Administering the Share Insurance Fund

Congress required us to evaluate the potential costs and benefits of having some entity
other than the NCVA administer the Share Insurance Fund. Some potential may exist for conflict
between the NCVA's mission as a charterer or regulator of credit unions and the NCVA's
responsibilities for the Share Insurance Fund. However, in our view, any such potential conflict is
best handled by applying a system of prompt corrective action. Such a system would impose an
important and highly constructive discipline on the NCVA's supervisory and insurance functions.
This discipline should, to a significant degree, offset any potential for conflicts of mission.
Accordingly, we recommend against moving the Share Insurance Fund out of the NCVA.

2.

Continuing to Permit Credit Unions to Treat Their 1 Percent Deposit in the
Share Insurance Fund as an Asset

Congress also required us to evaluate whether the 1 percent deposit that federally insured
credit unions have made into the Share Insurance Fund should continue to be treated as an asset
on credit unions' books or whether credit unions should, instead, expense that deposit. Let me
first take a moment to explain how the I percent deposit works, and more generally, how the
Share Insurance Fund is financed.

Vnder current law, each federally insured credit union must maintain on deposit in the
Share Insurance Fund an amount equal to I percent of the credit union's insured deposits. Thus,
for example, if the credit union has $50 million in insured deposits, it must keep $500,000 on
deposit in the Fund. The credit union's deposit in the Fund counts as an asset on the credit
union's books. It also counts as reserves of the Fund, and is available to protect depositors at
failed credit unions. Because this accounting treatment involves some double-counting of the
same money, some have called for credit unions to write off the 1 percent deposit, so that it
would no longer count as an asset on their books.
We concluded that better ways of protecting the Fund are available. Three reforms that I
outlined earlier are particularly relevant here: the 6 percent capital standard; the requirement that
credit unions with less than 7 percent net worth set aside some of their income as retained
earnings; and a system of prompt corrective action. We believe that these measures, coupled with
existing safeguards, would fully offset any double counting and assure adequate protection of the
Fund. By contrast, requiring a writeoff of the I percent deposit would not provide nearly as much
protection. Accordingly, we recommend against requiring credit unions to write off their 1
percent deposit.

8
C.

THE IMPORTANCE OF ENACTING THESE SAFETY AND SOUNDNESS REFORMS Now

Over the past two decades, most key legislation regarding the safety and soundness of
federally insured depository institutions has been enacted in time of crisis. The Depository
Institution Deregulation and Monetary Control Act of 1980, the International Lending
Supervision Act of 1983, the Financial Institutions Reform, Recovery, and Enforcement Act of
1989, and the FDIC Improvement Act of 1991 all fit this pattern. Because Congress waited to
act until it faced a crisis, the changes involved, although ultimately beneficial, increased the shortterm stress on many depository institutions.
A better approach is to enact needed safety and soundness safeguards while times are
good. Such safeguards will reduce the potential for a future crisis. And depository institutions
can make any necessary adjustments from a position of strength, with appropriate transition
periods.
Congress has such an opportunity to act now. Credit unions are flourishing. On average,
their net worth exceeds 11 percent of total assets. And the Share Insurance Fund is fully
capitalized. The changes we propose involve little cost or burden to credit unions today, yet they
could pay enormous dividends in more difficult times.
Although most credit unions remain relatively small institutions with simple product
offerings, a growing number are large and have extensive product offerings. These credit unions
commonly compete head-on with other depository institutions. As credit unions increase in size
and complexity -- competing directly with banks and thrifts and taking on similar financial risks -policymakers need to ensure that comparable safeguards apply to credit unions' risk-taking. The
safeguards applicable today fall short of being comparable. Moreover, if the ultimate outcome of
the current debate over the common bond is to provide greater flexibility, allowing the continued
emergence of larger, less closely knit credit unions, the safety and soundness enhancement
traditionally provided by a tight common bond diminishes, and the incentives for growth and
added risk-taking may increase.
We risk being unprepared for future problems if we do not act now to update applicable
safety and soundness safeguards in light of a changing industry. It was just this lack of
preparation that compounded taxpayer losses during the thrift crisis -- as the thrift industry
changed, safeguards did not keep up with those changes.

II. THE COMMON BOND OF CREDIT
UNION MEMBERSHIP
Let me now turn to the requirement that members of a credit union share a common bond.
In discussing this requirement, I will: describe what we at the Treasury believe to be the
distinguishing characteristics of credit unions -- the features that set them apart from banks and

9
thrifts; summarize the common bond requirement for federal credit unions; identify the key market
dynamics that have prompted credit unions to pursue liberalization of the common bond
requirement~ set forth six principles that the Treasury believes should guide policy relating to the
common bond requirement; and provide some general comments on what Congress may wish to
consider in this area.
A.

THE COMMON BOND REQUIREMENT AS A DISTINGUISHING CHARACTERISTIC OF
CREDIT UNIONS

Credit unions have several characteristics that, taken together, distinguish them from
banks and thrifts.
First, credit unions are member-owned cooperatives. They do not issue capital stock, and
instead derive their capital from accumulated retained earnings.
Second, credit unions generally rely on unpaid, volunteer boards of directors elected by,
and drawn from, each credit union's membership.
Third, credit unions do not operate for profit.
Fourth, credit unions have a public purpose. As declared in the Federal Credit Union Act,
this purpose involves "mak[ing] more available to people of small means credit for provident
purposes." Of course, other depository institutions also operate under statutes that delineate
public purposes, so the distinction here involves the emphasis on providing services affordable to
people of modest means.
Fifth, credit unions generally have limitations on their membership -- limitations based on
some affinity among members. These limitations are known as the common bond requirement.
Thus, unlike other depository institutions, a credit union generally cannot serve just anyone from
the general public.
We see the common bond requirement as a distinguishing characteristic of credit unions -one that helps set credit unions apart from other depository institutions. In our view, the common
bond requirement is not merely a convenient organizing principle. The affinity among a credit
unions' members, as reflected in a common bond, reinforces credit unions' other defining
characteristics.
B.

THE DIFFERENT TYPES OF COMMON BONDS

The Federal Credit Union Act of 1934 limits "federal credit union membership ... to
groups having a common bond of occupation or association, or to groups within a well-defined
neighborhood, community, or rural district."

10
Thus, the Act recognizes three types of credit unions: those based on a common bond of
occupation or association and those based on a well-defined geographic community. Most credit
unions have traditionally had occupational or associational common bonds, although community
credit unions have become more common in recent years.
In an occupational common bond, a credit union's members share a common employer.
The NCUA has required that occupational fields of membership include a geographic definition.
In an associational common bond, a credit union's members come from some recognized
association. The NCVA's policy is to charter associational credit unions at the lowest
organizational level that is economically feasible. The policy permits a charter for a widely
dispersed membership only where such a charter is clearly demonstrated to be in the best interests
of the associations's members and credit unions.
The Federal Credit Union Act restricts a community credit union to "a well-defined
neighborhood, community, or rural district." The NCVA has interpreted this to mean a single,
geographically well-defined area where residents interact. Generally, the NCUA recognizes four
types of affinity on which to base a community credit union: affinity based on living, worshiping,
studying, or working in the community.

c.

MARKET DYNAMICS

Let us briefly consider the market forces that encourage credit unions to expand beyond
their original membership group. We have identified four types of forces. They involve
technology, demographics, safety and soundness, and management.
1.

Technological Factors

Many credit unions -- to meet customer demand and compete with other depository
institutions -- now offer such technology-based services as ATMs and computer and telephone
banking. The information and communications technology needed to provide such services
involves substantial fixed costs. Adding more membership groups makes such investments more
economical by allowing a credit union to spread these fixed costs over more members.

2.

Demographic Factors

Demographic factors also contribute to credit unions' desire to add new membership
groups. For example:
•

Worker mobility today makes credit unions' membership base less stable than in the past,
when many credit union members had a career-long relationship with their employer and
their credit union.

II
•

Downsizing or closings at manufacturing firms, military bases, and other large employers
have shrunk the membership base of many occupational credit unions.

•

NeVA policy requires a new credit union to have at least 500 persons eligible for
membership, and some believe that the economics of starting a credit union today may
actually require 1,000 or more such persons. Thus people who work at firms with fewer
than 1,000 workers may not, as a practical matter, be able to form their own credit unions.

3.

Safety and Soundness Factors

A tight common bond requirement can have mixed effects on a credit union's safety and
soundness.
The affinity among members sharing a single, focused common bond helps limit loan
defaults. In a credit union with a single common bond, a member would be less likely to default
on a loan commitment because of the effect that the default would have on friends, neighbors, or
coworkers, and because of the shame associated with the default. Because the credit union is a
not-for-profit cooperative, it may also be more willing to develop an acceptable workout plan
than would an impersonal, profit-maximizing financial institution.
On the other hand, the more that a credit union's membership shares a common bond of
employment or otherwise has similar exposure to plant closings or other economic risks, the less
diversified its exposure to credit risk. Diversifying the credit union's membership base tends to
make the credit union more resilient in the face of problems experienced by anyone local
employer. Plant closings during the late 1970s and early 1980s led to numerous credit union
failures because an individual plant typically sponsored a credit union and the credit union's
membership consisted of the plant's workers. Such failures played a key role in prompting the
NeVA's 1982 policy change.

4.

Managerial Factors

Managerial factors may create incentives for credit unions to grow by adding new
membership groups. A credit union board of directors seeking to attract high-quality,
professional managers may find it easier to do so if the credit' union is large, or has growth
opportunities. Moreover, as credit unions are non-profit cooperatives, they do not remunerate
their managers based on profit or stock performance. Instead, management compensation often
reflects a credit union's size and product offerings. This may give managers an incentive to
increase the credit union's size, and adding new membership groups would be an obvious method
for doing so.

12
D.

GENERAL PRINCIPLES

Between the polar-opposite outcomes of having no common bond requirement and
requiring all members of a credit union to share a single, tightly defined common bond, are an
array of possible policies. We suggest that Congress consider possible policies in light of the
following principles:
1.

Reaffirm Credit Unions' Role in Serving People of Modest Means

Credit unions have historically had a special role in serving people of modest means. The
Federal Credit Union Act reflects this public purpose: it is an "Act ... to make more available to
people of small means credit for provident purposes."
We believe that federal policy towards credit unions should continue to promote this
objective. Credit unions have played, and should continue to play, an important role in serving
the underserved. Low-income credit unions have charters that specifically reflect their mission of
serving the underserved. But more broadly, credit unions help make financial services more
affordable for (and in some cases, geographically available to) people of modest means.

2.

Correct Perverse Incentives to Abandon Occupation- and Association-Based
Federal Credit Union Charters

In response to a 1996 injunction against federal credit unions adding new membership
groups, hundreds of federal credit unions have moved to convert to state charters or to
community-based federal charters. Yet a stringent federal common bond requirement serves no
public purpose if it merely prompts credit unions to switch to state charters with a looser common
bond requirement (or none at all). Similarly, a stringent occupational or associational common
bond requirement serves no public purpose if it simply prompts credit unions to switch to broad,
geographically based charters (e.g., anyone who lives, works. or worships in Fairfax County,
Virginia) with less real affinity than their old occupation or association-based charters. Left
unchanged, the Supreme Court's ruling will tend to produce such perverse results.
The debate over the common bond requirement has thus far centered on federal credit
unions. Current federal law imposes no common bond requirement on state-chartered credit
unions (although some states choose to tie their own requirements to federal law). Yet statechartered credit unions receive essentially the same benefits as federal credit unions, including
federal deposit insurance and exemption from federal income taxation. We believe that public
policy should avoid creating perverse incentives to seek one type of credit union charter over
another. particularly if the upshot is to encourage credit unions to select charters that weaken the
affinity among their members.

13

3.

Preserve a Meaningful Common Bond as a Characteristic of Credit Unions

As I mentioned earlier, we see the common bond requirement as a distinguishing
characteristic of credit unions, and one that reinforces credit unions' other characteristics. S A
sense of affinity among members encourages credit unions to serve all their members, even those
whose business may be unremunerative. For example, a hallmark of credit unions has been their
willingness to make small unsecured loans -- loans so small that banks generally have little interest
in the business. Yet the less members have a sense of affinity with one another, the less willing
they may be to maintain such "unprofitable" services in the face of other opportunities. The more
impersonal a credit union becomes -- and the more its members see each other as strangers -- the
less the credit union is likely to distinguish itself from other depository institutions. A lack of
meaningful membership restrictions may make credit unions highly competitive and flexible, but
may also make them increasingly like banks operating under another name.
One cannot be certain in advance what effect weakening the common bond would have on
credit unions' distinctive character. However, reducing the affinity among credit union members
might well put strain on credit unions' cooperative, not-for profit orientation, including their
willingness to pay special attention to members oflesser means (who may be relatively costly to
serve).

4.

Assure Safety and Soundness

Since credit unions serve an important role for many Americans, especially those of
modest means -- and since federal deposit insurance protects the $300 billion in credit union
deposits -- public policy should help assure the safety and soundness of credit unions. As credit
unions grow larger and more impersonal, formal safeguards and effective supervision become all
the more important.

5.

Take Account of Market Dynamics

Most of the market dynamics described earlier justify giving credit unions reasonable
flexibility to move beyond a single common bond. To recapitulate: economies of scale in
providing technology-based services, downsizing, the large number of workers at firms too small
to support their own credit union, and the safety and soundness benefits of diversification lend
weight to permitting credit unions to expand beyond a single membership group. Yet other
market factors -- such as the credit risk-reducing influence of a sense of affinity, and the dubious

5 The

common bond is widely recognized as a characteristic of credit unions. The International Credit
Union Operating Principles of the World Council of Credit Unions (an affiliate of the Credit Union National
Association). declare that "membership in a credit uniol1 is volunta!)' and open to all within the accepted common
bond of association." These operating principles "are founded in the philosophy of cooperation and its central
values of equality. equity and mutual self-help." TIlis suggests that the World Council sees a connection between
credit unions' values and an operating em'ironmcnt in which crcdit union members share a common bond.

14
managerial incentives for growth -- suggest limits on the economic case for attenuating the
common bond requirement. Flexibility on the common bond requirement should be tempered by
the other principles I have outlined.

6.

Protect Existing Credit Union Members and Membership Groups

Since 1982, the NCU A has permitted credit unions to add unrelated membership groups
to existing credit unions. Both the NCUA and the credit unions involved operated in good faith.
Although the Supreme Court has found such actions to have gone beyond the bounds of the
Federal Credit Union Act, we believe that disenfranchising existing credit union members or
membership groups would not serve the public interest.

E.

NEXT STEPS

Congress has time this year to consider carefully the proper course of future policy in this
area. Whatever policy change Congress makes regarding the common bond issue will affect
credit unions for many years to come, and will also affect the dynamic between credit unions and
other financial institutions.
The Treasury looks forward to working with the Committee to develop legislation dealing
with the common bond requirement. To begin, we would like to suggest that such legislation
should: grandfather all existing credit union members and membership groups added before the
Supreme Court ruling, and permit such membership groups to add new members; include the
safety and soundness reforms outlined in the Treasury report; and preserve a meaningful common
bond requirement while providing reasonable flexibility for credit unions to include additional
groups within their membership.

III. CONCLUSION
In closing, let me summarize our four main conclusions and recommendations.
A deliberate, thoughtful approach is needed. We should keep in mind that our actions will
affect credit unions, their members. and others for years to come.
Safety and soundness reforms should be part of any credit union legislation. In particular,
a system of prompt corrective action, which has been so successful in bank and thrift supervision,
should be enacted for credit unions.
Credit unions should be permitted to grow. and consumer access to credit unions should
be enhanced in a manner consistent with the principles outlined here.

15
To-date, the common bond debate has been framed as an all-or-nothing contest in which
one side wins at the expense of the other. An appropriate balancing oflegitimate but competing
interests requires careful deliberation and something other than a winner-take-all outcome.
We look forward to working with the Committee on these issues. I would be pleased to
answer questions.

- 30 -

OFFICE OF PUBLIC AFFAIltS -1500 PENNSYLVANIA AVENUE, N.W. e WASHINGTON, D.C.e 10220 e (%02) 621.%960

EMBARGOED UNTIL 2:30 P.M.
March 10, 1998

CONTACT:

Office of Financing
202/219-3350

TlU:ASURY I S WZERLY BILL OFFER.ING

The Treasury will auction two series of Treasury bills totaling
~pproximately $13,500 million, to be issued March 19, 1998.
This offering'vill
result in a paydown for the Treasury ot al:>out $1,475 million, as the maturing
publicly held weekly bills ara outstan~q in the amount of $14,975 million.

In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $6,859 million of the maturinq bills, Which may be ra£undad at the
weighted aver~e discount rate of accepted competitive tenders. Amounts issued
to theae accounts will be in addition to the offering amount.
Federal Reserve Banks hold $2,661 million a. aqents for foreign and
international monetary authori tie., wtUch .ay be refunded w:1. th1.n the offering
amount at the weighted average discount rate of accepted competitive tenders.
Acld.itional amounts may be issued for such accounts if the aqqraqate amount o£
new J;,;i.d.s exceeds the agqreqate amount of maturin9 bills.
Tenders for ~a bills will be received at Federa~ Reserve Banks and
Branches and at the Bureau of the Public Debt, Wasninqton, D.C. This offering'
of Treasury ••euri ties is qoverned by the terms and c:ondi tions set forth in the
Onifonl Ot'fer:i.ng Circular (31 cn Part 356, as amended) for the sale and issue
by the Treasury to the public of marke~le Treasury bi.lls, notes, and bonds.

Detail. about each of the new securities are gi.ven in the attached offering
hiqhl:1.qhts .
000

Attachment

RR-2292

-

HIGHLIGHTS OF TREASURY OFFERINGS OF ~EKLY B1LLS
TO BE ISSUED MARCH 19, 1990
March la, 1998

Offering Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,250 lIIillion

$7,250 million

Description of Offering:
Term and type of security . . . . . . . . . . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
~turity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original issue date . . . . . . . . . . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . . . . . . . . . . .
MinilllWD bid amount . . . . . . . . . . . . . . . . . . . . . . . . . .

182-day bill
912794 4Z 4
March 16, 1998
March 19, 1998
September 17, 1999
September 18, 1997
$19,302 million

91-day bill
912794 6T 6
March 16, 1998
March 19, 1998
June 19, 1998
December 18, 1997
$11,324 million

$10,000
Multiples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S 1,000

$10,000
$ 1,000

The following rules apply to all securities mentioned above:

Subllliaaion of Bids:
Noncompetitive bidB..

. . . . . . . . . . . . . . . . . . . . Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bide.
Compet1tive bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
Must be expressed a8 a diaco\~t rate with Lhrea decimals in
increments of .005', e.g., 7.100\, 7.10St.
(2)
Net 10n9 position Cor each bidder IIIUSt be reported when the
su. of the total bid amount, at all discount rates, and th.
net 10n9 position ia ~1 billion or greater.
(3)
Net 10n9 position must be determined a8 of one half-hour
prior to the closing time for receipt of compatitivG tender •.
Maximum Recoqn1zed Bi~
at 8 Single yield . . . . . . . . . . . . . . . . . . . . . . . . 35' of public offering

Maximum Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35' of public offering
Receipt of Tendera:
Noncompetitive tenders . . . . . . . . . . . . . . . . . . . . . . Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders . . . . . . . . . . . . . . . . . . . . . . . . . Prior to 1:00 p.m. Ea.tern Standard time on auction day
Payment Term8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Full payment with tender or by charge to a funds account
at a Federal Reserve Bank on issue date

DEPARTMENT

OF

THE

TREASURY

NEWS
OffiCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

EMBARGOED UNTIL 9:30 A.M. EST
Text as Prepared for Delivery
March 12, 1998

TREASURY SECRETARY ROBERT E. RUBIN
SENATE APPROPRIATIONS SUBCOMMITTEE ON TREASURY,
POSTAL SERVICE AND GENERAL GOVERNMENT

Mr. Chairman, members of the Committee, I appreciate the opportunity to testify on the
Treasury Department's fiscal year 1999 budget request. With me today is Nancy Killefer, our
Assistant Secretary for Management and Chief Financial Officer.
Treasury is requesting $12.3 billion in fiscal year 1999, an increase of7.2 percent over FY
1998. This increase is necessary to maintain current operations by supporting mandatory cost
increases and meeting anticipated workload requirements in FY 1999~ to invest in critical capital
improvements for future efficiencies and program improvements and for addressing future
workload growth~ and to accomplish important program enhancements.
Our request is critical to supporting Treasury's important and wide-ranging mission. The
Treasury plays a key role in the core functions of government, including tax administration,
revenue collection, law enforcement, financial management, tax policy, banking policy,
international economic policy and domestic economic policy. As just a few examples, we fight
narcotics trafficking and money laundering through Customs and other agencies, and manage the
federal government's debt structure at the Bureau of Public Debt. We manufacture and protect
the nation's currency, process the federal paychecks for millions of Americans, and help develop
policies related to the budget, the nation's tax structure, international economic matters, and inner
city economic development.
With such a broad portfolio, we take very seriously the notion that we must continually
seek new ways to improve services and lower costs. Towards meeting these purposes, our
budget request supports Treasury's Strategic Plan and provides a performance plan for each of
Treasury's primary missions and we, and I as Secretary, have worked to make GPRA not a
required exercise, but rather a live, integral part of our thinking to improve how we fulfill our

RR-2293

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many mtSSlons. More broadly, we believe that we must not do anything that threatens the fiscal
discipline so many have worked so hard to restore in this country, and which has been critical to
the strong economic conditions of the past five years.
We've already provided the Committee detailed presentation material on the extent of our
fiscal year 1999 request. Let me now highlight four areas -- Departmental offices, the IRS, law
enforcement, and the year 2000 problem.
First, let me discuss Departmental Offices. Departmental Offices contain the policy
groups that are meeting greatly increased challenges in the current environment: tax policy, which
is developing the regulations to implement the tax cuts, loophole closers and simplifications of last
year's budget; international economic policy, which is providing leadership for the United States
and the world in response to the short and long-term issues of financial instability in the global
economy; economic policy, which is deeply involved in international economic issues, entitlement
reform, and the economic initiatives in the President's budget; and law enforcement, which has
expanded policy and oversight objectives. Departmental Offices also contain the central
management functions for all of Treasury, and in furtherance of our very serious focus on
management, human resources, and technology, these functions are being enhanced.
In addition, our budget request includes funding for a five year restoration and repair
program of the historic Treasury Department building. Part of this funding -- which totals $130
million over five years -- is needed for our ongoing restoration of areas damaged by the fire in
1994, and part is needed for general restoration. The Treasury building is one of the gems of our
government, as well as being a workplace. It is important to maintain this historically significant
and beautiful building for future generations.
Second, let me tum to the Internal Revenue Service.
Shortly after I first became Secretary, I became aware of serious problems at the IRS. In
many cases, those problems came to my attention as a result of the work and diligence of this
CoITlllittee. Over the last two and a half years we have been engaged in a highly intensified
process of change and reform at the IRS that has led to dramatic change with respect to
technology -- though that is just the beginning of getting to where we need to go -- increased
electronic filing, improved telephone service and a greatly strengthened Taxpayer Advocate.
Perhaps most importantly, and symbolizing our commitment to thoroughgoing change, we
brought on board a new type of Commissioner, Charles Rossotti, who had extensive experience as
a CEO in the private sector, with expertise in computer systems. And, let me just add, we are
looking very hard to find a new CIO to replace Art Gross, who has done such a outstanding job in
that position.
However, while important steps have been taken, the great bulk of the challenges lie
ahead. Just as these problems took a long time to develop, it is going to take a great deal of time
and effort by all of us to build the kind of IRS that the taxpayers deserve. We are committed to
2

working with you to accomplish that goal. Our budget request includes a series of items to
advance this effort.
First, our request includes additional resources to improve customer service, including
increasing and improving the quality of telephone access, rewriting of notices and forms,
expanding the Taxpayer Advocate staff, and implementing Citizen Advocacy Panels.
Second, our request positions the IRS to move forward with implementing the
Modernization Blueprint, which is absolutely a requisite to improvements in customer service,
efficiency, tax compliance and financial reporting. On a broader front, the budget provides seed
funding as the Service moves more fully to implement its new organizational concept.
Finally, our request includes important restoration of funding for essential business-line
investments. This funding has been deferred and reallocated over the past two years to address
immediate Year 2000 requirements, about which I will say a few words in a moment. However,
significant needs still exist for these investments in order to replace critical items such as aging
computer equipment for front-line examination personnel. This investment is essential to our goal
of providing efficient compliance operations and effective service to taxpayers.
Let me turn now to our budget request for Treasury's law enforcement activities.
As this committee well knows, Treasury has extensive and critical law enforcement
responsibilities executed by Customs, the Secret Service, Alcohol, Tobacco and Firearms, the
IRS, FINCEN, and the Federal Law Enforcement Training Center. To strengthen these critical
efforts, the President's FY 1999 budget for Treasury law enforcement bureaus totals $3.204
billion, an increase of $172 million or 5.7 perceflt above last year. We need this increase to meet
certain mandatory cost increases, and to enhance our activities in combating narcotics trafficking,
reducing illegal firearms trafficking to young people, improving Presidential protection and White
House security, investigating financial crimes, and training law enforcement officers.
Mr. Chairman, we at Treasury have enormous pride in the quality and esprit of our law
enforcement bureaus, and of the men and women who serve in them, often putting their lives on
the line. I spend time on an on-going basis on law enforcement issues, and we at Treasury are
committed to fully supporting the efforts by the law enforcement bureaus to do their jobs, as in
the Secret Service decision to enhance White House security, ATF's reforms and its defense
against strident attacks, and the securing of appropriate funding.
Finally, Mr. Chairman, let me say a word about an issue of pressing importance to our
nation and one on which we are keenly focused at Treasury: the Year 2000 date change problem.
As you know, many computer systems rely on two digit dates as a result of a short cut computer
programmers widely used until recently. The year 2000 would be entered as "00" but interpreted
as "1900." As a result, these computers will not be able to execute many required functions
properly as of January 1, 2000. As an agency with massive computer system activities second

3

only to the Defense Department in the Federal government, this issue is one of the highest
priorities to us. I meet bi-weekly with Assistant Secretary Nancy Killefer and our highly
respected Treasury CIO to track progress and focus on problems.
Our FY 1999 budget includes $253 million to address this problem at Treasury.
Treasury's date change needs are also part of the Administration's FY 1998 Supplemental Budget
Request. We have identified close to $200 million in additional needs in the current year that
must be funded if we are to complete the fixes in time, but the supplemental proposed by the
Administration includes additional flexibility of up to $250 million in order to fund these
requirements. To date, we have identified new requirements of approximately $1 75 million that
need to be addressed this fiscal year. We look forward to working together with the Committee
in addressing these critical requirements.
In both the private and public sectors, cost estimates and time lines on Y2K compliance
have exceeded expectations. So that we can meet this challenge in time, Treasury is focussing on
only those systems most critical to its mission. The challenge is enormous, but we have made
significant progress thus far and continue to be on schedule for almost all our mission critical
systems.

Mr. Chairman, let me conclude on a personal note. Throughout my experience in
government, which includes two years at the National Economic Council, and three years at
Treasury, I have been continually impressed by the intelligence, professionalism and dedication of
the people with whom I've had the opportunity to work.
A Secretary of any Department faces a lot of challenges, including a multitude of policy
issues, and has to make judgements about priorities. When I was first nominated to be Treasury
Secretary I had dinner with a former Treasury official who had served with two administrations
and who advised me that my highest priority should be to focus on maintaining and building on
the excellence of this institution. He was absolutely right. We have been intensely focused on
management issues in my tenure and it is in that spirit that I ask you to approve our budget
request. Let me also say that I have been continually impressed by the capability, the
professionalism, and the commitment of the people at Treasury and the Bureaus, and they deserve
our support on their work to fulfill their wide range of responsibilities in serving the American
people. I also feel that in my time at Treasury this Committee has made a major contribution to
the management of Treasury through its constructive and knowledgeable analysis and review, and
through its support for funding. Thank you very much and I look forward to working with all of
you in the future as we face our challenges.
-30-

, DEPARTMENT

OF

THE

TREASURY

NEWS
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622-2960

EMBARGOED UNTIL 9:30 A.M. EST
Text as Prepared for Delivery
March 12, 1998

TREASURY UNDER SECRETARY FOR DOMESTIC FINANCE JOHN D. HAWKE
SENATE APPROPRIATIONS SUBCOMMITTEE ON VA,
HUD, AND INDEPENDENT AGENCIES

Mr. Chairman, members of the Subcommittee, it is a pleasure to speak with you today
about our Fiscal Year 1999 budget request for the Community Development Financial
Institutions Fund. I am pleased to be joined today by Ellen Lazar, the new Director of the
CDFI Fund.
The President's budget for FY99 includes $125 million for the CDFI Fund. This
funding is a critical component of ollr strategy to promote private sector-led economic growth
in economically distressed areas.
As Secretary Rubin has often said, this is an issue of vital importance to all of us -- no
matter where we live or what our incomes may be. It is a fundamental national economic
issue, because our country will never reach its full economic potential, unless we succeed in
bringing all Americans into the economic mainstream.
The Administration's strategy has three components: investing in people, through
education and training; strengthening public safety; and encouraging business investment with
improved access to capital to create jobs and foster growth. At Treasury, we are energetically
involved in this effort by bringing our broad expertise in financial institutions and tax policy to
bear on these issues, from tax incentives for investment to strengthened regulations under the
Community Reinvestment Act. One of the most important components of our strategy is the
CDFI Fund.
The CDFI Fund's aim is to expand access to credit and financial services in lower
income urban, rural, and Native American communities, areas where one of the biggest
obstacles to
RR-2294

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economic growth is a lack of access to private sector capital. With CDFI, I believe we have a
new, more market-driven approach to community development. CDFls around the country,
with the Fund's support, are helping to open up new markets, demonstrate the viability of
lending to low income communities, partner with mainstream financial institutions in
innovative ways, and mentor and grow small businesses. By filling market niches and drawing
mainstream financial institutions into low income communities through partnerships, CDFls
help to make our financial system work for more Americans. In many respects, we are
witnessing a quiet revolution in the approach taken to community development, with' CDFls
helping to prime the pump.
The CDFI Fund has two main programs: the CDFI program, which is designed to
assist specialized community development financial institutions, and the Bank Enterprise
Award program, which rewards financial institutions that are increasing their lending and
providing more financial services in distressed communities. The two programs are
complementary, and both pursue strategies designed to meet unique local needs, whether it is
helping families to buy a house, or a budding entrepreneur to start a business, or a community
to provide the child care facilities working families need.
The program is still young, but we are already seeing signs of success. Thus far, the
Fund has awarded $75 million to nearly 80 CDFIs around the country. These dollars are
required to be matched at least one-to-one with non-Federal dollars by CDFI award recipients.
Moreover, the Fund's investments become part of the capital base of the CDFIs, further
leveraging federal dollars. Finally. the federal dollars are leveraged again, as the CDFIs,
often with other financial participants. make investments or loans for individual projects.
These investments are making a difference. For example, Bethex Federal Credit Union
in the South Bronx, a small financial institution originally founded in 1970 by former welfare
recipients, received a $100,000 grant from the CDFI Fund to expand its financial services and
increase its business lending. Over the past 18 months, Bethex's membership has grown from
1,270 to 3,000 and its assets have increased from $1.6 million to $3 million. In addition,
Bethex has launched "School Banking," to encourage savings among students.
Let me describe the impact that the Fund had on one individual. Andrew Fuentes of
San Antonio was too ill to return to his construction job. At his wife's suggestion, he made a
table and set of chairs for their empty kitchen out of some old wood. Soon afterward, Mr.
Fuentes was selling his rustic furniture to friends, and he began making furniture full time.
Fuentes approached several banks for a loan to expand his business, but was turned down
because of his credit history. He eventually applied for and obtained a $3,000 loan from
ACCION Texas, a local 1996 CDFI awardee. This loan has already allowed him to expand
his inventory and double his sales.
With respect to the BEA program. more banks and thrifts than ever before are reaching
out to their communities and are investing in CDFIs. This year, the Fund received 104

2

applications, a 40 percent increase over last year's applications. The Fund's $30 million in
BEA investments have already leveraged $273 million in bank activities. Moreover, many of
the awardees are choosing to reinvest the awards they receive for past performance back into
community development projects. In this way, the CDFI Fund is getting increased private
sector leverage for federal dollars.
Central Bank of Kansas City, Missouri, for example, was awarded $99,869 for
increasing its loans and services in distressed neighborhoods by more than $8.3 million during
the first half of 1996. In addition to loans for housing and other purposes, the bank made a
significant loan to help a major manufacturer and employer remain in the community.
As with any new organization, there have been some growing pains. Let me emphasize
that congressional oversight has been useful in helping the Fund strengthen its internal controls
and procedures. I believe that we have dealt with those problems effectively, and we will
continue to improve procedures as this program grows and matures. In fact, the Fund was
recently given an unqualified audit for its activities since inception. The audit also confirmed
the findings of the Fund's management that material weaknesses had existed in the past, and
that the Fund had corrected or was in the process of correcting each of those weaknesses. We
are moving this program forward with the new leadership of Ellen Lazar, who I believe brings
to the job the dedication, the many years of experience in community development, and the
energy needed to implement the CDFI Fund's important work in the years ahead.
Mr. Chairman, the Fund's vision makes sense, it has strengthened its internal controls,
and the Fund's investments are beginning to make a difference in people's lives. Since its
inception, CDFI has enjoyed bipartisan support. I look forward to working with all of you to
secure the President's request for $125 million in funding for Fiscal Year 1999, so that CDFI
can help more local communities across the country rebuild neighborhoods, create jobs, and
restore hope. CDFI is a solid investment· in the long-term economic well being of not only
those communities, but all of us. Thank YOli very much.
-30-

DEPARTMENT

OF

THE

TREASURY

NEWS
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C .• 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
March 12, 1998

Contact: Hamilton Dix
(202) 622-2960

U.S. TREASURER JOINS CONGRESSMAN HOYER AT SCHOOL TO PROMOTE SAVINGS
United States Treasurer Mary Ellen Withrow and Congressman Steny Hoyer will speak to
Calvertion Elementary fourth and fifth graders about saving for the future at 9:30 a.m. on Monday,
March 16, 3400 Beltsville Road, Beltsville, Maryland.
Treasurer Withrow will talk with students about the redesigned $100 and $50 issued in the last
two years and the redesigned $20 that will be released this year. She and Congressman Hoyer also will
talk to the students about the new 50 state commemorative quarters, particularly the state of Maryland
quarter to be issued in 2000.
Interested media should use the main entrance and cameras may set up beginning at 9 a.m.
-30-

RR-2295
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-204-0
.

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
March 12, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY FLOODING IN ALABAMA

The Bureau of Public Debt took action to assist victims of flooding in Alabama by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Alabama affected by the storms. These procedures will remain in effect through April 30, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Alabama counties involved are Coffee, Dale, Escambia, Geneva and Houston. Should additional
counties be declared disaster areas the emergency procedures for savings bonds owners will go
into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or by writing the
Richmond Federal Reserve Bank's Savings Bond Customer Service Department, 701 East Byrd
Street, Richmond, Virginia 23219; phone (804) 697-8370. This form can also be downloaded
from Public Debt's website at: www.publicdebt.treas.gov. Bond owners should include as much
information as possible about the lost bonds on the form. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a financial institution. Completed forms should be forwarded to
Public Debt's Savings Bond Operations Office located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word Storms " on the front of their
envelopes, to help expedite the processing of claims.
II

RR-2296

000

http://www.publicdebt.treas.gov

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
F0?

IMMEDIATE RELEASE

Mc.~ch

CONTACT:

Office of Financ:ng
202-219-3350

16, 1998

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
March 19, 1998
June 18, 1998
9127946T6

Term:
Issue Date:
Maturity Date:
CUSIP Number:
RP~GE

OF ACCEPTED COMPETITIVE BIDS:

Discount
Rate

Investment
Rate 1/

------

Tende~s

5.118%
5.118%

TENDERED

AND

41%.

ACCEPTED (in thousands)
Tendered

Type

Com:;:e:,2. tJ. '\I'e
Nonc,:::::;,etl::.ve

$

n,i"3LIC st.iBTOTAL
Fede~al Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

$

1/

98.744
98.740
98.740

at the high discount rate were allotted
~~OUNTS

Tende~

---------5.102%

4.970%
4.985%
4.985%

Low
High
1-.veraqe

Price

------

38,284,957
1,347,326

A,:,:eptec.
$

4,374,2.46
1,347,326

39,632,283

5,721,472

3,184,310

3,184,310

531,608
3,292

531,608
3,:92

·D,351,493

Equivalent coupon- issue yield"

RR-2297

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$

PUBLIC DEBT NEWS
- Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
March 16, 1998

CONTACT:

Office of Financinq
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
March 19, 1998
September 17, 1998
9127944Z4

Term:
Issue Date:
Maturity Date:
CUSIP Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate

------

Low
High
Ave!:'age
Te~ders

Investment
Rate 1/

------

---------5.212%

5.010%
5.025%
5.025%

97.467

5.227%
5.227%

97.460

97.460

at the high discount rate we!:'e allotted
AMOUNTS TENDERED

AND

42%.

ACCEPTED (in thousands)

Tender Type

Tendered

Competitive
Noncompetitive

$

33,474,286
1,155,167

Accepted
$

3,987,7£$
1,155,1£7

PUBLIC SUBTOTlIL

34,629,453

Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

3,675,000

3,675,000

2,129,092
12,908

2,129,C~2

TOTAL
1,1

Price

$

40,446,453

Equivalent coupon-issue yield.

RR-2298

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3-16- 1998 5:44PM

P.8

FROM OF. ESTADOS_UNIDOS 65d2418

DEPAR.1'.MENT·Ol;

THE

TREASURY

NEWS

~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . .. .

............................

omCE OFPUBUCAFFAlRS -1500 PENNSYLVANlAAVEN1.1E, N.W, - WASHINGTON, D.C.· 20220· (202) 622·2960

EMBARGOED UNTIL 6:15 PM
Remarks as Prepared for Delivery
March 16. 1998
"Latin America and the lOB: New Challenges for a New CentUty"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
Inter~American Development Bank Annual Meeting
Cartagena, Colombia
Distinguished Govemors, Mr. President, delegates and friends. It is great to be in this historic
city of Cartagena. I am especially glad to be here at a time when in the world of financc -- the
Latin American model is a n10del to emulatc not a model to avoid.
That Latin America has not been a sOUrce of crisis •• financial, diplon1atic or political -- in recent
years cannot and will not blind us to the fact that it is a vast source of opportunity. President
Clinton has spoken of a "quiet revolution bringing our hemisphere together around common
values of democracy. free markets, mutual respect and cooperation", We celebrate the fact that
we are now -- with one dogged exception -- a community of democracies. And wc take note that
each year the United States exports more to Chile than to India and more to Brazil than to China.
In so many ways, what we do together in the Americas these next years will fonn a model for
what is probably the major global challenge we face at the dawn of a new century: forging the
healthiest, sturdiest possible rc]ationships between the mature economics and the cmerging
markets. Here at the IDB and everywhere else we seek the right kind ofrelalionship: a
relationship in which the United States cooperates always, leads when it can and follows when it
should.
I remember well the first IDB meeting I attended, four years ago in Guadalajara, in the build-up
to the first Summit of the Americas in Miami in December 1994. At that meeting) as we
celebrated the Bank's Eighth Capital Replenishment. the themes of sustaining macroeconomic
progress, continuing integration, and launching second generation rcfomls to cement democracy
were very clear. Since then the lOB has continued to playa core role in regional developmcnt, in
part by bringing home a vital lesson for all development banks: that intangible infrastructure, all
the institutions, skills and cooperative arrangements that reside in a country, is as important, in
many ways more important to development than tangible infrastructure.
RR-2299

- For press relecuesJJ>ecc1res, public sdledules and official biographies, call our 24-1rour fax line at (202) 622·2040
_ _ _ _ _ h.

'

3-16-1998 5: il0PM

FROM OF. ESTADOS_UNIDOS 65il2il18

Now we meet on the brink of another Summit of Americas next month in Santiago de Chile.
And once again it is a time when it is appropriate to consider the role of the lOB in a fast
changing hemisphere. But first let me reflect a little on what has happened these past four years.
I Latin America Today: Reform Continued

Almost immediately after the Miami Summit we were all surprised by events in Mexico. Many
feared that that shock, like the 1982 debt crisis before it, would spur another inwards tum. In the
event, as many have noted, the Tequila shock was a wake-up call. Economic collapse among the
major reforming economies did not materialize. And important progress has been achieved in
most of the areas that were uppennost in our minds in Guadalajara.
J. Macroeconomic reform sustained

Progress against inflation has continued, in some countries spectacularly so. Pedro Ma130n told
President Clinton in October that inflation in Brazil was five percent -- much the same as it was 3
few ycars ago. The difference is that now it is five percent per year, not per week. The average
inflation rate fell to less than 10 percent last year, compared with 61 percent in 1994, and more
than 200 percent in 1990. Public borrowing. by and large, has also remained under control -with governments working to lock in the fiscal consolidation of the early 1990s. And national
savings rates last year averaged nearly 18 percent of GDP -- 20 percent higher th30n in 1990.
2. Integration Deepened

The integration we had achieved when we met in Mexico has accelerated and it has deepened. In
1994 I counted 23 trade agreements within the Americas. Today I count 30. And it is not merely
goods that are crossing our many borders. Ever more services, capital, people and ideas are
flowing across the hemisphere, with profound effects for our economies and our societies. By
increasing cooperation, by working to hannonize standards and exchange ideas, the United St30tes
has played and will continue to playa full part in this transformation. We do not yet have Fast
Track. But we are determined that the Free Trade Area for the Americas will remain on a fast
track -- just as all the important work laying the groundwork for the Uruguay round proceeded in
the first few years.
3. A Second Generation Begun

In 1994 we could see government by the people across the region. \\!hat we nceded still to create
was effective government for the people. Since then we have seen many countries continue the
first important steps toward this -- by making it near the people, with efforts across the region to
strengthen local democracy and decentralize power and resources to subnational authorities. And
at the national level, ambitious growth-enhancing ideas for pensions, tax systems and financial
sectors have been put to work. Not all countries are moving at the same pace. And in none is the
job complete. But the change is palpable. And its direction is clear.
2

P.2

3-16-1998 5:41PM

FROM OF. ESTADOS_UNIDOS 6542418

4. A Closer Look
But of course? the story of Latin America is the story of each Latin American country:

•

in Mexico, we have seen a courageous tum to pluralism and a truly remarkable economic
turnaround. The challenge in the years to come will be to entrench these gains by
combating social divisions and building a prosperity which all can share;

•

in Brazil, for the first time in a generation, company accounts are beginning to be kept in
domestio currency rather than dollars, and the government has impressed the world by
combating Asian flu at the first symptoms. Its priority now must be deeper pUblic sector
reform, not just to cut borrowing but to target resources on urgent social investments;

•

years of fiscal refonn and financial sector strengthening have left Argentina well
insulated from Asia shockwaves. But high unemployment is a nagging reminder of the
need to press ahead with the govenuncnt's unfinished reform agenda: in the labor nmrket
especially.

•

the news from the Caribbean has been a greater source of concern. Elected govemmcnt
has ~etumed to Haiti since we met in Mexico, but has struggled to throw orf the divisions
of the past. There, as elsewhere, macroeconomic stability and growth remains all too
elusive.

•

yet in Central America we have seen, most recently in Guatemala, an end to more them a
generation of civil strife and the beginnings of new future. But we know well that peace
treaties need shared institutions and shared growth to bring them to life.

II Challenges For A New Century

The good news from this brief survey is that, by and large, Latin America is in better shape to
withstand this recent shock than it was 4 years ago. The question is: where do we go from here?
It is perhaps of the nature ofCCquiet" revolutions that they take longer to complete. The themes
that were right in 1994 are right today. The abiding challenge is the same: to make government a
constructive force in our economics and our societies. a force, above all, for inclusive growth.
The 19905 has been no lost decade. But the 3 percent average growth that has been achieved
since 1991 has not been enough to make real inroads on poverty in many countries. And the
poorest fifth of the population still receive a lower share of national income, and the richest fifth
a higher share -- than in any other region in the world. Losing that dismal distinction will mcan
completing the first generation of reforms in those countries where inflation is still in double
digits and poor macroeconomic policy still stifles investment and growth. But as we have lC:ln1cd
these past few years, that is not all it will require.
Markets are important. But they are 110t enough. The strong enforcement of legitimate law

3

P.3

3-16-1998 5:Ll.1PM

FROM OF. ESTADOS_UNIDOS 65Ll.2Ll.18

rcmClins a critical imperative for building a strong civil society -- the key to a vibrant democracy.
Let me applaud, in this context, the IDB's increased emphasis on good governance and capacity
building in its operations, particularly in helping countries build sound judiciaries.
From fair labor rights to effective policies against drug trafficking; from the protection of our
environment to the vaccination of our children; from the empowerment of the indigenous to the
punishment of the corrupt; there are many critical challenges we face in building effective
govenunent for the people. Let me focus today just on two areas that I expect will be at the
center of discussions at Santiago and I believe will be profoundly important to Latin America's
future. and with it the future of the lOB. These arc: achieving strong and stable financial
integration, and investing in our people.
III Promoting Strong and Open Regional Finance

Integration is about much more than trade. It is about companies investing in new markets and
profit-making opportunities. It is about flows of capital -- and the knowledge that flows with that
capital. And it is about safeguarding the stability of the systems into which that capital flows.
Latin America's insulation from the recent Asian crisis is a reflection of the steps that nations
have taken, both individually and collectively, to ensure stability sinee that first 21st century
financial crisis in 1995. Indeed, in many ways the work of the Committee on Hemispheric
Financial Issues (CHFI) since its first' meeting of Finance Ministers in New Orleans in May 1996
is pointing the way toward the kinds of approaches that will be pursued globally in the months
ahead.
Of particular importance will be the commitments reached at the most recent CHFI meeting in
Santiago de Chile in December:
•

to strengthen banking supervision and prudential regulation, with the universal adoption
of the Basel Core Principles for Effective Banking Supervision and high quality training
to ensure our supervisors are up to the challenges that modem financial markets present;

•

to combat money laundering and other financial crime, by working -- as we now do at
Treasury _. to find new ways to close the channels for moving illicit funds into the
economy and put the launderers in the jails where they belong;

•

to support the development of micro finance. which the lOB has long recognized as a
uniquely effective way out of poverty for the marginalized and dispossessed. From its
support for rural credit unions in Bolivia to women's banking in Colombia, the
Multilateral Investment Fund has truly, here, been a world leader.

Going forward, this region which has far and away the greatest presence in global bond and
equity markets of any emerging market region needs to set the pace in other crucial areas;
•

let it show the way in transparency, with, not seven. but all of the countries in the region
subscribing to the 'International Monetary Fund's Special Data Dissemination Standard;
4

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3-16-1998 5: d2Pt'-1

FROM OF. ESTADOS_UNIDOS 65£12£118

•

let borrowers and creditors work together to build a financial system that CCln handle
failure~ that has the strong bankruptcy laws. effective judicial systems, and reljable
enforcement that can help ensure that the failure of one does not jeopardize the whole.
Because until the system is safe for failure, we cannot count on its success;

•

let us now, when the clouds have come here but have passed us by. promote effective
regional surveillance, built on the principle that friends warn friends when trouble is ncar;

•

and let us, at the center of this effort. think about the role of a multilateral bank when
most of the borrowing is done by countries that have access to international capital
markets most of the time. That ought to mean focusing on the kinds of programs and
products that can ensure that capital access is maintained -- when surprises hit -- and
charging market rates for providing that support. And it ought to mean focusing scarce
official finance on the needs of countries to whom private capital is still denied.

P.5

We emphasize financial stability because we know all too well the human cost that financial
instability inflicts. Stabilizing capital flows is a means to a more ultimate end: of maximizing
growth and opportunities for all our people. It is not an end in itself. In promoting free flows of
capital we must not neglect the broader risks they pose to our society and environment. As
capital finds it can move ever more readily than labor, there are legitimate concems that it will
exploit that mobility in playing off competing jurisdictions against each other. The fear is that we
will be caught in a race to the bottom -- a bottom in which governments cannot promote fair
taxes, uphold fair labor standards or protect the environment. That is not the world that we want
to build. Let all Americans -- North and South -- affirm that we will not let it be the future of OUf
Hemisphere.
IV Investing in All of Our People
At Santiago our heads of government will declare where our future lies -- it lies with education.

Ifachieving financial stability was the challenge ofthe lattcr years of this century, then investing
in our people is our challenge at the dawn of the next.

In a global economy, education is the only route to lasting, inclusive growth. Because it is the
only way to maximize every nation's most unique and precious asset: its people. That is why
Presidel1t Clinton has been the education President. And that is why, in President Zedillo --- a
former education minister -- and President Cardoso -- a former educator -- he has found such
common cause together with the host, 'President Frei, in making education the centerpiece at
Santiago.
Our children should be stimulated by books. not drugs. Teenagers should learn how to read -- not
how to hotwire a car.
Education is too important to do poorly. If the International Financial Institutions (IFls) and the
interactions between national governments are essential to ensuring that our banking systems
5

3-1 6-1 998 5: A.3P~1

FROM OF. ESTADOS_UNIDOS 6542418

remain stable, if they are essential to ensuring that our telephone systems work, then they are
essential to ensuring that our education systems work.

In an increasingly interconnected hemisphere, we all have a common stake in the citizens of all
our countries. We call on the IFIs to monitor carefully govenunents' efforts here: as they monitor
the operation of fiscal policies, to monitor the allocation of resources for education; as they
monitor the state of the tax system, to monitor the state of the education system.
Doing better will sometimes be a matter of resources. Without adequate resources, there cannot
be adequate investments in people. But equally, ifnot more, jmportant will be spending more
wisely the resources we have now. In too many Latin American countries, too much of the
education budget gets spent on higher education for the few. We need to spend those resources
on better education for the many.
Study after study confinns what common sense would suggest, that investing in broad-based
primary education offers countries by far the larger return. In Miami we committed ourselves to
ensure. by the year 2010, universal access to and completion of quality primary education, and
acoess to secondary education for at least 75 percent. We ought to honor that commjtment.
That must mean targeted policies to reach the marginalized. And it must mean rigorous and
effective evaluation of teaching quality. High repetition rates and widespread functional illiteracy
tell us that a large amount of the teaching in this region is not worthy ofthe name. Our emphasis
must be on education in substance and not just in fonn.
This is a task that should be and must be a task for individual nations to finance. But a
Hemispheric effort can make a big difference. As we move to the Summit we need to re-examine
our priorities. And we need to put education at the very top -- as the leaders will in five short
weeks.

In the past three years the IDB has approved more than $1.5 billion in loans for education -around 7 percent of its new lending. The Banks needs to do more. We calIon the IDB to more
than double the share of new lending to primary and secondary education in the next three years - to more than $3 billion.
But we cannot and must not stop there. We believe there is a pressing need for an innovative
vehicle to meet the special challenges which educating our continent will present. To meet that
need we believe the IDB should establish a Special Fund for Hemispheric Education. This could:

•

provide loans and grants to plug the gaps in well-intentioned refonns - the times when
teachers are trained but have no books, when schools are built but have no teachers; when
parents seek involvement but need mechanisms to organize themselves;

•

bring new resources to bear on steps that can help us integrate as we educate -- such as
developing more systematic testing systems and unifonn perfonnance standards across
countries;
6

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3-16-1 998 5: ddPM

FROM OF ESTADOS_UNIDOS 6542418

•

channel funds into fmding more innovative ways to reach those who have most often
been forgotten: the very poor, the rural and isolated, minorities, and the young adults who
want a new chance to complete an "equivalency" at the secondary level and to upgrade
their skills to be more productive members of society;

•

look creatively for special initiatives to advance our shared goals -- for example, using
regional exchange to improve teaching quality_

Assuredly the Fund will need simplified procedures for rapid response. Just as assuredly, it will
need the mobilization of a wide range of Bank resources to make a difference. Educating our
people is the central challenge of our time. Ifwe are serious about meeting that challenge we
must be serious about marshaling Bank resources to meet it. The Bank will have to utilize the
full range ofitsresoUIces, including scarce concessional funds and local currency balances, in a
way that is more just and more sustainable.
The desirability of the goals is not in question. What will be in question is the depth of our
commitment to them. We must invest in all Americans -- North and South. Because if the 20th
century was the American century, the 21st century must be the century of the Americas.
-30-

7

P. 7

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY

March 16, 1998

The Honorable Newt Gingrich
Speaker
U.S. House of Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
This Administration has been a strong proponent of financial modernization legislation that would
reduce costs and increase access to financial services for consumers, businesses and communities.
Although the House Republican leadership draft ofH.R. 10 would remove some archaic
restrictions that have hampered innovation by our financial institutions, it fails to achieve true
reform. As currently drafted, the bill would stifle innovation and efficiency in the national banking
system, diminish the ability of communities and consumers to benefit from our financial system,
eliminate advantageous features of the current thrift charter, and impose needless costs on small
banks.
The bill would materially weaken the national banking system by depriving national banks of
powers they now have, by subjecting national banks to anti competitive limitations inapplicable to
state-chartered banks, and by exposing national banks to discriminatory state laws. The bill
would also leave in place archaic and unjustifiable limitations on the ability of national banks to
compete. Taken as a whole, these changes would diminish the national charter, make national
banks less competitive, and undermine the authority of the Office of the Comptroller of the
Currency.
Similarly, the bill strips away the benefits of the thrift charter -- without making the benefits of
that charter available to all depository institutions, as the Treasury did in its legislative proposal.
Instead, at the expense of banks and thrifts and th~ir customers, the bill dictates that financial
services companies conduct new financial activities only in a bank holding company affiliate. A
bank that wished to avail itself of new powers would thus have to transfer capital to an affiliate,
thereby depleting the bank's resources and shifting any earnings benefit from the bank to the
affiliate. This requirement would also cause a wholesale transfer of financial resources outside of
the reach of the Community Reinvestment Act, under which banks and thrifts made $18 billion in
loans to communities in 1996 alone. Communities, consumers, and those small banks unable to
afford this new structure would clearly be among the losers under the draft bill.

RR-2300

2

None of these steps is warranted by safety-and-soundness concerns, and none is necessary to
create competitive equity among various providers of financial services. Taken as a whole, they
serve only to stifle creativity, reduce benefits to consumers, and undermine the nation's dual
banking system. In this respect, the bill is the antithesis of real financial modernization.
The Administration continues to support financial modernization. However, given the profound
deficiencies that I have described, and others that my staffwill subsequently detail, we oppose this
bill and would not recommend its enactment. We nonetheless stand ready to work with you and
the Democratic leadership to cure its deficiencies and produce a bill that would achieve real
reform.
Sincerely,

Robert E. Rubin
cc:

The Honorable Richard K. Armey
The Honorable John A. Boehner
The Honorable Torn Bliley
The Honorable James A. Leach
The Honorable Michael G. Oxley

The Honorable Richard A. Gephardt
The Honorable John D. DingeU
The Honorable John 1. Lafalce
The Honorable Bruce F. Vento

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY

March 16, 1998

The Honorable Ted Stevens
Chairman
Committee on Appropriations
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
I am writing to express our views on the bill to provide supplemental appropriations and
authorization for U.S. participation in the New Arrangements to Borrow (NAB) and the increase
in quotas for the International Monetary Fund (Th1F), a draft of which was presented to us today.
It is my understanding that the Committee intends to take action on the bill tomorrow, and I hope
these views will prove useful to you and your colleagues as the bill moves toward enactment.
Let me begin by expressing our appreciation for the draft bill's recognition that the Congress
should act now to authorize and appropriate funds for both the NAB and the quota increase. We
believe that immediate approval of these requests is necessary to provide the IMF with the
resources it needs to protect the international financial system - and therefore the U.S. economyagainst the risk of new or escalating financial crises of the kind now gripping key East Asian
economies. By beginning Senate consideration of these requests together, your bill takes a very
constructive first step toward achieving an objective that we believe is very much in the interests
of all Americans.
In this context, I ask that you consider our several grave concerns with some of the provisions of
the draft bill. These concerns relate primarily to the procedural requirements attached to the
proposed appropriation for the quota increase, not necessarily to the underlying policy objectives
of such requirements. In fact, it is fair to say that we are in agreement with many of those
objectives as policies that the United States should vigorously promote at the IMF. A number of
the draft bill's proposed procedures for achieving those objectives are extremely impractical,
however, to the point of being genuinely unworkable. Our major concerns include the following:
Section 101 of the bill would condition the availability of the increased U.S. quota resources on a
Secretarial certification that the IMF's Executive Board has "agreed by resolution" that all lending
agreements with member countries include certain specified provisions. This creates several very
serious problems for us. First, it would likely delay indefinitely the implementation of the quota
increase, denying the IMF the resources it needs to perform its mission during a period of crisis.
Under the terms of the IMF resolution governing member-country assent to the quota increase,
member countries cannot condition their assent, as this legislation would require. (This precludes
conditioning the availability of U.S. funds on formal decisions by the IMF, but does not preclude
the U.S. undertaking a commitment to use its "voice and vote" to promote certain policies at the

RR-2301

IMF.) As a result, Section 101 as currently drafted would prevent the quota increase from going
into effect. Second, Section 101·subjects U.S. funding of its increased quota commitment to an
event beyond its control, in this case a decision by most of the IMF's 182 member countries. At
the very least, it would take considerable time to fonn a consensus among such a large and
diversified group of sovereign nations, especially on a set of very specifically worded provisions
that must be part of every loan program extended by the Fund. Finally, as I am sure you can
appreciate, many members of a multilateral institution like the IMF most likely would voice
strenuous objection to unilaterally imposed conditions on the use of IMF financial resources,
regardless of whether such conditions emanated from its largest or smallest member. For all these
reasons, the enactment of such conditions would pose risks that we believe we simply cannot
afford to take at this time of international financial crisis.
Section 101 would require the IMF to include three provisions in every lending program. Let me
say a few words about the prospects for, and advisability of, pursuing such objectives as blanket
IMF policy rather than as elements of individual programs on a case-by-case basis, as was done in
the recent Asian programs. First, while the IMF does pursue trade liberalization in its lending
programs, it has never played a role in the enforcement of global trade agreements signed by its
members. It is our view that we most likely would not be successful in convincing the IMF
membership to adopt such a new role. Second, while the IMF seeks to combat unproductive,
non-transparent subsidies on a case-by-case basis, it would be uncomfortable at best for the U.S.
to be advocating a complete elimination of all subsidies when the U.s. itself would not meet this
standard because U.S. law authorizes a wide range of subsidies. Finally, the wording of the
provision requiring borrowing countries to guarantee non-discriminatory treatment in debt
resolution proceedings could make the achievement of an international consensus on this point
very difficult.
Section 102, like Section 101, imposes a certification requirement. We fully support the objective
of providing GAO access to IMF infonnation and documents, and in fact believe that, consistent
with current IMF policy, such access already exists. However, a Secretarial certification
regarding such a decision raises many of the concerns outlined above.
Section 105 specifies certain reports that the Treasury would be required to submit on a regular
basis to Congress. While we have no objection in principle to such reporting requirements, as
currently drafted the bill establishes an ambiguous threshold for the types of information we
would be required to provide on what could amount to well over 100 transactions per year.
Section 106 requires the Secretary to make certifications that no IMF resources, "directly or
indirectly," have resulted in support of the Korean semiconductor industry "in any fonn." While it
is certainly not the goal of the IMF program to provide such support, and while the U.S. and
other members have worked assiduously to structure program conditionality to preclude such
support, it is genuinely unworkable, if not impossible, for the Secretary to certify that there has
been no indirect impact as a result ofIMF support.

2

There are other provisions of the draft that we find problematic, but these are some of the major
concerns I wanted to highlight for you. I hope our respective staffs will have the opportunity to
discuss all of this in greater detail and to work out provisions that meet our mutual goals in a way
that is practical and doable.
Again, let me say that your working to move the IMF quota increase and the NAB forward
together is very constructive. We look forward to working with you to enact the legislation at the
earliest possible legislative opportunity.
Sincerely,

Robert E. Rubin

3

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
March 13, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY FLOODING IN GEORGIA

The Bureau of Public Debt took action to assist victims of flooding in Georgia by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Georgia affected by the storms. These procedures will remain in effect through April 30, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Georgia counties involved are Baker, Dougherty, Irwin, Miller, Montgomery and Seminole.
Should additional counties be declared disaster areas the emergency procedures for savings bonds
owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or by writing the
Richmond Federal Reserve Bank's Savings Bond Customer Service Department, 701 East Byrd
Street, Richmond, Virginia 23219; phone (804) 697-8370. This form can also be downloaded
from Public Debt's website at: www.publicdebt.treas.gov. Bond owners should include as much
information as possible about the lost bonds on the form. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a financial institution. Completed forms should be forwarded to
Public Debt's Savings Bond Operations Office located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word "Storms" on the front of their
envelopes, to help expedite the processing of claims.

RR-2302

000

http://www .publlcdebt.treas.gov

OFFICE OF PUBLIC A""~JRS. 1$00 PUiNS\'LVANIA AVENUJ::. N. W•• WASlJlNO'rON, D.C.- :0:!0. (:0:> 6U.2t60

UNTIL 2:30 P.M.
199&

CON'l'AC'1':

~REASURY'S

Office of F~nane~g
202/219-3350

WEEKLY BILL OFFERING

The ~r.asury will .~ction two .eries ot Treasury bills to~alinq
approximately $13,500 million, to he issued MArch 26, 199&. ~his offer~g will
re5ult in a paydown for the Treasury of about $1,32S million, as the maturing
pUbltcly held weekly btlls are outstan4ing in the amount of $14,820 million.

In addition to the public hol<iinqs, Federal Ras.rve Banks for their own
accounts hold. $6,12g =illion of the maturing hills., which may be refund.ed at the
weighted average ~.eount rate of £ccepted. competitive tenders. Amounts issued
~o th•• e accounts will be in addition to the offering amoun~.

Federal Reserve Bank. hold $3,213 million as agents for foreign and
1nt~rnat1onal =onetary authorities, which may be ref-unded within the offering
~unt at the weighte4 averaqe ~8COunt rate of accepted competitive tenders.
Additional amoun~ may be issued tor such accounts i f the aggregate amoun~ of
new bid5 exceeds the aggregate amount of m.turing bills.
Tender. for the bills will be received at Federal Res.rve Banks &n~
Sranches an4 at the Sure au of the Publio Debt, Wuhington, I).C. This offering
of ~reasury securities is governed by the Un:t.8 and ~onc1itions set forth in the
Uniform Off-ring Circrular (31 Ci"R Part 356, as amended.) for the sale and issue
by the Treasury to the pUblio of market&ble Treasury bills, notes, and bond5.

Detaila &bout eAch of the new securiti.a are given in the attached. offering
hiqhl1ghts.

RR-2303
Attachment

000

Fo, press rel.lLS~$, speeches. p"bllc schedules alld DfficitZt bIDgrtzplrl.s, tall Dur 24-ho",,. fax Ii"e

Gt

(lOl) 622-1010

HIGHLIGHTS OF 'rREASURY OFFI!RINGS OF WEEKLY BILLS

ro

BE ISSUED MARCH 26, 1998

March 17, 1998
$7,250 million

Offering Mount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,250 million
DeBorietion of Offoring:

bil~

Tar. and type of security ................... 91-day bill

182-day

CUSJP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date ................................
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HatuX' i ty date . . . . . . . . . . . . . . . . . . • . . . . . . . . . . . .
Original :issue date . . . • . . • . . . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . • • . . . . . . . . . . .
Hini.ua bid amount . . • . . . . . . . . . . . . . . . . . . . . . . .
Hul tiplas . • . . . . . . . . . . . . . . . . • . . . . . . . . • • . . . . _ .

912795 AI<
March 23,
March 26,
September
March 26,

912794 fW 1
March 23, 1990
March 26, 1990
June 25, 1998
June 26, 199'7
S29,925 million
$10,000
$ 1,000

7
1998
1998
24, 1998

1998

$10,000
1,000

~

The following rules apply to all securities mentioned above:
Subaission of Bida:
Noncompetitive bide . . . . . • . . . . . . . . . . . . . . . . . . . Accepted in full up to
Competitive bids .•...............

~

~l,OOO,OOO ~t

the average

discount rate of accepted competitive bids.
.•........ (1)
Muat be expree&ed as a discount rata with three deciaala in
increaents of .005\. e.9., 7.100', 7.105\.
(2)
Net long position for Qacb bidder .uet. be reportoo 14hen the
ou. of tho total bid amouo~. at all discount raCQa, and the

(3)

net long poaition is $1 blllion or grQatQr.
Net long position auat be detor8inad as of one half-hour
prior to the closing tiaQ for receipt of competitive tenders.

~xi.um

Recognizad Bid
at a Single yield . . . . . . . . . . . . . . . . . . . . . . . . 35\ o€ public offering

Maxi.uG Award. "'"

. . . . . . . . . . . . . . . . . . . . . . . . . 35\ o€ public offering

Receipt of Tenders:
Noncompetitive tenders . . . . . . . . . . . . . . . . . . . . . . Prior to 12:00 noon Eastern Standard tiae on auction day
CODpet~tive tenders . . . . . . . . . . . . . . . . . . . . . . . . . Prior to 1:00 p.m. Eastern Standard ti.e on auction day

Pax-ant Teras . . . • . . . . . . . . . . . . . . . . . . . .

e ••••••

Full payment with tender or by charge t.o a funds account
at a Federal Reserve Bank on issue date

D EPA R T \1 E ~ T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622.2960

EMBARGOED UNTIL 9:30 A.M. EST
Text as Prepared for Delivery
March 18, 1998

TREASURY DEPUTY ASSISTANT SECRETARY FOR INFORMATION
SYSTEMS AND CHIEF INFORMATION OFFICER JAMES 1. FL YZIK
HOUSE GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE
ON GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY

Chairman Horn, Representative Kucinich, and members of the Subcommittee,
thank you for the opportunity to appear today to discuss the Department of the Treasury's
progress on the Year 2000 computer problem. The Year 2000 computer problem is our
highest priority information technology challenge. I am confident that Treasury has a
strong program in place to address this challenge, and while there is much work ahead of
us, we have made significant progress to date.
The Assistant Secretary for Management and Chief Financial Officer (CFO) has
overall responsibility for the Year 2000 date transition. As Deputy Assistant Secretary
(Information Systems) and Chief Information Officer (CIO), I am the overall program
manager for the Year 2000 effort. The day-to-day responsibilities of the Year 2000
program reside within my office. In addition, Treasury has contracted with several firms
with specialized skills in the Year 2000 problem to assist the Department in its oversight
role. Attached to this statement are copies of the Year 2000 Program Organization at the
Department of the Treasury.
Secretary of the Treasury Rubin is briefed periodically on the status of our Year 2000
program. and the Assistant Secretary for Management and CFO and myself meet weekly
with bureau heads to review their Year 2000 progress. Working groups meet regularly
for the Information Technology (IT), Non-IT, and Telecommunications components of
our program. The Department requires each bureau and office to submit detailed monthly
status reports. Additionally, the Secretary of the Treasury has mandated that each bureau
and office head select an executive official to be in charge of their Year 2000 program.
This individual, typically at the CIO or CFO level or higher, is responsible for ensuring
RR-23 04

1
Far presr rdeasN, peeches. public schedules and official biographies, call our 24~our fax line at (202) 622-2040

.

that the Year 2000 program at their bureau or office is completed in a timely manner.
I would now like to describe the overall status of Treasury's Year 2000 program,
some successes we have experienced, and some remaining challenges we must address.
Treasury has now identified 321 mission critical IT systems and 272 mission
critical Non-IT systems. At present, we have completed the assessments for 97.1% of
Treasury's mission critical IT systems. We have renovated 125, or 51.4% of the mission
critical IT systems that need to be converted. We can now report 119 out of 321 (37. 1%)
of the total mission critical IT systems are now Year 2000 compliant. Treasury's largest
bureau, the Internal Revenue Service (IRS), has renovated 75 out of 126 (59.5%) mission
critical IT systems, and validated 60 out of 126, or (47.6%).
I believe that, as a Department, we have made significantly more progress than has
been indicated by the above figures. We are conservatively not reporting progress until
entire systems have been renovated and tested. For example, the Customs Service, like
the IRS, manages its renovation efforts by components. Customs has three mission
critical systems, an of which require repair, which include 178 components. Although we
report none of these three Customs mission critical IT systems as completed renovation,
testing, or implementation, the fact is that 63.8% of the components within these systems
have been renovated, 27.7% have been tested, and 19.24% have been implemented. Over
73% of the total Customs inventory of lines of code have been converted.
Treasury operates one of the largest enterprise telecommunicati~ns networks in the
Government. In order to address Year 2000 challenges, a Year 2000 Telecommunications
"Command Center" has been established to serve as a central location for
telecommunications activities, including the Telecommunications Executive Body and
Working Group meetings. Charts and graphs depicting current hardware and software
status of each corporate telecommunications progr~ the independent verification and
validation (IV& V) testing process, and overall progress tracking are displayed
prominently for use by program managers and executives. Contractors supporting the
telecommunications programs are co-located with the dedicated Year 2000
telecommunications program staff in the room to ensure ongoing, timely communications.
To further promote communication among the CIO, Executive Body, program areas,
working groups and bureaus, the Department has established a telecommunications site on
the Treasury Year 2000 Intranet web site. Current information is published on the web
site, including schedules, inventories and assessments, correspondence, and other relevant
information.
Treasury has established a test laboratory for testing components of the system
before implementing the changes in the operational environment. In addition, the
Department has engaged a telecommunications company to perform independent
verification and validation (IV& V) of the telecommunications infrastructure with respect
to Year 2000 compliance.
2

Thus, for our mission critical systems, Treasury is on schedule to meet the
implementation milestone date of December 1998 with the exception of the IRS phase 5
system applications and Financial Management Services Government On Line Accounting
Link System (GOALS). The IRS systems will be completed by January 1999 in
accordance with the IRS Year 2000 program plan, which calls for implementing renovated
systems in 6 month phases, each January and July, through January 1999. This
implementation strategy was created to accommodate tax processing season
considerations. The Department is working closely with Financial Management Service
to determine actions that can be taken to accelerate the GOALS schedule, as described m
the Financial Management Services' testimony.
Since the kickoff of the Treasury Non-IT Working Group on August 28, 1997,
Non-IT efforts have been continuing. The management planning and the definition of
bureau and office specific Treasury Year 2000 Non-IT management plans began on
October 16, 1997. These plans are based on the standard plan fonnat, overall process,
and content requirements as defined in the "Treasury Year 2000 Non-IT Baseline
Management Plan, " dated October 16, 1997. This Treasury plan has been used as a
model by the General Services Administration (GSA) for addressing Non-IT systems.
The Non-IT effort is supported by a central Non-IT database, on the Treasury
Intranet Year 2000 site, which provides a tracking tool to detennine the compliance status
of vendor products.
As of March 6, 1998, Treasury bureaus and offices had identified 6,898 external
data exchanges, of which 3,169 were incoming and 3,729 were outgoing. The
Department has assessed 6,878 out of6,898 (99.7%) of these external data exchanges,
and found that 87.3% are Year 2000 compliant or have been granted a waiver. Of the
2,551 interfaces with the US private sector, Treasury bureaus and offices thus far have
contacted 2,446 and reached agreements with 2,391. The bureaus and offices are working
to meet the established milestone date of March 3 I, 1998, for reaching agreement with all
state governments with which Treasury exchanges data.

At the Department level, coordination on Year 2000 data exchanges has been
ongoing with other government agencies. Treasury has held a series of meetings with
executives and staffs from the Department of Defense and the Department of
Agriculture's National Finance Center to address and resolve data exchange issues and
readiness for Year 2000 testing.
In early 1996, Treasury established September 1998 as a program milestone date
for the completion of contingency plans. During a series of meetings with bureau and
offices heads in June 1997, the Department emphasized the need for contingency
planning and asked the bureaus and offices to accelerate their schedules for the
development of these plans. Since then, Year 2000 Contingency Management Plans have
been developed at several bureaus and offices for mission critical IT systems and

3

components. Factors such as failure date, time to implement, dependencies, interfaces,
resources, responsible office, impact, and criteria for invoking the plans are included.
The bureaus' and offices' contingency planning efforts will be expanded to address NonIT mission critical systems and telecommunications items.
In spite of our best efforts to date and our aggressive plans for the future, the Year
2000 problem is far from solved. Indeed, several significant key issues pose special
challenges for us, and possibly for other Government agencies as well.
One issue that concerns us is vendor schedules for Year 2000 compliant versions
of their commercial off-the-shelf hardware and software products. Some vendors have
yet to release Year 2000 compliant upgrades of their products. While we are continuing
to work on our renovation efforts, our testing cannot be completed until we have
obtained and integrated the Year 2000 compliant versions of these products. This
problem may become especially troublesome in the Non-IT area, where vendors have
been, as a group, slower to recognize and respond to the challenges posed by the Year
2000 problem.
Treasury's cost estimates for fixing the Year 2000 computer problem have
continued to rise. In our submission to OMB for the February 15, 1998, report, we
estimated a total cost of $1.43 billion, with the bulk of that cost being incurred in this
fiscal year. Our cost estimates were initially based in large part on a Year 2000 cost
model that focused on costs associated with mainframe lines of code. In the period since
those initial estimates were provided, Treasury bureaus and offices have made significant
progress in their inventory and cost estimate efforts for repairing and testing IT items,
telecommunications items, and Non-IT items. In the February 15, 1998, quarterly report,
we estimated Non-IT program costs of$68.6 million, and $295 million for
telecommunications costs.
In addition to funding challenges, we must also contend with the increasing rate of
attrition within our infonnation systems workforce. Skilled programmers -- especially
those with skills in legacy system platforms -- are in strong demand within the private
sector, which can pay significantly higher salaries than the Government. The loss of these
critical resources represents a risk to the Year 2000 program.
Finally, while we are fortunate that many of our external interfaces are Year 2000
compliant, scheduling and testing all these interfaces are a challenge. Ultimately, we
cannot test external interfaces unless our data exchange partners are ready to do so.
I believe that Treasury has an aggressive overall Year 2000 program in place, and
we are on target to complete the conversion, testing. validation, and implementation of all
mission critical systems in time to avoid disruption to any critical systems. Nothing less
than 100010 compliance will be acceptable to the American public, or to me personally.

4

I recognize that Chairman Horn's ratings suggest that Treasury has significantly
greater problems with the Year 2000 problem than my testimony suggests. I do not
underestimate the challenge of achieving significant compliance. However, we have
purposefully taken a conservative approach at Treasury with respect to measuring our
progress on the Year 2000 problem. We are requiring an end-to-end testing of all our
systems before we will consider them to be 100% compliant.
Thank you for the opportunity to meet with you today to discuss the actions being
taken by the Department of the Treasury in addressing the Year 2000 computer problem.
I will be happy to answer any questions you may have regarding this important matter.
-30-

D EPA R T 1\1 E N T

0 F

THE

T REA SUR Y

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIflNGTON, D.C.• 20220. (202) 622.2960

EMBARGOED UNTIL 9:30 A.M. EST
Text as Prepared for Delivery
March 18, 1998

TREASURY ASSISTANT INSPECTOR GENERAL FOR AUDIT DENNIS SClITNDEL
HOUSE GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE ON
GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY

Mr. Chairman, Members of the Committee, I am pleased to appear before you today to
discuss the Office of Inspector General's oversight of the Department of the Treasury's efforts to
address the Year 2000 (Y2K) problem.

