Full text of Press Releases of the United States Department of the Treasury : Volume 449

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Trcas.
H,J
10
.A13
P4
v.449

Department of the Treasury

PRESS RELEASES

Numbers not used HP-1116 and 1128.
HP-1161 included, but not listed in the index.

W-ll 08: 1 r~(lSIlrY Frnr1l11ll!1' lIDd;'~c 8.1.08

Page i of2

August 1, 2008
HP-1108
Treasury Economic Update 8.1.08
"Today'sjobs data reflect the headwinds affecting the U.S. economy--the housing
correction, credit market strains, and higher energy prices. Yesterday's GOP data
reflect the positive impact and timeliness of the stimulus payments, which will
continue to support spending as we work through these headwinds. "
Assistant Secretary Phillip Swagel, August 1, 2008
Employment Fell in July:
Job Growth: Payroll employment fell by 51,000 in July, following a decrease of
51,000 in June. The United States has added about 7.8 million jobs since August
2003. Employment increased in 33 states and the District of Columbia over the year
ending in June. (Last updated: August 1, 2008)
Unemployment: The unemployment rate was 5.7 percent in July, up from 5.5
percent in June. (Last updated: August 1, 2008)
Growth Was Moderate in Q2:
Real GOP: Real GOP growth in 02 was 1.9 percent at an annual rate, up from 0.9
percent growth in 01. Consumer spending added 1.1 percentage pOints to growth
in the first quarter and net exports added 2.4 percentage points. These positives
were partly offset by the continued drag from housing and a large inventory
reduction. (Last updated: July 31, 2008)
Signs of Economic Strength Include Exports and Low Inflation:
Exports: Strong global growth is boosting U.S. exports, which grew 10.2 percent
over the past 4 quarters. (Last updated: July 31, 2008)
Inflation: Core inflation remains contained. The consumer price index excluding
food and energy rose 2.4 percent over the 12 months ending in June.
(Last updated: July 16, 2008)
The Economic Stimulus Package Will Provide a Temporary Boost to Our
Economy:
The package will help our economy weather the housing correction and other
challenges. The Economic Stimulus Act of 2008, signed into law by President
Bush has two main elements--stimulus payments so that working Americans have
more money to spend and temporary tax incentives for businesses to invest and
grow. Together, the legislation will provide about $150 billion of stimulus for the
economy in 2008, providing a meaningful boost to the U.S. economy in 2008.
(Last updated: February 29, 2008)
Pro-Growth Policies Will Enhance Long-Term U.S. Economic Strength:
We made significant progress on the deficit. The FY07 budget deficit was down
to 1.2 percent of GOP, from 1.9 percent in FY06. Much of the improvement in the
deficit reflects strong revenue growth, which in turn reflects strong economic
growth. The economic stimulus package and the slowing economy contribute to the
near-term budget deficit. The Mid-Session Review of the Budget projects that the
deficit will be 2.7 percent of GOP in FY08 and 3.3 percent of GOP in FY09. Looking
ahead, higher spending on entitlement programs dominates the future fiscal
situation; we must squarely face up to the challenge of reforming these programs.

tp:llwww.treas.goy/press/reieases/hpll08.htm

9115/2008

HP-II 08: 'freawry

b;~~~vi,u", L., lludte

8.1.08

Page 2 of2
http://www.treas.gov/economlc-plan/

tp:llwww.treas.goy/press/releases/hpII08.htm

9/15/2008

Jnited Statew

P'lJ'P"FfP2.&i

dTkr. ~rp.::l"iUry -

Page 1 of 3

Economy

FIOHllNG ILucrr

FINANCE

Press Room

I~I

About T reas u ry

G

FINANCIAL
MARKETS

INlERNATIONAL

Subscribe to Economy e-mail updates.

search

Printer Friendly Version of the U.S. Economic Strength

Offices
Bureaus
Schedule of Events
Online Services A - Z
History & Education
Key Topics
Contact Us

The U.S. economy is fundamentally strong, but the housing
correction, credit turmoil, and high oil prices are weighing on growth
this year and short-term risks are to the downside. The Economic
Stimulus Act of 2008, signed into law on February 13, will help
protect the strength of our economy as we weather the housing
downturn and other challenges. This agreement includes short-term
incentives to bolster business investment and consumer spending to
keep our economy growing and creating jobs this year.

Home
DIRECT LINKS

Auctions - Seized Properly

LATEST NEWS
Treasury Releases FlfHl In a Series of Social Securrty Papers

BOllds clild SeClJllt!eS
Budget
FOCUS ON

Buy CUlllS
Buv Paper f\icJlley
~orms

Economic Growth Package

HealHl Savlncjs ,IlJ:COIJ:lts IHSAs)
Irlterest Rate Statistics

•

IRS Tax Flllllg. Forms (; Refullcls
Jobs at Treasur'/
My·Molle'l. GOI
OFAC SOr\1 List
Reports
SallctlollS
Small Business

•
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Week 11 Wrap-Up: Treasury Sent 7.530 Million Stimulus
Payments This Week
Treasurer Cabral Remarks on the Economic Stimulus
Package
Paulson Remarks on the Economic Stimulus Package
Fact Sheet: State-by-State Benefit of the Economic Stimulus
Act of 2008 G
Fact Sheet: Examples of How the Economic Growth
Package will Benefit Americans
Paulson Statement on Senate Passage of Economic Growth
Package
Paulson Statement on House Passage of Economic Growth
Legislation
Paulson Answers Questions on Economic Growth
Agreement
Paulson Press Briefing on the Bipartisan Economic Growth
Agreement
White House Fact Sheet: New Growth Package Meets
Criteria to Keep Our Economy Healthy
Bush Statement on Economic Growth Agreement
Paulson Remarks on the Economy
Paulson Takes Questions at the White House
Paulson Remarks at Wilite House Press Briefing
White House Fact Sheet: Taking Action to Keep Our
Economy Healthy
Transcript. Presidents Remarks

IAs:sistant Secretary Phillip Swage
Is<>nt<>,mber 5, 2008
MORE INFORMATION
Economic Report of the Preslc
The White House Economy ar
Budget
Bureau of Economic AnalYSIS
Bureau of Labor Statistics
The Federal Reserve
Economic Data Tables
RELATED OFFICES
Treasurys Office of Economic
Policy

Treasury Releases Social Security Papers
To build on the discussions that Secretary Paulson has had with

ttp:llwww.treas.gov/economic-planl

9/15/2008

Jnited

State~

- Departmsnt of The Tceasury - Economy

Page 2 of 3

members of Congress in both parties, Treasury has released a
series of issue briefs that discuss Social Security reform, focusing
on the nature of the problem and those aspects of reform that have
broad support.
•

•
•
•
•
•

Paulson Statement on Treasury Social Security Papers on
Common Ground
Issue Brief 1: Social Security Reform: The Nature of the
Problem
Issue Brief 2: Social Security Reform A Framework for
Analysis
Issue Brief 3: Social Security Reform: Benchmarks for
Assesslllg Falmess and Benefit Adequacy
Issue Brief 4: Social Security Reform Mechanisms for
Achieving True Pre-Funding
Issue Brief 5: Treasury Releases Fifth In a Series of Social
Security Papers

U.S. Economic Strength
Employment Fell in August:
Job Growth: Payroll employment fell by 84,000 in August, following
a decrease of 60,000 in July. The United States has added about
7.7 million jobs since August 2003. Employment increased in 29
states and the District of Columbia over the year ending in July.
(Last updated: September 5, 2008)
Unemployment: The unemployment rate was 6.1 percent in
August, up from 5.7 percent in July. (Last updated: September 5,
2008)
Growth Was Solid in 02:
Real GDP: Real GOP growth in 02 was 3.3 percent at an annual
rate, up from 0.9 percent growth in 01. Consumer spending added
1.3 percentage points to growth in the first quarter and net exports
added 3.0 percentage points. These positives were partly offset by
the continued drag from housing and a large inventory reduction.
(Last updated: August 28, 2008)
Signs of Economic Strength Include Exports and Low Inflation:
Exports: Strong global growth is boosting U.S. exports, which grew
11.2 percent over the past 4 quarters. (Last updated: August 28,
2008)
Inflation: Core inflation remains contained. The consumer price
index excluding food and energy rose 2.5 percent over the 12
months ending in July. (Last updated: August 15, 2008)
The Economic Stimulus Package Will Provide a Temporary
Boost to Our Economy:
The package will help our economy weather the housing
correction and other challenges. The Economic Stimulus Act of
2008, signed into law by President Bush has two main elementsstimulus payments so that working Americans have more money to
spend and temporary tax incentives for businesses to invest and
grow. Together, the legislation will provide about $150 billion of
stimulus for the economy in 2008, providing a meaningful boost to
the U.S. economy in 2008.(Last updated: February 29, 2008)
Pro-Growth Policies Will Enhance Long-Term U.S. Economic
Strength:
We made significant progress on the deficit. The FY07 budget
deficit was down to 1.2 percent of GOP, from 1.9 percent in FY06.
Much of the improvement in the deficit reflects strong revenue
growth, which in turn reflects strong economic growth. The
economic stimulus package and the slowing economy contribute to
the near-term budget deficit. The Mid-Session Review of the

ttp://www.treas.gov/economic-p1anl

9/15/2008

Jnited State:; ..

Dep:lrtlll~~:..t

Page 3 of 3

vi 11,\.< treasury - Economy
Budget projects that the deficit will be 2.7 percent of GDP in FY08
and 3.3 percent of GDP in FY09. Looking ahead, higher spending
on entitlement programs dominates the future fiscal situation; we
must squarely face up to the challenge of reforming these
programs.

Last Updated September 5, 2008

ttp:llwww.treas.gov/economic-planl

9/15/2008

-IP-l109: Ttea~ury D;':.j'6Ha~~;)

LilC

r inancial Network of Major Sinaloa <br>Cartcl Operator Rigoberto ...

Page lof2

10 view or Print tne f-JUI- content on tn,s page. aownloaa tne free AUO/)Ali') Acronat''') KeaUen r ).

August 5, 2008
HP-1109

Treasury Designates the Financial Network of Major Sinaloa
Cartel Operator Rigoberto Gaxiola Medina
Washington, DC--The U.S. Department of the Treasury's Office of Foreign Assets
Control (OFAC) today named 14 companies and 17 individuals tied to drug
trafficking kingpin Rigoberto Gaxiola Medina as specially designated narcotics
traffickers (SDNTs). The designees, all based in Mexico, are now subject to
economic sanctions pursuant to the Foreign Narcotics Kingpin Designation Act.
Rigoberto Gaxiola Medina, currently imprisoned in Mexico, is the leader of a major
drug trafficking organization responsible for transporting thousands of tons of
marijuana from Mexico into the Southwestern United States. His organization built
and employed a network of underground tunnels to move drugs and cash between
Mexico and the United States. As a gate-keeper for marijuana shipments entering
the United States, Gaxiola's organization functions as a vital component of the
Joaquin "Chapo" Guzman Loera drug trafficking organization and the Sinaloa
Cartel.
"We are sanctioning Rigoberto Gaxiola Medina's network of companies and
associates to support and advance the Mexican authorities' important efforts
against this criminal organization," said OFAC Director Adam J. Szubin.
The designation includes key Gaxiola associates Roque Duarte Munoz, Armando
Aguirre Cardona, Juan Luis Guzman Enriquez and Juan Francisco Quintero Arce,
all of whom were arrested in 2003 along with Rigoberto Gaxiola Medina by Mexican
federal authorities. Another associate designated today, Sandra Lucero de
Martinez, was arrested by U.S. law enforcement in 2005 and subsequently
extradited to Mexico to face organized crime charges. All six individuals are
currently imprisoned on a combination of convictions for organized crime and
unlawful use of military-grade weapons.
Despite the 2003 arrests, Rigoberto Gaxiola Medina's financial network for
laundering drug proceeds has continued to function under the leadership of his
family and close business associates, including his wife, Maria Del Rosario Garcia
Duran, his sons Rigoberto Gaxiola Garcia and Carlos Alberto Gaxiola Garcia, and
his daughter, Maria Elena Gaxiola Garcia, all of whom are also being designated
today by OFAC. Other key associates designated by this action are Eleazar Fontes
Moreno, Rafael Angel Valencia Jaime, and Ana Cristina Arce Borboa.
The financial network designated by today's action is comprised of companies in
the Mexican states of Sonora, Sinaloa, and Jalisco, including: 4 mining firms,
Minera Rio Presidio, S.A. De C. V., Minera La Castellana y Anexas, S.A. De C. V.,
Copa de Plata, S.A. De C. V. and Campania Minera Del Rio Cianury, S.A. De C. V.;
a car dealership, Distribuidora Gran Auto, S.A. De C. V.; and a private gym,
Bioesport, S.A. De C. V.
This action is part of ongoing efforts under the Foreign Narcotics Kingpin
Designation Act to apply financial measures against significant foreign narcotics
traffickers worldwide. More than 300 businesses and individuals associated with 75
drug kingpins have been designated pursuant to the Kingpin Act since June 2000.
Today's designation would not have been possible without key support from the
Drug Enforcement Administration (DEA) Resident Office in Hermosillo, Sonora,
Mexico; DEA's Financial Operations Division; the Department of Homeland
Security's Immigration and Customs Enforcement field office in San Diego; and the
U.S. Attorney's Office, District of Arizona.

:tp:llwww.treas.gov/press/releases/hpII09.htm

9/15/2008

-IP-l109: Treasury DeGignntc9 th~ F1l1ancial Network of Major Sinaloa <br>Cartel Operator Rigoberto ...

Page 2 of 2

Today's designation action freezes any assets the 31 designees may have under
U.S. jurisdiction and prohibits U.S. persons from conducting transactions or
dealings in property interests of the designated individuals and entities. Penalties
for violations of the Kingpin Act range from civil penalties of up to $1,075,000 per
violation to more severe criminal penalties. Criminal penalties for corporate officers
may include up to 30 years in prison and fines up to $5,000,000. Criminal fines for
corporations may reach $10,000,000. Other individuals face up to 10 years in
prison for criminal violations of the Kingpin Act and fines pursuant to Title 18 of the
United States Code.
-30-

REPORTS
•

Designation Chart

ttp:llwww.treas.go v /press/releases/hpII09.htm

9115/2008

Rigoberto Gaxiola Medina
Financial Network

Department of the Treasury
Office of Foreign Assets Control
Foreign Narcotics Kingpin Designation Act
August 2008

F,

All individuals depicted in this chart
are Mexican nationals

n
n

Gaxiola Family Members

~

Maria Del Rosario
GARCIA DURAN
OOB: 12 Sep 1953

~
Rigoberto
GAXIOLA GARCIA
oOB: 25 Jan 1973
Alt. DOB: 26 Jan 1973

Ja(

Key Business Associates

~

~
~
carlos Alberto
GAXIOLA GARCIA
DaB: 02 Mar 1978

,I""

) r<../

~

Jose Manuel
FITCH TOVAR
OOB: 28 Dec 1936

Eleazar
FONTES MORENO
OOB: 23 July 1947

~

~

Apprehended in Mexico

n

~
Pablo Antonio
FITCH PARENTE

~

~

Ju0.:2:o

c,

QUINTERO ARCE
OOB: 26 Aug 1959

Jose Raul
VEGA SANCHEZ
00B:19 Oct 1956

Ana Cristina
ARCE BORBOA
OOB: 22 May 1961

DaB: 24 Mar 1966

~

~

Rafael Angel
Manuel Dario
VALENCIA JAIME BALOENEGRO BASTIOAS
OOB: 11 Jan 1963
OOB: 22 Jan 1968

~
Jose Elmer
FITCH PARENTE
OOB: 27 Jan 1965

Maria Elena
GAXIOLA GARCIA
DOB: 18 Aug 1975

~"]~~

\- -J

'"

C~)

~

GUZMAN ENRIQUEZ
OOB: 24 Jun 1950

Roque
DUARTE MUNOZ
OOB: 09 Dec 1960

~
' ,
~

Annando
AGUIRRE CARDONA
DOB: 28 Oct 1955

Sandra
LUCERO DE MARTINEZ
OOB: 29 Oct 1969

Real Estate/Construction Companies

DlSTRlBUIDORA DE HERMOSILLO GAXIOLA HERMANOS SA DE CV
Hermosillo, Sonora. MeXICO
Guadalajara, JaI15(0, MexICO

Mining Companies
COMPANIA MINERA DEL RIO C1ANURY SA DE CV
Culiacan, Sinaloa, MeXICO

COPA DE PLATA SA DE CV
Culiacan, Sinaloa, MeXICO

INMOBIUARIA GAXIOLA HERMANOS SA DE CV
Hermosillo, Sonora, MeXICO
Guadalajara, Jalisco, MeXICO

MOLDURAS DEL NOROESTE SA DE CV
Hermosillo, Sonora, MeXICO

MINERA RIO PRESIDIO SA DE CV
Cullacan, Sinaloa, MexICO

MINERA LA CASTELLANA Y ANEXAS SA DE CV
Culiacan, Sinaloa, MeXICO

Retail/Transport Companies
~

BIOESPORT SA DE CV
Hermosillo, Sonora, MeXICO

DISTRIBUIDORA GRAN AUTO SA DE CV
Hermosillo, Sonora, r.1exlco
~..,

pmc

TEMPLE DEL
SA DE CV
Hermosillo, Sonora, MeXICO

INMUEBLES SIERRA VISTA SA DE CV
HermoSillo, Sonora, MeXICO

AGRICOLA GAXIOLA SA DE CV
Hermosillo, Sonora, MeXICO

FLETES Y TRANSPORTES GAXGAR SA DE CV
Hermosillo, Sonora, MeXICO
Guadalajara, Jallsco. MeXICO

GRUPO INDUSTRIAL GAXIOLA HERMANOS SA DE CV
Hermosillo, Sonora, MexICO
Guadalajara, Jalisco, MeXICO

mil - .
~

,.,.

.~.

~;'(fl.•

[~=

,1..1

'~--:",.

~. "

-'- '-""

"/1

:... ~ ,.'

-.

I
\

~
'~~

{P-IIIO: Treasury, IRS l~wt} Ruling Preventing Certain Pension Transfers

10 vIew or pnnt tne

I-'U~

Page 1 of 1

content on tnlS page, ctownloact the tree AClobe0Ci AcrotJatl") KeaCler'U.

August 6,2008
HP-1110

Treasury, IRS Issue Ruling Preventing Certain Pension Transfers
Agencies Offer Framework for Possible Legislative Change

Washington, DC--The Treasury Department and the Internal Revenue Service
today issued Revenue Ruling 2008-45, which states that a transfer of a tax-qualified
pension plan from an employer to an unrelated taxpayer when the transfer is not
connected with a transfer of significant business assets, operations, or employees,
is not permissible under current law. A copy of the ruling is attached.
Accompanying today's ruling, the Administration put forth a framework of principles,
as described below, that should guide the development of legislation that could
permit such transactions, in circumstances where the transaction is in the best
interest of plan participants, their beneficiaries, employers, and the pension
insurance system. The legislative framework was developed by the Treasury
Department, the Labor Department, the Commerce Department, and the Pension
Benefit Guaranty Corporation.
Under the legislative framework, a pension plan (or a portion of a plan) under which
benefits are no longer accruing (i.e., a frozen plan) could be transferred to an entity
unrelated to the employer (or former employer) of the participants in the plan,
provided that certain conditions are met. The conditions would reflect the following
fundamental requirements:
•

•
•

•
•

•

Plan participants, their representatives, and ERISA regulators would be
required to receive advance notice of a plan transfer, and the parties to the
transaction would be required to provide regulators information necessary to
review and approve the proposed transaction.
Only financially strong entities in well-regulated sectors would be permitted
to acquire a pension plan in a plan transfer transaction.
The parties to the transaction would be required to demonstrate that
participants' benefits and the pension insurance system would be exposed
to less risk as a result of the transfer, and that the transfer would be in the
best interests of the participants and beneficiaries.
Limitations on transfers would be imposed to limit undue concentration of
risk.
Transferees and members of their controlled groups would assume full
responsibility for the liabilities of transferred plans and would comply with
post-transaction reporting and fiduciary requirements.
Subsequent transfer transactions would be subject to the rules applicable to
original transfer transactions.

- 30 REPORTS
•

Revenue Ruling 2008-45

ttp://www.treas.gov/press/releases/hp1110.htm

9/15/2008

Part I - Rulings and Decisions Under the Internal Revenue Code of 1986
Section 401. - Qualified Pension, Profit-sharing, and Stock Bonus Plans
26 CFR 1.401-1: Qualified pension, profit-sharing, and stock bonus plans.
(Also, § 414.)
Rev. Rul. 2008-45
ISSUE
Is the exclusive benefit rule of § 401 (a) of the Internal Revenue Code ("Code")
violated if the sponsorship of a qualified retirement plan is transferred from an employer
to an unrelated taxpayer and the transfer of the sponsorship of the plan is not in
connection with a transfer of business assets, operations, or employees from the
employer to the unrelated taxpayer?
FACTS
Corporation A maintains an underfunded defined benefit plan with no ongoing
accrual of benefits. Corporation A transfers sponsorship of the plan to Subsidiary B, a
wholly-owned subsidiary of Corporation A. Subsidiary B does not maintain any trade or
business, has no employees, and has nominal assets. As part of the transfer, the plan
document is amended to substitute Subsidiary B as the plan sponsor and to provide for
Subsidiary B to assume Corporation A's responsibilities under the plan.
In connection with the transfer of the plan sponsorship, Corporation A also
transfers cash and marketable securities to Subsidiary B. The amount of the
transferred assets is equal to the amount of the plan's underfunding, as determined with
reference to specified actuarial assumptions, plus an additional margin.
Shortly after the sponsorship of the plan and these assets are transferred to
Subsidiary B, ownership of at least 80% of Subsidiary B's stock is transferred to

2

Corporation C, an unrelated corporation. After this transaction, Subsidiary B is no
longer a member of the Corporation A controlled group, within the meaning of

§ 414(b) of the Code, but instead is a member of the Corporation C controlled group.
The transaction is not in connection with the transfer of business assets (other than
cash or marketable securities transferred to Subsidiary B), operations, or employees
from Corporation A's controlled group to Corporation C's controlled group. The only
business risk or opportunity in the transaction for Corporation C is to profit from the
acquisition and operation of the plan.
LAW
Section 401 (a) provides that, in order to be qualified under that section, a stock
bonus, pension, or profit-sharing plan of an employer must be for the exclusive benefit
of its employees or their beneficiaries. Consistent with this exclusive benefit rule of

§ 401 (a), § 1.401-1 (a)(2)(i) of the Income Tax Regulations provides, in part, that a
qualified pension plan is a definite written program and arrangement which is
established and maintained by an employer to provide for the livelihood of employees or
their beneficiaries after the retirement of the employees. Similarly, § 1.401-1 (a)(3)(ii)
requires that a qualified plan be established by an employer for the exclusive benefit of
its employees or their beneficiaries in order to be qualified.
Section 414(a) provides that, in the case in which the employer maintains a plan
of a predecessor employer, service for such predecessor is treated as service for the
employer.
Section 414(b) provides that, for specified purposes, including § 401, all
employees of all corporations which are members of a controlled group of corporations

3

are treated as employed by a single employer.
ANALYSIS
Unlike other situations where the sponsorship of a plan is transferred in
connection with the acquisition of business assets or operations, Subsidiary B does not
maintain a business and its assets only compensate Corporation C for assuming
Corporation A's responsibility under the plan to make contributions to the plan.
Therefore, any profit or loss to Corporation C resulting from the transaction would be
solely from the use of the assets that are transferred to its controlled group in
connection with the acquisition and operation of the plan.
In accordance with § 414(b), all employees of all corporations which are
members of a controlled group of corporations are treated as employed by a single
employer. Accordingly, even though Subsidiary B has no employees of its own, it is
treated as an employer with respect to the employees of the Corporation A controlled
group while it is part of that controlled group. For purposes of the exclusive benefit rule
of § 401 (a), however, Subsidiary B will no longer be treated as an employer with respect
to the employees of the Corporation A controlled group when it is no longer a member
of that controlled group.
This result is not affected by § 414(a). Section 414(a) provides that if an
employer maintains a plan of a predecessor employer, then service for such
predecessor is treated as service for the employer. By its terms, § 414(a) applies only
to an "employer" and does not create employer status for a taxpayer that is not
otherwise an employer.
Accordingly, when Subsidiary B is no longer a member of the Corporation A

4

controlled group, the plan does not satisfy the exclusive benefit rule of § 401 (a) because
it is not maintained by an employer to provide retirement benefits for its employees and
their beneficiaries. This conclusion would be the same even if the new controlled group
has some employees covered by the plan after the transaction, or some business
assets or operations are transferred, where substantially all the business risks and
opportunities under the transaction are those associated with the transfer of the
sponsorship of the plan.
HOLDING
The exclusive benefit rule of § 401 (a) is violated if the sponsorship of a qualified
retirement plan is transferred from an employer to an unrelated taxpayer and the
transfer of the sponsorship of the plan is not in connection with a transfer of business
assets, operations, or employees from the employer to the unrelated taxpayer.
This ruling does not address any federal income tax consequences other than
those specifically addressed herein.
DRAFTING INFORMATION
The principal author of this revenue ruling is Robert M. Walsh of the Employee
Plans, Tax Exempt and Government Entities Division. ·For further information regarding
this revenue ruling, please call the Employee Plans taxpayer assistance number
between 8:30 a.m. and 4:30 p.m. Eastern time, Monday through Friday at (877) 8295500 (a toll-free number) or email Mr. Walsh at RetlrementPlanOuestlons@irs.gov.

fP-llll: U.S., Malta Sign Income Tax Treaty

Page 1 of 1

/0 view or pnnt tne fJUI- content on tnls page, aown/oaa tne Tree /\(/olJe" l l1c/()/)at"" Kf:ilOef"'1.

August8,2008
HP-1111
U.S., Malta Sign Income Tax Treaty
Washington, DC--The Treasury Department today announced that U.S.
Ambassador to Malta, Molly Bordonaro, and Malta Finance Minister Tonio Fenech
have signed a new income tax treaty between the two countries in the Maltese
capital of Valletta.
The agreement provides for reduced withholding rates on cross-border dividend
payments generally with the elimination of withholding on cross-border dividend
payments to pension funds. It also generally provides for withholding at a 10percent rate on interest, royalties, and other income.
The treaty also contains a comprehensive limitation of benefits provision and
provides for the exchange of information between the competent authorities to
facilitate the administration of each country's tax laws.
The final version of the treaty is attached.
-30-

REPORTS
•

U.S.-Malta Income Tax Treaty

ttp:llwww.treas.gov/press/releases/hpllll.htm

9/15/2008

CONVENTION BETWEEN
OF THE UNITED STATES OF AMERICA
AND THE GOVERNMENT OF MALTA
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES ON INCOME

THE

GOVERl\I\lE~T

The Go\"emment of the United States of America and the Goyemment of Malta,
desiring to conclude a Con\ention for the a\"oidance of double taxation and the
preyention of fiscal eyasion with respect to taxes on income, haye agreed as follows:

2

Article 1

GENERAL SCOPE
I.
This Convention shall apply only to persons who are residents of one or both of
the Contracting States, except as otherwise provided in the Convention.
J
This Convention shall not restrict in any manner any benefit now or hereafter
accorded:

3.

a)

by the laws of either Contracting State; or

b)

by any other agreement to which the Contracting States are parties.

Notwithstanding the provisions of subparagraph b) of paragraph 2 of this
a)
Article:
i)
for purposes of paragraph 3 of Article XXII (Consultation) of the
General Agreement on Trade in Services, the Contracting States agree that
any question arising as to the interpretation or application of this
Convention and, in particular, whether a taxation measure is within the
scope of this Convention, shall be determined exclusively in accordance
with the provisions of Article 25 (Mutual Agreement Procedure) of this
Convention; and
ii)
the provisions of Article XVII of the General Agreement on Trade
in Services shall not apply to a taxation measure unless the competent
authorities agree that the measure is not within the scope of Article 24
(Non-Discrimination) of this Convention.
For the purposes of this paragraph, a "measure" is a law, regulation, rule,
b)
procedure, decision, administrative action, or any similar provision or action.

Except to the extent provided in paragraph 5, this Convention shall not affect the
4.
taxation by a Contracting State of its residents (as determined under Article 4 (Resident))
and its citizens. Notwithstanding the other provisions of this Convention, a former citizen
or former long-term resident of a Contracting State may, for the period of ten years
following the loss of such status, be taxed in accordance with the laws of that Contracting
State.
5.

The provisions of paragraph 4 shall not affect:

3

a)
the benefits conferred by a Contracting State under paragraph 2 of Article
9 (Associated Enterprises), paragraphs I b), 2, and 5 of Article 17 (Pensions,
Social Security, Annuities, Alimony, and Child Support), and Articles 18
(Pension Funds), 23 (Relief from Double Taxation), 24 (Non-Discrimination),
and 25 (Mutual Agreement Procedure); and
b)
the benefits conferred by a Contracting State under Articles 19
(Government Service), 20 (Students and Trainees), and 27 (Members of
Diplomatic Missions and Consular Posts), upon individuals who are neither
citizens of, nor have been admitted for permanent residence in, that State.
An item of income, profit or gain derived through an entity that is fiscally
6.
transparent under the laws of either Contracting State shall be considered to be derived
by a resident of a State to the extent that the item is treated for purposes of the taxation
law of such Contracting State as the income, profit or gain of a resident.

4

Article 2

TAXES COVERED
1.
This Convention shall apply to taxes on income imposed on behalf of a
Contracting State irrespective of the manner in which they are levied.
2.
There shall be regarded as taxes on income all taxes imposed on total income, or
on elements of income, including taxes on gains from the alienation of property.
3.

The existing taxes to which this Convention shall apply are:
a)
in the case of the United States: the Federal income taxes imposed by the
Internal Revenue Code (but excluding social security and unemployment taxes), and
the Federal excise taxes imposed with respect to private foundations;
b)

in the case of Malta: the income tax.

This Convention shall apply also to any identical or substantially similar taxes
4.
that are imposed after the date of signature of the Convention in addition to, or in place
of, the existing taxes. The competent authorities of the Contracting States shall notify
each other of any changes that have been made in their respective taxation or other laws
that significantly affect their obligations under this Convention.

5

Article 3
GENERAL DEFINITIONS

I.

For the purposes of this Convention, unless the context otherwise requires:
a)
the term "person" includes an individual, an estate, a trust, a partnership, a
company, and any other body of persons;
b)
the term "company" means any body corporate or any entity that is treated
as a body corporate for tax purposes according to the laws of the state in which it
is organized;
c)
the terms "enterprise of a Contracting State" and "enterprise of the other
Contracting State" mean respectively an enterprise carried on by a resident of a
Contracting State, and an enterprise carried on by a resident of the other
Contracting State; the terms also include an enterprise carried on by a resident of
a Contracting State through an entity that is treated as fiscally transparent in that
Contracting State;
d)

the term "enterprise" applies to the carrying on of any business;

e)
the term "business" includes the performance of professional services and
of other activities of an independent character;
f)
the tern1 "international traffic" means any transport by a ship or aircraft,
except when such transport is solely between places in a Contracting State;
g)

the term "competent authority" means:
i)
and

in the United States: the Secretary of the Treasury or his delegate;

ii)
in Malta: the Minister responsible for finance or his authorized
representati ve;
h)
the term "United States" means the United States of America, and
includes the states thereof and the District of Columbia; such term also includes
the territorial sea thereof and the sea bed and subsoil of the submarine areas
adjacent to that territorial sea, over which the United States exercises sovereign
rights in accordance with international law; the term, however, does not include

6

Puerto Rico, the Virgin Islands, Guam or any other United States possession or
territory;
i)
the term "Malta" means the Republic of Malta and, when used in a
geographical sense, means the Island of Malta, the Island of Gozo and the other
islands of the Maltese archipelago including the territorial sea thereof as well as
any area of the sea-bed, its sub-soil and the superjacent water column adjacent to
the territorial sea, where the Republic of Malta exercises sovereign rights,
jurisdiction or control in accordance with intemationallaw and its national law,
including its legislation relating to the exploration of the Continental Shelf and
exploitation of its natural resources;
j)

the term "national" of a Contracting State means:
any individual possessing the nationality or citizenship of that
i)
State; and
ii)
any legal person, partnership or association deriving its status as
such from the laws in force in that State;

k)
the term "pension fund" means any person established in a Contracting
State that is:
i)
in the case of pension funds established in the United States,
generally exempt from income taxation, and in the case of pension funds
established in Malta, a licensed fund or scheme subject to tax only on
income derived from immovable property situated in Malta; and
ii)

operated principally either:
A)

to administer or provide pension or retirement benefits; or

B)

to eam income for the benefit of one or more persons
meeting the requirements of subparagraph i) and clause A)
of this subparagraph.

As regards the application of the Convention at any time by a Contracting State
2.
any term not defined therein shall, unless the context otherwise requires, or the
competent authorities agree to a common meaning pursuant to the provisions of Article
25 (Mutual Agreement Procedure), have the meaning which it has at that time under the
law of that State for the purposes of the taxes to which the Convention applies, any

7

meaning under the applicable tax laws of that State prevailing over a meaning given to
the term under other laws of that State.

Article 4

RESIDENT
I.
For the purposes of this Convention, the term "resident of a Contracting State"
means any person who, under the laws of that State, is liable to tax therein by reason of
his domicile, residence, citizenship, place of management, place of incorporation, or any
other criterion of a similar nature, and also includes that State and any political
subdivision or local authority thereof. This term, however, does not include any person
who is liable to tax in that State in respect only of income from sources in that State or of
profits attributable to a permanent establishment in that State.
2.

The term "resident of a Contracting State" includes:
a)

a pension fund established in that State; and

b)
an organization that is established and maintained in that State exclusively
for religious, charitable, scienti fic, artistic, cultural, or educational purposes,
notwithstanding that all or part of its income or gains may be exempt from tax under the
domestic law of that State.
Where, by reason of the provisions of paragraph I, an individual is a resident of
3.
both Contracting States, then his status shall be determined as follows:
he shall be deemed to be a resident only of the State in which he has a
a)
permanent home available to him; ifhe has a permanent home available to him in
both States, he shall be deemed to be a resident only of the State with which his
personal and economic relations are closer (center of vital interests);
if the State in which he has his center of vital interests cannot be
b)
determined, or ifhe does not have a permanent home available to him in either
State, he shall be deemed to be a resident only of the State in which he has an
habitual abode;
c)
if he has an habitual abode in both States or in neither of them, he shall be
deemed to be a resident only of the State of which he is a national;
ifhe is a national of both States or of neither of them, the competent
d)
authorities of the Contracting States shall endeavor to settle the question by
mutual agreement.

9

-+.

Where by reason of the provisions of paragraph I a company is a resident of both
Contracting States, then if it is incorporated under the laws of one of the Contracting
States or a political subdivision thereoC but not under the laws of the other Contracting
State or a political subdivision thereof, such company shall be deemed to be a resident of
the first-mentioned Contracting State. In all other cases involving dual resident
companies, the competent authorities of the Contracting States shall endeavor to
determine the mode of application of the Convention to such company. If the competent
authorities do not reach such an agreement, that company will not be treated as a resident
of either Contracting State for purposes of its claiming any benefits provided by the
Convention.
5.
Where by reason of the provisions of paragraphs I and 2 of this Article a person
other than an individual or a company is a resident of both Contracting States, the
competent authorities of the Contracting States shall by mutual agreement endeavor to
determine the mode of application of this Convention to that person.

10

II

Article 5

PERMANENT ESTABLISHMENT
I.
For the purposes of this Convention, the term "permanent establishment" means a
fixed place of business through which the business of an enterprise is wholly or partly
carried on.
The term "permanent establishment" includes especially:
a)

a place of management;

b)

a branch;

c)

an office;

d)

a factory;

e)

a workshop; and

f)
a mine, an oil or gas well, a quarry, or any other place of extraction of
natural resources.
3.
A building site or construction or installation project, or an installation or drilling
rig or ship used for the exploration of natural resources, constitutes a permanent
establishment only if it lasts, or the exploration activity continues for more than twelve
months.
4.
Notwithstanding the preceding provisions of this Article, the term "pemlanent
establishment" shall be deemed not to include:
a)
the use of facilities solely for the purpose of storage, display or delivery of
goods or merchandise belonging to the enterprise;
b)
the maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of storage, display or delivery;
c)
the maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of processing by another enterprise;
d)
the maintenance ofa fixed place of business solely for the purpose of
purchasing goods or merchandise, or of collecting information, for the enterprise;

12

e)
the maintenance of a fixed place of business solely for the purpose of
carrying on, for the enterprise, any other activity of a preparatory or auxiliary
character;
f)
the maintenance of a fixed place of business solely for any combination of
the activities mentioned in subparagraphs a) through e), provided that the overall
activity of the fixed place of business resulting from this combination is ofa
preparatory or auxiliary character.
5.
Notwithstanding the provisions of paragraphs I and 2, where a person -- other
than an agent of an independent status to whom paragraph 6 applies -- is acting on behalf
of an enterprise and has and habitually exercises in a Contracting State an authority to
conclude contracts that are binding on the enterprise, that enterprise shall be deemed to
have a permanent establishment in that State in respect of any activities that the person
undertakes for the enterprise, unless the activities of such person are limited to those
mentioned in paragraph 4 that, if exercised through a fixed place of business, would not
make this fixed place of business a permanent establishment under the provisions of that
paragraph.
An enterprise shall not be deemed to have a permanent establishment in a
6.
Contracting State merely because it carries on business in that State through a broker,
general commission agent, or any other agent of an independent status, provided that
such persons are acting in the ordinary course of their business as independent agents.
7.
The fact that a company that is a resident of a Contracting State controls or is
controlled by a company that is a resident of the other Contracting State, or that carries
on business in that other State (whether through a permanent establishment or otherwise),
shall not be taken into account in determining whether either company has a permanent
establishment in that other State.

13

Article 6
INCOME FROM REAL (lMMOY ABLE) PROPERTY

I.
Income derived by a resident of a Contracting State from real (immovable)
property, including income from agriculture or forestry, situated in the other Contracting
State may be taxed in that other State.
2.
The term "real (immovable) property" shall have the meaning which it has under
the law of the Contracting State in which the property in question is situated. The term
shall in any case include property accessory to real (immovable) property (including
livestock and equipment used in agriculture and forestry), rights to which the provisions
of general law respecting landed property apply, usufruct of real (immovable) property
and rights to variable or fixed payments as consideration for the working of, or the right
to work, mineral deposits, sources and other natural resources. Ships and aircraft shall
not be regarded as real (immovable) property.
The provisions of paragraph 1 shall apply to income derived from the direct use,
3.
letting, or use in any other form of real (immovable) property.
The provisions of paragraphs 1 and 3 shall also apply to the income from real
4.
(immovable) property of an enterprise.

S.
A resident of a Contracting State who is liable to tax in the other Contracting
State on income from real (immovable) property situated in the other Contracting State
may elect for any taxable year to compute the tax on such income on a net basis as if such
income were business profits attributable to a permanent establishment in such other
State. In the case of income from real (immovable) property situated in the United
States, any such election shall be binding for the taxable year of the election and all
subsequent taxable years unless the competent authority of the United States agrees to
terminate the election.

14

Article 7
BUSINESS PROFITS
I.
The profits of an enterprise of a Contracting State shall be taxable only in that
State unless the enterprise carries on business in the other Contracting State through a
permanent establ ishment situated therein. If the enterprise carries on business as
aforesaid, the profits of the enterprise may be taxed in the other State but only so much of
them as are attributable to that permanent establishment.
2.
Subject to the provisions of paragraph 3, where an enterprise of a Contracting
State carries on business in the other Contracting State through a pemlanent
establishment situated therein, there shall in each Contracting State be attributed to that
permanent establishment the profits that it might be expected to make if it were a distinct
and independent enterprise engaged in the same or similar activities under the same or
similar conditions. For this purpose, the profits to be attributed to the permanent
establishment shall include only the profits derived from the assets used, risks assumed
and activities performed by the permanent establishment.
In detemlining the profits of a pemlanent establishment, there shall be allowed as
3.
deductions expenses that are incurred for the purposes of the permanent establishment,
including executive and general administrative expenses so incurred, whether in the State
in which the permanent establishment is situated or elsewhere.

No profits shall be attributed to a permanent establishment by reason of the mere
4.
purchase by that permanent establishment of goods or merchandise for the enterprise.
5.
For the purposes of the preceding paragraphs, the profits to be attributed to the
permanent establishment shall be determined by the same method year by year unless
there is good and sufficient reason to the contrary.
Where profits include items of income that are dealt with separately in other
6.
Articles of the Convention, then the provisions of those Articles shall not be affected by
the provisions of this Article.
In applying this Article, paragraph 6 of Article 10 (Dividends), paragraph 5 of
7.
Article II (Interest), paragraph 4 of Article 12 (Royalties), paragraph 3 of Article 13
(Gains), and paragraph 2 of Article 21 (Other Income), any income or gain attributable to
a permanent establishment during its existence is taxable in the Contracting State where
such permanent establishment is situated even if the payments are deferred until such
permanent establishment has ceased to exist.

15

16

Article 8

SHIPPING AND AIR TRANSPORT
I.
Profits of an enterprise of a Contracting State from the operation of ships or
aircraft in international traffic shall be taxable only in that State.
2.
For purposes of this Article, profits from the operation of ships or aircraft include,
but are not limited to:
a)

profits from the rental of ships or aircraft on a full (time or voyage) basis;

b)
profits from the rental on a bareboat basis of ships or aircraft if the rental
income is incidental to profits from the operation of ships or aircraft in international
traffic; and
c)
profits from the rental on a bareboat basis of ships or aircraft ifsuch ships or
aircraft are operated in international traffic by the lessee.
Profits derived by an enterprise from the inland transport of property or passengers within
either Contracting State shall be treated as profits from the operation of ships or aircraft in
international traffic if such transport is undertaken as part of international traffic.
Profits of an enterprise of a Contracting State from the use, maintenance, or rental
3.
of containers (including trailers, barges, and related equipment for the transport of
containers) shall be taxable only in that Contracting State, except to the extent that those
containers are used for transport solely between places within the other Contracting State.
The provisions of paragraphs I and 3 shall also apply to profits from participation
4.
in a pool, a joint business, or an international operating agency.

17

Article 9
ASSOCIATED ENTERPRISES

Where:
a)
an enterprise of a Contracting State participates directly or indirectly in
the management, control or capital of an enterprise of the other Contracting State;
or
b)
the same persons participate directly or indirectly in the management,
control, or capital of an enterprise of a Contracting State and an enterprise of the
other Contracting State,
and in either case conditions are made or imposed between the two enterprises in their
commercial or financial relations that differ from those that would be made between
independent enterprises, then any profits that, but for those conditions, would have
accrued to one of the enterprises, but by reason of those conditions have not so accrued,
may be included in the profits of that enterprise and taxed accordingly.
Where a Contracting State includes in the profits of an enterprise of that State,
2.
and taxes accordingly, profits on which an enterprise of the other Contracting State has
been charged to tax in that other State, and the other Contracting State agrees that the
profits so included are profits that would have accrued to the enterprise of the
first-mentioned State if the conditions made between the two enterprises had been those
that would have been made between independent enterprises, then that other State shall
make an appropriate adjustment to the amount of the tax charged therein on those profits.
In determining such adjustment, due regard shall be had to the other provisions of this
Convention and the competent authorities of the Contracting States shall if necessary
consult each other.

IX

Article 10
DIVIDENDS
I.
Dividends paid by a company that is a resident of a Contracting State to a resident
of the other Contracting State may be taxed in that other State.
')
However, such dividends may also be taxed in the Contracting State of which the
company paying the dividends is a resident and according to the laws of that State, but:
a)
if the dividends are paid by a company that is a resident of the United
States to a resident of Malta who is the beneficial owner thereof, except as
otherwise provided in this Convention, the tax charged by the United States shall
not exceed:
i)
5 percent of the gross amount of the dividends if the beneficial
owner is a company that owns directly at least 10 percent of the voting
stock of the company paying the dividends;
ii)

15 percent of the gross amount of the dividends in all other cases.

b)
if the dividends are paid by a company that is a resident of Malta to a
resident of the United States who is the beneficial owner thereof, the tax charged
by Malta on the gross amount of the dividends shall not exceed that Malta tax
chargeable on the profits out of which the dividends are paid.
This paragraph shall not affect the taxation of the company in respect of the profits out of
which the dividends are paid.
Notwithstanding paragraph 2, dividends shall not be taxed in the Contracting
3.
State of which the company paying the dividends is a resident if:
a)
the beneficial owner of the dividends is a pension fund that is a resident of
the other Contracting State; and
b)
such dividends are not derived from the carrying on of a trade or business
by the pension fund or through an associated enterprise.
4.

a)
Clause i) of subparagraph a) of paragraph 2 shall not apply in the case of
dividends paid by a U.S. Regulated Investment Company (RIC) or a U.S. Real
Estate Investment Trust (REIT). In the case of dividends paid by a RIC, clause ii)
of subparagraph a) of paragraph 2 and paragraph 3 shall apply. In the case of
dividends paid by a REIT, clause ii) of subparagraph a) of paragraph 2 and

19

paragraph 3 shall apply only if:
i)
the beneficial owner of the dividends is an individual or pension
fund, in either case holding an interest of not more than 10 percent in the
REIT;
ii)
the dividends are paid with respect to a class of stock that is
publicly traded and the beneficial owner of the dividends is a person
holding an interest of not more than 5 percent of any class of the REIT's
stock; or
iii)
the beneficial owner of the dividends is a person holding an
interest of not more than 10 percent in the REIT and the REIT is diversified.
b)
For purposes of this paragraph, a REIT shall be "diversified" if the value
of no single interest in real property exceeds 10 percent of its total interests in real
property. For the purposes of this rule, foreclosure property shall not be
considered an interest in real property. Where a REIT holds an interest in a
partnership, it shall be treated as owning directly a proportion of the partnership's
interests in real property corresponding to its interest in the partnership.
5.
For purposes of this Article, the term "dividends" means income from shares or
other rights, not being debt-claims, participating in profits, as well as income that is
subjected to the same taxation treatment as income from shares under the laws of the
State of which the payer is a resident.
6.
The provisions of paragraphs 2 through 4 shall not apply if the beneficial owner
of the dividends, being a resident of a Contracting State, carries on business in the other
Contracting State, of which the payer is a resident, through a permanent establishment
situated therein, and the holding in respect of which the dividends are paid is effectively
connected with such permanent establishment. In such case the provisions of Article 7
(Business Profits) shall apply.
7.
A Contracting State may not impose any tax on dividends paid by a resident of
the other State, except insofar as the dividends are paid to a resident of the firstmentioned State or the dividends are attributable to a permanent establishment, nor may
it impose tax on a corporation's undistributed profits, except as provided in paragraph 8,
even if the dividends paid or the undistributed profits consist wholly or partly of profits
or income arising in that State.
8.

a)
A company that is a resident of one of the States and that has a permanent
establishment in the other State or that is subject to tax in the other State on a net
basis on its income that may be taxed in the other State under Article 6 (Income

20

from Real (Immovable) Property) or under paragraph 1 of Article 13 (Gains) may
be subject in that other State to a tax in addition to the tax allowable under the
other provisions of this COllvention.
b)

Such tax, however, may be imposed:
i)
on only the portion of the business profits of the company
attributable to the permanent establishment and the portion of the income
referred to in subparagraph a) that is subject to tax under Article 6 or
under paragraph I of Article 13 that, in the case of the United States,
represents the dividend equivalent amount of such profits or income and,
in the case of Malta, is an amount that is analogous to the dividend
equivalent amount; and
ii)
at a rate not in excess of the rate specified in clause i) of
subparagraph a) of paragraph 2.

21

Article 11
INTEREST

I.
Interest arising in a Contracting State and beneficially owned by a resident of the
other Contracting State may be taxed in that other State.
J
Such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that State, but the tax so charged shall not exceed 10 percent of
the gross amount of the interest.

3.

Notwithstanding the provisions of paragraphs 1 and 2:
a)
interest arising in the United States that is contingent interest of a type that
does not qualify as portfolio interest under United States law may be taxed by the
United States but, if the beneficial owner of the interest is a resident of Malta, the
interest may be taxed at a rate not exceeding 15 percent of the gross amount of the
interest; and
b)
interest that is an excess inclusion with respect to a residual interest in a
real estate mortgage investment conduit may be taxed by each State in accordance
with its domestic law.

4.
The term "interest" as used in this Article means income from debt-claims of
every kind, whether or not secured by mortgage, and whether or not carrying a right to
participate in the debtor's profits, and in particular, income from government securities
and income from bonds or debentures, including premiums or prizes attaching to such
securities, bonds or debentures, and all other income that is subjected to the same
taxation treatment as income from money lent by the taxation law of the Contracting
State in which the income arises. Income dealt with in Article 10 (Dividends) and
penalty charges for late payment shall not be regarded as interest for the purposes of this
Convention.
5.
The provisions of paragraphs 1,2, and 3 shall not apply if the beneficial owner of
the interest, being a resident of a Contracting State, carries on business in the other
Contracting State, in which the interest arises, through a pernlanent establishment situated therein, and the debt-claim in respect of which the interest is paid is effectively
connected with such pernlanent establishment. In such case the provisions of Article 7
(Business Profits) shall apply.
6.
Interest shall be deemed to arise in a Contracting State where the payer is a
resident of that State. Where, however, the person paying the interest, whether the
person is a resident of a Contracting State or not, has in a Contracting State a permanent

22

establishment in connection with which the indebtedness on which the interest is paid
was incurred, and such interest is borne by such permanent establishment, then such
interest shall be deemed to arise in the State in which the permanent establishment is
situated.
7.
Where, by reason of a special relationship between the payer and the beneficial
owner or between both of them and some other person, the amount of the interest, having
regard to the debt-claim for which it is paid, exceeds the amount which would have been
agreed upon by the payer and the beneficial owner in the absence of such relationship,
the provisions of this Article shall apply only to the last-mentioned amount. In such case
the excess part of the payments shall remain taxable according to the laws of each State,
due regard being had to the other provisions of this Convention.
In the case of the United States, the excess, ifany, of the amount of interest
8.
allocable to the profits of a company resident in the other Contracting State that are either
attributable to a permanent establishment in the United States or subject to tax in the
United States under Article 6 (Income from Real (Immovable) Property) or paragraph I
of Article 13 (Gains) over the interest paid by that permanent establishment or trade or
business in the United States shall be deemed to arise in the United States and be
beneficially owned by a resident of the other Contracting State. The tax imposed under
this Article on such interest shall not exceed the rate specified in paragraph 2.

23

Article 12
ROYALTIES
I.
Royalties arising in a Contracting State and beneficially owned by a resident of
the other Contracting State may be taxed in that other State.
2.
Such royalties may also be taxed in the Contracting State in which they arise, and
according to the laws of that State, but the tax so charged shall not exceed 10 percent of
the gross amount of the royalties.
3.

For purposes of this Article, the term "royalties" means:
a)
payments of any kind received as a consideration for the use of, or
the right to use, any copyright of literary, artistic, scientific or other work
(including cinematographic films), any patent, trademark, design or
model, plan, secret formula or process, or for information concerning
industrial, commercial or scientific experience; and
b)
gain derived from the alienation of any property described in
subparagraph a), to the extent that such gain is contingent on the
productivity, use, or disposition of the property.

The provisions of paragraphs I and 2 shall not apply if the beneficial owner of the
4.
royalties, being a resident of a Contracting State, carries on business in the other
Contracting State through a permanent establishment situated therein and the right or
property in respect of which the royalties are paid is effectively connected with such
permanent establishment. In such case the provisions of Article 7 (Business Profits) shall
apply.
5.
Royalties shall be deemed to arise in a Contracting State when they are in
consideration for the use of, or the right to use, property, information or experience in
that State.
6.
Where, by reason of a special relationship between the payer and the beneficial
owner or between both of them and some other person, the amount of the royalties,
having regard to the use, right, or information for which they are paid, exceeds the
amount which would have been agreed upon by the payer and the beneficial owner in the
absence of such relationship, the provisions of this Article shall apply only to the
last-mentioned amount. In such case the excess part of the payments shall remain taxable
according to the laws of each Contracting State, due regard being had to the other
provisions of the Convention.

24

Article 13
GAINS
1.
Gains derived by a resident of a Contracting State that are attributable to the
alienation of real (immovable) property situated in the other Contracting State may be
taxed in that other State.
,. ,
For the purposes of this Article the term "real (immovable) property situated in
the other Contracting State" shall include:
a)
real (immovable) property referred to in Article 6 (Income from Real
(Immovable) Property);
b)
where that other State is the United States, a United States real property
interest; and
c)

where that other State is Malta,
i)
shares, including rights to acquire shares, in a company resident in
Malta whose assets consist wholly or principally of real (immovable)
property referred to in subparagraph a) of this paragraph situated in Malta;
and
ii)
an interest in a partnership or trust to the extent that the assets of
the partnership or trust consist of real (immovable) property situated in
Malta, or of shares referred to in clause i) of this sub-paragraph.

3.
Gains from the alienation of movable property forming part of the business
property of a permanent establishment that an enterprise of a Contracting State has in the
other Contracting State, including such gains from the alienation of such a permanent
establishment (alone or with the whole enterprise), may be taxed in that other State.
Gains derived by an enterprise of a Contracting State from the alienation of ships
4.
or aircraft operated or used in international traffic or personal property pertaining to the
operation or use of such ships or aircraft shall be taxable only in that State.
Gains derived by an enterprise of a Contracting State from the alienation of
5.
containers (including trailers, barges and related equipment for the transport of
containers) used for the transport of goods or merchandise shall be taxable only in that
State, unless those containers are used for transport solely between places within the

25

other Contracting State.

Gains from the alienation of any property other than property referred to in
6.
paragraphs I through 5 and other than gain described in subparagraph b) of paragraph 3
of Article 12 (Royalties) shall be taxable only in the Contracting State of which the
alienator is a resident.

26

Article 14
INCOME FROM EMPLOYMENT
I.
Subject to the provisions of Articles 15 (Directors' Fees), 17 (Pensions, Social
Security, Annuities, Alimony, and Child Support) and 19 (Government Service), salaries,
wages, and other similar remuneration derived by a resident of a Contracting State in
respect of an employment shall be taxable only in that State unless the employment is
exercised in the other Contracting State. [fthe employment is so exercised, such
remuneration as is derived therefrom may be taxed in that other State.
,.,
Notwithstanding the provisions of paragraph I, remuneration derived by a
resident of a Contracting State in respect of an employment exercised in the other
Contracting State shall be taxable only in the first-mentioned State if:
a)
the recipient is present in the other State for a period or periods not
exceeding in the aggregate 183 days in any twelve month period commencing or
ending in the taxable year concerned;
b)
the remuneration is paid by, or on behalf of, an employer who is not a
resident of the other State; and
the remuneration is not borne by a permanent establishment which the
c)
employer has in the other State.
Notwithstanding the preceding provisions of this Article, remuneration described
3.
in paragraph I that is derived by a resident of a Contracting State in respect of an
employment as a member of the regular complement of a ship or aircraft operated in
international traffic shall be taxable only in that State.

27

Article 15

DIRECTORS' FEES

Directors' fees and other compensation derived by a resident of a Contracting
State for services rendered in the other Contracting State in his capacity as a member of
the board of directors of a company that is a resident of the other Contracting State may
be taxed in that other Contracting State.

29

Article 16
ENTERTAINERS AND SPORTSMEN

I.
Income derived by a resident of a Contracting State as an entertainer, such as a
theater, motion picture, radio, or television artiste, or a musician, or as a sportsman, from
his personal activities as such exercised in the other Contracting State, which income
would be exempt from tax in that other Contracting State under the provisions of Articles
7 (Business Profits) and 14 (Income from Employment) may be taxed in that other State,
except where the amount of the gross receipts derived by such entertainer or sportsman,
including expenses reimbursed to him or borne on his behalf, from such activities does
not exceed twenty thousand United States dollars ($20,000) or its equivalent in Euros for
the taxable year of the payment.
Where income in respect of activities exercised by an entertainer or a sportsman
2.
in his capacity as such accrues not to the entertainer or sportsman himself but to another
person, that income, notwithstanding the provisions of Article 7 (Business Profits) or 14
(Income from Employment), may be taxed in the Contracting State in which the activities
of the entertainer or sportsman are exercised unless the contract pursuant to which the
personal activities are performed allows that other person to designate the individual who
is to perform the personal activities.

30

Article 17
PENSIONS, SOCIAL SECURITY, ANNUITIES,
ALIMONY, AND CHILD SUPPORT
I.

a)
Pensions and other similar remuneration beneficially owned by a resident
of a Contracting State shall be taxable only in that State.
Notwithstanding subparagraph a), the amount of any such pension or
b)
remuneration arising in a Contracting State that, when received, would be exempt
from taxation in that State if the beneficial owner were a resident thereof shall be
exempt from taxation in the Contracting State of which the beneficial owner is a
resident.

2.
Notwithstanding the provisions of paragraph I, payments made by a Contracting
State under provisions of the social security or similar legislation of that State to a resident of the other Contracting State or to a citizen of the United States shall be taxable
only in the first-mentioned State.
Annuities derived and beneficially owned by an individual resident of a
3.
Contrac!ing State shall be taxable only in that State. The term "annuities" as used in this
paragraph means a stated sum paid periodically at stated times during a specified number
of years, or for life, under an obligation to make the payments in return for adequate and
full consideration (other than services rendered).
Alimony paid by a resident of a Contracting State to a resident of the other
4.
Contracting State shall be taxable only in that other State. The term "alimony" as used in
this paragraph means periodic payments made pursuant to a written separation agreement
or a decree of divorce, separate maintenance, or compulsory support, which payments are
taxable to the recipient under the laws of the State of which he is a resident.
Periodic payments, not dealt with in paragraph 4, for the support of a child made
5.
pursuant to a written separation agreement or a decree of divorce, separate maintenance,
or compulsory support, paid by a resident of a Contracting State to a resident of the other
Contracting State, shall be exempt from tax in both Contracting States.

31

Article 18

PENSION FUNDS
Where an individual who is a resident of one of the States is a member or
beneficiary of, or participant in, a pension fund that is a resident of the other State,
income eamed by the pension fund may be taxed as income of that individual only when,
and, subject to the provisions of paragraph I of Article 17 (Pensions, Social Security,
Annuities, Alimony, and Child Support), to the extent that, it is paid to, or for the benefit
of. that individual from the pension fund (and not transferred to another pension fund in
that other State).

32

Article 19
GOVERNMENT SERVICE
1.
Notwithstanding the provisions of Articles 14 (Income from Employment), 15
(Directors' Fees), 16 (Entertainers and Sportsmen) and 20 (Students and Trainees):

Salaries, wages and other remuneration, other than a pension, paid to an
a)
individual in respect of services rendered to a Contracting State or a political
subdivision or local authority thereof shall, subject to the provisions of
subparagraph b), be taxable only in that State;
such remuneration, however, shall be taxable only in the other Contracting
b)
State if the services are rendered in that State and the individual is·a resident of
that State who:
i)

is a national of that State; or

ii)
did not become a resident of that State solely for the purpose of
rendering the services.
2.
Notwithstanding the provisions of paragraph I of Article 17 (Pensions, Social
Security, Annuities, Alimony, and Child Support):
any pension and other similar remuneration paid by, or out of funds
a)
created by, a Contracting State or a political subdivision or a local authority
thereof to an individual in respect of services rendered to that State or subdivision
or authority (other than a payment to which paragraph 2 of Article 17 applies)
shalL subject to the provisions of subparagraph b), be taxable only in that State;
b)
such pension, however, shall be taxable only in the other Contracting State
if the indi vidual is a resident of, and a national of, that State.
3.
The provisions of Articles 14 (Income from Employment), 15 (Directors' Fees),
16 (Entertainers and Sportsmen) and 17 (Pensions, Social Security, Annuities, Alimony,
and Child Support) shall apply to salaries, wages and other remuneration, and to
pensions, in respect of services rendered in connection with a business carried on by a
Contracting State or a political subdivision or a local authority thereof.

33

Article 20
STUDENTS AND TRAINEES

I.
Payments, other than compensation for personal services, received by a student or
business trainee who is, or was immediately before visiting a Contracting State, a
resident of the other Contracting State, and who is present in the first-mentioned State for
the purpose of his full-time education or for his full-time training, shall not be taxed in
that State, provided that such payments arise outside that State, and are for the purpose of
his maintenance, education or training. The exemption from tax provided by this
paragraph shall apply to a business trainee only for a period of time not exceeding one
year from the date the business trainee first arrives in the first-mentioned Contracting
State for the purpose of training.
2.
A student or business trainee within the meaning of paragraph I shall be exempt
from tax by the Contracting State in which the individual is temporarily present with
respect to income from personal services in an aggregate amount equal to $9,000 or its
equivalent in Euros annually. The competent authorities shall, every five years, adjust the
amount provided in this subparagraph to the extent necessary to take into account
changes in the U.S. personal exemption and the standard deduction and in the Maltese
personal tax rates.
3.

For purposes of this Article, a business trainee is an individual:
who is temporarily in a Contracting State for the purpose of securing
a)
training required to qualify the individual to practice a profession or professional
specialty; or
b)
who is temporarily in a Contracting State as an employee of, or under
contract with, a resident of the other Contracting State, for the primary purpose of
acquiring technical, professional, or business experience from a person other than
that resident of the other Contracting State (or a person related to such resident of
the other Contracting State).

34

Article 21

OTHER INCOME

I.
items of income beneficially owned by a resident of a Contracting State, wherever
arising, not dealt with in the foregoing Articles of this Convention shall be taxable in that
State.
2.
The provisions of paragraph I shall not apply to income, other than income from
real (immovable) property as defined in paragraph 2 of Article 6 (Income from Real
(Immovable) Property), if the beneficial owner of the income, being a resident ofa Contracting State, carries on business in the other Contracting State through a permanent
establishment situated therein and the income is attributable to such permanent
establishment. In such case the provisions of Article 7 (Business Profits) shall apply.
Notwithstanding the provisions of paragraphs I and 2, items of income of a
3.
resident of one of the Contracting States not dealt with in the foregoing Articles of this
Convention from sources in the other Contracting State may also be taxed in the other
Contracting State, but the tax so charged shall not exceed 10 percent of the amount of
such items.

35

Article 22
LIMITATION ON BENEFITS

I.
Except as otherwise provided in this Article, a resident of one of the Contracting
States that derives income from the other Contracting State shall be entitled, in that other
Contracting State, to all the benefits of this Convention otherwise accorded to residents
of a Contracting State only if such resident is a "qualified person" as defined in
paragraph 2 of this Article and satisfies any other conditions specified in the Convention
for the obtaining of such benefits.
2.
A resident of one of the Contracting States is a qualified person for a taxable year
only if such resident is either:
a)

an individual;

b)

a Contracting State, political subdivision or local authority thereof;

c)

a company, if:
i)

A)
its principal class of shares (and any disproportionate class
of shares) is listed on a recognized stock exchange located in the
Contracting State of which the company is a resident;
B)
its principal class of shares (and any disproportionate class
of shares) is regularly traded on one or more recognized stock
exchanges located in the Contracting State of which the company
is a resident;
C)
its principal class of shares is primarily traded on one or
more recognized stock exchanges located in the Contracting State
of which the company is a resident; and
D)
the company satisfies the requirements of clause ii) of
subparagraph f) of this paragraph; or

ii)
A)
at least 75 percent of each such class of shares in the
company is owned directly or indirectly by companies entitled to
benefits under clause i), provided that in the case of indirect
ownership, each intermediate owner is a resident of the same

36

Contracting State entitled to benefits of the Convention under this
clause ii)~ and
B)
the company satisfies the requirements of clause ii) of
subparagraph f) of this paragraph;
d)
an entity described in subparagraph b) of paragraph 2 of Article 4
(Resident) that is generally exempt from income taxation in its Contracting State
of residence;
e)
a pension fund, provided that more than 75 percent of the beneficiaries,
members or participants of the pension fund are individuals who are residents of
either Contracting State; or
f)

a person other than an individual, if:
i)
on at least half the days of the taxable year at least 75 percent of
each class of shares or other beneficial interests in the person is owned,
directly or indirectly, by residents of that Contracting State that are
entitled to the benefits of this Convention under subparagraph a),
subparagraph b), clause i) of subparagraph c), subparagraph d), or
subparagraph e) of this paragraph, provided that, in the case of indirect
ownership, each intermediate owner is a qualified person that is a resident
of that Contracting State; and
ii)
less than 25 percent of the person's gross income for the taxable
year, as determined in the person's State of residence, is paid or accrued,
directly or indirectly, to persons who are not residents of either
Contracting State entitled to the benefits of this Convention under
subparagraph a), subparagraph b), clause i) of subparagraph c),
subparagraph d), or subparagraph e) of this paragraph (other than in the
form of arm's length payments in the ordinary course of business for
services or tangible property).

3.
Notwithstanding that a company that is a resident of a Contracting State may not
be a qualified person, it shall be entitled to all the benefits of this Convention otherwise
accorded to residents of a Contracting State with respect to an item of income if it
satisfies any other specified conditions for the obtaining of such benefits and:
a)
at least 95 percent of each class of shares of the company are owned,
directly or indirectly, by seven or fewer persons who are equivalent beneficiaries;
and

37

b)
less than 25 percent of the company's gross income for the taxable year in
which the item of income arises is paid or accrued, directly or indirectly, to
persons who are not equivalent beneficiaries (other than in the form of arm's
length payments in the ordinary course of business for services or tangible
property).

4.
a)
A resident of a Contracting State will be entitled to benefits of the
Convention with respect to an item of income derived from the other State,
regardless of whether the resident is a qualified person, if:
i)
the resident is engaged in the active conduct of a trade or business
in the first-mentioned State (other than the business of making or
managing investments for the resident's own account, unless these
activities are banking or insurance activities carried on by a bank or
insurance company), and the income derived from the other Contracting
State is derived in connection with, or is incidental to, that trade or
business; and
ii)
the resident satisfies the requirements of clause ii) of subparagraph
f) of paragraph 2.
b)
If a resident of a Contracting State derives an item of income from a trade
or business activity conducted by that resident in the other Contracting State, or
derives an item of income arising in the other Contracting State from a related
person, the conditions described in clause i) of subparagraph a) shall be
considered to be satisfied with respect to such item only if the trade or business
activity carried on by the resident in the first-mentioned Contracting State is
substantial in relation to the trade or business activity carried on by the resident or
such person in the other Contracting State. A trade or business will be deemed
substantial if, for each of the three preceding taxable years, the asset value, the
gross income, and the payroll expense that are related to the trade or business in
the first-mentioned Contracting State each equals at least 10 percent of the
resident's (and any related parties') proportionate share of the asset value, gross
income and payroll expense, respectively, related to the activity that generated the
income in the other Contracting State, and the average of the three ratios in each
such year exceeds 15 percent.
c)
For purposes of applying this paragraph, activities conducted by persons
connected to a person shall be deemed to be conducted by such person. A person

38

shall be connected to another if one possesses at least 50 percent of the beneficial
interest in the other (or, in the case ofa company, at least 50 percent of the
aggregate vote and value of the company's shares or of the beneficial equity
interest in the company) or another person possesses at least 50 percent of the
beneficial interest (or, in the case of a company, at least 50 percent of the
aggregate vote and value of the company's shares or of the beneficial equity
interest in the company) in each person. In any case, a person shall be considered
to be connected to another if, based on all the relevant facts and circumstances,
one has control of the other or both are under the control of the same person or
persons.
Notwithstanding the preceding provisions of this Article, where an enterprise of a
5.
Contracting State derives income from the other Contracting State, and that income is
attributable to a permanent establishment which that enterprise has in a third jurisdiction,
the tax benefits that would otherwise apply under the other provisions of the Convention
will not apply to that income if the combined tax that is actually paid with respect to such
income in the first-mentioned Contracting State and in the third jurisdiction is less than
60 percent of the tax that would have been payable in the first-mentioned State if the
income were eamed in that Contracting State by the enterprise and were not attributable
to the permanent establishment in the third jurisdiction. Any dividends, interest or
royalties to which the provisions of this paragraph apply shall be subject to tax at a rate
that shall not exceed 15 percent of the gross amount thereof. Any other income to which
the provisions of this paragraph apply will be subject to tax under the provisions of the
domestic law of the other Contracting State, notwithstanding any other provision of the
Convention.
6.
A person that is a resident of one of the Contracting States, who is not entitled to
some or all of the benefits of this Convention because of the foregoing paragraphs, may,
nevertheless, be granted benefits of this Convention if the competent authority of the
Contracting State in which the income in question arises so determines.
7.
Where under any provision of this Convention income or gains arising in one of
the Contracting States are relieved from tax in that Contracting State and, under the law
in force in the other Contracting State, a person, in respect of the said income or gains, is
subject to tax by reference to the amount thereof which is remitted to or received in that
other Contracting State and not by reference to the full amount thereof, then the relief to
be allowed under this Convention in the first-mentioned Contracting State shall apply
only to so much of the income or gains as is taxed in the other Contracting State.
8.

For the purposes of this Article:
a)

the term "recognized stock exchange" means:

39

i)
the NASDAQ System and any stock exchange registered with the
U.S. Securities and Exchange Commission as a national securities
exchange under the U.S. Securities Exchange Act of 1934;
ii)

the Malta Stock Exchange; and

iii)
any other stock exchange agreed upon by the competent authorities
of the Contracting States;
b)
the teml "principal class of shares" means the ordinary or common shares
of the company, provided that such class of shares represents the majority of the
voting power and value of the company. Ifno single class of ordinary or common
shares represents the majority of the aggregate voting power and value of the
company, the "principal class of shares" are those classes that in the aggregate
represent a majority of the aggregate voting power and value of the company;
c)
the term "disproportionate class of shares" means any class of shares of a
company resident in one of the Contracting States that entitles the shareholder to
disproportionately higher participation, through dividends, redemption payments
or otherwise, in the eamings generated in the other State by particular assets or
activities of the company;
d)
For purposes of this paragraph an equivalent beneficiary is a resident of a
member state of the European Union or of a European Economic Area state or of
Australia or of a party to the North American Free Trade Agreement but only if
that resident:
i)

A)
would be entitled to all the benefits of a comprehensive
convention for the avoidance of double taxation between any
member state of the European Union or a European Economic
Area state or any party to the North American Free Trade
Agreement or Australia and the State from which the benefits of
this Convention are claimed under provisions analogous to
subparagraph a), subparagraph b), clause i) of subparagraph c),
subparagraph d), or subparagraph e) of paragraph 2 of this Article,
provided that if such convention does not contain a comprehensive
limitation on benefits article, the person would be a qualified
person under subparagraph a), subparagraph b), clause i) of
subparagraph c), subparagraph d), or subparagraph e) of paragraph
2 of this Article if such person were a resident of one of the States
under Article 4 (Resident) of this Convention; and

40

B)
with respect to income referred to in Articles 10
(Dividends), II (Interest) or 12 (Royalties) of this Convention,
would be entitled under such convention to a rate of tax with
respect to the particular class of income for which benefits are
being claimed under this Convention that is at least as low as the
rate applicable under this Convention; or
ii)
is a resident of a Contracting State that is a qualified person by
reason of subparagraph a), subparagraph b), clause i) of subparagraph c),
subparagraph d), or subparagraph e) of paragraph 2 of this Article;
e)
With respect to dividends, interest or royalties arising in Malta and
beneficially owned by a company that is a resident of the United States, a
company that is a resident of a member state of the European Union will be
treated as satisfying the requirements of clause i) B) of subparagraph d) for
purposes of determining whether such United States resident is entitled to benefits
under this paragraph if a payment of dividends, interest or royalties arising in
Malta and paid directly to such resident of a member state of the European Union
would have been exempt from tax pursuant to any directive of the European
Union, notwithstanding that the income tax convention between Malta and that
other member state of the European Union would provide for a higher rate of tax
with respect to such payment than the rate of tax applicable to such United States
company under Article 10 (Dividends), 11 (interest), or 12 (Royalties) of this
Convention.

41

Article 23
RELIEF FROM DOUBLE TAXATION

I.
In accordance with the provisions and subject to the limitations of the law of the
United States (as it may be amended from time to time without changing the general
principle hereof), the United States shall allow to a resident or citizen of the United
States as a credit against the United States tax on income applicable to residents and
citizens:
a)
the income tax paid or accrued to Malta by or on behalf of such resident or
citizen; and
b)
in the case of a United States company owning at least 10 percent of the
voting stock of a company that is a resident of Malta and from which the United
States company receives dividends, the income tax paid or accrued to Malta by or
on behalfofthe payer with respect to the profits out of which the dividends are
paid.
For the purposes of this paragraph, the taxes referred to in paragraphs 3 a) and 4 of
Article 2 (Taxes Covered) shall be considered income taxes.
In accordance with and subject to the provisions of the law of Malta regarding the
2.
allowance of a credit against Malta tax in respect of foreign tax:

a)
where, in accordance with the provisions of this Convention, there is
included in a Malta assessment income from sources within the United States, the
United States tax on such income shall be allowed as a credit against the relative
Malta tax payable thereon; and
where a Maltese company owns at least 10 percent of the voting stock of a
b)
company that is a resident of the United States and from which the Maltese
company receives dividends that are included in a Malta assessment in
accordance with the provisions of this Convention, the income tax paid or accrued
to the United States by or on behalf of the payer with respect to the profits out of
which the dividends are paid shall, if those profits are included in a Malta
assessment, be allowed as a credit against the relative Malta tax payable thereon.
3.
For the purposes of applying paragraph I of this Article, an item of gross income,
as determined under the laws of the United States, derived by a resident of the United
States that, under this Convention, may be taxed in Malta shall be deemed to be income

42

from sources in Malta.
4.

Where a United States citizen is a resident of Malta:
a)
with respect to items of income that under the provisions of this
Convention are exempt from United States tax or that are subject to a reduced rate
of United States tax when derived by a resident of Malta who is not a United
States citizen, Malta shall allow as a credit against Malta tax, only the tax paid, if
any, that the United States may impose under the provisions of this Convention,
other than taxes that may be imposed solely by reason of citizenship under the
saving clause of paragraph 4 of Article 1 (General Scope);
b)
for purposes of applying paragraph 1 to compute United States tax on
those items of income referred to in subparagraph a), the United States shall allow
as a credit against United States tax the income tax paid to Malta after the credit
referred to in subparagraph a); the credit so allowed shall not reduce the portion
of the United States tax that is creditable against the Malta tax in accordance with
subparagraph a); and
c)
for the exclusive purpose of relieving double taxation in the United States
under subparagraph b), items of income referred to in subparagraph a) shall be
deemed to arise in Malta to the extent necessary to avoid double taxation of such
income under subparagraph b).

