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Treas.
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10
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v.450

Department of the Treasury

PRESS RELEASES

Numbers not used HP-1224, 1227 and 1228.

:2008-if)-2-ll-U "1-*4'·1:' .

..;.~.dtement

by Secretary Henry M. Paulson, Jr.'

br>olll~mergellcy

Ecollomic...

Page I

October 1 , 2008
2008-10-2-11-44-54-4819

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 Senate vote on the Emergency Economic Stabilization Act of 2008:
I commend the Senate for tonight's strong, bipartisan vote. This sends a positive
signal that we stand ready to protect the U.S. economy by making sure that
Americans have access to the credit that is needed to create jobs and keep
businesses going. I urge the House to act promptly to pass this bill.
-30-

www.treas.goy/pressireleases/20081021144544819.htm

11/3/~

October 1, 2008
2008-10-1-13-6-6-21696

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 $72,988 million as of the end of that week, compared to $72,087 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 26, 2008
Official reserve assets (In US millions unless otherwise specified) 1

IIEuro

lIyen

IITotal

II
1111.851

11 72 .988

I(a) Securities

II
11 9,590

11 21 ,441

lof which: issuer headquartered in reporting country but located abroad

11 0

I(b) total currency and deposits with

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

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

II
12,680

6,210

Iii) banks headquartered in the reporting country

11 0
11 0

lof which: located abroad
1(lii) banks headquartered outside the reporting country

11 0
11 0

lof which: located in the reporting country
1(2) IMF reserve position 2

14 ,776

1(3) SDRs 2

11 9 ,500

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

11 11 ,041

I--volume in millions of fine troy ounces

11 261 .499

1(5) other reserve assets (specify)

11 7 ,340

I--financial derivatives

I--Ioans to nonbank nonresidents

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

II
11 18 ,890

1 7 ,340

IB Other foreign currency assets (specify)
I--securitles not included in official reserve assets
I--deposits not included in official reserve assets
I--Ioans not included in official reserve assets
--financial derivatives not Included In official reserve assets

I--gold not included in official reserve assets

I --other

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

www.treas.gov/press/releases/2008101136621696.htm

1113/2

Page 2 of4

II
II

I
I

IIMaturity breakdown (residual rnatLmty)
MClIE; tildll .J
Ill()nttls ;1I1c1 uri
1 year
')

Total

More ttlan 1 :lIlcl
up to 3 months

Up to 1 montil

1. Foreign currency loans. securities. and deposits
I--outflows (-)

Ilprlncipal

I
1--lIlfiows (+)

IIlnterest

Illnterest

III

II
II
I

Ilprlnclpal

2 Aggregate short and 1011g posltiollS In forwards and
futures In forelgll currellCles Vis-a-VIS tile domestic
cUITellcy (Illcludrnq tile forward leq of currellcy swapsl
-215.522

I (a) Short [20SltIOI1S ( _ ) 4

-215.522

I (b) LOllg positiolls (+)
I 3. Other (specify)

II
II

I --outflows related to repos (-)
--Ill flows related to reverse repos (+)

--trade credit (-)
--trade credit (+)

--other accoullts payable (-)

--other accoullts receivable (+)

III COlltlllgellt short-term Ilet drarns 011 forelgll currellcy assets (llomillal value)

II
II
I Maturity breakdowll

Total

More thall 3
months alld up tll
1 year

More thall 1 and
up to 3 Illorlths

Up to 1 month

11 Contillgellt liabilities in forelgll currellcy
lI:a) Collatel'al guaralltees on debt falllllg due withlll 1
year

applicable)

II
(residual maturity. where

I(b) Other contillgent liabilities
II~ Foreign currency securities Issued with embedded
OptlOIlS (puttable bonds)

13 Ulldrawil. unconditional credit lilles provided by
(a) other Ilatlonalmonetary authorities. BIS. IMF. alld
other rnternatlonal organizations

I--other natlollal monetary autiloritles (+)

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

(b) with banks and other flllallclallllstltutlollS
headquartered III the reportlllg coulltry (+)

II
II

IliC) With ballks and other flllanclallllstltutlollS
headquartered outside the reporting country (+)
IUndrawll. UIlCOlldltiollal credit Illles provided to.
(a) other Ilatlollal mOlletary authOrities. BIS. IMF. alld
other Illternatiollal orgallizatiolls

I--other national monetary auttlorltles (-)

www.treas.goy/press/releases/2008101136621696.htm

II
II

I
I
11/31200X

Page 301'4
I--BIS (-)

I--IMF (-)

(b) banks and other financial institutions headquaneled
In reponing country (- )
II
II~ c) banks and other flnarlClal institutions headquartered
outSide the reporting country ( - )
II

II~ Aggregate shon and long POSItiOI1S of options In
foreign currencies vis-a-vIs the domestic currency

I
II

I(a) Shon positrons

1(1) Bought puts

I(il) Written calls

I(b) Long positions

1(1) Bought calls

1(11) Wntten puts

iPRO MEMORIA In-the-moneyoptlons
1(1) At current exchange rate
I(a) Shon pOSition
I(b) Long position
1(2) + 5 % (depreCiation of 5%)
I(a) Shon 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) Shon position
I(b) Long pOSition
1(6) Other (specify)
I(a) Shon position
I(b) Long position

IV. Memo items

I
1(1) To be reported with standard periodiCity and timeliness
I(a) shon-term domestic currency debt rndexed to the exchange rate

II~b) financial Instruments denominated
currency)

foreign currency and settled by other means (e g , rn domestic
II

I--nondeliverable forwards
I --short pOSitions
I --long positions
I--other instruments
I(c) pledged assets
I--Included In reserve assets
--Included In other foreign currency assets

I(d) securities lent and on repo

11 7 4(34

www.treas.goy/press/releases/2008101136621696.htm

11/3/200S

Page 4 of 4
--lent or repoed and included In Section I

JI
II
II

--lent or repoed but not Included in Section I
--borrowed or acquired and Included In Section I
--borrowed or acquired but not Irlcluded In Section I

11 7 .484

I(e) flrlanclal delwatlve assets (net. mal'ked to market)

I
I

I--forwards
i--futures

I--swaps

I--optlons
I--otller

(I) derivatives (forward. futures. or options contracts) that have a residual maturity greater than one year.
which are subject to marglll calls
--aggregate short and long POSItiOI1S In forwards and futures III foreign currenCies vis-a-vIs tile domestic
currellCY (lilcludlllg the forward leg of currency swaps)

II
II

I(a) short positions ( - )
I(b) long positions (+)

I--aggregate short and long POSItiOI1S of options in foreign currencies Vis-a-VIS the domestic currency
I(a) shol1 pOSitions
l(i) bought puts
l(il) written calls

I(b) long positions

1(1) bought calls

1(11) written puts

1(2) To be disclosed less frequently

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

11 72988
1172 988

I--currencles In SDR basket
I--currencies not In SDR basket

II
II
II

I--by Individual currencies (optional)
I

Notes:
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open MarkfC't
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 exctlange acqUired under reciprocal currency arrangements With certalll fOlelgn celltrZlI banks
The fOieign exchange acqUired IS not IIlcluded In Section I. "offiCial reserve assets and otiler fOlelgn cUII'ency assets." of the tell1plCltE!
for reporting Irlternatlonal reserves However. It IS IIlcluded In the broader balance of payments presentation as "U.S Goverllll1ellt
assets. other than offiCial reserve assets/US foreign currency holdings and U S short-term assets"

www.treas.gov/press/releases/2008101136621696.htm

11/3/200X

iP-1171: Treasury Designates C()f!:Jorate Network Tied to the Amezcua Contreras Organization

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

Page I 01':2

~,.
•

10 vIew or pnnt tne /-'Ur content on tnlS page, CiownloaCi the tree

October 2,2008
HP-1171
Treasury Designates Corporate Network Tied
to the Amezcua Contreras Organization
Washington, D.C.- The U.S. Department of the Treasury's Office of Foreign
Assets Control (OFAC) today named 10 individuals and six companies tied to the
Amezcua Contreras Organization, a major Mexican drug trafficking organization, 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 (Kingpin Act).
"We are further sanctioning the Amezcua Contreras Organization today to degrade
and dismantle its network of associates and companies producing
methamphetamines for distribution in the United States and elsewhere. We
applaud the Mexican authorities' recent seizures of illicit pseudoephedrine
shipments, and will continue to take steps in support of their efforts to target the
diversion of methamphetamine precursor materials" said OFAC Director Adam J.
Szubin.
Today's designation includes key Amezcua Contreras associates Adan Amezcua
Contreras, Jaime Ladino Avila, Patricia Amezcua Contreras, Gerardo Alvarez
Vazquez, and Telesforo Baltazar Tirado Escamilla, owner of Productos
Farmaceuticos Collins, S.A. de C. V. Today's designation also includes Jalisco
businessman Carlos Lomeli Bolanos, who reportedly assisted in the illicit diversion
of methamphetamine precursor materials to the Amezcua Contreras Organization.
Included as well are Javier Pulido Valdivia and Rosalinda Rendon Poblete, the
owner and general director, respectively, of Laboratorios Willmar, S.A. de C. V., and
Luis Alfonso Tirado Diaz and Rolando Tirado Diaz, both senior managers at
Productos Farmaceuticos Collins, S.A. de C. V.
The financial and supply network included among today's designations is
comprised of companies in the Mexican states of Jalisco and Baja California,
including three pharmaceutical companies, Productos Farmaceuticos Collins, S.A.
de C. V.; Laboratorios Willmar, S.A. de C. V., and Lomedic, S.A. de C. V.; a natural
health products company, Salud Natural Mexicana, S.A. de C. V.; an automobile
parts store, American Tune Up, S.A. de C. V.; and a pharmacy company, Farmacia
Jerlyne, S.A. de C. V.
On June 1, 2000, the President identified Jose de Jesus and Luis Ignacio Amezcua
Contreras as significant foreign narcotics traffickers pursuant to the Kingpin Act.
They are currently imprisoned in Mexico. The Amezcua Contreras Organization,
which the President identified as a significant foreign narcotics trafficker on June 1,
2006, continues to produce methamphetamine in Mexico and distribute it to the
United States. The Amezcua Contreras Organization controls a network of
businesses in Mexico that supplies precursor materials for methamphetamine
production. Most notably, multiple tons of pseudoephedrine-based cold medicines
that were manufactured or purchased by some of the companies designated today
were illicitly diverted to the Amezcua Contreras Organization for the purpose of
manufacturing methamphetamine.
This action is part of ongoing efforts under the Kingpin Act to apply financial
measures against significant foreign narcotics traffickers worldwide. Internationally,
more than 475 businesses and individuals associated with 75 drug kingpins have
been designated by OFAC 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), Mexico.

www.treas.gov/press/releases/hpI171.htm

I 1/31200X

[P-II7l: ~Te;~sllry Desiglla.~~s ~ nl~jOrate Network Tied to the Amezcua Contreras Organization

Page :2 of:2

The designation action freezes any assets the 16 designees may have under US
jurisdiction and prohibits U.S. persons from conducting transactions or dealings in
the property interests of the designated individuals and entities. Penalties for
violations of the Kingpin Act range from civil penalties of up to $1,075,000 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"

www.treas.gov/press/releases/hpII7I.htm

II/3I:200X

Foreign Narcotics Kingpin
Designation Act,
October 2008

Department of the Treasury
Office of Foreign Assets Control
H

All individuals depicted In this
chart are Mexican nationals

The Amezcua Contreras Organization was named by the President as a Tier I Kingpin on June 1, 2006

Key Lieutenants

.~~

r
Jaime Arturo
LADINO AVILA
RFC: LAAJ640724
DOB: 07/24/1964
Un,ll'f

J .'(1t'l

Jose Gerardo
ALVAREZ VAZQUEZ
DOB: 11/03/1963

Patricia
AMEZCUA CONTRERAS
RFC:AECP670318
DOB: 03/18/1967

I
If)

,)! Inlilltfllf'llt

III tl~l.' [)I'-,tll, I

Adan
AMEZCUA CONTRERAS
RFC:AECA690627
DOB: 06/27/1969

till' SOlJthj'ln OI'~tIHt of CrldollH,i

FARMACIA JERLYNE, 5,A, DE C,V,
Tijuana, MX

AMERICAN TUNE UP, S.A. DE C.V,
Guadalajara, MX

of O'''-'lJon

Pseudoephedrine Diversion

'li

~··~
,';,'

(""'''I
,""