One thing is clear: this problem must be fixed, and failure is not an option. The two
bureaus represented here today--the Internal Revenue Service (IRS) and the Financial
Management Service (FMS)-provide services that are essential not only to government but to
the public as well. Those who pay taxes and those who receive tax refunds and other government
payments have a great deal at stake in the successful Y2K conversions of these two bureaus.
There is a great deal of focus on Y2K both in Treasury and throughout the Federal
government. Plans are in place, a structured approach has been established that defines the
various phases for a Y2K conversion, milestones have been set, and a progress reporting
mechanism is in place.
Despite these accomplishments, two factors create a high risk that significant problems
could occur to prevent a successful Y2K conversion. First, the sheer size and magnitude of the
work to be done will make it difficult to manage. Second, the deadline cannot be extended~ it is
January I, 2000-and, for some operations, sooner than that. With the amount of work left to be
done and everyone competing for scarce information technology staff resources, this presents an
enormous challenge. It will take many people working very hard and efficiently between now and
the year 2000 to get the job done.
Having said that, let me briefly describe the OIG's oversight of Treasury's Y2K
conversion effort. This year our Y2K audit work will be done in two phases. The first phase is
nearing completion. As part of our financial statement audit work, we have been evaluating the
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-

For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622·2040

Department's compliance with the Y2K provisions of the Federal Financial Management
Improvement Act (the Brown Bill). We have found that the Department is meeting OMB's
quarterly reporting requirements and that the quarterly reports show the Department as a whole is
meeting OMB's milestones.
While encouraging, these results must be qualified in two respects. First, our results are
based primarily on the quarterly status reports provided to OMB. We have not yet performed
extensive tests to verify the accuracy and completeness of this information. Second, the milestone
dates that have been met thus far do not cover the real meat of the Y2K conversion process.
They cover what GAO defines in their Year 2000 Assessment Guide as the awareness and
assessment phases. The next three phases-renovation, validation and implementation--will be
crucial in making a successful conversion.
Our phase 1 review identified two areas of concern that the Department is already
working to address. The first is the need for a standard Year 2000 certification process. The
second is the need for more complete and descriptive Year 2000 contingency plans to ensure
continuity of Treasury's core business processes in the event of a Year 2000 induced system
failure.
In our phase 2 audit, starting this month, we will substantially increase our audit effort.
We will look behind the information in the quarterly status reports to verify the progress being
reported to OMB. More importantly, we will examine the next two crucial phases in the Y2K
conversion process--renovation and validation. Our audit work will focus on three main areas:
1. Management Oversight
We will evaluate both the Department's and each bureau's Y2K conversion oversight
process. As part of this effort, we will assess how project status is validated, how conversion
waivers are managed, and the completeness and accuracy of cost models.
2. Certification Process
We will determine if a certification process exists and is effective for ensuring that a system
is Y2K compliant. We will examine data exchanges with external trading partners and the
processing of data in an integrated environment. We intend to perform independent testing of
certified systems with the help of an outside contractor.
3. Contingency Planning
We will determine if contingency plans exist and are reasonable and complete to effectively
mitigate the risk of a Y2K failure. In addition, we will assess the adequacy of the Department's
and bureaus' business impact prioritization of their mission critical systems.

2

We plan to report deficiencies as they are identified. Our goal is to alert the Department
and bureaus to any significant vulnerabilities that they need to quickly address to reduce the risk
of a Y2K failure. We plan to complete our phase 2 audit work in August and issue a consolidated
report to the Department in September. Based on the results, we will determine the scope of
additional audit work for the remainder of 1998 and into 1999.
We, as well as the Department and the bureaus, have a great deal of work ahead of us.
One of our challenges will be to find a way within our existing resources to give adequate
coverage to this area. We will have some help in this regard, especially at IRS.
The IRS Chief Inspector's Office has an extensive audit effort underway at IRS. They
recently issued a final report on IRS' project planning and project management methodology and
made several recommendations for improvement. They have nine additional audits that are either
ongoing or planned, to cover various pieces of the IRS Y2K conversion effort.
Also, the Department's contractors are providing management support and Year 2000
assessments. We used these assessments in our phase 1 audit work and will leverage off of some
of this work in phase 2.
Finally, we are aware that GAO will be conducting reviews ofY2K conversion efforts in
Treasury. We are coordinating with both GAO and the IRS Chief Inspector to avoid duplication
and leverage our resources. Among the three audit groups we hope to give audit coverage to
most, if not all, of the critical Treasury operations.
This concludes my opening statement. I will be happy to answer any questions that you
may have.
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DEPARTMENT

lREASURY

OF

THE

TREASURY

NEWS

omCEOF PUBUCAFFAlRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960

EMBARGOED UNTIL 2:30 p.m. EST
Text as Prepared for Delivery
March 18, 1998
TREASURY SECRETARY ROBERT E. RUBIN
RELEASE OF IRS CUSTOMER SERVICE TASK FORCE REPORT
THE WIllTE HOUSE, WASHINGTON, D.C.

It is a pleasure to join Vice-President Gore to speak with you today about the report of
the IRS Customer Service Task Force. The leadership of the Vice President and the National
Partnership for Reinventing Government have been critical to our ongoing efforts to create an
IRS that is customer friendly and efficient, while collecting the taxes due.

Over the last three years, this Administration has been engaged in a highly intensive
process of change and reform at the IRS to improve service for our customer: the American
taxpayer. We have started to tum around technology, increase electronic filing, and improve
telephone service. We have taken steps to enhance taxpayer rights by strengthening the position
of taxpayer advocate, and establishing new Citizen Advocacy Panels to make it easier for
taxpayers to get problems addressed quickly and effectively. Last month, we announced a set of
initiatives to protect taxpayers whose spouses violate the tax laws without their knowledge. We
have also worked to bring tax relief to middle class families by expanding the Earned Income Tax
Credit and other measures.
However, despite this progress, the great bulk of our challenges lie ahead. Just as the
problems at the IRS took a long time to develop, it is going to take a great deal of time and effort
by all of us to build the kind of IRS that taxpayers deserve. There are no quick fixes or easy
solutions, but dramatic change is an absolute necessity. This report -- the product of thousands of
hours of work interviewing taxpayers, reviewing complaints, and consulting both outside experts
and front-line employees -- is an important contribution to our reform efforts.
It is important to emphasize that, as we work to improve the IRS, we are committed to
working in partnership with front line employees. Last November, I visited the Baltimore office
on the first nationwide Problem Solving Day. My experience with those employees reinforced my
RR-23 06

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Furpress releases, speeches, pUPJlfC nit(!dules and official biographies, call our 244tour fax line at (202) 622-2040
t

•

belief that the vast majority of IRS employees are dedicated public servants, committed to helping
taxpayers comply with the law.
One of the most important steps we can take now is for Congress to pass the IRS reform
bill, which the Administration and Congress worked together to fashion in the last weeks of 1997
after months of debate. We think the bill is a very good balance of many competing considerations
and that it contributes significantly to the kind of IRS we all want to have. We hope that the
Congress moves forward and passes this bill without further delay to help the IRS better serve the
American taxpayer.
Let me make one final point. One of the things that has been lost in the debate around the
IRS over the last few years is the critical function the IRS performs. The IRS collects 95 percent
of the federal government's revenue -- revenue that funds essential activities of government that
contribute enormously to the well-being of the American people, from the nation's defense, to
social security, or college loans. And by enforcing the tax laws, they make the tax system fairer,
because those who cheat on their taxes increase the burden on all the rest of us.
Now, I'd like to introduce the man who symbolizes our commitment to change at the IRS.
One of the most important steps we have taken to improve the IRS was bringing Charles Rossotti
on board, a new type of Commissioner who had long experience in private business and expertise
with computer systems and who recently unveiled his plan for orienting the IRS more towards
customer service.
-30-

2

o

F. PAR T l\ lEN T

0 F

THE

TREASURY

T REA S lJ R Y

NEWS

OFFICE OF Pl.IBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C •• lOllO. (%01) 6ZZ.U60

tMBAP.GOED UN'l'IL 2: 30 P.M.
March 18, 1998

CONTACT;

Offioe of Financing
202/219-3350

TREASURY '1'0 AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $25,000 MILLION

The Treasury will auction $14,000 million of 2-year notes and $11,000
million of S-year notes to refund $31,726 million of publicly held securities
maturing March 31, 199B, and to pay down about $6,725 million.
In addition to the publio holdings, Feaeral Reserve Banks hold $3,l43
million of the maturing seeurities for their own accounts, whioh ~y be
refunde~ by i&su1ng additional amounts of the new securities.
The maturing securities held by the public include $5,531 million held
by Federal Reserve Banks as agents for foreign and international monetary
authorities. Amounts bid for these accounts by F~eral Rese~e Banks will
be added to the offering.
Both the 2-year and 5-year note auctions will be conducted in the singleprice auction format. All competitive and noncompetitive awards will be at
the highest yield of accepted competitivQ tenders.

The 2-year and 5-year notes
STRIPS program.

be~ng

offered today are eligible for the

Tender. will be receivea at Federal Reserve Banks and Branches anQ at
the Bureau o~ the Public Debt, Washinqton, D. C. This offering of Treasury
securi ties is qoverned by the terms and c:ondi tions set forth in the Uniform
Offering Ci~cular (31 erR iart 356, &s amended) for the 5&le and issue by
the ~r.aaury to the publio of marketable Treasury I bill., notes, and bonds.
Detail. &bout each

o~

the new •• curities are given in the attached

offering highlight•.
000

Attachment
RR-2307

-..

For preIS "lI1U,I, SPllt"lJ, public ~h,dults and o/flctai biograph/Is, call our 24·hour !flX

u", at (202) 621-2040

HIGHLICHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED MARCH 31, 1999
March 18, 1998
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . $14, 000 milJ.ion
Description of O£fe~in9:
Term and type of security ..... '" . . . . . . .
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dated date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . .
IntArest rate . . . . . . '" . . . . . . . . . . . . . . . . . .

2-year notes
AB-2000
912821 4A 7
March 24, 1999
March 31, 1998
March 31, 1998
March 31, 2000
Determined baeed on the highest
sccepted competitive bid
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
Intor9£t payment. dates .. .
September 30 and March 31
Minimua bid aftount ...... .
$5,000
Multip183 . . . . . . . . . . . . . . . .
$1,000
Accrued lnterest payable
by inveator .... .
None
Premium or d~scount ... .
Dete~ined at auction

STRIPS Infonmation
Hinimua aDount. required . . . . . . . . . . . . . . . . . Dete~~ned at auction
Corpu_ CUSIP nwnher . . . . . . . . . . . . . . . . . . . . . 912820 CT 2
Due data (s) and CUSIP nmahQr (8)
for additional TINT(s) . . . . . . . . . . . . . . . . . . Not Applicable

$11,000 lIIillion
5-year note a
E-2003
912927 48 .s
March 25, 1998
March 31, 1999
March 31, 1999
March 31, 2003
Determined basQd on the highest
accepted competitivQ b~d
Determined at auction
September 30 and March 31
$1,000
$1,000

None
Determined at

a~ction

DetQrmined at auction
912820 CO 9
912833
March 31, 2003
RU 6

The following rules apply to all securities mentioned above:
Sun-ission of B~d~:
Noncompetitive bids . . . . . . . . . Acoep~ed in full up to $5,000,000 at the hiqhest accepted yield.
Competitive b~ds . . . . . . . . . . ,. (1) Must be expressed as a yield with three decimals, e.g., 7.123'.
(2) Net long position for each bidder must be reported when the sum o£ the botal bid amount,
st all yields, and the net 1009 position is $2 billion or 9reater.
(3) Net lonq position must be dete~ined as of one half-hour prior to the closiog LU.e for

receipt of conpetitive benders.
Maximum Recognized Bid
at a Single yield . . . . . . . .
Haximud Award . . . . . . . . . . . . . . .
ReceyPt of Tenders:
Noncompetitive tenders ...
Competitive tenders ......

35' of public offering
35\ of publio offering

Prior to 12:00 noon Eastern Standard time on aaction day
Prior to 1:00 p.m. Eastern Stftndard time on auction day
Paymen~ Terms •...•.•.....•.. Full payment with tender or by charge to a funds account at a federal Reserve Bank on issue date

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMM"EDIATE RELEASE
March 19, 1998

Contact: Office ofFinancmg
(202) 219·3350

TREASLTRY'S Il\RATION-INDEXED SECURITIES

APRIL REFERENCE CPI NU1\1BERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and the
daily index ratios for the month of April fo:- ~':a following Treasuty inflation-indexed securities:
(1) the IO-year 3-3/8% notes due January IS, 2007, (2) the 5-year 3·5/8% notes due July 15, 2002,
and (3} the 1O-year 3·518% notes due January 15, 2008. This information is based on the
non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban
Consumers (CPI-U) published by the Bureau of Labor Statistics of the U.S. Department of Labor.
In addition to the publication of the reference cprs (RefCPI) and index ratios, this
release provides the non-seasonally adjusted CPI-U for the prior three-month period.

This information is available through the Treasury's Office of Public Affairs automated fax
system by calling 202-622-2040 and requesting document number 2308. The infonnation
is also available on the Internet at Public Debt's web site (http://www.publicdebttreas.gov).
The information for May is expected to be released on April 14. 1998.
000

Ana.chme:nts

RR-2308

hnp:/lwww.publicdebt.treas.go v

202-219-3350

Contact Office of Financing
TREASURY 1o-YE!\R INFLATION-INDEXED NOTES
SERIES:
CUSIP:
DATED DATE:
ORIGINAL ISSUE DATE:
ADDITIONAL ISSUE DATE:
MATURIT'I' DATE:
Ref CPI on DATED DATE:
TABLE FOR MONTH OF:
NUM8ER OF DAYS IN MONTH:

A-2007

9128272M3
January 15, 1997
February 6, 1997
April 15, 1997
January 15, 2007

158.43548
April 1998
30

161.3

CPI-U (NSA) December 1997
CPI-U (NSA) January 1998
CPI-U (NSA) February 1998

161.6

161.9

Ref CPI and Index Ratios for April 1998:

Month
April
April
April
April
April

Apnl
Apnl
Apnl
April
April
April
April
April
April
IApril
IApril
April
April
April
April
April
April
April
April
April
April
April
April
April
April

Calendar Day

Year

RefCPI

1

161.60000
161.61000
161.62000
161.63000
161.64000
161.65000
161.66000
161.67000
161.68000
161.69000
161.70000
161.71000
161.72000
161.73000
161.74000
161.75000
161.76000

26
27

1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998

2

3
4
5
6
7
8
9
10
11
12
13

14
15

16
17
18
19
20

21
22
23

24
2S

28

1998

29

1998

30

1998

161.nOOO

161.78000
161.79000
161.80000
161.81000
161.82000
161.83000
161.84000
161.85000
161.86000
161.67000
161.88000
161.89000

Index Ratio
1.01997
1.02004
1.02010
1.02016
1.02023
1.02029
1.02035
1.02042
1.02048
1.02054
1.02060
1.02067
1.02073
1.02079
1.02086
1.02092
1.02098
1.02105
1.02111
1.02117
1.02124
1.02130
1.02136
1.02143
1.02149
1.02155
1.02161
1.02166

1.02174
1.02180

Contact: Office of Financing

202-219-3350

TREASURY 5-YEAR INFLATION-INDEXED NOTES
SERIES:
CUSIP:
DATED DATE:
ORIGINAL ISSUE DATE:
ADDITIONAl.. ISSUE DATE:

J.2002
9128273A8
July 15. 1997
July 15. 1997
October 15. 1997
July 15. 2002
160.15484
Apn11998
30

MATURITY DATE:

Ref CPI on DATED DATE:
TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:
CPI-U (NSA) December 1997
CPI-U (NSA) January 1998
CPI-U (NSA) February 1998

161.3
161.6
161.9

Ref CPI and Index Ratios for April 1998:

Lonth
April
April
April

April

April
April
April

Calendar Day

Year

1

1998

2

1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998

:3
4
5

April
April

6
7
8
9

April

10

April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April

11
12
13
14
15
16
17
18
19
20
21
22
23
25
26
'2.7

April
April
Acril

28
29
30

24

RefCPI
161.60000
161.61000
161.62000
161.63000
161.64000
161.65000
161.66000
161.67000
161.68000
181.89000
161.70000
161.71000
161.72000
161.73000
161.74000
161.75000
161.76000
161.nOOO

161.78000
161.79000
161.80000
161.81000
161.82000
161.83000
161.84000
161.65000
161.66000
161.87000
161.88000
161.89000

I

Index Ratio
1.00902
1.00909
1.00915
1.00921
1.00927
1.00934

1.00940
1.00946
1.00952
1.00959
1.00965
1.00971
1.009n
1.00984
1.00990
1.00996
1.01002
1.01008
1.01015
1.01021
1.01027

1.01033
1.01040
1.01046
1.01052
1.01058
1.01065
1.01071
1.01077
1.01083

Contact Office of Financing
TREASURY 10-YEAR INFLATlON-INDEXED NOTES
SERIES:
CUSIP:
DATED DATE:
ORIGINAL ISSUE DATE:
MATURITY DATE:
Ref CPI on DATED DATE:
TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:

A-200B

9128273TI
January 15. 199B
January 15. 1998
January 15. 2008
161.55484
April 1998

30
161.3
161.6
161.9

CPI-U (NSA) December 1997
CPI-U (NSA) January 1998
CPI-U (NSA) February 1998
Ref CPI and Index Ratios for April 1998:

Month
April
April
April
April
April
April
April
April
April
April
April
April
April
April
April
. Apnl
April
April
April
April
April
April
April
April
April
April
April

Calendar Day
1

2
3
4

5
6
7
8
9
10

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

Year
RefCPI
1998 161.60000
1998 161.61000
1998 161.62000
1998 161.63000
1998 161.64000
1998 161.65000
1998 161.66000
1998 161.67000
1998 161.68000
1998 161.69000
1998 161.70000
1998 161.71000
1998 161.72000
1998 161.73000
19981 161.74000
1998 161.75000
1998 161.76000
1998 161.nOOO
1998 161.78000
1998 161.79000
1998 161.80000
1998 161.81000
1998 161.82000
1998 161.83000
1998 161.84000
1998 161.85000
1998 161.86000

Index Ratio
1.00028
1.00034
1.00040
1.00047
1.00053
1.00059
1.00065
'.00071
1.000n
1.00084
1.00090
1.00096
1.00102
1.00108
1.00115

1.00121
1.00127

1.00133
1.00139
1.00146
1.00152
1.00158
1.00164
1.00170
1.001n

1.00183
1.00189

April

28

1998

161.87000

April
April

29
30

1.00195

1998
1998

161.88000
161.89000

1.00201
1.00207

DEPARTMENT

OF

THE. TREASURY

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

"Opportunities Out of Crises: Lessons From Asia"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
Overseas Development Council
Washington, DC
March 19, 1998
Thank you. I am delighted to have this opportunity to discuss recent events in Asia with such a
broad and distinguished array of thinkers on these issues.
I would like to spend my time today discussing the short and longer term causes of the recent
crises in Asia; the opportunity they present for putting Asia's growth on a more sustainable
footing; and some of the implications for the International Financial Institutions.

I. Systemic Roots of the Crisis
In the wake of these crises there has been a great deal of discussion about the "Asian model". To
the extent that there exists such a model -- given the enormous differences between the economies
of the region -- it lies in a number of common features in their economic and financial approach, an
approach that in many ways tracks the postwar development of Japan.
This was built on the fundamentals -- on high savings, high levels of education and hard work. But
it was also an approach that favored centralized coordination of activity over decentralized market
incentives. Governments targeted particular industries, promoted selected exports, and protected
domestic industry. There was a reliance on debt rather than equity, relationship-driven finance not
capital markets, and informal rather than formal enforcement mechanisms.
This model has had important and profound successes. And the performance of Asia has truly been
spectacular. But it has been a difficult and ongoing question of interpretation quite how much of
that spectacular growth was due to strong universal fundamentals, such as high savings and high
levels of education, and how much due to practices uniquely Asian. What we can say is that even
before the onset of the recent financial problems a reassessment was under way, not merely within
American universities but within Asia:
•
Japan's disappointing economic performance had led to plans for a "Big Bang"
liberalization of the financial sector and repeated calls for sweeping deregulation;
•
prominent Korean observer Kim Dae Jung -- now, of course, the president -- had
RR-2309

1
For press~, SPeedl~, public ~edules and official biographies, call our 24-hour fax line at (202) 622-2040
•

t(

published books calling for wholesale reform of the economic system: for an end to
government-directed lending to industry, for non-inflationary macroeconomic policies, for
reforming the chaebol, and for opening up the financial system.
•

respected academic studies of Asia's growth record -- pioneered by Alwyn Young -- began
to suggest that the miraculous growth of Asia might owe rather little to sustained grovvth in
productivity and a great deal more to rapid accumulation of capital.

These longer term issues were conflated, in recent years, with a set of shorter term problems of
macroeconomic management: the maintenance of mutually inconsistent monetary policy and
exchange rate regimes; excess inflows of private capital channeled into unproductive investments;
substantially reduced competitiveness; significant failures of debt management that led to
unsustainable quantities of short-term debt. All of these elements -- short- and long-term -- came
together to produce these crises, and were then reinforced by lack of market confidence so as to set
up a situation with many of the features of a bank run.
This, then, is a distinct kind of crisis. It has a common element with almost all financial crises:
money borrowed in excess and used badly. But it is also profoundly different because it does not
have its roots in government improvidence. Relative to nearly all of the crises we have seen in
recent years, the problems that must be fixed are much more microeconomic than macroeconomic,
and involve the private sector more and the public sector less.
Another way to put this would be that the reforms are less about changing the short-term policy
mix than they are about changing the long-term institutional environment. Short-term adjustments
in policy can and have been needed to revive confidence and correct imbalances. But the
overriding focus has been on addressing the same long-term challenge at the root of those earlier
reassessments: the challenge of building a new system of governance better attuned to the demands
of an integrated modem market economy.

II. The Approach to Reform
We can see the core elements of such a response in the reform programs the International
Monetary Fund, along with the World Bank and the Asian Development Bank, have supported in
Asia. The goal in each area of policy is both to tackle the short-term problem of confidence and to
clear the way for a new growth path built on private investment and individual opportunity.

Macroeconomic reforms have involved, not merely short-term adjustments to restore confidence
and growth, but long-term reforms to make the framework for macroeconomic policy more
transparent and accountable. Each of the programs commits the government to regular publication
of foreign reserve and other data and greater public scrutiny of policy decisions -- both so as to
build consensus and to reduce the scope for unpleasant surprises.
Financial sec/or reforms have envisaged, not merely restructuring of the financial system, but
laying the ground for a new one. While attention has focused on the closure or merger of insolvent
financial institutions, at least as important to the long-term resolution of these crises will be the

2

commitment to build a new supervisory and regulatory infrastructure and foster modem credit
evaluation and risk management techniques within private financial institutions themselves.
Corporate sector reforms have all involved a recognition that there need to be bankruptcy regimes
in place, and system-wide improvements in accounting standards and corporate disclosure to
facilitate the move to a more arms-length, market-driven investment culture. If one were writing a
history of the US capital market, one of the most important innovations one would say had
shaped that market would be the idea of generally accepted accounting principles. It is a minor,
but not insignificant, triumph of the IMF program that when I and other members of the
Administration were in Korea earlier this year, a teacher of night school courses in accounting
told us he normally has 22 students in his winter term. This year he has 385.
Reforms of the role ofgovernment have sought, not merely an end to those public interventions
directly contributing to the crisis, but fundamental change in what government is expected to do.
The emphasis is on reducing direct public involvement in the productive sector -- as, for example,
in the Korean pledge to eliminate non-economic lending to industry. And it has been on opening
the economy to foreign participation and competition with sweeping trade and financial sector
liberalization, both to improve the efficiency of the economy and to let long-term capital in.

But this is only one part of the story. The emphasis of these programs has been at least as much on
improving the quality of government intervention -- to make it more transparent, less open to
corruption, and more focused on the things that sustainable market-led growth depends on, but
markets alone cannot provide. Most notably, all of the most recent reform programs include
measures to improve the quality of the social safety net, and to maintain and improve government
spending on education, health and other basic services.
It is arguable that reform would not be politically sustainable in these situations without an
assurance that the pain of adjustment will not fall only on the poor. What we know for sure is that
they would not be economically sustainable, in the long run, without these kinds of reforms. Years
of research into the business of "picking winners" in development has given a clear verdict: when
it comes to the long-term economic return, public investments in health and education and an
effective social insurance system win out every time.

Decisively implemented, these changes will help address Asia's shorter and longer term
imperatives: they will increase confidence and attract private capital in the short run. And they
address the longer term problem of allocating capital on a more market-oriented basis. They are
also important for the International Community, because an Asia that addresses these problems
will be a stronger, more balanced contributor to global growth and trade. And, we should
remember, they will offer the prospect of resuming sustained growth in living standards and
opportunities in a region where two-thirds of the world's population live.

III The Role of the International Financial Institutions
This many-sided response is a response to the particular challenges facing Asian economies in
these crises -- and in each case, to the specific circumstances of each country. But it is not an
Asian response. Nor is it an Anglo-Saxon response. It is, rather, an effective response, grounded

3

in the now very broad consensus in favor of economics based on markets -- and marketsupporting institutions.
For all the debates we have seen recently about the proper role of the IFls, they have focused to a
very large extent on the means and modes of official assistance. The end goal, of laying the
foundations for market-led growth, is no longer in question. What has been a matter of continuing
debate and pressure on the part of the United States has been the desire to ensure this objective is
being met as effectively as possible.
Let me just highlight three areas where we have pressed for change in areas that have been
brought out with particular salience in the Asian case:

1. Laying the foundation for stable finance
We have pressed to ensure that the IMF would never again stand for "It's Mostly Fiscal", by
working to adapt the IMF's policies and practices to meet the needs of a more integrated and
market-driven global economy. For example:
•
through the US-initiated creation of the new Emergency Financing Mechanism, to provide
for more rapid agreement to extraordinary fmancing requests in return for more intense
regular scrutiny.
•

by successful urging the IMF to take the lead in international efforts to promote greater
disclosure of economic and financial data and improved banking supervision in emerging
markets. More than 40 countries have already subscribed to the IMF's Special Data
Dissemination Standard created in April 1996. And the IMF was closely involved in the
development, by the Basel Committee, of Core Principles For Banking Supervision and
Regulation that were formally approved by the G7 countries last year.

•

and most recently, through the US-inspired Supplementary Reserve Financing facility to
let the IMF lend at premium rates in short-term liquidity crises and improve borrower
incentives -- a mechanism that grew out of recent developments in Asia and has played a
major role in the IMF's assistance to the region.

Let me applaud the commitments that Jim Wolfensohn has made since becoming President of the
World Bank to upgrade the organization's involvement and expertise in the area of financial
sector refonn -- if there is one area where I welcome a competition among the IFls it is here. And
indeed, a large, in many cases the major portion of new ADB and World Bank lending to Korea
and Thailand in response to the crises has been focused on this sector.

2. Greater Emphasis on Good Governance
The Asian crises have brought out even more clearly what Jim Wolfensohn and Michel
Camdessus had already recognized: that good governance is a core institutional underpinning for
growth. With strong United States urging and support, both institutions have rightly been moving
toward making reduced corruption as central to their assessment of countries as more traditional,
narrowly economic concerns such as tariff reform and tax administration.

4

Putting the fight against corruption at the heart of development programs is an economic as well
as an ethical imperative. Corruption results in distorted allocation of resources. And new laws
and supervisory systems will do little to safeguard stability if there is no credible -- and honest -authority to enforce them. As we are learning, any country's capacity to take on major reform
challenges such as those faced in Asia will depend critically on the credibility of its policy
makers and public institutions -- credibility that corruption fatally undermines.
It is my hope and expectation that there will be a great deal of further attention given to this issue

in the months ahead. But as you know, promoting good governance does not only, or even
mainly, involve "anti-corruption" measures. Greater transparency and accountability of public
institutions, the elimination of cartels, subsidies, trade restriction and other distortions -- all of
these will have a direct effect on the scope for cronyism and corrupt practices, and a direct, and
positive long-term effect on growth. The proposal for an IMF code of fiscal transparency
provides just one example of ways that the IMF could press governments to move further in this
area in the future.

3. Greater Emphasis on the Social Implications ofReform
A concern with the quality of public spending -- as well as the absolute quantity -- has been a
long-running object of United States pressure on both the IMF and the World Ban1c We have
pressed the IMF to pay closer attention to the needs of the poor in designing adjustment
programs, to encourage cuts in unproductive expenditures such as military spending and shifting
of more resources to primary education, health care and essential public investments. Since 1990
military spending has declined from 5.5 percent to 2.2 percent of GDP in program countries, and
has declined as a share of government spending while social spending has increased.
All of the recent programs have been designed to ensure that the necessary adjustments do not
come at the expense of the poor:
•
in the Indonesian and Thai programs, spending on health, education and social programs
have been expressly protected from any fiscal consolidation, and where possible, efforts
to target spending on the poorest in society have been intensified. In Korea, the program
commits the government to strengthening the labor insurance system, and the promotion
of active labor market policies to lessen the shock to employment due to the crisis;
•

in designing programs to supplement the IMF program, both the World Bank and the
Asian Development Bank have been acutely aware of the need to focus on the impact of
policy on the most vulnerable, both in the new lending provided to these countries and
through the restructuring of existing lending programs to promote urban and rural
employment and basic health services. Planned new World Bank lending to Thailand and
Indonesia, for example, foresees upwards of $600 million in new loans for improving the
social safety net in each of these countries.

There is a broader point that needs to be made in these discussions. We do not emphasize financial
stability for its own sake. Stabilizing capital flows is a means to a more ultimate objective: of
increasing living standards and economic opportunities for all of the world's popUlation. Yet in
working to promote free flows of capital we will not and cannot allow ourselves to get caught in a
5

race to the bottom -- a bottom in which governments cannot promote fair taxes, uphold fair labor
standards or protect the environment.
That is not the world we want to build. It is not the world we are bUilding. That is why we are
working with other countries to promote global cooperation against corporate and legal tax havens.
That is why we are working actively in the OEeD on the issue of tax competition. It is why we
have worked, within the IMF and the other IFIs to ensure that the concerns of labor and the
environment get a fair hearing in devising reform programs and sustainable development strategies.
And it is why fair labor and environmental standards have played a core role in our bilateral and
multilateral trade liberalization initiatives.

IV The Immediate Need to Support the IMF
The crises have brought home the absolute indispensability of the IMF as the core provider of
emergency, conditioned international support to countries in financial difficulty. Long
experience has taught that countries cannot be helped by the IMF -- or, indeed, any of the
multilateral institutions -- if they are not willing to help themselves. But without the IMF, even
those countries that are committed to reform might face default -- either at a government level or
through the failure of the financial system as a whole -- which could have devastating effects on
their own economies and significantly raise the risks of contagion in other markets.
It has rightly been said, in this context, that if the IMF did not exist we would have to invent it.
But of course, we do not need to imagine such a possibility, we can simply look at the history of
the late 1920s and early 1930s, when there was no collective response, and no United States
leadership to address serious financial problems, and lenders and creditors were left to sort
things out by themselves. The result was a vicious cycle of devaluations, deflation and
depression, which laid the ground for the greatest conflict the world has ever seen.
For all the controversy surrounding the IMF in recent months, it is striking that relatively few of
the critics -- more than one perhaps, but it is fair to say relatively few -- have consistently
suggested that there should be no IMF to respond to these situations. The call, rather, has been
for a different IMF.
We agree on the need for change at the IMF. Indeed, we have done much to change it and point it
in new directions these past few years. And we will be keeping up the pressure for change
because there is -- there will always be -- room for improvement at the IMF, and every one of the
IFIs, if they are to be up to the challenges of a fast-changing global economy. But --leaving
aside, for a moment, the merits of the particular reforms being called for -- there is a curious
recklessness in the proposition that to make the IMF do its job better we should jeopardize its
ability to do it at all.
Without new resources, the Fund's capacity to respond to future outbreaks of Asian flu -- or other
crises that may arise down the road -- is very much in doubt. We must and will continue to equip
the IMF -- equip all of the IFIs -- to meet the demands of a demanding new world. But we must not,
and will not, do this in a way that undermines the very international financial stability we are
seeking to promote -- and in which our economy has such an enormous stake. Thank you.

6

NEWS
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EMBARGOED UNTIL 1:4SPM EST
Remarks as Prepared for Delivery
March 19, 1998

Secretary Robert E. Rubin
National Community Reinvestment Coalition Annual Conference

It is a pleasure to speak with you today. Let me begin by thanking John Taylor and

Gene Ortega of the NCRC for inviting me to speak today, and more importantly, for their
continued leadership on an issue that I believe is of immense importance to our society and our
economy as we approach the 21st century: giving every American the opportunity to join and
succeed in the economic mainstream.
To be sure, this is a social and moral issue, but it is also an economic issue. I have long
held the belief that this country will fall far short of its full economic potential for all
Americans, unless we make the opportunity our country offers a reality for all of our people.
And that is important to each of us, no matter what our income may be or where we may live.
Just think of the difference it will make in terms of reduced social costs and increased
prod'Uctivity if we succeed in fostering growth and prosperity in our country's economically
distressed communities.
Pursuing the goal of an economy that works for all of us has been a high priority for
President Clinton. Today, I'd like to discuss what the Clinton Administration, and more
specifically, the Treasury Department is doing to revitalize economically distressed
communities.
First, let's start with the economy, because the prerequisite for addressing issues of real
economic opportunity for all is a strong national economy, which creates jobs and raises
standards of living.
When President Clinton came to office, unemployment was 7.3 percent, budget
deficits kept interest rates high and confidence low, and job creation was slow.
RR-2310

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Today, after putting our fiscal house in order, which has been central to bringing interest rates
down and increasing confidence, unemployment is 4.6 percent and has been under 6 percent
for the last three years. The economy has generated 15 million new jobs over the last five
years, inflation has remained low and real median wages are beginning to rise, although there
is still much to be done to advance the poorest segments of our economy,
There are also some hopeful signs of renewal in America's cities, areas too often
fraught with poverty and economic duress. Unemployment in the fifty largest cities is down to
6.5 percent from 9 percent in 1992. And crime is down substantially.
Having said all that, too many Americans are still not participating, or are not
participating fully, in the economic well-being that most are enjoying. Just last week, for
example, Second Harvest -- a network of food banks -- reported that more than 21 million
people used emergency food programs in 1997, and nearly 40 percent of those seeking aid
came from working households.
However, these problems are not insoluble and with sufficient will we can bring
residents of the inner cities and other distressed areas into the economic mainstream. The key
is to identify strategies and replicate them in sufficient scale on a sustained basis around the
country. Our strategy involves a three pronged approach:
The first is strengthening public safety. In addition to the human costs, high crime rates
are a significant barrier to economic activity. The President has made this a high priority
through the Brady Bill, the assault weapons ban, both of which Treasury is deeply involved in,
and his program to put 100,000 police on the streets.
Second, is investing in people, through education and training, from pre-school to
adults, through improving the "job readiness" of the least advantaged and connecting them to
the workforce. At Treasury we are deeply involved in these issues in the development and
advocacy of the President's budget.
Third is increasing access to private sector capital, and other measures to create
economic activity in the inner cities. Despite the fact that financial markets in the United States
are today the most innovative, the broadest, and deepest in the world, we still have a severe
shortage of financial institutions and of credit to create housing and jobs in the inner city and
in rural communities. At Treasury, we have been involved in bringing our broad expertise on
capital markets to bear on these problems of capital access.
We have taken strong action to increase capital availability in economically distressed
neighborhoods and help restore healthy market activity. We made permanent the low income
housing tax credit, and we are now calling on Congress in the current budget to expand it by
40 percent -- over $1.5 billion -- over the next five years. We have introduced a new tax
incentive to clean up abandoned industrial properties in economically distressed areas -- so
2

called brownfields -- and we created new Empowerment Zones.
I think one of the most significant things we've done is help make our financial system
work better for communities long left behind. We have strengthened the Community
Reinvestment Act, fought for its survival, and launched the Community Development
Financial Institutions Fund. Let me focus on these two items for a moment.
When President Clinton came into office in 1993, he was determined to strengthen
CRA regulations to encourage mainstream financial institutions to lend to creditworthy
borrowers throughout their community. The regulators have done just that, focusing CRA on
performance, not paperwork. And as you well know, Gene Ludwig, our Comptroller of the
Currency, provided very strong leadership on this issue. And since taking office we have
repeatedly fought efforts to undermine CRA. Now in its 20th year, CRA has had a greatly
increased impact over the last few years.
The NCRC report being released today shows the depth of the changes I am talking
about. It reports that there have now been $397 billion in loan pledges to low income areas
since CRA was enacted 20 years ago. Under this Administration over the past five years, loan
pledges have totaled $355 billion, 89.3 percent of all loan pledges made since 1977. Now,
that's pledges, and not loans yet made, so we need to be sure those pledges become reality.
Having said that, progress has been impressive and congratulations to you for your work in
helping to make this possible.
Over the last five years, in part because of these changes, private sector lending in
distressed areas has increased enormously. In 1996 alone, large commercial banks made $18
billion in community development loans -- funds used to produce affordable housing, finance
small business, and develop retail and commercial revitalization projects. In the last four
years, national banks have invested four times as much in community development as they did
in the previous thirty years.
Moreover, Home Mortgage Disclosure Act data for 1996 showed that since 1993,
private sector conventional home mortgage lending to African Americans has increased by
67.2 percent, lending to Hispanics has risen 48.5 percent, and lending in low and moderate
income areas is up 37.9 percent. All this, in a period in which the entire market grew only 18
percent. This data shows real progress, but much work still needs to be done.
To cite just one example, since 1990, Bank of America in San Francisco has profitably
lent more than $10 billion as part of its Neighborhood Advantage program, a system of low
and moderate income home loans, to borrowers in communities across the western United
States. And Bank of America is hardly alone. With the prompting provided by the CRA and
the Home Mortgage Disclosure Act, mainstream banks across the country have developed -and made money from -- similar initiatives to serve low income markets.

3

As we work to modernize our financial system, we need to make sure modernization
works for communities. By requiring financial services to be provided only through bank
holding company affiliates, the current financial modernization bill would cause a large
transfer of financial resources outside of thoe reach of the CRA.
Let me turn now to the CDFI Fund, another important focus for us at Treasury, and, in
many respects, a complement to CRA. As many of you know, John Taylor has provided
valuable assistance to us by serving on CDFI's Advisory Board. The goal of the CDFI Fund is
to build a nationwide network of community development financial institutions to expand
access to credit and financial services in lower income urban, rural and Native American
communities. Often, CDFls are the pioneers in their marketplaces, making the leading edge
investments based on superior local knowledge, and thereby demonstrating to traditional
lenders that these are viable markets. Banks, in tum, are looking for these opportunities,
partly as a result of CRA. Once they become involved, many of these mainstream institutions
are staying at the table as they come to understand these markets and see the available
opportunities.
The CDFI Fund has two main programs: the CDFI program, which is designed to
assist specialized community development financial institutions, and the Bank Enterprise
Award program, which rewards financial institutions that are increasing their lending and
providing more financial services in distressed communities. Both programs pursue strategies
designed to meet local needs to help each community deal with its particular circumstances,
whether it is helping people buy a house, or start a business. They help foster partnerships
between mainstream financial institutions and local communities.
As with any new organization there have been some growing pains at CDFI. I believe
we have dealt with the problems at the CDFI Fund effectively and we will continue to improve
procedures as this program grows and matures. In fact, the Fund was recently given an
unqualified audit for its activities since inception. We are moving this program forward with
the new leadership of Ellen Lazar, who I believe brings to the job the dedication, experience
and energy needed to implement the CDFI Fund's important work in the years ahead. Most
importantly, we have a vision that makes sense, a program that is up and running, and money
that has begun to flow to communities and make a difference in people's lives.
Now we must build on these successes. We are asking Congress for $125 million for
CDFI. And we are working with Congress on the re-authorization that is required for this most
useful program to continue. Our legislation will make improvements to the CDFI and BEA
programs, and we're going to seek to launch a new capital access program at CDFI, working
with the states to fund loan loss reserves that enable banks and CDFIs to make more difficult
small business loans to budding entrepreneurs. I think this is an exciting new initiative for
communities. We will be pushing forward with both appropriations for CDFI in the Veterans
Affairs/HUD Subcommittees and reauthorization through the banking committees in the weeks
ahead. We look forward to working with Congress to pass these biIls on a bipartisan basis.
4

In conclusion, let me mention a conversation I had when I was still at the National
Economic Council with a reporter from a well respected European weekly who was
interviewing me. At the end of the interview, which was about the state of the U.S. and the
global economy, he said that the US economy was doing very well but that ten or twenty
years from now we'd be a second tier economy. I asked why he thought that, and he said the
answer was our public schools and our inner cities. My own view, now that I've spent five
years focusing on our economy and economies around the world, is that we have tremendous
strengths and a great potential in a global economy, but we can and must deal more effectively
with the critical issues that reporter identified if we are to fully realize that potential.
And that is why the Clinton Administration is pursuing the strategy I discussed today to
foster growth in economically distressed areas. It is a strategy geared towards helping people
today, and preparing our country for the future. It is a strategy grounded in a new, more
market-driven approach. And it is one that, in many respects, represents the forefront of a
quiet revolution in the approach taken to create jobs and promote growth. By working together
-- government, business, community groups, and non-profit organizations -- we can make
progress on these economic problems, which, as I said at the beginning, affect all of us.
Thank you very much.
--30--

5

DEPART:ME~T

OF

THE

TREASlJRY

NEWS

TREASURY

OFfICE OF PUBUC A.FFAIRS eUOO PENNSYLVANIA AVENDE. N.W.e WASHINGTON. D.C.e 2Oll0 e (202) 611.2"0

mmARGOBI) 'ONTIL 2:30 P.M.
March 20, 1998

CONTACT:

Office of Financing
202/219-3350

TRBASURY' S S2-WDlt BILL OPFERDlG

The Treasury will auction approximately $11,000 million of 52-week Treasury
bills to refund $13,578 million of publicly held 52-week bills maturing April 2,
1998. This offering will result in a paydown £or the Treasury o~ about $2,575
million. In addition to the maturing 52-week bills, there are $14,911 million
of maturing publicly held 13-week and 26-week bills.
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $12,722 million of the maturing bills. These account:.s· are
considered to hold $5,495 million of the maturing 52-week issue, which may he
refunded at the weigh~ed average discount rate of accepted competitive tenders.
Amounts issued eo these accounts will be in addition to the offering amount.
Federal Reserve BaAks hold $4,~34 ·million of the maturing issues as agents
for foreign and international monetary authOrities. These may be refunded
wi~bin the offering amount at the weighted average discount rate of accepted
competitive tenders. Additional &mOunt. may be i.sued for suoh accounts if the
aggregate amount of neW' bid. exceeda the aggregate amount of maturing billa.
For purposes of determining such additional amounts, foreig,Q and international
monetary authorities are considered to hold $1,237 million of the maturing
52-week issue.

Tenders for the bills will be received at Pederal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D.C. This offering
of Treasury securities is governed by the t~ and eonditions set forth 1n the
Uniform Offering Circular (31 CFR Part 356, as amended) for the sale and issue
by the Treasury to the public of marketable Treasury bills, notes, and bonds.
Details about the new security are given in the attached offering
highlights.

RR-2311

000

Attachment

Fo, prus '~/~lUa ••p~~cha. pllbllc Ichtdulu lI"d tJ./fIt:lal bl",raplllcs. ctlll tJlI, 24-htJ'u fU

lbt~ tit

(202) 622-2040

RIGHLIGH"l'S OF TREASt1RY OFFERmG OF S2-WEElC BI:LLS

TO BE I:SSOED APRIL 2, 1998
Karch 20, 1.998

OfferbPg Amount •••..••••.•.•. $11,000 million
Description of Offering:

Term and type of sec:uriey

364-day bill

CUSIP number ••••••.••••••..••
Auction date ••••.••.••.•.•...
Issue date ••••.•.•.•..••.....
Maturity date •••.•••••••••.••
Original issue date ••••••••••
Maturing amount •.•••••••••.••
Minimum bid amount ••••••.•.••
Mul tiples ••••••••••••••••••••

912795 BV 2
Karch 20, 1998
April 2, 1998
April 1, 1999

April 2, 1998
519,073 million
$10,000
$1,000

Submission of Bids:.
Noncompetitive bids •••••••.•• Accepted in full up to $1,000,000 at ehe
average discount rate of accepted
competitive bids
Competitive bids •.•••••.. (1) Must be expressed as a discount rate with
three dac~ls, in increments of .005%,
e.g., 7.100\, 7.105%.
(2) Net long.poBition for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the
net long position is $1 billion or
greater.
(3) Net long position must be determined as
of one half-hour prior to the closing
t~e for receipt of competitive tenders.

Maximum Reco!3Biz:ed Bid
at a Single Yield

35\ of public offe::ing

Ma.x.:imum Award

35" of puplic offering

.........
................

Receipt of Tendera:
Noncompetitive tanders

Prior to 12:00 noon Eastern Standard
t~ on auction day

Competitive tender •..••••.•.. Prior to 1100 p.m. Ea.tern Standard
tLme on auction day

Payment TermS ................ Full paymant with tender or by charge
to a funds account at a Federal Reserve
Bank on 1 •• ue date

DEPARTMENT

OF

THE

TREASURY

NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622.2960

EMBARGOED UNTIL 8:00 AM
Text as Prepared for Delivery
~'The

Winds of Change Blowing Through the IRS"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
Tax Executives Institute
March 23, 1998

Thank you. It is a pleasure to be among tax professionals to discuss the tremendous changes under way
at our nation's tax collection service and the best ways to continue that transfonnation.
These past couple of years have been a period of tremendous ferment -- inside the IRS, and about the IRS.
Continuing improvements in the service provided by banks, brokers, credit card companies and other users
of information technology have brought ever more sharply into focus the IRS' problems with customer
service. Treasury, the IRS, the National Treasury Employees Union, many interested members of Congress
-- we have all recognized that the IRS needed to do much better at providing the kind of cost-effective,
high-quality service that American taxpayers have come to expect from the private sector and that our
nation deserves.
The problems at the IRS have developed over many decades -- they will not be solved overnight, or even
over a couple of filing seasons. But with the work of the National Commission on Restructuring the IRS,
led by Senator Bob Kerrey and Congressman Rob Portman, with input from valuable hearings on Capitol
Hill and the work of many others inside and outside the Administration, a clear consensus has emerged
among a wide group of stakeholders on the need for change. With the executive actions we have taken and
will take, and the legislative progress that has been made, those changes are now firmly on the way to being
achieved. The IRS has started to change and the public is starting to feel the benefits of that change.
Today I would like to review what we have done; what the results have been so far~ and outline where
we go from here, emphasizing the importance of passing the IRS refonn legislation presently before
Congress.

I. Changes at the IRS
When I spoke here a year ago I had the opportunity to layout Treasury's five point plan for changing
the IRS. Our goals were: to strengthen leadership; to increase managerial flexibility; to enhance
oversight~ to improve IRS budgeting~ and to work for a simpler, fairer tax code. We have made real
progress in all of these areas. But more progress depends on passing the IRS reform legislation that has
already passed the House last fall and that we hope soon to see enacted.

RR-23 12

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New leadership

Last year I emphasized the need for a different type of commissioner, whose experience emphasized
management, emphasized customer service, emphasized the critical importance of technology. We
believed that major change at the IRS had to come from the top. At that time we did not know who that
commissioner would be. Fortunately after an extensive search we were successful in finding and
appointing Charles Rossotti.
Charles will be speaking later today, and I know all of you will be as impressed by his bold new
approach to the IRS as we at Treasury -- and so many in the IRS and in Congress -- have been. He is a
fonner Chief Executive Officer of a large, highly successful private sector company, someone with a long
record of building effective organizations -- effective organizations that succeed because they meet their
customers' needs.
An important aspect of leadership is continuity. The IRS reform bill passed in the House last fall and
presently being debated in the Senate calls for the five year term for the new Commissioner that we
proposed last year. This will enable longer term planning and greater independence and provide for
much greater continuity from Administration to Administration. It is the modem way to run an effective
organization. And it is the right way.
Greater flexibility

One thing is clear: if new leadership is to mean anything, it will be vital to provide for the managerial
flexibility at the IRS to translate it into practice. Getting the right people in the right jobs is one of the most
important elements of effective management. Everyone who has looked seriously at the IRS, including
the Restructuring Commission and the Congress, agrees that this kind of flexibility is badly needed,
particularly to help recruit people in the critical areas of information technology and customer service.
The IRS legislation passed in the House last year includes several provisions that will help to address
this urgent need. But we believe these can and should be broadened to include other new flexibilities.
Specifically, there is a need for:
•

streamlined authority to appoint a limited number of critical technical, professional and
management experts on a fixed term basis;

•

additional critical pay authority to appoint individuals at competitive rates to critical positions,
and thus boost the IRS' ability to attract high-skilled individuals to hard-to-fill vital posts in
management and technology;

•

authority for the Treasury Secretary, subject to Office of Personnel Management approval, to
vary the provision of IRS recruitment, retention and relocation incentives, once again to be
more competitive with the private sector in recruiting and retaining high-quality candidates for
hard-to-fill and executive positions;

•

a broadening of the proposal included in the House bill that provides for greater variation in the
payment of performance-based bonuses, extending the new flexibility to cover all senior IRS
executives with program management responsibility over significant agency functions.

2

We are working hard with Congress to include these additional flexibilities in IRS reform legislation.
As the Commissioner has said, "the new IRS will not hold together without the right people in the right
places". If we are serious about building a new IRS we need to give it the capacity to find, train and
retain the right people.
Improved oversight

To improve oversight, since we last met Treasury has taken the existing Modernization Management
Board (MMB) -- which I chair and which includes key executives in Treasury, O:MB and the IRS -and we have broadened its mandate so that it is no longer only concerned with systems modernization.
The new IRS Management Board has a broader portfolio and deals with all major strategic issues
concerning tax administration. Already, it has helped to steer new strategies in important areas such as
electronic filing. In addition, as of last fall the Board and the IRS have an important new source of
support and expertise in Nancy Killefer, a former Director at McKinsey & Co, who is now our
Assistant Secretary for Management.
Everyone recognizes the benefits of outside input as a source of expertise, continuity and accountability.
Yet we in the Department have considered it important also to ensure executive responsibility for functions
such as law enforcement, and to ensure effective coordination of tax policy and administration.
After discussions with Congress, the Administration was able to support the proposals included in the
IRS reform legislation that passed the House last fall. We believe the new oversight board that would
be created by this bill -- made up of public and private citizens -- would provide an important new
avenue for outside expertise and insights.
Improved budgeting procedures

We have tried to put in place an effective budget approach for systems modernization. Our efforts to
improve the underlying information systems on which the IRS depends have continued to make
progress. The much-criticized TSM program is making the sharp tum we promised, to a new
approach based on careful planning, step-by-step construction and reliance on the private sector. The
next step in this process is the release of a Request for Proposals for a new prime systems contractor.
This will happen in the near future. These new systems will not be built in a day, but they are essential
if we want to have the kind of tax administration agency the American people rightly expect of us.
As we go forward we will have to ensure that the IRS obtains adequate funding for systems
modernization and improved customer service -- and has the resources for tackling the enormous
challenges presented by Year 2000 conversion. Last year, working with Congress, we received multiyear funding for IRS modernization. We are hoping to receive more funding in this investment account
in FY 1999. We believe that stable funding is critical to provide the IRS the resources it needs to
modernize its information systems.
A Simpler, Fairer Tax Code

As you know, there has been a lot of debate recently in the news and on the Hill on the issue of
sunsetting the tax code. I will talk more about tax policy in a moment. I think we all recognize the

3

difficulties that complexity has created for the taxpayers, the practitioner community, and -- not least -the IRS itself.
Last year, President Clinton proposed and signed into law 40 tax simplification measures as part of the
balanced budget agreement. As a result of that agreement:
•

filing will be simpler for the 99 percent of homeowners who will not have to pay capital gains
tax when they sell their home;

•

filing will be simpler for the 9 out of 10 corporations who will not have to worry about the
alternative minimum tax.

•

and filing will be simpler for parents with dependents who have both earned and unearned
income. This change will allow children to earn a greater amount of income without being
subject to tax and thereby encourages them to work and save for their education or other needs.

What has become plain in the last year is that beyond the problems of efficiency at the IRS and the
complexity of the code there were more critical problems of basic fairness to taxpayers than any of us
had recognized. The Treasury and the IRS shared the outrage of every American at the abuses
highlighted in the Senate Finance Committee hearings last fall. We have a base for moving forward in
the two sets of expanded Taxpayer Bill of Rights provisions that the President has signed and are helping
ensure taxpayers can count on fair treatment from the IRS, and in the work of the Taxpayer Advocate, who
has already helped more than 300,000 Americans solve their tax complaints. But as the hearings made
clear, this is insufficient. We need to do more.
Going forward, we are taking more steps to promote greater fairness and accountability at the IRS,
including:
•

ensuring that measurement of performance at the IRS depends on service in all its manifestations,
not just collection rates, and does not undermine fair treatment of taxpayers, by abolishing
practices such as ranking districts by enforcement activities, assigning dollar goals to
individual employees and including penalty amounts in statistics of revenue collected.

•

expanding the power of the Taxpayer Advocate to issue immediate relief to taxpayers in a broad
range of circumstances, through tax assistance orders;

•

and creating new, independent local Citizen Advocacy Panels. These panels would work with local
Taxpayer Advocates to identify ways to improve taxpayer service, independently review the
performance of local IRS offices in solving problems, and refer complaints to the national
Taxpayer Advocate when problems cannot be resolved locally.

We have proposed a range of further Taxpayer Bill of Rights provisions and presently are working with
Congress to get them enacted. These measures include new steps to require IRS collection agents to inform
tax payers of the "innocent spouse" provisions in cases where they are relevant, and a provision that would
permit ''tolling'' of the statute oflimitations in certain equitable cases. Many of these provisions are
included in the house-passed IRS reform legislation that, as I have said, we want to see enacted as soon as
possible.

4

II. A Better IRS -- Today and in the Future
All of these changes are paying off in concrete ways for the American taxpayer. A good many of you
have probably heard about Vice-President Gore and Secretary Rubin's announcements last week
toward "reinventing" the IRS. A joint task force ofTreaswy and IRS staff, in conjunction with
personnel from the National Partnership for Reinvention, has made over 200 specific proposals to
improve customer service at the IRS. As the Vice-President said, this group has helped the IRS
rediscover its last name -- "service".
Many of the proposals reflect the concerns that the practitioner community has expressed to the IRS
over the years. And already a good many have been implemented:
•

as of the first quarter of 1998, more than 3 million small businesses will be able to file their
quarterly returns over the telephone, for free;

•

a brand-new advisory committee is being formed to improve paperless filing to make it easier
and more convenient;

•

and, as of three weeks ago, more than 150 IRS public offices have been opening their doors on
Saturdays to give extra help to taxpayers during the filing season.

This follows closely on the success of Problem Solving Days, a monthly open house for taxpayers
initiated last November. On that day people had a chance to meet with senior IRS officials to work on
solving long-standing problems. Taxpayers have been enormously satisfied with the service they have
received on these days -- which has already involved the handling of more than 22,000 problems. In a
nationwide customer service survey for the Problem Solving day in January respondents gave the IRS
an average score for quality of service of 6.6 on a 7-point scale -- more than 80 percent of customers
gave the top rating possible.
All of our efforts to improve IRS service and give taxpayers the same customer service from the IRS
they have come to expect from the private sector are delivering concrete results.
•

electronic filing is up significantly from prior years. The latest statistics, through early March,
show that electronic filing is up by 21 per cent compared to the same point last year. Last
week, the IRS already exceeded the total number of electronic returns received in all of last
year. TeleFiling is up by 25 per cent. The number of hits to the IRS web page is up by nearly
200 per cent.

•

the IRS is doing a better job in answering the phones. A year ago, nearly one third of callers
got a busy signal when they tried the IRS' toll-free lines. Now that share is down to 10 percent
-- and heading downwards. To be sure, we also have to continue to work to make sure that
once people get through, they get helped faster so that there are fewer abandoned calls.

III. The Road Ahead
So we have worked to change the IRS -- and that effort is starting to payoff in better service for
taxpayers. The question is where do we go from here? There is a wrong way to build on the progress

5

we have achieved and there is a right way. Putting everything at risk with the abolition of our tax code
and the 95 percent of federal revenues that depend on that code is the wrong way.

The wrong way to reform
As I said earlier, we have taken important steps toward simplifying the tax code but we all know we
have a long way to go. Ultimately, infonned consent to taxation and voluntary compliance with our tax
system both demand that the people understand how the system works. If the tax system becomes too
complex it will lose its moral authority. But rhetoric is no substitute for good government. And
abolition is no substitute for sound refonn.
It should be obvious to everyone -- I'm sure it is obvious to everyone in this room -- that taxes must be
collected and someone has to take on the job. And yet, in the fennent surrounding the IRS we have
heard calls to "abolish" the IRS -- and most recently we have heard calls, and seen legislation
submitted, to "sunset" the Tax Code without any replacement.
Let me outline, briefly, why we believe this would carry such enormous risks:
•

it would put the economic expansion at risk, with no fiscal path to rely on because there would
be no clear revenue path to rely on. The sheer uncertainty involved risks a spike in interest rates
that would impose a heavy cost on nearly every sector of our economy.

•

it would put at risk the value of millions of families' homes -- all because house buyers would
not know whether they could count on the mortgage interest deduction in the future. That could
mean huge swings in house values because buyers would have to be compensated for the
possibility that the deduction would not be there;

•

the entire corporate sector of our economy would suffer from the inability to make any longterm commitments -- businesses would be less willing to invest because they would not be able
to count on recovering the cost of that investment and they would be paralyzed by uncertainty
about what would happen to approximately $3 trillion in unclaimed depreciation allowances;

•

and, of course, it would threaten plans based on desirable tax preferences -- charitable
deductions, for example, employer-provided health insurances ... the list continues.

In short, this proposal is truly unwise, and would pose very real risks to our economy and the fiscal
good health we have worked so hard to achieve.
The right reform path

The right way to proceed -- the way we must proceed -- is to pass the IRS legislation I have described,
legislation that will further strengthen IRS leadership, will further improve managerial flexibility, that will
further enhance oversight, that will support more effective budgeting, and that will advance the cause of a
fairer tax system. And the right way is to continue to make the tax code work better for people and
seriously to consider alternatives to our present tax law on the basis of the ability to be fair.
There will and must be a vigorous debate about tax policy in this country. We will and must all be
concerned with identifying the tax structure that can best keep the budget balanced, promote growth, and be

6

fair - and as simple as possible - to all Americans. But we must as we go forward agree that we want to
have the best tax administration system we possibly can in the United States -- a system that is as effective
as possible, not in collecting the most tax it can, but in collecting the right amount of tax from each
taxpayer.
The stakes are high. As Oliver Wendell Holmes said, taxes are the price we pay for civilization. The idea
that we need a fairly administered and enforced tax code should not be in dispute. Difficult as these issues
are, it is vital that we maintain a constructive course. I know all of those concerned with the future of
the American tax administration system will join me in condemning the 800 documented incidents of
physical abuse or threats against IRS personnel that have occurred since these debates began.
For all the difficult discussions we have had about the best way to reform the IRS, we have all been agreed
on the goal: a modem, efficient accountable IRS to serve the American taxpayer well into the next century.
I don't think there would be any dispute that the IRS has moved substantially nearer to that goal in the past
year. With the dedicated leadership of Charles Rossotti, with all those now working to help him improve
the IRS, and with the invaluable support and insights of groups such as this I am confident that we can
move it even further in the months ahead. Thank you.
-30-

7

The Filing Season To Date ...
IElectronic filing I
14-----

-----

,Telefilel
-

5 r - - - - - - - .-~

----.--~

. __ _

13.3

4.3
I

13

4~
I,

III

I/)

I

c

c

~

3.5

.Q

12

~

~

3

10.9

11

2

10

1997

1998

1997

1998

.---

-

:Busy Signals
as % of all calls

200
0.4

166.7

31%

150·
0.3
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c
~

100-

0.2

~

57.6
50

10%

0.1

o
1997

1998

Figures for both 1997 and 1998 are through the first week of March.

1997

1998

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239

FOR IMMEDIATE RELEASE
March 23, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN NORTH CAROLINA

The Bureau of Public Debt took action to assist victims of tornadoes in North Carolina by
expediting the replacement or payment of United States Savings Bonds for owners in the affected
areas. The emergency procedures are effective immediately for paying agents and owners in
those areas of North Carolina affected by the storms. These procedures will remain in effect
through April 30, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Rockingham is the only county involved in North Carolina at this time. Should additional
counties be declared disaster areas the emergency procedures for savings bonds owners will go
into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or by writing the
Richmond Federal Reserve Bank's Savings Bond Customer Service Department, 701 East Byrd
Street, Richmond, Virginia 23219; phone (804) 697-8370. This form can also be downloaded
from Public Debt's website at: www.publicdebt.treas.gov. Bond owners should include as much
information as possible about the lost bonds on the fOnTI. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a financial institution. Completed fOnTIS should be forwarded to
Public Debt's Savings Bond Operations Office located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word "Storms" on the front of their
envelopes, to help expedite the processing of claims.

RR-2313

000

bttp:/Iwww.publlcdebt.treas.gov

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239

FOR IMMEDIATE RELEASE
March 23, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADO IN GEORGIA

The Bureau of Public Debt took action to assist victims of tornadoes in Georgia by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Georgia affected by the storms. These procedures will remain in effect through April 30, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Georgia counties involved are Dawson, Habersham, Hall, Rabun and White. Should additional
counties be declared disaster areas the emergency procedures for savings bonds owners will go
into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most fmancial institutions or by writing the
Richmond Federal Reserve Bank's Savings Bond Customer Service Department, 701 East Byrd
Street, Richmond, Virginia 23219; phone (804) 697-8370. This form can also be downloaded
from Public Debt's website at: www.publicdebt.treas.gov. Bond owners should include as much
information as possible about the lost bonds on the form. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a financial institution. Completed forms should be forwarded to
Public Debt's Savings Bond Operations Office located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word "Storms" on the front of their
envelopes, to help expedite the processing of claims.

RR-2314

000

http://www.publicdebt.treas.gov

To: Public

-

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Aftair~

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PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
March 23, 1998

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
March 26, 1998
June 25, 1998
9127944W1

Term:
Issue Date:
Maturity Date:
CUSIP Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:

Discount
Rate

-----Low

5.020%

High
Average

5.030%"
5.030%

Investment
Rate 1/

Price

----------

-----98.731

5.155%'
S.164%"
5.164%

98.729

98.729

Tenders at the high discount rate were allotted

69%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive

$

PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

TOTAL
/ Equivalent coupon-issue yield.

RR-2315

Accepted

Tendered

Tender Type

40,192,096

$

1,213,063

1,213,063

41,405,159

5,938,684

3,019,235

3,019,235

320,000

320,000

o

o
$

4,725,621

44,744,394

$

9,277,919

or (

To: PubliC

j-2J-98

from: Office of financing

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PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
'OR IMMEDIATE

CONTACT:

RELEASE

Office of Financing
202-219-3350

larch 23, 1998

RESULTS OF TREASURY'S AOCTION OF 26-WEEK BILLS

Term:
Issue Date:
Maturi ty Date:
CUSIP Number:

182-Day

Bill

March 26, 1998
September 24, 199B
912795AK7
RANGE OF ACCEPTED COMPETITIVE BIDS;

Low
High
Average

Discount
Rate

Investment
Rate 1/

Price

------

----------

------

4.970%-

5.170%
5.19S\S.191\-

4.995%
4.990%

97.487
97.4 75
97.477

Tenders at the high discount rate were allotted 100%.
Al'v'!OUNTS

TENDERED

AND

ACCEPTED (in thousar.ds)

Competitive
Noncompeti ti ve
P1JBLIC

Accepted

Tendered

Tender Type
$

SUBTOTAL

Federal Reserve
Foreign Official Inst.
Refunded Maturing

27,676,100
1,129,415

$

28,805,515

4,453,015

3,llO,OOC

3,110,000

2,aoc,Cc:

2,800,000

o

Additional Amounts

TOTAL
Equi valent coupon- issue yield.

RR-2316

$

3,323,600

1,129/415

34,715,5':5

$

10,363,015

01

L

D EPA R T 1\1 E N T

0 F

THE

T REA SUR Y

NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C .• 20220. (202) 622·2960

FOR IMMEDIATE RELEASE
March 24, 1998

Contact: Kelly Crawford
(202) 622-2960

TREASURY AND COMMERCE RELEASE ANALYSIS SHOWING IMPACT OF
ASIAN CRISIS ON INDIVIDUAL STATES
The Department of Treasury and Department of Commerce today released a state-by-state
analysis about the importance of Asian markets to individual states across the United States.
The study reveals the extent to which trade with Asia has become an important component
of U.S. economic growth. "Like the United States as a whole, states have viewed exports as
critical to economic growth, said Treasury Secretary Robert Rubin. "As a result the financial
crisis in Asia is likely to impact the lives of residents and businesses in states across the country. "
/I

"This report underscores the degree to which individual states are tied to Asian economies,"
said Commerce Secretary William Daley. "This is further evidence that Asian economic recovery
is not only in our national interest, but in the interest of communities and working people across
the country. "
The report analyzes the importance of exports to Asia for individual states. In addition,
the report looks at specific industries within each state that have a stake in the health of Asian
economies. The report is based on data from the Department of Commerce and the Department
of Agriculture.
Some of the highlights of this report include:
•

Thirty percent of U.S. exports go to Asia, supporting millions of U.s. jobs,
and we export more to Asia than Europe. For a number of states, including
California, Oregon and Washington, more than 50 percent of exports go to
Asian markets.

•

Forty percent of all of U.S. agricultural exports go to Asia, more than to any
other region.

•

More American exports mean higher paying American jobs. Studies have
shown that export-related jobs in the U.S. pay an average of 15 percent more
than other jobs.

State-by-state data can be obtained on the Treasury web page at www.ustreas.gov/press/.

RR-2317

-30-

For prcn ~", ~peecbe\ public schedules and official biographies, call our 24JIour fax line at (202) 622·2040
~.

.

DEPARTMENT

OF

THE

TREASURY

NEWS
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

EMBARGOED UNTIL 2:30 P.M. EST
Text as Prepared for Delivery
March 24, 1998

TREASURY DEPUTY SECRETARY LAWRENCE H. SUMMERS
SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION

Mr Chairman, thank you for giving me this opportunity to discuss economic and financial
aspects of tobacco legislation proposals presently before Congress. As you know, President
Clinton strongly supports the efforts of yourselves and others in Congress to forge comprehensive
legislation, consistent with the principles he outlined last fall, to protect America's children from
the deadly threat of smoking.

At Treasury and throughout the Administration we have been and will remain one hundred
percent committed to working with this Committee and others in Congress to address an issue of
such enormous consequence for the health of the American people and our economy.
I would like to focus my remarks today on the proposals in the President's budget and
their implications for public health, something that will depend critically on the increase in
cigarette prices. I will also address the concern that comprehensive tobacco legislation in line with
the President's core principles would impose unmanageable adjustment costs on tobacco suppliers
and the tobacco industry as a whole.
First, however, let me say a few words about the background for this discussion: the
enormous burden that smoking imposes on our nation and our economy~ the need to cut teen
smoking to start reducing that burden; and the President's call for comprehensive legislation to
achieve that goal.
I. Combating Smoking: the Need for a Comprehensive Approach

1. The Human and Economic Costs of Smoking
Smoking is by far the largest preventable cause of premature death in the U. S. As Dr.
David Satcher noted in his testimony last week, over 400,000 Americans die each year of
RR-2318
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

tobacco-related diseases. This toll exceeds the deaths from AIDS , homicide" suicide alcohol use,
illegal drug use, fires and auto accidents combined. Recent estimates suggest that on present
patterns of tobacco-use, an estimated 25 million of today' s Americans will die prematurely from a
smoking-related disease.
Behind these heavy human costs of smoking lie equally heavy economic costs for our nation:
•

we spend about $60 billion each year treating smoking related illnesses. On its own,
smoking during pregnancy -- which results in 2500 fetal deaths and doubles the odds of
being born with low birth weight and potentially suffering problems later in life as a result
-- costs the country some $3-4 billion every year;

•

fires caused by smokers cost another $500 million -- and 2000 lives -- per year;

•

smokers with group life insurance push up the premiums of the non-smokers in their
insurance pool by about $4 billion dollars per year;

We must also consider the enormous cost to our economy from all the premature
retirements and premature deaths of productive workers that are caused by smoking -amounting to $60 billion or more in lost wages.
2. The Importance ofRedUCing Teen Smoking
There is a strong consensus on the need to reduce smoking in this country and the heavy
costs that smoking brings with it. And there is an equally strong consensus on the most effective
way to achieve that goal. It is to stop smoking when it starts -- in adolescence. Nine out of ten
smokers start when they are in their teens. And the record shows that once they start smoking,
they are unlikely to stop.
Each day, 3000 young people become regular smokers. Fully one third of them will have
their lives cut short by it, because it causes an addiction that is very hard to shake later on. Nearly
half of teen daily smokers think they will not be smoking five years later. Yet only one fifth
actually manage to quit. One half of teen smokers try to quit and fail; and by age 18, two-thirds
have already regretted starting. The regret is understandable: nearly half of adult smokers try to
quit every year, but only about 2.5 percent succeed.
3. The Need For a Comprehensive Approach
The Administration's efforts are guided by another lesson of experience: that preventing
youth smoking demands a comprehensive attack on the problem, an approach that makes tobacco
companies part of the solution. The fact is that the piecemeal approaches of past years have not
worked. Youth smoking has continued to grow through the 1990s and shows no sign of
declining.

2

What is required is a coordinated, comprehensive approach based around the five core
components that the President outlined last fall:
•

a combination of annual payments and penalties designed to achieve targeted reductions in
teen smoking by raising the price of a pack of cigarettes by up to $1.50.

•

full authority for the Food and Drug Administration to regulate tobacco products;.

•

real changes in the way the tobacco industry does business, including an end to marketing
and promotion to children.

•

progress toward other public health goals, including biomedical and cancer research, a
reduction of second-hand smoke, promotion of smoking cessation programs, and other
urgent priorities

•

protection for tobacco farmers and their communities

We believe that all five of these components are critical to a solution and are mutually
reinforcing: the effectiveness of anyone is substantially increased by the presence of the others.
For example, studies in Massachusetts and California suggest that while increasing the price of
cigarettes is one of the most cost-effective short-term strategies for reducing tobacco
consumption, the ability to sustain that reduction is significantly increased when the price increase
comes with a comprehensive anti-smoking campaign along the lines outlined above. And the
more we are able to coordinate our efforts across state and county lines, the more effective such
an approach will be.
II. The Economic Implications of a Comprehensive Approach
It is in the nature of this comprehensive approach to combat youth smoking that it will

involve many parts of our government working together. Thus, several of the components I have
described will properly be matters for other departments to address. In my remarks I shall focus
mainly on two interrelated aspects of the Administration's approach that are of particular
relevance to Treasury: the implications for the pricing of cigarettes and the prevalence of youth
smoking. I also will say a few words about the implications for tobacco farmers and
manufacturers.
1. The Implications for Cigarette Prices and Youth Smoking
Implications for Prices

A large body of evidence suggests that the most effective way to reduce smoking by
young people is to raise the price of cigarettes. Thus, to measure the impact of any tobacco
legislation on youth smoking we need to measure the impact on the price of cigarettes to
consumers.
3

The President's budget calls for assessments which would result in cigarette price
increases. As Table 1 shows, the budget plan's impact on prices would rise from 62 cents in 1999
to SI.1 0 in 2003 in constant dollars. Let me be clear: this figure represents the increases that
would be directly attributable to the passage of comprehensive legislation. It does not represent
the anticipated increase in the base price of cigarettes during a period in which a number of
relevant features of the surrounding environment will be changing. For example, there is the
increase in federal excise taxes scheduled to take place over the next five years.
As Table 1 further indicates, we anticipate that without any legislation the baseline price
will rise from $1.94 today to S2.09 in 2003 in real terms. Combining this rise in the baseline price
with the SI.1 0 increase resulting from the President's budget, the total price of a pack of
cigarettes in 2003, in constant dollars, is projected to be S3.19.

Mr. Chairman, although such price levels are common in many other countries, they are
higher then those we have experienced in the United States. We have been and will continue to be
mindful of the many uncertainties about how an increase of this kind will ultimately translate into
retail prices. Because our primary goal in this endeavor is to advance public health through the
reduction of teen smoking, we have been conservative in many of our calculations in order not to
risk falling short of our goals.
Specifically:
•

we have assumed that wholesalers and retailers will not add their existing mark-ups to the
settlement costs passed on by manufacturers. In fact, virtually all of the relevant empirical
evidence1 suggests that there will be very little "pyramiding" of this kind. That is why the
FTC, in their analysis of the original Attorneys General settlement, assume in their baseline
that there would not be this kind of mark-up of the payments made by manufacturers in
the prices paid by consumers.

•

we assume the major increase in pricing nationwide would come as a consequence of
federal action in the context of comprehensive legislation, and not as a result of significant
tax increases on the part of the states.

•

finally, we have not included in our forecasts the additional impact of state sales taxes on
the final price of cigarettes, on the grounds that these are not part of the posted price of
cigarettes at the point of sale.
It may be that, as several commentators have suggested, these assumptions -- along with

IFor example, Barnett, Keeler, and Hu's 1995 study estimated a pass-through rate from
federal taxes to retail prices of about 102 percent over the 1955 to 1990 period. Sumner's 1981
study over state tax increases the 1954-1978 period found a pass-through rate of 103 to 107
percent, and Merriman's 1994 study estimated a rate of 106 percent.
4

our assumptions on other matters such as black and gray market activity, which I will discuss
below -- are too conservative. 2 I might also note, in this context, that we have assumed that the
vast majority of the legislation's cost will be passed on to United States consumers of domestic
cigarettes rather than to the shareholders in tobacco companies or consumers of other goods
produced by these companies. Clearly the uncertainties involved leave room for reasonable
people to disagree.
If our estimates tum out to have understated the eventual impact on prices --which we do
not expect --the health benefits envisioned in the President's budget would be achieved that much
more quickly. Our estimates show that for every 10 cents added to the price of cigarettes,
approximately 270,000 fewer teenagers will begin smoking between 1999 and 2003 --and more
than 90,000 premature deaths will be avoided.