43

Article 24

NON-DISCRIMINATION
I.
Nationals of a Contracting State shall not be subjected in the other Contracting
State to any taxation or any requirement connected therewith that is more burdensome
than the taxation and connected requirements to which nationals of that other State in the
same circumstances, in particular with respect to residence, are or may be subjected.
This provision shall also apply to persons who are not residents of one or both of the
Contracting States. However, for the purposes of United States taxation, United States
nationals who are subject to tax on a worldwide basis are not in the same circumstances
as nationals of Malta who are not residents of the United States.
2.
The taxation on a permanent establishment that an enterprise of a Contracting
State has in the other Contracting State shall not be less favorably levied in that other
State than the taxation levied on enterprises of that other State carrying on the same
activities.
The provisions of paragraphs I and 2 shall not be construed as obliging a Con3.
tracting State to grant to residents of the other Contracting State any personal allowances,
reliefs, and reductions for taxation purposes on account of civil status or family responsibilities that it grants to its own residents.
4.
Except where the provisions of paragraph I of Article 9 (Associated Enterprises),
paragraph 7 of Article II (Interest), or paragraph 6 of Article 12 (Royalties) apply,
interest, royalties, and other disbursements paid by a resident of a Contracting State to a
resident of the other Contracting State shall, for the purpose of determining the taxable
profits of the first-mentioned resident, be deductible under the same conditions as if they
had been paid to a resident of the first-mentioned State. Similarly, any debts of a resident
of a Contracting State to a resident of the other Contracting State shall, for the purpose of
determining the taxable capital of the first-mentioned resident, be deductible under the
same conditions as if they had been contracted to a resident of the first-mentioned State.
5.
Enterprises of a Contracting State, the capital of which is wholly or partly owned
or controlled, directly or indirectly, by one or more residents of the other Contracting
State, shall not be subjected in the first-mentioned State to any taxation or any
requirement connected therewith that is more burdensome than the taxation and
connected requirements to which other similar enterprises of the first-mentioned State are
or may be subjected.

44

6.
Nothing in this Article shall be construed as preventing either Contracting State
from imposing a tax as described in paragraph 8 of Article 10 (Dividends).
7.
The provisions of this Article shall, notwithstanding the provisions of Article 2
(Taxes Covered), apply to taxes of every kind and description imposed by a Contracting
State or a political subdivision or local authority thereof.

45

Article 25

MUTUAL AGREEMENT PROCEDURE
I.
Where a person considers that the actions of one or both of the Contracting States
result or will result for such person in taxation not in accordance with the provisions of
this Convention, it may, irrespective of the remedies provided by the domestic law of
those States, and the time limits prescribed in such laws for presenting claims for refund,
present its case to the competent authority of either Contracting State.
2.
The competent authority shall endeavor, if the objection appears to it to be
justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case
by mutual agreement with the competent authority of the other Contracting State, with a
view to the avoidance of taxation which is not in accordance with the Convention. Any
agreement reached shall be implemented notwithstanding any time limits or other
procedural limitations in the domestic law of the Contracting States. Assessment and
collection procedures shall be suspended during the period that any mutual agreement
proceeding is pending.
The competent authorities of the Contracting States shall endeavor to resolve by
3.
mutual agreement any di fficulties or doubts arising as to the interpretation or application
of the Convention. They also may consult together for the elimination of double taxation
in cases not provided for in the Convention. In particular the competent authorities of the
Contracting States may agree:
a)
to the same attribution of income, deductions, credits, or allowances of an
enterprise of a Contracting State to its permanent establishment situated in the
other Contracting State;
b)
to the same allocation of income, deductions, credits, or allowances
between persons;
c)
to the settlement of conflicting application of the Convention, including
conflicts regarding:
i)

the characterization of particular items of income;

ii)

the characterization of persons;

iii)

the application of source rules with respect to particular items of

income;

46

d)

iv)

thc mcaning of any term used in the Convention;

v)

the timing of particular items of income;

to advance pricing arrangements; and

e)
to the application of the provisions of domestic law regarding penalties,
fines, and interest in a manner consistent with the purposes of the Convention.
The competent authorities also may agree to increases in any specific dollar
4.
amounts referred to in the Convention to reflect economic or monetary developments.
The competent authorities of the Contracting States may communicate with each
5.
other directly, including through a joint commission, for the purpose of reaching an
agreement in the sense of the preceding paragraphs.

47

Article 26
EXCHANGE OF INFORMATION AND ADMINISTRATIVE ASSISTANCE

I.
The competent authorities of the Contracting States shall exchange such
information as may be relevant for carrying out the provisions of this Convention or of
the domestic laws of the Contracting States concerning taxes of every kind imposed by a
Contracting State to the extent that the taxation thereunder is not contrary to the Convention, including information relating to the assessment or collection of. the enforcement or
prosecution in respect of. or the deternlination of appeals in relation to, such taxes. The
exchange of information is not restricted by paragraph I of Article I (General Scope) or
Article 2 (Taxes Covered).
Any infonnation received under this Article by a Contracting State shall be
2.
treated as secret in the same manner as infonnation obtained under the domestic laws of
that State and shall be disclosed only to persons or authorities (including courts and
administrative bodies) involved in the assessment, collection, or administration of, the
enforcement or prosecution in respect of, or the determination of appeals in relation to,
the taxes referred to above, or the oversight of such functions. Such persons or
authorities shall use the information only for such purposes. They may disclose the
information in public court proceedings or in judicial decisions. The competent authority
of the Contracting State that receives information under the provisions of this Article
may, with the written consent of the Contracting State that provided the information, also
make available that infonnation to be used for other purposes allowed under the
provisions of an existing mutual legal assistance treaty between the Contracting States
that allows for the exchange of tax infonnation.
3.
In no case shall the provisions of the preceding paragraphs be construed so as to
impose on a Contracting State the obligation:
a)
to carry out administrative measures at variance with the laws and
administrative practice of that or of the other Contracting State;
b)
to supply information that is not obtainable under the laws or in the
normal course of the administration of that or of the other Contracting State;
c)
to supply information that would disclose any trade, business, industrial,
commercial, or professional secret or trade process, or infomlation the disclosure
of which would be contrary to public policy (ordre public).
If infomlation is requested by a Contracting State in accordance with this Article,
4.
the other Contracting State shall use its infomlation gathering measures to obtain the

4X

requested information, even though that other State may not need such information for its
own purposes. The obligation contained in the preceding sentence is subject to the
limitations of paragraph 3 but in no case shall such limitation be construed to permit a
Contracting State to decline to supply information because it has no domestic interest in
such information.
5.
In no case shall the provisions of paragraph 3 be construed to permit a
Contracting State to decline to supply information requested by the other Contracting
State because the infomlation is held by a bank, other financial institution, nominee or
person acting in an agency or a fiduciary capacity or because it relates to ownership
interests in a person.
6.
If speci fically requested by the competent authority of a Contracting State, the
competent authority of the other Contracting State shall provide information under this
Article in the form of depositions of witnesses and authenticated copies of unedited
original documents (including books, papers, statements, records, accounts, and
writings).
7.
The requested State shall allow representatives of the requesting State to enter the
requested State to interview individuals and examine books and records with the consent
of the persons subject to examination.
The competent authorities of the Contracting States may develop an agreement
8.
upon the mode of application of this Article, including agreement to ensure comparable
levels of assistance to each of the Contracting States, but in no case will the lack of such
agreement relieve a Contracting State of its obligations under this Article.

49

Article 27
MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS

Nothing in this Convention shall affect the fiscal privileges of members of
diplomatic missions or consular posts under the general rules of international law or
under the provisions of special agreements.

50

Article 28
ENTRY INTO FORCE

I.
This Convention shall be subject to ratification in accordance with the applicable
procedures of each Contracting State, and instruments of ratification will be exchanged
as soon thereafter as possible.
')
This Convention shall enter into force on the date of the exchange of instruments
of ratification, and its provisions shall have effect:
a)
in respect of taxes withheld at source, for amounts paid or credited on or
after the first day of the second month next following the date on which the
Convention enters into force;
b)
in respect of other taxes, for taxable periods beginning on or after the first
day of January next following the date on which the Convention enters into force.
Notwithstanding paragraph 2, the provisions of Article 26 (Exchange of
3.
Information and Administrative Assistance) shall have effect from the date of entry into
force of this Convention, without regard to the taxable period to which the matter relates.

51

Article 29

TERMINATION
This Convention shall remain in force until terJllinated by a Contracting State. Either
Contracting State Jllay terminate the Convention by giving notice of termination to the
other Contracting State through diplomatic channels. In such event, the Convention shall
cease to have effect:
I)
in respect of taxes withheld at source, for amounts paid or credited after
the expiration of the 6 month period beginning on the date on which notice of
termination was given: and
2)
in respect of other taxes, for taxable periods beginning on or after the
expiration of the 6 month period beginning on the date on which notice of
termination was given.

IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by
their respective Governments, have signed this Convention.
th

DONE at Valletta, in duplicate, this 8 day of August, 2008.

FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA:

FOR THE GOVERNMENT OF
MALTA:

MOLL Y BORDONARO

TONIO FENECH

Page I of 4

August 11, 2008
2008-8-11-11-21-9-5512

U,S, International Reserve Position

The Treasury Department today released U,S, reserve assets data for the latest week, As indicated in this table, U,S,
reserve assets totaled $75,185 million as of the end of that week, compared to $75,704 million as of the end of the
prior week,
I Official reserve assets and other foreign currency assets (approximate market value, In US millions)

I
I

II
IIJuly 25, 2008

A Official reserve assets (in US millions unless otherwise specified) 1

IIEuro

Ilyen

IITotal

1(1) Foreign currency reserves (In convertible foreign currencies)

II

II

11 75 ,185

I(a) Securities

1110.088

11 11 ,886

1121,974

lof which Issuer Ileadquartered In reportlllg country but located abroad

II

II

110

I(b) total currency alld deposits Wltll

II
114,198

II

II

11 5 ,848

11 2 0,046

Iii) banks headquartered In the reporting country

II

110

lof which located abroad

II

110

1(lil) banks headquartered outside the reporting country

II

110

lof which located In the reporting country

II

110

1(1) other Ilational central banks, BIS and IMF

1(2) IMF reserve position 2

11 5 ,139

1(3) SDRs 2

11 9 ,825

(4) gold (Including gold deposits and, if appropriate, gold swapped) 3

11 11 ,041

--volume In millions of fine troy ounces

J1261.499

1(5) other reserve assets (specify)

11 7 ,160

I--financial derivatives

II

I--Ioans to nonbank nonresidents

II

--other (foreign currency assets Invested through reverse repurchase
Ilagreements)

J17,160

lB. Other foreign currency assets (specify)

I,
II

--securities not Included In official reserve assets
--depOSits not included In official reserve assets
--loans not included In official reserve assets

JI

--financial derrvatlves not Included III offiCial reserve assets
--gold not Included In offiCial reserve assets
I --other

I
I

1
II

II

I

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

tp:llwww.treas.go v/press/re1eases/2008811112195512.htm

9/15/2008

Page 2 of4

II

I

II
II

I

II

I
1 Forelgll currency loalls, SeCLlritles, alld deposits

II

I--outflows (-)

IIPllrlclpal

I
I--Inflows (+)

IIlnterest

II

IlprlllCipal

I

IIlllterest

II
II

2 Aggregate Sllort and 10llg posltiollS In forwards and
futures III foreign currellcles Vis-a-VIS tile domestic
CUITellCY (Irlcludillq tile forward leq of currency swaps)

I

-62,000

3. Other (specify)
--outflows related to repos (-)
--inflows related to reverse repos (+)
--trade credit (-)
--trade credit (+)
--other accounts payable (-)
--other accounts receivable (+)

011

I
I

More thall 3
months ane! up to
1 year

II
II
II
II
II

I

I

(b) Long positions (+)

III. Contingent short-term net drains

II
More than 1 aile!
up to 3 months

I Up to 1 mootl'

Total

(a) ShOl1 [20SltIOIlS ( _ ) 4

II

IIMaturlty breakdown (residual matunty)

I

I

II

11- 62 ,000

II

II
II
II
II
II
II

II
II
II
II
II
II

II

II

II

II

foreign currellcy assets (nominal value)

I

II

II

II

I MatUrity breakdown

I

I

applicable)

II

Up to 1 month

Total

I

II
(reSidual maturity, where

More than 1 and
up to 3 months

More than 3
months and up to
1 year

11 Contingent liabilities In foreign currency
(a) Collateral guarantees on debt failing due within 1
year

I

I(b) Other contingent liabilities
2. Foreign currency secuntles issued with embedded
options (putlable bonds)

I

I
I

13 Undrawn, unconditional credit lilles prOVided by:
(a) other national monetary authorities, BIS, IMF, and
other International organizations

I

I

I--other national monetary authorities (+)

II

I--BIS (+)

II

I--IMF (+)

II

(b) with banks and other finanCial Institutions
headquartered In the reporting country (+)
(c) with banks and other fillancial Institutions
headquartered outSide the reporting country (+)

I
I

II

Undrawn, unconditional credit lines proVided to

I

II

I

II

I

I

II

I

II(a) other national monetary authorities, BIS, IMF, alld
other international orgallizations
--other Ilatlonal monetary authOrities (-)

tp:llwww.treas.gov/press/releases/2008811112195512.htm

II

911512008

Page 3 of 4
I--BIS (-)
I--IMF (-)

II~b) banks and otiler financial Institutions ileadquanered
In reporting country (- )

II~C) banks and other financlallrlstltutlons headquartered
outside tile reporting country ( - )

II~ Aggregate shol1 and long positions of options In

II

II

II

II

II

II

II

II

11

1/

1

foreign currencies Vis-a-VIS tile domestic currency

11

I(a) Short positions

II
II

1(1) Bought puts

I
1

I

II

II

II
II

I(il) Written calls

II
II

I(b) Long positions

II

II

1(1) Bought calls
I(il) Written puts

II

IpRO MEMORIA In-the-moneyoptlons I ,

II

II

1(1) At current exchange rate
I(a) Short position

II

I(b) Long position

II

1(2) + 5 % (depreCiation of 5%)
I(a) Short position

II

II

II

II

I(b) Long position

I

II

II

1(3) - 5 % (appreciation of 5%)

II

II

II

I(a) Short position

II

I(b) Long position

I

1(4) +10

I

II

II

I

% (depreciation of 10%)

I(a) Shon position
I(b) Long position
1(5) - 10 % (appreciation of 10%)

I
II
II

I(a) Short position
I(b) Long position

1(6) Other

(specify)

I(a) Short position
I(b) Long position

I
II

II
II

II

I

\I

I

\I

I
I
I
I

IV. Memo items

1

II

1(1) To be reported with standard periodicity and timeliness

II

(a) short-term domestic currency debt Indexed to the exchange rate

I

II(b) finanClallrlstruments denominated In foreign currency and settled by other means (e.g., in domestic
currency)

I

I--nondeliverable forwards

1
1

--short positions
--long positions

I

I--other instruments
I(C) pledged assets

I

I--Included In reserve assets

I

I

It-Included in other foreign currency assets

II

I

I(d) securilies lent and on repo

ttp:llwww.treas.gov/press/re1eases/2008811112195512.htm

\17,307

I

9/15/2008

Page 4 of4
II--Ient or repoed and included In Section I

II

II--Ient or repoed but not Included in Section I

II

--bon'owed or acquired and IIlcluded In Sectloll I

II
11 7 ,307

--borrowed or acquired but not Included In Section I
(e) financial derivative assets (net, marked to market)

JI

I--forwards

II
II
II
II
II

I--futures
I--swaps
1--oPtlons
1--oli18r

1I(f) delwatlves (forward, futures, or options contracts) lilat have a residual matunty greater than one year,
Ilwhlch are subject to marglll calls.
--aggregate sl1011 and long positions in forwards and futures In foreign currencies Vis-a-VIS the domestic
currency (lilcludlllg the forward leg of currency swaps)

I
II
II
II

I(a) short POSitions ( - )
I(b) long POSitions (+)
II--aggregate short and long positions of options In foreign currencies vis-a-VIs the domestic currency

II

I(a) short POSitions

I

1

I(i) bought puts
1(11) written calls
I(b) long positions
I(i) bought calls
1(11) wntten puts

1(2) To be disclosed less frequently
I(a) currency compOSition of reserves (by groups of currencies)

11 75 ,185

I--currencies In SDR basket

11 75 ,185

I--currencles not In SDR basket

II

I--by individual currencies (optional)

II
II

I

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
4/ The short POSitions reflect foreign exchange acqUired under reciprocal currency arrangements with certain foreign central banks.
The foreign exchange acqUired IS not Included In Section I, "offiCial reserve assets and other foreign currency assets," of the template
for reporting International reserves However, it is Included In the broader balance of payments presentation as "U,S. Government
assets, other than offiCial reserve assets/U.S. foreign currency holdings and U.S short-term assets."

Ittp:llwww.treas.gov/press/releases/2008811112195512.htm

9/1512008

-lP-1112: Statement by Deputy Secretary Robert M. Kimmitt <BR>on Support for Georgia's Economy

Page 1 of 1

August 11, 2008
HP-1112
Statement by Deputy Secretary Robert M. Kimmitt
on Support for Georgia's Economy
Washington- Deputy Secretary of the Treasury Robert M. Kimmitt today issued a
statement welcoming the statements of support for Georgia's economy by the
International Monetary Fund (IMF), World Bank, and the European Bank for
Reconstruction and Development (EBRD), as well as their signals of continued
engagement with the Government and their clients and banks in the private sector:
"The U.S. Treasury Department welcomes the statements of support for Georgia's
economy made earlier today by the IMF, World Bank, and EBRD."
"Given its sound macroeconomic and fiscal policies and excellent progress in
transition to a market economy, Georgia is well placed to weather the current crisis.
Georgia's economy has been one of the strongest in the region owing to its proven
record of reforms, and this reform effort deserves continued international support.
The United States has strongly supported Georgia's reform and economic
development programs and is prepared to join other countries to support the
International Financial Institutions' future engagement to promote a vibrant
economy that builds on the existing foundations," said Kimmitt.
-30-

ttp:!lwww.treas.goY/press/releases/hpll12.htm

9115/2008

lP-1113: Treasury

Dcsignak~

Iranian Nuclear and Missile Entities

Page I of2

August 12,2008
HP-1113
Treasury Designates Iranian Nuclear and Missile Entities
Washington, DC--The U.S. Department of the Treasury today designated five
entities for their ties to Iran's nuclear and missile programs. All five designees are
owned or controlled by, or acting or purporting to act for or on behalf of, entities that
have been designated by the United States or the United Nations Security Council.
The entities designated today are the Nuclear Research Center for Agriculture and
Medicine (a/k/a Karaj Nuclear Research Center), the Esfahan Nuclear Fuel
Research and Production Center (NFRPC), Jabber Ibn Hayan, Safety Equipment
Procurement Company (SEP Co.) and Joza Industrial Company.
"Responsible financial institutions and businesses worldwide are taking steps to
avoid doing business with Iranian nuclear and missile entities, as well as with the
front companies and cut-outs the Iranian regime uses to disguise its activities," said
Stuart Levey, Under Secretary for Terrorism and Financial Intelligence. "These five
nuclear and missile entities have been used by Iran to hide its illicit conduct and
further its dangerous nuclear ambitions."
This action was taken pursuant to Executive Order 13382, which is aimed at
freezing the assets of proliferators of weapons of mass destruction and their
supporters, and at isolating them from the U.S. financial and commercial systems.
Designations under E.O. 13382 are implemented by Treasury's Office of Foreign
Assets Control, and they prohibit all transactions between the designees and any
U.S. person, and freeze any assets the designees may have under U.S. jurisdiction.
The Nuclear Research Center for Agriculture and Medicine, the NFRPC, and
Jabber Ibn Hayan have been designated pursuant to E.O. 13382 because they are
owned or controlled by, or acting or purporting to act for or on behalf of the Atomic
Energy Organization of Iran (AEOI).
President George W. Bush in June 2005 identified the AEOI in the Annex to E.O.
13382. The AEOI, which directly reports to the Iranian President, is the main Iranian
organization for research and development activities in the field of nuclear
technology, including Iran's centrifuge enrichment program, and manages Iran's
overall nuclear program. The AEOI was designated by the United Nations in the
Annex to UN Security Council Resolution 1737 for its role in Iran's nuclear program.

The Nuclear Research Center for Agriculture and Medicine at Karaj is a large AEOI
research component. The NFRPC is AEOI's center for the development of nuclear
fuel, involved in enrichment-related activities. The NFRPC's uranium conversion
facility, in operation since 2005, can produce most of the uranium compounds
needed for fuel cycle activities. Uranium conversion is an essential step for the
creation of nuclear fuel. Jabber Ibn Hayan, also part of AEOI, is involved in the field
of research and development in the nuclear cycle, in addition to providing a wide
range of laboratory services for the AEOI nuclear production division.
President Bush also identified Iran's Aerospace Industries Organization (AIO) and
the Shahid Hemmat Industrial Group (SHIG) in the Annex to E.O. 13382. AIO is the
overall manager of Iran's missile program and oversees all of Iran's missile
industries. SHIG is responsible for Iran's ballistic missile programs, most notably
the Shahab series of medium-range ballistic missiles. AIO and its subordinate
elements, such as SHIG, often use front companies to access foreign technology
and raw materials for the development of Iran's missile program.
SEP Co. has been designated today for acting, or purporting to act for, or on behalf

ttp://www.treas.gov/press/releases/hpll13.htm

9115/2008

IP-1113: 1rensury Dcsignah::s Iraman Nuclear and Missile Entities

Page 2 of2

of AIO. AIO has been using SEP Co. to procure on its behalf since at least 2003.
Joza Industrial Company has also been designated today for acting or purporting to
act for, or on behalf of, directly or indirectly, SHIG. In an effort to evade sanctions
and obscure its procurement efforts, SHIG utilizes a series of front companies,
including the Joza Industrial Company, to purchase goods and materials.
All five of the entities designated today have also been previously designated by the
United Nations. The Nuclear Research Center for Agriculture and Medicine and the
NFRPC were both designated by the United Nations in the Annex to Resolution
1747 for their involvement in Iran's nuclear activities. Jabber Ibn Hayan, Joza
Industrial Company, and SEP Co. were designated by the United Nations in Annex
"I to Resolution 1803.
-30-

)://www.treas.gov/press/releases/hpII13.htm

9/15/2008

IP-1114: Statement by Deputy Secretary Robert M. Kimmitt <br>on Telephone Conversation with <br> ... Page I of 1

August 14, 2008
HP-1114
Statement by Deputy Secretary Robert M. Kimmitt
on Telephone Conversation with
Georgian Prime Minister Gurgenidze
Washington - Deputy Secretary of the Treasury Robert M. Kimmitt issued the
following statement on his telephone conversation with Georgian Prime Minister
Lado Gurgenidze:
"Earlier today, I telephoned Prime Minister Gurgenidze to express the United
States' continuing support for the democratically-elected government of Georgia
and to reiterate our willingness to join other countries to support deeper
engagement by the International Financial Institutions to assist Georgia's economy.
Prime Minister Gurgenidze updated me on Georgia's economy and I noted that the
Treasury Department continues to believe Georgia's sound macroeconomic and
fiscal policies - as well as its excellent progress transitioning to a market economy
- make it well-placed to weather the current crisis."

ttp:llwww.treas.gov/press/releases/hpI114.ht01

9/15/2008

IP-1115: Treasury Intemaliullal Capital (TIC) Data for June

Page 1 of 3

FROM THE OFFICE OF PUBLIC AFFAIRS
We

Tl'

It'C,)f))l!Jt~lI!1 pl/II1/IIU tlliS Ie/I>dse (10;111[1 tlJf: PDF Ilif' /It!I()W
view ell pl/Ilt tile PDF ,'(1lltf'llt Oil this p, l(W (/OWII/()dri tlw IIf>!, Adobe@ Acrobat@ Reader®.

August 15, 2008
HP-1115

Treasury International Capital (TIC) Data for June
Treasury International Capital (TIC) data for June 2008 are released today and posted on tile US Treasury web site (www.treas.gov/ti(
Wl11ch will report on data for July, IS scl1eduled for September 16. 2008.
Net foreign purchases of 1011g-terl11 securities were $534 billion .
•

Net foreign purchases of 10ng-terl11 US seCUrities were $62.7 billion Of thiS, net purchases by private foreign investors were $i
pUI'chases by foreign official Institutions were $149 billion.

•

U.S reSidents purchased a net $9.2 billion of 10ng-terl11 foreign securities.

Net foreign acquISition of long-terlll SeCUrities, taking into account adjustments, IS estimated to have been $36.6 billion.
Foreign holdings of dollar-denominated short-term US SeCLJrltles, Includlllg Treasury bills, and other custody liabilities decreased $22
of Treasury bills increased $69 billion.
Banks' own net dollar-denominated liabilities to foreign reSidents Increased $16.7 billion
Monthly net TIC flows were positive $51 1 1)llllon Of thiS, Ilet foreign private flows were $380 billion, and net foreign offiCial flows were

-30-

TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars, not seasonally adjusted)
2006

2007

12 Months Through
June-07 June-08

Mar-08

Apr-I

Foreigners' Acquisitions of Long-term Securities
1
2
3

Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line 1 less line 2) II

21077.1 29730.6
19933.9 28714.7
1143.2 1015.9

24388.2
23097.3
1290.9

33150.2
32330.4
819.9

3066.5
2989.3
77.2

2584
247~

1O~

4
5
6
7
8

Private, net /2
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net

946.6
125.9
193.8
482.2
144.6

828.2
197.9
107.0
342.8
180.4

1054.4
168.3
160.6
520.5
205.0

561.6
232.7
128.0
151.2
49.8

28.7
23.8
2.8
-8.8
11.0

64
54
4
1/
-12

9
10
II
12
13

Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net

196.6
69.6
92.6
28.6
5.8

187.7
3.0
119.1
50.6
15.1

236.5
69.3
133.5
35.2
- 1.4

258.3
73.3
88.6
62.3
34.2

48.4
28.0
15.9
4.1
0.4

41
22
11

tp:llwww.treas.gov/press/releases/hpl115.htm

I
(

9/15/2008

IP-1115: Treusury Il'Itel'ndliuIlal Capital (TIC) Data for June
Gross Purchases of Foreign Securities from U.S. Resl(knts
Gross Sales of Foreign Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less IIlle 15) /4

14
15
16
17

Foreign Bonds Purchased. net
Foreign Equities Purchased. net

I~

19

Net Long-Term Securities Transactions (line 3 plus line

20

Other Acquisitions of Long-term Securities, net /5

21

11

;'\let Foreign Acquisition of Long-Term Securities
(lines 19 and 20):

Page 2 of 3
5515.<)
57()6./\

/\ I /\7.6
/\41 I.Sl

666<) .0

-250.9

-224.3

-144.5
-106.5

6Sl~

6Sl55.3

/\544.3
/\6/\53

752.5
752.6

6g~

-286.3

-141.0

0.0

H

-12Sl.0
-Sl5.3

-171.4
-114.9

-663
-74.7

2.Sl
-2.9

I(

892.3

791.6

1004.6

678.9

77.1

1)(j

-174.6

-235.1

-206.9

-232.6

-20.1

-12

717.7

556.5

797.7

446.3

57.0

103

146.2
-9.0

197.6
48.8

58.3
-23.7

258.2
148.5

7.8
27.9

-14

16.1
-25.0

29.3
19.5

0.2
-23.9

83.6
64.8

30.9
-3.0

-Ie

155.1

148.8

82.1

109.7

-20.1

-Ii

174.9
-19.8

72.7
76.1

100.3
-18.2

63.4
46.3

-12.8
-7.3

-13

198.0

-133.8

16.0

-383.8

-I17.7

-24

1061.8

620.4

872.1

320.7

-52.9

6~

923.0
138.9

333.6
286.8

665.6
206.5

25.1
295.6

-62.6
9.7

3E
2<;

-c

Increase in Foreign Holdings of Dollar-denominated Short-

27
28

U.S. Securities and Other Custody Liabilities: 16
U.S. Treasury Bills
Private. net
Official. net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private. net
Official. net

29

Change in Banks' Own Net Dollar-Denominated Liabilities

23
24
25
26

30 Monthly Net TIC Flows (lines 21.22.29) /8
of which
31
Private. net
32
Official. net

/I
/2
/3

3
13

-4

Net foreign purchases of U.S. securities (+)
Includes intemational and regional organizations
The reported diviSion of net purchases of long-term securities between net purchases by foreign official institutions and r
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and I O.a.4 on tl
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign se
Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United State,
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securitie
estimated foreign acquisitions of U.S. equity through stock swaps estimated U.S. acquisitions of foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign C
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims an
quarterly and published in the Treasury Bulletin and the TIC web site.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or bro~
TIC data cover most components of intemational financial flows. but do not include data on direct investment flows, whi
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data surr
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on t
site describes the scope of TIC data collection.

14

/5

/6

n
/8

REPORTS

•

(PDF) TIC Monthly Reports on Cross-Border Financial Flows (Billions of dollars, not seasonally adjusted)

tp:llwww.treas.gov/press/releases/hpllI5.htm

9115/2008

·,

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
August 15, 2008
EMBARGOED UNTIL 9:00 AM

Contact: Rob Saliterman
(202) 622-2960

TREASURY INTERNATIONAL CAPITAL DATA FOR JUNE
Treasury International Capital (TIC) data for June 2008 are released today and posted on the
U.S. Treasury web site (\\ \\ \\ .lIC;I'>.g(\\ lIC). The next release, which will report on data for July,
is scheduled for September 16, 2008.
Net foreign purchases of long-term securities were $53.4 billion.
•

Net foreign purchases of long-term U.S. securities were $62.7 billion. Of this, net
purchases by private foreign investors were $47.8 billion, and net purchases by foreign
official institutions were $14.9 billion.

•

U.S. residents purchased a net $9.2 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to
have been $36.6 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities decreased $2.2 billion. Foreign holdings of Treasury bills increased $6.9
billion.
Banks' own net dollar-denominated liabilities to foreign residents increased $16.7 billion.
Monthly net TIC flows were positive $51.1 billion. Of this, net foreign private flows were $38.0
billion, and net foreign official flows were $13.1 billion.

TIC Monthly Reports on Cross-Border Financial Flows
(BII
I Ions 0 fd 0 II ars, not scasona IIIy adIjustcd)
2006

2007

12 Months Throu~h
June-07
June-OS

Mar-08

Apr-08

May-08

June-08

Foreigners' Acquisitions of Long-term Securities
I
2
.1

Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Secunties
Domestic Securities Purchased, lIet (line I less line 2) II

21077.1 29730.6
199339 28714.7
1143.2
1015.9

24388.2
23097.3
1290.9

33150.2
32330.4
819.9

3066.5
2989.3
77.2

2584.6
2478.9
105.7

2599.2
2489.6
109.7

2794.1
27314
62.7

4
5
6
7
8

Private, net /2
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
EqUities, net

946.6
125.9
193.8
482.2
144.6

828.2
197.9
107.0
342.8
180.4

1054.4
168.3
160.6
520.5
205.0

561.6
232.7
128.0
1512
49.8

28.7
23.8
2.8
-8.8
11.0

64.4
54.7
4.3
175
-12.0

93.2
9.4
17.1
50.8
15.9

47.8
27.2
22.3
0.6
-23

<)

Official, net /3
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds. net
Equities, net

196.6
69.6
92.6
28.6
5.8

187,7
3.0
119 I
50.6
15.1

236.5
69.3
133.5
35.2
-1.4

258.3
73.3
88.6
62.3
34.2

48.4
28.0
15.9
4.1
0.4

41.3
22.3
11.0
7.5
0.4

16.4
-3.7
11.0
9.1
0.0

14,9
1.1
9.1
4.1
0.5

5515.9
5766.8
-250.9

8187.6
8411.9
-224.3

6669.0
6955.3
-286.3

8544.3
86853
-141.0

752.5
752.6
0.0

698.7
688.2
10.5

676.7
703.1
-26.4

688.3
697.5
-9.2

-144.5
-106.5

-129.0
-95.3

-171.4
-114.9

-66.3
-74.7

2.9
-2.9

10.7
-0.2

-8.3
-18.1

-10.8
1.6

892.3

791.6

1004.6

678.9

77.1

116.1

83.2

53.4

-174.6

-235.1

-206.9

-232.6

-20.1

-12.3

-22.6

-16.8

717.7

556.5

797.7

446.3

57.0

103.9

60.6

36.6

146.2
-9.0
16.1
-25.0

197.6
48.8
29.3
19.5

58.3
-23.7
0.2
-23.9

258.2
148.5
83.6
64.8

7.8
27.9
30.9
-3.0

-14.0
3.4
-104
13.8

9.3
11.4
7.8
3.7

-2.2
6.9
-0.1
7.0

155.1
174.9
-19.8

148.8
72.7
76.1

82.1
100.3
-18.2

109.7
63.4
46.3

-20.1
-12.8
-7.3

-17.4
-4.4
-13.0

-2.1
10.2
-12.3

-9.1
-II I
2.0

198.0

-133.8

16.0

-383.8

-117.7

-24.1

-57.6

16.7

1061.8

620.4

872.1

320.7

-52.9

65_8

12.3

51.1

923.0
138.9

333.6
286.8

665.6
206.5

25.1
295.6

-62.6
9.7

36.7
292

-1.4
13.8

38.0
13.1

10
II
12

13
14
15
16
17
18

Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less line 15) 14
Forelgn Bonds Purchased. net
Foreign Equities Purchased. net

19

Net Long-Term Securities Transactions (line 3 plus Ime 16):

20

Other Acquisitions of Long-term Securities, net /5

21

Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):

27
28

Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private. net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
Official, net

29

Change in Banks' Own Net Dollar-Denominated Liabilities

22
23
24
25
26

30 Monthly Net TIC Flows (lines 21.22.29) /8
of which
Private. net
31
Official. net
32
II
/2

13
/4

15

/6
17
/8

Net foreign purchases of u.s. securities (+)
Includes international and regional organizations
The reported division of net purchases of long-term securities between net purchases by foreign official institutions and net purchases
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 1Oa.4 on the TIC web site.
Net transactions in foreign securities by U.S. reSldents. Foreign purchases offoreign securities = U.S. sales of foreign securities to foreigners.
Thus negative entries indicate net U.S. purchases of foreign securitles, or an outnow of capltal from the United States; positive entries
indlcate net U.S. sales of forelgn securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securities +
estimated foreign acquisitions of U.S. equity through stock swaps estimated U.S. acquisitions of foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other ReSldents of FOrelgn Countries.
These are primarily data on monthly changes in banks' and broker/dealers' custody "abilities. Data on custody claims are collected
quarterly and published in the Treasury Bulletin and the TIC web site.
"Selected Other Liabdities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or broker/dealers.
TIC data cover most components of international financial nows. but do not include data on direct investment nows, which are collected
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data summarized here. the
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on the TIC web
site descnbes the scope of TIC data collection.

2

IP-1117: Opening Rcmat'ks uf AssIstant Secretary for Terrorist Financing<br> Patrick O'Brien at Treas...

Page 1 of 3

August 15,2008
HP-1117
Opening Remarks of Assistant Secretary for Terrorist Financing
Patrick O'Brien at Treasury's Charity Roundtable
Washington DC--Good Morning. I would like to welcome you all to the Treasury
Department for today's Charity Roundtable. It is our hope that today's discussion
will build upon the regular dialogue we have had over the years both here in
Washington and in community events around the country. Before I go further, I
would like to extend my special thanks to Mr. Kareem Shora, National Executive
Director of the American-Arab Anti-Discrimination Committee (ADC), and his
capable staff for their assistance and leadership in organizing this event.
The United States government is committed to strengthening our relationship with
Arab and Muslim-American communities. For our part, the Treasury Department
continues to engage with both the charitable sector and affected communities to
advance our shared interests in a free, open, tolerant, and charitable society. One
that encourages charitable and humanitarian activities, while at the same time
protecting those efforts from abuse.
Over the last several years, the Treasury Department has established an important
relationship and dialogue with the Arab and Muslim-American communities as we
work together to address the threat of terrorist financing in the United States and
the Muslim and Arab worlds. This relationship is necessary as we work to protect
and preserve the sanctity of charitable giving and zakat from terrorist groups like al
Qaida, Hamas, Hizbollah, and others who have purposely usurped the goodwill and
donations of Muslims around the world to fuel their terrorist agenda. It is also
critical to advancing our collective mission of promoting charitable relief and
development around the world to those most in need of our assistance. Although
we may not agree on all points, an honest and frank exchange between the federal
government and Arab and Muslim-American communities fosters mutual
understanding and also serves as a basis for continued cooperation.
The Arab and Muslim-American communities are uniquely situated to advance our
common interests in both promoting and protecting charitable activities. Your
engagement and leadership has the potential to affect global practices and
perceptions that are essential to these interests and winning the long term battle
against terrorism.
We anticipate that today will provide an open and informal forum to exchange
thoughts and mutual concerns. It is fair to say that our agenda is ambitious and
engaging. There is a diversity of interests and concerns that are reflected by
speakers from Treasury, the Internal Revenue Service, the FBI, USAID as well as a
number of charitable and advocacy groups, civil rights organizations and concerned
individuals.
Today's dialogue will be wide-ranging and focused on the following topi
•
•

•
•
•

The nature of the threat of terrorist abuse of charities;
Basic governance, accountability, and transparency issues which affect
charities as well as hearing how the private sector implements such
principles;
Concerns of charities that operate in high-risk areas and measures they
may voluntarily implement to minimize risks of abuse;
Providing guidance to donors on charitable giving; and
Identifying ongoing and future challenges.

I would like to make a few general observations about the first topic on the agenda
- the nature of the threat. Absent a baseline understanding of this matter, the
United States and the international community's response would not be well

tp://www.treas.goy/press/releases/hpII17.htm

9/15/2008

lP-1117: Opening Rcn'l.at"ks uf Assistant Secretary for Terrorist Financing<br> Patrick O'Brien at Treas...

Page 2 of 3

understood. As has been noted on many occasions, the nature of terrorist
financing is dynamic, evolving, and it often varies by the particular region.
However, the Treasury Department, working with its domestic partners and
international organizations such as the Financial Action Task Force, has made a
concerted effort to document the risks and typologies of terrorist exploitation
through a number of publications.
Some believe that the terrorist financing threat in the charitable sector is limited to
cases of diversion of funds or materials. Diversion occurs when a charity ostensibly
raises money for a legitimate goal, but then uses the funds for an illicit purpose. In
the broadest sense, this is fraud. However, it is not the only problem we confront in
the sector. In addition to raising and moving funds as well as providing operational
cover, it is well known that foreign terrorist organizations such as al Qaida, Hamas,
and Hizbollah purposefully establish or exploit charities to gain support, recruit new
members, and radicalize vulnerable populations. Terrorist groups often supplant a
weakened central government and in effect, develop social welfare arms. They run
the hospitals, schools. and clinics for these populations. This gives terrorist
organizations a seemingly reputable foundation for recruiting new members.
Many of these charities do provide actual services, as well as support terrorism. It
is this aspect of the threat the underlines our voluntary guidance covering the
vetting of key employees and grantees of charities working in high-risk areas
against lists of designated terrorist organizations, entities and individuals. This fact
is supported by a number of different sources including law enforcement
investigations. academic studies, media reports, and publicly available information
that support Treasury Department designations. In this regard, the public
information concerning Treasury's designations of specific U.S.-based charities
revealed that many of the charitable organizations engaged in actual charitable
services. However, they were unfortunately owned or controlled by, or acted for or
on behalf of; or provided financial, material, or technological support. This is a
violation of U.S. law, namely Executive Order 13224. Organizations such as
Benevolence International Foundation and Global Relief Foundation are prime
examples of this type of illicit activity. Furthermore, Treasury's recent designation
of the Tamil Rehabilitation Organization (TRO) in Sri Lanka and a similar action
taken by the Government of Canada illustrates that a wide range of foreign terrorist
organizations that exploit charitable services. In fact, almost all of the foreign
terrorist organizations maintained by the federal government have some charitable
component or function.
The broader exploitation of charities operating in high-risk regions raises serious
questions and challenges for the United States, the international community, and
charities operating in high-risk areas. Going forward, some key challenges include:
adoption of best practices, utilizing alternative relief measures, and improving
private sector relief efforts. Let me just take a minute to briefly outline these
areas.
Adoption of Anti-Terrorist Best Practices
All charities working in high-risk areas should consider adopting specific antiterrorist measures. As guidance, Treasury published the Anti-Terrorist Financing
Guidelines: Voluntary Best Practices for U.S.- Based Charities in consultation with a
number of charitable groups. In light of the risk of exploitation in certain regions
and the need to comply with U.S law, these measures, among other things,
recommend that a charity collect information on its grantees as well as key
employees and then check such information against lists maintained by the
Department of the Treasury. It is important to note that such measures are risksensitive and recognize that charities may sometimes operate under exigent
circumstances. However, we understand that there has been significant discussion
both within the charitable sector and affected communities regarding the feasibility,
potential burden, and the effect of such measures, and hope we can examine these
concerns during today's roundtable. Going forward, Treasury will continue to work
with interested parties to further refine its guidance in this area, including through
the Treasury Guidelines Working Group forum.
Alternative Relief
In some circumstances. effectively and safely operating in regions where there are
known terrorist activities may require creating alternative distribution means.
Essentially, this type of partnership allows individual U.S. donors to tap into the

p:!lwww.treas.gov/press/releases/hpll17.htm

9115/2008

lP-1117: Opening Remarks of Assistant Secretary for Terrorist Financing<br> Patrick O'Brien at Treas...

Page 3 of 3

government resources and distribution networks, thereby leveraging
counterterrorism mechanisms only available to the government. The aim is
straightforward - to provide a safe and effective way for individuals to contribute to
critical regions where aid is desperately needed, such as the West Bank and Gaza.
Such partnerships also have the potential to weaken the hold that foreign terrorist
organizations have on vulnerable populations by harnessing a competitive force the generosity of the American people. Dr. Ziad Asali, the American Charities for
Palestine, and other government partners who work with USAID are doing just that.
It is our hope that this type of collaboration will take root and serve as a model for
other areas of concern as well as encompass other funding streams including that
of the international community.
Private Sector Efforts
Of course, the first line of defense against terrorist exploitation of the charitable
sector lies with charities themselves. On its own initiative, a Muslim-American
advocacy group has started to educate its constituency and bolster the capacity of
member charities. Muslim Advocates has taken an important first step by
partnering with the Better Business Bureau Wise Giving Alliance to develop a
training and certification program encompassing transparency, accountability, and
governance related issues. We strongly support this effort and it is our hope that
this type of program will be embraced by other groups and that the original scope
will be expanded to also cover terrorist financing issues and preventive measures
for charities working in high-risk regions.
Conclusion
In closing, I hope today's Charity Roundtable discussion helps us all better
understand how we can work together to advance our common interests in
promoting and protecting charity. The continued dialogue and work between the
federal government and Arab and Muslim-American communities is a critical
element in our collective effort to combat those aiming to corrupt our charitable
institutions and destroy the liberties we enjoy every day as Americans. We look
forward to continuing our work together on these issues, and I thank you for your
participation, concern, and leadership in moving this dialogue forward.

-30-

p:llww w.treas.goy/press/releases/hpll17.htm

9115/2008

Page I of 4

August 18,2008
2008-8-18-18-7 -21-16182

U,S, International Reserve Position

The Treasury Department today released U,S, reserve assets data for the latest week, As indicated in this table, U,S.
reserve assets totaled $74,791 million as of the end of that week, compared to $75,185 million as of the end of the
prior week,
I Official reserve assets and othel' fOl'elgn cun'ency assets (approximate market value, in US millions)

I
I

II
IIAugust 1,2008

IIA OffiCial reserve assets (In US millions unless othelWlse specified) 1

IIEuro

lIyen

IITotal

I(a) Securities

II
11 10 ,057

II
1/11,925

1/21,982

lof which: Issuer headquartered In reporting country but located abroad

11

II

11

I(b) total currency alld depOSits with

1/
11 1 5,364

II

II

11 5,865

11 21 ,229

Iii) banks headquartered in the reporting country

II

II

lof which located abroad

1/

11 0
11 0

l(ill) banks headquartered outside the reporting country

II

1(1) FOI'elgn currency reserves (In convertible fOl'elgn currencies)

1(1) other national central banks, BIS and IMF

lof which: located In the reporting country

II

1(2) IMF reserve pOSition 2

1/4,926

1(3) SDRs 2

11 9 ,765

(4) gold (including gold depOSits and, if appropnate, gold swapped) 3

111 ,041

I--volume in millions of fine troy ounces

11 261 .499

1(5) other reserve assets (speCify)

11 5 ,848

I--financial derivatives

II

I--Ioans to nonbank nonreSidents

II

"--other (fOl'elgn currency assets Invested through reverse repurchase
agreements)

11 5 ,848

IB

Other fOl'elgn currency assets (speCify)

II--securitles not included in offiCial reserve assets
--depOSits not Included In offiCial reserve assets

II
II
II

1174,791

--loans not Included in offiCial reserve assets

--gold not included In offiCial reserve assets
[ --other

I

11 0
11 0

I

I

II
J
J

--financial derivatives not Included In official reserve assets

0

I
I
I

II

II

II. Predetermined short-term net drains on fOl'el9n currency assets (nominal value)

P:llwww.treas.gov/press/releases/20088181872116182.htm

9115/2008

Page 2 of 4

II

I
I

II
II

II

II

Total

I
IIlnterest

I--Inflows (+)

Ilprlllclpal

I

IIlllterest

II

I (b) Long POSitions (+)

I 3. Other (specify)
I --outflows related to repos (-)

I --Inflows related to reverse repos (+)
I--tradecredlt(-)

I --trade credit (+)
I --other accounts payable (-)
I --other accounts receivable (+)

II
II
II
II

2. Aggregate Sllort and long POSltlOIlS In forwards and
futures III fOl·elgn ClirrellCles Vis-a-VIS the domestic
currency (I[lcludmq the forward leg of currency swaps)

I (a) ShOll l20SltIOIlS ( _ ) 4

I

More than 3
months and up to
1 year

More than 1 and
up to 3 months

Up to 1 monttl

1. Foreign currency loans, SeCUrities, and depOSits
I
I--outflows (-)
IlprmCipal

I

I

II

IIMaturlty breakdown (residual maturity)

I

II

II

II

11- 62 ,000

11- 62 ,000

II
II
II

II
II

II
II
II

I

II
II
II
II
II
II

II

II
II
II
II

III Contmgent shon-term net drams on foreign currency assets (nominal value)

I

I

II

II

Ii

I(b) Other contmgent liabilities

II: Foreign currency securities Issued With embedded
options (puttable bonds)

II

13 Undrawn, unconditional credit Imes provided by
II(a) other national monetary authorities, 81S, IMF, and
Ilother mternatlonal organizations

IUp 10 1 moolh

II

I--other national monetary authontles (+)
1--8Is (+)
[--IMF (+)

More than 3
months and up to
1 year

More than 1 and
up to 3 months

I

II

11 Contingent liabilities In foreign currency
(a) Collateral guarantees on debt failing due Within 1
year

I

(residual maturity, where

applicable)
Total

I

II

II

II

I Maturity breakdown

II

I

II

I

II

I

II

/I

II

II
II
II

II
II
II
II

I

I
II
II
II

(b) With banks and other fmanclallnstltutlons
headquanered In the reponmg country (+)

I

II

II

I

(c) With banks and other financial Institutions
headquanered outside the reponing country (+)

I

Undrawn, unconditional credit lines provided to

l

II
II

II
II

I

(a) other national monetary authorities, 81S, IMF, and
other International organizations

I

II
II

II

II

II

II

--other natlon31 monetary authOrities (-)

tp:llwww.treas.go v/press/releases/20088181872116182.htm

I

I

9/15/2008

Page 3 of 4

II

I

1/

II

II

I

11

II

/I

II

I

II

/I

/I

/I

II

II

I

II

II

II

I--IMF (-)

II

II

(b) banks and other financial Irlslitutlons ireadqllaltered
in reporting country (- )
(c) banks and other fillancial Irlstltutlons headquartered
outside the repol'tlllg country ( - )
4. Aggl'egate short and long POSiliOI1S of options In
foreign currencies Vis-a-VIS ttle domestic currency

II

II
II

I--BIS (-)

11

I(a) Short positions
1(1) Bought puts

II

1(li) Written calls

II

II

1(1) Bought calls

II

1(11) Written puts

II

I

IpRO MEMORIA In-the-moneyoptlons

II

II

II

II
II
II

I(b) Long positions

II
II
II
II

II

II

II

I( 1) At current exchange rate

II

II

II

I(a) Short position

II

I(b) Long pOSition

II

\(2) + 5 °0 (depreCiation of 5%)

I

II

II
II
II
II
II
II
II
II
II

II
II
II
II
II
II
II
II
II
II
II
II
II
II

I(a) Short position
I(b) Long pOSition
1(3) - 5 % (appreciation of 5%)
I(a) Short position
I(b) Long position
1(4) +10 % (depreCiation of 10%)
I(a) Short position
I(b) Long position
1(5) - 10 % (appreciation of 10%)
I(a) Short position
I(b) Long position

1(6) Other (speCify)
I(a) Short POSltlOIl
I(b) Long position

I

II
II
II

II
II
II

II
II
II
II
II
II
II
II
II
II
II
II
II

II

II
II
II
II
II
II
II

I

I
I
I
I
I
I
I

II

I

IV. Memo items

I

I
1(1) To be reported With standard periodicity and timeliness
(a) short-term domestic currency debt Irldexed to the exchange rate
(b) flrlanClallnstruments denolllillated In foreign currency and settled by other means (e.g .. III domestic
currency)

I

II

I

11

I--nondellverable forwards
I --short POSitions

I --long POSitions
t-other Irlstruments
Ec) pledged assets
t-Included Irl reserve assets
--Included in other foreign currency assets

ITd) securities lent and on repo

tp://www.treas.gov/press/releases/20088181872116182.htm

II
II

II
II
II

115.967

I
I

9/15/2008

Page 4 of 4
--lent or repoed and included in Section I
II--Ient or repoed but not included

Ir1

11

Section I

II

--borrowed or acquired and included In Section I
--borrowed or acquired but not included

Ir1

II
15,967

Section I

(e) fillancial dellvatlve assets (net, marked to market)

I

I--forwards

II

I--futures

II

I--swaps

II

I--options

II

I--other

II

(f) derivatives (forward, futures, or options contracts) that have a reSidual maturity greater than one year,
which are subject to marglll calls
--aggregate short alld 1011g posltiollS In forwards and futures In foreign currenCies Vis-a-VIS the domestic
currency (illCludlllg the forwald leg of currency swaps)

I
I

I(a) short POSItiOI1S ( - )

II

I(b) long POSitions (+)

II

I--aggregate sllort and long POSitions of options in foreign currencies vis-a-VIS the domestic currency

II

I(a) sholi POSitions

I

I(i) bought puts

I

1(11) written calls
I(b) long POSitions
I(i) bought calls
1(11) wrrtten puts

I

1(2) To be disclosed less frequently.

II

I(a) currency composition of reserves (by groups of currencies)

11 74 ,791

I--currencles

III

11 74 ,791

SDR basket

I--currencles not In SDR basket

II

I

I--by indiVidual currenCies (optional)

II

I

I

II

I

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates, Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values,
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
41 The short positions reflect foreign exchange acquired under reciprocal currency arrangements With certain foreign central banks.
The foreign exchange acqUired is not included in Section I, "official reserve assets and other foreign currency assets," of the template
for reporting International reserves However, it IS Illcluded In the broader balance of payments presentation as "U.S Government
assets. other than official reserve assets/U.S foreign currency holdings and US short-term assets."

:p:!lwww.treas.gov/press/releases/20088181872116182.htm

9115/2008

Page I of4

August 19, 2008
2008-8-19-13-37 -57 -27319
U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S,
reserve assets totaled $73,178 million as of the end of that week, compared to $74,791 million as of the end of the
prior week.
I Official reserve assets and other fmelgn cunency assets (approximate market value, In US millions)

I
I

II
IIAugust8,2008

liA Official reserve assets (In US millions unless otilerwlse specified) 1

IIEuro

lIyen

IITotal

II
11 9 ,773

II
11 11 ,663

11 73 ,178

I(a) Secunties
lof which Issuer headquartered In reportlllg country but located abroad

II

II

11 0

I(b) total currency and deposits with
1(1) other national central banks, BIS and IMF

II
11 14 ,863

II
11 5 ,732

11 20 ,595

Iii) banks headquartered In the reporting country

II

II

11 0

lof which located abroad

II

II

11 0

1(lii) banks headquartered outside the reporting country

II

lof which located in the reporting country

II

II
II

11 0
11 0

1(2) IMF reserve pOSition 2

11 4 ,845

1(3) SDRs 2

11 9 ,604

11(4) gold (Including gold depOSits and, if appropriate, gold swapped) 3

11 11 ,041

t-volume In millions of fine troy ounces

11 261 .499

1(5) other reserve assets (specify)

/15,657

I--financlal derivatives

II
II

1(1) Foreign currency reser"ves (in convertible foreign currencies)

[--loans to nonbank nonresidents
--other (foreign currency assets Invested through reverse repurcllase
agreements)

11 5 ,657

[B

II

Other fmelgn currency assets (specify)

II

I

Ii
I

I~-securitles not Included in official reserve assets
I~-deposits not Included In official reserve assets
--loans not Included in official reserve assets

11 21 ,436

J

--financial derivatives not Included In offiCial reserve assets
--gold not Included In offiCial reserve assets
[ --other

I

Ii
I

I
I

II

II

I

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

tp:llwww.treas.gov/press/releases/200881913375727319.htm

9/15/2008

Page 2 of4

I

II

II
II
II
IIMaturity breakdown (residual maturity)

I

IITotal

IUp to 1 mooll,

I 1. Forelgll currency loalls. SeCllritles, and deposits
I--outflows (-)
IIprlllclpal

II

II

II

I

II

II

IIlnterest

II

II

\I

I--Inflows (+)

IIprlllCipal

I

"Interest

I

II

II

II

II

2 Aggregate Sllmt and long POSItiOI1S In forwards and

"II

futures III fOl'elgn cUrl'erlcies Vis-a-VIS tile domestic
currency (includlllq the forward leq of currency swaps)
(a) Short [20sitions ( _ ) 4

More tilan 3
months and up to
1 year

More than 1 alld
up to 3 months
II

I
I

/1-62,000

11-62.000

"II
"
"
""II

"II
"
"
"II

"

"

I

I

(b) Long positions (+)
3 Other (specify)
--outflows related to repos (-)

I --Inflows related to reverse repos (+)
I --trade credit (-)
I --trade credit (+)

I --other accounts payable (-)
I --other accounts receivable (+)

I

I

I
I
I

"
"II
"

"

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

I

II

I

II

applicable)
Total

I
I

I

"

More than 3
months and up to
1 year

More than 1 and
up to 3 months

Up to 1 mooth

I"

II

II

I(b) Other contingent liabilities
2. Foreign currency securities Issued with embedded
options (puttable bonds)

"

II

11 Contingent liabilities in foreign currency
(a) Collateral guarantees on debt falllllg due within 1
year

I

II
I MatUrity breakdown (residual maturity, where

I

II

J

"II

13 Undrawn, unconditional credit lilles provided by
(a) other national monetary authorrtles. BIS. IMF. and
other international organizations
I--other national monetary authorrlles (+)

II

I

"I

I

[--BIS (+)
G-IMF (+)
(b) with banks and other flllanCial IIlslrtutions
headquartered In the reporting country (+)

I

II

I

I

I

(c) with banks and other financial IIlstltutions
headquartered outside the reporting country (+)

JI

I

Undrawn, unconditional credit lines provided to

I

II

(a) other national monetary authmities. BIS. IMF. and
other international organizations

I

--other national monetary authorrtles (-)

I

:P:llwww.treas.gov/presslreleases/200881913375727319.htm

I

II
II

"

9115/2008

Page 3 of 4
I--BIS (-)

II

[--IMF (-)

II~b) banks and otller finarlClal irlstitutlons Ileadqual-teled
In reporting country (- )
(c) banks and other fillancial institutions headquartered
outside the reporting country ( - )
4. Aggl-egate sllort and long positions of options III
foreign currencies Vis-a-VIS the domestic currency

I
II
II

II
II

II

"II

II
II

I

II

I

II

I

II

I(a) Silort pOSitions

II
II

1(1) Bought puts
hil) Wrrtten calls

I

I(b) Long pOSitions

II
II

1(1) Bought calls
I(il) Wrrtten puts
iPRO MEMORIA In-the-money options
1(1) At current eXChange rate

1

I(a) Short position

II
I

II
II
II
I

II

I(b) Long POSition

II

1(2) + 5 % (depreCiation of 5%)

II

I(a) Short pOSition

I

II
II

1

I(b) Long POSition
1(3) - 5 % (appreciation of 5%)

II

I(a) Short POSition

II

I(b) Long position

II
II

1(4) +10 % (depreCiation of 10%)
I(a) Short positron
I(b) Long position

"IIII

\I

1

I

1(5) - 10 % (appreciation of 10%)
I(a) Short POSition
I(b) Long position

1(6) Other (specify)
I(a) Short position
I(b) Long position

"II

IV. Memo Items

I

I
(1) To be reported With standard perrodlclty and timeliness

11

(a) short-term domestic currency debt Indexed to the exchange rate

11

II(b) financial instruments denominated in foreign currency and settled by other means (e g, In domestic
currency)

I

I--nondellverable forwards
I --short POSitions
I --long positions
[--other Instruments

liC) pledged assets
t-Included In reserve assets
--included in other foreign currency assets
Kd) securrties lent and on repo

~p:/lwww.treas.gov/press/releases/200881913375727319.htm

11

I
5,776

I

9115/2008

Page 4 of 4
--lent or repoed and included In Section I
--lent or repoed but not Included in Section I
--bon'owed or acquil'ed and included in Seelion I
II--borrowed or acquired but not Included

In

1

1

I

1 5 ,776

I

I
I

II

I

II

I

lI(e) financial denvatlve assets (nel, malked to market)

I--futures

I

I

Section I

I--forwards

1

II
II
II

I--swaps
I--optlons
I--other
(f) derivatives (forward. futures, or options contracts) that have a residual maturity greater than one year.
which are subject to margin calls.

I
I
I

I
I

I

--aggregate Sl1011 and long positions III forwards and futures in foreign currencies ViS-a-VIS the domestic
currency (including the forward leg of currency swaps)
I(a) short positions ( ~ )

I

I(b) long positions (+)

I

I--aggregate short and long positions of options In foreign currencies vis-a-VIs the domestic currency

I

I(a) short pOSitions

I

1(1) bought puts

I

1(11) written calls

I

I(b) long POSitions
l(i) bought calls

I(ii) written puts
\(2) To be disclosed less frequently
I(a) currency composition of reserves (by groups of currencies)

1/73,178

I--currencies In SDR basket

/173,178

I--currencies not In SDR basket

/I
/I

I

I--by IndiVidual currencies (optional)
I

II

I

1

I

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and depOSits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
4/ The short pOSitions reflect foreign exchange acquired under reciprocal currency arrangements with certain foreign central banks
The foreign exchange acquired IS not Included in Section I, "officlal reserve assets and other foreign currency assets," of the template
for reporting International reserves. However. It is included In the broader balance of payments presentation as "U.S, Government
assets, other than offiCial reserve assets/U.S. foreign currency holdings and U.S. short-term assets."

tp:llwww.treas.gov/press/releases/200881913375727319.htm

9115/2008

Page 1 of 4

August 19,2008
2008-8-19-13-54-2-27500
U.S. International Reserve Position

The Treasury Department today released U,S. reserve assets data for the latest week, As indicated in this table, U.S,
reserve assets totaled $72,237 million as of the end of that week, compared to $73,178 million as of the end of the
prior week.
I OffiCial reserve assets and other foreign curr'ency assets (approximate market value, In US millions)

I
I
A. Official reserve assets (In US milliolls unless otherwise specified) 1

I

II
IIAugust 15,2008
lIyen

IITotal

II
11 9 ,567

II
11 11 ,624

11 72 ,237
11 21 ,191

II

II

11 0

II

JIEuro

1(1) Foreign currency reserves (Ill convertible foreign currencies)
I(a) Securities
lof which Issuer headquartered In reporting country but located abroad
I(b) total currency and depOSits with
I(i) other national central banks, BIS and IMF

11 14 .072

II
11 5,712

II
11 19 ,784

III) banks headquartered In the reporting coulltry

II

II

lof which located abroad

II

II

11 0
11 0

II

1(lii) banks headquartered outSide the reporting country
lof which located In the reporting country

II

1(2) IMF reserve position 2

11 4 ,773

1(3) SDRs 2

11 9 .463

II
II

11 0
0
11

I--volume In millions of fine troy ounces

11261499

1(5) other reserve assets (specify)

11 5,985

I--financlal derrvatlves

II

I--Ioans to nonbank nonresidents

II

II--other (foreign currency assets Invested through reverse repurchase
agreements)

1/ 5 ,985

--loans not included In offiCial reserve assets
--financial derivatives not Included In offiCial reserve assets
--gold not Included in offiCial reserve assets

I
I

I
1

I

IB Other foreign currency assets (specify)

--depOSits not Included In offiCial reserve assets

I

11 11 ,041

(4) gold (Including gold depOSits and, If appropriate, gold swapped) 3

--securities not Included In offiCial reserve assets

I

I

I

JI
JI
II
II
II

[--other

I
I
I

II

II

I
I

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

.:llwww .treas.goY/press/releases/20088191354227500.htm

9115/2008

Page 2 of4
II

I

II

II
II
II
IIMaturlty breakdown (residual maturity)

II

I

I
1 Foreign currency loans. SeCllritles. and depOSits

11'0101

I

Up

10 1 mooth

I

More tllan 3
months and up to
1 year

More than 1 and
up to 3 months

I

II

II

IIPllflclpal

II

II

II

I
I--Inflows (+)

IIlnterest

II

II

II

IIPfIIlclpal

I

II

II

I

Illntel'est

II

II

I--outflows (-)

I

2 Aggregate shol't and long positions III forwards and
futures III foreign currellCles Vis-a-VIS tile domestic
currency (Illcludlnq the forward leq of currency swaps)

-67.000

(a) Sholi [20SltIOI1S ( _ ) 4
(b) Long positions (+)
3. Other (speCify)
--outflows related to repos (-)
--Inflows related to reverse repos (+)
--trade credit (-)

I --trade credit (+)

I

II
11-67.000

II
II

II

II

I

II

II

II

II

II

II

II

II

II

II

II

II

I --other accounts payable (-)

II

II

I --other accounts receivable (+)

II

II

II

"
II

II

II

II

II

II

II

II

III. Contingent shon-term net drainS 011 foreign currency assets (nominal value)

I

II

I

II

ITotol

I
11 Contingent liabilities In foreign currency

II

I

IMatUrity breakdown (reSidual maturity. where
applicable)

I

Up

More than 3
months and up to
1 year

More than 1 and
up to 3 months

to 1 mo,"

II

lI:a) Collateral guarantees on debt failing due wlthlll 1
year

II

I(b) Other contingent liabilities

II

II~ Foreign currency securities Issued With embedded

I

options (puttable bonds)

13. Undrawn,

I

unconditional credit lilles prOVided by

II(a) other national monetary authorities, BIS, IMF. and
other International organizations

II

I--other national monetary authOrities (+)

II

I--BIS (+)

II

I

II

II

I

I--IMF (+)

II
II

I

I

(b) with banks and other financial institutions
headquanered In the reponing country (+)

I

II

(c) with banks and other fillancialinstitutions
headquanered outSide the reponing country (+)

II

II

I

I

Undrawn, unconditional credit lines provided to

II

II

II

I

(a) other national monetary authorities. BIS, IMF, and
other international organizations

II

II

II

I

II

II

I

[--other national monetary authOrities (-)

.:llwww.treas.gov/press/reieases/20088191354227500.htm

9115/2008

Page 3 of 4
I--BIS (-)
I--IMF (-)
(b) banks and other financial institutions headquartered
In reporting country (- )
(c) banks and othel' finarlClal institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options In
foreign currencies vis-a-vis the domestic currency

II

II
II

II

II

II

II
II

II

II

II

I
I
I

II

II

1/

I

II

II

I

II

I

I(a) Silort positions
I(i) Bought puts
1(11) Written calls

II

II
II

II

"

II

I(i) Bought calls

I

II
II
II

I(ii) Written puts

II

II

I(b) Long positions

iPRO MEMORIA In-the-moneyoptlons : .
I( 1) At current exchange rate
I(a) Short position
I(b) Long position

I

II

II
II
I

II

I

I

II
II
II
II

1(2) + 5 % (depreciation of 5%)
I(a) Short position
I(b) Long position
1(3) - 5 % (appreciation of 5%)
1(3) Short position

II
II

II

I

I(b) Long position

I

II

"

1(4) +10 % (depreciation of 10%)
I(a) Short position

I

I(b) Long position

I

1(5) - 10 % (appreciation of 10%)

II

I(a) Short position
j(b) Long position
1(6) Other (specify)

II

I(a) Short position
I(b) Long position

IV. Memo Items

"
"

I

II

"
"II

I:

"

I
I
I
I

I

"

II

I

(1) To be reported With standard periodicity and timeliness

II

(a) short-term domestic currency debt Indexed to the exchange rate

I

I
I

(b) finanCial instruments denominated in foreign currency and settled by other means (e.g,. in domestic
currency)

I

I

[nondeliverable forwards

II

[ --short positions
[ --long pOSitions
[other Instruments

[C) pledged assets
[inCluded In reserve assets
--included in other foreign currency assets
[d) securities lent and on repo

tp://www.treas.g oy /press/reieases/20088191354227500.htm

"II

"
"

"I

11 6 . 108

I
I
I
I
I
I
I

1

9115/2008

Page 4 of 4
II--Ient or repoed and Included In Section I

I

--lent or repoed but not Included in Section I

I

--borrowed or acquired and Included in Section I
--borrowed

01'

I
16,108

acquired but not Included In Section I

(e) flnarlClal dellVatlve assets (net, mCllked to market)

I

II
II
II
II
II

I--forwards
I--futures
I--swaps
I--options
I--Otiler
(f) derrvatlves (forwal'd, futures, or options contracts) that have a residual maturity greater than one year.
which are subject to marglll calls.
--aggregate sllori and long posllions In forwards and futures In foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)
I(a) shon positions ( - )
I(b) long positions (+)
I--aggregate shori and long positions of options In foreign currencies vis-a-vis the domestic currency
I(a) shon positions

I
I

II
II
II
II

l(i) bought puts

II

1(11) written calls

II
II

I(b) long positions
I(i) bought calls

II

I(il) written puts

II

1(2) To be disclosed less frequently

II

I(a) currency composition of reserves (by groups of currencies)

11 72 ,237

I--currencles In SDR basket

11 72 .237

I--currencles not In SDR basket

II

I--by indiVidual currenCies (optional)

II

I

II

I

I

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and depOSits reflect carrying values.

2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
41 The shori positions reflect foreign exchange acqUired under reCiprocal currency arrangements With cerialll foreign central banks
The foreign eXChange acqUired IS not Included In Section I, "offiCial reserve assets and other foreign currency assets." of the template
for reporting International reserves. However. It IS Included In the broader balance of payments presentation as "U S, Government
assets, other than official reserve assets/US foreign currency Iloldings and U S short-term assets'"

11:llwww.treas.go v/press/releases/20088191354227500.htm

9/15/2008

p-l118: Statement By G-7 Finance Ministers on Georgia

Page 1 of 1

August 20. 2008
hp-1118
Statement By G-7 Finance Ministers on Georgia
G-7 Finance Ministers today issued the following statement on Georgia:
"G-7 Finance Ministers welcome the international mediation efforts to end the
hostilities and to bring about a political solution to the conflict in Georgia. The loss
of life. humanitarian suffering and wider destruction over recent days is
considerable. and we welcome commitments to assist with the urgent humanitarian
needs.
"We. the G-7. stand ready to support Georgia in order to promote the continued
health of the Georgian economy. maintain confidence in Georgia's financial system
and support economic reconstruction.
"In this regard we welcome the commitment by Georgia and the International
Monetary Fund to work together to reinforce the soundness of Georgia's economic
reform program. We also call on the Georgian authorities, other countries, the
World Bank, European Bank for Reconstruction and Development, Asian
Development Bank, European Investment Bank, and European Commission to
promptly identify and support reconstruction needs and the restoration of services
that will build a base for future economic growth.
"Georgia has solid economic fundamentals as a result of economic reforms and
sound policies, and we are committed to helping Georgia continue on this path."

-30-

p:llwww.treas.gov/press/releases/hpII18.htm

9/15/2008

Page 1 of 4

August 26, 2008
2008-8-26-14-1-33-3617

u.s.

International Reserve Position

The Treasury Department today released U.S, reserve assets data for the latest week. As indicated in this table, U.S,
reserve assets totaled $72,619 million as of the end of that week, compared to $72,237 million as of the end of the
prior week,
I. Official reserve assets and other fOl"elgn CLJrI"ency assets (appmXllllate market value. III US millions)

I
I

II
IIAugust22,2008

IIA Official reserve assets (In US Illlilions unless otherwise speCIfied) 1

IIEuro

I( 1) Foreign currency reserves (in convertible foreign currencies)

II
11 9 ,624

I(a) Securities
lof which issuer headquartered In reportlllg country but located abroad

II

I(b) total currency and depOSits with

II

I(i) other national central banks. BIS and IMF

11 13,954

III) banks headquartered in the reporting country

II
II
II
II

lof which located abroad
l(ili) banks headquartered outSide the reporting country
lof which located In the reporting country

1(2) IMF reserve position 2

11 4 ,795

1(3) SDRs 2

11 9 .506

(4) gold (Including gold depOSits and. If appropriate. gold swapped) 3

11 11 ,041

--volume In milllOllS of fine troy ounces

11261.499

I( 5) other reserve assets (specify)

11 6,262

I--financlal derivatives

II

I--Ioans to nonbank nonresidents

II

II--other (foreign currency assets invested through reverse repurchase
agreements)

11 6 ,262

B. Other foreign currency assets (specify)

I

I

Ilyen

IITotal

I

II

11 72 ,619

I

11 11 ,692

11 21 ,316

I

II

11 0

II
115,744

II

I

I

11 19 ,698

II

11 0

II

11

II

11

II

11

0
0
0

I

II

--securities not Included In offiCial reserve assets

JI

--depOSits not Included in offiCial reserve assets

II

--loans not Included in offiCial reserve assets

II

--financial derivatives not Included In offiCial reserve assets

II

--gold not included in offiCial reserve assets

II

I --other

II

II

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

p:llwww.treas.gov!press!releases!2008826141333617.htm

9115/2008

Page 2 of4
II

I
I

I
I
I--Inflows (+)
I

II

II

IIMatunty breakdown (residual maturity)

IITOIOI

I Up to 1 monlh

II

II

I

II

I

More than 3
months and up to
1 year

More than 1 and
up to 3 months

II

I

II

IIPrlnclpal

II

II

IIlnterest

II

II

II

II

Ilprlnclpal

II

II

II

II

IIlnterest

II

II

II

II

II

II
II

I

11

I

11 Foreign currency loalls, secllrlties, and deposits
I--outflows (-)

II

1/

II

2 Aggregate shol't and long positions in forwards and
futures III foreign currencies Vis-a-VIS Hle domestic
currency (Iflcludlnq the forward leq of currency swaps)

I (a) Short 120SltlOl1S ( - ) 4

I

II

11- 67 ,000

11- 67 ,000

11

II

I --outflows related to repos (-)

II

II

II
II"

II

II

II

I --Inflows related to reverse repos (+)

II

II

I

I --trade credit (-)

I --trade credit (+)

II

II

II

II

1/

II
II

II

I --other accounts payable (-)

II
II

1 (b) Long positions (+)

I 3, Other (specify)

I --other accounts receivable (+)

I
I

11

I

II
11

11

II

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

I

II

I

II

II
II
II
IMaturrty breakdown (reSidual maturrty, where
applicable)
Total

I
11 Contingent liabilities In foreign currency
(a) Collateral guarantees on debt faillflg due withlfl 1
year
I(b) Other contingent liabilities

2. Foreign currency secuntles Issued with embedded
options (puttable bonds)

13 Undrawn, unconditional credit lines provided by
(a) other national monetary authorrties, SIS, IMF, and
other international organizations
I--other national monetary authorities (+)

I

I

II

I
II

IUp to 1 monlh

II

I

II

II

I

1/

II

I

I

II

II
II

II

I

I
I

II

1/

II
II
II

II

II

II
II

More than 3
months and up to
1 year

More than 1 and
up to 3 months

II

I

I--IMF (+)

II
II

II

II
II

IItb) with banks and other financial Institutions
ILheadquartered in the reporting country (+)

II

II

1\

I

I

lI(c) With banks and other finanCial Institutions
headquartered outSide the reporting country (+)

I

I

II

I

I

Undrawn, unconditional credit lines prOVided to

I

I--BIS (+)

(a) other national monetary authorrtles, SIS, IMF, and
other international organizations
[--other national monetary authorities (-)

I
II

p:llwww.treas.gov/presslreleases/2008826141333617.htm

II

II

II

II
II

II

II

I
I

I

I

I
I

9115/2008

Page 3 of 4

II

I--BIS (-)
I--IMF (-)

II

lib) banks and other financial institutions Ileadqual-tel-ed
In reporting country (- )
If(C) banks and othel- financial Iflstltutions headquartered
outside the reporting COUlltry ( - )

4. Aggregate short and long positions of opt lOllS In
forelgll currenCies Vis-a-VIS the domestic currency
I(a) Short positions

II
II
II
II

Iii) Bought puts

II

I(il) Written calls

II

I(b) Long positions

1/

1(1) Bought calls

II
II

I

I
I

I

II"
II

"

I

II"

I
I

II

II

"I

I"

I
I
I
I

,

i(il) Written puts

II

II
II

,

,

I
I

I

IPRO MEMORIA In-the-moneyoptlons :
1(1) At current exchange rate

I

I(a) Short position

I

I

I(b) Long position
1(2) + 5 % (depreCiation of 5%)
I(a) Short position
I(b) Long position

I
II
II
II

1(3) - 5 % (appreciation of 5%)
I(a) Short position
I(b) Long position

1(4) +10 % (depreCiation of 10%)
I(a) Short position

1/

I
II
II
II
II
II

II

II
I

I
II
II
II

I(a) Short position
ITb) Long position

I

I

II

II
II

I
II
II
II

I

II
II

1(6) Other (speCify)

I

II
II

1(5) - 10 % (appreCiation of 10%)

I(b) Long position

I

II

I(b) Long position

[(a) Short position

I

II

II

II

II

II
II

II

II

IV. Memo items

II

[

I

(1) To be reported With standard periodicity and timeliness

I

I

(a) short-term domestic currency debt indexed to the exchange rate

I

I

(b) flflancial instruments denomlflated
currency)

I

I

III

foreign currency and settled by other means (e.g_, In domestic

t-nondeliverable forwards
[ --short positions
[ --long positions
tother instruments

[is:) pledged assets
[InClUded in reserve assets
Il:-included in other foreign currency assets

[0) securities lent and on repo
:p:llwww .treas.goy/press/releases/2008826141333617.htrn

II
II

I
11 6 ,391

9115/2008

Page 4 of4
II--Ient or repoed and included in Seclion I

II

II
II

lent or repoed but not included in Section I

II--borrowed or acqUired and Included In Section I

I
11 6,391

--borrowed or acquired but not Included In Section I
(e) finanCial delwatlve assets (net, mal-ked to Illarket)

II

I--forwards

1/
1/
1/
1/
1/

I--futures
I--swaps
I--options
I--other
(I) derivatives (forwal-d. futures, or options contracts) that have a residual matunty greater than one year.
WhlCtl are subject to Illargln calls

--aggregate StlOrt alld long positiollS In forwards and futures In foreign currencies Vis-a-VIS the domestic
currency (1llCludlllg the forward leg of currency swaps)
I(a) short positions ( - )
I(b) long pOSit lOllS (+)
I--aggregate short alld long positions of options in foreign currencies vis-a-vis the domestic currency
I(a) short positions
I(i) bought puts
\(11) written calls
I(b) long positions
1(1) bought calls
1{l1) wrrtten puts

I

I
I
1/
1/
1/
1/
1/
1/
1/
1/
1/

1(2) To be disclosed less frequently

II

I(a) currency composition of reserves (by groups of currencies)
I--currencles In SDR basket

1/72,619
1/72,619

I--currencies not In SDR basket

II

I--by Individual currencies (optional)

1\

I

1\

I
I

I

I

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
4/ The short positions reflect foreign exchange acquired under reciprocal currency arrangements with certain foreign central banks
The foreign exchange acquired is not Illcluded In Section I, "official reserve assets and other foreign currency assets," of the template
for reporting international reserves However, It IS Included In the broader balance of payments presentation as "u S Governillent
assets, other than official reserve assets/US foreign currency holdings and US short-term assets."

p:llwww.treas.gov/press/releases/2008826141333617.htm

9115/2008

IP-1119: Treasury Tat'gets RIsing Colombian Narcotics Traffickers

10 view or print tne I-'Ur content on

tnlS

Page I of2

page, download tne free !\(Io/)(."") !4CrOfJa("') Kei)(/GI'U.