Javier
PULIDO VALDIVIA
RFC: PUVJ530114
DOB: 01/14/1953 \

Rosalinda
RENDON POBLETE
DOB: 11/23/1953

LABORATORIOS
WILLMAR, S,A. DE C,V,
RFC: LW1760923BT6
Guadalajara, MX

~~~

,. ..~ L'
...,..

Luis Alfonso
TIRADO DIAZ
RFC:TIDL680720
DOB: 07/20/1968

Telesforo Baltazar
TIRADO ESCAMILLA
RFC: TIET390110
DOB: 01/10/1939

SALUD NATURAL
MEXICANA, S,A, DE C,V,
RFC: SNM950403FA5
Zapopan, MX

Rolando
TIRADO DIAZ
RFC: TIDR710328
DOB: 03/28/1971

.-.~:-

l2J
po",

Carlos
LOMELI BOLANOS
RFC: LOBC590805
DOB: 08/05/1959

LOMEDIC, S.A, DE C.V.
RFC: LOM990211KQ2
Guadalajara, MX

[P-ll72: 'freasury Distributes

l.\4" Million Additional Stimulus Checks in September

/~~~, PRESS ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

Page I of I

~.
(,

October 3, 2008
HP-1172
Treasury Distributes 1.147 Million Additional Stimulus Checks in September
Washington, DC--The Treasury Department announced today that it distributed
1.147 million stimulus payments, totaling $672 million in the month of September.
As of the end of September, a total of 115.957 million payments have been
distributed totaling $94.061 billion since disbursements started April 28.
While mass disbursement of stimulus checks ended July 11, 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.

www.treas.gov/press/releases/hpI172.htm

I 11312()()X

[P-1173: LInder Secretary David I~. McCormick Remarks at Wharton's Eleventh Annual Investmen ... Page I of 5

/~~~, PRESS ROOM
,~, u.s. DEPARTMENT OF THE TREASURY

~.
(,

October 3, 2008
HP-1173
Under Secretary David H. McCormick Remarks at
Wharton's Eleventh Annual Investment Management Conference
Responding to Today's Market Turmoil
Philadelphia - These are incredibly challenging and unprecedented times for the
United States. Over the last twelve months, we have witnessed one of the most
significant periods of economic turmoil that has ever faced our country, and I have
had the opportunity to see first hand how our country's leaders have responded.
Today I'd like to share my views on how we arrived at this place, what we have
done about it up to this point, and what else we must do to stabilize our markets
and ensure America's long term prosperity.
The seeds of the 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 crisis.
We are now paying the price. We've seen the results for homeowners in higher
foreclosure rates affecting individuals and neighborhoods. We are now seeing the
impact on struggling financial institutions. These weak loans started a chain
reaction, and in recent weeks, our credit markets have tightened dramatically with
even some non-financial companies around the country having difficulties financing
their day-to-day business operations. These effects are already beginning to trickle
down and affect all parts of the U.S. economy.
In response to this worsening situation, the U.S. government has taken bold and
decisive actions in recent months to stabilize the markets, mitigate the impact on
our financial system and the U.S. economy, and address the underlying sources of
market uncertainty.
Root Causes of the Market Turmoil
How did we get to this point? The story begins with a decade of benign economic
conditions 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 assets, 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. 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. 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 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

www.treas.gov/press/releases/hpll73.htm

11/3/200X

[P-II73: ~ InQ~r S~<;r~tary

0;1\ HI

ii.

McCom1ick Remarks at Wharton's Eleventh Annual Investmen... Page:2 of 5

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.

Actions to Mitigate Risk and Stabilize Markets
Recognizing the risk to the U.S. economy of the housing downturn, the
Administration and Congress acted quickly earlier this year to pass a $150 billion
stimulus bill. At Treasury, we brought together mortgage providers through the
HOPE NOW alliance to help families avoid foreclosure on their homes. Yet, as we
seek to minimize the impact of the housing correction on the economy, we must
avoid impeding 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 once again contribute to economic growth.
In the financial markets, progress has not moved in a straight line, and additional
challenges clearly lie ahead. There have been some positive developments. In the
past year, for example, 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-bycase basis to address destabilizing financial conditions in a number of institutions demonstrate continued weakness across the financial services sector.
In March, the Federal Reserve took unprecedented action to ensure an orderly
resolution for Bear Stearns, and in September, authorities around the world took
steps to mitigate the impact of the bankruptcy of Lehman Brothers, America's fourth
largest investment bank. That same week, the Federal Reserve provided funding to
American International Group (AIG) to address the systemic risk that would have
resulted from a sudden collapse of the firm. And last week, the FDIC brokered a
deal and supported the sale of Wachovia's banking operations to Citigroup in order
to prevent its failure following the earlier collapse of Washington Mutual. In each of
these cases, policymakers attempted to strike a careful balance of mitigating
systemic risk while promoting market discipline, holding investors and management
teams responsible, while protecting blameless consumers from collateral damage.
And we are not alone. Europe and Asia are also suffering through their own
financial turmoil. In recent days, the United Kingdom, Iceland, Belgium, the
Netherlands, Luxemburg, France and Germany have all intervened to support
troubled institutions. And last week, we also saw how rumors precipitated a run on
Hong Kong's Bank of East Asia. We see from these examples that our financial
markets are more global and more interdependent than at any time in history.
The cases of the Government Sponsored Enterprises (GSEs), Fannie Mae and
Freddie Mac, deserve special mention, particularly given their significance to
investors around the world. The GSEs have become the largest sources of
mortgage finance in the United States, touching roughly 70 percent of mortgages
originated. Not surprisingly, the prolonged housing correction weakened their
financial condition, and both institutions faced a loss of investor confidence. 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 have far reaching effects on the U.S. and global
economies. Business finance would be more difficult to obtain, constraining job
creation and making it harder for Americans to get home loans, auto loans, and
consumer credit.
This past summer, investors began to express growing concerns over the stability
of Fannie and Freddie and the ambiguity over the scope and certainty of
government support for these institutions. In response, Secretary Paulson asked
Congress for authorities regarding Fannie Mae and Freddie Mac in order to help
stabilize our financial markets and support our housing market. Congressional
leaders acted promptly and decisively with the needed legislation, and in the days
and weeks that followed, Jim Lockhart, the director of the GSE's regulator, the
Federal Housing Finance Agency (FHFA), Federal Reserve Chairman Bernanke,
and Secretary Paulson concluded they needed to act decisively to avert instability
in our markets. As a first critical step, the FHFA put Fannie and Freddie into
conservatorship, allowing for the government to take temporary control and make
needed changes at both institutions.

www.treas.gov/press/releases/hpll73.htm

11/3/:200X

[P-1173: under Secretary D~yid It. McComlick Remarks at Wharton's Eleventh Annual Investmen... Page J 01'.5
In a complementary step, Treasury established contractual Preferred Stock
Purchase Agreements with both institutions under which it 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 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 address the systemic risk posed by the scale and breadth of
the agency debt.
The terms of these purchase agreements provide taxpayers significant protection.
The existing common and preferred 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 the agreement, Treasury has received from each company $1 billion
in senior preferred stock and warrants providing options to purchase up to 79
percent of the companies' outstanding shares.
Second, Treasury established a new, temporary credit facility for Fannie Mae,
Freddie Mac, and the Federal Home Loan Bank to fund, if necessary, their regular
business activities. 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, thereby providing additional
capital to the mortgage marketplace.
These steps are the best means of protecting taxpayers and stabilizing our
markets, but they leave for future policymakers fundamental 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 next
Administration to address the inherent conflict in the GSE charters that require them
to serve the interests of private investors and the broader public.
A Comprehensive Policy Response
Despite the hardening of the government's support and involvement in Fannie Mae
and Freddie Mac, and the decisive resolutions of Bear Stearns, Lehman Brothers,
AIG, Washington Mutual, and Wachovia, investors have become increasingly
concerned over the possibility of other failing financial institutions. And, this has
made them increasingly reluctant to extend credit.
This has 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. Given 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. The three components of the plan rolled out
two weeks ago by Secretary Paulson and Chairman Bernanke seek to achieve
these goals.
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 has experienced funding problems
in recent weeks. This temporary $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 put forward a plan to provide much needed capital to address the
root causes 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 this root cause would mean that every
aspect of our financial and funding markets, ranging from consumer credit to money
market funds, would continue to be impaired.
The Administration has worked with Congress to develop a $700 billion

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comprehensive program for addressing the problem of these illiquid assets on the
balance sheets of institutions within the financial system. This will help reduce an
enormous source of uncertainty in the markets and stimulate the raising of capital
within the financial services sector. In addition, the bill will help ensure the
availability of credit so American families can meet their daily needs and American
businesses can make purchases, ship goods, and meet their payrolls. A failure to
act comprehensively and decisively could have dire consequences for the U.S.
economy and all Americans. This plan also sends a strong signal to markets around
the world that the United States is serious about restoring confidence and stability
to our financial system.
Third, we have taken steps to improve market operations and market integrity. As
an example, 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 were joined by regulators in the UK, France, Germany, and
other countries who also imposed restrictions on short selling.
A Possible Turn Inward

In addition to the things we must do, there are also things we must avoid. Our
recent downturn has contributed to a climate of increased distrust and anxiety
among Americans that is fueling support for protectionist policies. The benefits of
trade and open investment are being openly questioned across the political
spectrum, and this rhetoric is particularly pronounced on Capitol Hill. There is
reluctance, for example, to pass the pending trade agreements with Colombia,
Panama, and Korea, and there are concerns over foreign investment in U.S.
companies, despite the clear and unequivocal benefits of both to the United States.
These trends, dangerous at any time, could be devastating in this period of
heightened market uncertainty and fragility.
This trend is all the more concerning because trade and investment play such an
important role in the competitiveness and success of the U.S. economy. Overseas
sales by U.S. companies account for about 50 percent of all U.S. exports, and the
profit growth of U.S. companies comes chiefly from the global sales. Remarkably,
exports now account for 13% of the U.S. GOP - the highest level in history.
Moreover, foreign-owned firms in the US employ more than 5 million workers
directly and another 5 million indirectly, and these jobs pay on average a quarter
more than jobs created by U.S.-owned companies.
However, these facts are understandably lost on many Americans who have been
negatively affected by the dynamism and speed of global markets. With this in
mind, we must work to build public support for openness in this era of globalization,
even as we acknowledge and take steps to mitigate some of its negative
consequences of dynamic global competition. This too must be a priority as we
work through the economic challenges that lie ahead.

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 decisively
implementing policies that address our short-term economic challenges and rebuild
faith in the market. When we emerge from this difficult period - and we will emerge
both wiser and stronger - our next task will be to strengthen our financial regulatory
structure to guard against 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. I'm confident that our leaders and our great
country are up to this pressing challenge.
Thank you.
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r~SSlstant ~ecretary ~'!ay

.:...,owery Kemarks on Sovereign lnvestlllg at the Third Columbia L.. (Jage I 01 )

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October 2, 2008
HP-1174
Assistant Secretary Clay Lowery Remarks on Sovereign Investing
at the Third Columbia Investment Conference
New York - It's a pleasure to join you today and to participate in this conference on
sovereign investing. The schedule that you have put together over the last couple
of days appears intense and focuses on many of the issues that we have been
trying to address within the U.S. Government for the last couple of years - how do
we view sovereign investing in the United States.
Recent Developments
Before discussing the primary motivation of your conference, however, let me first
take a moment to acknowledge the context in which today's discussion on
sovereign investment takes place. As you all know, we are in the midst of an
historic reassessment of risk by the world's financial markets, triggered by the
bursting of the U.S. housing bubble and the subsequent steep decline in U.S.
housing prices. The U.S. government has taken a number of bold steps to stabilize
markets, mitigate the impact of a number of failing or troubled institutions, and
address the underlying sources of market uncertainty. We are working to resolve
the current crisis and re-establish stability. No doubt there will be much analysis of
the current crisis in the months and years ahead. But one fact is already clear:
opaqueness in our capital markets and inadequate supervision and risk
management on the part of financial sector participants contributed to the crisis.
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 openness and
financial stability all the more important.
The current crisis also serves as a reminder that the enemy of financial
policymakers is complacency and the friend is to worry about vulnerabilities. It puts
a premium on constantly thinking about "what is around the corner?" and how
should we address the issues that such analysis reveals. Otherwise, those
vulnerabilities can manifest themselves in front of your eyes as an outright crisis.
One of those vulnerabilities that we see in the United States has been the rise of
protectionist sentiment, in many respects, epitomized in the rhetoric surrounding
international investment. While I'd like to think that in times of economic difficulties,
it would be enough to remind people that international investment fuels our own
economic prosperity by bringing new technology and business methods and by
providing healthy competition that fosters innovation, productivity gains, lower
prices, and greater variety for consumers. Or I'd like to think that it would be
enough to recall that over 5 million Americans are employed by foreign-owned
companies, and foreign-owned companies pay on average 25 percent more than
U.S. companies. I, unfortunately, realize that I would be wrong - it is not enough.
Therefore, let me try to explain how we are attempting to "see around corners"
when it comes to sovereign wealth funds and CFIUS.
Sovereign Wealth Funds (SWFs)
Sovereign wealth funds have garnered much attention in the past year, both for
their growing relevance as global financial market partiCipants and for their recent
investments in major financial institutions. For instance, according to Monitor
Group, in the first half of 2008 alone, sovereign wealth funds invested $24 billion in
23 deals in the financial sector. These investments come on top of a flurry of deals
involving financial institutions at the end of 2007.

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SWFs are not a new phenomenon, but their rapid growth both in number and size is
relatively new, and a trend that is expected to continue. From the current estimated
level of roughly $3 trillion, the IMF and private sector analysts project SWF assets
could reach $7 to $11 trillion or more in the next five years. Even though many
sovereign investors have been around for decades, the expected growth of
sovereign wealth fund assets, the number of new sovereign wealth funds and
recent "headline" deals involving SWFs have all contributed to an intensified
interest in sovereign wealth fund activities among public and private actors, alike.
This interest often manifests itself in the form of questions about the "true"
motivations for sovereign wealth fund investments; the degree of control a
sovereign could exercise over the investment target; as well as the processes by
which recipient countries - the United States, in particular - review sovereign
investments for national security concerns.
So what do we know about sovereign wealth funds and their investments?
The IMF recently published a Survey of SWF Institutional and Operational Practices
that provides a good baseline of information - in aggregate - on 20 different
sovereign wealth funds. While the data set is limited, the results provide additional
information about SWF objectives and roles in policy making; data availability; and
asset allocation. For instance, two-thirds of responding SWFs have long term
savings/stabilization as their operating mandate and do not generally engage
directly in macroeconomic policies. Most of the respondents make data available to
national compilers of macroeconomic statistics, but not necessarily to the public.
The majority of respondents use external asset managers to some degree, while
SWFs that are established as separate legal entities typically are permitted higher
allocations to alternative asset classes.
In addition to this survey, it is pretty clear that SWFs are in principle long-term
investors that historically have maintained their strategic asset allocation in the face
of short-term losses. They typically are not highly leveraged. SWF managers
generally have a higher tolerance for risk than reserve managers and seek higher
returns by investing in a wider range of asset classes. They have access to, and
frequently make use of, well-regarded private fund managers, consultants,
administrators and custodians. SWFs as a group, but particularly the more
longstanding funds, generally have a track record of making investment decisions
on economic and financial grounds.
US Treasury Response
It is this last area that has probably raised the most concerns - do SWFs invest for
some sort of political and strategic purpose or do they invest to maximize returns.
In the U.S. Government, our view was that we needed to address this concern head
on and do it in a way that would not resort to protectionist measures.
Our thinking led us to proposing approaches that are measured, multilateral, and
maintain openness. This is in the best interest of participants on both sides of the
investment equation -- countries that have these funds and countries in which these
funds invest. Recognizing that better understanding and communication is
necessary on both sides of the investment relationship, Treasury has undertaken
substantial outreach to strengthen communication with SWFs and build support for
multilateral initiatives. These efforts included agreement in March with Singapore
and the United Arab Emirates on a set of principles that would create a strong
incentive among SWFs and recipient countries to hold themselves to high
standards.
Generally Accepted Principles and Practices
More robustly, Treasury proposed a large multilateral effort to develop voluntary
best practices for SWFs. Roughly one year later, officials from 23 countries are
prepared to unveil an historic agreement among the world's major sovereign wealth
funds. This agreement represents a milestone in enhancing the openness and
transparency of the global financial system and in promoting open investment
worldwide.
The IMF facilitated the establishment of a group of 23 countries with SWFs, the
International Working Group of Sovereign Wealth Funds or "IWG." The IWG
drafted and agreed on the Generally Accepted Principles and Practices or

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"Santiago Principles" in less than half a year - an impressive achievement given
the number of participants, the complexity of the issues and the unchartered
territory that the agreement represents for a number of sovereign wealth funds.
The group welcomed input from recipient countries as the group deliberated,
demonstrating a collaborative spirit and a common interest in a credible product.
The Principles will be released publicly during the IMF's annual meeting next
weekend. Broadly speaking, it is a voluntary framework that consists of principles
and supporting commentary, which will guide SWFs in establishing sound practices
in three key areas:
•
•
•

Legal framework and coordination with macro policies;
Institutional and governance framework; and
Investment framework, including risk management.

Adoption of the Principles by SWFs will address many of the key issues that have
been dealt with only at the discretion of each individual fund up until now: for
instance, what is the policy purpose of an SWF? What guides specific investment
decisions? What stance does an SWF take with regard to voting shares? And how
does an SWF manage risk? In the process, the Principles will also directly address
financial stability and investment issues raised by the rapid growth in the size and
number of SWFs.
Even though the PrinCiples are not yet public, the process and substance behind it
are already bearing fruit. In June, the Abu Dhabi Investment Authority (ADIA) - one
of the world's largest sovereign wealth fund and also co-chair of the IWG expanded the amount of information available through its website to include
information on its Investment Strategy, Governance and Organizational Structure.
Just last week, the Government of Singapore Investment Corporation (GIC), also
one of the largest SWFs, disclosed for the first time its asset composition and
historical returns.
The Principles demonstrate a significant positive shift in SWF practices relative to
current practices--but useful work remains to be done. Their effectiveness in
helping to reduce protectionist pressures and contribute to global financial stability
ultimately will depend on their widespread adoption by SWFs. We expect SWF
ownership of the Principles - a key goal of our original proposal - will lead to a high
rate of implementation among participating SWFs. Early adherents will serve as an
example to other SWFs, and result in a rise to the top in institutional and
operational practices among the vast majority of funds. We expect the successor to
the Working Group will continue to meet to consider implementation issues and
proposals for further work.
When Treasury first started looking at the issue of sovereign wealth funds in great
detail, some observers worried that an "overemphasis on transparency of SWFs
alone may lead to unnecessary conflicts with allies." A leading economic thinker
noted that it was the unwillingness of sovereign wealth funds to agree to standards
openly that raises concerns about sovereign wealth fund motivations. Still others
concluded that "a global solution to SWF concerns is unlikely to emerge," given a
lack of international consensus regarding foreign investment rules.
They were right to be cautious - even peSSimistic - with regard to the chances of
reaching agreement on a wide-ranging set of principles, among a diverse group of
countries, each with unique institutional arrangements, objectives and disclosure
requirements. Such long odds makes the Working Group's achievement that much
more impressive. We commend the IMF's efforts in convening and supporting the
group's work, and IWG members for reaching consensus on a wide-ranging and
ground breaking agreement. Their efforts demonstrate a collaborative spirit and
common interest in a credible product. Now it is up to SWFs to implement the
Principles in support of maintaining an open and stable global financial system.
Recipient Country Policies
Committee on Foreign Investment in the United States (CFIUS) and
Regulations
When I think of our work on SWFs, I like to think of it as the U.S. Government being
proactive, "seeing vulnerabilities around the corner", and designing policy

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responses that are prudent, and hopefully coherent.
When I think of the other major area of foreign investment in the United States CFIUS - I also think about the word "proactive," but as a lesson. As folks are
probably pretty aware, Dubai Ports World became a major issue in 2006. The
reasons it became an issue is a study in itself, but the important part of that
"experience" are the lessons learned. And the key lesson is to be proactive.
As we have done for SWFs, policy makers need to see around the corners and
think proactively about the vulnerabilities that can arise from an issue and the
consequences. While Dubai Ports World was a painful episode (almost like being
hit by a truck), it also lead to strong proactive work that has ensured the
continuation of our long-standing open investment policy.
Instead of taking Thomas Friedman's thoughts of a few days ago and curling up
into the fetal position ... we figured that we had to address the two important
challenges before us: restore confidence that the United States remains open to
foreign investment and restore confidence that our national security process is
thorough, accountable, and targeted.
While there were many concerns raised about the Dubai Ports World transaction,
the most significant were the apparent lack of accountability, the lack of
communication with Congress, and the lack of clarity in terms of the law. To reform
those problems, we focused on two key actions: getting our house in order and
revising the legal context within which CFIUS operates.
1.

Getting our house in order: In over two years, we have made it our mission
at Treasury to fix the problems that I just identified. We reorganized the
Department and our procedures so that accountability is now at the highest
levels within Treasury; we changed our practices and now keep Congress
informed of every transaction after we have concluded the examination; and
we remade the inter-agency process so that key responsibilities of agencies
are clear so as to improve coordination and make decision making more
efficient.
Revising the legal context within which CFIUS operates: Given that this is a
law school and I'm not a lawyer, I thought about skipping this part -- but
instead -- I'll summarize the legal context in two areas.

•

First, we worked hard with Congress to re-write the CFIUS statute, and that
law passed with wide bipartisan support last year. The law:
• Maintains a very selective focus on only the cases that raise genuine
national security concerns.
• Formalizes the current practice of seeking to resolve any concerns, rather
than prohibiting transactions.
• Maintains strict deadlines: First-stage security reviews must be completed
within 30 days. Second-stage investigations must be completed within 45
days, and any action by the President must be taken within 15 days
following the conclusion of an investigation.
• Provides Congress with an extensive annual report detailing CFIUS
activities and the cases it reviews.
• Second, in April of this year, we proposed a rewrite of the 1992 regulations.
Our aim was to provide as much clarity as possible while still providing the
government with the flexibility it needs to protect national security. We have
received a number of comments on the regulations from a broad array of
public and private entities, both domestic and international. We are
carefully reviewing those comments, and will issue final regulations soon, as
well as separate guidance on the types of transactions that CFIUS has
reviewed and that have raised national security considerations. The
guidance will help investors and their counsel decide whether or not to file a
voluntary notice requesting CFIUS review of their transactions.
At Treasury, we believe that these reforms have built confidence in our ability to
carry out the important role that Congress and the President have entrusted to the
CFIUS process. In addition, we now have an important message - backed up by
statistics - that we have been delivering to both domestic and international
audiences, demonstrating that the new and improved CFIUS operates fully within
the context of the U.S. commitment to open investment.
Let me assert that CFIUS is an efficient, disciplined process that reviews only a

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small number of transactions. CFIUS is narrowly focused on national security risks
posed by the specific transaction under review, not broader considerations such as
economic security, industrial policy or "national interest."
To provide some statistical proof of this assertion, Thomson Financial reports that in
2007, there were over 11,000 mergers and acquisitions in the United States, of
which about 2,000 involved foreign acquirers. CFIUS reviewed only 138
transactions covered by the statute, or fewer than 7% of these foreign acquisitions.
Six cases went to investigation, and none of the six required a Presidential
decision. Over 80 percent of the cases were closed out within the 30 days of the
beginning of the CFIUS examination. In other words, barely more than 1% of all
cross border mergers and acquisitions in our country had a national security review
that lasted longer than 30 days and 0% of all cases were blocked by the Federal
Government.
In 2007, less than one-fifth of the covered transactions that CFIUS reviewed
involved a foreign government-controlled acquirer, and even fewer cases involved
sovereign wealth funds. Foreign government control is a factor that CFIUS
considers in its review of covered transactions, and under FINSA, acquisitions by
foreign-government controlled entities are subject to clearance by higher level
officials. Nevertheless, CFIUS reviews have not prevented acquisitions by foreign
government-controlled companies from proceeding, including within 30 days in
numerous cases in which that is appropriate.
In sum, the nature and practice of CFIUS demonstrates that the United States
continues to welcome foreign investment. President Bush reaffirmed our
commitment to open investment in a statement in May 2007 in which he said we
welcome foreign investment in this country and will work to ensure fair treatment
and equitable opportunity for our investors abroad.

Conclusion
I'd like to close by summarizing just how far we've come in dealing with the
consequences of higher levels of foreign investment, including sovereign
investment. As noted, there was great skepticism with regard to the willingness of
sovereign wealth funds to voluntarily participate in a process premised on greater
transparency. Likewise, the firestorm surrounding the 2006 Dubai Ports World
transaction severely damaged confidence in the CFIUS process and increased the
risk of a protectionist response. Yet on both counts, we are in a substantially better
place then most observers would have guessed two years ago.
Sovereign wealth funds have sought to address the underlying concerns about their
investment intentions by voluntarily adopting a framework of sound prinCiples and
practices, and increasing the amount of information available about their
operations. Likewise, the United States has comprehensively reformed our own
processes for reviewing foreign investment, in a manner which reassures foreign
investors that the United States remains open to foreign investment, while clearly
prioritizing national security. No doubt, the issues surrounding sovereign foreign
investment will continue to evolve. But I am confident that the structures and
processes currently in place are capable of adjusting to these changes, and
sufficiently robust to respond in a manner consistent with our open investment
policy objectives.
Progress toward greater transparency and accountability on the part of sovereign
wealth funds and recipient countries alike place these actors at the forefront of a
move toward greater transparency among financial market participants more
broadly. These efforts will build confidence on both sides of the investment