Overall Implications for Youth Smoking
As I noted earlier, the impact of any given price increase on youth smoking will be
significantly increased by other elements of the comprehensive approach the President has called
for -- notably, a crackdown on youth marketing and advertising by tobacco companies and more
effective enforcement of legal restrictions on tobacco sales to young people.

Studies have found a 69 percent decline in daily use by seventh and eighth graders in
Woodridge, Illinois following legislation and enforcement of restrictions on cigarette sales to
minors, and a 44 percent decline in junior high school students' smoking in Leominster,
Massachusetts as a result of strictly enforced sales restrictions. For our own estimates, we used a
conservative assumption that experts have recommended -- that comprehensive sales and
marketing restrictions will reduce youth smoking by about 15%.
The combination of the price increase anticipated above and the tighter restrictions on
youth access and marketing leads to dramatic reductions in youth smoking. Table 2 presents
these results, showing that the price increase reduces teenage smoking by 29%. Youth access and
market restrictions reduce teenage smoking by an additional 11 %. Furthermore, we estimate that
our plan will:
•

reduce the number of youths smoking each year by as many as 1.9 million by 2003 ~

•

reduce the cumulative number of youths who smoke between now and 2003 by 3 million;

2For example, Martin Feldman of Salomon, Smith, Barney has estimated that the
President's budget will result in a total price per pack which is 34 cents beyond our estimate of
$3.19. However, 30 cents of this extra rise can be explained by his assumption that wholesalers
and retailers will add to their existing price mark-ups -- an assumption which runs against virtually
all relevant empirical evidence. Another prominent industry analyst, Gary Black of Sanford
Bernstein, in his analysis of the June 20 settlement, projects these mark-ups will actually fall.
5

•

and avoid roughly 1 million premature deaths as a result.

These estimates suggest the value of such a comprehensive approach to combating teen
smoking. But we cannot and will not let our success in this effort depend on the accuracy of
today's best estimates. The many uncertainties involved in making these predictions only
underline the importance of incorporating in any legislation the Administration's concrete targets
for reducing youth smoking. These aim to cut youth smoking by 30% after 5 years, 50% after 7
years, and 60% after 10 years. And in the strong youth lookback penalties that the President has
proposed we have additional insurance that these targets will be met.
We have had fruitful discussions with the staffs ofa number of members of both the House
and Senate about the appropriate structure of youth lookback penalties, and we recognize that
there are several different ways of providing the necessary insurance. But we believe that any
lookback penalty structure should not be tax deductible and should meet two principles:
•

it must be levied on both the industry as a whole and on individual companies specifically.
These two types of penalty structures serve two different purposes. The industry
penalties, which are likely be passed on to price, provide "price insurance", relying on the
best tool we have (cigarette prices) to lower youth smoking if we miss our targets. The
company specific penalties, on the other hand, provide "non-price insurance," holding
specific companies accountable for their actions in selling tobacco products to youth and
thereby providing a profit incentive to take other actions to reduce youth use of their
products.

•

the penalties must be sizeable in those cases where the industry or specific firms miss their
targets by a substantial margin. This could be accomplished, for example, by having
penalties that increase with the distance the company is from its target.

Let me add that as part of our economic analysis we have also considered issues relating
to possible black and gray market activity following legislation. As Figure 1 shows, even in the
context of legislation that produced a price increase significantly higher than that presently being
considered, cigarette prices in the United States would still be significantly lower than has proved
workable in other countries.
The fact that the price increase is primarily to be achieved through direct payments by the
tobacco companies should significantly ease the task of enforcement relative to other cases in
which the increase is achieved through higher excise taxes at the retail level. But as you know, we
have been working with your staff and others on a proposed system of licensing and registration
to control the diversion of tobacco and prevent any smuggling that may occur.

6

2. The Implications For the Tobacco Industry
Questions have arisen about the impact of legislation on tobacco manufacturers and their
suppliers. We are confident that the changes in pricing and behavior that we are seeking can be
achieved without putting producers' livelihoods or the health of the broader economy at risk.

Tobacco farmers
There are more than 124,000 American farmers engaged in the production of tobacco in
this country. Largely concentrated in certain, heavily tobacco-dependent regions, they and their
families have already been forced to undergo difficult adjustments as the overall demand for
tobacco in this country has declined. We cannot and will not leave these highly vulnerable families
and communities behind in crafting a comprehensive approach to reducing smoking much faster in
the years to come.
That is why one of the President's principles is protection for tobacco farmers and their
communities. And it is why we have supported, in this context, the efforts of the many Senators
and House members who have been working to provide for this protection. One method of
protecting these farmers is continuing production control programs, such as that included in the
LEAF Act supported by Senators Ford, Hollings, and Frist. The Administration agrees that
controls on production can be one element of a system that meets the President's five principles,
and we look forward to being able to support the product of your work in this area.
As we go forward the President is committed to working with Congress to find the best
way both to protect the health of our children and to protect the economic well-being of our
farmers. So, too are the coalition for public health and tobacco farming organizations that last
week endorsed a set of principles with which both groups could agree. These organizations
include the Burley Tobacco Growers Cooperative, the Flue-Cured Tobacco Stabilization
Corporation, the American Heart Association, the American Cancer Society, and the Campaign
for Tobacco Free Kids. And let me add: we are determined that one important use of the funds
raised by higher prices on cigarettes will be the provision of funds to protect the economic
well-being of tobacco farmers and their communities.

Tobacco manufacturers
The best evidence suggests that comprehensive legislation consistent with the President's
five principles would come at some detriment to the profitability of American tobacco companies.
However, it is important to bear in mind that a central feature of both the settlement and all of the
legislation that has been proposed to date is an expectation -- indeed, an express desire -- that
companies will pass the costs on to the price of tobacco products.
To the extent that the costs are indeed passed on to prices, the impact on the profitability
of these companies will be less than many have perhaps imagined and certainly insufficient to
7

create major disturbance to the economy. The FTC analysis of the June 20 Attorneys General
settlement suggested that the total impact of the settlement would lead to, at most, a 15 percent
reduction in tobacco industry profits. Applying similar methodologies to the President's budget
proposals -- and bearing in mind, once again, the very large uncertainties that exist -- suggests a
reduction in operating profits of around 23 percent.
There is also the separate question of how the market would value any given stream of
profits in the event that comprehensive legislation reduced some portion of the substantial legal
uncertainties these companies presently face. It has been widely acknowledged by Wall Street
analysts that the resolution of some of the uncertainties facing this industry will increase the
market valuation of the future income streams of tobacco firms. This effect would tend to offset
the reduction that I noted in the level of these future income streams.
ID. Concluding Remarks

Members of the Committee, as the President has said: "we stand on the verge of one of
the greatest public health achievements in history -- an historic triumph in our fight to protect
America's children from the deadly threat of tobacco." The opportunity is there for the taking: in
the comprehensive. five-part approach that the President has called for and so many in Congress
are striving to achieve.
The stakes are high. Every day that we do not take action means that another 3,000
young people will become regular smokers. Just in the time that I have been speaking to you, 20
children have started smoking, and 7 of them will die prematurely as a result. We cannot afford
to delay one child longer. Ifwe pass comprehensive legislation that meets the targets laid out in
our budget, in five years' time around 40 percent fewer American children will be smokers; in 10
years time, the number will have been halved. I look forward to working closely with you, Mr
Chairman, with the members of this committee and with others in Congress as we work to take
this historic step forward for the future of our nation and the future of our economy. I would now
welcome any questions.
-30-

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY

March 24, 1998
The Honorable Robert L. Livingston
Chairman
Committee on Appropriations
United States House of Representatives
Washington, D.C. 20515

Dear Bob:
I understand that the Committee is scheduled to consider today a bill to provide supplemental
appropriations and authorization for U.S. participation in the New Arrangements to Borrow
(NAB) and an increase in the quota in the International Monetary Fund (IMF), and I am writing
to provide our views on the Full Committee Print of the bill. I hope these comments will prove
useful to you and your colleagues as the bill moves toward enactment.
First, let me express our appreciation for the bill's recognition that the Congress should act now
to authorize and appropriate funds for both the NAB and the quota increase, thereby reaffirming
the decision of the Committee on Banking and Financial Services in a strong bipartisan vote on
March 5. We strongly believe that immediate approval of these requests is necessary to provide
the IMF with the resources it needs to protect the international financial system - and therefore
the U.S. economy - against the risk of new or escalating financial crises of the kind now gripping
key East Asian economies. Your Committee's bill would advance the process very constructively
toward achieving an objective that we believe is very much in the interests of all Americans. The
Administration is disappointed that the pending supplemental appropriations have been segregated
into two distinct appropriations bills and strongly recommends that the two House measures
should be combined into a single bill.
In this context, I ask that you consider several very serious concerns we have with some of the
provisions of the Committee Print. I will focus my remarks on those sections that represent new
provisions outside of the scope ofHR 3114, as reported by the House Banking Committee. I
would also note that several provisions of the Banking Committee bill were not included in the
Committee Print and would express my hope that your Committee will report a bill that could
enjoy bipartisan support on par with that of HR 3114. I hope that we can work together to
achieve this result.
Section 401 of the Committee Print would condition the availability of the increased U.S. quota
resources on a Secretarial notification that it is the policy of the IMF that all lending agreements
above $500 million with member countries include certain specified commitments by the

borrowing country. We appreciate the effort of the Committee to find a more practical way to
achieve the policy objectives substantially shared by Treasury. Unfortunately, the bill's proposed
language is still very problematic and, in the end, we believe it would be unworkable. If it became

law, this provision likely would delay indefinitely the implementation of the quota increase,
denying the IMF the resources it needs to perform its mission during a period of crisis. Under the
terms of the IMF resolution governing member-country assent to the quota increase, member
countries cannot condition their assent, as this legislation would require. (While this precludes
conditioning the availability ofU. S. funds on subsequent IMF policy decisions, it does not prevent
the U.S. from undertaking a commitment to use its ''voice and vote" to promote certain policies at
the IMF.) As a result, Section 401, as currently drafted, would prevent the quota increase from
going into effect.

It is not currently the policy of the IMF to require that every lending program above a certain size
include the specific commitments mandated by the bill. Such a policy change is a decision beyond
the control of the United States. At the very least, it would take considerable time to form a
weighted majority consensus among the Fund's 182 members, especially on a set of very
specifically worded provisions that must be part of every such loan program extended by the
Fund.
Section 402(c) would impose new notification requirements on the use of the Exchange
Stabilization Fund (ESF), which would limit our ability to respond flexibly under existing law.
Use of the ESF is not related to legislation to authorize and appropriate funds for the IMF, and
we strongly object to the inclusion ofESF provisions in this bill.
Section 408, like Section 401, would impose unworkable conditions on the release of U.S. funds
to the IMF and therefore also would be likely to delay indefinitely the implementation of the quota
increase at the IMF. This provision is worded much more broadly than Section 401 and could be
read to condition the release of all U.S. funds to the IMF, not just those appropriated for the
quota increase, which could jeopardize the Fund's ability to finance its existing as well as new
programs. This would amount to a retroactive conditioning of all past U.S. commitments to the
Fund, including quota subscriptions and the General Arrangements to Borrow, and would also
apply to the New Arrangements to Borrow.
Section 408 would in this way condition U.S. funding on an annual Secretarial certification that
the IMF make publicly available various forms of IMF documents and information, including
minutes of Executive Board meetings and staff reviews of Fund programs, with certain redactions.
As is the case with the requirements of Section 401, these requirements are not part of current
IMF policy, which does not permit the release of this information, and thus this provision makes
U.S. funding contingent on events beyond our control. The United States has been - and will
continue to be - an aggressive advocate of increased transparency and accountability at the Fund,
and we have achieved reasonable progress on this front in recent years. But success requires
considerable time and effort to persuade the membership to change its policies, and cannot be
postulated as a pre-condition for continued funding.

2

Let me thank you again for moving forward with legislation containing both the IMF quota
increase and NAB participation. We look forward to working with you to complete the
legislation in the very near future.
Sincerely,

~~~
Robert E. Rubin

3

DEPARTMENT

OF

THE

TREASURY

NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C.• 20220. (202) 622-2960

CONTACT:

mmARGOlm UN'rIL 2: 30 P. K.
Marcil 24 t 1998

Office of rin~cing
202/21.9-3350

'I'REASt1RY' S WEEny BILL OFFERING

The Tr.a8ury will auet~on two series of ~r.&8ury billa totaling approximately $~3t5QO ~llion, to be i •• ued April 2, 1998. This offering will r ••u1t
in a paydown for the Treasury of about $1,400 million, as the maturing publicly
held l3-week and 26-week bills are outstanding in the amount of $14,911 million.
In addition to the maturing I3-week and 26-week bills, there are $13,578 ~llion
of ma~uring publicly hela 52-week bills. The disposition of this latter amount
was awnounced last week.
In addition to the public holdings, FQderal Re.erve Banks for their own
accounts hold $l2,722 million of the maturing bills. These accounts are considered to hold $7,227 million of the maturing l3-week and 26-week ~SSU88, which
may be refunded at the waightad avarage di.oount rate of acoepted competitive
tanders. Amoun~s issued to these aceounts w~ll be in addition to the offerin~
amount.
Federal Reserve Banks hold $4,682 mil1io~ of the maeuring bil15 as agents
fo: !oreign and international mone~&ry authorities. These may be refunded
within tbe offering amount at the weighted average discount rate of aocepted
competitive tenders. Additional amounts may be issued for 5uch accounts if the
aggregate amount of new bide exceeds the aggregate amount of maturing bills.
Fo: pu--poses of determining sucb additional amounts, foreign and international
monetary authorities are considered to hold $3,445 million of the original
l3-we&k and 26-week i85ue5.
T~der5

for the bills will be reca1vQd at I federal Reserve Banks and
Branehe5 and at the Bureau of the Publio Debt, Washington, D. C. This offering
of Tre&&ury .acuritie. 15 governed by thQ terms and eonditiona set forth in the
uniform Offering Circular (31 CPR Part 356, as amended) :for the sale and i •• ue
by the Treasury to the public of marketable Treasury bil~s, not&5, and bonds.
Detai~. about each of the new •• c~itie& are/gi~an in the attached offering

highlights.
000

Attachment
RR-2320

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

HICDlLI:OHTS

or

TRBASURY Of'l"BJUNGS OF IfBULY BILLS
TO BB rSSUBD APRIL 2, 1998

OleaX'ing .I\JI!oynt •••••••••••••••••••••••••••• $6,250 aillion
pe.oription of
Te~

March 24. 1998
$7,250 million

Off~ring.

and type of security •••••••.•.••••••.•

CUSIP number ••••••••••••.••••••••••••••••.•
Auction date •••••.••••••.•.••••••• , ••••••••
Issue date • • • • • • • • • • • • • • • . . • . • • • • • • • • • • • • ••
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original issue date ...•.••.....••..•••••..•
CUrrently outstanding .••••....••...••.•••••
Mini1l\Ula bid amount ..........................
Multiples .. .,.
41 ' . . . . . . . . . . . . . . . .

,

...............

9~-day

bill

'~279S AA 9
Maroh 30, 1~~8
April 2, 1998
July 2, 1998
January 2,1998
$10,762 ddllion
$10.001)
$ 1,000

1a2-day bill
912795 AI. 5
March 30, 1998
April 2, 1998
Oct.ober 1, 1998
April 2, 1~98
$10,000
$ 1,000

The follqwing rules apply to all securit.ies mentioned above:
SPbmlpaion 9£ Bids I
Hbnoompetitive bids ••.••••.•••••.••.•..••.• Accepted in full up to $1,000,000 ae the average
discount rate of accepte~ competitive bids.
Competitive bids ••..•••..•.••.•..••••.•.•.. (1)
~.t be expressod as a discount rate with three decimale in
increments of .005%, e.g., 7.10~', 7.105%.
(2)
Net long position for BGch bidder aust bo ~eported when ~he
~ of the total bid aaount. at all diacount ~at68, and the
net long position ia $1 billion or greater.
(3'
Yet long position must be dete~inod a. ~t one halt-hour
pcior to t.he closing tiBs for receipt of ccmpetitive t.enders.
~§.imum

Recognized Bid
at a Single yield ••.•....•••..••••...•.. 35\ 9f public offering

Haximum

Awar~

..••••••.•••..••••..••.•.••••• 35\ of public offering

ReceIpt of Tende~B:
Nonoowpetltive tenders •••..••••........•••. Prior to 12.00 noon Bastern Standar~ time on auction day
Co~titive tenders ••.••••.•••••••••..••••• Prior to 1.00 p.m. ~8Btern Standard time on auotion day

Eeyaent Term! ••••••...• " •.••....•••...•..• Full payment with teDder or by charge to a funds account
at A Federal Meserve Bank on iBDue date

DEPARTMENT

OF

THE

TREASURY

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASmNGTON, D.C.• 20220. (202) 622-2960

FOR nvRdEDIATE RELEASE
March 25, 1998

"The Economic Case for Comprehensive Tobacco Legislation"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
George Washington School ofBealth
Washington, DC
Thank you. It's a pleasure to be here at George Washington School of Public Health to discuss an
issue of such importance to the health of our nation and of our economy.
We meet at an auspicious time, a time when the economic enemies of our past seem far from view.
Inflation and unemployment are at their lowest in a generation. And the budget deficit -- the
burden that so long ~eighed us down -- has been lifted. There could be no better time to adjust our
sights and look to the future. Our economic good health provides us with a golden opportunity to
invest in a stronger, richer America to bequeath to our children.
I would like to talk today about an issue the Deputy Treasury Secretary might not usually talk
about but is a critical part of seizing that opportunity -- the need for a comprehensive approach to
combat smoking. Smoking is still by far the largest preventable cause of premature death in the
U.S. It is directly responsible more than 400,000 deaths per year -- more than all of the deaths
associated with AIDS, alcohol, cocaine, heroin, homicide, suicide, auto accidents and fires
combined. It is a fatal habit that 3,000 American children take up every day, 1,000 of whom will
die prematurely as a result.
None of you will need reminding of these consequences of smoking. Today I would like to
discuss the economic costs, as described in a new Treasury study released this morning; why
combating smoking requires comprehensive tobacco legislation along the lines the President has
called for; and the very real human and economic benefits that such legislation would bring.
Some would argue that when one is dealing with the outcome of individual consumption
decisions, this kind of cost analysis is inappropriate. Yet it is questionable that viewing cigarette
smoking as a consumer choice -- like dishwasher detergents or frozen pizza -- provides a helpful
RR-2321

I
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

paradigm when nine out of ten smokers started when they were only teenagers, and when they
substantially underestimated how difficult it would be to quit. By the time they are adults the
vast majority of smokers wish they could quit. Yet while nearly half of adult smokers try to quit
every year, only about 2.5 percent succeed.
I. Tobacco: The Price We Pay for Inaction
Policy makers -- no less than scientists -- are perhaps at their most persuasive when they focus on
the counterfactual. In calculating the overall economic cost of smoking the Treasury study had to
consider the full range of costs associated with smoking -- costs that we would continue to pay if
we failed to take comprehensive action.

1. The waste of scarce medical resources
The Surgeon General recently testified that smoking-related illnesses cost our nation more than
$50 billion in 1993. Adjusted for inflation, the figure today would be closer to $60 billion. Of
course, if we eliminated smoking tomorrow the resulting savings would be partially offset by
additional medical expenses incurred as a result of people living longer lives. Taking these into
account, we estimate total net medical costs due to smoking of $45 billion.
To put this figure in perspective: a young woman who starts smoking today can expect to face an
extra $14,800 in additional lifetime medical costs as a result of that decision. And if she smokes
more than a pack a day, her additional lifetime costs could be well over $25,000. The tuition costs
for a Master's Degree here at GW almost sound cheap in comparison -- a "mete" $22,500.
2. The extra costs when smokers give binh
On its own, smoking during pregnancy is estimated to cause 2500 fetal deaths every year and
around $4 billion a year in additional medical and other costs due the greater severity of
complications during pregnancy and delivery, and the higher risk of having a low-birth weight
baby. Low-birth weight children have a much higher probability of missing grades and thus a
higher chance of dropping out of school -- meaning lower earnings, a greater likelihood of
committing crimes, and a much higher chance of needing social services than high school
graduates or those who go on to college. The Treasury study only attempts to capture the costs
incurred up to the age of sixteen. But have no doubt that those longer term costs are real.
3. The costs of smoking-related externalities
The fires caused by smokers cost this country some 2,000 lives, and more than $500 million worth
of damage each year. The costs of second-hand smoking are more a matter for dispute. But for
children it may result in about 15,000 hospitalizations with respiratory illnesses, exacerbate asthma
in 200,000 to 1 million kids, and increase the number of new asthma cases.
4. The cost in reduced productive capacity of our economy
We know that smokers tend to die younger and retire sooner. Even without the added medical
expenses, this would carry a price to our economy in lost output and lost wages, that careful
analysis sugges~ .could be as high as $80 billion a year. There is a further drain on the economy of
around $500 mIlhon due the output lost as a result of additional days off work -- given that

2

smokers have 50 percent higher absentee rates than their nonsmoking colleagues. Some studies
have suggested that, other things equal, the lower productivity associated with smoking translates
into 4 to 8 percent lower earnings for smokers. The Treasury study excludes these more
speculative estimates, but it is worth noting that including it might add another $50- $125 billion
to the economic cost of smoking.

5. The cost in shortened lives
No dollar total will ever do justice to the price of a life cut short. But obviously, from the
precautions we all take and spend dollars on, and the additional wages we demand in return for
taking on more hazardous occupations, we can see the precautionary value attached to reducing the
risk of mortality. This should be taken into account when judging the costs of smoking given that
it is an activity that directly results in an increased risk ota shorter life.
The details of calculating the loss involved here are complex and economists differ as to the best
way to capture it. But the more standard studies suggest that reduced mortality risk can be valued
at around $3 million. For illustrative purposes, the Treasury study includes a calculation based on
a more conservative estimate of the cost of mortality risk. With each cigarette smoked taking 7
minutes from the average smoker's life, this leads to an estimated, smoking-induced cost of
reduced mortality -- over and above the lost productive output I mentioned earlier -- of around
$120 billion per year, the equivalent of $5 dollars for every pack sold.

6. Counting the cost
Putting together the least disputed costs of smoking -- adult medical costs, the pregnancy and neonatal care associated with smoking while pregnant, the cost in smoking-induced fires, in lost
workdays and overall 'lost output from shortened work lives -- yields a net cost of smoking to the
United States economy of upwards of $130 billion annually.
It is important to recognize that all of these represent, in the language of economics, real resource
costs. That it is to say, the $130 billion that smoking costs is much more burdensome to our
economy than the same amount levied in taxes, which impose a cost on consumers, but provide
offsetting revenues to our government. It is proverbial that there is no such thing as a free lunch.
But in a sense, successfully preventing people from acquiring an addiction they do not want to
have -- by effectively combating youth smoking -- is a free lunch with real benefits for our
economy as well our nation.
ll. Today's Urgent PriOioity: a Comprehensive Attack on Smoking
The costs of inaction make the case for action. The question is how best to proceed. The broad
approach that we in the Administration have supported and that many in Congress are working to
craft is based on two premises.
The first is that we have to start with young people. I noted earlier that 90 percent of smokers
began when they were teenagers. That is to say, it is a problem of people who became addicted to
smoking when they were young, under-informed and generally below the age of consent. Nearly
half of teen daily smokers think they will not be smoking five years later. Yet only one fifth

3

actually manage to quit.
The second is that a comprehensive approach is required. Price increases are helpful but they are
not sufficient. Studies in Massachusetts and California suggest that while increasing the price of
cigarettes is one of the most cost-effective short-term strategies for cutting tobacco consumption,
the capacity to sustain that reduction is greatly enhanced when the price rise comes with a
comprehensive anti-smoking campaign. What is being contemplated is a radical transformation in
a major American industry. Thus, a whole range ofadjustments need to be considered and -history suggests -- insurance mechanisms need to be devised to allow for the possibility that
behavior may not change as readily or as quickly as we now anticipate.
What is required is a coordinated, comprehensive approach based around the five core components
that the President outlined last fall.

1. A combination ofannual payments and penalties on the tobacco industry designed to achieve
targeted reductions in teen smoking by raising the price ofa pack of cigarettes by up to $1.50
over 10 years.
A significant price increases is integral to any comprehensive plan to reduce youth smoking
because, quite simply, the best way to combat youth smoking is to raise the price. Young people
are much more price sensitive than adult smokers, both because they have fewer financial
resources, and because they are not (yet) as addicted. Consensus estimates suggest that every 10
cent increase in the price of a pack of cigarettes leads to approximately 270,000 fewer teenagers
becoming smokers between 1999 and 2003 -- more than 90,000 of whom will no longer die
prematurely.
2. Full authority for the Food and Drug Administration to regulate tobacco products.
The Administration has worked to give the FDA the authority it needs to act effectively against
teen smoking, but its use of that authority has been hampered by a number of recent court actions.
If we are to win the battle against youth smoking we must lift this cloud of uncertainty and reaffirm
the FDA's rightful position in the front line.
3. Real changes in the way the tobacco industry does business, including an end to marketing and
promotion to children.
Real restrictions on youth access and marketing will likewise be integral to a successful solution.
For years now the dangers of smoking have been known and widely publicized, yet 90 percent of
six year-olds recognize Joe Camel as instantly as they do Mickey Mouse. And studies have shown
that teens are much more likely than adults to buy the three most heavily advertised brands of
cigarettes.
Once again, what is being called for here is a fundamental change in the way tobacco companies
and retailers do business. No-one can be certain how quickly such a change can be achieved. Yet
we cannot and will not let our success in this effort depend on the accuracy of today' s best
estimates. That is why the President has called for strong youth lookback penalties to be included
in the legislation to provide additional insurance that the Administration's targets for reducing

4

youth smoking will be met.

4. Progress toward other public health goals, including biomedical and cancer research, a
reduction ofsecond hand smoke, promotion ofsmoking cessation programs, and strengthening of
international efforts to control tobacco.
Finding the best ways to reduce teen smoking, and help older smokers quit is an urgent challenge
for public health. We need to marshal the combined resources and expertise at the national, state
and community level to expand our knowledge of the causes and effects of smoking and use what
we already know to better effect. Across the country, experiments in second hand smoke reduction
and smoking cessation programs have been yielding important lessons on what works and what
does not. But we need to find out more. And we need to make sure that those lessons are being
applied.
5. Protection for tobacco farmers and their communities
Finally, a comprehensive approach to reducing youth smoking can and must take account of the
legitimate concerns of the 124,000 farmers who are involved in tobacco production and the
families who depend on them. A commitment to compensating these communities for a new
nationwide approach to tobacco is integral to our search for a comprehensive solution.
We believe that all five of these components are critical to a solution. They are all mutually
reinforcing in the sense that the effectiveness of anyone is substantially increased by the presence
of the others. In particular, the more we are able to coordinate our efforts across state and county
lines, the more effective such an approach will be. While it has long been recognized that higher
prices means fewer teen smokers, the federal tax on cigarettes has barely kept pace with inflation
in the last three decades. Indeed, the real level of federal and state taxes combined that existed in
1964 -- when the surgeon general first warned of the dangers of smoking -- will not be restored
until 2002, when the historic increase in the federal excise tax that was enacted in last summer's
budget agreement is fully implemented.

Ill. The Prize: Potential Buman and Economic Benefits of a Comprehensive Approach
The Chinese language. we are always told, sees an opportunity in every crisis. So must we. The
flip-side of the enormous economic cost of smoking is an opportunity to generate equally large
benefits for our society and our economy by reducing it.
Our estimates suggest that a comprehensive approach to combating smoking -- combining the
price increase anticipated in the President's budget and tighter restrictions on youth access and
marketing -- would lead to dramatic reductions in youth smoking with substantial positive effects
for our economy. Between them these measures would:
•
reduce teenage smoking by 42 percent by 2003~
•

reduce the number of youths smoking each year by as many as 1.6 million by 2003 ~

•

lower the cumulative number of youths who smoke between now and 2003 by 3 mil1ion~

5

•

and, ultimately, prevent roughly 1 million premature deaths.

Of course, even if smoking were eradicated tomorrow, the effects of past smoking would linger on.
But the eventual gain to our economy would be substantial. Our longer term goal is to reduce teen
smoking by a minimum of 60 percent in 10 years. Over time this should lead to benefits of 60
percent of the costs of smoking. That would mean a real gain to the economy of $78 billion.
To generate the same annual stream of real resources, we would have to invest $780 billion at a
rate of return of 10 percent -- significantly more than the entire amount the American corporate
sector invested in machinery and equipment last year.
The long run return to a reduction in smoking of this magnitude would come in a variety of ways:
•
in the $27 billion that would have been spent treating smoking-related diseases that can
now be spent on other medical priorities -- or anything else;
•

in the $2.4 billion freed from meeting avoidable costs due to smoking while pregnant;

•

in the $300 million that will not be spent mending the damage caused by smoking-induced
fires and $300 million in additional output produced on the days that smokers would
previously have been off sick;

•

and the $48 billion in reclaimed productive capacity due to so many longer, more
productive working lives.

While our main purpose is furthering the public health, we should not forget that comprehensive
legislation consistent with the President's proposals would also make it possible to make critical
public investments in our nation's health and other pressing priorities. These include:
•
funding research into tobacco-related and other diseases through the National Institutes for
Health and a cancer clinical trial demonstration project for Medicare beneficiaries;

•

providing support for smoking prevention efforts by the Centers for Disease Control and
smoking cessation programs;

•

strengthening the FDA's enforcement programs and supporting America's tobacco
farmers;

•

promoting State child care and development programs, efforts to reduce class sizes and
Medicaid child outreach reforms.

IV. The Challenge Internationally
I have concerned myself with the consequences of smoking for the United States. But it will be
critical in all the~e efforts t~ bear in ~ind the global perspective. We must not forget the threat
posed to people m developmg countnes, many who do not yet smoke but soon will if recent
6

trends in global cigarette sales continue. On present patterns of tobacco use, the World Bank has
estimated that one in ten deaths worldwide in 2025 will be attributable to smoking-related
illnesses -- more than the predicted deaths due to AIDS, Tuberculosis and complications in
childbirth combined.
Just what steps the United States can take here is something that will have to be debated in the
context of legislation. Clearly it is appropriate that as part of development assistance efforts we
work with and support other countries as they find the right approach to discouraging marketing of
cigarettes to young people and to discouraging young people from starting to smoke. But there are
other important questions as well.
We need to work with the multilateral development banks to ensure that their economic
development activities are not having adverse effects by promoting the production and distribution
of tobacco products. And we will need carefully to consider our own commercial development: on
the one hand, we do not want to peddle dangerous products; on the other, American companies
should not be put at a disadvantage in markets that are going to exist whether they participate in
these markets or not.

v.

An Historic Opportunity
The mix of historic achievement -- and opportunity -- that I described earlier with regard to the
American economy is nowhere more apparent than in our health sector. Here and around the
country, we are making enormous strides to solve previously unsolvable medical problems. And
we are doing this while effectively restraining the underlying growth in costs that once threatened
the stability of the system. But here especially, we can no longer tum a blind eye to the one area
where the solution is so straightforward -- reducing smoking.
Just in the time that I have been speaking to you, about 40 children have started smoking, and 14
of them will die prematurely as a result. We cannot afford to delay one child longer. By passing
comprehensive legislation that meets the targets laid out in our budget, in five years' time around
40 percent fewer American children will be smokers. In 10 years' time, the number will have been
more than halved -- and down the road, roughly 1.5 million fewer will have died prematurely as a
result of smoking. Finally, nearly $80 billion per year that our economy would have lost with
those lives can instead be used to add to their lives and the lives of other Americans. The stakes
are high. The right path is clear.

7

The Economic Costs of Smoking in the United States
Source of Cost

Cost of Smoking in U.S.
($1998 billions)

Possible Long Run Benefits
from Legislation ($1998
billions)

Adult Medical Spending

$45

$27

Pregnancy & Neonatal

$4

$2.4

Smoking-Induced Fires

$0.5

$0.3

Lost Workdays

$0.5

$0.3

Lost Output from
Shortened Work Lives

$80

$48

TOTAL SOCIAL COSTS
OF SMOKING AND
BENEFITS OF SMOKING
REDUCTIONS

$130

$78

Value of Reduced Mortality

$120

$72

Possible Productivity
Reductions for Smokers

$50-$125

$20-$75

Additional Potential Costs

8

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
March 24, 1998

CONTACT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
STRIPS Minimum:

5 1/2%
AB-2000
9128274A7
$400,000
High Yield:

Issue Date:
Dated Date:
Maturity Date:

5.500%

March 31, 1998
March 31, 1998
March 31, 2000

Price: 100.000

All noncompetitive and successful competitive bidders were awarded
securities at the high yield. All tenders at lower yields were
accepted in full.
Tenders at the high yield were allotted

93%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive

$

PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
TOTAL

Accepted

Tendered·

Tender Type

$

35,263,735
1,215,471

$

36,479,206

14,013,721

1,758,220
1,390,000

1,758,220
1,390,000

39,627,426

$

Median yield
5.491%: 50% of the amount of accepted competitive
tenders was tendered at or below that rate.
Low yiel¢
5.450%:
5% of the amount of accepted competitive
was tendered at or below that rate.

t~nders

RR-2322

12,798,250
1,215,471

17,161,941

Il E ... t\ ({ T ;\ lEN T

()...

TilE

T J{ E .\ S l! R \'

NEWS
omCE OFPUBIJCAFFAJRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNCTON, D.C•• 20220. (202) 622-2960

Contact: Dan Israel
(202) 622-2960

MEDIA ADVISORY
March 24, 1997

SUM?vffiRS TO DELIVER TOBACCO ADDRESS AT GWU

Deputy Treasury Secretary Lawrence H. Summers will deliver a speech on the economic case for
a comprehensive tobacco settlement to the George Washington University School of Public
Health and Health Services on Wednesday, March 25. The speech will take place at 10:00 am in
Ross Hall, located at 2300 Eye Street, N.W.
DATE:

Wednesday, March 25, 1998

TlME:

10:00 a.m.

PLACE:

Ross Hall, Room 117
2300 Eye Street, N.W.
Washington, D.C.

-30-

For. press relea.sesL speeches, public schedules and official biographies call our 24-hourJax line at (202) 622.2040
J

,

m

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
March 26, 1998

CONtACT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Term :
Issue Date:
Maturity Date:
CUSIP Number:

364-Day Bill
April 02, 1998
April bl, 1999
912795BV2
RANGE OF ACCEPTED COMPETITIVE BIDS:

Low
High
Average

Discount
Rate
-----5.100%
5.110%
5.110%

Investment
Rate 1/

Price
_-94.843
94.833
94.833

----------

- - .....

5.380%
5.391%
5.391%

Tenders at the high discount rate were allotted

67%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type

Tendered

Competitive
Noncompetit.lve

$

PUBL:tC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
TOTAL

1/

$

35,027,275
1,092,037

Accepted
$

8,700,125
1,092,037

36,119,312

9,792,162

5,495,000

5,495,000

1,237,000
203,000

1,237,000
203,000

43,054,312

Equivalent coupon-issue yield.

RR-2324

hUp://www.pllblicdrh t .trr~ls.gOY

$

16,727,162

DEPARTMENT

OF

THE

TREASURY

~/78~q. . . . . . . . . . . . . ..

................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlDNGTON, D.C .• 20220. (202) 622-2960

FOR IM1\1EDIATE RELEASE
Text as Prepared for Delivery
March 26, 1998

CREDIT UNIONS

Testimony of the Honorable Richard S. Carnell
Assistant Secretary of the Treasury
for Financial Institutions

Before the Committee on Banking, Housing, and Urban Affairs
United States Senate

March 26,1998
RR-2325
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

SUMMARY
The Treasury's testimony deals with two main topics: (1) the safety and soundness
reforms recommended in our recent Congressionally mandated report on credit unions; and (2)
the common bond of credit union membership.
THE TREASURY'S RECOMMENDED SAFETY AND SOUNDNESS REFORMS

Our report recommended that Congress take several steps to make federally insured
credit unions and the National Credit Union Share Insurance Fund even safer, sounder, and
more resilient.

Capital Requirements and Prompt Corrective Action
Credit unions hold over $300 billion in federally insured deposits. But unlike all other
federally insured depository institutions, they are not currently subject to capital requirements
or to a system of prompt corrective action.
We recommend that Congress require federally insured credit unions to have 6 percent
net worth to total assets in order to be in good standing. We also recommend requiring credit
unions to set aside, as retained earnings, a small percentage of their gross income if they have
less than 7 percent net worth. Credit unions' balance sheets indicate that credit unions
themselves recognize the wisdom of maintaining such capital levels. Of the federally insured
credit unions operating at the end of 1996, 96 percent had more than 6 percent net worth, and
those credit unions held 98 percent of total credit union assets.
We further recommend that Congress establish a system of prompt corrective action for
credit unions. This system would be a streamlined version of that currently applicable to all
FDIC-insured institutions, and would be specifically tailored to credit unions as not-for-profit,
member-owned cooperatives.

Other Capital-Related Reforms
We recommend that Congress direct the NCUA to develop an appropriate risk-based
capital requirement for complex credit unions. This risk-based requirement would take
account of risks that the simple 6 percent net worth requirement does not adequately cover -risks that may be appreciable only at a small subset of credit unions.
We also recommend that Congress direct the NCUA to require federally insured credit
unions to deduct from their net worth for purposes of regulatory capital requirements and
prompt corrective action, certain investments in equity securities issued by corporate credit
unions. The goal is for each level of the credit union system to have sufficient capital for the
risks undertaken at that level and, more specifically; to help ensure that a corporate credit
union's losses do not cascade to its member credit unions.

Reforms Involving the National Credit Union Share Insurance Fund
We propose the following reforms relating to the Share Insurance Fund:
•

Requiring more timely and accurate calculation of the Fund's equity ratio -- i.e., the
ratio of the Fund's reserves to the total amount of the deposits that the Fund insures -the standard measure of the Fund's health. The NeVA's method of measuring the
equity ratio generally overstates the reserves actually available.

•

Not permitting distributions to dissipate the Fund's reserves when the Fund's ratio of
high-quality, liquid net reserves to the total deposits that the Fund insures (the
available-assets ratio) falls below 1 percent.

•

Requiring federally insured credit unions with more than $50 million in total assets to
adjust their 1 percent deposit in the Fund semi-annually (instead of just annually).

•

Giving the NCVA some discretion to adjust the premium rate according to the Fund's
financial needs.

•

Imposing a premium if the Fund's equity ratio falls below 1.2 percent, in keeping with
the NeVA's longstanding practice.

•

Giving the NCVA discretion to let interest on the Fund's reserves increase the Fund's
equity ratio to 1.5 percent from the current ceiling of 1.3 percent. This change would
permit the Fund to accumulate additional investment earnings in good times that would
increase its resiliency during economic downturns. The NCUA would remain free to
distribute as dividends any reserves above 1.3 percent, or to use part of the Fund's
earnings to increase the reserve ratio and distribute the rest as a dividend on credit
unions' 1 percent deposit.

The Importance of Enacting These Safety and Soundness Reforms Now
Now is an excellent time to enact these safety and soundness safeguards -- with the
economy strong and credit unions flourishing. Our proposed changes involve little cost or
burden to credit unions today, yet they could pay enormous dividends in more difficult times.
Moreover, as credit unions increase in size and complexity and compete directly with
banks and thrifts, Congress needs to ensure that comparable safeguards apply to credit unions'
riSk-taking. The safeguards applicable today fall short of being comparable. And if the
ultimate outcome of the current debate over the common bond is to provide greater flexibility,
allowing the continued emergence of larger, less closely knit credit unio!1s, it will be all the
more important to have adequate safeguards in place.

11l

THE COMMON BOND OF CREDIT UNION MEMBERSHIP

General Principles
Between the polar-opposite outcomes of having no common bond requirement and
requiring all members of a credit union to share a single, tightly defined common bond, are an
array of possible policies. We suggest that Congress consider possible policies in light of the
following principles:

1.

Reaffirm Credit Unions' Role in Serving People of Modest Means

Credit unions have historically had a special role in serving people of modest means.
The Federal Credit Union Act reflects this public purpose: it is an "Act ... to make more
available to people of small means credit for provident purposes." We believe that federal
policy towards credit unions should continue to promote this objective.

2.

Correct Perverse Incentives to Abandon Occupation- and Association-Based
Federal Credit Union Charters

A stringent federal common bond requirement serves no public purpose if it merely
prompts credit unions to switch to state charters with a looser common bond requirement (or
none at all). Similarly, a stringent occupational or associational common bond requirement
serves no public purpose if it simply prompts credit unions to switch to broad, geographically
based charters. We believe that public policy should avoid creating perverse incentives to seek
one type of credit union charter over another, particularly if the upshot is to encourage credit
unions to select charters that weaken the affinity among their members.

3.

Preserve a Meaningful Common Bond as a Characteristic of Credit Unions

We see the common bond requirement as a distinguishing characteristic of credit unions
-- one that helps set them apart from banks and thrifts, and that reinforces their other defining
characteristics: their cooperative structure, democratic governance, not-for-profit orientation,
and public purpose of serving people of modest means. Weakening the common bond might
well put strain on credit unions' cooperative, not-for-profit orientation, including their
willingness to pay special attention to members of lesser means.

4.

Assure Safety and Soundness

With the rise of larger, more impersonal credit unions, formal safeguards and effective
supervision become all the more important.

IV

5.

Take Account of Market Dynamics

Economies of scale in providing technology-based services, downsizing, the large
number of workers at firms too small to support their own credit union, and the safety and
soundness benefits of diversification lend weight to permitting credit unions to expand beyond
a single membership group. Yet other market factors -- such as the credit risk-reducing
influence of a sense of affinity, and the dubious incentives credit union managers may have to
increase the size of their credit unions -- suggest limits on the economic case for attenuating
the common bond requirement. Flexibility on the common bond requirement should be
tempered by the other principles outlined here.

6.

Protect Existing Credit Union Members and Membership Groups

In adding new membership groups pursuant to NCUA policy, credit unions acted in
good faith. Disenfranchising existing credit union members or membership groups would not
serve the public interest.

Next Steps
We look forward to working with the Committee to develop legislation dealing with the
common bond requirement. We suggest that such legislation should: grandfather all existing
credit union members and membership groups added before the Supreme Court ruling, and
permit such membership groups to add new members; include the safety and soundness
reforms outlined in the Treasury report; and preserve a meaningful common bond requirement
while providing reasonable flexibility for credit unions to include additional groups within
their membership.

T ABLE OF CONTENTS
I.

THE TREASURY'S STUDY OF CREDIT UNIONS ............... , ........ , ..... , .. 1
A.

THE TREASURY'S LEGISLATIVE RECOMMENDATIONS TO
STRENGTHEN THE SAFETY AND SOUNDNESS OF THE CREDIT
UNION SYSTEM ................................................. , ........... , .......... 2

1.
2.

Capital Requirements and Prompt Corrective Action ..................
Other Capital-Related Reforms ............................................
a.
Risk-Based Capital Requirement for Complex
Credit Unions ........................................................
b.
Treatment of Certain Equity Investments in
Corporate Credit Unions ...........................................
Reforms Related to the National Credit Union Share
Insurance Fund ...............................................................

2
4

OTHER PERTINENT RECOMMENDATIONS ............. , ............................

7

3.

B.

1.
2.

C.

4
5

Retaining the NCUA's Role in Administering the
Share Insurance Fund ........................................................ 7
Continuing to Permit Credit Unions to Treat Their
1 Percent Deposit in the Share Insurance Fund as
an Asset ........................................................................ 7

IMPORTANCE OF ENACTING THESE SAFETY AND SOUNDNESS
REFORMS ...............................................................................

II.

4

8

THE COMMON BOND OF CREDIT UNION MEMBERSHIP .................. 9
A.

THE COMMON BOND REQUIREMENT AS A DISTINGUISHING
CHARACTERISTIC OF CREDIT UNIONS ................ , ....................... , ...

10

B.

THE THREE TYPES OF COMMON BONDS .......................................... 11

C.

MARKET DYNAMICS ................................................................. 11

1.
2.
3.
4.

Technological Factors ................................. · .............. " ....
Demographic Factors ......................................................
Safety and Soundness Factors ............................................
Management Factors .......................................................

12
12
12
13

VI

D.

GENERAL PRINCIPLES ...............................................................

1.
2.
3.
4.
5.
6.

E.
III.

Reaffirm Credit Unions' Role in Serving People
of Modest Means ...........................................................
Preserve the Common Bond as a Meaningful
Characteristic of Credit Unions ..........................................
Correct Perverse Incentives to Abandon Occupationand Association-Based Federal Credit Union Charters ...............
Assure Safety and Soundness .............................................
Take Account of Market Dynamics ......................................
Protect Existing Credit Union Members and Membership
Groups ........................................................................

NEXT STEPS ..........................................................................

13
14
14
15
16
16
16
16

CONCLUSIONS .......... .................................................................. 17

CREDIT UNIONS
Testimony of Richard S. Carnell
Assistant Secretary of the Treasury
Before the Committee on Banking, Housing, and Urban Affairs
United States Senate
March 26, 1998

Mr. Chairman, Senator Sarbanes, Members of the Committee.
I appreciate this opportunity to present the Treasury's views on two topics involving
credit unions. First, the safety and soundness reforms recommended in the Treasury's recent
Congressionally mandated report on credit unions. Second, the common bond of credit union
membership, including the implications of the decision rendered by the Supreme Court last
month.
As not-for-profit depository institutions, credit unions add something special to our
financial system. They give their members an alternative, cooperative structure for depositing
savings and obtaining credit and other financial services. The credit union ideal is one of
mutual self-help.
I. THE TREASURY'S STUDY OF CREDIT UNIONS

By a statute proposed by Senator Bennett and ultimately enacted in September 1996,
Congress required the Treasury to study and report on a series of issues involving credit
unions (a list that did not, incidentally, include the common bond requirement). In preparing
our report, we consulted widely with the National Credit Union Administration (NCUA), the
four federal banking agencies, the major credit union, bank, and thrift trade associations,
consumer groups, and credit union officials. We made on-site visits, and we sought and
received public comments. As specifically required by Congress, we assembled an
interagency team of experienced federal bank and thrift examiners to assist us in our evaluation
of the ten largest corporate credit unions. We published our report last December.

2
A.

THE TREASURY'S LEGISLATIVE RECOMMENDATIONS TO STRENGTHEN THE SAFETY
AND SOUNDNESS OF THE CREDIT UNION SYSTEM

Our report found that credit unions and their deposit insurance fund appear to be in
strong financial condition. We did make several recommendations for Congressional action to
strengthen the long-term safety and soundness of the credit union system.

1.

Capital Requirements and Prompt Corrective Action

Strong capital requirements and prompt corrective action are foundations of modern
safety and soundness supervision of federally insured depository institutions. Capital
requirements help ensure that such institutions have a sufficient buffer to absorb unforseen
losses without in turn imposing losses on depositors or the deposit insurance fund.! Prompt
corrective action is a capital-based approach to supervision aiming to resolve capital
deficiencies before they grow into large problems. As a federally insured depository
institution's capital declines below required levels, an increasingly more stringent set of
safeguards applies. The goal is to minimize (and, if possible, avoid) losses to the deposit
insurance fund. Prompt corrective action has applied to all FDIC-insured depository
institutions since 1992, and the results have been good.
Although credit unions hold over $300 billion in federally insured deposits, they are
not currently subject to capital requirements in the sense of needing to have a given ratio of
-capital to assets in order to be in good standing. Credit unions must set aside as regular
reserves (a form of retained earnings) a small percentage of their gross income until their
regular reserves reach a level approximating 4 percent of total assets. But this is not a capital
requirement; credit unions need not reach or maintain that level. The rule in question is
perhaps best described as an earnings-retention requirement.

Requiring depository institutions to have adequate capital also helps counteract the moral hazard of
deposit insurance (i.e., the tendency of deposit insurance to permit or encourage insured depository institutions
to take excessive risks -- risks that they would not take in a free market). Capital is like the deductible on an
insurance policy: the higher the deductible, the greater the incentive to avoid loss. Adequate capital gives a
depository institution's owners incentives compatible with the interests of the insurance fund because the fund
absorbs losses only after the institution has exhausted its capital and thus eliminated the economic value of the
owners' investment.
I

3
Nor are credit unions subject to a system of prompt corrective action. The NCUA has
infonnal policies analogous to some aspects of such a system, but has no regulations or even
fonnal guidelines for taking corrective action regarding a troubled credit union.
We recommend that Congress require federally insured credit unions to have 6 percent
net worth to total assets in order to be in good standing. 2 We also recommend that credit
unions set aside, as retained earnings, a small percentage of their gross income if they have
less than 7 percent net worth.
Credit unions' balance sheets indicate that credit unions themselves recognize the
wisdom of maintaining such capital levels. Of the federally insured credit unions operating at
the end of 1996, 96 percent had more than 6 percent net worth, and those credit unions held
98 percent of total credit union assets. Moreover, 93 percent of credit unions had more than 7
percent net worth, and those credit unions held 93 percent of total credit union assets.
We also recommend that Congress establish a system of prompt corrective action for
credit unions. This system would be a streamlined version of that currently applicable to all
FDIC-insured institutions, and would be specifically tailored to credit unions as not-far-profit,
member-owned cooperatives. It would thus, for example, not include provisions keyed to the
existence of capital stock, since credit unions have no capital stock.
Such a system of prompt corrective action would protect the National Credit Union
-Share Insurance Fund and the taxpayers who stand behind it; it would also benefit credit
unions and the credit union system. It would reinforce the commitment of credit unions and
the NCUA to resolve net worth deficiencies promptly, before they become more serious. It
would promote fair, consistent treatment of similarly situated credit unions. It should reduce
the number and cost of future credit union failures. In so doing, it should conserve the
resources of the Share Insurance Fund, make the Fund even more resilient, and make more
money available for lending to credit union members. And it would respect and complement
the cooperative character of credit unions.

2 This statutory requirement would not apply to new credit unions that had not existed for a given
num ber of years or reached a specified asset size.

4

2.

Other Capital-Related Reforms
a.

Risk-Based Capital Requirement for Complex Credit Unions

V\'e recommend that Congress direct the NCUA to develop an appropriate risk-based
capital requirement for complex credit unions. This risk-based requirement would supplement
the simple 6 percent net worth requirement and could take account of risks -- such as interestrate risk or contingent liabilities -- that may be appreciable only at a small subset of credit
unions.

b.

Treatment of Certain Equity Investments in Corporate Credit
Unions

Corporate credit unions are specialized financial institutions that provide services to,
and are cooperatively owned by, their member credit unions. They serve their members
primarily by lending or otherwise investing their member credit unions' excess funds. They
also provide services comparable to those offered by bankers' banks or to the correspondent
services that large commercial banks traditionally provided to smaller banks. U .S. Central
Credit Union is a corporate credit union serving 38 of the 40 other corporate credit unions.
The three-tier cooperative structure of the credit union system -- regular credit unions,
corporate credit unions, and U. S. Central -- creates an interdependence risk among the various
-levels. Specifically, a credit union's deposits at its corporate credit union, and its equity
investment in that institution, are assets on its books. At the same time, the credit union's
corporate credit union carries these funds on its balance sheet as deposits (largely uninsured)
and capital, respectively. If a corporate credit union were to fail, its member credit unions
could face losses on their deposits or equity investments, which would reduce their own
capital. This interdependence means that each level of the credit union system must have
sufficient capital for the risks undertaken so as not to pose a risk of losses cascading to the
level below it.
Accordingly, we recommend that federally insured credit unions deduct from their net
worth (for purposes of regulatory capital requirements and prompt corrective action) paid-in

5
capital issued by a corporate credit union and some portion of member capital accounts at a
corporate credit union. Paid-in capital is the lowest priority instrument issued by a corporate
credit union. If the corporate credit union were to fail, holders of paid-in capital would have
to stand in line behind all creditors, all depositors, and all other equity holders; they would
receive nothing unless all these other claimants received payment in full. Membership capital
is the second lowest priority instrument issued by a corporate credit union. Holders would
stand in line behind all creditors, all depositors, and all equity holders other than holders of
paid-in capital.

3.

Reforms Related to the National Credit Union Share Insurance Fund

We propose a series of reforms relating to the National Credit Vnion Share Insurance
Fund.
First, we recommend requiring more timely and accurate calculation of the Fund's
equity ratio -- i. e., the ratio of the Fund's reserves to the total amount of the deposits that the
Fund insures -- the standard measure of the Fund's health. We are concerned that the
NCVA's method of measuring the equity ratio generally overstates the reserves actually
available. The NCVA calculates the equity ratio monthly by dividing the Fund's reserve
balance for the month by the previous year-end total of insured deposits. Thus each year-end
equity ratio is calculated using a denominator that may be up to 12 months old, which tends to
inflate the ratio. For example, at year-end 1996, the Share Insurance Fund had $3.4 billion in
-reserves and insured $275.5 billion in deposits, which implied an equity ratio of 1.24 percent.
However, the NCVA calculated the Fund's year-end 1996 equity ratio as 1.3 percent by
dividing the year-end 1996 total Fund reserves by the year-end 1995 total insured deposits.
Because the NCVA must, under current law, distribute dividends to member credit
unions whenever the Share Insurance Fund's equity ratio exceeds 1.3 percent, the NCVA's
procedure has led it to pay dividends when the Fund's equity ratio, properly measured, was
actually less than 1.3 percent. Paying dividends under such circumstances dissipates the
Fund's reserves without good reason. We accordingly recommend that Congress require the
NCVA to correct this non-contemporaneous measurement of the equity ratio.

6
Second, we recommend not permitting distributions to dissipate the Fund's reserves
when the Fund's ratio of high-quality, liquid net reserves to the total deposits that the Fund
insures (the available-assets ratio) falls below 1 percent. The equity ratio, unlike the available
assets ratio, does not reflect the actual composition of the Share Insurance Fund's assets.
When credit unions come under stress (e.g., during an economic recession), illiquid assets
acquired from failed or troubled institutions will tend to increase at the expense of liquid assets
-- leaving the Fund less able to provide cash assistance to other ailing credit unions. We
recommend that Congress require the Share Insurance Fund to maintain an available assets
ratio of 1.0 percent of insured deposits. Should the available assets ratio fall below this level,
the NCUA would not be permitted to pay dividends even if the Fund's equity ratio were to
exceed 1. 3 percent.
Third, we recommend requiring federally insured credit unions with more than $50
million in total assets to adjust their 1 percent deposit in the Fund semi-annually (instead of
just annually). Such institutions account for just 12 percent of all credit unions but hold 76
percent of total credit union deposits. Semi-annual adjustments by such credit unions will help
ensure that the 1 percent deposit keeps pace with their deposit growth.
Fourth, in place of the current rule that fixes any insurance premium at 1112 of
1 percent of insured shares, we recommend giving the NCUA some discretion to adjust the
premium rate according to the Fund's financial needs.
Fifth, we recommend imposing a premium if the Fund's equity ratio falls below 1.2
percent, in keeping with the NCUA's longstanding practice.
Sixth, we recommend giving the NCUA discretion to let interest on the Fund's reserves
increase the Fund's equity ratio to 1.5 percent. The Federal Credit Union Act currently
imposes a rigid 1.3 percent ceiling on the Fund's reserve ratio. The change proposed here
would permit the Fund to accumulate additional investment earnings in good times that would
increase its resiliency during economic downturns. This flexibility would likewise better
enable the NCUA to protect the Fund -- as well as protect credit unions' 1 percent deposit -from possible future losses. The NCUA would, of course, remain free to distribute as

7
dividends any reserves above 1.3 percent (and any interest earned on those reserves). It could
also use part of the earnings to increase the reserve ratio and distribute the rest.
. B.

OTHER PERTINENT RECOI\1MENDATIONS

1.

Retaining the NCUA's Role in Administering the Share Insurance Fund

Congress required us to evaluate the potential costs and benefits of having some entity
other than the NCUA administer the Share Insurance Fund. Some potential may exist for
conflict between the NCUA's mission as a charterer or regulator of credit unions and the
NCUA's responsibilities for the Share Insurance Fund. However, in our view, any such
potential conflict is best handled by applying a system of prompt corrective action. Such a
system would impose an important and highly constructive discipline on the NCUA's
supervisory and insurance functions. This discipline should, to a significant degree, offset any
potential for conflicts of mission. Accordingly, we recommend against moving the Share
Insurance Fund out of the NCUA.

2.

Continuing to Permit Credit Unions to Treat Their 1 Percent Deposit in the
Share Insurance Fund as an Asset

Congress also required us to evaluate whether the 1 percent deposit that federally
insured credit unions have made into the Share Insurance Fund should continue to be treated as
-an asset on credit unions' books or whether credit unions should, instead, expense that deposit.
Let me first take a moment to explain how the 1 percent deposit works, and more generally,
how the Share Insurance Fund is financed.
Under current law, each federally insured credit union must maintain on deposit in the
Share Insurance Fund an amount equal to 1 percent of the credit union's insured deposits.
Thus, for example, if the credit union has $50 million in insured deposits, it must keep
$500,000 on deposit in the Fund. The credit union's deposit in the Fund counts as an asset on
the credit union's books. It also counts as reserves of the Fund, and is available to protect
depositors at failed credit unions. Because this accounting treatment involves some double-

8
counting of the same money, some have called for credit unions to write off the 1 percent
deposit, so that it would no longer count as an asset on their books.
We concluded that better ways of protecting the Fund are available. Three reforms that
I outlined earlier are particularly relevant here: the 6 percent capital standard; the requirement
that credit unions with less than 7 percent net worth set aside some of their income as retained
earnings; and a system of prompt corrective action. We believe that these measures, coupled
with existing safeguards, would fully offset any double counting and assure adequate
protection of the Fund. By contrast, requiring a write off of the 1 percent deposit would not
provide nearly as much protection. Accordingly, we recommend against requiring credit
unions to write off their 1 percent deposit.

C.

THE IMPORTANCE OF ENACTING THESE SAFETY AND SOUNDNESS REFORMS Now

Over the past two decades, most key legislation regarding the safety and soundness of
federally insured depository institutions has been enacted in time of crisis. The Depository
Institution Deregulation and Monetary Control Act of 1980, the International Lending
Supervision Act of 1983, the Financial Institutions Reform, Recovery, and Enforcement Act of
1989, and the FDIC Improvement Act of 1991 all fit this pattern. Because Congress waited to
act until it faced a crisis, the changes involved, although ultimately beneficial, increased the
short-term stress on many depository institutions.
A better approach is to enact needed safety and soundness safeguards while times are
good. Such safeguards will reduce the potential for a future crisis. And depository
institutions can make any necessary adjustments from a position of strength, with appropriate
transition periods.
Congress has such an opportunity to act now. Credit unions are flourishing. On
average, their net worth exceeds 11 percent of total assets. And the Share Insurance Fund is
fully capitalized. The changes we propose involve little cost or burden to credit unions today,
yet they could pay enormous dividends in more difficult times.

9
Although most credit unions remain relatively small institutions with simple product
offerings, a growing number are large and have extensive product offerings. These credit
unions commonly compete head-on with other depository institutions. As credit unions
increase in size and complexity -- competing directly with banks and thrifts and taking on
similar financial risks -- policymakers need to ensure that comparable safeguards apply to
credit unions' risk-taking. The safeguards applicable today fall short of being comparable.
Moreover, if the ultimate outcome of the current debate over the common bond is to provide
greater flexibility, allowing the continued emergence of larger, less closely knit credit unions,
the safety and soundness enhancement traditionally provided by a tight common bond
diminishes, and the incentives for growth and added risk-taking may increase.
We risk being unprepared for future problems if we do not act now to update
applicable safety and soundness safeguards in light of a changing industry. It was just this
lack of preparation that compounded taxpayer losses during the thrift crisis -- as the thrift
industry changed, safeguards did not keep up with those changes.

II. THE COMMON BOND OF CREDIT
UNION MEMBERSHIP
Let me now turn to the requirement that members of a credit union share a common
bond.
In discussing this requirement, I will: describe what we at the Treasury believe to be
the distinguishing characteristics of credit unions -- the features that set them apart from banks
and thrifts; summarize the common bond requirement for federal credit unions; identify the
key market dynamics that have prompted credit unions to pursue liberalization of the common
bond requirement; set forth six principles that the Treasury believes should guide policy
relating to the common bond requirement; and provide some general comments on what
Congress may wish to consider in this area.

10
A.

THE COMMON BOND REQUIREMENT AS A DISTINGUISHING CHARACTERISTIC OF
CREDIT UNIONS

Credit unions have several characteristics that, taken together, distinguish them from
banks and thrifts.
First, credit unions are member-owned cooperatives. They do not issue capital stock,
and instead derive their capital from accumulated retained earnings.
Second, credit unions generally rely on unpaid, volunteer boards of directors elected
by, and drawn from, each credit union's membership.
Third, credit unions do not operate for profit.
Fourth, credit unions have a public purpose. As declared in the Federal Credit Union
Act, this purpose involves "mak[ing] more available to people of small means credit for
provident purposes." Of course, other depository institutions also operate under statutes that
delineate public purposes, so the distinction here involves the emphasis on providing services
affordable to people of modest means.
Fifth, credit unions generally have limitations on their membership -- limitations based
on some affinity among members. These limitations are known as the common bond
-requirement. Thus, unlike other depository institutions, a credit union generally cannot serve
just anyone from the general public.
We see the common bond requirement as a distinguishing characteristic of credit unions
-- one that helps set credit unions apart from other depository institutions. In our view, the
common bond requirement is not merely a convenient organizing principle. The affinity
among a credit unions' members, as reflected in a common bond, reinforces credit unions'
other defining characteristics.

11
B.

THE DIFFERENT TYPES OF COMMON BONDS

The Federal Credit Union Act of 1934 limits "federal credit union membership ... to
groups having a common bond of occupation or association, or to groups within a well-defined
neighborhood, community, or rural district." Thus, the Act recognizes three types of credit
unions: those based on a common bond of occupation or association and those based on a
well-defined geographic community. Most credit unions have traditionally had occupational or
associational common bonds, although community credit unions have become more common in
recent years.
In an occupational common bond, a credit union's members share a common employer.
The NCUA has required that occupational fields of membership include a geographic
definition.
In an associational common bond, a credit union's members come from some
recognized association. The NCUA's policy is to charter associational credit unions at the
lowest organizational level that is economically feasible. The policy permits a charter for a
widely dispersed membership only where such a charter is clearly demonstrated to be in the
best interests of the associations's members and credit unions.
The Federal Credit Union Act restricts a community credit union to "a well-defined
neighborhood, community, or rural district." The NCUA has interpreted this to mean a
-single, geographically well-defined area where residents interact. Generally, the NCUA
recognizes four types of affinity on which to base a community credit union:

affinity based

on living, worshiping, studying, or working in the community.

C.

MARKET DYNAMICS

Let us briefly consider the market forces that encourage credit unions to expand beyond
their original membership group. We have identified four types of forces. They involve
technology, demographics, safety and soundness, and management.

Technological Factors

1.

Many credit unions -- to meet customer demand and compete with other depository
institutions -- now offer such technology-based services as ATMs and computer and telephone
banking. The information and communications technology needed to provide such services
involves substantial fixed costs. Adding more membership groups makes such investments
more economical by allowing a credit union to spread these fixed costs over more members.

2.

Demographic Factors

Demographic factors also contribute to credit unions' desire to add new membership
groups. For example:
•

Worker mobility today makes credit unions' membership base less stable than in the
past, when many credit union members had a career-long relationship with their
employer and their credit union.

•

Downsizing or closings at manufacturing firms, military bases, and other large
employers have shrunk the membership base of many occupational credit unions.

•

NeVA policy requires a new credit union to have at least 500 persons eligible for
membership, and some believe that the economics of starting a credit union today may
actually require 1,000 or more such persons. Thus people who work at firms with
fewer than 1,000 workers may not, as a practical matter, be able to form their own
credit unions.

3.

Safety and Soundness Factors

A tight common bond requirement can have mixed effects on a credit union's safety
and soundness.
The affinity among members sharing a single, focused common bond helps limit loan
defaults. In a credit union with a single common bond, a member would be less likely to

13
default on a loan commitment because of the effect that the default would have on friends,
neighbors, or coworkers, and because of the shame associated with the default. Because the
credit union is a not-for-profit cooperative, it may also be more willing to develop an
acceptable workout plan than would an impersonal, profit-maximizing financial institution.
On the other hand, the more that a credit union's membership shares a common bond
of employment or otherwise has similar exposure to plant closings or other economic risks, the
less diversified its exposure to credit risk. Diversifying the credit union's membership base
tends to make the credit union more resilient in the face of problems experienced by anyone
local employer. Plant closings during the late 1970s and early 1980s led to numerous credit
union failures because an individual plant typically sponsored a credit union and the credit
union's membership consisted of the plant's workers. Such failures played a key role in
prompting the NeUA's 1982 policy change.

4.

Managerial Factors

Managerial factors may create incentives for credit unions to grow by adding new
membership groups. A credit union board of directors seeking to attract high-quality,
professional managers may find it easier to do so if the credit union is large, or has growth
opportunities. Moreover, as credit unions are non-profit cooperatives, they do not remunerate
their managers based on profit or stock performance. Instead, management compensation
often reflects a credit union's size and product offerings. This may give managers an incentive
-to increase the credit union's size, and adding new membership groups would be an obvious
method for doing so.
D.

GENERAL PRINCIPLES

Between the polar-opposite outcomes of having no common bond requirement and
requiring all members of a credit union to share a single, tightly defined common bond, are an
array of possible policies. We suggest that Congress consider possible policies in light of the
following principles:

14
1.

Reaffirm Credit Unions' Role in Serving People of Modest Means

Credit unions have historically had a special role in serving people of modest means.
The Federal Credit Union Act reflects this public purpose: it is an "Act ... to make more
available to people of small means credit for provident purposes."
We believe that federal policy towards credit unions should continue to promote this
objective. Credit unions have played, and should continue to play, an important role in
serving the underserved. Low-income credit unions have charters that specifically reflect their
mission of serving the underserved. But more broadly, credit unions help make financial
services more affordable for (and in some cases, geographically available to) people of modest
means.

2.

Correct Perverse Incentives to Abandon Occupation- and Association-Based
Federal Credit Union Charters

In response to a 1996 injunction against federal credit unions adding new membership
groups, hundreds of federal credit unions have moved to convert to state charters or to
community-based federal charters. Yet a stringent federal common bond requirement serves
no public purpose if it merely prompts credit unions to switch to state charters with a looser
common bond requirement (or none at all). Similarly, a stringent occupational or associational
common bond requirement serves no public purpose if it simply prompts credit unions to
-switch to broad, geographically based charters (e.g., anyone who lives, works, or worships in
Fairfax County, Virginia) with less real affinity than their old occupation or association-based
charters. Left unchanged, the Supreme Court's ruling will tend to produce such perverse
results.
The debate over the common bond requirement has thus far centered on federal credit
unions. Current federal law imposes no common bond requirement on state-chartered credit
unions (although some states choose to tie their own requirements to federal law). Yet statechartered credit unions receive essentially the same benefits as federal credit unions, including
federal deposit insurance and exemption from federal income taxation. We believe that public
policy should avoid creating perverse incentives to seek one type of credit union charter over

another, particularly if the upshot is to encourage credit unions to select charters that weaken
the affinity among their members.

3.

Preserve a Meaningful Common Bond as a Characteristic of Credit Unions

As I mentioned earlier, we see the common bond requirement as a distinguishing
characteristic of credit unions, and one that reinforces credit unions' other characteristics. 3 A
sense of affinity among members encourages credit unions to serve all their members, even
those whose business may be unremunerative. For example, a hallmark of credit unions has
been their willingness to make small unsecured loans -- loans so small that banks generally
have little interest in the business. Yet the less members have a sense of affinity with one
another, the less willing they may be to maintain such "unprofitable" services in the face of
other opportunities. The more impersonal a credit union becomes -- and the more its
members see each other as strangers -- the less the credit union is likely to distinguish itself
from other depository institutions. A lack of meaningful membership restrictions may make
credit unions highly competitive and flexible, but may also make them increasingly like banks
operating under another name.
One cannot be certain in advance what effect weakening the common bond would have
on credit unions' distinctive character. However, reducing the affinity among credit union
members might well put strain on credit unions' cooperative, not-for profit orientation,
including their willingness to pay special attention to members of lesser means (who may be
-relatively costly to serve).

3 The common bond is widely recognized as a characteristic of credit unions. The International Credit
Union Operating Principles of the World Council of Credit Unions (an affiliate of the Credit Union National
Association). declare that "membership in a credit union is voluntary and open to all within the accepted
common bond of association." These operating principles "are founded in the philosophy of cooperation and
its central values of equality. equity and mutual self-help." This suggests that the World Council sees a
connection between credit unions' values and an operating environment in which credit union members share
a common bond.

16

4.

Assure Safety and Soundness

Since credit unions serve an important role for many Americans, especially those of
modest means -- and since federal deposit insurance protects the $300 billion in credit union
deposits -- public policy should help assure the safety and soundness of credit unions. As
credit unions grow larger and more impersonal, formal safeguards and effective supervision
become all the more important.

5.

Take Account of Market Dynamics

Most of the market dynamics described earlier justify giving credit unions reasonable
flexibility to move beyond a single common bond. To recapitulate: economies of scale in
providing technology-based services, downsizing, the large number of workers at firms too
small to support their own credit union, and the safety and soundness benefits of
diversification lend weight to permitting credit unions to expand beyond a single membership
group. Yet other market factors -- such as the credit risk-reducing influence of a sense of
affinity, and the dubious managerial incentives for growth -- suggest limits on the economic
case for attenuating the common bond requirement. Flexibility on the common bond
requirement should be tempered by the other principles I have outlined.

6.

Protect Existing Credit Union Members and Membership Groups

Since 1982, the NCUA has permitted credit unions to add unrelated membership
groups to existing credit unions. Both the NCUA and the credit unions involved operated in
good faith. Although the Supreme Court has found such actions to have gone beyond the
bounds of the Federal Credit Union Act, we believe that disenfranchising existing credit union
members or membership groups would not serve the public interest.

E.

NEXT STEPS

Congress has time this year to consider carefully the proper course of future policy in
this area. Whatever policy change Congress makes "regarding the common bond issue will

l7
affect credit unions for many years to come, and will also affect the dynamic between credit
unions and other fmancial institutions.
The Treasury looks forward to working with the Committee to develop legislation
dealing with the common bond requirement. To begin, we would like to suggest that such
legislation should: grandfather all existing credit union members and membership groups
added before the Supreme Court ruling, and permit such membership groups to add new
members; include the safety and soundness reforms outlined in the Treasury report; and
preserve a meaningful common bond requirement while providing reasonable flexibility for
credit unions to include additional groups within their membership.

III. CONCLUSION
In closing, let me summarize our four main conclusions and recommendations.
A deliberate, thoughtful approach is needed. We should keep in mind that our actions
will affect credit unions, their members, and others for years to come.
Safety and soundness reforms should be part of any credit union legislation. In
particular, a system of prompt corrective action, which has been so successful in bank and
thrift supervision, should be enacted for credit unions.
Credit unions should be permitted to grow, and consumer access to credit unions
should be enhanced in a manner consistent with the principles outlined here.
To-date, the common bond debate has largely been framed as an all-or-nothing contest
in which one side wins at the expense of the other. An appropriate balancing of legitimate but
competing interests requires careful deliberation and something other than a winner-take-all
outcome.
We look forward to working with the Committee on these issues. I would be pleased
to answer questions.

- 30-

PUBLIC DEBT NEWS
Department of the Treasury • Bureau olthe Public Debt • WashingtoD, DC 20239

TREASURY SECURITY AUCTION RESu:.TS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC

FOR IMMEDIA'IE RELEASE

CONTACT:

March 25, 1998

Office of Finaticing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF S-YEAR NOTES
Incerest Rate:
Series:
CUSIP No:
STRIPS Minimum:

Issue Date:
Daced Dace:
Maturicy Date:

5 1/2\
E-2003
9128274B5
$400,000

High Yield:

5.620%

Price:

March 31, 199B
Iv.arch 31, 1998
March 31, 2C03

99.483

All noncompetitive and successful competitive bidders were awarded
h~gh yield.
All ter.ders at lower yields were
accepted in" =~ll.

securities at the

Tenders at the

h~ghyield

were allotted

AMOL~~S TE~~ERED

AND ACCEPTED (in thousands)

Competitive
Noncompetitive

$

PUBLIC SOETOTAL
Fe~eral

TOTAL

Accepted

Tendered

Tender Type

Reserve-

Foreign O:ficia:

59t.

22,292,301
329,598

$

22,621,899

l1,C12,498

1.385.000

:'.385,000
1,764,000

1,764,000

I~st.

$

10,682,900
329,598

25,770,899

$

Median yield
5.592%: 50\ of the amount of accepted competitive
tenders was tendered at or below tha: rate.

Low yield
5.550%:
5\ of the amount of accepted competitive
tenders was tendered at or below tha: rate.

RR-2326

http://\V\Vw.publirdl!bt.trl!~,s.g(),·

14,161,498

DEPARTMENT OF THE TREASURY
WASHINGTON. ::.:.

N;:)E~ 5~CR::TARY

March 26, 1998

The Honorable Newt Gingrich
Speaker
U.S. House of Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
In.Secretary Rubin's letter to you on March 16, 1998, he stated that the Treasury
Department staff would subsequently detail our concerns with the House Republican Leadership
draft ofH.R. 10, the Financial Services Act of 1998. Accordingly, I have enclosed a document
explaining our principal concerns with the draft bill.
Sincerely,

\~~~0
~ D. Hawke, ;r.

'

~'

Under Secretary for Domestic Finance
Enclosure
cc:

The Honorable Richard K. Anney
The Honorable John A. Boehner
The Honorable Tom Bliley
The Honorable James A. Leach
The Honorable Marge Roukema
The Honorable Michael G. Oxley

RR-2327

The Honorable Richard A. Gephardt
The Honorable John D. Dingell
The Honorable John 1. Lafalce
The Honorable Bruce F. Vento

THE TREASURY'S PRINCIPAL
CONCERNS ABOUT B.R. 10
The Financial Services Act of 1998
As Proposed by the House Republican Leadership
March 26,1998

Overview of Concerns

1

Subsidiaries of Banks

3

Effect on the Community Reinvestment Act

6

Discrimination Against National Banks

7

Pennissible Financial Activities

8

Thrift Charter

8

Federal Home Loan Bank System

9

Insurance Powers and Regulation

10

Vlholesale Financial Institutions

13

Functional Reglliation

15

FDIC Board

17

THE TREASURY'S PRINCIPAL
CONCERNS ABOUT H.R. 10
The Financial Services Act of 1998
As Proposed by the House Republican Leadership
March 26,1998
Overview of Concerns

The Treaswy Department has been a strong proponent of financial modernization.
H.R 10, the Financial Services Act of 1998 (the "bill"), would remove some archaic
restrictions on our financial system. ,However, the bill falls short of meeting the
overarching goal of financial services modernization: a financial services system that
allows our nation's citizens and communities access to the widest possible array of
financial products at the lowest possible cost. The bill thus denies consumers the benefits
of an efficient, full-service financial services system.
For example:

•

The bill wouldforce muchjinancial innovation out of banks and their subsidiaries
and into bank holding company affiliates. These needless restrictions would
hinder banks from responding to changes in the market. They would harm
consumers by limiting the benefits of improved services, lower costs, increased
access, and greater innovation that result from increased competition. Moreover,
restrictions on where banks conduct activities and on what fmancial activities they
conduct could impair safety and soundness by limiting a bank's ability to diversify
and encouraging the bank to take on greater risks to maintain earnings. We believe
that efficiency and market competition should determine the best form of
organization.

•

The bill would undermine the Community Reinvestment Act by!orcingjinancial
innovation to occur in holding company affiliates. A bank's capacity to help meet

2

community credit needs depends on the size of its consolidated assets, which
include assets in subsidiaries. By generally requiring innovation to occur outside
the bank, the bill would result in the wholesale transfer of assets beyond the
purview of the eRA - thus denying communities important benefits they would
otherwise have reaped from financial modernization.
•

The bill would seriously discriminate against the national bank charter -undennining the dual banking system and denying customers the full benefits of
competition. For example, the bill would continue to encumber national banks'
direct sales of insurance with a prohibition against selling insurance from places
with more than 5,000 people, but would impose no such limit on state banks.
National banks should not have to establish a subsidiaxy to do what many state
banks can do directly.

•

The bill would strip away the benefits of the thrift charter without extending them
to all depository institutions. While the bill retains the federal thrift charter, the
bill would deprive it of key benefits - most notably the longstanding right of
unitary thrift holding companies (companies that own a single thrift institution) to
engage in any lawful business. Eliminating these broad affiliation rights and other
attributes of the thrift charter would diminish competition in financial services and
reduce consumer choices and benefits.

•

The bill would perpetuate rather than correct fundamental problems in the
Federal Home Loan Bank System. The System has structural flaws that raise
serious policy and safety and soundness concerns. Changes in housing fmance,
technology, and the System's membership have rendered the System's 65-year-old
structure obsolete, and raise questions about the allocation and effectiveness of the
System's federal subsidy.

•

Many of the bill's insurance provisions are discriminatory and anti-competitive .
For example, the bill would not only fail to preclude states from discriminating,
against the insurance activities of banks and their affiliates, but would actually"
open up new avenues for such discrimination. It could impede innovation by

3
pennitting state insurance regulators to characterize a wide range of new fmancial
products as "insurance" - even products whose banking or other features
predominated. It would also overturn established principles of judicial deference
to federal agencies - recognized by the Supreme Court in the Chevron case -- with
respect to federal agency interpretations of critical matters relating to banking and
insurance.
Subsidiaries of Banks

A bank may expand its financial activities through two basic structures: (1) a
subsidiary of the bank itself; or (2) a holding company affiliate structure, in which a bank
holding company owns both banks and other companies.
The choice between the subsidiary structure and the holding company affiliate
structure should be a business decision, not a governmental dictate. Allowing the
subsidiary structure has manifest advantages. First, a bank's conduct of new activities in
a subsidiary diversifies the bank's assets and income - providing a cushion against losses
in other lines of business. Second, conduct of activities in a subsidiary may allow bank
management to better direct the activity. Indeed, a recent OCC study concludes that
overseas subsidiaries of banks earned higher returns and ran lower risks in conducting
securities activities than did holding company affiliates. 1 Thir~ if the bank were to fail,
the FDIC could sell the subsidiary and use the proceeds to protect depositors -- something
it could not do if the activities were conducted in an affiliate. Taxpayers would thus be
better insulated from loss. Finally, flexibility in organizational structure maximizes the
potential for synergy with existing fmancial products -- better enabling market
participants to meet their customers' full range of financial services needs. While for
some companies an affiliate structure may be optimal, for others it may be the subsidiary
structure.

1 As noted below, current law allows banks to engage in securities activities overseas, but only
through subsidiaries regulated by the Federal Reserve.

4
Moreover, forcing a financial services company - as a prerequisite for engaging in
new activities - to transfer resources from its bank to its holding company would deplete
the bank's resources, leave the bank's earnings less diversified., and thus increase risk to
the deposit insurance funds.
Notwithstanding the benefits of the subsidiary structure, section 121 would
severely restrict its use and instead dictate that new financial activities generally be
conducted only in Federal Reserve-regulated holding company affiliates. Section 121
would specifically prohibit subsidiaries of national banks from conducting new financial
activities as principal, other than activities permissible for the bank itself.
None of these restrictions on subsidiaries can be justified by safety and soundness
or other policy concerns.
•

As Chairman Helfer of the FDIC stated last year: "From a safety and soundness
standpoint, both the holding company model and the bank subsidiary model are
viable approaches to expanding the powers of banking organizations. The
safeguards that are necessary to protect the insurance funds are similar for either
structure. If these safeguards are in place and enforced., either approach will work
to protect the insured bank and the deposit insurance funds." And: "With
appropriate safeguards, allowing banks to generate earnings from activities in bank
subsidiaries lowers the probability of failure. Earnings from bank subsidiaries
provide greater protection for the insurance funds than do earnings from activities
in bank holding company affiliates, because the earnings of the subsidiary accrue
to the benefit of the insured bank parent. This is because diversification often
leads to less volatile earnings."

•

The Banking Committee bill required a bank to remain well-capitalized after
deducting any investment in a subsidiary engaged in bank-impermissible activities
from its regulatory capital. Thus, the bank could lose its entire investment in the
subsidiary and still remain well capitalized. The bills also required any extensions
of credit from the bank to such a subsidiary to confonn to the inter-affiliate
lending limits of sections 23A and 23B of the Federal Reserve Act. Thus, a bank

5

could not lend more than 10 percent of its capital to anyone subsidiary, and could
not lend more than 20 percent of its capital to all its subsidiaries and affiliates
combined. With these protections in place, a bank's potential exposure to a
subsidiary should not exceed its exposure to an affiliate. 2
•

Subsidiaries of banks (including national banks) have long engaged overseas in
underwriting and dealing in securities, venture capital, merchant banking, and
other financial activities. These so-called Edge Act subsidiaries have a clear
record of success. Indeed, the Federal Reserve, which regulates these subsidiaries,
on December 18, 1997 proposed a significant expansion in the type and amount of
securities activities in which such subsidiaries may engage.

•

Subsidiaries of state nonmember banks (regulated by the FDIC) 'and subsidiaries of
thrifts (regulated by the OrS) already successfully engage in activities not
pennitted to their parent depository institutions.

Proponents of allowing new financial activities to be conducted only in holding
company affiliates have contended that only the affiliate form can effectively prevent
banks from transferring to these activities any federal subsidy they receive from deposit
insurance. There is no merit to this contention.
•

Even assuming that such a subsidy exists, 3 the argument completely ignores the
effect of requiring a capital deduction and limiting extensions of credit (as the
Banking Committee bill did). The benefits of any subsidy that may exist may

2 Put another way, a bank wishing to engage in new activities would face the same limits on how it
could fund those activities under either structure. Under an affiliate structure, the bank could dividend capital
up to its bank holding company, which would then invest that capital in a new non-bank affiliate. The bank
could then lend to the affiliate in the amounts permitted by sections 23A and 23B. Under a subsidiary
structure, the bank could invest in the subsidiary subject to a capital deduction -- leaving the bank in the same
position as if it had paid a dividend - and could then lend to the subsidiary only in the amounts permitted by
section 23A and 23B. The safety and soundness of the bank is protected equally under each structure.

The existence of a net subsidy has been questioned, particularly in view of the regulatory costs that
accompany access to the federal safety net. To the extent that any such subsidy exists, it should be addressed
by properly pricing deposit insurance and Federal Reserve services.
3

6
already be transferred to holding company affiliates through the up streaming of
dividends by the bank, or through the absorption (in a consolidated fmancial
statement) of lower returns in an affiliate that does not directly receive the subsidy.
The capital "haircut" and limits on lending would allow a bank no more latitude to
fund a subsidiary than an affiliate.
•

Finally, this argument runs counter to a long-standing structure for U.S. banks
operating overseas, under which the Federal Reserve permits subsidiaries of banks
to underwrite and deal in securities and engage in merchant banking activities.
There is no justification for denying to domestic subsidiaries of national banks the
benefits accorded to overseas subsidiaries. Moreover, if one truly believes th~t the
bank subsidiary structure allows an improper spreading of a subsidy, it would be a
perverse rule that allowed the ,benefits of that subsidy to be conveyed only to
foreign consumers while denying American consumers the benefits of this
structure.

Effect on the Community Reinvestment Act
The Community Reinvestment Act (CRA) requires banks to serve the communities
in which they operate. As a general matter, a bank's ability to meet credit needs depends
on the size of its assets, including the assets of its subsidiaries. Permitting banks to
conduct a full range of financial activities through subsidiaries would benefit
communities by allowing them to share in the enhanced profitability of the banking
system. As fmancial modernization allowed banks to grow, banks' commitment to the
community would also be expected to grow.
Under H.R. 10, however, conununities would not share in the benefits of fmancial
modernization through the eRA. Because the bill generally requires financial services
organizations to conduct new financial powers outside a bank or its subsidiaries, the
assets devoted to these activities would be transferred beyond the reach of the

eRA.

Significantly, those arguing in favor of forcing new fmancial activities into holding
companies do not propose that eRA follow these activities.

7

eRA has proven its worth. It is working to restore healthy markets in distressed
communities. Nonprofit community groups estimate that since 1992 the private sector
has pledged over $397 billion in loans going forward for community development, which
represents over 89 percent ofCRA pledges made since CRA's enacttnent in 1977. In
1996 alone~ large commercial banks made nearly S18 billion in community development
loans, in addition to the affordable housing loans reported under the Home Mortgage
Disclosure Act and small business loans reported under eRA.
The remarkable progress that has been made in the areas of urban economic
revitalization and financing for affordable housing and small businesses would be
stymied if Congress now enacts a law that would restrict the ability of eRA-covered
institutions to increase their assets through new financial activities. As we work to
modernize the financial syste~ we need to make sure the financial system works for all
communities.
Discrimination Against National Banks

Although examples of how H.R. 10 discriminates against national banks and the
national charter are throughout this paper, we believe it is important to note the
cumulative effect of this discrimination: to undermine the dual banking system through
the wholesale disparagement of the national charter. The dual banking system has
benefitted American consumers of fmancial services by stimulating innovation and
competition, and retaining the vitality of the national charter is of great importance.
Nonetheless:
•

The bill would constrain the fmancial activities of aCe-regulated national bank
subsidiaries far more strictly than FDIC- or Federal Reserve-regulated state bank
subsidiaries, or even Federal Reserve-regulated Edge Act subsidiaries of national
banks.

•

The bill would continue to limit the conduct of national bank direct insurance
agency activity to places with under 5,000 people while applying no parallel
restriction on state banks.

8

•

The bill would prohibit national banks and their subsidiaries, but not state banks
and their subsidiaries, from conducting de novo insurance agency activities.
National banks couId conduct such activities only by acquiring existing agents.

•

The bill would strip the national bank regulator of deference in interpreting key
sections of the National Bank Act, thus creating uncertainty for banks relying on
these interpretations and inviting costly litigation.

•

The bill would impose limits on national bank sales of title insurance that would
not apply to state banks.

Permissible Financial Activities

Section 103 would grant to the Federal Reserve exclusive jurisdiction to detennine
what new activities are "fmancial in nature" and therefore generally permissible for
companies affiliated with banks. (By contrast, the Banking Committee bill would have
created an inter-agency council for this purpose.) We oppose excluding this and future
Administrations from this vital responsibility for the future direction of fmancial
modernization. In the absence of an inter-agency cOWlcil, such detenninations about
what constitutes a fmancial activity should be made jointly by the Federal Reserve and
the Treasury.
Thrift Charter

While retaining the federal thrift charter, the bill would deprive this viable, useful,
and flexible charter of key benefits. If the bill made the benefits of the thrift system
generally available in the interest of competition and innovation, then a melding of
charters and of holding company regulation could make sense. The bill, however,
manifestly fails to provide such benefits.
The unitary thrift holding company permits commercial affiliations with
deposito!)' institutions whose commercial lending authority is limited (federal thrifts'
commercial lending activities are limited to 20 percent of assets, with half of that amount

9

required to be in small business loans). The bill's elimination of the unitary structure and
other advantages of the thrift charter, unaccompanied by broader financial services
refo~ would remove a useful structure for fmancial modernization and reduce consumer
choices and benefits. There appears to be no sound public policy justification for such a
step.
Finally, we note that making the thrift provisions effective on January 1,2000
would appear to be inopportune, given the year 2000 computer issue which will occupy
substantial resources as that date approaches.
Federal Home Loan Bank System

The Federal Home Loan Bank System has structural flaws that raise serious policy
and safety and soundness concerns. Changes in housing finance, technology, and the
System's membership have rendered the System's 65-year-old structure obsolete, and
raise questions about the allocation and effectiveness of the System's federal subsidy.
The FHLBank provisions contained in the bill would likely expand the size of the
System without increasing its focus on meeting a clearly defmed public purpose. The bill
contains some positive provisions such as eliminating mandatory membership and fixing
the REFCorp allocation formula, and adding a risk-based element to FHLBank capital
requirements. However, the bill would open FHLBank membership to insured depository
institutions with less than $500 million in assets without any limit; significantly increase
the membership and advance activity of large fmancial institutions; place only modest
limitations on investments, and then only at the discretion of the Finance Board; and
create 12 different capital structures. The net result of these amendments would likely be
an unfocused increase in FHLBank advance activity (especially to large fmancial
institutions) and only limited reform of the FHLBanks' huge investment-arbitrage
portfolios.
We continue to believe that comprehensive reform of the FHLB System should ,be
reserved to another time so that Congress can focus clearly on the needs of the System.

10

Insurance Powers and Regulation
Title m-~ dealing with state regulation of insurance, is discriminatory and anticompetitive. Consumers of insurance products would not realize the gains, in the fonn of
increased choices and lower prices, that true financial modernization would bring.
Inadequate Protection Against Discriminatory State Laws

While purporting to protect against discriminatory state laws, section 104 would
permit state regulators to discriminate against banks by preserving any state law that
applies to insurance underwriting affiliates of banks "in the same manner" as to insurance
underwriters not affiliated with banks. Unlike the standard established in the Supreme
Court's Barnett decision, this language would pemlit, and perhaps invite, state laws
designed to disadvantage insurance companies affiliated with banks. For example, in
detennining risk-related capital requirements for insurance underwriters, a state could
apply its capital requirement to insurance holding companies and prohibit counting loans
other than real estate loans as assets. Even though the requirement would apply to
insurance companies affiliated with banks "in the same manner" as to those not affiliated
with banks, it would discriminate against companies owning banks because banks have
large loan portfolios. The bill should not allow states to deprive customers of the full
benefits of bank competition in the insurance underwriting market.
Providing Discriminatory Insurance Agency Limitations

The bill would preserve the discriminatory and anti-competitive rule restricting
direct national bank insurance sales to a place of 5,000 or fewer people, without imposing
a similar rule on state banks. In addition, section 305 would prohibit national banks and
their subsidiaries - but not state banks and their subsidiaries - from commencing
insurance agency activities in a new state; it would, instead, limit them to purchasing
existing agents. These requirements are blatantly discriminatory and anti-competitive.

11
Nullifying Judicial Deference

Since 1809, the Supreme Court has given weight to the construction of federal
statutes by the Executive Branch officials charged with administering those statutes.
Over the years, the Supreme Court has refined this concept of judicial deference,
culminating in the landmark 1984 decision in Chevron v. Natural Resources Defense
Council. Two recent Supreme Court decisions have upheld the doctrine with particular
application to national banks: NationsBank v. Variable Annuity Life Insurance Co. and
Smiley v. Citibank.
The basis of these precedents - the public policy interest in political
accountability, agency expertise, and familiarity with regulated industries, and the need
for finality and uniformity of regulatOt)' decisions - strongly counsels against impairing
judicial deference for federal agency interpretations of law. That is particularly true for
federal banking agencies' interpretations involving the knotty intersection of banking and
insurance. It is precisely when difficult questions of policy and law arise, such as the
question where to draw the line between insurance and banking services, that the need for
judicial deference to agency interpretations is greatest.
Anti-competitive Limitations on Insurance Underwriting

Section 304 would generally prohibit banks and their subsidiaries from providing
as principal new products deemed "insurance" in a state, and would allow each state to
detennine what products constitute "insurance." Section 304 would create a safe harbor
for many products previously permissible for national banks to provide as principal, but
states would be free to deem any future product to be "insurance" and thereby place it off
limits to banks.
Financial innovation often involves hybrid features that combine elements of
different kinds of products. Certain types of fmancial options, for example, could have
characteristics of a security and of insurance. Derivatives can be indistinguishable from
insurance. Section 304 would have a potentially chilling effect on fmancial innovation by

12
freeing state regulators to take an overly expansive view and characterize hybrid products
as "insurance."
Moreover, allowing 50 different state insurance regulators to distinguish insurance
from banking, and regulate the new activities they determine to be insurance, would
invite chaos. The result would be a plethora of litigation and a patchwork of legal
requirements that would unjustifiably disadvantage banks and their customers.
Providing Protectionist Limitations on Title Insurance Activities

The bill singles out for restriction national banks' authority to sell title insurance in
states that pennit that activity for state banks after January 1, 1997. There is no reason
for this blatant discrimination against national banks and their customers.
State Preemption of Federally Mandated Disclosures to Insurance Customers

Section 308 would require the federal banking ·agencies to prescribe a series of
consumer protections for bank sales of insurance products: e.g., a disclosure that
insurance products are not FDIC-insured. We support this step.
However, section 308 would also make these consumer protections inapplicable
whenever a state law, regulation., or interpretation is "inconsistent with or contraI)' to" the
federal regulations. Section 308 thus appears to allow states to nullify the consumer
protections by adopting more lenient requirements. This license to nullify is as
unjustified as it is unprecedented. We see no reaso~ for example, why a state
commissioner should be able to use an interpretation of state law to deprive conswners of
a disclosure that insurance products are not FDIC-insured.
Unnecessary Codification of Rules of Construction

Sections 301 and 303 are unnecessary and could have unintended consequences.

13

Section 301 would affirm that the McCarran-Ferguson Act remains the law.
Section 303 would declare that insurance sales shall be functionally regulated by the
states. The reason for the reiteration of McCarran-Ferguson is unclear, and the tenn
"functionally regulated" is undefined. Thus, courts could at some point give these
provisions an unintended meaning.
National Association of Registered Agents and Brokers

We see logic in establishing a self-regulatory organization for insurance agents and
brokers, as under Title m-c. But such an organization must not become a means by
which one group of competitors gives itself an advantage over others - e.g., by
discriminating against agents and brokers because they are affiliated with depository
institutions. Consumers deserve the penefits of the most robust possible competition for
their business.
Title lli-C would not only fail to prohibit such discrimination but would actually
facilitate it. The new self-regulatory organization (NARAB) could adopt licensing
standards for sellers of products that any state labels as "insurance." Because NARAB
would derive its rulemaking powers from Congress, depository institutions could not use
the principles articulated in the Supreme Court's Barnett decision to resist NARAB rules
that were discriminatory. Although section 325 would prohibit the NARAB from
adopting "special categories of membership" or "distinct membership criteria" for insured
depository institutions and their employees, nothing would prohibit NARAB from
enacting a general rule that would have a disparate impact on depository institutions.
Wholesale Financial Institutions
Sections 131, 132, 133, and 136, dealing with wholesale fmancial holding
companies and wholesale fmancial institutions (WFls), are seriously flawed. In addition,
section 152's requirement that foreign banks convert to WFls differs from that applied to
domestic banks, raising national treatment concerns.
Our specific concerns are as follows:

14

Comptroller of the Currency's Role in Policy-Setting
Section 136 of the bill would eliminate any role for the Comptroller of the
Currency in policy relating to WFIs - including rulemaking, other standard-setting, and
exemptions - even for WFIs with national bank charters. This undermines the dual
banking system and inappropriately denies the Comptroller of the Currency a role in
rulemaking regarding such matters as capital standards, capital categories for prompt
corrective actio~ and exemptions from other laws. The F ederaI Reserve should have
unilateral authority only to protect the payments system by taking into account the
financial condition of a WFI's affiliates when setting credit limits or by prescribing
special clearing balance requirements for WFIs.

InadequaJe Safeguards
Section 136 contains inadequate safeguards to protect consumers, the payments
system, and the taxpayers. The Federal Reserve would have broad authority to exempt
WFIs from other laws - including capital requirements, prompt corrective action, limits
on transactions with unregulated affiliates, CRA, and consumer protections -- so long as
the exemption was "not inconsistent" with a vague set of objectives, which would include
"the protection of the deposit insurance funds" and "the protection of creditors and other
persons ... engaged in transactions with" WFIs.
Section 136 would in effect permit uninsured WFIs to deal with retail customers
who may expect deposit insurance and consumer protections. It would forbid only an

"initial deposit" of $100,000 or less in a WFI, unless such receipt occurred "on an
incidental and occasional basis," but would at the same time permit the WFI to derive up
to 5 percent of its total deposits from accounts with initial deposits of less than $100,000.
Thus, the bill does not screen out retail customers - those that may not fully understand
or be able to bear the risks of placing their savings with WFls.
Section 136 would purport to apply to \VFIs the prompt corrective action
provisions of the Federal Deposit Insurance Act. But those provisions have as their
lodestar the purpose expressed in section 38(a)(l) of that Act: namely, "resolving the

15
problems of insured depository institutions at the least possible long-term loss to the
deposit insurance fund." Because WFIs are uninsured, this purpose would logically not
apply; it certainly would fail to provide clear guidance for dealing with \\'FIs.
Insolvency

Failed WFIs should be resolved under the Bankruptcy Code, not Wlder
conservatorship provisions designed for the insolvency of insured depository institutions.
By choosing the latter route, the bill potentially sends a misleading signal to capital
markets that creditors ofWFIs may expect troubled WFIs to receive special treannent, as
if they were too big to fail.
Regulation of Owners of WF~s: Wholesale Financial Holding Companies

The bill would subject companies that own a WFI (but not an FDIC-insured
depository institution) to regulation as a wholesale fmancial holding company, regulated
under the Bank Holding Company Act. Such a company could not engage in more than a
very modest amount of non-financial activities (unless it had pre-existing non-fmancial
business). The Federal Reserve would have explicit authority to set capital requirements
for these companies.
With adequate safeguards, there should be no need for holding company regulation
for WFIs with no FDIC-insured affiliates.
Functional Regulation
Broker-Dealer Regulation of Banking Products

Sections 201 and 202 include exemptions for "traditional banking products" from
broker-dealer regulation. -The defInition of "traditional banking product" in section 206
does not include an elasticity clause allowing regulators to expand the defInition by
rulemaking or on a case-by-case basis. Instead, section 206 in effect would authorize the
SEC to apply broker-dealer regulation to banks providing "new banking products" if,

16

after considering the views of the federal banking agencies, it detennmed that such
regulation was necessary or appropriate in the public interest and for the protection of
investors.

In order to ensure that regulatory uncertainty does not prevent banks from offering
innovative banking products, we support including a statutory mechanism for detennining
whether bank products not otherwise enumerated should be subject to broker-dealer
regulation. However, such a mechanism should not vest sole authority in the SEC.
Doing so, even with a consultation requirement, would leave the banking regulators
without a role in shaping policy on an issue directly affecting safety and soundness and
other fundamental objectives of banking regulation.
Regulation of Bank-Issued Securities
Unlike sections 205 and 206 of the Treasuzy's June 1997 proposal, the bill would
not transfer oversight of bank-issued securities from the banking agencies to the SEC.
We see no justification for continuing the present system of overlapping and duplicative
functions by four banking regulators and the SEC.
For the most part the banking regulators already administer these functions
comparably to the SEC. Where different treatment of banks and nonbank issuers might
be necessary for safety and soundness or other reasons, the SEC could make appropriate
adjustments after consulting with the appropriate banking regulator. Thus, consolidating
these functions in the SEC would promote efficiency in government and reduce
regulatory costs. It would be consistent with the goals of functional regulation by
ensuring unifonnity of regulation and enforcement.
Push-Out and Restriction of Activities
The bill would place many restrictions on a bank's ability to continue to engage in
its activities after the current bank exemptions from SEC broker and dealer regulation are
removed. These additiona1limitations would affect important activities including loan
participations and private placements. We see no reason for these restrictions, which may

17

force activities out of banks or make the activities difficult for banks to provide. In
addition, these restrictions reduce the product diversity of banks. Bank customers are
protected by strong regulation and enforcement, and these restrictions are unnecessary.
FDIC Board
In the context of combining the ors with the OCC, we support restoring the

FDIC's Board of Directors to the three-member configuration it had for 56 years until
1989 (when the ors was established). This included 12 years with a three-member
board fully subject to the Government in the Sunshine Act
Section 434 of the bill would, at an additional cost of over $1 million annually,
maintain a five-member Board ofDir~ctors. No showing has been made that the FDIC
needs a five-member board to get its work done. Indeed, the only case that has been
advanced for the five-member size has been the agency's desire to avoid the constraints
of the Government in the Sunshine Act. We believe that to be an inadequate reason to
justify the expenditures involved. The federal government currently includes at least
seven three-member boards: the Fann Credit Administration, Merit Systems Protection
Board, National Credit Union Administration, National Mediation BoarcL Occupational
Safety and Health Review Commission, Railroad Retirement BoarcL and Tennessee
Valley Authority.

DEPARTMENT

OF

THE

TREASURY

NEWS
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
March 26, 1998

Contact: Kelly Crawford
(202) 622-2960

Statement by Treasury Secretary Robert E. Rubin on IMF Legislation
The Senate's vote to fund fully the IMF is a major step toward providing the IMF with the
resources necessary to deal with risks to financial stability around the world. An IMF with
sufficient resources to respond to threats of financial instability is critically important to the well
being of American workers, businesses and farmers.
The overwhelming bipartisan support for IMF funding is indicative of the importance of this issue
to our national security interests and the economic well being of American workers, businesses
and farmers. We will continue to work with Congress to achieve full funding for the IMF as soon
as possible.
-30-

RR-2328

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

IJ I': I' 1\ I{ ...

l\ lEN T

0 I,'

TilE

T I(

I~

,.\ S lJ

I~

\'

-

NEWS
-

omcr OF PUBUCAFfAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. • 20220. (202) 62%·2960

MEDIA ADVISORY
March 30, 1998

Contact: Beth Weaver
(202) 622-2960

CUSTOMS SEIZED DIAMONDS TO BE SOLD AT CHRISTIE'S AUCTION
Treasury Under Secretary for Enforcement Raymond W. Kelly will deliver remarks on
Wednesday, April 1 at 9:30 a.m. about a U.S. Customs Service case that resulted in the seizure
and forfeiture ofa collection of33 rare diamonds that will be sold at Christie's.
Proceeds from Christie's April 6 and 7 auction of the diamonds, estimated between
$400.000-500,000, will go to the Department of the Treasury to support law enforcement efforts
including crime prevention and drug abuse programs.
DATE:

Wednesday, April 1, 1998

tIME:

9:30 a.m.

PLACE:

Christie's
502 Park Avenue
New York, NY
-30-

RR-2329

For pren releases, speeches, public schedules and official biographies, call OUT 24-hour fax line at (202) 622-2040

DEPARTMENT

OF

TREASURY

THE

TREASURY

NEWS

~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

..............................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622.2960

FOR IMMEDIATE RELEASE
March 30, 1998

Contact: Dan Israel
(202) 622-2960

u.s. AND KOREA TO NEGOTIATE NEW INCOME TAX TREATY
The United States and the Republic of Korea will begin negotiations of a new income tax
treaty in Seoul on November 9, 1998. The new treaty would replace the treaty currently in force
between the two countries, which was signed on June 4, 1976.
There have been substantial changes in the tax laws of both countries during the past
twenty years and the present treaty no longer adequately reflects current treaty policies of the
United States or of Korea. The negotiations will be based on the U.S. and Korean model treaties
both of which draw heavily on the OECD model. The treaty will deal with the taxation of income
from business activities, investment, and personal services derived by residents of one country
from the other. It will contain provisions to avoid double taxation, to ensure nondiscrimination,
and to prevent abuse of the treaty. It will also provide for exchange of information and other
administrative cooperation between the tax authorities of the two countries.
The Treasury Department invites comments from the public regarding the upcoming
negotiations. Persons wishing to comment on the proposed treaty are invited to send their written
comments to Joseph H. Guttentag, Deputy Assistant Secretary (International Tax Affairs), Room
1334 Main Treasury, Washington, D.C. 20220. They may also submit comments by fax to (202)
622-0605.
-30RR-2330

Far press releases, speeches, public schedules and official biographies, call our 24.1zour fax line at (202) 622-2040

PUBLIC DEBT NEWS
-Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE

Office of Financing
202-219-3350

March 30, 1998

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
April 02, 1998
July 02, 1998
912795AA9

Term:
Issue Date:
Maturity Date:
CUSIP Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
------

Low
High
Average

5.040%
5.055%
5.050%

Investment
Rate 1/
---------S.176%5.192%
5.188%

Price
------

98.726
98.722
98.723

Tenders at the high discount rate were allotted

35%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)

$

Competitive
Noncompetitive
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

30,321,759
1,249,240

$

$

4,218,254
1,249,240

31,570,999

5,467,494

3,607,430

3,607,430

795,700

795,700

o

o

TOTAL

L/

Accepted

Tendered

Tender Type

35,974,129

Equivalent coupon-issue yield.

RR-233l

http://www .pub Iiell chUn·as. go"

$

9,870,624

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
March 30, 1998

CONTACT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:

182-Day Bill
April 02, 1998
October 01, 1998
912795AL5
RANGE OF ACCEPTED COMPETITIVE BIDS:

Discount
Rate
Low
High
Average

------

5.060%
5.080%
5.075%

Investment
Rate 1/

Price

------

---------5.265%

97.442
97.432
97.434

5.286%
5.282%

Tenders at the high discount rate were allotted

31%.

}MOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered

Tender Type
Competitive
Noncompetitive

$

Accepted

24,824,475
1,104,981

$

4,033,475
1,104,981

PUBLIC SUBTOT.r.,L

25,929,456

5,138,456

Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

3,620,000

3,620,000

2,130,000

2,130,000

o

o

$

TOTAL

31,679,456

1/ Equivalent coupon-issue yield.

RR-2332

hUp :llwww.plIhl icd cht. trl'~ls.gov

$

10,888,456

OFFICE 01-' PUBLIC AFFAIRS -ISOO PENNSYLVANIA AVENUE, N.W .• WASHINGTON. D.C.- 10220. (202) 622.2960

EKBARGOED UNTIL 2: 3 a P. M.

CONTACT:

Marc:h 31, 1998

Office of Financing
202/2l.9-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills totaling
approximately $13,000 million, to be issued April 9, 1998. This offering will
result in a paydown for the Treasury of about $2,150 million, as the maturing
publicly held weekly bills are outstanding in the amount of $15,151 million.
In
accounts
weighted
to these

addition to the public holdings, Federal Reserve Banks for their own
hold $',069 million of the maturing bills, which may be refunded at the
average discount rate of accepted competitive tenders. Amounts issued
accounts will be in addition to the offering amount.

Federal Reserve Banks hold $2,960 million as agents for foreign and
international monetary authorities, which may be refunded ~ithin the offering
~~~t at the weighted average discount rate of accepted competitive tenders.
Additional amounts may be issued for sllch accounts if the aggregate amount of
new bids exceeds the aggregate amount of maturing bills.
Ta~ders for the bills will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D.C. This offering
of Treasury securities is governed by the terms and conditions set forth in the
Uniform Off~ring Circular (31 CFR Part 356, as amended) for the sale and issue
by the Treasury to the public of marketable Treasury bills, notes, and bonds.