August28,2008
HP-1119

Treasury Targets Rising Colombian Narcotics Traffickers
Washington, DC--The U.S. Department of the Treasury's Office of Foreign Assets
Control (OFAC) today designated two Colombian individuals, Jesus Maria
Alejandro Sanchez Jimenez and Rafael Angel Sanchez Rua, as Specially
Designated Narcotics Traffickers (SDNTs) pursuant to Executive Order 12978.
OFAC also designated as SDNTs two other individuals and four entities located in
Colombia. Sanchez Jimenez and Sanchez Rua are among those who have
inherited the drug trafficking organization once led by SDNT principal Carlos Mario
Jimenez Naranjo (alias "Macaco"), who is now in U.S. custody.
"The recent extradition of Carlos Mario Jimenez Naranjo represents a success in
the U.S. and Colombian governments' efforts against narcotics trafficking. It also
demonstrates the Colombian government's commitment and leadership in this
effort," said OFAC Director Adam J. Szubin. "Today's designation exposes two of
the individuals who have replaced Jimenez Naranjo, who headed one of the most
powerful and ruthless criminal groups in Colombia."
Carlos Mario Jimenez Naranjo was extradited to the United States on May 7, 2008.
He faces federal drug trafficking charges, among other charges, in the U.S. District
Court for the District of Columbia and the U.S. District Court for the Southern
District of Florida.
Jesus Maria Alejandro Sanchez Jimenez, also known as "EI Primo" and "Scubi," is
from Pereira, Colombia and is a cousin of Jimenez Naranjo. Sanchez Jimenez
helped manage Jimenez Naranjo's drug trafficking operations while the latter was in
a Colombian prison awaiting extradition to the United States. Sanchez Jimenez
has grown more powerful following the recent assassination in Argentina of his
close associate, Hector Edilson Duque Ceballos (alias "Monoteto"), who was also a
lieutenant in Jimenez Naranjo's drug trafficking organization. Rafael Angel
Sanchez Rua is from Cartago, Colombia and is a long-time drug trafficking partner
of Jimenez Naranjo. Sanchez Rua is involved in the transportation of Colombian
cocaine to Europe through Venezuela. In the late 1990s, Sanchez Rua was
arrested by Colombian authorities on arms smuggling charges. The current
whereabouts of Jesus Maria Alejandro Sanchez Jimenez and Rafael Angel
Sanchez Rua are unknown.
Today's OFAC action also targets entities and individuals that hold assets on behalf
of Jesus Maria Alejandro Sanchez Jimenez and Rafael Angel Sanchez Rua.
Ganaderia Arizona, controlled by Sanchez Jimenez, is a prize-winning cattle farm
located in Caucasia, Colombia with an office in Medellin. Sanchez Rua controls
three companies in or near Cartago, Colombia: Almacen y Compraventa Los 3
Oras, an agricultural store; Granja Porcicola La Fortaleza, a commercial pig farm;
and Motel Momentos EU, an hourly motel. OFAC also designated today Luz
Pied ad Restrepo Encizo and Marisol Viedma Abonce, who act for or on behalf of
Sanchez Rua.
This designation is part of the ongoing interagency effort by the Departments of the
Treasury, Justice, State and Homeland Security to implement Executive Order
12978 of October 21, 1995, which applies financial sanctions against Colombia's
drug cartels. Today's designation action freezes any assets the designees may
have that are subject to U.S. jurisdiction and prohibits all financial and commercial
transactions by any U.S. person with the deSignated companies and individuals.
A detailed look at the program against Colombian drug organizations is provided in
OFAC's March 2007 Impact Report on Economic Sanctions Against Colombian

p:llwww.treas.gov/presslreleases/hpl 1 19.htm

9/15/2008

[P-1119: TreasUt)' Targets Rising Colombian Narcotics Traffickers

Page 2 of2

Drug Cane/so

REPORTS

P:llwww.treas.gov/press/releases/hpll19.htm

9115/2008

u.s.

Department of the Treasury
Office of Foreign Assets Control

JIMENEZ NARANJO
Organization
August 2008

Specially Designated
Narcotics Traffickers

,-

~~<----Indicted in the U.5. on Drug Trafficking
Charges in 2005 and 2007

Extradited to the U.5.
on May 7, 2008

Carlos Mario JIMENEZ NARANJO
CC 71671990 (Colombia)
[Designated on February 12, 2008]

t

Drug Trafficking lieutenants of "Macaco"
DECEASED
/' ";-

.

~

J'('>.~

·ft;;:::,.,:;-1:
~'\ ~;
~\. f
\

Jesus Maria Alejandro SANCHEZ JIMENEZ
a.k.a. "Chucho"; "EI Primo"; "Scubi"
CC 10026001 (Colombia)

Hector Edilson DUQUE CEBALLOS
a.k.a. "Monoteto"
(Not Designated - Murdered in July 2008)

'

,

Rafael Angel SANCHEZ RUA
CC 16219873 (Colombia)

o

(J

GRANJA PORCICOLA
LA FORTAlEZA
Cartago, Valle, Colombia
NIT# 31423447-7

AlMACEN Y COMPRAVENTA
lOS30ROS
Cartago, Valle, Colombia
NIT# 16219873-3

('0"'0'1"

(comm'~f p" F'~J

Caucasia, Antioquia, Colombia
NIT# 10026001-7
(Cattle Farm)

Ie.;:Q,9J,~1 --"
~>
~"
,,""

,

Arms
Trafficking

MOTEL MOMENTOS E.U.

Luz Pied ad
Carta go, Valle, Colombia
RESTREPO ENCIZO
NIT# 900089381-9
CC 31423447 (Colombia)
(Hourly Motel)

Sto"'J

~

~-

/7h,

L~j7J'S"]

Marisol
VIEDMA ABONCE
CC 31415437 (Colombia)

IP-1120: Treasury Depallment Selects Pizer as<br> Deputy Assistant Secretary for Environment and E...

Page I of I

August 28, 2008
HP-1120
Treasury Department Selects Pizer as
Deputy Assistant Secretary for Environment and Energy
Washington - Undersecretary for International Affairs David H. McCormick today
announced the selection of William A. (Billy) Pizer to be Deputy Assistant Secretary
for Environment and Energy. He will lead a new office created by Secretary
Paulson to develop, coordinate, and execute the Treasury Department's role in the
domestic and international environment and energy agenda of the United States.
Among other things, the office will oversee international financial mechanisms to
support U.S. and global environmental goals, such as the multi-billion dollar Clean
Technology Fund established in July, the Tropical Forest Conservation Act, and the
Global Environmental Facility, as well as contribute to the development of domestic
and international policy options to address climate change.
Pizer spent the past 12 years at Resources for the Future, the nonpartisan research
organization, most recently as Senior Fellow and Research Director, where he
directed, published, and communicated research on the design of effective
environmental policy. He has also served as Senior Economist at the National
Commission on Energy Policy and Senior Staff Economist at the White House
Council of Economic Advisers. He received a B.S. in Physics from the University of
North Carolina and a Ph.D. in Economics from Harvard University.

-30-

p:llwww.treas.go v /press/releases/hpl120.htm

911 5/2008

[P-1121: US Tleasury Awards $54.2 Million to Benefit Organizations<br>Serving Economically Distrc... Page 1 of 2

August28,2008
HP-1121

US Treasury Awards $54.2 Million to Benefit Organizations
Serving Economically Distressed Communities Nationwide
Port Angeles, Wash. - Director Donna J. Gambrell, of the U.S. Department of the
Treasury's Community Development Financial Institutions (CDFI) Fund, visited Port
Angeles, Wash. today to announce awards totaling $54,181,733 for 89
organizations serving economically distressed communities across the nation. The
awards are being made through the fiscal year 2008 round of the CDFI Program.
The award recipient organizations are headquartered in 38 states and the District of
Columbia.
"Port Angeles is a long way from the nation's capital, but we selected this location
to make our FY 2008 national award announcement to highlight how CDFls are
successful at implementing innovative approaches to rural economic development,"
said CDFI Fund Director Gambrell. "By embracing new traditions of sustainability
and economic diversification, CDFls are helping to map the future of rural
revitalization and growth."
Treasury held the national award announcement at the Incubator at Lincoln Center
in Port Angeles to highlight the three Pacific Northwest-based award recipients:
Shorebank Enterprise Cascadia (Ilwaco, WA); Washington Community Alliance for
Self-Help (Seattle, WA); and Innovative Housing, Inc. (Portland, OR). In addition,
the announcement focuses on the work of many CDFls in support of the nation's
rural communities, bringing residents greater access to affordable credit, capital
and financial services. Many CDFls focus on a "triple bottom line" where the
success of their investments is measured not just by financial return but also
through community impacts and environmental benefits in the communities they
serve.
The awardees were selected after a competitive review of 225 applications received
by the CDFI Fund from organizations across the nation that requested, in total,
more than $205 million in funding under the FY 2008 round of the CDFI Program.
Since inception, the CDFI Fund has made almost 1,500 awards for over $625
million through the CDFI Program.
Background
Through the CDFI Program, the CDFI Fund invests in and builds the capacity of
existing private, for-profit and nonprofit community-based lending organizations
known as Community Development Financial Institutions (CDFls) that serve rural
and urban low-income people and communities across the nation that lack
adequate access to affordable financial products and services.
The CDFI Program consists of two types of monetary awards: Financial Assistance
and Technical Assistance. The program is funded through an annual appropriation
from the United States Congress. The CDFI Fund receives applications on an
annual basis and awards funds through a competitive process. Since inception, the
CDFI Fund has awarded over $625 million through the CDFI Program. In FY 2008,
66 CDFls received $52 million in Financial Assistance or a combination of Financial
Assistance and Technical Assistance awards and 23 organizations received $2
million in only Technical Assistance awards.
Financial Assistance
Financial Assistance awards allow the CDFI Fund to achieve economic and
community development impact by investing in CDFls that demonstrate the

P:l/www.treas.gov/press/releases/hpl121.htm

9115/2008

IP-1121: US 'frcasUt')' Awards $)4.2 Million to Benefit Organizations<br>Scrving Economically Distre... Page 2 of 2
financial and managerial capacity to provide affordable financial products and
services to low-income communities and populations. Financial Assistance awards
are made only to certified CDFls (meaning, they have been certified by the CDFI
Fund prior to applying for funds), which includes both mature CDFls and small and
emerging CDFls.
Financial Assistance awards are made in the form of equity investments, loans,
deposits, or grants, depending on the form of the applicant's matching funds.
Financial Assistance awards must be matched with non-federal funds of the same
type, on a dollar-for-dollar basis. Through the match requirement, CDFls leverage
private capital to respond to demand for affordable financial products and services
in economically distressed markets and by low-income people. CDFls respond to
this demand by providing loans, investments, training, technical assistance, and
basic financial services such as checking and savings accounts.
Technical Assistance
Through Technical Assistance awards, in the form of grants, the CDFI Fund assists
start-up and existing CDFls to build their organizational capacity to serve their
target markets. Both certified and non-certified CDFls are eligible to apply for
Technical Assistance awards; non-certified organizations must meet CDFI
certification requirements within three years.
Technical Assistance awards can be used for multiple purposes, including
purchasing equipment, materials, supplies, and consulting and contracting services.
A Technical Assistance award can also be used to pay for certain personnel
salaries/benefits and to train staff or board members. Established CDFls often use
Technical Assistance awards to build their capacity to provide new products, serve
current markets in new ways, or enhance the efficiency of their operations. Newer
CDFls often use their Technical Assistance awards to undertake market studies,
develop underwriting policies, and purchase computer equipment.
For more information on the CDFI Program, please visit www.cdfifund.gov.
-30-

ttp:llww w.treas.go v/press/releases/hpl121.htm

9/15/2008

fP-1122: Report to COIlgress on Implementation of the <br>International Monetary Fund's 2007<br>De ... Page 1 of i

10 vIew

or pnnt

tne /-,UI- content on tnlS page. Gown/oaG the free AClObe'y'j AcrofJal lP) KeaClel',PI.

August28,2008
HP-1122

Report to Congress on Implementation of the
International Monetary Fund's 2007
Decision on Bilateral Surveillance Over Members' Policies
Washington - Today, the Treasury Department released the attached Report to
Congress on Implementation of the International Monetary Fund's 2007 Decision on
Bilateral Surveillance Over Members' Policies,

REPORTS
•

Reports

1p:llwww.treas.go y /press/reieases/hpI122.htm

9/15/2008

REPORT TO CONGRESS ON IMPLEMENTATION OF
THE INTERNATIONAL MONETARY FUND'S 2007 DECISION ON BILATERAL
SURVEILLANCE OVER MEMBERS' POLICIES
August 200X
This report has been prepared consistent with the Explanatory Statement in the Committee Print
of the ~ouse Committee on Appropriations regarding the Consolidated Appropriations Act,
2008.1.~ The report focuses on the International Monetary Fund's (IMF) implementation of the
June 2007 Decisiol1 all Bilateral Surveillallce over Members' Policies. The report provides
progress to date in the IMF's implementation of the revised policy. Further updates, including
on selected country cases, will be provided in forthcoming submissions of the Semiannual
Report on Intemational Ecollomic and Exchange Rate Policies.

Summary Points
•

The IMF was founded against the backdrop of the beggar-thy-neighbor competitive exchange
rate practices of the 1930s with a mandate to promote a strong and cooperative international
monetary system and exercise firm surveillance over members' exchange rate policies.

•

IMF staff has consistently demonstrated a high level of expertise and technical proficiency in
analyzing countries' fiscal, monetary, and financial sector policies. This work has been
critical in helping the international community address many challenges, such as the 1980s
debt crises, the transition of former Soviet economies, and emerging market financial crises.

•

The IMF's focus on exchange rate policy analysis, however, had not received the priority it
merited. Exchange rate analysis is inherently complex. Given the IMF's cooperative
character, some members have been concerned about stigmatizing countries by identifying
harmful exchange rate policies. Statements about exchange rates can also be marketsensitive, and reports on policy discussions to the Board and to the public have often been
seen as inconsistent with the Fund's role as a confidential and trusted advisor.

•

As a result of these and other factors (discussed below), it is the view of the U.S. Treasury
Department that the IMF had historically fallen sh0l1 in exercising firm surveillance over
members' exchange rate policies, and ultimately in fulfilling certain of its basic
responsibilities to the international monetary system.

I This report was prepared by staff of the Bureau of International Affairs at the U.S. Department of the Treasury.
The principal drafter was Lisa Ortiz. The report benefits from comments from Robert Kaproth, Clay Berry, Patricia
Pollard, and Mark Sobel.
2 Title V, Division J of the Explanatory Statement of the Committee Print of the House Committee on
Appropriations on H.R. 2764 (Consolidated Appropriations Act. 2008, P.L. 110-161) states:

The Secretary of the Treasury is directed to report to the Appropriations Committees not later than 120
days after enactment of this Act on the following: the implementation of the IMF Decision on Bilateral
Surveillance Over Members Policies, announced on June 15,2007, which establishes a new system for
IMF bilateral surveillance on exchange rate policies of member countries; and which member countries are
in violation of the Decision including those that are manipulating exchange rates for the purpose of
securing fundamental exchange rate misalignment in the form of an undervalued exchange rate with the
purpose to increase net exports.

•

In order to demonstrate that surveillance over exchange rate policies would be restored to the
heart of the Fund's systemic responsibilities, the IMF Executive Board, with the strong
support of the United States, adopted a revised decision on foreign exchange surveillance in
June 2007.

•

The new decision stressed that bilateral surveillance should focus on whether a country's
policies promote "extemal stability".-' It added a new principle, "Principle D", which states
that member countries should avoid exchange rate policies that result in extemal instability.
It further defined for the first time the concept of "manipulation", modemized the "triggers"
for increased IMF attention to a country's exchange rate policies, and included "fundamental
misalignment" as a key trigger. 4

•

One year after its adoption, the implementation of the new decision can be viewed as mixed.
On the positive side, exchange rate analysis has now retumed to the core of the IMF's daily
work. Article IV papers generally focus on exchange rate matters in greater detail, and there
has been progress on making assessments of exchange rate levels, consistent with a country's
economic fundamentals. IMF Board discussions delve to a much greater extent into
exchange rate issues.

•

However, while the quality of exchange rate assessments is improving, it does not yet
unifomlly meet a standard of excellence. Furthermore, the IMF management, staff, and
Executive Board have not tackled potentially harmful exchange rate practices and shied away
from the necessary and essential task of making judgments about "fundamental
misalignment", especially in several key cases. While the consensus-based nature of the IMF
is critical for its cooperative character, when the Fund's powers of persuasion have not
resulted in meaningful change after a prolonged period, it is especially imperative that the
Fund speak out forcefully and publicly about harmful country exchange rate practices.

•

Recently, Managing Director Strauss-Kahn informed the Board of Directors that he intends
to initiate a process of "ad hoc consultations" in cases where he has significant concerns a
member may not be observing a Principle for the Guidance of Members' Exchange Rate
Policies, or when an exchange rate may be fundamentally misaligned. The "ad hoc
consultation" process will be a useful and welcome tool if IMF management, staff, and the
Executive Board are prepared to work intensively with particular countries to apply the new
Decision in a vigorous and forceful manner.

•

For the IMF to retain its central role in the intemational financial system, it must strengthen
its efforts to exercise clear surveillance over IMF members' exchange rate policies and it
must not shy away from the job of making tough judgments, especially when these policies
are undertaken by large countries and have systemic implications. The IMF should also be
fully transparent about the steps it is taking to bring about needed changes.

} External stability, and other relevant topics, are defined in the IMF Guidance on Operational Aspects of the 2007
Surveillance Decision, available at http://www.imf.org/external/pp/longres.aspx·)id=4276. Broadly, external
stability is defined as a balance of payments position that does not, and is not likely to, give rise to disruptive
exchange rate movements.
4 See Appendix A for an explanation of Principles A, B, and C.
2

The IMF's Role in Surveillance
The IMF was founded in 1944 against the backdrop of the destructive mercantilist economic
policies of the 1930s, including highly protectionist trade policies and beggar-thy-neighbor
competitive exchange rate depreciations. World leaders looked to the establishment of
institutions such as the IMF to prevent a return to such insular policies. Thus, the founders of the
IMF envisaged it as the central institution for the international monetary system, with the
mandate to promote multilateral cooperation, foster strong global growth, advance orderly
exchange rate arrangements, avoid competitive exchange rate depreciation, lessen disequilibria
in the international balance of payments, and enhance a multilateral system of payments. From
the start, exchange rate issues were at the core of the Fund's fundamental responsibilities in the
international monetary system.
Between 1944 and 1971 the global economy functioned on a dollar-gold exchange standard -the Bretton Woods system. Under this system the majority of currencies were fixed in value to
the US dollar and the dollar was fixed in value to gold. Eventually, however, the world's
continual demand for dollars required that the United States run an ever shrinking current
account surplus, eventually leading to deficit, in order to meet that demand, and the size of the
deficit in tum became sufficiently large to weaken foreign confidence in dollar holdings, while
imposing signi ficant costs on the United States. U.S. economic policies in the 1960s aggravated
these trends. In the early 1970s, the United States abandoned the Bretton Woods system and over
the course of the decade, an international monetary system, increasingly based on floating rates
of major economies, emerged. 5
To continue overseeing the system, in the 1970s, the IMF overhauled its Articles of Agreement.
Under the new Article IV, member countries agreed to collaborate with the IMF and with one
another to promote the stability of the global system of exchange rates. In particular, IMF
member countries have the right to select an exchange rate regime of their choosing but also an
obligation not to manipulate their exchange rate for the purposes of preventing effective balance
of payments adjustment or gaining an unfair competitive advantage in international trade. In
return, the IMF is charged with overseeing the international monetary system to ensure its
effective operation and monitoring each member's compliance with its policy obligations. This
involves both bilateral and multilateral surveillance of exchange rates.
More specifically, obligations over bilateral surveillance were operationalized in the landmark
1977 Executive Board Decision on Surveillance of Members' Exchange Rate Policies that
consisted of: (1) Principles for the Guidance of Members' Exchange Rate Policies (PGMs), (2)
Principles of Fund Surveillance over Exchange Rate Policies, including indicators to be used in
gauging whether members are abiding by the PGMs, and (3) Procedures for Surveillance.
In fulfillment of its responsibilities, the IMF's Executive Board conducts Article IV
consultations with each member country, typically once a year, or every two years in some cases.
IMF Management, or a country, may also delay the Article IV consultation for a reasonable
period. During the Article IV process, an IMF staff team meets a country's economic officials at
5 As discussed later in the report, a variety of exchange rate systems, including pure floats, pegs, crawling pegs and
the use of currency boards have emerged over time. See Appendix II of the SemiannllalReporf on International
Economic and Exchange Rate Policies for a more in-depth discussion of fixed and floatmg exchange rate
arrangements http://www .treasury .govlofficeslintemational-affai rsl economic-exc hange-rates/.

3

the technical, senior policy, and typically the Ministerial/Central Bank Governor level. IMF staff
views are then set (ol1h in a staff report that summarizes economic developments and prospects,
as well as discussions with the national authorities. The staff report is discussed by the IMF
Executive Board. Publication of both the summary of the IMF Executive Board meeting and the
staff paper are voluntary but presumed, though the country in question has the right to delete
"market sensitive" information, and may decline to permit publication altogether.
The key instruments of the IMF's multilateral surveillance are two semi-annual publications
produced by the Fund - the World Economic Olltlook (WEO) and Global Fil/al/cial Stabilitv
Report (GFSR). The former is focused on the world economy as a whole and the latter on the
financial sector and capitalmarkets.<> In addition, broad developments in multilateral exchange
rates are reviewed periodically by the Executive Board, e.g., through discussions of the WEO
and the GFSR and of exchange rate and financial market developments.
Thus, bilateral and multilateral surveillance make up the two prongs of the IMF's surveillance
approach. They are intended to complement each other and reinforce the Fund's ability to
conduct sound and effective worldwide surveillance.

Whv Was a New Foreign Exchange Surveillance Decision Needed?
In June 2007, the IMF Executive Board adopted a new Decisioll all Bilateral Surveillance over
Members' Policies, replacing guidance that had been in place since 1977. Several factors made
it necessary to update the 1977 decision.
Since 1977, the international monetary system has changed profoundly.
•

Private capital markets have grown exponentially, and private capital supplanted official
resources in meeting countries' gross external financing needs.

•

The former Soviet bloc countries transitioned to market economies following the fall of the
Iron Curtain.

•

In 1999, a majority of European Union member countries adopted the euro as their currency.

•

Outside the industrial countries, many emerging markets have put in place sound economic
policies and institutions, achieving strong growth and income gains, and become increasingly
integrated into the global financial system.

•

The emerging market financial crises at the tum of the century resulted in many countries
exiting from overvalued and pegged exchange rates, followed by a period of reserve reaccumulation.

(, The Wurld ECOl1omic Olltlook, published twice a year, presents IMF staff economists' analyses of global economic
developments during the near and medium term. Chapters give an overview of the world economy; consider issues
affecting industrial countries, developing countries, and economics in transition; and address topics of pressing
current interest. The Global Fillancial Srabillfr Report (GFSR) was created to provIde a frequent assessment of
global financial markets and to address emerging market financing in a global context. Thus, it focuses on current
conditions in global financial markets, highlighting issues of financial imbalances, and of a stmctural nature, that
could pose a risk to financial market stability and sustained market access by emerging market borrowers.
4

•

The international monetary system is characterized now by the widespread use of floating
exchange rates for major economies, in contrast with their more limited use in the 1970s.

In practice, while the IMF's surveillance work on members' fiscal, monetary, and financial
sector policies has been technically excellent, the same could not be said for its exchange rate
surveillance. This reflects many factors.
As noted, the IMF Articles of Agreement allow members to choose their exchange rate regime
and there is no one-size-fits-all regime. Regardless of the exchange rate regime, a key question
is whether the underlying economic policies of a country are sustainable. 7
Further to this point, rendering conclusions about exchange rate practices and regimes is
inherently complex. The interaction between the exchange rate and domestic policies can run
both ways. In a fixed exchange rate regime, the exchange rate is the central target of monetary
policy. In a floating regime, the exchange rate is an outcome from other policies. Exchange rate
changes can be influenced as much by developments abroad as at home. Countries' exchange
rate regimes can differ depending on whether an economy is relatively closed or open to trade
and financial flows, the extent of pass-through from exchange rate changes to domestic inflation,
the flexibility of labor and other factor markets, the concentration of trade, and/or the
sophistication, credibility, and quality of a country's institutions.
Also, imbalances can be adjusted through domestic policy measures, exchange rate adjustment,
or some combination thereof.8 There is no absolutely precise way to calculate equilibrium
exchange rates (though such calculations do provide useful information, and can be utilized to
form judgments in conjunction with other information such as current account positions,
savinglinvestment patterns, reserves, and a country's reliance on external demand). Further,
exiting from a peg can be a difficult and potentially destabilizing undertaking.
In conducting Article IV reviews, the IMF has often seen itself as trusted advisor to countries,
and sought to use its persuasive powers and candor in helping countries make necessary policy
adjustments. This has tended to limit the Fund's public discussion of exchange rate policies,
including the exchange rate level consistent with equilibrium.
Against this background, over time, the IMF's bilateral surveillance work increasingly centered
on a country's underlying policies. In particular, the IMF heavily analyzed countries' fiscal,
monetary, and more recently, financial sector policies. This analysis was and remains fully
appropriate and the Fund staff has performed it excellently, with strong technical expertise.
But, unfortunately, exchange rate analysis was increasingly given less prominence in the IMF's
Article IV work. In tum, the Fund - the Management, staff, and the Executive Board - failed to
meaningfully debate and render decisive opinions about exchange rate analytics, even though the
exercise of firm surveillance over members' exchange rate policies lies at the very heart of the
Fund's global responsibilities and the basic rationale for the founding of the IMF.

See U.S. Treasury, "Report to the Committees on Appropriations on Clarification of Statutory Provisions
Addressing Currency Manipulation"; March 11,2005.
8 See Tim Adams, "Working with the IMF to Strengthen Exchange Rate Surveillance", February 2, 2006.
7

5

From the standpoint of the IMF's internal governance, the 1977 Decision was, in practice, no
longer read by IMF staff, or countries, as offering operational guidance on exchange rate
policies. For example, the 1977 Decision was silent on the dangers of an overvalued exchange
rate, despite the experience with many emerging market financial crises since the mid-1990s.
Similarly, the Fund had failed to engage rigorously on exchange rate matters, despite having an
explicit mandate and procedures to do so. Although IMF staff work had remained current with
changing economic conditions, the 1977 Decision had not been amended to account for the
profound changes in the international monetary system over the last thirty years.
A major report by the IMF's Independent Evaluation Office (lEO) found, in April 2007, that the
IMF was simply not as effective as it needed to be in both its analysis and advice on exchange
rates, and in its dialogue with member countries.'! In particular, it found: a lack of understanding
of the role of the IMF in exchange rate surveillance; a failure by member countries to understand
and commit to their obligations to exchange rate surveillance; a strong sense amongst some
member countries of a lack of evenhandedness in surveillance; a failure by management and the
Executive Board to provide adequate direction and incentive for high-quality analysis and advice
on exchange rate issues; and the absence of an effective dialogue between the IMF and many of
its members on exchange rate issues.
Apart from its analytic work, the Fund still retained a variety of important tools and approaches
at its disposal that could have been used to highlight strongly undesirable exchange rate
practices. In 1979, the IMF developed a "special consultation" mechanism under which the
Managing Director of the IMF could consult with member countries whose exchange rate
policies might not be in line with the Article IV principles. However, a fear of stigmatizing
countries highly constrained its use and special consultations were only undertaken twice over
three decades. 10
Over time, it became clear that the Fund had drifted away from its core responsibility on
exchange rate surveillance. Further, the Fund had failed to engage rigorously on exchange rates,
despite having an explicit mandate and procedures to do so.
In this context, IMF management decided that it would be useful to completely update the 1977
Decision in order to reflect the changes that had occurred in the international monetary system
and to give renewed relevance to the Decision as fundamental policy guidance for IMF staff, and
for IMF members.

The New Surveillance Framework
The 2007 Decision 011 Bilateral Surveillallce over Members' Policies replaced the 1977 Decisioll
on Surveillance over Exchange Rate Policies as the guiding document on surveillance. The new
decision was strongly backed by the U.S. Treasury Department in an effort to refocus the Fund
on its core mandate and thereby help to ensure the IMF's continued value added to the
international community. I I
Oil liz£' Evaluation of liz£' IAIF Exchallge Rale Polin' Adl'icc. 1999-J005, (SM/071l32), April 18, 2007.
Special cansultatians were undertaken with Sweden and South Korea. Although the concept of speCIal
consultatians was further refined III 1993 III order to. braaden Its applicatIOn and promate greater use, the approach
9

lEO Report

10

was nat used.
.
.
. .
II See, far example, remarks by Under Secretary far Intematianal AffaIrs TIm Adams at the Amencan Enterpnse
Institute Seminar, Working with Ih£' IMF to StrcllgthclI Exchangc Ratc SlIn'clllallce, February 2, 2006.

6

In addition to formalizing the de/acto coverage of fiscal, monetary and financial sector policies
in the conduct of bilateral surveillance, the new IMF surveillance framework reaffirmed the
central role of exchange rate work in the Fund's daily life. Specifically, it stressed that bilateral
surveillance should be focused on: (I) assessing whether a country's policies promote external
stability; (2) what is and is not acceptable in bilateral exchange rate policies; and (3) stressing
that surveillance should be a collaborative process between the Fund and its members, which
takes into account country-specific circumstances and has a multilateral, medium-term
perspective. More importantly, the 2007 Decision brought several specific improvements over
the 1977 Decision:
•

It defined for the first time the concept of "manipulation" by breaking it into two parts.
Manipulation exists when there is: (a) fundamental misalignment of the exchange rate l2 ; and
(b) intent to manipulate the exchange rate for the purposes of gaining an unfair advantage in
international trade.

•

It modernized the "triggers" for increased IMF attention to a country's exchange rate policies
by dividing them into "policies" and "outcomes" and by including fundamental misalignment
and excessive accumulation of foreign assets as two key triggers.

•

It added a new Principle D, which states that member countries should avoid exchange rate
policies that result in "external instability.,,13

Indicators of Exchange Rate Misalignment
A key feature of the 2007 Decision was a c lari fication of relevant indicators to serve as triggers
in exchange rate surveillance. Indicators are an essential component of effective exchange rate
surveillance. They can provide a useful warning about potential problems and spur discussion of
exchange rate issues that might otherwise go undetected. These indicators, therefore, serve a
critical role by eliminating subjectivity and, hence, part of the political difficulty associated with
effective exchange rate surveillance. The Decision includes seven indicators to signal when
observance of the Principles should be looked at more closely.

12 Fundamental misalignment occurs when the real effective exchange rate (REER) deviates from its equilibrium
level. Equilibrium is the level of the REER that is consistent with an underlying current account balance (the
balance adjusted for temporary factors) that is in line with economic fundamentals. Fundamental misalignment may
result from a country's exchange rate policies, from domestic polices that affect the exchange rate, or from market
imperfections. Given the difficulty in measuring the equilibrium REER only misalignments that were significant
would be considered fundamental misalignments (see the next section for more discussion). Further, as previously
noted, given that misalignments cannot be precisely measured, it is important to integrate other indicators into
analysis and in forming judgments.
13 See Appendix A for an explanation of Principles A, B, and C.

Indicators

Policies
(i) Protracted large scale intervention in one direction in the exchange market;
(ii) Official or quasi-official borrowing that either is unsustainable or brings unduly high
liquidity risks, or excessive and prolonged official or quasi-official accumulation
of foreign assets, for balance of payments purposes;
(iii) (a) The introduction, substantial intensification, or prolonged maintenance, for
balance of payments purposes, of restrictions on, or incentives for, current
transactions or payments or
(b) the introduction or substantial modification for balance of payments purposes of
restrictions on, or incentives for, the inflow or outflow of capital;
(iv) The pursuit, for balance of payments purposes, of monetary and other financial
policies that provide abnormal encouragement or discouragement to capital flows;

Outcomes
(v) Fundamental exchange rate misalignment;
(vi) Large and prolonged current account deficits or surpluses; and
(vii) Large external sector vulnerabilities, including liquidity risks, arising from private
capital flows

Rendering Exchange Rate Judgments
In helping to formulate its judgments about exchange rate misalignments, the IMF has
maintained a semi-annual review, known as the Consultative Group on Exchange Rates (CGER)
(discussed in Annex B). CGER incorporates three different models of the equilibrium exchange
rate. The models are complementary but reflect important differences that are designed to
capture relevant aspects of exchange rate determination. The methodologies are publicly
14
available.
A key drawback of the CGER methodology for use in bilateral surveillance is its limited country
coverage. CGER currently provides internal estimates of exchange rate misalignment for only 27
currencies. Although these countries represent the majority of global economic output, there are
important gaps in country coverage. For example no major oil exporting country is included.
As noted previously, there is no precise way to identify equilibrium exchange rates and
deviations from them. Equilibrium exchange rate calculations are based on models, which make
various assumptions. However, equilibrium exchange rate models offer useful information,
especially when various models reach generally similar conclusions in direction and magnitude,
(but even when they do not). Further, as noted, when such model results are coupled with other
1S 16
available data, composite judgments can be reached. . In the final analysis, rendering
14 See, "Methodology for CGER Exchange Rate Assessments," November 8, 2006.
http://www.imf.org/extemallnp/pp/eng/2006/110806.pdf.
15 See Ashby McCown, Patricia Pollard, John Weeks, "Equilibrium Exchange Rate Models and Misalignments::
Treasury Occasional Paper 7, March 2007; and Mark Sobel, "Symposium of the Bretton Woods Committee on
China"; March 14,2008.
8

judgments about exchange rates - such as a finding of "fundamental misalignment" - is
inherently complex, but it is the Fund's basic responsibility to do so.

Progress in Implementation
The Fund is making progress in implementing the 2007 Decision in several areas, but
considerably more needs to be done.
A key test for the 1M F is to improve the quality of and focus on exchange rate analysis in
bilateral surveillance through its AI1icie IV work. On this front, the tremendous technical
strengths of the Fund staff are already on exhibit.
Article IV papers focus to a much greater extent on exchange rate analysis and staff is more
consistently examining exchange rate issues in its papers. Nearly all Article IV papers now
include a clear assessment of whether the exchange rate level is consistent with fundamentals.
There also has been a substantial increase in the number of detailed technical analyses of
exchange rate issues. In addition, Board discussions now entail far greater debate about
exchange rate issues. Some examples of the Fund's improved work are to be seen in the
following Article IV reports, available on the IMF website:
•

The 2008 reports for the Euro Area and the United States present the results of the three
CGER methodologies supplemented by staffs own analysis. CGER estimates indicate an
overvaluation of the real exchange rate of the euro in the range of 5 to 20 percent; the staff
report indicated the overvaluation is at least 10 percent. For the United States, the CGER
and staff analysis indicate that the real exchange value of the dollar is modestly overvalued.
Staff also used a new analytic technique developed by economists at the Federal Reservebased on price levels rather than relative prices - to measure the real effective exchange rate
(REER).17 This technique observes that a shift in the pattern of trade to lower-cost countries,
as has been the case for the United States, will result in further real appreciation.

•

Chile is an emerging market economy with an independently floating exchange rate that is
included in the CGER model. Staff analysis indicates that an improvement in its terms of
trade account for much of the real appreciation of the peso over the past few years, indicating
18
that the peso is roughly in equilibrium.

•

Bulgaria's exchange rate is not included in CGER but staff uses similar techniques to
estimate the current account norm and equilibrium REER.19 The analysis accounts for the
effects of Bulgaria's status as a transition economy and a new member of the European
Union on the path of the current account. Staff found that the REER was not misaligned but
noted that Bulgaria's current account deficit is not sustainable. Staff believes the deficit is a

See Treasury Semi-Annual Report on International Economic and Exchange Rate Policies, Appendix I: Pattern of
Indicators; November 2005 through June 2007.
17 See Charles P. Thomas, Jaime Marquez, and Sean Fahle, "Measuring U.S. International Relative Prices: A Warp
View of the World, Board of Governors of the Federal Reserve System: International Finance discussion Paper No.
10

917, January 2008.
18 As in the U.S. Article IV report, staff includes a WARP measure of the real effective exchange rate to capture
Chile's increasing trade with countries with lower price levels.
19 A detailed analysis of the real exchange rate is in chapter 2 of the Selected Issues Paper that accompanies the staff
report. <<http://www . im f.org/ex ternal/pubs/ft/scr/200S/crOS5 7. pd f> >
9

result of a temporary investment boom that will diminish over the medium-term. Staff
cautioned that this scenario depends on maintaining prudent fiscal policies. Romania
provides another example of detailed analysis of a similarly situated EU accession country.
•

Botswana is a resource-dependent developing economy with a crawling peg exchange rate
regime. Staff used several approaches to assess Botswana's REER and adapted one
especially for an economy dependent on exports of non-renewable resources. Staff analysis
highlights the role of the 2004 devaluation and subsequent move to a crawling peg regime in
reversing the overvaluation of the REER.

•

Hong Kong is a global financial center whose currency is pegged to the U.S. dollar but
allowed to fluctuate within a narrow trading band. Although not included in CGER, staff
adapted the CGER methodology to analyze the REER. In the macro balance and equilibrium
real exchange rate approaches, staff accounted for Hong Kong's status as a financial center
by only including countries in the model where the financial sector accounts for a large share
of the economy. The REER was considered in line with fundamentals.

The progress being made on this front is not fully evident from a public review of IMF
documentation. As noted previously, Article IV publication is voluntary but presumed. Further,
the publication policy for Article IV documents allows countries to delete "market-sensitive"
items from reports, and exchange rate analysis can be perceived as market-sensitive.
Despite this progress, the IMF's efforts to implement the new surveillance decision have fallen
short in other key respects. First, difficult cases have been repeatedly and unnecessarily delayed
for considerable periods due to debates about the meaning of the 2007 Decision. For example,
the scheduled 2007 Article IV review for China has yet to be completed.
Second, the Fund has been reluctant to draw clear and crisp judgments about exchange rate
issues in general when members may not be observing the Principles for the Guidance of
Members' Exchange Rate Policies, even when a finding of "fundamental misalignment" might
be warranted. When exchange rate practices give rise to serious questions for sustainability, and
particularly when these practices are undertaken by large countries and have systemic
implications, it is the Fund's job as the lynchpin of the international monetary system to shine a
spotlight on the issue. While the consensus-based nature of the IMF is critical for its cooperative
character, when the Fund's powers of persuasion and candor have not resulted in meaningful
change after a prolonged period, it is imperative that the Fund speak out forcefully and publicly
about hannful country exchange rate practices.

New Guidance on Operational Aspects to Implement the 2007 Decision
The Fund has recently reviewed the first year of experience with the new 2007 decision and in
tum: a) issued guidance to help IMF staff apply many of the operational concepts in the 2007
Decision; and b) developed a new procedure for holding "ad hoc consultations" with selected
members.
In practice staff has until recently largely been left on its own to detern1ine the procedures for
assessing the exchange rate. Given the wide diversity of country circumstances, questions have
arisen as to how to implement the new Decision in a consistent manner across the membership.
However, the Fund in August 2008 circulated new guidance for Fund staff intended to educate
10

staff on proper implementation of the Decision. [n particular, the Guidance includes Frequently
Asked Questions on external stability, currellt accoullt assessmellts, exchange rate assessments,
.Iillldamenta/ misaligllment, capital account-based external instability, and principles/or the
gUidance o(lJIcmbcrs' cxchange ratc policies. Collectively, the guidance is intended to clarify
how the Decision is to be applied by providing a common set of terminology, definitions, and
approaches. The Fund has published these guidelines on its external website.
[http://www . im Corgi ex terna I/pp/longres.aspx ?id=4 2 7 6]
[n an attempt to improve the candor of discussion on exchange rate issues, Fund Management
has proposed creating a process of "ad hoc consultations" in cases where management has
sigllUicant concerns that cither (i) a II/cmber lIlay not bc observing a Principlefor the Guidance
ofMelllbcrs ' Exchange Rate Policics or (ii) a member's exchange rate may be fundamentally
misaligned. even ((this misaligl/mcnt does not stem from exchange rate policies (e.g., in cases
\I'herc a membcr lets its exchangc rate/loat completely/i-eely)?O These ad hoc consultations will
normally conclude within six months, may be undertaken at any time, and will provide a
framework for enabling the Fund to reach final conclusions on the specific findings under the
Decision and whether a country's currency is fundamentally misaligned. The Executive Board
must approve an ad hoc consultation before it can be carried out. In addition, the initiation of an
ad hoc consultation will be made public.
By employing ad hoc consultations, Fund management hopes to involve the Board early in the
consultative process and increase the transparency of exchange rate discussions with member
countries. However, given the Fund's reluctance in the past to undertake "special consultations",
the challenge before the Fund now is to vigorously use the proposed new "ad hoc consultations"
approach to fulfill the IMF's systemic responsibilities and to implement the full extent of the
2007 Decision. Meeting this challenge will be a critical factor in judging the Fund's efforts to
modernize and reform itself and to maintain its relevance and legitimacy.
On balance, increased attention to exchange rates in Board discussions and Article IV staff
reports along with an increased focus on refining the Fund's analytics, such as the CGER
methodology, are all positive steps. These developments, consistent with the 2007 Decision, are
helping to strengthen attention to exchange rate issues and enhance the focus of surveillance.
However, the vital task of making tough judgments and increasing candor and clarity on external
stability and exchange rate issues has not yet met with the same success. In particular, this task
has been impeded by the resistance of some countries fearing stigmatization, uncertainty among
Fund staff about how the 2007 Decision is to be applied, and more general concerns in some
instances among Management, staff and the Board about broader relationships with countries.
The Fund must take further steps to overcome these impediments, succeed in accomplishing this
vital task, and fulfill the mission given to it by its founders.

20

International Monetary Fund "Guidance on Operational Aspects of the 2007 Surveillance Decision," July 11,

2008.
11

APPENDIX A
Components of the 1977 Decision on Bilateral Surveillance over Members' Policies

Prillciples for the Guidallce of Members' Exchallge Rate Policies (PGMs):
o

o

o

A. "A member shall avoid manipulating exchange rates or the international
monetary system in order to prevent effective balance of payments adjustment or
to gain an unfair competitive advantage over other members."
B." A member should intervene in the exchange rate market if necessary to
counter disorderly conditions, which may be characterized inter alia by disruptive
short-term movements in the exchange value of its currency."
C. "Members should take into account in their intervention policies the interests
of other members, including those of the countries in whose currencies they
intervene."

Note: Principle A repeats the obligation in Article IV (Section I.iii), while Band C
provide guidance on assessing the consistency of a member's exchange rate policies
with its obligations under Article IV.

Prillciples of FUlld Surveillallce over Exchallge Rate Policies:
o

Indicators to be used in gauging whether members are abiding by the PGMs:
• Protracted large scale intervention in one direction in the exchange
market;
• An unsustainable level of official or quasi-official borrowing, or excessive
and prolonged short-term official or quasi official lending, for balance of
payments purposes;
• (a) the introduction, substantial intensification, or prolonged maintenance,
for balance of payments purposes, of restrictions on, or incentives for,
current transactions or payments, or (b) the introduction or substantial
modification for balance of payments purposes of restrictions on, or
incentives for, the inflow or outflow of capital;
• The pursuit, for balance of payments purposes, of monetary and other
domestic policies that provide abnormal encouragement or
discouragement to capital flows;
• Behavior of the exchange rate that appears to be unrelated to underlying
economic and financial conditions including factors affecting
competitiveness and long-term capital movements; and
• Unsustainable flows of private capital

Procedures for Surveillallce

ll

"I James M. Boughton, Silent Revolution: The Intemational Monetary Fund 1979-1989, International Monetary
Fund,2001.
12

o
o
o
o
o

Members are required to noti fy the Fund of any changes in their exchange
arrangements, such as changes in pegs, intervention policies, etc.
Periodic (normally annllal) consultations are to be held under the provisions of
Article IV.
The Board is to periodically review "broad developments in exchange rates,"
principally in the context of the World Economic Outlook (WEO).
The Managing Director is to maintain close contacts with members regarding
exchange an"angements and policies.
The Managing Director may initiate special consultation discussions with
members under specified conditions.

ANNEX B
CGER Exchange Rate Methodology and Assessments
The current CGER methodology is based on three distinct but complementary approaches to
assessing real effective exchange rate misalignment for 27 cunencies. 22 The three approaches
are: Macroeconomic Balance Approach, Equilibrium Real-Exchange Rate Approach, and
Extemal Sustainability. This annex provides a brief explanation of these approaches and how
they are combined to provide an overall assessment of misalignment.

Macroecollomic Balallce Approach (MB)
The MB approach compares the underlying current account balance with the cunent account
norm. The underlying cunent account balance is the balance that is expected to occur once
cyclical factors have been eliminated. These data are calculated as part of the medium-term
forecasts in the IMF's World Economic Outlook (WEO). The cunent account norm is derived
from a model estimating the relationship between economic fundamentals thought to affect the
cunent account (fiscal balance, demographics, relative economic growth, net foreign assets, oil
prices, economic crises and whether the country is a regional financial center). The model
incorporates data for 54 countries over a 30 year period. The estimated relationships are then
applied to the medium-term values of these economic variables (from the WEO database) to
derive the cunent account norm for each country. Any difference between the underlying
cunent account balance and the cunent account norm requires an adjustment of the real effective
exchange rate. The extent of the adjustment depends both on the size of the difference and the
ease with which a change in the exchange rate affects the cunent account balance. The less
responsive the cunent account is to the exchange rate the greater the change in the exchange rate
required to eliminate any imbalance.
After the estimates of the required adjustments in each of the 27 REER's in the CGER model are
made, these are compared and adjustments are made ifneeded to ensure multilateral consistency.

Equilibrium Real-Exchange Rate Approach (ERER)
The ERER approach compares the current REER with an estimated equilibrium real effective
exchange rate. The estimated real exchange rate is based on a model examining the relationship
between the real exchange rate and economic fundamentals thought to affect the real exchange
rate (net foreign assets, productivity differentials, commodity terms of trade, govemment
consumption, trade restrictions and price controls). The estimated relationships are then applied
to the medium-term values of these economic variables to derive the equilibrium real exchange
rate for each country. The extent of misalignment of the exchange rate is detemlined by the
difference between the cunent REER and the estimated equilibrium real effective exchange rate.
As in the MB approach, the estimates are adjusted to ensure multilateral consistency.

External Stability Approach (ES)
22 The three-model approach was implemented by the IMF's Consultative Group on Exchange Rates in 2006. The
methodology was also extended to cover major emerging market economies. The CGER methodology is described
in detail in: Jaewoo Lee, Gian Maria Milesi-Ferretti, Jonathan Ostry, Alessandro Pratl, and Luca Antonio R1CC1,
"Exchange Rate Assessments: CGER Methodologies," IMF Occasional Paper 26 1,2008.
14

The ES approach determines the current account balance as a percent of GDP that would
stabilize a country's net foreign asset position at some benchmark level. This estimate for the
cUITent account is compared with the medium-term current account balance as a percent ofGDP
(from the WEO database). Any difference in the two ratios necessitates an adjustment in the
REER. As in the MB approach the extent of the adjustment depends both on the size of the
di fference in the current account ratios and the ease with which a change in the exchange rate
affects the CUITent account balance. Adjustments in the REERs are made to ensure multilateral
consistency.

Overall Assessmellt of Misaligllmellt
In many cases the three approaches provide similar answers. In cases where the results differ the
overall assessment may be based on a weighted average of the three approaches. The weight
given to each approach may differ across countries reflecting how well each model is thought to
apply to a particular country. Given the uncertainty surrounding the estimations, results
indicating only small adjustments in the REER are needed are not taken as an indication of
misalignment.

Ecollomic Areas Covered by CGER
Advanced Economies: Australia. Canada. Japan, Sweden, Switzerland, United Kingdom. United
States. and Euro area. Emerging Market Economies: Argentina, Brazil, Chile, China, Colombia.
Czech Republic, Hungary. India, Indonesia, Israel, South Korea, Malaysia, Mexico, Pakistan,
Poland, Russia, South Africa, Thailand. and Turkey.

15

Ip-1123: Treasury Di~lributes 2.404 Million Additional Stimulus Checks Since End of Mass Disbursem...

,

'.~
... ' °Mf'/{"
...

.. ~...
""1'.1-

Page I of I

.......~

_

.

"

--...~..... '.".

'.~.

~

August 29, 2008
hp-1123
Treasury Distributes 2.404 Million Additional Stimulus Checks Since End of
Mass Disbursement
Washington--The Treasury Department announced today that it has distributed
2.404 million stimulus payments, totaling $1.5 billion since mass disbursement of
payments ended July 11. As of the end of August, a total of 114.809 million
payments have been distributed totaling $93.389 billion.
While mass disbursement of stimulus checks ended July ii, small batches of
payments continue to be sent out to American households. The Treasury
Department will announce updates monthly until the end of the year. The Treasury
Department also reminds Americans, especially those seniors and veterans who do
not normally file a tax return, to file a return by the October 15th filing deadline to
receive a stimulus payment this year.

-30-

tp:llwww.treas.goy/press/releases/hpI123.htm

9115/2008

Ip-1124: First Annual Report 011 the Latin America Small Business Lending Initiative

Page 1 of 1

10 view or pnnt the pUr content on tnJS page, download the tree AdObe® Acrobat® Header®.

August29,2008
hp-1124

First Annual Report on the Latin America Small Business Lending Initiative
First Annual Report on the Latin America Small Business Lending Initiative

REPORTS
•

First Annual Report on the Latin America Small Business Lending Initiative
(PDF)

~://WWw.treas.gov/press/releases/hpl124.htm

9115/2008

FIRST ANNUAL REPORT ON THE LATIN AMERICA
SMALL BUSINESS LENDING INITIATIVE
AUGUST 2008

I.
OVERVIEW
This report summarizes the first year of implementation of the Latin America Small Business
Lending Initiative (the "Initiative"), launched by U.S. Treasury Secretary Paulson in June 2007
to expand and improve the access of small businesses in Latin America and the Caribbean to
commercial financing. The effort is intended to accelerate the job creation and poverty-reduction
that small businesses provide. Expanding small business ownership helps create more
sustainable, stable economies with broader economic opportunities.
The three-part initiative is jointly supported by the U.S. Treasury Department, the InterAmerican Development Bank (lOB), and the Overseas Private Investment Corporation (OPIC).
Each of these entities has complementary roles to play in the Initiative. The first pillar attempts
to bridge the infonnation gap that often prevents banks from lending to small companies through
the introduction of new lending models tailored to small firms. Banks need the tools to assess
the value and risk of lending to smaller companies that do not have traditional collateral
structures or formal financial statements. In order to help build capacity for banks to quickly and
accurately assess the credit quality of sma\l companies, the Multilateral Investment Fund (MIF),
an arm of the lOB, has provided technical cooperation grants to local banks to strengthen their
capacity in lending to the small business sector. This assistance includes consulting services
related to credit officer training, material development, software and computer equipment, and
credit scoring systems.
The second pillar involves sharing the initial risk of lending to new, small businesses to help
banks address the uncertainty about lending to this market segment. The Inter-American
Investment Corporation (IIC) and OPIC are providing loans and guarantees to banks that commit
to initiating or expanding their small business lending. OPIC offers risk-sharing guarantees and
loans to eligible banks to catalyze financing for small and medium enterprises (SMEs) through
three vehicles: (I) Credit guarantees for U.S. bank loans to banks in Latin America to support
"on-lending" (when one bank borrows from another bank and uses those funds to make smaller
loans) to small businesses; (2) Guarantees on bond issues to allow local financial institutions,
including microfinance institutions, to raise funds to finance SME loans in the local capital
markets; and (3) Guarantees to local banks on portfolios of small business loans in which OPIC
and the local banks would share risk of loss. The IIC provides a similar menu of options to
financial institutions in Latin America for on-lending to SMEs and provides technical advice
based on its more than ten years of lending to the sector. The lIC can target institutions which do
not qualify for OPIC support.
The third pillar is focused on improving the regulatory environment to support small business
lending. In many cases, bank regulatory authorities perceive small businesses to be high risk
borrowers and impose heavy collateral and/or provisionary requirements. The introduction of
best practice regulatory models will help ensure prudentially sound lending while avoiding
requirements more suited to lending to larger firms. The Treasury Department's Office of
Technical Assistance identifies legislative and regulatory obstacles to small business lending in

targeted Latin American countries and recommends the design and implementation of
regulations and oversight of credit providers to small businesses. In addition, the MIF will
engage at a regional level through the Latin American Association of Supervisors of Banks of
the Americas (ASBA) to facilitate cross-border seminars and workshops to define and promote
the adoption of best practices in SM E and micro-lending among its members.
The Initiative was designed to show measureable results in the form of an increasing volume of
lending by commercial banks to small business, and a decrease in the average loan size in order
to reach the smallest businesses of the region where the poverty reduction and employment gains
are multiplied. The participating banks have agreed to report on lending indicators in order to
measure the impact of the Initiative.
II.

ONE YEAR LATER

Since its launch, the Initiative has been very active in advancing the three goals originally
established by Secretary Paulson:
i) Introduce new lending models that fit the unique characteristics of smaller firms.

In September 2007, the MIF committed $10 million in technical assistance grants to the Initiative
and has since been actively promoting the Initiative among financial institutions in Latin
America and the Caribbean. The first agreement was signed in November 2007 with BanCentro
in Nicaragua for $500,000 (with an additional $500,000 contribution by BanCentro) to develop
new financial products for small businesses, expand BanCentro's small business loan portfolio,
strengthen capacity of its human resources in the analysis and management of risks specific to
the small business sector and adopt international best practices in implementing and expanding
its small business program. Another $500,000 grant was approved by the MIF in July 2008, with
a matching counterpart contribution, to provide technical assistance to Banco Agromercantil and
support it in its efforts to increase its operations with small businesses in Guatemala.
Next Steps
In the first quarter of 2008, the MIF started to receive applications from financial institutions
throughout the region, and is currently analyzing requests from banks in Mexico, Central
America and the Caribbean. Pending their approval, four to six new technical assistance projects
could begin operations in late 2008. MIF grants will be used to help banks strengthen their
capacity to lend to the small business sector. The MIF estimates that it will approve around $3
million in grants in 2008, with matching funds from the recipient banks. In addition, the MIF is
preparing a study on best practices in developing small business lending products and will host
and present the study results in an October 2008 workshop in Paraguay. The five countries in the
MIF study are Ecuador, Guatemala, Mexico, Peru, and Trinidad & Tobago. The MIF is also
creating a web site to link consultants with expertise in micro and small business development
services with private banks in the region.

ii) Assume a portion of the risk associated with small business lending.

In September 2007, OPIC launched its participation in the Initiative by committing $ I 50 million
to provide financing and guarantees for small business loans in Latin America and the
Caribbean. Already, OPIC has approved $53 million in loans to banks in Honduras, Costa Rica,
Ecuador, and Paraguay to expand their operations in the small business sector. Typically,OPIC
assumes between 50-XO°/cl of the commercial risk attached to each loan and in some cases
provides additional inconvertibility of currency coverage as well. IIC has signed six deals for a
total of $14.5 mi Ilion.
Project Size

Projected
# Loans

Average
Loall Size

Illstitutioll

ColllltrylIllstitlitioll

OPIC

Honduras

$15.0

2,300

$25,600

OPIC

Costa Rica

$18.8

135

$140,000 II

OPIC

Ecuador

$10.0

22,000

$3,000

OPIC

Interbanco
(Paraguay)

$1.2

20

$59,000

OPIC

BBVA (Paraguay)

$5.7

107

$53,000

OPIC

Banco Regional
(Paraguay)

$2.1

27

$77,000

lIC

Edyficar (Peru)

$5.0

LIC

Demerara Bank
(Guyana)

$2.0

IIC

Costa Rica

$2.0

IIC

Mexico

$3.0

IIC

Credipyme
(Mexico)

$1.0

lIC

Microfin (Uruguay)

$ \.5

TOTAL

(Smil) 21

$67.2

1/ Under the tenns of thIs loan agreement, the local bank IS requIred to allocate at least 50 percent of
OPIC proceeds for loans under $100,000 to SMEs. The other 50 percent is allocated for a combination of
SME and mortgage lending.
21 Counts funds dedicated specifically to the Initiative.

Next Steps / Loan Pipeline
OPIC has $100 million in loans in the pipeline to banks in Central America. A portion, to be
determined, of each loan will be dedicated to small business lending. OPIC continues to
generate interest from both "upscalers" - existing micro-finance institutions seeking to move into
the small business sector - and "downscalers" - large commercial banks seeking to do the same.
IIC has six transactions in its pipeline for a total of $15.0 million. The potential transactions are
in the Dominican Republic, Guatemala, NIcaragua, Honduras, Paraguay and Mexico.

iii) Ensure that small business lending is not unnecessarily constrained by burdensome
regulations or bureaucracy.
To kick off its program, OTA along with the M IF and OPIC presented the Initiative to the Latin
American Bankers Association (FELABAN) in November 2007 which was well received. In
early February, 2008, a U.S. Treasury/ OTA team undertook a mission to Peru to meet and
discuss the legal and regulatory constraints to small business lending with the supervisory
authority, local banks, non-bank financial institutions, and a number of small business
entrepreneurs. The findings of the mission were then shared with the participants in the U.S.
Treasurer's Financial Inc lusion Conference in mid-February, 2008. Also in February 2008, OT A
met with officials from EI Salvador, Guatemala and Honduras to discuss technical assistance
in designing and implementing regulations, and oversight of credit providers to small business
borrowers.
The MIF met with Latin American bank regulators in early 2008 to identify the critical
challenges that they confront in setting up prudential frameworks for an evolving financing
landscape. Specific areas of collaboration and follow-up actions were identified.
Next Steps
The U.S. Treasury/ OTA team has now been invited by the monetary authorities of three Central
American countries (EI Salvador, Guatemala, and Honduras) to undertake technical assistance
missions during the latter half of 2008. Peru has also indicated its desire to have a second U.S.
Treasury/ OT A mission. The team will meet the central bank, ministry of finance, financial
supervisory authority, local banks, non-bank financial institutions, and a number of small
business entrepreneurs in each of these countries to discuss the legal and regulatory constraints to
small business lending. Based on its analysis, the team will prepare detailed recommendations
for consideration by the authorities. Wherever possible, U.S. Treasury/ OTA missions to Latin
American under the Initiative will be timed to coincide with MIF and OPIC missions to the
target countries in order to maximize synergy among the three agencies. OTA will also contact
the authorities in countries where commercial banks are receiving MIF technical assistance under
the Initiative to explore additional opportunities.

CLEARANCE SHEET

Drafted:

Marie Ewens, Office of the Western Hemisphere
Carrie Me Kellogg, Office of the Western Hemisphere

Cleared:

Luyen Tran, Director, Office of the Western Hemisphere - ok - g/l/Og
Brian O'NeilL DAS, Western Hemisphere - ok - g/I/08
Clay Lowery, Assistant Secretary for IA - ok - 8/21/08
Exec Sec - Jaime Areizaga - ok - 8/26/08
GC - Jennifer Carros, Attorney Advisor - ok - 8/27/08
Public Affairs - Robert Saliterman -

p112S: Preliminary Anllual Report on U.S. Holding of Foreign Securities
..

Page 1 of2
~
,

.~~
,.'I.

(,'

August 29, 2008
hp1125
Preliminary Annual Report on U.S. Holding of Foreign Securities

Preliminary data from an annual survey of U,S, portfolio holdings of foreign
securities at year-end 2007 are released today and posted on the U,S, Treasury
web site at ("i , ,
'I'
i
'" 11': 11~1111),Finalsurveyresults,whichwili
include additional detail as well as revisions to the data, will be reported on October
31, 2008,
The survey was undertaken jOintly by the U,S, Treasury Department, the Federal
Reserve Bank of New York, and the Board of Governors of the Federal Reserve
System,
A complementary survey measuring foreign holdings of U,S, securities also is
conducted annually, Data from the most recent such survey, which reports on
securities held on June 30, 2008, are currently being processed, Preliminary results
are expected to be reported on February 27, 2009,
Overall Preliminary Results
The survey measured U,S, holdings at year-end 2007 of approximately $7,2 trillion,
with $5,2 trillion held in foreign equities, $1,6 trillion in foreign long-term debt
securities (original term-to-maturity in excess of one year), and $0.4 trillion held in
foreign short-term debt securities, The previous such survey, conducted as of yearend 2006, measured U,S, holdings of $6,0 trillion, with $4,3 trillion held in foreign
equities, $1,3 trillion in foreign long-term debt securities, and $0.4 trillion held in
foreign short-term debt securities,

Table 1. U.S. holdings of foreign securities, by type of security, as of survey
dates
(Billions of dollars)
Type of Security

Dec, 31, 2006

Dec, 31, 2007

Long-term Securities

5,623

6,855

Equity

4,329

5,248

Long-term debt

1,294

1,607

368

357

5,991

7,212

Short-term debt securities
Total

U,S, Portfolio Investment by Country
Table 2. U.S. holdings of foreign securities, by country of.is~uer and type of
security, for the countries attracting the most U.S. portfolio Investment, as of
December 31,2007

~:lIWWw.treas.gov/presslreleases/hpl12S.htm

9115/2008

p112S: Preliminary Allllual Report on U.S. Holding of Foreign Securities

Page 2 of2

(Billions of dollars, except as noted)
Country
1
2
3

14

United Kingdom
Japan
Canada
Cayman Islands
France
Germany
Switzerland
Bermuda
Netherlands
lAustralia
Brazil
Spain
Korea, South
Ireland
Honq Kong
Italy
Sweden
Mexico

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19 China 2
20 Luxembourg
21 Finland
22 Netherlands Antilles
23 India
24 Taiwan
25 Russia
Rest of world
Total

Total

Equity

1,142
594
586
544
448
426
288
273
235
223
189
146
140
132
121
120
112
110

715
529
379
232
348
329
281
256
154
138
173
107
129
49
120
97
57
85

97
95
94
89
85
81
81
761
7,212

96
40
90
88
82
81
74
519
5,248

Long-Term
Debt
286
60
185
271
83
89
4
17
76
73
16
38
10
50
2
22
29
24
1
44
4
1
3

Short-Term
Debt
141
4
22
41
17
8
3
*

5
11
*

2
*

33
*

1
26
*
*

11
*
*
*

*

0

7
211
1,607

*

30
357

The stock of foreign securities for December 31,2007 reported in this survey may
not, for a number of reasons, correspond to the stock of foreign securities on
December 31,2006, plus cumulative flows reported in Treasury's transactions
reporting system. The final report on U.S. holdings of foreign securities as of endyear 2007 will contain an analysis of the relation between the stock and flow data.

1p:l/www.treas.gov/press/releases/hpI125.htm

9/15/2008

lP-1126: Treasury Assistant Secretary Swagel to Hold Monthly Economic Briefing

Page I of I

September 2, 2008
HP-1126
Treasury Assistant Secretary Swagel to Hold Monthly Economic Briefing
Assistant Secretary for Economic Policy Phillip Swagel will hold a media briefing to
review economic indicators from the last month as well as discuss the state of the
U.S. Economy. The event is open to the media:
•

Who Assistant Secretary for Economic Policy Phillip Swagel

•

What Economic Media Briefing

•

When Friday, September 5, 10:00 a.m. EDT

•

Where Treasury Department
Media Room (4121)
1500 Pennsylvania Avenue, NW
Washington, D.C.

•

Note Media without Treasury press credentials should contact Frances
Anderson at (202) 622-2960, or Frances.Anderson@do.treas.gov with the
following information: full name, Social Security number, and date of birth.
-30-

ttp:llwww.treas.gov/press/releases/hpI126.htm

I 0/21 /2()O~

Page I 01'4

Septcmi)er 2. 2008
2008-9-2-17-2-G-11737

U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As rndicated rn this table, U.S.
reserve assets totaled $72,510 million as of the end of that week, compared to $72,619 mrllion as of the end uf the
prior week.
I OffiCial resel-ve clssets amI other fOrCI~jll currency ,lssets (approximate market value. In US millions)

I

I

II
IIAugust 29, 2008

I
A OffiCial reserve assets (In US millions unless otherwise specified) 1
1(1) Forelgll cUITency reselves (In convertible foreign currencies)

IIEuro

Ilyen

II

I
IITotal
11 72510

1(3) Securrtles

11 9 .549

II
1111 ,821

lof WlllCrl Issuer headquartered 111 reportlllg country but located abroad

II

II

I(b) total currellcy and depOSits With

II

II

II

I

1(1) other natlollal central banks. BIS and IMF

1113615

11 5807

111<J422

I

III) banks headquartered III the reportlllg country

II
II
II

II

110

I

II

11 0

I

II

11 0

I

II

110

I

lof WlllCll located abroad
1(111) ballks headquartered outSide the reporting country

1121.~570
11 0

lof which. located rn the reporting COUlltry

II

1(2) IMF reserve position 2

114774

I

1(3) SDRs 2

11 9 .465

I

(4) gold (1llCludlllg gold depOSits alld, if approprrate. gold swapped) 3

1111.041

--volume In millions of fille troy oUllces

11 261

1(5) other reserve assets (speCify)

11 6 .438

I--flnanclal derivatives

II
II

I--Ioans to nOllbank nonresldellts
--other (forelgll currency assets Invested through reverse repurchase
agreements)

1

.499

I
I
I
I

I

1\6.438

I

IB Other foreign currency assets (speCify)
--securities not Included In offiCial reserve assets

J

--depOSits not included in official reserve assets

1

--loans not Included In offiCial reserve assets

1

--finanCial derivatives not Included rn offiCial reserve assets
--gold not Included in offiCial reserve assets
[ --other

1

II

II

II Predetermined short-tel-Ill Ilet drarns on foreign cUJ-rency assets (Ilomlnal value)

Ittp:llwww.treas.gov/press/releases/200892172611737.htm

10/21/200S

Page 2 of4

[
[

"

[
1 Foreigll currency 103ns. securities. and deposits
I--outflows (-)
I
I--Inflows (+)

II

IIPrtnclpal

II

IIlntelest

II

IlprlllclPal
IIlnterest

I

"
"
I[TO""

"

I Ill' 10

II

II
II
II
II

II

I

II

I

I
-62,000

11-62.000

I (b) Long positions (+)

I --trade credit (-)

I
I

II

I

II

I

II

II

I

II
II

II

I

II

I

II

II

I

II

I

II
II
II

I
II

I --trade credit (+)
I --other accounts payable (-)
I --other accounts receivable (+)

Mou-: Illdll :i
l))(lIilllS dllrJ I'll "1
1 YP;](

II

I --outflows I-elated to repos (-)
I --Inflows I-elated to reverse I-epos (+)

"

II

I

I 3. Otiler (specify)

I

(r(~SI(llJ;-11 Illdtlll-Ity)

More thill) 1 dllCJ
up to :3 rnolilils

1 '00011,

II

2 AggregC1te SllOrt ami long pOSit lOllS III forwards ,mel
futures In fmelgl1 CLrrr-enCies vis-a-vIs tile domestic
currency (1llCludlllg tile forward leq of currel)cy swaps)

I (a) SIl0111:20SIti011S ( - ) 4

II
I Mdtullty hredkdown

II

"

II
II

"
II

II

II

I

II

II

I

II

II

I

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

I

II

I

1/

I

IITota,

II

IMatunty breakdown (residualillatul-Ity, wilere
applicable)

IUp to 1 monll,

11 Contingent liabilities In foreign currency
(a) Collateral guarantees on del)t falllllg due Within 1
year

"I

"
1/

2. Foreign currency securities Issued With embedded
options (puttable bonds)

"I

3. Undrawn, unconditional credit lines prOVided by
(a) other national monetary autl10ntles, BIS. IMF. and
other International organizations

I

--other national monetary authorities (+)

t- BIS (+)

I

[IMF (+)
(b) With banks and other financial Institutions
headquartered In tile reporting country (+)
(e) With banks and other finanCial institutions
headquartered outSide the reporting country (+)

"

II

(a) other national monetary autholltles, BIS, IMF, and
other International mganlzatlons
leother national monetary authorrtles (-)

ttp://www.treas.gov/presslreleases/200892172611737.htm

II

II

I

II

II

I

II

I

II

II

I

II

II

I

II

II

I

II

II

I

II

II

I
I

"II

"II

I

\I

I

II

II
II

II

I

II

II

II

I

II

II

II

I

II

Undrawn, unconditional credit lines proVided to.

thiln 3
Illol)ths and up 'u
1 yeal-

More than 1 and
up to 3 months

II

I(b) Other contingent liabilities

I

~,lore

I

10/21/20()8

Page 3 of4

II

I

I

I

[BIS (-)

II

II

II

[IMF (-)

1/

1/

II

/I

1/

I

II

1/

I

II
II

II
II

/I

I

II

I

II

1/

II

I

II

I
I

(b) banks and other finanCial institutions heaclqu;:Htered
In reporting countl'y (- )
(c) banks and othel' fillanclal Institutions headquarteled
outside the reportmg country ( - )
4. Aggl'egate Shlxt ami long POSitions of options In
foreign currellCles Vis-a-VIS tile ciomestlc currency

[3) Short POSitions

I
~I

II
I

~I) Bougllt puts
[(Ii) Written calls

II

II

[(b) Long POSitions

\I
\I

II

II

\I

II

I

II

II

II
II
I

I

I

[(I) Bougllt calls

1(11) Wrlttell puts
PRO MEMORIA Ill-tile-money options

I:

I

II

I

I

I( 1) At current exchange rate

II

I(a) Short POSltlOll

\I

[

I(b) Long position

II

I

II

1(2) + 5 % (depreciation of 5°;;))
[(a) Short position

1(3) - 5

°'0

\I

I

I(b) Long position
(appreciation of 5%)

I

I(a} Short POSition
I(b) Long position

1(4} +10 % (depreCiation of 10n/o)
I(a} Short pOSition
I(b) Long position

1(5} - 10 % (appreCiation of 10%)

I(b) Long position

1(6} Other (specify)
I(a} Short position
I(b} Long position

I

II
II

I
I

II

1\

I

II
II
II
II

II

I

II
II

II

II
II
II

II

I
II
II
II

I(a) Short position

I

II

I

II

II
II

II

II

I

II

II

I

II

II

I

II

I

IV. Memo items

[

II

I

[1) To be reported With standard periodicity and timeliness

II

I

I

I

ITa) short-term domestic currency debt Indexed to the exchange rate
(b) flnanclallrlstruments denominated In foreign currency and settled by other means (e.g.,
currency)

III

ciomestlc

l

tnondellverable forwards
[ --short positions
[ --long POSitions
[other instruments

~) pledged

I

assets

I
I

[Jncluded in reserve assets

II

I

--included in other foreign currency assets

II

I

11 6 ,567

I

~) securities lent and

on repo

tlp:IIWWw.treas.gov/press/releases/200892 17261 1737.htm

10/2112008

Page 401'4

l
l

--lent 01" repoed and Included in Section I
II--Ient or repoed but not Included

Section I

ill

I~-boll-owed or acquired and Included III Sectioll I
--bOl"rowed or c,cqLllred but 110t IIleluded

(e) fillaIlClelI denvatlve

<IS sets (IlCt.

Irl

Sect 1011 I

Illclrked to market)

~-forw,"rds

I
I

11
116.567

I

II

I

I

I
II

I--futures

1
1

[--swaps

1

I--optlolls

1

I--other

1

(f) derivatives (fOl"wald. futul-cs. or OptiOI1S contracts) tildt have a residual matullty greater than Olle year.l
WhlCil are subject to IllClr~llll calls

--aggregate short and long POSitions In forwards and futures
currency (111Cludlllg the forward leg of currency swaps)

fOl"elgn currencies ViS-a-VIS H,e domestic

III

I

-I

I

I(a) sll011 POSItiOI1S ( - )

1

I(b) long POSItiOI1S (+)
I--aggregate short alld long positions of options In fOl"elgll currencies vis-a-vIs the domestic currency

"IIII

1
1

I(a) short POSitions

II

1

1(1) bought puts

II

I

1(11) written calls

II
II
II
II

I
I

1(2) To be disclosed less frequelltiy

II

I

I(a) currency compOSition of leserves (by groups of currencies)

11 72 .510

I--currencles in SDR basket

11 72510

I--currencles not

II
II

I(b) long positions
1(1) bought calls
1(11) written puts

III

SDR basket

I--by IndiVidual currencies (optional)

1
1

I

Notes:

"

1/ Includes holdlllgs of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as seCUrities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IrvlF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month

end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
4/ The short POSitions reflect fOl"elgn exchallge acqUired under reCiprocal currency arrangemellts With certain fOl"elgn ccntral l)dllks
The foreign exchange acqUired IS not Included In Section I. "offiCial reserve assets and oHler foreign currency assets." of tl18 telllpl;lte
for reporting International reserves However. It IS Included In the broader balance of payments presentation as "U.S Governnwill
assets. other than offiCial reserve assets/U .S. foreign currency holdings and US short-term assets'"

·www.treas.gov/presslreleases/200892172611737.htm

1012112008

1P-1127: Remarks by Special Envoy for China and the Strategic Economic DialogLlc<br>Alan F. Hol...