relationship and support the future stability of the global financial system.
I would be happy to take any questions from the audience.

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October 3, 2008
HP-1175

Paulson Statement on Emergency Economic Stabilization Act
Washington- By acting this week, Congress has proven that our Nation's leaders
are capable of coming together at a time of crisis, even at a critical stage of the
political calendar, to do what is necessary to stabilize our financial system and
protect the economic security of all Americans.
The American people will appreciate the leadership of their elected representatives
and senators who took bold action to help stem a severe credit crunch that
threatens to cost many jobs and undermine access to credit for working Americans.
This bill contains a broad set of tools that can be deployed to strengthen financial
institutions, large and small, that serve businesses and families. Our financial
institutions are varied - from large banks headquartered in New York, to regional
banks that serve multi-state areas, to community banks and credit unions that are
vital to the lives of our citizens and their towns and communities. Each institution
has its own unique benefits, and their collective strength makes our financial
system more resilient, and more innovative. The challenges our institutions face are
just as varied - from holding illiquid mortgage backed securities, to illiquid whole
loans, to raising needed capital, to simply facing a crisis of confidence. This
diversity of institutions and challenges requires that we deploy the tools in this
rescue package, in combination with the tools the Fed, the Treasury, the FDIC and
other bank regulators already have, in a variety of ways that addresses each of
these needs and restores the ability of our financial system to fuel our broader
economy.
There is no one-size-fits-all solution to alleviating the stress in our financial system.
Each situation will be different and we must implement these new programs with a
strategy that allows us to adapt to changing circumstances and conditions, and
attract private capital. The broad authorities in this legislation, when combined with
existing regulatory authorities and resources, gives us the ability to protect and
recapitalize our financial system as we work through the stresses in our credit
markets.
We will move rapidly to implement the new authorities, but we will also move
methodically. In the coming days we will work with the Federal Reserve and the
FDIC to develop strategies that deploy these tools in an expedited and methodical
way to maximize effectiveness in strengthening the financial system, so it can
continue to play its necessary and vital role supporting the U.S. economy and
American jobs. Transparency throughout this process will be important, and I look
forward to providing regular updates as we move ahead to implement this strategy.

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October 6, 2008
HP-1176

Acting Under Secretary for Domestic Finance
Anthony Ryan
Statement on Debt Management and the
Emergency Economic Stabilization Act
WASHINGTON -To address the increased funding needs posed by the Emergency
Economic Stabilization Act and consistent with our operating principle of
transparency, Treasury is announcing that it will be making adjustments to the
auction calendar.
Treasury will continue to increase auction sizes of our bills and coupon securities
and continue to issue cash management bills. As has been the case over the past
year, some of these cash management bills may be longer-dated. Treasury is also
considering its options regarding the frequency and issuance of additional nominal
coupons, including a reintroduction of the 3-year note, beginning in November
2008. Any change to the auction calendar will be communicated per standard
practice as part of the next Quarterly Refunding announcement on Wednesday,
November 5.
This announcement is being made at this time and outside the customary Quarterly
Refunding announcements to allow Treasury to adequately respond to the nearterm increase in borrowing requirements and to give the market participants notice
of the potential changes.
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October 6, 2008
HP-1177
Statement by the President's Working Group on Financial Markets
Washington, DC-- The President's Working Group on Financial Markets issued the
following statement today:
Conditions in U.S. and global financial markets remain extremely strained. The
President's Working Group on Financial Markets (PWG) is working with market
participants and regulators globally to address the current challenges and restore
confidence and stability to financial markets around the world.
With the passage of the Emergency Economic Stabilization Act of 2008 (EESA),
Congress has granted important new authorities to the Treasury, Federal Reserve,
and the FDIC. These new authorities will be employed in conjunction with existing
authorities to restore market confidence by strengthening the balance sheets of
financial intermediaries and improving overall market functioning.
The diversity of institutions and markets under stress, and the magnitude and
complexity of the adjustment underway, requires that the tools available to
policymakers, regulators and supervisors be used in forceful and coordinated ways
across regulatory and supervisory agencies in the United States and throughout the
world. This will involve moving with substantial force on a number of fronts. These
broad initiatives are outlined below.
Strengthening Financial Institutions
The Treasury Department will move rapidly to implement the new authorities in
EESA to help strengthen financial institutions that are struggling with troubled
assets and/or need to raise capital. It will be done in a transparent and methodical
fashion. In the coming days, Treasury will work with the Federal Reserve and other
financial regulators to develop strategies that deploy these tools to maximize their
effectiveness in strengthening the financial system while protecting the taxpayers'
interests.
The new legislation adds broad, flexible authorities to allow Treasury to buy
troubled assets and provide guarantees, and address capital raising. The new
legislation also enables Treasury to directly strengthen the balance sheet of
individual institutions. These authorities allow Treasury to act to remove some of
the uncertainty regarding financial strength, and provide financial institutions with
greater operating flexibility and enhance their ability to raise additional capital in the
private marketplace.
FDIC Stand-alone Assistance
The FDIC has broad powers to protect depositors and mitigate instability in our
banking system. In addition to the coverage that it provides to insured deposits, the
FDIC has the ability to use its insurance fund and its substantial lines of credit with
the Treasury to address the risk to the financial system posed by the possible
failure of a bank.
As the regulatory community confronted the risks posed by a potential failure of
Wachovia Corporation, the Board of the FDIC, the Board of Governors of the
Federal Reserve System, and the Secretary of the Treasury in consultation with the
President determined that they should invoke the systemic risk exception to the
traditional bank resolution process.
We will work together in the future where similar approaches are necessary for the
stability of the financial system.

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When systemic risk determinations are necessary and appropriate in the future, the
FDIC will use its authority and its resources, on an open or closed-bank basis, to
protect depositors, guarantee liabilities, facilitate orderly wind downs, mergers, or
adopt other stabilizing measures.

Increasing Liquidity to Financial Markets
With regard to liquidity, the Federal Reserve has introduced a series of innovative
facilities and policies to enhance liquidity in our markets. These include the Term
Auction Facility, Primary Dealer Credit Facility, Term Securities Lending Facility,
and Currency swaps.
The Federal Reserve will continue to take a leadership role with respect to liquidity
in our markets. It is committed to using all of the tools at its disposal to provide the
increased liquidity that is now required for the effective functioning of financial
markets. In this regard, the authority to pay interest on reserves that was provided
by EESA is essential, because it allows the Federal Reserve to expand its balance
sheet as necessary to support financial stability while conducting a monetary policy
that promotes the Federal Reserve's macroeconomic objectives of maximum
employment and stable prices.
The Federal Reserve and the Treasury Department are consulting with market
participants on ways to provide additional support for term unsecured funding
markets.

Cash I Money Markets
Bank deposits and money markets funds play an important role in the savings and
investing of Americans. These savings and investment vehicles are critical to
investor confidence. They also provide funds for financing activity that is so
critically important to our credit markets.
Last month, the Treasury Department announced a temporary guarantee program
for money market mutual funds. That program began operations last Monday. This
action was complemented by the Federal Reserve providing additional liquidity to
money market mutual funds with their Asset Backed Commercial Paper (ABCP)
Money Market Mutual Fund (MMMF) Liquidity Facility (AMLF) program, which has
brought liquidity to the ABCP market. Today, the Federal Reserve is taking
additional actions to enhance the flexibility of bank holding companies to provide
support to their bank sponsored funds.
In addition, the Securities and Exchange Commission and the FASB issued a
clarification regarding the valuation of assets, including commercial paper, during
such periods of market stress.
In addition, the recent legislation temporarily increases the amount that the FDIC
insures in bank and thrift deposits from $100,000 to $250,000. The legislation also
increases the FDIC's ability to borrow from the Treasury if needed.
Collectively these actions should enhance market stability and investor confidence
in such funds

Mortgage Markets
We are committed to seeing the housing GSEs serve their public purpose of
providing stability, liquidity, and affordability to the housing market. The Federal
Home Loan Bank System continues to be an important source of liquidity to the
banking system in support of housing finance. To provide critical additional funding
to our mortgage markets, Fannie Mae and Freddie Mac are increasing their
purchases of agency mortgage-backed securities (MBS).
FHFA has directed the two companies to implement such a purchase program
immediately. We also expect each company to continue to increase its direct
support to the mortgage market through their ongoing securitization activities.
Treasury too has established a backstop secured credit facility for the housing

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GSEs. In addition, to increase the availability of capital for new home loans,
Treasury expanded the agency MBS purchase program we announced in
September. This will complement the capital provided by the GSEs and will help
facilitate mortgage availability and affordability.
Market Integrity
Confidence is also enhanced by vigorous law enforcement so that those who invest
know there is someone who is looking out for them. The SEC and Commodity
Futures Trading Commission (CFTC) bring hundreds of cases every year directed
at protecting investors. This past fiscal year the SEC returned approximately $1
billion to injured investors just as it did the year before. In the past few months, the
SEC with others in law enforcement, have restored liquidity to Auction Rate
Security investors in the largest securities buyback in the nation's history with tens
of billions of dollars of liquidity being restored to tens of thousands of investors.
The CFTC this year obtained more than $630 million in penalties against those
attempting to manipulate the commodity markets and defraud customers as it
continues to aggressively pursue its ongoing national crude oil investigation aimed
at protecting the nation's energy markets. The SEC and CFTC have dozens of
ongoing investigations related to the current market conditions and are using all of
their tools to vigorously protect investors and maintain the integrity of our capital
markets.
Clearing and Settlement Systems
Regulators are closely monitoring clearing and settlement systems to ensure their
proper functioning as we encourage further centralized clearing for other financial
instruments to bring enhanced transparency and counterparty risk management to
those markets.
While addressing our challenges, we must also remind investors and lenders that
we have a resilient and diverse economy and workforce. We have faced economic
and financial market challenges in the past. Each time we have worked through
them and emerged with stronger financial institutions and regulatory policies. While
it will take time and a lot of hard work, we are confident that this time will be no
different.
Leadership has been shown with decisiveness and determination by the public
sector. Together, we can greatly improve the functioning of markets and move
forward to rebuilding our great capital markets.

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P-1178: Deputy Secretary Kimmitt Remarks at Reception to Celebrate the Day of German Unity

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HP-1178

Deputy Secretary Kimmitt Remarks at Reception to Celebrate the Day of
German Unity
Washington - Herr Botschafter, Frau Scharioth, liebe Gaste, ladies & gentlemen:
Thank you, Ambassador Scharioth, for the honor of speaking at tonight's event. I
would like to wish the Federal Republic and its citizens einen glucklichen Tag der
Deutschen Einheit. And I join Ambassador Scharioth in thanking tonight's sponsors
for their support.
Remarkably, almost two decades have passed since the fall of the Wall. Those of
us who came of age during the Cold War still pause on this day to marvel at what
Germany has achieved - as a foundation stone of modern Europe, a strong
transatlantic partner, and a leading global citizen.
I attended the inaugural German Unity Day celebration in Hamburg in October
1991, as the first American Ambassador appointed to a united Germany in over 50
years. But my ties to Germany go back much further. Like nearly one-quarter of
the American population, my family has roots in Germany. My mother's family
emigrated from Lippe-Detmold near Hannover in the 19th century. My father fought
in Europe during World War II, and he and my mother, an American Red Cross
volunteer, met and married in Berlin in 1947. Like almost 15 million Americans, I
later lived in Germany as an American military dependent and served as an
American military officer. These personal ties bind Germany and America in a very
special way and have shaped our mutually beneficial partnership for decades.
In addition to these personal connections, our economic and financial ties have
helped us surmount infrequent but serious periods of difficulty in our political and
security relationship.
Germany is our largest trading partner within the European Union and is the third
largest investor in the United States, supporting over 650,000 American jobs.
Robert Bosch, whose North American CEO Peter Marks will speak next, operates
70 facilities in the United States and employs 17,500 American workers. In
Germany, U.S. companies are responsible for 800,000 German jobs. Honeywell,
also one of tonight's sponsors, operates 17 facilities in Germany and employs 5,600
German workers.
We are also seeing the creation of cutting-edge relationships that are deepening
our commercial ties. GE Wind Energy, which takes advantage of Germany's
emphasis on fostering clean energy technologies, has developed off-shore windpower generation in Germany. And Q-Cells, a German-U.S. joint venture, is the
largest solar cell manufacturer in the world. To encourage such activity in the
future, at the April 2007 EU-U.S. Summit, Chancellor Merkel and President Bush
initiated the Transatlantic Economic Council, whose goal is to reduce regulatory
obstacles to trade and investment in the transatlantic marketplace.
We gather together tonight in the midst of difficult economic times. The turmoil in
financial markets is a worldwide challenge, which must be addressed both globally
and locally. In addition to actions we have taken in the United States, including
today's important vote in the House of Representatives, Germany and the United
States have cooperated extensively in the Financial Stability Forum and through the
G-7. Germany has also responded with actions of its own, and European leaders
gather tomorrow to consider further measures.
As we move forward through these difficult times, Germany and the United States
will continue to work together to relieve stress in the credit markets, stabilize the

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global financial system, and encourage new opportunities for economic growth and
job creation, both at home and abroad. Today, as in the past, we will draw on the
depth and strength of our relationship to accomplish more together than we ever
could alone.
Thank you, und einen schonen Abend an allen Gasten.

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)-1179: PlOcurement A Ilthmitic£ ~od Procedures

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hp-1179

Procurement Authorities and Procedures
Washington, DC-- In implementing the Emergency Economic Stabilization Act of
2008, Treasury has available two mechanisms for engaging private-sector firms.
These mechanisms are financial agent authority, and procurement under the
Federal Acquisition Regulation. Treasury will make a determination on which of
these authorities best applies on a case by case basis.
Financial Agent Authority
Treasury has long had the statutory authority to retain financial agents to provide
services on its behalf. The Act broadens that authority to encompass all reasonable
duties related to the Act that may be required and permits the retention of a broader
class of financial institutions as agents. In general, financial agent authority will be
used when a firm is needed to conduct transactions on Treasury's behalf, for
example where Treasury needs the services of an asset manager.
Selection of financial agents will occur through processes which will be posted on
the Treasury website. Although the process may be tailored to a specific situation,
typically Treasury prepares a notice to interested and qualified financial institutions,
evaluates the response to that notice, and negotiates one or more financial agency
arrangements.

Procurement Contracts under the Federal Acquisition Regulation
Treasury also may obtain supplies or services using a procurement contract under
the Federal Acquisition Regulation (FAR). In general, the FAR requires the
solicitation of offers from all interested sources. However, competition for
procurements may be limited for various reasons, including in circumstances of
unusual or compelling urgency. Certain procurements may be set aside for certain
small businesses. Due to the paramount need for expeditious implementation of the
Secretary's authorities under the Act, Treasury anticipates that a number of
contracts will be awarded through other than full and open competition, using the
previously established FAR provisions applicable under conditions of unusual and
compelling urgency. Information on contracts awarded by Treasury will be posted at
www.fedbizopps.gov (Federal Business Opportunities website) and/or at
https//www.fpds.gov (Federal Procurement Data System).
Additionally, the Act grants to the Secretary of the Treasury the authority, under
certain specified conditions, to waive specific provisions of the FAR.
Where applicable, procurement opportunities will be posted at www.fedbizopps.gov.
Businesses may submit capability statements to the Department's Office of the
Procurement Executive at ootpe@do.treas.gov.
For information on how small businesses can participate in Treasury contracting,
contact Treasury's Office of Small and Disadvantaged Business Utilization at
TreasuryOSDBU@do.treas.gov.
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October 6, 2008
HP-1180

Interim Guidelines for Conflicts of Interest
Washington, DC-- Treasury issued the following interim guidelines for potential
conflicts of interest related to the authorities granted under the Emergency
Economic Stabilization Act of 2008:
These procedures outline the process for reviewing and addressing actual or
potential conflicts of interest (COls) among contractors performing services in
conjunction with the Emergency Economic Stabilization Act of 2008 (EESA).
Section 108 of the EESA requires Treasury to develop guidelines for addressing
COls as soon as practicable after enactment of the law. These procedures should
be considered interim guidelines and will remain in effect until final guidelines are
developed.
EESA contracts raise potential for "impaired objectivity" COls. Under such COls,
the contractor's judgment or objectivity may be impaired due to the fact that the
substance of the contractor's performance has the potential to affect other interests
of the contractor. EESA contractors may also face potential COls if they obtain
access to sensitive, non-public information (belonging to Treasury or to third
parties) while performing the contract. To address this latter type of COl, it may be
necessary to restrict the disclosure of such information or to include restrictions on
the dissemination of information within the contractor's organization. Lastly,
contractor employees are not always subject to the same ethical restrictions that
are imposed by law on Federal Government employees. Therefore, EESA contracts
may create a potential for personal COls involving individual employees of a
contractor.
Treasury officials should adhere to the following guidelines for addressing COls
arising with EESA contractors:
•

Where appropriate, Treasury may obtain non-disclosure agreements and
COl agreements in advance of supplying an offeror a solicitation.
• The solicitation should instruct prospective offerors that they must disclose
any actual or potential COls (including those associated with an affiliate,
consultant, or subcontractor) which could arise from performance of the
contract. The solicitation will indicate that, if actual or potential COls are
identified, the prospective offeror must submit a mitigation plan as part of its
initial proposal. In some situations, Treasury may also desire to include
provisions requiring that the prospective offeror identify personal COls
among employees who would be performing the work, and include
measures in its mitigation plan for addressing such personal COls.
• The solicitation should include an evaluation factor or criteria whereby
Treasury will assess the likely effectiveness of the proposed COl mitigation
plan.
• The solicitation will identify any minimum requirements or standards for the
COl mitigation plan. For example, if Treasury requires that the mitigation
plan will address certain specific issues, offerors should be so advised in the
solicitation.
• If the contractor will owe a fiduciary duty to Treasury in performing the
contract, the solicitation should include a statement to that effect. This
provision will become part of the resulting contract.
• The solicitation should include non-disclosure provisions which, at a
minimum, apply to the prime contractor. In some situations, Treasury may
also desire to include provisions requiring that the prime contractor obtain
comparable non-disclosure and/or COl agreements from subcontractors or
individual employees.
• The solicitation should state that Treasury will oversee and enforce the
proposed mitigation plan as part of the contract.
• The Treasury Senior Procurement Executive will review and approve all

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P-1180:

Int~rim

Page :2 of:2

Guidelines for Conflicts of Interest
•

•

•
•

•

provisions related to COls prior to issuance of the solicitation.
The solicitation should require that mitigation plans be submitted with
offerors' initial proposals. Treasury's evaluators, source selection personnel,
and legal counsel will examine the proposed mitigation plans to determine
the extent to which those plans provide sufficient protection against actual
or potential COls.
The severity of a COl is necessarily dependent upon the circumstances of
the case and the nature of the contractual action. Treasury personnel
should not assume that a mitigation plan which is acceptable under one
situation would also be acceptable under different circumstances.
The contracting officer may negotiate the mitigation plan with the offeror,
taking into account the type of procurement being conducted.
Notwithstanding the submission of a mitigation plan, it is possible that
contractor COls may exist which cannot be effectively neutralized or
mitigated. An offeror with an unacceptable mitigation plan will not be eligible
for award unless conflicts are waived by the agency head or designee.
It is possible that a COl may be waived by the agency head or a designee.
Any request for such a waiver should first be coordinated with the Treasury
Senior Procurement Executive.
Upon award of the contract, the successful offeror's mitigation plan will be
formally incorporated into the contract, making the mitigation plan a
contractually binding obligation.

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11/3i:200X

1181: Asset Manager Selection Pr~ess

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10 view or pnnt the pUr content on thiS page, cJownloacJ (he Tree A cJOIJ e 0<) AcroIJat'!.') Keacle/' J'J.

October 6, 2008
HP-1181
Asset Manager Selection Process
Washington--Treasury today released the following document outlining the
process for selecting asset managers pursuant to the Emergency Economic
Stabilization Act of 2008.
REPORTS
•

Asset Manager Selection Process

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J J /31200X

PROCESS FOR SELECTING ASSET MANAGERS
PURSUANT TO THE
EMERGENCY ECONOMIC STABILIZATION ACT OF 2008

The U.S. Department of the Treasury (Treasury) will use the following procedures to select asset
managers for the portfolio of troubled assets, pursuant to the authorities given to the Treasury in
the Emergency Economic Stabilization Act of 2008 (Act).

Securities vs. Whole Loans. The Treasury will select asset managers of securities separately
from asset managers of mortgage whole loans, but in each case these procedures will apply.
Securities asset managers will handle Prime, Alt-A, and Subprime residential mortgage backed
securities (MBS), commercial MBS, and MBS collateralized debt obligations, and possibly other
types of securities acquired to promote market stability. Whole loan asset managers may handle
a range of products, including residential first mortgages, home equity loans, second liens,
commercial mortgage loans, and possibly other types of mortgage loans acquired to promote
market stability.
Financial Agents. Asset managers will be financial agents of the United States, and not
contractors. The Act authorizes the Secretary of the Treasury (Secretary) to designate "financial
institutions as financial agents of the Federal Govemment, and such institutions shall perform all
such reasonable duties related to this Act as financial agents of the Federal Govemment as may
be required." As financial agents, asset managers will have a fiduciary agent-principal
relationship with the Treasury with a responsibility for protecting the interests of the United
States.
Organizational Eligibility. Financial Institutions are eligible to be designated as financial
agents of the United States. The Act defines "Financial Institution" to mean "any institution,
including, but not limited to, any bank, savings association, credit union, security broker or
dealer, or insurance company, established and regulated under the laws of the United States or
any State, territory, or possession of the United States, the District of Columbia, Commonwealth
of Puerto Rico, Commonwealth of Northem Mariana Islands, Guam, American Samoa, or the
United States Virgin Islands, and having significant operations in the United States, but
excluding any central bank of, or institution owned by, a foreign govemment."
Open Notice. Prospective financial agents will be solicited through the issuance of a public
notice, posted on the Treasury website, requesting that interested and qualified Financial
Institutions submit a response. The notice will describe the asset management services sought by
the Treasury, set forth the rules for submitting a response, and list the factors that will be
considered in selecting Financial Institutions. The notice will also include minimum

qualifications, such as years of experience and minimum assets under management, and
eligibility requirements, such as a clean audit opinion. The Treasury will release one notice for
securities asset managers, and a separate notice for whole loan asset managers.

Reviewing Responses and Second Phase. The Treasury will evaluate the initial responses from
all interested and qualified Financial Institutions, and will invite certain candidates to continue to
the second phase of the financial agent selection process. This second phase, and subsequent
phases, may be conducted under confidentiality agreements to facilitate information exchange,
but consistent with the public disclosure and transparency provisions of the Act. In the second
phase, the prospective financial agents will provide additional information about their expertise,
as well as asset management strategies, risk management, and performance measurement. This
phase may include telephone conversations to allow questioning by and of the Treasury.
Final Phase and Selection. The Treasury will evaluate the responses from the second phase
candidates, and will determine whether a candidate will continue to be considered. In this last
stage, a Financial Institution may be required to conduct face-to-face discussions on portfolio
scenarios, public policy goals, and statutory requirements, and to respond to interview questions
to assess the capabilities of prospective individuals to be assigned to manage assets. Following
any face-to-face meetings, the Treasury will make final selections of the Financial Institutions to
be designated as asset managers.
Financial Agency Agreement. Financial Institutions selected to be asset managers must sign a
Financial Agency Agreement with the Treasury, a copy of which will be provided for review
during the second stage of the selection process. The Financial Institution's willingness to enter
into the standard Financial Agency Agreement, with the established tenns and conditions
currently applied to financial agents of the United States, will be among the factors used in
evaluating the Financial Institution.
Evaluations and Decisions. At each stage in the selection process, personnel from the Offices
of the Fiscal Assistant Secretary and the Assistant Secretary for Financial Markets, and possibly
additional personnel within the Offices of Domestic Finance and Economic Policy, will evaluate
the candidate submissions and make recommendations to the head of the Office of Financial
Stability, who will make the final decision.
Multiple Managers. The Treasury expects to designate multiple asset managers and submanagers to obtain the proper expertise in di fferent asset types and di fferent segments of the
mortgage credit market. However, the Treasury may not, in its discretion, select all asset
managers at the same time, but rather in some sequence that matches the Treasury's asset
acquisition schedule and project plan for the portfolio. For example, an asset manager for whole
loans may not be selected at the same time as an asset manager for MBS, or a primary manager
may be selected prior to a sub-manager. Furthermore, as business requirements evolve, the
Treasury may issue additional notices in the future to select more asset managers, consistent with
the process set forth in this document.
Small and Minority- And Women-Owned Businesses. The Treasury will issue separate
notices, consistent with these procedures, specifically to identify smaller and minority- and

women-owned Financial Institutions that do not meet the minimum qualifications for currcnt
assets under management in the initial notices. Such Financial Institutions will be designatcd as
sub-managers within the portfolio.

Urgency and Timeline. Given the urgent need to implement the Troubled Assets Relief
Program quickly, the selection process for asset managers may involve extremely short deadlines
for submitting information and for traveling to Washington, D.C. for meetings or interviews.
Costs of Applying. The Treasury will not reimburse or otherwise compensate a prospective
asset manager for expenses or losses incurred in connection with the selection process.

P-1182: Acting

Under Secret(lry for Domestic Finance Anthony Ryan Remarks at thc Investmcnt ...

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October 6, 2008
HP-1182

Acting Under Secretary for Domestic Finance Anthony Ryan
Remarks at the Investment Company Institute's Equity,
Fixed Income and Derivatives Market Conference
in New York
New York - Good afternoon. I appreciate the opportunity to be with you today. At
the Treasury Department we appreciate the efforts that the Investment Company
Institute has taken recently and encourage this important work to continue.
Our economy has been facing a prolonged period of uncertainty and our financial