Details about each of the new securities are given in the attached offering
highlights.
000

Attachment

RR-2333

For press rdeases, speeches. public sched.. les and official biographies, call our 24·hour fax line at (201) 612-1040

nIGIlLIGHTS OF TREASURY OFFRRINGS OF WEP;P:LY BILLS
TV

1:)1:1;

.L~~Ujl;U

IU'H.Ll.

':J,

..l..YYlI

March 31, 1999
Offedng~~nt

. . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,750 million

~~Bcript!on o£ Offering.
Term and type of security . . . . . . . . . . . . . . . . . .
COSIP nwnber ..... '" . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . • . . . . .
Original issue date .................••...•.
Currently outstanding . . . . . . . . . . . . . . . • • . . . . .
Minimum bid amount . . . • . . . . . . . . . . . . . . . . . . . . .
Multiples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The following

~u1e~

a~~y

to all

91-day bill
912795 AB 7
April 6, 1999
April 9, 1999
July 9, 1990
January 8, 199B
$12,175 8'\ill10n
$10,000
$ 1,000

$7,150 million
le2-day bill
912795 AN 3

April 6, 1998
April 9, 1998
October 8, 1998
April 9, 1998
$10,000
$ 1,000

@ecuritie~_~en~ione~~bovel

~~~is~ion

of BJ~~:
Noncompetitive bids . . . . . . . . . . . . . . . . . . . . . . . . Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids.
Competitive bids . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
Must be expressed as a discount rate with three decimall, i n
increments of .005%, e.g., 7.100%, 7.105%.
(2)
Net long position for each bidder must be reported when h
t e
surn of the total bid amount, at all discount rates. and h
t •
net long position is $~ billion or greater.
(3)
Net long position must be determined as of one baif-houl
prior to the closing time for receipt of competitive tef

~dex ••

Max!~

Recognized Bid
llt a Single Yield . . . . . . . . . . . . . . . • . . . . . . . 35% of public offering

MaKimum Award . . . . . . . . . . . . . . . . . . . . . . . . . - .... 35% of public offering

Receipt of Tenders!
Noncompetitive tenders . . . . • . . . . . . . . . . . . . . . . Prior to l~IOO noon Eastern Daylight Saving time on
auction day
Competitive tenders . . . . . . . . . . . . . . . . . . . . . . . . Prior to 1.00 p.m. Eastern Daylight Saving time on
auction day
Payment Terms . • . . . . . . . . . . . . . . . . . . . . . • . . . . . . Full pa~ent with tender or by charge to a funds account
at a Federal Reserve Bank on issue date

DEPARTMENT

OF

THE

TREASURY

TREASURY

NEWS

OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C .• 20220. (202) 622-2960

EMBARGOED UNTIL 9:30 A.M. EST
Text as Prepared for Delivery
April 1, 1998

TREASURY SENIOR ADVISOR TO THE UNDER SECRETARY
FOR DOMESTIC FINANCE GERALD MURPHY
HOUSE GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE ON
GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY

t\1 r Chairman and members of the Subcommittee, I am pleased to appear today to discuss matters
involving the first Consolidated Financial Statements of the US. Government (CFS).

BACKGROUND
The Department of the Treasury has been and continues to be a strong proponent for the
development of financial statements for Government agencies. This is the first time audited
consolidated financial statements are required to be prepared on a government-wide basis. The
statements are intended to provide the President, the Congress, and the American people with
information about the Government's financial position, the cost of its operations and its sources of
tinancing They are the capstone of a process which began eight years ago as a result of legislation
originating with this Committee.
In 1990, Congress passed the Chief Financial Officers (CFO) Act which required the
preparation and audit of financial statements for certain agencies and components of agencies.
That same year, the Office of Management and Budget COMB), Treasury and the General
Accounting Office (GAO) created the Federal Accounting Standards Advisory Board (FASAB).
This body has created a comprehensive set of accounting standards tailored to the unique
characteristics and needs of the Federal Government. The Government Management Reform Act
\Vas passed requiring that the Federal Government's 24 largest departments and agencies produce
audited financial statements beginning in FY 1996 Agency statements are due March 1. The first

RR-2334

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

Consolidated Financial Statements for FY 1997 are based on the financial statements prepared by
Federal agencies under those statutes and the new accounting standards.

THE ROLE OF THE DEPARTMENT OF THE TREASURY

The Government Management Reform Act of 1994 (GMRA) requires that not later than
March 31 of 1998 and each year thereafter, the Secretary of the Treasury, in coordination with
the Director of the Office of Management and Budget, shall annually prepare and submit to the
President and the Congress an audited financial statement for the preceding fiscal year, covering
all accounts and associated activities of the executive branch of the United States Government.
The financial statement shall reflect the overall financial position, including assets and liabilities,
and results of operations, of the executive branch ofthe United States Government, and shall be
prepared in accordance with the form and content requirements set forth by the Director of the
Otlice of Management and Budget. The Government Management Reform Act also requires the
Comptroller General of the United States to audit the CFS.

THE PREPARATION OF THE CFS

In order to prepare the CFS by the statutory due date, it was necessary to request agency
trial-balance data by February 15. Much of this information had not yet been audited but was
transmitted to the Financial Management Service (FMS) electronically so we could get started.
Subsequent audit adjustments were accepted, but not all agencies had completed audits when we
clnsed oLlr books to meet the statutory due date.
The data transmitted needed to be standardized throughout the Federal Government to
<lllo\V for summarization at the government-wide level. This standardization was accomplished by
r~qlliring

agencies to use the U.S. Government Standard General Ledger (SGl). The SGl is
maintained by FMS and is required for agency level accounting and reporting as well as
government-wide reporting. Without the SGL, data could not be sumlllarized for the CFS.
Approximately 2000 individual reporting components, each with many account balances, were
telecommunicated to Treasury via our FACTS system. Without the electronic transmission
svsttll1, data could not have been collected and processed quickly enough to meet the statutory
due date.
The size and complexity of the CFS preparation process far exceeded any previous
financial consolidation effort. The data came from the 24 CFO Act agencies and many more
smaller ones. Each agency acts as an independent financial entity and maintains its own financial
system. To consolidate data from all these variolls systems was a daunting task.
However, it is not enough to collect the data and be able to summarize it. There has to be
a reporting model. The Government Management Reform Act specified that orvrn set forth the
form and content requirements for the CFS. The CFS prepared by the Department of the Treasury

conforms to OMB's form and content requirements. The reporting model used was recommended
by FASAB and prescribed by OMB.

DISCUSSION OF THE CFS

General
The U.S. Government has continuing responsibilities for the general welfare of its citizens
and for the national defense. It also has unique access to financial resources in that it has the
power to tax, to borrow and to create money. The Fiscal Year 1997 Consolidated Financial
Statements of the United States Government represent the Federal Government's first effort to
prepare, in accordance with new Federal accounting standards, financial statements that include
all of its vast and complex activities and to subject the financial statements to the rigors of an
independent audit.
The publication of the audited financial statements represents yet another stage in the
Clinton Administration's continuing efforts to improve the management and efficiency of the
United States Government. In 1994, the Administration strongly supported the Government
l\1anagement Reform Act, which mandated the issuance of the audited financial statements.
Despite the substantial progress that has been made, however, further improvements are clearly
necessary. The audit report from GAO discusses many areas in which the reliability of the current
tinancial statements must be enhanced and improved. As a result, GAO was unable to render an
opinion on these statements.
The FY 1997 Consolidated Financial Statements are the first step in an effort to provide
the President, the Congress and the American people with reliable information about the financial
position of the United States Government on an accrual basis, the net cost of its operations, and
the tinancing sources used to fund these operations. The United States Government does not
ha\'e a single bottom line that reflects its financial status but the information included in the
statements provides a view of the Government's finances that has not previously been available.
The tinancial statements consist of Management's Discussion and Analysis (i\1D&A), a Balance
Sheet, a Statement of Net Cost, a Statement of Changes in Net Position, Notes to the Financial
Statements, and Supplementary Information, which includes a stewardship section.
Rep0l1ing Entity and Basis of Accounting
The financial statements include the executive branch and limited information from the
legislative and judicial branches of the Federal Government. Information from the legislative and
judicial branches is limited because they are not required to prepare financial statements covering
all activities. For example, the property, plant, and equipment of the judicial branch and the
Congress are not reflected in the statements. Excluded because they are privately owned are
Government-sponsored enterprises such as the Federal Home Loan Banks and the Federal
National Mortgage Association. The Federal Reserve System also is excluded because
organizations and functions pertaining to monetary policy are separate from and independent of

the other central government functions.
At the time Congress passed the CFO Act which required the preparation and audit of
financial statements for selected components, the Federal Government did not have a
comprehensive set of generally accepted accounting standards. The three principals concerned
with overall financial management in the Federal Government (the Secretary of the Treasury, the
Director of OMB, and the Comptroller General) created the Federal Accounting Standards
Advisory Board (FASAB) to address this need. The accounting standards developed by FASAB
are tailored to the Federal Government's unique characteristics and special needs. Consequently
net costs, rather than profit, are used as the primary financial measure for assessing efficiency and
em~ctiveness. Although FASAB completed work on the basic set of Federal Financiai
Accounting Standards (FF AS) in 1996, some of the standards did not become effective until
Fiscal Year 1997 and others will become effective in Fiscal Years 1998 and 1999. Therefore,
agencies are faced with improving systems while the requirements are changing.
CONCLUSION
Since passage of the CFO Act in 1990, much has been accomplished. There is now a
comprehensive set of accounting standards in place. For the first time in its history, the Federal
Government has prepared and subjected to audit consolidated financial statements covering all its
vast and complex programs and activities. The 24 agencies subject to the CFO Act are issuing
audited agency wide financial statements. Government corporations subject to the Government
Corporation and Control Act also are issuing audited financial statements. While these
accomplishments are significant, th.ey are just a beginning.
The Administration has designated financial management as one of the President's priority
management objectives. The Administration has expressed its commitment to assuring the
integrity of Federal financial information and gaining an unqualified opinion on the 1999
Consolidated Financial Statements of the United States Government. For the Administration to
achieve these objectives, agencies must improve the quality of their financial information. Agency
commitment to the Administration's objectives is reflected in OMB's Federal Financial
Management Status Report and Five-Year Plan. That document sets forth the dates by which
agencies have pledged to submit timely financial statements with unqualified audit opinions.
Weaknesses in agency accounting practices and financial management systems are the
fundamental cause of problems that precluded the auditor from rendering an opinion on the FY
1997 Consolidated Financial Statements. Actions to correct these weaknesses have been
identified and are being implemented. OMB, Treasury, and GAO are working with the major
credit agencies to improve reporting of loans and loan guarantees.
In addition, Treasury plans to step up its efforts with agencies to ensure effective cash
disbursement reconciliations by providing frequent analysis of budget clearing accounts so that
cash receipt and disbursement differences can be promptly resolved.
Treasury and OMB are coordinating efforts to resolve the problems agencies are having in

eliminating transactions with other Federal agencies Guidance and requirements will be provided
to enable agencies to capture information needed to reconcile balances with their Federal trading
partners. Treasury will also begin the modification of its systems to support agency efforts.
Finally, Treasury will increase its formal and informal training of agency financial
management personnel. The training will address common errors identified in agency information
llsed in the preparation of the Federal Government's 1997 Consolidated Financial Statements
Thank you, Mr Chairman. This concludes my formal remarks. I will be happy to respond
to any questions.
-30-

DEPARTMENT

OF

THE

TREASURY

1789

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASillNGTON, D.C .• 20220. (202) 622-2960

EMBARGOED UNTIL 1 P.M. EST
Text as Prepared for Delivery
April 1, 1998

TREASURY ASSISTANT SECRETARY (ENFORCEMENT) JAMES E. JOHNSON
HOUSE BANKING AND FINANCIAL SERVICES SUBCOMMITTEE ON GENERAL
OVERSIGHT AND INVESTIGATIONS

illtroductioll

Mr. Chairman, Congressman Sanders, and Members of the Subcommittee, thank you for
providing me with the opportunity to ap'pear before you today to present the views of the
Treasury Department on the Financial Crimes Enforcement Network, commonly known as
FinCEN. My testimony today will address FinCEN's role in Treasury's efforts against money
laundering and related financial crimes
As you know, money laundering allows drug traffickers, arms smugglers, tax cheats, and
many other criminals to fund and profit from their illicit activities. At a recent Summit of the
Americas, Secretary Rubin called for an international commitment to stop those attempting to
"wash the blood otf the profits" from crime and drugs. Because of the harms that can be caused
or facilitated as a result of money laundering, Secretary Rubin and Under Secretary Kelly have
worked to ensure that the Treasury Department assigns top priority to combating money
laundering and other financial crimes. By deterring or detecting money laundering activities, law
enforcement and regulators working in partnership can attack the criminal activities generating the
illicit funds.
Over the past few years, money laundering has gained increasing attention as an
enforcement problem. Mr. Chairman, your efforts and those of this Subcommittee to focus
attention on financial crime have helped us execute a comprehensive strategy against money
laundering and other fmancial crimes. We paI1iculariy appreciate your support of Treasury's
recent Geographic Targeting Orders focused on preventing illicit funds transfers to Colombia and
the Dominican RepUblic.
RR-2335

Far press releases, speeches, public schedules and offirial biographies, call our 24-hour fax line at (202) 622-2040

FinCEN's work to combat money laundering and financial crime reflects Treasury's threepronged approach to this criminal problem. First, through outreach, partnerships with industry,
and regulatory programs, FinCEN helps us prevent money laundering and financial crimes before
they occur. Second, FinCEN's case support advances, and in some instances, precedes criminal
investigations by Customs, the Internal Revenue Service's Criminal
Investigation Division, and others, and Treasury works with the Department of Justice to
prosecute offenders who break through our defenses against money laundering and financial
crime. Third, we recognize that money laundering and financial crimes are global problems
because of the increasing mobility of capital. As a result, Treasury and FinCEN have enlisted
valuable international support and promoted anti-money laundering measures worldwide.
Our strategy is designed to take advantage of the important synergies that emerge from
criminal investigation and regulatory enforcement. At the same time, our strategy recognizes the
need for flexibility. As law enforcement officials and regulators have responded to the challenge
of fighting these crimes, the techniques used by criminals to place dirty money into the financial
system and conceal its origins have evolved. In response to these developments, Treasury and
FinCEN have continued to innovate and improve upon our efforts.
li'e((SlIIY and FillCEN 's Strides to ('omhaf MOlley Laulldering

Since FinCEN was founded in 1990, it has been a key player in broad-based efforts against
money laundering and related financial crimes. In 1995, FinCEN merged with Treasury's Office
l)f Financial Enforcement and gained the responsibility for administration of the Bank Secrecy
Act. FinCEN's mission is to provide law enforcement case support to assist in the investigation
of money laundering and related financial crimes~ to develop and administer regulations aimed at
preventing and detecting money laundering and to pursue civil enforcement against violators of
these rules~ and to strengthen overall domestic and international efforts against money laundering.
The scope ofFinCEN's responsibilities has expanded substantially since it was first
FinCEN's resources have remained relatively unchanged. Nevertheless, it has achieved
notable successes in its efforts against money laundering. Mr. Baity, Former Director Stanley
Morris, and the women and men ofFinCEN should be commended for their accomplishments.
created~

FinCEN's Information Resources
FinCEN's law enforcement case support has always been central to its mission. In order
to support law enforcement, FinCEN oversees the collection and dissemination of four significant
currency and monetary instrument reports, the Currency Transaction Report (eTR), Currency
Transaction Reports for Casinos (CTRC), Currency and Monetary Instrument Reports (CMIR),
and Foreign Bank Account Records (FBAR). Data from these reports can be vital to criminal
II1vestigations. Data are made available to all major federal law enforcement agencies, and to
state and local law enforcement agencies through the Gateway system.

2

The Suspicious Activity Reporting System (SARS) is another important contribution that
FinCEN has helped to provide. The system can rapidly provide law enforcement and regulators
with information on suspicious transactions that may merit further investigation. The system
represents the culmination of longstanding efforts by members of this Subcommittee, regulators,
law enforcement, and the private sector to standardize and simplify the reporting of suspicious
tinancial transactions. Since the system became operational in April 1996, FinCEN has received
nearly 150,000 SAR forms.
FinCEN also provides federal, state, and local law enforcement with information from
commercial databases including information on property, assets, and other areas. While some of
these resources may be available elsewhere, only FinCEN provides law enforcement agencies with
comprehensive access to a full range of property and asset records in addition to the proprietary
BSA and SAR information. In addition, FinCEN makes available certain key federal law
enforcement databases to appropriate requesters.
All of these information sources complement each other. While a single transaction
described in a Suspicious Activity Report may not provide enough to justify an investigation, it
could prove significant when taken together with information from Currency Transaction Reports,
commercial property records, and criminal investigation databases.
Accessing FinCEN Data
FinCEN provides a range of ways to help law enforcement use these resources
appropriately, including internal FinCEN platforms, detailees based at FinCEN, the Gateway
system for state and local law enforcement agencies, and direct requests.
FinCEN's general platform systems provide law enforcement agencies direct access to its
databanks, including Bank Secrecy Act Reports, Suspicious Activity Reports, and commercial
databases. Federal law enforcement agencies also provide detailees (currently about 40 in
number) that leverage and complement FinCEN's analytical resources, in addition to facilitating
their home agencies' ability to use FinCEN information
The Gateway program provides state and local law enforcement agencies with access to
FinCEN database resources (including financial, law enforcement, and commercial databases) to
assist in investigations. Through the Gateway program, state and local enforcement agencies
receive a direct, secure link to FinCEN's information resources. State Gateway coordinators help
monitor and support use of the system to help ensure that users benefit from FinCEN's
capabilities. As the recent GAO study on FinCEN's products and services notes, the Gateway
system received nearly 60,000 queries during 1997.

3

In addition, FinCEN is developing the capacity to provide comprehensive strategic
analysis capability of money laundering and related financial crimes to federal, state, and 10c~1 law
enforcement agencies. FinCEN also responds to direct queries from law enforcement agencIes
concerning both tactical and strategic issues involving money laundering, financial crime, and
related crimes.
Thus, FinCEN' s information available to a wide range of appropriate law enforcement and
regulatory agencies. Our evaluations indicate that this information can prove invaluable to law
enforcement.
Regulatory Responsibilities
Regulatory responsibilities have been a key component ofFinCEN's mission since its 1995
merger with the Office of Financial Enforcement. For example, FinCEN, working with the SARS
Owners Group (consisting of regulatory agencies) and the SARS Users Group (consisting oflaw
enforcement agencies) developed mles for the SAR system that will apply to most financial
institutions throughout the nation in the near future.
The list of new mandates under the Annunzio-Wylie Anti-Money Laundering Law and the
Money Laundering Suppression Act was prodigious. As a result, FinCEN and Treasury are
continuing their efforts to fulfill this mandate. Since FY 1995, FinCEN has issued seven final
fules, an interim mle, and ten proposed mles. Some of these undertakings, such as the issuing of
a rule covering Money Services Businesses (MSB 's), have required FinCEN to carefully study an
industry in order to provide a framework for regulation that strikes an effective balance between
la\v enforcement interests and financial efticiency.
International Programs
FinCEN's case support and regulatory activities have been complemented by significant
achievements in the international arena. Together, Treasury and FinCEN have helped put money
laundering issues on the map. FinCEN has directly played an important role in the Department's
pursuit of multilateral agreements and organizations that encourage, evaluate, and provide
technical assistance to member nations in combating money laundering. The FATF now
encompasses 26 countries, with more members in the process of approval. Among other valuable
activities, the FA TF has developed 40 recommendations designed to reduce money laundering in
member coulltries, and undertakes a program of mutual evaluations to assess members' antimoney laundering programs. FinCEN has played a pivotal role in the development ofFATF.
Indeed, during the U.S. Presidency of the FATF, FinCEN provided then Under Secretary Noble
with support necessary to implement amendments to the 40 recommendations.
FinCEN has also been instrumental in developing regional anti-money laundering
international groups in regions such as Asia and the Caribbean. In recent years, Treasury and
4

FinCEN have used regional summits, such as the Summit of the Americas, as a vehicle to raise
awareness of the threat posed by money laundering and to promote the development of defenses
against money laundering.
In the last few years, FinCEN has taken major steps to provide technical assistance leading
to the development of Financial Intelligence Units (FlU's) throughout the world. As they

develop, these flU's have tremendous potential on two fronts. First, they can help participating
nations combat money laundering directly, thereby making those nations' financial systems a less
attractive alternative for money laundering. Second, at a time when financial networks allow
rapid funds transfers between countries, FlU's in other nations can provide U.S. law enforcement
with valuable information to assist in the investigation of financial criminals. To facilitate this
exchange of information, FinCEN has secured memoranda of understanding (MOU's) with
thirteen countries and is continuing to develop these agreements with other nations. In addition,
FinCEN has worked over the last few years to provide training and technical assistance through
the Egmont Group, an international organization of FlU's.
FJI//(fJlcillg FiIlCEN's Effectivelless: rreaslllY Illitiatives alld GAO Reports
We recognize, of course, that there is room for improvement in the execution ofFinCEN's
mission. As money laundering has garnered increasing attention throughout the enforcement,
regulatory, and financial communities, FinCEN has had to respond in mUltiple ways, prioritizing
scarce resources in order to meet its obligations In the context of these challenges, we view the
recent and ongoing GAO studies as a source of valuable assessment ofFinCEN's effectiveness
and future direction.
As part of our ongoing oversight, management, and policy development responsibilities,
Treasury has initiated comprehensive steps to review financial crime enforcement. While not yet
complete, the review process has helped us identifY key areas where FinCEN could improve in the
context of Treasury's overall efforts to combat financial crime. These steps complement existing
oversight, including weekly meetings between senior FinCEN management and the Office of
Enforcement, and daily briefings on significant developments provided by a FinCEN
representative to Under Secretary Kelly or his designee. Treasury was integrally involved in
developing the Geographic Targeting Order focused on money transfers to Colombia and the
Dominican Republic, and has played an important role in developing regulations.
Although FinCEN effectively serves numerous law enforcement agencies and
investigators, we recognize that case support and coordination can always improve. Consistent
with the recommendation of the recent GAO study ofFinCEN's products and services, FinCEN
will work to further communicate its capabilities to its potential customers. In recent years, this
customer base has grown as the level of attention devoted to money laundering has expanded.
Increasingly, law enforcement agencies at all levels have begun to recognize that money
laundering is their problem -- and we intend to let them know how FinCEN can help in this fight.

5

FinCEN's participation in the Interagency Coordination Group, or lCG, highlights the
value of coordination efforts. The purpose of this group is to share money laundering intelligence
in order to promote multi-agency money laundering investigations. The group includes the
Internal Revenue Service, the U.S. Customs Service, the U.S. Secret Service, the Drug
Enforcement Administration, the Federal Bureau ofInvestigation, and the United States Postal
Service. FinCEN and the Department of Justice's Criminal Division serve as advisors to the
group. FinCEN provides a central site for the group's operations and the support of analysts who
provide research and analysis of the intelligence information generated by the group.
Another useful vehicle for outreach and policy coordination is the Money Laundering
Working Group co-chaired by the Departments of Treasury and Justice. This group addresses
policy and coordination issues relating to money laundering, and provides an additional means for
FinCEN to gather information to improve its products and services to law enforcement.
The GAO study on products and services also highlights the need for FinCEN to continue
stringent safeguards against potential misuse of its confidential law enforcement databases.
Although we believe that FinCEN's current policies in this regard are sound, we understand that
sometimes there appears to be a tension between the wide dissemination of information to
appropriate agencies and the prevention of information misuse. It is an area that merits continued
vigilance.
Even as FinCEN continues to expand its outreach and attempts to further improve the
products and services it offers law enforcement, we are encouraged by the survey included in the
GAO study on FinCEN's products and services. The survey indicates that fully 90% of
respondents using FinCEN's products and services believe that they provided leads, listed assets
not previously known, or were useful in other ways.
The GAO's current study of civil penalty enforcement at FinCEN will likely indicate what
oLlr own analysis is telling us -- that civil penalty enforcement through FinCEN could be more
efTective. While FinCEN's work with federal regulators, the Bank Secrecy Act Advisory Group
and its approach of industry partnerships can enhance compliance, more can be done.
We understand that the GAO study is underway to evaluate FinCEN's international role.
Because money laundering knows no borders, international efforts are an important component of
a comprehensive strategy to address money laundering and financial crime. Treasury and FinCEN
have worked together to coordinate and enhance international efforts to prevent money
laundering involving specific countries such as Mexico and Panama, as well as multilateral
organizations such as the FATF. Given the volume of requests for FinCEN assistance from
around the world, FinCEN and Treasury are committed to prioritizing their bilateral assistance
based on the nature of the money laundering threat and the prospects for a nation's substantial
improvement following FinCEN assistance.

6

The Department and FinCEN should build on successful efforts by targeting FinCEN's
participation strategically and developing enhanced assessments of its international work. We
look forward to the results of the study to complement our review of this facet ofFinCEN's
mission.
Finally, FinCEN must continually enhance its technological resources to meet both case
support and regulatory challenges. While FinCEN has already established its role in using
innovative information technologies and artificial intelligence targeting, efforts to improve these
tools must continue.
( '()//(:/IiSiOIl

The Treasury Department expects FinCEN to continue to playa central role in Treasury's
overall strategy of prevention, vigorous case support, and international cooperation. We look
forward to working with this Committee in order to further advance FinCEN's mission as we
work through this transition period and continue our efforts to improve.
In our role as overseers, Treasury will help FinCEN build on its strengths to better provide
dynamic, analytical case support in the fight against money laundering and related financial crimes.
Indeed, Treasury's efforts to combat money laundering depend on FinCEN's continuing success.
We look forward to the completion of the remaining GAO studies on FinCEN to complement our
own internal review of financial crime enforcement at Treasury.
Again, thank you, Mr. Chairman, for your continuing support and interest in our program.
-30-

OFFJCE

or PUBLIC An'AIRS -1500

PENNSYLVANJA ,+.VENU£. N.W.e WASHINCTON, D.C,e lOl20 e(202) 622.2960

lin L§s6

~GOED

UNT!L 2:30 P.M.

CON'l'ACT:

March 31, 1998

Office of Financing
202/219-3350

T~SURY

TO AUCTION CASH MANAGEMENT BILLS

The Treasury will auction approximately $19,000 million of 13-day
Treasury cash management bills to be issued April 3, 1998.
Competitive and noncompetitive tenders will be received at

~ll

Federal

Reserve Banks and Branches. Tenders will not be accepted for bills to be
maintained on the book-entry recorda of the Department of the Treasury
(TREASURY DIRECT).
Tenders will not be received at the Bureau of the Public
Debt, washington, D.C.
Additional amounts of tbe bills may be issued to Federal Reserve Banks
as agen~s for foreign and international monetary authorities at the average
price of accepted competitive tenders.

Thi3 offering of Treasury securities is governed by the ter.ms and
conditions set forth in the Uniform Offering Circular (31 CFR Part 356, as
amended) for the sale and issue by the Treasury to the public of marketable
Treasury bills, notes, and bonds.
Note that competitive bids in cash managemen~ bill auctions must be
expressed as a discount rate with two decimals, e.g., 7.10%.

Details about
highlights.

~e

new security are given in the attached offering

000

Attachment

RR-2336

For press releases, speeches, public schedules and official biographies, call our ].I-hour fax line at (202) 621-2040

IUGHLIGH1'S OF 1'REASORY Of'FERING

OF 13-DAY CASH MANAGEMENT BILL

March 31, 1998
Offering Amount • . . . . . . . . . . . . . $19,000 million
Description of Offering:
Term and type of security
CUSIP number . . . . . . . . . . . . . . . . .
Auc: tion date .•...••..........
Issue date ••.•...............
Mat:uri ty date . . . . . . . . . . . . . . . .
Ori9ina~ i~~ue da~e . . . . . . . . . .
CUrrently outstanding . . . . . . . .
Minimum bid amount . . . . . . . . . . .
MUltiples • . . . • . . . . . . . . . . . . . . .
Minimum to hold amount .......
Multiplee to bold ....•.••.••

Noncompetit:ive bids

Competitive bids .•.•..... (1)

(2)

(3)

13-day Cash Management Bill
912794 6L 3
April 1, 1998
April 3, 1998
April 16, 1998
occober 16, lS~7
$45,817 million
$10,000
$ 1,000
$10,000
$ l,OOO

Accept:ed Ln full up to $1,000,000 at
the average discount rate of accepted
competitive bids
Must be expressed as a discount rat:e
with two dec:imals, e.g .• 7.10%.
Net long position for eac:h bidder must
be reported when the sum of the total bid
amount, at all discount rates, and the
net long position is $1 billion or
greater.
Net long position must be det:ermined as
of one half-hour prior to the closing
time for receipt of competitive tenders.

~aximum Reco~ized

Bid
at a Single Yield .••.•.... 35\ of public offering

Maximum Award . . . . . . . . . . . . . . . . 35\ of public offering
Receipt of Tenders:
Noncompetitive tenders

Compe~icive

Prior to 12:00 noon Eastern Standard
time on auction day

cenders •......... Prior to 1:00 p.m. Eastern Standard
time on auction aay

Payment Terms ....•...••...•.. Full payment with tender or by charge to
a funds account at a Federal Reserve Bank
on issue date

DEPARTMENT

TREASURY

OF

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622.2960

FOR IlVllv1EDIATE RELEASE
April 1, 1998

Contact: Beth Weaver
(202) 622-2960

CHRISTIE'S TO AUCTION DIAMONDS SEIZED BY U.S. CUSTOMS SERVICE
In the first-ever partnership between the Treasury Department and Christie's, Treasury
Under Secretary for Enforcement Raymond W. Kelly announced today that the auction house will
sell a collection of33 rare diamonds seized by the U.S. Customs Service from an infamous drug
smuggler.
The diamonds, which are valued between $400,000 and $500,000, will be sold by
Christie's to benefit Treasury's Asset Forfeiture Fund which supports federal, state and local law
enforcement efforts including crime prevention and drug abuse programs.
"Treasury's forfeiture program destroys the building blocks that support drug traffickers
and takes the profit out of crime," said Under Secretary Kelly. "The 33 diamonds ranging in
value from $2,000 to $120,000 represent this drug dealer's bank where he stored his ill-gotten
gains. "
The investigation leading to the diamonds seizure is the story of a 12-year manhunt
involving drug smuggling, secret bank accounts in Switzerland and Liechtenstein and international
communications.
In 1982, Customs agents discovered that Stephen William Jenks, the former diamonds
owner, and his organization had been involved in at least 17 drug smuggling ventures bringing
some 55,000 pounds of marijuana from Colombia to Florida between 1978-1982. Upon learning
he was under investigation, Jenks and his girlfriend fled to Europe where they lived for the next
12 years.
Jenks returned to the United States using false identification and was again living in
Florida with his now wife. Jenks was using an elaborate communications system of false maildrops to communicate with his associates when law enforcement authorities traced a call to Fort
Meyers, Florida.
On July 23, 1994, Jenks was arrested by Customs agents at a trailer park. Jenks pled
guilty to four counts of drug trafficking, conspiracy and tax evasion. He was sentenced to three
RR-2337

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

years in federal prison and agreed to forfeit all his property financed by drug money including the
33 diamonds.
The diamonds, referred to as fancy colored diamonds, range in size from a quarter carat to
more than three carats Their cuts are rectangular, marquise, oval, circular and heart-shaped.
Their colors run the spectrum from the near colorless to intense purplish-pink to intense yellow.
There's even a highly valuable and equally rare blue diamond.
Christie's will auction the diamonds on behalf of the Treasury Department on April 6 and
7 in New York.
For more information on future U.S. Treasury auctions, please call 703-273-7373 or
check our website at www.ustreas.gov/auctions.
-30-

HAR-31-98 16.£6 PRO~:COMMUNICATION

PAGE

EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON. D.C. 20503

March 31, 1998
(House)

STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMENT liAS BEE~ COORDINATED BY

OMB WITH THE CONCER]l:ED AGENCIES.)

H.R 10. financial Seo:ices Act of1998 1

(Leach (R) lA and 3 cosponsors)

The Administration strongly opposes H.R. 10.
The Financial Modernization provisions ofH.R. 10 would: (1) stifle innovation and efficiency in
the national banking system~ (2) undermine the Community Reinvestment Act by forcing financial
innovation to occur in holding company affiliates rather than in bank subsidiaries; (3) diminish the
ability of communities and consumers to benefit from the financial system; (4) eliminate
advantageous features of the current thrift charter; and (5) impose needless costs on small banks.
If H.B. 10 were presented to the President in the form of the Republican Leadership
substitut~tbe Secretary of the Treasory would reCQmmend that it be yetQ~. The
Administration, however. would SUppOI1 House passage of the credit union provisions ofH.R.
1151 that have been included in H.R. 10 (excluding Section 402) on a stand-alone basis. The
Administration would look forv.rard to working with the Senate to improve the provisions of
HR. 1151_ The Administration favors expeditious Congressional action on credit union
legislation and believes such action should not be linked to controversies over financial
modernization.
With the inclusion ofH.R· 1151, RR. 10 would also provide for interest to be paid on reserves at
Federal Reserve banks (section 402 ofH.R. 1151 as reported). OMB estimates that these
pro'.isions would have an estimated pay-as-you-go cost of $800 million over five years, by
reducing the annual net income of the Federal Reserve, which is paid to the Treasury. I.hi£
represents a transfer ofr~QurcO' (rom the taxpayers to the bankine industry which canDot
be jUl\tified. The Administration understands that an additional provision has been added to H.R.
10 which would require the Federal Reserve to transfer retained earnings to the Treasury in an
amount sufficient to offset the pay-as-you-go effect of this provision of H.R 1151. The
Administration notes that the Senate-reported budget resolution repeats language in prior budget
resolutions prohibiting the scoring of savings from the transfer of Federal Reserve retained
earnings to the Treasury.

The AdmirUstration understands that the proposed rule for floor consideration ofR.R.
10 provides for the text ofR.R 1151, the "Credit Union Membership Access Act", to be inserted
into H.R. 10.
1

2/3

HAR-31-98

10:

It.·e.C rROH~CUMMUNICATION

PAGE

2
Pay-ArYou-Qo-Scoring
H.R. 10 is subject to the ·pay-as-you-go" (pAYOO) requirements oftbe Omnibus Budget
Reconciliation Act of 1990. The Administration's PAYGO estimate for this bill is under
development. As noted above, the provisions ofH.R. 1151 would increase the deficit for pay-asyou-go purposes by an estimated $800 million over five years. Unless its budget effects are
offset. enactment ofRR 10 couid contn"bute to a sequester of mandatory programs.

•••••••

federal financing
WASHINGTON, D.C. 20220

bankNE

FEDERAL FINANCING BANK

S
March 31, 1998

Charles D. Haworth, secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of February 1998.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $47.3 billion on February 28,
1998, posting a decrease of $980.7 million from the level on
January 31, 1998. This net change was the result of a decrease
in holdings of agency debt of $285.8 million, in holdings of
agency assets of $130.0 million, and in holdings of agency
guaranteed loans of $564.9 million. FFB made 60 disbursements
during the month of February. FFB also received 167 prepayments
in February.
Attached to this release are tables presenting FFB February
loan activity and FFB holdings as of February 28, 1998.

RR-2339

0
10
Ol
C\I

0

<'I
10

N
C\I

0

N

'"'"

CD

c\i
c\i

C\I
(I)

.n
~

C\I

(&J

0

('oj

Q: u.
u.

Page 2 of 4
FEDERAL FINANCING BANK
FEBRUARY 1998 ACTIVITY

BORROWER

DATE

AMOUNT
OF ADVANCE

2/2
2/2
2/3
2/3
2/3
2/4
2/6
2/6
2/9
2/10
2/10
2/10
2/10
2/11
2/11
2/11
2/12
2/12
2/12
2/13
2/13
2/17
2/17
2/17
2/17
2/18
2/18
2/19
2/19
2/20
2/20
2/23
2/23
2/23
2/24
2/24
2/24
2/25
2/25
2/25
2/26

$61,100,000.00
$450,000,000.00
$49,600,000.00
$115,000,000.00
$35,000,000.00
$31,200,000.00
$600,000,000.00
$50,000,000.00
$1,000,000,000.00
$25,190,000.00
$750,000,000.00
$50,000,000.00
$25,000,000.00
$39,900,000.00
$640,000,000.00
$50,000,000.00
$25,000,000.00
$50,000,000.00
$500,000,000.00
$39,400,000.00
$450,000,000.00
$78,400,000.00
$650,000,000.00
$50,000,000.00
$25,000,000.00
$23,700,000.00
$500,000,000.00
$255,000,000.00
$50,000,000.00
$23,900,000.00
$1,075,000,000.00
$21,160,000.00
$1,350,000,000.00
$50,000,000.00
$9,800,000.00
$1,200,000,000.00
$50,000,000.00
$29,700,000.00
$1,050,000,000.00
$50,000,000.00
$20,400,000.00

FINAL
MATURITY

INTEREST
RATE

AGENCY DEBT
U.S. POSTAL SERVICE
U.S.
U.S.
U.S.
U.s.
U. S.
U.S.
U.S.
U.S.
U. S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U. S.
U. S.
U. S.
U.s.
U. s.
U.S.
U. S.
U.S.
U.S.
U.S.
U.S.
U.s.
U.S.
U.S.
U.S.
U.s.
U.S.
U.S.
U.S.
U.S.
U. S.
U.s.
U.S.
U.S.
U.S.
U.S.

Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal

Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service

S/A is a Semi-annual rate.

2/3/98
2/3/98
2/4/98
2/4/98
2/4/98
2/5/98
2/9/98
2/9/98
2/10/98
2/11/98
2/11/98
2/11/98
2/11/98
2/12/98
2/12/98
2/12/98
2/13/98
2/13/98
2/13/98
2/17/98
2/17/98
2/18/98
2/18/98
2/18/98
2/18/98
2/19/98
2/19/98
2/20/98
2/20/98
2/23/98
2/23/98
2/24/98
2/24/98
2/24/98
2/25/98
2/25/98
2/25/98
2/26/98
2/26/98
2/26/98
2/27/98

5.509%
5.319%
5.509%
5.384%
5.384%
5.364%
5.269%
5.269%
5.298%
5.457%
5.343%
5.343%
5.343%
5.468%
5.332%
5.332%
5.343%
5.343%
5.343%
5.474%
5.342%
5.447%
5.349%
5.349%
5.349%
5.447%
5.322%
5.322%
5.322%
5.465%
5.331%
5.530%
5.340%
5.340%
5.520%
5.405%
5.405%
5.561%
5.395%
5.395%
5.592%

S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A

Page 3 of 4
FEDERAL FINANCING BANK
FEBRUARY 1998 ACTIVITY

ORROWER

DATE

AMOUNT
OF ADVANCE

2/26
2/26
2/27
2/27
2/27
2/27

$900,000,000.00
$50,000,000.00
$72,600,000.00
$835,000,000.00
$50,000,000.00
$25,000,000.00

2/27/98
2/27/98
3/2/98
3/2/98
3/2/98
3/2/98

5.436%
5.436%
5.569%
5.467%
5.467%
5.467%

S/A
S/A
S/A
S/A
S/A
S/A

2/3
2/6
2/9
2/24
2/26
2/27
2/27

$49,500.00
$1,641,090.00
$389,742.54
$171,935.15
$33,751.00
$215,789.78
$2,805,864.77

1/3/22
1/2/25
1/2/25
7/31/25
7/31/25
4/1/99
4/1/99

5.937%
6.014%
6.007%
5.987%
6.025%
5.565%
5.565%

S/A
S/A
S/A
S/A
S/A
S/A
S/A

2/18

$10,374,900.30

11/2/26

5.882% S/A

2/6
2/9
2/10
2/13
2/27

$300,000.00
$4,500,000.00
$3,310,000.00
$1,920,000.00
$736,000.00

1/3/28
12/31/31
12/31/31
3/31/08
1/2/18

5.980%
5.981%
6.010%
5.611%
6.438%

FINAL
MATURITY

INTEREST
RATE

GENCY DEBT
U.S. POSTAL SERVICE
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.

postal
Postal
Postal
Postal
postal
Postal

Service
Service
Service
Service
Service
Service

;OVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Miami Law Enforcement
Memphis IRS Service Cent.
Memphis IRS Service Cent.
Foley Services Contract
Foley Square Off ice Bldg.
Chamblee Office Building
Chamblee Office Building
GSA/PADC" rCTC Building
R~L

UTILITIES SERVICE

Delaware Co. Elec. #470
Coast Electric Power #471
Coastal Elec. #460
Holmew-Wayne Elec. #455
Marshalls Energy Co. #458
S/A is a Semi-annual rate:

Qtr. is a Quarterly rate.

Qtr.
Qtr.
Qtr.
Qtr.
Qtr.

Page 4

0

FEDERAL FINANCING BANK
(in millions)
Program

February 28,

Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
Bub-total*

$

Agency Assets:
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Utilities Service-CBO
Small Business Administration
sub-total*
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DoEd-HBCU
DHUD-tbmmunity Dev. Block Grant
DHUD-Public Housing Notes
General Services AdministratIon
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Utilities Service
SBA-State/Local Development Cos.
UlT-Section 511
sub-total*

1998

549.3
738.8
1.982.6
3,270.7

3,675.0
13,030.0
4.4
13.0
4,598.9

grand-total*
*[igures may not total due to rounding
+does not include capitalized interest

$

1998

Net Change
2/1/98-2/28/98

549.3
738.8
2,268.4
3,556.5

$

0.0
0.0

FY '98 Net Chal
1Q/1/97-2/28.
$

-74'

-~e5,a

- 631
1:

-285.8

-1,36:

0.0
-130.0
0.0
0.0
0.0

21,321.3

3,675.0
13,160.0
4.4
13.0
4,598.9
Q.Q
21,451.3

-130.0

-50

2,955.7
1.2
34.2
1,491.4
2,448.8
17.8
1,224.9
14,315.0
255.7

2,989.4
1.2
34.2
1,491.4
2,439.9
17.8
1,224.9
14,851.8
259.0

-9

Q.....J2

+

January 31,

- 50'

~

2.....2

3,2

22,748.7

23,313.6

-33.7
0.0
0.0
0.0
8.9
0.0
0.0
-536.9
- 3.3
0,0
-564.9

===:======

=========

=========

$ 47,340.7

$ 48,321.4

$

-980.7

-7
2

-8
-50
-1

-74

$ -2,60

From: TREASURY PUBLIC AFFAIRS

I: 29009

I)

EPA R T l\'I E N T

(»)i"

T II E

7-6-9B 2:56pm

p. 1 of 6

T l( E ,\ S IJ R Y

NEWS
-

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAAVENUE, N.W•• WASHINGTON, D.C•• ~0220 • (202) 622-2960

"Russia in 1998: Building A Pluralist Market Economy"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
US~Russia Business Council
Washington, DC
April!, 1998

Thank you. It is a pleasure to be here to discuss Russia's economic future with so many of the
people who are helping to shape it.

We meet after a week of surprises. Kremlin·watchers will debate what last week's events tell us
about where Russia is heading. But in the financial markets' calm reaction we already have a
powerful symbol of how far Russia has come. After years of reform, it is becoming a place where
political surprises are not necessarily economic ones; where personalities can matter less than
policies; where. you might say, Kremlinologists parse not the party line~ but the bottom line.
Credit where credit is due. Russia has weathered the recent stonns well. The authorities have
raised interest rates - not once, but twice, in November and more recently in February -- in
response to Asian shockwaves- And now yields on domestic GKOs are hovering around 30
percent: a good deal lower than they were last summer and well below the 45 percent-plus peak
of early February. In the meantime, Russia has clocked up another year of exchange rate stability,
and inflation now hovers at or below 10 percent year on year -- compared to 48 percent in 1996.

It is because Russia has managed these pressures so effectively that my focus today is not on
near-tenn questions of monetary management but the much longer term questions of institutional
refonn in Russia -- questions that go to the kind of capitalism Russia is trying to build.

I. The Evolution of Russian Capitalism

Many people invoke what might be called a "st.ag~s of capitalism" theory in thinking about the
development of a market system in Russia and other emerging economies. This notes that highly
concentrated ownership and public-private collusion -- what we might now call "crony
capitalism" has historically been a more or less inevitable part of moving toward mature
market institutions. Thus, the United States in the second half of the 19th century is often
RR-2340
r_

1 _
For jJrl!lS releases, speeches, Public schedules aM official biographies, roU OUT 24-hour fax line at (202) 622-2040

20009

From: TREASURY PUBLIC AFFAIRS

7-5-98 2:55pm

compared to the development of Russian capitalism in the fmal decade of this one.
It is certainly true that modem market institutions take time to develop: removing a price control
is easier than building a sOWld judicial system; unifying an exchange rate is easier than severing
old ties between government and business. But the notion that there are stages of capitalist
development that must be negotiated should not be groWlds for complacency. Nor should it be
allowed to slow the progress toward fostering strong market institutions -- in particular, the
strong protection of shareholder rights .- that will best promote investment and grovvth.

Russia aspires to rapid convergence - to achieving growth rates higher than we ever experienced
in the United States. If it is to have a prospect of achieving that rapid growth it is going to need to
progress faster in establishing market institutions than we ever did. What is more, the world in
which Russia is emerging is now altogether different:
•

today's econouries are different: they are economies built on the rapid flow of
information; on decentralized decision-making; on taking anonymous individuals at their
word;

•

the expectations of the populace are different, especially in Russia and other transition
economies. In the 19th century Americans had only the most minimal conceptions of the
state's role. Today, people in these countries have very different demands and
expectations. They have spent years in a system in which public schools, public health
and infrastructure and the provision of other public goods is taken for granted - and, in a
global economy) people are well aware of other governments' ability to provide these
things.

•

finally, and most critically, we live today in a hotter money world than we have ever done
before one in which investors choose governments, governments do not choose
investors. In a competitive global economy, countries will prosper long-tenn by building
transparent market-based systems that can attract foreign ca.pital and - most importantensure all the country's resources are allocated to the highest return use.
aA

Markets are important. But they are not enough. The central challenge facing Russia is make
government a constructive force in the economy and society. That will mean ensuring that
government can deliver those things that markets depend on -- but markets alone cannot provide.
In particular, only the government can enforce the law. Strong and transparent enforcement of
legitimate law is a critical imperative to building a strong civil society -- and, we are learning, an
equally critical imperative for achieving sustained growth.
The kind of system Russia needs to build -~ the kind of system many reformers have been trying
to build - is a system that would emphasize transparency and a clear separation between the state
and private enterprise. It would foster independent judiciaries, effective bankruptcy procedures

2

p. 2 of 5

~.

From: TREASURY PUBLIC AFFAIRS

20009

7-6-98 2:57pm

and other formal mechanisms for enforcing contracts and upholding the law. And it would
establish the rigorous accounting standards and protection of shareholder rights that today' s
global investors expect.

II. A Dangerous Alternative: the Risks of Relationship-Based Finance in Russia
In recent years an alternative has often been touted to the kind of transparent, rights-based
economic system that I have just described. Instead, many have pointed to a so-called "Asian"
approach to government and fmance as one better suited to achieve rapid growth in Russia. Such
an approach would favor centralized coordination of activity over decentralized. market
incentives and would involve government targeting of particular industries; a reliance on
relationship-driven finance rather than capital markets; and on informal rather than fonnal
enforcement mechanisms,
This "model" undoubtedly caricatures the experience of actual existing Asian economies. And it
leaves some very important, universal fimdamentals out: not least, high levels of savings and
education, sound macroeconomic policy and an effective bureaucracy. Indeed, economists have
found it difficult to establish how far these "Asian" features contributed to Asia's justly admired
miracle. But one lesson of recent events is clear: these policies can bring a country enormous
difficulties down the road.
'The dangers of an emphasis on insider interests can only increase when a COWltry lacks - as in
the case of Russia -- most of the other, universal fundamentals that the Asian economies enjoyed
for so long. In short, in the wake of the Asian crises; there could be no worse news to come out
of Russia than that after years of throwing off one defunct economic model~ it was on the verge
of entrenching another questionable one.

II An Agenda for Action
All of these considerations point to building a true open market economy In Russia by
strengthening three roles of government in particular: collecting taxes; developing an effective
financial system; and entrenching the rule of law.
1. Fiscal reform

Oliver Wendell Holmes famously said that taxes are the price we pay for civilization. In that
sense, Russia has in many ways been living on borrowed time. As President Yeltsin and others
have clearly recognized, at less than 9 percent ofGDP, the amount of tax revenues the federal
government was able to collect last year is at odds with the role the government and its electorate
envision for the state -- indeed, cannot credibly sustain the operations of the most minimal state.
There have been important steps in the right direction in recent months. in efforts to make
budgeting more transparent, to achieve much higher rates of tax collection and to advance the

3

p. 3 of 6

rrom:

INtASU~Y

PUBLIC AFFAIRS

7-0-98 2:58pm

enactment a new tax code. But an all-time high (ofR57.8 billion, or $9.6 billion) in wage arrears
last month and doubts about the ability to repeat January and February's impressive revenue
collection rates underline the need to keep up the momentum for change.
The long-term costs of an inability to raise taxes efficiently and balance the books are clear to all
in Russia:
•

in the reduced investment caused by continued high interest rates;

•

in the greater vulnerability to external shocks due to continued dependence on foreign
lending;

•

in the stunted development of small businesses. a sector that has played a vital role in
successful transitions elsewhere. but has been constrained in Russia by the inefficiency
and Wlcertainty associated with the tax system. Anders Aslund has noted that Russia has
only one officially registered enterprise for every 60 citizens, as compared with around
one in ten in Poland and Hungary;

•

and t worst of all. in a reduced faith in government and possible creation of a nationwide
culture of nonpayment.

By signing the 1998 budget and signaling both tax refonn and reducing arrears as major priorities
for the new cabinet President Yeltsin has encow-aged greater confidence that the future course of
Russian fiscal policy will be less perilous. But following through on these priorities -- and aJ) the
other elements of the fiscal action plan negotiated at the end of last year -- will be critical to
finally achieving strong investment and growth. And it will be critical to preserving investor
confidence at a time when patience for such vulnerabilities is in short supply the world over,
2, Financial seClor strengthening

While Russia lacks the high levels of foreign debt and other weaknesses we have seen in
Thailand and elsewhere, it shares with them the problem of a weak banking sector, This carries a
cost in the markets today by increasing perceived market risks. But the highest penalty is more
long-tenn -- in slower growth due to the inability to intermediate the long-term credit needed for
rapid investment.

By any reckoning in its first years of reform Russia has been overbanked and under regulated. As
a result, credit decisions and portfolios remain shackled to a short·tenn horizon. with only an
amount equal to 10 percent of GDP last year in lending to the nonfinancial sector. Meanwhile
borrowers are stuck trying to fund working capital and investment funds from other sources -notably arrears.
Russia's central bank has made real progress in recent .months toward putting a monger long4

p. 4 of 0

I:

From: TREASURY PUBLIC AFFAIRS

20009

7-6-98 2:58pm

p. 5 of 6

tenn system in place: for example, in the creation of a special regulatory division for monitoring
"large banks, in the passing of a new bankruptcy law; and in continued progress toward
consolidating and liquidating many weak banks.

In this context we will especially welcome the central bank continuing to implement its 1997-99
schedule for gradually tightening prudential norms for risk and liquidity, with the overall goal of
reaching Basle standards for most banking norms by the end of the century. And we look
forward to seeing Russia follow through on the commitment to introduce international
accounting standards by year-end. If one were writing a history of the American capital market 1
would suggest to you that the single most important irmovation shaping that capital market was the
idea of generally accepted accounting principles,

3. Entre11ching an Effective Rule of Law
The benefits of fostering high levels of transparency can be seen across the spectrum of reforms
that will be needed to entrench effective government in Russia. As we have seen again and again
in the emerging market economies in recent years, governments can gain powerful insurance
against market setbacks simply by giving people clarity -~ not just about the intent of policy but
in its execution. By the same token, govenunents who surprise investors once with the discovery
that policy has not been quite what it seemed lose precious credibility.
The same will hold true in the government's completion of the privatization program, in the
reduction and regularization of regulation and the basic definition and protection of property
rights -- including shareholder rights -- all major priorities if Russia is a develop an envirorunent
to foster and attract investment. Once again, the challenge here is not simply to uphold these
rights -- but to be seen to do so.
In this context the open and competitive bidding process leading to the sale of Svyazinvest last
year was rightly been hailed as a turning point. Equally encouraging was Dmitry Vasiliev, the
chainnan of the Federal Commission for the Securities market's recent successful defense of
minority shareholders in Sidanco, the oil frrm, against the company's attempt to dilute their
stake.
And yet, the very publicity attached to these two events shows the need to continue this progress
so that fears of an entrenched "gangster capitalism" in Russia can fmally to be laid to rest.
Russians must have faith that Joseph Proudhon was wrong -- property is not theft. And they
must be able to see with their own eyes the profound difference between being for capitalism, on
the one hand, and being for help to capitalists on the other.

III The Road Ahead
It has long been said that Russia - along with nearly all the transition economies -- has passed
the point of no return. The market is here for the duration. But there remains the question of

5

: 20009

From: TREASURY PUBLIC AFFAIRS

7-0-98

2:59pm

which kind of market it will be. And there is no inevitability about the development of the kind
of transparent, rule-based system that will best promote growth. Any vacuum created by weak
govenunent institutions and a partial rule of law is likely to be filled with the development of
other mechanisms and other ways of doing business,
What is required is a positive determination to establish he institutions of an open, free market
economy.· one that can fmally deliver the rapid and broad-based gro....vth in living standards the
Russian people deserve. President Yeltsin sounded many of the same themes a year ago in his
State of the Federation Address and again in this year's address in February. In these electionfree years he and his new team will have a rare opportunity to make good on that agenda. It is in
Russia's interest, it is in the United States' interest, and it is in the world's interest that 1988 be
the year that this opportunity is finally seized. Thank you.

p. 0 of I

DEPARTMENT

OF

THE

TREASURY

~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

..............................

OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIAAVENVE, N.W. - WASlllNGTON, D.C.- 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
April 1, 1998

Contact: Dan Israel
(202) 622-2960

STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN

I welcome the Senate Finance Committee's unanimous vote in support of the IRS reform
bill last night. Reform legislation is an important part of the Clinton administration's intense
efforts to change and reform the IRS. The American taxpayer will be better served by the
additional rights, expanded electronic filing, better customer service and oversight measures laid
out in this legislation. The Committee's bill also improves IRS Commissioner Charles Rossotti's
flexibility in selecting and managing personnel.
The Committee's vote was a constructive step forward. We look forward to working
with Congress to resolve a number of issues of concern as the process moves forward.
-30-

RR-2341

For press releases, speeches, public schedules and official bio,!.,rraphies, call our 24-hour fax line at (202) 622-2040

DEPARTMENT OF THE

TREASURY

~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . .. .

............................

OFFICE OF PUBUC AFFAlRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIflNGTON, D.C. - 20220 - (202) 622.2960

EMBARGOED UNTIL 2:30 P.M.
April 1, 1998

CONTACT:

Office of Financing
202/219-3350

TREASURY TO AUCTION $8,000 MILLION OF
30-YEAR INFLATION-INDEXED BONDS
The Treasury will auction $8,000 million of 30-year inflationindexed bonds to raise cash.
Amounts bid by Federal Reserve Banks for their own accounts, and
as agents for foreign and international monetary authorities will be
added to the offering.
The auction will be conducted in the single-price auction format.
All competitive and noncompetitive awards will be at the highest yield
of accepted competitive tenders.
The bonds being offered today are eligible

fo~

the STRIPS program.

Tenders will be received at Federal Reserve Banks and Branches
and at the Bureau of the Public Debt, Washington, D. C. This offering
of Treasury securities is governed by the terms and conditions set forth
in the Uniform Offering Circular (31 CFR Part 356, as amended) for the
sale and issue by the Treasury to the public of marketable Treasury
bills, notes, and bonds.
Details about the security are given in the attached offering
highlights.
000

Attachment

RR-2342

For press releases. speeches, public schedllies alld official biographies, call ollr 2-1-1lOlIr fax lille at (202) 622-2040

April 1, 1998

HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
3D-YEAR INFLATION INDEXED BONDS TO BE ISSUED APRIL 15, 1998
Offering Amount . . . . . . . . . . . . . . . . . $8,000 million
Description of Offering:
Term and type of security
Series . . . . . . . . . . . . . . . . . . . .
CUSIP number ......•...••..
Auction date ...•...•......
Issue date . . . . . . . . . . . . . . . .
Dated date .........••.....
Maturity date ......••..•..
Interest rate . . . . . . . . . . . . .

Due Dates and CUSIP numbers for TINTS

30-year inflation-indexed bonds
912833
912833
912833
Bonds of April 2028
October IS, 1998
UC 2
October 15.2010 VC 1 October 15.2022 WC ]
912810 FD 5
April IS, 1999
WD 3
April 15, 2011
UDO
VD9 April 15, 2023
April 8, 1998
October 15, 1999
October 15, 2011 VE 7 October 15, 2023 WE 5
UE 8
April IS, 1998
April 15, 2000
WF 3
UF 5
April 15. 2012
VF 4 April 15, 2024
April 15, 1998
October 15, 2000
October 15, 2012 VG 2 October 15, 2024 WG
UG 3
April IS, 2028
April 15, 2001
WH .~
April 15. 2013
UH1
VHO April IS, 2025
Determined based on the highest bidOctober IS, 2001
October 15, 2013 VJ 6 October 15, 2025 WJ 5
UJ 7
April IS, 2014
WK2
April 15, 2002
April 15, 2026
UK 4
VK 3
Real yield . . . . . . . . . • . . . . . . Determined at auction
October 15, 2002
UL 2
October 15, 2014 VL 1 October 15. 2026 WL 0
Interest payment dates .•.. October 15 and April 15
April 15, 2003
April IS, 2015
April 15, 2027
WM8
UM 0
VM 9
October 15, 2003
UN8
October 15, 2015 VN 7 October 15, 2027 WN 6
April 15. 2004
UP 3
April 15. 2016
VP 2 April 15. 2028
WP 1
October 15, 2004
UQ 1
October 15. 2016 VQ 0
April 15. 2005
UR 9
April 15. 2017
VR 8
October 15, 2017 vs 6
October 15. 2005
US 7
Minimum bid amount ....... . $1,000
April 15. 2006
UT 5
April 15. 2018
VT4
Multiples . . . . . . . . . . . . . . . . . $1.000
October 15. 2006
UU2
October 15. 2018 VU 1
Accrued interest payable
April 15. 2019
VV 9
April 15. 2007
UVO
by investor . . . . . . . . . . . None
UW8
October 15. 2019 VW 7
October 15. 2007
April 15, 2020
Determined at auction
April 15. 2008
UX 6
VX5
Premium or discount
October 15. 2008
UY4
October 15. 2020 VY 3
STRIPS Information:
April 15. 2021
VZ 0
UZ 1
Minimum amount required .. , Determined at auction
April 15. 2009
VA 5
October 15. 2021 WA 4
Corpus CUSIP number
912803 BN 2
October 15. 2009
VB 3
April 15. 2022
WB 2
The following rules apply to all securities mentioned above: April 15. 2010
Submission of Bids:
Noncompetitive bids . . . . . . . . . . Accepted in full up to $5.000.000 at the highest accepted yield.
Competitive bids . . . . . . . . . . . . . (1) Must be expressed as a real yield with three decimals. e.g .• 3.123\.
(2) Net long position for each bidder must be reported when the sum of the total bid amount.
at all yields. and the net long position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the closing time
for receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield ......... 35\ of public offering
Maximum Award . . • . . . . . . . . . . . . . 35\ of public offering
Receipt of Tenders:
Noncompetitive tenders ....... prior to 12:00 noon Eastern Daylight saving time on auction day
Competitive tenders •......... Prior to 1:00 p.m. Eastern Daylight Saving time on auction day
Payment Terms ........••...... Full payment with tender or by charge to a funds account at a Federal Reserve Bank on issue date
Indexing Information:
CPI Base Reference Period .... 1982-1984
Ref CPI 04/15/1998 .....•..... 161.74000
Index Ratio 4/15/1998 ........ 1.00000

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE

CONTACT:

Office of Financing
202-219-3350

April 01, 1998

RESULTS OF TREASURY'S AUCTION OF 13-DAY BILLS
13-Day Bill
April 03, 1998
April 16, 1998
9127946L3

Term:
Issue Date:
Maturity Date:
CUSIP Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
Low
High
Average

------

5.45 %
5.45 %
5.45 %

Investment
Rate 1/

Price

---------5.54 %

------

99.803
99.803
99.803

5.54 %
5.54 %

Tenders at the high discount rate were allotted

93%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type

Tendered

Competitive
Noncompetitive

$

PUBLIC SUBTOTAL

70,638,000

o

$

$

19,124,520

o

70,638,000

19,124,520

o
o

o
o

Federal Reserve
Foreign Official Inst.
TOTAL

Accepted

70,638,000

1/ Equivalent coupon-issue yield.

RR-2343

http://www.publicdcbt.trC:ls.g0V

$

19,124,520

DEPARTMENT

lREASURY

OF

THE

TREASURY

NEWS

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASJDNGTON, D.C .• 20220 • (202) 622-2960

EMBARGOED UNTIL 8 P.M. EST
Text As Prepared for Delivery
April 2, 1998

The Honorable John D. Hawke, Jr.
Under Secretary of the Treasury for Domestic Finance
to the 1998 UNC School of Law Banking Institute
Chapel Hill, North Carolina

While the organizers of this impressive program could not possibly have anticipated it,
this week could not be a more appropriate -- or perhaps inappropriate, depending on your
point of view -- time to talk about Financial Modernization. Just two days ago an effort to
bring a long debated and delicately balanced Financial Modernization bill to the Floor of the
House of Representatives failed. While supporters of the bill gamely announced that the effort
was not over, and that they would return to the drawing board after the Recess, the prospects
for legislation in this Congress look exceedingly dim.
Why did the effort fail -- an effort that had unprecedented momentum behind it in the
House, with the Republican leadership mobilizing forcefully to craft a compromise package
and take it to the Floor?
There is, of course, one narrow and easy answer that some would offer: it was a
tactical miscalculation to link Financial Modernization with another bill intended to overturn
the Supreme Court's recent decision in the credit union case.
The Banking Committee, in a model bipartisan effort, had voted out a credit union
bill, and Members were anxiolls to vote on that bill before they went home for the Recess.
While there was an element of controversy to the bill, the Committee had crafted a reasonable
and balanced proposal, and the banking industry had largely resigned itself to a losing fight
against the bill.

RR-2344

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

2

On the other hand, the great preponderance of Members did not want to vote on H.R.
10, the Financial Modernization bill. H. R. 10, despite the Leadership efforts to design a
compromise (some would say because of the compromise that was designed) was riddled with
controversy. Members were being besieged on all sides, and any vote they might make was
likely to offend some significant portion of their constituency.
Driven by the Leadership, the Rules Committee combined the two bills and sent them
to the Floor under a narrowly tailored rule that permitted only a few selected amendments to
be presented for a Floor vote, and that held out the prospect of forcing Members to vote for
the controversial Financial Modernization provisions as the price of getting to vote on the
credit union measure.
Members on both sides of the aisle were upset by this procedure, and hardly had debate
started on adoption of the rule, when the Chairman of the Rules Committee, in a surprise
statement that reminded me of Lyndon Johnson's announcement that he was not going to run
again, withdrew the rule from further consideration. Yesterday the credit union bill was split
apart and brought separately to the Floor, where it passed by a vote of 411 to 8 -- a vote that
speaks volumes about the wisdom of the original tactic.
But that is the easy explanation. What was it that really brought the Financial
Modernization train to a halt? It is tempting to say that those who fashioned the compromise
bill leaned too far in one direction or the other, and thereby created strong opposition. But the
fact is that virtually any movement toward the position of a disaffected interest would have
created a countervailing problem on the other side. Does this mean that it is impossible to
draft a Financial Modernization bill that would command a strong consensus of support among
the various interested parties? I would like to think not, but I must say that the recertt
experience does not hold out great cause for optimism.
Just consider the major conflicts presented:
In the area of insurance, banking organizations were seeking an unqualified right to sell
and underwrite insurance, free from state laws that might discriminate against bank-related
insurance activities. Independent insurance agents wanted to retain the protections they have
under many state laws, and to that end wanted to curtail the Comptroller of the Currency's
ability to deem discriminatory state laws to be preempted. The agents also wanted to protect
their franchises against de novo expansion of the agency activities of national banks, while
banks wanted the ability to expand without the need to buyout an existing agency.
Underwriting companies wanted assurance that banks would not be able to offer
insurance-like products in the bank itself. where they might be deemed to be immune from
state insurance regulation, while the banks wanted the ability to offer what they deemed to be
traditional ban king products, even though they might partake of some aspects of insurance.
This confrontation led to unending efforts to define what constitutes insurance, how disputes

3

over that issue should be resolved, and what deference, if any, should be given to the
Comptroller of the Currency in the process.
A similar kind of debate was carried on in the area of securities activities. Banks
wanted the freedom to continue to offer products in the bank that they had traditionally
offered, even though they might be considered be some to be securities. Securities firms and
the SEC wanted to limit direct bank securities activities to assure a level competitive playing
field and comparable functional regulation.
The thrift charter became a major focal point for debate. The banking industry lobbied
hard for an elimination of the thrift charter, while the thrift industry understandably wanted to
continue as is. The unitary thrift holding company became a major target of attack from a
number of quarters. Those opposed to any mixing of banking and commerce wanted the
unitary holding company -- which enjoys the right to engage in any activity it chooses,
financial or nonfinancial, significantly curtailed. As nonbank financial services firms began to
focus more attention on the flexibility of the thri ft charter as a possible vehicle for their own
expansion into the business of accepting insured deposits, even the commercial banking
industry became concerned about the unitary format -- which has, of course, existed for
decades with no apparent concern from the banking industry.
The "banking and commerce" issue was also a focus of controversy in the consideration
of whether companies owning banks should be permitted to engage in any nonfinancial
activities. Some said absolutely none; others -- particularly those nonbank financial services
firms that already had some nonfinancial activities -- argued for a reasonable "basket" leeway
to be able to continue some level of nonfinancial business.
Consumer groups and community organizations weighed in heavily against H.R. 10,
arguing for stronger consumer protections, for mandated "lifeline" banking, and for extension
of the Community Reinvestment Act to the nonbank affiliates of banks in the new world of
expanded activities under Financial Modernization. Banks, on the other hand, opposed the
imposition of such new requirements.
There were even strong differences of view among the various federal agencies having
an interest in the subject. The Comptroller of the Currency and the Treasury Department
argued that all banks should be permitted the option of engaging in any newly authorized
tinancial activities either through holding company affiliates or through operating subsidiaries
of the bank, in either case subject to strong and equivalent safety-and-soundness protections for
the bank. The Federal Reserve contended that new financial activities should be conducted
only in holding company affiliates, under their jurisdiction, because only in that way could the
spread of an alleged "safety net subsidy" be contained.
These are imposing confrontations -- and there are many more contentious issues I have
not described. Will it ever be possible to achieve real progress toward Financial

4

Modernization in the face of such controversy. I continue to be hopeful, but it will require
some changes of attitude and approach on almost everyone's part.
First and foremost, we cannot hope to have real Financial Modernization unless that
subject is approached with a universal commitment to eliminate barriers to full competition.
Participants in the financial services marketplace have to come to the realization that the broad,
long term interests of all providers can only be served by letting go of special interest
protections intended to segment markets. Consumers are demanding the convenience of onestop shopping and the benefits of increased competition, and the force of the marketplace
cannot be held back by corralling providers into separate pens.
Second, the principle of functional regulation has to be accepted as a governing
precept. Similar activities should be subject to the same regulatory regimes. To be sure, there
will be definitional difficulties at the margin, and due consideration should be given to the
grand fathering of activities that have historically been conducted in a different mode.
However, these issues must be approached not from the perspective of maintaining particular
competitive advantages, but with a view toward achieving broad functional regulation.
Third, the issues being raised by consumer and community groups cannot be
dismissed. Financial Modernization legislation must assure that in bringing the benefits of
increased competition to consumers -- which is really what this effort is all about -- we are not
subjecting consumers to greater abuses and that we are not weakening the benefits of the
Community Reinvestment Act.
Fourth. we must assure that the safety and soundness of our financial system is not
impaired as we expand business opportunities for financial services firms.
Finally, we must assure that we do not, in the name of serving other purposes, upset
the balance we presently have in the dual banking system, or effect fundamental shifts in the
roles of the agencies involved in the process of regulating and supervising our financial
industry.
I do not by any means suggest that our objective should be to preserve a regulatory
status quo or to protect the turf of particular agencies, any more than we should preserve those
barriers that inhibit competition among financial institutions. The subject of regulatory
restructuring is unquestionably an appropriate topic for Congress -- as painful as it seems to be
every time it comes up. More specifically, the subject of what the appropriate regulatory
structure should be in the brave new world of Financial Modernization is a topic of great
importance. My point is simply that sllch far reaching issues should be addressed directly and
openly, on the merits, with due consideration for the implications of proposed changes. They
should not be subsllmed, as the compromise bill unfortunately does, in discriminatory
treatment of particular charters or formats, or clothed in arcane argument that covers their real
implications.

5
It may be that these preconditions can never be satisfied; it may be that the

marketplace must evolve further before we can achieve the kind of consensus that Congress
needs to act comfortably. One is reminded that Congress avoided the subject of interstate
banking for many years, and only addressed it after the states had made it largely academic
through the innovations that started in the mid-1980s.
Surely, much more work is needed on H.R. 10 before it can come close to
commanding a consensus. The Statement of Administration Policy transmitted to the Congress
on Tuesday affirmed that the Secretary of the Treasury would recommend that the bill be
vetoed if it were presented to the President in its present form. This strong statement was
based on our conviction that the bill would::
•
•
•
•
•

stitle innovation and efficiency in the national banking system;
undermine the Community Reinvestment Act by forcing financial innovation to
occur in holding company affiliates rather than in bank subsidiaries;
diminish the ability of communities and consumers to benefit from the financial
system;
eliminate advantageous features of the present thrift charter; and
impose needless costs on small banks.

The Chairman of the Senate Banking Committee has made clear in the past that he will
only take up a Financial Modernization bill if it passes the House with a strong bipartisan
majority. While the House Leadership deserves credit for the strength of the drive they
mounted to move this bill to the Floor, the events of this week seem to make clear that any
further effort to push the bill in its current form will confront continued conflict and
opposition. Whether it is possible to accomplish the kinds of repairs that are neces~ry in the
tillle remaining in this Congress is problematic, but it seems clear that in its present form the
bill simply cannot command the kind of support needed to achieve a strong bipartisan.
majority. No constructive purpose can he served by a continued push for the present proposal.
Perhaps the hest we can hope for is that hy maintaining things as they are, the normal
drive of market participants in seeking out ways to compete Illore effectively, aided by a
commitment on the part of regulators to experiment and innovate, we will move toward the
kind of environment that will make it easy for Congress simply to ratify what the marketplace
presents it with.
--)0--

-PUBLIC DEBT NEWS
- Department of tbe Treasury • Bureau of tbe Public Debt • Washingtoo, DC 20239

FOR ITvfMED IATE RELEASE

Contact:, Office of Financing
(202) 219-3350

April 2, 1998

TREASURY'S 30-YEAR INFLATION-INDEXED BONDS

APRIL REFERENCE CPI NUMBERS AND DAILY INDEX RAnos

Public Debt announced today the reference Consumer Price Index (CPI) numbers
and the daily index ratios for the month of April for the 3D-year Treasury inflation-indexed
bonds of Apri12028. This infonnation is based on the non-seasonally adjusted U.S. City
Average Allltems Consumer Price Index for All Urban Consumers (CPI·U) published by
the Bureau of Labor Statistics of the U.S. Depanment of Labor.
In addition to the publication of the reference cpr s (Ref CPI) and index ratios, this
release provides the non-seasonally adjusted CPI-U for the prior three-month period.
This information is available through the Treasury's Office of Public Affairs automated
fa.'< system by calling 202·622·2040 and requesting document number 2345. The information
is also available on the Internet at Public Debt's web site (hnp://wvo{w.publicdebt.treas.gov).
The information for May is expected to be released on April 14, 1998.
000

PA-321

RR-2345

h [I r :I/w\'rw. p un licdc hr. [rcas.gnv

202-219-3350

Contact: Office of Financing
TREASURY 30-YEAR INFLATION-INDEXED BONDS
DESCRIPTION:
CUSIP:

AUCTION DATE:
DATED DATE:
ORIGINAL ISSUE DATE:
MATURITY DATE:
Ref CP1 on DATED DATE:

TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:

Bonds of April 2028
912810FD5
AprilS, 1998
April 15,1998
April 15, 1998
April 15, 2028
161.74000
April 1998
30

161.3
161.6
161.9

CPI-U (NSA) December 1997
CPI-U (NSA) January 1998
CPI-U (NSA) February 1998
Ref CPI and Index Ratios for April 1998:

Month
April
April
April
April
April
April
April
April
April
April
April
April
!April
'A?ril
IApril
IApril
I

!April
IAPril
April