/~~~, PRESS

,til

ROOM

u.s. OEPARTME"T OF THE TREASURY

Pagc I of 6

~.
,'

September 5, 2008
HP-1127
Remarks by Special Envoy for China and the Strategic Economic Dialogue
Alan F. Holmer
at the Symposium on Building the Financial System of the 21st Century
Shanghai, China
I would like to begin by thanking and acknowledging the leadership contribution of
these outstanding organizations - the China Development Research Forum and
Harvard University Law School - in this your fifth annual symposium. It is an honor
for me to present this keynote address.
Your joint efforts these past five years have contributed to a deepening
understanding of key issues in China's social and economic development. While
there is a lot of information in the U.S. about China, and a lot of information in China
about the U.S., there is not enough authentic understanding about our different
perspectives, motivations, and histories. Moreover, there is also not enough true
wisdom about how we should engage with each other on this hugely consequential
relationship. This year's Symposium - the insights that will be shared and the
relationships that will form - will help expand that understanding and wisdom as
China presses ahead with its economic reform agenda.
Today I will discuss the importance of the U.S.-China relationship and the work of
the Strategic Economic Dialogue (SED): the financial market turmoil in the U.S. and
global markets: and some of the lessons we have learned from recent experiences.
I will also describe why recent events should encourage China to proceed with
further financial sector reform.
Importance of the U.S.-China Relationship
Possibly the most important economic question of the 21 st century for the United
States is whether we get the economic relationship with China "right." Our interests
increasingly overlap on virtually every issue - from trade, to national security, to
climate change - and in virtually every region - from North Korea to Iran to the
Sudan.
Our economies are intricately linked, with China being our third largest export
market. In the past decade, U.S. exports to China have increased 350 percent, six
times faster than the growth of our exports to the rest of the world. And yet the
United States' largest trade deficit is with China. For those in the U.S. who oppose
free trade and open markets, China has become a symbol of the threat of
globalization, and some argue the U.S. should limit China's access to the U.S.
market.
And yet such an approach would ignore the benefits of openness. I have been
deeply involved in international economic issues for over 25 years, beginning in the
administration of President Reagan - nearly as long as China's "reform and
opening" period. One of the clearest lessons I have learned is that those countries,
including the United States, that open themselves to competition, reform their
economies, and welcome foreign investment benefit their citizens greatly. Direct
investment in another country, such as in manufacturing plants or service
companies, is the ultimate vote of confidence in that country's economy.
There is no better example of this principle than the experience of China.
Strategic Economic Dialogue
Because of the importance of our bilateral relationship, President Bush and
President Hu launched the Strategic Economic Dialogue (SED) in September of

www.treas.gov/press/releases/hpl127.htm

10/21/200X

P-II27: Remarks by Special Envoy for China and the Strategic Economic Dialogue<br>Alan F. Hol. ..

Page 2 of 6

2006. The Special Representatives of the two Presidents are Vice Premier Wang
Qlshan for China and Treasury Secretary Hank Paulson for the U.S. Our Joint
approach has proven effective and has achieved important, tangible results, despite
the challenges. For a review of the U.S. perspective on our strategic economic
engagement, I refer you to an article by Secretary Paulson in the current issue of
Foreign Affairs.
Addressing Long-Term, Strategic Issues
In the SED we have grappled with the most significant, challenging, and strategic
issues in our bilateral economic relationship. This includes managing financial and
macroeconomic cycles; sustaining strong and stable economic growth; achieving
energy security and environmental cooperation; maintaining open markets for trade
and investment; encouraging innovation; and other critical issues. Among the
results of our Cabinet-level meetings in June was the signing of a Ten Year
Framework Agreement on Energy and Environmental Cooperation and the launch
of negotiations of a Bilateral Investment Treaty.
Addressing More Pressing Current Issues
We have also been able to use the SED to address pressing issues that threatened
our economic relationship. For example, when product safety issues placed
consumers and the "China brand" at risk, our two countries engaged in a rigorous
effort to achieve two Memoranda of Agreement: one on food and feed, another on
medicines and medical devices. We have also kept the relationship on an even keel
and avoided enactment of legislation in the U.S. Congress that would have been
harmful and counterproductive.
Strengthening Communication: Macroeconomic Challenges of Higher Food and
Fuel Prices and Financial Market Turmoil
Close communication between the United States and China is especially critical at
a time when both our countries face the daunting global challenges of rising
commodity prices and financial market turmoil, which have impacted both
Americans and Chinese. At the June meeting of the SED, our policy responses to
these negative economic developments were the subject of lively and candid
discussion. Because the global economy gains much from strong U.S. and Chinese
economies, collaboration and consultation between our two countries' economic
leaders is a national and a global responsibility.
It is important that our countries harness market forces to address our
macroeconomic challenges. In particular, at a time of strong global demand for
commodities and other resources that are in short supply, both our countries must
allow prices to adjust so that consumption levels reflect the current realities of the
global economic market. China's recent decision to raise fuel prices is an important
step towards reducing domestic energy consumption. We urge China to continue its
reforms in the energy sector.
The SED has expanded our areas of shared understanding on macroeconomic
policy matters. And even in areas where we and the Chinese disagree on the
causes of our recent economic ailments and how best to cure them, it has been
invaluable for each side to understand the motivations, priorities and concerns of
the other.
Establishing a culture of collaboration
Perhaps most importantly, we have established new habits of cooperation and a
culture of collaboration with our colleagues in China, across all economic ministries,
and at both political and career levels. Our relations are more productive today than
ever before. The SED has established an impressive body of work since it was
established two years ago. We will continue to build on those achievements as we
plan for the Fifth Round of the SED to be held before the end of the year. There is
simply no substitute for active engagement and communication.
U.S. Financial Market Turmoil
The current turmoil in U.S. and global financial markets stemmed from a long period

ttp://www.treas.gov/press/releases/hpl127.htm

10/21 /2()O~

P-II27: Remarks by Special Envoy for China and the Strategic Economic Dialogue<br>Alan F. HoI...

Page 3 of 6

of benign macroeconomic and financial conditions that encouraged widespread
complacency about risk. Investors in search of higher yields created significant
demand for structured credit products but, in many cases, did not conduct adequate
due diligence.
Meanwhile, demand for housing in the U.S. began to slow in 2004, and credit
standards loosened significantly, particularly for subprime mortgages. At the same
time, the pace of financial innovation gathered momentum and the trend toward
securitization of assets accelerated. Financial innovation clearly brought enormous
benefits to investors and consumers, and contributed to domestic and global
economic growth. We also see, however, that the resulting dramatic increase in
leverage and complexity of financial instruments brought new risks to financial
markets - not only to the United States but to other interconnected markets around
the world.
The looser credit standards, combined with the complacency described earlier,
inevitably contributed to an unexpected rise in mortgage delinquencies. This, in
turn, triggered a global reassessment of risk beginning in August 2007, followed by
significant de-leveraging. The dramatic swing in sentiment, subsequent market
volatility and heightened uncertainty ratcheted up demand for cash and liquidity.
Many structured finance markets seized up, causing markets for asset-backed
commercial paper to contract substantially.
U.S. Domestic Actions
The Bush Administration has responded vigorously, both on the domestic and the
international fronts. Here at home, the Administration's response includes near-term
as well as longer-term measures. The goals are straightforward: minimize the
impact on the real economy; maintain efficient and liquid markets; ensure continued
availability of credit; and enhance risk management. Our domestic approach
includes three sets of actions to help accomplish these goals.
First, the Administration has acted aggressively to support the economy as it
weathers the housing correction and financial market challenges. The housing
correction will undoubtedly take time to run its course. The fiscal stimulus package,
signed into law by President Bush in February of 2008, provides economic stimulus
payments to over 130 million American households and temporary tax incentives
for businesses. This year's $150 billion infusion will help American families and
businesses weather the considerable headwinds facing the U.S. economy.
Our housing market initiatives also seek to increase the availability of affordable
mortgage financing, prevent avoidable foreclosures, and minimize the economic
disruption of the housing correction. They include temporary authorities for
Treasury to support Fannie Mae and Freddie Mac and the creation of a strong,
independent regulator to address the risks that these entities pose. Two other key
initiatives include FHA Secure and the HOPE NOW Alliance, launched in the fall of
2007 at the encouragement of the Treasury. To date, the HOPE NOW Alliance has
helped over two million homeowners avoid foreclosures since July 2007.
Second, U.S. policymakers have also initiated a number of medium-term efforts to
strengthen market discipline and address weaknesses in markets, institutions, and
regulatory poliCies. Secretary Paulson chairs the President's Working Group on
Financial Markets - the PWG - an interagency policy coordination group that
includes the Fed, the SEC, and the CFTC. In March of this year, the PWG released
a policy statement on financial market turmoil, addressing issues including credit
ratings, securitization, mortgage origination, investor due diligence, and OTC
derivatives, and designed to mitigate systemic risk, restore investor confidence, and
facilitate stable economic growth.
Treasury also presented a Blueprint for a reformed regulatory structure, to be
considered after the present market difficulties are past. The Blueprint lays out a
vision for a more flexible, efficient, and effective regulatory framework. This new
structure is designed for the world we live in, one that is more flexible, that can
better adapt to change, that will allow us to more effectively deal with inevitable
market disruptions, and that will better protect investors and consumers.

Lessons of Financial Market Turmoil for China

www.treas.gov/press/releases/hpl127.htm

10/211200X

lP-II27: Remarks by Special Envoy for China and the Strategic Economic Dialogue<br>Alan F. 1101...

Page..j. of 6

China has weathered the recent global financial turmoil relatively well, but will need
to achieve stronger growth in domestic consumption to offset weaknesses in
external demand and aChieve its goal of more stable and balanced economic
growth over the long term. The sharp fall in Chinese equity prices since last
October appears just as much due to domestic factors as to linkages with global
stock markets.
There is growing concern that the recent bout of turbulence in global financial
markets is viewed by some in China as a reason to slow or pause financial sector
reform. I hope Chinese policymakers will ask the more pertinent question: What
lessons should China's leaders draw from recent events as they conSider the pace
and potential benefits of financial sector reform?
Here I will outline only four of the many lessons to be learned from the turmoil, all of
which are relevant to the challenges China faces as well.
Recognize Problems and Address Them Quickly. Though the impacts of the global
market turmoil have been far reaching, these effects have been mitigated
somewhat by a swift and transparent response. Treasury Secretary Paulson has
led the U.S. government effort to ensure a comprehensive, timely and appropriate
response to the turmoil. He and other authorities have urged banks to recognize
promptly and report losses, and raise additional capital as needed. Many global
financial institutions have done just that - reporting subprime-related losses of over
$569 billion and raiSing additional capital of more than $381 billion. China's
regulators are also taking steps to ensure that financial institutions are recognizing
impaired assets quickly and provisioning for them appropriately. Taking such steps
will be key to ensuring that markets and supervisors are fully aware of the risks
facing China's financial institutions, and that the banks themselves are able to take
prompt steps to mitigate those risks.
Ensure Disclosure/Transparency in Financial Institutions. Another lesson from
recent events is the related failure to provide and obtain information. Prompt and
consistent communication between financial institutions and market participants is
critical to avoid suspicion and build market confidence.
In China, banking regulators took steps to have Chinese banks disclose quickly
exposures to subprime securities. Consistent efforts to ensure that financial
institutions communicate news - both good and bad - to the markets will win
market confidence over time and promote greater market stability.
Ensure Supervisory Coordination. The issues that have arisen during this bout of
turbulence have spanned several supervisory authorities within the United States.
Frequent and sustained regulatory coordination has been necessary to address
effectively the problems that have been exposed. Strengthening coordination of
regulatory authorities within China can help implement China's reform agenda and
prepare the authorities to have a coordinated response to any problems that arise
in the financial sector. In addition, as Chinese banks move ahead with
implementation of Basel II, which places a premium on strong supervisory
authorities, it will be essential that China's supervisors further enhance their
capabilities and coordination.
Allow monetary policy to focus on price and financial stability. Moving toward a
more flexible currency regime in which monetary policy does not have to target the
exchange rate would allow monetary policy in China to become a much more
effective and valuable tool for countering inflation and ensuring continued financial
stability.

Why Financial Reform is Important for China
China has made enormous progress in financial sector reform in the past decade,
from the banking sector to the stock, foreign exchange, and bond markets. These
reforms have been important for laying the foundation to address the key
challenges ahead in China's financial sector development. Financial regulation and
supervision must be developed in tandem. But policymakers in China must also
recognize that there will be significant costs if China slows the development and
reform of its financial sector. Important gains for China and its people would be left
unrealized. An ambitious reform agenda will advance China's economic goals in
four important ways by:

www.treas.gov/press/reieases/hpI127.htm

10/21/2008

IP-II27: RellIalks by Special Envoy for China and the Strategic Economic Dialogue<br>Alan F. Hol...
•

•
•
•

Page 5 of()

Rebalancing the sources of China's growth to ensure that it is more
harmonious, more energy and environmentally efficient, and provides
greater welfare for Chinese households;
Creating effective macroeconomic policy tools to ensure stable, noninflationary growth;
Supporting China's transition to a market-driven and innovation-based
economy; and,
Assisting in dealing with demographic challenges.

First, as China's economy becomes more sophisticated, an efficient, welldeveloped financial sector is essential to channeling capital to the new ideas,
businesses, and entrepreneurs that will power future growth. As China's economy
becomes more complex, so too will its need for financial services. A more
developed financial sector is necessary to fund the industries -- and fuel the growth
-- of tomorrow.
A more developed financial sector is also essential to shift to a growth model that
can be sustained in the future, one less dependent on industrial activity and
exports, and one more oriented towards services and household demand. Key to
this is reducing the need for very high saving rates. A greater diversity of financial
instruments for saving, risk diversification, and consumer borrowing would relieve
some of the need for precautionary saving.
A higher risk adjusted return from a broader array of financial assets would allow
Chinese households to achieve their financial goals - such as buying a house,
educating children, or achieving a secure retirement - without having to set aside
large portions of their current income. A more developed financial sector will also
provide Chinese enterprises with options beyond reinvesting earnings primarily in
expanding their own capacity. This will enhance the efficiency of capital allocation
and dampen the volatility of investment cycles.
More developed financial markets will help bring greater stability to China's
economy by giving the authorities the macroeconomic tools - flexible and more
powerful monetary policy in particular - to assure stable growth and prices. Deeper,
interconnected bond markets would give the central bank greater ability to guide
market interest rates and credit throughout the economy to ensure continued
strong, stable, and non-inflationary growth.
Finally, a robust financial sector will help to enable China to deal with the
demographic challenges that lie ahead, including population aging and the
provision of healthcare. A deep and sophisticated financial sector will be critical to
strengthening the social safety net and providing tools such as health care
insurance and retirement investment vehicles necessary to cope with growing
demographic pressures.
Greater foreign participation will contribute substantially to financial sector reform,
and, for that reason, it has been a top priority for the StrategiC Economic Dialogue
(SED). We recognize the concerns of some in China who believe that opening the
doors to foreign financial firms could jeopardize the position of domestic firms.
Nonetheless, we believe that increased foreign participation would expand the
breadth and depth of opportunities for all firms in the market, including domestic
Chinese firms. This is not a zero-sum game. It's true that foreign firms stand to
benefit from expanded opportunities in China. But such firms will also enhance the
diversity of financial products in China, improve allocation of capital, spur
innovation, and expedite the development of world class financial sector talent
within China, all of which will benefit China's economy, its people, and financial
centers like Shanghai.

Conclusion
The economic and geopolitical landscape of the 21 st century will be greatly
influenced by the way in which the United States and China work together.
Nowhere is our work more important than in the financial sector, the central nervous
system of any economy.
In the SED, we will continue to focus on the long-term, strategic, transformational
issues; work diligently on immediate and concrete shared objectives; strengthen our
new habits of cooperation and a culture of collaboration; and keep our relationship

wWw.treas.gov/press/releases/hpl127.htm

10/2112008

[P-II27: Remarks by Special tnvoy for China and the Strategic Economic Dialogue<br>Alal1 F. 1101...

Page 6 of 6

on an even keel. In this way China and the United States will write the next chapter
of our strategic economic engagement.

-30-

wWw.treas.gov/press/releases/hpI127.htm

10/21/2()()X

p-1129: StateIll~[\l by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Age...

Page I of 4

10 view or pnnt tne I-'UI- content on tnlS page. aownloaa tne free

September 7, 2008
hp-1129
Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal
Housing Finance Agency Action to Protect Financial Markets and Taxpayers
Washington, DC-- Good morning. I'm joined here by Jim Lockhart, Director of the
new independent regulator, the Federal Housing Finance Agency, FHFA.
In July, Congress granted the Treasury, the Federal Reserve and FHFA new
authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since that time,
we have closely monitored financial market and business conditions and have
analyzed in great detail the current financial condition of the GSEs - including the
ability of the GSEs to weather a variety of market conditions going forward. As a
result of this work, we have determined that it is necessary to take action.
Since this difficult period for the GSEs began, I have clearly stated three critical
objectives: providing stability to financial markets, supporting the availability of
mortgage finance, and protecting taxpayers - both by minimizing the near term
costs to the taxpayer and by setting policymakers on a course to resolve the
systemic risk created by the inherent conflict in the GSE structure.
Based on what we have learned about these institutions over the last four weeks including what we learned about their capital requirements - and given the
condition of financial markets today, I concluded that it would not have been in the
best interest of the taxpayers for Treasury to simply make an equity investment in
these enterprises in their current form.
The four steps we are announcing today are the result of detailed and thorough
collaboration between FHFA, the U.S. Treasury, and the Federal Reserve.
We examined all options available, and determined that this comprehensive and
complementary set of actions best meets our three objectives of market stability,
mortgage availability and taxpayer protection.
Throughout this process we have been in close communication with the GSEs
themselves. I have also consulted with Members of Congress from both parties and
I appreCiate their support as FHFA, the Federal Reserve and the Treasury have
moved to address this difficult issue.
Before I turn to Jim to discuss the action he is taking today, let me make clear that
these two institutions are unique. They operate solely in the mortgage market and
are therefore more exposed than other financial institutions to the housing
correction. Their statutory capital requirements are thin and poorly defined as
compared to other institutions. Nothing about our actions today in any way reflects
a changed view of the housing correction or of the strength of other U.S financial
institutions.

I support the Director's decision as necessary and appropriate and had advised him
that conservatorship was the only form in which I would commit taxpayer money to
the GSEs.
I appreciate the productive cooperation we have received from the boards and the
management of both GSEs. I attribute the need for today's action primarily to the
inherent conflict and flawed business model embedded in the GSE structure, and to
the ongoing housing correction. GSE managements and their Boards are

www.treas.gov/press/releases/hpl129.htm

1012 1/2008

p-1129: StatelIIellt by Secretary Henry M. Paulson, Jr. on Treasury and Federal HOLlsing Finance Age...

Page 2 of 4

responsible for neither. New CEOs supported by new non-executive Chairmen
have taken over management of the enterprises, and we hope and expect that the
vast majority of key professionals will remain in their jobs. I am particularly pleased
that the departing CEOs, Dan Mudd and Dick Syron, have agreed to stay on for a
period to help with the transition.
I have long said that the housing correction poses the biggest risk to our economy.
It is a drag on our economic growth, and at the heart of the turmoil and stress for
our financial markets and financial institutions. Our economy and our markets will
not recover until the bulk of this housing correction is behind us. Fannie Mae and
Freddie Mac are critical to turning the corner on housing. Therefore, the primary
mission of these enterprises now will be to proactively work to increase the
availability of mortgage finance, including by examining the guaranty fee structure
with an eye toward mortgage affordability.
To promote stability in the secondary mortgage market and lower the cost of
funding, the GSEs will modestly increase their MBS portfolios through the end of
2009. Then, to address systemic risk, in 2010 their portfolios will begin to be
gradually reduced at the rate of 10 percent per year, largely through natural run off,
eventually stabilizing at a lower, less risky size.
Treasury has taken three additional steps to complement FHFA's decision to place
both enterprises in conservatorship. First, Treasury and FHFA have established
Preferred Stock Purchase Agreements, contractual agreements between the
Treasury and the conserved entities. Under these agreements, Treasury will ensure
that each company maintains a positive net worth. These agreements support
market stability by providing additional security and clarity to GSE debt holders senior and subordinated - and support mortgage availability by providing additional
confidence to investors in GSE mortgage backed securities. This commitment will
eliminate any mandatory triggering of receivership and will ensure that the
conserved entities have the ability to fulfill their financial obligations. It is more
efficient than a one-time equity injection, because it will be used only as needed
and on terms that Treasury has set. With this agreement, Treasury receives senior
preferred equity shares and warrants that protect taxpayers. Additionally, under the
terms of the agreement, common and preferred shareholders bear losses ahead of
the new government senior preferred shares.
These Preferred Stock Purchase Agreements were made necessary by the
ambiguities in the GSE Congressional charters, which have been perceived to
indicate government support for agency debt and guaranteed MBS. Our nation has
tolerated these ambiguities for too long, and as a result GSE debt and MBS are
held by central banks and investors throughout the United States and around the
world who believe them to be virtually risk-free. Because the U.S. Government
created these ambiguities, we have a responsibility to both avert and ultimately
address the systemic risk now posed by the scale and breadth of the holdings of
GSE debt and MBS.
Market discipline is best served when shareholders bear both the risk and the
reward of their investment. While conservatorship does not eliminate the common
stock, it does place common shareholders last in terms of claims on the assets of
the enterprise.
Similarly, conservatorship does not eliminate the outstanding preferred stock, but
does place preferred shareholders second, after the common shareholders, in
absorbing losses. The federal banking agencies are assessing the exposures of
banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while
many institutions hold common or preferred shares of these two GSEs, only a
limited number of smaller institutions have holdings that are significant compared to
their capital.
The agencies encourage depository institutions to contact their primary federal
regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac
common or preferred shares, whether realized or unrealized, are likely to reduce
their regulatory capital below "well capitalized." The banking agencies are prepared
to work with the affected institutions to develop capital restoration plans consistent
with the capital regulations.
Preferred stock investors should recognize that the GSEs are unlike any other
financial institutions and consequently GSE preferred stocks are not a good proxy

ttP://www.treas.gov/press/releases/hpl129.htm

10!212()()X

p-1129: Statement by secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Age...
for financial institution preferred stock more broadly.
they can better perform their mission, today's action
in the housing market, ultimately benefiting financial
market for preferred stock issuance should continue
capitalized institutions.

Page J 01'-'+

By stabilizing the GSEs so
should accelerate stabilization
institutions. The broader
to remain available for well-

The second step Treasury is taking today is the establishment of a new secured
lending credit facility which will be available to Fannie Mae, Freddie Mac, and the
Federal Home Loan Banks. Given the combination of actions we are taking,
including the Preferred Share Purchase Agreements, we expect the GSEs to be in
a stronger position to fund their regular business activities in the capital markets.
This facility is intended to serve as an ultimate liquidity backstop, in essence,
implementing the temporary liquidity backstop authority granted by Congress in
July, and will be available until those authorities expire in December 2009.
Finally, to further support the availability of mortgage financing for millions of
Americans, Treasury is initiating a temporary program to purchase GSE MBS.
During this ongoing housing correction, the GSE portfolios have been constrained,
both by their own capital situation and by regulatory efforts to address systemic risk.
As the GSEs have grappled with their difficulties, we've seen mortgage rate
spreads to Treasuries widen, making mortgages less affordable for homebuyers.
While the GSEs are expected to moderately increase the size of their portfolios
over the next 15 months through prudent mortgage purchases, complementary
government efforts can aid mortgage affordability. Treasury will begin this new
program later this month, investing in new GSE MBS. Additional purchases will be
made as deemed appropriate. Given that Treasury can hold these securities to
maturity, the spreads between Treasury issuances and GSE MBS indicate that
there is no reason to expect taxpayer losses from this program, and, in fact, it could
produce gains. This program will also expire with the Treasury's temporary
authorities in December 2009.
Together, this four part program is the best means of protecting our markets and
the taxpayers from the systemic risk posed by the current financial condition of the
GSEs. Because the GSEs are in conservatorship, they will no longer be managed
with a strategy to maximize common shareholder returns, a strategy which
historically encouraged risk-taking. The Preferred Stock Purchase Agreements
minimize current cash outlays, and give taxpayers a large stake in the future value
of these entities. In the end, the ultimate cost to the taxpayer will depend on the
business results of the GSEs going forward. To that end, the steps we have taken
to support the GSE debt and to support the mortgage market will together improve
the housing market, the US economy and the GSEs' business outlook.
Through the four actions we have taken today, FHFA and Treasury have acted on
the responsibilities we have to protect the stability of the financial markets, including
the mortgage market, and to protect the taxpayer to the maximum extent possible.
And let me make clear what today's actions mean for Americans and their families.
Fannie Mae and Freddie Mac are so large and so interwoven in our financial
system that a failure of either of them would cause great turmoil in our financial
markets here at home and around the globe. This turmoil would directly and
negatively impact household wealth: from family budgets, to home values, to
savings for college and retirement. A failure would affect the ability of Americans to
get home loans, auto loans and other consumer credit and business finance. And a
failure would be harmful to economic growth and job creation. That is why we have
taken these actions today.
While we expect these four steps to provide greater stability and certainty to market
participants and provide long-term clarity to investors in GSE debt and MBS
securities, our collective work is not complete. At the end of next year, the Treasury
temporary authorities will expire, the GSE portfoliOS will begin to gradually run off,
and the GSEs will begin to pay the government a fee to compensate taxpayers for
the on-going support provided by the Preferred Stock Purchase Agreements.
Together, these factors should give momentum and urgency to the reform cause.
Policymakers must view this next period as a "time out" where we have stabilized
the GSEs while we decide their future role and structure.
Because the GSEs are CongreSSionally-chartered, only Congress can address the
inherent conflict of attempting to serve both shareholders and a public mission. The
new Congress and the next Administration must decide what role government in

ttP://www.treas.gov/presslreleases/hpl129.htrn

I0/21/20()X

p-1129: Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Age ...

Page 401'4

general, and these entities in particular, should play in the housing market. There is
a consensus today that these enterprises pose a systemic risk and they cannot
continue in their current form. Government support needs to be either explicit or
non-existent, and structured to resolve the conflict between public and private
purposes. And policymakers must address the issue of systemic risk. I recognize
that there are strong differences of opinion over the role of government in
supporting housing, but under any course policymakers choose, there are ways to
structure these entities in order to address market stability in the transition and limit
systemic risk and conflict of purposes for the long-term. We will make a grave error
if we don't use this time out to permanently address the structural issues presented
by the GSEs.
In the weeks to come, I will describe my views on long term reform. I look forward to
engaging in that timely and necessary debate.
-30REPORTS

•
•
•
•
•
•
•
•
•
•
•

FHFA Director Lockhal't Remarks on Housing GSE Actions
Fact Sheet FHFA Conservatorship
Fact Sheet Tl'easury Prefen'ed Stock Purchase Agreement
Fact Sheet Treasury MBS Purchase Program
Fact Sheet Treasury GSE Credit Facility
Freddie Mac Warrant to Purchase Common Stock
Fl'eddie Mac Certificate
Freddie Mac Senior Preferred Stock Purchase Agreement
Fannie Mae Warrant to Purchase Common Stock
Fannie Mae Certificate
Fannie Mae Senior Prefen'ed Stock Purchase Agreement

wWw.treas.goy/press/releases/hpI129.htm

10/21/200X

FEDERAL HOUSING FINANCE AGENCY

STATEMENT
Contact:

Corinne Russell
Stefanie Mullin

(202) 414-6921
(202) 414-6376

For Immediate Release
September 7, 2008

****EMBARGOED UNTIL 11 a.m.

****

STATEMENT OF FHFA DIRECTOR JAMES B. LOCKHART
Good Morning
Fannie Mae and Freddie Mac share the critical mission of providing stability and
liquidity to the housing market. Between them, the Enterprises have $5.4 trillion
of guaranteed mortgage-backed securities (MBS) and debt outstanding, which is
equal to the publicly held debt of the United States. Their market share of all new
mortgages reached over 80 percent earlier this year, but it is now falling. During
the turmoil last year, they played a very important role in providing liquidity to the
conforming mortgage market.

That has required a very careful and delicate

balance of mission and safety and soundness. A key component of this balance has
been their ability to raise and maintain capital. Given recent market conditions, the

balance has been lost. Unfortunately, as house prices, earnings and capital have
continued to deteriorate, their ability to fulfill their mission has deteriorated. In
particular, the capacity of their capital to absorb further losses while supporting
new business activity is in doubt.

Today's action addresses safety and soundness concerns. FHFA's rating system is
called GSE Enterprise Risk or G-Seer.

It stands for Governance, Solvency,

Earnings and Enterprise Risk which includes credit, market and operational risk.
There are pervasive weaknesses across the board, which have been getting worse
in this market.

Over the last three years OFHEO, and now FHFA, have worked hard to encourage
the Enterprises to rectifY their accounting, systems, controls and risk management
issues. They have made good progress in many areas, but market conditions have
overwhelmed that progress.

The result has been that they have been unable to provide needed stability to the
market.

They also find themselves unable to meet their affordable housing

mission. Rather than letting these conditions fester and worsen and put our markets
in jeopardy, FHFA, after painstaking review, has decided to take action now.

2

Key events over the past six months have demonstrated the increasing challenge
faced by the companies in striving to balance mission and safety and soundness,
and the ultimate disruption of that balance that led to today's announcements. In
the first few months of this year, the secondary market showed significant
deterioration, with buyers demanding much higher prices for mortgage backed
securities.

In February, in recognition of the remediation progress in financial reporting, we
removed the portfolio caps on each company, but they did not have the capital to
use that flexibility.

In March, we announced with the Enterprises an initiative to increase mortgage
market liquidity and market confidence. We reduced the OFHEO-directed capital
requirements in return for their commitments to raise significant capital and to
maintain overall capital levels well in excess of requirements.

In April, we released our Annual Report to Congress, identifying each company as
a significant supervisory concern and noting, in particular, the deteriorating
mortgage credit environment and the risks it posed to the companies.

In May OFHEO lifted its 2006 Consent Order with Fannie Mae after the company
completed the terms of that order. Subsequently, Fannie Mae successfully raised
$7.4 billion of new capital, but Freddie Mac never completed the capital raise
promised in March.

Since then credit conditions in the mortgage market continued to deteriorate, with
home prices continuing to decline and mortgage delinquency rates reaching
alarming levels. FHFA intensified its reviews of each company's capital planning
and capital position, their earnings forecasts and the effect of falling house prices
and increasing delinquencies on the credit quality of their mortgage book.

In getting to today, the supervision team has spent countless hours reviewing with
each company various forecasts, stress tests, and projections, and has evaluated the
performance of their internal models in these analyses.

We have had many

meetings with each company's management teams, and have had frank exchanges
regarding loss projections, asset valuations, and capital adequacy. More recently,
we have gone the extra step of inviting the Federal Reserve and the OCC to have
some of their senior mortgage credit experts join our team in these assessments.

4

The conclusions we reach today, while our own, have had the added benefit of
their insight and perspective.

After this exhaustive review, I have detennined that the companies cannot continue
to operate safely and soundly and fulfill their critical public mission, without
significant action to address our concerns, which are:

•

the

safety and

soundness

Issues I

mentioned,

including

current

capitalization;
•

current market conditions;

•

the financial perfonnance and condition of each company;

•

the inability of the companies to fund themselves according to nonnal
practices and prices; and

•

the critical importance each company has

In

supporting the residential

mortgage market in this country,

Therefore, in order to restore the balance between safety and soundness and
mission, FHF A has placed Fannie Mae and Freddie Mac into conservatorship.
That is a statutory process designed to stabilize a troubled institution with the

5

objective of returning the entities to normal business operations. FHF A will act as
the conservator to operate the Enterprises until they are stabilized.

The Boards of both compames consented yesterday to the conservatorship.

I

appreciate the cooperation we have received from the boards and the management
of both Enterprises.

These individuals did not create the inherent conflict and

flawed business model embedded in the Enterprises' structure.

The goal of these actions is to help restore confidence in Fannie Mae and Freddie
Mac, enhance their capacity to fulfill their mission, and mitigate the systemic risk
that has contributed directly to the instability in the current market. The lack of
confidence has resulted in continuing spread widening of their MBS, which means
that virtually none of the large drop in interest rates over the past year has been
passed on to the mortgage markets. On top of that, Freddie Mac and Fannie Mae,
in order to try to build capital, have continued to raise prices and tighten credit
standards.

FHFA has not undertaken this action lightly.

We have consulted with the

Chairman of the Board of Governors of the Federal Reserve System, Ben
Bernanke, who was appointed a consultant to FHF A under the new legislation. We

6

have also consulted with the Secretary of the Treasury, not only as an FHFA
Oversight Board member, but also in his duties under the law to provide financing
to the GSEs.

They both concurred with me that conservatorship needed to be

undertaken now.

There are several key components of this conservatorship:

First, Monday morning the businesses will open as normal, only with stronger
backing for the holders of MBS, senior debt and subordinated debt.

Second, the Enterprises will be allowed to grow their guarantee MBS books
without limits and continue to purchase replacement securities for their portfolios,
about $20 billion per month without capital constraints.

Third, as the conservator, FHF A will assume the power of the Board and
management.

Fourth, the present CEOs will be leaving, but we have asked them to stay on to
help with the transition.

7

Fifth, I am announcing today I have selected Herb Allison to be the new CEO of
Fannie Mae and David Moffett the CEO of Freddie Mac. Herb has been the Vice
Chairman of Merrill Lynch and for the last eight years chairman of TIAA-CREF.
David was the Vice Chainnan and CFO of US Bancorp.

I appreciate the

willingness of these two men to take on these tough jobs during these challenging
times. Their compensation will be significantly lower than the outgoing CEOs.
They will be joined by equally strong non-executive chainnen.

Sixth, at this time any other management action will be very limited. In fact, the
new CEOs have agreed with me that it is very important to work with the current
management teams and employees to encourage them to stay and to continue to
make important improvements to the Enterprises.

Seventh, in order to conserve over $2 billion in capital every year, the common
stock and preferred stock dividends will be eliminated, but the common and all
preferred stocks will continue to remain outstanding. Subordinated debt interest
and principal payments will continue to be made.

Eighth, all political activities -- including all lobbying -- will be halted
immediately. We will review the charitable activities.

8

Lastly and very importantly, there will be the financing and investing relationship
with the U.S. Treasury, which Secretary Paulson will be discussing. We believe
that these facilities will provide the critically needed support to Freddie Mac and
Fannie Mae and importantly the liquidity of the mortgage market.

One of the three facilities he will be mentioning is a secured liquidity facility
which will be not only for Fannie Mae and Freddie Mac, but also for the 12
Federal Home Loan Banks that FHFA also regulates. The Federal Home Loan
Banks have performed remarkably well over the last year as they have a different
business model than Fannie Mae and Freddie Mac and a different capital structure
that grows as their lending activity grows. They are joint and severally liable for
the Bank System's debt obligations and all but one of the 12 are profitable.
Therefore, it is very unlikely that they will use the facility.

During the conservatorship period, FHF A will continue to work expeditiously on
the many regulations needed to implement the new law.

Some of the key

regulations will be minimum capital standards, prudential safety and soundness
standards and portfolio limits. It is critical to complete these regulations so that
any new investor will understand the investment proposition.

9

This decision was a tough one for the FHF A team as they have worked so hard to
help the Enterprises remain strong suppliers of support to the secondary mortgage
markets.

Unfortunately, the antiquated capital requirements and the turmoil in

housing markets over-whelmed all the good and hard work put in by the FHF A
teams and the Enterprises' managers and employees. Conservatorship will give
the Enterprises the time to restore the balances between safety and soundness and
provide affordable housing and stability and liquidity to the mortgage markets.

I

want to thank the FHF A employees for their work during this intense regulatory
process. They represent the best in public service. I would also like to thank the
employees of Fannie Mae and Freddie Mac for all their hard work.

Working

together we can finish the job of restoring confidence in the Enterprises and with
the new legislation build a stronger and safer future for the mortgage markets,
homeowners and renters in America.

Thank you and I will now tum it back to Secretary Paulson.

10

FEDERAL HOUSING FINANCE AGENCY

FACT SHEET
Contact:

Corinne Russell
Stefanie Mullin

(202) 414-6921
(202) 414-6376

****EMBARGOED UNTIL llAM****

QUESTIONS AND ANSWERS ON CONSERVATORSHIP
Q:

What is a conservatorship?

A:

A conservatorship is the legal process in which a person or entity is appointed to establish
control and oversight of a Company to put it in a sound and solvent condition. In a
conservatorship, the powers of the Company's directors, officers, and shareholders are
transferred to the designated Conservator.

Q:

What is a Conservator?

A:

A Conservator is the person or entity appointed to oversee the affairs of a Company for
the purpose of bringing the Company back to financial health.
In this instance, the Federal Housing Finance Agency ("FHF A") has been appointed by
its Director to be the Conservator of the Company in accordance with the Federal
Housing Finance Regulatory Reform Act of 2008 (Public Law 1 I 0-289) and the Federal
Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.c. 4501, et
seq., as amended) to keep the Company in a safe and solvent financial condition.

Q:

How is a Conservator appointed?

A:

By statute, the FHF A is appointed Conservator by its Director after the Director
determines, in his discretion, that the Company is in need of reorganization or
rehabilitation of its affairs.

Q:

What are the goals of this conservatorship?

A:

The purpose of appointing the Conservator is to preserve and conserve the Company's
assets and property and to put the Company in a sound and solvent condition. The
goals of the conservatorship are to help restore confidence in the Company, enhance its
capacity to fulfill its mission, and mitigate the systemic risk that has contributed directly
to the instability in the current market.
There is no reason for concern regarding the ongoing operations of the Company. The
Company's operation will not be impaired and business will continue without
interruption.

Q:

When will the conservatorship period end?

A:

Upon the Director's determination that the Conservator's plan to restore the Company to
a safe and solvent condition has been completed successfully, the Director will issue an
order terminating the conservatorship. At present, there is no exact time frame that can
be given as to when this conservatorship may end.

Q:

What are the powers of the Conservator?

A:

The FHF A, as Conservator, may take all actions necessary and appropriate to (1) put the
Company in a sound and solvent condition and (2) carry on the Company's business and
preserve and conserve the assets and property of the Company.

Q:

What happens upon appointment of a Conservator?

A:

Once an "Order Appointing a Conservator" is signed by the Director of FHF A, the
Conservator immediately succeeds to the (I) rights, titles, powers, and privileges of the
Company, and any stockholder, officer, or director of such the Company with respect to
the Company and its assets, and (2) title to all books, records and assets of the Company
held by any other custodian or third-party. The Conservator is then charged with the duty
to operate the Company.

Q:

What does the Conservator do during a conservatorship?

A:

The Conservator controls and directs the operations of the Company. The Conservator
may (1) take over the assets of and operate the Company with all the powers of the
shareholders, the directors, and the officers of the Company and conduct all business of
the Company; (2) collect all obligations and money due to the Company; (3) perform all
functions of the Company which are consistent with the Conservator's appointment; (4)
preserve and conserve the assets and property of the Company; and (5) contract for
assistance in fulfilling any function, activity, action or duty of the Conservator.

Q:

How will the Company run during the conservatorship?

2

A:

Thc Company will continuc to run as usual during the conservatorship. The Conservator
will delegate authorities to the Company's management to move forward with the
business operations. The Conservator encourages all Company employees to continue to
perform their job functions without interruption.

Q:

Will the Company continue to pays its obligations during the conservatorship?

A:

Yes, the Company's obligations will be paid in the nonnal course of business during the
Conservatorship. The Treasury Department, through a secured lending credit facility and
a Scnior Preferred Stock Purchase Agreement, has significantly enhanced the ability of
the Company to meet its obligations. The Conservator does not anticipate that there will
be any disruption in the Company's pattern of payments or ongoing business operations.

Q:

What happens to the Company's stock during the conservatorship?

A:

During the conservatorship, the Company's stock will continue to trade. However, by
statute, the powers of the stockholders are suspended until the conservatorship is
tenninated. Stockholders will continue to retain all rights in the stock's financial worth;
as such worth is determined by the market.

Q:

Is the Company able to buy and sell investments and complete financial transactions
during the conservatorship?

A:

Yes, the Company's operations continue subject to the oversight of thc Conscrvator.

Q:

What happens if the Company is liquidated?

A:

Under a conservatorship, the Company is not liquidated.

Q:

Can the Conservator detcnnine to liquidate the Company?

A:

The Conservator cannot make a detennination to liquidate the Company, although, short
of that, the Conservator has the authority to run the company in whatever way will best
achieve the Conservator's goals (discussed above). However, assuming a statutory
ground exists and the Director of FHF A detennines that the financial condition of thc
company requires it, the Director does have the discretion to place any regulated entity,
including the Company, into receivership. Receivership is a statutory process for the
liquidation of a regulated entity. There are no plans to liquidate the Company.

Q:

Can the Company be dissolved?

A:

Although the company can be liquidated as explained above, by statute the charter of the
Company must be transferred to a new entity and can only be dissolved by an Act of
Congress.

3

·f

.~'

,
t

u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
11 a.m. (EDT), September 7,2008
CO]\'TACT Brookly McLaughlin, (202) 622-2920
EMBARGOED UNTIL

FACT SHEET:
TREASURY SENIOR PREFERRED STOCK PURCHASE AGREEMENT

Fannie Mae and Freddie Mac debt and mortgage backed securities outstanding today amount to about $5
trillion, and are held by central banks and investors around the world. Investors have purchased
securities of these government sponsored enterprises in part because the ambiguities in their
Congressional charters created a perception of government backing. These ambiguities fostered
enormous growth in GSE debt outstanding, and the breadth of these holdings pose a systemic risk to our
financial system. Because the U.S. government created these ambiguities, we have a responsibility to
both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings
of GSE debt and mortgage backed securities.
To address our responsibility to support GSE debt and mortgage backed securities holders, Treasury
entered into a Senior Preferred Stock Purchase Agreement with each GSE which ensures that each
enterprise maintains a positive net worth. This measure adds to market stability by providing additional
security to GSE debt holders - senior and subordinated-- and adds to mortgage affordability by
providing additional confidence to investors in GSE mortgage-backed securities. This commitment also
eliminates any mandatory triggering of receivership.
These agreements are the most effective means of averting systemic risk and contain terms and
conditions to protect the taxpayer. They are more efficient than a one-time equity injection, in that
Treasury will use them only as needed and on terms that the Treasury deems appropriate.
These agreements provide significant protections for the taxpayer, in the form of senior preferred stock
with a liquidation preference, an up front $1 billion issuance of senior preferred stock with a 10% coupon
from each GSE, quarterly dividend payments, warrants representing an ownership stake of 79.9% in
each GSE going forward, and a quarterly fee starting in 2010.

Terms of the Agreements:
•

The agreements are contracts between the Department of the Treasury and each GSE. They are
indefinite in duration and have a capacity of $1 00 billion each, an amount chosen to demonstrate
a strong commitment to the GSEs' creditors and mortgage backed security holders. This number
is unrelated to the Treasury's analysis of the current financial conditions of the GSEs.

•

If the Federal Housing Finance Agency determines that a GSE's liabilities have exceeded its
assets under generally accepted accounting principles, Treasury will contribute cash capital to
the GSE in an amount equal to the difference between liabilities and assets. An amount equal to

each such contribution will be added to the senior preferred stock held by Treasury, which will
be senior to all other preferred stock, common stock or other capital stock to be issued by the
GSE. These agreements will protect the senior and subordinated debt and the mortgage backed
securities of the GSEs. The GSE's common stock and existing preferred shareholders will bear
any losses ahead of the government.
•

In exchange for entering into these agreements with the GSEs, Treasury will immediately receive
the following compensation:
o $1 billion of senior preferred stock in each GSE
o Warrants for the purchase of common stock of each GSE representing 79.9% of the
common stock of each GSE on a fully-diluted basis at a nominal price

•

The senior preferred stock shall accrue dividends at 10% per year. The rate shall increase to 12%
if, in any quarter, the dividends are not paid in cash, until all accrued dividends have been paid in
cash.

•

The senior preferred stock shall not be entitled to voting rights. In a conservatorship, voting
rights of all stockholders are vested in the Conservator.

•

Beginning March 31, 20 I 0, the GSEs shall pay the Treasury on a quarterly basis a periodic
commitment fee that will compensate the Treasury for the explicit support provided by the
agreement. The Secretary of the Treasury and the Conservator shall determine the periodic
commitment fee in consultation with the Chairman of the Federal Reserve. This fee may be paid
in cash or may be added to the senior preferred stock.

•

The following covenants apply to the GSEs as part of the agreements.
o Without the prior consent of the Treasury, the GSEs shall not:
• Make any payment to purchase or redeem its capital stock, or pay any
dividends, including preferred dividends (other than dividends on the senior
preferred stock)
• Issue capital stock of any kind
• Enter into any new or adjust any existing compensation agreements with
"named executive officers" without consulting with Treasury
• Terminate conservatorship other than in connection with receivership
• Sell, conveyor transfer any of its assets outside the ordinary course of business
except as necessary to meet their obligation under the agreements to reduce
their portfolio of retained mortgages and mortgage backed securities
• Increase its debt to more than 110% of its debt as of June 30, 2008
• Acquire or consolidate with, or merge into, another entity.

•

Each GSE's retained mortgage and mortgage backed securities portfolio shall not exceed $850
billion as of December 31, 2009, and shall decline by 10% per year until it reaches $250 billion.

-30-

u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL, 11 a.m., (EDT), September 7, 2008
CONTACT Brookly McLaughlin, (202) 622-2920

FACT SHEET:
GSE MORTGAGE BACKED SECURITIES PURCHASE PROGRAM

Treasury announced a program today to help improve the availability of mortgage credit to American
homebuyers and mitigate pressures on mortgage rates. To promote the stability of the mortgage market,
Treasury will purchase Government Sponsored Enterprise (GSE) mortgage-backed securities (MBS) in
the open market. By purchasing these guaranteed securities, Treasury seeks to broaden access to
mortgage funding for current and prospective homeowners as well as to promote market stability.
Scope of Program. Treasury is committed to investing in agency MBS with the size and timing subject
to the discretion of the Treasury Secretary. The scale of the program will be based on developments in
the capital markets and housing markets.
•
•
•

Congress granted Treasury authority to purchase MBS in the Housing and Economic Recovery
Act of 2008. The authority expires on December 31,2009.
Treasury will begin later this month by investing in new GSE MBS, which are credit-guaranteed
by the GSEs. Additional purchases will be made as deemed appropriate.
Treasury can hold this portfolio ofMBS to maturity and, based on mortgage market conditions,
Treasury may make adjustments to the portfolio.

Management. Treasury will designate independent asset managers as financial agents to undertake the
purchase and management of a portfolio of GSE MBS on behalf of Treasury.
•
•

The portfolios will be managed with clear investment guidelines and investment objectives.
The primary objectives of this portfolio will be to promote market stability, ensure mortgage
availability, and protect the taxpayer.

Risk. Treasury is committed to protecting taxpayers and will ensure that measures are in place to reduce
the potential for investment loss.
•

Under most likely scenarios, taxpayers will benefit from this program - both indirectly through
the increased availability and lower cost of mortgage financing, and directly through potential
returns on Treasury's portfolio of MBS.

Budget Implications. Given that Treasury can hold these securities to maturity, the spreads between
Treasury's cost of borrowing and GSE MBS indicate that there is no reason to expect taxpayer losses
from this program.

•
•
•

Treasury financing of purchases of GSE MBS will be deemed as outlays and are subject to the
statutory debt limit.
However, Treasury will be receiving an income producing asset (a portfolio of GSE MBS) in
return for its invested funds.
Treasury will make available information on purchases through this program in the Monthly
Treasury Statement (http://fms.treas.gov/mtslindex.html).

-30-

u.s. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
11 a.m., (EDT), September 7,2008
CONTACT Brookly McLaughlin, (202) 622-2920
El\IBARGOED UNTIL,

FACT SHEET:
GOVERNMENT SPONSORED ENTERPRISE CREDIT FACILITY

The Government Sponsored Enterprise Credit Facility (GSECF) announced today by Treasury to ensure
credit availability to the housing GSEs is a lending facility that will provide secured funding on an as
needed basis under terms and conditions established by the Treasury Secretary to protect taxpayers.
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are eligible to borrow under this program
if needed.
The facility will offer liquidity if needed until December 31,2009. The Housing and Economic
Recovery Act of 2008 provided Treasury with the authority to establish this facility.
Funding. Funding will be provided directly by Treasury from its general fund held at the Federal
Reserve Bank of New York (FRBNY) in exchange for eligible collateral from the GSEs which will be
limited to guaranteed mortgage backed securities issued by Freddie Mac and Fannie Mae as well as
advances made by the Federal Home Loan Banks. All such assets pledged against loans will be
accepted with appropriate collateral margins as determined by Treasury.
•
•
•
•

•

The FRBNY will act as Treasury's fiscal agent to advance funds to the GSEs and to administer
collateral arrangements.
Any lending through the GSECF will be directly debited from Treasury's general account and
credited to the borrowing GSE's account, both held at the FRBNY.
Loan requests will require approval from Treasury and verification by the FRBNY that adequate
collateral has been pledged.
Similar to other borrowing done by Treasury, information on any borrowing will be publicly
reported at the end of the following day in the Daily Treasury Statement.
(http://www.fms.treas.gov/dts/)
Any additional borrowing by Treasury necessitated by this program would be subject to the debt
limit.

Loan Duration and Size. Loans will be for short-term durations and would in general be expected to be
for less than one month but no shorter than one week.
•
•

Specific maturities will be determined based on individual loan requests.
The term of a loan may not be extended, but a maturing loan may be replaced with a new loan
under the same borrowing procedures as the initial loan.

•
•
•

Loans may be pre-paid with two days notice, and loans may be called before their scheduled
maturity date.
Loan amounts will be based on available collateral.
Loans wi 11 not be made with a maturity date beyond December 31, 2009.

Rate. The rate on a loan request ordinarily will be based on the daily LIB OR fix for a similar term of the
loan plus 50 basis points (LIBOR +50 bp). The rate is set at the discretion of the Treasury Secretary with
the objective of protecting the taxpayer, and is subject to change.
Collateral. All loans will be collateralized and collateral is limited to mortgage backed securities issued
by Freddie Mac and Fannie Mae and advances made by the Federal Home Loan Banks.
•

The collateral will be valued and managed by Treasury's fiscal agent, the FRBNY, based on a
range of pricing services.

-30-

EXECUTION VERSION
FEDERAL HOME LOAN MORTGAGE CORPORATION
WARRANT TO PURCHASE COMMON STOCK
NO.

Septemher 7,2008
VOID AFTER SEPTEMBER 7, 2028

THIS CERTIFIES THAT, for value received, the United States Department of the
Treasury, with its principal office at 1500 Pennsylvania Avenue, NW, Washington, DC 20220
(the "Holder"), is entitled to purchase at the Exercise Price (defined helow) from Federal Home
Loan Mortgage Corporation, a govemment-sponsored enterprise of the United States of
America, with its principal office at 8200 Jones Branch Drive, McLean, Virginia 22102 (the
"Company"), shares of common stock, no par value, of the Company, as provided herein.
1.
Definitions. As used herein, the following terms shall have the following
respective meanings:
"Affiliate" shall mean, as to any specified Person, any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with such specified
Person. For the purposes of this definition, "control," when used with respect to any Person,
means the power to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the foregoing.
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
"Common Stock" shall mean the common stock, no par value, of the Company, and all
other stock of any class or classes (however designated) of the Company from time to time
outstanding, the holders of which have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends or liquidating distributions after the payment of
dividends and distributions on any shares entitled to preference.
"Exercise Period" shall mean the time period commencing with the date hereof and
th
ending at 5:00 p.m. New York time on the 20 anniversary of the date hereof.
"Exercise Price" shall mean one one-thousandth of a cent ($0.00001) per share.
"Exercise Shares" shall mean the shares of the Common Stock issuable upon exercise of
this Warrant, subject to adjustment pursuant to the terms herein, and shall also mean any other
shares, securities, assets or property otherwise issuable upon exercise of this Warrant.
"Fair Market Value" shall mean, with respect to a share of Common Stock, or any other
security of the Company or any other issuer:
(a)
the volume weighted average daily Market Price during the period of the most
recent twenty (20) Trading Days, ending on the last Trading Day before the date of
determination of Fair Market Value, if such class of Common Stock or other security is (i) traded

on the 1\ew York Stock Exchange or any other U.S. national or regional securities exchange, or
admitted to unlisted trading privileges on such an exchange, or (ii) is quoted or reported on the
Over-the-Counter Bulletin Board ("OrCBB") or by Pink orc Markets Inc. or a similar
organization or agency succeeding to its functions of reporting prices; or
if such class of Common Stock or other security is not then so listed, admitted to
(b)
trading or quoted, the Fair Market Value shall be the Market Price on the last Business Day
before the date of determination of Fair Market Value.
"Fully Diluted" shall mean, as of immediately prior to the exercise of this Warrant (or a
portion of this Warrant), the sum of, without duplication, (i) the total number of shares of
Common Stock outstanding and (ii) all shares of Common Stock issuable in respect of securities
convertible into or exercisable or exchangeable for Common Stock, stock appreciation rights or
options, warrants (including this Warrant) and other rights to purchase or subscribe for Common
Stock or securities convertible into or exercisable or exchangeable for Common Stock (in each
case, assuming that no restrictions apply with respect to conversion, exercise, exchange,
SUbscription or purchase).
"Market Price" shall be, as of any specified date with respect to any share of any class of
Common Stock or any other security of the Company or any other issuer:
(i)
the closing price on that date or, if no closing price is reported, the last reported
sale price, of shares of the Common Stock or such other security on the New York Stock
Exchange on that date; or
(ii)
if the Common Stock or such other security is not traded on the New York Stock
Exchange, the closing price on that date as reported in composite transactions for the principal
U.S. national or regional securities exchange on which the Common Stock or such other security
is so traded or, if no closing price is reported, the last reported sale price of shares of the
Common Stock or such other security on the principal U.S. national or regional securities
exchange on which the Common Stock or such other security is so traded on that date; or
(iii)
if the Common Stock or such other security is not traded on a U.S. national or
regional securities exchange, the last quoted bid price on that date for the Common Stock or such
other security in the over-the-counter market as reported (x) by the OrCBB or (y) if reports are
unavailable under clause (x) above by Pink OTC Markets Inc. or a similar organization or
agency succeeding to its functions of reporting prices;
(iv)
if the Common Stock or such other security is not so quoted by OTCBB or Pink
OTe Markets Inc. or a similar organization, the Market Price shall be determined in accordance
with the Valuation Procedure.
"Participating Securities" shall mean, (i) any equity security (other than Common Stock)
that entitles the holders thereof to participate in liquidations or other distributions with the
holders of Common Stock or otherwise participate in the capital of the Company other than
through a fixed or floating rate of return on capital loaned or invested, and (ii) any stock
appreciation rights, phantom stock rights, or any other profit participation rights with respect to

-2-

any of the Company's capital stock or other equity ownership interest, or any rights or options to
acquire any such rights.
"Person" shall mean any individual, corporation, limited liability company, partnership,
joint venture, association, joint-stock company, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity whatsoever.
"Trading Day" shall mean, with respect to any class of Common Stock or any other
security of the Company or any other issuer a day (i) on which the securities exchange or other
trading platfonn applicable for purposes of detennining the Market Price of a share or unit of
such class of Common Stock or other security shall be open for business or (ii) for which
quotations from such securities exchange or other trading platfonn of the character specified for
purposes of detennining such Market Price shall be reported.
"Valuation Procedure" shal1 mean a detemlination made in good faith by the Board of
Directors of the Company (the "Board") that is set forth in resolutions of the Board that are
certified by the Secretary of the Company, which certified resolutions (i) set forth the basis of the
Board's detennination, which, in the case ofa valuation in excess of5100 million, shall include
the Board's reliance on the valuation of a nationally recognized investment banking or appraisal
finn, and (ii) are delivered to the Holder within ten (10) Business Days following such
detennination. A Valuation Procedure with respect to the value of any capital stock shal1 be
based on the price that would be paid for all of the capital stock of the issuer in an ann's-length
transaction between a willing buyer and a willing seller (neither acting under compulsion).
2.

Exercise of Warrant; Number of Shares.

2.1
Exercise. This Warrant may be exercised in whole or in part at any time
during the Exercise Period, by delivery of the following to the Company at its address set forth
above (or at such other address as it may designate by notice in writing to the Holder):
(a)

an executed Notice of Exercise in the forn1 attached hereto;

(b)
payment of the Exercise Price (i) in cash or by check, (ii) by
cancellation of indebtedness or (iii) pursuant to Section 2.2 hereof; and
(c)

this Warrant.

This Warrant will be exercisable for a number of shares of Common Stock that, together
with the shares of Common Stock previously issued pursuant to this Warrant, is equal to 79.9%
of the total number of shares of Common Stock outstanding on a Fully Diluted basis on the date
of exercise. Whenever the Holder exercises this Warrant in whole or in part, it may assign its
right to receive the Exercise Shares issuable upon such exercise to any other Person.
As soon as practicable (and in any event within five Business Days) after this Warrant
shall have been exercised, a certificate or certificates for the Exercise Shares so purchased,
registered in the name of the Holder or such other Person as may be designated by the Holder (to
the extent such transfer is not validly restricted and upon payment of any transfer taxes that are

-3-

required to be paid by the Holder in connection with any such transfer), shall be issued and
delivered by the Company to the Holder or such other Person.
The Person in whose name any certificate or certificates for the Exercise Shares are to be
issued upon exercise of this Warrant shall be deemed to have become the holder of record of
such shares on the date on which this Warrant was surrendered and payment of the Exercise
Price was made, irrespective of the date of delivery of such certificate or certificates, except that,
if the date of such surrender and payment is a date when the stock transfer books of the Company
are closed, such Person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open (whether before
or after the end of the Exercise Period).
2.2
Net Exercise. Notwithstanding any provision herein to the contrary, if the
Market Price of one share of the Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant by payment of cash, check or
cancellation of indebtedness, the Holder may elect (the "Conversion Right") to receive shares
equal to the value (as determined below) of this Warrant (or the portion thereof being canceled)
by surrender of this Warrant at the principal office of the Company together with the properly
endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:

x == Y

(A-B)
A

Where X = the number of shares of Common Stock to be issued
Y = the number of shares of Common Stock purchasable under this Warrant or, if only a
portion of this Warrant is being exercised, the portion of this Warrant being exercised (at the date
of such calculation)
A == the Market Price of one share of the Common Stock (at the date of such calculation)
B = Exercise Price (as adjusted pursuant to the terms herein to the date of such
calculation)
The Company shall pay all reasonable administrative costs incurred by the Holder in
connection with the exercise of the Conversion Right by the Holder pursuant to this Section 2.2.
3.

Covenants and Representations of the Company
3.1

Covenants as to Exercise Shares.

(a)
The Company covenants and agrees that all Exercise Shares that
may be issued upon the exercise of this Warrant will, upon issuance, be validly authorized,
issued and outstanding, fully paid and nonassessable, free of preemptive rights and free from all
taxes, liens and charges with respect to the issuance thereof. If the Common Stock or the class of
securities of any other Exercise Shares is then listed or quoted on a national securities exchange

-4-

or a regional securities exchange, all such Exercise Shares shall, upon issuance, also be so listed
or quoted. The Company further covenants and agrees that the Company will at all times during
the Exercise Period, have authorized and reserved solely for purposes of the exercise of this
Warrant, free from preemptive rights, a sufficient number of shares of its Common Stock or the
class of securities of any other Exercise Shares to provide for the exercise in full of this Warrant
(without taking into account any possible exercise pursuant to Section 2.2 hereof). If at any time
during the Exercise Period the number of authorized but unissued shares of Common Stock or
the class of securities of any other Exercise Shares shall not be sufficient to pemlit exercise in
full of this Warrant (without taking into account any possible exercise pursuant to Section 2.2
hereof), the Company will take such corporate action as shall be necessary to increase its
authorized but unissued shares of Common Stock or the class of securities of any other Exercise
Shares to such number of shares as shall be sufficient for such purposes.
If at any time the Exercise Shares shall include any shares or other
(b)
securities other than shares of Common Stock, or any other property or assets, the terms of this
Warrant shall be modified or supplemented (and in the absence of express written documentation
thereof, shall be deemed to be so modified or supplemented), and the Company shall take all
actions as may be necessary to preserve, in a manner and on terms as nearly equivalent as
practicable to the provisions of this Warrant as thcy apply to the Common Stock, the rights of the
Holder hereunder, including any equitable replacements of the term "Common Stock" with the
tcrm "Exercise Shares" and adjustments of any formula included herein.
(c)
The Company's filings under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), will comply in all material respects as to form with the
Exchange Act and the rules and regulations thereunder.
(d)
Without prior written consent of the Holder, the Company shall not
permit any Significant Subsidiary (as defined by Rule I-02(w) of Regulation S-X under the
Securities Act or any successor rule) to (i) issue or grant any capital stock or equity ownership
interest, including any Participating Security; (ii) any rights, options, warrants or convertible
security that is exercisable for or convertible into any capital stock or other equity ownership
interest, including any Participating Security; or (iii) any stock appreciation rights, phantom
stock rights, or any other profit participation rights, or any rights or options to acquire any such
rights, in each case of clauses (i), (ii) and (iii) above, to any Person other than the Company or its
wholly owned subsidiaries.
(e)
The Company shall not take any action that will result in an
increase in the par value of the Common Stock.
3.2
No Impairment. Except and to the extent as waived or consented to in
writing by the Holder, the Company will not, by amendment of its charter, bylaws or other
governing documents or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to protect the exercise
rights of the Holder against impairment or dilution consistent with the intent and principles

-5-

expressed herein. If any event or occurrence shall occur (including without limitation, stock
dividends and stock splits) as to which the failure to make any adjustment to the Exercise Price
and/or the number of shares or other assets or property subject to this Warrant would adversely
affect the purchase rights or value represented by this Warrant, including any issuance of
Common Stock or Participating Securities, then, in each such case, the Company shall detennine
the adjustment, if any, on a basis consistent with the essential intent and principles herein,
necessary to preserve, without dilution, the purchase rights represented by this Warrant. If such
detennination involves or is based on a detennination of the Fair Market Value of any securities
or other assets or property, such detennination shall be made in accordance with the Valuation
Procedure. Without limiting the foregoing, in the event of any dividend or distribution by the
Company of assets or property (including shares of any other Person) on or with respect to the
Common Stock, or any exchange of the shares of Common Stock into any other assets, property
or securities, this Warrant will be equitably adjusted to pennit the Holder to receive upon
exercise the assets, property or securities that would have been received if the Warrant had been
exercised immediately prior to such dividend, distribution or exchange.
3.3
Notice of Record Date. In the event (i) the Company takes a record of the
holders of any class of securities for the purpose of detennining the holders thereof who are
entitled to receive any dividend or other distribution, (ii) the Company authorizes the granting to
the holders of Common Stock (or holders of the class of securities of any other Exercise Shares)
of rights to subscribe to or purchase any shares of capital stock of any class or securities
convertible into any shares of capital stock or of any other right, (iii) the Company authorizes
any reclassification of, or any recapitalization involving, any class of Common Stock or any
consolidation or merger to which the Company is a party and for which approval of the
stockholders of the Company is required, or of the sale or transfer of all or substantially all of the
assets of the Company, (iv) the Company authorizes or consents to or otherwise commences the
voluntary or involuntary dissolution, liquidation or winding up of the Company or (v) the
Company authorizes or takes any other action that would trigger an adjustment in the Exercise
Price or the number or amount of shares of Common Stock or other Exercise Shares subject to
this Warrant, the Company sha\l mail to the Holder, at least ten (10) days prior to the earlier of
the record date for any such action or stockholder vote and the date of such action, a notice
specifying (a) which action is to be taken and the date on which any such record is to be taken
for the purpose of any such action, (b) the date that any such action is to take place and (c) the
amount and character of any stock, other securities or property and amounts, or rights or options
with respect thereto, proposed to be issued, granted or delivered to each holder of Common
Stock (or holders of the class of securities of any other Exercise Shares).
4.
Fractional Shares. No fractional shares shall be issued upon the exercise of this
Warrant. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may
be aggregated for purposes of detennining whether the exercise would result in the issuance of
any fractional share. If, after aggregation, the exercise would result in the issuance of a
fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder
otherwise entitled to such fraction a sum in cash equal to the product resulting from mUltiplying
such fractional amount by the Fair Market Value of one share of Common Stock.

-6-

5.
Listing Rights. The Company shall use its best efforts, upon the request of the
Holder, to cause the Exercise Shares to be listed or quoted on a national securities exchange or a
regional securities exchange.
6.
No Stockholder Rights or Liabilities. Without limiting the consent rights of the
Holder contained in Section 3, this Warrant in and of itself shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in
the absence of affim1ative action by the Holder to exercise this Warrant in exchange for shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of the Holder for the Exercise Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the Company.
7.
Transfer of Warrant. This Warrant is not transferable; provided, however, that the
Holder may assign its rights to receive shares upon exercise of this Warrant pursuant to Section
2.l.
8.
Payment of Taxes on Stock Certificate Issues Upon Exercise. The initial issuance
of certificates of Common Stock upon any exercise of this Warrant shall be made without charge
to the exercising Holder for any transfer, stamp or similar tax or for any other governmental
charges that may be imposed in respect of the issuance of such stock certificates, and such stock
certificates shall be issued in the respective names of, or in such names as may be directed by,
the Holder; provided, however, that the Company shall not be required to pay any tax or such
other charges that may be payable in respect of any transfer involved in the issuance and delivery
of any such stock certificate, any new warrants or other securities in a name other than that of the
Holder upon exercise of this Warrant (other than to an Affiliate), and the Company shall not be
required to issue or deliver such certificates or other securities unless and until the Person or
Persons requesting the issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction ofthe Company that such tax has been paid or is not
payable.
9.
Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen,
mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may
reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant oflike denomination and tenor as this Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation
of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall
be at any time enforceable by anyone.
10.
Closing of Books. The Company will at no time close its transfer books against
the transfer of any shares of Common Stock issued or issuable upon the exercise or conversion of
any Warrant in any marmer which interferes with the timely exercise or conversion of this
Warrant.

-7-

II.
Notices, Etc. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the party to be notified,
(b) when sent by confirmed telex or facsimile if sent during normal business hours of the
recipient or ifnot, then on the next Business Day, (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) Business Day
after deposit with a nationally recognized overnight courier, specifying next Business Day
delivery, with written verification of receipt. All notices and other communications shall be sent
to the Company at the address listed on the signature page and to Holder at the address set forth
below or at such other address as the Company or Holder may designate by ten (10) days
advance written notice to the other parties hereto:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Attn: Under Secretary for Domestic Finance
with a copy to:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Attn: General Counsel
12.
Acceptance. Receipt of this Warrant by the Holder shall constitute acceptance of
and agreement to all of the terms and conditions contained herein.
13.
Binding Effect on Successors. This Warrant shall be binding upon any Person
succeeding the Company by merger, consolidation or acquisition of all or substantially all of the
Company's assets, and all of the obligations of the Company relating to the Common Stock
issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion
and termination of this Warrant and all of the covenants and agreements of the Company shall
inure to the benefit of the successors and assigns of the Holder.
14.
Governing Law. This Warrant and all rights, obligations and liabilities hereunder
shall be governed and construed in accordance with Federal law, if and to the extent such Federal
law is applicable, and otherwise in accordance with the law of the State of New York.

-8-

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer as of September 7,2008.

FEDERAL HOME LOAN MORTGAGE
CORPORATION, by
The Federal Housing Finance Agency, its Conservator

James B. LockhaI1 III
Director
Address: 8200 Jones Branch Drive
McLean, Virginia 22102

Signature Page to Warrant

NOTICE OF EXERCISE
TO:

FEDERAL HOME LOAN MORTGAGE CORPORATION

0

(1)
The undersigned hereby elects to purchase
shares of the
Common Stock of Federal Horne Loan Mortgage Corporation (the "Company") pursuant to the
terms of the attached Warrant, and tenders herewith or is delivering by wire transfer to account
number
at
(bank) payment of the exercise price in full.

D The undersigned hereby elects to purchase
shares of the Common
Stock of the Company pursuant to the terms of the net exercise provisions set forth in Section 2.2
of the attached Warrant.
(2)
Please issue a certificate or certificates representing said shares of Common Stock
in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

(Date)

(Signature)

(Print name)

EXECUTION VERSION
FREDDIE MAC
CERTIFICATE OF CREATION, DESIGNATION, POWERS,
PREFERENCES, RIGHTS, PRIVILEGES, QUALIFICATIONS,
LIMITATIONS, RESTRICTIONS, TERMS AND CONDITIONS
OF
VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK
(PAR VALUE $1.00 PER SHARE)
The Federal Housing Finance Agency, as Conservator of the Federal Home Loan
Mortgage Corporation, a govemment-sponsorcd enterprise of the United States of America (the
"Company"), does hereby certify that, pursuant to authority vested in the Board of Directors of the
Company by Section 306(f) of the Federal Home Loan Mortgage Corporation Act, and pursuant to
the authority vested in the Conservator of the Company by Section 1367(b) of the Federal Housing
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.c. §4617), as amended, the
Conservator adopted Resolution FHLMC 2008on September 7,2008, which resolution is
now, and at all times since such date has been, in full force and effect, and that the Conservator
approved the final terms of the issuance and sale of the preferred stock of the Company designated
above.
The Senior Preferred Stock shall have the following designation, powers, preferences,
rights, privileges, qualifications, limitations, restrictions, tenns and conditions:
1.

Designation, Par Value, Number of Shares and Seniority

The class of preferred stock of the Company created hereby (the "Senior Preferred Stock")
shall be designated "Variable Liquidation Preference Senior Preferred Stock," shall have a par
value of $1.00 per share and shall consist of 1,000,000 shares. The Senior Preferred Stock shall
rank prior to the common stock of the Company as provided in this Certificate and shall rank, as to
both dividends and distributions upon liquidation, prior to (a) the Fixed-to-Floating Rate
Non-Cumulative Perpetual Preferred Stock issued on December 4, 2007, (b) the 6.55%
Non-Cumulative Preferred Stock issued on September 28,2007, (c) the 6.02% Non-Cumulative
Preferred Stock issued on July 24,2007, (d) the 5.66% Non-Cumulative Preferred Stock issued on
April 16, 2007, (e) the 5.57% Non-Cumulative Preferred Stock issued on January 16,2007, (f) the
5.9% Non-Cumulative Preferred Stock issued on October 16,2006, (g) the 6.42%
Non-Cumulative Preferred Stock issued on July 17,2006, (h) the Variable Rate, Non-Cumulative
Preferred Stock issued on July 17,2006, (i) the 5.81 % Non-Cumulative Preferred Stock issued on
January 29,2002, (j) the 5.7% Non-Cumulative Preferred Stock issued on October 30,2001, (k)
the 6% Non-Cumulative Preferred Stock issued on May 30,2001, (1) the Variable Rate,
Non-Cumulative Preferred Stock issued on May 30, 2001 and June 1,2001, (m) the 5.81%
Non-Cumulative Preferred Stock issued on March 23, 2001, (n) the Variable Rate,
Non-Cumulative Preferred Stock issued on March 23, 2001, (0) the Variable Rate,
Non-Cumulative Preferred Stock issued on January 26,2001, (p) the Variable Rate,
Non-Cumulative Preferred Stock issued on November 5, 1999, (q) the 5.79% Non-Cumulative
Preferred Stock issued on July 21,1999, (r) the 5.1% Non-Cumulative Preferred Stock issued on
March 19, 1999, (5) the 5.3% Non-Cumulative Preferred Stock issued 011 October 28,1998, (t) the

5.1 °0 Non-Cumulati\·e Preferred Stock issued on September 23, 1998, (u) the Variable Rate,
t\on-Cumulati\e Preferred Stock issued on September 23, 1998 and September 29, 1998, (v) the
5'~o Non-Cumulative Preferred Stock issued on March 23, 1998, (w) the 5.81 % Non-Cumulative
Preferred Stock issued on October 27, 1997, (x) the Variable Rate, Non-Cumulative Preferred
Stock issued on April 26, 1996, (y) any other capital stock of the Company outstanding on the date
of the initial issuance of the Senior Preferred Stock, and (z) any capital stock of the Company that
may be issued after the date of initial issuance of the Senior Preferred Stock.

2.

Dividends

(a)
For each Dividend Period from the date of the initial issuance of the Senior
Preferred Stock, holders of outstanding shares of Senior Preferred Stock shall be entitled to receive,
ratably, when, as and jf declared by the Board of Directors, in its sole discretion, out of funds
legally available therefor, cumulative cash dividends at the annual rate per share equal to the
then-current Dividend Rate on the then-current Liquidation Preference. Dividends on the Senior
Preferred Stock shall accrue from but not including the date of the initial issuance of the Senior
Preferred Stock and will be payable in arrears when, as and if declared by the Board of Directors
quarterly on March 31, June 30, September 30 and December 31 of each year (each, a "Dividend
Payment Date"), commencing on December 31, 2008. If a Dividend Payment Date is not a
"Business Day," the related dividend will be paid not later than the next Business Day with the
same force and effect as though paid on the Dividend Payment Date, without any increase to
account for the period from such Dividend Payment Date through the date of actual payment.
"Business Day" means a day other than (i) a Saturday or Sunday, (ii) a day on which New York
City banks are closed, or (iii) a day on which the offices of the Company are closed.
If declared, the initial dividend will be for the period from but not including the date of the
initial issuance of the Senior Preferred Stock through and including December 31,2008. Except
for the initial Dividend Payment Date, the "Dividend Period" relating to a Dividend Payment Date
will be the period from but not including the preceding Dividend Payment Date through and
including the related Dividend Payment Date. The amount of dividends payable on the initial
Dividend Payment Date or for any Dividend Period that is not a full calendar quarter shall be
computed on the basis of 30-day months, a 360-day year and the actual number of days elapsed in
any period of less than one month. For the avoidance of doubt, in the event that the Liquidation
Preference changes in the middle of a Dividend Period, the amount of dividends payable on the
Dividend Payment Date at the end of such Dividend Period shall take into account such change in
Liquidation Preference and shall be computed at the Dividend Rate on each Liquidation
Preference based on the portion of the Dividend Period that each Liquidation Preference was in
effect.
To the extent not paid pursuant to Section 2(a) above, dividends on the Senior
(b)
Preferred Stock shall accrue and shall be added to the Liquidation Preference pursuant to Section 8,
whether or not there are funds legall y avai lable for the payment of such dividends and whether or
not dividends are declared.
"Dividend Rate" means 10.0%; provided, however, that if at any time the Company
(c)
shall have for any reason failed to pay dividends in cash in a timely manner as required by this
Certificate, then immediately following such failure and for all Dividend Periods thereafter until

2

the Dividend Period following the date on which the Company shall have paid in cash full
cumulative dividends (including any unpaid dividends added to the Liquidation Preference
pursuant to Section 8), the "Dividend Rate" shall mean 12.0%.
(d)
Each such dividend shall be paid to the holders of record of outstanding shares of
the Senior Preferred Stock as they appear in the books and records of the Company on such record
date as shall be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later
than 10 days preceding the applicable Dividend Payment Date. The Company may not, at any
time, declare or pay dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any common stock or other securities
ranking junior to the Senior Preferred Stock unless (i) full cumulative dividends on the outstanding
Senior Preferred Stock in respect of the then-current Dividend Period and all past Dividend
Periods (including any unpaid dividends added to the Liquidation Preference pursuant to Section
8) have been declared and paid in cash (including through any pay down of Liquidation Preference
pursuant to Section 3) and (ii) all amounts required to be paid pursuant to Section 4 (withollt giving
effect to any prohibition on such payment under any applicable law) have been paid in cash.
(e)
Notwithstanding any other provision of this Certificate, the Board of Directors, in
its discretion, may choose to pay dividends on the Senior Preferred Stock without the payment of
any dividends on the cornman stock, preferred stock or any other class or series of stock from time
to time outstanding ranking junior to the Senior Preferred Stock with respect to the payment of
dividends.
(f)
If and whenever dividends, having been declared, shall not have been paid in full,
as aforesaid, on shares of the Senior Preferred Stock, all such dividends that have been declared on
shares of the Senior Preferred Stock shall be paid to the holders pro rata based on the aggregate
Liquidation Preference of the shares of Senior Preferred Stock held by each holder, and any
amounts due but not paid in cash shall be added to the Liquidation Preference pursuant to Section
8.