markets are experiencing unprecedented and extraordinary challenges. In the past
few months, the federal government has taken many steps to protect our economy
and our citizens from the financial market turmoil. However, as participants in and
beneficiaries of open, robust global capital markets -- you too have an important
role to play.
Let me begin by discussing the current state of play in Washington. The last few
months have been a whirlwind of activity and the Treasury, along with the Fed and
other government regulators, have been working to resolve challenges.
When I joined Secretary Paulson for his transition to the Treasury Department in
July of 2006, we expected to face challenges, but few predicted the magnitude,
breadth and severity of what we have been confronting over the past year.
While these are challenging times, I am confident we will emerge from this current
period with stronger capital markets, stronger financial institutions and an even
more robust economy.
That being said, make no mistake, there is a great deal of work ahead of us. It will
take our collective best efforts and a good deal more time.
Last week, Congress passed and the President signed into law the Emergency
Economic Stabilization Act of 2008, paving the way for the Treasury to begin
standing up a new program.
While we have been taking proactive steps over the last few weeks to prepare and
begin to design a program, much of the hard work is yet to come. With its
enactment into law, Treasury has moved into implementation mode.
When we emerge from the turmoil, we should expect the financial landscape to be
quite different. Certain financial instruments, structures and institutions will not
survive. The practices defining the new environment will reflect changed conditions
brought about by many of the lessons learned. Market participants and regulators
will have re-defined the practices and rules by which we operate.
The challenge for all of us is executing this transition - from the excesses of past --through the turmoil of the present ---- to the model of the future.
Today, I would like to discuss two key topics. First, I would like to discuss a policy
framework for how we can work together to execute this transition, and second, a
practical effort to expedite the process while mitigating the negative economic
consequences.
Let me begin with the policy framework. Science often provides us with models that
can serve as useful analogies. To help illustrate my point, I'll borrow from the work
of Alfred Wegener, the geologist who first proposed the scientific theory of plate

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1182: Act;ng

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tectonics. The ground underneath our feet is shifting. Like an earthquake, the
pressure had built up for years, there were warning signs and tremors, and now the
rift has been exposed.
The balanced tension within our financial market system was weakened by
deficiencies on both sides, and the resulting chasm has emerged. How will this be
filled? Who will fill it? When will stability be restored? These are important
questions. Just as in nature, there is no predetermined solution.
As it relates to the capital markets from a public policy perspective, we must restore
equilibrium. We must strike the optimal balance between private-sector market
discipline and regulatory oversight. Aligning the interests of the private sector and
the public sector is critical to the long term success of our economy. When market
discipline and regulatory oversight is balanced, market participants better manage
risks, financial institutions operate in a safer and sounder manner and our economy
is served by more competitive, innovative and efficient capital markets.
Equilibrium in this context translates to market stability. Market discipline failed us.
It is not the time to pOint fingers at anyone group of market participants. There's
enough blame to go around. We need to focus on moving forward and each party
must contribute to the effort.
Regulatory efforts were also compromised. Rules, guidance and oversight did not
mitigate failures of market discipline. So here too, regulators need to be part of the
solution. Both market practices and regulatory practices must be reviewed with a
critical eye towards improvement and materially strengthened.
The U.S. Treasury plays an important role in the formation of financial policy and
regulatory structure. We need to ensure this leadership is maintained and
enhanced. At Treasury, we are addressing both tactical and strategic challenges.
Moreover, we have been confronting these challenges in collaboration with the
regulatory community - both at home and abroad, as well as the private sector. The
public and private sector must share the responsibility to address the challenges,
define and design the best collective prudent practices, and most importantly,
implement these new policies. In doing so, we will enhance investor confidence,
market stability and improve liquidity.
One of my roles at the Treasury is to coordinate the efforts of the President's
Working Group on Financial Markets (PWG). In March, the PWG issued its "Policy
Statement on Financial Market Developments," which contained an analysis of
underlying factors that contributed to the market turmoil. We identified weaknesses
in global markets, financial institutions, and regulatory policies, and made a set of
comprehensive recommendations to address those weaknesses. Since that time,
the PWG has worked to ensure the implementation of its recommendations.
Later this week, the PWG will release an update on the progress that has been
made since we originally issued our statement and recommendations. The PWG
recommendations focused on six areas: mortgage origination, improving investors'
contributions to market discipline, reforming the ratings process and practices
regarding structured credit, strengthening risk management practices, enhancing
prudential regulatory policies, and enhancing the infrastructure in the OTe
derivative market.
The PWG recommendations cover the practices of a broad array of market
participants, as well as supervisors, addressing all links in the securitization chain:
mortgage brokers, mortgage originators, mortgage underwriters, securitizers,
issuers, credit rating agencies, investors, and regulators.
While progress has been made, more must follow. Let me highlight four areas:
1. Transparency and disclosure. Many of the weaknesses in the market and the
resulting challenges in addressing them were exacerbated by complexity and
opacity. The best antidote to opacity is transparency and better and more useful
disclosure. Issuers and underwriters must provide such disclosure, and investors
and asset managers must demand, use, and independently evaluate information
more effectively.
2. Risk awareness. Regulators and all market participants must be more aware of,

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and better able to respond to, risks. Credit rating agency practices must revaluate
their methodologies and practices, and the users of their services must rely less on,
and appreciate more the limitations of ratings products.
3. Risk management. We need improved risk management practices by investors
and financial institutions, and continued review and guidance from regulators,
including the areas of exposure aggregation, concentration risk, and stress testing.
Risk management is everyone's business.
4. Capital and liquidity management. Well-capitalized and liquid institutions are
better prepared to deal with challenges and enhance market confidence. We need
improved practices in capital and liquidity management to ensure that cushions are
sufficiently robust to absorb extreme system-wide shocks.
Recent market events have also highlighted that our existing financial regulatory
structure is sub optimal and that comprehensive regulatory reform is required to
restore confidence in financial markets and institutions. Our 21 st century global
capital markets and financial services industry remains regulated largely by
outdated 20th century laws and structures.
Earlier this year, the Treasury published a blueprint that would modernize our
financial regulatory structure. Our current regulatory framework is not optimally
positioned to address the dynamism of the modern financial system. Given the
diversity of market participants, the constant innovation undertaken by market
practitioners, the growing complexity of financial instruments, and the convergence
of financial intermediaries and trading platforms - all within a global context establishing a more robust, nimble regulatory structure is critical.
One of the recommendations in the Financial Regulatory Blueprint was the creation
of a market stability regulator with broad powers focusing on the overall financial
system. The market stability regulator would have the ability to evaluate the capital,
liquidity, and margin practices across the entire financial system and their potential
impact on overall financial stability.
To do this effectively, the market stability regulator would collect information from
commercial banks, broker dealers, insurance companies, hedge funds, and
commodity pool operators. Rather than focus on the health of a particular
organization, the market stability regulator would focus on whether a firm's or
industry's practices threaten overall financial stability. It would have broad powers
and the necessary corrective authorities to deal with deficiencies that pose threats
to our financial stability.
While the Treasury Department commenced our work on the Regulatory Blueprint
before the financial market turmoil began, the current turmoil has proven the
necessity for this kind of regulatory oversight and monitoring. Credit and liquidity
conditions, as well as capital requirements are at the heart of the challenges our
financial system still faces.
We all realize that as a result of the many excesses, significant deleveraging, and
the corresponding actions taken by market participants, our credit and cash
markets have effectively been locked up. Just as anxious neighbors lock their
doors, anxious market partiCipants have locked down our markets. An unwillingness
to extend credit to counterparties and extreme risk aversion has closed the financial
community --- compromising its ability to function and choking economic growth.
While a key can unlock a door, there is no single key to unlock our financial
markets. The lock is too complex. A host of complementary actions will be required
to open credit markets and restore the flow of capital.
The second topic I want to discuss is our effort to expedite the transition while
mitigating the negative economic consequences.
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 could sell some of its assets in an orderly manner. We have also taken
a number of proactive, 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.

www.treas.gov/press/releases/hpI182.htm

I IIJ/200X

P-1182: Acting Under Sp.cretary fm Domestic Finance Anthony Ryan Remarks at the Investment ...

Page 4- of 5

Despite these steps, more efforts are needed. We saw market dislocations reach a
new level last month, and we must now take further, decisive action to
fundamentally and comprehensively address the root cause of this turmoil.
And that root cause is the illiquid mortgage-related assets that are choking off the
flow of credit. This flow of credit is 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 for all Americans.
We proposed and recently received legislation to establish a troubled asset relief
program, one that is sufficiently large to have an impact, and one that includes
features to protect the taxpayer to the maximum extent possible.
The current situation is already posing great risk to the taxpayer. When the
financial system doesn't work as it should, the ability of consumers and businesses
to finance spending, investment and job creation - as well as the personal savings
of Americans - are threatened.
The ultimate protection to the taxpayer will be enhanced market stability. A
continuing series of financial institution failures and frozen credit markets is
certainly not in our nation's interest.
Congress and the Administration have now come together quickly and effectively to
enact this new legislation. We now need to complete our preparations, and begin to
implement the multi-dimensional program.
There is no one-size-fits-all solution to alleviating the stress in our financial system.
Each situation will be different and we must implement this new program with a
strategy that allows us to adapt to changing circumstances and conditions, and
attract private capital. The broad authorities in this legislation, when combined with
existing regulatory authorities and resources, gives us the ability to protect and
recapitalize our financial system as we work through the stresses in our credit
markets.
In the coming days we will hire the expertise to help us optimally design and
implement our new authorities. Transparency throughout this process will be
important, and I look forward to providing regular updates as we move ahead to
implement this strategy.

Summary
Never more than today has it been more evident that what happens in our financial
markets affects not only Americans in all 50 states, but people and markets around
the world.
Only through stable markets and sound financial institutions can capital be available
for small and large companies to borrow and grow, for the entrepreneur to start a
new business, for families to buy homes and cars and pay for their children's
educations. When people and companies save, borrow, and invest, they place their
trust in our markets and our financial institutions.
Our country must continue our strong record of confronting challenges, developing
solutions, and being innovative and competitive. By doing so, we will work through
the current challenges and facilitate sustainable economic growth. We must
redouble our efforts to ensure that our financial markets are the strongest in the
world and inspire confidence by market participants.
Progress will not come in a straight line, and we need to remain focused as we
work through these challenges. Policymakers and regulators must remain vigilant,
use all available tools and as necessary seek new ones, not merely to address
immediate concerns but also to close the rift that was created by the breakdown of
robust market and regulatory practices. We must realize that our nation's economy
is dependent on healthy, well functioning financial markets where credit flows from
providers to users of capital in an orderly manner.
I believe that the United States is on the right path to resolving market disruptions

www.treas.goy/press/reieases/hpI182.htm

11/3i20()X

P-1182: Acting Under Sp.cretary for Domestic Finance Anthony Ryan Remarks at the Investment ...

Page .5 of.5

and building a stronger financial system. Increasingly, our capital markets will
reflect the underlying economy, and here we are fortunate that our long-term
fundamentals are strong. Thank you.
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www.treas.gov/press/reieases/hpl182.htm

1 1/3,200X

)-1183: Treasury

Relf':~ses

Schedule for Fall G 7 Meeting

Pagelof2

October 6, 2008
HP-1183
Treasury Releases Schedule for Fall G7 Meeting
U.S. Treasury Secretary Henry M. Paulson, Jr. will host a meeting of the G7
Finance Ministers and Central Bank Governors at the Treasury Department on
Friday, October 10, in Washington, D.C.
Following is a schedule of events:
Who
Under Secretary for International Affairs David H. McCormick
What
Pre-G7 Press Conference
When
Wednesday, October 8, 3:00 p.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 full name, Social
Security number, and date of birth.
***

Who
G7 Finance Ministers and Central Bank Governors
What
Ministerial Meeting - Photos at the Top
When
Friday, October 10, 2:00 p.m. EDT
Where
Treasury Department
Cash Room
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note
This is a pooled photo event - photographers wishing to participate should contact
Courtney Forsell at (202) 622-2591 or
for more
information.
***

Who
G7 Finance Ministers and Central Bank Governors
What
Family Photo
When
Friday, October 10, 4:30 p.m. EDT
Where
Treasury Department
Bell Entrance Steps (West Side of Building)
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note
Photographers wishing to participate should contact Frances Anderson at (202)
622-2960 or ,
with full name, Social Security

:llwww.treas.goy/press/releases/hpI183.htm

1 1;J/20()S

P-1183: Trea5ury Releases Schedule lor Fall G7 Meeting

Page':: of'::

number, date of birth and country of citizenship. Photographers may begin setting
up at 3:15 p.m. and must be in place no later than 4:00 p.m.
***

Who
Treasury Secretary Henry M. Paulson, Jr.
What
Press Conference
When
Friday, October 10, 6:45 p.m. EDT
Where
Office of Thrift Supervision
Auditorium, 2nd Floor
1700 G Street, NW
Washington, D.C.
Note
Media may begin setting up at 5:30 p.m. Treasury, White House, and IMF/World
Bank Fall Meeting press credentials will be accepted - no other clearance is
needed.

-30-

www.treas.goy/press/releases/hpI183.htm

I I !3/'::O())-\

1184: Khshkari Appointed Interim Assistant Secretary for Financial Stability

/~~~, PRESS

ROOM

,~, u.s. DEPARTMENT OF THE TREASURY

Page I

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•

October 6, 2008
HP-1184

Kashkari Appointed Interim Assistant Secretary for Financial Stability
Washington- Secretary Henry M. Paulson, Jr. today designated Neel Kashkari as
the Interim Assistant Secretary of the Treasury for Financial Stability pursuant to the
Emergency Economic Stabilization Act of 2008. In this capacity, Kashkari will
oversee the Office of Financial Stability including the Troubled Asset Relief
Program.
Kashkari is currently Assistant Secretary of the Treasury for International
Economics and Development. In this role, he is responsible for developing and
executing policies for the Department to foster a more conducive investment
climate for the U.S., as well as to support global economic growth. He will continue
to hold this position, but while acting in his new role, his International Affairs
responsibilities will be delegated to Assistant Secretary for International Affairs Clay
Lowery.
Kashkari joined the Treasury Department in July 2006 as Senior Advisor to
Secretary Paulson. In that role, he was responsible for developing the President's
Twenty in Ten energy security plan, enhancing Treasury's engagement with India,
particularly in the area of infrastructure development, and developing and executing
the Department's response to the housing crisis, including the formation of the
HOPE NOW Alliance, the development of the subprime fast-track loan modification
plan, and Treasury's initiative to kick-start a covered bond market in the United
States.
Prior to joining the Treasury Department, Kashkari was a Vice President at
Goldman, Sachs & Co. in San Francisco, where he led Goldman's IT Security
Investment Banking practice, advising public and private companies on mergers
and acquisitions and financial transactions. Prior to his career in finance, Kashkari
was a R&D Principal Investigator at TRW in Redondo Beach, California where he
developed technology for NASA space science missions such as the James Webb
Space Telescope.
Originally from Stow, Ohio, Kashkari graduated from the University of Illinois at
Urbana-Champaign with a Bachelor's and Master's degree in Engineering. He also
received an M.B.A. in Finance from the Wharton School. He and his wife reside in
Maryland.
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.://www.treas.gov/press/reJeases/hpI184.htm

I 1/3 20(JX

-1185: Treasury AIUlounces Solicitations for Financial Agents under the Emergency Economic Stabili...

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October 6, 2008
hp-1185

Treasury Announces Solicitations for Financial Agents under the Emergency
Economic Stabilization Act
Washington, DC--The Treasury Department posted today three solicitations for
financial agents to provide services that are needed for the effective implementation
of the Troubled Asset Relief Program authorized under the Emergency Economic
Stabilization Act. The three services being sought are:
•
•
•

Custodian, Accounting, Auction Management, and Other Infrastructure
Services
Securities Asset Management Services
Whole Loan Asset Management Services

All interested and eligible parties that meet the requirements and guidelines
required of each service should submit requests by the 5 p.m. (EDT) on Oct. 8,
2008. Treasury expects to announce the results of initial selections from these three
competitions next week. In some cases more than one financial agent may be
chosen.
These services are being obtained through the Treasury's authority to retain
financial agents to provide services on its behalf as provided for under the
Emergency Economic Stabilization Act. These are not contracts governed by the
provisions of the Federal Acquisition Regulation. More information on Treasury's
procurement authorities under this Act can be found at:
http/lwww.treasury.gov/press/releases/hp1179.htm.
-30-

www.treas.go y /press/releases/hpI185.htm

11/3i200X

u.s. DEPARTMENT OF THE TREASURY
NOTICE TO FINANCIAL INSTITUTIONS
INTERESTED IN PROVIDING

CUSTODIAN, ACCOUNTING, AUCTION MANAGEMENT
AND OTHER INFRASTRUCTURE SERVICES
FOR A PORTFOLIO OF
TROUBLED MORTGAGE-RELATED ASSETS

I. INTRODUCTION
The U.S. Department of the Treasury ("Treasury") issues this notice to Financial Institutions
interested in providing custodian, accounting, auction management, and other infrastructure
services for a portfolio of troubled mortgage-related assets.
This notice describes the portfolio infrastructure services sought by the Treasury, sets forth the
rules for submitting a response, and lists the factors that will be considered in selecting a
Financial Institution to provide the services.
This notice is not for asset managers who will control assets acquired for the portfolio and
implement investment management or loan portfolio strategies, which will be handled through
separate notices specifically for securities and whole loan asset managers.
If your Financial Institution is interested, and meets the eligibility and minimum requirements in
Sections V and VI, you may submit a response in accordance with this notice no later than 5:00
p.m. ET on October 8, 2008.

II. PORTFOLIO OVERVIEW AND POLICY GOALS

one Financial Institution to provide custodian, accounting, auction management and other
infrastructure services for a portfolio of dollar-denominated mortgage-related assets that the
Treasury will acquire from Financial Institutions having significant operations in the United
States.
For purposes of this notice, troubled assets include residential or commercial mortgages and any
securities, obligations, or other instruments that are based on or related to such mortgages, that in
each case was originated or issued by on or before March 14,2008. Troubled assets, for
purposes of this notice, do not include securities issued and/or fully guaranteed as to principal
and interest by the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal
National Mortgage Association ("Fannie Mae").
Specific assets acquired for the portfolio may include (i) securitized products, including Prime,
Alt-A, and Subprime residential mortgage backed securities (MBS), commercial MBS, and MBS
collateralized debt obligations, and (ii) whole loans, including residential first mortgages, home
equity loans, second liens, and commercial mortgage loans. In addition, the Treasury may
decide to include other types of securities and mortgage loans in the portfolio as necessary to
promote market stability.
Consistent with the purposes of the Act, the Treasury's policy goals for the portfolio of troubled
mortgage-related assets are to (1) provide stability and prevent further disruption to the financial
markets and banking system, (2) ensure mortgage availability, and (3) protect the interests of
taxpayers. The portfolio mandate and specific investment strategies may change over time but
will always be consistent with these policy goals.
By acquiring, managing, and orderly liquidating the troubled assets over time, the Treasury seeks
to improve the capital positions of Financial Institutions, improve liquidity and credit extension
in the financial system, increase investor confidence, and provide market participants with more
price transparency.
III. PORTFOLIO INFRASTRUCTURE
Pursuant to this notice, the Treasury intends to designate one financial agent to provide
infrastructure services for the entire portfolio of troubled mortgage-related securities and whole
mortgage loans, including custody, asset tagging, asset pricing and valuation, cash management,
accounting, management reporting, Federal Government financial reporting, and auction
management services for reverse auctions and for other asset acquisition mechanisms
(collectively "infrastructure services").
This notice is not for engaging asset managers who will control the assets acquired for the
portfolio and implement investment management and loan portfolio strategies. Through separate
notices, ~he Treasury will iden~ify an.d designate multiple asset managers and sub-managers to
handle dIfferent asset classes, mcludmg all types of securities and whole loans, that may be
acquired for the portfolio.

The selected financial agent will provide infrastructure services for the portfolio of up to $700
billion and of moderate and possibly long duration. The portfolio mandate and composition will
be driven by the aforementioned policy objectives rather than the pursuit of yield or
diversification.
The selected financial agent will provide the accounting of record for the portfolio, hold all cash
and assets in the portfolio, produce reports to support Federal Credit Reform accounting, produce
reports for the Treasury's general ledger accounting system, manage cash balances generated by
the portfolio, and provide for pricing and asset valuation services. The financial agent must track
unique asset attributes as required by the Act, such as linkages to executive compensation limits
and to warrants received from selling institutions. In addition, the financial agent will support
the acquisition of securitized assets by serving as auction manager and conducting reverse
auctions designed to allow efficient and effective purchases.

IV. SERVICES AND REQUIREMENTS
Through this notice, the Treasury seeks responses from Financial Institutions qualified to provide
infrastructure services for a highly complex, multi-manager portfolio of troubled mortgagerelated assets. The Financial Institution selected to provide infrastructure services will be
required to:
Custodian
• Provide custody accounts and eash accounts for the portfolio and multiple asset managers.
• Receive, hold, safe keep, and track cash and assets.
• Collect income and principal distributions.
• Release assets and disburse cash upon instructions.
• Manage credits and debits to the eash and custody accounts for all income, receipts,
purchases, and outlays
• Confirm all settlements, trades, and other transactions with asset managers.
Asset Tagging
• Provide asset tagging for unique attributes of assets in the portfolio, including but not limited
to tracking warrants linked to the counterparties that sold assets, executive compensation
triggers linked to counterparties that sold assets, and tax law triggers linked to counterparty
trading volumes.
Auctions
• Serve as auction manager for reverse auctions (one or more buyers, multiple sellers) to
acquire mortgage-related securities for the portfolio.
• Design, implement, and test complex auction formats under highly compressed deadlines.
• Conduct multiple simultaneous auctions with multiple rounds and with up to thousands of
interested sellers.
• Provide the technical infrastructure to collect and process bids from participants, provide
appropriate results to participants during auctions, and provide customer service to auction
participants before, during, and after auctions.

•

Work with brokers, dealers, and book entry systems providers to authenticate beneficial
owners, protect against collusion by auction participants, conduct pre- and post-auction
validations, and clear and settle transactions.
Provide the Treasury with expert advice on the detailed design of auctions to achieve the
policy goal of fostering price discovery and observable valuations.

Accounting and Reporting
• Provide accounting and footnote disclosure for the portfolio in accordance with GAAP and
FAS 157.
• Produce management and operational reports on transactions, positions, valuations, cash
flows, portfolio characteristics, and counterparties.
• Provide for public transparency reports on the Internet for all transactions and assets.
• Reconcile activities daily with the Treasury and with asset managers.
• Produce reports to support Federal Credit Reform accounting
• Assist with the preparation of reports to oversight bodies.
• Provide a SAS No. 70 Service Organization Type II report, on an annual basis, for the
services required in this notice.
Cash Management
• Sweep all end of day cash balances in accordance with the Treasury's instructions.
Pricing, Valuation, and Market Information
• Provide asset pricing and valuation services for all types of mortgage-related securitized
assets, including all necessary analytics, models, and reports.
• Provide valuations of whole mortgage loans, and portfolios of whole mortgage loans,
according to different product and performance characteristics, including residential first
liens (non-agency Prime, Alt-A, Subprime), residential second liens, commercial mortgages,
and other loans.
• Produce reference prices, pricing curves, and CUSIP-Ievel asset valuations using widely
accepted software, hardware, and data resources to support the acquisition of assets through
reverse auctions and subscription sales.
• Determine the economic value of equity-based warrants obtained from Financial Institutions
selling assets to the Treasury.
• Provide detailed information on the number, values, and characteristics of mortgage backed
securities in the market, as necessary to develop auction and acquisition strategies.
Operations
• Confirm all trades and settlements with asset managers.
• Maintain records of (i) trades executed, including all pertinent financial and settlement
information, (ii) principal and interest (P&I) payments, and (iii) cash flow projections of new
trades and principal and interest payments.
• Track, maintain records of, and promptly resolve notification and settlement fails.
• Maintain settlement tolerance thresholds consistent with best practices.
• Provide for straight-through-processing with asset managers for trading and post-trading
processmg.

•
•
•
•
•

Provide data feeds to the Treasury's management and accounting systems.
Enforce internal controls
Provide for all necessary operational and analytical hardware and software to support the
services in this notice.
Permit the Treasury's internal and external auditors, or other governmental oversight entities
to audit books and records related to the services in this notice.
Retain all documentation and reports related to the services in this notice.

Whole Mortgage Loan Custodian and Trustee
• Provide a platforn1 for executing the purchase, sale, and holding of whole loans and whole
loan portfolios, to be provided for use across multiple whole loan asset managers.
• Provide master cash management services necessary for the central custody of whole loans.
• Warehouse title and legal documents and provide other similar central administrative custody
services.
• Monitor third party servicer compliance with the Treasury's servicing and loss mitigation
guidelines
The Financial Institution must be prepared to provide resources and services immediately if
selected as the portfolio'S infrastructure service provider.
As a financial agent, the Financial Institution will have a fiduciary responsibility to perform all
services in the best interests of the United States.

v. ORGANIZATIONAL ELIGIBILITY
To be eligible to be selected as a financial agent pursuant to this notice, an organization:
•

Must be a "Financial Institution" as defined in the Act. Specifically" Financial Institution"
means any institution, including, but not limited to, any bank, savings association, credit
union, security broker or dealer, or insurance company, established and regulated under the
laws of the United States or any State, territory, or possession of the United States, the
District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana
Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant
operations in the United States, but excluding any central bank of, or institution owned by, a
foreign government.

•

Must not be on the Federal Debarment and/or Suspension List;

•

Must not be delinquent on any debts owed to the Government;

•

Must not be subject to any pending or current enforcement actions or regulatory
investigations;

•

If currently doing business with the Treasury or another Federal agency, must not be in any
kind of probationary status, and must be addressing and resolving any identified deficiencies
in performance, if any.

VI. MINIMUM QUALIFICATIONS

The Treasury has established the following minimum qualifications for considering responses
from interested and organizationally eligible Financial Institutions:
•

The Financial Institution must have at least $500 billion in domestic assets under custody.

•

The Financial Institution must covenant to disclose all potential conflicts of interest, and to
avoid, mitigate, or neutralize to the extent feasible and to the Treasury's satisfaction any