April
April
April

\APril
April
IAPril
April
April
April

April
~pril

Calendar Day
1
2

3
4

5
6

7
8
9

10
11
12
13
14

15
16
17
18
19
20
2i
22

23
24
25
26
27
28
29
30

Year
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
199B
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998

RefCPI
161.60000
161.61000
161.62000
161.63000
161.64000
161.65000
161.66000
161.67000
161.68000
161.69000
161.70000
161.71000
161.72000
161.73000
161.74000
161.75000
161.76000
161.77000
161.78000
161.79000
161.80000
161.81000
161.82000
161.83COO
161.84000
161.85000
161.86000
161.87000
161.88000
161.89000

Index Ratio

1.00000
1.00006
1.00012
1.00019
1.00025
1.00031
1.00037
1.00043
1.00049
1.00056
1.00062
1.00068
1.00074
1.00080
1.00087
1.00093

DEPARTMENT

OF

THE

TREASURY

NEWS
omCEOFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlllNGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
April 3, 1998

Contact: Kelly Crawford
(202) 622-2960

STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN
ON MEETING WITH KOREAN FINANCE MINISTER LEE
Finance Minister Lee and I had a good meeting today. We discussed the substantial
progress South Korea has made over the past three months in stabilizing its financial situation.
I praised the efforts that President Kim Dae lung and his government are making to bring
about decisive change in Korea's economy. We spoke about the recent success of the
government's effort to restructure a vast majority of the banking sector's short-term
international debt, the growth of external reserves, and the nation's upcoming bond issue.
All of these are important steps in the process of normalizing Korea's access to the
international capital markets.
Minister Lee and I agreed that while many challenges have been successfully met,
difficult structural reforms lie ahead. We also agreed on the importance of ensuring that
Korea sustains strong macroeconomic policies. This will provide the fastest and surest route to
recovery and improvements in living standards for the Korean people.
-30-

RR-2346

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

D EPA R T MEN T

0 F

THE

T REA SUR Y '
.

.',
~

~~/78~9~. . . . . . . .

....................................

OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960

EMBARGOED UNTIL 10:45 A.M. EST
April 6, 1998

J.

\-.

'.-

Contact: Office of Public Affairs
(202) 622-2960

TREASURY PROHIBITS IMPORTATION OF
CERTAIN SEMIAUTOMATIC ASSAULT RIFLES
New Prohibition Applies to Rifles that Accept Large Capacity' Military Magazines
Treasury Secretary Robert E. Rubin announced today a prohibition on the importation of
modified, semiautomatic assault rifles with the ability to accept large capacity military magazines.
Today's announcement follows a comprehensive review of the importation of
approximately 59 modified, semiautomatic assault rifles conducted by Treasury and its Bureau of
Alcohol, Tobacco and Firearms (ATF). The review was directed by President Clinton and
Secretary Rubin last November, and stemmed from concerns that many new, dangerous
semiautomatic weapons had been developed in the nearly 10 years since the last review.
"President Clinton and this Administration are committed to rigorous enforcement of laws
designed to keep dangerous weapons off our streets," said Rubin. "With this decision, we can
further reduce the flow of weapons that have no legitimate use in our society."
Under the 1968 Gun Control Act, the Treasury Department is required to restrict the
importation of firearms unless they are determined to be "particularly ~itable for or readily
adaptable to sporting purposes."
In 1989, the "sporting purposes" provision led ATF to ban the importation of several
semiautomatic versions of assault weapons possessing military features such as bayonet mounts,
pistol grips, night sights and grenade launchers After the 1989 prohibition, certain semiautomatic
assault rifles that had failed the sporting purposes test were modified to remove all military
features except the ability to accept a large capacity military magazine (LCMM) that holds more
than 10 rounds The LCMM rifles are models based on AK-47, FN-FAL, HK 91 and 93, Uzi and
SIG SG550 milital)' assault rifles
This review concluded that the original prohibition is correct and that military-style
semiautomatic rifles are not importable This review further concluded that firearms with the
ability to accept a large capacity magazine designed and produced for a military assault weapon
should be banned. The review draws support from Congress and the Administration's 1994
decision to ban large capacity military magazines on the grounds that they served "combatfunctional ends" and were attractive to criminals
RR-2347
For press releases. speeches. public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

"We have no desire to take guns away from hunters. or other legitimate users. We do,
however. want to protect Americans from the violence that can result from these semiautomatic
weapons." said Rubin.
Up to 1.6 million firearms whose importation had been suspended during the review may
be affected by this decision. Importers will be notified of this decision in writing and given an
opportunity to respond.
The Study on the Sporting Suitability of Modified Semiautomatic Assault Rifles is
available through the Treasury Public Affairs Office at (202) 622-2960 or via the Internet at
www.atftreas.gov after 12:00 p.m. EDT Monday, April 6.
-30-

D EPA R T ]\1 E N T

0 F

THE

T REA SUR Y

NEWS
ornCE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C•• 20220. (202) 622.2960

MEDIA ADVISORY
April 6, 1998

Contact: Beth Weaver
(202) 622-2960

PHOTO AVAILABILITY OF SEMIAUTOMATIC ASSAULT RIFLES

Following the White House announcement today regarding the importation of assault
rifles, Treasury will make available certain of the modified, semiautomatic assault rifles for
interested media to view and photograph.
The assault rifles will be displayed in the Bell entrance lobby of the Treasury Department
(the entrance located between the White House and Treasury on East Executive Avenue) from
II :30 a.m. to 12:30 p.m.
Publication-quality digital photographs (high resolution 300dpi jpeg) will be available on
the World Wide Web at www.ustreas.gov/press/ at noon.
-30RR-2348

For press releases, speeches, public schedules and official biographies, call our 24.Jzour fax line at (202) 622-2040

DEPARTMENT

OF

THE

TREASURY

NEWS

~~g~. . . . . . . . . . . .-

..............

OFFlCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
April 1, 1998

Contact: Hamilton Dix, Treasury (202) 622-2960
Bob Moore, Federal Reserve (202) 452-3215

RUBIN AND GREENSPAN TO UNVEIL NEW $20 DESIGN
The design for the Series 1996 $20 note, the first redesigned U.S. currency note that most
Americans will use on a daily basis, will be unveiled next month by U.S. Treasury Secretary Robert
E. Rubin and Federal Reserve Board Chairman Alan Greenspan.
Secretary Rubin and Chairman Greenspan will unveil the new bill at 11 a.m. on Wednesday,
May 20, at the Bureau of Engraving and Printing, 14th and C Streets, S.W., Washington, D.C.
The new $20 note will enter circulation in the fall of 1998. It is commonly used in daily
commerce and is the bill most often dispensed by Automated Teller Machines (ATMs). The $20 note
is the third in the U.S. currency series to include new and modified security features to deter
counterfeiting. The Series 1996 $100 was issued in March 1996 and the redesigned $50 in October
1997.
Through an aggressive public education effort, Treasury and the Federal Reserve expect to
provide millions of bank tellers, retailers and other cash handlers with printed materials and will offer
tent cards, training videos and CD-Roms to ensure a smooth transition when the new note is issued.
In addition, special training seminars and materials will explain how cash handlers can and should
discourage counterfeiting by closely examining all the notes they handle.
Like the new $50 note, the redesigned $20 note will include a large dark numeral on a light
background on the back of the note that will make it easier for people with low vision to identify the
note. All consequent denominations ($10, $5 and $1) will include this low-vision feature, as will the
future redesign of the $100 note.
Further information on the Washington event, including satellite coordinates, as well as
background information on the currency redesign program, will be available closer to the event date.
-30-

RR-2349
For press releases, speeches, public schedules and official biographies, call our 24.1zour fax line at (202) 622-2040

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
April 6, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN ILLINOIS

The Bureau of Public Debt took action to assist victims of tornadoes in Illinois by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Illinois affected by the storms. These procedures will remain in effect through May 31, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
At this time, only Coles County is involved. Should additional counties be deClared disaster
areas the emergency procedures for savings bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or by writing the
Minneapolis Federal Reserve Bank's Savings Bond Customer Service Department, 250
Marquette, Minneapolis, Minnesota 55480; phone (612) 340-2345. This form can also be
downloaded from Public Debt's website at: www.publicdebt.treas.gov. Bond owners should
include as much information as possible about the lost bonds on the form. This information
should include how the bonds were inscribed, social security number, approximate dates of
issue, bond denominations and serial numbers if available. The completed form must be
certified by a notary public or an officer of a financial institution. Completed forms should be
forwarded to Public Debt's Savings Bond Operations Office located at 200 Third St.,
Parkersburg, West Virginia 26106-1328. Bond owners should write the word "STORMS" on
the front of their envelopes, to help expedite the processing of claims.

000

RR-2350

PUBLIC DEBT NEWS
)epartment of the Treasury • Bureau of the Public Debt. Washington, DC 20239

FOR IMMEDIATE RELEASE
April 6, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN MINNESOTA

The Bureau of Public Debt took action to assist victims of tornadoes in Minnesota by expediting
the replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Minnesota affected by the storms. These procedures will remain in effect through May 31,
1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most fmancial institutions serve as paying agents for savings bonds.
Minnesota counties involved are Brown, Le Sueur and Nicollet. Should additional counties be
declared disaster areas the emergency procedures for savings bonds owners will go into effect for
those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available, at most fmancial institutions, or by writing the
Minneapolis Federal Reserve Bank's Savings Bond Customer Service Department, 250
Marquette, Minneapolis, Minnesota 55480; phone (612) 340-2345. This form can also be
downloaded from Public Debt's website at: www.publicdebttreas.gov. Bond owners should
include as much information as possible about the lost bonds on the form. This information
should include how the bonds were inscribed, social security number, approximate dates of
issue, bond denominations and serial numbers if available. The completed form must be
certified by a notary public or an officer of a financial institution. Completed forms should be
forwarded to Public Debt's Savings Bond Operations Office located at 200 Third St.,
Parkersburg, West Virginia 26106-1328. Bond owners should write the word "STORMS" on
the front of their envelopes, to help expedite the processing of claims.

000

RR-2351
http://www.publlcdebt.treas.gov

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

EMBARGOED FOR RELEASE AT 3 :00 PM
April 6, 1998

Contact: Peter Hollenbach
(202) 219-3302

PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR MARCH 1998

The Bureau of the Public Debt announced activity figures for the month of March 1998, of securities
within the Separate Trading of Registered Interest and Principal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)

$1,282,989,541

Held in Unstripped Form

$1,049,273,352
$233,716,189

Held in Stripped Form

$9,538,493

Reconstituted in March

The accompanying table gives a breakdown of STRIPS activity by individual loan description. The
balances in this table are subject to audit and subsequent revision. These monthly figures are included
in Table VI of the lvfonthly Statement of the Public Debt. entitled "Holdings of Treasury Securities in
Stripped Form."
The STRIPS data along with the new Monthly Statement afthe Public Debt, is available on Public
Debt's Internet homepage at: www.publicdebttreas.goy A wide range of information about the
public debt and Treasury securities is also available on the homepage.

000

RR-2352

http://www.publicdebt.treas.gov

TABLE VI· HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, MARCH 31, 1998

Corpus
STRIP
CUSIP

Loan Descnptlon

Treasury Bonds:
CUSIP:
912810 DM7
DQ8
DR6
DU9
DN5
DPO
DS4
DT2
DV7
DW5
DX3
DYI
DZ8

EA2
ESO
EC8
ED6
EE4
EFI
EG9
EH7
EJ3
EKO
ElB
EM6
EN4
EP9
EQ7
ES3
ETI
EV6
EW4

EX2
EYO
EZ7
FAI
FB9
Total Treasury Bonds

Interest Rate:
11·5/8
12
10-3/4

9·3/8
11·3/4
11·1/4
10·5/8
9·7/8
9·1/4
7·1/4
7·1/2
8·3/4
8·718
9·1/8
9
8·7/8
8·1/8
B·1/2
8·3/4
B·3/4
7·7/8
B·1/8
8·1/B
B
7·1/4
7·5/8
7·1/B
6-1/4
7-112
7-5/B
6-7/8
6
6-3/4
6-1/2
6-5/8
6-3/B
6·1/8

912803 AB9
ADS
AG8
AJ2
912800 AA7
912803 AAI
AC7
AE3
AFO
AH6
AK9
AL7
AM5
AN3
AP8
AQ6
AR4
AS2
ATO
AU7
AV5
AW3

AXI
AY9
1'Z.6
BAO
BB8
BG6
BD4
BE2
BF9
BG7
BH5
BJI
BK8
Bl6
BM4

PnnClpal Amount Outstanding In Thousands
Maturity Date
Total
Outstanding

11/15/04
05/15/05
08115/05
02115/06
11/15114
02115/15
08/15/15
11/15/15
02115/16
05115/16
11115/16
05115/17
08/15/17
05115/18
11/15/18
02115/19
OB/15/19
02115/20
05115/20
08115/20
02115/21
05115/21
OB/15/21
11/15/21
08115/22
11115/22
02115/23
08115/23
11/15/24
02115/25
08115/25
02115/26
OB/15/26
11115/26
02115/27
OB/15/27
11115/27

Portion Held In
Unstnpped Form

Portion Held In
Stripped Form

Reconstituted
This Month

8,301,B06
4,260,758
9,269,713
4,755.916
6.005.584
12.667,799
7.149.916
6.899.859
7.266.854
18.823.551
18.864.448
18,194.169
14.016.858
8.708.639
9,032.870
19.250,798
20.213.832
10.22B.868
10,158.883
21,41B.606
11,113.373
1'.958.B8B
12.163,4B2
32.79B.394
10.352.790
10.699.626
lB.374.361
22.909.044
11.469.662
11.725.170
12.602,007
12.904916
10.893,818
11,493177
10,456,071
10,735,756
22.51 B,539

4,935,406
2,726,358
7,284,113
4.747.916
2.722.384
11.356.119
6.605.276
5,475.859
6.822.854
18.565,151
18,054.768
7.853.529
8.655.258
2.974.239
1,811.270
5.129.198
17.B65,992
5.399.268
3.186,403
5.107.246
10.074.973
4,313,448
5.310.362
7.788.044
8.755.190
2.994.026
10.750.361
lB.234.996
3.372.942
2.657.970
10.572.567
12.565.816
9.959.418
11.039.977
8,70B,871
10,519.756
22.39B,539

3,366,400
1,534,400
1,985,600
8.000
3.283.200
1.311.680
544.640
1.424.000
444.000
258.400
809,680
10,340,640
5,361.600
5.734,400
7.221,600
14,121.600
2.347.B40
4.829.600
6.972,480
16,311,360
1.038,400
7.645,440
6,853.120
25,010.350
1,597.600
7.705.600
7.624.000
4.674,048
8,096,720
9,067.200
2.029.440
339.100
934,400
453.200
1,747,200
216.000
120,000

214,400
42,500
61.600
2.816
70.400
457.120
69,440
132.800
316.000
304.000
375.040
452.000
1.080.000
86,400
84.000
292.800
27B,400
356.000
84.000
329.920
115.200
26.560
325.120
734.550
42,400
92.BOO
400.000
111.904
579,440
276.800
43.200
43.000
266,400
75.200
20,BOO
120.000
0

480,658.801

307,295.863

173,362,938

8,363.010

11

TABLE VI • HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM. MARCH 31. 1998 - Continued

Corpus
STRIP
CUSIP

Loan Descnpl10n

Treasury Notes
CUSIP
Senes
9'2827 WEB
B
WNB
C
WlV8
0
A
XE7
XN7
B
XIN7
C
AK
3H3
3K6
AL
YE6
0
3P5
AM
3Rl
AN
Y
3U4
A
YN6
3Y6
Z
4A7
AS
YW6
B
ZE5
C
0
ZN5
3M2
X
A
ZX3
3WO
S
A85
B
B92
C
025
0
F49
A
G55
B
M
3J9
N
3L4
P
303
a
3S9
3V2
C
A
J78
3Z3
0
4B5
E
L83
B
A
N81
P89
B
C
a88
R87
0
A
S86
Te5
B
C
U83
V82
0
A
W81
B
X80
Y55
C
0
Z62
S
2JO
C
2U5
0
3EO
3XS
B
Total Treasury Notes

Interest Rate
9
9·114
8·718
8·71B
9·118
8
5·314
5-5/8
7·7/8
5·518
5·5/B
5·3/B
8·1/2
5-1/2
5-112
8-718
8-314
8-1/2
5-314
7-314
5-318
8
7-71B
7·112
7·112
6-31B
5-7/8
5-3/4
5-3/4
5-5/B
5-1/2
6·1/4
5·112
5·'12
5·3/4
5·7/8
7·1/4
7·1/4
7·7/8
7·1/2
6-112
6-112
5·718
5·518
6·718
7
6·112
6·"4
6·518
6·lIS
5·1/2

cas

Total
Outstanding

05/'5198
08115198
11115198
02115199
05115199
08/15/99
09130/99
10/31/99
11115199
11130/99
12131199
01131/00
02115100
02129/00
03131100
05115100
08/15100
11115100
11115100
02115101
02115101
05/15101
OB/I5101
,'/,510,
05/15102
08/15102
09130/02
10131/02
11130102
12131/02
01131/03
02115103
02128103
03131103
08115103
02115104
05115104
08115104
11115104
02115105
05115105
08115105
11115105
02115106
05115106
07115,06
10115106
02115/07
05115107
08115107
0211510S

.....

Treasury Inflatlon·lndexed Notes
Series Interesl Rate
3-5/8
J
A
3·3/8
A
3·5i8

CUSIP
9,28273A8
2M3
3T7

Total In!labon·lndexed Notes
Grand Total

9'2820 AN7
AP2
AOO
AR8
AS6
AT4
CBl
C07
AUI
CGO
CJ4
CM7
AV9
CR6
CT2
AIN7
AX5
AY3
CF2
AlO
CPO
BA4
BB2
BCD
BD8
BE6
CC9
CE5
CH8
CKI
CN5
BF3
CS4
CU9
BGI
BH9
BJ5
BK2
BlO
BM8
BN6
BPI
B09
BR7
BS5
BT3
BUO
BW6
BX4
CA3

Pnnopal Amount Outstanding in Thousands

912820 BZ9
BV8
CL9

Reconstituted
This Month :.

Matunty Date

07115/02
01115107
01/15108

portion Held In
Unstnpped Form

Portion Held In
Stripped Form

1'.5'9.6B2
16.036.08B
11.312.802
15.367.153
12.398.083
12.339.185
24,226,102
11.714.397
23.859.015
12.B06,BI4
11,737.284
12,120.580
12,052.433
13,100,643
23.562.691
13.670.354
14.172.B99
28,01',02B
12,955,077
14.440.372
13346467
14.373.760
13.834.754
14.739.504
15,002.580
15,209,920
15,513.587
16,015.475
22.740.446
22.459.675
13.103.678
13.958.186
25.636.803
13.583.412

6.184.987
7.177.046
5.408.475
7.423.623
6.519.103
6.964.0'9
17.269.687
16.606.347
6.837.960
16.86S.598
16.647.860
17.502.036
8.159.033
17.776.125
17.205.123
5.627.430
7.422.086
7.335.682
16.036.088
7.960.002
15.367.153
B.924.233
8.827.185
20,001,622
10.001.517
22.516.615
12.771.614
11,675,684
11,920,580
12.052.433
13,100,643
23,075,939
13.626.354
14.172.B99
27.579.B28
12.761.477
14,337,172
12.824.067
14,373,760
13.834,194
14,739,504
15,002,580
15,205,120
15,509.427
16,015.475
22,740.446
22,459.675
13.043,294
13,937.386
25.616.003
13,583,412

2.980.400
4.165.600
4.494.400
2.296.000
3.528.000
3.199.625
217.600
217.600
3.936.000
lB5.600
99.200
0
2.514.000
0
0
4.868.800
3.658.560
4.184.000
0
3.352.800
0
3.473.850
3.512.000
4,224,480
1,712.B80
1,342,400
35,200
61,600
200,000
0
0
486,752
44,000
0
431,200
193,600
103,200
522.400
0
560
0
0
4.800
4.160
0
0
0
60,384
20,800
20,800
0

25.600
16.800
22.400
113.600
8.000
45.725
0
0
27.200
0
0
0
83.200
0
0
0
296.160
26.000
0
12.000
0
58.750
54.400
61,680
16.800
20.800
0
16,BOO
0
0
0
58.816
0
0
0
0
209.600
800
0
0
0
0
0
0
0
0
0
352
0
0
0

760.876.852

700,525.601

60.353,251

1,175.483

16.968040
16.071.712
8.412.136

16,968,040
16.071.712
8,412.136

0
0
0

0
0
0

41.451.888

41,451.888

0

0

1.282.989.541

1 049.273.352

233716.189

9.53S,493

9.165.387
11.342.646
9.902.875
9.719.623
10.047.103
10.163.644
17.487.2B7
16.823.947
10.773.960
17.051.198
16.747.060
17.502.036
10.673.033
17.776.125
17.205.123
10.496.230
11.080.646

NOle On U1e 41h wOr1<oay 01 eaen monU1 Taole VI w,1I De ava,'aole after 3 00 p m easlem ome on U1e Commerce Departmenl's EconomiC Bullebn Board (EBB) and on U1e Bureau of !he
PuDllC Deors weDs". al nnp l/www puDllcdeDllreas gOy For more ,nlormabon aDDUI EBB. call (2021482-'966 The oalances In thiS lable III SubreCllo audll and subsequenl adJuslrllents.

PUBLIC DEBT NEWS
Department of the Treasury .. Buruu of the Public l>ebt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
April 06, 1996

CONTll.CT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS

Term:

91-Day Bill

Issue Date:
Maturity Date:
CUSIP Number:

April 09, 1998
July 09, 1998
91279SAB7
RANGE OF ACCEPTED COMPETITIVE BIDS:

Di S C01.L."'lt

Investment

Rate

-----Low
High
Average

Rate 1/

Price

------

---------S.06S~

4.9J5%'
4.965%
4.960%

98.753
98.745
98.746

5.098~

5.094%

Tenders at the high discount rate were allotted

n.

AMOUNTS TENDERED AND ACCEPTED (in thousands)

Tendered

Tender Type
Competitive
Noncompetitive

$

PUBLIC SUBTOTAL

Federal Reserve
Foreign Official Insc.
Refunded Maturing
Additional Amounts
$

TOTp.L

Acce~ted

34,185,788

s

1,315,137

4,075,773
1,318,137

35,503,925

5,393,910

3,564,320

3,564,320

391,500

391,500

o

o

39,459,745

1/ Equivalent coupon- issue yield.

RR-2353

http://'www.puhlicddlUrC;\s.gov

$

9,349,730

PUBLIC DEBT NEWS
Department of tbe Treasury • BIlre3U of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THg PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
April 06 19.98

Office of Financing
202-219-3350

I

RESULts OF TREASURY'S AOCTIO:-J OF 26 -WEEK BILLS

Term:

lS2-Day Bill
April 09,· t998

Issue" Date:
Maturity Date:

October 08, 1998

CUSIP Number:

31279SAM3
RANGE OF ACCEPTED COMPETITIVE BIDS:

Discount
Raee

In'. .testment

Low
High
Average
Te~ders

1/

Rate

Price
---- ... -

----------

-----4.S70%
5.005%
5.000~

5.170t

97.487

S.20n
S.20H

97.470
97.472

at the high discount rate were allotted
AMOUNTS

TE~~ERED

13~.

AND ACCEPTED (in thousands)

Tendered

Tender Type

Accepted
----~-----.---.--

$

Competitive

Noncompe1;ie.ive
PU13LIC SUBTOTAL

Federal Reserve
Foreign Official Inst.
Refunded Maturing

25,359,946
1.134,0513

5.247,004

3,505,000

3,505,000

2,015,000

2,015,000

Additional Amounts
.$

1/

£quivale~t

RR-2354

4,112,946
1,134,056

26,494.004

o

TOTAL

$

32.014,004

coupon-issue yield.

http://\VwW.p uhl il:dcbr. t rcaS. :;()V

Q

-----------------

s

1D,761,004

DEPARTl"'ENT

OF

THE

TREASURY

OfFILL OF l'llHLIC ,\~l'·\IH~ 815Il(ll'Ef\(N~'rLV.\NI.\ .\\L"lll:. !'I.W. e \\I\~HL"Vl(L". II.C.e 2U220 81lU21 (,22.2~60

EMBARGOED UNTIL 2: 30 P.M.
April 7, 1998

CONTACT:

Office of Financing
202/219-3350

TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Tr.easury bills totaling
approximately $13,000 million, to be issued April 16/ 1998. This offering will
result in a paydown for the Treasury of about $44/425 million, as the maturing
publicly held weekly bills are outstanding in the amount of $57/420 million
(including the 44-day cash management bills issued March 3/ 1998/ in the amount
of $23/376 million, and the 13-day cash management bills issued April 3, 1998,
in the amount of $19,125 million).
I~ addition to the public holdings, Federal Reserve Banks for their own
accounts hold $7,522 million of the maturing bills, which may be refunded at
the weighted average discount rate of accepted competitive tenders. Amounts
issued to these accounts will be in addition to the offering amount.

Federal Reserve Banks hold $7/208 million of the maturing issues as agents
for foreign and international monetary authorities.
Up to $3/000 million of
these securities may be refunded within the offering amount in each of the
auctions of 13-week bills and 26-week bills at the weighted average discount
rate of accepted competitive tenders. Additional amounts may be issued in each
auction for such accounts to the extent that the amount of new bids exceeds
$3,000 million.
Tenders for the bills will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D.C.
This offering
of Treasury securities is governed by the terms and conditions set forth in the
Uniform Offering Circular (31 CFR Part 356, as amended) for the sale and issue
by the Treasury to the public of marketable Treasury bills, notes, and bonds.
Details about each of the new securities are given in the attached
offering highlights.
000

Attachment

RR-2355
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

HIGHLIGHTS OP TREASURY OPPERINGS OP WEEKLY BILLS
TO BE ISSUED APRIL 16, 1998
April 7, 1998
Offering Amount . . . . . . . . . . . . . . . . . . . . .

$5,750 million

Description of Offering:
Ter.m and type of security .... , ..... .
91-day bill
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . ........ 912795 AC 5
Auction date ...... .
April 13, 1998
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . .
April 16, 1998
Maturity date . . . . . . . . . . . . . . . . . . . . . . .
JUly 16, 1998
original issue date ................ .
January 15, 1998
Currently outstanding .............. .
$11,785 million
Min~um bid amount ................. .
$10,000
Multiples . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,000

$7,250 million
182-day bill
912794 SA 8
April 13, 1998
April 16, 1998
October 15, 1998
October 16, 1997
$18 ,774 million
$10,000
$ 1,000

The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids ...

Recognized Bid
at a Single yield ............... .

........

Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids .
......... (1)
MUst be expressed as a discount rate with three decimals in
increments of .005%, e.g., 7.100%, 7.105%.
(2)
Net long position for each bidder must be reported when the
sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3)
Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.

Max~um

Max~um

Award ..... .

Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
payment Terms ...................... .

35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time on auction day
Pull payment with tender or by charge to a funds account
at a Pederal Reserve Bank on issue date

DEPARTIVIENT

OF

THE

TREASURY

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASIllNGTON, D.C.• 20220. (202) 622-2960

April 7,

1998

Monthly Release of U.S. Reserve Assets

The Treasury Department today released U.S. reserve assets.data for the month of
March 1998.
As indicated in this table, U.S. reserve assets amounted to $69,354 million at the end
of March 1998, down from $70,632 million in February 1998.

End
of
Month

Total
Reserve
Assets

Gold
Stock II

Special
Drawing
Rights
2/3/

Foreign
Currencies 1,1
ESF

Reserve
Position
in IMF 21

System

~

February

70,632r

11,050r

10,217

14,106 17,124

18,135

March

69,354p

1l,05Op

10,108

13,582 16,638

.17,976

II Valued at $42.2222 per fine troy ounce.
'1t.1 Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a

weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.

J/ Includes allocations of SDRs by the IMF plus transactions in SDRs.
~I

Includes holdings of Treasury and Federal Reserve System; beginning November 1978,
these are valued at current market exchange rates or, where appropriate, at such other
rates as may be agreed upon by the parties to the transactions.

p Preliminary
r

Revised
RR-2356

DEPARTMENT

OF

THE

TREASURY

~/78~q~. . . . . . . . . . . . . . . .. .

................

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C .• 20220. (202) 622-2960

PRESS SCHEDULE FOR THE APRIL G-7 AND G-22 MEETINGS
NOT FOR RELEASE OR PUBLICATION, for news planning only. Times are tentative.

Treasury Department Contacts;
General G-7 issues:
Kelly Crawford (202) 622-2960
Michelle Smith (202) 622-2960
Press Pool Questions:
Michelle Lynn Bonner (202) 622-2960
To be cleared into Treasury for press conferences:
Phyllis Kayson (202) 622-2960
** All Treasury, White House, Congressional, State and Defense credentials will be
admitted to the Treasury Press Room from April 14 through April 17 and to the G-7 press
conference. The Treasury Press Room is located at 1500 Pennsylvania Avenue, NW
Room 1027. If you do not have one of these credentials, please call (202) 622-2960.**

Tuesday
April 14. 1998
SECRETARY ROBERT E. RUBIN ADDRESS TO THE BROOKINGS INSTITUTION
Strengthening the Architecture of the International Financial System
1775 Massachusetts Avenue, NW
Washington, DC
Falk Auditorium

OPEN PRESS (FOLLOWED BY MEDIA AVAILABILITY)
10:00 a.m.
Pre-set 9:00 a.m.
Brookings Institution Contact: Bailey Morris-Eck or Alexander Kafka (202) 797-6105

NOT FOR RELEASE OR PUBLICATION, for news planning only. Times are tentative.
RR-2357
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

2

Wednesday
April 15. 1998
G-7 FINANCE MINISTERS' MEETING
Blair House

ARRIVALS
Pennsylvania Avenue entrance to the Blair House
OPEN PRESS
Noon
CLASS PHOTO
Finance Ministers and Central Bank Governors
Blair House Courtyard (Rain site: Pool inside Blair House)
OPEN PRESS (Rain site: Mandatory pool, pool only.)
2:00 p.m.
G-7MEETING
Blair House
POOL SPRA Y AT TOP OF WORKING SESSION
2:15 p.m.
NOTE: Mandatory pool. pool only. See pool details at end of schedule.
G-7PRESSCONFERENCE
Treasury Secretary Rubin
Treasury Department (15th Street Entrance)
Large Conference Room (Room 3327)
OPEN PRESS
THERE WILL BE A 15 MINUTE EMBARGO (From the end of the press conference.)
6:00 p.m. (tentative, dependent upon the conclusion of the G-7 meeting)
Pre-set 5:00 p.m.

NOT FOR RELEASE OR PUBLICATION, for news planning only. Times are tentative.

3

Thursday
April 16. 1998
G-22 MEETING (FINANCE MINISTERS AND CENTRAL BANK GOVERNORS)
Madison Hotel

ARRIVALS
Entrance to the Madison Hotel
1177 - 15th Street, NW (comer of 15th and M Streets)

OPEN PRESS
6:00 p.m.
G-22 MEETING
Madison Hotel
1177 - 15th Street, NW (comer of 15th and M Streets)
POOL - OPENING REMARKS BY SECRETARY RUBIN ONLY
6:15 p.m.
NOTE: MandatoJY pool. pool only. See pool details at end of schedule.

POOL INFORMATION:
TV Pool: TBD Network Pool
(A video DA will be available - for coverage you must bring a deck.)
Print/wire Pool: Treasury press room pool (Individual TBD)
Photo Pool: High resolution 300 dpi jpeg photos available www.ustreas.gov/press/photos/
NOTE: To receive any pool video. there will be a video DA (locations TBD) and for
coverage you must bring a deck.
There will be a pool advisory with further details released Tuesday, April 14.

NOT FOR RELEASE OR PUBLICATION, for news planning only. Times are tentative.

DEPARTMENT

OF

THE

TREASURY f'~)

TREASURY

NEW S

OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622.2960

FOR IMMEDIATE RELEASE
April 8, 1998

Contact. Kelly Crawford
(202) 622-2960

RUBIN WELCOMES DEBT RELIEF FOR UGANDA
Treasury Secretary Robert E. Rubin today welcomed the World Bank and IMF decisions
to make Uganda the first country to receive final debt relief under the Heavily Indebted Poor
Countries (HTPC) debt initiative
"This initiative supports sustainable development, economic reform and growth,"
Secretary Rubin said. "Debt relief under the HIrC initiative will provide an important investment
in Uganda's future." The Ugandan Government has committed to allocate the resources made
available under this initiative to education and health
Uganda will no longer have to pay 5650 million in debt service as a result of the global
effort of all of its creditors, including the United States This culminates a process of economic
reforms and debt relief, beginning in 1992 with a 33 percent reduction of eligible debt by
Uganda's bilateral creditors in the Paris Club and followed by successively deeper debt reduction.
As a result, Uganda's debt ser\'ice to exports ratio will have been reduced from 73 percent in
1991 to 21 percent in 1998.
.
"I commend the Ugandan Government for its strong record of reform over the past
decade, achieving an average growth rate of about 0 percel1l 111 the mid-1990's," Secretary Rubin
said.
The United States. the first country to suggest a multilateral debt initiative, has been a
strong supponer of the HIPC debt illitiatl\e as a complement to existing debt relief mechanisms,
which already are providing deep debt relicf' The I·npc debt initiative is designed for those
countries in need of additional debt relief
To date, Burkina Faso, Bolivia. Guyana. Cote d'ivoire. Mozambique, Mali and GuineaBissau have been declared bv- the World Bank and the IMF to be eli!..!ible
for HIPC debt relief
~
-30-

RR-2358
For press releases. speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC

FOR IMMEDIATE RELEASE
April OB,

Office of Financing

CONTACT:

l.9.9B

202-219-3350

RESULTS OF TREASURY'S AUCTION OF 30-YEAR INFLATION-INDEXED BONDS

Interest Rate:
Series:

lssue Date;
Dated Date:
Maturity Date:

3 5/8t

912810FDS
COSH' No:
STRIPS Minimum~ $1,600,000

High Yield:

3.740~

Price:

April 15, 199B
April 15, 1998
April 15, 2028

97.937

All noncompetitive and successful competitive bidders were awarded
securities at the high yield. All tenders at lower yields were
accepted in full.

Tenders at the high yield were allotted

92%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)

Competitive
Noncompetitive

$

PUBLIC SUBTOTAL

Federal Reserve

20,568,150

$

$

7,956,170

45,988

45,988

20,614,138

8,002,158

400,000

400,000

o

o

Foreign Official Inst.
TOTAL

Accepted

Tendere1

Tender Type

21,014,138

$

Median yield
3.700%: 50% of the amount of accepted competitive
tenders was tendered at or below that rate.

Low yield
3.600%:
5% of the amount of accepted competitive
tenders was tendered at or below that rate.

RR-2359

http://Www.publicdebt.trens.gov

8,402,158

DEPARTIVIENT

OF

THE

TREASURY

NEWS
OIDCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASlllNGTON, D.C .• 20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
April 9, 1998

Contact: Kelly Crawford
(202) 622-2960

STATEMENT BY THE TREASURY SECRETARY ROBERT E. RUBIN ON JAPAN
We welcome Prime Minister Hashimoto's announcement of steps to stimulate the
Japanese economy. We look forward to seeing the details later this month. What is crucial is that
Japan move quickly to put in place a strong program.
We share the concern expressed by the Japanese Prime Minister about recent weakness in
the yen, and in that context we welcome the action undertaken by the Japanese authorities in the
exchange market to support the value of the yen.
-30-

RR-2360
Far press releases. speeches, public schedules and official biographies, call our 24.IJour fax lille at (202) 622-2040

DEPARTMENT

lREASURY

OF

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220. (202) 622·2960

FOR IMMEDIATE RELEASE
April 10, 1998

Contact: Kelly Crawford
(202) 622-2960

STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN ON INDONESIA

I welcome the agreement between the Government of Indonesia and the International
Monetary Fund on a revised Letter ofIntent. The key to its success is the Indonesian Government's
implementation now and over the long term. This agreement supports a comprehensive program
designed to restore financial stability and growth in Indonesia.
The United States and the international community have a major stake in seeing Indonesia
succeed in its efforts.
-30-

RR-2361

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622.2040

PUBLIC DEBT NEWS
- Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE

CONTACT:

April l3, 1998

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:

91-Day Bill
April 16, 1998
July 16, 1998
912795AC5
RANGE OF ACCEPTED COMPETITIVE BIDS:

Low

High
Average

Discount
Rate

Investment
Rate 1/

------

----------

4.970%
5.050%
5.035%

Price

5.102%
5.188%
5.172%

98.744
98.723
98.727

Tenders at the high discount rate were allotted
]I.MOUNTS TENDERED

AND

4%.

ACCEPTED (in thousands)

Tender Type

Tendered

Competitive
Noncompetitive

$

Accepted

24,554,187
1,300,247

$

4,160,687
1,300,247

PUBLIC SUBTOTAL

25,854,434

5,460,934

Federal Rese::::-ve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

3,361,860

3,361,860

312,000

312,000

o

TOTAL

$

29,528,294

1/ Equivalent coupon-issue yield.

RR-2362
http://www .pu hIicdcht. trc:ls.gO\"

o
$

9,134,794

PUBLIC DEBT NEWS
- Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
April 13, 1998

CONTACT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
April 16, 1998
October 15, 1998
9127945A8

Term:
Issue Date:
Maturity Date:
CUSIP Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:

Low 2/
High
Average

Discount
Rate

Investment
Rate 1/

Price

------

----------

------

5.110%
5.135%
5.130%

5.318%
5.345%
5.339%

97.417
97.404
97.407

Tenders at the high discount rate were allotted

94%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered

Tender Type
Competitive
Noncompetitive

$

PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
TOTAL

$

Accepted

25/715,983
1/104/333

$

4/050/133
1/104,333

26/820/316

5/154/466

4/160,000

4/160/000

2/105/000

2/105/000

o

o

33/085/316

$

1/ Equivalent coupon-issue yield.
2/ $1/026/000 was accepted at rates below the competitive range.

RR-2363
hup://www.pl1b Iicdrht. trels.go\'

11/419,466

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
April 13 , 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN ALABAMA

The Bureau of Public Debt took action to assist victims of tornadoes in Alabama by expediting
the replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Alabama affected by the storms. These procedures will remain in effect through May 31, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Alabama counties involved are Jefferson and Tuscaloosa. Should additional counties be declared
disaster areas the emergency procedures for savings bonds owners will go into effect for those
areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or by writing the
Richmond Federal Reserve Bank's Savings Bond Customer Service Department, 701 East Byrd
Street, Richmond, Virginia 23219; phone (804) 697-8370. This form can also be downloaded
from Public Debt's website at: www.publicdebt.treas.gov. Bond owners should include as much
information as possible about the lost bonds on the form. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a financial institution. Completed forms should be forwarded to
Public Debt's Savings Bond Operations Office located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word "STORMS" on the front of their
envelopes, to help expedite the processing of claims.

RR-2364

000

http://www.publlcdebUreas.gov

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
April 13, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN GEORGIA

The Bureau of Public Debt took action to assist victims of tornadoes in Georgia by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Georgia affected by the storms. These procedures will remain in effect through May 31, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Georgia counties involved are Cobb and DeKalb. Should additional counties be declared disaster
areas the emergency procedures for savings bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or by writing the
Richmond Federal Reserve Bank's Savings Bond Customer Service Department, 701 East Byrd
Street, Richmond, Virginia 23219; phone (804) 697-8370. This form can also be downloaded
from Public Debt's website at: www.publicdebureas.gov. Bond owners should include as much
information as possible about the lost bonds on the form. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a financial institution. Completed forms should be forwarded to
Public Debt's Savings Bond Operations Office located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word "STORMS" on the front of their
envelopes, to help expedite the processing of claims.

000

http://www.publicdebt.treas.gov

DE P'A R T.M E)'i T . (rF . T'H

E .T

R E A'S U. R'~::"

·:..><·. ~,:>Y~i

.

-.

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASIDNGTON, D.C.• 20220 • (202) 622·2960

,

Remarks as Prepared for Delivery
April 14, 1998

SECRETARY ROBERT E. RUBIN
BROOKINGS INSTITUTION
STRENGTHENING THE ARCHITECTURE OF
THE INTERNATIONAL FINANCIAL SYSTEM

Today I would like to discuss the international financial system in the wake of the financial
crisis in Asia; what we can learn from these events about the opportunities and risks of a global
financial market; and how we can strengthen the architecture of the international financial system
to realize the potential of a 21 st century global economy.
These issues of architecture will be at the top of the agenda this week when the world
financial community gathers here in Washington for the spring meetings of the Group of Seven
industrialized nations and the policy making bodies of the International Monetary Fund and the
World Bank. In addition, Chainnan Greenspan and I will host a special meeting of a group of
ministers and governors from advanced. emerging and transition economies to discuss
architecture, In a moment I will discuss the US approach to changes in the international financial
architecture. which we will bring to these meetings. just as the other nations of the world will
bring their ideas and suggestions, But first. I think it is important to place these discussions in
broader historical context.
Over the last ten to fifteen years, we have seen the rapid evolution of a new era of the
global economy and global financial markets. an era that presents enormous opportunities for
workers. farmers and businesses around the globe And the changes have been dramatic. Greatly.
increased flows of trade, capital. information and technology have helped promote global output
Most large businesses, both here in the United States and elsewhere have become global
Developing countries have become imponant panicipants in the global economy; for example.
they now absorb more than 40 percent of our country's exports. Financial liberalization and
technological innovation have produced an ever broader range of new services and products.
A decade ago. official capital flows to developing countries were much greater than
private capital flows. Today, annual private flows of capital to developing countries around the
RR-2366

For pr~s releases. speeches, pub{(c 'ichedules and official biographies. call our 24~our {ax line at (202) 622-2040

. ,

world are more than seven times larger than official flows. In 1996, more than $250 billion in
private capital flowed to emerging markets - compared to roughly $20 billion ten years ago. AU
of this explains why fluctuations in the Thai baht, or the fortunes of the Korean stock market can
now affect workers, farmers and businesses in the United States and allover the world and appear
daily on the front page of our newspapers. A decade ago practically no one outside the affected
countries would have noticed.
Global economic and financial integration with respect to trade and capital flows have
brought tremendous benefits here in the United States through increased exports, more highpaying jobs, higher standards of living and lower inflation. The huge increase in private capital
flows to developing countries have, among other things, helped finance a great increase in
imports from industrialized countries, including our own. Developing countries form Latin
America to Asia have also benefited greatly, as increased capital flows financed greater investment
and contributed substantially to the high rates of growth in many such countries, promoting higher
standards ofliving and lifting millions out of poverty. The recent economic turmoil in Asia should
not, for example, detract from what Asia has achieved over the last 25 years. Even under the
more pessimistic forecasts, living standards in Korea, Thailand and Indonesia would still be three
times higher at the end of this year than they were 20 years ago, and the poverty rates much
lower. Even with the current crisis, per capita income would be higher than in 1995.
As we have seen in recent years, however, this new era brings not only great opportunities
and benefits, but also new challenges and risks. How effectively the international community
meets these challenges and manages the risks, will have an enormous impact in the years ahead on
our economic well-being, and the economic well-being of all countries.
One great challenge is to greatly broaden panicipation in the benefits of the global
economy. Despite vast global economic growth over the past decade. over half the people of the
world still live in poveny and that is a problem not only for the countries with high poverty rates
but for all of us. The de\·eloping countries are our markets for the future, and their economic
well-being promotes our economic well-being. Here at home, global financial integration benefits
the great majority of Americans. but one of'the concerns often expressed -- and it is a concern
that I share -- is that. throughout the industrialized countries. including the United States, those
who are well-equipped to compete in the global economy are doing better and better, and those
who are not so well-equipped risk falling further and further behind.
But the answer to these challenges is not to tum inward. or to dismantle the global
economy that has benefited so many. The answer is for all nations. including the United States. to
make it easier for those who are dislocated to reenter the economy successfully; to focus on
education and training to equip citizens with the tools to prosper in the global economy; to build
social safety nets to protect the people who would otherwise be left behind; to work for broad
implementation of core labor standards throughout the globe; and to promote democracy and
human rights. The benefits of the global economy will only be realized if we and all other nations
build broad-based suppon at home for forward-looking international economic policies. That

2

support will only occur if these benefits are broadly shared.
A half century ago, when the world was emerging from a very different period of history,
Franklin D. Roosevelt urged Americans to support him in working with other nations to create
international institutions that would spell the difference "between a world caught again in the
maelstrom of panic and economic warfare ... and a world in which the members strive for a better
life through mutual trust, cooperation and assistance." The result was the Bretton Woods
institutions - the International Monetary Fund and the World Bank -- followed later by a range of
other collaborative arrangements, such as the World Trade Organization, central bank networks,
and the regional development banks. This international architecture has worked to support growth
and financial stability and open markets around the globe, greatly benefiting generations of
Americans.
Throughout their history, the international financial institutions have had to adapt to a
changing global economic landscape, and they have, by and large, done so successfully. But over
recent years, the pace of change in the global economy has accelerated. The Asian crisis has
demonstrated how badly flawed financial sectors in a few developing countries, and inadequate
risk assessment by international creditors and investors, can have significant impact in countries
around the globe. Once, unsound macro-economic, financial and other policies in emerging
economies would have had little impact on other nations. Now, unsound policies in these
countries can hann economies throughout the global economy -- such as our large budget deficits
did in the 1980s -- and the problems of each country are the problems of all of us.
That is why, even before the tunnoil in Asia, the United States and the international
community have been working to strengthen the international financial architecture. Our goals are
clear: to promote broadly shared growth in both the developed and developing world, to be
better able to prevent future crises. and to deal with them when they occur, and by making the
architecture as modem as the markets. The United States began this effort four years ago at a G7 leaders' meeting in Naples and. working with other nations. the first concrete steps were
launched at the G-7 summit the following year in Halifax. Going forward will not require the kind
of far-reaching institutional change that we saw in 1945. but the international architecture does
need to adapt substantially for the very different circumstances that have developed over the past
decade. and to fully prepare for the challenges of tomorrow. This adaptation involves great
intellectual complexities and great international political complexities and will occur not at one
time, but in pieces over an extended period of time
There are a whole range of issues that are profoundly important to the strength of
individual economies and the global economy -- sound macroeconomic policies, education, health
care, and the environment number among them. There is also a detailed agenda for reform of the
IMF concerning, among other things. its lending programs. But today I would like to focus on
three challenges that have been brought home by the financial crisis in Asia and that are most
directly related to financial stability and building a stronger global financial market. These are
providing better infonnation through improved disclosure and transparency; building strong

3

national financial sectors; and creating mechanisms so that the private sector more fully bears the
consequences of its credit and investment decisions, including in times of crisis.
The first critical area is better information. When investors are well-informed, use that
information wisely, and expect to bear their consequences of their actions, they will make better
decisions. That is good for them and can be a powerful force in promoting good policies among
nations. National policy makers also need better information, to guide their actions, and anticipate
potential problems.
However, there are obstacles to getting good information about economic and financial
matters. One is the temptation - in the private sector and in government -- to avoid disclosing
problems. But sooner or later, as we have seen in Asia, the problems will make themselves
known - and in the meantime they only become more severe. In the Asian economies that
suffered crises, very effective strategies for achieving many years of rapid growth had masked the
growth of problems. In many cases, lack of data meant that no one had a true understanding of
this build up or of these economies' vulnerabilities.
Another obstacle is the difficulty of collecting relevant information on a timely basis. In the
modern, very complex global financial markets investors and policy makers need more types of
information then ever before. For example, public and private institutions have to better identify
and disclose the effects of derivatives and other off-balance sheet items on financial risks and
vulnerabilities
Just as important as having good information is using that infonnation well. Risk and
credit evaluation have often not kept pace with the development of new products and markets.
Indeed, in the Asian crisis we were struck by how few of the international creditors and investors
in these economies had the appropriate expertise and knowledge on weighting of risk.
While to some measure this may simply reflect the seemingly inevitable tendency for
investors and creditors to at times get overly optimistic or pessimistic -- and at those times to
forego adequate analysis -- the incentives to be rigorous should be maximized, which at the least
involves questions of moral hazard and regulatory regimes When creditors and investors come
closer to functioning with full analytic rigor, markets will more effectively perfonn their critical
disciplining function in favor of good policy. disclosure. strong financial sectors and the like.
Even before the Asian crisis we had been involved in an intensive effort to improve the
quality and quantity of international economic and financial information, including greater IMF
transparency Many countries are now publishing more and better data as a result of these efforts
and the INfF is more open about its analysis But events in Asia have shown we need to
strengthen these initiatives We propose four steps to do so
Firs!. there needs to be a substantial expansion in the types of economic and financial data
made available. In particular, it is essential to get good information on the external liabilities of
4

both the public and private sectors. The IMP's Special Data Dissemination Standards should
require countries to provide a complete picture of usable central bank reserves, including any
forward liabilities, foreign currency liabilities of the commercial banks, as well as indicators on the
health of the financial sector. The Bank for International Settlements should expand its reporting
on cross border bank flows to get better, broader, and more timely data on external lending to a
country. Governments and international financial institutions also need to make this data more
easily accessible to investors, particularly through the internet.
Second, we need to explore how to obtain and publicize a broader range of qualitative
descriptive infonnation on financial sector matters that affect the risk of investing in emerging
markets, including detail on banking supervision, bankruptcy procedures, perhaps judicial
systems, credit cultures and skills in the banking sector. We must now resolve the many difficult
issues with regard to these qualitative matters, for example, how best to describe them and who
should perfonn this function.
To support these efforts on disclosure, private sector groups should provide their own
ideas about the data and infonnation they would find most helpful, and ways to encourage wider
use of available infonnation and appropriate focus on risk.
Third, the IMF needs to make its analyses and lending. conditions more transparent. This
will involve more frequent and regular publication of a number of IMF documents, analyses, and
letters of intent. However, while greater transparency to help investors reach an informed
judgment about potential problems is essential, giving the UvfF the responsibility to publicly
predict fonnal warnings of crisis is not. While it is possible to identify problems that may develop
into difficulties and occasionally into crisis, it is not possible in our view to reliably predict
combustion into crisis.
Fourth, we need to increase incentives for countries to improve transparency. The
discipline of the market is always the best and most powerful incentive, and can work here to
induce better disclosure. Analysts and rating agencies also need to pay close attention to the
availability and quality of data and information when determining credit worthiness and asset
allocations. In addition, the IMF and other international financial institutions should publicize their
concerns about important gaps in countries' disclosure and consider conditioning access to loans
on countries' willingness to improve their transparency
The second critical area we are focused on is strengthening national financial systems. A
common element amongst the countries involved in the crisis in Asia -- and, for that matter, in
virtually all countries experiencing financial crises -- is a badly flawed domestic financial sector
Developing a strong financial system that is a match for the challenges of a global financial
market is a long and difficult process. The institutions and laws we have in the United States to
supervise our domestic financial system were developed over a period of a hundred years and
must constantly be updated. We ourselves had an enonnous financial sector problem with our

5

Savings and Loan crisis in the 1980s. That crisis stemmed in part from a failure to supervise those
institutions adequately as they moved into new services, and to a delay in taking decisive
corrective action. Building strong financial sectors will unquestionably be key to financial stability
and growth in emerging economies.
Given the effects that weak financial systems can have internationally, the time has come
for a more systematic approach to strengthening national financial systems that would involve a
more intensive assessment of the vulnerabilities in national financial systems and steps to promote
reforms. To do this, we need action in the following areas.
First, we need to develop a more complete range of global standards to guide individual
governments' efforts. As a result of the Halifax initiatives, the Basle Committee has now
developed the "Core Principles for Effective Banking Supervision." 10SCO, the organization that
brings together securities regulators from around the globe, is already well on the way to
developing an analogous set of principles for the supervision of securities firms. But we believe
core principles should be developed and adopted in additional areas that affect the underlying
strength of a financial system, including bankruptcy regimes, accounting and disclosure, loan
classification, and overall corporate governance. Other practices which need to be adopted
include promoting credit risk management, helping address the problems of connected and
directed lending, maturity and currency mismatches, and encouraging a strong credit culture and
the requisite skills in a nation's banking system. Different countries have and will continue to have
different ways of doing these things, but we must agree to certain high quality internationally
acceptable standards.
Second, we need to fill a gap in today's international architecture to provide for
international surveillance of countries' financial regulatory and supervisory systems, just as the
Th1F now carries out surveillance of macroeconomic policies There are a number of different
ways that this could be done -- perhaps through a joint initiative with the IMF and the World
Bank, with the use of existing expenise of regulators. But it is critically important to find an
appropriate way to fill this gap.
Enhanced surveillance will help induce national authorities to bring their practices up to
internationally-acceptable levels, as I set fonh in the standards I just discussed, and reduce
financial risk These assessments can lay the groundwork for policy discussions and appropriate
assistance, where needed. from the IMF and the multilateral development banks for programs to
strengthen financial systems In addition. analysis of this kind should feed into the range of key
documents we believe the 1~1F should be releasing more systematically. This would then bring
into play the most powerful incentive. the markets
Third. we sh?uld consider examining other incentives that could be brought to bear for
strengthenIng finanCial systems. For example. authorities in major financial centers could consider
conditioning access to their markets by banks from other countries on a strong home country
supervisory regime. as demonstrated by adherence to the Basle Core Principles, plus whatever
6

relevant additional standards are developed.
Let me also make two additional points relating to financial sectors and capital markets.
Experience shows that when countries allow foreign financial service providers into their markets
-- with all the competition, capital and expertise they bring with them -- the strength of financial
systems is greatly enhanced. The recent WTO agreement in financial services is a major step
forward here.
In addition, while attempts to limit inflows of capital, such as Chile's short-term capital
controls, have been advocated by some, it is key-independent of the merits or drawbacks of such
measures - that this sort of approach not distract policy makers from implementing the
underlying sound policies that are the real foundation for stability and growth. Having said that, it
may be worth exploring narrower, prudential limits on banks to prevent an excessive buildup of
short-term foreign currency liabilities.
The third and final critical area that I want to discuss today is building effective
mechanisms for creditors and investors to more fully bear the consequences of their actions. We
cannot prevent crises from happening entirely. When crises do occur, as most recently in Asia, the
provision of temporary financial support by the IMF, conditioned on countries pursuing sound
policies, is essential in providing countries the breathing room they need to stabilize their
currencies, restore market confidence and resume growth. It limits the risk that the crisis will
worsen or spread. But, and the balance here will always be difficult, the private sector must fully
bear the consequences of its decisions in the context of restoring financial stability.
There are two reasons to focus on the private sector bearing the consequences of its
actions. In a world in which trillions of dollars flow through international markets every day there
is simply not going to be enough official financing for the crises that could take place. There is
also a risk with international assistance of what economists call "moral hazard:" that providing
official financial assistance shields creditors and investors from the consequences of bad decisions
and sows the seeds of futures crises. Some protection of creditors may be an inevitable byproduct of the overarching objective of restoring financial stability, but this protection should be
kept to the minimum possible.
When investors bear more responsibility for their actions, they have a better incentive to
analyze and weigh risks appropriately This. in turn. will promote good policy in all countries,
including our own, and help prevent instabilIty and crisis Markets are a powerful force and our
goal must be to make markets work better. while still providing the essential international support
to help countries in crisis and guard against contagion risks
There are a number of ways that the private sector can be involved when the IMF is
providing emergency support at a time of country crisis, as the recent cases in Asia have shown.
In Korea, international banks stretched out and renegotiated a substantial proportion of
outstanding loans while the IMF has provided emergency financing to Korea, drawing upon its

7

new, short tenn, high interest lending facility, conditioned on strong policies. In Indonesia,
foreign banks are now negotiating with a committee representing private sector corporate
debtors, while the Indonesia program with the IMF is aimed at putting in place a more stable
macroeconomic environment.
While the whole question of private sector involvement is extremely complicated -- and
there are many areas that may not have yet been fully explored - let me just mention a few
thoughts as to possible mechanisms.
In general, the promotion of new, more flexible forms of debt agreements and indentures
would provide a framework for direct negotiations between creditors and investors. In addition,
the Th1F should explore lending into arrears - in other words, the IMF continuing to provide
financing to countries even when those countries may be behind on the debt payments to some
private creditors -- to create a situation in which debtors and creditors work things out
themselves. A broader, international bankruptcy regime of some sort may have great appeal, but,
at least with current knowledge, the political obstacles may be insurmountable. However, strong
bankruptcy laws and institutions covering debtor-creditor relations can mean business failures
have a better chance of being resolved quickly and with less impact on the broader economy.
Governments could then reduce the scope of formal guarantees to create a more healthy
environment with the presumption that corporate debt will not be protected, and that where
appropriate banks will be allowed to fail. Various insurance plans for creditors have also been
suggested, but none so far proposed seem likely to be effective and some may create additional
moral hazard problems.
Before I conclude, I want to comment on a critical immediate issue. The IMF has been
central to the effort to restore financial stability in Asia and the IMF will be central to restoring
financial stability in response to crises in the years ahead -- matters that are critically important to
the economic well-being of the American people. All of this underscores the importance of
Congress approving full funding for the IMF, as requested by the President. As a result of the
recent situation in Asia, the IMF's normal financial resources are approaching historically low
levels. The IMF might not have the capacity to respond effectively if the Asian crisis were to
deepen, spread to other developing countries throughout the globe, or if a new crisis were to
develop in the near term Every day that this continues is another day of vulnerability for
~erican workers, fanners, a~d businesses Congress should act and act now. And our capacity
to mfluence the IMF to deal Wlth these new challenges turns upon our capacity to support the
IMF with the funding it needs
As I said earlier, there are ,ma~y steps we need to take to build a strong global economy

tha~ benefits e~eryone. But the obJectl:es I have described today -- better information; stronger
natIOnal financlal.systems; and mec~~nlsms so that the private sector more fully bears the

consequences of Its Invest,ment deCISIons -- are critical elements in strengthening the architecture
of the internatIonal financIal system, especially with regards to preventing and dealing with
financial instability and crisis

8

Progress will take time and immense amounts of energy on the part of the international
community, and in our country, close cooperation between Congress and the Administration. But
our success in meeting the challenge of strengthening the international financial architecture will
be critical to global prosperity -- and our own country's economic well-being -- for years and
decades to come. Thank you very much.
-30-

9

PUBLIC DEBT NEWS
- Department of the Treasury • Bureau of the Public Debt • Wa!hingtoD, DC 20239

FOR IMMEDIAIE RELEASE
April 14, 1998

Contact: Office of Financing
(202) 219-3350

TREASIJRY'S INFLATION-INDEXED SECURITIES
MAY REFERENCE CPI NUMBERS A..'ID DAILY INDEX RA nos

Public Debt announced today the reference Consumer Price Index (CPI) numbers and
daily index ratios for the month of May for the following Treasury inflation-indexed securities:
(1) the 3-3/8% lO-year notes due Jamwy 15, 2007, (2) the 3-5/8% 5-year notes due July IS,
2002, (3) the 3-5/8% 10-year notes due January 15, 2008, and (4) the 3-5/8% 30-year bonds due
April 15,2028. This information is based on the non-seasonally adjusted U.S. City Average All
Items Consumer Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor
Statistics of the U.S. Department of Labor.

In addition.to the publication of the reference CPI's (Ref CPI) and index ratios, this
release provides the non-seasonally adjusted CPI-U for the prior three-month period.
This information is available on the Internet at Public Debt's web site
(http://www.publicdebt.treas.gov). The information is also available through the Treasury's
Office of Public Affairs automated fax system by calling 202-622-2040 and requesting document
number 2367.
The information for June is expected to be released on May 14, 1998.
000
Attachments

RR-2367

202-219-3350

Contact: Office of Financing
3-318°~

TREASURY 10-YEAR INFLATION-INDEXED NOTES
SERIES:
CUSIP:
DATED DATE:
ORIGINAL ISSUE DATE:
ADDITIONAL ISSUE DATE:
MATURITY DATE:
Ref CPI on DATED DATE:

TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:

A-2007
9128272M3
January 15, 1997
February 6, 1997
April 15, 1997
January 1 S. 2007
158.43548
May 1998
31
161.6
161.9
162.2

CPI-U (NSA) January 1998
CPI-U (NSA) February 1998
CPI-U (NSA) March 1998

Ref CPI and Index Ratios for May 1998:

Month
May
May
May
IMay
:May
IMay
,May
May
May
I

May

,May
iMay
IMay
May
May
May

May
May

iMay
May
May

May
jMay
May
May

May
May
May
May
May

Year
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998

Index Ratio
1.02187
1.02193
1.02199
1.02205
1.02211
1.02217
1.02223
1.02229
1.02236
1.02242
1.02248
1.02254
1.02260
1.02266
1.02272
1.02278
1.02284
1.02291
1.02297
1.02303
1.02309
1.02315
1.02321
1.02327
1.02333
1.02339
1.02346

25
26
27

1998
1998
1998
1998
1998
1998

RefCPI
161.90000
161.90968
161.91935
161.92903
161.93871
161.94839
161.95806
161.96774
161.9n42
161.98710
161.996n
162.00645
162.01613
162.02581
162.03548
162.04516
162.05484
162.06452
162.07419
162.08387
162.09355
182.10323
162.11290
162.12258
162.13226
162.14194
162.15161

28

1998

182.1e129

1.02J~2

29
30

1998 162.17097
1998 162.18065
19981 162.19032

1.02358
1.02364
1.02370

Calendar Day
1
2

3
4
5

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

31

1998

202·219-3350

Contact: Office of Financing

3-5/8% T~ EASURY 5-YEAR INFLATfON-INOEXEO NOTES
J-2002

SERIES:
CUSIP:

9128273A8
July 15, 1997
July 15, 1997

DATED DATE:
ORIGINAL ISSUE DATE:

October t5, 1997
July 15, 2002
160.15484
May 1998

ADDITIONAL ISSUE DATE:
MATURITY DATE:
Ref CPI on DATED DATE:
TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:

31

161.6
161.9
162.2

CPI-U (NSA) January 1998
CP~U (NSA) February 1998

CPI-U (NSA) March 1998
Ref CPI and Index Ratios for May 1998:

I

:Month
May
May
May
May
May
May
May
May
May
May
May
May
May

May
May
May
May
May
May

May
[May
IMay
May
May
May
.May
!May

\=
\May

Ma~

calendar Day
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1G9S
1998
1998
1998
1998

28

162.15161

1998

1&2.10121t

29

1998
1998
1998

162.17097
162.18065
162.19032

30

31

Year
1998
1998
1998
1998

RefCPI
161.90000
181.90968
161.91935
161.92903
161.93871
181.94839
161.95806
161.96774
161.97742
161.98710
161.996n
162.00645
162.01613
162.02581
162.03548
162.04516
162.05484
162.06452
162.07419
162.08387
162.09355
162.10323
162.11290
162.12258
162.13226
182.141~

Index Ratio
1.01090
1.01096
1.01102
1.01108
1.01114
1.01120
1.01126
1.01132
1.01138
1.01144
1.01150
1.01156
1.01162
1.01168
1.01174
1.01180
1.01186
1.01192
1.01198
1.01204
1.01211
1.01217
1.01223
1.01229
1.01235
1.01241
1.01247
,.o,~

1.01259
1.01265
1.01271

Contact: Office of Financing

202-219-3350

•

3-5/8% TREASURY 10-YEAR INFLATION·INDEXED NOTES
A-2008
9128273T7
January 15, 1998
January 15, 1998
January 15. 2008
161.55484
May 1998
31

SERIES:
CUSIP:
DATED DATE:
ORIGINAL ISSUE DATE:
MATURITY DATE:

Ref CPI on DATED DATE:
TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:

161.6

CPI·U (NSA) January 1998
CPI·U (NSA) February 1998
CPI-U (NSA) March 1998

161.9
162.2

Ref CPI and Index Ratios for May 1998:

!
Month
May
May
May
May
May
May
May
May
May
!May
May
May
May
May
May
May
May
May
May
May
May
May
May
May

May
May
May
May
May
May

May

Calendar Day

1

2
3
4
5

Year
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998

RefCPI
161.90000
161.90968
161.91935

Index Ratio
1.00214
1.00220
1.00228
1.00232
1.00238
1.00244
1.00250

1998
1998
1998

161.92903
161.93871
161.94839
161.95806
161.96n4
161.97742
161.98710
181.99677
182.00645
182.01613
162.02581
162.03548
162.04516
162.05484
162.06452
162.07419
162.08387
162.09355
162.10323
162.11290
182.12258
182.13226
162.14194
182.15161

28

1990

10~.10129

'.00375

29
30
31

1998
1998
1998

182.17097
162.18065
162.19032

1.00381
1.00387
1.00393

6
7

8
9
10.
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27

1998

1.00256
1.00262
1.00268
1.00274
1_00280
1.00286
1.00292

1.00298
1.00304
1.00309
1.00315
1.00321
1.00327
1.00333
1.00339
1.00345
1.00351
1.00357
1.00363
1.00369

Contact: Office of Financing

"2-219-3350

3-5/8% TREASURY 30- YEAR INFLATION-INDEXED BONDS
Bonc~

·Apn12028
;J12810FD5
April 15, 1998
April 15. 1998
April 15. 2028

DESCRIPTION:
CUSIP:
DATED DATE:
ORIGINAL ISSUE DATE:
MATURITY DATE:
Ref CPI on DATED DATE:
TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:

161.74000
May 1998

31

CPI-U (NSA) January 1998
CPI-U (NSA) February 1998
CPI-U (NSA) March 1998

161.6
161.9

162.2

Ref CPI and Index Ratios for May 1998:

i

I

Month
May
May
May
May
May
May
May
May
May
May
May
May
May
May
May
May
May

!May

May
May
May
!May
May

May
May
May
May
Uay
,May
'May

Calendar Da~

1
2
3
4

5
6
7
8
9
10
11
12
13
14
15
16
17
18

19
20
21

22
23

24
25
26

2i
28

29
30
31

Year
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1993
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
'880

19981
1998
1998

RefCPI
161.90000
161.90968
161.91935
161.92903
161.93871
161.94839
161.95806
161.96n4
161.9n42
161.98710
161.996n
162.00645
162.01613
162.02581
182.03548
162.04516
162.05484
162.06452
162.07419
162.08387
162.09355
162.10323
162.11290
162.12258
162.13226
162.14194
162.15161
'~.,e'29

162.17097
162.18065
162.19032

Index Ratio
1.00099
1.00105
1.00111
1.00117
1.00123
1.00129
1.00135
1.00141
1.00147
1.00153
1.00159
1.00165
1.00171
1.001n
1.00183
1.00189
1.00195
1.00201
1.00207
1.00213
1.00219
1.00225
1.00231
1.00237
1.00243
1.00249
1.00254
1.00260
1.00268
1.00272
1.00278

II

DEPARTMENT

OF

THE

TREASURY

NEWS

lREASURY

ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960

CONTACT:

EMBARGOED UNTIL 2:30 P.M.
April 14, 1998

Office of Financing
202/219-3350

TREASURY S WEEKLY BILL OFFERING
I

The Treasury will auction two series of Treasury bills totaling
$13,000 million, to be issued April 23, 1998. This offering will
result in a paydown for the Treasury of about $24,200 million, as the maturing
publicly held bills are outstanding in the amount of $37,198 million (including
the 6S-day cash management bills issued February 17, 1998, in the amount of
$22,389 million) .
approx~tely

In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $6,75l million of the maturing bills, which may be refunded at
the weighted average discount rate of accepted competitive tenders. Amounts
issued to these accounts will be in addition to the offering amount.
Federal Reserve Banks hold $7,089 million of the maturing issues as agents
for foreign and international monetary authorities. up to $3,000 million of
these securities ma be refunded within the offerin amount in each of the .
auctions of 13-week bills and 26-week bills at the weigHt
average discoun~
rate of accepted competitive tenders. Additional amounts may be issued in each
auction for such accounts to the extent that the amount of new bids exceeds
$3,000 million.
Tenders for the bills will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D.C. This offering
of Treasury securities is governed by the terms and conditions set forth in the
Uniform Offering Circular (31 CFR Part 356, as amended) for the sale and issue
by the Treasury to the public of marketable Treasury bills, notes, and bonds.
Details about each of the new securities are given in the attached
offering highlights.
000

RR-2368
Attachment

Forpress releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040

HIGHLIGHTS OP TREASURY OPPEIUNGS OP WEEKLY BILLS
TO BE ISSUED APRIL 23, 1998
April 14, 1998
Offering Amount .................... .

$5,750 million

$7,250 million

Description of Offering:
TeDm and type of security .......... .
CUSIP number ......... , ............. .
Auction date ...... .
Issue date ......................... .
Maturity date ...................... .
original issue date ................ .
current1y outstanding .............. .
Min~wm bid amount ................. .
MUltiples .......................... .

91-day bill
912794 41: 9
April 20, 1998
April 23, 1998
Ju1y 23, 1998
July 24, 1997
$29,759 mi11ion
$10, 000
$ 1,000

182-day bill
912195 AN 1
April 20, 1998
April 23, 1998
October 22, 1998
Apri1 23, 1998

· ........
· ........
· ........
· ........
.........
· ........
.. ..... ..

$10,000
$ 1,000

The fo110win9 rules app1y to all securities mentioned above:
Submission of Bids:
Noncompetitive bids ......................... Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids.
Competitive bids ............................. (1)
MUst be expressed as a discount rate with three dec~1s in
increments of .005t, e.g., 1.100t, 1.105t.
(2)
Net long position for each bidder must be reported when the
sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(3)
Net long position must be determined as of one half-hour prior
to the closing t~ for receipt of competitive tenders.
Maximum Recognized Bid
at a Sin91e Yie1d ............... .

35% of public offering

Maximum Award. . . . .. . ............... .

35% of public offering

Receipt of Tenders:
Noncompetitive tenders ............. .
Competitive tender.

Prior to 12:00 noon Eastern Daylight Saving time on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time on auction day

pa)'l1!ent Tenns ...................... .

Pull payment with tender or by cbarge to a funds account
at a Pederal Reserve Bank on issue date

STATEMENT OF G-7 FINANCE MINlSTERS AND CENTRAL BANK GOVERNORS
April 15, 1998
Washington, DC

1)

We , the Finance Ministers and Central Bank Governors of the G-7 countries, met today to
review recent developments in the world economy and financial markets.

Developments in the World Economy
G-7 Economies
2)

Together with the Managing Director of the International Monetary Fund, Michel
Camdessus, we reviewed recent developments in our economies and other economies
around the world.

3)

Strong growth has continued in North America and the United Kingdom. It is important
that the policy framework continue to be directed at a sustainable expansion in these
countries and at increasing national savings in the United States.

4)

In France, Germany and Italy, economic growth gained momentum in 1997 and is
expected to strengthen further this year. It is important that recovery on the Continent be
increasingly based on sustained growth of domestic demand. Continuing structural
reforms will also be needed to combat persistent high unemployment and provide a sound
basis for growth.

5)

The challenges facing Japan are serious and have intensified in recent months. We
welcomed the recent announcement of an economic policy program directed at spurring a
substantial strengthening of domestic demand and reviving business and consumer
confidence. What is crucial is to implement quickly a strong program of effective fiscal
measures and structural reforms. We also welcomed the progress Japan is making in
implementing its Big Bang financial liberalization initiative and encouraged the Japanese
authorities to move forward to address the problems in the financial system.

6)

Inflation pressures in the G-7 economies remain under control, with Italy showing
particular improvement. But vigilance will, as always, remain necessary to stay on a
non-inflationary path, particularly in the United States and the United Kingdom, so that
sustainable growth can be maintained.

European Economic and Monetary Union
7)

RR-2369

We look forward to a successful launch of European Economic and Monetary Union

2
(EMU) that contributes to the stability of the international monetary system. Strong
commitment to the fiscal requirements of EMU membership, and to efforts to fight high
structural unemployment, are key to ensuring a stable and successful EMU. We agreed
on the importance of examining these issues further together.

Exchange rates
8)

We discussed developments in our exchange and financial markets. We reaffinned our
view that exchange rates should reflect economic fundamentals and that excess volatility
and significant deviations from fundamentals are undesirable. We emphasized that it is
important to avoid excessive depreciation where this could exacerbate large external
imbalances. In light of this, we support appropriate steps by Japan aimed at stimulating
domestic demand led growth and reducing external imbalances, thus also correcting the
excessive depreciation of the yen. We will continue to monitor developments in
exchange markets and to cooperate as appropriate.

Emerging Markets
9)

We welcomed progress toward restoration of financial stability in Asia. We are
particularly encouraged by an early return to the capital markets by some countries, the
efforts being made toward strengthening financial systems and the recent strengthening of
regional currencies.

10)

Despite this progress, substantial challenges lie ahead, and we agreed that this is no time
for complacency. A strong and enduring recovery requires a substantial commitment to
the macroeconomic and structural refonn necessary to restore confidence, with program
support from the IFIs. The international community has a strong interest in seeing
recovery in Asia, and we are committed to working with the IFIs toward this goal. In this
context, our export credit agencies continue to provide trade finance to countries in this
region. We also agreed on the importance of building a social consensus for reform in
Asia, which requires action to limit the impact of the crisis on the poor.

II)

We welcomed Indonesia's renewed commitment to economic and structural reform and
its agreement with the IMF on a new refonn program. We urge the Indonesian
government to implement its program fully and vigorously as this is necessary to restore
confidence.

12)

We reviewed potential risks in broad range of emerging markets. We welcomed
increased differentiation by the markets of the prospects of emerging economies and
noted that preemptive policy measures in key cases have helped to contain contagion.
We believe that an open global trading system is essential for broad-based prosperity. We
encourage emerging and transition economies to pursue strong macroeconomic policies,
improved governance and structural reform programs to reduce their vulnerability to

3
contagion, and urged the IFIs to play an active role in supporting these efforts. In this
regard, we reiterated the urgent need to approve the proposed New Arrangements to
Borrow and quota increase, so that the Fund has the necessary resources to perform its
mission at this very critical time.

Development Issues & Africa
13)

We noted the economic progress in those developing countries where sound
macroeconomic policies, good governance and market reforms have been pursued
vigorously. We reiterated our commitment to support these countries' efforts to integrate
into the global economic system. This support includes our efforts, both bilaterally and
through the IFIs. In this context, we stressed the importance of appropriate funding for
IDA XII, the ESAF and the African Development Bank Group. We also welcomed the
progress that has been made toward strengthening the capital structure and governance of
the African Development Bank, providing a more solid basis for deeper partnership in the
future.

14)

We welcomed the progress made in implementing the HIPC debt initiative and note
commitments have now been made to provide HIPC debt relief to a number of countries.
We applauded Uganda as the first country to receive final HIPC debt relief, reflecting its
strong record of reform. We also welcomed the special efforts by the Paris Club, the
Bretton Woods institutions and individual countries in reaching a final decision on
Mozambique. We encourage all heavily indebted poor countries to take all the steps
necessary to embark by the year 2000 on the process of a sustainable exit from their debt
problems. We also continue to urge all creditors to provide interim relief to help buttress
debtor countries' reform efforts.

15)

In order to help countries fight corruption and bribery, we urged that the MDBs should
establish uniform procurement rules and documents of the highest standard, and that the
members of the OECD and other signatories to the Convention on Combating Bribery
should submit the convention for ratification to their legislative bodies -- where necessary
-- and should pass any necessary implementing legislation criminalizing the payment of
bribes to foreign officials in international business transactions, with a view to the entry
of the convention into force and, in that context, elimination of the tax deductibility of
such bribes by the end of the year.

Stren2thenin2 the International Financial System
16)

We reaffirmed our commitment to exploring ways to strengthen the architecture of the
international financial system. We welcomed the work going on in a variety of other fora
toward this objective, including the APEC Finance Ministers, ASEM, the Manila Group,
the G-l 0, the Special Meeting of 22 countries and the IFIs, including this week's Interim
and Development Committee meetings. This work can help build a consensus for action

4
in the key areas we identified at our February 21st meeting in London:
•
•
•
•
•

promoting more efficient functioning of global markets,
improving transparency and disclosure,
strengthening financial systems,
assessing the role of the international community,
promoting appropriate burden sharing by the private sector.

17)

We are looking fOIWard to discussion ofthese issues with representatives of emerging
market countries at meetings later this week. We confirm our intention to produce a
progress report on these issues for the meeting of our Heads of State at the Birmingham
Summit in May.

18)

We applaud the progress made by the OEeD with respect to harmful tax competition, and
we look forward to receiving their report before the next G-7 Ministerial prior to the
Birmingham Summit.

19)

We discussed this and other work leading up to the Birmingham Summit and plans for
the pre-Summit meeting of finance ministers on May 8th and 9th.

From: TREASURY PUBLIC AFFAIRS

r: 2BBB9
I)

E P..\ I{ T \ lEN T

'0' ...

'... II E

6-4-98 1:11pm

p. 1 of 7

T R E ..\ S [I I{ \'