3.

Optional Pay Down of Liquidation Preference

(a)
Following termination of the Commitment (as defined in the Preferred Stock
Purchase Agreement referred to in Section 8 below), and subject to any limitations which may be
imposed by law and the provisions below, the Company may pay down the Liquidation Preference
of all outstanding shares of the Senior Preferred Stock pro rata, at any time, in whole or in part, out
of funds legally available therefor, with such payment first being used to reduce any accrued and
unpaid dividends previously added to the Liquidation Preference pursuant to Section 8 below and,
to the extent all such accrued and unpaid dividends have been paid, next being used to reduce any
Periodic Commitment Fees (as defined in the Preferred Stock Purchase Agreement referred to in
Section 8 below) previously added to the Liquidation Preference pursuant to Section 8 below.
Prior to termination of the Commitment, and subject to any limitations which may be imposed by
law and the provisions below, the Company may pay down the Liquidation Preference of all
outstanding shares of the Senior Preferred Stock pro rata, at any time, out of funds legally available
therefor, but only to the extent of (i) accrued and unpaid dividends previously added to the
Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of
Liquidation Preference and (ii) Periodic Commitment Fees previously added to the Liquidation

3

Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation
Preference. Any pay down of Liquidation Preference pennitted by this Section 3 shall be paid by
making a payment in cash to the holders of record of outstanding shares of the Senior Preferred
Stock as they appear in the books and records of the Company on such record date as shall be fixed
in advance by the Board of Directors, not to be earlier than 45 days nor later than 10 days
preceding the date fixed for the payment.
(b)
In the event the Company shall pay down of the Liquidation Preference of the
Senior Preferred Stock as aforesaid, notice of such pay down shall be given by the Company by
first class mail, postage prepaid, mailed neither less than 10 nor more than 45 days preceding the
date fixed for the payment, to each holder of record of the shares of the Senior Preferred Stock, at
such holder's address as the same appears in the books and records of the Company. Each such
notice shall state the amount by which the Liquidation Preference of each share shall be reduced
and the pay down date.
If after termination of the Commitment the Company pays down the Liquidation
(c)
Preference of each outstanding share of Senior Preferred Stock in full, such shares shall be deemed
to have been redeemed as of the date of such payment, and the dividend that would otherwise be
payable for the Dividend Period ending on the pay down date will be paid on such date. Following
such deemed redemption, the shares of the Senior Preferred Stock shall no longer be deemed to be
outstanding, and all rights of the holders thereof as holders of the Senior Preferred Stock shall
cease, with respect to shares so redeemed, other than the right to receive the pay down amount
(which shall include the final dividend for such shares). Any shares of the Senior Preferred Stock
which shall have been so redeemed, after such redemption, shall no longer have the status of
authorized, issued or outstanding shares.
4.

Mandatory Pay Down of Liquidation Preference Upon Issuance of Capital Stock

(a)
If the Company shall issue any shares of capital stock (including without limitation
common stock or any series of preferred stock) in exchange for cash at any time while the Senior
Preferred Stock is outstanding, then the Company shall, within 10 Business Days, use the proceeds
of such issuance net of the direct costs relating to the issuance of such securities (including,
without limitation, legal, accounting and investment banking fees) to pay down the Liquidation
Preference of all outstanding shares of Senior Preferred Stock pro rata, out of funds legally
available therefor, by making a payment in cash to the holders of record of outstanding shares of
the Senior Preferred Stock as they appear in the books and records of the Company on such record
date as shall be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later
than 10 days preceding the date fixed for the payment, with such payment first being used to
reduce any accrued and unpaid dividends previously added to the Liquidation Preference pursuant
to Section 8 below and, to the extent all such accrued and unpaid dividends have been paid, next
being used to reduce any Periodic Commitment Fees (as defined in the Preferred Stock Purchase
Agreement referred to in Section 8 below) previously added to the Liquidation Preference
pursuant to Section 8 below; provided that, prior to the termination of the Commitment (as defined
in the Preferred Stock Purchase Agreement referred to in Section 8 below), the Liquidation
Preference of each share of Senior Preferred Stock shall not be paid down below $1,000 per share.

4

(b)
If the Company shall not have sufficient assets legally availahle for the pay down of
the Liquidation Preference ofthe shares of Senior Prefened Stock required under Section 4(a), the
Company shall pay down the Liquidation Preference per share to the extent pennitted by law, and
shall pay down any Liquidation Preference not so paid down because uf the unavailability of
legally available assets or other prohibition as soon as practicable to the extent it is thereafter able
to make such pay down legally. The inability of the Company to make such payment for any
reason shall not relieve the Company from its obligation to effect any required pay down of the
Liquidation Preference when, as and if pennitted by law.
If after the termination of the Commitment the Company pays down the
(c)
Liquidation Preference of each outstanding share of Senior Preferred Stock in full, such shares
shall be deemed to have been redeemed as of the date of such payment, and the dividend that
would otherwise be payable for the Dividend Period ending on the pay down date will be paid on
such date. Following such deemed redemption, the shares of the Senior Preferred Stock shall no
longer be deemed to be outstanding, and all rights of the holders thereof as holders of the Senior
Preferred Stock shall cease, with respect to shares so redeemed, other than the right to receive the
pay down amount (which shall include the final dividend for such redeemed shares). Any shares
of the Senior Preferred Stock which shall have been so redeemed, after such redemption, shall no
longer have the status of authorized, issued or outstanding shares.

5.

No Voting Rights

Except as set forth in this Certificate or otherwise required by law, the shares of the Senior
Preferred Stock shall not have any voting powers, either general or special.

6.

No Conversion or Exchange Rights

The holders of shares of the Senior Preferred Stock shall not have any right to convert such
shares into or exchange such shares for any other class or series of stock or obligations of the
Company.

7.

No Preemptive Rights

No holder of the Senior Preferred Stock shall as such holder have any preemptive right to
purchase or subscribe for any other shares, rights, options or other securities of any class of the
Company which at any time may be sold or offered for sale by the Company.

8.

Liquidation Rights and Preference

(a)
Except as otherwise set forth herein, upon the voluntary or involuntary dissolution,
liquidation or winding up of the Company, the holders of the outstanding shares of the Senior
Preferred Stock shall be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any payment or distribution shall be made on the common
stock or any other class or series of stock of the Company ranking junior to the Senior Preferred
Stock upon liquidation, the amount per share equal to the Liquidation Preference plus an amount,
determined in accordance with Section 2(a) above, equal to the dividend otherwise payable for the
then-current Dividend Period accrued through and including the date of payment in respect of such
dissolution, liquidation or winding up; provided, however, that if the assets of the Company

5

available for distribution to stockholders shall be insufficient for the payment of the amount which
the holders of the outstanding shares of the Senior Preferred Slock shall be entitled to receive upon
such dissolution, liquidation or winding up of the Company as aforesaid, then, all of the assets of
the Company available for distribution to stockholders shall be distributed to the holders of
outstanding shares of the Senior Preferred Stock pro rata based on the aggregate Liquidation
Preference of the shares of Senior Preferred Stock held by each holder.
(b)

"Liquidation Preference" shall initially mean $1,000 per share and shall be:

(i)
increased each time a Deficiency Amount (as defined in the Preferred Stock
Purchase Agreement) is paid to the Company by an amount per share equal to the
aggregate amount so paid to the Company divided by the number of shares of Senior
Preferred Stock outstanding at the time of such payment;
(ii)
increased each time the Company does not pay the full Periodic
Conunitment Fee (as defined in the Preferred Stock Purchase Agreement) in cash by an
amount per share equal to the amount of the Periodic Commitment Fee that is not paid in
cash divided by the number of shares of Senior Preferred Stock outstanding at the time
such payment is due;
(iii)
increased on the Dividend Payment Date if the Company fails to pay in full
the dividend payable for the Dividend Period ending on such date by an amount per share
equal to the aggregate amount of unpaid dividends divided by the number of shares of
Senior Preferred Stock outstanding on such date; and
(iv)
decreased each time the Company pays down the Liquidation Preference
pursuant to Section 3 or Section 4 of this Certificate by an amount per share equal to the
aggregate amount of the pay down divided by the number of shares of Senior Preferred
Stock outstanding at the time of such pay down.
"Preferred Stock Purchase Agreement" means the Preferred Stock Purchase
(c)
Agreement, dated September 7,2008, between the Company and the United States Department of
the Treasury.
(d)
Neither the sale of all or substantially all of the property or buslness of the
Company, nor the merger, consolidation or combination of the Company into or with any other
corporation or entity, shall be deemed to be a dissolution, liquidation or winding up for the purpose
of this Section 8.

9.

Additional Classes or Series of Stock

The Board of Directors shall have the right at anytime in the future to authorize, create and
issue, by resolution or resolutions, one or more additional classes or series of stock of the
Company, and to determine and fix the distinguishing characteristics and the relatlve rights,
preferences, privileges and other terms of the shares thereof; provided that, any such class or series
of stock may not rank prior to or on parity with the Senior Preferred Stock without the prior written
consent of the holders of at least two-thirds of all the shares of Senior Preferred Stock at the time
outstanding.

6

10.

Miscellaneous

(a)
The Cornp,my and any agent of the Company may deem and treat the holder ofa
share or shares of Senior Prefen·ed Stock, as shown in the Company's books and records, as the
absolute owner of such share or shares of Senior Preferred Stock for the purpose of receiving
payment of dividends in respect of such share or shares of Senior Preferred Stock and for all other
purposes whatsoever, and neither the Company nor any agent of the Company shall be affected by
any notice to the contrary. All payments made to or upon the order of any such person shall be
valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge liabilities for
moneys payable by the Company on or with respect to any such share or shares of Senior Preferred
Stock.
(b)
The shares of the Senior Preferred Stock, when duly issued, shall be fully paid and
non-assessable.
(c)
The Senior Preferred Stock may be issued, and shall be transferable on the books of
the Company, only in whole shares.
Cd)
For purposes of this Certificate, the term "the Company" means the Federal Home
Loan Mortgage Corporation and any successor thereto by operation of law or by reason of a
merger, consolidation, combination or similar transaction.
(e)
This Certificate and the respective rights and obligations of the Company and the
holders of the Senior Preferred Stock with respect to such Senior Preferred Stock shall be
construed in accordance with and governed by the laws of the United States, provided that the law
of the Commonwealth of Virginia shall serve as the federal rule of decision in all instances except
where such law is inconsistent with the Company's enabling legislation, its public purposes or any
provision of this Certificate.

(f)
Any notice, demand or other communication which by any provision of this
Certificate is required or pernlitted to be given or served to or upon the Company shall be given or
served in writing addressed (unless and until another address shall be published by the Company)
to Freddie Mac, 8200 Jones Branch Drive, McLean, Virginia 22102, Attn: Executive Vice
President and General Counsel. Such notice, demand or other communication to or upon the
Company shall be deemed to have been sufficiently given or made only upon actual receipt of a
writing by the Company. Any notice, demand or other communication which by any provision of
this Certificate is required or permitted to be given or served by the Company hereunder may be
given or served by being deposited first class, postage prepaid, in the United States mail addressed
(i) to the holder as such holder's name and address may appear at such time in the books and
records of the Company or (ii) if to a person or entity other than a holder of record of the Senior
Preferred Stock, to such person or entity at such address as reasonably appears to the Company to
be appropriate at such time. Such notice, demand or other communication shall be deemed to have
been sufficiently given or made, for all purposes, upon mailing.
The Company, by or under the authority of the Board of Directors, may amend,
(g)
alter, supplement or repeal any provision of this Certificate pursuant to the following terms and
conditions:

7

(i)
Without the consent of the holders of the Senior Preferred Stock, the
Company may amend, alter, supplement or repeal any provision of this Certificate to cure
any ambiguity, to correct or supplement any provision herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions with respect
to matters or questions arising under this Certificate, provided that such action shall not
adversely affect the interests of the holders of the Senior Preferred Stock.
(ii)
The consent of the holders of at least two-thirds of all of the shares of the
Senior Preferred Stock at the time outstanding, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose at which the holders of shares of the
Senior Preferred Stock shall vote together as a class, shall be necessary for authorizing,
effecting or validating the amendment, alteration, supplementation or repeal (whether by
merger, consolidation or otherwise) of the provisions of this Certificate other than as set
forth in subparagraph (i) of this paragraph (g). The creation and issuance of any other class
or series of stock, or the issuance of additional shares of any existing class or series of stock,
of the Company ranking junior to the Senior Preferred Stock shall not be deemed to
constitute such an amendment, alteration, supplementation or repeal.
(iii)
Holders of the Senior Preferred Stock shall be entitled to one vote per share
on matters on which their consent is required pursuant to subparagraph (ii) of this
paragraph (g). In connection with any meeting of such holders, the Board of Directors
shall fix a record date, neither earlier than 60 days nor later than 10 days prior to the date of
such meeting, and holders of record of shares of the Senior Preferred Stock on such record
date shall be entitled to notice of and to vote at any such meeting and any adjournment.
The Board of Directors, or such person or persons as it may designate, may establish
reasonable rules and procedures as to the solicitation of the consent of holders ofthe Senior
Preferred Stock at any such meeting or otherwise, which rules and procedures shall
conform to the requirements of any national securities exchange on which the Senior
Preferred Stock may be listed at such time.

(h)
RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE
SENIOR PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL
CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL
OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF
ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE. NO SIGNATURE
OR OTHER FURTHER MANIFESTATION OF ASSENT TO THE TERMS AND
PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS
OPERATION OR EFFECT AS BET\VEEN THE COMPANY AND THE HOLDER (AND
ALL SUCH OTHERS).

8

i

h

IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company this
day of September, 2008.

[Seal]
FEDERAL HOME LOAN MORTGAGE CORPORATION,
by
The Federal Housing Finance Agency, its Conservator

James B. Lockhart III
Director

Signature Page to Certificate of Designations of Senior Pnferred Stock

EXECUTION VERSION
AMENDED AND RESTATED SENIOR PREFERRED STOCK PURCHASE
AGREEMENT
AMENDED AND RESTATED SENIOR PREFERRED STOCK PURCHASE
AGREEMENT (this "Agreement") dated as of September 26,2008, between the UNITED
STATES DEPARTMENT OF THE TREASURY ("Purchaser") and FEDERAL HOME LOAN
MORTGAGE CORPORATION CSeller"), acting through the Federal Housing Finance Agency
(the "Agency") as its duly appointed conservator (the Agency in such capacity, "Conservator").
Reference is made to Article I below for the meaning of capitalized terms used herein without
definition.

Background
A. The Agency has been duly appointed as Conservator for Seller pursuant to
Section 1367(a) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992
(as amended, the "FHE AcC). Conservator has determined that entry into this Agreement is (i)
necessary to put Seller in a sound and solvent condition; (ii) appropriate to carry on the business
of Seller and preserve and conserve the assets and property of Seller; and (iii) otherwise consistent with its powers, authorities and responsibilities.
B. Purchaser is authorized to purchase obligations and other securities issued by
Seller pursuant to Section 306(1) of the Federal Home Loan Mortgage Corporation Act, as
amended (the "Charter Act"). The Secretary of the Treasury has determined, after taking into
consideration the matters set forth in Section 306(1)(1 )(C) of the Charter Act, that the purchases
contemplated herein are necessary to (i) provide stability to the financial markets; (ii) prevent
disruptions in the availability of mortgage finance; and (iii) protect the taxpayer.

C. Purchaser and Seller executed and delivered the Senior Preferred Stock Purchase Agreement dated as of September 7, 2008 (the "Original Agreement"), and the parties
thereto desire to amend and restate the Original Agreement in its entirety as set forth herein.
THEREFORE, the parties hereto agree as follows:

Terms and Conditions

1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set forth
below:

"Affiliate" means, when used with respect to a specified Person (i) any direct or indirect holder
or group (as defined in Sections 13(d) and 14(d) of the Exchange Act) of holders of 10.0% or
more of any class of capital stock of such Person and (ii) any current or former director or officer
of such Person, or any other current or former employee of such Person that currently exercises
or formerly exercised a material degree of Control over such Person, including without limitation
each current or former Named Executive Officer of such Person.

"Ami/able Amount" means, as of any date of detennination, the lesser of (a) the Deficiency
Amount as of such date and (b) the Maximum Amount as of such date.
"Business Day" means any day other than a Saturday, Sunday or other day on which commercial
banks are authorized to close under United States federal law and the law of the State of New
York.
"Capital Lease Obligations" of any Person shall mean the obligations of such Person to pay rent
or other amounts under any lease of (or other similar arrangement conveying the right to use)
real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for
purposes hereof, the amount of such obligations at any time shall be the capitalized amount
thereof at such time detennined in accordance with GAAP.
"Contror' shall mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Deficiency Amount" means, as of any date of detennination, the amount, if any, by which (a)
the total liabilities of Seller exceed (b) the total assets of Seller (such assets excluding the Commitment and any unfunded amounts thereof), in each case as reflected on the balance sheet of
Seller as of the applicable date set forth in this Agreement, prepared in accordance with GAAP;
provided, however, that:
(i) for the avoidance of doubt, in measuring the Deficiency Amount liabilities shall exclude any obligation in respect of any capital stock of Seller, including the Senior Preferred Stock contemplated herein;
(ii) in the event that Seller becomes subject to receivership or other liquidation process
or proceeding, "Deficiency Amount" shall mean, as of any date of detennination, the
amount, if any, by which (a) the total allowed claims against the receivership or other applicable estate (excluding any liabilities of or transferred to any LLRE (as defined in Section 5.4(a)) created by a receiver) exceed (b) the total assets of such receivership or other
estate (excluding the Commitment, any unfunded amounts thereof and any assets of or
transferred to any LLRE, but including the value of the receiver's interest in any LLRE);
(iii) to the extent Conservator or a receiver of Seller, or any statute, rule, regulation or
court of competent jurisdiction, specifies or detennines that a liability of Seller (including
without limitation a claim against Seller arising from rescission of a purchase or sale of a
security issued by Seller (or guaranteed by Seller or with respect to which Seller is otherwise liable) or for damages arising from the purchase, sale or retention of such a security) shall be subordinated (other than pursuant to a contract providing for such subordination) to all other liabilities of Seller or shall be treated on par with any class of equity
of Seller, then such liability shall be excluded in the calculation of Deficiency Amount;
and

-2-

(iv) the Deficiency Amount may be increased above the otherwise applicable amount by
the mutual written agreement of Purchaser and Seller, each acting in its sole discretion.

"Designated Representative" means Conservator or (a) if Conservator has been superseded by a
receiver pursuant to Section l367(a) of the FHE Act, such receiver, or (b) if Seller is not in conservatorship or receivership pursuant to Section l367(a) of the FHE Act, Seller's chief financial
officer.
"Director" shall mean the Director of the Agency.
"Effective Date" means the date on which this Agreement shall have been executed and delivered
by both of the parties hereto.
"Equity Interests" of any Person shall mean any and all shares, interests, rights to purchase or
otherwise acquire, warrants, options, participations or other equivalents of or interests in (however designated) equity, ownership or profits of such Person, including any preferred stock, any
limited or general partnership interest and any limited liability company membership interest,
and any securities or other rights or interests convertible into or exchangeable for any of the
foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
"GAAP" means generally accepted accounting principles in effect in the United States as set
forth in the opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board from time to time.
"Indebtedness" of any Person means, for purposes of Section 5.5 only, without duplication, (a)
all obligations of such Person for money borrowed by such Person, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such
Person under conditional sale or other title retention agreements relating to property or assets
purchased by such Person, (d) all obligations of such Person issued or assumed as the deferred
purchase price of property or services, other than trade accounts payable, (e) all Capital Lease
Obligations of such Person, (f) obligations, whether contingent or liquidated, in respect of letters
of credit (including standby and commercial), bankers' acceptances and similar instruments and
(g) any obligation of such Person, contingent or otherwise, guaranteeing or having the economic
effect of guaranteeing any Indebtedness of the types set forth in clauses (a) through (f) payable
by another Person other than Mortgage Guarantee Obligations.
"Liquidation End Date" means the date of completion of the liquidation of Seller's assets.
"Maximum Amount" means, as of any date of determination, $ I 00,000,000,000 (one hundred
billion dollars), less the aggregate amount of funding under the Commitment prior to such date.

-3-

"Mortgage Assets" of any Person means assets of such Person consisting of mortgages, mortgage
loans, mortgage-related securities, participation certificates, mortgage-backed commercial papcr,
obligations of real estate mortgage investment conduits and similar assets, in each case to the extcnt such assets would appear on the balance sheet of such Person in accordance with GAAP as
in effect as of the date hereof (and, for the avoidance of doubt, without giving effect to any
change that may be made hereafter in respect of Statement of Financial Accounting Standards
No. 140 or any similar accounting standard).
"Mortgage Guarantee Obligations" means guarantees, standby commitments, credit enhancements and other similar obligations of Seller, in each case in respect of Mortgage Assets.
''Named Executive Officer" has the meaning given to such term in Item 402(a)(3) of Regulation
S-K under the Exchange Act, as in effect on the date hereof.
"Person" shall mean any individual, corporation, limited liability company, partnership, joint
venture, association, joint-stock company, trust, estate, unincorporated organization or government or any agency or political subdivision thereof, or any other entity whatsoever.
"SEC' means the Securities and Exchange Commission.

"Senior Preferred Stoc/(' means the Variable Liquidation Preference Senior Preferred Stock of
Seller, substantially in the form of Exhibit A hereto.
"Warrant" means a warrant for the purchase of common stock of Seller representing 79.9% of
the common stock of Seller on a fully-diluted basis, substantially in the form of Exhibit B hereto.
2. COMMITMENT

2.1. Commitment. Purchaser hereby commits to provide to Seller, on the terms and conditions set forth herein, immediately available funds in an amount up to but not in excess of the
Available Amount, as determined from time to time (the "Commitment"); provided, that in no
event shall the aggregate amount funded under the Commitment exceed $1 00,000,000,000 (one
hundred billion dollars). The liquidation preference of the Senior Preferred Stock shall increase
in connection with draws on the Commitment, as set forth in Section 3.3 below.
2.2. Quarterly Draws on Commitment. Within fifteen (15) Business Days following the determination of the Deficiency Amount, if any, as of the end of each fiscal quarter of Seller which
ends on or before the Liquidation End Date, the Designated Representative may, on behalf of
Seller, request that Purchaser provide immediately available funds to Seller in an amount up to
but not in excess of the Available Amount as of the end of such quarter. Any such request shall
be valid only if it is in writing, is timely made, specifies the account of Seller to which such
funds are to be transferred, and contains a certification of the Designated Representative that the
requested amount does not exceed the Available Amount as of the end of the applicable quarter.
Purchaser shall provide such funds within sixty (60) days of its receipt of such request or, following any determination by the Director that the Director will be mandated by law to appoint a
receiver for Seller if such funds are not received sooner, such shorter period as may be necessary

-4-

to avoid such mandatory appointment of a receiver if reasonably practicable taking into consideration Purchaser's access to funds.

2.3. Accelerated Draws on Commitment. Immediately following any determination by the
Director that the Director will be mandated by law to appoint a receiver for Seller prior to the
Liquidation End Date unless Seller's capital is increased by an amount (the "Special Amount")
up to but not in excess of the then current A vailable Amount (computed based on a balance sheet
of Seller prepared in accordance with GAAP that differs from the most recent balance sheet of
Seller delivered in accordance with Section 5.9(a) or (b» on a date that is prior to the date that
funds will be available to Seller pursuant to Section 2.2, Conservator may, on behalf of Seller,
request that Purchaser provide to Seller the Special Amount in immediately available funds.
Any such request shall be valid only if it is in writing, is timely made, specifics the account of
Seller to which such funds are to be transferred, and contains certifications of Conservator that
(i) the requested amount docs not exceed the Available Amount (including computations in reasonable detail and satisfactory to Purchaser of the then existing Deficiency Amount) and (ii) the
requested amount is required to avoid the imminent mandatory appointment of a receiver for
Seller. Purchaser shall provide such funds within thirty (30) days of its receipt of such request
or, if reasonably practicable taking into consideration Purchaser's access to funds, any shorter
period as may be necessary to avoid mandatory appointment of a receiver.
2.4. Final Draw on Commitment. Within fifteen (15) Business Days following the determination of the Deficiency Amount, if any, as of the Liquidation End Date (computed based on a
balance sheet of Seller as of the Liquidation End Date prepared in accordance with GAAP), the
Designated Representative may, on behalf of Seller, request that Purchaser provide immediately
available funds to Seller in an amount up to but not in excess of the Available Amount as of the
Liquidation End Date. Any such request shall be valid only if it is in writing, is timely made,
specifies the account of Seller to which such funds are to be transferred, and contains a certification of the Designated Representative that the requested amount does not exceed the Available
Amount (including computations in reasonable detail and satisfactory to Purchaser of the Deficiency Amount as of the Liquidation End Date). Purchaser shall provide such funds within sixty
(60) days of its receipt of such request.
2.5. Termination of Purchaser's Obligations. Subject to earlier termination pursuant to Section 6.7, all of Purchaser's obligations under and in respect of the Commitment shall terminate
upon the earliest of: (a) if the Liquidation End Date shall have occurred, (i) the payment in full
of Purchaser's obligations with respect to any valid request for funds pursuant to Section 2.4 or
(ii) if there is no Deficiency Amount on the Liquidation End Date or ifno such request pursuant
to Section 2.4 has been made, the close of business on the 15th Business Day following the determination of the Deficiency Amount, if any, as of the Liquidation End Date; (b) the payment in
full of, defeasance of or other reasonable provision for all liabilities of Seller, whether or not
contingent, including payment of any amounts that may become payable on, or expiry of or other
provision for, all Mortgage Guarantee Obligations and provision for unmatured debts; and (c) the
funding by Purchaser under the Commitment of an aggregate of $1 00,000,000,000 (one hundred
billion dollars). For the avoidance of doubt, the Commitment shall not be terminable by Purchaser solely by reason of (i) the conservatorship, receivership or other insolvency proceeding of
Seller or (ii) the Seller's financial condition or any adverse change in Seller's financial condition.

-5-

3. PURCHASE OF SENIOR PREFERRED STOCK AND WARRANT; FEES

3.1. Initial Commitment Fee. In consideration of the Commitment, and for no additional
consideration, on the Effective Date (or as soon thereafter as is practicable) Seller shall sell and
issue to Purchaser, and Purchaser shall purchase from Seller, (a) one million (l,000,000) shares
of Senior Preferred Stock, with an initial liquidation preference equal to $1,000 per share
($1,000,000,000 (one billion dollars) liquidation preference in the aggregate), and (b) the Warrant.
3.2. Periodic Commitment Fee. (a) Commencing March 31,2010, Seller shall pay to Purchaser quarterly, on the last day of March, June, September and December of each calendar year
(each a "Periodic Fee Date"), a periodic commitment fee (the "Periodic Commitment Fee"). The
Periodic Commitment Fee shall accrue from January 1,2010.
(b) The Periodic Commitment Fee is intended to fully compensate Purchaser for the support provided by the ongoing Commitment following December 31, 2009. The amount of the
Periodic Commitment Fee shall be set not later than December 31, 2009 with respect to the ensuing five-year period, shall be reset every five years thereafter and shall be determined with reference to the market value of the Commitment as then in effect. The amount of the Periodic
Commitment Fee shall be mutually agreed by Purchaser and Seller, subject to their reasonable
discretion and in consultation with the Chairman of the Federal Reserve; provided, that Purchaser may waive the Periodic Commitment Fee for up to one year at a time, in its sole discretion, based on adverse conditions in the United States mortgage market.
(c) At the election of Seller, the Periodic Commitment Fee may be paid in cash or by
adding the amount thereof ratably to the liquidation preference of each outstanding share of Senior Preferred Stock so that the aggregate liquidation preference of all such outstanding shares of
Senior Preferred Stock is increased by an amount equal to the Periodic Commitment Fee. Seller
shall deliver notice of such election not later than three (3) Business Days prior to each Periodic
Fee Date. If the Periodic Commitment Fee is not paid in cash by 12:00 pm (New York time) on
the applicable Periodic Fee Date (irrespective of Seller's election pursuant to this subsection),
Seller shall be deemed to have elected to pay the Periodic Commitment Fee by adding the
amount thereof to the liquidation preference of the Senior Preferred Stock, and the aggregate liquidation preference of the outstanding shares of Senior Preferred Stock shall thereupon be automatically increased, in the manner contemplated by the first sentence of this section, by an aggregate amount equal to the Periodic Commitment Fee then due.

3.3. Increases of Senior Preferred Stock Liquidation Preference as a Result of Funding under the Commitment. The aggregate liquidation preference of the outstanding shares of Senior
Preferred Stock shall be automatically increased by an amount equal to the amount of each draw
on the Commitment pursuant to Article 2 that is funded by Purchaser to Seller, such increase to
occur simultaneously with such funding and ratably with respect to each share of Senior Preferred Stock.
3.4. Notation of Increase in Liquidation Preference. Seller shall duly mark its records to reflect each increase in the liquidation preference of the Senior Preferred Stock contemplated

-6-

herein (but, for the avoidance of doubt, such increase shall be effective regardless of whether
Seller has properly marked its records).

4. REPRESENTATIONS
Seller represents and warrants as of the Effective Date, and shall be deemed to have represented and warranted as of the date of each request for and funding of an advance under the
Commitment pursuant to Article 2, as follows:

4.1. Organi2aOon and Good Standing. Seller is a corporation, chartered by the Congress of
the United States, duly organized, validly existing and in good standing under the laws of the
United States and has all corporate power and authority to carry on its business as now conducted and as proposed to be conducted.
4.2. Organi2ational Documents. Seller has made available to Purchaser a complete and correct copy of its charter and bylaws, each as amended to date (the "Organizational Documents").
The Organizational Documents arc in full force and effect. Seller is not in violation of any provision of its Organizational Documents.

4.3. Authori2ation and Enforceability. All corporate or other action on the part of Seller or
Conservator necessary for the authorization, execution, delivery and performance of this Agreement by Seller and for the authorization, issuance and delivery of the Senior Preferred Stock and
the Warrant being purchased under this Agreement, has been taken. This Agreement has been
duly and validly executed and delivered by Seller and (assuming due authorization, execution
and delivery by the Purchaser) shall constitute the valid and legally binding obligation of Seller,
enforceable against Seller in accordance with its terms, except to the extent the enforceability
thereof may be limited by bankruptcy laws, insolvency laws, reorganization laws, moratorium
laws or other laws of general applicability affecting creditors' rights generally or by general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at
law). The Agency is acting as conservator for Seller under Section 1367 of the FHE Act. The
Board of Directors of Seller, by valid action at a duly called meeting of the Board of Directors on
September 6, 2008, consented to the appointment of the Agency as conservator for purposcs of
Section 1367(a)(3)(1) of the FHE Act, and the Director of the Agency has appointed the Agency
as Conservator for Seller pursuant to Section 1367(a)(1) of the FHE Act, and each such action
has not been rescinded, revoked or modified in any respect.
4.4. Valid Issuance. When issued in accordance with the terms of this Agreement, the Senior
Preferred Stock and the Warrant will be duly authorized, validly issued, fully paid and nonassessable, free and clear of all liens and preemptive rights. The shares of common stock to
which the holder of the Warrant is entitled have been duly and validly reserved for issuance.
When issued and delivered in accordance with the terms of this Agreement and the Warrant,
such shares will be duly authorized, validly issued, fully paid and nonassessable, free and clear
of all liens and preemptive rights.

-7-

4.5. Non-Contravention.
(a) Thc cxccution, delivery or performance by Seller of this Agreement and thc consummation by Seller of the transactions contemplated hereby do not and will not (i) conflict with
or violate any provision of the Organizational Documents of Seller; (ii) conflict with or violate
any law, decree or regulation applicable to Seller or by which any property or asset of Seller is
bound or affected, or (iii) result in any breach of, or constitute a default (with or without notice
or lapse of time, or both) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien upon any of the properties or assets of
Seller, pursuant to any note, bond, mortgage, indenture or credit agreement, or any other contract, agreement, lease, license, permit, franchise or other instrument or obligation to which
Seller is a party or by which Seller is bound or affected, other than, in the case of clause (iii), any
such breach, default, termination, amendment, acceleration, cancellation or lien that would not
have and would not reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, property, operations or condition of the Seller, the authority of the
Conservator or the validity or enforceability of this Agreement (a "Material Adverse Effect").
(b) The execution and delivery of this Agreement by Seller does not, and the consummation by Seller of the transactions contemplated by this Agreement will not, require any consent,
approval, authorization, waiver or permit of, or filing with or notification to, any governmental
authority or any other person, except for such as have already been obtained.
5. COVENANTS
From the Effective Date until such time as the Senior Preferred Stock shall have been repaid or redeemed in full in accordance with its terms:

5.1. Restricted Payments. Seller shall not, and shall not permit any of its subsidiaries to, in
each case without the prior written consent of Purchaser, declare or pay any dividend (preferred
or otherwise) or make any other distribution (by reduction of capital or otherwise), whether in
cash, property, securities or a combination thereof, with respect to any of Seller's Equity Interests (other than with respect to the Senior Preferred Stock or the Warrant) or directly or indirectly redeem, purchase, retire or otherwise acquire for value any of Seller's Equity Interests
(other than the Senior Preferred Stock or the Warrant), or set aside any amount for any such purpose.
5.2. Issuance a/Capital Stock. Seller shall not, and shall not permit any of its subsidiaries to,
in each case without the prior written consent of Purchaser, sell or issue Equity Interests of Seller
or any of its subsidiaries of any kind or nature, in any amount, other than the sale and issuance of
the Senior Preferred Stock and Warrant on the Effective Date and the common stock subject to
the Warrant upon exercise thereof, and other than as required by (and pursuant to) the terms of
any binding agreement as in effect on the date hereof.
5.3. Conservatorship. Seller shall not (and Conservator, by its signature below, agrees that it
shall not), without the prior written consent of Purchaser, terminate, seek termination of or permit to be terminated the conservatorship of Seller pursuant to Section 1367 of the FHE Act , other

-8-

than in connection with a receivership pursuant to Section 1367 of the FIlE Act.

5.4. Tran~lcr o.lAssets. Seller shall not, and shall not permit any of its subsidiaries to, in
each case without the prior written consent of Purchaser, sell, transfer, lease or otherwise dispose
of (in one transaction or a series of related transactions) all or any portion of its assets (including
Equity Interests in other persons, including subsidiaries), whether now owned or hereafter acquired (any such sale, transfer, lease or disposition, a "Disposition"), other than Dispositions for
fair market value:
(a) to a limited life regulated entity ("LLRE") pursuant to Section 1367(i) of the FIlE
Act;
(b) of assets and properties in the ordinary course of business, consistent with past practice;
(c) in connection with a liquidation of Seller by a receiver appointed pursuant to Section
1367(a) of the FHE Act;
(d) of cash or cash equivalents for cash or cash equivalents; or
(e) to the extent necessary to comply with the covenant set forth in Section 5.7 below.

5.5. Indebtedness. Seller shall not, and shall not permit any of its subsidiaries to, in each
case without the prior written consent of Purchaser, incur, assume or otherwise become liable for
(a) any Indebtedness if, after giving effect to the incurrence thereof, the aggregate Indebtedness
of Seller and its subsidiaries on a consolidated basis would exceed 110.0% of the aggregate Indebtedness of Seller and its subsidiaries on a consolidated basis as of June 30, 2008 or (b) any
Indebtedness if such Indebtedness is subordinated by its terms to any other Indebtedness of
Seller or the applicable subsidiary. For purposes of this covenant the acquisition of a subsidiary
with Indebtedness will be deemed to be the incurrence of such Indebtedness at the time of such
acquisition.
5.6. Fundamental Changes. Seller shall not, and shall not permit any of its subsidiaries to, in
each case without the prior written consent of Purchaser, (i) merge into or consolidate or amalgamate with any other Person, or permit any other Person to merge into or consolidate or amalgamate with it, (ii) effect a reorganization or recapitalization involving the common stock of
Seller, a reclassification of the common stock of Seller or similar corporate transaction or event
or (iii) purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or
substantially all of the assets of any other Person or any division, unit or business of any Person.
5.7. Mortgage Assets. Seller shall not own, as of any applicable date, Mortgage Assets in
excess of (i) on December 31,2009, $850 billion, or (ii) on December 31 of each year thereafter,
90.0% of the aggregate amount of Mortgage Assets of Seller as of Decembcr 31 of the immcdiately preceding calendar year; provided, that in no event shall Seller be required under this Section 5.7 to own less than $250 billion in Mortgage Assets.

-9-

5.8. Transactions with Affiliates. Seller shall not, and shall not permit any of its subsidiaries
to. without the prior written consent of Purchaser, engage in any transaction of any kind or nature
with an Affiliate of Seller unless such transaction is (i) pursuant to this Agreement, the Senior
Preferred Stock or the Warrant, (ii) upon terms no less favorable to Seller than would be obtained in a comparable arm's-length transaction with a Person that is not an Affiliate of Seller or
(iii) a transaction undertaken in the ordinary course or pursuant to a contractual obligation or
customary employment arrangement in existence as of the date hereof.
5.9. Reporting. Seller shall provide to Purchaser:
(a) not later than the time period specified in the SEC's rules and regulations with respect to issuers as to which Section 13 and 15( d) of the Exchange Act apply, annual reports on
Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form);
(b) not later than the time period specified in the SEC's rules and regulations with respect to issuers as to which Section 13 and 15(d) of the Exchange Act apply, reports on Form 10Q (or any successor or comparable form) containing the information required to be contained
therein (or required in such successor or comparable form);
(c) promptly from time to time after the occurrence of an event required to be therein reported (and in any event within the time period specified in the SEC's rules and regulations),
such other reports on Form 8-K (or any successor or comparable form);
(d) concurrently with any delivery of financial statements under paragraphs (a) or (b)
above, a certificate of the Designated Representative, (i) certifying that Seller is (and since the
last such certificate has at all times been) in compliance with each of the covenants contained
herein and that no representation made by Seller herein or in any document delivered pursuant
hereto or in connection herewith was false or misleading in any material respect when made, or,
if the foregoing is not true, specifying the nature and extent of the breach of covenant andlor representation and any corrective action taken or proposed to be taken with respect thereto, and
(ii) setting forth computations in reasonable detail and satisfactory to the Purchaser of the Deficiency Amount, if any;
(e) promptly, from time to time, such other information regarding the operations, business affairs, plans, projections and financial condition of Seller, or compliance with the terms of
this Agreement, as Purchaser may reasonably request; and
(f) as promptly as reasonably practicable, written notice of the following:

(i) the occurrence of the Liquidation End Date;
(ii) the filing or commencement of, or any written threat or notice of intention of
any Person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any governmental authority or in arbitration, against Conservator,
Seller or any other Person which, if adversely determined, would reasonably be expected
to have a Material Adverse Effect;

- 10 -

(iii) any other development that is not a matter of general public knowledge and
that has had, or would reasonably be expected to have, a Material Adverse Effect.

5.10. Executive Compensation. Seller shall not, without the consent of the Director, in consultation with the Secretary of the Treasury, enter into any new compensation arrangements with,
or increase amounts or benefits payable under existing compensation arrangements of, any
Named Executive Officer of Seller.
6. MISCELLANEOUS

6.1. No Third-Party Beneficiaries. Until the termination of the Commitment, at any time
during the existence and continuance of a payment default with respect to debt securities issued
by Seller and/or a default by Seller with respect to any Mortgage Guarantee Obligations, any
holder of such defaulted debt securities or beneficiary of such Mortgage Guarantee Obligations
(collectively, the "Holders") may (a) deliver notice to the Seller and the Designated Representative requesting exercise of all rights available to them under this Agreement to draw on the
Commitment up to the lesser of the amount necessary to cure the outstanding payment defaults
and the Available Amount as of the last day of the immediately preceding fiscal quarter (the
"Demand Amount"), (b) if Seller and the Designated Representative fail to act as requested
within thirty (30) days of such notice, seek judicial relief for failure of the Seller to draw on the
Commitment, and (c) if Purchaser shall fail to perform its obligations in respect of any draw on
the Commitment, and Seller and/or the Designated Representative shall not be diligently pursuing remedies in respect of such failure, file a claim in the United States Court of Federal Claims
for relief requiring Purchaser to pay Seller the Demand Amount in the form of liquidated damages. Any payment of liquidated damages to Seller under the previous sentence shall be treated
for all purposes, including the provisions of the Senior Preferred Stock and Section 3.3 of this
Agreement, as a draw and funding of the Commitment pursuant to Article 2. The Holders shall
have no other rights under or in respect of this Agreement, and the Commitment shall not otherwise be enforceable by any creditor of Seller or by any other Person other than the parties hereto,
and no such creditor or other Person is intended to be, or shall be, a third party beneficiary of any
provision of this Agreement.
6.2. Non-Transferable; Successors. The Commitment is solely for the benefit of Seller and
shall not inure to the benefit of any other Person (other than the Holders to the extent set forth in
Section 6.1), including any entity to which the charter of Seller may be transferred, to any LLRE
or to any other successor to the assets, liabilities or operations of Seller. The Commitment may
not be assigned or otherwise transferred, in whole or in part, to any Person (including, for the
avoidance of doubt, any LLRE to which a receiver has assigned all or a portion of Seller's assets)
without the prior written consent of Purchaser (which may be withheld in its sole discretion). In
no event shall any successor to Seller (including such an LLRE) be entitled to the benefit of the
Commitment without the prior written consent of Purchaser. Seller and Conservator, for themselves and on behalf of their permitted successors, covenant and agree not to transfer or purport
to transfer the Commitment in contravention of the terms hereof, and any such attempted transfer
shall be null and void ab initio. It is the expectation of the parties that, in the event Seller were
placed into receivership and an LLRE formed to purchase certain of its assets and assume certain
of its liabilities, the Commitment would remain with Seller for the benefit of the holders of the

- 11 -

debt of Seller not assumed by the LLRE.

6.3. Amendments: Waivers. This Agreement may be waived or amended solely by a writing
executed by both of the parties hereto, and, with respect to amendments to or waivers of the provisions of Sections 5.3, 6.2 and 6.11, the Conservator; provided, however, that no such waiver or
amendment shall decrease the aggregate Commitment or add conditions to funding the amounts
required to be funded by Purchaser under the Commitment if such waiver or amendment would,
in the reasonable opinion of Seller, adversely affect in any material respect the holders of debt
securities of Seller and/or the beneficiaries of Mortgage Guarantee Obligations, in each case in
their capacities as such, after taking into account any alternative arrangements that may be implemented concurrently with such waiver or amendment. In no event shall any rights granted
hereunder prevent the parties hereto from waiving or amending in any manner whatsoever the
covenants of Seller hereunder.
6.4. Governing Law; Jurisdiction; Venue. This Agreement and the Warrant shall be governed by, and construed in accordance with, the federal law of the United States of America if
and to the extent such federal law is applicable, and otherwise in accordance with the laws of the
State of New York. The Senior Preferred Stock shall be governed as set forth in the terms
thereof. Except as provided in section 6.1 and as otherwise required by law, the United States
District Court for the District of Columbia shall have exclusive jurisdiction over all civil actions
arising out of this Agreement, the Commitment, the Senior Preferred Stock and the Warrant, and
venue for any such civil action shall lie exclusively in the United States District Court for the
District of Columbia.
6.5. Notices. Any notices delivered pursuant to or in connection with this Agreement shall
be delivered to the applicable parties at the addresses set forth below:
If to Seller:
Federal Home Loan Mortgage Corporation
c/o Federal Housing Finance Authority
1700 G Street, NW
4th Floor
Washington, DC 20552
Attention: General Counsel
If to Purchaser:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington DC 20220
Attention: Under Secretary for Domestic Finance

- 12 -

with a copy to:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington DC 20220
Attention: General Counsel
If to Conservator:
Federal Housing Finance Authority
1700 G Street, NW
4th Floor
Washington, DC 20552
Attention: General Counsel
All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail. All notices
hereunder shall be effective upon receipt.

6.6. Disclaimer a/Guarantee. This Agreement and the Commitment are not intended to and
shall not be deemed to constitute a guarantee by Purchaser or any other agency or instrumentality
of the United States of the payment or performance of any debt security or any other obligation,
indebtedness or liability of Seller of any kind or character whatsoever.
6.7. Effect of Order; Injullction; Decree. If any order, injunction or decree is issued by any
court of competent jurisdiction that vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of Conservator as conservator of Seller or otherwise curtails Conservator's powers as such conservator (except in each case any order converting the conservatorship to a receivership under Section 1367(a) of the FHE Act), Purchaser may by written notice to
Conservator and Seller declare this Agreement null and void, whereupon all transfers hereunder
(including the issuance of the Senior Preferred Stock and the Warrant and any funding of the
Commitment) shall be rescinded and unwound and all obligations of the parties (other than to
effectuate such rescission and unwind) shall immediately and automatically terminate.
6.8. Business Day. To the extent that any deadline or date of perfonnance of any right or obligation set forth herein shall fall on a day other than a Business Day, then such deadline or date
of performance shall automatically be extended to the next succeeding Business Day.
6.9. Entire Agreement. This Agreement, together with the Senior Preferred Stock and Warrant, contains the entire agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes and cancels all prior agreements, including, but not limited
to, all proposals, term sheets, statements, letters of intent or representations, written or oral, with
respect thereto.
6.10. Remedies. In the event of a breach by SeJ1er of any covenant or representation of Seller
set forth herein, Purchaser shall be entitled to specific performance (in the case of a breach of

- 13 -

covenant), damages and such other remedies as may be available at law or in equity; provided,
that Purchaser shall not have the right to terminate the Commitment solely as a result of any such
breach, and compliance with the covenants and the accuracy of the representations set forth in
this Agreement shall not be conditions to funding the Commitment.
6.11. Tax Reporting. Neither Seller nor Conservator shall take, or shall permit any of their
respective successors or assigns to take, a position for any tax, accounting or other purpose that
is inconsistent with Internal Revenue Service Notice 2008-76 (or the regulations to be issued
pursuant to such Notice) regarding the application of Section 382 of the Internal Revenue Code
of 1986, as amended, a copy of which Notice has been provided to Seller in connection with the
execution of this Agreement.
6.12. Non-Severability. Each of the provisions of this Agreement is integrated with and integral to the whole and shall not be severable from the remainder of the Agreement. In the event
that any provision of this Agreement, the Senior Preferred Stock or the Warrant is determined to
be illegal or unenforceable, then Purchaser may, in its sole discretion, by written notice to Conservator and Seller, declare this Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate.

[Signature Page Follows]

- 14 -

EXECUTION VERSION
FEDERAL NATIONAL MORTGAGE ASSOCIATION
W ARRANT TO PURCHASE COMMON STOCK
NO.

September 7, 2008
VOID AFTER SEPTEMBER 7, 2028

THIS CERTIFIES THAT, for value received, the United States Department of the
Treasury, with its principal office at 1500 Pennsylvania Avenue, NW, Washington, DC 20220
(the "Holder"), is entitled to purchase at the Exercise Price (defined below) from Federal
National Mortgage Association, a government-sponsored enterprise of the United States of
America, with its principal office at 3900 Wisconsin Avenue, NW, Washington, DC 20016 (the
"Company"), shares of common stock, no par value, of the Company, as provided herein.
1.
Definitions. As used herein, the following terms shall have the following
respective meanings:
"Affiliate" shall mean, as to any specified Person, any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with such specified
Person. For the purposes of this definition, "control," when used with respect to any Person,
means the power to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the foregoing.
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
"Common Stock" shall mean the common stock, no par value, of the Company, and alI
other stock of any class or classes (however designated) of the Company from time to time
outstanding, the holders of which have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends or liquidating distributions after the payment of
dividends and distributions on any shares entitled to preference.
"Exercise Period" shall mean the time period commencing with the date hereof and
. ending at 5:00 p.m. New York time on the 20 th anniversary of the date hereof.
"Exercise Price" shall mean one one-thousandth of a cent ($0.00001) per share.
"Exercise Shares" shall mean the shares of the Common Stock issuable upon exercise of
this Warrant, subject to adjustment pursuant to the terms herein, and shall also mean any other
shares, securities, assets or property otherwise issuable upon exercise of this Warrant.
"Fair Market Value" shall mean, with respect to a share of Common Stock, or any other
security of the Company or any other issuer:
(a)
the volume weighted average daily Market Price during the period of the most
recent twenty (20) Trading Days, ending on the last Trading Day before the date of
determination afFair Market Value, if such class of Common Stock or other security is (i) traded

on the New York Stock Exchange or any other U.S. national or regional securities exchange, or
admitted to unlisted trading privileges on such an exchange, or (ii) is quoted or reported on the
Over-the-Counter Bulletin Board ("OTCBB") or by Pink OTC Markets Inc. or a similar
organization or agency succeeding to its functions of reporting prices; or
(b)
if such class of Common Stock or other security is not then so listed, admitted to
trading or quoted, the Fair Market Value shall be the Market Price on the last Business Day
before the date of determination afFair Market Value.
"Fully Diluted" shall mean, as of immediately prior to the exercise of this Warrant (or a
portion of this Warrant), the sum of, without duplication, (i) the total number of shares of
Common Stock outstanding and (ii) all shares of Common Stock issuable in respect of securities
convertible into or exercisable or exchangeable for Common Stock, stock appreciation rights or
options, warrants (including this Warrant) and other rights to purchase or subscribe for Common
Stock or securities convertible into or exercisable or exchangeable for Common Stock (in each
case, assuming that no restrictions apply with respect to conversion, exercise, exchange,
SUbscription or purchase).
"Market Price" shall be, as of any specified date with respect to any share of any class of
Common Stock or any other security of the Company or any other issuer:
(i)
the closing price on that date or, if no closing price is reported, the last reported
sale price, of shares of the Common Stock or such other security on the New York Stock
Exchange on that date; or
if the Common Stock or such other security is not traded on the New York Stock
(ii)
Exchange, the closing price on that date as reported in composite transactions for the principal
U.S. national or regional securities exchange on which the Common Stock or such other security
is so traded or, ifno closing price is reported, the last reported sale price of shares of the
Common Stock or such other security on the principal U.S. national or regional securities
exchange on which the Common Stock or such other security is so traded on that date; or
if the Common Stock or such other security is not traded on a U.S. national or
(iii)
regional securities exchange, the last quoted bid price on that date for the Common Stock or such
other security in the over-the-counter market as reported (x) by the OTCBB or (y) if reports are
unavailable under clause (x) above by Pink OTC Markets Inc. or a similar organization or
agency succeeding to its functions of reporting prices;
(iv)
if the Common Stock or such other security is not so quoted by OTCBB or Pink
OTC Markets Inc. or a similar organization, the Market Price shall be determined in accordance
with the Valuation Procedure.
"Participating Securities" shall mean, (i) any equity security (other than Common Stock)
that entitles the holders thereof to participate in liquidations or other distributions with the
holders of Common Stock or otherwise participate in the capital of the Company other than
through a fixed or floating rate of return on capital loaned or invested, and (ii) any stock
appreciation rights, phantom stock rights, or any other profit participation rights with respect to

-2-

any of the Company's capital stock or other equity ownership interest, or any rights or options to
acquire any such rights.
"Person" shall mean any individual, corporation, limited liability company, partnership,
joint venture, association, joint-stock company, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity whatsoever.
"Trading Dav" shall mean, with respect to any class of Common Stock or any other
security of the Company or any other issuer a day (i) on which the securities exchange or other
trading platfoml applicable for purposes of detennining the Market Price of a share or unit of
such class of Common Stock or other security shall be open for business or (ii) for which
quotations from such securities excharlge or other trading platfonn of the character speci fied for
purposes of determining such Market Price shaH be reported.
"Valuation Procedure" shall mearl a detennination made in good faith by the Board of
Directors of the Company (the "Board") that is set forth in resolutions of the Board that are
certified by the Secretary of the ComparlY, which certified resolutions (i) set forth the basis of the
Board's detemlination, which, in the case ofa valuation in excess of$100 million, shal1 include
the Board's reliance on the valuation of a nationally recognized investment banking or appraisal
finn, and (ii) are delivered to the Holder within ten (10) Business Days following such
detemlination. A Valuation Procedure with respect to the value of any capital stock shal1 be
based on the price that would be paid for all of the capital stock of the issuer in an arm's-length
transaction between a willing buyer and a willing seller (neither acting under compulsion).
2.

Exercise of Warrant; Number of Shares.

2.1
Exercise. This Warrant may be exercised in whole or in part at any time
during the Exercise Period, by delivery of the following to the Company at its address set forth
above (or at such other address as it may designate by notice in writing to the Holder):
(a)

an executed Notice of Exercise in the form attached hereto;

(b)
payment of the Exercise Price (i) in cash or by check, (ii) by
cancellation of indebtedness or (iii) pursuant to Section 2.2 hereof; and
( c)

this Warrant.

This Warrant will be exercisable for a number of shares of Common Stock that, together
with the shares of Common Stock previously issued pursuant to this Warrant, is equal to 79.9%
of the total number of shares of Common Stock outstanding on a Fully Diluted basis on the date
of exercise. Whenever the Holder exercises this Warrant in whole or in part, it may assign its
right to receive the Exercise Shares issuable upon such exercise to any other Person.
As soon as practicable (and in any event within five Business Days) after this Warrant
shall have been exercised, a certificate or certificates for the Exercise Shares so purchased,
registered in the name of the Holder or such other Person as may be designated by the Holder (to
the extent such transfer is not validly restricted and upon payment of any transfer taxes that are

-3-

required to be paid by the Holder in connection with any such transfer), shall be issued and
delivered by the Company to the Holder or such other Person.
The Person in whose name any certificate or certificates for the Exercise Shares are to be
issued upon exercise of this Warrant shall be deemed to have become the holder of record of
such shares on the date on which this Warrant was surrendered and payment of the Exercise
Price was made, irrespective of the date of delivery of such certi ficate or certificates, except that,
if the date of such surrender and payment is a date when the stock transfer books of the Company
are closed, such Person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open (whether before
or after the end of the Exercise Period).
2.2
Net Exercise. Notwithstanding any provision herein to the contrary, jfthe
Market Price of one share of the Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant by payment of cash, check or
cancellation of indebtedness, the Holder may elect (the "Conversion Right") to receive shares
equal to the value (as determined below) of this Warrant (or the portion thereof being canceled)
by surrender of this Warrant at the principal office of the Company together with the properly
endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:

x = Y (A-B)
A

Where X = the I1umber of shares of Common Stock to be issued
Y = the number of shares of Common Stock purchasable under this Warrant or, if only a
portion of this Warrant is being exercised, the portion of this Warrant being exercised (at the date
of such calculation)
A = the Market Price of one share of the Common Stock (at the date of such calculation)
B = Exercise Price (as adjusted pursuant to the terms herein to the date of such
calculation)
The Company shall pay all reasonable administrative costs incurred by the Holder in
connection with the exercise of the Conversion Right by the Holder pursuant to this Section 2.2.
3.

Covenants and Representations of the Company
3.1

Covenants as to Exercise Shares.

(a)
The Company covenants and agrees that all Exercise Shares that
may be issued upon the exercise of this Warrant will, upon issuance, be validly authorized,
issued and outstanding, fully paid and nonassessable, free of preemptive rights and free from all
taxes, liens and charges with respect to the issuance thereof. If the Common Stock or the class of
securities of any other Exercise Shares is then listed or quoted on a national securities exchange

-4-

or a regional securities exchange, all such Exercise Shares shall, upon issuance, also be so listed
or quoted. The Company further covenants and agrees that the Company will at all times during
the Exercise Period, have authorized and reserved solely for purposes of the exercise of this
Warrant, free from preemptive rights, a sufficient number of shares of its Common Stock or the
class of securities of any other Exercise Shares to provide for the exercise in full of this Warrant
(without taking into account any possible exercise pursuant to Section 2.2 hereof). If at any time
during the Exercise Period the number of authorized but unissued shares of Common Stock or
the class of securities of any other Exercise Shares shall not be sufficient to permit exercise in
full of this Warrant (without taking into account any possible exercise pursuant to Section 2.2
hereof), the Company will take such corporate action as shall be necessary to increase its
authorized but unissued shares of Common Stock or the class of securities of any other Exercise
Shares to such number of shares as shall be sufficient for such purposes.
(b)
If at any time the Exercise Shares shall include any shares or other
securities other than shares of Common Stock, or any other property or assets, the terms of this
Warrant shall be modified or supplemented (and in the absence of express written documentation
thereof, shall be deemed to be so modified or supplemented), and the Company shall take all
actions as may be necessary to preserve, in a manner and on terms as nearly equivalent as
practicable to the provisions of this Warrant as they apply to the Common Stock, the rights of the
Holder hereunder, including any equitable replacements of the term "Common Stock" with the
tenn "Exercise Shares" and adjustments of any formula included herein.
The Company's filings under the Securities Exchange Act of 1934,
(c)
as amended (the "Exchange Act"), will comply in all material respects as to form with the
Exchange Act and the rules and regulations thereunder.
(d)
Without prior written consent of the Holder, the Company shall not
permit any Significant Subsidiary (as defined by Rule 1-02(w) of Regulation S-X under the
Securities Act or any successor rule) to (i) issue or grant any capital stock or equity ownership
interest, including any Participating Security; (ii) any rights, options, warrants or convertible
security that is exercisable for or convertible into any capital stock or other equity ownership
interest, including any Participating Security; or (iii) any stock appreciation rights, phantom
stock rights, or any other profit participation rights, or any rights or options to acquire any such
rights, in each case of clauses (i), (ii) and (iii) above, to any Person other than the Company or its
wholly owned subsidiaries.
(e)
The Company shall not take any action that will result in an
increase in the par value of the Common Stock.
3.2
No Impairment. Except and to the extent as waived or consented to in
writing by the Holder, the Company will not, by amendment of its charter, bylaws or other
governing documents or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance
or performance of any of the tenns to be observed or performed hereunder by the Company, but
will at all times in good faith assist in the carrying out of al1 the provisions of this Warrant and in
the taking of all such action as may bc necessary or appropriate in order to protect the exercise
rights of the Holder against impairment or dilution consistent with the intent and principles

-5-

expressed herein. If any event or occurrence shall occur (including without limitation, stock
dividends and stock splits) as to which the failure to make any adjustment to the Exercise Price
and/or the number of shares or other assets or property subject to this Warrant would adversely
affect the purchase rights or value represented by this Warrant, including any issuance of
Common Stock or Participating Securities, then, in each such case, the Company shall determine
the adjustment, if any, on a basis consistent with the essential intent and principles herein,
necessary to preserve, without dilution, the purchase rights represented by this Warrant. If such
determination involves or is based on a determination of the Fair Market Value of any securities
or other assets or property, such determination shall be made in accordance with the Valuation
Procedure. Without limiting the foregoing, in the event of any dividend or distribution by the
Company of assets or property (including shares of any other Person) on or with respect to the
Common Stock, or any exchange of the shares of Common Stock into any other assets, property
or securities, this Warrant will be equitably adjusted to permit the Holder to receive upon
exercise the assets, property or securities that would have been received if the Warrant had been
exercised immediately prior to such dividend, distribution or exchange.
3.3
Notice of Record Date. In the event (i) the Company takes a record of the
holders of any class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, (ii) the Company authorizes the granting to
the holders of Common Stock (or holders of the class of securities of any other Exercise Shares)
of rights to subscribe to or purchase any shares of capital stock of any class or securities
convertible into any shares of capital stock or of any other right, (iii) the Company authorizes
any reclassification of, or any recapitalization involving, any class of Common Stock or any
consolidation or merger to which the Company is a party and for which approval of the
stockholders of the Company is required, or of the sale or transfer of all or substantially all of the
assets of the Company, (iv) the Company authorizes or consents to or otherwise commences the
voluntary or involuntary dissolution, 1iquidation or winding up of the Company or (v) the
Company authorizes or takes any other action that would trigger an adjustment in the Exercise
Price or the number or amount of shares of Common Stock or other Exercise Shares subject to
this Warrant, the Company sha1l mail to the Holder, at least ten (10) days prior to the earlier of
the record date for any such action or stockholder vote and the date of such action, a notice
specifying (a) which action is to be taken and the date on which any such record is to be taken
for the purpose of any such action, (b) the date that any such action is to take place and (c) the
amount and character of any stock, other securities or property and amounts, or rights or options
with respect thereto, proposed to be issued, granted or delivered to each holder ofCornmon
Stock (or holders of the class of securities of any other Exercise Shares).
4.
Fractional Shares. No fractional shares shall be issued upon the exercise of this
Warrant. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may
be aggregated for purposes of determining whether the exercise would result in the issuance of
any fractional share. If, after aggregation, the exercise would result in the issuance of a
fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder
otherwise entitled to such fraction a sum in cash equal to the product resulting from mUltiplying
such fractional amount by the Fair Market Value of one share of Cornmon Stock.

-6-

5.
Listing Rights. The Company shall use its best efforts, upon the request of the
Holder, to cause the Exercise Shares to be listed or quoted on a national securities exchange or a
regional securities exchange.
6.
No Stockholder Rights or Liabilities. Without limiting the consent rights of the
Holder contained in Section 3, this WalTant in and of itself shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company. No provision of this WalTant, in
the absence of affirn1ative action by the Holder to exercise this WalTant in exchange for shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of the Holder for the Exercise Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the Company.
7.
Transfer of Warrant. This WalTant is not transferable; provided, however, that the
Holder may assign its rights to receive shares upon exercise of this Warrant pursuant to Section
2.1.
8.
Payment of Taxes on Stock Certificate Issues Upon Exercise. The initial issuance
of certificates of Common Stock upon any exercise of this Warrant shall be made without charge
to the exercising Holder for any transfer, stamp or similar tax or for any other governmental
charges that may be imposed in respect of the issuance of such stock certificates, and such stock
certificates shall be issued in the respective names of, or in such names as may be directed by,
the Holder; provided, however, that the Company shall not be required to pay any tax or such
other charges that may be payable in respect of any transfer involved in the issuance and delivery
of any such stock certificate, any new walTants or other securities in a name other than that of the
Holder upon exercise of this Warrant (other than to an Affiliate), and the Company sha1l not be
required to issue or deliver such certificates or other securities unless and until the Person or
Persons requesting the issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such tax has been paid or is not
payable.
9.
Lost, Stolen, Mutilated or Destroyed WalTant. If this Warrant is lost, stolen,
mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may
reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant oflike denomination and tenor as this Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation
of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall
be at any time enforceable by anyone.
10.
Closing of Books. The Company will at no time close its transfer books against
the transfer of any shares of Common Stock issued or issuable upon the exercise or conversion of
any Warrant in any manner which interferes with the timely exercise or conversion of this
Warrant.

-7-

11.
Notices, Etc. All notices required or pennitted hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the party to be notified,
(b) when sent by confinned telex or facsimile if sent during nonnal business hours of the
recipient or ifnot, then on the next Business Day, (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) Business Day
after deposit with a nationally recognized overnight courier, specifying next Business Day
delivery, with written verification ofreceipt. All notices and other communications shall be sent
to the Company at the address listed on the signature page and to Holder at the address set forth
below or at such other address as the Company or Holder may designate by ten (10) days
advance written notice to the other parties hereto:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Attn: Under Secretary for Domestic Finance
with a copy to:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Attn: General Counsel
12.
Acceptance. Receipt of this Warrant by the Holder shall constitute acceptance of
and agreement to all of the tenns and conditions contained herein.
13.
Binding Effect on Successors. This Warrant shall be binding upon any Person
succeeding the Company by merger, consolidation or acquisition of all or substantially all of the
Company's assets, and all of the obligations of the Company relating to the Common Stock
issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion
and tennination of this Warrant and all of the covenants and agreements of the Company shall
inure to the benefit of the successors and assigns of the Holder.
14.
Governing Law. This Warrant and all rights, obligations and liabilities hereunder
shall be governed and construed in accordance with Federal law, if and to the extent such Federal
law is applicable, and otherwise in accordance with the law of the State of New York.

-8-

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer as of September 7, 2008.

FEDERAL NATIONAL MORTGAGE ASSOCIATION,
by
The Federal Housing Finance Agency, its Conservator

James B. Lockhart III
Director
Address: 3900 Wisconsin A venue, NW
Washington, DC 20016

Signature Page to Warrant

NOTICE OF EXERCISE
TO:

FEDERAL NATIONAL MORTGAGE ASSOCIA nON

(1)
0 The undersigned hereby elects to purchase
shares of the
Common Stock of Federal National Mortgage Association (the "Company") pursuant to the
tenns of the attached Warrant, and tenders herewith or is delivering by wire transfer to account
number
at
(bank) payment of the exercise price in full.

o

The undersigned hereby elects to purchase
shares of the Common
Stock of the Company pursuant to the tenns of the net exercise provisions set forth in Section 2.2
of the attached Warrant.
(2)
Please issue a certificate or certificates representing said shares of Common Stock
in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

(Date)

(Signature)

(Print name)

EXECUTION VERSION

CERTIFICATE OF DESIGNATION OF TERMS OF
VARIABLE LIQUIDATION PREFERENCE SENIOR
PREFERRED STOCK, SERIES 2008-2
1.

Designation. Par Value, Number of Shares and Priority

The designation of the series of preferred stock of the Federal National Mortgage
Association (the "Company") created by this resolution shall be "Variable Liquidation Preference
Senior Preferred Stock, Series 2008-2" (the "Senior Preferred Stock"), and the number of shares
initially constituting the Senior Preferred Stock is 1,000,000. Shares of Senior PrefeITed Stock
will have no par value and a stated value and initial liquidation preference per share equal to
$1,000 per share, subject to adjustment as set forth herein. The Board of Directors of the Company,
or a duly authorized committee thereof, in its sale discretion, may reduce the number of shares of
Senior PrefeITed Stock, provided such reduction is not below the number of shares of Senior
Preferred Stock then outstanding.
The Senior Preferred Stock shall rank prior to the common stock of the Company as
provided in this Certificate and shall rank, as to both dividends and distributions upon dissolution,
liquidation or winding up of the Company, prior to (a) the shares of preferred stock of the
Company designated "5.25% Non-Cumulative Preferred Stock, Series D", "5.10%
Non-Cumulative Preferred Stock, Series E", "Variable Rate Non-Cumulative Preferred Stock,
Series F", "Variable Rate Non-Cumulative Preferred Stock, Series G", "5.81 % Non-Cumulative
Preferred Stock, Series H", "5.375% Non-Cumulative Preferred Stock, Series I", "5.125%
Non-Cumulative Preferred Stock, Series L", "4.75% Non-Cumulative Preferred Stock, Series M",
"5.50% Non-Cumulative Preferred Stock, Series N", "Non-Cumulative Preferred Stock, Series 0",
"Non-Cumulative Convertible Series 2004-1 Preferred Stock", "Variable Rate Non-Cumulative
PrefeITed Stock, Series P", "6.75% Non-Cumulative Preferred Stock, Series Q", "7.625%
Non-Cumulative PrefeITed Stock, Series R", "Fixed-to-Floating Rate Non-Cumulative Preferred
Stock, Series S", and "8.75% Non-Cumulative Mandatory Convertible Preferred Stock", Series
2008-1", (b) any other capital stock of the Company outstanding on the date of the initial issuance
of the Senior Preferred Stock and (c) any capital stock of the Company that may be issued after the
date of initial issuance of the Senior Preferred Stock.

2.

Dividends

(a)
For each Dividend Period from the date of the initial issuance of the Senior
Preferred Stock, holders of outstanding shares of Senior Preferred Stock shall be entitled to receive,
ratably, when, as and if declared by the Board of Directors, in its sale discretion, out of funds
legally available therefor, cumulative cash dividends at the annual rate per share equal to the
then-current Dividend Rate on the then-current Liquidation Preference. Dividends on the Senior
Preferred Stock shall accrue from but not including the date of the initial issuance of the Senior
Preferred Stock and will be payable in arrears when, as and if declared by the Board of Directors
quarterly on March 31, June 30, September 30 and December 31 of each year (each, a "Dividend
Payment Date"), commencing on December 31, 2008. If a Dividend Payment Date is not a
"Business Day," the related dividend wil1 be paid not later than the next Business Day with the
same force and effect as though paid on the Dividend Payment Date, without any increase to

account for the period from such Dividend Payment Date through the date of actual payment.
"Business Day" means a day other than (i) a Saturday or Sunday, (ii) a day on which New York
City banks are closed, or (iii) a day on which the offices of the Company are closed.
If declared, the initial dividend will be for the period from but not including the date ofthe
initial issuance of the Senior Preferred Stock through and including December 31, 2008. Except
for the initial Dividend Payment Date, the "Dividend Period" relating to a Dividend Payment Date
will be the period from but not including the preceding Dividend Payment Date through and
inclu9ing the related Dividend Payment Date. The amount of dividends payable on the initial
Dividend Payment Date or for any Dividend Period that is not a full calendar quarter shall be
computed on the basis of 30-day months, a 360-day year and the actual number of days elapsed in
any period of less than one month. For the avoidance of doubt, in the event that the Liquidation
Preference changes in the middle of a Dividend Period, the amount of dividends payable on the
Dividend Payment Date at the end of such Dividend Period shall take into account such change in
Liquidation Preference and shall be computed at the Dividend Rate on each Liquidation
Preference based on the portion of the Dividend Period that each Liquidation Preference was in
effect.
(b)
To the extent not paid pursuant to Section 2(a) above, dividends on the Senior
Preferred Stock shall accrue and shall be added to the Liquidation Preference pursuant to Section 8,
whether or not there are funds legally available for the payment of such dividends and whether or
not dividends are declared.
(c)
"Oi vidend Rate" means 10.0%; provided, however, that if at any time the Company
shall have for any reason failed to pay dividends in cash in a timely manner as required by this
Certi ficate, then immediately following such failure and for all Dividend Periods thereafter until
the Dividend Period following the date on which the Company shall have paid in cash full
cumulative dividends (including any unpaid dividends added to the Liquidation Preference
pursuant to Section 8), the "Dividend Rate" shall mean 12.0%.
(d)
Each such dividend shall be paid to the holders of record of outstanding shares of
the Senior Preferred Stock as they appear in the books and records of the Company on such record
date as shall be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later
than 10 days preceding the applicable Dividend Payment Date. The Company may not, at any
time, declare or pay dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any common stock or other securities
ranking junior to the Senior Preferred Stock unless (i) full cumulative dividends on the outstanding
Senior Preferred Stock in respect of the then-current Dividend Period and all past Dividend
Periods (including any unpaid dividends added to the Liquidation Preference pursuant to Section
8) have been declared and paid in cash (including through any pay down of Liquidation Preference
pursuant to Section 3) and (ii) all amounts required to be paid pursuant to Section 4 (without giving
effect to any prohibition on such payment under any applicable law) have been paid in cash.
(e)
Notwithstanding any other provision of this Certificate, the Board of Directors, in
its discretion, may choose to pay dividends on the Senior Preferred Stock without the payment of
any dividends on the common stock, preferred stock or any other class or series of stock from time

2

to time outstanding rankingjunior to the Senior Preferred Stock with respect to the payment of
dividends.
If and whenever dividends, having been declared, shallllot have been paid in full,
(f)
as aforesaid, on shares of the Senior Preferred Stock, all such dividends that have been declared on
shares of the Senior Preferred Stock shall be paid to the holders pro rata based 011 the aggregate
Liquidation Preference of the shares of Senior Preferred Stock held by each holder, and any
amounts due but not paid in cash shall be added to the Liquidation Preference pursuant to Section
8.

3.

Optional Pay Down of Liquidation Preference

(a)
Following tennination of the Commitment (as defined in the Preferred Stock
Purchase Agreement referred to in Section 8 below), and subject to any limitations which may be
imposed by law and the provisions below, the Company may pay down the Liquidation Preference
of all outstanding shares of the Senior Preferred Stock pro rata, at any time, in whole or in part, out
of funds legally available therefor, with such payment first being used to reduce any accnled and
unpaid dividends previously added to the Liquidation Preference pursuant to Section 8 below and,
to the extent all such accrued and unpaid dividends have been paid, next being used to reduce any
Periodic Commitment Fees (as defined in the Preferred Stock Purchase Agreement referred to in
Section 8 below) previously added to the Liquidation Preference pursuant to Section 8 below.
Prior to termination of the Commitment, and subject to any limitations which may be imposed by
law and the provisions below, the Company may pay down the Liquidation Preference of all
outstanding shares of the Senior Preferred Stock pro rata, at any time, out of funds legally available
therefor, but only to the extent of (i) accrued and unpaid dividends previously added to the
Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of
Liquidation Preference and (ii) Periodic Commitment Fees previously added to the Liquidation
Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation
Preference. Any pay down of Liquidation Preference permitted by this Section 3 shall be paid by
making a payment in cash to the holders of record of outstanding shares of the Senior Preferred
Stock as they appear in the books and records of the Company on such record date as shall be fixed
in advance by the Board of Directors, not to be earlier than 45 days nor later than 10 days
preceding the date fixed for the payment.

(b)
In the event the Company shall pay down of the Liquidation Preference of the
Senior Preferred Stock as aforesaid, notice of such pay down shall be given by the Company by
first class mail, postage prepaid, mailed neither less than 10 nor more than 45 days preceding the
date fixed for the payment, to each holder of record of the shares of the Senior Preferred Stock, at
such holder's address as the same appears in the books and records of the Company. Each such
notice shall state the amount by which the Liquidation Preference of each share shall he reduced
and the pay down date.
If after termination of the Commitment the Company pays down the Liquidation
(c)
Preference of each outstanding share of Senior Preferred Stock in full, such shares shall be deemed
to have been redeemed as of the date of such payment, and the dividend that would otherwise be
payable for the Dividend Period ending on the pay down date will be paid on such date. Following
such deemed redemption, the shares of the Senior Preferred Stock shall no longer be deemed to be

3

outstanding, and all rights of the holders thereof as holders of the Senior Preferred Stock shall
cease, with respect to shares so redeemed, other than the right to receive the pay down amount
(which shall include the final dividend for such shares). Any shares of the Senior Preferred Stock
which sha11 have been so redeemed, after such redemption, shall no longer have the status of
authorized, issued or outstanding shares.