personal or organizational conflicts of interest that may be identified by the Treasury or the
Financial Institution.

•

As the central infrastructure provider for the portfolio, the Financial Institution must be able
and willing to work with and coordinate other Financial Institutions, Federal Reserve Banks,
Federal agencies, governmental entities, and other organizations when the Treasury
determines it to be in the best interest of the Government.

•

The Financial Institution must meet all organizational eligibility standards in Section V.

VII. INFORMATION REQUESTED

This section identifies the primary information the Financial Institution must provide in its
response to this notice.
1. Organization and Staffing. Provide information or charts showing your relevant business
entities or units, and the composition and expertise of your personnel, for the different
infrastructure services identified in this notice, including the number of both technical and
support employees in each case.
2. Domestic Assets Under Custody. Provide a table showing in detail all domestic assets under
custody by asset class with relevant totals and sub-totals, with particular detail for mortgagerelated assets.
3. Operational Capacity. Provide the most relevant and compelling facts and figures on the
scale, scope, and diversity of your Financial Institution's current operational capacity to
provide the portfolio infrastructures services, to include technical equipment, facilities,
infrastructural and trading interfaces, licenses, operating authority, insurance coverage,
specialty subcontractors, and the like.
4. Performance Measurement. Describe the three most effective metrics that should be used to
measure your performance as a portfolio infrastructure provider for the Treasury and for
ensuring that your performance is aligned with the Treasury's interests.

5. Strategy. Given the scale and complexity of the portfolio, as well as the public policy goals
associated with the portfolio, provide two strategic recommendations or key insights for the
portfolio infrastructure services sought by the Treasury.
6. Asset Tagging. Discuss your Financial Institution's technical ability to provide for unique
asset tagging, including but not limited to tracking warrants linked to the counterparties that
sold assets, executive compensation triggers linked to counterparties that sold assets, tax law
triggers linked to counterparty trading volumes, asset performance against original
valuations, and differentiated interests of multiple rights holders.
7. Whole Loan Custody and Trustee. Discuss your experience and ability to provide custody
and trustee services for whole mortgage loans, including platforms for settling loan
acquisitions, holding loans, providing master cash management services, and monitoring
servicer compliance with the Treasury's loan servicing and loss mitigation guidelines.
8. Pricing and Valuation. Describe your technical capabilities (analytics, models, services) for
generating asset prices and valuations for (i) specific private label mortgage backed securities
across the entire capital structure, (ii) whole mortgage loans with different product and
performance characteristics, and (iv) equity-based warrants issued by firms selling assets to
the Treasury.
9. Auctions Processing. Describe your experience in conducting securities auctions and reverse
auctions, including types of securities, platforms used, dollar size, number of participants,
and auction formats.
10. Auctions Timeline. Identify a viable time line and sequence of events for conducting - as
soon as possible - an initial set of multiple reverse auctions of classes of non-agency
mortgage-backed securities using complex auction formats.
11. Small and Minority- and Women-Owned Businesses. Provide information on how you
expect to provide meaningful opportunities to small and minority- and women-owned
businesses as subcontractors to the Financial Institution during performance as a financial
agent of the United States.
12. Public Transparency. Describe your ability to produce public reports on the Internet for all
transactions and holding across the portfolio, and to provide the Treasury with information
needed for public disclosure of pricing and valuation methods.
13. Conflicts oflnterest. Identify any real or potential conflicts of interest you would have in
providing the portfolio infrastructure services described in this notice, and explain how you
would avoid, mitigate, or neutralize any such conflicts. Include the interests of your
corporate parents, subsidiaries, and affiliates in your answer. Also, describe your philosophy
in fulfilling your duty to the Treasury and the U.S. taxpayer in light of your proprietary
interests and those of other clients. Among other situations, conflicts of interest may exist if
you, any entity that owns or controls you, or any entity that you own or control (1) has a
personal, business, or financial interest or relationship that relates to the services in this

notice, (2) is or represents a party in litigation with the Treasury, (3) may be participating in
the Troubled Assets Relief Program as defined in the Act, or (4) engages in any activity that
would cause the Treasury to question the integrity of your services.
14. Third Parties. Identify any services in this notice which you would propose to subcontract to
third parties, why you would subcontract the services, and what expertise the third party or
affiliate would provide.
15. Proposed Fee. Describe your proposed fee schedule and declare the all-in costs associated
with your services. Your fee structure must be aligned with the Treasury's policy goals of
providing stability and preventing further disruption to the financial system, and must reflect
a prudent portfolio liquidation strategy to protect the tax payer.

VIII. SELECTION PROCESS
The Treasury will evaluate the responses to this notice from all interested and qualified Financial
Institutions, and will invite certain candidates to continue to the second phase of the financial
agent selection process. The second phase, and subsequent phases, may be conducted under
confidentiality agreements to facilitate information exchange, consistent with the public
disclosure and transparency provisions of the Act. In the second phase, the prospective financial
agents will provide additional information about their expertise, as well as information on
audited financial statements and filings, potential conflicts of interest, codes of conduct and
ethics, risk management, and performance measurement. This phase may include telephone
conversations to allow questioning by and of the Treasury.
The Treasury will evaluate the responses from the second phase candidates, and will determine
whether a candidate will continue to be considered. In this last stage, the Financial Institution
may be required to conduct face-to-face discussions on public policy goals and statutory
requirements, and to respond to interview questions to assess the capabilities of specific
individuals. Following any face-to-face meetings, the Treasury will make a final selection of the
Financial Institution to be designated as the portfolio infrastructure provider.
The Financial Institution selected to be the portfolio infrastructure provider must sign a Financial
Agency Agreement with the Treasury, a copy of which will be provided for review during the
second stage of the selection process. A Financial Institution's willingness to enter into the
standard Financial Agency Agreement, with the established terms and conditions currently
applied to financial agents of the United States, will be among the factors used in evaluating the
Financial Institution.
The Treasury will notify the Financial Institution if its response to this notice is selected,
rejected, or requires further information. However, the Treasury shall have no requirement to
discuss the reasons, in either general or specific terms, or at any stage in the selection process,
that the Financial Institution's response was not accepted or that the selection process may have
been terminated.

Given the urgent need to implement the Troubled Asset Relief Program, the financial agent
selection process may involve extremely short deadlines for submitting additional information,
participating in conference calls, and for traveling to Washington, D.C. for meetings or
interviews. Financial Institutions must be prepared to respond immediately during the selection
process.
IX. DEADLINE AND COMMUNICATIONS
To be considered to provide the services in this notice, the Financial Institution must
submit a response by 5:00 p.m. ET on October 8, 2008. The following schedule will guide
the process of selecting a custodian:
Date/Time
Deadline for Submission of Response ••.•...•.••••.••.•..•.•....•..•.•.•.•. OCTOBER 8, 2008, 5:00 PM ET
Treasury Selection of Financial Agent ............................................................ OCTOBER 10,2008
Signing of Financial Agency Agreement.. ...................................................... , OCTOBER 11, 2008
Services Begin and Personnel Available ......................................................... OCTOBER 11, 2008
The Treasury reserves the right, in its sole discretion, to modify the schedule at any time and will
notify Financial Institutions of any such changes.
The Financial Institution is responsible for seeking clarification on any issues in this notice that
the Financial Institution does not fully understand. All questions should be directed to the
following:
Treasury Contact:
GARY GRIPPO
DEPUTY ASSISTANT SECRETARY FOR FISCAL OPERATIONS AND POLICY
U.S. DEPARTMENT OF THE TREASURY
DOMESTIC FINANCE
ROOM 2112,1500 PENNSYLVANIA AVENUE NW
WASHINGTON, DC 20220
Phone Number: 202-622-0570
Fax Number: 202-622-0962
E-mail Address: custodian@do.treas.gov
The Treasury, in its sole discretion, may respond orally to any questions about the response
requested in this notice. Substantive questions should be submitted as soon as possible
consistent with the schedule above. No other channel of communication between the Financial
Institution and an officer, employee, or agent of the Treasury regarding this notice is permitted,

and no information gained from any such communication may be considered in any way binding
or limiting on the Treasury.
The Treasury, in its sole discretion, may change the deadline for submission of responses.

X. SUBMISSION OF RESPONSE
The Financial Institution must submit its response by courier, or in PDF format via email, to the
Treasury contact by the deadline.
The Treasury has no obligation to consider a response received after the deadline provided
above. The only acceptable evidence of the time of receipt is the Treasury's time/date stamp on
the response or other evidence of receipt maintained by the Treasury.
The Financial Institution, by submitting a response to this notice, warrants and represents that it
understands and agrees to all terms of this notice and the selection process, including the
following:
•

The Treasury, in its sole discretion, will select a Financial Institution to perform the services
in this notice, based on its determination of what is in the best interests of the United States.

•

No communication, question, response, or clarification, whether oral or written, about the
requirements of this notice shall in any way serve to limit the Treasury's complete and sole
discretion in selecting a Financial Institution and in making decisions in connection with this
notice.

•

The Treasury may select, reject, or request additional clarifying information about the
Financial Institution's response without further discussion with the Financial Institution.

Because the Treasury may select or reject the response without engaging in discussion, the
Financial Institution must present its most favorable technical and pricing response.

XI. RESPONSE FORMAT
The response must include a I-page cover letter, executed by a person legally authorized to
represent the Financial Institution, that includes the name, title, address, and office and cell
phone numbers of the individual to receive communications from the Treasury, and a
certification statement that the Financial Institution (i) meets the eligibility requirements of
Section V, (ii) meets the minimum qualifications in Section VI, (iii) understands and agrees to
the terms and selection process set forth in this notice, (iv) understands and agrees to the
confidentiality provisions in Section XIV, (v) understands and agrees that as a financial agent it
will have a fiduciary duty to perform all services in the best interests of the United States , and
(vi) is capable of providing the services identified in this notice.
The response must include a document not to exceed 25 one-sided pages, in l2-point font with linch margins, addressing the items in Section IV above.

As an attachment, and not included in the 25 page limit, the response must include additional,
relevant information for any proposed third party with specialized experience to which services
will be subcontracted, but not to exceed one page per subcontractor.
The response must not include any other documents or attachments. The response must not
include any generic marketing or sales information, or rely on cross-references to other
documents.

XII. EVALUATION OF RESPONSE
The Treasury's overarching objective in evaluating the Financial Institution's response and
selecting a financial agent is to ensure that the troubled assets portfolio will be managed in the
most ethical, transparent, accountable, and cost effective manner possible.
The Treasury will use the following non-exclusive factors in evaluating the Financial
Institution's response:
•

The Financial Institution's experience in providing domestic fixed income and loan custodian
serVIces.

•

Evidence that the Financial Institution can support reverse auctions in a compressed time
period.

•

The qualifications of staff to be assigned to the Treasury.

•

The quality and cogency of the written response in answering the questions directly and
supplying the most relevant information.

•

The value and rigor of ideas and recommendations in the written response.

•

The extent to which the Financial Institution proposes to provide meaningful opportunities
for small and minority- and women-owned businesses.

•

Evidence that the Financial Institution can provide the full scope of infrastructure services,
including through the judicious and targeted use of subcontractors with specialized
experIence.

•

The Financial Institution's fees and all-in costs.

The Treasury will notify the Financial Institution if its response is selected, rejected, or requires
further information. However, the Treasury shall have no requirement to discuss the reasons, in
either general or specific terms, that the Financial Institution's response was not accepted or that
the selection process may have been terminated.

XIII. AUTHORITY

The Secretary of the Treasury has statutory authority to designate Financial Institutions as
financial agents of the United States to perform reasonable duties as determined by the Secretary,
pursuant to the Act. The Financial Institution, if designated to provide services pursuant to this
notice, shall be financial agent of the United States, and not a contractor. Neither this notice, nor
the services sought by the Treasury, is a procurement subject to the Federal Acquisition
Regulation.
XIV. CONFIDENTIALITY

The Treasury considers any information provided to a Financial Institution in evaluating its
response to this notice to be strictly confidential and must not be disclosed to any third party
outside the Financial Institution's corporate organization, nor duplicated, used, or disclosed in
whole or in part for any purpose other than to prepare a response. Under no circumstances shall
any information received in connection with this notice be disclosed to any third party outside
the Financial Institution's corporate organization without the express prior written consent of the
Treasury.
XV. RESERVATION OF RIGHTS

The release of this notice and the Treasury's receipt of any information or responses shall not, in
any manner, obligate the Treasury to perform any act or otherwise incur any liabilities.
The Treasury assumes no obligation to reimburse or otherwise compensate the Financial
Institution for expenses or losses incurred in connection with this notice.
The Treasury shall have the unlimited right to use, for any governmental purpose, any
information submitted in connection with this notice.
The Treasury reserves the right to: (1) modify the requirements in this notice or withdraw this
notice at any time; (2) decide not to select any Financial Institution; (3) reject a response without
inviting the Financial Institution to submit a new response; (4) negotiate with and select any
Financial Institution considered qualified; (5) request, orally or in writing, clarification of or
additional information on a response; (6) waive minor informalities or irregularities, or a
requirement of this notice; (7) accept any response in part or in total; (8) reject a response that
does not conform to the specified format or other requirements of this notice; and (9) designate
more than one Financial Institution to provide the services in this notice.
Any selection and designation of a financial agent pursuant to this notice shall be contingent
upon and subject to availability of funding.

u.s. DEPARTMENT OF THE TREASURY
NOTICE TO FINANCIAL INSTITUTIONS
INTERESTED IN PROVIDING

SECURITIES ASSET MANAGEMENT SERVICES
FOR A PORTFOLIO OF
TROUBLED MORTGAGE-RELATED ASSETS

I. INTRODUCTION
The U.S. Department of the Treasury ("Treasury") issues this notice to Financial Institutions
interested in providing asset management services for a portfolio oftroublcd mortgage-related
securities.
This notice describes services sought by the Treasury, sets forth the rules for submitting a
response, and lists the factors that will be considered in selecting Financial Institutions to provide
the services.
This notice is for asset managers of mortgage-related securities and not for asset managers of
mortgage whole loans. The Treasury is issuing a separate notice for managers of whole loans
acquired for the portfolio of troubled assets.
If your Financial Institution is interested, and meets the eligibility and minimum requirements in
Sections V and VI, you may submit a response in accordance with this notice no later than 5:00
p.m. ET on October 8, 2008.

II. OVERVIEW AND POLICY GOALS
In furtherance of its mission to ensure the safety and soundness of the U.S. financial system, and
to implement the Emergency Economic Stabilization Act of 2008 (Act), the Treasury is
establishing a program to purchase a variety of troubled assets. Accordingly, the Treasury seeks
multiple Financial Institutions to provide asset management services for a portfolio of dollar-

denominated mortgage-related securities that the Treasury will acquire from Financial
Institutions.
For purposes of this notice, troubled assets include securities, obligations, or other instruments
that arc based on or related to residential and commercial mortgages and that were in each case
originated or issued on or before March 14,2008. Troubled assets, for purposes of this notice,
do not include securities issued and/or fully guaranteed as to principal and interest by the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage
Association ("Fannie Mae").
The specific securities to be acquired for the portfolio described in this notice include Prime, AltA, and Subprime residential mortgage backed securities (MBS), commercial MBS, and MBS
collateralized debt obligations. In addition, the Treasury may decide to include other types of
securities in the portfolio as necessary to promote market stability.
Consistent with the purposes of the Act, the Treasury's policy goals for the portfolio of troubled
mortgage-related securities are to (1) provide stability and prevent further disruption to the
financial markets and banking system, (2) ensure mortgage availability, and (3) protect the
interests of taxpayers. The portfolio mandate and specific investment strategies may change over
time but will always be consistent with these policy goals.
By acquiring, managing, and orderly liquidating the troubled securities over time, the Treasury
seeks to improve the capital positions of Financial Institutions, improve liquidity and credit
extension in the financial system, increase investor confidence, and provide market participants
with more price transparency.

III. SECURITIES PORTFOLIO
Pursuant to this notice, the Treasury intends to designate multiple asset managers and submanagers to handle different asset classes that may be acquired for the securities portfolio.
Through separate processes, the Treasury expects to engage other providers for custodian
services, risk management, and other portfolio services.
The size of the securities portfolio may reach several hundred billion dollars. The portfolio
mandate and composition will be driven by the aforementioned policy objectives rather than the
pursuit of yield or diversification. To the maximum extent practicable, the portfolio's credit and
market risks will be managed to limit the potential for capital losses.
Assets will likely be acquired through reverse auctions and other market mechanisms designed to
support efficient and effective price discovery and generate observable market-based valuations,
to the maximum extent practicable. Consistent with the policy goals, the portfolio is expected to
hold assets until market conditions improve and stabilize, but the specific holding period of
particular assets will vary from months to years, and the Treasury may over time provide
guidance on re-balancing assets. Accordingly, portfolio management is expected to be relatively
passive, but may be relatively active at certain times, depending on market conditions. The

Treasury will also provide on-going guidance on how positions may be liquidated or remonetized.
The portfolio may be benchmarked to established indices, but more likely will be measured by a
dashboard of custom metrics linked to the Treasury's policy goals. In addition, the Treasury will
establish guidelines on managing the risks of the portfolio, on eligible trading counterparties and
counterparty risk management, on the disposition of cash flows, and on managing temporary
cash holdings generated by the portfolio. The Treasury may decide to hedge convexity and other
risks within the portfolio and will establish parameters for any such hedging activity.

IV. SERVICES AND REQUIREMENTS
Through this notice, the Treasury seeks responses from Financial Institutions qualified to provide
asset management services for a highly complex, multi-manager portfolio of troubled mortgagerelated securities. Financial Institutions selected to provide asset management services will be
required to:
Portfolio Management and Trade Execution
•

Act as the Treasury's appointed asset manager with authority to control assets, consistent
with the Treasury's investment policy and guidelines.

•

Manage assets (i) acquired by the Treasury and segregated to the Financial Institution, and/or
(ii) acquired by the Financial Institution in accordance with the Treasury's instructions.

•

Devise, document, and execute strategies to meet the Treasury's investment policy and
guidelines.

•

Adhere to, measure, and report on standards for best execution with brokers, dealers, and
other counterparties in compliance with the Treasury's investment policy and guidelines.

•

Execute trades as agent for a disclosed or undisclosed principal, as determined by the
Treasury, at market prices or another pricing basis, as determined by the Treasury.

•

Execute large trades, potentially of multi-billions of dollars as required, on a single day using
approved counterparties.

•

Provide a dedicated team of individuals (full or part-time) to undertake the services required
in this notice.

Operations
•

Confirm all trades with approved counterparties promptly.

•

Maintain records of (i) trades executed, including all pertinent financial and settlement
information, (ii) principal and interest (P&I) payments, and (iii) cash flow projections of new
trades and principal and interest payments.

•

Track, maintain records of, and promptly resolve notification and settlement fails.

•

Maintain settlement tolerance thresholds consistent with best practices.

•

Interface with an independent custodian, selected by the Treasury, that will have possession
and safekeeping of all cash and assets, process transactions, collect P&I distributions,
disburse cash and remit funds to the Treasury as required, and provide GAAP accounting of
record.

•

Interface with the Treasury's management and accounting systems and provide data feeds.

•

Reconcile, on a daily basis, its own books and records with the custodian's cash and custody
accounts and with the Treasury's accounting systems.

•

Provide for all necessary operational and analytical hardware and software to support the
services in this notice.

•

Identify, document, and enforce internal controls on an on-going basis.

•

Permit the Treasury's internal and external auditors, or other governmental oversight entities,
to audit books and records related to the services in this notice.

Portfolio Analytics and Reporting
•

Report portfolio performance and status against the Treasury's benchmarks and/or success
metrics.

•

Report on (i) securities holdings, (ii) positions in assets and asset classes, (iii) securities
characteristics, such as maturity distributions, and (iv) transactions.

•

Forecast expected P&I payments given a range of interest rate scenarios using industry
standard prepayment models.

•

Produce portfolio valuation reports, incorporating pricing and relative value measures from
external sources and models, as appropriate.

•

Produce risk management reports to monitor and assess the portfolio against risk constraints
and metrics to be established by the Treasury.

•

Assist with the preparation of reports to oversight bodies.

•

Provide a SAS No. 70 Service Organization Type II report, on an annual basis, for the
services required in this notice.

•

Retain all documentation and reports related to the services in this notice.

•

Respond to the Treasury's reasonable verbal inquiries on trading activity and market
conditions during the business day, and provide end of day commentary on trading decisions
and activity as requested the Treasury.

The Financial Institution must be prepared to provide services immediately if selected as an asset
manager.
As a financial agent, the Financial Institution will have a fiduciary responsibility to perform all
services in the best interests of the United States.

V. ORGANIZATIONAL ELIGIBILITY
To be eligible to be selected as a financial agent pursuant to this notice, an organization:
•

Must be a "Financial Institution" as defined in the Act. Specifically "Financial Institution"
means any institution, including, but not limited to, any bank, savings association, credit
union, security broker or dealer, or insurance company, established and regulated under the
laws of the United States or any State, territory, or possession of the United States, the
District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana
Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant
operations in the United States, but excluding any central bank of, or institution owned by, a
foreign government.

•

Must be a registered investment advisor under the Investment Advisers Act of 1940, as
amended;

•

Must not be on the Federal Debarment and/or Suspension List;

•

Must not be delinquent on any debts owed to the Government;

•

Must not be subject to any pending or current enforcement actions or regulatory
investigations;

•

VI. MINIMUM QUALIFICATIONS
The Treasury has established the following minimum qualifications for considering responses
from interested and organizationally eligible Financial Institutions:

•

The Financial Institution must be continuously engaged as a principal business in managing
assets, comparable to the services described in Section IV, for the last 5 years.

•

The Financial Institution must have received an unqualified auditor's opinion for the last 5
years.

•

The Financial Institution must have at least $100 billion in dollar-denominated fixed income
assets under management.

•

The Financial Institution's primary portfolio manager assigned to the Treasury's account
must have at least 10 years of experience in managing fixed income assets.

•

The Financial Institution must be able and willing to partner with other Financial Institutions
selected to be sub-managers and with subcontractors, as directed by the Treasury.

•

The Financial Institution must be able and willing to work with Federal Reserve Banks,
Federal agencies, governmental entities, and other organizations when the Treasury
determines it to be in the best interest of the Government.

•

The Financial Institution must meet all organizational eligibility standards in Section V.

VII. SMALL AND MINORITY- AND WOMEN-OWNED BUSINESSES
To ensure a diversity of participation as securities asset managers, the Treasury will at a future
date issue a separate notice for smaller and minority- and women-owned Financial Institutions
that may not meet the minimum qualifications for the size of assets under management identified
in Section VI above. Such Financial Institutions will be designated as sub-managers within the
portfolio.

VIII. INFORMATION REQUESTED
This section identifies the primary information the Financial Institution must provide in its
response to this notice.
1. Organization and Staffing. Provide information or charts showing your business entities or
units, and the composition and expertise of your personnel, with particular detail on fixed
income and mortgage-related asset management. Describe any changes in ownership or
major changes in corporate structures in the last 3 years, and any anticipated future changes
to your corporate organization or ownership.

2. Assets Under Management. Provide information or a table showing your number of clients
and the total assets under management, with relevant totals and subtotals. Include particular
detail on fixed income assets, and on mortgage-related assets under management across the
firm and in dedicated portfolios.
3. Past Perfonnance. Provide a table showing the best and worst returns for your mortgagerelated portfolios for each of the past 5 years ending June 30, 2008.
4. References. Provide reference contacts for the three customers with the largest fixed income
assets under your management over the last 3 years, including name, title, organization, and
phone number.
5. Expertise. Describe your specific organizational expertise in the mortgage credit market and
in managing distressed assets and mortgage-related assets.
6. Personnel. Provide the names and experience of the primary asset managers and traders that
would be assigned to the Treasury's account.
7. Small and Minority- and Women-Owned Businesses. Provide information on how you
expect to provide meaningful opportunities to small and minority- and women-owned
businesses, as subcontractors to the Financial Institution during performance as a financial
agent of the United States.
8. Performance Measurement. Given the lack of industry benchmarks or indices for a portfolio
of distressed assets, and the Treasury's stated policy goals, describe the most effective metric
for measuring your performance as an asset manager for the Treasury.
9. Risk Management. Describe the risk metrics and limits you would use in managing a
portfolio of troubled mortgage-related assets for the Treasury.
10. Oversight. Indicate if your organization has a risk oversight officer who operates
independently from portfolio managers and other investment-policy decision makers.
Identify the two most important attributes of your particular risk oversight framework.
II. Investment Policy and Guidelines. Given the complexity and public policy goals of the
portfolio, provide two specific recommendations for the investment policy to govern the
assets you would manage for the Treasury, consistent with the Act.
12. Conflicts oflnterest. Identify any real or potential conflicts of interest you would have in
managing a securities portfolio as described in this notice, and explain how you would avoid,
mitigate, or neutralize any such conflicts. Include the interests of your corporate parents,
subsidiaries, and affiliates in your answer. Also, describe your philosophy in fulfilling your
duty to the Treasury and the U.S. taxpayer in light of your proprietary interests and those of
other clients. Among other situations, conflicts of interest may exist if you, any entity that
owns or controls you, or any entity that you own or control (I) has a personal, business, or
financial interest or relationship that relates to the services in this notice, (2) is or represents a

party in litigation with the Treasury, (3) may be participating in the Troubled Assets Relief
Program as defined in the Act, or (4) engages in any activity that would cause the Treasury to
question the integrity of your services.
13. Regulatory and Legal Actions. IdentifY any Federal or State citations or enforcement actions
your organization or any affiliate has received or been warned of, and any litigation or legal
proceeding involving your asset management or investment consulting services involving
fraud, negligence, criminal activity, or breach of fiduciary duty.
14. Custodians. List the top 3 custodians with which you are currently processing assets.
15. Proposed Fee. Describe your proposed fee schedule and declare the all-in costs associated
with your services. Your fee structure must be aligned with the Treasury's policy goals of
providing stability and preventing further disruption to the financial system, and must reflect