~~~~:...NE W s_
oma OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C, •

20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
April 16, 1998

Statement of Secretary Robert E. Rubin
IMF Interim Committee

Washington, DC
The period since our Hong Kong meeting has been marked with unprecedented
turmoil as the Asian crisis has affected financial markets both within and outside the region.
The economic impact has been greatest in those countries most directly affected - particularly
Indonesia, Korea and Thailand .. but others inside and, to a lesser extent, outside the region
have also experienced spillover effects. Despite the welcome signs of stability now emerging
in response to the implementation of necessary economic refonns, we must guard against
complacency. We also need to use this time to begin considering the lessons of the latest
crisis, both to relearn old truths and be taught new ones,
ECQoomi,-Situation
The economic situation in some of the countries at the center of the crisis has begun to
stabilize as their authorities implement IMF-supported programs. Korea and Thailand are
experiencing a restoration of market confidence. This has fueled a 40 percent appreciation of
their currencies and a 30 - 3S percent increase in stock market valuations from their low
pOints around the tum of the year as capital, both domestic and foreign, returns. However,
these countries face a difficult road ahead that will test social cohesion and political will. The
international community can continue to help to ameliorate the adverse consequences~ but
only resolute action to keep to the agreed policy course will bring an end to the crisis and a

resumption of sustained growth,

In Indonesia, agreement on a revised program supported by the IMF provides a new
beginning. The need now is for full, sustained and decisive implementation of their program.
The markets and the international community will be looking closely at whether both the letter
and the spirit of the commitment to reform are being observed. It is imperative that
confidence be restored by a sustained implementation of this commitment.
RR.2370

For fn't& nli8asa, SPgedla, public schedules and ojJici.l1l biographies, can our 24.Jlour fa.:t.litu! at (202) 622-2040

0:

29999

From: TREASURY PUBLIC AFFAIRS

6-4-98 1:11pm

p. Z of 7

-2-

The contagion effects of the crisis on other emerging markets have so far been
contained as these countries have responded quickly to sustain market confidence by adapting
economic policies and strengthening financial systems. A temporary slowdown in growth is
expected in light of reduced capital inflows and the impact of economic policy adjustments.
Nevertheless, most countries should continue to perform well in the years ahead, as the
economic stabilization and reform efforts of recent years bear fruit.
Resolution of the Asian crisis requires that the major industrial countries pursue
policies to sustain open, growing economies. In the United States, growth is expected to
continue at a sustained pace consistent with the productive potential of the economy.
Inflation remains subdued, and cost pressures well·contained. The budget will be in surplus
this year for the first time in nearly 30 years, with further substantial surpluses over the next
five years.
However, a global expansion concentrated in only a few countries experiencing
increased domestic demand would quickly become unbalanced and contain the seeds of future
difficulties.
As Europe moves toward monetary union, it is important that policies in this region
be directed at fostering domestic-deMand-led growth, reducing high levels of unemployment,
and making Europe more flexible and dynamic. How successful Europe is in this regard will
have a lot to do with the success of EMU itself and its contribution to international monetary
stability. We are beginning to see signs that the current recovery is becoming wider and
deeper. However, unemployment remains at extremely high levels) and a significant reduction
will necessitate implementation of labor market refonns and greater opermess of product and
financial markets.
The situation in Japan poses great challenges to Japanese authorities and the
international economy. A sustained global expansion and recovery in Asia cannot be achieved
when the second largest economy in the world, accounting for more than half of Asian output,
is in recession and has a weakened financial system. Japan must generate substantial growth
to help maintain a growing world economy and to absorb a growing share of imports from
emerging markets. We welcome Prime Minister Hashimoto's recent announcement of steps
to stimulate the Japanese economy. We look forward to substantial and effective actions to
achieve the long-promised domestic-demand-Ied recovery, to restore health to the financial
sectoT, and to make progress on deregulation and openness.

Strenpbenim: the jnterna1iunal tiu,udal SJ'stem
The Asian crisis demonstrates anew that global financial markets dominated by private
capital flows provide both immense opportunities and great challenges. OUf task must be to
continue to adapt the global financial architecture to reflect today's realities in order to
maximize the benefits while not falling prey to the risks. The intemational financiaJ
institutions, particularly the IMF, have a critical role to play in this effort by promoting greater

10: 20009

From: TREASURY PUBLIC AFFAIRS

-3

5-4-9B 1:12pm

p. 3 of 7

~

openness and transparency, by building strong national financial systems, and by creating
mechanisms so that the private sector shares more fully in the responsibility for preventing and
resolving crises.

Openness and Transparenc;J': For capital to flow freely and safely to where it can be
used most efficiently to promote growth, high quality infonnation about each economy and
investment opportunity must also be freely available. The IMF introduced the Special Data
Dissemination Standard (SDDS) in 1996 to improve the information collection and
publication practices of countries accessing international capital markets. At present, 44
countries subscribe to the SDDS and are expected to be in full compliance with this code of
best practices by the end of the year. However, recent events and the review of the SDnS
indicate that important gaps need to be filled to build on the progress that has been made.
As a first step, we need to consider ways to encourage the nearly 80 percent of the
membership which do not subscribe, particularly emerging market economies, to participate in
the SDDS, possibly by making full compliance by the end of an IMF-supported program a
condition of the program. We believe it could be appropriate for the IMF to publicize which
countries subscribe and which do not so that creditors and investors can reflect that status in
their decisions.

The provision of timely, accurate and comprehensive data is essential for sound poJicymaking and effective decision..making by markets. Indeed, institutional investors have a
responsibility to ensure that they have adequate infonnation before committing the funds of
their shareholders and clients.
The state of a country's foreign exchange reserves is an important leading indicator of
potential problems but can only serve this function adequately ifinformation is provided more
frequently and includes the extent to which these assets may be encumbered. Consequently,
the snns should require countries to provide a complete picture of usable central bank
reserves, including forward liabilities, and better infonnation on the size; composition and
maturity of the foreign currency liabilities of the government and financial sector. As we have
also learned that private debts can all too easily become public liabilities, we need to develop
ways to collect and disseminate infonnation on the foreign currency liabilities of private nonfinancial finns and the aggregate financial condition of the banking system.
Expanding the SnDS to provide more and better data should be complemented by
wider access to the IMF's assessments ofcountries' economic policies, financial sectors and
statistical systems.
The IMP should build on the favorable experience with Press Information Notices
(PINs) by creating a presumption that all members would issue PINs following the conclusion
of the annual Article IV consultation. Members should also be pennitted to release the full
staff report on their Article IV consultation. All countries obtaining IMF loans should be

10: 20009

From: TREASURY PUBLIC AFFAIRS

5-4-98 1:12pm

-4-

required to release their Letters of Intent and, ifapplicable, Policy Framework Papers, and to
agree to issue PINs. Finally, consideration should be given to creation of ways to enable the
Fund to make public its views on a member's petforrnance under an IMF-supported program.
The ThJ1F and other international financial institutions also have a responsibility to
make their activities open and transparent as a means of enhancing accountability. The recent
external evaluation ofESAF and the proposed review ofIMF surveillance by independent
experts are steps in the right direction. However, more could be done to dispel the notion of
the IMP as a secretive organization by, for example, improving access to the Fund's archival
material, releasing reports to the Interim Committee - such as those for this meeting -wand
staffpapers on key policy issues, and publishing more summaries of Executive Board
meetings.

FingnciaJ sector rUQrm: The IMP's recent review of the Asian crisis experience
highlighted the key role played by the domestic financial sector as the flash point and
transmission mechanism for the crisis and contagion. Rapid growth and expanding access to
international capital had run ahead of the development in countries in trouble of a genuine
credit culture to assess risk and channel investment efficiently and of an effective financial
sector regulatory and supervisory mechanism. The situation was further exacerbated by
inconsistent macroeconomic policies, generous explicit and implicit government guarantees,
significant injections of public funds to provide liquidity support to weak institutions, and to
some extent capital controls that distorted the composition of capital flows.
Some have argued that this experience points to the need to tum back the clock on
capital market integration and to slow the pace of future liberalization. In our view, the right
response to recent events is not to slow the pace of liberalization but to accelerate the creation
ofan envirorunent in which capital flows to its most productive uses and which also
encourages the strengthening of the financial sector.
At a time when the Il\tfF has become increasingly involved in helping countries realize
the opportunities and manage the risks of global capital markets, it is important that its charter
reflects the reality of the marketplace. We welcome the progress that has been made in the
Executive Board, particularly the broad support for including capital market liberalization as a
purpose of the Fund. We look forward to continued progress by the Executive Board toward
completion of an amendment.
The international community has a clear interest in helping countries put in place the
institutional arrangements to integrate successfully with the global financial marketplace. The
Basle Committee has now developed the "Core Principles for Effective Banking Supervision"
and loseo is already well on the way to developing similar principles for the supervision of
securities finns. Consideration should also be given to developing appropriate intemational
standards in other areas related to the underlying strength of the financial system, including
accounting and disclosure, loan classification, credit risk management and overall corporate

p. 4 of 7

From: TREASURY PUBLIC AFFAIRS

6-4-9B 1:13pm

p. 5 of 7

-5•

governance. The proposed code of good practices on the transparency of government fiscal
activities illustrates the potential for developing standards in the public sector. Also, in
conjunction with these standards, we must find ways to foster the creation of a strong credit
culture and strengthen the requisite skills in a nation's financial system.
Consideration should also be given to a means to conduct international surveillance of
countries' financial regulatory and supervisory systems., comparable to the surveillance of
economic policy conducted by the IMF. One approach might be to encourage a joint initiative
by the ~ and the World Bank, assisted by regulatory and supervisory experts. The results
from such surveillance would assist national authorities in enhancing their practices, and
market participants would benefit in terms of reflecting the results in their own decisions.
This would in turn help induce greater compliance with standards and adoption of refonns.

Crisis resolution; Our efforts to reduce the risks of crises caused by poor policy or
investor decisions need to be complemented by. measures to equip investors, governments· and
the international financial system with the means to deal with those crises that do occur. The
ultimate test of resilient national and international financial systems is how they deal with
shocks and their ability to limit the broader consequences.
The IMF plays the central role in the system by providing conditional internationaJ
assistance to give countries the breathing room to stabilize their economies and restore market
confidence. To futfill this responsibility, the IMF must have adequate resources. We share
the Managing Director's concern that IMP liquidity has fallen to dangerously low levels that
could impair the Fund's operational capacity to respond to renewed pressures and meet
nonnal demands. The United States is making an intensive effort to obtain the necessary
legislative approval for our participation in the NAB and quota increase.
However, recent crises have brought home that in a global financial market we need to
find more effective mechanisms for sharing with the private sector the burden of managing
such problems. In a world in which trillions of dollars flow through international markets
every day. there is simply not going to be enough official financing to meet the crises that
could take place. Moreover, official financing should not absolve private investors from the
consequences of excessive risk-taking and thus create the "moral hazard" that could plant the
seeds of future crises.
We do not underestimate the difficulty of developing arrangements which balance the
desirability offacilitating international capital flows with the need to equitably share the
responsibility for maintaining a stable system. However, there are some steps that the IMF
could take now while more fundamental refonns are being examined.
In particular, IMF financing could be used in a manner that would encourage debtors
and creditors to resolve debt problems among themselves. This might include, for example,:

From:

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TREAS~RY

PUBLIC AFFAIRS

5-4-98 1:14pm

p. 5 of 7

- 6-

o
o
o

expanding the IMF's policy on tending into arrears to provide greater scope to
foster orderly workouts between debtors and creditors;
increasing the price of external assistance and shortening maturities through
greater use of the Supplemental ReselVe Facility in emergency situations to
heighten the incentives for governments to seek private financing; and,
conditioning any official support in some cases on appropriate involvement of
the private sector.

More ambitious ideas such as an international bankruptcy regime may have great
appeal, but do not now seem feasible. However, resolution of debt problems can be fostered
by the existence of strong bankruptcy laws and institutions covering debtor-creditor relations.
Coneiusion

Developing ways to strengthen our international financial architecture is an urgent and
compelling challenge. The ultimate objective of fashioning a strong. resilient global financial
system is to underpin a vibrant, productive, growing global economy that provides benefits
broadly to workers and investors in aU countries. The IMF has a key role to play in this area
through the policies which it advocates and the economic reform programs it supports.
The primary focus of the rMF is on sound money. prudent fiscal policies, and open
markets. In recent years, the Fund has broadened its perspective to take account of a wider
range of issues necessary for economic growth and financial stability. It must continue to do
so in order to:
create the more level playing field in which private sector competition can
thrive, including through trade liberalization;
reduce unproductive government spending, including excessive military
expenditures, white elephants, and subsidies and guarantees to favored sectors
and firms;

achieve greater transparency and accountability in government and corporate
affairs to reduce corruption;
protect the most vulnerable segments of society from bearing the brunt of the
burden of a.djustment~ and,
encourage a more effective participation by labor and the rest of civil society in
the formulation and implementation of economic policies, including protection
of core labor rights.
We should not underestimate the difficulty or the time it will take to build an
architecture for the 21St century. We have begun to take the initial steps but have much
further to go. The Asian crisis has pointed us in the direction we must follow. Now. we must
show the -imagination and courage to get the job done.
-30-

TOTAL P.06

DEPARTMENT

OF

THE

TREASURY

NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
April 15, 1998
PRESS CONFERENCE BY TREASURY SECRETARY ROBERT E. RUBIN
FOLLOWING THE MEETING OF G-7 FINANCE MINISTERS
AND CENTRAL BANK GOVERNORS
WEDNESDAY, APRIL 15,1998
SECRETARY RUBIN: Good evening. Welcome to the Treasury
Department. Let me comment briefly on the G-7 Finance Ministers and Central
Bank Governors which we just completed, and then I'd be delighted to respond to
whatever you'd like.
This was, I think, a particularly important time to have such a
meeting. There are a goodly number of issues around that are very important with
respect to the global economy right now and also for the long tenn. We had, I
think, most interesting and most useful discussions which, number one, gave us an
opportunity to share and exchange views, and number two, provided a basis for
moving forward and for the G-7 providing leadership in the global community with
respect to these issues.
As always, we began with Michel Camdessus of the IMF, who
presented his or the IMF's views with respect to the global economy and key
countries in the world economy. The focus was predominantly, in the subsequent
discussions, discussions subsequent to the Managing Director's comments, the focus
was predominantly on Japan. I don't think there's any question but there was a
shared sense of the critical importance, obviously to Japan, but also very much to
Asia and to the world economy, that Japan re-establish strong domestic demand-led
growth and that Japan quickly implement a strong program consisting of appropriate
fiscal measures and structural refonns, including in the case of structural refonns
strengthening the banking system and also opening the Japanese economy. The
objective would be, as I said a moment ago, to provide enduring long-run, strong,
domestic demand-led growth in Japan.
We also, as Finance Ministers always and Central Bank Governors
always do, discussed exchange rates. You have the communique, so that you have a
summary of our discussions. Let me just read the language as a way of expressing

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2

what we did:
"We reaffIrmed our view that exchange rates should reflect economic
fundamentals and that excess volatility and significant deviations from fundamentals
are undesirable. We emphasized that it is important to avoid excessive depreciation
where this could exacerbate large external imbalances. In light of this, we support
appropriate steps by Japan aimed at stimulating domestic demand-led growth and
reducing external imbalances, thus also correcting the excessive depreciation of the
yen. We will continue to monitor developments in exchange markets and to
cooperate as appropriate. "
I raised the question of the Year 2000 computer compliance issue as
an important, extremely important with respect to the functioning of the world
economy, but I was focused more specifIcally on the functioning of the global
fmancial markets and the fmancial services sectors around the world. We had a very
good discussion of the importance of all nations, both in the public sector and private
sector, having robust programs in place and robust programs in place quickly,
because there is a long lead time on getting these kinds of issues resolved.
We discussed the situation in Asia. We welcomed progress toward
restoration of fmancial stability. However, we also agree this is a complicated time
and that there are many, many challenges ahead. In particular, it is essential that
countries follow through on and continue to implement on a sustained basis the
macroeconomic and structural reform programs that they have worked out and then
agreed to with the IMF.
The IMF, as you know, is absolutely central or has been central to
this reform program in Asia, and it is, we all agreed, essential that in all of our
countries approval be obtained as quickly as possible and very quickly for full
funding of the IMF. In this case, we have repeatedly called for Congress to act on
the IMF and act now.
Finally, we discussed how to move forward on the enormously
important, but also enormously complex, question of fInancial architecture. It was a
very energetic and well-informed discussion. It was obvious that the Finance
Ministers and Central Bank Governors had given a lot of thought to this subject.
I think it would be fair to say that the discussion broke down into
three areas: better disclosure and transparency, with the objective of improving the
effectiveness of the market in providing discipline - in that connection, I might add
there was a focus, too, on the question of how well or effectively creditors and
investors use the information that's available and how rigorous are they with respect
to evaluating, analyzing, and weighting risk, and how requisite that is if markets are
going to perform effectively in perfonning their disciplining function.
Secondly, strengthening the national fmancial systems; and thirdly,
having a system in which the private sector more fully and appropriately bears the
consequences of its decisions.
The communique has a brief summary of our discussion, but the

3

discussion went way beyond that which is in the communique. The reason for that
was we have another G-7 Finance Ministers meeting coming up early May in
London. A good bit of that meeting will be devoted to this subject, and that
communique will then present the fullness of thought developed both at this meeting
and in the interim period and then at that meeting.
And with that, I'd be delighted to entertain questions.
QUESTION: Mr. Secretary, I know your sensitivity to talking about
U. S. monetary policy and your respect for the independence of the Federal Reserve,
but recently there have been some indications from various Federal Reserve officials
that some tightening of monetary policy might be necessary before too long if the
economy doesn't slow down. And if this happens, presumably there would be some
further increase in the value of the dollar. although long run there's been some
speculation that if the trade deficit widens the dollar might reverse.
What would be your feeling if the Fed does feel forced to raise
interest rates, both in terms of its domestic and international implications?
SECRETARY RUBIN: I think I'll stick with what you said my
sensitivity is. No, I've spent almost five and a half years not commenting on the
Fed and articulating our respect for the independence of the Fed, and I'll stick with
that.
QUESTION: Mr. Secretary, you, Mr. Camdessus and others have
said you've been waiting for an opportunity to ask the Japanese the details of their
taxing, their spending, and their restructuring, deregulation. Were you able to?
SECRETARY RUBIN: The Japanese officials laid out the
framework, which they've also laid out in public on various occasions, and in
response to that discussion of a framework, heard in response to that discussion of a
framework the importance that other members of the G-7 attached to Japan having a
program that was in fact effective in restoring enduring, long-lasting domestic
growth.
I think it would be fair to say that the details have not yet been
released on the fiscal package that we discussed earlier, and we look forward to
seeing those details. But you know, when those details come out, and I gather just
from what I've seen in the press that that's expected to happen some time in the next
few weeks, the markets and the private sector financial institutions around the world
will provide an evaluation and there will be a judgment made, which I presume will
reflect itself in various ways, as to whether that program is sufficient to be effective
in getting Japan back on an enduring domestic demand-led growth track or not.
Mike?
QUESTION: You were firm in the statement on exchange rates that
Japan take appropriate steps to stimulate its economy. Did what you heard today
meet that test?
SECRETARY RUBIN: We said when the Prime Minister aMounced
his framework, as you may remember, his fIscal framework, that we welcome the

4

announcement, we welcome the statement of intention with respect to roughly 10
trillion of fiscal stimulus, and the key now was to come forth with the details, but,
more importantly, the key was to have a program, whether that's the right size
program or not, that would accomplish the objective. And the world still hasn't seen
the details, and when the details are seen then the world will evaluate it and make
whatever judgments it does.
But the final proof is going to be in what effect it has on the economy
and in how these enormous numbers of private sector analysts who do country sector
kind of work evaluate this.
QUESTION: Are you saying in this statement essentially that Japan's
currency problems are Japan's problems, that it's not external. that the way to deal
with the value of the yen is for Japan on its own to take action?
SECRETARY RUBIN: Well, what we said in some combination of
the communique and my - well, I guess the communique because I stuck with the
communique language, was that there is shared concern about the weakness of the
yen. Beyond that, I think I'll just stick with what I've said, because I think it kind
of speaks for itself.
QUESTION: Mr. Secretary, can you say whether there was any
specific discussion of joint intervention?
SECRETARY RUBIN: There was not.
QUESTION: Mr. Secretary. why this time did Russia not participate
in the meeting of the G-7?
SECRETARY RUBIN: Well, the Russian officials. I understand it,
will be at the meeting tomorrow night on financial architecture, and we would have
been delighted to have them here for a discussion of circumstances in Russia,
because I think it's been a very useful process. But you'd have to ask them why
they weren't here, but they certainly were invited and would have been enormously
welcome. I think that's been a very good part of our process.
But they will be here, I understand, tomorrow night for the financial
architecture discussions, and we very much look forward to seeing them.
QUESTION: Mr. Secretary, do you think a 4 trillion yen temporary
income tax will not be enough to stimulate domestic demand in Japan to support
reducing the consumption tax back to 3 percent?
SECRETARY RUBIN: I don't think I want to get into specifics -- in
fact, I know I don't want to get into the specifics of the Japanese tax program. I
think those are the judgments the Japanese government needs to make, and I think
I'll stick with what I've said, which is that the IMF, the OECD, the G-7 Finance
Ministers here, all expressed the view that it was very important for all -- Asia,
Japan, the rest of the world -- that Japan get back on this long-lasting, enduring path
of domestic demand-led growth.
The specifics, the program that it takes to get there, it seems to me is
really an issue I don't want to get into.

QUESTION: Mr. Secretary, if you want comment on the contents of
the package, perhaps you'd say something on the timing.
SECRETARY RUBIN: Well, when I said I didn't comment on the
contents, we don't have the details yet. That's what I was saying. Then I was asked
hypothetically, if there was one set of the contents, what would I think. And so I
said I wasn't going to comment on the hypothetical contents.
.
QUESTION: But in terms of timing on implementation, the
communique says "to implement quickly a strong program."
SECRETARY RUBIN: Right.
QUESTION: Does that mean before the G-7 Summit in Birmingham
or some time this year?
SECRETARY RUBIN: Oh, "quickly" I think means, if you think of
"soon" as a range, "quickly" is on the early end of the range.
(Laughter. )
SECRETARY RUBIN: We were trying to provide precision with
that, so that was why we said it that way.
QUESTION: Mr. Secretary -SECRETARY RUBIN: Was that useful?
Yes?
QUESTION: Mr. Secretary, understanding your reluctance to specify
what Japan should do on tax cuts, but as a general economic matter if you want to
stimulate domestic demand what's the best way to do that, permanent tax cuts or
temporary tax cuts?
SECRETARY RUBIN: Very good, Ed.
(Laughter. )
SECRET ARY RUBIN: The best way to do that is with tax cuts that
accomplish the purpose.
(Laughter. )
SECRETARY RUBIN: I really don't -- look. I think we need to see
the details. I think the world needs to see the details, and I don't want to get ahead
of the announcement. I just don't think that's the right thing to do.
.
But I think -- and I know I'm just repeating myself in what I'm about
to say -- the key is to have a program that is effective in accomplishing the purpose.
Bob?
QUESTION: Mr. Secretary, in the exchange rate portion of the
communique it says, in this light "we support appropriate steps aimed at stimulating
domestic demand-led growth, thus also correcting excessive depreciation." Are you
saying there specifically that if they have this sort of appropriate package that you
would expect the yen to strengthen?
SECRETARY RUBIN: No, this was not intended to be a -- this was
not intended to be a prediction with respect to exchange rates. It was simply meant
to be a statement of support for steps that were designed to stimulate domestic

6

demand-led growth. It says "In light of this," and I guess that does suggest that
people feel there is a relationship between the health of the Japanese economy and
their exchange rates.
QUESTION: Mr. Secretary -SECRETARY RUBIN: I think that would be a fair inference.
QUESTION: Mr. Secretary, did the Japanese officials give you any
indication whether they were planning to link any of those fiscal steps perhaps with,
for instance, market intervention as they go forward?
SECRETARY RUBIN: .With market intervention on their part?
QUESTION: Yes.
SECRETARY RUBIN: They didn't discuss it. I do not know.
QUESTION: Mr. Secretary, you welcomed their actions when they
were in the currency markets. Do you believe that intervention on its own will be
enough to correct excessive depreciation?
SECRETARY RUBIN: You used it in the plural. They intervened;
we welcomed that intervention.
QUESTION: Right.
SECRETARY RUBIN: Correct. But in all of our statements what
we have said is the key is to get domestic demand-led growth on a long-run basis, an
enduring basis, back up to a level where you have a strong and healthy domestic
economy in Japan.
SECRETARY RUBIN: Mr. Secretary, there have been some reports
that you were looking for the Japanese to come, you and others were looking for the
Japanese to come, to this meeting armed with more details, more specifics about
their plan. Is that a mischaracterization?
SECRETARY RUBIN: I can speak for myself. I wasn't. I was
hoping we could have a conversation, which we did have, about the importance of -the sort of thing we've just been talking about, the importance of Japan getting back
on track, and that's exactly the conversation we had.
QUESTION: Would you have preferred to see more details at this
point?
SECRETARY RUBIN: Well, I think they've said that they expect to
have details -- my recollection is that they've said they expect to have details in the
next few weeks. I did not expect to see details. I'll speak for myself: I did not
expect to see details at this meeting, if that's your question.
QUESTION: Mr. Secretary, in your Brookings speech is the first
time I recall you explicitly referring to Chilean controls on inflows and prudential
regulations to limit access to foreign currency borrowings, and you also I believe
mentioned the possibility of lending into arrears. Does this mean -- are you being
polite and putting this on the table in advance of the G-22 meeting or are you saying
that Treasury now endorses those two concepts?
SECRETARY RUBIN: Well, on the Chilean capital controls, you

7

might remember what I said was that that is an idea that some people are advocating,
and then I said -- I don't remember the exact language, but something to the effect
that, whatever its merits may be or its drawbacks, that the key was not the shortterm capital controls, but rather having sound underlying policy.
No, I do not think that should be read as an endorsement of Chilean
capital controls. I was just saying that this is something -- in the interest of
completeness. I just wanted. to raise the issue, say it was there. I'm sure it'll be
debated. But however that debate may come out -- and I took the trouble in the
speech to point out that there are significant drawbacks in that program. But
however that debate comes out, because reasonable people can have different views
on that, that the key was not that program; the key was the sound underlying
program. That should not be read as an endorsement.
QUESTION: But if there is that sound underlying program, then
controls in that sense would make sense? They have merit?
SECRETARY RUBIN: No, that's not what I was saying. That's
what you're saying?
QUESTION: I thought that's what you were saying.
SECRETARY RUBIN: What?
QUESTION: I thought that's what you were saying.
SECRETARY RUBIN: No, no, that's not what I was saying. No,
no. I was saying that undoubtedly there will be a debate on these things, that we
think there are real drawbacks, but this is a debate on the merits. But independently
of that debate on the merits, the key was not these capital controls; the key was a
sound underlying policy.
On lending into arrears, yes, we do think lending into arrears is an
idea that is worthy of very serious consideration in the effort to bring the private
sector into an appropriate place with respect to burden-sharing.
QUESTION: Mr. Secretary, did you hear any accusations toward
Japan's slow motion?
SECRETARY RUBIN: Toward what?
QUESTION: Toward Japan's slow motion.
SECRETARY RUBIN: No. I think what I've said has given you as
good a sense of the discussion, a pretty complete sense of the discussion with respect
to Japan.
QUESTION: Mr. Secretary, on that, on the issue of excessive
depreciation of the yen, were the implications as far as Asia were concerned
discussed and what was said?
SECRETAR Y RUBIN: There wasn t a great deal of discussion about
the implications for Asia of the excessive depreciation of the yen. There may have
been some. I don't recollect there being very much. What there was was -- and I
think it gets in a sense to the same point -- there was a discussion or there was
discussion about the importance of a strong Japan to the rest of Asia, and
I

8

particularly to the Asian countries that are in trouble, and I think that would include
- although it did not get discussed at length. but I think it would be fair to say that
that, at least my impression is, that included this whole range of issues around the
benefits of a strong Japan.
QUESTION: How much concern is there about a strong U.S. stock
market and what impact that might have, an overly strong stock market, and what
impact that might have if there was a correction? There are actually concerns about
a correction on Wall Street.
SECRETARY RUBIN: We didn't discuss that in quite the way
you've just said, Bill. There was some discussion, not just of the United States, but
in a broader sense. about the effect, the impact of wealth effects of a stronger market
on consumption, and therefore on economic activity. And there was some
discussion about issues relating to this sort of broad category of assets and asset
valuation and things of that sort. But it didn't hone down quite the way you just
discussed it.
QUESTION: Was there any overarching conclusions drawn about the
state of the world asset market, particularly in the West?
SECRETARY RUBIN: No, I don't think so. I think it was more an
exchange of sort of analytic thinking, rather than expressions of conclusions.
QUESTION: Mr. Secretary SECRETARY RUBIN: Let me - yes, sir.
QUESTION: I know you'said you were going to leave the discussion
of fmancial architecture to the early May Finance Ministers meeting in London, but
this morning Canadian Finance Minister Paul Martin tabled for the press a proposal,
a blueprint that he had, for a mechanism for a watchdog on financial supervision -SECRETARY RUBIN: Yes, he brought that up at the meeting.
QUESTION: He brought that up? You mentioned it without a
specific blueprint yesterday in your speech. And the British, Gordon Brown, also
had a proposal he was going to table today. Did Gordon Brown table that? What
was that discussion like, and where are you on that issue?
SECRETARY RUBIN: Well, Paul Martin did discuss the possibility
of some sort of a coordinating mechanism, with the details to be fleshed out. And
Gordon Brown did a very thoughtful job of framing the whole discussion of
architecture, also discussed the importance of effective coordination.
What we're going to do on all of this, and the reason we didn't put
much in the communique is, between now and the meeting in London we're going to
have our staffs work on Paul Martin's suggestion particularly, or at least some
variant thereof. And Gordon Brown, Paul Martin, and ourselves each asked one
person to get in touch with each other and try to spearhead that a little bit.
QUESTION: SO you re going to work on the specific idea of a joint
IMF-World Bank committee?
SECRETARY RUBIN: Well, that's only one possibility. I think it's
I

9

a little too early in the game to know -- in fact, I know it's a little bit too early in the
thinking process to know where this might come out. But one possibility would be,
not necessarily quite the way you've said it, would be some kind of a coordinating
mechanism that might involve the BIS as well and others.
But I think you're being more specific than anybody here would have
been prepared to be at this point.
QUESTION: I was just quoting Mr. Martin.
SECRETARY RUBIN: What?
QUESTION: I was just quoting Mr. Martin in his speech.
SECRETARY RUBIN: Yes. I think this was the idea he brought,
and it seemed to me at least there was broad-based agreement that some kind of a
coordinating mechanism is a very good idea to consider -- whether we should do it
or not is another issue, but to consider. But now we have to see what it looks like,
what form or forms that might take that we could take a look at, and how it would
work and things of that sort.
QUESTION: Mr. Secretary, you still support a strong dollar, don't
you?
SECRETARY RUBIN: Yes.
(Laughter. )
QUESTION: Do you now support a strong yen, too?
SECRETARY RUBIN: I certainly support a strong dollar. I think,
with respect to the yen, I'd put our, my views at least, a slight bit differently if I
may, which is that - and you've heard me say this before -- the Japanese
government has on many occasions, or Japanese officials have on many occasions,
expressed their concern about an excessive weakness in the yen, and it's that concern
which we have shared.
QUESTION: Mr. Secretary, the communique talks about growth in
Europe picking up a bit this year and it seems to hint that there are concerns that it
might not be balanced growth, but perhaps exports are leading domestic demand.
Did you have any kind of discussion about that and can you sort of tell us what that SECRETARY RUBIN: Blair, the answer is we didn't. It was on the
agenda, but we spent a good deal more time on Japan than we had expected to, and
so we had to rush through some parts of the agenda. Michel Camdessus, if I
remember correctly, seemed to feel pretty good about the -(Loud microphone noise.)
SECRETARY RUBIN: That was a mating of our two microphones.
In any event, he seemed to express, as I recollect it at least, relatively
positive views about domestic demand growth in Europe, and we did not have a
specific discussion of it.
QUESTION: Mr. Secretary, what proportion of the meeting did you
spend on Japan?

10

SECRETARY RUBIN: A limited portion, but we had divided it up
into -- no, we divided it up into segments, and the European, the Europe part, was
going to be in the same segment as the Japan part. But since the Japan part ran a
little longer than we thought, we didn't really spend any appreciable time on Europe.
QUESTION: How would you characterize the discussion on Japan?
Was it heated?
SECRETARY RUBIN: This is Finance Ministers and Central Bank
Governors.
(Laughter. )
SECRETARY RUBIN: Our idea of heated is somebody has an extra
glass of water or something.
No, I would not describe it as heated. But I would describe it as
interested. That is to say, I think that the Japanese government officials very much
wanted to express their views with respect to these issues, and I think: other G-7
Ministers and Central Bank Governors wanted to express their concerns and their
focus on the enormous importance of the objectives being achieved.
So I'd say it was very business-like atmosphere.
QUESTION: SO nobody had a drink of real water, then?
SECRETARY RUBIN: What?
QUESTION: No one had a drink of real water, then?
SECRETARY RUBIN: Well, we were looking forward to the real
water.
I'd say it was very business-like.
Why don't we take one more and then I think we'll call it a day.
We'll take two more, then we call it a day.
QUESTION: Mr. Secretary, can you talk a little bit about how long
you think it's going to take for Japan to become strong again? You seemed to
yesterday make some kind of equation with what was going on with the U. S. with
our fiscal issues and how that took a period of time.
SECRET ARY RUBIN: No, no. All I said was that I can understand
how it can take a country time to come to grips with the very difficult decisions that
need to be made sometimes. We had terrible fiscal deficits for a long time and it
took us a long time, until 1993 with the deficit reduction program that President
Clinton put in place, before we turned that around.
And I think the critical time has come now for Japan, and Prime
Minister Hashimoto took very important steps, what was it, a couple of weeks ago,
whenever it was, and we welcome those. How long it will take for Japan, assuming
that a good program is put in place, to get back to a high rate of growth is not a
question I have an answer to. I think the important thing is to take the right steps
and then, hopefully, in the fullness of time the right things will happen.
One more question. Mike?
QUESTION: The language discussing inflation and growth in Europe

11

and the United States in the communique is milder than the last communique. Is
there a feeling that progress, more progress, has been made on inflation and that the
ministers are much more sanguine about the relationship between growth and
inflation at this point?
SECRETARY RUBIN: I guess I don't know how they feel about the
relationship between inflation and growth, but since inflation was not -- in the
discussions -- and the discussions were pretty jam-packed. We had a very full
agenda. -In the discussions there was no - nobody raised concerns about inflation. I
guess that suggests, Mike, that people feel that inflation conditions are in pretty good
shape . .
Thank you all very much. Have a good night.
(Whereupon, at 6:32 p.m., the press conference was adjourned.)

DEPARTMENT

OF

THE

TREASURY

NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlllNGTON, D.C. - 20220 - (202) 622-2960

FOR RELEASE AT 6:15 P.M. EDT
April 16, 1998

Statement by Treasury Secretary Robert Rubin
At the Special Meeting of Finance Ministers and Central Bank Governors

I want to welcome everyone to Washington and thank you for attending this meeting.
The issues on our agenda this evening are critical to the health of the global economy,
to the economic well being of all our countries in the years ahead, and to broadening
participation in the benefits or the global economy. The Asian crisis has shown how
developments in anyone of our countries can have an impact on all of our countries, in the
interdependent global economy and global financial markets. So, we must work together to
make the most of the opportunities offered by today's global economy and global marketplace,
while minimizing the risks.
This is why President Clinton and the leaders at the APEC meeting in Vancouver
agreed last November to organize a gathering of finance ministers and central bank governors
to move forward the reform of the architecture of the global financial system. In this meeting
tonight there are representatives here from countries in every region of the world -- from both
developed and emerging market economies. No matter the differences between our nations
one thing is clear: only together can we achieve a stronger, more resilient international
financial system.
We are all working in a number of fora to address this challenge and to learn from the
recent crises in Asia. The international financial architecture was a major item of discussion
among the G-7 Finance Ministers and Central Bank Governors on Wednesday. Today, the
Interim Committee of the IMF discussed several important, initial steps for strengthening the
current system. Related issues are also on the agenda for the Development Committee
tomorrow.

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In our meeting this evening, I hope that we can explore further several key elements of
this challenge -- particularly the need for greater transparency and disclosure; the task of
strengthening financial systems, in individual economies and globally; and the challenge of
creating mechanisms that result in private investors and creditors more fully bearing the
consequences of their decisions.
Let me explain why I think these are particularly fundamental issues.
With the complex global financial markets of today, creditors, investors and policy
makers need more types of information than ever before. They also need to use that
information well, and appropriately balance risks and rewards. To be able to anticipate and
respond to problems, creditors, investors and officials need to know about the build up of
potentially unsustainable situations. They need to know about both on and off-balance sheet
positions, and given the speed at which these can be built up and unwound, they need
information frequently and with minimal lags.
While progress has occurred, there needs to be a substantial improvement in the quality
and quantity of economic and fmancial information available to the public and in increasing the
transparency of the IMF--including public distribution of IMF surveillance to a greater extent.
Second, recent events have further reinforced what many of us know from experience -the importance of a strong domestic financial sector. Developing a strong fmancial system that
is a match for the challenges of a global fmancial market is not an easy process. The
institutions and laws that we have in the United States to supervise our own system were
developed over a period of a hundred years, and nonetheless we had a severe fmancial sector
problem with our S&L crisis in the 1980s. And now, with the pace and complexity of the
global fmancial market, the task is even more complex.
We believe that the time has come for a more systematic approach to promoting strong
national financial systems. This should include broader and more effective implementation of
the Basle "core principles" for banking supervision. In addition, we believe that high quality
core principles or standards should be developed and adopted in additional areas that affect the
underlying strength of a financial system, including, for example, regulation of securities
firms, accounting standards and disclosure practices, loan classification, credit risk assessment,
bankruptcy regimes, and overall corporate governance. In conjunction with these standards,
we must find ways to foster the creation of a strong credit culture and strengthen the requisite
skills in a nation's financial system.
Finally, while it is an enormously complicated and difficult task, we must do our best
to build effective mechanisms for creditors and investors to more fully bear the consequences
of their actions. We will never be able to prevent crises from happening entirely. And when
they do occur, there is an important role for the official sector, particularly the IMF and World

2

Bank, to encourage sound policies and provide breathing room for countries as they seek to
stabilize their currencies, restore market confidence, and resume growth. Among other things,
such intervention can help limit the risk that a crisis will worsen or spread.
But in a world in which trillions of dollars flow through international markets every
day, there simply will be not enough official financing to respond to the scale of crisis that
could potentially occur. Furthermore there is a risk that by providing rapid and plentiful
financial assistance in the face of crisis, the international community could shield investors
from the consequences of bad decisions and thereby sow the seeds of future crises. While
some protection of creditors may be an inevitable by-product of the overarching objective of
restoring fmancial stability, this should be kept to a minimum.
I believe that our discussion here today is critically important. Ongoing dialogue
among policy makers from economies across the spectrum will be increasingly important as the
international community works toward reform of the architectural of the global financial
markets. We all recognize that many of the issues are enormously complex, that reaching
international concensus will be complicated, and that reform will not occur in one moment, but
will be accomplished in pieces over an extended time. The purpose here tonight is to exchange
views, to learn from each other, and to move the process forward. We do not expect to reach
defmitive conclusions tonight, but we do expect to issue a Chairman's statement, setting up
three working groups to carry this work forward.
-30-

3

DEPARTl\IENT

1REASURY

OF

THE

TREASURY

NEWS

OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C .• 20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
April 16, 1998
PRESS STATEMENT OF THE NORTH AMERICAN FINANCIAL GROUP
The Central Bank Governors and TreasurylFinance Ministers of Canada, Mexico, and the
United States today convened the fourth meeting of the North American Financial Group
(NAFG). The Ministers and Governors reviewed financial and economic developments in the
three countries and discussed the implications of recent financial instability in Asia for their
economies. They highlighted the strong economic performances of all three countries over the
past year and agreed that the three economies faced good prospects for continued growth during
the coming year despite the financial crisis in Asia.
The Ministers and Governors noted that the United States economy completed its seventh
straight year of expansion, with strong growth, little sign of inflationary pressures, and rates of
unemployment that remain near their lowest level in almost a quarter of a century. Sound
monetary and fiscal policies, including what may well be the first balanced budget in a
generation this year, are contributing to the ongoing strength of the U.S. economy.
The Ministers and Governors remarked upon Mexico's strong economic perfonnance last
year, including 7 percent growth and a continued decline in inflation. They expressed confidence
in Mexico's outlook for solid growth and lower inflation again this year, supported by continued
strong fiscal and monetary policies, and concluded that economic disruptions in Asia were not
likely to threaten that positive outlook. They agreed that Mexico's recent budget cuts were an
appropriate and timely response to lower oil prices. They remarked upon the continued
expansion of trade between the three countries and noted that last year Mexico became the
United States' second largest export market, second only to Canada.
The Ministers and Governors noted Canada's ongoing fiscal progress, reflected first in
the elimination of borrowing requirements in fiscal year 1996-97, the first balanced budget in 30
years, and in the current fiscal year, the implementation of a debt repayment plan. Canada's
fiscal success and low inflation have created the conditions for continued strong growth and job
creation. This view is shared by major international organizations, which expect Canada to lead
the G7 in growth again this year.
-30RR-2373

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NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
April 16, 1998

Contact: Kelly Crawford
(202) 622-2960

U.S. TREASURY RECOMMENDS RELEASE OF REMAINING RESOURCES
OF POLISH BANK PRIVATIZATION FUND

Treasury Secretary Robert E. Rubin today told Polish Deputy Prime Minister Leszek
Balcerowicz the United States is prepared to recommend to the operating committee of the Polish
Bank Privatization Fund (PBPF) that the PBPF release to Poland the remaining $410 million in
the fund, including the $210 million U. S. share.
Secretary Rubin noted in his meeting today with Balcerowicz that Poland had been a
leader among transition economies and has achieved sustainable growth, positioning Poland now
to finish the job of stabilization through strengthening fiscal policies and bringing inflation down
into the low single digits. Secretary Rubin observed that this success owes much to Mr.
Balcerowicz, who implemented Poland's "Big Bang" reform strategy in the early 1990s, as well as
to sustained stabilization policies since then.
The PBPF was created in 1992 with U. S. urging to help Poland jettison its state-owned
commercial banking system. Major progress has been made: six key banks, including the former
large state trading bank, have been privatized and further significant privatizations of specialized
state banks are expected this year. Foreign banks have also established a major stake in the Polish
financial system. The PBPF is testimony to the tangible benefits of U.S. and multilateral support
for Poland's transformation.
The lO-member operating committee of the PBPF will meet on Friday, April 17, to act on
this recommendation. If the Committee accepts the recommendation, the United States will act
promptly to transfer the U. S. share of over $210 million to Poland, Rubin said.
-30RR-2374

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-

DEPARTMENT

OF

THE

TREASURY

NEWS
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960

Chairman's Statement
Special Meeting of Finance Ministers and Central Bank Governors
April 16, 1998
Finance Ministers and Central Bank Governors from a number of economies from around the
world 1 met in Washington on April 16 to examine issues related to the stability of the international
financial system and effective functioning of global capital markets. The Managing Director of
the International Monetary Fund, President of the World Bank, General Manager of the Bank for
International Settlements, Secretary General of the OEeD, and the Chairmen of the Interim and
Development Committees also attended the meeting.
The Ministers and Governors welcomed the opportunity to gather on an infonnal basis to discuss
key issues facing the global economy. They noted the particular value of sharing diverse
experiences in order to deepen their understanding of the functioning of the international
economy and financial markets.
In their discussion, Ministers and Governors emphasized that sound domestic policies are
fundamental to healthy and robust national economies and financial sectors and increasingly to the
prospects for other countries and the world economy as a whole. They emphasized the benefits
of greater integration and globalization but also noted that this process brings new risks, making it
more essential than ever to have both good domestic policies and a strong international financial
system in place.
Ministers and Governors agreed that it is critical to strengthen the international financial system in
order to make it more resilient and to enable countries to benefit more fully from globalization.
They agreed on the importance of action in three key areas: increased transparency and
disclosure; strengthening financial systems and market structures; and appropriate burden-sharing
between the official and private sectors in times of crisis. They announced the fonnation of
working groups to contribute to the international dialogue on how to proceed in these areas.
These working groups will consult and cooperate with others in the international community
considering similar issues. Ministers and Governors asked that the groups provide reports on
their progress in the autumn that could be taken up in discussions in international fora.