4.

Mandatory Pay Down of Liquidation Preference Upon Issuance of Capital 'Stock

(a)
Tfthe Company shall issue any shares of capital stock (including without limitation
common stock or any series of preferred stock) in exchange for cash at any time while the Senior
Preferred Stock is outstanding, then the Company shall, within 10 Business Days, use the proceeds
of such issuance net of the direct costs relating to the issuance of such securities (including,
without limitation, legal, accounting and investment banking fees) to pay down the Liquidation
Preference of all outstanding shares of Senior Preferred Stock pro rata, out of funds legally
available therefor, by making a payment in cash to the holders of record of outstanding shares of
the Senior Preferred Stock as they appear in the books and records of the Company on such record
date as shall be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later
than 10 days preceding the date fixed for the payment, with such payment first being used to
reduce any accrued and unpaid dividends previously added to the Liquidation Preference pursuant
to Section 8 below and, to the extent all such accrued and unpaid dividends have been paid, next
being used to reduce any Periodic Commitment Fees (as defined in the Preferred Stock Purchase
Agreement referred to in Section 8 below) previously added to the Liquidation Preference
pursuant to Section 8 below; provided that, prior to the termination of the Commitment (as defined
in the Preferred Stock Purchase Agreement referred to in Section 8 below), the Liquidation
Preference of each share of Senior Preferred Stock shall not be paid down below $1,000 per share.
If the Company shall not have sufficient assets legally available for the pay down of
(b)
the Liquidation Preference of the shares of Senior Preferred Stock required under Section 4(a), the
Company shall pay down the Liquidation Preference per share to the extent permitted by law, and
shall pay down any Liquidation Preference not so paid down because of the unavailability of
legally available assets or other prohibition as soon as practicable to the extent it is thereafter able
to make such pay down legally. The inability of the Company to make such payment for any
reason shall not relieve the Company from its obligation to effect any required pay down of the
Liquidation Preference when, as and if permitted by law.
If after the termination of the Commitment the Company pays down the
(c)
Liquidation Preference of each outstanding share of Senior Preferred Stock in full, such shares
shall be deemed to have been redeemed as of the date of such payment, and the dividend that
would otherwise be payable for the Dividend Period ending on the pay down date will be paid on
such date. Following such deemed redemption, the shares of the Senior Preferred Stock shall no
longer be deemed to be outstanding, and all rights of the holders thereof as holders of the Senior
Preferred Stock shall cease, with respect to shares so redeemed, other than the right to receive the
pay down amount (which shall include the final dividend for such redeemed shares). Any shares
of the Senior Preferred Stock which shall have been so redeemed, after such redemption, shall no
longer have the status of authorized, issued or outstanding shares.

4

5.

No Voting Rights

Except as set forth in this Certificate or otherwise required by law, the shares of the Senior
Preferred Stock shall not have any voting powers, either general or special.
6.

No Conver'sion or Exchange Rights

The holders of shares of the Senior Preferred Stock shall not have any right to convert such
shares into or exchange such shares for any other class or series of stock or obligations of the
Company.
7.

No Preemptive Rights

No holder of the Senior Preferred Stock shall as such holder have any preemptive right to
purchase or subscribe for any other shares, rights, options or other securities of any class of the
Company which at any time may be sold or offered for sale by the Company.
8.

Liquidation Rights and Preference

(a)
Except as otherwise set forth herein, upon the voluntary or involuntary dissolution,
liquidation or winding up of the Company, the holders of the outstanding shares of the Senior
Preferred Stock shall be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any payment or distribution shall be made on the common
stock or any other class or series of stock of the Company ranking junior to the Senior Preferred
Stock upon liquidation, the amount per share equal to the Liquidation Preference plus an amount,
detennined in accordance with Section 2(a) above, equal to the dividend otherwise payable for the
then-current Dividend Period accrued through and including the date of payment in respect of such
dissolution, liquidation or winding up; provided, however, that if the assets of the Company
available for distribution to stockholders shall be insufficient for the payment of the amount which
the holders ofthe outstanding shares of the Senior Preferred Stock shall be entitled to receive upon
such dissolution, liquidation or winding up of the Company as aforesaid, then, all of the assets of
the Company available for distribution to stockholders shall be distributed to the holders of
outstanding shares of the Senior Preferred Stock pro rata based on the aggregate Liquidation
Preference of the shares of Senior Preferred Stock held by each holder.
(b)

"Liquidation Preference" shall initially mean S1,000 per share and shall be:

(i)
increased each time a Deficiency Amount (as defined in the Preferred Stock
Purchase Agreement) is paid to the Company by an amount per share equal to the
aggregate amount so paid to the Company divided by the number of shares of Senior
Preferred Stock outstanding at the time of such payment;
(ii)
increased each time the Company does not pay the full Periodic
Commitment Fee (as defined in the Preferred Stock Purchase Agreement) in cash by an
amount per share equal to the amount of the Periodic Commitment Fee that is not paid in
cash divided by the number of shares of Senior Preferred Stock outstanding at the time
such payment is due;

5

(iii)
increased on the Dividend Payment Date if the Company fails to pay in full
the dividend payable for the Dividend Period ending on such date by an amount per share
equal to the aggregate amount of unpaid dividends divided by the number of shares of
Senior Preferred Stock outstanding on such date; and
(iv)
decreased each time the Company pays down the Liquidation Preference
pursuant to Section 3 or Section 4 of this Certificate by an amount per share equal to thc
aggregate amount of the pay down divided by the number of shares of Senior Preferred
Stock outstanding at the time of such pay down.
"Preferred Stock Purchase Agreement" means the Preferred Stock Purchase
(c)
Agreement, dated September 7, 2008, between the Company and the United States Department of
the Treasury.
(d)
Neither the sale of all or substantially all of the property or business of the
Company, nor the merger, consolidation or combination of the Company into or with any other
corporation or entity, shall be deemed to be a dissolution, liquidation or winding up for the purpose
of this Section 8.

9.

Additional Classes or Series of Stock

The Board of Directors shall have the right at any time in the future to authorize, create and
issue, by resolution or resolutions, one or more additional classes or series of stock of the
Company, and to determine and fix the distinguishing characteristics and the relative rights,
preferences, privileges and other terms of the shares thereof; provided that, any such class or series
of stock may not rank prior to or on parity with the Senior Preferred Stock without the prior written
consent of the holders of at least two-thirds of all the shares of Senior Preferrcd Stock at the time
outstanding.

10.

Miscellaneous

(a)
The Company and any agent of the Company may deem and treat the holder of a
share or shares of Senior Preferred Stock, as shown in the Company's books and records, as the
absolute owner of such share or shares of Senior Preferred Stock for the purpose of receiving
payment of di vidends in respect of such share or shares of Senior Preferred Stock and for all other
purposes whatsoever, and neither the Company nor any agent of the Company shall be affected by
any notice to the contrary. All payments made to or upon the order of any such person shall be
valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge liabilities for
moneys payable by the Company on or with respect to any such share or shares of Senior Preferred
Stock.
(b)
The shares of the Senior Preferred Stock, when duly issued, shall be fully paid and
non-assessable.
(c)
The Senior Preferred Stock may be issued, and shall be transferable on the books of
the Company, only in whole shares.

6

(d)
For purposes of this Certificate, the tenn "the Company" means the Federal
National Mortgage Association and any successor thereto by operation of law or by rcason of a
merger, consolidation, combination or similar transaction.
(e)
This Certificate and the respective rights and obligations of the Company and the
holders of the Senior Preferred Stock with respect to such Senior Preferred Stock shall be
construed in accordance with and govemed by the laws of the United States, provided that the law
of the State of Delaware shall serve as the federal rule of decision in all instances except where
such law is inconsistent with the Company's enabling legislation, its public purposes or any
provision of this Certificatc.

(t)
Any notice, demand or other communication which by any provision of this
Certificate is required or pemlitted to be given or served to or upon the Company shall be given or
served in writing addressed (unless and until another address shall be published by the Company)
to Fannie Mae, 3900 Wisconsin Avenue NW, Washington, DC 20016, Attn: Executive Vice
President and General Counsel. Such notice, demand or other communication to or upon the
Company shall be deemed to have been sufficiently given or made only upon actual receipt of a
writing by the Company. Any notice, demand or other communication which by any provision of
this Certificate is required or permitted to be given or served by the Company hereunder may be
given or served by being deposited first class, postage prepaid, in the United States mail addressed
(i) to the holder as such holder's name and address may appear at such time in the books and
records of the Company or (ii) if to a person or entity other than a holder of record of the Senior
Preferred Stock, to such person or entity at such address as reasonably appears to the Company to
be appropriate at such time. Such notice, demand or other communication shall be deemed to have
been sufficiently given or made, for all purposes, upon mailing.
The Company, by or under the authority of the Board of Directors, may amend,
(g)
alter, supplement or repeal any provision of this Certificate pursuant to the following terms and
conditions:
(i)
Without the consent of the holders of the Senior Preferred Stock, the
Company may amend, alter, supplement or repeal any provision of this Certificate to cure
any ambiguity, to correct or supplement any provision herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions with respect
to matters or questions arising under this Certificate, provided that such action shall not
adversely affect the interests of the holders of the Senior Preferred Stock.
The consent of the holders of at least two-thirds of all of the shares of the
(ii)
Senior Preferred Stock at the time outstanding, given in person or by proxy, either in
writing or by a vote at a meeting called for the purpose at which the holders of shares of the
Senior Preferred Stock shall vote together as a class, shall be necessary for authorizing,
effecting or validating the amendment, alteration, supplementation or repeal (whether by
merger, consolidation or otherwise) of the provisions of this Certificate other than as set
forth in subparagraph (i) of this paragraph (g). The creation and issuance of any other class
or series of stock, or the issuance of additional shares of any existing class or series of stock,
of the Company ranking junior to the Senior Preferred Stock shall not be deemed to
constitute such an amendment, alteration, supplementation or repeal.

7

(iii)
Holders of the Senior Preferred Stock shall be entitled to one vote per share
on matters on which their consent is required pursuant to subparagraph (ii) of this
paragraph (g). In connection with any meeting of such holders, the Board of Directors
shall fix a record date, neither earlier than 60 days nor later than 10 days prior to the date of
such meeting, and holders of record of shares of the Senior Preferred Stock on such record
date shall be entitled to notice of and to vote at any such meeting and any adjournment.
The Board of Directors, or such person or persons as it may designate, may establish
reasonable rules and procedures as to the solicitation of the consent of holders of the Senior
Preferred Stock at any such meeting or otherwise, which rules and procedures shall
conform to the requirements of any national securities exchange on which the Senior
Preferred Stock may be listed at such time.

RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE
SENIOR PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL
CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL
OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF
ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE. NO SIGNATURE
OR OTHER FURTHER MANIFESTATION OF ASSENT TO THE TERMS AND
PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS
OPERATION OR EFFECT AS BETWEEN THE COMPANY AND THE HOLDER (AND
ALL SUCH OTHERS).
(h)

8

i

h

IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company this
day of September, 2008.

[Seal]
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
by
The Federal Housing Finance Agency, its Conservator

James B. Lockhart III
Director

Signature Page to Certificate of Designations of Senior Preferred Stock

HP-1130: Majur Iranian Shippmg Company Designated for Proliferation Activity

Page I of 5

September 10, 2008
HP-1130
Major Iranian Shipping Company Designated for Proliferation Activity
Washington, DC--The U.S. Department of the Treasury's Office of Foreign Assets
Control today designated the Islamic Republic of Iran Shipping Lines (IRISL), and
18 other affiliated entities, for providing logistical services to Iran's Ministry of
Defense and Armed Forces Logistics (MODAFL).
"Not only does IRISL facilitate the transport of cargo for U.N. designated
proliferators, it also falsifies documents and uses deceptive schemes to shroud its
involvement in illicit commerce," said Stuart Levey, Under Secretary for Terrorism
and Financial Intelligence. "IRISL's actions are part of a broader pattern of
deception and fabrication that Iran uses to advance its nuclear and missile
programs. That conduct should give pause to any financial institution or business
still choosing to deal with Iran."
MODAFL, which was designated by the U.S. Department of State in October 2007
under E.O. 13382, has the ultimate authority over previously designated entities
including the Aerospace Industries Organization an umbrella group which controls
Iran's ballistic missile research, development and production activities and
organizations.
IRISL is Iran's national maritime carrier; a global operator with a worldwide network
of subsidiaries, branch offices and agent relationships. It provides a variety of
maritime transport services, including bulk, break-bulk, cargo and containerized
shipping. These services connect Iranian exporters and importers with South
America, Europe, the Middle East, Asia, and Africa.
According to information available to the U.S. government, IRISL also facilitates
shipments of military-related cargo destined for MODAFL and its subordinate
entities, including organizations that have been designated by the United States
pursuant to E.O. 13382 and listed by United Nations Security Council Resolutions
1737 and 1747.
In order to ensure the successful delivery of military-related goods, IRISL has
deliberately misled maritime authorities through the use of deception techniques.
These techniques were adopted to conceal the true nature of shipments ultimately
destined for MODAFL. Furthermore, as international attention over Iran's WMD
programs has increased, IRISL has pursued new strategies, which could afford it
the potential to evade future detection of military shipments.
Specifically, IRISL has employed the use of generic terms to describe shipments so
as not to attract the attention of shipping authorities and created and made use of
cover entities to conduct official, IRISL business. For example, in 2007, IRISL
transported a shipment of a precursor chemical destined for use in Iran's missile
program. The end user of the chemical was Parchin Chemical Industries, an entity
listed by the United States pursuant to E.O. 13382 and listed in UNSCR 1747 as a
subordinate of Iran's Defense Industries Organization (010).
Also designated today were 17 entities, which were found to be owned or controlled
by or acting or purporting to act for or on behalf of, directly or indirectly, IRISL.
These entities are:
•
•
•
•
•

Valfajr 8th Shipping Line Co SSK
Khazar Sea Shipping Lines
Irinvestship Ltd.
Shipping Computer Services Company
Iran 0 Misr Shipping Company

ttP://www.treas.gov/press/releases/hpl130.htm

10/2112008

HP-1130: Major Iranian Shipping Company Designated for Proliferation Activity

Page 2 of 5

• Iran 0 Hind Shipping Company
• IRISL Marine Services & Engineering Company
• Irital Shipping SRL Company
• South Shipping Line Iran
• IRISL Multimodal Transport Co.
• Oasis Freight Agencies
• IRISL Europe Gmbh
• IRISL Benelux NV
• IRISL China Shipping Co, Ltd.
• Asia Marine Network Pte. Ltd.
• CISCO Shipping Co. Ltd.
• IRISL (Malta) Limited
One additional entity, IRISL (UK) Ltd., was designated today for being owned or
controlled by Irinvestship Ltd.
Today's designations reinforce United Nations Security Council Resolution 1803 of
March 2008, which among other things, calls upon all States, in a manner
consistent with their national legal authorities and international law, to inspect IRISL
cargoes to and from Iran, transiting their ports, "provided there is reasonable
grounds to believe that the vessel is transporting prohibited goods" pursuant to
UNSCRs 1737, 1747 and 1803.
These designations also highlight the dangers of doing business with IRISL and its
subsidiaries. Countries and firms, including customers, business partners, and
maritime insurers doing business with IRISL, may be unwittingly helping the
shipping line facilitate Iran's proliferation activities.
Identifying Information on Designees:
ISLAMIC REPUBLIC OR IRAN SHIPPING LINES

AKA.
IRISL Group
IRI Shipping Lines
ARYA Shipping Company
IRISL
Address 1
No. 37, Aseman Tower, Sayyade Shirazee Square, Pasdaran Ave.,
Tehran, Iran, P.O. Box 19395-1311
Address 2
No. 37, Corner of 7th Narenjestan, Sayad Shirazi Square, After
Noboyand Square, Pasdaran Ave., Tehran, Iran
VALFAJR 8TH SHIPPING LINE CO SSK
AKA
Sherkat Sahami Khass Keshtirani Valfajr 8th
Valfajre Eight Shipping Co.
Val Fajr-E-8 Shipping Company
Val Fajr Hasht Shipping Co.
VESC
Address 1
Tehran, Iran

Shahid Azodi St., Karimkhan Zand Ave., Abiar Alley, P.O. Box 4155,

Address 2
Tehran, Iran

Abyar Alley, Corner of Shahid Azodi St & Karim Khan Zand Ave.,

KHAZAR SEA SHIPPING LINES
AKA
Oarya-ye Khazar Shipping Company
Khazar Shipping Co.
Address 1

M. Khomeini St., Ghazian, Bandar Anzali, Gilan, Iran

ttp:llwww.treas.gov/presslreleases/hpI130.htm

10/21/200X

HP-1130: Major Iranian Shippll1g Company Designated for Proliferation Activity

Page.3 of 5

Address 2
No.1, End of Shahid Mostafa Khomeini St., Tohid Square, P.O. Box
43145, BandarAnzali,1711-324,lran

IRINVESTSHIP LTD.
Address 1
Global House 61 Petty France, London, SW1 H 9EU, United Kingdom,
Registration Number: 4110179

IRAN 0 HIND SHIPPING COMPANY
AKA
Keshtirani Iran Ve Hend Sahami Khass
Irano Hind Shipping Company
Iranohind Shipping Company (PJS)
IHSC
Address 1
265, Next to Mehrshad, Sedaghat St., Opposite of Mellat Park, Vali
Asr Ave., Tehran, IA001, Iran
Address 2
18 Mehrshad Street, Sadaghat Street, Opposite Park Mellat, Vali-eAsr Ave., Tehran, Iran

SHIPPING COMPUTER SERVICES COMPANY

AKA
SCSCO
Address 1
No. 37, Asseman, Shahid Sayyad Shirazeesq, Pasdaran Ave.,
Tehran, Iran, P.O. Box 1587553-1351
Address 3
No. 13, 1st Floor, Abgan Alley, Aban Ave., Karimkhan Zand Blvd.,
15976 Tehran

IRAN 0 MISR SHIPPING COMPANY
AKA
Iranmisr Shipping Company
Iran & Egypt Shipping Lines
Address 1

EI Nahda Building, Elnahda St., 4th Floor, Port Said, Egypt

Address 2
No. 41, 3rd Floor, Corner of 6th Alley, Sanaei St., Karim Khan Zand
Ave., Tehran, Iran
Address 3

6 EI Horreya Avenue, Alexandria, Egypt

IRISL MARINE SERVICES & ENGINEERING COMPANY
AKA
Sherkate Khadamte Oarya and Moharndesi Keshtirani
IMSENGCO
Address 1

No. 221, Northern Iranshahr St. Karimkhan Ave., Tehran, Iran

Address 2
Address 3

Karim Khane Zand Ave., Iran Shahr Shomai, No. 221, Tehran, Iran
Sarbandar, Gas Station, P.O. Box 199, Bandar Imam Khomeini, Iran

IRITAL SHIPPING SRL COMPANY
Address
Ponte Francesco Morosini 59, 16126 Genova (GE) Italy;

·www.treas.gov/press/releases/hpl130.htm

10/21/200R

HP-I130: Major Iranian Shipping Company Designated for Proliferation Activity

Page 401'5

Fiscal Code: 03329300101
VAT Number: 12869140157
CCIAA:
GE 426505

SOUTH SHIPPING LINE IRAN
AKA
South Shipping Lines Iran Line Company
Address 1

Qaem Magham Farahani St., Tehran, Iran

Address 2

Apt. No.7, 3rd FI., No.2, 4th Alley, Gandi Ave., Tehran, Iran

IRISI MUlTIMODAl TRANSPORT CO.
AKA
Rail Iran Shipping Company
Address 1
No. 25, Shahid Arabi Line, Sanaei St., Karimkhan Zand St., Tehran, Iran

OASIS FREIGHT AGENCIES
AKA
Oasis Freight Agency LLC
Address 1
Sharaf Building, No.4, 2nd Floor, AI Meena Road, Opposite
Customs, Dubai, UAE
Address 2
Sharaf Shipping Building, 1st Floor, AI Mankhool St., Bur Dubai,
P.O. Box 5562, Dubai, UAE
Address 3
Kayed Ahli Building, Jamal Abdul Nasser Road (Parallel to AI
Wahda St.), P.O. Box 4840, Sharjah, UAE

IRISI EUROPE GMBH
Address
Schottweg 5, 22087 Hamburg, Germany
VAT Number: DE217283818

IRISI BENELUX NV
Address
Noorderlaan 139, B-2030, Antwerp, Belgium
VAT Number: BE480224531

IRISL (UK) LTD
Address
2 Abbey Road, Barking, Essex IG11 7 AX, United Kingdom
Registration Number: 4765305

IRISI CHINA SHIPPING CO., LTO
AKA
Yi Hang Shipping Company, Ltd
Address

wWw.treas.go v/press/reieases/hpI130.htm

10/21 /200~

HP-1130: Major Iranian Shipping Company Designated for Proliferation Activity

Page 501'5

F23A-D, Times Plaza No.1, Taizi Road, Shekou, Shenzhen, China, ZIP: 518067

ASIA MARINE NETWORK PTE. LTD.
AKA
IRISL Asia Pte. Ltd.
Asian Perfect Marine Pte. Ltd.
Address

200 Middle Road, #14-01 Prime Centre, Singapore 188980

CISCO SHIPPING CO. LTD.
AKA
IRISL Korea Co., Ltd.
SISCO
Seoul International Shipping Co.
Address 1
8th Floor, Sebang Bldg., 708-8, Yeoksam-dong, Kangnam-Gu, Seoul, Republic of
Korea
Address 2
4th Floor, Sebang Bldg. 68-46, Jwacheon-Dong, Dong-Gu, Busan, Republic of
Korea

IRISL (MALTA) LIMITED
AKA
IRISL Malta Limited
Address
Flat 1, 181, Tower Road, Sliema SLM 1604, Malta
Registration Number: C33735
Tax Registration Number: MT 17037313
These actions were taken pursuant to Executive Order 13382, an authority aimed at
freezing the assets of proliferators of weapons of mass destruction and their
supporters, and at isolating them from the U.S. financial and commercial systems.
Today's designations are part of the ongoing interagency effort by the U.S.
Government to combat WMD trafficking by blocking the property of entities and
individuals that engage in proliferation activities and their support networks.
DeSignations under E.O. 13382 are implemented by Treasury's OFAC, and they
prohibit all transactions between the designees and any U.S. person, and freeze
any assets the designees may have under U.S. jurisdiction.

-30-

wWw.treas.gov/press/releases/hpl130.htm

10/21/200R

HP-l131: Frequelltly Asked Questions:<br> Treasury Senior Preferred Stock Purchase Agreemcnt

Pagc I of 2

September 11 , 2008
HP-1131
Frequently Asked Questions:
Treasury Senior Preferred Stock Purchase Agreement
Can the U.S. Congress or the Executive Branch change the terms of the
preferred stock purchase agreement?
This preferred stock purchase agreement is a binding legal obligation between two
parties The agreement is designed to prohibit any amendment that would decrease
the amount of Treasury's funding commitment or add funding conditions that would
adversely affect debt or mortgage-backed securities holders.

Some may speculate that a future Congress could pass a law that would abrogate
the agreement. But any such law would be inconsistent with the U.S. government's
longstanding history of honoring its obligations. Such action would also give rise to
government liability to parties suing to enforce their rights under the agreement.
The U.S. Government stands behind the preferred stock purchase agreements and
will honor its commitments. Contracts are respected in this country as a
fundamental part of rule of law.
Can the U.S. Congress or the Executive Branch change the covenants in the
agreement, such as the covenant requiring the reduction of the companies'
portfolios?
As with any contract, the parties to the agreement may modify the covenants by
mutual agreement only.
Does the senior preferred stock purchase agreement protect debt and
mortgage backed securities issued or maturing after 2009?
Yes. The holders of senior debt, subordinated debt, and mortgage backed
securities issued or guaranteed by these GSEs are protected by the agreement
without regard to when those securities were issued or guaranteed. Debt and
mortgage backed securities issued or guaranteed both before and after December
31,2009 are protected by the agreement.
If the preferred stock purchase agreement protects senior and subordinated
debt securities issued at any time in the future, how can the agreement ever
be terminated?
Treasury's funding commitment in the agreement would terminate under three
events:

1.
2.

3.

The funding commitment terminates if the commitment is fully funded by
Treasury.
If a GSE liquidates its assets, its net worth deficiency is computed at that
time and the GSE can call upon the Treasury to fund under its preferred
stock purchase agreement. After that final funding, the funding commitment
in the agreement would terminate.
When a GSE satisfies all of its liabilities, whether at maturity or by making
some other provision for payment in full of its obligations, the funding
commitment will also terminate.

Why is the preferred stock purchase agreement limited to $100 billion? Is that
enough to protect against even the worst downside scenario? What happens
if losses exceed $100 billion?
Treasury deliberately chose a large number to give confidence to the markets.

If Treasury has already received $1 billion in senior preferred stock, how can
you say that no investment has been made yet?
.
The companies each issued $1 billion in senior preferred stock to Treasury In

wWw.treas.goy/press/releases/hpl131.htm

I 0/21 /200~

HP-!!3!: FrequeIltly Asked Questions:<br> Treasury Senior Prcferred Stock Purchase Agrecment

Page:2 of:2

connection with Treasury's commitment to maintain a positive net worth in the GSE.
No taxpayer money was spent to receive this stock.
How is it legal for this preferred stock purchase agreement to be valid beyond
the December 31, 2009 expiration of Treasury's authority?
Treasury received the preferred stock and received warrants for common stock as
of Sunday September 7, 2008 and will not need to purchase any additional shares
relative to this agreement. No payments by the Treasury will be made under this
agreement until and unless necessary to prevent a negative net worth position for
either GSE.
If the Treasury makes payments under its funding commitment, the liquidation
preference of the Treasury shares will increase accordingly
What happens to the declared dividends for investors of existing GSE
preferred stock?
Dividends actually declared by a GSE before the date of the senior preferred stock
purchase agreement will be paid on schedule.
Can the government exercise its warrants whenever it wants, even if it is
disadvantageous to the companies?
Yes. Treasury can exercise its warrant for up to 79.9% of the common stock of
each GSE on a fully diluted basis at any time during the 20-year life of the warrant.
What do the rating agencies think of this agreement?
All of the rating agencies have reaffirmed the United States' current rating status.
-30-

www.treas.goy/press/releases/hpI131.htm

IO/:211200R

HP-1132: Treasury Targets venezuelan Government Officials Supporting the FARe

Page 101'2

to view or print tne /-,UI- content on tnlS page, OowntoaO tne free

September 12, 2008
HP-1132
Treasury Targets Venezuelan Government Officials Supporting the FARC
Washington, DC--The U.S. Department of the Treasury's Office of Foreign Assets
Control (OFAC) today designated two senior Venezuelan government officials,
Hugo Armando Carvajal Barrios and Henry de Jesus Rangel Silva, and one former
official, Ramon Rodriguez Chacin, for materially assisting the narcotics trafficking
activities of the Revolutionary Armed Forces of Colombia (FARC), a narco-terrorist
organization.
"Today's deSignation exposes two senior Venezuelan government officials and one
former official who armed, abetted, and funded the FARC, even as it terrorized and
kidnapped innocents," said Adam J. Szubin, Director of OFAC. "This is OFAC's
sixth action in the last ten months against the FARC. We will continue to target and
isolate those individuals and entities that aid the FARC's deadly narco-terrorist
activities in the Americas."
Hugo Armando Carvajal Barrios is the Director of Venezuela's Military Intelligence
Directorate (DGIM). His assistance to the FARC includes protecting drug
shipments from seizure by Venezuelan anti-narcotics authorities and providing
weapons to the FARC, allowing them to maintain their stronghold of the coveted
Arauca Department. Arauca, which is located on the Colombia/Venezuela border,
is known for coca cultivation and cocaine production. Carvajal Barrios also
provides the FARC with official Venezuelan government identification documents
that allow FARC members to travel to and from Venezuela with ease.
Henry de Jesus Rangel Silva, the Director of Venezuela's Directorate of Intelligence
and Prevention Services or DISIP, is in charge of intelligence and
counterintelligence activities for the Venezuelan government. Rangel Silva has
materially assisted the narcotics trafficking activities of the FARC. He has also
pushed for greater cooperation between the Venezuelan government and the
FARC.
Ramon Emilio Rodriguez Chacin, who was Venezuela's Minister of Interior and
Justice until September 8, is the Venezuelan government's main weapons contact
for the FARC. The FARC uses its proceeds from narcotics sales to purchase
weapons from the Venezuelan government. Rodriguez Chacin has held numerous
meetings with senior FARC members, one of which occurred at the Venezuelan
government's Miraflores Palace in late 2007. Rodriguez Chacin has also assisted
the FARC by trying to facilitate a $250 million dollar loan from the Venezuelan
government to the FARC in late 2007. We cannot confirm whether the loan
materialized.
On May 29, 2003, President George W. Bush identified the FARC as a significant
foreign narcotics trafficker, or drug kingpin, pursuant to the Kingpin Act. In 2001, the
State Department designated the FARC as a Specially Designated Global Terrorist
pursuant to Executive Order 13224, and in 1997 as a Foreign Terrorist
Organization.
This OFAC action continues ongoing efforts under the Kingpin Act to apply financial
measures against significant foreign narcotics traffickers and their organizations
worldwide. In addition to the 75 drug kingpins that have been deSignated by the
President, 460 businesses and individuals have been designated pursuant to the
Kingpin Act since June 2000.
Today's action freezes any assets the designated entities and individuals may have
under U.S. jurisdiction and prohibits U.S. persons from conducting financial or

www.treas.gov/press/releases/hpI132.htm

10/21 /200~

HP-I 132: Trea.sUl)' Targeb Vt:Ilt::luelan Government Officials Supporting the FARC

Page 2 01'2

commercial transactions involving those assets. Penalties for violations of the
Kingpin Act range from civil penalties of up to $1,075,000 per violation to more
severe criminal penalties. Criminal penalties for corporate officers may include up to
30 years in prison and fines of up to $5,000,000. Criminal fines for corporations
may reach $10,000,000. Other individuals face up to 10 years in prison for criminal
violations of the Kingpin Act and fines pursuant to Title 18 of the United States
Code.
For a complete list of the individuals and entities designated today, please visit:
http://www . treasury .gov/offices/enforcementlofac/actions/index .shtml

To view previous OFAC actions directed against the FARC, please visit:
•
•
•
•
•
•
•

Treasury Action against the FARC on July 31, 2008 (link:
http://www.treas.gov/press/releases/hp1096.htm )
Treasury Action against the FARC on May 7, 2008 (link:
http://www.treas.gov/press/releases/hp966.htm )
Treasury Action against the FARC on April 22, 2008 (link:
11ttp Ilwww.lr·easgov/press/releases/hp938.hlm)
Treasury Action against the FARC on January 15, 2008 (link:
http://www.treas.gov/press/releases/hp762.htm )
Treasury Action against the FARC on November 1,2007 (link:
http://www.treas.gov/press/releases/hp661.htm)
Treasury Action against the FARC on September 28, 2006 (link:
http://www.treas.gov/presslreleases/hp119.htm)
Treasury Action against the FARC on February 19, 2004 (link:
http://www.ustreas.gov/press/releases/js1181.htm)
-30-

REPORTS
•

Designation Chart

www.treas.gov/press/releases/hpI132.htm

10/211200X

U.S. Department of the Treasury
Office of Foreign Assets Control

Revolutionary Armed Forces
of Colombia (FARC)

September 2008

~FAIC·EP
FARC Designated by the President as a
Significant Foreign Narcotics Trafficker on May 29, 2003

Rodrigo Granda Escobar
FARe Intemational Representative
Designated by OFAC on September 28, 2006

Hugo Armando CARVAJAL BARRIOS
DOB 01 Apr 1960
Director
Venezuelan Military
Intelligence Directorate (DGIM)

Luciano Marin Arango
(a.k.a. Ivan Marquez)
Secretariat Member
FARe Commander
Designated by OFAC in February 2004

Rodrigo Londono Echeverry
(a.k.a. Timochenko)
Secretariat Member
FARe Commander
Designated by OFAC in February 2004

Henry de Jesus RANGEL SILVA
CC 5764952
Director
Venezuelan Directorate of
Intelligence and Prevention Services (DISIP)

Nee Suarez Rojas
(a.k.a. Grannobles)
Secretariat Member
FARe Commander
Designated by OFAC in February 2004

Ramon Emilio RODRIGUEZ CHACIN
CC 3169119 (Venezuela)
Former Venezuelan Minister of
Interior and Justice

HP-1133: 1"reMury, SDA Paltner to Help Small Businesses <br>Understand the Value of Health Savill...

Page 1 of 1

September 12, 2008
HP-1133
Treasury, SBA Partner to Help Small Businesses
Understand the Value of Health Savings Accounts
Washington, DC--The Treasury Department and the U.S. Small Business
Administration today announced a new website that provides small businesses with
information on how Health Savings Accounts (HSAs) can help meet their
employees' health care needs.
While many Americans have access to health coverage through their employers,
many employees work for small companies that are unable to sponsor health
insurance plans. Many of these employees can benefit from the affordability and
flexibility of HSAs and HSA-eligible health plans.
The new website, www.hsa.gov, presents the advantages of HSAs, provides
comparisons to other health coverage options, and has other materials to help
employers and individuals determine whether and how to enroll in HSA-eligible
coverage and how to save for health care costs through an HSA.
-30-

www.treas.gov/press/releases/hpI133.htm

10/211200R

hp-1134: Paulsun Statement on SEC and Federal Reserve Actions <br> Surrounding Lehman Brothers

/~~~, PRESS ROOM
\~ u.s. OEPARTMEIIT Of THE TIlEASURY

Page I of I

~,.
,

September 14, 2008
hp-1134
Paulson Statement on SEC and Federal Reserve Actions
Surrounding Lehman Brothers

Treasury Secretary Henry M. Paulson, Jr. made the following statement today:
I strongly support the actions announced tonight by SEC Chairman Chris Cox,
Federal Reserve Chairman Ben Bernanke and market participants. These changes
will strengthen and enhance our financial markets.
These initiatives will be critical to facilitating liquid, smooth functioning markets, and
addreSSing potential concerns in the credit markets.
I particularly appreciate the efforts of market participants who came together this
weekend and initiated a set of steps to facilitate orderliness and stability in our
financial markets as we work through this extraordinary environment.
Today we are looking forward. This weekend's discussions made clear that both
market participants and regulators in this country and abroad recognize the need to
support market stability and remove uncertainty as they address current challenges.
I am committed to working with regulators and policymakers - including Congress to take necessary and appropriate steps to maintain the stability and orderliness of
our financial markets. And I will engage with regulators and policymakers around
the world to that end.
Healthy capital markets are the backbone of a vibrant U.S. economy and critical to
the well-being of our economy and American families. I am confident in the
resilience of our capital markets, and in the commitment of U.S. regulators and
market partiCipants to work together through this difficult period.
-30-

wWw.treas.goy/press/releases/hpI134.htm

I 0/21 /200~

hp-1135: Trea~Uly Office ofOebt Management Director Karthik Ramanathan<br>Remarks at Real Ret... Page 1 of 5

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

~,.
•

10 view or pnnt tne fJUr content on tnlS page. aowntoaa tne free ACfOlJe(p) AcrolJa((p} Keaae/',',/.

September 15, 2008
hp-1135
Treasury Office of Debt Management Director Karthik Ramanathan
Remarks at Real Return USA:
The Euromoney Inflation Linked Products Conference
New York City - Good Morning. Thank you for giving me this opportunity to share
my thoughts on Treasury debt management. I'm going to start off by explaining the
role that our office and Treasury securities play in the capital markets, then describe
some of the challenges posed by recent market conditions, and finally, address
Treasury Inflation Protected Securities.
In my role as the Director of the Office of Debt Management, I provide
recommendations on matters related to the Treasury's debt management policy,
the issuance of Treasury securities, and the state of financial markets. By actively
engaging with reserve managers, institutional investors, and market participants like
you, we remain well informed regarding financial market conditions, liquidity in the
fixed income markets, and Treasury-market-specific issues.
Our mission is to issue debt in a manner that provides the U.S. government - and
ultimately the taxpayer - with the lowest cost of financing over time. With over $4
trillion of annual marketable Treasury issuance, more than 200 Treasury auctions
each year, and nearly $9.5 trillion in total federal debt, the numbers are large, so
discussing these issues is quite relevant.
U.S. Treasuries play an important role in the global capital markets. They are
actively used by portfolio managers, investors, and traders to hedge existing
positions, to serve as the risk-free pricing benchmark, and to provide the ultimate
source of liquidity. In addition, the Federal Reserve uses Treasury securities to
affect the supply of reserves in the banking system, and Treasuries provide foreign
central banks with a highly liquid investment vehicle. The central roles that
Treasuries play contribute to a lower overall cost of capital.
However, despite this prominent role, we do not take our position in the debt
markets for granted. We constantly strive to enhance Treasury's status as the
preeminent sovereign debt market by adhering to our clear mission. This gives us
confidence that Treasury will remain the borrower of choice in global capital
markets.
Now, before I delve into more detail on TIPS, I'd like to first talk about Treasury's
debt management objectives, then financial market challenges over the past year,
and finally, how we as debt managers responded.

Debt Management Objectives and Operating Principles
The Treasury Department's primary goal in debt management is to finance the
government's borrowing needs at the lowest cost over time. In meeting this
objective, we face numerous constraints and risks.
Perhaps the most prevalent of these constraints is uncertainty. Uncertainty arises
from many different sources including changes in economic conditions, unexpected
legislative initiatives, and fluctuations in non-marketable debt issuance. In a given
year, these factors could easily shift borrowing by a significant amount with little
advance warning.

www.treas.goy/press/releases/hpI135.htm

10/21/200X

hp-I135: TreasUIY Office of Debt Management Director Karthik Ramanathan<br>Remarks at Real Ret... Page:2 of 5
Another major source of uncertainty stems from deficIt forecast errors with various
estimates off by more than $100 billion on average. Collectively, the private sector
as well as policy makers have difficulty in consistently projecting deficits in the
coming twelve months - let alone further into the future.
Given the extensive uncertainty Treasury faces, debt management requires
considerable flexibility. The recent fiscal stimulus package, in which rebates were
literally place into the hands of Americans just 20 weeks after enactment, shows
such a need for adapting to rapidly changing conditions. At the same time, our large
size makes behaving opportunistically impractical. Moreover, it would not
necessarily lower borrowing costs. Financial market participants would likely model
our interest rate objectives and anticipate our debt issuance behavior, limiting any
potential gains we might hope to achieve.

In addition, opportunistic behavior would increase investor uncertainty and could
limit demand for our securities. Therefore, in order to ensure ready market access,
we issue debt regularly and in predictable amounts. Our set of instruments consists
of 8 nominal issues and 3 inflation indexed issues - a very simple, liquid set of
benchmarks which investors can tailor to their needs.
Under these conditions, we must not create additional constraints based on
externalities that result from a particular debt management strategy. For example,
the U.S. Treasury often receives requests for debt tailored to particular interests
such as GOP-linked debt, annuitizing debt instruments, and callable debt. However,
it is the Treasury's policy not to issue debt targeted to any particular constituency.
As taxpayers, we are better off with the Treasury market being deep and liquid. We
consider the market's appetite for certain securities or debt management practices;
however, debt management policy decisions cannot be held captive solely to the
market's preferences.
For example, when Treasury discontinued the 52-week bill in 2001, we did so
despite positive externalities associated with the security including its wide use as a
benchmark point for pricing derivatives (such as adjustable rate mortgages and
interest rate swaps), and its use for setting rates for statutorily required credit
programs (which required Congress and Treasury to make legislative changes). We
simply did not need it at the time, and acted in the best interest of the taxpayer.
Similarly, the 3D-year bond and 3D-year TIPS were also discontinued in 2001 due to
reduced borrowing needs.
Decisions to adopt or suspend particular debt management practices are similarly
made by always keeping in mind our goal of the lowest borrowing cost over time.
For instance, despite the benefits of multiple-price auctions to certain more
sophisticated segments of the financial markets, Treasury moved to uniform-price
auctions. Internal studies and empirical analysiS indicated that such auctions
broaden the distribution of auction awards, promote efficiency in the markets, and
lead to more aggressive bidding - all factors which collectively reduce the cost of
financing the federal debt.
As another example, we continue to have the authority to conduct buybacks of
Treasury securities. However, Treasury suspended this practice when they were no
longer practical despite the benefits to some investors of having a regular buyer for
relatively illiquid securities.
While not limiting potential responses to ever changing financial market conditions,
we make any changes to Treasury debt issuance and debt management practices
in a transparent manner, in consultation with market participants, and based on
analyses of how to best meet our goals.
Financial Market and Debt Management Challenges
The financial markets have faced challenging conditions over the past year, many
of which have impacted the broader economy. Tighter credit standards and
pressure on interest rate spreads have made it more difficult to obtain credit in
many sectors. In the face of these challenges, Treasury has responded
aggressively.
To provide confidence and stability to financial markets, Treasury financed an
economic stimulus package and moved to support the housing government

http://www.treas.gov/press/reJeases/hpl135.htm

10!21120()X

hp-1135: Treasury Office or uebt Management Director Karthik Ramanathan<br>Remarks at Rcal Ret...

Page 3 of 5

sponsored enterprises Fannie Mae and Freddie Mac. A cyclical correction is
underway, particularly in the housing sector, and this process of re-pricing of risk
and deleveraging across asset classes has created additional challenges for market
participants.
Borrowing requirements have risen swiftly in response to the economic stimulus
legislation as well as actions take by the Federal Reserve related to its liquidity
initiatives. To sterilize the monetary effects of these initiatives, the Federal Reserve
redeemed Treasury securities held in its portfolio and also sold securities outright
which resulted in nearly $300 billion in additional Treasury issuance. We responded
successfully to these challenges by increasing bill auction sizes, reintroducing the
52-week bill, and issuing longer dated cash management bills.
Looking ahead, a wide variety of factors could potentially impact Treasury's
marketable borrowing including a less robust economy, the possibility of additional
legislative initiatives enacted by Congress, and further pressures on the financial
sector.
In this rapidly evolving economic and financial market environment, Treasury has
responded to changes in marketable borrowing needs in its traditional manner by
first reviewing the size of our existing securities, then addressing the frequency of
issuance, and finally, making adjustments to the auction calendar as necessary.
In addition, through our meetings with major investors domestically and abroad,
many ideas have been suggested to better position Treasury to meet these
challenges. Some recommendations include increasing the frequency of the 10year note and 30-year bond, reintroducing other securities including the 3-year note
and 7-year note, and reintroducing a Treasury buyback program to better manage
our debt maturity profile.
Other ideas included issuing additional longer dated inflation linked securities
versus shorter dated securities to potentially better capture any inflation premium.
We appreciate all of these suggestions, and take them all under consideration in
achieving the lowest cost of financing over time.
Treasury Inflation-Protected Securities
Now, turning to inflation linked securities, Treasury has been issuing TIPS for over
10 years and is the largest issuer of inflation linked bonds globally. We have held
60 TIPS auctions since the inception of the program and have over half a trillion
dollars of such debt outstanding. Average daily trading volume of $9 billion also
makes the TIPS market the most liquid of any sovereign inflation-linked debt
market. With 27 issues outstanding, the TIPS curve is well established out to 10
years, and well on its way to being complete out to 20 year.
Let me give you some other figures about the size and liquidity if the TIPS market.
In fiscal year 2007, TIPS issuance totaled $57 billion, or 10 percent of total
Treasury coupon issuance, and represented about 30 percent of total global
inflation linked debt issuance. In comparison, such issuance was $29 billion in the
United Kingdom, $27 billion in Japan, and $26 billion in France. Although the
growth rate of TIPS has slowed, it still outpaces nominal coupons.
In terms of secondary market liquidity, which often receives much attention, the
TIPS market is much more liquid than any other sovereign inflation linked market.
Prior to this most recent period of stress in credit markets, the typical bid-ask
spread on the benchmark 1O-year TIPS on a trading size of $50 million was about 1
basis point. In contrast, for similar benchmark issues in the United Kingdom, France
and Japan, the bid-ask spreads ranged between 2.5 and 5 basis points.
So, while TIPS will likely remain less liquid than nominal coupons due to their
unique qualities, from an investor perspective, the depth of the TIPS market is
unrivaled. Calls to increase liquidity through much larger issuance need to be
carefully evaluated.
Taken together, these market statistics illustrate our preeminent stance in the
inflation-indexed market in terms of size, depth, and liquidity, even in an
environment without regulatory mandates and in the absence of a high rate of

www.treas.gov/press/releases/hpl135.htm

I 0/21 /2()O~

hp-1135: Treasury Office of Uebt Management Director Karthik Ramanathan<br>Remarks at Real Ret...

Page 4 of 5

indexation to inflation compared to other sovereigns.
While the TIPS auction calendar has seen several changes since the inception of
the program, we have repeatedly communicated to market participants our
commitment to the program. Let me again reassure you that inflation linked
securities are an important part of our portfolio.
As I mentioned earlier, determining the proper mix of our portfolio in pursuit of the
lowest cost of borrowing is an ongoing effort. From our perspective, TIPS offer
potential benefits including a more diversified portfolio, a potentially broader
investor base, and a liability that theoretically tracks tax receipts.
However, you may be aware that recently the Treasury's Borrowing Advisory
Committee of the Securities Industry and Financial Markets AssOCiation, or TBAC,
prepared a .
on TIPS. The presenting Committee member concluded
that the cost of the program, compared to nominal debt issued at a similar time,
was estimated at close to $30 billion. This cost was attributed to two factors: the low
level of breakeven inflation and the reduced level of liquidity of TIPS compared to
nominal securities.
It was also noted that private issuers have been less willing to issue inflation linked
securities because they view them as costly and because of unfavorable
accounting treatment. In fact, over the past ten years, there have been only a
handful of corporate issuers of inflation indexed debt, thereby limiting the growth of
the inflation derivatives markets. The large majority of corporate issuance is
immediately hedged with TIPS, so it does not really create new inflation-linked
supply. Instead, the Treasury continues to be the only significant payer of inflation
in the United States.
This situation naturally raises many questions. Why are corporations not issuing
such debt more generally? Are we selling insurance on inflation protection for too
little? Should unknown future liabilities resulting from inflation accretion concern
debt issuers? Certainly in a corporation or financial institution, these issues would
be taken into consideration. Are we as sovereign debt issuers dOing the same?
Not surprisingly, the financial press has been discussing the deliberations of the
TBAC's presentation. Some have agreed with its findings, while others have
disputed them. As debt managers, we greatly appreciate all viewpoints and
encourage further constructive dialogue. The growth in the significance of the
inflation linked debt market over the past decade by sovereign issuers has made
having an accurate understanding of the costs involved in their issuance more
important than ever.
Sovereign debt issuers have issued inflation indexed debt with the belief that such
issuance would diversify their portfolios and better track receipts. In addition, there
was a belief that borrowing costs would be lower due to the willingness of some
investors to pay a premium in return for inflation compensation. Other nations have
recently joined this trend, issuing inflation linked debt with the same intentions and
with little empirical or analytical studies of costs versus benefits. Unfortunately,
though, there have been only a few published studies of the costs of issuing TIPS,
and these have offered conflicting conclusions.
In May of 2004 then Federal Reserve economists Brian Sack and Robert Elsasser
estimated that TIPS issuance since the inception of the program had been
expensive relative to comparable nominal securities, primarily due to the difficulties
in launching a new asset class and the flight to quality earlier in the decade. Sack
and Elsasser used realized costs - an "ex post" approach - in their estimates. They
estimated that the cost of the program as of June 2003 was $2.8 billion, and
estimated a projected total cost of $12.3 billion.
An update to this analysis in 2007 by Sack showed that the 10-year TIPS that
matured in January 2007 saved the Treasury $1.1 billion.
In October 2007, also using ex-post calculations, Federal Reserve Board economist
Jennifer Roush concluded that TIPS issuance was relatively costly due to illiquidity
in the early years of the program. She estimated the cost of the program through
early 2007 at around $5 billion to $8 billion.

www.treas.gov/press/reJeases/hpl135.htm

10121120()X

hp-I135: Treasury Office of Debt Management Director Karthik Ramanathan<br>Remarks at Real Ret... Page 5 of 5
Roush's analysis, however, also suggested that beginning with issuance in 2004,
TIPS have actually saved Treasury a small amount of money, and will save
Treasury from $1 billion to $4 billion over the entire life of these securities.
Moreover, she finds that if the illiquidity effects of the early years of the TIPS
program are excluded, the TIPS program would have saved the Treasury a
substantial amount - from $14 billion to $17 billion through early 2007. The "liquidity
premium" effectively cost Treasury between $10 billion and $15 billion.
On the other hand, some economists have suggested that ex-post analyses are too
simplistic and that the relevant question is whether the Treasury obtained the
financing it needed at a lower "ex-ante cost;" that is, using expected inflation at the
time of issuance in determining the cost. However, one of the difficulties of an exante approach is obtaining an accurate estimate of investors' inflation expectations.
Studies using an ex-ante approach have shown neither a benefit nor a cost from
issuing TIPS relative to nominal securities.
As can be seen from these studies, the results to date have been conflicting and, at
times, inconclusive. Assumptions which are used greatly vary. Perhaps most
disturbing, few rigorous, analytical approaches have been undertaken to fully
understand the efficiency of the program.
Treasury has a duty to ensure that taxpayers attain the lowest cost of borrowing
over time. In that vein, we must continuously study our models, develop alternative
perspectives, and institute changes if warranted. We need to focus on our mission
and less on positive externalities. From our perspective as debt issuers, we have a
wealth of information to examine. We know the details of every competitive bid
made at each auction. We know the concentration of bids by particular investors at
given auctions. And we know our alternative funding choices. Moreover, we have a
large set of observations. While the growth of inflation-indexed securities remains
robust, and the importance investors place on them continues to grow, taking a step
back, evaluating our practices, and examining the costs and benefits of any
program in a deliberative manner is only prudent ..
Treasury, like other major sovereign issuers of debt, needs to attract capital from
the market, but we need to do so in a thoughtful manner. So I want to make the
earnest request to all sovereign debt issuers and members of the financial market
community actively develop an appropriate framework for assessing the cost of
issuing inflation linked debt versus nominal debt.
Such an undertaking will benefit all who participate in this market, most importantly
the taxpayer. As we undertake these deliberations in concert with financial market
participants, Treasury will continue to issue TIPS in a regular and predictable
manner and continue to maintain these securities as a significant portion of our
overall debt portfolio.
Thank you.
-30-

wWw.treas.goY/press/reieases/hpl135.htm
--

----

IO/21/200R

hp-1136: Media Advisory: <br> Treasury to Release Multi-Media Campaign to Teach Young Adults A... Page I of I

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

~,.
•

September 15, 2008
hp-1136
Media Advisory:
Treasury to Release Multi-Media Campaign to Teach Young Adults About
Credit

The Treasury Department, in partnership with the Ad Council, will release a new
multi-media campaign Tuesday aimed at combating the issue of financial illiteracy
among young adults. The campaign includes television, radio and web banners,
including a radio spot in Spanish. Department officials will preview the television
and radio spots, as well as a new web site providing free financial information and
tools.
WHO:

Treasurer Anna Escobedo Cabral
Deputy Assistant Secretary for Financial Education Dan lannicola, Jr.

WHAT:

Launch of Treasury Multi-Media Campaign on Credit

WHEN:

Tuesday, September 16, 9:30 a.m. EDT

WHERE:

Treasury Department
Media Room (4121)
1500 Pennsylvania Avenue, NW
Washington, D.C.

NOTE:

Media without Treasury press credentials should contact Frances
Anderson at (202) 622-2960, or Frances.Anderson@do.treas.gov with
the following information: full name, Social Security number, and date
of birth.
-30-

wWw.treas.gov/press/reieases/hpI136.htm

IOlll/lOOS

hpl137: Paulson to Speak on Economy, HouslI1g Market

Page

J

of

September 15, 2008
hp1137
Paulson to Speak on Economy, Housing Market
Secretary Henry M. Paulson, Jr. will deliver remarks Tuesday at the Brookings
conference on The Future of Consumer Payments in Washington. He will discuss
the economy and the housing market.
Who

Secretary Henry M. Paulson, Jr.

What

Remarks on the Economy & the Housing Market

When

Tuesday, September 16,1 :30 p.m. EDT

Where

The Brookings Institution
Falk Auditorium
1775 Massachusetts Avenue, NW
Washington, D.C.

Note Press should RSVP to OJ Nordquist at djnordquist@brookings.edu or visit
http://onlinepressroom .net/brookings/new.

-30-

wWw.treas.gov/press/reJeases/hpI137.htm

10/21 120()~

J

HP-1115: Treasury International Capital (TIC) Data for June

Page 1 of3

FROM THE OFFICE OF PUBLIC AFFAIRS
We lecol7ll1lt?nd (J11Il(lIlg (ills release [lslI)g (ho PDF file I)e/ow
Tel view or pun( (he PDF content on tillS page, c!ownload the free

Acioi)eCfQAc;robat@Reader58>.

September 16, 2008
HP-1138
Treasury International Capital (TIC) Data for July
Treasury International Capital (TIC) data for July 2008 are released today and posted on the US Treasury webSite (www.treasgov/ti
which will report on data for August. IS scheduled for October 16, 2008
Net foreign purchases of long-term securilies were $61 billion.
•

Net foreign purchases of long-term US securities were negative $25.6 billion, Of this, net purchases by private foreign Invest,
billion, and net purchases by foreign official institutions were negative $4.9 billion,

•

US. residents sold a net $31.7 billion of long-term foreign securities.

Net foreign acqUisition of long-term securities, taking into account adjustments, is estimated to have been negative $8,2 billion
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $8
of Treasury bills decreased $44 billion,
Banks' own net dollar-denominated liabilities to foreign residents declined $58.1 billion,
Monthly net TIC flows were negative $74.8 billion. Of this, net foreign private flows were negative $929 billion, and net foreign offiCial
-30-

TIC Monthly Reports on Cross-Border Financial Flows
(Billions of dollars, not seasonally adjusted)
2006

12 Months Through
2007
Jul-07
Jul-08

Apr-08 Ma'

Foreigners' Acquisitions of Long-term Securities
1
2
3

Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line 1 less line 2) 11

21077.1 29730.6
19933.9 28714.7
1143.2 1015.9

25290.0
24038.1
1252.0

33496.1
32727.0
769.0

2584.6
2478.9
105.7

4
5
6
7
8

Private, net 12
Treasury Bonds & Notes, net
GOy't Agency Bonds, net
Corporate Bonds, net
Equities, net

946.6
125.9
193.8
482.2
144.6

828.2
197.9
107.0
342.8
180.4

1036.6
164.7
156.1
505.1
210.7

520.0
259.3
93.0
143.1
24.5

64.4
54.7
4.3
17.5
-12.0

9
10
II
12
13

Official, net /3
Treasury Bonds & Notes, net
GOy't Agency Bonds, net
Corporate Bonds, net
Equities, net

196.6
69.6
92.6
28.6
5.8

187.7
3.0
119.1
50.6
15.1

215.4
52.6

249.1
90.3
64.9
61.4
32.4

41.3
22.3
11.0
7.5
0.4

WWW.treas.gov/press/releases/hpI138.htm

127.9

35.1
-0.2

25'
24:
11

,

10/21/2008

HP-1115: Treasury-mternanonal CapItal ( LiC) Uata tor June
14

Gross Purchases of Foreign Securities from U.S. Residents
Gross Sales of Foreign Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less line 15) /4

IS
16

Foreign Bonds Purchased, net
Foreign Equities Purchased, net

17
18

19

Net Long-Term Securities Transactions (line 3 plus line

20

Other Acquisitions of Long-term Securities, net /5

21

22

Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):

Page 2 of3
5515.9
5766.8

8187.6
8411.9

7031.7
7312.0

8520.7
8615.9

698.7
688.2

-250.9

-224.3

-280.3

-95.2

10.5

-144.5
-106.5

-129.0
-95.3

-153.1
-127.3

-53.5
-41.7

10.7
-0.2

892.3

791.6

971.6

673.8

116.1

-174.6

-235.1

-220.2

-217.7

-12.3

717.7

556.5

751.4

456.1

103.9

146.2
-9.0
16.1
-25.0

197.6
48.8
29.3
19.5

88.2
-9.6
0.1
-9.7

194.3
125.8
69.5
56.3

-14.0
3.4
-11.0
14.4

155.1
174.9
-19.8

148.8
72.7
76.1

97.9

28

Increase in Foreign Holdings of Dollar-denominated ShortU.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
Official, net

112.4
-14.6

68.6
16.9
51.6

-17.4
-4.4
-13.0

29

Change in Banks' Own Net Dollar-Denominated Liabilities

198.0

-133.8

38.9

-440.3

23.0

1061.8

620.4

878.6

210.1

112.9

923.0
138.9

333.6
286.8

665.1
213.5

-67.7
277.8

82.7
30.2

23
24
25
26
27

30 Monthly Net TIC Flows (lines 21,22,29) /8
31
32

of which
Private, net
Official, net

1\

/2
/3
/4

/5

/6

17
/8

6
7'

Net foreign purchases of U.S. securities (+)
Includes international and regional organizations
The reported division of net purchases of long-term securities between net purchases by foreign official institutions anc
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and I O.a.4 on
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign s
Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United Stat
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securit
estimated foreign acquisitions of U.S. equity through stock swaps estimated U.S. acquisitions of foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents of Foreign
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims a
quarterly and published in the Treasury Bulletin and the TIC website.
"Selected Other Liabilities" are primarily the foreign liabilities of U.S. customers that are managed by U.S. banks or br
TIC data cover most components of international financial flows, but do not include data on direct investment flows, w
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data sur
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on
describes the scope of TIC data collection.

REPORTS

• (P.OF) TIC Monthjy Reports on Cross-Border Financial Flows (Billions of dollars, not seasonally adjusted)

WWw.treas.gov/press/releases/hpI138.htm

10/21/2008

,{

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
September 16,2008
El\lBARGOED UNTIL 9:00 AM

Contact: Rob Saliterman
(202) 622-2960

TREASURY INTERNATIONAL CAPITAL DATA FOR JULY
Treasury International Capital (TIC) data for July 2008 are released today and posted on the U.S.
Treasury website (\\ 1\ 1\ tl~',h::'ll\ 11\.). The next release, which will report on data for August, is
scheduled for October 16, 2008.
Net foreign purchases of long-term securities were $6.1 billion.
•

Net foreign purchases of long-term U.S. securities were negative $25.6 billion. Of this, net
purchases by private foreign investors were negative $20.7 billion, and net purchases by
foreign official institutions were negative $4.9 billion.

•

U.S. residents sold a net $31.7 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been negative $8.2 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities decreased $8.4 billion. Foreign holdings of Treasury bills decreased $4.4
billion.
Banks' own net dollar-denominated liabilities to foreign residents declined $58.1 billion.
Monthly net TIC flows were negative $74.8 billion. Of this, net foreign private flows were negative
$92.9 billion, and net foreign official flows were $18.2 billion.

TIC Monthly Reports on Cross-Border Financial Flows
lBiliions of dollars not seasonallyadiustedl
12 Months Through
2006
2007
Jul-07
Jld-()~

Arr-(j~

May-OH

Jun-()~

Jul-IJ~

Foreigners' Acquisitions of Long-term Securities
I
2

3
4

5
6
7
S
')

10
II
12

13
\4

15
\6

17
18

Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic liS. Securities
Domestic Securities Purchased, net (11I1e I less lille 2) /1

33496.1
32727.0
769.0

2584.6
2478.9
105.7

25'J<J.2
2489.6
109.7

2794.1
2731.4
62.7

2819.5
2MS.1
-25.6

946.6
125.9
193.8
482.2
144.6

828.2
197.9
107.0
342.8
180.4

1036.6
IM.7
156.1
505.1
210.7

520.0
259.3
93.0
143.1
24.5

64.4
54.7
4.3
17.5
-12.0

93.2
9.4
17.1
508
15 <)

47.8
27.2
22.3
-2.3

-211.7
24.2
-33 8
-4.3
-6.8

Official, net /3
Treasury Bonds & Notes. net
Gov't Agency Bonds. net
Corporate Bonds. net
Equities. net

196.6
69.6
92.6
28.6
5.8

187.7
3.0
119.1
506
\5.\

215.4
52.6
127.9
35.1
-0.2

249.1
90.3
64.9
6 1.4
32.4

41.3
22.3
\10
7.5
0.4

16.4
-3.7
110
9.1
0.0

14.9
I I
9\
4. I
0.5

·4.9
10.1
-\6.2
0.2
1.\

5515.9
5766.8
-250.9

8\87.6
84119
-224.3

7031.7
73120
-280.3

8520.7
8615.9
-95.2

6987
688.2
10.5

676.7
703. I
-26.4

6883
6975
-9.2

7202
688.5
31.7

-144.5
-106.5

-129.0
-95.3

-153.1
-127.3

-53.5
-417

10.7
-0.2

-8.3
-18 I

-10.8
1.6

13.6
18.\

892.3

791.6

971.6

673.8

116.1

83.2

53.4

6.1

-174.6

-235.1

-220.2

-217.7

-12.3

-22.6

-16.8

-14.3

717.7

556.5

751.4

456.1

103.9

60.6

36.6

-8.2

-8.4
-4.4
·10.3
5.9

Gross Purchases of Foreign SecuritIes from ll.S. Residents
Gross Sales of ForeIgn Securities to U.S. Residents
Foreign Securities Purchased, net (line 14 less line 15) /4
Foreign Bonds Purchased. net
Foreign Equities Purchased, net
Net Long-Term Securities Transactions (line 3 plus line 16):

20

Other Acquisitions of Long-term Securities, net /5

22

25290.0
24038.1
1252.0

Private, net /2
Treasury Bonds & Notes. net
Gov't Agency Bonds. net
Corporate Bonds. net
Equities. net

19

21

21071.1 29730.6
199339 28714.7
1143.2
1015.9

Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):

O.u

146.2
-9.0
16.1
-25.0

197.6
48.8
293
19.5

88.2
-9.6
0.1
-9.7

194.3
125.8
69.5
563

-14.0
3.4
-II 0
14.4

9.3
11.4
72

43

-2.2
6.9
0.3
6.7

27
28

Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody Liabilities: /6
U.S. Treasury Bills
Private, net
Official. net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
OffIcial, net

155.1
174.9
-19.8

148.8
72.7
76.1

97.9
112.4
-14.6

68.6
16.9
51.6

-17.4
-4.4
-13.0

-2.1
10.2
-123

-9.1
-II I
2.0

-4.1
-10.3
6.3

29

Change in Banks' Own Net DOllar-Denominated Liahilities

198.0

-133.8

38.9

-440.3

23.0

-74.1

25.5

-58.1

1061.8

620.4

878.6

210.1

lI2.9

-4.1

59.9

-74.8

923.0
138.9

333.6
286.8

665.1
213.5

-67.7
277.8

82.7
30.2

-17.9
13.8

46.8
13.\

-Y2.9
18.2

23
24
25
26

30 Monthly Net TIC Flows (lines 21,22.29) /8
of which
31
Private. net
32
Official. net
II
/2
13

/4

/5

16

17
/8

Net foreign purchases of U.S. securities (+)
Includes international and regional organizations
The reported division of net purchases of long-term securities between net purchases by foreign omcial rnstitutrons and net purchases
of other foreign investors is subject to a "transactIOn bias" described in Frequently Asked Questions 7 and I O.a.4 on the TIC "ebslte.
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities ~ U.S sales of foreign securitIes to foreigners
Thus negative entries indicate net U.S. purchases of foreign securities, or an outflow of capital from the United States; positive entries
indicate net U.S. sales of foreign securities.
Minus estimated unrecorded prmcipal repayments to foreigners on domestic corporate and agency asset-backed securities +
estimated foreign acquisitions of U.S. equity through stock swaps estimated U.S. acquisitions of foreIgn equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official InstItutions and Other Residents of Foreign Countfles.
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims arc collected
quarterly and published in the Treasury Bulletin and the TIC website
"Selected Other Liabilities" are primanly the foreign liabilitIes of US. customers that are managed by U.S. banks or broker/dealers.
TIC data cover most components of international financial flows. but do not include data on direct Investment flows. which are collected
and published by the Department of Commerce's Bureau of Economic Analysis. In addition to the monthly data summaflzed here. the
TIC collects quarterly data on some banking and nonbanking assets and liabilIties. Frequently Asked Question I on the TIC "ebslte
describes the scope of TIC data collection.

2

HP-1139: Treasury Launches Multi-Media Campaign to Help Young Adults <br>Control Their Credit

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

Page I of I

~,.
•

September 16. 2008
HP-1139

Treasury Launches Multi-Media Campaign to Help Young Adults
Control Their Credit
Washington - The U.S. Treasury Department unveiled a new multi-media
campaign today aimed at combating financial illiteracy among young adults. The ad
campaign. featuring an interactive online game and radio and television spots.
warns its audience. "Don't let your credit put you in a bad place."
"Many consumers need to better understand how to control their credit," said U.S.
Treasurer Anna Escobedo Cabral. "It's especially Important that we reach young
adults with this information. Our research shows that the relationship between
financial decisions made early in life and their credit scores too often remains a
mystery for many young adults."
Presented in partnership with the Ad Council and created pro bono by Lowe
Worldwide, the campaign is designed to encourage young adults ages 18 to 24 to
take control of their credit. Radio spots and web content in English and Spanish
demonstrate the consequences of developing bad credit at an early age, such as
being declined future employment or denied a car loan. Every advertisement ends
with the tag line, "Don't let your credit put you in a bad place."
"Consumers can face serious problems when they make uninformed choices about
borrowing," said Dan lannicola, Deputy Assistant Secretary for Financial
Education. "The goal of this campaign is to equip Americans with the knowledge to
take advantage of the positive aspects of credit, while aVOiding its pitfalls."
The campaign features a new website,
, where the
audience can play an online game, The Bad Credit Hotel. The website also
provides free financial information and tools.
The announcements will air in advertising time and space donated by the media.
Click here to watch the television spots and listen to the radio spots.
-30-

wWw.treas.goy/press/reieases/hpI139.htm

10/21/2008

HP-1140: Treasurer Anna Escobedo Cabral<br>Rcmarks at Launch of Multi-Media Campaign <br>to ...

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

Page I of 2

~,.
•

September 16, 2008
HP-1140
Treasurer Anna Escobedo Cabral
Remarks at Launch of Multi-Media Campaign
to Help Young Adults Control Their Credit
Washington - Thank you, Dan. On behalf of Secretary Paulson, welcome to the
Treasury Department. And welcome to the launch of our new mUlti-media campaign
to help consumers understand more about their credit.
Credit can be a helpful tool for a healthy, prosperous financial existence. But all too
often, many Americans fall prey to the pitfalls of not using credit wisely. This is
especially true for young Americans who may have a less thorough understanding
of credit and who tend to think less about the consequences of their financial
decisions today.
In partnership with the Ad Council, Treasury has decided to take action. Today we
launch a new campaign aimed at helping young adults think twice about their
spending habits and how their behavior today can affect their credit history
tomorrow.
The campaign, which targets 18-24 year-olds who are already in debt or about to
get into unmanageable debt, will use Public Service Announcements to provoke a
second thought or a pause when considering the true cost of a purchase. Our hope
is that through this campaign, young adults will develop more thoughtful and
conscientious spending habits.
As you will see, the PSAs end with the tagline "Don't let your credit put you in a bad
place." And as we all know, poor credit history can do just that. It can cost you a
job, car loan, apartment, or even cause public embarrassment.
The campaign includes new television spots, radio spots, web banners and a new
web site. It also includes a radio spot in Spanish, and a Spanish-language version
of the web site, which is very important.
These new PSAs from Treasury and the Ad Council will air in advertising time
donated by the media.
In addition, the PSAs direct people to a new website:
On this new web site, visitors will find free financial information and tools, as well as
play an interactive game, The Bad Credit Hotel, that explains the importance of
having a good credit score.
I would like to thank Treasury's Office of Financial Education and its outreach team
for working so diligently on this important campaign.
I would also like to say that we are pleased to partner with the Ad Council on this.
Over the years, they have brought us Smokey the Bear, McGruff the Crime Dog,
the Friends Don't Let Friends Drive Drunk campaign - just to name a few of their
tremendously successful campaigns. And now, with the help of Lowe Worldwide,
we hope that the Bad Credit Hotel will be included as another piece of their
memorable collection.
To help us officially roll out the new campaign, I would like to introduce Ms. Kathy
Crosby from the Ad Council.
-30-

wWw.treas.goY/press/releases/hpl140.htm

10/211200R

HP-1141: Treasury Designates Individuals and Entities Fueling Violence in Iraq

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

Pagelof5

~,.
•

September 16, 2008
HP-1141
Treasury Designates Individuals and Entities Fueling Violence in Iraq
Washington, DC--The U.S. Department of the Treasury today designated five
individuals and two entities under Executive Order (E.O.) 13438 for threatening the
peace and stability of Iraq and the Government of Iraq. Four of the individuals
designated today commit, direct, support, or pose a significant risk of committing
acts of violence against Iraqi citizens, Iraqi government officials, and Coalition
Forces.
"These individuals are targeting and planning attacks against innocent Iraqis, the
Government of Iraq, Coalition Forces, and U.S. troops. Their lethal and
destabilizing tactics, especially by Iran's Qods Force, are intended to undermine
Iraq as it strives for peace and prosperity," said Stuart Levey, Under Secretary for
Terrorism and Financial Intelligence.
One of the individuals designated today is a member of Iran's Qods Force, the arm
of the Islamic Revolutionary Guard Corps (IRGC) that is responsible for providing
material support to Lebanese Hizballah, Hamas, Palestinian Islamic Jihad, and the
Popular Front for the Liberation of Palestine - General Command. Further, the
Qods Force provides lethal support in the form of weapons, training, funding, and
guidance to select groups of Iraqi Shia militants who target and kill Coalition and
Iraqi forces and Iraqi civilians. The IRGC-Qods Force was named a Specially
Designated Global Terrorist by the Treasury Department on October 25, 2007.
The Syria-based individual and entities designated today act for and on behalf of, or
are owned and controlled by, Syria-based Specially Designated National Mish'an
AI-Jaburi, who was designated by Treasury under E.O. 13438 in January 2008 for
providing financial, material, and technical support for acts of violence that threaten
the peace and stability of Iraq.
Today's action follows President Bush's issuance of E.O. 13438 on July 17, 2007,
which targets insurgent and militia groups in Iraq and their supporters. Designations
under E.O. 13438 are administered by Treasury's Office of Foreign Assets Control
and prohibit all transactions between the designees and any U.S. person and
freeze any assets the designees may have under U.S. jurisdiction. Treasury
previously designated four individuals and one entity under E.O. 13438 in January
2008.
Identifying Information

ABDUL REZA SHAHLAI
AKAs:
Abdol Reza Shahlai
Abdul Reza Shala'i
'Abd-al Reza Shalai
'Abdorreza Shahlai
Abdolreza Shahla'i
Abdul-Reza Shahlaee
Hajj Yusef
Haji Yusif
Hajji Yasir
Hajji Yusif
'Yusuf Abu-al-Karkh'
Year of Birth:
Circa 1957
Location:
Kermanshah, Iran
All. Location:

www.treas.gov/press/releases/hpl141.htm

10121/200R

HP-1141: Treasury Designates Individuals and Entities Fueling Violence in Iraq

Page 2

or 5

Mehran Military Base, lIam Province, Iran
Iran-based Abdul Reza Shahlai--a deputy commander in the IRGC-Oods Force-threatens the peace and stability of Iraq by planning Jaysh al-Mahdi (JAM) Special
Groups attacks against Coalition Forces in Iraq. Shahlai has also provided material
and logistical support to Shia extremist groups--to include JAM Special Groups-that conduct attacks against U.S. and Coalition Forces. In one instance, Shahlai
planned the January 20,2007 attack by JAM Special Groups against U.S. soldiers
stationed at the Provincial Joint Coordination Center in Karbala, Iraq. Five U.S.
soldiers were killed and three were wounded during the attack.
In late-August 2006, Shahlai provided material support to JAM Special Groups by
supplying JAM Special Groups members with 122mm grad rockets, 240mm
rockets, 107mm Katyushas, RPG-7s, 81 mms, 60mm mortars, and a large quantity
of C-4.
Shahlai also approved and coordinated the training of JAM Special Groups. As of
May 2007, Shahlai served as the final approving and coordinating authority for all
Iran-based Lebanese Hizballah training for JAM Special Groups to fight Coalition
Forces in Iraq. In late-August 2006, Shahlai instructed a senior Lebanese Hizballah
official to coordinate anti-aircraft rocket training for JAM Special Groups.

AKRAM 'ABBAS AL·KABI
AKAs:
Akram Abas al-Ka'bi
Sheik Akram al-Ka'abi
Shaykh Abu-Akram al-Ka'abi
Abu-Muhammad
Karumi
Abu 'Ali
Nationality:
Iraqi
Year of Birth:
Circa 1976
Alt. Year of Birth:
Circa 1973
Place of Birth:
al 'Amarah, Iraq
Alt. Place of Birth:
al Kalamiy, Iraq
JAM Special Groups leader Akram 'Abbas al-Kabi threatens the peace and stability
of Iraq and the Government of Iraq by planning and leading attacks against
members of the Government of Iraq and Coalition Forces. As of early-2008, al-Kabi
was planning multiple attacks against Coalition Forces in order to show that JAM
Special Groups were capable of conducting operations even when there was a
freeze. In one instance, in late-February 2008, JAM Special Groups led by al-Kabi
claimed responsibility for mortar and rocket attacks against Coalition and Iraqi
Security Forces in Baghdad's International Zone. In March 2008, al-Kabi also led
JAM Special Groups members who launched rockets into the International Zone.
Additionally, as of February 2008, al-Kabi sanctioned attacks targeting Coalition
Forces to include indirect fire attacks against the International Zone.
AI-Kabi also provided financial and material support to Shia militia groups that
committed acts of violence in Iraq. In one instance, in early-April 2008, al-Kabi paid
a JAM Special Groups leader 50 million Iraqi dinars (approximately $41,684 USO)
for carrying out three separate improvised explosive device (lED) attacks against
Coalition Forces in Baghdad. As of February 2008, al-Kabi had also allegedly
provided funding to JAM Special Groups for recruitment purposes. Separately, as
of early-2008, al-Kabi was providing weapons for large-scale military operations
against Coalition Forces.