a prudent portfolio liquidation strategy to protect the taxpayer.

IX. SELECTION PROCESS
The Treasury will evaluate the responses to this notice from all interested and qualified Financial
Institutions, and will invite certain candidates to continue to the second phase of the financial
agent selection process. The second phase, and subsequent phases, may be conducted under
confidentiality agreements to facilitate information exchange, consistent with the public
disclosure and transparency provisions of the Act. In the second phase, the prospective financial
agents will provide additional information about their expertise, as well as information on
audited financial statements and filings, potential conflicts of interest, codes of conduct and
ethics, asset management strategies, risk management, and performance measurement. This
phase may include telephone conversations to allow questioning by and of the Treasury.
The Treasury will evaluate the responses from the second phase candidates, and will determine
whether a candidate will continue to be considered. In this last stage, a Financial Institution may
be required to conduct face-to-face discussions on portfolio and trading scenarios, public policy
goals, and statutory requirements, and to respond to interview questions to assess the capabilities
of prospective individuals to be assigned to manage assets. Following any face-to-face meetings,
the Treasury will make final selections of the Financial Institutions to be designated as asset
managers.
Financial Institutions selected to be asset managers must sign a Financial Agency Agreement
with the Treasury, a copy of which will be provided for review during the second stage of the
selection process. The Financial Institution's willingness to enter into the standard Financial
Agency Agreement, with the established terms and conditions currently applied to financial
agents of the United States, will be among the factors used in evaluating the Financial Institution.
The Treasury will notify the Financial Institution if its response to this notice is selected,
rejected, or requires further information. However, the Treasury shall have no requirement to
discuss the reasons, in either general or specific terms, or at any stage in the selection process,

that the Financial Institution's response was not accepted or that the selection process may have
been terminated.
Given the urgent need to implement the Troubled Asset Relief Program, the financial agent
selection process may involve extremely short deadlines for submitting additional information,
participating in conference calls, and for traveling to Washington, D.C. for meetings or
interviews. Financial Institutions must be prepared to respond immediately during the selection
process.

X. DEADLINE AND COMMUNICATIONS

To be considered to provide the services in this notice, the Financial Institution must
submit a response by 5:00 p.m. ET on October 8, 2008.
The Financial Institution is responsible for seeking clarification on any issues in this notice that
the Financial Institution does not fully understand. All questions should be directed to the
following:

Treasury Contact:
GARYGRlPPO
DEPUTY ASSISTANT SECRETARY FOR FISCAL OPERATIONS AND POLICY
U.S. DEPARTMENT OF THE TREASURY
DOMESTIC FINANCE
ROOM 2112, 1500 PENNSYLVANIA AVENUE NW
WASHINGTON, DC 20220
Phone Number: 202-622-0570
Fax Number: 202-622-0962
E-mail Address: securities@do.treas.gov
The Treasury, in its sole discretion, may respond orally to any questions about the response
requested in this notice. Substantive questions should be submitted as soon as possible
consistent with the schedule above. No other channel of communication between the Financial
Institution and an officer, employee, or agent of the Treasury regarding this notice is permitted,
and no information gained from any such communication may be considered in any way binding
or limiting on the Treasury.
The Treasury, in its sole discretion, may change the deadline for submission of responses.

XI. SUBMISSION OF RESPONSE
The Financial Institution must submit its response by courier, or in PDF format via email, to the
Treasury contact by the deadline.

The Treasury has no obligation to consider a response received after the deadline provided
above. The only acceptable evidence of the time of receipt is the Treasury's time/date stamp on
the response or other evidence of receipt maintained by the Treasury.
The Financial Institution, by submitting a response to this notice, warrants and represents that it
understands and agrees to all terms of this notice and the selection process, including the
following:
•

The Treasury, in its sole discretion, will select a Financial Institution to perform the services
in this notice, based on its determination of what is in the best interests of the United States.

•

The Treasury may select, reject, or request additional clarifying information about the
Financial Institution's response without further discussion with the Financial Institution.

Because the Treasury may select or reject the response without engaging in discussion, the
Financial Institution must present its most favorable technical and pricing response.

XII. RESPONSE FORMAT
The response must include a I-page cover letter, executed by a person legally authorized to
represent the Financial Institution, that includes the name, title, address, and office and cell
phone numbers of the individual to receive communications from the Treasury, and a
certification statement that the Financial Institution (i) meets the organizational eligibility
requirements of Section V, (ii) meets the minimum qualifications in Section VI, (iii) understands
and agrees to the terms and selection process set forth in this notice, (iv) understands and agrees
to the confidentiality provisions in Section XV, (v) understands and agrees that as a financial
agent it will have a fiduciary duty to perform all services in the best interests of the United
States, and (vi) is capable of providing the services identified in this notice. The cover letter
must also indicate whether the Financial Institution is minority- or woman-owned.
The response must include a document not to exceed 20 one-sided pages, in 12-point font with linch margins, addressing the items in Section VIII above.
The response must not include any other documents or attachments. The response must not
include any generic marketing or sales information, or rely on cross-references to other
documents.

XIII. EVALUATION OF RESPONSE
The Treasury's overarching objective in evaluating the Financial Institution's response and
selecting a provider is to ensure that the troubled assets portfolio will be managed in the most
ethical, transparent, accountable, and cost effective manner possible.
The Treasury will use the following non-exclusive factors in evaluating the Financial
Institution's response:
•

The Financial Institution's experience in managing mortgage-related and troubled assets.

•

The qualifications of staff to be assigned to the Treasury.

•

The quality and cogency of the written response in answering the questions directly and
supplying the most relevant infonnation.

•

The value and rigor of ideas and recommendations in the written response.

•

The extent to which the Financial Institution proposes to provide meaningful opportunities
for small and minority- and women-owned businesses.

•

The Financial Institution's fees and alI-in costs.

•

The Financial Institution's overall financial and management stability.

The Treasury will notify the Financial Institution if its response is selected, rejected, or requires
further infonnation. However, the Treasury shall have no requirement to discuss the reasons, in
either general or specific tenns, that the Financial Institution's response was not accepted or that
the selection process may have been terminated.

XIV. AUTHORITY
The Secretary of the Treasury has statutory authority to designate Financial Institutions as
financial agents of the United States to perfonn reasonable duties as detennined by the Secretary,
pursuant to the Act. The Financial Institution, if designated to provide services pursuant to this
notice, shall be financial agent of the United States, and not a contractor. Neither this notice, nor
the services sought by the Treasury, is a procurement subject to the Federal Acquisition
Regulation.

XV. CONFIDENTIALITY
The Treasury considers any infonnation provided to a Financial Institution in evaluating its
response to this notice to be strictly confidential and must not be disclosed to any third party
outside the Financial Institution's corporate organization, nor duplicated, used, or disclosed in
whole or in part for any purpose other than to prepare a response. Under no circumstances shall
any infonnation received in connection with this notice be disclosed to any third party outside

the Financial Institution's corporate organization without the express prior written consent of the
Treasury.
XVI. RESERVATION OF RIGHTS

The release of this notice and the Treasury's receipt of any information or responses shall not, in
any manner, obligate the Treasury to perform any act or otherwise incur any liabilities.
The Treasury assumes no obligation to reimburse or otherwise compensate the Financial
Institution for expenses or losses incurred in connection with this notice.
The Treasury shall have the unlimited right to use, for any governmental purpose, any
information submitted in connection with this notice.
The Treasury reserves the right to: (1) modify the requirements in this notice or withdraw this
notice at any time; (2) decide not to select any Financial Institution; (3) reject a response without
inviting the Financial Institution to submit a new response; (4) negotiate with and select any
Financial Institution considered qualified; (5) request, orally or in writing, clarification of or
additional information on a response; (6) waive minor informalities or irregularities, or a
requirement of this notice; (7) accept any response in part or in total; and (8) reject a response
that does not conform to the specified format or other requirements of this notice.
Any selection and designation of a financial agent pursuant to this notice shall be contingent
upon and subject to availability of funding.

u.s. DEPARTMENT OF THE TREASURY
NOTICE TO FINANCIAL INSTITUTIONS
INTERESTED IN PROVIDING

WHOLE LOAN ASSET MANAGEMENT SERVICES
FOR A PORTFOLIO OF
TROUBLED MORTGAGE-RELATED ASSETS

I. INTRODUCTION
The U.S. Department of the Treasury ("Treasury") issues this notice to Financial Institutions
interested in providing asset management services for a portfolio of mortgage whole loans.
This notice describes services sought by the Treasury, sets forth the rules for submitting a
response, and lists the factors that will be considered in selecting Financial Institutions to provide
the services.
This notice is for asset managers of mortgage whole loans (i.e., individual mortgage loans), and
not for asset managers of mortgage-related securities. The Treasury is issuing a separate notice
for managers of securities acquired for the portfolio of troubled assets.
If your Financial Institution is interested, and meets the eligibility and minimum requirements in
Sections V and VI, you may submit a response in accordance with this notice no later than 5:00
p.m. ET on October 8, 2008.

II. OVERVIEW AND POLICY GOALS
In furtherance of its mission to ensure the safety and soundness of the U.S. financial system, and
to implement the Emergency Economic Stabilization Act of 2008 (Act), the Treasury is
establishing a program to purchase a variety of troubled assets. Accordingly, the Treasury seeks
one or more Financial Institutions to provide asset management services for a portfolio of dollardenominated mortgage whole loans that the Treasury will acquire from Financial Institutions.

For purposes of this notice, whole loans include residential first mortgages, home equity loans,
second I iens, commercial mortgage loans, and possibly other types of mortgage loans acquired to
promote market stability, that were originated or issued on or before March 14,2008. This
notice docs not cover securitized mortgage-related assets.
Consistent with the purposes of the Act, the Treasury's policy goals for the portfolio of mortgage
whole loans are to (1) provide stability and prevent further disruption to the financial markets
and banking system, (2) ensure mortgage availability, and (3) protect the interests of taxpayers.
The portfolio mandate and specific investment strategies may change over time but will always
be consistent with these policy goals.
By acquiring, managing, and orderly liquidating the mortgage loans over time, the Treasury
seeks to improve the capital positions of Financial Institutions, improve liquidity and credit
extension in the financial system, increase investor confidence, and provide market participants
with more price transparency.

III. WHOLE LOAN PORTFOLIO
Pursuant to this notice, the Treasury intends to designate one or more asset managers to handle
different types of mortgage whole loans that may be acquired for the portfolio, such as
residential and commercial loans. The asset managers will be required to provide a suite of
services, ranging from pre-transactional diligence on loans offered for sale, through
determination of fundamental loan values and loan acquisition, through loan servicing and
foreclosure mitigation, to liquidation of physical assets and underlying property, if necessary.
Through a separate process, however, the Treasury will engage a financial agent to provide
central loan custody and trustee services, to provide the Treasury with one master record keeper
and to support visibility and controls over the entire loan portfolio across all asset managers.
Whole loan asset managers will be required to work in good faith with the central custodian.
The size of the loan portfolio may reach several hundred billion dollars. The portfolio mandate
and composition will be driven by the aforementioned policy objectives rather than the pursuit of
income or diversification. To the maximum extent practicable, the loan portfolio's credit and
market risks will be managed to limit the potential for capital losses.
The Treasury expects asset managers to acquire loans through market-based or other competitive
mechanisms. The acquisition process may entail the review of individual loans for valuation
purposes. Consistent with the policy goals, the portfolio is expected to hold loans until market
conditions improve and stabilize, but the specific holding period of particular loan types may
vary from months to years. Given current market conditions, an asset manager's initial activities
may focus on risk management versus more active portfolio management.
Asset managers will be expected to provide the fundamental real estate judgments and loan level
analysis to support management, servicing, modifications, restructurings, re-sales, and loss
mitigation over time. The Treasury will likely establish central servicing and loss mitigation
guidelines, as well as standard risk management parameters, across all asset managers. In

addition, the Treasury may decide to hedge interest rate and convexity risks and will establish
parameters for any such hedging activity. The performance of individual assct managers will be
measured by a dashboard of custom metrics linked to the Treasury's policy goals. The Treasury
will require assct manages to direct servicers to maximize assistance for homeowners,
considering net present value to the taxpayer, and to facilitate re-financings under the HOPE for
Homeowners Program.

IV. SERVICES AND REQUIREMENTS
Through this notice, the Treasury seeks responses from Financial Institutions qualified to provide
asset management services for a highly complex portfolio of mortgage whole loans. The
selected Financial Institutions must provide, subcontract, or otherwise source the asset
management services identified in this notice, and will be required to:
Pre- and Post-Transactional Diligence
• Conduct preliminary pre-transaction diligence on loans and portfolios of loans, and report on
actual and represented loan characteristics and exceptions to transaction guidelines.
• Conduct deeper post-transaction reviews of purchased loans and portfolios of loans.
Whole Loan Transactional Infrastructure
• Receive and process data files with descriptions of loans and portfolios of loans from
potentially hundreds or thousands of Financial Institutions offering loans.
• Ensure that smaller Financial Institutions, including but not limited to community banks and
credit unions, have access to the infrastructure and can proffer loans for sale to the Treasury.
• Analyze, standardize, and convey the data into systems and reports as necessary.
• Execute the whole loan acquisition transactions.
Whole Loan Valuation
• Value loans and portfolios of loans offered for sale according to product and performance
characteristics.
Whole Loan Asset Management
• Aet as the Treasury's appointed asset manager with authority to control loans, consistent with
the Treasury's policies and guidelines.
• Provide integrated asset management services for loans and portfolios of loans including
acquisition, management, reporting, risk management, and asset disposition capabilities.
• Devise, document, and execute loan strategies to meet the Treasury's policies and guidelines.
Cooperation with Whole Loan Trustee and Custodian
• Work in good faith with the Treasury's central loan custodian and trustee to execute and
settle loan and portfolio transactions.
• Work in good faith with the Treasury's central loan custodian and trustee for loan and
portfolio cash management, reporting, warehousing of title and legal documents, and other
central administrative services.
• Work in good faith to help the central monitoring of servicer compliance with the Treasury's
servicing and loss mitigation guidelines across the entire portfolio.

Whole Loan Servicing and Loss Mitigation
• Service loans and portfolios of loans in accordance with the Treasury's servicing and loss
mitigation guidelines.
Surveillance
• Monitor the ongoing performance of purchased loans and portfolios of loans, and provide
detailed reporting to Treasury
Physical Asset Management
• Manage liquidation of physical assets and underlying property, as necessary.
Cross-Cutting Operations and Reporting
• Interface with the custodian's and the Treasury's management and accounting systems and
provide data feeds as necessary.
• Reconcile books and records with the custodian and the Treasury.
• Maintain records of all loans acquired and cash flow projections of principal and interest.
• Provide for all necessary operational and analytical hardware and software to support the
services in this notice.
• Identify, document, and enforce internal controls on an on-going basis.
• Permit the Treasury's internal and external auditors, or other governmental oversight entities,
to audit books and records related to the services in this notice.
• Report on loan and portfolio holdings, valuations, and characteristics
• Report on loan and portfolio performance against the Treasury's benchmarks or success
metrics.
• Assist with the preparation of reports to oversight bodies.
• Retain all documentation and reports related to the services in this notice.
Given the end-to-end requirements identified above, the Financial Institution may provide all
services directly, or in combination with third party subcontractors identified by the Financial
Institution. However, the Treasury reserves the right to hire other contractors as necessary to
support the full suite of services needed to manage the portfolio of mortgage whole loans
efficiently and effectively. The Financial Institution will be required to work in good faith with
any such contractors.
If selected as an asset manager, the Financial Institution must be prepared to provide resources
immediately to begin developing and executing an aggressive work plan.
As a financial agent, the Financial Institution will have a fiduciary responsibility to perform all
services in the best interests of the United States.
V. ORGANIZATIONAL ELIGIBILITY
To be eligible to be selected as a financial agent pursuant to this notice, an organization:

•

Must be a "Financial Institution" as defined in the Act. Specifically "Financial Institution"
means any institution, including, but not limited to, any bank, savings association, credit
union, security broker or dealer, or insurance company, established and regulated under the
laws of the United States or any State, territory, or possession of the United States, the
District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana
Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant
operations in the United States, but excluding any central bank of, or institution owned by, a
foreign government.

•

Must not be on the Federal Debarment and/or Suspension List;

•

Must not be delinquent on any debts owed to the Government;

•

Must not be subject to any pending or current enforcement actions or regulatory
investigations;

•

VI. MINIMUM QUALIFICATIONS
The Treasury has established the following minimum qualifications for considering responses
from interested and organizationally eligible Financial Institutions:
•

The Financial Institution must be continuously engaged as a principal business in managing
whole loan assets, comparable to the services described in Section IV, for the last 5 years.

•

The Financial Institution must currently manage a portfolio of at least $25 billion in
mortgage loans, or provide clear and credible evidence that the Financial Institution can scale
its capacity to manage a portfolio of at least this size.

•

The Financial Institution must be able and willing to partner with the Treasury's central
whole loan custodian and trustee.

•

The Financial Institution must be able and willing to partner with other Financial Institutions
selected to be sub-managers of the portfolio, as directed by the Treasury, and to work in good
faith with small and minority- and women-owned businesses hired as direct contractors to the
Treasury to support the portfolio of mortgage whole loans.

•

The Financial Institution must be able and willing to work with Federal agencies,
governmental entities, and other organizations when the Treasury determines it to be in the
best interest of the Government.

•

The Financial Institution must meet all organizational eligibility standards in Section V.

VII. SMALL AND MINORITY-AND WOMEN-OWNED BUSINESSES
In accordance with Section VIII(6) below, the Financial Institution must identify an approach to
provide meaningful opportunities to small and minority- and women-owned businesses as
subcontractors to the Financial Institution during performance as a financial agent of the United
States. To ensure such participation in the portfolio of mortgage whole loans, the Treasury may
at a future date issue a separate notice for small and minority- and women-owned businesses, or
for smaller Financial Institutions that may not meet the minimum qualifications for the size of
assets under management identified in Section VI above. Such businesses and smaller Financial
Institutions may be hired as contractors or sub-managers within the portfolio.
VIII. INFORMATION REQUESTED
This section identifies the primary information the Financial Institution must provide in its
response to this notice.
1. Organization and Staffing. Provide information or charts showing your business entities or
units, and the composition and expertise of your personnel, with particular detail on
mortgage loan asset management.
2. Loan Portfolios. Provide information or tables showing the characteristics of your mortgage
loan portfolios under management, with any relevant totals and subtotals, including data on
portfolio returns for each of the past 5 years ending June 30, 2008.
3. Expertise. Describe your specific organizational expertise in analyzing mortgage credit
quality, determining fundamental loan values, and in managing distressed mortgage assets.
4. Personnel. Provide the names and experience of the primary asset managers or responsible
executives that would be assigned to the Treasury's portfolio.
5. Affiliates and Third Party Contractors. In providing the end-to-end suite of services in this
notice, identify any services which you would propose to provide through affiliates or third
party subcontractors, why you would outsource the services, what expertise the third party or
affiliate would provide, and how you would oversee and manage the activities of the
affiliates or third parties.
6. Small and Minority- and Women Owned Businesses. Provide information on how you
expect to provide meaningful opportunities to small and minority- and women-owned
businesses as subcontractors to the Financial Institution during performance as a financial
agent of the United States.

7. Integration. Describe how you would integrate the various services and requirements
described in this notice to provide a coherent end-to-end asset management service.
8. Operational Capacity. Provide the most relevant and compelling facts and figures to
demonstrate you can provide or obtain the necessary operational capacity to deal with
potentially thousands of Financial Institutions offering to sell thousands of loans to the
Treasury.
9. Outreach to Smaller Financial Institutions. Explain how you would ensure that smaller
Financial Institutions, including but not limited to community banks and credit unions, have
access to your infrastructure to proffer loans for sale to the Treasury.
10. Timeline. Identify a viable timeline and sequence of events for assembling all of the services
identified in this notice, including any potential third party subcontractors.
11. Strategy. Given the end-to-end suite of asset manager services described in this notice, as
well as the public policy goals of the portfolio, provide two strategic recommendations or
key insights for acquiring and managing the portfolio.
12. Perfomlance Measurement. Given the Treasury's stated policy goals for the portfolio of
whole loans, describe three effective metrics for measuring your performance in providing
the suite of services in this notice. Also describe how these metrics would serve to align your
incentives with the Treasury's interests.
13. Risk Management. Describe the risk management and oversight approach you would use in
managing a whole loan portfolio for the Treasury.
14. Conflicts of Interest. Identify any real or potential conflicts of interest you would have in
managing a loan portfolio as described in this notice, and explain how you would avoid,
mitigate, or neutralize any such conflicts. Include the interests of your corporate parents,
subsidiaries, and affiliates in your answer. Also, describe your philosophy in fulfilling your
duty to the Treasury and the U.S. taxpayer in light of your proprietary interests and those of
other clients. Among other situations, conflicts of interest may exist if you, any entity that
owns or controls you, or any entity that you own or control (I) has a personal, business, or
financial interest or relationship that relates to the services in this notice, (2) is or represents a
party in litigation with the Treasury, (3) may be participating in the Troubled Assets Relief
Program as defined in the Act, or (4) engages in any activity that would cause the Treasury to
question the integrity of your services.
15. Proposed Fee. Describe your proposed fee schedule, encompassing all of the services
identified in Section IV, and provide all necessary information on the all-in costs associated
with your services. Your fee structure must be aligned with the Treasury's policy goals of
providing stability and preventing further disruption to the financial system, and must reflect
a prudent portfolio liquidation strategy to protect the taxpayer.

IX. SELECTION PROCESS
The Treasury will evaluate the responses to this notice from all interested and qualified Financial
Institutions, and will invite certain candidates to continue to the second phase of the financial
agent selection process. The second phase, and subsequent phases, may be conducted under
confidentiality agreements to facilitate information exchange, but consistent with the public
disclosure and transparency provisions of the Act. In the second phase, the prospective financial
agents will provide additional information about their expertise and the expertise of proposed
subcontractors, as well as information on audited financial statements and filings, potential
conflicts of interest, asset management strategies, risk management, and performance
measurement. This phase may include telephone conversations to allow questioning by and of
the Treasury.
The Treasury will evaluate the responses from the second phase candidates, and will determine
whether a candidate will continue to be considered. In this last stage, a Financial Institution may
be required to conduct face-to-face discussions on portfolio scenarios, public policy goals, and
statutory requirements, and to respond to interview questions to assess the capabilities of primary
individuals managing the portfolio. Following any face-to-face meetings, the Treasury will
make final selections of one or more Financial Institutions to be designated as asset managers.
A Financial Institution selected to be an asset manager must sign a Financial Agency Agreement
with the Treasury, a copy of which will be provided for review during the second stage of the
selection process. The Financial Institution's willingness to enter into the standard Financial
Agency Agreement, with the established terms and conditions currently applied to financial
agents of the United States, will be among the factors used in evaluating the Financial Institution.
The Treasury will notifY the Financial Institution if its response to this notice is selected,
rejected, or requires further information. However, the Treasury shall have no requirement to
discuss the reasons, in either general or specific terms, or at any stage in the selection process,
that the Financial Institution's response was not accepted or that the selection process may have
been terminated.
Given the urgent need to implement the Troubled Asset Relief Program, the financial agent
selection process may involve extremely short deadlines for submitting additional information,
participating in conference calls, and for traveling to Washington, D.C. for meetings or
interviews. Financial Institutions and their proposed subcontractors must be prepared to respond
immediately during the selection process.

X. DEADLINE AND COMMUNICATIONS
To be considered to provide the services in this notice, the Financial Institution must
submit a response by 5:00 p.m. ET on October 8, 2008.
The Financial Institution is responsible for seeking clarification on any issues in this notice that
the Financial Institution does not fully understand. All questions should be directed to the
following:

Treasury Contact:
SETH WHEELER
DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE
U.S. DEPARTMENT OF THE TREASURY
DOMESTIC FINANCE
ROOM 1209, 1500 PENNSYLVANIA AVENUE NW
WASHINGTON, DC 20220
Phone Number: 202-622-1244
Fax Number: 202-622-0265
E-mail Address: wholeloans@do.treas.gov
The Treasury, in its sole discretion, may respond orally to any questions about the response
requested in this notice. Substantive questions should be submitted as soon as possible
consistent with the schedule above. No other channel of communication between the Financial
Institution and an officer, employee, or agent of the Treasury regarding this notice is permitted,
and no information gained from any such communication may be considered in any way binding
or limiting on the Treasury.
The Treasury, in its sole discretion, may change the deadline for submission of responses.
XI. SUBMISSION OF RESPONSE
The Financial Institution must submit its response by courier, or in PDF format via email, to the
Treasury contact by the deadline.
The Treasury has no obligation to consider a response received after the deadline provided
above. The only acceptable evidence of the time of receipt is the Treasury's time/date stamp on
the response or other evidence of receipt maintained by the Treasury.
The Financial Institution, by submitting a response to this notice, warrants and represents that it
understands and agrees to all terms of this notice and the selection process, including the
following:
•

The Treasury, in its sole discretion, will select Financial Institutions to perform the services
in this notice, based on its determination of what is in the best interests of the United States.

•

The Treasury may select, reject, or request additional clarifying information about the
Financial Institution's response without further discussion with the Financial Institution.

Because the Treasury may select or reject the response without engaging in discussion, the
Financial Institution must present its most favorable technical and pricing response.
XII. RESPONSE FORMAT

The response must include a I-page cover letter, executed by a person legally authorized to
represent the Financial Institution, that includes the name, title, address, and office and cell
phone numbers of the individual to receive communications from the Treasury, and a
certification statement that the Financial Institution (i) meets the organizational eligibility
requirements of Section V, (ii) meets the minimum qualifications in Section VI, (iii) understands
and agrees to the terms and selection process set forth in this notice, (iv) understands and agrees
to the confidentiality provisions in Section XV, (v) understands and agrees that as a financial
agent it will have a fiduciary duty to perform all services in the best interests of the United