1 Argentina, Australia, Brazil, Canada, China, France, Gennany, Hong Kong SAR, India, Indonesia, Italy,
Japan, Korea, Malaysia, Mexico, Poland, Russia, Singapore, South Africa, Thailand, United Kingdom, and the United
States.

RR-2375

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--

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DEPARTJ\rIENT

OF

THE

TREASURY

NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 - (202) 622-2960

FOR :fWvfEDIATE RELEASE
April 17, 1998
STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN
AT THE DEVELOPMENT COMMITTEE OF THE
WORLD BANK AND THE INTERNATIONAL MONETARY FUND
WASlllNGTON, D.C.
Since the fall meeting of the Development Committee, we have all been focused on one of the
most difficult and complex financial challenges in the post-war period. At this juncture, some of
the countries most deeply affected appear to be on the path toward stabilization. But no one
anticipates a rapid recovery in growth, and it is clearly no time for complacency.
It is also clear that these countries can, through their own efforts, avoid the long period of
stagnation that Latin America suffered as a consequence of the debt crisis of the 1980s. The
same Asian countries that have experienced instability in recent months have great underlying
strengths. They have high savings rates and most have solid support for education and strong
work ethics. With a sustained commitment to necessary reforms, they are well-positioned to
re-establish strong economic growth and sound currencies. And the International Monetary
Fund, the World Bank, the Asian Development Bank and the donor community have
demonstrated a willingness to go to exceptional length in support of stability and reform.
Implications of the Recent Instability in Asia

I would like to turn to what the international community can and should be doing to build
stronger national economies and a more sound glohal economy. In our view, the appropriate
program rests on four elements:
o
o
o
o

strong domestic actions to restore stability through macroeconomic policy adjustment
and structural reforms;
temporary and conditional financial support hy (he international community to provide
a bridge to recovery;
supportive policies in other individual nations to help restore market confidence;
a stronger international financial system that fosters policies to reduce the risk of
financial instability and to prevent further crises.

RR-2376
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2
Strong Domestic Actions: Clearly, the key to restoring stability is national policies that address
the specific causes of a country's crisis. Major areas include measures to strengthen the
domestic financial system; to open protected sectors to both foreign and domestic competition;
to reduce distortions in the international flow of resources; and to implement appropriate
monetary and fiscal policies.

More than ever, the local and international business communities are looking for transparent
and accountable governance, or what we call good governance. They want banking systems
that are founded on transparency and sound regulation and supervision. They want markets
that are open to competition and subject to appropriate corporate regulations, and monetary
and fiscal policies based on stable and transparent rules. All countries have policy options to
make real progress in each area. For instance in the fiscal area, we would argue in support of
the IMF's code for fiscal conduct and for publicly vetted budgets. A transparent budget
process is more likely to result in sound spending decisions with more for physical and social
investment, such as primary heath and education, and less for subsidies for the affluent or
unnecessary military expenditures. This sends an enormously powerful signal to markets and
encourages development effectiveness.
Temporary and Conditional International Assistance: The International Financial Institutions
must playa major role in supporting countries in crisis. In Asia. they have shown that they
can react quickly to support countries that are committed to taking needed reforms. They have
played a vital role in helping countries devise and implement these reforms and have taken on
structural issues, such as banking and corporate governance. which extend beyond the
traditional focus on monetary and fiscal policy and balance of payments adjustments. The IFIs
are concentrating on structural issues because they are among the underlying causes for the
crisis and must be addressed to restore investor confidence. By providing temporary
assistance, the IFIs have given these economies the breathing room to undertake these vital
reforms. Effective coordination among the IFIs. including the IMF, World Bank and the
ADB, has been key to the success of recent efforts. Bur we also believe that IFI cooperation
and coordination can be further improved through herrer information exchange, joint missions
and activities linked to compararive advantage and a clearer definition of the division of labor
across institutions. We believe a partnership of equals wirh each institution concentrating on
its respective areas of strength and reinforcing rhe acriom. of rhe other is essential.
Supponive Actions by the V. S. and Olher InJiriJuu/ C()unrries: In an era of interconnected
markets, individual nations have a pan to play in supporting a rapid return to growth and the
continued expansion of trade. Several countries. including the United States, have indicated a
willingness to provide additional temporary assisrance in some situations if a country is
continuing with reforms and unexpected developments call for supplemental resources. Like
other countries, we are seeking legislarive approval for U.S. participation in the IMF quota
increase and in the IMF's New Arrangement (0 Borrow to provide needed resources for the
global financial system. The U.S. and others are extending help through short-term export
insurance to support the import financing needs of countries in crisis.

3

Long-Term Strengthening of the International Financial System: Recent events in Asia have
highlighted the importance of strengthened safeguards in the global financial system -- an area of
concern for us for several years. We encourage others to join with us to build upon the extensive
work undertaken since the Halifax Summit to promote financial stability in global markets and to
strengthen financial systems in emerging economies. At President Clinton's initiative, the United
States has convened a meeting this week of finance ministers to continue these efforts and start
developing a consensus on policies to deal with new challenges to the international financial
system. Issues of concern include measures to make global markets function more efficiently
through increased transparency and disclosure; steps to strengthen national financial systems and
supervision; better surveillance and an improved IFI response to financial crises; and appropriate
burden-sharing by the private sector in resolution of crises. Our shared objective should be
agreement on measures' to head off or minimize the impact of future systemic financial difficulties.

MDB Resources
World Bank Income Dynamics: Net income is a critical issue. We all have a shared
responsibility to safeguard the Bank's financial soundness and maintain the Bank's high
standard of financial integrity in international capital markets. This is fundamental to our
ability to finance effectively the evolving development challenges of our borrowing members.
We, therefore, need to move quickly and collaboratively to address the Bank's increasingly
complex financial framework, including the prospective long-run decline in net income,
changing reserve requirements, and the vital importance of maintaining net income support for
priority development needs.
We need to look much more carefully both at how the Bank earns income and how it spends it,
and we will have to be alert to identifying the opportunities -- as well as the difficult choices
and trade-offs -- available for reducing costs and increasing revenues.
On the cost side, we seek a more efficient Bank, producing hener results on the ground and at
lower cost. We applaud Jim Wolfensohn's initiative to estahlish the Cost Effectiveness
Review, which identified a broad range of savings opportunities to help meet the essential
budgetary benchmarks of the Strategic Compact. implementation of which will require
aggressive and systematic attention. We urge the Bank and its members to seek every
opportunity for further savings beyond those which have already been identified.
There must be more selective use of Bank resources with greater concentration on those
activities which the Bank does best and reduced attention on those activities which the Bank's
development partners or the private sector can carry out more effectively. We note President
Wolfensohn's efforts to seek a bener prioritization of the Bank's activities in its borrowing
countries. A rigorous and systematic examination of operational priorities, grounded firmly in
the commitment to selectivity, will produce clear opportunities for further budgetary savings.
On the revenue side, we all should be concerned that the spread the Bank currently charges on

4
its loans does not cover its administrative costs, and that IBRD loan charges are significantly
lower than those of the regional development banks. As a result, the Bank is relying on its
equity for its income. We believe strongly that IBRD charges should cover administrative
costs at a minimum. This is reasonable. The development framework of IBRD loans brings
substantial benefits to borrowers which are not available from most alternative funding.
There are a number of potential sources of additional revenue. While we are prepared to
consider seriously other ideas, I believe we should focus on: (1) eliminating the interest
waiver on existing loans, and (2) the use of a flexible pricing structure on new loans. I
understand borrower reluctance to increase charges. However, as the prime beneficiaries of a
financially sound institution, borrowers have a vested interest in strengthening the capacity of
the Bank to maintain its financial standing and ability to lend.

Implementation of the RIPC Initiative: In September 1996, we agreed on a momentous
initiative to support sustainable development and growth and assure manageable debt burdens
for heavily indebted poor countries. During the past year and a half, considerable effort has
gone into developing concrete mechanisms to implement this initiative by all creditors. We
are pleased that key International Financial Institutions have now agreed to participate.
Moreover, eight countries have demonstrated a sustained commitment to policy reform. Six of
these have received firm commitments for HIPC relief. and we expect similar decisions soon
for the other two.
In recognition of its strong reform effort, Uganda was the first country to receive final HIPC
debt relief this month totaling about $650 million in nominal debt service relief. This is the
last step of a process of economic reforms and debt rei ief that hegan in 1992 with a Toronto
terms reduction (50%) in the Paris Club and was followed hy successively deeper debt
reductions that will allow Uganda to exit from the deht rescheduling process. We believe that
Uganda sets a fine example for implementation of the HIPC deht initiative. HIPC action will
free up resources that can be used to address poverty and poor social conditions, areas that
have received increased emphasis under recent reform programs. New financing for Uganda
is expected to remain highly concessional.
Credible early relief under this initiative should he a common ohjective of all creditors to help
buttress the debtor countries' reform efforts. Although the World Bank has agreed to provide
interim relief using IDA grants, based on the degree of deht hurden, we remain concerned that
the IMF and other IFIs have not agreed on specific mechanisms to provide interim relief. We
urge them to define specific measures for early relief as soon as possible.

MIGA Capital Increase: We welcome the progress that has heen made since the last meeting
of the Development Committee to strengthen MIGA's finances and its development
effectiveness. We also welcome the approval of a $150 million transfer of net income from
the World Bank to MIGA, which we voted for. and which was approved by the World Bank
Governors on April 6.

5

There have been good discussions in the MIGA Board on some of the core policy issues
necessary for a fmancially strengthened MIGA to better promote sustainable econom~c
development through private sector investment. Particular progress has been made In
incorporating core labor standards in MIGA's operations and adopting stronger envirorunent
policies. We look forward to final agreements on these key issues . We urge that concrete
progress be made in bringing MIGA and IFC social and environmental standards up to those of
the World Bank itself. We are also seeking an improvement in MIGA's infonnation disclosure
policies. We are concerned that the effort to create an Inspection Panel at the IFC is
considerably behind schedule, which in tum is preventing MIGA from moving forward with
the creation of its own Inspection Panel.
My government is reviewing very carefully the recommendation for a $850 million General
Capital Increase for MIGA recently approved by the MIGA Board. Thanks to the solid
support we have received from MIGA Management and from other MIGA members in seeking
a stronger, more effective MIGA, we hope to be in a position to support this capital increase
in the Council of Governors, and submit a formal authorization request to our Congress. The
U.S. will not be able to agree to a capital increase for MIGA until our concerns have been
resolved. Much will depend on further discussions with our fellow MIGA members on the
issues I have mentioned.

Development Effectiveness and Improved IFI Cooperation
Implementing the MDB Task Force Report: The MDB Task Force report commissioned by
this body several years ago, spoke directly to some of the key issues we are grappling with
today in the context of recent events in Asia. In particular. that report gave special emphasis
to the importance of coordination among the Multilateral Development Banks. We welcomed
the recommendations of the MDB Task Force Report two years ago, and are pleased that the
Presidents of the Multilateral Development Banks (MDBs) are meeting semi-annually to
discuss key policy issues and that staff also meets periodically. We look forward to a further
strengthening of these efforts to improve MDB coordination.
To avoid duplication of effort and to make more effective use of MDB resources and
expertise, we need better MDB coordination on country assistance strategies, public
expenditure reviews, sector-specific policies. and assessment of country performances. To
improve the quality and integrity of MDB lending as well as to set clear guidelines for private
sector partners, we would like the banks to develop uniform procurement rules and documents
of the highest standard, a common policy to mainstream anticorruption into decisions on
assistance. and specific and monitorable performance indicators to evaluate the success of
MDB policies and programs. I urge MDB Presidents to develop a process that will intensify
current efforts and lead to specific results. including an announcement of a concrete set of
accomplishments within the year.

6

Strategic Compact: Over the past year, the Bank has been proceeding rapidly with
implementation of the ambitious agenda of the Strategic Compact. It is improving project
quality and devising and enhancing performance indicators to evaluate the effectiveness of its
work. It is decentralizing and reducing internal decision making layers. It is intensifying its
focus on poverty alleviation through programs for health, education and microfinance and
sharpening its ability to respond to financial crises in the wake of developments in Asia. We
look forward to full implementation of the Bank's new human resources policy, cost-cutting
measures and improved internal procedures. We applaud the effort being undertaken to focus
the Bank's activities on areas where it can be most efficient and effective. All of these efforts
will support the Bank's commitment to return its budget to pre-Compact levels in real terms at
the end of the three-year Compact.
We urge the Bank to use the Strategic Compact to sharpen performance criteria for lending, to
improve its own internal governance, and to strengthen its impact on labor, environment and
microenterprise issues.

Performance Criteria and Selectivity: Recent Bank research shows that international foreign
assistance leads to increased economic growth only in countries with good policy performance
while aid in the wrong policy environment can actually be harmful. In addition, the research
indicates that institutional capacity and good governance are indispensable to transforming
assistance into sustainable economic growth. These are powerful findings, and strongly
reinforce our long-held view that the Bank needs to extend assistance selectivity and to identify
correctly the criteria for good performance.
Bank Governance: The principles of accountability, participation and transparency also need
to be observed more systematically in the Bank's internal process. We are pleased that the
Bank is using participatory approaches to ensure that its projects and programs benefit the poor
in borrower communities, and urge that this approach he used across the board in the
development of its country assistance strategies. A key factor in obtaining the support of
affected groups for the Bank's strategy and programs would he publication of the assistance.
Disclosure of Bank strategies and policies and the puhlication of Bank evaluation documents
will encourage accountability and improve development effectiveness.
Labor: Over the past six months the Bank has made commendable efforts to advance core labor
standards, including rights to associate, organize and bargain collectively, the prohibition of
forced or exploitative child labor, and the principle of non-discrimination. We are pleased that
President Wolfensohn has played a leadership role in this area and has met with Asian labor
leaders to gain their perspective on recent events In addition, the Bank recently decided to
prohibit use of forced and exploitative child labor in MIGA-guaranteed operations. This is an
important step forward and one we hope to see adopted throughout the World Bank Group and
the MDB system. The debate on these issues has been constructive and healthy and has aired the
full spectrum of views. For all of us, progress on the ground will be a continuing effort.

7
OUf bottom line is that improving respect for core labor standards is fully consistent with -indeed central to -- the mission of the International Financial Institutions. Greater respect for
worker rights complements efforts to achieve and maintain long-term economic growth and
stability. Conversely. denying core labor standards has a negative impact on the most
important productive resource in developing countries -- labor. We call upon the World Bank
and the IMF to continue efforts to advance respect for worker rights, including convening a
joint conference on worker rights issues. In addition, we urge the World Bank to build on the
work begun through its Child Labor paper and work with the ILO on a strategy that will
advance a Bank screening mechanism process.

Environment: We are pleased that the donor community has agreed to replenish the Global
Environment Facility and to adopt reforms to mainstream the GEF's objectives into the regular
operations of the World Bank. But more work needs to be done. Environmental protection
should not be a lUXUry available only to the rich.
As President Wolfensohn has noted, we need a uniform set of environmental standards that
apply across the Bank, MIGA and IFC. In addition, implementation of policy commitments
should be strengthened, and environmental considerations should be mainstreamed into the
work of the Bank Group so that a broad array of projects are tailored to benefit the
environment rather than solely to mitigate environmental harm. Public participation in the
development of Bank projects and policy should become routine. Related to this, we are
concerned by efforts to weaken the Bank's Inspection Panel. which we already believe is not
functioning as rigorously as intended. We believe this issue warrants closer attention by Bank
members. It is vitally important to reach agreement on an effective inspection process for the
entire Bank Group. We intend to pursue this issue further in the IDA-12 negotiations.

Microenterprise Development: We are pleased that the Strategic Compact singled out
microenterprise development as an area in need of greater focus by the World Bank. We
commend the efforts that have been made thus far to increase the Bank's financial and policy
involvement in this area, and urge that the goal of mainstreaming microenterprise into the
overall work of the Bank be accelerated.
Conclusion
Since we met in Hong Kong in September, the shared challenges facing the international
community and the International Financial Institutions have intensified, particularly in East
Asia. These difficulties have reaffirmed the importance of hroad-based economic reforms to
lock in economic gains and of close coordination among countries in crisis, the International
Financial Institutions and other countries that can lend a hand. As we go forward, our job is
to take stock of what has worked, what has not and what needs to he improved, and then alter
our policies accordingly -- as nations and as participants in the International Financial'

8

Institutions, and more broadly, in the international financial community. These lessons came
at a price, particularly to the people of East Asia. We owe it to them and to ourselves to use
these lessons to take actions that forestall or mitigate future crises.
-30-

OFFICE OF PUBLIC AFFAIRS _1500 PENNSYLVANIA AVENUE, N. W. _ WASHINGTON, D.C.- 20220. (102) 6%2.%960

EMBARGOED UNTIL 2: 30 P _M_
April 17, 1998

CONTACT:

Office of Financing
202/219-3350

TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $10,000 million of 52-week Treasury

bills to refund $15,479 million of publicly held 52-week bills maturing
April 30, 1998. This offering will result in a paydown for the Treasury of
~out S5,475 million.
In addition to the maturing 52-week bills, there are
$14,862 million of maturing publicly held 13-week and 26-week bills.

In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $12,738 million ·of the maturing bills. These accounts are considered to hold $5,210 million of tbe maturing 52-week issue, which may be
refunded at the weighted average discount rate of accepted competitive tenders.
~unts issued to tbese accounts will be in addition to the offering amount.
Federal Reserve Banks bold $6,350 million of the maturing issues as agents
for foreign and international monetary authorities. These may be refunded
within the offering amount at tbe weighted average discount rate of accepted
competitive tenders. Additional amounts may be issued for such accounts if the
aggregate amount of new bids exceeds the aggregate amount of maturing·bills.
For purposes of determining such additional amounts, foreign and international
monetary authorities are considered to hold Sl,270 million of the maturing
52-week is::.ue.
Tenders for the bills will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D.C~ This offering
of Treasury securities is governed by the terms and conditions set forth in ~he
Uniform Offering Circular (31 CFR Part 356, as amended) for tbe sale and issue
by the Treasury to the public of marketable Treasury bills, notes, and bonds.
Details about the new security are given in ths attached offering
highlights.
000

Attachment

RR-2377
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HIGHLIGHTS OF TREASURY OFFERING OF 52 -WEEK BILLS
TO BE

~SSUED

APR~L

30, 1998

April 17, 1998
Offering Amount ____________ $10.,000 million
Description of Offering:
Term and type of security •.
CUSIP number ••.••.•••••••••
Auction date ••••.•.•••.••••
Issue date _. _____ .... _ •..•.
Maturity date •..•..•.•••••.
Original issue date •.••.•••

364-day bill
912795 BW 0.
April 23,1998
April 30, 1998
April 29,1999
April 30., 1998
Maturing amount . . . . . . _. _ ... $20.,689 million
Minimum bid amount .•••••••• $10,0.00
Multiples ................... $1,0.0.0.
Submission of Bids:
Noncompetitive bids •.••.••. Accepted in full up to $1,0.00.,000. at the
average discount rate of accepted
competitive bids
Competitive bids ...•.•. (1) MUst be expressed as a discount rate with
three decimals, in increments of .00.5%,
e.g., 7.10.0%, 7.10.5\.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $1 billion or greater.
(3) Net long position must be deter.mined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield ....•.• 35% of public offering
Maximum Award .•..•...•.•.•. 35% of public offering
Receipt of Tenders:
..
Noncompetitive tenders ...•. Prior to 12:0.0. noon Eastern Daylight Saving'
time on auction day
Competitive tenders •.....•• Prior to 1:00 p.m. Eastern Daylight Saving
t~e on auction day
Payment Terms .............. Full payment with tender or by charge to
a funds account at a Federal Reserve Bank
on issue date

-

PUBLIC DEBT NEWS

-Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE
April 20, 1998

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
April 23, 1998
July 23, 1998
9127944X9

Term:
Issue. Date:
Maturity Date:
CUSIP Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate

Investment
Rate 1/

------

---------5.114%
5.118%
5.118%

Low
High
Average

4.980%
4.985%
4.985%

Price
-----98.741
98.740
98.740

Tenders at the high discount rate were allotted

59%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
$

Competitive
Noncompetitive
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

37,054,062
1,173,254

$

----------------38,227,316

5,423,594

3,270,500

3,270,500

330,000

330,000

o

o
-----------------

$

TOTAL

4,250,340
1,173,254

41,827,816

1/ Equivalent coupon-issue yield.

RR-2378
http://www.publicd~bt.tr~~ls.gO\.

$

9,024,094

PUBLIC DEBT NEWS
- Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:

FOR IMMEDIATE RELEASE

Office of Financing
202-219-3350

April 20, 1998

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
April 23, 1998
October 22, 1998
912795AN1

Term:
Issue Date:
Maturity Date:
CUSlp· Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate

------

Low
High
Average

5.050%
5.060%
5.060\"

Investment
Rate 1/

Price

------

---------5.254%

97.447
97.442
97.442

5.265%
5.265%

Tenders at the high discount rate were allotted

64%.

AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted

Tendered

Tender Type

----------------28,671,210
1,004,757

4,128,766
1,004,757

----------------29,675,967

5,133,523

3,480,000

3,480,000

2,130,000

2,130,000

$

Competitive
Noncompetitive
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts

o

----------------35,285,967

$

TOTAL

1/ Equivalent coupon-issue yield.

RR-2379
bttp:lIW\v\V.publicdcbt.trcas.go v

$

o

----------------10,743,523

$

D EPA R T 1\1 E N T

0 F

..............

THE

T REA SUR Y

NEWS

~~.

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C•• %0220. (%0%) 62%.2960

EMBARGOED UNTIL 10 A.M. EDT
Text as Prepared for Delivery
April 21, 1998

TREASURY ASSISTANT SECRETARY (INTERNATIONAL AFFAIRS)
TIMOTHY F. GEITHNER
HOUSE BANKING SUBCOMMITTEE ON GENERAL
OVERSIGHT AND INVESTIGATIONS

I welcome this opportunity to testify before the Subcommittee to review U.S. participation
in the International Monetary Fund (IMF). Joining me is Karin Lissakers, U.S. Executive
Director of the IMF.
This hearing takes place in the context of three important developments. First, the world
is still in the early stages of responding to one of the worst international financial crises in the
post-war period, a crisis that poses serious risks to the interests of American companies, workers,
and farmers. Second, the Congress is considering vital legislation to strengthen the IMF's
financial base to ensure it has the resources necessary to deal with any intensification or spread of
the current crisis, as well as future crises that could threaten American prosperity. Finally, we are
leading a major international effort to strengthen the architecture of the global financial system,
which will include reforms to the IMF, to enhance our capability to prevent and resolve financial
cnses.
These issues have been the subject of testimony by the Secretary of the Treasury,
Chairman Greenspan, and senior Treasury officials at Congressional hearings on nine occasions
over the past several months. In this statement today, I will focus on a series of more detailed
questions you raised in your letters to Secretary Rubin and Karin Lissakers, including:
The governance of the IMF, our position in the institution, and the role played by our
Executive Director.

RR-2380

For press relm.ses. speeches. public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

•

The ways in which we seek to advance policy initiatives in the institution, and in this
context, our successes and failures in advancing Congressionally mandated policies in the
four specific areas you highlighted in advance of the hearing:
•
•
•
•

worker rights,
the role of the private sector,
human rights, and
military spending.

•

The financial structure of the IMF.

•

Improving transparency in the IMF.

•

Performance measures for the IMF.

We have both, as you know, provided extensive material to the Committee in advance of
this hearing. We hope this statement is responsive to the questions raised in your letters.

The International Monetary Fund
The IMF was created more than 50 years ago in the wake of a world depression and world
war caused in part by a severe global economic disruption. Its mission is to promote the
expansion of world trade and high levels of employment and growth. For this purpose, the IMF
promotes the adoption of pro-growth, market-oriented economic policies through its surveillance
of member economies and by providing conditional financing to enable countries to correct
balance-of-payments problems without recourse to measures destructive of national and
international prosperity.
The world economy has changed dramatically since the IMF was founded. The fixed
exchange rate system established at Bretton Woods has given way to more diverse arrangements,
from freely floating currencies to pegged rates and monetary unions. The integration of domestic
capital markets into a global financial marketplace has resulted in an expansion of international
capital flows to levels which dwarf the payments for goods and services that were the IMF'S
original focus
While the IMF's core mission remains the same, the institution has had to adapt. The new
dimensions oftoday's financial crises require the IMF to complement its traditional emphasis on
macroeconomic measures - reducing fiscal deficits and avoiding inflationary monetary policies __
with consideration of broader structural and institutional issues that are critical to confidence and
market-based responses to crises. IMF surveillance and program conditionality now often address
the functioning of domestic markets, the soundness of banking systems, social safety nets and
governance concerns.

2

New instruments have been developed. Within the IMP, the Extended Financing Facility
was broadened to encompass the structural reforms necessary for Russia, the other FSU states
and Eastern Europe to successfully make the transition from controlled to market-oriented
economies. The ESAF and lllPC initiatives were undertaken to meet the special needs of the
IMF's poorest members. The Supplemental Reserve Facility was created to encourage an early
return of borrowers to private markets through loans which carry higher charges and shorter
maturities. The Emergency Financing Mechanism was put in place to expedite the negotiation
and implementation of IMP support in crisis situations. The New Arrangements to Borrow
(NAB) were developed to provide an expanded backstop to IMP resources to deal with systemic
threats.
The pace of change in global finance has accelerated in recent years. With this change has
come tremendous benefits here in the United States through increased exports, more high-paying
jobs, higher standards of living, and lower inflation. The huge increases in private capital flows to
developing countries have, among other things, helped finance a greater increase in imports from
industrialized countries, including our own. Developing countries from Latin America to Asia
have also benefited greatly, as increased capital flows financed greater investment and contributed
substantially to the high rates of growth in such countries, promoting higher standards of living
and lifting millions out of poverty.
With these opportunities, however, have also come challenges. The Asian crisis has
demonstrated that weak financial sectors and other structural problems in emerging economies
and inadequate risk assessment by international creditors and investors can combine to have
significant impact on countries around the globe. The crisis has also highlighted the need for
further improvements to make the system more open, transparent and accountable, and for the
private sector to playa greater role in preventing and resolving crises. The IMP, as the principal
cooperative monetary institution for the world economy, must be in the forefront of that effort.
Let me therefore begin by describing how the IMF operates and how U.S. policy in the
Fund is developed and implemented.
The Goyerning Structure of the IMF

The Board of Governors is the highest decision-making body of the Fund and consists of
one Governor and one Alternate Governor appointed by each of its 182 member countries. The
Secretary of the Treasury is the U.S. Governor and the Chairman of the Federal Reserve Board
serves as the Alternate. Both are appointed to these positions by the President and confirmed by
the Senate.
While all powers of the IMF are vested in the Board of Governors, authority for day-today operations has been delegated to the Executive Board, except for certain specific powers
which are reserved for the Governors, including decisions on admission and expulsion of
3

members, quotas, SDR allocations, and amendments of the Articles of Agreement. The Board of
Governors meets annually although decisions can be and routinely are taken without a formal
meeting. The Interim Committee is a ministerial-level group which advises and reports to the
Board of Governors on the functioning of the international monetary system and IMF-related
issues. The composition of the Interim Committee reflects that of the Executive Board, with the
Treasury Secretary representing the United States. The Committee currently meets twice
annually but can be convened more frequently.
The Executive Board is currently composed of 24 Executive Directors appointed or
elected by the membership with responsibility for the regular operations of the institution. The
U.S. Executive Director is appointed by the President and confirmed by the Senate. Her office
also includes an Alternate Director, also appointed by the President and Senate-confinned, an
economic advisor, three technical assistants, and two administrative assistants.
The Executive Board meets in continuous session, with formal meetings scheduled 3-4
times a week. During calendar year 1997, the Executive Board met in 166 sessions for a total of
635 hours, of which more than half related to country issues, primarily surveillance and use of
IMF resources; one-third involved policy issues, including multilateral surveillance of the world
economy and financial markets, the ESAFIHIPC initiatives, quotas, and capital account
amendment; and the remainder was devoted to administrative matters including budget. overall
staffing levels and compensation issues.
The third leg of the governing structure is management and staff The IMF Managing
Director is chosen by the Executive Board and serves as Chairman of the Board and Chief
Operating Officer of the Fund. The Managing Director is assisted by three Deputy Managing
Directors, each with responsibilities for particular areas of the Fund's activities. The IMF staff
currently totals about 2,600, including about 1,000 economists, from over 100 countries, and is
organized into area, functional and support departments. The Th1F has over 60 resident
representatives stationed in member countries. The number of authorized staff increased in the
early part of the decade when the IMF membership expanded to include Eastern European
countries, Russia and the other FSU states, but has remained fairly constant in recent years.
The salaries of Fund staff are set and adjusted annually on the basis of a comparison with
the salaries of employees performing comparable work and with equivalent responsibilities in the
U.S. public and private sectors. The resulting salary level is also reviewed for international
competitiveness in order to achieve the wide geographical distribution of staff mandated in the
IMF Articles of Agreement.
Most countries in the world impose tax on the worldwide income of individuals on a
residence, rather than citizenship, basis. Thus, non-U.S. nationals employed by the Fund outside
of their home countries generally do not pay home country income tax on their Fund incomes.
However, the United States taxes its citizens regardless of where they are resident; U.S. staff of
4

the Fund are taxed by the United States on their Fund income regardless of where they are
located. Arrangements have been made to reimburse employees for income taxes paid to their
home countries to put them on an equal footing with staff who do not have to pay home country
tax. OfIMF tax reimbursements, 99.5% go to U.S. staff. These reimbursements represent a
transfer from the IMF to the U.S. Treasury. In the absence of tax reimbursement, the actual aftertax Fund income of U.S. staff would fall well below both the pay of other IMF staff(that is not
taxed) and the after-tax pay of employees in the U.S. public and private sectors. In such
circumstances, it would be very difficult, if not impossible, for the Fund to recruit or retain well
qualified U.S. staff.
In a 1995 report, the GAO reviewed the IMF compensation system and concluded that it
was consistent with the basic objective of providing competitive salaries and attracting high
quality international staff. While agreeing with the thrust of the GAO report, the Administration
has worked to restrain the level of compensation allowed within the agreed formula and has called
for a bottom-up review to consider appropriate reforms. The U.S. Director, at the direction of
the Treasury Department, has also been in the forefront of efforts to pursue budget consolidation
following the period of increased spending due to the expansion ofIMF membership. As a result,
the number of authorized staff has declined slightly and the increase in administrative expenditures
has been less than the rate of inflation over the past three to four years.
Executiye Board Procedures

The agenda for an Executive Board meeting is determined by management, in consultation
with the Board, and based on a rolling four-week tentative schedule which is subject to change.
The Board discussions are usually based on staff papers which Board procedures require be
circulated 2-3 weeks prior to a meeting although provision is made for waiving this requirement
under certain circumstances. Under the IMF emergency financing procedures, expedited
consideration in as little as 3-4 days can occur.
The discussions in the Executive Board are normally informal with Directors usually
making opening remarks and then engaging in debate with each other and staff Representing the
largest, most influential member, the U.S. representatives speak on virtually every issue coming
before the Board.
At the conclusion of the meeting, the Chairman normally summarizes the discussion and
takes a sense of the meeting on issues requiring decision, including loans, program reviews and
policy matters. While a Director may request a formal vote, an effort is usually made to reach a
consensus on key issues with votes taken only in the rare occasions when the necessary majority
may be in doubt. However, even in situations where a clear majority is in favor of a decision, the
United States has at times asked that the record indicate its opposition to a particular course of
action. As the Committee requested, a list of all Executive Board documents and decisions and
votes by the USED is being submitted for the record.

5

The voting power of each member is based on its subscription to IMF quota resources,
with each member receiving 250 basic votes plus an additional vote for each SDR 100,000 of
quota. As the member with the largest quota, the U.S. has the highest voting power, now about
18 percent of the total, which provides us with a veto over major policy issues such as an increase
in quotas and amendment of the Articles of Agreement. While this voting power is nearly triple
that of the next largest countries, Japan and Germany, it still falls well short of the majority vote
needed for most IMF decisions.
Consequently, the U.S. must engage in coalition building to obtain the necessary support
for its views on most issues. This is accomplished through a variety of channels including
frequent contacts with Management, staff and the Offices of Executive Directors, either
individually or in groups. These efforts are often supplemented by contacts with the home
governments of member countries, including within the G-7 framework, other multilateral fora
and bilaterally.

As the representative of the U.S. in the IMF, the Executive Director reports directly to the
senior levels of the Treasury, particularly the Under and Assistant Secretaries for International
Affairs, and works closely with the Treasury Department in the development and implementing of
U.S. policies. The Executive Director participates regularly in meetings with Treasury officials
where IMF issues are considered and receives guidance on the items being considered by the
Executive Board, including written instructions to implement legislation and congressional
mandates. Regular reports are provided by the Director on Executive Board deliberations and
additional guidance sought as issues evolve. The Executive Director also participates in meetings
between Treasury and foreign officials when IMF issues are being considered and is a senior
member of the U.S. delegation to meetings of the IMF Board of Governors and Interim
Committee.
In addition, members of the Office of the USED maintain close liaison with such U.S.
Government entities as the Treasury Department, Federal Reserve Board, State Department, NEC
and NSC as well as with U.S. representatives in the World Bank and other MOBs. Members of
the office also meet with congressional staff. academics. business and labor groups. NGOs and
others that have a particular interest in IMF issues.
Let me tum now to the issues raised by the Committee to indicate how this process is used
to advance U.S. policy objectives.
CQn~ressiQnal

Mandates

On a number of occasions over the past several decades. the Congress has sought to
increase the profile of certain policy objectives through legislation requiring that the U.S. seek
specific changes in IMF policies. Since 1977, these legislative mandates have generally taken the
form of requiring the Secretary of the Treasury to instruct the U.S. Executive Director to use the

6

voice and vote of the United States to seek the adoption of measures that would advance the
attainment of the policy goal. In explaining the use of the voice and vote formulation in 1977, the
House Banking Committee said, among other things, that the formulation concentrates U.S.
policy on finding effective means of furthering our goals instead of merely putting a negative vote
on specific loans.. However, in some cases, the voice and vote requirement is cast in terms of
opposing a particular action, which the U.S. Executive Director can do by either abstaining or
voting against.
Most IMP members and Fund Management and staff view the institution primarily in
terms of the monetary mandate contained in the Articles of Agreement in which macroeconomic
and structural policies are designed to correct balance of payments problems. They tend to view
the provisions in the Articles which require the Fund to "respect the domestic social and political
policies of members" and to "pay due regard to the circumstances of members" as limiting the
Fund's competence to economic issues directly related to the balance of payments. In these
circumstances, we have found that the most effective strategy for garnering the necessary support
to modify Fund policies is through careful persuasion based on arguments that are consistent with
the IMF's charter.
This approach has involved, for example, encouraging IMF staff to undertake research on
the economic aspects of an issue, including the potential impact on the functioning of the
economy, the members' ability to implement economic policies, or the consequences for
international trade, investment and the balance of payments. We work to engage IMF
Management on the issue and encourage the Managing Director to address the issue in public fora
and international meetings. We raise the issue with other Executive Directors, initially through
informal contacts, and then in Board seminars and retreats. We work to obtain the support of
other member governments through the G-7, other multilateral groups, and bilaterally. And we
work in other fora and bilaterally to pursue the issue in an effort to generally raise the profile of
the issue. When we are successful, recognition of the issue becomes widespread and accepted,
thus allowing us to raise it in IMF policy and country discussions without triggering
counterproductive reactions and a hardening of positions. Ultimately, then, Fund policies can be
modified, guidance to IMF staff adapted accordingly, and IMF-supported programs adjusted to
include the appropriate conditionality.
This approach requires patience and persistence over an extended period. The views of
other countries may be strongly held, particularly when the issue is perceived to affect a vital
national interest. The IMF's rules in some cases may require high majorities to change policies
and, in some instances, the consent of an individual country may be required before a general
policy can be implemented in a specific case.
Here is a more detailed report on our experience to date pursuing four specific issues you
raise in your letter: worker rights, role of the private sector, human rights, and military spending.

7

o Worker rights: Since the passage of the Sanders-Frank amendment in 1994, the United
States has worked actively to encourage the IMF, World Bank and other MOBs to pay greater
attention to labor issues, including the adoption of policies to encourage borrowing countries to
guarantee internationally recognized worker rights. I would also note that Treasury views the
provisions, contained in HR 3114, as passed by the full Banking Committee by a margin of 40-9,
regarding labor rights and IMF coordination with the IMF on these issues, as a constructive
means to enhance Treasury's ability to advance more appropriately this concern within the IMF.
Consistent with Congress's 1994 action, considerable progress has been made in the Wor1d Bank
where, for example, the importance of improving labor standards is fonnally acknowledged by the
institution, a comprehensive policy to eliminate exploitative child labor has been adopted, and
MIGA is prohibited from extending guarantees for programs involving forced labor and
exploitative child labor.
Progress admittedly has been slower in the IMF. The initial reaction of most IMF
members has been that this is an issue more appropriately addressed in the MDBs and ILD rather
than the IMF. Consequently, our initial efforts have focused on encouraging the IMF to develop
a stronger working relationship with the ILD; pressing Management and staff to incorporate core
labor standards into program design and to include representatives from organized labor in
program discussions; and raising worker rights issues in specific country reviews where the
United States has particular concerns.
This effort is beginning to bear fiuit although much work remains to be done. Notably, at
the February 21, 1998, G-7 meeting in London the finance ministers and central bank governors
recognized the importance of "the International Financial Institutions' support for the work of the
ILD in promoting core labour standards." Furthennore, the 1998 G-8 Conference on Growth,
Employability and Inclusion, expressed support for "the global progress towards the
implementation of internationally recognized core labour standards". These statements are
important steps in the consensus-building process both within and outside of the IMF.
The IMF and ILD are developing a close working relationship at all levels, including
meetings of senior officials, joint sponsorship of conferences, attendance at each institution's
annual meetings. and enhanced staff cooperation in specific country cases. Moreover, as part of
the effort to promote country ownership of IMF-supported programs, the Fund is reaching out to
a wider range of representatives from civil society, including labor unions, and urging
governments to consult more closely with labor groups in the fonnulation and implementation of
economic policies. The "tripartite" process of program negotiation and implementation adopted
in the recent Korea arrangement is a model that could be used in other cases. The USED has also
raised worker rights issues in specific country cases including Ethiopia (child labor in the informal
sector), Pakistan (child and bonded labor), Morocco (core labor standards as a means of
improving labor market flexibility), and Indonesia (freedom of association).

8

Our efforts are continuing. The IMF and the World Bank, together with the ILO, are
holding a conference in Bangkok this week on the implications of Asian crisis for workers in the
region. In several recent speeches, the IMF Managing Director highlighted the need to adapt
Fund policies to place greater emphasis on labor issues, including core labor rights.
o Ro/e Qjprivate credjtors jn crisjs reso/ution.' Fifteen years ago, in the midst of the
Latin America debt crisis, the Congress directed the Secretary of the Treasury to instruct the U.S.
Executive Director to oppose and vote against any IMF financing which in his or her judgment is
to be used principally for repaying imprudent bank loans to a member country and to encourage
the rescheduling of bank loans. At U.S. urging, the Fund adopted during the 1980s a variety of
measures to facilitate the orderly resolution of the debt crises, including policies requiring
assurance of adequate private external financing in support of members' adjustment efforts, IMF
lending into arrears to ensure that reluctant private creditors to sovereign borrowers could not
derail a country's adjustment efforts, and IMF support for a menu of options developed for
restructuring a country's private external debt (the Brady Plan). Between 1987 and March 1997,
31 debtor countries had more than $180 billion in commercial bank debt restructured, and the
original claims of the banks were reduced by $83 billion.
The Asian crisis has demonstrated again the importance of finding more effective
mechanisms for sharing with the private sector the burden of managing financial crises. In a
world in which trillions flow through international markets every day, there is simply not going to
be enough official financing to meet the crises that could take place. Moreover, official financing
should not absolve private investors from the consequences of excessive risk-taking and thus
create the "moral hazard" that could plant the seeds of future crises.
This issue was a central topic at last week's international meetings, including the G-7, the
Interim Committee and the special meeting offinance ministers and central bank governors of22
countries. In a speech last week, Secretary Rubin outlined U.S. views and, in his Interim
Committee statement, suggested some steps that the IMF could take now while more fundamental
reforms are being examined. Possible mechanisms could include the promotion of new, more
flexible forms of debt agreements and indentures which could provide a framework for direct
negotiations between creditors and debtors. The IMF should also explore lending into arrears -in other words, the IMF would continue to provide financing to countries even when those
countries may be behind on the debt payments to some private creditors -- to create a situation in
which debtors and creditors work things out themselves.
o Human rjfhts: The United States pursues the advancement of human rights through a
variety of diplomatic channels and international institutions. As provided in legislation, the
USED has opposed IMF financing to countries about which the United States has human rights
concerns or countries harboring war criminals.

9

Our ability to pursue this objective in the IMF is constrained in part by the fact that most
countries about which the U.S. has human rights concerns do not borrow from the IMF. At
present, for example, the only country within that category which receives IMF financing is
Mauritania. The USED's Office has continuously opposed IMF financing for Mauritania since
1992. Similarly, with respect to our war criminals concerns, the U.S. opposed an IMF loan to
Croatia that was approved by the Board, successfully postponed subsequent disbursements of the
approved loan and only agreed to a resumption of disbursements after being satisfied that Croatia
had changed its policies.
o Military spendinx: The issue of military spending is another area where U.S. efforts
have had to overcome entrenched views, particularly as most members consider that it involves
sensitive national security concerns. However, we have been able to make progress by placing the
issue within the broader governance framework and the need to improve the quality and
composition of fiscal adjustment by reducing unproductive spending while ensuring adequate
basic investment in infrastructure and human resources, and the importance of enhancing the
transparency of fiscal policy by reducing off-budget transactions. We have encouraged Fund staff
to undertake studies of the economic effects of reducing global military spending. The Managing
Director has also taken an active role in promoting reduced military spending and discouraging
arms races among developing countries, including by urging developed countries to restrain their
military sales programs.
As a result of these efforts, the Fund is paying increased attention to military spending
issues, including in the context of Th.fF.programs. For example, the IMF review of Peru's
extended arrangement was delayed by staff concern regarding the substantial acquisition of fighter
planes and whether the financing of the purchase was consistent with program conditions. In
Pakistan, the IMF has continued to insist that the level of military-related external debt be
included in the overall debt limit as a means of enforcing budgetary transparency in military
spending and restricting such borrowing. In Romania, the Fund pressed for inclusion of military
spending in the budget in order to force the authorities to be transparent and to consider the
impact of military spending on other priorities in the context of tight budget constraints.
The Financial Structure of the JMF

The financial structure of the Th1F is similar to that of a credit union. All members
contribute to the resources of the [MF, and each member is entitled to obtain financing based on
agreed uniform criteria. A member that provides resources used in extending financing to another
country is generally paid interest on its creditor position. A country receiving financing pays
interest charges on its loan. The rates of remuneration and charge are based on the Special
Drawing Right (SDR) interest rate, which is a weighted average of the market interest rates on
short-term government securities in the U.S., U.K., Germany, Japan and France. The SDR
interest rate is a floating rate which changes weekJy with fluctuations in the interest rate on the

10

component secuntles. Consequently, the rates of remuneration and charge are adjusted in
response to changes in these market rates.
The IMF Articles of Agreement require that the rate of remuneration paid creditors must
be between 80 percent and 100 percent of the SDR interest rate. Pursuant to legislation enacted
in 1983, the U.S. Director successfully obtained a revision ofIMF policies which raised the rate of
remuneration to 100 percent of the SDR rate. A portion of this remuneration is deferred under
arrangements whereby creditors and debtors finance the financial burden to the IMF arising from
interest arrears on IMF obligations and for additions to the Fund's precautionary balances. The
basic rate of remuneration for the week of April 20, 1998 was 4.24 percent.
As requested by the Committee, we have provided a table indicating the net benefit or cost

of U.S. participation in the IMF.
The basic rate of charge paid by borrowers is set at a level relative to the SDR interest rate
which is sufficient to cover the cost of financing to the IMF (primarily remuneration paid
creditors) and to generate sufficient income to finance agreed increases in the IMF's reserves, and
is adjusted upward to pay the borrowers' share of the burden of deferred charges and additions to
the IMF's precautionary balances. Like remuneration, the rate of charge fluctuates with changes
in the SDR interest rate and thus the underlying market rates. The basic rate of charge for the
week of April 20, 1998 was 4.54 percent or 107 percent of the SDR rate.
Last year, the IMF adopted a U.S. proposal for a Supplemental Reserve Facility (SRF)
under which members obtaining large amounts of IMF financing to deal with emergency situations
pay a surcharge of300-500 basis points over the regular rate of charge. The surcharge is
intended to encourage such borrowers to repay IMF loans as soon as possible after access to
private markets is restored. A portion of the IMF loan to Korea was financed under the SRF, and
we expect that there will be increased recourse to the facility in the future.
The Executive Board reviews regularly the policy on charges and remuneration and has
considered the possibility of instituting a risk premium. Changes in IMF charges require a 70
percent majority vote, and most Directors. both debtors and creditors, have opposed introducing
differential risk premia. The IMF is a cooperative institution established on the principle that
member countries share a fundamental interest in providing mutual support to each other in order
to prevent or contain disruptive financial crises and preserve the stability of the international
financial system. A non-discriminatory pricing policy is fully consistent with the basic tenets and
mission of such an institution. As an international financial institution, the IMF enjoys what
amounts to preferred creditor status, seniority relative to other creditors and a superior capacity
to obtain repayment. This tends to equalize the risk of all IMF loans. No country has ever
defaulted on its IMF obligations.

11

Transparency

One of the most prevalent concerns about the IMF is that it discloses inadequate
infonnation about the details of its lending programs and the contents of its policy advice to its
members. In general, we share these concerns. We strongly believe that increased transparency
by governments and the international financial institutions is essential for the effective functioning
of the global financial markets. We have been at the forefront of efforts to promote greater
openness and accountability, successfully gaining support for a number of changes in IMF
policies.
In 1996, the IMF introduced the Special Data Dissemination Standard (SDDS) to. improve

the infonnation collection and publication practices of countries accessing international capital
markets. The Fund is also providing more infonnation on its own activities, largely in response to
U.S. efforts, including the voluntary release of Press Infonnation Notices (pINs) summarizing
IMF views at the conclusion of Article IV consultations - PINs have been issued for 72 countries
since its creation in May 1997 -- publication of the Policy Framework Papers describing country
economic strategies which serve as the basis for ESAF and IDA financing, and issuance ofIMF
background papers on economic developments in individual countries. Letters of Intent
describing the policy commitments which countries undertake as a condition for receiving IMF
financing are being increasingly released by the country concerned. The Letters ofIntent for IMF
programs with Korea, Thailand. and Indonesia have all been made public and are available on the
IMF web site.
While the progress has been substantial. there is clearly room for improvement. At the
Interim Committee meeting. Secretary Rubin presented specific proposals to:
o
o
o
o
o

increase the participation in and content and usefulness of the SDDS;
create a presumption that all members would issue PINs;
require publication of Letters of Intent;
permit release of staff reports on Article IV consultations; and
allow more timely access to IMF archival material, release of IMP reports to the
Interim Committee and staff papers on key policy issues, and publication of more
summaries of Executive Board meetings.

Beyond these steps there are practical limitations and legitimate concerns regarding how
far the IMF could and should go in releasing information. The Fund's effectiveness as a
confidential policy advisor to member governments requires that consultations be frank, candid,
and based on mutual confidence. Moreover, the Articles of Agreement permit a country the right
to prohibit publication of information which it provides the Fund in confidence. Finally, we do
not believe the IMF should substitute for private creditors and investors reaching their own
decisions about the risk of lending or investing in a country. Progress will continue, albeit at a
slower pace than many would consider optimal.
12

Perfonnance Measures

The Cortunittee has asked us to identify possible concrete performance measures by which
the Congress could judge the effectiveness of the IMF. This is a particularly difficult task in an
institution such as the IMF. The issues which the IMF seeks to address are not fully in the
institution's control but depend importantly on decisions and actions by member governments and
the markets. Finally, the tools which the IMF relies upon are inherently imprecise and subject to
conflicting interpretation and judgment.
In this context, any assessment of the IMFs performance will necessarily be judgmental
and qualitative. There are a variety of measures that the Congress might consider:
First, the Congress could evaluate the extent to which the IMF meets the general purposes
contained in its Articles of Agreement to promote trade, growth, employment and a stable
international monetary system. It is both possible and appropriate to assess whether the policies
and programs the IMF advances contribute to these objectives, although it is important to
recognize that the IMF does not and cannot bring about by its actions alone a positive change in
any of these areas.
Second, the Congress could evaluate the extent to which the United States succeeds in
advancing specific policy issues, such as advancing core labor standards or improving
transparency within the IMF. Here it is clearly possible to measure performance against a specific
list of objectives.
Third, the Congress could examine the more specific questions of how countries with IMF
programs perform, whether they meet the conditions in the programs, and whether the policies
pursued with IMF support are effective, for example, in strengthening growth and employment.
The legislation now being considered by the Congress contain a number of different types
of reporting requirements that are designed in part with these objectives in mind. We would be
pleased to work with you and other interested members of Congress to explore how best to
identify performance measures that would provide a useful picture of the effectiveness of the
institution.
Conclysion

The IMF is an imperfect institution and there is room for improvement. However, a
reasonable reading of the record of the past 50 years would indicate that the IMF has:
o

contributed to a period of unprecedented growth in the world economy by
promoting pro-growth, market-oriented reform, and by reducing barriers to the
flow of international trade, investment and capital;
13

o

advanced U.S. interests in promoting a market-based, global economy that is best
suited to the pursuit of the spread of democratic ideals; and

o

helped countries deal with financial problems in a manner that reduces the risk of
deep and prolonged economic contraction and competitive exchange rate policies
that could threaten global prosperity and stability.

Our view, Mr. Chairman, is that the United States and the world are significantly better off
with the IMF than they would have been without it. Our efforts should be focused on reforming
the IMF to make it work better. The legislation now before the Congress to replenish the IMF's
resources is critical, especially as the Fund's current liquidity has fallen to levels which threaten its
operational capacity to deal with any spread or intensification of the current crisis and to deal with
further crises that could threaten U.S. interests. We are committed to supporting reforms in the
IMF and in the architecture of the international financial system as a whole that will help advance
U.S. interests and best respond to future challenges to U.S. interests. We look forward to
working with the Congress toward these objectives.
-30-

DEPARTMENT

OF

THE

TREASURY

NEWS
-

omCEOFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
April 21, 1998

CONTACT: Michelle Lynn Bonner
(202) 622-2960

TREASURY DEPARTMENT SIGNS PARTNERSHIP AGREEMENT WITH
NA nONAL ASSOCIA nON OF HISPANIC FEDERAL EXECUTIVES

Treasury Secretary Robert E. Rubin today signed a partnership agreement with the
National Association of Hispanic Federal Executives (NAHFE) that is designed to provide a
framework for Treasury and NAHFE to work together on recruitment, training, professional
development, retention and involvement of Hispanic Americans in Treasury's workforce and
programs.
"This agreement is an important commitment from the Treasury Department to working
closely with the Hispanic community, in its effort to attract and retain the highest quality
employees for the Treasury Department," Secretary Rubin said.
Under the agreement, the Treasury Department will provide NAHFE with information on
employment and procurement opportunities, encourage Treasury Bureaus to participate in events
designed to recruit and promote Hispanic Americans in the federal workforce, and receive input
from NAHFE on ways to increase the involvement of Hispanic Americans in Treasury programs
and activities. NAHFE, in turn, will assist Treasury in disseminating information to the Hispanic
American community.
"We expect this agreement to be the first in a series of similar agreements with other
organizations," said Nancy Killefer, Assistant Secretary for Management and Chief Financial
Officer of the Treasury Department. "In keeping with efforts Administration wide, the Treasury
Department is working to expand the community from which it recruits employees."
A copy of the partnership agreement and photographs from the signing are available at
http://Www. ustreas. govlpressl.
-30RR-2381

--Fur press releases. speeches, public schedules and official biographies, call our
~-

24~our fax line at (202) 622-2040

PARTNERSHIP AGREEMENT
BETWEEN THE NATIONAL ASSOCIATION OF HISPANIC FEDERAL EXECUTIVES
AND THE DEPARTMENT OF THE TREASURY

I.

PARTIES
The parties to this Partnership Agreement ("P A") are the National Association of
Hispanic Federal Executives ("NAHFE") and the Department of Treasury
("Treasury").

D.

BACKGROUND
NAHFE is a § 50 1(c)(6) private, nonprofit and nonpartisan professional
organization of Federal supervisors, managers, and executives. NAHFE was
incorporated in Washington, D.C. in 1984. Membership is open to all federal
civilian and military personnel at the GS-12 (equivalent military rank is major) and
above grade levels, including personnel at the Senior Executive Service level.
The objectives ofNAHFE are to:
•
•
•
•

m.

promote the federal government as an excellent source of opportunity and service
recruit diverse qualified candidates for senior policy positions in federal civil
servtce
provide career development training to federal supervisors, managers, and
executives for enhanced job effectiveness and career progression
provide intennediary services between the government and Hispanic American
communities.

PURPOSE
The purpose of this PAis to provide the framework for a cooperative, mutually
beneficial working relationship between NAHFE and Treasury in recruitment,
training, professional development, retention, and involvement of Hispanic
Americans in the Treasury workforce and programs.

IV.

OBJECTIVE AND RESPONSIBILITIES
The objective of this PAis to coordinate and facilitate activities that are responsive
to the needs of the parties, within the limits set forth herein.

A.

The responsibilities ofNAHFE are to:

1

B.

I.

Provide, upon request from Treasury, information, counsel,
support, and assistance regarding policies and programs which
further the purpose and objective of this PA.

2.

Provide Treasury with input on ways to increase involvement of
Hispanic Americans in educational programs as outlined in
Executive Order No. 12900, Educational Excellence for Hispanic
Americans.

3.

Provide Treasury, upon request, NAHFE speakers on such topics
as diversity, Hispanic issues, affirmative action programs, and
contemporary issues affecting Hispanic Americans.

4.

Provide Treasury with access to the NAHFE membership database
for recruitment of Hispanic Americans.

5.

Provide Treasury with access to the NAHFE home page on the
Internet World Wide Web for use in disseminating relevant
information to the Hispanic American community.

6.

Provide Treasury with information regarding procedures for
advertising in The Hispanic Executive, the official newsletter of
NAHFE.

7.

Provide Treasury with information relating to participation
in the NAHFE Annual Executive Leadership Development
and Diversity Training and Recruitment Conference in
November and seminars held in the Southwest.

The responsibilities of the Department of the Treasury are to:
I.

Encourage the use of Intergovernmental Personnel Act (IP A) and
other similar programs for the professional development of
Hispanic Americans.

2.

Receive input from NAHFE on ways to increase Hispanic American
involvement in Treasury programs and activities.

3.

Provide NAHFE, upon request, copies of public reports
which support this PA's objectives and are submitted to the
Office of Personnel Management, the White House
Initiative on Educational Excellence for Hispanic
2

Americans, Equal Employment Opportunity Commission, or
the Merit System Protection Board.

v.

4.

Include NAHFE on existing mailing lists for vacancy
announcements for GS-13 to GS-IS and SES positions.

5.

Include NAHFE on existing mailing lists for infonnation on
Treasury procurement opportunities.

6.

Provide NAHFE with infonnation regarding procedures for
obtaining surplus property and computer equipment.

7.

Encourage Treasury bureaus to participate in events designed to
recruit and promote Hispanic Americans in the federal workplace:
for example, the NAHFE Annual Executive Leadership
Development and Diversity Training and recruitment Conference in
November and seminars in the Southwest.

IMPLEMENTATION PLAN

Each party will designate an individual to serve as a liaison and point of contact in
implementing this PA. The parties' representatives will develop recommendations
on ways in which this PA can best serve the parties' interests within 60 days from
the effective date of this PA.
VI.

FUNDING

Nothing herein will be construed as obligating Treasury or NAHFE to expend any
funds to achieve the purposes and objectives of this PA.
VU.

AMENDMENTS AND TERMINA nON

This PA may be amended or tenninated at any time by written notice of either
party.
Vill. AUTHORITY

This PAis entered into pursuant to 5 CFR Part 251.
IX.

EFFECTIVE DATE

The Partnership Agreement will become effective upon signature of the parties.
-30-

3

OFFICE OF PUBLIC AFFAIRS -1500 Pf;NNSYLVANIA

AVENU~,

EMBARGOED UNTIL 2: 30 P. K.

N.W. - WASHINGTON. D.C ••

CONTACT:

April 21, 1998

~nl1O.

(101) 6l2·29,O

Office of Financing
202/219-3350

TREASURYIS WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bille totaling approximately $13,000 million, to be issued April 30, 1998. -This offering will result
in a paydown for the Treasury of about $1,850 million, as the maturing publicly
held 13-week and 26-week bills are outstanding in the amount of $14,862 million.
In addition to the maturing l)-week and 26-week bills, there are $15,479 million
of maturing publicly held 52-week bills. The disposition of this latter amount
was announced last week.
In addition ~o the publie holdings, Federal Reserve Banks for their own
accounts hold $12,738 million of the maturing bille. These accounts are
considered to hold $7,528 million of the maturing l3-week and 26-week issues,
which ~ay be refunded at the weighted average discount rate of accepted
competitive tenders. Amounts issued to these accounts will be in addition to
the offering amoWlt.
Federal Reserve Banks hold $S,'33 million of the maturing issues as agent§
tor foreign and international ~onetary authorities. Up to $3,000 million of
these securities may be refunded within the offering amount in each of the
auctions of 13-week bills and 26-week bills at the weighted average discount
rate of accepted com~etitive tenders. Additional amounts may be issued in each
auction for such accounts to the extent that the amount of new bids exceeds
$3,000 million. Foreign and international monetary authorities are considered
to bold $4,463 million of the original 13-week and 2G-week issues.
Tenders for the bills will be received at Federal Reserve Banks and
And at tho Bureau of the Public Debt, Washington, D. C. This offering
of Treasury securities is governed by the terms and condition& se~ torth in the
Uniform Offering Circular (31 CPR Part 356, as amended) for the sale and issue
hy the Treasury to the public of ~ketable Treasury bills, notes, and bouds.
BrancQv~

Details about each of the new securities are given in the attached offering
highlights.
RR-2382

000

For press Telellses, speeches, public schedultS and Dfficial biDgraplcies, call our U-IrDur fax line at (202) 622-2040

HZCHLZOKT. op TaBASURY orr.RINGS or WEEKLY BZLL9
TO BE ~SSOBD AP~L 30, 1998
April 21, 1998

Offering Amount •••.•••••••••••••••••••••••• $5,750 million

$7,250 million

Description of Offerings
Ter. and type of aecurity ••••••••••••••••••
CDSI" number •••••••••••••••••••••••••••••••
Auction date ••••••••••.•..••••••••••.•..•..
Issue date ••••••••••.•••••••••••••••.••••••
.aturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original iaaue date •••.••.••••••••••.••••••
Currently out.tanding •.••••••••.••••.••••••
MiaimuD hieS au.ount ••.•.•••••••••••••.••••••
Mu.ltiples ...••.........•••.•.....•.•.......

91-day bill
912795 AD 1
April 27, 1998
April 30, 1998
July 30, 1998
January 29. 1998
$10,332 nillion
$10, 000
$ 1,000

18l-day bill
911795 AP 6

April 31, 1998
April )0, 1998
October 29, 19~8
April 30, 1998
$10,000
$ 1,000

The following rule. apply to all securities mentioned above,
Submil.ion of Bidgl
Konca.petitive bIds •••••••••.••••••••••.••• Accepted ia full up to $1,000,000 at the average
di.count rate of accepted competitive bids.
Competitive bids ••••••••••.•••••••..•.••••• (1)
Must be expressed 8. a discount rate with three decimal. in
increments of .005\, B.g., 7.100\. 1.105\.
(2)
Net 1009 position for each bidder ~U8t be reported when the
sum of the total bid amount, at all discouot rates, and the
net long position is $1 billioo or greater.
(3)
Net long position muat be d.te~lned as of one half-hour
prIor to the closing time for receipt of competitive tenders.

Maximum Recognized Bid
at , Single yield ...•••...••••••••.•••.• 35\ of pubUc offering
"axi1DW!l AW41:d ••••..•••••..•••••••••••.•.••• 35\ of public offering
Roceipt of Tenders;
Noncompetitive tenders ••••.••••••••.•.•••.• Prior to l~:OO noon Bastern Daylight Caving time 00
auction day
Prior to 1:00 p.m. Bastern Daylight Saving time on
Competitive tender.

auction day
pavpeat Terma ••••••••.••...••..•••.••..•.•. Full payment with tender or by charge to a funda account
at a Federal Reserve Book on iasue date

April 21, 1998

The Honorable Trent Lott
Majority Leader
United States Senate
Washington, DC 20510

Dear Mr. Leader:
We vmte to express our strong opposition to the proposed expansion of the Education IRAs
contained in H.R. 2646 whieh the Senate will soon consider. Last summer, when the Senate
passed a similar proposal relating to Education lRAs, the President stated that he would veto the
legislation that contlined it. H.R. 2646 raises concems similar to those raised by last yea:r's
SeDate bill and by the bill passed by the House last fall. IfH.R. 2646 were to pass the Congress,
the President made clear yesterday that be would veto it.

child deserves a high quality elementary and secondary education. We believe
that targeting our limited Federal resources to build stronger public schools will help ensure aU
our children receive the education they need to be productive citizens. H.R. 2646, however.
diverts needed attention and resources away from our public schools.

EVe:}" American

The expanded Education IRAs would disprop~onately benefit the most affluent families and
provide little benefit to lower and middle-income families. Additionally. given the expansion of
tax-preferred savings vehicles in last year·s bill, we b~lieve 1hat further increasing the
contribution limits for Education lRAs will not generate much additional savings and would.
instead, reward famj]jes, particularly those with significant means, for what they would
otherwise do.

We are also concerned that the expansion of Education lRAs would create significant compliance
problems.. The legislation allows tax-.free withdrawals from Education IRAs for. among other
things, tuition, fees, tutoring, boo~ supplies and equipment expe~es incurred in connection
with the child's enrollment or attendance at a public, private or religious school. Withdrawals
are also tax-free if used for room and board, unifonns. transportation or supplementary items or
ser.rice:s required or provided by the school. Distinguishing between an appropriately taX-free
withchawal and one that should be subject to tax would lead to significant additional
recordkeeping bUTdens for families.
We therefore strongly urge the Senate not to approve this legislation.
Sincexely,

4oSe,sa' € . t.~

Robert E. Rubin
Secretary of 'the r reasury

RR-2383

,

~Q~
Richard W~ ~ey ~
Seoretary of Education

DEPARTMENT

OF

THE

TREASURY

1789

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C .• 20220. (202) 622·2960

Remarks as Prepared for Delivery
April 21, 1998

TREASURY SECRETARY ROBERT E. RUBIN
CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

It is a pleasure to speak to a group that is committed to Africa's future, a group that

understands Africa's potential and its challenges. Today, I want to offer a few suggestions about one
of Africa's greatest challenges: development of financial sectors, including banking and capital
markets, and integration into the international financial markets, all of which is key to attracting
foreign capital and more broadly to promoting growth in the region.
I have been around financial markets a long time and for the first time that I can remember
in my professional life there is a real increased focus on Africa. I remember when I was working on
Wall Street in the late 60's, we once found ourselves holding "Zambian 6s" after the liquidation of
a company. A Senior Partner in the firm wanted to know more about these Zambian debt instruments,
so one of our people called the consulate and asked where they were located. The consular official
gave him the consulate address, and our person said, "No, I mean where is Zambia?" Nowadays, with
the increased economic importance of developing nations in general, and the changes that have
occurred in Africa, that total lack of focus in the investment world is beginning to turn into
opportunity seeking.
President Clinton's recent historic trip to Africa -- the first comprehensive visit to the
continent by a U.S. President - as well as his Partnership for Economic Growth and Opportunity with
Africa, has brought more attention to the changes that are happening in Africa, and has intensified
focus on Africa's potential. Many Americans. who perceive Africa only as a continent beset by war,
famine and environmental devastation -- and, as you well know, these serious problems do exist -saw another part of Africa. This is the Africa where democracy has stal1ed to take root, where 25
nations have held free elections since 1990. This is the Africa where market reforms have also begun
to take hold, and, in response, the region's annual average growth rate has risen from less than 2
percent over the period of 1990 to 1994, to 4 percent in the period from 1995 to 1997, and 16
countries had growth rates of 5 percent or greater
RR-2384

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But President Clinton's trip also made clear that there is an enonnous amount to do before
Africa is solidly on the path toward achieving its potential and is fully integrated i~to the ~Iobal
economy. And as we consider the various objectives that need to be achie\ ~ll in Africa, b.eann&.:. ;n
mind the limited resources available in many African countries, we must focus on mecharusms that
make the best use of available resources, recognize the gap between the resources and the objective.
and relate to the special conditions in Africa -- for example, a greater agricui:ural orientation and
lower savings rates than other developing regions.
Right after the President returned from Africa, a few of us were discussing his trip with him
in the Oval Office. He said, among other things, that the African leaders were highly focused on
attracting foreign investment and very much wanted to discuss how to do it. Today, I would like to
describe some of the components of an environment that attracts foreign investment, with a special
focus among those components on financial sectors.
But first, I think it is important to observe that many African governments are taking steps
to stabilize and refonn their economies and. in the process, make their markets more attractive to
foreign investors. Let me mention three areas where there has been progress.
First, on the macroeconomic front, we are beginning to see refonners, for example in Uganda,
where growth has averaged 8 percent the last three years. The combined overall fiscal deficit of SubSaharan Africa was cut in half from a peak of nearly 9 percent of GOP in 1992 to an estimated 4.5
percent in 1997. Average annual inflation in Sub Saharan Africa is coming down, from 45 percent
in 1994 to 15 percent in 1997.
Second. recognizing the importance of investing in people to the long tenn economic strength
of any nation. many Sub-Saharan nations are focusing resources on education, health care and the
environment Africa invests a larger portion of its public funds in education than other developing
regions. on average 4.4 percent of national budgets compared with 3.3 percent in East Asia and 3 8
percent in South Asia -- though. to be sure. Africa's public funds per capita are much lower than
these other regions
Finally. African nations are coming together through regional undertakings. which can help
to attract foreign investment by providing larger markets for goods and services and larger financial
markets. The Southern African Development Community. composed of 14 African nations with a
combined annual output of more than $150 billion and total popUlation of 130 million. is working
toward a customs union and seeks to develop through integration of financial and capital markets.
The West African Economic and Monetary Union has a single Central Bank. uses one currency. has
a regional stock exchange and common commercial laws and bank regulatory procedures. The East
African Community composed of Kenya, Tanzania. and Uganda is also reviving the closer economic
ties that prevailed among its members some years ago. in part to create a larger market to better
attract foreign capital. Accomplishing regional integration is obviously very difficult. but the benefits
can be very great and it is an effort that should be enthusiastically encouraged

2

Responding to these changes, investors have increasingly focused in recent years on Africa.
Market capitalization on African stock markets -- excluding South Africa -- has grown from $13
billion in 1993 to $49 billion in 1997, while trading volume has risen from $600 million to $9.4 billion
over the same period. In South Africa, the Johannesburg Stock exchange is now the 18th largest
market in the world.
Having said that, African capital markets are still extremely small and are often difficult for
international investors to access. If you exclude South Africa, the average daily trading volume on
the New York Stock Exchange in 1997 was two and a half times greater than the annual volume of
the African stock markets. In 1997, Sub-Saharan Africa received only 2.5 percent of net foreign
direct investment, 6.5 percent of net portfolio equity flows, and 4.2 percent of net long-term debt
flows to developing countries. And this relative paucity is, in part, because the essential elements of
a modem economy which help create the environment to attract private capital are often far from
adequately developed. Moreover, government intervention in the economy and inappropriate
regulations has limited private sector investment.
Over five years plus in the Clinton Administration, I have traveled to a range of emerging
markets - India, Brazil, Ukraine, Vietnam, the Philippines, China and Indonesia amongst them. More
broadly, I worked in financial markets for 26 years, and having seen all that, I believe that there are
certain sound policies for any nation that are critical to economic success, and to attracting private
investment, including sound macroeconomic policies, open markets, and investing in the long term
economic well being of a country through education, health care and the environment. Countries with
sound market-based economic regimes and stable political systems, receive the benefits of the flows
of capital available in today's global financial markets, while countries lacking those economic and
political conditions do not.
Within that context, one of the key lessons to be learned from developing countries over the
last quarter century is the importance of having strong financial systems. As we have seen in Mexico
and, more recently, in Thailand, Korea and Indonesia, financial instability in developing countries is
almost always either triggered by or exacerbated by problems in the financial sector.
With the experiences of other developing countries in mind, let me mention six critical
elemelJts which are central to economic development, strong financial sectors, and attracting foreign
investment. Moreover, strong financial sectors themselves can be powerful in attracting foreign
investment.
First, a sound domestic banking system. with privately owned, competitive banks, supervisory
and regulatory structures that approach international standards, and updated property, securities, and
banking laws. In its totality, that is an enormous undertaking, and one few developing countries
anywhere are even close to accomplishing, but it is essential. and some African countries are on their
way. In Mozambique, for example, the aggressive sale of state owned banks has left the banking
sector completely in private hands. To adequately regulate the banks, the government, with assistance.
from the IMF and World Bank, has developed rules and regulations based on models for other

3

developing countries. A key problem in the developing countries is to train a sufficient number of
people with the skills for the regulatory functions and for the banking functions in the private sector
institutions. Again, World Bank and IMF assistance should be emphasized.
Second, market infrastructure, including global custodial services, automating procedures to
clear and settle transactions, and building reliable communication systems. South Africa is taking the
lead in developing this kind of world class technology. In 1996 the Johannesburg Stock Exchange
introduced automated trading and is moving toward automated clearing and settlement procedures.
Third, a sound and fair legal system, including institutions such as an independent judiciary,
measures to ensure the enforcement of contracts, and adherence to international accounting and
disclosure standards.
Fourth, a focus on good governance. There are encouraging signs that African leaders and
institutions, such as the United Nations Economic Commission for Africa, are taking steps intended
to improve governance and combat corruption. Corruption is a prime impediment to sustainable
growth, and combating corruption should be a prime focus of all involved in promoting growth in
developing countries. Combating corruption also involves developed country participation through
the importance of implementing the OECD initiatives to eliminate the tax deductibility of bribes and
to criminalize bribery.
Fifth, adequate and reliable economic and financial data for creditor and investor decision
making. Subscribing to the IMF's Special Data Dissemination Standards, like South Africa has done,
would send a clear signal to investors of a governments commitment to providing reliable data.
Finally, it is also important to expand access to capital for medium, small and microenterprises, as well as homeowners and small depositors. Africa's financial systems need to work for
a large part of its people, or Africa's economies will not be able to sustain strong growth over time.
This can be a critical generator of jobs and income for people outside the economic mainstream
For example, in South Africa. the Get Ahead Foundation's microenterprise lending, with more
than 20,000 loans outstanding, demonstrates that the smallest businesses can he unexpectedly good
borrowers Their borrowers include township day care centers, local tire repair shops, neighborhood
convenience stores and modest dressmakers equipped with only a sewing machine. Although solid
progress has been made in some countries, the existing efforts are small compared to the potential
and there is a great need for outside participants
African nations also need to integrate themselves into the global fmancial markets. Once a
solid foundation has been laid for the development offinancial systems and capital markets, reforming
African countries can gain the attention of the international investment community through the
privatization of major parastatals by way of global equity offerings. I remember when I worked on
Wall Street how Spain and Mexico were successful in selling the broad story of their economies in
the international financial community through global equity offerings of their large utilities. Ghana
4

has followed this approach with the privatization of Ashanti Gold Fields, with positive results.
Clearly, African governments will bear the primary responsibility in pursuing reform and
establishing the conditions needed to attract outside capital. When sound policies are pursued, capital
will follow, as the experience of emerging markets in Latin America and Asia demonstrates.
But there is much we in the United States can do to support these reformers. Let me
emphasize that the measures that I am about to discuss complement, and do not replace, the bilateral
aid we will continue to provide to African nations in need of such aid. In addition, we must continue
to expand programs from OPIC and the Export Import Bank that already operate in the region. In
fact, as I speak, Jim Harmon is traveling in the region, the first visit by the President of the Export
Import Bank in over a decade.
I want to say a word about four specific areas in which we can help Africa -- relieving debt,
focusing the efforts of the international financial institutions, expanding trade, and providing critical
technical assistance.
First, we must continue to provide leadership to reduce indebtedness to sustainable levels of
debt. For countries that are committed to reform, it is important to relieve this debt, both to improve
the credit environment, and to free up resources to invest in people. For example, Uganda plans to
use the money they are saving through debt relief on education and health. In our FY99 budget, the
Administration requested funds to cover up to $1.6 billion in debt reduction in Sub Saharan Africa
committed to economic reform under the Partnership and in the Paris Club. In addition, the U.S. has
been a strong advocate on the HIPC Initiative to provide significant debt relief for the poorest
countries, and of interim relief in the international financial institutions, pending completion of the
requisite reform programs.
Second, we can encourage development by maintaining our traditional openness to trade and
by opening our markets further to those countries that are opening their markets. African nations that
have liberalized their trade regimes achieve the best growth. We should support these efforts. That
is the logic of the Africa Growth and Opportunity Act before Congress. The Administration strongly
endorses this bill and we call on the Senate to pass it
Third. we are working with the international financial institutions. such as the International
Monetary Fund and the World Bank., to SUppOT1 Africa's boldest reformers. The IMF, for example,
has indicated that it will provide expanded access to the Enhanced Structural Adjustment Facility in
cases where a country is committed to taking bold structural reforms. such as aggressive trade
liberalization, which would involve larger financing requirements. The World Bank is aiming to
increase new lending to Africa by as much as $1 1 billion in the coming year with the focus on
countries committed to opening their economies, investing in human resource development. and
ensuring conditions of governance that make progress possible.
We are also working closely with
the World Bank on a plan. to place considerably greater emphasis on regional integration, and to
develop whatever financial mechanisms are needed to make more rapid progress in this area. We
5

think that regional approaches to, for example, infrastructure and financial market development, are
critically important for encouraging investment and growth in many of Africa's small, land-locked
countries.
We are working closely with the International Finance Corporation to identify new
opportunities for direct private investment in African enterprises. These measures are geared towards
helping those nations that are taking the largest steps to help themselves. Among our activities, we
have committed to a capital increase for the African Development Bank, where sweeping internal
reforms and a major share restructuring provide a strong basis for renewed confidence, partnership,
and financial support. And a nearly finished capital increase negotiation for the World Bank's
Multilateral Investment Guarantee Agency positions it to offer political risk insurance to private
investors.
Fourth, we are providing technical assistance both from the government and the private sector
to help Africans implement macro-economic policies and structural reforms. We should explore ways
to facilitate exchanges between Africa and the United States among private sector bankers and other
financial institutions, nonprofits, government, and bank regulators to discuss innovative lending
techniques and partnerships to serve these markets.
As I said at the beginning of my remarks, the President's trip -- and the changes and trends

it highlighted -- has served to intensify focus on Africa. I've been engaged in the beginnings of an
economic dialogue with my African counterparts for two years. Many cabinet secretaries have
traveled to Africa and we have undertaken a series of trade missions. However, for all of this to have
its potential impact, this increased focus must be sustained over time. We are doing just that under
the President's Partnership which initiates a systemic dialogue among economic cabinet level officials
with Afiican countries for the first time And we should try to convey to investors that this is a time
for people to establish themselves on the ground floor as Africa moves to fulfill its potential.
This summer I hope to see for myself what is happening in Africa when I travel there for tht'
first time. You can talk to people and you can read, but there is no substitute for seeing some place
firsthand. I know that I will see an Africa beginning an important period in its history, entering a
moment that offers immense opportunities -- and equally immense challenges There are vast
differences between the United States and the African nations, but we also have common interests
A growing. democratic and dynamic Africa. providing higher standards of living for its people, and
more political and social stability is very much in Africa's interest. It is also very much in America's
economic and national security interest And that is why we most now come together to meet our
respective challenges. Thank you very much
-30-

6

DEPARTMENT

OF

THE

TREASURY

1789

OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220. (202)622-2960

EMGARGOED UNTIL 9:30 A.M. EDT
Text as Prepared for Delivery
April 23. 1998
TREASURY DEPUTY SECRETARY LAWRENCE H. SUMMERS
HOUSE BANKING AND FINANCIAL SERVICES COMMITTEE
Chainnan Leach. Representative LaFalce. Representative Lazio, Representative Kennedy.
members of the Committee. Thank you for affording me the opportunity to speak with you this
morning on the important issue of disaster insurance.
Let me begin by complimenting Representatives Lazio, McCollum. Fazio. and other
members of the Committee for the bipartisan leadership they have shown in bringing together
concerned interest groups. members of the insurance and reinsurance industries. capital market
interests. and state and federal government representatives to discuss this issue. Given the
complexity of the issue. and the range of interested parties. the fact that we are here today is a
testament not only to the skill. insight. and perseverance of this group. but that of their statTs as
well.
Disasters are a matter of grave concern for all: They make no distinctions as to where or
whom they strike: they make no pretense of waiting until all who would be affected are fully
prepared. Their cost can be astronomical. not only for homeowners. but also for businesses large
and small alike. as well as state ~nd local governments. While insurance cannot undo all the
costs in human terms. it can provide the foundation for a sound recovery in financial tenns. We
need to ensure that the insurance foundation is as sound as possible.
My overriding purpose today is to convey to you on behalf of the Administration that we
see much promise in the current legislation as a means of addressing many of the problems
relating to the availability and price of insurance and reinsurance for disaster risk. We have some
concerns with specific provisions of the hill. as I shall outline shortly. but we would hope that
continued efforts of the kind that this Committee has sponsored would generate appropriate
solutions to these concerns. Moreover. we commit to working with you for the purpose of
crafting provisions that would address our concerns. While the resulting legislation would not
solve every problem related to Federal policy toward natural disasters, it would. in our view.
represent a very constructive step.