HARITH SULA YMANAL·DARI
AKAs:
Harith AI-Oari
Harith AI-Ohari
Harith AI-Oari AI-Zawbai
Harith S. AI-Ohari
Hareth AI Oari

wWw.treas.gov/press/releases/hpI141.htm

10/21/2008

HP-1141: Treasmy Designates Individuals and Entities Fueling Violence in Iraq

Page 3 of 5

Hareth AI-Dauri
Harith Dari AI-Zawba'i
Harith AI-Duri
Year of Birth:
1941
Place of Birth:
Baghdad, Iraq
Citizenship
Iraqi
Nationality:
Iraqi
Passport Number:
N348171/1RAQ
Title:
Secretary General of the Muslim Ulema Council
Alt. Title:
Leader of the Muslim Scholars Association
Location:
Jordan
Alt Location:
Akashat, Iraq
Alt Location:
Abu Ghuraib, Iraq
Alt Location:
Qatar
AI! Location:
Egypt
Jordan-based Harith AI-Dari-the Secretary General of the Muslim Ulama Council
(MUC)-threatens the peace and stability of Iraq and the Government of Iraq by
ordering and directing attacks against civilians and Iraqi and Coalition Forces. As
of mid-May 2008, AI-Dari ordered leaders of AI-Qa'ida in Iraq (AQI)-affiliated cells to
attack Coalition Forces and the Sons of Iraq--Iocal citizens who support Coalition
and Iraqi Security Force operations against AQI and Sunni extremists by serving as
auxiliary police forces. Two of these cells--both under AI-Dari's control--emplace
IEDs along Coalition convoy routes and conduct small arms fire attacks against the
Sons of Iraq at checkpoints. Previously, in early-December 2005, AI-Dari ordered
and was responsible for the kidnapping of four foreign nationals in Iraq by a group
under Ansar al-Sunna, a Specially Designated Global Terrorist.
Separately, in early-October 2006, AI-Dari directed a plot to bring IEDs into the
International Zone, Baghdad. Although foiled, the plot was intended to be part of
other coordinated attacks, to include plans to assassinate the commander of U.S.
Forces in Iraq and the U.S. and British ambassadors to Iraq. AI-Dari also ordered a
MUC advisor to plan and direct late-November 2005 attacks against Coalition and
Iraqi forces.
AI-Dari has also provided financial and material support to terrorist and insurgent
groups that conduct attacks against Coalition and Iraqi Forces. As of mid-April
2008, AI-Dari continuously travels between Lebanon, Syria, Jordan, and Saudi
Arabia to elicit monetary and material donations that finance two Sunni terrorist
groups in Baghdad. The groups--using funds provided by AI-Dari to purchase large
amounts of bomb-making material, explosives, and weapons--emplace lEOs,
launch mortars and rockets, and conduct sectarian violence. Additionally, as of
mid-April 2008, AI-Dari was in charge of funding for the AQI-affiliated Mujahidin
Army (MA), to include distributing funds collected by foreign "investors" to support
MA operations. As of mid-2008, AI-Dari allegedly arranged financing for an AQIaffiliated group whose operational plans included emplacing lEOs, launching
rockets, and conducting assassinations of political and religious figures that
cooperated with the United States. Additionally, as of early-2008, AI-Dari provided
financial support to a Sunni extremist cell formed for the purpose of carrying out
attacks on Multi-National Force - Iraq.
Previously, in June 2006, AI-Dari provided financial and logistical support for an
attack against Iraqi forces. AI-Dari owned a front company that received a money
transfer of $5 million USD to finance a chemical mortar attack against Iraqi forces.
The money transfer was intended to provide logistical support for the attack, to
include facilitating the use of AI-Dari's farm house and complex as a staging area
and paying for the billeting of the foreign fighters slated to carry out the attack.

www.treas.gov/press/releases/hpI141.htm

10/21/200X

HP-1141: Trea~ury Designates Individuals and Entities Fueling Violence in Iraq

Page 4 of 5

AHMAD HASSAN KAKA AL-UBAYDI
AKAs:
Ahmed Hassan Kaka al-Obeidi
Ali AI Nobani
Hazim Kaka
Nationality:
Iraqi
Year of Birth:
1949
Place of Birth:
Baghdad, Iraq
Passport Number:
F032516
Date of Issue:
19760504
Place of Issue:
Baghdad, Iraq
Location:
AI Humayra village, Taza sub district, Iraq
Alt. Location:
Kurdi AI Nasir village, Iraq
Iraq-based Ahmad Hassan Kaka AI-Ubaydi--a former Iraqi Intelligence Service
officer and a Ba'th Party official--Ieads a network of Kirkuk, Iraq-based insurgents
that commits and poses a significant risk of committing acts of violence that
threaten the peace and stability of Iraq and the Government of Iraq. Kaka also
provides financial support for acts of violence that have the purpose or effect of
threatening the peace and stability of Iraq and the Government of Iraq.
In 2005, Kaka was identified as the leader of a Kirkuk-based network that attacked
Coalition and Iraqi forces with IEDs and plotted assassinations of Iraqi government
officials. As of late-October 2007, Kaka directs assassinations of Iraqi Kurds and in
one instance authorized a member of his network to assassinate tribal leaders
because of their cooperation with U.S. and Iraqi forces.
Kaka also plans acts of violence targeting Kirkuk. In February 2007, Kaka planned
to take over Kirkuk using sophisticated weapons and numerous armed fighters.
In addition to directing and planning acts of violence against Coalition and Iraqi
forces, Kaka provided financial support for vehicle borne improvised explosive
devices (VBIED) attacks in Iraq. As of August 2007, Kaka and his group purchased
sedans to use as VBIEDs against Coalition and Iraqi government forces in Kirkuk,
and certain government facilities in Mosul, Iraq. Previously, in May 2007, Kaka was
providing funding to a group that manufactured IEDs to attack Coalition Forces.

RAW'A AL-USTA
AKAs:
Raw'a al-Ousta
Raw'ah al-Usta
Raw'ah al-Ustah
Rawa al-' Usta
Rawaa Alousta
Raw'ah AI-Astah
Nationality:
Syrian
Year of Birth:
1982
Location:
Damascus, Syria
AL-RA'Y SATELLITE TELEVISION CHANNEL
AKAs:
Satellite Television Channel AI Ra'y
AI-Ra'y Satellite Channel
AI-Ra'i Satellite Channel
AI Ra'y satellite television station
AI Raie TV Channel
Arrai TV
AI Ra'y TV
The Opinion satellite television channel

wWw.treas.gov/press/releases/hpI141.htm

10/21 /2()0~

HP-1141: Treasury Designates Individuals and Entities Fueling Violence in Iraq

Page 5 of 5

Internet Address:
\\ 'II'. . l; I . II

I I-

Email Address:
Location:
Near Damascus in the Yaafur area, Syria

SURAQIYA FOR MEDIA AND BROADCASTING
AKAs:
Soraqia for Media and Broadcasting
Soraqiya for Media and Broadcasting
SBC Television
SBC TV
Location:
AI Sufara' Street in the Ya'fur district of Damascus, Syria
Syria-based AI-Ra'y Satellite Television Channel is owned and controlled by Syriabased Specially Designated National Mish'an AI-Jaburi. Although AI-Jaburi publicly
denied owning AI-Ra'y and claimed it was owned by a Syrian woman named Raw'a
AI- Usta, AI-Jaburi established AI-Ra'y in Syria, is the real owner of the station, and
manages it through AI-Usta-his wife. AI-Usta works for and on behalf of AI-Jaburi
as AI-Ra'y's general manager--dealing with the station's personnel and technical
issues and making requests on behalf of the station. Syria-based Suraqiya for
Media and Broadcasting--AI-Ra'y's parent company--is also owned and controlled
by AI-Jaburi.
In addition to the reasons for which AI-Ra'y is being designated, as of late-March
2008, despite experiencing technical difficulties, AI-Ra'y had transmitted videos of
Iraqi insurgent groups conducting operations.

-30-

wWw.treas.goy/press/releases/hpl141.htm

10/21 !200~

HP-1142: Remarb

uy Treasury Under Secretary for Intemational Affairs<br>David H. McCormick <b ...

/~~~, PRESS ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

Page 1 of4

~.
(,

September 16, 2008
HP-1142
Remarks by Treasury Under Secretary for International Affairs
David H. McCormick
at Future
of Consumer Payments Conference
Washington - Good afternoon. Thank you for that kind introduction, Martin. And
thanks to you, to Bob and to Ken Chenault for the invitation to be here today. I am
pleased to join with you for this conference on "the quiet revolution in money," the
implications for our citizens, our economy, and financial system of the dramatic
change in consumer payments.
I'd like to begin by passing along the regrets of Secretary Paulson who is focused
today on market developments and has asked me to speak on his behalf.
Financial Markets
I will begin my remarks on a broader issue. As you know, we are going through a
difficult period in our financial markets right now as we work through past excesses.
After years of unsustainable home price appreciation, we are undergoing a
necessary, difficult, and prolonged housing correction. In addition, benign U.S. and
global economic conditions, significant global imbalances, large international capital
flows, lax lending standards and investors' aggressive appetite for yield extended
beyond the U.S. housing market and have impacted our capital markets more
broadly.
We are working to minimize the impact of the housing correction on the rest of the
economy, but we do not want to impede its progress --- because the sooner we turn
the corner on housing, the sooner we will see home values stabilize, the sooner we
will see more people buying homes, and the sooner housing will again contribute to
economic growth. Still, it will take time to work through these stresses. Progress will
not come in a straight line, and there will be bumps in the road as we make
progress. The events of the last few weeks are evidence of this and are important
and necessary steps to work through the uncertainty and turmoil in our markets and
minimize their impact on the rest of the economy.
This past weekend, Secretary Paulson and the Treasury team worked with the
Federal Reserve and the Securities and Exchange Commission (SEC) to convene
financial institution leaders from around the world to discuss particular areas of
market weakness and how to work through managing the broader impact of those
issues on financial market stability. The weekend culminated with a series of
significant events. To mitigate disruption surrounding the bankruptcy of Lehman
Brothers, the SEC, the Federal Reserve, and major global financial institutions each
took a series of extraordinary steps.
The Federal Reserve has broadened the eligible collateral of certain lending
facilities, and the SEC has taken steps to protect customer accounts at Lehman
Brothers. Moreover, in an important show of leadership, major market participants
have stepped up to their responsibility to support stable and orderly markets as
well. The extraordinary commitments will be critical to facilitating liquid, smooth
functioning markets and addressing potential credit concerns.
This past weekend, regulators and market participants mitigated the systemic risk
that might have otherwise occurred due to the bankruptcy of the fourth largest U.S.
investment bank. And as Secretary Paulson said yesterday, while what's happening
is not easy -- and significant challenges remain -- the American people can remain
confident in the soundness and resilience of our banking and financial system.

www.treas.gov/press/releases/hpI142.htm

10/21 /200~

HP-1142: Rel'\'\arb by Treasury Under Secretary for International Affairs<br>David H. McCormick <b ... Page 2 01'4
Healthy capital markets are the backbone of a vibrant U.S. economy, and they are
critical to the well-being of our families. Capital market stress continues to weigh on
our economy, but the housing correction is at the root of the challenges facing our
financial institutions and our markets. These factors, along with high energy prices,
present ongoing challenges. But we are also confident in the resilience and
diversity of the U.S. economy and that we will move through these difficulties, just
as we have moved through difficult periods in the past. We expect our economy to
continue growing this year, although at a moderate pace as these challenges
persist.
U.S. Economy and Housing Market
The current soft labor market reflects our slow rate of growth. The unemployment
rate increased to 6.1 percent in August, and although Americans' average wages
have increased, higher food and energy prices are absorbing those gains.
Energy prices, while still much higher than a year ago, have declined recently. A
gallon of regular gas costs about 30 cents less now than in early summer, even in
the face of hurricane-related disruptions, which should help relieve some pressure
on family finances and business costs.
Clearly, the economic slowdown is hurting American families. The stimulus package
proposed by President Bush and passed by Congress earlier this year has provided
some relief --- $93 billion in payments have been sent to American households. We
saw the impact of this in the second quarter, when the U.S economy expanded at a
solid 3.3 percent, supported by increases in trade and consumer spending. And we
expect that the stimulus package will continue to boost growth above where it would
have been otherwise through the end of the year.
As Secretary Hank Paulson, Chairman Ben Bernanke, and others have said from
the outset of these challenges over a year ago, housing poses the biggest
downside risk to our economy and continues to be a drag on growth. Yet, there are
signs of progress. Fewer new homes are being built, and this means the total
number of new single-family homes on the market is down 27 percent from a July
2006 peak. And though it is early, new and existing home sales show tentative
signs of stabilizing.
Treasury has worked closely with lenders and key industry participants on an
aggressive strategy to do everything possible to help avoid preventable
foreclosures. We supported the creation of the HOPE NOW Alliance last October,
which to date has helped over 2 million homeowners avoid foreclosure through loan
workouts.
But we have much further to go. Turning the corner on the housing correction
requires that prices stabilize and affordable mortgage financing be available so
buyers can return to the market. And so while we are working to stabilize capital
markets, it is also vital that the Government Sponsored Enterprises (GSEs) Fannie
Mae and Freddie Mac continue to play their role in supporting the housing market.
Actions to Stabilize Housing and Financial Markets
The GSEs have become the largest sources of mortgage finance, touching 70
percent of mortgages originated in the first quarter. Their continued activity is critical
to turning the corner on the housing situation and removing the underlying
uncertainty in our financial markets and financial institutions.
Not surprisingly, the prolonged housing correction weakened the financial condition
of both of these enterprises, and they faced a significant loss of confidence among
investors. Fannie Mae and Freddie Mac are so large and so interwoven in our
financial system that if either of them were to fail, it would be harder for Americans
to get home loans, auto loans and other consumer credit. Business finance would
be even harder to obtain, constraining job creation and our overall economic
growth.
And so in July, Secretary Paulson asked the Congress for extraordinary authorities
with regard to Fannie Mae and Freddie Mac in order to support our housing
markets and the stability of our financial markets more broadly. Congress acted

wWw.treas.gov/press/releases/hpl142.htm

10(21 1 2008

HP-1142: Remarks by Treasury Under Secretary for International Affairs<br>David H. McCormick <boo. Page 3 of 4
promptly and decisively. In the days and weeks that followed, the Federal Housing
Finance Agency (FHFA) Director Lockhart, Fed Chairman Bernanke, and Secretary
Paulson conducted a rigorous analysis of the situation, which led to the unpleasant
but necessary decision to utilize these authorities. We had no choice but to act.
Waiting for a precipitating event would have been too late.
We acted decisively to avert instability in our markets that would have harmed the
overall financial well-being of Americans, and we acted to support the availability of
mortgage credit and protect taxpayers to the maximum extent possible.
First, Treasury and the GSEs, under the control of the conservator FHFA, have
established contractual Preferred Stock Purchase Agreements. Under these
agreements, Treasury has committed up to $100 billion per institution to ensure that
each GSE maintains a positive net worth. In return, to protect the taxpayers to the
maximum extent, Treasury has received from the companies $1 billion in senior
preferred stock and warrants providing an option to purchase up to 79 percent of
the companies' outstanding shares at a nominal price.
These Preferred Stock Purchase Agreements were made necessary by the
ambiguities in the GSE Congressional charters, which have been perceived to
indicate government support for agency debt. Our nation has tolerated these
ambiguities for too long, and as a result, central banks and investors throughout the
United States and around the world who hold GSE debt and MBS believe them to
be virtually risk-free. Because the U.S. Government created these ambiguities, we
have a responsibility to both avert and ultimately address the systemic risk now
posed by the scale and breadth of the holdings of GSE debt and agency MBS.
The terms of these purchase agreements provide significant taxpayer protection.
The existing shareholders of the GSEs will lose 100 percent of their investment
before the American taxpayers lose a penny.
Second, Treasury has established a new, secured credit facility for Fannie Mae,
Freddie Mac, and the Federal Home Loan Bank to fund, if necessary, their regular
business activities in the capital markets. This facility is intended to serve purely as
an ultimate liquidity backstop, and will be available until the temporary authority
expires in December 2009.
And third, to further support the availability of mortgage financing for millions of
Americans, Treasury is initiating a temporary program to purchase mortgagebacked securities issued by the GSEs. This will provide additional capital to the
mortgage marketplace. There is no reason to expect taxpayer losses from this
program, which will also expire in December 2009.
Together, Treasury and FHFA steps are the best means of protecting taxpayers
and our markets from the systemic risk posed by the current financial condition of
the GSEs and to provide support for these enterprises' current, important role in the
housing market.
At the same time, we face fundamental policy decisions about the role and structure
of these enterprises. Policymakers must resolve the inherent conflict in their charter
that requires they serve both the interests of private investors and a public mission.
Our recent actions have afforded a "time out" - providing the stability, time, and
flexibility for Congress and the current and the next Administration to address both
the need for affordable mortgage finance and the systemic risk presented by the
scale and breadth of the existing GSE holdings. We will make a grave error if we
don't use this time to permanently address these structural issues.
Electronic Payments
As we work through these financial and housing market issues, let me speak for a
moment on one of the most constant aspects of our economic life -- change ---- and
how this is evidenced in the topic of today's conference - consumer payments. This
is evident in how we pay for our groceries, our bills, our clothes, and our taxes.
Between 2003 and 2006, Americans wrote 7 billion fewer checks and made 19
billion more electronic payments.
Treasury is interested in this transformation on a macroeconomic level --- one study

wWw.treas.gov/press/releases/hpl142.htm

1012 11200X

HP-1142: Remarks by Treasury Under Secretary for International Amlirs<br>David H. McCormick <b... Page 4

or 4

estimates that growth in electronic payments added 0.5 percent to real GOP per
year in each of the last 20 years, or the equivalent of 1.3 million new jobs. The
same study estimated that the increase in efficiency and velocity of electronic over
paper-based payments saved at least 1 percent of GOP, or about $60 billion,
annually.
We have a long-standing strategic vision, which is becoming a reality thanks to
years of hard work by our many professionals, to become an all-electronic
Treasury. To put the scale of this in perspective, Treasury manages a daily cash
flow of nearly $60 billion.
Every year, we collect more than $3.1 trillion and disburse nearly one billion
payments worth nearly $1.6 trillion. In 1996, 56 percent of federal benefit payments
were made by electronic payment; today it's 82 percent.
Electronic payments provide real savings to the U.S. taxpayer. It costs Treasury
approximately 10 cents to issue an electronic payment, versus 98 cents to issue a
check --- when you consider the millions of annual federal payments made, the
savings are substantial. There are savings on the collection side as well --processing a taxpayer's check costs $1 .30 versus 73 cents for an electronic
payment.
We are encouraging more individuals to opt for direct deposit for their social
security payments, because nine times out of ten when there's a problem with a
payment, it's with a paper check.
Treasury also works closely with financial regulatory authorities on issues of
infrastructure and data integrity so that consumers can trust that their information
will be protected. Through a public-private partnership, we work with the intelligence
community, law enforcement, and financial institutions to provide the latest
information regarding cyber vulnerabilities and risk mitigation tactics.
Conclusion
Just as you are looking forward, so are we. It will take time to work through the
excesses that were built up over a number of years, and the Administration and
financial regulators remain vigilant. We are focused on measures and policies that
address our short-term economic challenges and build a stronger long-term
foundation. And the American economy has a record of innovation and adjustment -- to challenges, to risks, to changing demands --- second to none. That is the
underlying spirit that has made the United States the economic envy of the world even as we manage through our current problems --- and it will keep us so in the
years ahead. Thank you.
-30-

wWw.treas.goY/press/releases/hpI142.htm

I0/2l/20()X

hp-1143: StateIllent by Secretary Henry M. Paulson, Jr. on Federal Reserve Actions Surrounding Ale;

/~~~, PRESS

ItI} u.s.

Page 1 of I

~,.

ROOM

OEPAllTMEIIT Of THE TREASURY

,

September 16, 2008
hp-1143
Statement by Secretary Henry M. Paulson, Jr. on Federal Reserve Actions
Surrounding AIG
Washington, DC-- Treasury issued the following statement by Secretary Henry M.
Paulson, Jr. on Federal Reserve actions surrounding American International Group:
These are challenging times for our financial markets. We are working closely with
the Federal Reserve, the SEC and other regulators to enhance the stability and
orderliness of our financial markets and minimize the disruption to our economy. I
support the steps taken by the Federal Reserve tonight to assist AIG in continuing
to meet its obligations, mitigate broader disruptions and at the same time protect
the taxpayers.
-30-

~:I/www.treas.gov/press/releases/hp1143.htm

10/21/2008

Page I of I

HP-1144: Treasury Announces Supplementary Financing Program

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

~,.
•

September 17, 2008
HP-1144
Treasury Announces Supplementary Financing Program
Washington- The Federal Reserve has announced a series of lending and liquidity
initiatives during the past several quarters intended to address heightened liquidity
pressures in the financial market, including enhancing its liquidity facilities this
week. To manage the balance sheet impact of these efforts, the Federal Reserve
has taken a number of actions, including redeeming and selling securities from the
System Open Market Account portfolio.

The Treasury Department announced today the initiation of a temporary
Supplementary Financing Program at the request of the Federal Reserve. The
program will consist of a series of Treasury bills, apart from Treasury's current
borrowing program, which will provide cash for use in the Federal Reserve
initiatives.
Announcements of and participation in auctions conducted under the
Supplementary Financing Program will be governed by existing Treasury auction
rules. Treasury will provide as much advance notification as possible regarding the
timing, size, and maturity of any bills auctioned for Supplementary Financing
Program purposes.
-30-

www.treas.goy/press/releases/hpl144.htm

10121/200R

HP-1145: Treasury Designates Iranian Military Firms

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

Page I of 3

~,.
•

September 17, 2008
HP-1145
Treasury Designates Iranian Military Firms
Washington - The U.S Department of the Treasury today designated six Iranian
military firms that are owned or controlled by entities previously designated for their
roles in Iran's nuclear and ballistic missile programs, including Iran's Ministry of
Defense and Armed Forces Logistics (MODAFL) and Defense Industries
Organization (DIO).
"Iran attempts to shield its procurement activities behind a maze of entities,
essentially hoodwinking those still doing business with Iran into facilitating illicit
transactions for the transport of dual use, missile-related items," said Stuart Levey,
Under Secretary for Terrorism & Financial Intelligence.
Iran Electronics Industries, Shiraz Electronics Industries, Iran Communications
Industries, Iran Aircraft Manufacturing Industrial Company, Farasakht Industries,
and Armament Industries Group were deSignated today pursuant to Executive
Order 13382, an authority aimed at freezing the assets of proliferators of weapons
of mass destruction and their supporters, and at isolating them from the U.S.
financial and commercial systems. Designations under E.O. 13382 are
implemented by Treasury's Office of Foreign Assets Control and they prohibit all
transactions between the deSignees and any U.S. person, and freeze any assets
the designees may have under U.S. jurisdiction.
Treasury prepared these designations in close coordination with the Commerce
Department's Bureau of Industry and Security as well as the Justice Department.
The designations complement Commerce's and Justice's criminal investigation of
Iranian procurement front companies.
Iran Electronics Industries, as well as two subsidiary organizations, Shiraz
Electronics Industries and Iran Communications Industries, are being designated
because they are owned or controlled by Iran's MODAFL. MODAFL, which was
deSignated under Executive Order 13382 on October 25, 2007, controls other
previously designated entities DIO, and Aerospace Industries Organization, which
is the overall manager and coordinator of Iran's missile program.
Iran Electronics Industries (lEI) offers a diversified range of military products
including electro-optics and lasers, communication equipment, telecommunication
security equipment, electronic warfare equipment, new and refurbished radar tubes,
and missile launchers. lEI manufactures military tactical communication systems
and also electronic field telephones and switchboards. lEI also manufactures night
vision systems and laser range finders in addition to binoculars and periscopes.
Shiraz Electronics Industries is engage in the production of various electronics
equipment for the Iranian military, including radars, microwave electron vacuum
tubes, naval electronics, avionics and control systems, training simulators, missile
guidance technology, and electronic test equipment.
Iran Communications Industries (ICI) is Iran's leading manufacturer of military and
civilian communication equipment and systems. ICI offers more than seventy-five
products, including tactical communications and encryption systems that meet a
wide range of the Iranian military's requirements.
Iran Aircraft Manufacturing Industrial Company (HESA) is being designated
because it is owned or controlled by MODAFL, and also because it has provided
support to the Iranian Revolutionary Guard Corps (IRGC). The IRGC, which was
designated under Executive Order 13382 on October 25,2007, is considered to be
the military vanguard of Iran and has been outspoken about its willingness to

www.treas.goy/press/releases/hpl145.htm

10111/1008

HP-1145: Treasury Designates Iranian Military Firms

Page 2 of 3

proliferate ballistic missiles capable of carrying WMO.
HESA utilizes its own facilities for the inspection, maintenance, repair overhaul
research, development, and manufacture of military and civilian aircraft and related
military logistic systems. HESA conducts research on, development of, production
of, and flight operations for unmanned aerial vehicles (UAVs) in Iran. The IRGC
utilizes the "Ababil" UAV, manufactured by HESA. HESA produces different
variants of the Ababil UAV, which can be used for surveillance and attack.
Farasakht Industries is a subsidiary of HESA that specializes in the manufacturing
of various aerospace tools and equipment.
Armament Industries Group is also being designated because it is owned or
controlled by and acts on behalf of Iran's 010. Armament Industries Group is
directly subordinate to 010 and is known to manufacture arms such as gun
howitzers, multiple rocket launchers, sniper rifles and a variety of machine guns.
010 was designated under Executive Order 13382 on March 30, 2007, for having
engaged in activities that materially contribute to the development of Iran's nuclear
and missile programs.

Identifying Information
ARMAMENT INDUSTRIES GROUP
AKA:
"AIG-Armament Industries Group"
Addresses:
Pasdaran Ave., P.O. Box 19585/777
Tehran, Iran
Sepah Islam Road, Karaj Special Road Km 10, Iran

FARASAKHT INDUSTRIES
Address:
P.O. Box 83145-311, Kilometer 28, Esfahan -- Tehran Freeway
Shahin Shahr, Esfahan, Iran
IRAN AIRCRAFT MANUFACTURING INDUSTRIAL COMPANY
AKAs:
HESA
Hava Peyma Sazi-E Iran
Hevapeimasazi;
Havapeyma Sazi Iran
Havapeyma Sazhran
Iran Aircraft Manufacturing Industries
Karkhanejate Sanaye Havapaymaie Iran
Iran Aircraft Manufacturing Company
IAMCO
IAMI
HESA Trade Center
Address:
PO. Box 83145-311, 28 km Esfahan -- Tehran Freeway
Shahin Shahr, Esfahan, Iran
Shahih Shar Industrial Zone Isfahan, Iran
P.O. Box 81465-935, Esfahan, Iran
P.O. Box 8140, No. 107 Sepahbod Gharany Ave, Tehran, Iran
P.O. Box 14155-5568, No. 27 Shahamat Ave, Vallie Asr Sqr,
Post Code 15946, Tehran, Iran

IRAN COMMUNICATION INDUSTRIES
AKAs:
ICI

www.treas.go y/press/releases/hpI145.htm

10/21/200X

HP-1145: Treasury Designates Iranian Military Firms

Page 3 of 3

IRAN COMMUNICATIONS INDUSTRIES GROUP
SANA YE MOKHABERAT IRAN
Addresses:
P.O. Box 19295-4731, Pasdaran Avenue, Tehran, Iran
P.O. Box 19575-131,34 Apadana Avenue, Tehran, Iran
Shahid Langari Street, Nobonyad Square Ave., Pasdaran, Tehran, Iran

IRAN ELECTRONICS INDUSTRIES
AKAs:
lEI
Sanaye Electronic Iran
Sasad Iran Electronics Industries
Sherkat Sanayeh Electronics Iran
Company Registration Number:
829
Addresses:
P.O. Box 19575-365
Shahied Langari Street, Noboniad Sq, Pasdaran Aye, Saltanad Abad, Tehran, Iran
P.O. Box 71365-1174, Hossain Abad/Ardakan Road, Shiraz, Iran

SHIRAZ ELECTRONICS INDUSTRIES
AKAs:
Shiraz Electronic Industries
SEI
Addresses:
P.O. Box 71365-1589, Shiraz, Iran
Hossain Abad Road, Shiraz, Iran

www.treas.goy/press/releases/hpl145.htm

10/21 /200~

HP-1146: PrepaleLi Remarks by Patrick M. O'Brien, Assistant Secretarybefore the 3rd U.S.-Latin Ame...

Page I of 3

September 18, 2008
HP-1146
Prepared Remarks by Patrick M. O'Brien, Assistant Secretarybefore the 3rd
U.S.-Latin America Private Sector Dialogue
Washington, DC--Good morning, ladies and gentlemen.
It is a pleasure to see many familiar as well as new faces at our third U.S.-Latin
America Private Sector Dialogue
This dialogue could not have been realized without the tremendous organizational
efforts of our Brazilian hosts at the Federation of Brazilian Banks (FEBRABAN).
Mudo obrigado. Those who have participated in past dialogues know that they
require a significant amount of coordination across the Americas and I would also
like to thank the Latin American Federation of Banks (FELABAN), the Banking and
Financial Entities Association of Colombia (Asobancaria), the Florida International
Banking Association (FIBA), and the Bankers Association for Finance and Trade
(BAFT). all of whom have contributed countless resources to this important regional
initiative.
The U.S.-Latin American Private Sector Dialogue - or PSD - originated in June
2006 as a roundtable discussion among senior U.S. and Latin American banking
and financial regulatory officials. Roundtable participants representing distinct
jurisdictions throughout Latin America spent a full day discussing private sector
perspectives on Anti-Money Laundering and Counter-Terrorist Financing
(AMLlCFT) implementation and agreed to move forward together with planning
large conferences and seminars dedicated to addressing core areas of mutual
interest and concern.
Since its inception, the purpose of the PSD initiative has been to open and
encourage direct dialogue between the financial sectors in the U.S and Latin
America in order to:
(i) raise awareness of terrorist financing and money laundering risks;
(ii) facilitate a better understanding of effective practices and programs to
combat such risks, and
(iii) strengthen implementation of effective AMLlCFT controls.

Asobancaria hosted the inaugural U.S.-LA PSD in Bogota, Colombia in April 2007.
The first PSD addressed comparative aspects of AMLlCFT regulation and liability in
Latin America and the U.S. It included discussions on cross-border barriers to
supervision and compliance between our two regions, due diligence in managing
correspondent accounts and relationships and managing risks associated with NonBank Financial Institutions.
FIBA took the lead and hosted the second PSD in conjunction with their annual
AML conference in February of this year. The second PSD was structured as an
intercessional, the objective being to gather PSD stakeholders six months after the
inaugural dialogue, take stock and together brainstorm ideas for this, our third PSD
in Sao Paulo. Those efforts identified key areas of concern particularly relevant to
PSD "hot topics" such as correspondent banking and banking secrecy, as well as
the role of law enforcement in AMLlCFT implementation.
Which brings us to the present moment and our third PSD. Asobancaria, BAFT,
FELABAN and FIBA remain core supporters of the PSD initiative and we are thrilled
to welcome FEBRABAN and its members into this influential steering group. Over
the course of the next two days we look forward to delving into the issues that
continue to feature prominently for you, our PSD stakeholders.

wWw.treas.goy/press/releases/hpl146.htm

10/21 120()~

HP-1146: hcpared Rcmalb by Fatrick M. O'Brien, Assistant Secretarybefore the 3rd U.S.-Latin Arne...

Page 2 of 3

We are joined here in Sao Paulo by many highly esteemed AMLlCFT professionals
from both the private and public sectors, and we especially thank our panelists and
moderators for their participation. The two panels that will set the stage for the
event this morning will address AML Regulation in Latin America and Financial
Intelligence Units (FlUs) and Judicial Authority. Following these panels, this
afternoon and tomorrow we will discuss four topics important to this dialogue in a
more in-depth manner. Those four topics include Correspondent Banking, Banking
Secrecy, Politically Exposed Persons (PEPs), and Operational Risks and AML
Strategies. Today will provide an overview of each topic, while tomorrow will offer
the opportunity for a more detailed, thorough and we hope free-flowing and informal
discussion during small break-out sessions. At the end of each session, we will
reconvene and present highlights - and compare and contrast conclusions - from
the break-out discussions.
The prinCipal objectives of today and tomorrow's dialogue in the context of the
broader PSD initiative - what we encourage all participants to achieve - are:
•

a better understanding of the money laundering and terrorist financing risks
presented by correspondent banking and Politically Exposed Persons
(PEPs) and how to address those risks through implementation of effective
AML-CFT controls;
• a deeper knowledge of what is meant by bank secrecy and the challenges
that it can present to AMLlCFT, and how to overcome those challenges;
• greater awareness of the essential components of an organization's
AMLlCFT compliance strategy, and the tools and resources available to
help address the unique operational risks of your institution and/or
jurisdictions; and
• the development of relationships between private sector and public sector
counterparts that will enable individuals and institutions to follow up on any
AMLlCFT related issues of interest or concern.
Like previous PSDs, we anticipate that the discussions today and tomorrow will
help enhance the level of cooperation and coordination between regulators and
financial sector operators within and across national boundaries. Latin American
government participation at this and previous PSDs covers the gamut - from
Central Banks and Ministries of Finance to Financial Intelligence Units and Bank
Superintendents. On the U.S. regulatory side, we are pleased to have the Financial
Crimes Enforcement Network (FinCEN) and the Federal Reserve present here in
Sao Paulo, and to be able to rely on the continued support and involvement of the
Office of the Comptroller of the Currency (OCC) and the Office of Foreign Assets
Control (OFAC).
The PSD is a unique collaborative venue for the private sector to talk about its
perspectives on risk, and the efficacy of different mitigation efforts. Our goal is that
the PSD serve as a mechanism for collaborative and mutually beneficial
discussions on regional AMLlCFT priorities, on achieving harmonization between
the benefits and the burdens of risk mitigation, on balancing the effective use of risk
mitigation resources with practical considerations for financial institutions.
As part of our effort to ensure the PSD remain viable throughout the year and not
just when we have the opportunity to meet such as today, we are pleased to
announce that, thanks to FEBRABAN, the U.S.-LA PSD is now on-line and can be
accessed through FEBRABAN's main page. On the PSD website, stakeholders
can find comprehensive information on past and future PSDs. Since the PSD
attracts a large group of regulatory and financial sector participants - including
banks, consulting and law firms - from over 20 different countries, we anticipate the
PSD website to have an even greater reach.
Additionally, we have begun outreach to the South American Financial Action Task
Force (GAFISUD) in an effort to ensure private sector feedback is channeled to
regulatory decision makers. We are excited that fellow PSD founder and President
of the Brazilian Financial Intelligence Unit, Gustavo Rodrigues now leads the
Financial Action Task Force (FATF), which is increasingly working with the
international private sector to strengthen AMLlCFT implementation. Our goal is to
contribute to that process at the regional level. We believe that strengthening the
GAFISUD relationship with the private sector would provide an opportunity to
further advance discussions regarding AMLlCFT implementation challenges,
identify ways to address those challenges, and further promote international
business with the Latin American region.

www.treas.gov/press/reJeases/hp 1146.htrn

I 0/21 /200~

HP-1146: Prepau::u Remarks by Patrick M. O'Brien, Assistant Secretarybefore the 3rd U.S.-Latin Ame...

Page 3 of 3

More immediately, we wish to highlight our appreciation for the work of FELABAN's
Latin American Committee for the Prevention of Money Laundering and Financing
of Terrorism (COPLAFT) and to reiterate our support as COPLAFT member
associations commit to PSD deliverables. In addition to the overall objectives of
this conference, we encourage COPLAFT members to identify topics that can be
incorporated into their work plan. We have discussed with COPLAFT, for example,
the idea of a jurisdictional risk assessment describing AMLlCFT risks faced by
certain industries throughout the region. We want to be a sounding board by
offering to collaborate closely in this endeavor. We believe that such an
undertaking could serve as a viable means of deepening public-private sector
dialogue and cementing public-private relationships.
In conclusion, extend my gratitude to our panel facilitators, including those from the
private and public sectors in the U.S. and across the Latin American region for their
work and leadership in preparing us for today's dialogue. We must maximize this
unique opportunity to develop insights and innovative solutions to the daily
challenges of protecting our global financial community.
I look forward to continuing our work together to advance these goals.
Thank you, muito obrigado and muchas gracias.

www.treas.gov/press/releases/hpl146.htm

IO/211200R

hp-1147: Treasury Announces Guaranty Program for Money Market Funds

/~~~, PRESS ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

Page 1 of 1

~.
('

September 19, 2008
hp-1147

Treasury Announces Guaranty Program for Money Market Funds
Washington- The U.S. Treasury Department today announced the establishment
of a temporary guaranty program for the U.S. money market mutual fund industry.
For the next year, the U.S. Treasury will insure the holdings of any publicly offered
eligible money market mutual fund - both retail and institutional - that pays a fee to
participate in the program.
President George W. Bush approved the use of existing authorities by Secretary
Henry M. Paulson, Jr. to make available as necessary the assets of the Exchange
Stabilization Fund for up to $50 billion to guarantee the payment in the
circumstances described below.
Money market funds play an important role as a savings and investment vehicle for
many Americans; they are also a fundamental source of financing for our capital
markets and financial institutions. Maintaining confidence in the money market fund
industry is critical to protecting the integrity and stability of the global financial
system.
Concerns about the net asset value of money market funds falling below $1 have
exacerbated global financial market turmoil and caused severe liquidity strains in
world markets. In turn, these pressures have caused a spike in some short term
interest and funding rates, and significantly heightened volatility in exchange
markets. Absent the provision of such financing, there is a substantial risk of further
heightened global instability.
Maintenance of the standard $1 net asset value for money market mutual funds is
important to investors. If the net asset value for a fund falls below $1, this
undermines investor confidence. The program provides support to investors in
funds that participate in the program and those funds will not "break the buck".
This action should enhance market confidence and alleviate investors' concerns
about the ability for money market mutual funds to absorb a loss. Investors in
money market mutual funds with a net asset value that falls below $1 would be
notified that their fund triggered the insurance program.
The Exchange Stabilization Fund was established by the Gold Reserve Act of 1934.
This Act authorizes the Secretary of the Treasury, with the approval of the
President, "to deal in gold, foreign exchange, and other instruments of credit and
securities" consistent with the obligations of the U.S. government in the
International Monetary Fund to promote international financial stability. More
information on the Exchange Stabilization Fund can be found at

-30-

www.treas.goy/press/releases/hpl147.htm

10/21 /200~

hp-1148: Media Advisury: <--br> Secretary Paulson to Hold Press Conference on Comprehensive Appro... Page 1 of I

September 19, 2008
hp-1148
Media Advisory:
Secretary Paulson to Hold Press Conference on Comprehensive Approach to
Market Developments
Washington, DC-- Treasury Secretary Henry M. Paulson, Jr. will hold a press
conference at 10 a.m. (EDT) today at the Treasury Department to discuss a
comprehensive approach to market developments.
WHO:

Treasury Secretary Henry M. Paulson, Jr.

WHAT:

Press Conference to Discuss Comprehensive Approach to Market
Developments

WHEN:

10 a.m. (EDT), September 19, 2007

WHERE:

Treasury Department
1500 Pennsylvania Avenue, NW
Washington, D.C.
Media Room (4121)

NOTE:

Media without Treasury press credentials planning to attend should
contact Frances Anderson in Treasury's Office of Public Affairs at (202)
622-2960 or (202) 528-9086 with the following information: name,
Social Security number and date of birth. This information may also be
emailed to frances.anderson@do.treas.gov.
-30-

www.treas.gov/press/releases/hpl148.htm

10/21/200?-\

hp-1149: Statement by Secretary Htnry M. Paulson, Jr. on Comprehensive Approach to Market Dcvelo... Page I of 2

September 19, 2008
hp-1149
Statement by Secretary Henry M. Paulson, Jr. on Comprehensive Approach to
Market Developments
Washington, DC-- Last night, Federal Reserve Chairman Ben Bernanke, SEC
Chairman Chris Cox and I had a lengthy and productive working session with
Congressional leaders. We began a substantive discussion on the need for a
comprehensive approach to relieving the stresses on our financial institutions and
markets.

We have acted on a case-by-case basis in recent weeks, addressing problems at
Fannie Mae and Freddie Mac, working with market participants to prepare for the
failure of Lehman Brothers, and lending to AIG so it can sell some of its assets in
an orderly manner. And this morning we've taken a number of powerful tactical
steps to increase confidence in the system, including the establishment of a
temporary guaranty program for the U.S. money market mutual fund industry.
Despite these steps, more is needed. We must now take further, decisive action to
fundamentally and comprehensively address the root cause of our financial
system's stresses.
The underlying weakness in our financial system today is the illiquid mortgage
assets that have lost value as the housing correction has proceeded. These illiquid
assets are choking off the flow of credit that is so vitally important to our economy.
When the financial system works as it should, money and capital flow to and from
households and businesses to pay for home loans, school loans and investments
that create jobs. As illiquid mortgage assets block the system, the clogging of our
financial markets has the potential to have significant effects on our financial
system and our economy.
As we all know, lax lending practices earlier this decade led to irresponsible lending
and irresponsible borrowing. This simply put too many families into mortgages they
could not afford. We are seeing the impact on homeowners and neighborhoods,
with 5 million homeowners now delinquent or in foreclosure. What began as a subprime lending problem has spread to other, less-risky mortgages, and contributed to
excess home inventories that have pushed down home prices for responsible
homeowners.
A similar scenario is playing out among the lenders who made those mortgages,
the securitizers who bought, repackaged and resold them, and the investors who
bought them. These troubled loans are now parked, or frozen, on the balance
sheets of banks and other financial institutions, preventing them from financing
productive loans. The inability to determine their worth has fostered uncertainty
about mortgage assets, and even about the financial condition of the institutions
that own them. The normal buying and selling of nearly all types of mortgage assets
has become challenged.
These illiquid assets are clogging up our financial system, and undermining the
strength of our otherwise sound financial institutions. As a result, Americans'
personal savings are threatened, and the ability of consumers and businesses to
borrow and finance spending, investment, and job creation has been disrupted.
To restore confidence in our markets and our financial institutions, so they can fuel
continued growth and prosperity, we must address the underlying problem.
The federal government must implement a program to remove these illiquid assets
that are weighing down our financial institutions and threatening our economy. This
troubled asset relief program must be properly designed and sufficiently large to

www.treas.gov/press/releases/hpI149.htm

10/21/200R

hp-1149: Statement by Secretary Henry M. Paulson, Jr. on Comprehensive Approach to Market Develo... Page ~ of ~
have maximum impact, while including features that protect the taxpayer to the
maximum extent possible. The ultimate taxpayer protection will be the stability this
troubled asset relief program provides to our financial system, even as it will involve
a significant investment of taxpayer dollars. I am convinced that this bold approach
will cost American families far less than the alternative - a continuing series of
financial institution failures and frozen credit markets unable to fund economic
expansion.
I believe many Members of Congress share my conviction. I will spend the
weekend working with members of Congress of both parties to examine
approaches to alleviate the pressure of these bad loans on our system, so credit
can flow once again to American consumers and companies. Our economic health
requires that we work together for prompt, bipartisan action.
As we work with the Congress to pass this legislation over the next week, other
immediate actions will provide relief.
First, to provide critical additional funding to our mortgage markets, the GSEs
Fannie Mae and Freddie Mac will increase their purchases of mortgage-backed
securities (MBS). These two enterprises must carry out their mission to support the
mortgage market.
Second, to increase the availability of capital for new home loans, Treasury will
expand the MBS purchase program we announced earlier this month. This will
complement the capital provided by the GSEs and will help facilitate mortgage
availability and affordability.
These two steps will provide some initial support to mortgage assets, but they are
not enough. Many of the illiquid assets clogging our system today do not meet the
regulatory requirements to be eligible for purchase by the GSEs or by the Treasury
program.
I look forward to working with Congress to pass necessary legislation to remove
these troubled assets from our financial system. When we get through this difficult
period, which we will, our next task must be to improve the financial regulatory
structure so that these past excesses do not recur. This crisis demonstrates in vivid
terms that our financial regulatory structure is sub-optimal, duplicative and
outdated. I have put forward my ideas for a modernized financial oversight structure
that matches our modern economy, and more closely links the regulatory structure
to the reasons why we regulate. That is a critical debate for another day.
Right now, our focus is restoring the strength of our financial system so it can again
finance economic growth. The financial security of all Americans - their retirement
savings, their home values, their ability to borrow for college, and the opportunities
for more and higher-paying jobs - depends on our ability to restore our financial
institutions to a sound footing.

-30-

www.treas.gov/press/releases/hpl149.htm

1O/~ 1/~O()R

Ip-1150: FACT SHEET: <:br::-> Proposed Treasury Authority to Purchase Troubled Assets

/~~~, PRESS ROOM
'llJ'
u.s.

Page

J

01'2

~,.

DEPARTMENT OF THE TREASURY

•

September 20,2008
hp-1150
FACT SHEET:
Proposed Treasury Authority to Purchase Troubled Assets
Washington - The Treasury Department has submitted legislation to the
Congress requesting authority to purchase troubled assets from financial
institutions in order to promote market stability, and help protect American families
and the US economy. This program is intended to fundamentally and
comprehensively address the root cause of our financial system's stresses by
removing distressed assets from the financial system. When the financial system
works as it should, money and capital flow to and from households and businesses
to pay for home loans, school loans and investments that create jobs. As illiquid
mortgage assets block the system, the clogging of our financial markets has the
potential to significantly damage our financial system and our economy,
undermining job creation and income growth. The following description reflects
Treasury's proposal as of Saturday afternoon.
Scale and Timing of Asset Purchases. Treasury will have authority to issue up to
$700 billion of Treasury securities to finance the purchase of troubled assets. The
purchases are intended to be residential and commercial mortgage-related assets,
which may include mortgage-backed securities and whole loans. The Secretary will
have the discretion, in consultation with the Chairman of the Federal Reserve, to
purchase other assets, as deemed necessary to effectively stabilize financial
markets. Removing troubled assets will begin to restore the strength of our
financial system so it can again finance economic growth. The timing and scale of
any purchases will be at the discretion of Treasury and its agents, subject to this
total cap. The price of assets purchases will be established through market
mechanisms where possible, such as reverse auctions. The dollar cap will be
measured by the purchase price of the assets. The authority to purchase expires
two years from date of enactment.
Asset and Institutional Eligibility for the Program. To qualify for the program,
assets must have been originated or issued on or before September 17, 2008.
Participating financial institutions must have significant operations in the U.S.,
unless the Secretary makes a determination, in consultation with the Chairman of
the Federal Reserve, that broader eligibility is necessary to effectively stabilize
financial markets.
Management and Disposition of the Assets. The assets will be managed by
private asset managers at the direction of Treasury to meet program objectives.
Treasury will have full discretion over the management of the assets as well as the
exercise of any rights received in connection with the purchase of the assets.
Treasury may sell the assets at its discretion or may hold assets to maturity. Cash
received from liquidating the assets, including any additional returns, will be
returned to Treasury's general fund for the benefit of American taxpayers.
Funding. Funding for the program will be provided directly by Treasury from its
general fund. Borrowing in support of this program will be subject to the debt limit,
which will be increased by $700 billion accordingly. As with other Treasury
borrowing, information on any borrowing related to this program will be publicly
reported at the end of the following day in the Daily Treasury Statement.
(hllpllwww.fms.treas.gov/dts/)
Reporting. Within three months of the first asset purchases under the program,
and semi-annually thereafter, Treasury will provide the appropriate Congressional
committees with regular updates on the program.
-30-

wWw.treas.goy/press/releases/hpl150.htm

J 0/2 J 1200R

hp1151: ll'easury Provides Fm1hcr Clarity For Guaranty Program for Money Market Funds

Page I of I

September 21, 2008
hp1151
Treasury Provides Further Clarity For Guaranty Program for Money Market
Funds
Washington - The U.S. Treasury Department is continuing to develop the specific
details surrounding the temporary guaranty program for money market funds that
was announced on September 19, 2008.
While these details are being finalized, Treasury is making the following
clarifications:
1. All money market mutual funds that are regulated under Rule 2a-7 of the
Investment Company Act of 1940 and are publicly offered and registered with the
Securities and Exchange Commission will be eligible to participate in the program.
2. Eligible funds include both taxable and tax-exempt money market funds. The
Treasury and the IRS intend to issue guidance that will confirm that participation in
the temporary guaranty program will not be treated as a federal guaranty that
jeopardizes the tax-exempt treatment of payments by tax-exempt money market
funds.
3. The temporary guaranty program will be designed to provide coverage to
shareholders for amounts held by them in such funds as of the close of business on
September 19, 2008.
4. Further details on other aspects of the temporary guaranty program and the
required documentation for funds to participate will be provided in the coming days.

-30-

·www.treas.gov/press/releases/hpI151.htm

10/22/2008

1P-llS2: Stattmet'\t by 0-7 Finance Ministers and Central Bank Governors on Global Financial Marke... Page 1 of 1

September 22,2008
HP-1152

Statement by G-7 Finance Ministers and Central Bank Governors on Global
Financial Market Turmoil
Washington, DC-- The Group of Seven Finance Ministers and Central Bank
Governors released the following statement today:
The G-7 held a conference call today to discuss global financial markets. We
reaffirm our strong and shared commitment to protect the integrity of the
international financial system and facilitate liquid, smooth functioning markets,
which are essential for supporting the health of the world economy.
We strongly welcome the extraordinary actions taken by the United States to
enhance the stability of financial markets and address credit concerns, especially
through its plan to implement a program to remove illiquid assets that are
destabilizing financial institutions. We also strongly welcome the measures taken by
other G-7 countries. Major central banks have been coordinating to address liquidity
pressures in funding markets, which has been critical in addressing disruptions in
global financial markets. Several regulators have taken decisive actions to combat
market manipulation and stabilize financial markets, including a temporary ban on
short selling of financial stocks.
We recognize the importance of making regulation more effective and bringing
investors back into a liquid and stable marketplace. We remain committed to full
and rapid implementation of the Financial Stability Forum (FSF) recommendations
to enhance the resilience of the global financial system for the longer term. We look
forward to the FSF report this fall on progress made in strengthening prudential
supervision and regulation, improving firms' risk management practices, enhancing
disclosure and transparency, and strengthening accounting frameworks.
We pledge to enhance international cooperation to address the ongoing challenges
in the global economy and world markets and maintain heightened close
cooperation between Finance Ministries, Central Banks and regulators. We are
ready to take whatever actions may be necessary, individually and collectively, to
ensure the stability of the international financial system.

-30-

www.treas.gov/press/releases/hpI152.htm

10/22/2008

IP-1153: TeSiii\'\"ny-by-Secldaly Henry M. Paulson, lr.<br>before the Senate Banking Committee<br... Page 1 of 2

/~~~, PRESS ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

~.
(,

September 23, 2008
HP-1153
Testimony by Secretary Henry M. Paulson, Jr.
before the Senate Banking Committee
on Turmoil in US Credit Markets: Recent Actions regarding
Government Sponsored Entities, Investment Banks and
other Financial Institutions
Washington, DC--Chairman Dodd, Senator Shelby, members of the committee,
thank you for the opportunity to appear before you today. I appreciate that this is a
difficult period for the American people. I also appreciate that Congressional
leaders and the Administration are working closely together so that we can help the
American people by quickly enacting a program to stabilize our financial system.
We must do so in order to avoid a continuing series of financial institution failures
and frozen credit markets that threaten American families' financial well-being, the
viability of businesses both small and large, and the very health of our economy.
The events leading us here began many years ago, starting with bad lending
practices by banks and financial institutions, and by borrowers taking out mortgages
they couldn't afford. We've seen the results on homeowners - higher foreclosure
rates affecting individuals and neighborhoods. And now we are seeing the impact
on financial institutions. These bad loans have created a chain reaction and last
week our credit markets froze - even some Main Street non-financial companies
had trouble financing their normal business operations. If that situation were to
persist, it would threaten all parts of our economy.
As we've worked through this period of market turmoil, we have acted on a caseby-case basis --- addressing problems at Fannie Mae and Freddie Mac, working
with market participants to prepare for the failure of Lehman Brothers, and lending
to AIG so it can sell some of its assets in an orderly manner. We have also taken a
number of powerful tactical steps to increase confidence in the system, including a
temporary guaranty program for the U.S. money market mutual fund industry.
These steps have been necessary but not sufficient.
More is needed. We saw market turmoil reach a new level last week, and spill over
into the rest of the economy. We must now take further, decisive action to
fundamentally and comprehensively address the root cause of this turmoil.
And that root cause is the housing correction which has resulted in illiquid
mortgage-related assets that are choking off the flow of credit which is so vitally
important to our economy. We must address this underlying problem, and restore
confidence in our financial markets and financial institutions so they can perform
their mission of supporting future prosperity and growth.
We have proposed a program to remove troubled assets from the system. This
troubled asset relief program has to be properly designed for immediate
implementation and be sufficiently large to have maximum impact and restore
market confidence. It must also protect the taxpayer to the maximum extent
possible, and include provisions that ensure transparency and oversight while also
ensuring the program can be implemented quickly and run effectively.
The market turmoil we are experiencing today poses great risk to US taxpayers.
When the financial system doesn't work as it should, Americans' personal savings,
and the ability of consumers and businesses to finance spending, investment and
job creation are threatened.
The ultimate taxpayer protection will be the market stability provided as we remove
the troubled assets from our financial system. I am convinced that this bold

www.treas.goy/press/releases/hpl153.htm

10/2212008

HP-1153: 'foGtimony by SecretaI1! ;1enry M. Paulson, lr.<br>before the Senate Banking Committee<br. .. Page 2 of2
approach will cost American families far less than the alternative - a continuing
series of financial institution failures and frozen credit markets unable to fund
everyday needs and economic expansion.
Over these past days, it has become clear that there is bipartisan consensus for an
urgent legislative solution. We need to build upon this spirit to enact this bill quickly
and cleanly, and avoid slowing it down with other provisions that are unrelated or
don't have broad support. This troubled asset purchase program on its own is the
single most effective thing we can do to help homeowners, the American people
and stimulate our economy.
Earlier this year, Congress and the Administration came together quickly and
effectively to enact a stimulus package that has helped hard-working Americans
and boosted our economy. We acted cooperatively and faster than anyone thought
possible. Today we face a much more challenging situation that requires bipartisan
diSCipline and urgency.
When we get through this difficult period, which we will, our next task must be to
address the problems in our financial system through a reform program that fixes
our outdated financial regulatory structure, and provides strong measures to
address other flaws and excesses. I have already put forward my recommendations
on this subject. Many of you also have strong views, based on your expertise. We
must have that critical debate, but we must get through this period first.
Right now, all of us are focused on the immediate need to stabilize our financial
system, and I believe we share the conviction that this is in the best interest of all
Americans.
Thank you.
-30-

www.treas.goy/press/releases/hpI153.htm

10/22/2008

4P-1154: Testilli~ny by SecretalY Henry M. Paulson, Jr.<br> bdore the HOLise Committee on Financia... Page I of 3

/~~~, PRESS

'llJ' u.s.

ROOM

DEPARTMENT OF THE TREASURY

~,.
•

September 24, 2008
HP-1154
Testimony by Secretary Henry M. Paulson, Jr.
before the House Committee on Financial Services Hearing
on Turmoil in U.S. Credit Markets: Recent Actions
regarding Government Sponsored Entities, Investment
Banks and other Financial Institutions
Washington, DC-- Chairman Frank, Congressman Bachus, members of the
committee, thank you for the opportunity to appear before you today. I appreciate
that we are here to discuss an unprecedented program, but these are
unprecedented times for the American people and our economy. I also appreciate
that Congress and the Administration are working closely together so that we can
help the American people by quickly enacting a program to stabilize our financial
system.
We must do so in order to avoid a continuing series of financial institution failures
and frozen credit markets that threaten American families' financial well-being, the
viability of businesses both small and large, and the very health of our economy.
The events leading us here began many years ago, starting with bad lending
practices by banks and financial institutions, and by borrowers taking out mortgages
they couldn't afford. We've seen the results on homeowners - higher foreclosure
rates affecting individuals and neighborhoods. And now we are seeing the impact
on financial institutions.
These bad loans have created a chain reaction and last week our credit markets
froze up - even some Main Street non-financial companies had trouble financing
their normal business operations. If that situation were to persist, it would threaten
all parts of our economy.
Every business in America relies on money flowing through the financial system
smoothly every day - not only to borrow, expand and create jobs, but to finance
their normal business operations and preserve existing jobs.
Since the housing correction began last summer, Treasury has examined many
proposals as potential remedies for the turmoil that the correction has caused in our
banking system. With the Federal Reserve, we have sought to address financial
market stresses with as minimal exposure for the US taxpayer as possible. The
Federal Reserve took bold steps to increase liquidity in the markets. And we
worked together on a case-by-case basis - addressing problems at Fannie Mae
and Freddie Mac, working with market participants to prepare for the failure of
Lehman Brothers, and lending to AIG so it can sell some of its assets in an orderly
manner.
We have also taken a number of powerful tactical steps to increase confidence in
the system, including a temporary guaranty program for the U.S. money market
mutual fund industry. These steps have been necessary but not sufficient. More is
needed. We saw financial market turmoil reach a new level last week, and spill over
into the rest of the economy. We must now take further, decisive action to
fundamentally and comprehensively address the root cause of this turmoil.
And that root cause is the housing correction which has resulted in illiquid
mortgage-related assets that are choking off the flow of credit which is so vitally
important to our economy.
We must address this underlying problem, and restore confidence in our financial
markets and financial institutions so they can perform their mission of supporting
future prosperity and growth.

www.treas.goy/press/reieases/hpI154.htm

10/22/2008

-JP-llS4: Testli'\'\ony by Secretary Henry M. Paulson, Jr.<br> before the House Committee on Financia... Page 2 of 3
We have proposed a program to remove troubled assets from the system - a
program we analyzed internally for months, and had hoped would never be
necessary. Under our proposal, we would use market mechanisms available to
small banks, credit unions, and thrifts, across the country - not just big banks.
These mechanisms will help set values of complex, illiquid mortgage and mortgagerelated securities to unclog our credit and capital markets, and make it easier for
private investors to purchase these securities and for financial institutions to raise
more capital.
This troubled asset purchase program has to be properly designed for Immediate
implementation and be sufficiently large to have maximum impact and restore
market confidence. It must also protect the taxpayer to the maximum extent
possible, and include provisions that ensure transparency and oversight while
ensuring the program can be implemented quickly and run effectively, as it needs to
get the job done.
I understand the view that I have heard from many of you on both sides of the aisle,
urging that the taxpayer should share in the benefits of this plan to our financial
system. Let me make clear - this entire proposal is about benefiting the American
people, because today's fragile financial system puts their economic well-being at
risk. When local banks and thrifts aren't able to function as they should, Amencans'
personal savings, and the ability of consumers and businesses to finance spending,
Investment and job creation are threatened.
The ultimate taxpayer protection will be stabilizing our system, so that all Americans
can turn to financial institutions to meet their needs - financing a home
improvement or a car or a college education, building retirement savings or starting
a new business. The $700 billion program we have proposed is not a spending
program. It is an asset purchase program, and the assets which are bought and
held will ultimately be resold with the proceeds coming back to the government.
Depending on the rate at which our housing market and economy recover, the loss
to the taxpayers should be much less than the purchase price of the assets. And
those purchases will be spread out over time, occurring as warranted by market
conditions.
I am convinced that this bold approach will cost American families far less than the
alternative - a continuing series of financial institution failures and frozen credit
markets unable to fund everyday needs and economic expansion.
I understand that this is an extraordinary ask, but these are extraordinary times. I'm
encouraged by the bipartisan consensus for an urgent legislative solution. We need
to enact this bill quickly and cleanly, and avoid slowing it down with unrelated
provisions or provisions that don't have broad support. This troubled asset
purchase program on its own is the single most effective thing we can do to help
homeowners, the American people and stimulate our economy.
Earlier this year, Congress and the Administration came together quickly and
effectively to enact a stimulus package that has helped hard-working Americans
and boosted our economy. We acted cooperatively and faster than anyone thought
possible. Today we face a much more challenging situation that requires bipartisan
discipline and urgency.
When we get through this difficult period, which we will, our next task must be to
address the problems in our financial system through a reform program that fixes
our outdated financial regulatory structure, and provides strong measures to
address other flaws and excesses. I have already put forward my recommendations
on this subject. Many of you also have strong views, and we must have that critical
debate, but we must get through this period first.
Right now, all of us are focused on the immediate need to stabilize our financial
system, and I believe we share the conviction that this is in the best interest of all
Americans.
Now let's work together to get it done. Thank you.
-30-

www.treas.gov/press/reieases/hpI154.htm

IO/221200S

Page 1 of 4

September 24, 2008
2008-9-24-14-51-45-15270

U.S. International Reserve Position

The Treasury Department today released U.S, reserve assets data for the latest week. As indicated in this table, U.S.
reserve assets totaled $71,878 million as of the end of that week, compared to $72, 510 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approxllnate market value,

I

In

US millions)

I

II
IISeptember 5, 2008

A. Official reserve assets (in US millions unless otilerwise specified) 1

IIEuro

Ilyen

IITotal

I( 1) Foreign currency reserves (in convertible foreign currencies)

II

II

11 71 ,878

I(a) Securities

119.342

11 12 ,010

11 21 .352

lof which: Issuer headquartered in reporting country but located abroad

II

II

11 0

I(b) total currency and deposits witil

II
/13,037

II

1(1) other nallonal central banks, BIS and IMF

II
5,902

11 18.939

Iii) banks headquartered in the reporting country

110

lof which located abroad

11 0

I(iil) banks headquartered outside the reporting country

110

lof which: located In the reporting country

110

1(2) IMF reserve position 2

11 4 .703

1(3) SDRs 2

11 9 ,353

(4) gold (Including gold deposits and, if appropriate. gold swapped)

3

J111,041

I--volume in millions of fine troy ounces

11261499

1(5) other reserve assets (specify)

11 6 .491

I--financial derivatives

II

I--Ioans to nonbank nonresidents

II

--other (foreign currency assets invested through reverse repurchase
lIagreements)

I

1 6 .491

lB. Other foreign currency assets (specify)
--securities not Included in official reserve assets

I

I

J

I

I--deposlts not included in official reserve assets

I

I--Ioans not Included in official reserve assets

!

--financial derivatives not Included in official reserve assets

[-~gOld

J

I

not Included in official reserve assets

[ :--other

I

II

II

I

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

oVWw.treas.gov/press/releases/200892414514515270.htm

10/22/2008

Page 2 of4

[

II

II
II

I

[

'0'
"

11

1 Forel~)1l currency 10d1lS. seclIntlcs. dl1ci depuslts
I--outflows (-)
I
I--Inflows (+)
I

I

II
II
II
I M;lIllrlly brc:akuowfl (resldu,iI Ill<Jturlly)

I"I'

MorE~ 111;]11 J
mOl1l11s ;H1rJ lip
1 year

More it1Cll1 1 ;lI1rJ
up to 3 ll1Cmti1s

10 1 moo II,

if)

II

I

II

II

IIPrlllclp;ll

II

II

II

I

1II11terest

II

II

II

I

IIprillClpcll

II

II

II

I

IIlnterest

II

II

II

I

I

I

II

I

II"

II"

I

2 AggregJte SllOI-t Jilci 1011g POSItl011S III forw,mis ,1IIe1
futures In fOlelgn cUrienCies Vis-a-VIS ti10 domestic
curl-encv (Includll1Q tile forward leq of currel1CV swaps 1

-(32.0()O

1 (el) Sholt POSItlOl1S ( - ) 4

11-(32.000

I (b) Long pOSitions
I 3 Otiler (specify)

II

I

II

II

(+)

I --outflows I-elated to repos (-)

I

II

II

II

II

II

I --Inflows related to reverse repos (+)

II

II

II

I --trade credit (-)

II

II

II

I --trade credit (+)

II

II

II

I --other accounts payable (-)

II

II

II

II

I --other accounts receivable (+)

II

II

II

II

II

II

I

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

I

II

I

II

i

I

II

applicable)
To1

II

JI

II

I(b) Other contillgent liabilities
2. Forelgll currency seCUrities Issued With embedded
options (puttable bonds)

13

II

II

J

II

Undrawn. unconditional credit lll1es provided by

(a) other national monetary authorities. BIS. IMF. and
other IIlternatlonal organizations

JI

I--other national monetary authOrities (+)

II

I--BIS (+)

II

1--IMF (+)

I

More than 3
months and up to
1 year

More it1an 1 and
up to 3 months

Up to 1 month

,,1

11 Contillgent liabilities In foreign currency
(a) Collateral guarantees on debt falllllg due Within 1
year

I

I Maturity breakdown (residual matLnity. where

II

I

I
II

II
II

II

I

II

I

(b) With banks and other financial Institutions
headquartered III the reporting country (+)

JI

II

I

(c) With banks and other fillancial Institutions
headquarteled outside the reportlllg country (+)

J

1\

I

Undrawn. unconditional credit lines provided to.
(a) other national monetary autholltles. BIS. IMF. alld
other international organizations

I

I

II

I

I

II

1\

I

II

II

I

[other national monetary authorities (-)

www.treas.gov/press/reieases/200892414514515270.htI11

10/22/2008

Page 301'4
[BIS (-)
[IMF (-)
(b) ballKs and other flnanClallrlstltutlollS heilclClLlililerecJ
in reporting country (- )
(c) banKS and otilcr financial Institutions IwadqucntclecJ
outside ttle repolting country ( - )
..\ Agglegc1te shol-t alld long positions of OptiOI1S III
foreign currencies ViS-a-VIS the clOlllestlc CLJrrellcy

[a) Sholi POSltlOIlS

I

II

II

II

I

II

II

II

I

I

I

I

I

1(1) Bought puts

"
"
II
"II

II
II

I

II

I

II

I

I

1(11) Wrlttell calls

I

1(1) Bougllt calls

"

1(11) Wrlttell puts

I

I

IPRO MEMORIA Ill-the-money options

II
II

II

I(a) Shalt position

II

I(b) Long position

II
II
II
II

1(2) + 5 (] 0 (depreciation of 5(~o)
I(a) Short position
I(b) Long position
1(3) - 5 % (appreCiation of 5°10)

II

I(a) Short position
I(b) Long position
1(4) + 10

°/0

(depreciation of 10'/'0)

I
I

[(b) LOllg positions

[(1) At current excflange rate

I

"

II

I

II

II
II
II
II

/I

II
II
II

I

I

I
II

I

I

I
I

I(a) Short pOSition

I

I(b) Long position
1(5) - 10 % (appreciation of 10%)

I

I(a) Short position
I(b) Long position

I

1(6) Other (specify)

II
II
II

I(a) Short position
I(b) Long position

/I

II
II

I

IV Memo Items

I

1(1) To be reported with standard perrodlclty and tlilleliness

II
II

I
I

I

I(a) short-term domestic currency debt Indexed to the exchange I-ate

I

(b) flnanclallnstrurnents denolllinated In foreign currcllcy alld settled by otller Illeans (e.g., In domestic
currency)

I

[--nondellverable forwards

[

--short positions

[ --long pOSitions
[--other Instruillents
[(C) pledged assets
[--InCluded In reserve assets
--included In otller foreign currency assets
[d) securrtles lent and on repo

www.treas.goy/press/releases/200892414514515270.htm

l
6,646

10/22/2008

Page 4 of4
--lent or I'epoed but not Included III Sectloll I
--borrowed or acquired and Inclucleej III Sectloll I
--borrowed m acqulI'ed but 110t Included III Seetloll I
(e) flnallclal dellvatlve assets (Ilet.

Ill,1rkl~d

I

II
I
I
I 6.646
I

--lent m repoed and included in Section I

to Illilrk(JI)

t-forwards
t-futures
[--swaps
t-optlons

I

[--other

/I

(f) derivatives (forward. futures. m OptlOIlS contracts) 1I1Clt ilave a reSidual maturity greater than one year]

WhlCtl are subject to

l1lar~Jlll

calls

--3g9l"eg3te silort and long POSItiOI1S III fOlwards 311(1 futures III fmelgn currerlCles Vis-a-VIS the domestic
CUlrency (lilcludlllg tile forwal'd le~] of currellcy swaps)
[(a) short POSltlOIlS ( - )

IIII

I

[(b) long POSItiOI1S (+)
[--aggregate short and long positions of options

III

forelgll currellCles Vis-a-VIS the domestic currency

[(a) short POSitions
[(I) bought puts
[(II) written calls
[(b) long positions

I
[I
II

I

[(a) currency composition of reserves (by groups of currencies)

[[71.878

I

I--currencles in SDR basket

1171.878

I

[--currencies not in SDR basket

II

I

[--by IIldlvldual currencies (optional)

II

I

[

II

I

[(I) bought calls
[(II) written puts

1(2) To be disclosed less frequently

I
[

Notes:

II Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.

21 The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDRldollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.s. Treasury to IMF data for the prior month
end.
31

Gold stock is valued monthly at $42.2222 per fine troy ounce.

4/ The short positions reflect fmelgn exctlange acquired uncler reciprocal currency arrallgements wllil certain foreign central banks
The foreign exchange acqUired is not Included In Section I, "official reselve assets arld other foreign currency assets." of the template
for reporting International reserves, However, It IS included In the broadel balallce of payments pl'esentatlon as "U.S Governmellt
assets, other than offiCial reserve assets/U,S foreign currency holdings and US short-term assets'"

www.treas.gov/press/releases/200892414514515270.htm

10/22/2008

Page I of 4

September 24, 2008
2008-9-24-14-57 -46-15331
U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week, As indicated in this table, U.S.
reserve assets totaled $71,535 million as of the end of that week, compared to $71,878 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)

I
I

II
IISeptember 12, 2008

Ik Official reserve assets (Ill US millions unless olllerwise specified) 1

IIEuro

1(1) Foreign currency reserves (Ill convertible foreign currencies)
I(a) Securities

II
119,264

lof which: issuer headquartered in reporting country but located abroad

II

I(b) total currency and deposits willl

II

l(i) other national central banks, BIS and IMF

Yen

IITotal
11 71 ,535

11,946

1121.210
110
II

12,734

5,872

Iii) banks headquartered in the reporting country

110

lof which: located abroad

11 0

I(iii) banks headquartered outside the reportlllg country

110

lof which: located in the reportlllg country

110

1(2) IMF reserve position 2

11 4 ,686

1(3) SDRs 2

11 9 ,320

(4) gold (including gold depOSits and, If appropriate, gold swapped) 3

I

11 18 ,606

J111,041

I--volume in millions of fine troy ounces

11261499

1(5) other reserve assets (specify)

11 6,672

I--financial derivatives

II

I--Ioans to nonbank nonresidents

II

II;-other (foreign currency assets invested through reverse repurchase
agreements)

1'6,672

[B. Other foreign currency assets (specify)
--securities not Included in official reserve assets
--deposits not included in official reserve assets
--loans not included in official reserve assets
--financial derivatives not included in offiCial reserve assets

Ii
I
I
I

[gOld not included in official reserve assets
[--other

II

II

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

www.treas.gov/press/releases/200892414574615331.htm

10/22/2008

Page 2 01'4

[
[

II

[

II
II

II
II
II
I MatLmty breakdown (reslcJuClI mZltLlrlty)

IITOIO

IUp 10 1 moo II,

I

II

II

II

II

II

II

II

II

II

1 Forelgll currency IOLlI1S, securities, dlill dq)()slts

[-outflows (-)

Ilprlllclp;11

[

IIllltclest

t-illflows (+)

IIPrlllClPdl

[

I\lnterl~st

II

II

II

II

II

II

II

I

II
II
II
I

II
II
II
II
II
II
II
II
II

[ (a) Silmt POSIti011S ( _ ) 4

11- 52 ,000

I -62,000

I (b) LOllg positions (+)

II

II

1\

1\

1\

1\

II

II

I 3 Other (specify)
--outflows related to repos (-)
--Inflows related to revel'se rcpos (+)
--trade credit (-)
--trade credit (+)

I --other accounts payable (-)
I --other accounts receivable (+)

More tlldll :j
montlls awJ
1 year

More thall 1 ,'lIld
up to 3 rnontlls

II

2 Aggregate SIiDlt alld lOll() POSItiOI1S III forwards dllcJ
futures III fmelgn currencies VIS-il-VIS tlie dUITll~stlc
currellCV (1llCludlllCl tile forwilrd IcC] of currcncv SW<lps)

II
II
II
II

II

II
II

II

I

lIiJ II)

I
I
I

II

I

1\

I

III Contingent short-term net dralils 011 fmelgll currellcy assets (nominal value)

I

II

I

II

II

a ppllca ble)

Total

I
I

II
II

I

J

II
II

I

II

I(b) Other contlngellt liabilities
2. Foreign currency securities Issued With embedded
options (putlable bonds)
3. Undrawn, ullcondltlonal credit lines prOVided by
(a) other national monetary authorities, BIS, IMF, and
other international mganlzatlons
I--other national monetary authorrtles (+)
I--BIS (+)

I
II

[--IMF (+)
(b) with banks and otller flnanClallnstltutlollS
headquartered In the reporting country (+)
(c) With banks and other finanCial IIlstltutlons
headquartered outSide the reporting country (+)
Undrawn, unconditional credit lines prOVided to
(a) other Ilatlonal mOlletary authmltles, BIS, IMF, and
other international organizations
[-other national monetary authorrtles (-)

IUp

10 1

More than 1 and
up to 3 mOllths

moo III

I

More than 3
montils and up to
1 year

II

11 Contingent liabilities In foreign currency
(a) Collateral guarantees on del]t falllllg due Within 1
year

II

IMaturity breakdown (residual maturity, where

I

1\

I

1\

I

1\

II

Ji
II

I
II

I

II

II

www.treas.goy/press/releases/200892414574615331.htm

II

I

1\

I

II

II

II

I

I
10/22/2008

Page 3 of4
~-BIS (-)

II

II

I

"

I

~-IMF (-)
(b) banks and otller fln3nCI<11111stitutioilS IH~~ilclqll;llteIHj
In reporting countl~y (- )
(c) banks and oiller flllilnclLll IIlStitutiOI1S IlC;l(lqUdl~tl"l~d
outside the repmtlll~l country ( - )
4. Aggregdte SllOrt clild long POSItiOI1S of optiOI1S III
foreign CUITenCles VIS-cl-VIS tile dOllH?StlC currcilcy

1

II
II

II
II

I

1/

1/

II

I

II

II

II

I

1/

II

II

I

1(3) Silort POSIti011S

I

1(1) Bougllt puts

"II1\

1(11) Wrlttell calls

I

I(b) Long positions

1\

1\

1(1) Bougllt calls

1\

I

[(II) Written puts

\I

II

PRO MEI'v10RIA IIl-tlle-111oI1ey OptiOI1S

11

/I

"
"
"
"
1\
"

I

I
I
I
I
I
I

[(1) At current exchange rate

II

1\

/I
\I

1(3) Short POSItlOl1

1\

1\

\I

1\

I
I

[(b) Long POSItlOl1

1\

1\

1\

II

I

1(2) + 5 °0 (depreCiation of 5(\)

1\

1\

1\

1\

I

1(3) Short POSltlOll

1\

1\

1\

\I

I

[(b) Long position

1\

1\

1\

1(3) - 5 % (appreciation of SOu)

II

1\

\I

I(a) Short position
I(b) Long position
1(4) + 10

°'0 (depreciation of 10"'0)

I

1\

I

I

I

I
I
I

"

I

I

I(a) Short posItion
I(b) Long position

I

1(5) - 10 % (appreCiatloll of 10%)
I(a) Short position
I(b) Long position

1(6) Other (speCify)
I(a) Short position
I(b) Long position

I

I

"

IV. Memo Items

[
[(1) To be reported with standard periodiCity and tlillellness.
(a) short-term domestic currency debt Indexed to the cxchan~Je late

I

(b) fillancialinstruillents denolllillated In fmelgn CUITCl1CY and settled by other 111eal1S (e 9 . In domestic
currency)

I

tnondellverable forwards
[ --short positions
[ --long positions
[other instruments

~) pledged

assets

[InclUded In reserve assets
--Included In other fmeign currency assets

llit) securities lent alld Oil repo
NWw.treas.goy/pressireleases/200892414574615331.htm

"
1\
1\

II
1\6.813

10/22/2008

Page 4 of4
II--Ient or repoed and Included in Sedon I

I
I

II

--lent or repoed but not IIlcluded III Seetloll I

II

--borrowed or acqUired alld IIlcludeli III Section I

II

--borrowed or acquired but not Included

l16,813

III

Section I

I

I
I

I

(e) flflanclal dellvative assets (IWt. mcllkcd to l11:Jrkcl)
[--forwards

I

II

G-flltures

I

G-swaps

I

[options

I

t-other
(I) derivatives (forward, futures, or options cOlltracts) tllilt hilve a residual maturrty greater than one year,
which are subject to margll1 calls

--aggl'egate short and long POSItlor1s III fOIWilrc15 "ml flltures
currency (Including tile forwald leg of currerlCY swaps)

III

foreign curr'encles vis-a-vis the domestic

I

I

I
I

I

I(a) shol't POSItlOl15 ( - )

I

I(b) long POSitions (+)
--aggr'egate SllOr1 and 10n~1 POSltlorls of OptlOl15

I
III forel~ln

currencies vis-a-VIS the domestic currency

II

I

I

I(a) SllOr1 POSltlorls
1(1) bought puts

I

1(11) written calls

II

I(b) long POSitions

II

1(1) bought calls

II

1(11) written puts

II

1(2) To be disclosed less frequently

\I

I(a) currency composition of reserves (by groups of currencies)

11 71 ,535

I--currencles In SDR basket

11 71

I--currencles not rn SDR basket

II

I

I--by Individual currencies (optional)

II

I

II

I

,535

I

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates, Foreign currency holdings listed as securities reflect markedto-market values, and depOSits reflect carrying values.