States, and (vi) is capable of providing or obtaining the suite of services identified in this notice.
The response must include a document not to exceed 25 one-sided pages, in 12-point font with linch margins, addressing the items in Section VIII above.
As an attachment, and not included in the 25 page limit, the response must include additional
relevant information for any proposed third party to which services will be subcontracted, but not
to exceed 3 pages per subcontractor.
The response must not include any other documents or attachments. The response must not
include any generic marketing or sales information, or rely on cross-references to other
documents.
XIII. EV ALVA TION OF RESPONSE

The Treasury's overarching objective in evaluating the Financial Institution's response and
selecting asset managers is to ensure that the troubled assets portfolio will be managed in the
most ethical, transparent, accountable, and cost effective manner possible.
The Treasury will use the following non-exclusive factors in evaluating the Financial
Institution's response:
•

The Financial Institution's specific experience in managing loan portfolios and in mortgage
credit analysis.

•

Evidence that the Financial Institution can support the full suite of services in this notice,
including through the use of subcontractors and affiliates, and can integrate the end-to-end
services to provide a comprehensive asset manager solution.

•

The extent to which the Financial Institution proposes to provide meaningful subcontracting
opportunities for small and minority- and women-owned businesses.

•

The qualifications of key staff that would provide asset management services to the Treasury.

•

The quality and cogency of the written response in answering the questions directly and
supplying the most relevant infonnation.

•

The value and rigor of ideas and recommendations in the written response.

•

The Financial Institution's fees and all-in costs.

•

The Financial Institution's overall financial and management stability.

The Treasury will notify the Financial Institution if its response is selected, rejected, or requires
further infonnation. However, the Treasury shall have no requirement to discuss the reasons, in
either general or specific terms, that the Financial Institution's response was not accepted or that
the selection process may have been tenninated.

XIV. AUTHORITY
The Secretary of the Treasury has statutory authority to designate Financial Institutions as
financial agents of the United States to perfonn reasonable duties as determined by the Secretary,
pursuant to the Act. The Financial Institution, if designated to provide services pursuant to this
notice, shall be financial agent of the United States, and not a contractor. Neither this notice, nor
the services sought by the Treasury, is procurement subject to the Federal Acquisition
Regulation.

XV. CONFIDENTIALITY
The Treasury considers any information provided to a Financial Institution in evaluating its
response to this notice to be strictly confidential and must not be disclosed to any third party
outside the Financial Institution 's corporate organization, nor duplicated, used, or disclosed in
whole or in part for any purpose other than to prepare a response. Under no circumstances shall
any infonnation received in connection with this notice be disclosed to any third party outside
the Financial Institution's corporate organization without the express prior written consent of the
Treasury.

XVI. RESERVATION OF RIGHTS
The release of this notice and the Treasury's receipt of any information or responses shall not, in
any manner, obligate the Treasury to perfonn any act or otherwise incur any liabilities.
The Treasury assumes no obligation to reimburse or otherwise compensate the Financial
Institution for expenses or losses incurred in connection with this notice.
The Treasury shall have the unlimited right to use, for any governmental purpose, any
infonnation submitted in connection with this notice.

The Treasury reserves the right to: (I) modify the requirements in this notice or withdraw this
notice at any time; (2) decide not to select any Financial Institution; (3) reject a response without
inviting the Financial Institution to submit a new response; (4) negotiate with and select any
Financial Institution considered qualified; (5) request, orally or in writing, clarification of or
additional information on a response; (6) waive minor informalities or irregularities, or a
requirement of this notice; (7) accept any response or service offering in part or in total; and (8)
reject a response that does not conform to the specified format or other requirements of this
notice.
Any selection and designation of a financial agent pursuant to this notice shall be contingent
upon and subject to availability of funding.

Page 10f4

October 7, 2008
2008-10-7-16-52-11-17651
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 $71,245 million as of the end of that week, compared to $72,988 million as of the end of the
prior week.
I Official reserve assets and other foreign currency assets (approximate market value,ln US millions)

IIOctober 3, 2008

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

IIEuro

Ilyen

IITotal

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

11 71 ,245

I(a) Securities

11 9 ,147

II
11 11 ,895

1121,042

110

lof which: issuer headquartered

reporting country but located abroad

I(b) total currency and deposits with:

II
11,796

10) other national central banks, BIS and IMF

6,228

Iii) banks headquartered in the reporting country

II
11 18,024
110
11 0

lof which: located abroad

11 0
11 0

I(iii) banks headquartered outside the reporting country
lof which: located in the reporting country
1(2) IMF reserve position 2

\\4,684

1(3) SDRs 2

11 9 ,286

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

11 11 ,041

I--volume In millions of fine troy ounces

11261.499

1(5) other reserve assets (specify)

11 7 ,168

I--financial derivatives

I--Ioans to nonbank nonresidents

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

\7,168

lB. Other foreign currency assets (specify)
--securities not included in official reserve assets
--deposits not included in offiCial reserve assets

I
I

--loans not included in offiCial reserve assets

--financial derivatives not included In official reserve assets
--gold not included in official reserve assets

II
II

I --other

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

www.treas.gov/press/releases/200810716521117651.htrn

1113/2008

Page 2 01'4

[

II
II
TOtdl

MOlf; tlldll
IllUllth~, dlHj lIi' II)
1YhH
")
,)

More tlldll 1 dlld
LIP to 3 11i0ilths

Up to 1 montll

1 Foreign currency loans, SeCUrities, and deposits

IIPrII,clpal

II Interest

I (a) ShM [2osltlons ( - ) 4
I (b) Long positions (+)

11- 267 ,191

I 3 Other (specify)

II
II
II
II
I
II
II
II
I

IIPrincipal

I
1--lnfIOws (+)

IIlnterest

2. Aggregate sl,ort and long POSitions In forwards and
futures III fmelgn currencies vis-a-vIs the domestic
currency (illCludlnq the forward leq of currency swaps)

I --outflows related to repos (-)
--iii flows

related to reverse repos (+)

--trade credit (-)

--trade credit (+)

--other accounts payable (-)

I --other accounts receivable (+)

II
I
I

I--outflows (-)

II
II
II
I Maturity brcdkclown (r(Csldllill l11dlililty)

I
I
I

I
I
I
I
I
I
I
I
I

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

I MatUrity breakdown (reSidual maturity" where
applicable)

IITOI"'

11 Contlrlgent liabilities

III

foreign currency

(a) Collateral guarantees on debt failing due Within 1
year

More than 1 and
up to 3 months

Up to 1 month

[(b) Other contingent liabilities

112" Foreign currency securities Issued with embedded

options (puttable bonds)

More thall 3
mOllths ane! up to
1 year

Undrawn, unconditional credit lines prOVided by:

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

[other national monetary authOrities (+)

l-BIS(+)

[-IMF (+)

(b) With banks and other financial Institutions
headquartered In the reportlrlg country (+)

I
I

(C) With banks and other financial Institutions
headquartered outside the reporting country (+)
Undrawn, unconditional credit lilles prOVided to
(a) other nationalillonetary authorities, BIS, IMF, and
other mternatlonal organlzatlol,s
[other national monetary autt,orllies (-)

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Page 3 of 4

I[
II

[--BIS (-)
[--IMF (-)
(b) banks and other financial institutions headqu31-tered
in reporting country (- )
II(C) banks and other flllanClal inslltutlons headquartered
outside the repo/1lng country ( - )

114 Aggregate short and long positions of options

IfI

foreign currencies Vis-a-VIS the domestic currency

II
II

I
I

"II

I(a) Short positions

1(1) Bought puts

I(b) Long positions

II
II

II"

l(il) Written calls

)

I
I

l(i) Bought calls

I(ii) Written puts

IPRO MEMORIA In-the-moneyoptlons

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

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

I(b) Long position

II
II

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

I
II

I(a) Short position

II
II

I(b) Long pOSition

II
"II
II
II
II
II
II

I(b) Long position

1(5) - 10 % (appreciation of 10%)
I(a) Short positJon

I(b) Long position

1(6) Other (specify)
Ira) Short position
I(b) Long POSition

"II
II

II
II
II
II

"II

I
I

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

IV. Memo Items

"III

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

III

domestic

I
I
I

I--nondeliverable forwards
[ --short positions
[ --long positions

t-other instruments

lic) pledged assets
[--Included

III

reserve assets

--Included In other foreign currency assets
[d) securltJes lent and on repo

ttp:llwww.treas.gov/press/releases/200810716521117651.htm

7,316

II /3/200~

Page 4 of4
--lent or repoed and Included In Seclion I

--lent or repoed but not included in Section I

--borrowed or acquired and Included In Section I

--borrowed or acquired \)ut not Included in Section I

1 7 .316

(e) fillancial del"IVatlve assets (net. marked to market)

[forwards

[--futures

[--swaps

[options

t-other

I
I

(f) del-ivatlves (forwal-d. futures. or options contracts) that have a residual lTlaturlty gl-eater than one year

Wl11ch are subject to margm calls
ii;-aggregate sllort and long POSitlOl1S III fOlwards and futures In foreign currenCies Vis-a-VIS the domestic
currency (lilcludlllg the forward leg of currency swaps)
I(a) sholt POSltlOIlS ( ~ )

I(b) long pOSit lOllS (+)
I--aggregate short and long positions of options

I
In

I(a) shol1 POSltlOIlS

1(1) bought puts

1(11) written calls

I(b) long POSitions

1(1) bought calls

1(11) written puts

1(2) To be disclosed less frequently

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

1171.2~5

I--currencles

1171.245

foreign currencies Vis-a-VIS the domestic currency

SDR basket

I--currencles not In SDR basket

I--by IndiVidual currencies (optional)

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 alTallgements With certal11 fOlelgrl (("It r(1 I banKS
The foreign eXChange acqUired IS not IIlCluded In Section I. "offiCial reserve assets and other foreign currency assets." of lIie tCll1pl,lli"
for reporting international reserves. However. It IS IIlcluded In the broacler balance of payments presentation (1S "U S Governm81it
assets. other than offiCial reserve assets/U.S foreign currency holdings and US short-term assets"

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P-1186: ACt;nr Assistant Secret(lry for Financial Markets Karthik Ramanathan Statcl11cnt on Trca ... Pagc I of I

October 8, 2008
HP-1186
Acting Assistant Secretary for Financial Markets Karthik Ramanathan
Statement on Treasury market conditions and debt management actions
Washington -Treasury closely monitors conditions in the Treasury securities
market as well as financing markets. Treasury realizes that the depth and liquidity
of the Treasury market benefits investors both domestically and globally.
To address upcoming borrowing needs and further enhance liquidity in the Treasury
market, Treasury will reopen multiple securities which have created severe
dislocations in the market causing acute, protracted shortages.
In addition, Treasury along with the Interagency Market Surveillance Work Group
will be monitoring situations in which aged settlement fails are not cleared and will
encourage actions by market participants, including the use of netting and bilateral
processes, cash settlement, negative rate repo trading, margining of aged
settlement fails, and identifying pair-offs.
Treasury along with the other members of the Interagency Market Surveillance
Work Group, including the Securities and Exchange Commission, the Commodities
and Futures Exchange Commission, the Board of Governors of the Federal
Reserve, and the Federal Reserve Bank of New York will initiate meetings with the
private sector - notably with members of the Securities Industry and Financial
Markets Association (SIFMA) and the Treasury Market Practices Group (TMPG)to clearly and definitively identify remedies to prevent a reoccurrence of these
situations in the future.
In addition, private sector participants should take additional steps from a
monitoring and supervisory perspective to ensure that settlement fails do not reach
levels that impact financing markets.
-30-

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P-1187: UpeATE: Tre(lslIf)l Rele::u:~s Schedule for Fall G7 Meeting

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HP-1187
UPDATE: Treasury Releases Schedule for Fall G7 Meeting

u.s. Treasury Secretary Henry M.

Paulson, Jr. will host a meeting of the G7
Finance Ministers and Central Bank Governors at the Treasury Department on
Friday, October 10, in Washington, D.C.
Following is a schedule of events:
Who
Treasury Secretary Henry M. Paulson, Jr.
Under Secretary for International Affairs David H. McCormick
What
Pre-G7 Press Conference
When
Wednesday, October 8, 3:00 p.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 full name, Social Security
number, and date of birth.
***

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P-1187: UP1JATE: Tre(lslIry Release~ Schedule for Fall G7 Meeting

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622-2960 or Frances.Anderson@do.treas.gov with full name, Social Security
number, date of birth and country of citizenship. Photographers may begin setting
up at 3: 15 p.m. and must be in place no later than 4:00 p.m.
***

www.treas.gov/press/releases/hpI187.htm

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P-1188: Treasllry Annollnces Conclusion of Enrollment Period for Temporary Money Market Guarant...

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October 8, 2008
HP-1188

Treasury Announces Conclusion of Enrollment Period for Temporary Money
Market Guarantee Program and Technical Correction
Washington- The Treasury Department announced today a technical correction
that would permit additional money market funds to participate in Treasury's
Temporary Money Market Fund Guarantee Program. Funds that have a policy of
maintaining a stable net asset value or share price that is greater than $1.00 and
had such policy on September 19, 2008 are now eligible to participate, provided the
fund meets all of the other original requirements.
The enrollment deadline for these funds that are now eligible as a result of this
technical correction is 11 :59 p.m. Washington, DC time on October 10, 2008.
This technical correction does not extend the original deadline for funds that
maintain a stable share price of $1.00 and that qualified under the program
originally announced on September 29, 2008. As previously announced, the
enrollment period for Treasury's Temporary Money Market Fund Guarantee
Program will close today at 11 :59 p.m. Eligible funds should ensure that the
required documentation is delivered to Treasury by the deadline.

www.treas.gov/press/releases/hpI188.htm

1 I /3/2()O~

11189: StatelDcnt by Sr.r.retary Henl) M. Paulson, Jr. on Financial Markets Update

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hp1189
Statement by Secretary Henry M. Paulson, Jr. on Financial Markets Update
Washington, DC-- Good afternoon. Last Friday Congress finalized and President
Bush signed into law the bipartisan Emergency Economic Stabilization Act. The
EESA provides the Treasury, the Federal Reserve and the FDIC with important new
authorities to complement existing ones. We will continue to coordinate with other
federal regulators to use these tools to implement our strategy to address the four
key challenges in our financial markets today - confidence, capital, systemic risk
and liquidity. Although we are facing particularly difficult circumstances, I remain
confident that we will work through this challenge, as we have always successfully
worked through every economic challenge in the history of the United States. We
are a strong and wealthy nation, with the resources to address the needs we face. I
am confident that, with the right public policy response, time and effort, we will
conquer these challenges as well.
U.S. and global financial markets continue to be severely strained. A chain of
events caused by the ongoing housing correction has reverberated through U.S.
banks and financial institutions, and has seriously impacted the underlying
economy, reaching American households and businesses. A root cause of this
situation is the housing correction and a lack of confidence in mortgage assets, as
well as a lack of confidence in many of the financial institutions that hold these
assets. Because of this widespread uncertainty, investors are hesitant to commit
capital to financial institutions. Investor confidence is critical to restore liquidity and
enhance the stability of our financial system.
This financial market turmoil is now directly affecting more families and businesses.
When banks can not finance at reasonable levels, and can not or are not willing to
lend, everyone in our economy who depends on credit suffers. The capital markets
are the pipes through which money flows to finance student loans, car loans, home
loans and small businesses' payroll and inventory. And uncertainty and a lack of
confidence have clogged our basic financial plumbing. While our actions have been
aimed at restoring financial markets and institutions, our purpose is to prevent
financial market difficulties from further impacting businesses and families across
the country.
New Authorities Needed to Address Challenges
Over the last six months, the U.S. Government has addressed a number of
significant problems on a case by case basis. In my jUdgment, these actions, a
number of which were quite significant, were necessary but not sufficient. By
September, uncertainty had led to a credit market freeze and it became clear that
we needed to take a systemic approach on a significant scale, to get at the
underlying cause of much of this turmoil.

We went to Congress and asked for broad new authorities to address the current
troubles affecting our financial markets, including the root cause of the financial
system freeze --- the illiquid mortgage assets weighing on bank balance sheets.
And Congress met the very difficult challenge of providing these authorities by
passing the EESA.
Specifically, the EESA empowers Treasury to use up to $700 billion to inject capital
into financial institutions, to purchase or insure mortgage assets, and to purchase
any other troubled assets that the Treasury and the Federal Reserve deem
necessary to promote financial market stability. The new law also gives the Federal
Reserve the authority to pay interest on reserves, and temporarily increases FDIC
and NCUA deposit insurance from $100,000 up to $250,000.
Two days ago the members of the President's Working Group on Financial

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)1189: Stateh~ent

by Secretilry

H~nry M. Paulson, Jr. on Financial Markets Update

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Markets, the PWG, made clear that we will coordinate the use of our existing and
new authorities to restore market confidence by strengthening financial institutions,
preventing systemic impact from bank failures, increasing liquidity to financial
markets and keeping mortgage credit available and affordable.

Strengthening Financial Institutions
The Treasury Department is moving rapidly to implement the EESA to help
strengthen financial institutions while also protecting taxpayer interests. As I have
said before, the ultimate taxpayer protection will be a stable financial system that
supports normal economic activity.
Towards that goal, the EESA adds broad, flexible authorities for Treasury to buy or
insure troubled assets, provide guarantees, and inject capital. We will use all of the
tools we've been given to maximum effectiveness, including strengthening the
capitalization of financial institutions of every size. We will design programs that
encourage healthy institutions to participate. Much attention has focused on the use
of auctions to purchase troubled assets from financial institutions. We are moving
as quickly as possible to organize and implement the most effective process
possible. We expect it will be several weeks before our first purchase.
Consistent with EESA, I have appointed an interim Assistant Secretary to manage
the program and begin its rapid implementation. I am currently working with the
President to identify a leader to submit for confirmation, as called for in the
legislation, to manage the program and help ensure its long-term success. I will
also consult with congressional leaders and Senator McCain and Senator Obama
during this process. It is our intent to have an appointee confirmed by the Senate as
soon as possible, and I look forward to working with the Senate when they return in
November, to ensure we maintain strong leadership and continuity for this
unprecedented effort.
We have also identified and retained other very experienced interim leaders for the
office, including an interim Chief Financial Officer. We have published guidelines on
our procurement and conflict management processes. We have already sent out
several essential Requests for Proposals that require 48 hour turnaround so we can
contract with private sector experts --- some even as early as later this week --- who
will bring complementary skills and expertise to the Treasury team.
We have several policy teams designing detailed programs to purchase mortgagebacked securities, whole loans, and equity-related instruments. In addition, we have
begun work on compliance, executive compensation guidelines, foreclosure
mitigation, and oversight. Our teams have already been working with Treasury's
Inspector General and are scheduled to meet with the General Accounting Office.
Yesterday, we held our first meeting of the program's Oversight Board and we are
committed to transparency in all aspects of the program.
We will implement our new authorities with one simple goal - to restore capital
flows to the consumers and businesses that form the core of our economy.

Prevent Systemic Impact from Bank Failures
One thing we must recognize - even with the new Treasury authorities, some
financial institutions will fail. The EESA doesn't exist to save every financial
institution for its own sake.
Therefore, a second prong in our strategy is designed to mitigate financial market
disruption when a bank fails. In addition to insuring depOSits up to the new,
temporary level of $250,000, the FDIC has the ability to use its insurance fund and
its substantial lines of credit with the Treasury to address systemic financial risk that
may be posed by a bank failure.
It is the policy of our federal government to use all resources at its disposal to make
our financial system stronger. In light of current conditions, the FDIC, with the full
support of the Fed and the Treasury, will use its authority and resources, as
appropriate to mitigate systemic risk, by, as appropriate, protecting depositors,
protecting unsecured claims, guaranteeing liabilities and adopting other measures
to support the banking system.

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,[ 189: Statem~nt hy Secretary Henry M. Paulson, Jr. on Financial Markets Update

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Increasing Liquidity to Financial Markets
As we address issues of capital and financial strength in our banks, we must also
address the liquidity of our markets. The Federal Reserve has introduced innovative
facilities and policies to enhance the liquidity that is vital to market stability, and has
frequently done so in coordination with the European Central Bank. Today's
announcement of a coordinated rate cut, including Europe, China and other large
economies, is a welcome sign that central banks around the world are prepared to
take the necessary steps to support the global economy during this difficult time.
The EESA granted the Fed permanent authority to pay interest on depository
institutions' required and excess reserve balances held at the Federal Reserve.
This will allow the Fed to expand its balance sheet to support financial stability while
maintaining its monetary policy priorities.
In recent weeks, the commercial paper market has suffered severe stress and
illiquidity. Businesses ranging from financial institutions to industrial companies rely
on the commercial paper market every day to fund their business activities. In
particular, financial institutions sell commercial paper, and use the funds to lend to
millions of consumers and businesses across the nation. In the wake of the
uncertainty surrounding financial institution balance sheets, many investors are
reluctant to buy commercial paper from financial institutions - in essence, unwilling
to hold this unsecured debt for any significant length of time, even when the
particular institution is healthy, because of the fear of not having access to liquid
markets.
Yesterday, the Federal Reserve announced a new facility to provide a liquidity
backstop to U.S. issuers of commercial paper. Through a special purpose vehicle
the Fed will purchase three-month unsecured and asset-backed commercial paper
directly from eligible issuers. I expect this initiative to Significantly improve the
availability of funding for financial institutions and corporations that depend on the
commercial paper market. Until those that depend on commercial paper can issue it
again in significant maturities, funding pressures will continue to ripple through our
economy, dramatically shrinking the availability of credit to support families and
businesses.
Mortgage Credit Availability and Affordability
As I have long said, the housing correction is the root cause of the current financial
market turmoil. We must continue to keep mortgage credit available and support
the housing market, so that we can more quickly turn the corner on the housing
correction.
To provide critical additional funding to our mortgage markets, FHFA has directed
Fannie Mae and Freddie Mac to increase their purchases of agency mortgagebacked securities (MBS). Supporting the availability of mortgage finance is the
mission of the GSEs. There is headroom of over $150 billion between the current
GSE portfoliOS and their regulatory limit. FHFA will supervise the growth in these
portfolios, under its expanded authorities to monitor GSE risk-management. We
also expect Fannie and Freddie to increase direct support to the mortgage market
through their ongoing securitization activities.
To further support the availability of mortgage credit, Treasury also has established
a program to purchase agency MBS directly. The program began in September.
This will complement the capital provided by the GSEs and help facilitate mortgage
availability and affordability.
Stabilizing Fannie and Freddie to support mortgage availability has been
constructive. As the rest of our markets experienced increased turmoil the interest
rate on a 30-year fixed rate mortgage has come down from its peak of 6.6 percent
earlier this year to as low as 5.9 percent this week - a decrease that helps
American households reduce monthly mortgage payments and increases the
potential for more homeowners to refinance mortgages at lower rates. As Treasury
and the GSEs increase their purchases, mortgage affordability should improve for
Americans. If we were not actively engaged at the GSEs, we would have expected
that rate to increase and further slow the progress of the housing correction.

International Coordination

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)1189: Statement hy Sf':cretary Henry M. Paulson, lr. on Financial Markets Update

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We see evidence every day that world economies and financial markets are more
connected and interdependent than at any time in history. Economic momentum
has slowed substantially across the industrialized countries as a consequence of
the ongoing financial turmoil, the acute stresses facing our financial institutions,
continuing housing markets adjustments in the United States and other countries,
and volatile - albeit moderating - commodity prices. Emerging markets are also
beginning to show signs of slowing. We see evidence that the freezing of credit
markets is having a tangible impact on the everyday lives of citizens all around the
world.
Addressing these challenges requires the dramatic steps we are taking here in the
United States and it requires strong international partnerships. Governments have
and must continue to take individual and collective actions to provide much-needed
liquidity, strengthen financial institutions through the provision of capital and the
disposition of troubled assets, prevent markets abuse, and protect the savings of
our citizens.
We must also take care to ensure that our actions are closely coordinated and
communicated so that the action of one country does not come at the expense of
others or the stability of the system as a whole.
Over the past twelve months President Bush and I have been in regular contact
with our international counterparts, and we have collaborated in a variety of ways.
This weekend I will be meeting with my G-7 colleagues to discuss the steps that
each of us are taking to confront this crisis and ways to further enhance our
collective efforts. In addition, in consultation with Brazil, the G-20 President, I am
calling for a special meeting of the G20 that will include senior finance officials,
central bankers, and regulators from key emerging economies to discuss how we
might coordinate to lessen the effects of global market turmoil and the economic
slowdown on all of our countries.
Although the tasks are not easy, I am regularly heartened as I work with my
international colleagues who are also committed to securing stability and growth in
their domestic economies, and to promoting the orderly functioning of the
international financial system.
The Road Ahead
While most Americans understand that economic cycles occur, we are experiencing
some extraordinary and difficult challenges at home and abroad - challenges that
make it clear Congress was correct to take swift and bold action, and that we have
no time to waste implementing the new law. We also know that getting it right is as
important as getting it done quickly. We can and will do both. The Presidents
Working Group on Financial Markets and all financial regulators are working
together to achieve our necessary goal of restoring stability and orderliness to our
financial markets. Every effort will require careful analysis, deliberation and
transparency, and some measure of patience from the American people as we
create the most effective process possible.
We have already taken a number of extraordinary bold actions on the liquidity front
that I am convinced have been exactly the right policy steps, including the
emergency action to provide a guarantee to our money market funds, actions to
stabilize the GSEs and drive down mortgage rates, and the Fed's new program to
provide gO-day liquidity to commercial paper issuers.
It is the policy of the federal government to use all resources at its disposal to make
our financial system stronger, to safeguard depositors and savers, to help ensure
an adequate flow of credit, and to minimize systemic risk. The Congress has
recently provided the Treasury with broad powers to acquire financial assets, to
make capital available, and to strengthen the balance sheets of individual
institutions. The Federal Reserve has also been given new authority to ensure that
the system has sufficient liquidity. The FDIC has the authority and the access to
resources necessary to protect the banking system. The Treasury, the Federal
Reserve and the FDIC will use all their authorities to promote the process of repair
and recovery and to contain risks to the financial system that might arise from
problems at individual institutions.
But patience is also needed because the turmoil will not end quickly and significant

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d 189: Statel:1r.nt by Secretary Hr.nr; M. Paulson, lr. on Financial Markets Update

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challenges remain ahead. Neither passage of this new law nor the implementation
of these initiatives will bring an immediate end to current difficulties. It will take time
and bipartisan leadership, cooperation and collaboration, as well as well-conceived
and executed policies to overcome the challenges our nation is facing. And we will
overcome them. Despite our problems, the U.S. economy is the largest and
wealthiest in the world. We will, as we have in the past, emerge stronger and better
able to provide new opportunities for our workers and increased prosperity for our
families. Thank you.
-30-