RR-2385

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

1. Diagnosis of the problem

To frame our thinking. let me indicate to you the outlines of the problem as we see it:
•

The characteristics of natural disasters make the risk associated with them especially
challenging for insurers to handle: they happen only very infrequently. but when they do
occur. they can be exceedingly expensive.

•

In addition. estimating the losses associated with such an event is extremely difficult.
Our models are good. and gening bener. but with events this infrequent. it is virtually
impossible to gauge their predictive accuracy. This substantially increases the uncertainty
faced by both homeowners and insurers.

•

As a consequence. prices for disaster reinsurance can be very high. especially if judged in
terms of the losses incurred in a typical year. These prices are often quoted in multiples
of expected loss; for reinsurance against very low-probability events. these multiples can
run in the neighborhood of 4 to 7 times expected losses.

•

Not only are prices high. but when a disaster occurs. prices can spike. and availability can
be curtailed.

These are the problems that insurers are currently wrestling with. Because of their
tremendous capacity for absorbing losses. we view the capital markets. in which disaster risk
increasingly can be bought and sold like any other security. as a crucial complement to the
traditional reinsurance industry. We have closely monitored the rapid development of capital
markets and believe that they should pro\'ide for well-functioning markets in the long run. But
they remain today in a relatively early stage of development. Clearly. a serious problem remains
in the interim.
Indeed. while in the last several years our nation has not experienced what is called a
"major occurrence" in the insurar.ce industry. the ravages of Hurricanes Iniki and Andrew. and
the I\orthridge Earthquake are all too recent reminders of the potential scale and scope of
possible destruction. These events form the backdrop for our efforts today. We are working
toJJY in the knowledge that calamities of almost unimaginable scale do occur: we are also
\\orking in the knowledge that a policy we adopt out of the current deliberative process will
likely better sen'e the public interest than a policy that we adopt in the immediate aftermath of
,mother such e\cnt.

2. Rationale for Federal involvement

In this context. the rationale for Federal invoh'cment in this market rests on three key
considerations:
•

First. the Federal government is uniquely capable of spreading risk across the population .
When a private sector insurance company absorbs risks. it can only pass them on to its
stockholders and reinsurers. By contmst. when the Federal government absorbs risks. it
can pass them on to the entire population of taxpayers -- clearly a much broader base than
is a\'ailable to any private sector entity.

•

Second, the Federal government is uniquely capable of spreading risk over time. Private
insurers can absorb part of a loss by issuing debt, but there is a limit. In the jargon of
economics, a private insurer is said to suffer from "timing risk:' which is to say that it can
only lose so much money in any given period without being declared bankrupt. By
contrast, the capacity of the Federal government to borrow for the purpose of meeting
short-term contingencies dwarfs that of any private sector entity.

•

Third, the Federal government would likely be saddled with part of the cost associated
with a truly cataclysmic event. regardless of the outcome of this deliberative process.
Therefore, to some extent, the decision here can be viewed as determining whether the
Federal liability will be explicit and deliberate, or implicit and indirect.

Taken together, these considerations constitute a strong case for prudent participation of
the Federal government in the market for disaster reinsurance. Lest I be misunderstood. we see
this as a case for limited participation for a limited time: It is a case for making hardheaded
investments on behalf of taxpayers. absorbing risks at a price that provides fair compensation to
taxpayers. And it is a case for making those investments for a limited time only. until the private
market can mature. Finally. it is a case that argues for exploiting the fiscal capacity of the
Federal government in a way that does not jeopardize that capacity.

3. \Vhere we are today
In framing our current thinking on this topic. we have found it useful to enumerate a set of
common-sense principles. Specifically. we believe that:
•

the government should provide disaster insurance when its ability to spread risk across
the population and over time would allow it to do so temporarily on substantially more
favorable terms than the private market:

•

the government should provide disaster insurance in a manner that avoids imposing a net
cost on the taxpayer:

•

the government should provide disaster insurance in a way that harnesses existing market
forces to the maximum extent. <111 1j encourages their further development in the future:
and

•

the government should he prepared to put itselfout of the business of providing disaster
insurance. making way for a strengthened private market to take over.

Adhering to these principles will limit the risk that a program of this type could impose
on taxpayers. Because the potentialliahility in this market is so enormous. we must design the
Federal role with the same kind of hardheaded liscal prudence that has been so important in
achieving a balanced budget. Adhering to these principles will also ensure that government
participation in this market supports pri\'ate structures rather than supplanting them. Ultimately,
private capital markets should be able to diversify this risk as well as or even better than the
Federal government. But clearly. the capability of those markets to perform that task will never
emerge if government participation is not carefully delimited. We believe that a middle way

3

exists: one that meets the interim need. while preserving adequate incentives for market
development for the longer tenn.
Let me be clear: we believe that HR 219 provides a foundation that could. with suitable
modifications, be made consistent with these principles.
In the remainder of my remarks, I will be focussing on HR 219 because that is the legislation
before the Committee. However. I should like to make clear that I do not want to preclude other
approaches to addressing the problem of disaster insurance. In particular, we still view an
industry ext:ess-of-loss contract as a potentially valuable way of providing disaster reinsurance to
a broader class of counterparties than state funds. Indeed. we should certainly avoid sending the
message with this legislation that. in order to reap the benefits of Federal reinsurance. a state
must establish a centralized fund or auction program. An approach that seems promising to us is
one that would, in effect, marry the best ideas of HR 219 and HR 230, by offering not only
reinsurance to state funds. but also excess-of-loss contracts on similar tenns to an unlimited class
of buyers. possibly by means of an auction. We think it would be a substantial improvement to
the current legislation to ensure that the playing field is kept leveL as between state programs and
other potential customers of disaster reinsurance .

.... The legislation at hand
Let me now turn to the specifics of the legislation before you. In essence. HR 219 would
have the Federal government provide reinsurance to qualifying state funds and auctions for losses
incurred on residential policies within the state. It would establish a trust fund that would receive
all premium income and the proceeds of any borrowing done on the program's behalf. and would
dispense payments in the event of qualifying disasters. In the event that some borrowing is
required. the legislation would require every state program participating at the time to continue
purchasing reinsurance at no less than the prior level until the borrowing is repaid. The
legislation would also establish a Commission for the purpose of advising the Secretary of the
Treasury as to the appropriate price for the insurance.
In our view. this legislation represents a constructive and creative response to a seriolls
situation. namely. the difficulty faced by stat~ funds (notably the California Earthquake Authority
and the Florida Hurricane Catastrophe Fund) in purchasing extensive reinsurance against lowprobability risks. either because the reinsurance is simply unavailable or because premiums are
high. \Ve welcome this response. and applaud the efforts of all those who have worked so hard
to bring it to this stage.
That said. we do have some concerns about this legislation. But let me be clear: while we
view these concerns as important. we would hope that continued efforts of the kind that this
Committee has sponsored would generate appropriate solutions.
Chief among these concerns is that the pricing decision be sufficiently insulated from
political pressures as to remain objective. In order to buttress the integrity of the pricing process,
we suggest that the Secretary of the Treasury be allowed to adjust the Commission's estimate of
expected loss upward. but not downward. We also suggest that the language of the legislation be
4

clarified as to the factors that the Secretary should take into account in setting the "risk load" in
the price of the reinsurance contracts.
In addition, as I indicated before. we believe the legislation should be modified to provide
for the sale of excess-of-Ioss contracts to all entities on an unrestricted basis. Our objective is to
improve the availability of disaster reinsurance. not to favor state programs over other possible
vehicles for delivery of insurance to homeowners. Indeed, it might be possible to devise an
auction mechanism for the distribution of these contracts; this would have the virtue of ensuring
that competition plays a role in setting the price of the contracts, and channeling them to those
who see the greatest value in them.
We believe that the scope of the Federal program should be limited, in order to preserve
adequate incentive for the further development of the private market. Specifically, we suggest
that the Federal program be sunsetted after some fixed number of years; that the Federal program
be authorized to underwrite no more than some specified fraction of the risk faced by any given
state fund; and that provision be made for periodic review of the trigger points in light of the
ongoing development of private markets. In all these respects, the goal should be to ensure that
th~ Federal program supports rather than supplants the private market.
We also suggest that you consider reengineering several aspects of the design of the
contracts in ways that might make them more useful to the state funds. Specifically. we suggest
that you consider covering multiple perils rather than a single peril. We suggest that you
carefully consider how best to limit the Federal liability under this program. The current
legislation proposes a cap on aggregate payout: it strikes us as possible that some other
mechanism might be preferable. For example. a simple limitation on the amount of insurance
that any particular state fund could purchase might serve the same objective, without causing the
val ue of the insurance to each state to depend on the actions of all other states. We also suggest
that the state funds not be compelled to continue as purchasers of reinsurance in the event that
borrowing is required to make good on some other state' s contracts. And we suggest that
eligibility for the Federal program not be contingent on the state program's using a specified
fraction of its investment earnings for mitigation.
I have attached as an Appendix a staff document that lists a number of technical questions
regarding the legislation in greater detail.
The budgetary treatment of this legislation is a complex and highly technical topic. and
my purpose today is not to explore those issues with you. not least because. as many of you
know. these are not settled issues. Nonetheless. it would be our hope. first. that the legislation
could be reworked along the lines we have suggested. and second. that we could accomplish our
goals without burden to the taxpayers. or adverse impact on the deficit. I look forward to
working with you to preserve the integrity of the pricing that is envisioned in the current
language.
While the list may seem long. all of our suggestions derive from our two core concerns,
that relief for affected homeowners not come at the expense of taxpayers, and that any federal
program support. rather than supplant. private markets. We look forward to working with
Members of this Committee, its staff. representatives of industry, of affected communities and

5

with other stakeholders to resolve these issues.

5. Conclusion
From the beginning, the Clinton Administration has recognized the urgency of improving
the nation's ability to deal with natural disasters. Indeed, our initial efforts on this issue
culminated in a February 1995 Administration Policy paper, "Natural Disaster Insurance and
Related Issues." In that paper. as you know, we supported the idea that the Federal government
should issue excess-of-Ioss contracts as a means of fostering liquidity in the market for disaster
insurance. We also strongly supported a comprehensive approach. including among other
elements. measures to ensure that cost-effective mitigation is undertaken. We still believe in the
wisdom of a comprehensive solution. and reaffirm the importance we attach to prudent and
appropriate mitigation. However. further study has made clear to us the impracticality of
achieving all of our objectives in one Federal program.
Progress on this issue has been too long in coming. We believe that we all share a clear
recognition of the urgent need for moving forward on a timely basis. In particular, we will
certainly be well served if we have a sensible and constructive structure in place before the next
major disaster strikes. Surely. the time to build a better roof is when the sun is shining. The
current legislation provides a sound foundation for progress in this area. and I look forward to
working with you to improve the legislation.

6

Appendix
Technical Questions about HR 219
This appendix lists a number of concerns about the current legislation. and advances some ideas
for addressing them.
•

In the letter of invitation. you asked for comments on whether it would be useful. in terms
of insulating the pricing decision from political pressures, to limit the Secretary' s
discretion in deviating from the recommendation of the Commission regarding expected
cost. We believe that such a limitation would be helpful; we recommend that the
Secretary be given one-sided discretion. to move the estimate of expected cost up from
the Commission's estimate. but not down.

•

An additional salutary feature of the current language in the bill is that the Secretary is
given discretion to increase the "risk load" component of the price upward from I times
expected cost. It would be helpful if the legislation specified that. in making this
determination. the Secretary's objective should be to provide taxpayers with fair
compensation for the risk they are bearing, and that the factors he takes into account
should include the stage of development of empirical models of natural disasters. and the
state of private markets. among other factors.

•

The budgetary impact of this program is critical. It is extremely important that the
proceeds from the sale of Federal disaster insurance not be spent or otherwise dissipated.
If these proceeds were spent. and then a covered event were to occur with an associated
payout from the Federal government. the pressure on the fisc would be greater with this
program than without. How best to prevent this from happening is a difficult question.
The present language in the legislation proposes the creation of a Disaster Reinsurance
Fund. for the purpose of accumulating premium payments and disbursing payouts In the
event a covered disaster occurs. A Fund of this type has the virtue of suggesting that the
revenues from the program should not be diverted to other purposes. and that the program
should be viewed as operating on a self-financing basis. However. it has the potential
shortcoming that the balance in the Fund at any given time could easily provide a
misleading signal as to the adequacy of pricing. If a calamity were to occur in the early
years of the program. the Fund would run a negative balance for a very long time
(financed by Treasury borrowing). and the temptation would be to conclude that premium
rates had been set too low. On the other hand. if -- as is hoped -- no covered event occurs
for a period of some years. the balance in the Fund will accumulate to a substantial sum,
and some will question the need for continuing to levy additional premiums "simply" for
the sake of building up the balance in the Fund further. The desirability of a Disaster
Reinsurance Fund is an open question, and the relative pluses and minuses must be
weighed from the perspective of maximally ensuring the integrity of pricing.

•

As for the form of the insurance, one option would be to authorize the Federal
government to provide aggregate coverage for more than one event occurring withIn a

7

12-month period. rather than just a single event. Discussions with various market
participants suggest that a great deal of concern revolves around the availability of
coverage for a second event.

•

Careful consideration should be given to the question of whether Federal liability should
be capped at $25 billion per year across all insured programs. A disadvantage of this
approach is that it would cause the value of the reinsurance to any given State to depend
on the decisions of other States. An alternative approach would be to limit the amount of
reinsurance that any given State program can purchase.

•

On a related point, the legislation as currently written specifies that all State programs
with reinsurance in force at the time that any borrowing is undertaken on behalf of the
Federal program would be required to continue purchasing reinsurance at no less a level
until the debt is fully paid off. It may be preferable to omit this requirement. Imposition
of this requirement would substantially complicate the decision of any given State
program as to whether it should participate in the Federal program. and could lead to
divisive controversies regarding transfers of resources across States.

•

With regard to the Commission. it may be advisable to augment its membership to
incl ude experts from the world of finance and economics. since knowledge of those fields
will certainly be germane to the pricing decision.

•

With regard to the eligibility requirements for state programs. it may be desirable not to
require these programs to commit a specified percentage of their investment earnings
toward mitigation. States should engage in all cost-effective mitigation and no more. and
it is not clear that linking the mitigation decision to an arbitrarily specified fraction of net
investment earnings would advance this objective. Similarly. the pricing decision by
State programs should be tied to actuarial risk. and it is not clear that creating a
requirement to fund mitigation advances that objective.

•

The Committee should consider augmenting the legislation with a number of measures
designed to preserve incentives for the development of a parallel market for disaster risk
in the private sector. Specifically. the program could be hardwired to sunset after some
tixed pcriod of time. perhaps 10 years: in light of the rapid pace of development of
private capital markets. this should provide ample time for alternative mechanisms to
dcvelop that will allow State programs to lay off their risks efficiently.

•

The federal program should be authorized to underwrite no more than some specified
fraction of the risk in excess of the trigger faced by each participating State fund. perhaps
50 percent. Even with a limitation of this type, the Federal commitment would be very
substantial relative to the volumes currently being transacted in private markets. and the
resulting program would still leave an incentive for private market development even
while the Federal program is in operation. Provision should also be made for periodic
re\·iew of the trigger points in light of the ongoing development of !Jrivate markets.
-30-

D EPA R T 1\1 E N T
•

() Ii'

T H F.

T REA S {J R Y

NEWS

TREASURY

OfFICE 0 .. PUBLIC A....AIRS -1500 PENNSYLVANIA AV£Nt/£, N.W. - WASHINGTON, D.C.- 20120 - (201) 6Z1.Uf.

EDARGOED 'ONTXL

~: 3 0

P. K.

CONTACT:

April 22, 1998

Office of Finaccing

202/21.'.3350

TREASURY TO AOCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $24,000 MILLION
The Treasury will auction $13,000 million of 2-year notes and $1.1.,000
million of 5·year notes to refund $31,430 million of publicly held securities
maturing April 30, 1998, and to pay down about $7,425 million.
in addition to the public holdings, Federal Reserve Banks hold $2,201
million of the maturing securities for their own accounts, which may be
refunded by issuing additional amounts of the ne~ securities.
The maturing securities held by the public include $5,334 ~1lion held
by Federal Re •• rve Banks AI agent& for foreign and international monetary
authorities. Amounts bid for these accounts by Federal Reserve Banks will
be added to the offering.
Both the 2-year and 5-year note auctions will be conducted in the singleprice auction fo~t. All competitive and noncompetitive awards will be at
the highest yield of accepted competitive tenders.
The 2-year and 5-year notes being offered today are eligible for the
STRIPS program.
Tenders will be received at Federal P.eserve Banks and Branches and at
~ho Public Debt. Washington. D. C.
This offering of Treasury
securities is governed by the te~ and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356,
amended) for the sale and issue by
the Treasury to the public of marketable Treasury bills, notes, and bonds.
~b. ~ur.au of

.s

Details about each of the new securities are given in the attached
highlights.

o~faring

000

Attachment

RR-2386
For press releAses, spc.cM" p"blic ,claetl"k, Anti officiAl biograplliu. ellll 0'" 24.110"' /IZJC lille At (202) 622·2040

H%OHL%OHTS or TRBASURY OPFBaINOS TO THB PUBLIC O.
2-raAR AMP 5-YBAR NOTaS TO a8 78SU8D APRIL 30, 1998

April 22, 1198
,,'f,rlag Mcryot .......................• $13,000 Dillion

$11., 000 .UUon

»"cEiation of Oll'ring'
~.~ a~d type of •• curity •••••••••••••• 2-y ... r note.

S-y.ar note.

Serl••.............•... , ..•............ AC-2000
alii. J'MIIftbeK' ••••••••••••••••••••••••••• 912827 4C 3
AUGtlon dat.e •••••••••••••••••••••.••••• Apdl 28, lU8
1 •• ,... date ••..•..•........•.•.......... April 3D, lU8
.,ate4 dat................................. . April )0, 1"8
Ilatuc1 t r dat.
April 3D, 2000
Illter •• t Eat. . ••.•....••.•.•......••..• Determined ba.ed on the high •• t
accept.d competitive bid

It.lel .......................................... .
Int.r •• t paymlOt dat •••••••••••••••••••
MiDll1\WI bid . .ount •••••••••••••••••.••••
hi tipl.. . ................................... .
Acoru.d int.r •• t payabl.
by lnv •• tor ••••••••••••••••••••.•••
'I'.aiUli or dl.coUllt ••.•••••••••••••••••

1'-2003
U2827 4D 1

April 2', 1998
April 30, 1998
APC-U 30, 1998

$1,000

April 30, 2003
Determined based on the highest
accepted competitive bid
Determined at auction
October 31 aad April 30
$1,000
$1,000

None
D.termiQed at 'lIction

None
Determined at auction

Determined at auction
October 31 and April 30
fS,OOO

8T!IPS Information'
MinLnua &mount r.quir.d •••••••.••.••.•• Determined at auctioQ
COCpII. CUSI. clllllb.r •••••••••••••••••••• U2B20 c:v 7
DII. d.t.(.) and CVSIP nlllllb.r(a)
for additional TIH"J' (a) ••••••••.•••••.•• Hot: Applicable

Dete~ined

at auctioQ

U2820 CW 5
nUll

April 10, 200)

IV •

fb. Collowing (ule, apply to .11 "cuxitiee mentioned aboy.:
Subml"lon of Bid'l
.oncompetitive bid •••.•.••.• Acc.pted in full up to $5,000,ODO at the hlgheet accepted yield.
Comp.titive bid •••••••••.•.• (1) Muat b. expr •• aed a. a yield witb three decimal., •. g., ?12l'.
(2) Net long position for each bidd.r muat be reported whao tbe .um of the total bid amount,
at all yields, and the net long po.itioQ i . $2 billion or greater.
(3) Net long poaltion muat be d.t8~n.d a. of on8 half-hour priol' to the clo.ing tim. fol'

r.oeipt of
Maximum aecoaPi.ed 81d
a t . Single Yi.ld ••••••••
Naximua AWlrd •••••••••.•.•••
B.c.iD~ of T.n4.,.:
Noncomp.tltive tenders •••
CODpetitlV8 t.nder •••••••
,ayeept Term ••••••••.•••••••

eo~petitlve

tender •.

35\ of public off.ring
35\ or public off.~lng
Prior to 12100 nOOD BAstern Daylight Saving tim. on auction day
Prior to 1100 p.m. Bastero Daylight SAving time on 'lIetion day
FUll payment with tender or by charge to a funda aCCouDt at a rederal Re •• rve Bank on i.au. dat.

DEPARTJ\!IENT

OF

THE

TREASURY

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlDNGTON, D.C .• 20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
April 23, 1998

Contact: Dan Israel
(202) 622-2960

TREASURY RELEASES CHILD CARE REPORT

The Treasury working group on child care today delivered to President Clinton a report
on child care from Secretary Robert E. Rubin. The report, Investing in Child Care, discusses
what businesses can do to promote access to affordable, high quality child care for their
employees.
"This report carries an important lesson: investments in child care can payoff in real
dividends for employers and employees," said Secretary Rubin. "As this report attests, providing
access to child care not only benefits the individual, but it also benefits the company by enabling it
to attract and retain the best people. Addressing child care problems is critical to the well-being
of our economy as we enter a new century."
Before the presentation of the report, First Lady Hillary Rodham Clinton and White House
Chief of Staff Erskine Bowles discussed the findings with the group of business and labor leaders
from across the country who have been actively involved in promoting child care at their own
companies. Many businesses have found that the advantages of child care programs and
workforce flexibilities are felt not only by employees, but by the company's bottom line as well.
The Treasury report looks at a number of areas beyond on-site care in which employers
can further help their employees with child care, including: resource and referral programs;
flexibility for working parents; corporate partnerships; and out of school care.
"I encourage businesses to draw lessons from the best practices presented in the report to
help determine what best meets their needs going forward," Secretary Rubin said. "By identifying
and publicizing programs such as the ones contained in this report, we hope to replicate these
succ~sses around the country in large and small businesses."
The report comes in response to President Clinton's request last year that Secretary Rubin
convene a group of business and labor leaders to focus on best practices in the private sector and
public-private partnerships which address child care problems facing working parents. The report
RR-2387
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

is available on the Internet at www.treas.govlpressireieasesldocslchdcare.pdjor from the National
Child Care Information Center; their phone number is (800) 616-2242.
The members of Treasury's working group on child care are: First Bank of Colorado
CEO Doug Price; General Converters & Assemblers president and CEO George Stinson; AFLCIO president John Sweeney and executive vice president Linda Chavez-Thompson; Eli Lilly and
Co. chairman and CEO Randy Tobias; Travelers Group CEO Sandy Weill; and Marcy
Whitebook, national co-director of the Center for the Child care Workforce.
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4-23-98

To: PubliC Athif!

2:19pm

p. 1

PUBLIC DEBT NEWS
-Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
OF THE PUBLIC DEBT - WASHINGTON DC

~UREAU

CONTACT:

FOR IMMEDIATE RELEASE

Office of Financing
202-219-3350

April 23, 1998

RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
364-Day Bill
April 30, 1998
April 29, 1999
912795BWO

Term:
Issue Date:
Maturity Date:
CUSIP Number:

RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate

------

Low
High
Average

Investment
Rate 1/

Price

----------

------

5.120%
5.130%
5.125%

5.402%
5.413%
5.407%

94.B23
94.813
94.818

Tenders at the high discount rate were allotted

7\.

AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type

Tendered

competitive
Noncompetitive

$

PUBLIC SUBTOTAL

Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
TOTAL

$

Accepted

40,153,935
1,060,612

$

7,793,935
1,060,612

41,214,547

8,854,547

5,210,000

5,210,000

1,255,000

1,255,000

o

o

47,679,547

1/ Equivalent coupon- issue yield.
RR-2388

http://www.publicdebt.treas.gov

$

15,319,547

of 1

DEPARTl\1ENT

OF

THE

TREASURY

NEWS
OffiCE OF PUBUCAFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960

Remarks as Prepared for Delivery
April 22, 1998

SECRETARY ROBERT E. RUBIN
ASSOCIATION FOR ENTERPRISE OPPORTUNITY

It is a pleasure to speak with you today. You are valuable partners in one of our highest
priorities in the Clinton Administration: fostering growth in economically distressed communities.
I have long thought -- and I know President Clinton shares this belief -- that this is an issue of
vital importance to all of us -- no matter where we live or what our incomes may be. It is a
fundamental national economic issue, because our country will never reach its full economic
potential, unless we deal with the problems of the inner city and other economically distressed
communities. Just think of the difference it would make in terms of increasing productivity and
standards of living while reducing the costs connected with social problems if we can bring all
Americans into the economic mainstream.
And now, at a time when we are enjoying the best economic conditions in our country in a
generation, it is critical that we focus on this critical challenge.
I believe that with sufficient will we can succeed. The key is to identifY strategies that
work and replicate them in sufficient scale on a sustained basis around the country. Our strategy
involves a three-pronged approach:
The first is strengthening public safety. In addition to the human costs, high crime rates are
a significant barrier to economic activity. The President has made this a high priority through the
Brady Bill, the assault weapons ban, both of which Treasury is deeply involved in, and his
program to put 100,000 police on the streets.
Second, is investing in people, through education and training, from pre-school to adults,
through improving the "job readiness" of the least advantaged and connecting them to the
workforce. At Treasury we are deeply involved in these issues in the development and advocacy
of the President's budget.
Third is increasing access to private sector capital, and other measures to create economic
activity in the inner cities and other areas. Despite the fact that financial markets in the United
States are today the most innovative, the broadest, and deepest in the world, we still have a severe
shortage of financial institutions and of access to credit to create housing and jobs in the inner city
RR-2389

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

and in rural communities. At Treasury, we have been involved in bringing our broad expertise to
bear on these issues.
Over the last five years, in part because of our efforts to strengthen the Community
Reinvestment Act, private sector lending in distressed areas has increased enormously. In 1996
alone, large commercial banks made $18 billion in community development loans -- funds used to
produce affordable housing, finance small business, and develop retail and commercial
revitalization projects. In the last four years, national banks have invested four times as much in
community development as they did in the previous thirty years.
Promoting micro-enterprise is another key component of our strategy. This is an approach
that the First Lady has tirelessly supported both here and abroad. Internationally, micro-enterprise
has proven effective in developing countries in bringing the poorest segments of society into the
economic mainstream -- something I have seen very clearly in my travels as Treasury Secretary to
developing countries. For example, in the Philippines, I met a woman who had used a microenterprise loan to buy a mini-van to use as a taxi. Her family was now prospering as a result. This
summer I will visit Africa for the first time and I plan to take a look at how micro-enterprises are
being created there.
Here in the United States, we have learned from these examples and adapted them for our
own market. Both at home and abroad, it is clear that, in order to be effective, access to capital is
not enough -- it must be combined with training, education and technical assistance. That
combination has been central to our approach at Treasury's CDFI Fund.
The CDFI Fund is key to the Administration's strategy of promoting micro-enterprise in
the United States. The Fund has provided over $3 million to micro-enterprise organizations, and
helped countless more to support micro loans. The Fund also has provided technical assistance to
organizations and has just launched a special round focused on the technical assistance needs of
the field.
The CDFI Fund not only provides technical and financial assistance but also focuses
attention on micro-enterprise through the Presidential Awards for Micro-Enterprise Development.
These awards go to a diverse set of institutions. For example, last year, in the first round of
awards announced by the President and the First Lady at a White House ceremony, the Nebraska...
Microenterprise Partnership won an award for its comprehensive funding and technical support of
the state's microenterprise industry. The Awards help highlight the success of individuals like
Veronica Hargrove-Brown, a single mother who started a home-based child care business in her
neighborhood in San Diego with support from a small loan from ACCION San Diego, a
Presidential Awardee. I am pleased to announce today the launch of the second round of Awards,
which will be awarded later this year. I hope you all will participate.
With CDFI, we have a vision that makes sense, a program that is up and running, and
money that has begun to flow to communities and make a difference in people's lives. That is

2

why it is critical that Congress now reauthorize the Fund and provide secure, stable and adequate
funding going forward so that communities across the country can continue to benefit from the
Fund's work. Reauthorization and obtaining the President's request of$125 million for CDFI are
top priorities of the Administration.
Let me conclude by thanking all of you for your hard work in promoting economic
opportunity in distressed areas. I applaud AEO's new goal -- to assist one million low income
individual to achieve self-sufficiency by self employment by the year 2008. Achieving goals such
as that is a very good investment in the long-tenn economic well being of not only the people who
you are reaching directly, but all of us. I look forward to working with you in the days and weeks
ahead as we continue to address this critical challenge. Thank you very much.
-30-

3

DEPARTMENT

I

TREASURY

OF

THE

TREASURY

NEWS

OFFICE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASmNGTON, D.C.• 20220. (202) 622-2960

FOR IMMEDIATE RELEASE
April 24, 1998

Contact: Michelle Smith
(202) 622-2960

STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN ON JAPAN
We welcome the substantial policy measures announced today by the Japanese government.
These are positive steps. We hope the government will put these measures into place quickly and
effectively and move forward with further actions, including measures to strengthen Japan's
financial system and open and deregulate its economy, to help establish a sound basis for
long-lasting, domestic-demand-Ied growth. The whole world, including Japan's Asian neighbors,
has a strong interest in seeing Japan succeed in generating a strong domestic recovery that will
contribute to recovery in Asia.
-30-

RR-2390

Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

DEPARTMENT

OF

THE

TREASURY

NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960

EMBARGOED UNTIL 1: 15 pm CDT
Remarks as Prepared for Delivery
April 24, 1998

TREASURY SECRETARY ROBERT E. RUBIN
CmCAGO BOARD OPTIONS EXCHANGE

It is a pleasure to speak with you today on the occasion of the 25th Anniversary of the
Chicago Board Options Exchange. I can remember in the early 1970s when a fellow from
Chicago named Joe Sullivan came around with a strange new idea, listing market options. I
introduced him to our Senior Partner, a legendary Wall Street figure, named Gus Levy. Gus
listened to Joe and said, "I think we can make some money here." We were already doing an
active over-the-counter options market, but we got involved with Joe Sullivan, Leo Pomerantz,
Eddie O'Connor and all the others in thinking about and planning this new institution and I
became a founding director. When it opened its doors in April of 1973, Joe called me and said,
"We're all set." We thought we would rush to the floor to make the first order, but somebody got
in ahead of us. In any case, we did some 90,000 contracts the first day, which, relative to the
over-the-counter options market, was an enormous volume, and the CBOE has never looked
back.
The CBOE, the first listed market in derivatives, helped catalyze the thinking on listed
futures, options on government securities and other instruments that later gave rise to the
enormous market in listed derivatives. There are now 55 of these exchanges trading derivatives
around the globe. Today these instruments are a vast business, which has brought substantial
benefits with respect to the effectiveness and efficiency of our capital markets, but which has also
created new risks that need to be effectively addressed. All of this development in derivatives has
been a manifestation of how dynamic and creative our economy is -- and that dynamism and
creativity are key to the success of our economy.
The development of these markets are emblematic of the emergence of the global
economy and global financial markets that has occurred over the last quarter century -- and this
emergence of the global economy and global financial markets have brought enormous benefits to
workers, farmers and businesses in the United States. and around the globe.
RR-2391

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

Today I would like to discuss four challenges that we face if we are going to continue to
be a successful economy in the years and decades ahead. Let me start by putting these challenges
in the context of the present state of the economy.
Today, the United States has the strongest major economy in the world, and we are
viewed as a country that has put its economic house in order. Unemployment is 4.7 percent and it
has been under 6 percent for the last three years. The economy has generated 15 million new jobs
over the last five years, inflation has remained low and real wages are rising.
On the private sector side, this success has been critically fueled by the remarkable job
American business has done over the past decade in restoring its competitiveness in a broad array
of industries, after having been written off by much of the world in the preceding decade. On the
public sector side, key and indispensable to the economic conditions of the past five years has
been an economic strategy grounded in fiscal responsibility, beginning with the deficit reduction
act of 1993, opening markets, and for the longer term, public investment in our people to
promote productivity.
However, we must not let the progress we have made mask the challenges we face in
building a prosperous economy and society for the years and decades ahead. If the United States
were a business, and we were enjoying a period of success such as the past five years, we would
think about what might be the wlnerabilities to our competitive position five, ten or fifteen years
from now, and then we would position ourselves to meet those challenges. That is exactly what
we have tried to do in this Administration, and in that context, let me now tum to the four
challenges that I believe we must meet to continue our present economic success in the years and
decades ahead, in addition to the private sector maintaining its competitiveness.
First, we must remain diligent in keeping our nation's fiscal house in order. The President
has made what I believe is a sensible proposal on what to do with budget surpluses: put the
money away until we address Social Security reform. The President is now actively working to
foster debate and discussion to lead to a consensus. At the same time, there are proposals for tax
cuts or spending increases that are not fully paid for which threaten the fiscal discipline we have
worked so hard to restore. Fiscal discipline is not an easy path, but I believe it is the essential
path.
Second, we must continue to work to improve education in all of its aspects, but
especially our public school system. In today's global economy, education is the key to
prosperity for an individual, and for a country. This Administration has focused intensely on
improving education from K-12 and beyond by expanding Head Start, proposing voluntary
national standards, proposing in the present budget funding for school construction and hiring
more teachers to reduce class size, and last year's enacted post secondary school tuition tax
~redits. But, clearly, much more needs to be done.
Third, we face the challenge of tremendous social costs and loss of productivity that result
2

from having millions of Americans left out of the economic mainstream -- a problem that is most
closely associated with our inner cities. This is a problem that affects all of us, no matter where
we live or what our incomes may be. Just think of the difference it will make with respect to
reducing social costs and improving productivity and fostering growth if we can bring all
Americans into the economic mainstream. The Administration has been active on many fronts and
in addition there have been many innovative programs happening in state governments, local
governments and in the private sector. For example, I recently visited one right here in Chicago -the Runner's Club, a mentoring program that pairs successful businessmen with budding African
American entrepreneurs to assist them as they start their businesses.
Early in the AdlTlinistration, a reporter from a well respected European weekly interviewed
me, and at the end, said that our economy was doing very well but that ten or twenty years from
now we'd be a second tier economy. I asked why he thOUght that, and he said the answer was
our public schools and our inner cities. My own view, now that I've spent five years focusing on
our economy and economies around the world, is that we have tremendous strengths and a great
potential in a global economy, but we do need to more effectively deal with the critical issues that
reporter identified if we are to fully realize that potential.
Fourth and finally, we must continue to be deeply engaged in providing leadership on the
issues of international economic policy. A successful strategy on these issues to promote
American prosperity in the global economy includes three components: first, opening markets and
trade liberalization; second, promoting growth and reform in the developing world and
transitional countries; and third, dealing with the problems of financial instability and crisis when
they occur, both immediately, and in the long term, by strengthening the architecture of the
international financial system. Let me discuss the point of financial instability for a few minutes.
As I said earlie~ the development of the global economy and global financial markets have
brought tremendous opportunities for American workers, farmers, and businesses. But there have
also been risks, and these have been brought home by the financial crisis in Mexico in 1995, and
most recently in Asia.
As you well know, by doing everything sensible to help these Asian countries get back on
track, we support our exports to the region and help strengthen their currencies, which helps the
competitiveness of our goods in world markets and we reduce the risk that financial instability will
spread to other developing countries. That is why the United States has exercised very strong
leadership throughout this situation to help resolve the Asian crises.
Moreover, even before the turmoil in Asia, the United States and the international
community have been working to strengthen the international financial architecture. Our aim is to
promote broadly shared growth in both the developed and developing world, to be better able to
prevent future crises, arid to deal with them when they occur; in short, to make the architecture as
modem as the markets. We began this effort four years ago at the Naples G-7 meeting. Working
together, the G-7 launched the first concretes steps the following year at the summit in Halifax.

3

This process involves great intellectual complexities and great international political complexities
and will occur not at one time, but in pieces over an extended period of time. And, let me note,
derivatives and other otT-balance sheet items will be one of the most complex facets of this
process.
Let me briefly focus on three areas:
First, providing better information through improved disclosure and transparency. As all
of you know very well, in the modern, complex global financial markets investors need more
types of information then ever before. When investors are well-informed, use that information
wisely, and expect to bear their consequences of their actions, they will make better decisions.
That is good for them and can be a powerful force in promoting good policies among nations.
National policy makers also need better information, to guide their actions, and anticipate
potential problems.
However, just as important as having good information is using that information well. One
of the things that amazed us during the Asian crisis was how few of the international creditors and
investors in these economies had appropriately focused on the risks involved. One of the things
we have to do is maximize incentives for investors and creditors to use the available information
and appropriately weigh risk.
One aspect of transparency and disclosure has to be for public and private institutions to
better identify and disclose the effects of derivatives and other off-balance sheet items on financial
risks and wlnerabilities. In addition, regulators need access to this type of information and need
to be able to share information with their colleagues in other countries in order to better respond
to problems as they develop.
Our second area of focus is on building strong national financial sectors. A common
element amongst the countries involved in the crisis in Asia -- and, for that matter, in virtually all
countries experiencing financial crises -- is a badly flawed domestic financial sector. Given the
effects that weak financial systems can have internationally, the time has come for a more
systematic approach to strengthening national financial systems that would involve a more
intensive assessment of the wlnerabilities in national financial systems. We have proposed a
series of concrete steps to strengthen financial sectors through enhanced international
surveillance.
Our third area of focus is on creating mechanisms so that the private sector more fully
bears the consequences of its credit and investment decisions, including in times of crisis. In a
world in which trillions of dollars flow through international markets every day there is simply
not going to be enough official financing for the crises that could take place. There is also a risk
with international assistance of what economists call "moral hazard:" that providing official
financial assistance shields creditors and investors from the consequences of bad decisions and
sows the seeds of futures crises. Some protection of creditors may result as a by-product of the
4

overarching objective of restoring financial stability, but this protection should be kept to the
minimum possible. However, while the whole question of private sector involvement is extremely
complicated, we are exploring various mechanisms so investors bear more responsibility for their
actions, and thus have a better incentive to analyze and weigh risks appropriately.
While we are focusing on strengthening the architecture, it is absolutely imperative that
IMF resources be sufficient to deal with new crises should they occur. IMF resources are at
historic lows. The Senate has passed legislation to approve the U.S. contribution to the IMF by a
vote of 84-16 but there is a serious bottleneck in the House. While the probability of the crisis
worsening or spreading or of a new crisis is low, the potential impact on our economy of any
crisis is simply too great to risk not having the capacity to respond effectively. While the day to
day battles over funding in Washington may seem remote to you, every day that Congress does
not approve the President's request for IMF funding increases our wlnerabiIity to a crisis.
The debate over IMF funding symbolizes one of the key lessons which I have drawn from
the last few years: there needs to be a redoubled effort by all of us to communicate with the
American public the dynamics of the new global economy and the importance of U.S. leadership
in the global economy to our well being. I am deeply concerned that public support for forward
looking international economic policies may be moving backwards at a time when this country's
economic, national security and geopolitical interests require just the opposite. In this regard, the
business community has a crucial role to play. It is unique in that it understands the importance of
these issues -- and has the means to promote that understanding.
One of the real problems that stands in the way of building support for a forward-looking
international agenda is that the benefits of globalism are not evenly shared. One troubling facet of
the global economy is that workers with high skills and in high-value added industries are doing
very well, but low-skilled workers and workers with low education are too often not doing as
well. So even while most Americans are enjoying the benefits of our growing economy, too many
people are being left behind. Ultimately, this is an issue we need to address if we are to build
support for flexible labor markets, trade liberalization and maintaining leadership in the global
economy.
The U.S. is well positioned to maintain a strong economy for the future. But our success
depends on business doing what it must to maintain its competitiveness and government doing
what it can to address the issues I have discussed. Ifwe work together, we can keep the economy
on the right track and meet the challenges of the new century. Thank you very much.
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5

DEPARTMENT

OF

THE

TREASURY

omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960

FOR IMMEDIATE RELEASE
April 24, 1998

Contact: Michelle Smith
(202) 622-2960

TREASURY DEPUTY SECRETARY TO VISIT YOUTH EMPLOYMENT PARTNERSHIP,
COMMUNITY DEVELOPMENT PROJECT SITE
Treasury Deputy Secretary Lawrence H. Summers will tour the Youth Employment
Partnership (YEP) -Y outhbuild project site at 10 a.m. (PDT) Tuesday, April 28 in building 821 of
the Naval Supply Base in West Oakland, California.
The YEP -Youthbuild project at the Naval Supply Base in West Oakland is the
deconstruction of a three-acre warehouse currently slated for demolition. While providing job
training in construction work to at risk youth, the project plans to put more than 800 tons of
construction waste to better use. As a result of this project, more than 800,000 board feet of
construction-grade Douglas Fir and other products will be available for use in the construction of
low-income housing in Oakland.
Community Bank of the Bay, a community development financial institution, provides
working capital financing to the Youth Employment Partnership. The Bank's mission is to promote
economic prosperity and self-reliance in low and moderate income areas while operating a safe and
profitable bank.
The Department's CDFI Fund was created in 1994 to use limited federal resources to invest
in and build the capacity of private, for-profit and non-profit financial institutions, leveraging privat~
capital. Since its inception, the Fund has made $75.5 million in investments in 75 CDFls, including
community development banks, loan funds, credit unions, venture capital funds, and microenterprise
loan funds.
Representatives from the Youth Employment Partnership, the Community Bank of the Bay
and construction trainees working at the project will brief Deputy Secretary Summers on the project,
followed by a tour of the deconstruction site. Directions to the site are attached.

RR-2392

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

Directions to the Youth Employment Partnership worksite at the Naval Supply Base:
Take the Bay Bridge to Oakland. From the Bay Bridge, proceed to 1-580 east. Take 1-580
to 1-980 (downtown Oakland) and exit at 11112th Streets. Upon exiting the offramp, continue
straight on Brush St. to right turn on 3rd St. Go several long blocks to left turn on Adeline St. Pass
over overpass and road becomes Middle Harbor Road. After overpass, go .7 mile to stoplight and
tum left into Harbor Transportation Center/ Naval Supply Depot. Do not take the first right tum
marked for the Naval Supply Depot. Instead continue straight for one block and tum right past
building 734. Turn right again at next comer and go to end of block. Building 821 is on your left.
Press Contacts:
Michelle Smith
Marcy Lynn

Treasury Department
Community Bank of the Bay
-30-

(202) 622-2960
(415) 356-9626

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
April 24, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY ARKANSAS STORMS, TORNADOES

The Bureau of Public Debt took action to assist victims of tornadoes in Arkansas by expediting
the replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Arkansas affected by the storms. These procedures will remain in effect through June 30, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Arkansas counties involved are Craighead, Lonoke, Mississippi, and Pulaski. Should additional
counties be declared disaster areas the emergency procedures for savings bonds owners will go
into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-l 048, available at most financial institutions or the Kansas City
Federal Reserve Bank's Savings Bonds Customer Service Department, 925 Grand Avenue,
Kansas City, Missouri 64198; phone (816)881-2000. This form can also be downloaded from
Pubic Debt's website at www:publicdebureas.gov. Bond owners should include as much
information as possible about the lost bonds on the form. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a financial institution. Completed forms should be forwarded to
Public Debt's Savings Bond Operations Office located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word "STORMS" on the front of their
envelopes, to help expedite the processing of claims.

RR-2393

000

bttp://www.publicdebt.treas.&ov

-

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

FOR IMMEDIATE RELEASE
April 24, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN KENTUCKY

The Bureau of Public Debt took action to assist victims of tornadoes in Kentucky by expediting
the replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Kentucky affected by the storms. These procedures will remain in effect through June 30, 1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most fInancial institutions serve as paying agents for savings bonds.
Kentucky counties involved are Adair, Barren, Metcalfe and Warren. Should additional counties
be declared disaster areas the emergency procedures for savings bonds owners will go into effect
for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or by writing the Kansas
City Federal Reserve Bank's Savings Bond Customer Service Department, 925 Grand Avenue,
Kansas City, Missouri 64198; phone (816) 881-2000. This form can also be downloaded from
Public Debt's website at: www.publicdebureas.gov. Bond owners should include as much
information as possible about the lost bonds on the form. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a fmancial institution. Completed forms should be forwarded to
Public Debt's Savings Bond Operations OffIce located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word "STORMS" on the front of their
envelopes, to help expedite the processing of claims.

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000

bttp://www.publlcdebt.treas.gov

-

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239

FOR IMMEDIATE RELEASE
April 24, 1998

Contact: Peter Hollenbach
(202) 219-3302

BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN TENNESSEE

The Bureau of Public Debt took action to assist victims of tornadoes in Tennessee by expediting
the replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Tennessee affected by the storms. These procedures will remain in effect through June 30,
1998.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most fmancial institutions serve as paying agents for savings bonds.
Tennessee counties involved are Campbell, Davidson, Lawrence, Maury, Pickett and Wayne.
Should additional counties be declared disaster areas the emergency procedures for savings bonds
owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or by writing the
Richmond Federal Reserve Bank's Savings Bond Customer Service Department, 701 East Byrd
Street, Richmond, Virginia 23219; phone (804) 697-8370. This form can also be downloaded
from Public Debt's website at: www.publicdebureas.gov. Bond owners should include as much
information as possible about the lost bonds on the form. This information should include how
the bonds were inscribed, social security number, approximate dates of issue, bond
denominations and serial numbers if available. The completed form must be certified by a
notary public or an officer of a financial institution. Completed forms should be forwarded to
Public Debt's Savings Bond Operations Office located at 200 Third St., Parkersburg, West
Virginia 26106-1328. Bond owners should write the word "STORMS" on the front of their
envelopes, to help expedite the processing of claims.

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000

bttp://www.publlcdebt.treas.gov

DEPARTl\1ENT

OF

THE

TREASURY

NEWS
omCE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlDNGTON, D.C. • 20220 • (202) 622-2960

FOR IMMEDIATE RELEASE
April 27, 1998

Contact: Michelle Smith
(202) 622-2960
MEDIA ADVISORY

Treasury Secretary Robert E. Rubin, Health and Human Services Secretary Donna E.
Shalala, Labor Secretary Alexis M. Herman and Commissioner of Social Security Kenneth S.
Apfel will discuss the results of the Medicare and Social Security Trustees annual meeting and
annual reports at a press briefing at 12:30 p.m. tomorrow. Tuesday. April 28, in the Diplomatic
Reception Room, Room 3311 of the Main Treasury Building, 1500 Pennsylvania Avenue, N.W.
Media without Treasury, White House, State, Defense or Congressional press credentials
planning to attend should contact Treasury's Office of Public Affairs at (202) 622-2960, with the
following information: name, social security number and date of birth. This information may be
faxed to (202) 622-1999.
-30-

RR-2396

For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT;

FOR IMMEDIATE RELEASE

Office of Financing
202-219-3350

April 27, 1998

RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS

Term:

9l-Day Bill

Issue Date:
Maturity Date:
CUSIP Number:

April 30, 199B
July 30, 1998
912795AD3

RANGE OF ACCEPTED COMPETITIVE BIDS:
Investment
Rate 1/

Discount
Rate
Low
High
Average

Price
------

----------

------

98.754
98.751
98.751

5.061t
S.073%
S.073%'

4.930\
4.940\'
4.940%'

Tenders at the high discount rate were allotted
AMOUNTS TENDERED

AND

ACCEPTED (in thousands)
Accepted

Tendered

Tender Type
Competitive
Noncompetitive

$

PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
$

TOTAL
1/

75%.

26,540,477
1,308,589

.$

3,864,222
1,308,589

27,949,066

5,172,811

3,747,815

3,747,815

595,400

595,400

a

o

32,192,281

Equivalent coupon-issue yield.

RR-2397

http://Www.publicdebt.trc:ls.gov

$

9,516,026

PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public: Debt • Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
B.UREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
April 27, 199B

CONTACT:

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenn:
Issue Date:
Maturity Date:
CUSIP Number:

182-Day Bill
April 30, 1998
October 29, 1998
912795AP6

RANGE OF ACCEPTED COMPETITIVE BIDS;
Discount
Rate

-----Low
High
Average

5.090%
5.120%
5.115%

Investment
Rate 1/

Price

---------5.296%

------

97.427
97.412
97.414

5.328%
5.324%

Tenders at the high discount rate were allotted

56\.

AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type

Tendered

Competitive
Noncompetitive

$

PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
TOTAL
1/

$

Accepted

24,686,288
1,139,032

$

3,814,498

1,139,032

25,825,320

4,953,530

3,780,000

3,780,000

2,310,600

2,310,600

o

o

31,915,920

Equivalent coupon-issue yield.

RR-2398

II ttp :lIwww.publicdrbt.trc:ls.goy

$

11,044,130

D EPA R T l\1 E N T

0 F

THE

T REA SUR Y

NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960

Contact: Public Affairs
(202) 622-2960

FOR IMMEDIATE RELEASE
April 28, 1998

MEDIA ADVISORY

Treasury Secretary Robert E. Rubin and IRS Commissioner Charles O. Rossotti will announce the
federal law enforcement expert who will conduct the comprehensive independent review of the
IRS Criminal Investigation Division -- part of the IRS seven-point plan to improve the Criminal
Investigation Division -- at a press conference at the Treasury Department on Tuesday, April 28
at 10:45 a.m.

DATE:

Tuesday, April 28, 1998

TIME:

10:45 a.m.

PLACE:

Diplomatic Reception Room, room 3311
Main Treasury, 1500 Pennsylvania Avenue, NW

LOGISTICS:

Media without Treasury, White House, State, Defense, Justice or
Congressional press credentials planning to attend should contact
Treasury's Office of Public Affairs at (202) 622-2960 with the following
information: name,' social security number and date of birth. This
information may be faxed to (202) 622-1999.
-30-

RR-2400

· h dules and olhcial biographies, call our 24-hour fax line at (202) 622-2040
For press reZeases, speech es, Pu bZlC sc e
'JJ'

DEPARTMENT

OF

THE

TREASURY

NEWS
EMBARGOED UNTIL 3:30 EST
Remarks as Prepared for Delivery
April 28, 1998
"The Challenges of Success"
Remarks by Lawrence H. Summers,
Deputy Secretary of the Treasury
Hambrecht & Quist Technology Conference
San Francisco, California
Thank you. It is a pleasure to be here in San Francisco at this conference which brings
together the two most dynamic elements of the world's most dynamic economy: American
technology companies and American finance.
We live in a truly remarkable time for your industries -- and for the United States. In the last
300 years there has not been a protracted period when the country with the world's greatest
GNP has had as high a ratio to the country with the world's second greatest GNP. There has
not been a time in the last 300 years when the country with the strongest military forces had as
large a ratio to the country with the second largest military forces. And there has not been a
time in the last several hundred years when a country has been so powerful as an example
around the world. from the English language, to Coca-Cola, to the Internet, as the United
States is today.
Last year on a trip to Africa I had an experience that has stayed with me. I was at a meeting in
Mozambique. one of the very poorest economies in the world. The room was filled with
representatives of America's leading investment banks and brokerages. A man worriedly
pulled me aside. He was Mozambique's only private Internet provider, and he feared that
competition was coming.
That experience brought together what I think are the most important forces in the world
today: American strength, competition and technology, and globalization. I would like to
reflect today on what they mean for our country and for our national and international
economic policies.
RR-2401

-

Fur press releases, speeches, public schedules and official biographies. call our 24.nour fax line at (202) 622-2040

I. The New American Economy
Economists can debate new paradigms, but all can agree that these are good times for the
American economy. The right things -- employment, real wages, national savings and
investment -- are all up. And inflation, crime, the welfare rolls and the budget deficit are all
down, indeed, lower than they have been in a generation.
The world looks very different than it did at the beginning of this decade, a time when
America was said to be in decline. It is now clear that America will grow faster in this decade
than Japan and Europe. Their four-decade-Iong story of convergence has ended and America is
pulling further ahead.
Why this success? A large share of the credit must go to the two forces that this conference
brings together: technology and finance.
It cannot be an accident that communism, planning ministries throughout the developing world
and large corporations run by command and control all ran into a brick wall in the same decade
and had to be restructured. New technologies have forced profound changes in the way
economic and financial life is organized -- changes for which we are fortunate that our
economy is superbly well adapted. And if you want to talk about patient capital look not to
Japan, where the same old money was invested in companies using the same old technologies
in the same old industries. Look right here in California, where millions are invested before
revenues, let alone profits come, and anyone with a good idea can make their first million
before buying their first tie.

The twin forces of information technology and modern competitive finance are moving us
toward a post-industrial age. And if you think about what this new economy means -- whether
it is AlG in insurance, McDonald's in fast-food. Walmart in retailing, Microsoft in software,
Harvard University in education. CNN in television news -- the leading enterprises are
American.
While we must seem a long way away somellmes. public policy and the right economic
strategy has made an important contrihution hen: in California.
First. in sound macroeconomic policies:
•

pOlicies that recognized that a strong and sound currency matters;

•

policies that recognized that Fed-bashing was a fool's game: it does not change shorttenn interest rates because the Fed does not respond, but it does increase long-tenn
interest rates because the bond market does;

2

•

and finally policies that recognized that budget deficits were a burden this nation could
no longer afford to carry. As a result of the deficit reductions we have seen in this
decade, more than one trillion dollars in capital that would otherwise have been
invested in the sterile asset of government paper has instead been invested in America's
future: in our productive businesses, in our workers, in our cities and in our homes.

Second, we have made a shift from the politics and policy of envy to the politics of opportunity
and worked to make government a positive force in our society and our economy. To note just
a few examples:
•

we have brought the federal government to bear in improving the quality of the
education our children receive, from the creation in 1994 of the Early Head Start
program for disadvantaged children under 3, to last year's 220,000 new Pell Grants
and the $1500 Hope Scholarship tax credit to help ensure that every American can get
at least a community college degree;

•

we have worked to invest government seed money in technologies that will be critical to
our future, for example in the $100 million President Clinton has proposed in his
balanced budget to develop the next generation Internet;

•

and we have worked to ensure that the Internet continues to develop for the good of
every American, unfettered by clumsy regulation or discriminatory taxes and tariffs -as evidenced by our support for the Internet Tax Freedom Act recently introduced in
the House by Congressman Cox of California and in the Senate by Senator Wyden of
Oregon.

Third, we have worked to promote an open global economy, with 240 new trade agreements
lowering barriers to American goods since 1993. including:
•

the ratification of NAFT A and the completion of the Uruguay round of the GATT;

•

and ground breaking intemationaltrade liberalization agreements within the World
Trade Organization in the critical sectors of telecommunications and financial services.

•

Just this month. President Clinton joined the heads of Latin American governments in
Santiago de Chile to begin negotiations to create a Free Trade Area of the Americas.

Since President Clinton took office. the number of export-related jobs has increased by 1.7
million. On average. these pay 15 percent more than the average wage. Some 1.3 million jobs
in California are supported by trade -- more than 20 percent more than in 1992. One third of
the growth in GDP we have enjoyed in this expansion has come through exports.

3

All of this is impressive. And indeed, people from around the world come to America and
people from around America come to the valley. But I would suggest to you that prosperity
without public purpose may prove hollow and short-lived. We have achieved an enonnous
amount in these latter years of this century. But we have an enonnous amount yet to do if we
are to be sure of carrying those achievements safely forward.

II. The Challenges We Face
There has been another time in our nation's history when an explosion of new wealth and new
technology was transforming the way many Americans lived; when our companies were
enjoying unprecedented success; when our elected leaders vowed to shrink government and
preached self-reliance; but when workers were fearful for their security and blamed their
insecurity on immigrants and foreign competition. That time was 1927.
There followed a series of catastrophic economic and foreign policy errors that sent the world
shuttling toward what were perhaps the darkest years in human history. History does not
repeat itself. Any historical analogy between the world today and the world of the 1920s is
surely imperfect. But the experience of the late 1920s offers important lessons -- and
challenges for policy makers today.

1. Domestic Leadership
Technology does provide Americans with remarkable opportunities, but they are not there for
those who cannot read, and a child born today in Harlem is less likely to learn to read than a
child in Shanghai or the very poor Indian state of Kerala.
This is a period of remarkable freedom and opportunity. but when conditions in this country
are such that two percent of American men in the prime of their lives are in prison, we are also
squandering enormous opportunities for our people and our economy.
The Internet is doing remarkable things for our financial system. but very little for the
significant fraction of Americans who do not have a bank account and have to pay usurious
fees just to get their paychecks cashed.
If our success is to continue. if our economy IS to be what it has to be. and if it is to be a
secure prosperity that we enjoy -- then we as a country have to do more to ensure that all are
included.
None of us would say we know all the answers. Certainly, we have learned that just throwing
money at these problems doesn't work. And cenainly we know that no government program is
a substitute for individual responsibility. But equally we have learned that these problems do
not and will not simply solve themselves without public action.
4

If we consider what technology means for education, for enabling long distance learning and
more effective, close-up learning in our schools; if we consider what technology means for
fighting crime, in better information and communication at the local, state and national level; if
we consider what technology has already done to complement the skills and increase the
productivity of some of our least-skilled workers -- then it seems clear that technology will be
one important part of the solution to the problems this country faces, even if it will surely not
be the whole solution.
It is a new economy. But success still depends on old virtues, education, savings and hard
work and these we must strive to promote for all our citizens.

2. Leadership Abroad
As important as our responsibility to promote strong, stable and inclusive growth at home is
our responsibility to promote strong and inclusive growth at the international level.
In considering what this responsibility entails it is worthwhile considering the enormous
changes that have taken place beyond our borders these past several years. The last decade has
seen substantially more rapid progress in the developing word than the industrialized world.
We have witnessed growth that is unprecedented in human history: countries where more than
2 billion people live are growing at rates where standards of living double in less than a
decade, something never seen in the economic history of the United States or any country in
Europe.
That profound change, creating for the first time a global economy, doubling standards of
living again and again. in countries where a large fraction of the world's population lives is an
event that I would suggest ranks in economic history with the Renaissance and the Industrial
Revolution.
This growth in the developing world -- home to over 70% of the world's population -- is
tremendously important for our economy and our security. Sustaining this progress to build a
truly global prosperous economy will involve many different things. Let me focus today on
the area we at Treasury are most involved in: the flow of capital and finance.
There are many reasons for the progress that has already been achieved: the spread of market
institutions and market ideology. and the spread of new technology are high among them. But I
would suggest to you that a very important part has been played by the annual one quarter of
one trillion dollars in global capital that has flowed to the developing world in recent years -capital that has been a source of growth in emerging economies as it has been a source of
innovation and diversification in the industrialized world.

5

Our efforts at the international level must begin with this fundamental linkage between strong
growth and strong capital flows around the world. Our goal must be to make the global capital
market work more effectively as a source of opportunity - and reduce its capacity to be a
source of instability .
I do not need to remind this audience of the threat that the recent financial instability has posed
to American jobs, American savings and American security. Thankfully, we can talk in a
much more encouraged way about the region today than we could three months, even one
month ago:
•

in Korea and Thailand, we can see new governments working with steadfastness to
implement the adjustment measures agreed with the International Monetary Fund -steadfastness that is paying dividends in stable currencies and rising reserves;

•

in Indonesia, though the situation is still extraordinarily difficult, we can see that is at
least more stable -- not just in terms of the currency but the broader political
environment - than we might have thought possible a few weeks back;

•

and throughout the emerging market economies, we see a number of shoes that have not
dropped - in Latin America we have seen determined actions by governments not
contagion; in China we have seen unwavering commitment to the renminbi peg not
devaluation; and most recently in Russia we have seen financial market calm rather than
panic in the face of a dramatic cabinet reshuffle.

Still very significant is the situation in Japan. which effective implementation of the welcome
measures recently announced will be crucial. Successful Japanese efforts at economic
stimulus, financial restructuring and deregulation and market opening are important for Japan.
Asia and the global economy.
Still. we are sufficiently out of the emergency room that we can and must now look beyond
today's problems to the longer term reform challenges we face. In many ways the emergence
of global financial markets can be likened lO the invention of the jet airplane. We can go where
we want to go much more quickly. we can gel there more comfortably. more cheaply and most
of the time more safely -- but the crashes when they occur are that much more spectacular.
Governments can respond to the invention of Jet airplane by improving air traffic control and
lengthening the runway or by banning jel lam.ltn~s. II is obvious which is better.
Let me just mention three of the challenges we will face in working to reduce the risk of c.rises
and deal more effectively with those that do take place.

6

The frrst effort will be ensuring there is greater transparency and openness in both the private
and public sector around the world. No one can now doubt the power of abundant information
in helping us manage risk and reduce financial stability. There are obvious questions of cause
and effect, but Mexico's economic turnaround started around the same time it started to
publish economic and financial information for all to observe on a regular time frame.
As you know, every domestic prospectus filed with the Securities and Exchange Commission
has been available on-line since May 1996. We may be a long way from that at an
international level. But I consider it a minor, but not insignificant, triumph of the IMF that in
Korea somebody who teaches a night school class in accounting told me that he normally has
22 students in his winter term and this year has 385. We need such progress for every
company in the global economy and every country. And we need that transparency to apply to
central banks. In particular, we must recognize that it means nothing for a central bank to
report its reserves if it does not report the encumbrances on those reserves.
The second challenge will be to work to strengthen fmancial systems, both globally and at the
level of individual countries. That means improved prudential standards, investing in training
for bank regulators and supervisors, and the promotion of effective financial infrastructure.
But the ingredients of sound banking systems go well beyond a list of internationally
recognized standards -- it means cultivating a credit culture, sound supervision, limits on the
quality of assets at a bank's disposal, limits on goverrunent safety nets, and effective controls
on self-dealing.
The third, and most difficult task will be to find mechanisms to bail in investors not bail them
out and to ensure that policy makers do not confront the choice between uncontrolled chaos
and confusion on the one hand and large bailouts on the other -- which is too often the choice
they confront today. This task has a microeconomic and a macroeconomic dimension.
Countries need bankruptcy laws. And they need effective judicial institutions to enforce them.
That is part of being in a global capital marker. But we also need procedures for dealing with
situations where countries get themselves into very profound financial difficulties at the
sovereign level. In short. we need systems that can handle failure. because until the system is
safe for failure we will not be able to count on success.
These and other reforms will be critical to seizing the opportunities and managing the risks of a
21st century global economy. And make no mistake: American leadership will be critical to
ensuring that these changes happen. and happen in a way that promotes our interests.
That is why it is so important for us to maintain our support for the IMF so it is ready to deal
not just with today's crisis, but other crises down the road. The late 1920s and early 1930s
provide a vivid enough reminder of the risks of a laissez-faire approach to financial sector
problems. Quite simply. to fail to support the IMF at this time is a bit like canceling your life
insurance when you have already gotten sick: it is just not a risk we can afford to take.

7

All of you know that not financing the IMF -- not financing the United Nations, not supporting
Fast Track - are critical issues for all of us who are concerned about the future of our
economy.

III. Conclusion
This is a remarkable conference. Such a combination of technical creativity and financial
backing would have been unimaginable a decade ago and probably would be unimaginable in
any other country. Let me be clear: we get it in Washington about what technology and
fmance have done and can do to make people's lives better and we have worked to put the
right framework in place. And yet, if you take anything away from what I have said here
today, it is that, as important as technology and fmance are, their full potential will not be
realized without a sense of public purpose.
When President Clinton was here in San Francisco in February he made the point that if you
look at every period of dramatic change in this nation's history -- be it the Civil War or the
Industrial Revolution -- the advances have come when we have deepened the meaning of
freedom, expanded it to more people, and widened the circle of opportunity and prosperity to
build a stronger, more united nation. That must be the purpose for all of us as we approach a
new millennium. No two industries better reflect the possibilities of a 21st century global
economy than finance and technology -- and none has a greater stake in ensuring that every
American takes part. Thank you.
-30-

8

DEPARTMENT

OF

THE

TREASURY

omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960

FOR RELEASE AT 12:30 EDT
April 28, 1998

STATEMENT OF SECRETARY ROBERT E. RUBIN
ON THE RESULTS OF MEDICARE AND SOCIAL SECURITY TRUSTEES MEETING
Today, the Boards of Trustees of the Medicare and Social Security trust funds met to
complete our annual review of the fInancial status of the trust funds and to issue a report on
their fmancial health.
With respect to Medicare, a number of legislative improvements, contained in the
Balanced Budget Act of 1997, have been implemented since last year's report. Today, our
report shows that the exhaustion date for the Hospital Insurance program has been pushed back
to 2008, and it also indicates that the 75-year actuarial deficit has been substantially reduced.
These outcomes are a direct result of the enactment of the Balanced Budget Act and the recent
strong performance of the economy.
However, the long-term problem for Medicare, though not as severe as we projected
last year, is still substantial. As a result of the aging of the popUlation, we are still projecting
that signifIcant cost pressures will develop relatively soon in the next century. Last year, we
recommended the creation of an advisory group to review the complex issues underlying these
expected cost increases, and to help fashion solutions. In this regard, we are pleased to note
that the BBA also established the National Bipartisan Commission on the Future of Medicare,
and that this Commission has begun its work. The improvement in the 75-year outlook for
Medicare makes a strong contribution toward the work of the Commission.
The BBA bought us time, but it is vital that we take the necessary steps to restore longterm solvency to the Medicare program as quickly as possible.
For the combined Social Security trust fund the short-run situation is different -- It IS
solvent in the near term, but we project that it will be exhausted in 2032, 3 years later than
projected last year. Thus, there is no immediate crisis in this program, but, as the report
shows, and as the President and others have indicated. the long-range financing deficit in the
Social Security program needs to be addressed in a timely way, so that retirement planning can
be adjusted in response to program changes. Extensive public discussion and analysis of the
practical implications of alternatives is essential for developing the broad support that will be
RR-2402
For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040

needed to enact any Social Security legislative reform. The President's plan to facilitate this
dialogue will be very helpful in accomplishing that objective.
The health of both the Social Security and Medicare trust funds is important for the
millions of Americans who depend on these programs today, and for the millions who will
depend on them in the future. Preserving and modernizing Social Security and Medicare is not
a partisan issue. We will be able to construct acceptable solutions to the longer-term
challenges of both programs only if we join together and act on a bipartisan basis.

-30-

On'ICE OF PUBLIC ,u'rAIIlS. UOO PENNSYLVANIA AVENUE. N.W. e WASHlNGTON. D.C.e lono e (10l) 611.l"O

CONTACT:

IKBARGOBD UNTIL 2: 30 P. K.
April 28, 1998

Office of Financing
202/21'-3350

TRBASURyr S WEEKLY BILL OPFERING

The Treasury will auction two series of Treasury bills totaling
approximately $13,000 million, to be issued May 7, 1'98. This offering will
result in a paydown for the Treasury of about $1,875 million, as the maturing
publicly held weekly bills are ou~s~anding in the &mgunt of $14,881 million.
In addition ~o the public holdings, Federal Reserve Banks for their own
accounts bold $7,648 million of the ma~uring billo, which may be refunded at tbe
weighted average discount rate of accepted competitive tenders. Amounts issued
to these accounts will be in addition to the offering amount.
Federal Reserve Banks hold Sl.596 million as agents for foreign and
international monetary authorities, which may be refunded within the offering
amount at the weighted average discount rate of-accepted competitive tenders.
Additional amoun~s may be issued for such accounts if the aggregate amount of
new bi~s exceeds the aggregate amount of maturing bills.
Tenders for the bill. will be received at Federal Reserve BaDks and
Branches and at the Bureau of the Public Debt, Washington, D.C. This offering
of Treasury securities i . governed by th. ter.ms and conditions •• t forth 1D ~h.
Uniform Offering Circular (31 eFR Part 356, as amended) for ~he sale and ~8sue
by the Treasury to the public of marketable Trea&ury bills, no~e8~ and bonds.
Details ahout each of the new securities are given in the attached offering
highligbts.
000

Attachment

RR-2403

For press re/ellses, sPlIcIt", public sclledulel IIl1d official billtrllphies, elIlI Dur 24.lIl1ur fe

UIIIII'

(202) 622·2040

HIGHLIGHTS OP TRBASURY OFPBRINGS OP

TO 8B ISSUBD MAY 1,

WBB~LY

BILLS

~998

April 28, I'"
OCferlnq AJDount •••••••••.•••••••

0

••••••••••

$5,750 milU.on

$7,250 million

D•• oriptioA of Offering:
Term anel type of t • • curi ty • ' 0
CUSlP nUJllbel' •••••••••••..••

91-day bill
912195 "B 1
"uction date •••••••..••.•••••••••••••••••.• May 4, 1998
0

•••••••••••••••

•••••••••••••••

I •• ue date" ...•.... ,," ........ " .....•.
May", 1998
Maturity d.t ••••••••.•••.••.•••.••••••••••• August 6, 1998
Original i.su. date •.••••.•.••••••••••••••• 7ebruary 5, 1998
Currently out.tanding •••••••••••••••••••••• $11,501 million
Minimum bid aIrIount .......................... $10,000
t4\altipl ••
'I"" • 'I" . . . 'I" ..
'I. 'I." " ..... $ 1,000
'I • • •

'I

••••••••

"

"

'I.

'I • • •

182 -day bill
912795 "Q •
Kay 4, 1998
May 7, 1998
HOVeJN)er 5, 1"8

lIay 7, It98
$10,000
$ 1,000

The following rule. ,pply to ,11 .ecyritla. mentioned above,

Subml.sion of Bid,1
bids ..••.•••••.••.•••••..•.• Accepted in full up to $1.000.000 at the av.r'ge

Nonco~p.titive
Co~p.titiv.

discount rate of accepted c~petitive bids.
bid ••••••••.•••••.•••.••••••••• (1)
Must be expre.sed .9 • diecouDt rate with three d.cimAl. in
increments of .005\. e.g., 7.100\, 1.105\.
(2)
Net long position for each bidd.r mu.t be reported when the
Bum of the total bid amount, at all di8count rat •• , ••d the

(3)

net long position is $1 billion or greater.
Net long position must be determined as of one helf-hour
prior to the closing ti~e for receipt of competitive t.ad.rl.

Maximum "cognized Bid
at a Single yield . . . . . . . . . . . . . . . . . . . . . . . 35" of pubUc ottering
H4ximWll Award, ••••••••••••••.••.••••••••••• 35' of public oftering

Receipt oC Tender8'
Noncompetitive tender8 ., .••••.••••.•••••••• Prior to 12100 noon S •• terD Daylight Savings tima on auction day
Competitive tender •••••••••.•...•••••.•.••• Prior to 1100 p.m. Eaatern Daylight s&viQgI tiD' 00 auction d.y
Payment

Te~ •.••••....••.••••••••.••••••.•.

Full payment with tender or by cbarge to a tund. account
at • Pederal Reserve mank on issue date

-

PUBLIC DEBT NEWS

-

Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239

TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC

FOR IMMEDIATE RELEASE

CONTACT:

April 28, 1998

Office of Financing
202-219-3350

RESULTS OF TREASURY'S AOCTION OF 2-YEAR NOTES
Interest Rate:
Series:

5 5/8%

IssU~.Date:

AC-2000
COSI? No:
9128274C3
STRI PS Minimum: .$320,000

High Yield:

Dated Date:
Maturity Date:
S.677~

Price:

April 30, 1995
April 30, 1999
April 30, 2000

99.903

All noncompetitive