2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the offiCial SDR/dollar exchange rate for the reporting date. The entnes for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
41 The short positions reflect foreign exchallge acqUired uncler reciprocal currency arrangements With certalll foreign central banks
The foreign exchange acqurred IS not Included in Section I. "offiCial reserve assets and otiler foreign currency assets," of the templdte
for repor1rng IIlternational reserves. However. It IS included in the broader balance of payments presentation as "U.S. Governillellt
assets, other than offiCial reserve assetslU .S. foreign currency holdings and US sllol'l-term assets"

www.treas.goy/press/releases/200892414574615331.htm

10/22/2008

Page 1 of4

September 24, 2008
2008-9-24-15-5-35-15426

U.S. International Reserve Position

The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S,
reserve assets totaled $72,087 million as of the end of that week, compared to $71,535 million as of the end of the
prior week,
I. Official reserve assets and otiler foreign currency assets (approximate market value, in US millions)

I

I

II

I

IISeptember 19, 2008

A. Official reserve assets (In US Illillions unless otherwise specified) 1

Yen

JIEuro

1(1) Foreign currency reserves (Ill convertible foreign currencies)

II
/19,389

I(a) Securities
lof which: Issuer headquartered In reporting country but located abroad

/I

I(b) total currency alld depOSits With

/I

I(i) other national central banks, BIS and IMF

112,710

11,978

I
IITotal

1

11 72 ,087

I

11 21 ,367

I

11 0

I

/I

1

11 5 ,892

11 18,602

Iii) banks headquartered in the reportillg country

/I

110

lof which located abroad

II

I(iii) banks headquartered outside the reporting country

/I
/I

11 0
11 0

lof which: located In the reporting country

1(2) IMF reserve pOSition 2

11 4 ,709

1(3) SDRs 2

11 9 ,366

(4) gold (including gold depOSits and, If appropriate, gold swapped) 3

11 11 ,041

I--volume in millions of fine troy ounces

/1261.499

1(5) other reserve assets (specify)

/17,002

[--financial derivatives

/I
/I

I--Ioans to nonbank nonreSidents
--other (foreign currency assets Invested through reverse repurchase
agreements)

[B

11 0

I

J7,002

I
I
I

Other foreign currency assets (specify)

I

"--securities not included In official reserve assets
[depOSits not included in official reserve assets

1

--financial derivatives not included in official reserve assets

J
J

--gold not included in official reserve assets

j

--loans not included in official reserve assets

[-other

/I

II

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

t!p:IIWWw.treas.gov/press/releases/20089241553515426.htm

10/22/2008

Page 2 01'4
II

I

II

I

II
II
II
I Matullty breakdown (rcslduCllllldtullty)

II

liTo!.;'

I
1 Forelgll currerlcy IOclI1S, sCClmtlcs, cHid depuslts
I--outflows (-)

Ilprlllclpal

I
1--lnfIOws (+)

1IIIlterest

I

1IIIltcrest

I

Ilprlllclpcll

More til~lIl :3
rnontils drld lip
1 year

More th<lll 1 ,1Ild
up to 3 montils

Up to 1 1ll0ntil

I

II)

II

I

II

I

II

I

1/

I
I

2 Aggregate silmt ~1Ild 100lU POSItiOI1S 111 fmw<Jre!s <1IIe!
futures III foreign currencies VIS-c)-VIS tile cjomcstlC
currency (Illcludrnq tile fOIW<lrd leq of currency swaps)

I
-132,800

(a) Short [2osltlons ( _ ) 4

-132,800

I

(b) Long positions (+)
3 Other (specify)

I

I

II

I
I

II
II

I

--outflows related to repos (-)

1/

--Inflows related to revelse repos (+)
--trade credit (-)

I

--trade credit (+)
--other accounts payable (-)

I --other accounts receivable (+)

II

I

II

I

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

I

II

I

II

11 Contingent liabilities In forelgrl currency
(a) Collateral guarantees on debt failing due Within 1
year

II

II Toto

IUp to 1 000<;11;

II

1/

More than 3
months and up to
1 year

More than 1 and
up to 3 months

I

II

I

I(b) Other contingent liabilities
2. Foreign currency securities Issued With embedclecl
options (puttable bonds)

I

a ppl ica ble)

II

I

II

I Maturity breakdown (resldualmaturrty, whel'e

I

I

11

3. Undrawn, unconditional credit Imes prOVided by

II

(a) other national monetary authorities, BIS, IMF, and
other IIlternatlonal organizations

/I

I

[--other national monetary authorrtles (+)

tt-

I

BIS (+)
IMF (+)

(b) With banks and other financial Institutions
headquartered in the reporting country (+)
(c) With banks and other finanCial Institutions
Ilheadquartered outSide the reporting country (+)

I

1/

II

II

II

I

II

Undrawn, unconditional credit lines proVided to

J

II

(a) other national monetary authorities, BIS, IMF, and
other International organizations

I

II

--other national monetary authorities (-)

I

wWw.treas.goy/press/releases/20089241553515426.htm

1/

II

10/22/2008

Page 3 01'4

tt-

BIS (-)

II

IMF (-)

II
II

II:b) banks alld otller flllanclclllllstltlltlc)IlS IlCaciqll,lIU;I(;ci
In reportlllg country (- )
II:C) b,mks and other fillClI1ClillillStltLJtl011S IICi)ciqlldrtclc;(j
outside tile reporting coulltry ( - )

4. Aggregate SllOlt alld long POSltlOllS of optiOI1S In
forelgll currencies VIS-i)-VIS tiw CIOlllcstlC cllrwllcy
[(a) Silort POSItlUI1S
[(I) Bought puts
1(11) Wrlttell calls

II
11

II

I

II

1/

I

/I

II

I

II

II

I

I

1/

1/

1/

1/

I

I

1/

1/

I(b) Long positions

1/

II

I

1/

I

II

1/

1/

I

1(1) Bought calls

1/

II

1/

1(11) Wrrtten puts

1/

1/

II

T

II

II

II

I

1/

II

1/

1/

1/

1/

1/

I

1/

1/

1/

1/

I

1/

1/

1/

1/

I

II

1/

1/

1/

1/

1/

1/

1/

PRO fl-1EMORIA Ill-tile-illoneyoptions
[( 1) At current exchclilge rate
I(a) Short position
I(b) LOllg pOSition
1(2) + 5

no

(depreclatloll of 5(;'u)

I(a) Short POSition
I(b) Long POSition
1(3) - 5

(l,o

(appreCiation of 5(;0)

1/

II

1/

1/

I(a) Short POSition

1\

I

1\

II

I(b) Long pOSition

1\

1/

1/

1(4) +10 % (depreCiation of 10(J'n)

1/

1/

1/

I(a) Short POSition

1\

1/

1/

I(b) Long POSition

1\

I

1/

1\

1(5) - 10 % (appreciation of 10 %

)

1\

1/

1/

1/

I(a) Short POSltlOll

1/

1/

1/

II

I(b) Long pOSition

1/

1/

II

II

1(6) Other (specify)

1/

1\

1\

1/

I

I(a) Short position

1/

1/

1/

1/

I

I(b) Long position

1/

1\

1\

1\

I

IV Memo Items

I

I
(a) short-term domestic currency debt IIldexed to the exchanCJe rate

II
II

(b) fillancialinstruments denolllinated III foreign currency and settled by otller means (e.g, In ciomestlc
currency)

II

(1) To be reported with standard perrodlclty amI timeliness

I--nondellverable forwards
I --short POSitions
I --long positions
I--other Instruments

I

I(C) pledged assets

II

I--Included In reserve assets

1/

--Included In other foreign currellcy assets
[(d) securrtles lellt and on repo

www.treas.goy/press/reieases/20089241553515426.htm

II
1\7152

10/22/2008

Page 4 of4

II

[lent 01" repoed alld included III Section I

I

[lent or repoed but 110t Included III Section I

l
l
l

--borrowed or acqull-ed and Inclucieci III Section I
--borrowed 01" C1cqulreci but 110t IIlcluded III SecllOll I
(e) financial cierlvatlve assets (Ilet. Ill,lIk(;o to Illdrk(;t)

7.152

I

t-forwards
I--futures

I

I--swaps

II
II
II

I--optlons
[--otller

I
I
I
I

(f) derrvatlves (forwclrd. futures. 01" OptiOI1S cOlltracts) !lldt have a residual maturrty gl-eater than one year.ll
which are subject to nlalglll calls

--aggregate sllOrt 311ci 1011g POSItiOI1S III fOlwal-ds ami futures III foreign currencies Vis-a-VIS tile domestic
currency (inclucilllg tile forwalel le~J of currPllcy swaps)

I

I

I

I(a) SllOl"t POSItiOI1S ( - )

I

I(b) long POSIti011S (+)

I

I--aggregate short alld long POSIti011S of Opti011S III forelgll currencies ViS-a-VIS the domestic currency

I

I(a) short POSItiOI1S
1(1) bought puts
1(11) wrrtten calls

I(b) long positions

I

1(1) bought calls

I

1(11) written puts

1(2) To be disclosed less frequently.
I(a) currency composition of leserves (by groups of currencies)

11 72 .087

I--currencies In SDR basket

11 72 .087

I--currencies not III SDR basket

II
II
II

I--by IIldlvldual currellCles (optional)
I

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market
Account (SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect markedto-market values, and deposits reflect carrying values.
2/ The items, "2. IMF Reserve Position" and "3. Special Drawing Rights (SDRs)," are based on data provided by the IMF
and are valued in dollar terms at the official SDR/dollar exchange rate for the reporting date. The entries for the latest
week reflect any necessary adjustments, including revaluation, by the U.S. Treasury to IMF data for the prior month
end.
3/ Gold stock is valued monthly at $42.2222 per fine troy ounce.
4/ The short positions reflect foreign exchange acqurred ullder reciprocal currellcy arrangements with certain fOl"elgn central banks
The foreign exchange acqurred IS not Included III Section I. "official reserve assets and other fOl"eigll currency assets." of the template
for reporting International reserves. However. It IS Included In the broader balance of payments presentation as "U.S. Governmellt
assets. other than offiCial reserve assets/U.S foreign currency holdings anci US short-term assets_"

www.treas.goy/press/reieases/20089241553515426.htm

10/22/2008

HP-1155: A1visory Committee on the Auditing Profession <:,br>Co-Chairs to Release Advisory Final R... Page I of I

September 24,2008
HP-1155

Advisory Committee on the Auditing Profession
Co-Chairs to Release Advisory Final Report
Treasury Advisory Committee on the Auditing Profession Co-Chairs Arthur Levitt,
Jr. and Donald T. Nicolaisen will host a pen-and-pad press conference at 1200
pm. (EDT) Friday in New York City to discuss the final results of the Committee's
recommendations to improve the auditing profession.
The press conference will follow the Committee's final vote during a public
telephonic meeting at 10:00 a.m. Live audio for the meeting may be accessed at
this website

Who
Committee Co-Chair Arthur Levitt, Jr.
Committee Co-Chair Donald T. Nicolaisen
What
Pen-and-Pad Press Conference on Advisory Committee Final Report
When
Friday, September 26,2008, 12:00 p.m. EDT
Where
520 Madison Avenue at 53rd Street
42nd Floor
New York City, N.Y.
Note
No cameras will be permitted into the briefing. Press should RSVP to Lisa Bogan at
(212) 381-4860 or
and enter through the entrance at 53rd
Street.
Members of the media also may listen to the press conference by calling (202) 9272255, pin number: 344918.

www.treas.gov/press/reieases/hpI155.htm

1012212008

1P-1156: Rel.'-~rks hy Tr~f1sllry 1 )nrtet' Secretary for International Amlirs <br>David II. McCormick <...

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

Page I 01'4

~,.
•

September 25, 2008
HP-1156
Remarks by Treasury Under Secretary for International Affairs
David H. McCormick
at
ClSA Hong Kong Investors' Forum
Washington, DC- The seeds of the significant challenges we face today were
sown many years ago, beginning with a gradual weakening of lending practices by
banks and financial institutions, and by greater willingness by borrowers to take out
mortgages they couldn't afford. These factors combined with growing complexity
and opaqueness in our capital markets are at the heart of the current market
turmoil.
We are now paying the price. We've seen the results for homeowners--higher
foreclosure rates affecting individuals and neighborhoods. And now we are seeing
the impact on financial institutions. These weak loans have started a chain
reaction, and last week, our credit markets tightened dramatically with even some
non-financial companies around the country having difficulties financing their dayto-day business operations. If this situation was to persist, it would threaten all
parts of the U.S. economy. In response to this worsening market turmoil, Treasury
has undertaken a number of bold actions in recent months and recent days to
stabilize the markets, mitigate the impact of a number of failing or troubled
institutions, and address the underlying sources of market uncertainty.
Root Causes of the Market Turmoil
How did we come to this point? The story begins with an abnormally long period of
benign economic conditions in the preceding decade marked by low interest rates,
low inflation, and less volatile asset markets which led many to ignore the "risk" half
of the risk-reward equation at the heart of financial markets. Investors around the
world, who in preceding years had enjoyed above-historical returns on most types
of investments, continued reaching for ever-higher gains. The financial-services
industry created a variety of complicated new products to meet this demand.
Regulators and investors alike showed a growing complacency toward risk. These
factors blended into a dangerous cocktail of underlying conditions ripe for instability.
This imbalance between risk and reward was most evident in the U.S. housing
market, where lenders significantly loosened credit standards--particularly for a new
generation of adjustable-rate mortgages with low teaser rates, interest-only
features, and low or no down payments. Yet aggressive financial innovation went
well beyond mortgages. Banks and brokers created an alphabet soup of products
with simple names like COOs, CLOs and SIVs, which were in fact complex and
opaque investment products and structures. They relied on bundling assets,
particularly mortgages, to better distribute the investment risk, and the greater use
of leverage or borrowing to generate higher returns. Credit-rating agencies
responsible for assessing and rating these assets, as well as investors who
purchased them, failed to question the chances of these underlying investments
going bad.
Last summer these new vulnerabilities in our financial system became clear. Looser
credit standards in the housing market, combined with an end to rapid home-price
appreciation, led to a significant rise in delinquent mortgages. This in turn
contributed to immediate and unexpected losses for investors and a reconsideration
of the risk-reward relationship--first in housing, and soon after, across all asset
classes. The shaken investor confidence in housing assets had a domino effect
throughout world markets, ratcheting up demand for cash and liquidity, and
curtailing the pace of the new lending and investment necessary for strong growth
to continue.

wWw.treas.gov/press/releases/hpI156.htm

IO/22/200S

HP-1156: Re.narh by Treusury Under Secretary for International Affairs <br>David H. McCormick <...

Page 2 of 4

Actions to Mitigate Risk and Stabilize Markets
Recognizing the risk to the US. economy of the housing downturn, the Treasury
and Congress acted quickly during the winter to pass a $150 billion stimulus bill and
brought together mortgage providers through the HOPE NOW alliance to help
families avoid foreclosure on their homes. While we have tried to minimize the
impact of the housing correction on the rest of the economy, we do not want to
impede its progress. The sooner we turn the corner on housing, the sooner we will
see home values stabilize, the sooner we will see more people buying homes, and
the sooner housing will again contribute to economic growth. Still, it will take time
to work through these stresses.
In the financial markets, progress has not moved in a straight line, and it is clear
that many challenges lie ahead. There have been some positive developments.
Since the market turmoil began, U.S. financial institutions (often under new
management) have recorded losses of over $300 billion and raised over $200
billion in new capital. Yet, the events of the last few weeks - where we have acted
on a case-by-case basis to address destabilizing fmancial conditions in several
institutions - are evidence of continued weakness across the financial services
sector.
Following the support provided by the Federal Reserve in March for an orderly
resolution for Bear Stearns, U.S. authorities recently took action to help mitigate the
impact of the bankruptcy of the fourth largest U.S. investment bank, Lehman
Brothers, in early September. That same week, the Fed provided funding to
American International Group (AIG) to address the systemic risk that would have
resulted from a sudden collapse of the firm. in each of these cases, authorities
sought to strike the appropriate balance between mitigating system risk while
promoting market discipline, holding investors and management responsible, while
protecting blameless market participants or consumers from collateral damage.
The cases of Fannie Mae and Freddie Mac, where in August the government took
comprehensive and unprecedented actJon, deserve special mention, particularly
given their significance to many foreign investors. These Government Sponsored
Enterprises (GSEs) have become the largest sources of mortgage finance in the
United States, touching 70 percent of mortgages originated in the first quarter.
Their continued activity is critical in turning the corner on the housing situation and
removing the underlying uncertainty in our financial markets and financial
institutions.
Not surprisingly, the prolonged housing correction weakened the financial condition
of both of these enterprises, and they faced a significant loss of confidence among
investors. Fannie Mae and Freddie Mac are so large and so interwoven in our
financial system, that if either of them were to fail, it would be harder for Americans
to get home loans, auto loans, and other consumer credit. Business finance would
be even harder to obtain, constraining job creation and our overall economic
growth.
This past summer, investors began to express growing concerns over the stability
of Fannie and Freddie and the uncertainty over the scope and strength of the long
standing ambiguous promise of government support. In response, Secretary
Paulson asked the Congress for authorities with regard to Fannie Mae and Freddie
Mac in order to support our housing markets and the stability of our finanCial
markets more broadly. Congressional leaders acted promptly and decisively with
the needed legislation. In the days and weeks that followed, the Director of the
Federal Housing Finance Agency (FHFA) Jim Lockhart. Federal Reserve Chairman
Bernanke. and Secretary Paulson conducted a rigorous analysis of the situation,
which led to the unpleasant but necessary decision to utilize these authorities.
This analysis showed that we had no choice but to act decisively to avert instability
in our markets. Our goals are to support the availability of mortgage credit and
protect taxpayers to the maximum extent possible As a first critical step. the
Regulator put Fannie and Freddie into conservatorship, allowing the government to
take temporary control and make management changes at both institutions.
Under the control of the conservator FHFA, Treasury established contractual
Preferred Stock Purchase Agreements with both institutions under which Treasury
has committed up to $100 billion per institution to ensure that each GSE maintains
a positive net worth. These Preferred Stock Purchase Agreements are intended to

www.treas.gov/press/releases/hpl156.htm

lO/22/200g

HP-1156: RtffiOrks by Tleasury Under Secretary for International Afbirs <br>David H. McCormick <...

Page 3 of 4

explicitly address the underlying ambiguities in the GSE Congressional charters
and to give the holders of Fannie Mae and Freddie Mac debt confidence in the
promise of government support for their investments. Because the U.S.
Government created these ambiguities and the resulting uncertainty, Secretary
Paulson felt strongly that we had a responsibility to both avert and ultimately
address the systemic risk now posed by the scale and breadth of the holdings of
GSE debt and agency mortgage-backed securities.
The terms of these purchase agreements provide significant taxpayer protection.
The existing shareholders of the GSEs will lose 100 percent of their investment
before the American taxpayers lose a penny. Moreover, as part of the terms of this
agreement, Treasury has received from each company $1 billion in senior preferred
stock and warrants providing an option to purchase up to 79 percent of the
companies' outstanding shares at a nominal price.
Second, Treasury has established a new, secured and temporary credit facility for
Fannie Mae, Freddie Mac, and the Federal Home Loan Bank to fund, if necessary,
their regular business activities in the capital markets. Finally, to further support the
availability of mortgage financing for millions of Americans, Treasury is initiating a
temporary program to purchase mortgage-backed securities issued by the GSEs.
This will provide additional capital to the mortgage marketplace. There is no reason
to expect taxpayer losses from this program, which will also expire in December
2009.
These steps are the best means of protecting taxpayers and stabilizing our
markets, but they leave for future policymakers fundamental policy decisions about
the role and structure of these enterprises. Our recent actions have afforded a
"time out" - providing the stability, time, and flexibility for Congress and the current
and next Administrations to address the inherent conflict in the GSE charters that
requires they serve both the interests of private investors and a public mission.
A Comprehensive Policy Response
Despite the hardening of the government's support and involvement in Fannie Mae
and Freddie Mac and the rapid and decisive resolutions of Bear Stearns, Lehman
Brothers, and AIG, investors have become increasingly concerned over the
possibility of other financial institution failures, making them reluctant to extend
credit to one another.
This unwillingness to lend led to sharp increases in the cost of credit for financial
and non-financial companies, increasing the risk that corporate America would be
unable to roll over maturing corporate debt. In this environment, it was necessary
for U.S. authorities to act decisively and comprehensively to provide capital,
liquidity, and smooth market operations with the goals of stabilizing the markets and
addressing the underlying sources of uncertainty.
First, central banks from around the world have acted together to provide additional
liquidity for financial institutions. The Federal Reserve has established swap lines
with nine central banks to reduce pressures in global short-term U.S. dollar
markets. Additionally, Treasury implemented a temporary guaranty program for the
U.S. money market mutual fund industry, which was experiencing a funding
problem last week. This $50 billion guaranty program offers government insurance
that was previously unavailable in order to address concerns about whether these
investments are safe and accessible.
Second, we have a plan for providing much needed capital to address the root
cause of the current stress in our financial system - the ongoing housing correction
and the consequent buildup of illiquid mortgage-related assets. These troubled
assets remain frozen on the balance sheets of banks and other financial
institutions, constraining the flow of credit that is so vitally important to our
economic growth. The failure to address the troubled mortgage-related assets
would mean that every aspect of our financial and funding markets, ranging from
consumer credit to money market funds, would continue to be impaired.
Treasury has proposed a $700 billion comprehensive program for removing these
illiquid assets from the balance sheets of institutions within the financial system.
As we work with Congress to pass this crucial legislation, we have also undertaken
two immediate steps to ease further market pressures. First, the GSEs will

wWw.treas.gov/press/releases/hpI156.htm

I O/22/20()~

-IP-1l56: Relnarh by Treasury Ut'lder Secretary for International Aft~lirs <br>David H. McCormick <...

Page 4 01'4

increase their purchases of mortgage-backed securities in their portfolios. Second,
Treasury will expand the purchase of mortgage-backed securities through a
program that we announced earlier this month. These two measures will provide
some initial support to mortgage assets, but they will not address the broader issue
of asset illiquidity that the troubled asset purchase program will.
Third, we have taken steps to improve market operations and integrity. The
Securities and Exchange Commission took temporary emergency action to prohibit
short selling in financial companies to protect the integrity and quality of the
securities market and strengthen investor confidence. The SEC's exceptional
actions for these extraordinary times were joined by regulators in the UK, France,
Germany, and other countries in imposing temporary bans on short selling.
Conclusion
Ladies and Gentleman, now is the time to act quickly, decisively, and collaboratively
with regulators and market participants around the world to restore stability and
confidence to our markets. It will no doubt take time to work through the excesses
that were built up over a number of years. U.S. policymakers are implementing
policies that address our short-term economic challenges and rebuild faith in the
market. When we emerge from this difficult period, our next task will be to
strengthen the financial regulatory structure to forestall such excesses in the future.
The interdependence of our global economy makes this challenge more complex,
and it also makes our work with international counterparts to promote growth and
financial stability all the more important.
Thank you.
-30-

www.treas.gov/press/releases/hpl156.htm

lO/221200X

HP-llS'/ .~tatement by Assistant Secretary for Public Amlirs and Director of Policy Planning Michele .. , Page I of I

/~~~, PRESS

ROOM

\~ u.s. OEPARTMEIIT Of THE TREASURY

~,.
,

September 26, 2008
HP-1157

Statement by Assistant Secretary for Public Affairs and Director of Policy
Planning Michele Davis
Washington, DC-- Treasury issued the following statement by Assistant Secretary
for Public Affairs and Director of Policy Planning Michele Davis:
"Secretary Paulson appreciates the hard work by members on both sides of the
aisle to address the threat we face to our economy, Noting difficult credit market
conditions, he urged members of both parties to complete legislation quickly.
Treasury staff has been working with Congressional committee staff since
Saturday. There are still open issues to be resolved, and we are committed to
resolving them."

www.treas.goy/press/reieases/hpl157.htm

IO/221200R

~P-1158: Fact Sheet: Filial Report of the

Advisory Committee on the Auditing Profession

/~~~, PRESS ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

Pagelof2

~.
(,

September 26, 2008
HP-1158

Fact Sheet: Final Report of the Advisory Committee on the Auditing
Profession
The U.S. Treasury Department's Advisory Committee on the Auditing Profession
adopted a Final Report containing more than 30 recommendations to improve the
sustainability of the public company auditing profession. The report is separated
into three sections by principal areas of focus.

Human Capital recommendations focused on improving accounting education and
strengthening human capital, including:
•

•

•

•

•

Implementation of accounting education curricula and content that
continuously evolves to reflect current market developments to help prepare
new entrants to the profession.
Improvement of the representation and retention of minorities in the auditing
profession through mentoring programs and recruiting at community
colleges.
Ensuring an adequate supply of qualified accounting faculty through public
and private sector funding to meet future demands and help prepare
students to execute high quality audits.
Development and maintenance of demographic data on the accounting
profession so that the profession can understand the human capital
situation and its impact on the profession's future and sustainability.
Study of the future of education for the accounting profession, including the
potential for graduate schools of accounting, to determine the best way to
educate students to deal with the challenging financial reporting and
auditing environment.

Firm Structure and Finances recommendations focused on enhancing auditing
firm governance, transparency, responsibility, communications, and audit quality,
including:
•

•

•

•
•

•
•

Creation of a national center at the Public Company Accounting Oversight
Board to provide a forum for auditing firms and other market participants to
share their fraud detection experiences in order to improve audit quality.
Granting accountants licensed in one state with reciprocity to practice in
other states to foster a more efficient operation of the capital markets given
the multi-state operations of many public companies and multi-state
practices of many auditing firms.
Exploration of the feasibility of appointing independent members with full
voting power to firm boards and/or advisory boards to improve the
governance and transparency of auditing firms.
Enhancement of disclosure requirements regarding public company auditor
changes will improve transparency and enhance investor confidence.
Enhancements to make the auditor's standard reporting model more useful
to investors by including more relevant information, such as key accounting
estimates and judgments.
Mandating the engagement partner's signature on the auditor's report to
improve accountability among auditing firms.
Requirement for larger auditing firms to produce a public annual report with
relevant firm information and file on a confidential basis with the PCAOB
audited financial statements to improve transparency at auditing firms.

The Concentration and Competition recommendations focused on ways to
increase audit market competition and auditor choice, including:
•

Having the PCAOB monitor potential sources of catastrophic risk at auditing
firms to prevent reduced auditor choice and significant market disruptions.

www.treas.goy/press/releases/hpl158.htm

I O/22/2()()~

HP-1158: Paot Sheet: FilIal Report of the Advisory Committee on the Auditing Profession

Page 2 01'2

•

Creation of a mechanism for the preservation and rehabilitation of troubled
larger public company auditing firms to prevent reduced auditor choice and
significant market disruptions.
• Development and publication of key indicators of audit quality and
effectiveness to promote competition and choice in the industry based on
audit quality.
• Promotion of the understanding of and compliance with auditor
independence requirements to enhance investor confidence in the quality of
audit processes and audits.
• Adoption of annual shareholder ratification of public company auditors by all
public companies to enhance the audit committee's oversight to ensure that
the auditor is suitable for the company's size and financial reporting needs.
• Enhancement of collaboration and coordination between the PCAOB and its
foreign counterparts so that investors can be confident that auditing firms of
all sizes are contributing effectively to audit quality.

www.treas.gov/pressireleases/hpI158.htm

IO/221200X

~HP-1159: Tlea~ury Advisory Committee on the Auditing Profession Adopts Final Report<br>

Pagelof2

September 26,2008
HP-1159
Treasury Advisory Committee on the Auditing Profession Adopts Final
Report
Washington - The U,S, Treasury Department's Advisory Committee on the
Auditing Profession, led by co-chairs Arthur Levitt, Jr, and Donald T, Nicolaisen,
voted today to adopt its Final Report containing more than 30 recommendations to
improve the sustainability of the public company auditing profession,
"The Advisory Committee members, particularly Co-Chairs Levit! and Nicolaisen,
have devoted a great amount of effort and time developing the recommendations to
sustain a vibrant and robust auditing profession," said Treasury Secretary Henry M.
Paulson, Jr. "Their work will contribute to and shape the necessary work of
encouraging investor confidence in our financial markets."
Recommendations focused on three specific areas: improving accounting education
and strengthening human capital; enhancing auditing firm governance,
transparency, responsibility, communications, and audit quality; and increasing
audit market competition and auditor choice. For more information, please see the
Final Report Fact Sheet.
Secretary Paulson created the committee in May 2007 to examine key issues
facing the auditing profession to encourage greater investor confidence. He tapped
former Securities and Exchange Commission Chairman Levit! and former SEC
Chief Accountant Nicolaisen as co-chairmen to lead the committee.
"The health of the U.S. accounting industry is an essential element in the coming
decade of transparency which will impact every business, legislative, and rulemaking judgment both domestically and internationally. Reliable numbers from
accountants mindful of their public responsibilities are critical to the competitive
success of U.S. companies," Co-Chair Levitt said. "The continuing health of
auditing firms, both large and small, has been the mandate of a diverse commission
representing both industry and investor interests. This final report will provide
industry and policymakers with a template for change."
"This is the first study of its kind since enactment of Sarbanes-Oxley and the
Committee's work reinforces the critical role of the independent auditor to enabling
trust and confidence in our capital markets," said Co-Chair Nicolaisen. "The
Committee members brought exceptional intellect and experience to the process
and I'm extremely appreciative of their efforts to work toward consensus views.
Their recommendations are sound and their enactment will strengthen the auditing
profession. "
Committee members represented a diverse set of views, including investors,
auditors, financial institutions, large and small public companies, lawyers, former
regulators, and universities.
Secretary Paulson hosted a conference at Georgetown University in March 2007 to
examine ways to improve the competitiveness of U.S. capital markets. Secretary
Paulson and conference participants identified financial reporting and investor
confidence as major factor in our domestic markets' competitiveness. The
Committee held its first meeting in October 2007.

-30-

www.treas.gov/press/releases/hpI159.htm

10/22i20()X

HP-1159: Treasury AdvisolY Cummittee on the Auditing Profession Adopts Final Report<br/

Page 2 01'2

REPORTS

ltlp:IIwww.treas.gov/press/releases/hpI159.htm

1O/22/200~

HP-1158: Fact Sheet. Final Report of the Advisory Committee on the Auditing Profession

Pagelof2

September 26, 2008
HP-1158
Fact Sheet: Final Report of the Advisory Committee on the Auditing
Profession
The U.S. Treasury Department's Advisory Committee on the Auditing Profession
adopted a Final Report containing more than 30 recommendations to improve the
sustainability of the public company auditing profession. The report is separated
Into three sections by principal areas of focus.
Human Capital recommendations focused on improving accounting education and
strengthening human capital, including:
Implementation of accounting education curricula and content that
continuously evolves to reflect current market developments to help prepare
new entrants to the profession.
• Improvement of the representation and retention of minorities in the auditing
profession through mentoring programs and recruiting at community
colleges.
• Ensuring an adequate supply of qualified accounting faculty through public
and private sector funding to meet future demands and help prepare
students to execute high quality audits.
• Development and maintenance of demographic data on the accounting
profession so that the profession can understand the human capital
situation and its impact on the profession's future and sustainability.
• Study of the future of education for the accounting profession, including the
potential for graduate schools of accounting, to determine the best way to
educate students to deal with the challenging financial reporting and
auditing environment.
•

Firm Structure and Finances recommendations focused on enhancing auditing
firm governance, transparency, responsibility, communications, and audit quality,
including:
Creation of a national center at the Public Company Accounting Oversight
Board to provide a forum for auditing firms and other market participants to
share their fraud detection experiences in order to improve audit quality.
• Granting accountants licensed in one state with reciprocity to practice in
other states to foster a more efficient operation of the capital markets given
the multi-state operations of many public companies and multi-state
practices of many auditing firms.
• Exploration of the feasibility of appointing independent members with full
voting power to firm boards and/or advisory boards to improve the
governance and transparency of auditing firms.
• Enhancement of disclosure requirements regarding public company auditor
Changes will improve transparency and enhance investor confidence.
• Enhancements to make the auditor's standard reporting model more useful
to investors by including more relevant information, such as key accounting
estimates and judgments.
• Mandating the engagement partner's signature on the auditor'S report to
improve accountability among auditing firms.
• Requirement for larger auditing firms to produce a public annual report with
relevant firm information and file on a confidential basis with the PCAOB
audited financial statements to improve transparency at auditing firms.
•

The Concentration and Competition recommendations focused on ways to
increase audit market competition and auditor choice, including:
•

Having the PCAOB monitor potential sources of catastrophic risk at auditing
firms to prevent reduced auditor choice and significant market disruptions.

www.treas.goy/press/releases/hpI158.htm

IOl221200X

HP-1158: }act Sheet: filial Repon of the Advisory Committee on the Auditing Profession

Page 2 01'2

•

Creation of a mechanism for the preservation and rehabilitation of troubled
larger public company auditing firms to prevent reduced auditor choice and
significant market disruptions.
• Development and publication of key indicators of audit quality and
effectiveness to promote competition and choice in the industry based on
audit quality.
• Promotion of the understanding of and compliance with auditor
independence requirements to enhance investor confidence in the quality of
audit processes and audits.
• Adoption of annual shareholder ratification of public company auditors by all
public companies to enhance the audit committee's oversight to ensure that
the auditor is suitable for the company's size and financial reporting needs.
• Enhancement of collaboration and coordination between the PCAOB and its
foreign counterparts so that investors can be confident that auditing firms of
all sizes are contributing effectively to audit quality.

www.treas.gov/press/releases/hplls8.htm

IOI221200X

-IP-1160: McCormick Statement on the Clean Technology Fund

Page 1 of I

September 26, 2008
HP-1160
McCormick Statement on the Clean Technology Fund
Washington - Undersecretary for International Affairs David H. McCormick issued
the following statement on today's Clean Technology Fund pledging conference at
the World Bank:
"Today's pledging conference at the World Bank was a major step forward in
building the financial base of the new Clean Technology Fund, which now has the
resources it needs to begin the important work of reducing greenhouse gas
emissions growth in the developing world. With more than $5 billion in proposed
contributions by seven donor countries, including $2 billion the administration has
requested from Congress, the Fund is now in a position to launch in October and
begin financing projects by early 2009. The United States is firmly committed to the
Clean Technology Fund and its mission to help developing countries make
transformational investments in clean technology that will be necessary to move
them onto cleaner development paths."
-30-

ttp:llwww.treas.gov/press/releases/hpl160.htm

I O/22/2()O~

i1p-1161: Treasury Anlluunces Temporary Guarantee Program for Money Market Funds

Page I of 2

September 29, 2008
hp-1161
Treasury Announces Temporary Guarantee Program for Money Market Funds
Washington- The U.S Treasury Department today opened its Temporary
Guarantee Program for Money Market Funds. The U.S. Treasury will guarantee the
share price of any publicly offered eligible money market mutual fund - both retail
and institutional - that applies for and pays a fee to participate in the program.
All money market mutual funds that are regulated under Rule 2a-7 of the
Investment Company Act of 1940, maintain a stable share price of $1, and are
publicly offered and registered with the Securities and Exchange Commission will
be eligible to participate in the program. Treasury first announced this program on
Friday, September 19.
The temporary guarantee program provides coverage to shareholders for amounts
that they held in participating money market funds as of the close of business on
September 19, 2008. The guarantee will be triggered if a participating fund's net
asset value falls below $0.995, commonly referred to as breaking the buck.
The program is designed to address temporary dislocations in credit markets. The
program will exist for an initial three month term, after which the Secretary of the
Treasury will review the need and terms for extending the program. Following the
initial three month term, the Secretary has the option to renew the program up to
the close of business on September 18, 2009. The program will not automatically
extend for the full year without the Secretary's approval, and funds would have to
renew their participation at the extension point to maintain coverage. If the
Secretary chooses not to renew the program at the end of the initial three month
period, the program will terminate.
To participate in the program, the Treasury Department will require money market
funds with a net asset value per share greater than or equal to $0.9975 as of the
close of business on September 19, 2008, to pay an upfront fee of 0.01 percent, 1
basis point, based on the number of shares outstanding on that date. Funds with
net asset value per share of greater than or equal to $0.995 and below $0.9975 as
of the close of business on September 19, 2008, will be required to pay an upfront
fee of 0.015 percent, 1.5 basis points, based on the number of shares outstanding
on that date. These fees will only cover the first three months of participation in the
program.
Funds with a net asset value below $0.995 as of the close of business on
September 19, 2008, may not participate in the program.
While the program protects the accounts of investors, each money market fund
makes the decision to sign-up for the program. Investors cannot sign-up for the
program individually. Funds should apply by October 8,2008 for the program using
the forms on the program webpage:

Eligible funds include both taxable and tax-exempt money market funds. The
Treasury and the IRS issued guidance that confirmed that participation in the
temporary guarantee program will not be treated as a federal guarantee that
jeopardizes the tax-exempt treatment of payments by tax-exempt money market
funds.
President George W Bush approved the use of existing authorities by Secretary
Henry M. Paulson, Jr. to make available as necessary the assets of the Exchange
Stabilization Fund to guarantee the payment

www.treas.goy/press/releases/hpl161.htm

1O/22/20()~

1p-1161: Tre<t3UI)' Annoullces TCltll)Orary Guarantee Program for Money Market Funds

Page 2 01'2

The Exchange Stabilization Fund was established by the Gold Reserve Act of 1934,
as amended, and has approximately $50 billion in assets. This Act authorizes the
Secretary of the Treasury, with the approval of the President, "to deal in gold,
foreign exchange, and other instruments of credit and securities" consistent with the
obligations of the U.S. government in the International Monetary Fund to promote
international financial stability. More information on the Exchanqe Stabilization Fund
can be found at

- 30 -

www.treas.goy/press/reieases/hpi161.htm

lO/221200X

HP-1162: Stll;t~ment by Secretary Hoory M. Paulson, Jr. on Emergcncy Economic Stabilization Act

"/~~~, PRESS ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

Pagc I of 1

~,.
,

September 28, 2008
HP-1162
Statement by Secretary Henry M. Paulson, Jr. on Emergency Economic
Stabilization Act
Washington, DC -- Treasury issued the following statement by Secretary Henry M.
Paulson, Jr. on the Emergency Economic Stabilization Act of 2008:
I thank my colleagues on both sides of the aisle for their hard work over a very short
time period to craft strong legislation that will enable us to strengthen our financial
markets and promote the flow of credit to businesses and consumers that is so vital
to our economic growth and prosperity. This bill provides the necessary tools to
deploy up to $700 billion to address the urgent needs in our financial system,
whether that be by purchasing troubled assets broadly, insuring troubled assets, or
averting the potential systemic risk from the disorderly failure of a large financial
institution. I am confident this legislation gives us the flexibility to unclog our
financial markets and increase the ability of our financial institutions to deliver the
credit that will help create jobs. We are taking the steps needed to be ready to
begin implementing this legislation as soon as it is signed.
Members on both sides were focused on the right things - creating an effective
program that can be implemented quickly and effectively, and doing everything
possible to protect the taxpayers.
Quick, effective and bipartisan action sends a signal to investors large and small,
here and abroad, that we are committed to taking the necessary actions to protect
our financial system and our economy. The American people will recognize the
leadership you have all shown to protect them - to preserve their access to credit,
and preserve jobs.
- 30 -

IVWw.treas.goY/pressireieases/hp 1162.htm

lO/221200X

hp-1163: Freyucntly Asked QuestiOi1S About Treasury's Temporary Guarantee Program for Money Ma ... Page 1 of4

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

~,.
•

September 29, 2008
hp-1163
Frequently Asked Questions About Treasury's Temporary Guarantee
Program for Money Market Funds
Media Advisory October 16, 2008
How does an investor sign up to participate in the Treasury's Temporary
Guarantee Program for Money Market Funds?
While the program protects the shares of all money market fund investors as of
September 19, 2008, each money market fund makes the decision to sign up for
the program. Investors cannot sign up for the program individually.
How will investors know if their money market fund participates in the
program?
Investors should contact their money market fund directly to determine if it is
participating in the program.
What type of funds does the program cover?
All money market mutual funds that are regulated under Rule 2a-7 of the
Investment Company Act of 1940, are publicly offered, are registered with the
Securities and Exchange Commission and maintain a stable share price of $1 will
be eligible to participate in the program. This includes both taxable and non-taxable
funds.
Is an investor in a fund that is managed like a money market fund but that is
not registered with the SEC covered?
No, the program only covers money market funds that are regulated under Rule 2a7 of the Investment Company Act of 1940, are publicly offered, are registered with
the Securities and Exchange Commission and maintain a stable share price of $1
will be eligible to participate in the program. This includes both taxable and nontaxable funds.
When will my fund be covered by the program?
Each fund must decide to participate in the program. If your fund participates in the
program, your investment as of September 19, 2008 will be covered.
How much of an investor's money market fund is insured? Is there a limit to
the amount of coverage the Program can provide?
The program provides a guarantee based on the number of shares held in a
specific fund at the close of business on September 19, 2008. Provided the specific
fund is participating in the Program, there is no limit on the amount of shares that
can be covered, provided the designated shareholder of record owned the shares
as of September 19, 2008.
What happens if the number of shares an investor holds in a specific fund
increases above the level at the close of business on September 19, 2008?
The program provides a guarantee based on the number of shares held in a
specific fund at the close of business on September 19, 2008. Any increase in the
number of shares held in a specific fund after the close of business on September

wWw.treas.gov/press/releases/hpl163.htm

10/22/2008

hp-1163: Frequently Askeu QuestiOns About Treasury's Temporary Guarantee Program for Money Ma... Page 2 of 4
19, 2008 will not be guaranteed
Examples Include:
1.

2.

If an investor owned 100 shares in a specific money market fund as of close
of business September 19, 2008, but owns 150 shares in the same fund on
the day a Guarantee Event occurs, then that investor will be guaranteed
only for 100 shares. The fund, upon liquidation, will distribute proceeds from
the assets to the extent available to the shareholder for the additional 50
shares, at net asset value.
If an investor owned no shares in a specific fund as of close of business
September 19, 2008, but owns 100 shares in a fund on the day a Guarantee
Event occurs, none of the investor's shares are guaranteed by the program
and the investor will receive the net asset value directly from the fund.

What happens if the number of shares an investor holds in a specific fund
decreases below the level held at the close of business on September 19,
2008?
The program provides a guarantee based on the number of shares held in a
specific fund at the close of business on September 19, 2008. If a Guarantee Event
occurs and an investor holds less than the level of shares originally held in the
specific fund on September 19, 2008, only the amount of shares held when the
Guarantee Event occurs will be covered.
Examples Include:
1.

For example, if an investor owned 100 shares in a specific money market
fund as of close of business September 19, 2008, but owns 50 shares in the
same fund on the day a Guarantee Event occurs, then that investor will be
guaranteed for 50 shares.

Assume an investor owns shares at the close of business on September 19,
2008 in a specific fund that is participating in the Program. What happens if
the investor transfers funds from the specific fund held on September 19,
2008 to another fund that is also participating in the Program?
The program provides a guarantee based on the number of shares held in a
specific fund at the close of business on September 19, 2008. Any contribution
after the close on September 19, 2008 to another fund that is participating in the
program - even one that is in the same fund family - will not be covered.
Assume an investor owns shares at the close of business on September 19,
2008 in a specific fund that is participating in the Program. Assume that after
the close on September 19, 2008 the investor transfers funds from the
specific fund held on September 19, 2008 to another fund. Can the investor
now transfer funds back to the original fund held on September 19, 2008 and
still be covered? What happens if the investor transfers all of his funds and
the balance goes to zero?
The program provides a guarantee based on the number of shares held in a
specific fund at the close of business on September 19, 2008. The number of
shares held by the investor in a specific fund may fluctuate - including reaching a
zero balance - provided that at all times the investor maintains his account with the
same fund family, broker, or other intermediary where the shares were originally
held. If the account is closed and the investor reopens a new account, even if it is
with the same institution where the shares were originally held, it will not be
covered.
Examples Include
1.

2.

If an investor owned 100 shares in a specific fund as of close of business
September 19, 2008, subsequently sold the 100 shares, and then
repurchased 100 shares in the same specific fund prior to a Guarantee
Event, the investor would be covered for 100 shares.
If an investor owned 100 shares in a specific fund as of close of business
September 19, 2008, subsequently sold the 100 shares, and then

wWw.treas.goy/press/releases/hpl163.htm

lOl22/200X

1163: Frequently Askeu Questions About Treasury's Temporary Guarantee Program for Moncy Ma... Pagc 3 of 43.

repurchased 125 shares in the same specific fund prior to a Guarantee
Event, the investor would be covered for only 100 shares.
If an investor owned 100 shares in a specific fund as of close of business
September 19, 2008, subsequently sold the 100 shares, and then
repurchased 100 shares in another fund that is participating in the program,
the investor would not be covered.

Assume an investor owns shares in a participating fund at the close of
business on September 19, 2008 in one ownership structure (e.g. directly,
through a broker or other intermediary, or through another vehicle like a 401
(k) or IRA). Can the investor transfer his shares in the same specific fund and
hold them through a different ownership structure (i.e. to a new direct
ownership structure, a new broker or other intermediary, or a new vehicle like
a 401 (k) or IRA) and still be covered?
No. Transferring shares from one ownership structure to another would be deemed
to be a new investment made after September 19, 2008 and would not be eligible
for coverage.
What if another fund in an investor's fund family breaks the buck before this
program starts? Is the investor covered?
The program provides a guarantee on a fund-by-fund basis up to the amount of
shares held as of the close of business on September 19, 2008. The performance
of a different fund, even one in the same fund family of the investor's fund, doesn't
affect the investor's fund's eligibility. Investors should contact their fund to
determine if their fund participates in the program.
When does the program terminate?
The program is designed to address temporary dislocations in credit markets. The
program will be in effect for an initial three month term, after which the Secretary of
the Treasury will review the need and terms for the program and the costs to
provide the coverage. The Secretary has the option to extend the program up to
the close of business on September 18, 2009. In order to maintain coverage, funds
would have to renew their participation in the program after each extension. If the
Secretary chooses not to extend the program at the end of the initial three month
period, the program will terminate.
Who provides this guarantee? Are investors able to get all of their money
back whenever they want?
The U.S. Treasury Department, through the Exchange Stabilization Fund, is
providing this guarantee. In the event that a participating fund breaks the buck and
liquidates, a guarantee payment should be made to investors through their fund
within approximately 30 days, subject to possible extensions at the discretion of the
Treasury.

Is shareholder in a fund that broke the buck before September 19, 2008
covered?
No. This does not meet the program's eligibility criteria noted above.
What should shareholders in a participating fund that breaks the buck do?
Who should they call?
If your fund enrolled in the program you will be covered and do not need to take any
action. Shareholders should contact their fund directly.
Who should a fund contact if it has further questions about this program?
Please e-mail the Treasury Department at

www.treas.gov/presslreleases/hpI163.htm

1012212008

HP-1164: Sthtemcnt by Sccretary Paulson on the Sale of Wachovia Bank

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

Page 1 of 1

~,.
•

September 29, 2008
HP-1164
Statement by Secretary Paulson on the Sale of Wachovia Bank
Washington - Treasury issued the following statement by Secretary Henry M.
Paulson, Jr. on the sale of Wachovia Bank:
"1 commend the action taken by Chairman Bair and the FDIC today to facilitate the
sale of Wachovia Bank to Citigroup in an orderly fashion to mitigate potential
market disruptions. I agree with the FDIC and the Federal Reserve that a failure of
Wachovia would have posed a systemic risk. As a result of this transaction, all
Wachovia depositors will be protected and Wachovia's senior and subordinated
debt will be assumed by Citigroup. The FDIC's actions help to mitigate potential
systemic risk to our financial system. As I have said before, in this period of market
stress, we are committed to taking all actions necessary to protect our financial
system and our economy."

-30-

wWw.treas.gov/press/releases/hpI164.htm

1O/22/200~

!tir-1 165 : Treasury Releases New Guidance Helping Soldiers Keep Health FSAs Funds

10 view

Page I of I

or print the /-,UI- content on tillS page, CfowflloaCf tne Tree

September 29, 2008
HP-1165
Treasury Releases New Guidance Helping Soldiers Keep Health FSAs Funds
Washington, DC--The Treasury Department and Internal Revenue Service today
issued Notice 2008-82, which protects reservists from losing funds in their health
FleXible Spending Arrangement (health FSA) accounts after being called to active
duty,
The Heroes Earnings Assistance and Relief Tax Act of 2008, enacted June 17,
2008, provided a special rule allowing "qualified reservist distributions" (ORDs) of
unused amounts in a health FSA to reservists called to active duty, Under the
existing rules for health FSAs, distributions could only be made to reimburse
substantiated medical expenses, and any funds left unspent at the end of the plan
year would be lost. This special rule allows reservists to make a distribution before
leaving for active duty so as not to lose those savings,
The guidance clarifies that:
•
•

•
•

•

The provision is optional for employers;
Health FSAs must be amended if an employer wants to allow ORDs; a
transition rule allows plans to be amended effective retroactively to provide
for ORDs prior to January 1, 2010;
ORDs are included in the income and wages for the reservist;
Employees may request a ORO when they receive an order or call to active
duty, and before the last day of the plan year (and grace period, if
applicable); and
Employers may allow employees to continue to participate in the health FSA
after the ORO if amounts remain in the health FSA

Notice 2008-82 is attached,
-30-

REPORTS

•

www.treas.gov/press/releases/hplI65.htm

10/22120()X

Part III - Administrative, Procedural, and Miscellaneous
Cafeteria Plans
Notice 2008-82
PURPOSE AND BACKGROUND
Section 114 of the Heroes Earnings Assistance and Relief Tax Act of 2008 (the
HEART Act), enacted June 17, 2008, Pub. L. No. 110-245, amended section 125 of the
Internal Revenue Code to provide a special rule allowing distributions of unused
amounts in a health Flexible Spending Arrangement (health FSA) to reservists ordered
or called to active duty. Section 114 of the HEART Act applies to distributions made on
or after June 18, 2008.
Generally, new subsection 125(h) provides that a plan or other arrangement
does not fail to be a cafeteria plan or health FSA merely because the arrangement
provides, in certain circumstances, for "qualified reservist distributions" (ORDs) to an
employee of all or a portion of the balance of the employee's unused amounts in the
health FSA. This notice provides guidance on QRDs from health FSAs. It also includes
a transition rule allowing plans to be retroactively amended for OR Os made before
January 1, 2010.
QUALIFIED RESERVIST DISTRIBUTION
In general, a ORO is a distribution to an individual of all or a portion of the balance in
the employee's health FSA if: (1) the individual is a member of a reserve component
ordered or called to active duty for a period of 180 days or more or for an indefinite
period and (2) the request for distribution is made during the period beginning with the
order or call to active duty and ending on the last day of the plan year (or grace period,
if applicable, under Prop. Treas. Reg. § 1.125-1 (e)) that includes the date of the order or

call to active duty. OROs are an exception to the rule that a health FSA may not make
distributions other than reimbursements of sUbstantiated medical expenses. See Prop.
Treas. Reg. § 1.125-6.
ORO OPTIONAL WITH EMPLOYER
A cafeteria plan is not required to provide for a ORO. The decision of whether to
allow a ORO from a health FSA is optional with the employer.
PLAN MUST BE AMENDED
A ORO may not be made before the cafeteria plan is amended to provide for a
ORO from a health FSA. Pursuant to the requirements of Prop. Treas. Reg. §1.1251(c), a plan may be amended at any time on a prospective basis. The ORO
amendment must apply uniformly to all participants in the cafeteria plan.
TRANSITION RULE FOR OROS MADE BEFORE JANUARY 1, 2010
Notwithstanding the general rule that amendments to cafeteria plans and health
FSAs may only be effective prospectively from the date of the plan amendment and that
a ORO may not be made before the cafeteria plan is first amended to provide for OROs,
a plan may be amended retroactively to permit OROs requested on or before December
31,2009, provided that the ORO satisfies the other requirements in this notice. The
retroactive amendment must be made by December 31,2009, and be effective
retroactively to the date of the first ORO paid under the plan, but not prior to June 18,
2008. This transition rule does not extend the period during which an employee may
request a ORO. Thus, regardless of when the plan is amended, the transition rule does
not allow an employee to request a ORO with respect to a plan year after the last day of

2

the plan year (or grace period, if applicable) during which the order or call to active duty
occurred.
EMPLOYEES WHO MAY RECEIVE OROs
An employee who is, by reason of being a member of a reserve component (as
defined in 37 U.S.C. § 101

1

),

ordered or called to active duty for a period of 180 days or

more or for an indefinite period may request a ORO. An individual ordered or called to
active duty before June 18, 2008 is eligible for a ORO if the individual's period of active
duty continues after June 18, 2008 and meets the duration requirements in this notice.
A QRO may not be made based on an order or call to active duty of any individual other
than the employee, including the spouse of the employee.
After an employee requests a ORO and before the employer may distribute an
amount, the employer must first receive a copy of the order or call to active duty. An
employer may rely on the order or call to determine the period that the employee has
been ordered or called to active duty. If the order or call specifies that the period of
active duty is for 180 days or more or is indefinite, the employee is eligible for a ORO,
and the employee's eligibility is not affected if the actual period of active duty is less
than 180 days or is otherwise changed.
If the period specified in the order or call is less than 180 days, a ORO is not
allowed. However, subsequent calls or orders that increase the total period of active
1 Under paragraph 24 of section 101 of title 37 of the United States Code, the term "reserve component"
means-(A) the Army National Guard of the United States;
(6) the Army Reserve;
(C) the Navy Reserve;
(0) the Marine Corps Reserve;
(E) the Air National Guard of the United States;
(F) the Air Force Reserve;
(G) the Coast Guard Reserve; or
(H) the Reserve Corps of the Public Health Service.

3

duty to 180 days or more will qualify an employee for a ORO. Thus, for example, if an
employee is ordered or called to active duty for 120 days, and his or her order or call is
subsequently extended for an additional 60 days, that individual qualifies for a QRO.
AMOUNT AVAILABLE AS A ORO
If a cafeteria plan provides for OROs, the cafeteria plan amendment should
indicate how the plan will determine an employee's health FSA balance for purposes of
making OROs. See uniform coverage rules in Prop. Treas. Reg. § 1.125-5(d). The
cafeteria plan may provide that the amount available as a ORO will be:
(1) the entire amount elected for the health FSA for the plan year minus health
FSA reimbursements received as of the date of the ORO request;
(2) the amount contributed to the health FSA as of the date of the ORO request
minus health FSA reimbursements received as of the date of the ORO request; or
(3) some other amount (not exceeding the entire amount elected for the health
FSA for the plan year minus reimbursements).
If the cafeteria plan amendment does not indicate how the plan will determine the
amount available as a ORO, then the amount available shall be the amount contributed
to the health FSA as of the date of the ORO request minus health FSA reimbursements
received as of the date of the ORO request.
A ORO may only be made with respect to an employee's health FSA balance in
existence on or after June 18, 2008. A ORO may not be made with respect to amounts
(1) forfeited on or before June 18, 2008, (2) attributable to a prior plan year (including a
plan year ending on or before June 18, 2008), or (3) attributable to non-health FSAs.

4

CAFETERIA PLAN ORD PROCEDURES
The cafeteria plan may specify a process for employees to request a ORD. The
cafeteria plan may specify how many ORDs may be made with respect to an employee
during the same plan year. A plan must permit an employee to submit health FSA
claims for medical expenses incurred before the date a ORD is requested and must pay
or reimburse substantiated claims for those medical expenses. With respect to medical
expenses incurred after the date a ORD is requested, the plan may either:
(1) permit employees to continue to submit health FSA claims incurred before the
end of the health FSA plan year (and grace period, if applicable); or
(2) terminate an employee's right to submit claims.
WHEN TO REOUEST A ORD AND MAKE A DISTRIBUTION
An employee must request a ORD on or after the date of the order or call to
active duty, and before the last day of plan year (or grace period, if applicable) during
which the order or call to active duty occurred. An employer must pay the ORD to the
employee within a reasonable time, but not more than sixty days after the request for a
ORD has been made. A ORD may not be made with respect to a plan year ending
before the order or call to active duty. In addition, a ORD may only be made on or after
the effective date of amendment of the plan to provide for ORDs. But see above for a
transition rule for ORDs made before January 1,2010.
CAFETERIA PLAN NONDISCRIMINATION RULES
ORDs must be uniformly available to all plan participants. The ORD amounts are
disregarded for purposes of the cafeteria plan nondiscrimination rules.

5

TAXATION OF A ORO
A ORO is included in the gross income and wages of the employee, and is
subject to employment taxes. The employer must report the ORO as wages on the
employee's Form W-2 for the year in which the ORO is paid to the employee. The
amount reported as wages is reduced by any amount in the health FSA representing
after-tax contributions (such as COBRA continuation premiums).
EFFECTIVE DATE
New section 125(h) is effective for a ORO made on or after June 18, 2008.
EFFECT ON OTHER DOCUMENTS
Future guidance will amend the § 125 Income Tax Regulations to provide an
exception for ORDs as described in new § 125(h).
COMMENTS REOUESTED
The IRS and the Treasury Department request comments on the amendment
made by section 114 of the HEART Act, including the guidance set forth in this notice
and on any other issues concerning ORDs.
Comments should be submitted on or before [Insert date ninety days after
publication], and should include a reference to Notice 2008-82. Send submissions to
CC:PA:LPD:PR (Notice 2008-82), Room 5203, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand
delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (Notice 2008-82), Courier's Desk, Internal Revenue Service, 1111
Constitution Avenue, NW, Washington, DC 20044, or sent electronically, via the

6

following e-mail address: Notice.comments@irscounse/.treas.gov. Please include
"Notice 2008-82" in the subject line of any electronic communication. All material
submitted will be available for public inspection and copying.
DRAFTING INFORMATION
The principal author of this notice is Mireille Khoury of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However,
other individuals participated in its development. For further information regarding this
notice contact Ms. Khoury at (202) 622-6080 (not a toll-free call).

7

HP-1167: Stawment by A5si:slallt Secretary Michele Davis on<br> Emergency Economic Stabilization ... Page 1 of I

/~~~, PRESS

ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

~,.
,

September 29,2008
HP-1167
Statement by Assistant Secretary Michele Davis on
Emergency Economic Stabilization Act Vote
Washington, DC-- Treasury Assistant Secretary for Public Affairs and Director of
Policy Planning Michele Davis issued the following statement on the Emergency
Economic Stabilization Act of 2008 vote:
"The Secretary will be consulting with the President, the Chairman of the Federal
Reserve, and Congressional leaders on next steps. In the meantime, we stand
ready to work with fellow regulators and use all the tools at our disposal, as we
have over the last several months, to protect our financial markets and our
economy."
-30-

·www.treas.gov/presslreleases/hpI167.htm

10/22/2008

W-1166: Dep Sec Kimmitt Remarks at Treasury's Iftaar Dinner

Page 1 of2

September 25, 2008
HP-1166
Dep Sec Kimmitt Remarks at Treasury's Iftaar Dinner
Dear friends, I am honored to be here today to host this Iftaar at the Treasury
Department.
I know that Ramadan is a special time of year for Muslims, and I am pleased that
you have chosen to join me for an Iftaar. It is an opportunity for Treasury to thank
and honor you all for the many contributions you make to the American economy
and to America's place in the rest of the world. America is extremely diverse, and
we treasure that quality. You represent the best that is America, and are integral to
our nation's vitality, prosperity, and growth.
Ramadan represents a time of special devotion to family, to kindness and to charity.
With this in mind, I would like to highlight the Department of the Treasury's efforts
to engage with both the charitable sector and affected communities to advance our
mutual interests in a free, open, tolerant and charitable society: one that
encourages charitable and humanitarian activities, while at the same time
protecting those efforts from abuse.
Providing effective and safe delivery of charitable services in regions at high risk for
illicit finance activities may require creating alternative distribution mechanisms.
Such distribution outlets are achieved through global, charitable partners supported
by the U.S. Government. The aim is straightforward - to provide a safe and
effective way for individuals to contribute into critical regions, where aid is
desperately needed such as the West Bank and Gaza. Such partnerships also aim
to weaken the hold that terrorist organizations have on vulnerable populations by
harnessing a competitive force - the generosity of the American people.
Under the leadership of Dr. Ziad Asali, the American Charities for Palestine (ACP)
and USAID are doing just that through their recent partnership established in
August of this year. ACP, a U.S. non-profit organization, raises funds from the
American charitable sector and donor communities and transfers these funds to
USAID in order to finance specific projects in health care and education that USAID
is administering in the Palestinian Territories. It is our hope that this type of
collaboration will take root and serve as a model for other areas of concern, as well
as encompass other funding streams including that of the international community.
In addition to our efforts in protecting the integrity of giving, the Treasury
Department is actively engaged in promoting investment and economic
development in the Palestinian Territories. In May 2008, President Bush asked me
to lead a Presidential delegation, which included Dr. Asali and also Rob Mosbacher,
President and CEO of OPIC, who are with us this evening, to join President Abbas
and Prime Minister Fayyad at the Palestine Investment Conference in Bethlehem.
This conference was truly a historic and ground breaking event. During my trip to
the region, I discussed the importance of developing a vibrant, healthy private
sector and urged the Palestinian Authority to continue to improve the climate for
business.
The Treasury Department supports other U.S. Government initiatives to promote
investment in the Palestinian economy. Last December, for example, President
Bush and Secretary Rice formally launched the U.S.-Palestinian Public Private
Partnership, which is led by my friend and colleague Walter Isaacson, who heads
the Aspen Institute. The Partnership is developing quick-impact projects to promote
job creation in the West Bank, including establishing an Arabic-language call center

·www.treas.gov/press/releases/hpl166.htm

12/9/2008

-1166: Dep Sec Kimmitt Remarks at Treasury's Iftaar Dinner

Page 2 of

and five youth development and resource centers designed to prepare youth for full
and productive participation in the Palestinian society and economy. By building a
vibrant economy in the Palestinian Territories that is led by the private sector, we
will help improve the lives of people, enhance stability, and bolster prospects for
lasting peace.
Our goal with these initiatives is to enhance the humanitarian, financial, and
economic relationships with Muslim communities here and around the world. We
appreciate that, as members of the global community, we all stand to benefit from
greater coordination, cooperation, and mutual respect - understanding the world we
live in, and contributing to that world in the best way we can.
In this spirit, I look forward to continuing our work together, and am proud of the
progress we are achieving. I especially thank you for your participation,
compassion, and leadership in moving this dialogue forward.
I thank you again for coming to the Treasury Department today and Ramadan
Kareem.

http://www.treas.goy/press/releases/hp1166.htm

12/9/2

P-I167: Statement by Assistant Secretary Michele Davis on<br> Emergency Economic Stabilization A... Page 1 of 1

September 29, 2008
HP-1167
Statement by Assistant Secretary Michele Davis on
Emergency Economic Stabilization Act Vote
Washington, DC-- Treasury Assistant Secretary for Public Affairs and Director of
Policy Planning Michele Davis issued the following statement on the Emergency
Economic Stabilization Act of 2008 vote:

"The Secretary will be consulting with the President, the Chairman of the Federal
Reserve, and Congressional leaders on next steps. In the meantime, we stand
ready to work with fellow regulators and use all the tools at our disposal, as we
have over the last several months, to protect our financial markets and our
economy."
-30-

www.treas.gov/press/releases/hpl167.htm

12/9/2008

I1D1168: Stat\!ment by Secretory llenry M. Paulsoll, Jr. on Emergency Economic Stabilization Act Vote

/~~~, PRESS ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

Page I of I

~.
(,

September 29.2008
hp1168
Statement by Secretary Henry M. Paulson, Jr. on Emergency Economic
Stabilization Act Vote
Washington, DC-- Secretary Henry M. Paulson. Jr. made the following statement
on the Emergency Economic Stabilization Act of 2008 vote in the House:
I'm disappointed in today's vote, but leaders on both sides of the aisle worked
hard. I've spoken to them and I know they share my great disappointment.
We have experienced significant turmoil in our financial markets In the last few
days, including the collapse of Washington Mutual and Wachovia here and the
failure of two major financial institutions in Europe. Markets around the world are
under stress. and that reduces the availability of credit that businesses across
America depend on to meet payroll and to purchase inventories.
Families, too. feel the credit crunch as it becomes more difficult to get car loans or a
student loan.
I and my colleagues at the Fed and the SEC continue to address the market
challenges we are facing on a daily basis. I am committed to continuing to work
with my fellow regulators to use all the tools available to protect our financial system
and our economy.
Our tool kit is substantial but insufficient. Therefore. I will continue to work with
Congressional leaders to find a way forward to pass a comprehensive plan to
stabilize our financial system and protect the American people by limiting the
prospects of further deterioration in our economy.
We've got much work to do. This is much too important to simply let fail.

-30-

~tlP:llwww.treas.gov/press/releases/hpl168.htm

lO/22/200X

hp-1169: Treasury Desi,gnates F ARC International Commission Members

/~~~, PRESS ROOM
,til

u.s. OEPARTME"T OF THE TREASURY

Page I of2

~.
,'

10 view or pnn( (lJe /-,UI- COn(OIl( 011 (1715 page, CiownloaCi (lJe free

September 30, 2008
hp-1169

Treasury Designates FARC International Commission Members
Washington, DC-- The U.S. Department of the Treasury's Office of Foreign Assets
Control (OFAC) today designated eight international representatives of the
Revolutionary Armed Forces of Colombia (FARC), a narco-terrorist organization.
Today's action was taken pursuant to the Foreign Narcotics Kingpin Designation
Act (Kingpin Act), which applies economic sanctions against significant foreign
narcotiCS traffickers and organizations, like the FARC.
"Today's designation exposes eight . International Commission members' of the
FARC," said Adam J. Szubin, Director of OFAC. "Through their service to the
FARC as international representatives and negotiators, these persons provide
material support to a narco-terrorist organization. OFAC is relentless in its pursuit
of exposing those who fuel and support the terrorist activities of the FARC."
The following eight individuals designated today have been identified as the key
members of the FARC's International Commission: Jairo Alfonso Lesmes Bulla
("Javier Calderon"), Efrain Pablo Trejo Freire, Orlay Jurado Palomino
( "Commander Hermes"), Ovidio Salinas Perez ("EI Embajador"), Jorge Davalos
Torres, Francisco Antonio Cadena Collazos ("EI Cura Camilo"), Nubia Calderon de
Trujillo ("Esperanza"), and Liliana Lopez Palacios ("Olga Lucia Marin"). These
International Commission members represent the FARC in Argentina, Chile,
Uruguay, Paraguay, Brazil, Peru, Ecuador, Venezuela, Panama, Mexico, and
Canada.
As representatives of the FARC and members of its International Commission,
these individuals work abroad to obtain recruits, support, and protection for the
FARC's acts of terrorism. Some are also themselves violent criminals. On August
6, 2008, Colombian authorities arrested Jairo Alfonso Lesmes Bulla, the FARC's
International Commission member for Argentina, Chile, Uruguay, and Paraguay, in
Bogota, Colombia for plotting to assassinate the former Interior and Justice Minister
Fernando Londono Hoyos and the brother of Colombian Vice President Francisco
Santos. Orlay Jurado Palomino, the FARC International Commission member for
Venezuela, is wanted in Colombia on charges of kidnapping, rebellion, and
terrorism. In August 2005, the Brazilian Federal Police arrested Francisco AntoniO
Cadena Collazos, the FARC's International Commission Member for Brazil, in Sao
Paulo at the request of Colombian authorities on criminal charges of rebellion. The
Brazilian government later released Cadena Collazos and granted him refugee
status. Nubia Calderon de TrUjillo was recently granted asylum by Nicaragua, even
though she is a member of an internationally recognized narco-terrorist
organization.
In 2003, President George W. Bush identified the FARC as a significant foreign
narcotics trafficker, or drug kingpin, pursuant to the Kingpin Act. In 2001, the State
Department designated the FARC as a Specially Designated Global Terrorist
pursuant to Executive Order 13224, and in 1997 the State Department designated
the FARC as a Foreign Terrorist Organization. This OFAC action continues ongoing
efforts under the Kingpin Act to apply financial measures against significant foreign
narcotics traffickers and their organizations worldwide. In addition to the 75 drug
kingpins that have been designated by the President, 468 businesses and
individuals have been designated by OFAC pursuant to the Kingpin Act since June
2000.
Today's action freezes any assets the designated entities and individuals may have
under U.S. jurisdiction and prohibits U.S. persons from conducting financial or
commercial transactions involving those assets. Penalties for violations of the
Kingpin Act range from civil penalties of up to $1,075,000 per violation to more

!\tD://www.treas.gov/press/releases/hpI169.htm

1012112001\

hp-1169: Treusury Dc:sigllates FARe International Commission Members

Page

~ of~

severe criminal penalties. Criminal penalties for corporate officers may include up
to 30 years in prison and fines of up to $5,000,000. Criminal fines for corporations
may reach $10,000,000. Other individuals face up to 10 years in prison for criminal
violations of the Kingpin Act and fines pursuant to Title 18 of the United States
Code.
For a complete list of the individuals and entities designated today, please visit:
http.!lwww.treasLiry. ~l(lV/offi ces/enforcementiofaciactiolls/illdex .slltrnl
To view previous OFAC actions directed against the FARC, please visit:
•
•
•
•
•
•
•
•

Treasury Action
Treasury Action
Treasury Action
Treasury Action
Treasury Action
Treasury Action
Treasury Action
Treasury Action

against
against
against
against
against
against
against
against

the
the
the
the
the
the
the
the

FARC
FARC
FARC
FARC
FARC
FARC
FARC
FARC

on
on
on
on
on
on
on
on

September 12, 2008.
July 31,2008.
May 7,2008.
April 22, 2008.
January 15, 2008.
November 1, 2007.
September 28,2006.
February 19, 2004.

-30REPORTS

•

Designation Chart

IItp:llwww.treas.gov/press/releases/hpI169.htm

I o/n/~O()~

----

--- - - - _ . - - - -

-

----,
u.s. Department of the Treasury
Office of Foreign Assets Control
--

------

Revolutionary Armed Forces

of Colombia (FARC)
September 2008

-EP

~

----- -_.

Foreign Narcotics Kingpin Designation Act

FARe Designated by the President as a
Significant Foreign Narcotics Trafficker on May 29, 2003

FARC
INTERNATIONAL COMMISSION MEMBERS

in Colombia
Aug 2008

Nubia CALDERON DE TRUJILLO
"Esperanza"
DOB 25 Mar 1956
CC 36159126 (Colombia)
FARC Representative for Ecuador

Francisco Antonio CADENA COLLAZOS
"EI Cura Camilo"
DOB 1 Jan 1947
CC 4904771 (Colombia)

lairo Alfonso LESMES BULLA
"Javier Calderon"
DOB 25 Mar 1947
CC 17164408 (Colombia)

FARC Representative for Brazil

FARC Representative for
Argentina, Chile, Uruguay, Paraguay

Ovidio SALINAS PEREZ
"Juan Antonio Rojas"
DOB 3 Jul 1945
CC 17125959 (Colombia)
FARC Representative for Panama

"-, >

,~'-l

.r 5~!-~I
,~~,

},:;c

i

0INTERPOL
Arrest Warrants

-<..

" <¥/'''~~j.\' .~
,
Efrain Pablo TREJO FREIRE
"Pablo Trejos Freyre"
DOB 07 Jun 1951
CC 13004986 (Colombia)

Jorge DAVALOS TORRES
DOB 14 Dec 1972
CC 94377215 (Colombia)

Orlay JURADO PALOMINO
"Commander Hermes"
DOB 9 Feb 1950
CC 7245990 (Colombia)

Liliana LOPEZ PALACIOS
"Olga Lucia Marin"
DOB 21 Sep 1961
CC 51708175 (Colombia)

FARC Representative for Peru

FARC Representative for Canada

FARC Representative for Venezuela

FARC Representative for Mexico

-IP-1170: A~8i8tttnl Secretary $wagel to Hold Monthly Economic Briefing

/~~~, PRESS

ROOM

I~IJ' u.s. DEPARTMENT OF THE TREASURY

Page I of I

;,.
.

--~

September 30, 2008
HP-1170

Assistant Secretary Swagel to Hold Monthly Economic Briefing
Assistant Secretary for Economic Policy Phillip Swagel will hold a media briefing to
review economic indicators from the last month and discuss the state of the U.S.
economy. The event is open to the media:

Who
Assistant Secretary for Economic Policy Phillip Swagel
What
Economic Media Briefing
When
Friday, October 3, 10:00 a.m. EDT
Where
Treasury Department
Media Room (4121)
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960, or
with the following information:
full name, Social Security number, and date of birth.

lltp:l1w ww .treas.gov/press/releases/hpI170.htm

IO/221200X