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)1190: Prepai'P,d Statement hy TreaHlIY Under Secretary David H. McComlick in Advance of G-7 Filla... Page 1 of:2

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hp1190
Prepared Statement by Treasury Under Secretary David H. McCormick in
Advance of G-7 Finance Ministers and Central Bank Governors Meeting
WASHINGTON - Good afternoon. The G-? Finance Ministers and Central Bank
Governors will hold their next meeting here at the Treasury Department on October
10, amid the IMF and World Bank Annual meetings. The G-7 meeting will be
heavily focused on current economic conditions, financial market developments,
and our collective and individual policy response to recent financial market turmoil.
Secretary Paulson will share with his G-? colleagues that this is a very challenging
period for the United States and that we are focused on the immediate need to
stabilize our financial system. Unprecedented stresses in financial markets,
concerns about counterparty risk and tight credit markets overall are making it
difficult for citizens to access credit and for businesses to finance day-to-day
business operations. Meanwhile, Europe and Asia are also facing economic and
financial challenges and the macroeconomic landscape has deteriorated in recent
weeks.
This background underscores what I believe will be one of the central key
messages for the weekend -- the turmoil is a global phenomena. We are all affected
by it, and strengthened international collaboration is needed now more than ever to
find collective solutions to achieve stable and efficient financial markets and restore
the health of the world economy. The Secretary and I have been in regular contact
with our G-? and other international counterparts and Friday's meeting will provide
us with a timely opportunity to further strengthen our collaboration.
The G-? are working individually and collectively across four fronts: liquidity, capital,
market stability, and our regulatory response.
The world's central banks have acted together to provide additional liquidity
for financial institutions. The Federal Reserve established swap lines with
nine central banks. Also, Treasury implemented a temporary guaranty
program for the U.S. money market mutual fund industry.
To bolster capital in the financial system, the Administration worked with
Congress to develop a $?OO billion program for addressing the problem of
these illiquid assets on the balance sheets of financial institutions. This will
help reduce an enormous source of uncertainty in the markets and stimulate
capital raising. We know other countries are considering appropriate
programs given their national circumstances and we look forward to working
with them as they move forward with their plans. We, and our European
counterparts, have also acted swiftly on a case-by-case basis to address
destabilizing financial conditions in a number of institutions in the U.S. and
Europe.
In the area of market stability, the SEC and its counterparts in several
countries around the world have taken measures to address market abuse.
The United States has raised its deposit insurance limits and the EU
member states have raised individual deposit limits to an EU-wide minimum.
Finally, we have worked to develop a comprehensive, international regulatory
response to ensure these same mistakes are not repeated. In this context, at our
April meeting, the G-? endorsed a series of FSF proposals to address the causes of
the financial market turmoil and set forth a 1OO-day agenda for priority actions. The
1OO-day agenda was initiated on time and we are encouraged by the progress so
far to meet the FSF's recommendations. On Friday, FSF Chairman Mario Draghi
will discuss what has been achieved, describe what more needs to be done this
year, and layout an agenda for 2009. The U.S. the President's Working Group on

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,} 190: Prepa(p.d Stateme:nt by Treasury Under Secretary David H. McComlick in Advance of G-7 Filla...

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Financial Markets reviewed policy issues and issued recommendations in March
that include important steps very much in line with the FSF to improve market
transparency and disclosure, risk awareness and risk management, capital and
regulatory policies, practices regarding the use of credit ratings, and market
infrastructure for over-the-counter derivatives products.
The turmoil also affects emerging markets. Because of that reality, the IMF and
FSF will co-host tomorrow a meeting on the recent financial turmoil and policy
responses. Secretary Paulson will attend and is committed to reaching out to
emerging market economies, especially given their increasingly prominent global
role.
While our discussions will center on the global economic and financial
developments, the G-7 will also discuss issues pertaining to the IMF and World
Bank. The U.S. will underscore that the IMF must playa critical role in global
economic and financial sector surveillance and must continue to modernize itself to
remain legitimate. We will emphasize the need for firm implementation of the IMF's
new exchange rate surveillance decision. The U.S. will express support for the
proposed World Bank voice and vote package to enhance the participation of the
poorest member countries, especially in Africa. We view the reforms as an
important step forward in improving the Bank's accountability to its shareholders.
We are pleased that the International Working Group of Sovereign Wealth Funds
reached a landmark agreement on a set of Generally Accepted Principles and
Practices which will enable SWFs to demonstrate their strong stake in promoting
open and stable global financial markets. The G-7 will also welcome next week's
inaugural meetings of the new climate funds, including the Clean Technology Fund
(CTF). The CTF will support policy measures and investment projects to help
developing countries lower their emissions trajectories. While these are also
important issues, these are extraordinary times and the predominant focus of the
meeting will be financial market turmoil. In this context, after the meeting, Secretary
Paulson will host a G-7 dinner on lessons learned from country experiences with
bank resolution.
Secretary Paulson will be meeting bilaterally with a number of his counterparts from
within and outside the G-7. He will also attend a breakfast meeting of the
International Monetary and Financial Committee of the IMF and host a roundtable
meeting with the Finance Ministers from a number of Western Hemisphere
countries to discuss key economic issues impacting the region.
-30-

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P-1191: Interim Assistant Secretary for Financial Stability Neel Kashkari to Deliver Rcmarks

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October 9, 2008
HP-1191

Interim Assistant Secretary for Financial Stability
Neel Kashkari to Deliver Remarks
Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari will deliver
remarks Monday before the Institute of International Bankers in Washington. He
will discuss financial markets and Treasury's progress implementing the Emergency
Economic Stability Act.
The following event is open to the media:

Who
Interim Assistant Secretary for Financial Stability Neel Kashkari
What
Remarks on the Implementation of the Emergency Economic Stability Act
When
Monday, October 13, 8:00 a.m. EDT
Where
The Four Seasons Hotel
Salon A
2800 Pennsylvania Avenue, NW
Washington, D.C.

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)1192: PRESU)ENT'S WORKING GROUP ISSUES FOURTH QUARTER POLICY STATEMENT ...

Page 1 01':2

10 view or pnnt the /-,UI- content on this page. aowntoaa the Tree

October 10, 2008
hp1192
PRESIDENT'S WORKING GROUP ISSUES FOURTH QUARTER POLICY
STATEMENT UPDATE
Washington -The President's Working Group on Financial Markets issued its policy
statement update today, before the G-7, IMF and World Bank meetings, to report
on implementation of its
to improve the state
of U.S. and global financial markets.
"This update to our March statement delivers on our commitment to report on the
progress of these efforts and can inform our discussion with international finance
ministers this weekend. While market participants and regulators alike have taken
important steps, there is still much work to be done," said Secretary Henry M.
Paulson, Jr. "This progress report demonstrates that as we work to address the
immediate issues at hand, we also have been working to reduce the likelihood that
mistakes of the past will be repeated."
In March, the PWG released its report on the causes of market turmoil and
recommendations for mitigating systemic risk, restoring investor confidence, and
facilitating stable economic growth. At that time, the PWG committed to providing
the fourth-quarter progress report.
The Treasury Secretary serves as chair of the group, which includes the Federal
Reserve Board, the Securities and Exchange CommiSSion, and the Commodity
Futures Trading Commission. The PWG, working with the Office of the Comptroller
of the Currency and the Federal Reserve Bank of New York, issued the statement
in March to highlight key areas of focus and specific recommendations to mitigate
the likelihood of repeating such turmoil.
Today's report notes that significant progress has been made in areas such as
reforming the mortgage origination process, strengthening financial institutions' risk
management practices, and enhancing supervisory policies.
Efforts have been prioritized to address the most immediate challenges. While
progress must be made to address policy concerns, the pace of implementation
must be balanced with a need to avoid exacerbating market problems.
Additionally, the progress report notes that it will take time to judge the
effectiveness of some recommendations, such as the effectiveness of financial
institutions' risk management practices and prudential supervisory efforts.
The report includes six sections describing progress towards implementing the
recommendations:
•
•
•
•
•
•

Reforms to the mortgage origination process
Improvements to investors' contributions to market discipline
Reforms to rating agencies' processes and practices for securitized and
structured products
Strengthening of global financial institutions' risk management practices
Enhancements to prudential regulatory policies
Enhancements to the infrastructure for OTC derivatives markets

When it issued its policy statement in March, the PWG recognized that market
turmoil was still continuing and that subsequent events might demonstrate the need
for additional recommendations. The PWG has and will continue to recommend
and encourage actions to improve financial market stability, but does not believe

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that there is a need for additional specific recommendations at this time.
Recent market events have highlighted the importance and increased relevance of
the March recommendations and the need to continue to move forward with
implementation of the appropriate corrective measures, including the need for
comprehensive regulatory reform of the ineffective existing financial regulatory
structure in order to restore confidence in financial markets and institutions going
forward.
-30REPORTS
•

04 Progress Update

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jji3.2()()X

Progress Update on March Policy Statement on
Financial Market Developments

The President's Working Group on Financial Markets

Department of
the Treasury

Board of Governors
of the
Federal Reserve
System

·111111
.(

Securities and
Exchange
Commission

October 2008

Commodity Futures
Trading
Commission

In March 2008, the President's Working Group on Financial Markets (PWG) issued its
"Policy Statement on Financial Market Developments," which contained an analysis of
underlying factors that were contributing to the continuing market turmoil. The PWG concluded
that the primary trigger of events was the escalation in delinquencies associated with U.S.
subprime mortgages. The recognition of noticeably weak underwriting in U.S. subprime
mortgages uncovered and exacerbated other weaknesses in the global financial system. Because
financial markets are interconnected, both across asset classes and borders, the impact has been
widespread and the deleveraging process in financial markets has been pronounced. In this
interim period, PWG member agencies have designed and implemented a number of global
financial market solutions to the problems associated with this unprecedented period of market
tum10il and have remained diligent in advancing the March 2008 recommendations. This
follow-up status statement provides an update of intervening actions and identi fies further areas
that the PWG will explore in their ongoing work to restore confidence and stability in global
financial markets.
The PWG's analysis identified weaknesses in global markets, institutions, and regulatory
policies that triggered, amplified, or failed to mitigate financial market stresses. The PWG
issued a comprehensive set of recommendations to address those weaknesses, with the broader
objectives of mitigating systemic risk, helping to restore investor confidence, and facilitating
economic growth. Specifically, the goal of the recommendations was to strengthen market
discipline, enhance risk management, and improve the efficiency and stability of capital markets
by improving market transparency, disclosure, risk awareness, risk management, capital and
regulatory policies, practices regarding and use of credit ratings, and market infrastructure for
over-the-counter derivatives products.
The PWG found that the principal underlying causes of the turmoil in financial markets
were:
•

•

a breakdown in underwriting standards for subprime mortgages;
a significant erosion of market discipline by those involved in the securitization
process, including originators, underwriters, credit rating agencies, and global
investors, related in part to failures to provide or obtain adequate risk disclosures;
flaws in credit rating agencies' assessments of subprime residential mortgagebacked securities (RMBS) and other complex structured credit products,
especially collateralized debt obligations (COOs) that held RMBS and other assetbacked securities (COOs of ABS);
risk management weaknesses at some large U.S. and European financial
institutions; and
l
regulatory policies, including capital and disclosure requirements, that failed to
mitigate risk management weaknesses.

I In this document, disclosure requirements refer to the requirements of prudential regulators of financial institutions
rather than to the Securities and Exchange Commission's (SEC) disclosure regulations and requirements applicable
to U.S. public companies.

While no single measure can be expected to place financial markets on a sound footing,
implementation of the PWG's comprehensive and complementary set of recommendations is an
important step in addressing these identified weaknesses. The PWG's recommendations include
measures for implementation by government authorities and market participants to:

•

reform key parts of the mortgage origination process in the United States;
enhance disclosure and improve the practices of sponsors, underwriters, and
investors with respect to securitized credits, thereby imposing more effective
market discipline;
reform the credit rating agencies' processes for and practices regarding rating
structured credit products to ensure integrity and transparency;
ensure that global financial institutions take appropriate steps to address the
weaknesses in risk management and reporting practices that the market turmoil
has exposed; and
ensure that prudential regulatory policies applicable to banks and securities firms,
including capital and disclosure requirements, provide strong incentives for
effective risk management practices.

Progress towards implementing the recommendations is discussed in six sections:
A. Reforms to the mortgage origination process
B. Improvements to investors' contributions to market discipline
C. Reforms to rating agencies' processes and practices for securitized and structured
products
D. Strengthening of global financial institutions' risk management practices
E. Enhancements to prudential regulatory policies
F. Enhancements to the infrastructure for OTe derivatives markets
As this update demonstrates, market participants and supervisory authorities have taken
substantial steps toward implementing the PWG's recommendations. Federal authorities have
cooperated effectively with each other and with relevant state authorities. The PWG continues to
work internationally with foreign regulators, finance ministries, and central banks through the
Financial Stability Forum (FSF), which in April 2008 issued a report on the global financial
turmoil to the G-7 Finance Ministers and Governors that made broadly consistent
recommendations to address weaknesses and issues. More progress has been made in some
areas than in others as efforts have been prioritized to address the most immediate problems.
The pace of implementation must be balanced with a need to avoid exacerbating strains on
markets and institutions. The effectiveness of some recommendations also must be judged over
a longer period of time than has elapsed since the release of the PWG's policy statement.
When it issued its policy statement in March, the PWG recognized that market turmoil
was still continuing and that subsequent events might demonstrate the need for additional
recommendations. The PWG has and will continue to recommend and encourage actions to
improve financial market stability, but does not believe that there is a need for additional specific
recommendations at this time. However, recent market events have highlighted the importance
and increased relevance of the March recommendations and the need for a consideration of

changes to the financial regulatory structure to restore confidence in financial markets and
institutions. Additionally, the PWG is continuing to carefully monitor markets, and it will not
hesitate to make recommendations in these and other areas if necessary.

Recent market events
Since the PWG issued its policy statement in March, financial markets have continued to
experience considerable stress. Although this update was intended to be a status report on
implementation of the PWG recommendations contained in the March policy statement, recent
events and the government's response to them merit inclusion.

Fannie Mae and Freddie Mac
The Presidents Working Group's March policy statement acknowledged that turmoil in
financial markets clearly was triggered by a dramatic weakening of underwriting standards for
U.S. subprime mortgages, beginning in late 2004 and extending into 2007. The first area of
PWG recommendations concerned reforms to key areas of the mortgage origination process. A
number of major steps were taken at the state and federal levels and by the private sector to
address the PWG recommendations.
Despite the significant progress made in the last year to reform this process, the portfolios
of two major mortgage industry entities, Fannie Mae and Freddie Mac, underperformed
expectations partially due to their holdings of mortgage assets created during the period of weak
underwriting.
Over the summer of 2008, investors began to express growing concern regarding the
stability of Fannie Mae and Freddie Mac and the long-standing uncertainty and ambiguity with
respect to their charters and the scope and strength of government backing. In response, the
Treasury Secretary asked Congress for extraordinary authorities with regard to Fannie Mae and
Freddie Mac in order to support the U.S. housing market and to foster the stability of financial
markets more broadly. Congress acted promptly and decisively and provided the needed
legislation. Using these new authorities, the Director of the Federal Housing Finance Agency
(FHFA), Federal Reserve Chairnlan, and Treasury Secretary concluded that further action was
necessary.
The action plan for Fannie Mae and Freddie Mac had four main components:
o

Conservatorship. After the FHF A Director found that the entities were insufficiently
capitalized to operate safely and soundly, Fannie Mae and Freddie Mac were placed
into conservatorship to ensure that they are managed in a manner that fulfills their
mission to support the mortgage finance market while mitigating systemic risk. New
CEOs supported by new non-executive Chairmen have taken over management of the
enterprises, with the goals of stabilizing the entities, increasing the availability of
mortgage finance and mortgage affordability, and mitigating the effects of the housing
correction on economic growth and financial markets. To promote stability in the

secondary mortgage market and lower the cost of mortgage funding, Fannie Mae and
Freddie Mac will increase modestly their MBS portfolios, and then gradually reduce
them until they stabilize at a smaller, less risky size.
o

Preferred Stock Purchase Agreement. In addition, the Department of the Treasury will
use the authorities recently granted by Congress to ensure that each GSE maintains a
positive net worth and eliminate any mandatory triggering of receivership. Treasury
will do this by making senior preferred equity investments to ensure that the entities are
solvent, committing up to $100 billion per institution. To protect taxpayers, Treasury in
return has received from the companies $1 billion in senior preferred stock and warrants
that provide an option to purchase up to 79 percent of the companies' outstanding
shares at a nominal price. This will support market stability, provide additional
confidence to investors, and protect taxpayers.

GSE Secured Lending Credit Facility. Treasury also has established a secured lending
backstop available to Fannie Mae, Freddie Mac, and Federal Home Loan Banks to fund,
ifnecessary, their regular business activities in the capital markets. This facility is
intended to serve temporarily as a liquidity backstop to maintain credit availability.

Mortgage-Backed Securities (MBS) Purchase Program. Treasury also has established a
program that allows it to invest in GSE or "agency" MBS through purchases in the
secondary market. These purchases provide MBS investor confidence, additional
capital for the mortgage market, and mortgage finance availability and affordability.

Resolution o.lStressed Financial Institutions
The PWG also had recommended reforms for credit rating agencies regarding subprime
residential mortgage-backed securities and other structured credit products, notably asset-backed
security collateralized debt obligations, which had become a significant source of exposure and
uncertainty for financial institutions globally. Comprehensive reforms were underway, and the
need for a more transparent ratings process was all too clear.
Uncertainty regarding exposures and funding pressures in the financial markets
continued, particularly with respect to Lehman Brothers, Merrill Lynch, and AIG. In midSeptember, following its inability to find an investor or buyer, Lehman Brothers filed for Chapter
II (reorganization) bankruptcy protection. At the same time, Merrill Lynch was bought by Bank
of America.
The bankruptcy filing of Lehman Brothers heightened concern about systemic risk. AIG,
one of the largest insurance companies in the world, which held a large portfolio of over-thecounter derivatives, soon faced credit rating downgrades and severe funding constraints.
Recognizing the potential systemic risk, the Federal Reserve provided AIG with an $85 billion
secured liquidity facility; the U.S. government will receive a 79.9 percent equity interest in the
company.

The difficulties of Lehman Brothers and AIG had a further chilling effect on financial
institutions' extension of credit to one another. In particular, the $4.6 trillion money market
mutual fund industry, which had been a major provider of funding in credit markets, experienced
sharp investor redemptions after several declines in net asset values and the reporting of fund
liquidations. Market participants became increasingly concerned about money funds' exposure
to troubled institutions. This led to a curtailment of funds' holdings of financial instruments in
order to boost cash needed to meet investor redemption requests. This unwillingness or inability
to lend led to further increases in the cost of credit for both financial and non-financial
companies, increasing the difficulties faced by corporations rolling over maturing debt and
funding their operations.
In late September, investor concerns about credit quality issues and the dislocations in
various credit markets, including the interbank lending market, resulted in the sale of
Washington Mutual. Later, Wachovia, facing similar market pressures, entered into negotiations
with Citigroup and Wells Fargo, intending to either merge or sell substantial business lines.

Liquidity Actions
The Federal Reserve responded to the market turmoil by providing significant liquidity
injections through open market operations, expansion of existing lending facilities, and the
introduction of several new liquidity facilities. Throughout, the Federal Reserve and other
central banks have consulted and cooperated in the provision of liquidity to financial markets. In
support of these efforts, the Federal Reserve established reciprocal current swap arrangements
(swap lines) with a number of central banks to increase their capacity to provide dollar funding
to institutions in their jurisdictions. The quantity of liquidity provided through these facilities
has been greatly expanded over recent weeks.
The rapid expansion of the Federal Reserve's balance sheet has complicated its task in
keeping the effective federal funds rate close to the target set by the Federal Open Market
Committee. Congress recently granted the Federal Reserve the authority to pay interest on
reserve balances, and the Federal Reserve began to pay interest on reserves beginning October 9.
This authority should be helpful in allowing the Federal Reserve to keep the federal funds rate
closer to the target while at the same time meeting elevated and volatile demands for liquidity
through its various facilities.
In response to the turmoil in financial markets, the Federal Reserve has taken a series of
actions to address specific pressures in funding markets and to provide liquidity to markets more
generally. These actions are detailed chronologically in a special section of the Board of
Governors' web site: 1111p' 1111\\ 1,',kl,llll'''l'lll',C'')1 Ill..'II"l'I"llI.., 1"""lll:ll1Il1l1'-. illll1.

Additional Measures
Despite these actions, it became clear that in order to create long-term market stability,
the turmoil needed to be addressed through additional measures. The Administration announced
its intention to work with Congress to develop a troubled asset relief program, which would

purchase illiquid assets from financial institutions in order to help unlock frozen credit markets
and help restore market confidence.
In addition, it was announced that Fannie Mae and Freddie Mac would increase their
purchases of mortgage-backed securities in order to provide critical additional funding to
mortgage markets, and the Treasury Department would expand its MBS purchase program
announced previously.

To help ease liquidity constraints, the Treasury Department acted to restore confidence in
money market mutual funds through a $50 billion guaranty program. This guaranty offers
previously-unavailable govemment insurance in order to address the recent market stresses and
concems about whether money market mutual fund investments are safe and accessible. The
Federal Reserve also is taking steps to provide additional liquidity to such funds, which also will
help to ease pressure on financial markets.
The Emergency Economic Stabilization Act (EESA) empowered Treasury to use up to
$700 billion to inject capital into financial institutions, to purchase or insure mortgage assets, and
to purchase any other troubled assets that the Treasury and the Federal Reserve deem necessary
to promote financial market stability. Treasury will use all of its tools to maximize effectiveness,
including strengthening the capitalization of financial institutions of every size, and is designing
programs, such as the Troubled Asset Relief Program (TARP) that will purchase troubled assets
from financial institutions.

Progress towards implementing the Recommendations

A. Reforms to the Mortgage Origillatioll Process
The PWG made several recommendations for reforming key parts of the mortgage origination
process, including:
•

All states should implement strong nationwide licensing standards for mortgage brokers;

•

Federal and state regulators should strengthen and make consistent government oversight of
entities that originate and fund mortgages and otherwise interface with customers in the
mortgage origination process. All states should work towards adopting the principles set
forth in the guidance developed by the federal regulators for nontraditional and subprime
mortgage lending and ensure that effective enforcement mechanisms are in place to deal with
noncompliance with such standards; and

•

The Federal Reserve should issue stronger consumer protection rules and mandate enhanced
consumer protection disclosures, including disclosures that would make affordability over
the life of the mortgage more transparent and that would facilitate comparison of the terms
with those of alternative products. State and federal authorities should coordinate to enforce
the rules evenly across all types of mortgage originators.

Many initiatives have been undertaken, including the following:
•

A nationwide mortgage licensing system has been established by the state mortgage
regulators through the Conference of State Bank Supervisors (CSBS) to ensure strong
licensing standards and enhance supervision for all state-licensed mortgage companies and
loan originators. To date, fifteen (15) states are participating in the licensing system and
twenty-four (24) states are scheduled to be participating by January 2009. Forty-six (46)
states plus the District of Columbia and Puerto Rico have indicated their intent to participate
in the licensing system. Additionally, Title V of the Housing and Economic Recovery Act
(the Secure and Fair Enforcement for Mortgage Licensing Act) mandates the licensing and
registration by the states and the federal banking regulators of all loan originators taking
residential loan applications and offering or negotiating terms of residential mortgage loans
in the U.S. To implement these federal requirements, the states have drafted model
legislation that meets the minimum licensing standards. The model law also contains
provisions to improve regulation for safety and soundness and consumer protection. (Policy
Statement Recommendation A I)

•

Federal supervisory agencies issued guidance on the underwriting of subprime mortgages,
and guidance containing model consumer disclosures explaining costs, terms, and risks of
these mortgages. State authorities have issued comparable guidance and immediately
implemented new examination procedures and training of state examiners to enforce
the guidance. (A2)

•

Federal and state authorities are reviewing the underwriting standards and management
oversight for ensuring compliance with consumer protection laws and regulation at selected
non-depository lenders with significant subprime mortgage operations. (A2, A4)

• Additionally, the states adopted the Nationwide Cooperative Protocol for Mortgage
Supervision, an agreement coordinating the oversight of mortgage companies operating in
multiple jurisdictions, and addressing consumer protection, institution risk and fraudulent
practices while minimizing regulatory burden and expense. Through this initiative the states
have enhanced re-tooled traditional mortgage examination procedures with technology
designed for loan-level review to identify and focus examiner resources on patterns and
practices posing the greatest risk. (A2, A4, AS)
•

Understanding the need for strong supervisory resources and skills, through CSBS the states
have recently instituted a program of mortgage supervision accreditation modeled after the
CSBS accreditation for banking departments. (A2, A4)

•

The Federal Reserve Board (FRB) revised its rules under the Home Ownership and Equity
Protection Act (HOEPA) with respect to certain high-cost loans (HOEPA loans). Under
these rules, lenders will be required to verify the income and assets relied upon in making the
loan using reliable third-party documentation. This addresses the problem of stated-income
loans where the borrower's income on the application is intentionally inflated. (A3)

•

The FRB has approved new rules under HOEPA for most higher-priced loans that address
abuses related to prepayment penalties, failure to escrow for taxes and insurance, and failure
to give adequate consideration to borrowers' ability to repay. (A3)

•

The FRB also prohibited the coercion of property appraisers, a form of fraud, in connection
with most home-secured loans. (A3)

•

The FRB has implemented changes to Truth in Lending Act (TILA) rules to address concerns
about incomplete or misleading mortgage loan advertisements and solicitations and to require
lenders to provide mortgage disclosures more quickly. (A3)

•

The FRB is reviewing TILA rules and is testing potential types of disclosures with consumer
focus groups. (A3)

•

A number of joint collaborative law enforcement and prosecutorial efforts, including
"Operation Malicious Mortgage" and the President's Corporate Fraud Task Force, are
pursuing mortgage-related securities fraud and mortgage fraud schemes, including lending
fraud, foreclosure rescue scams, and mortgage-related bankruptcy schemes. Several state
and regional mortgage fraud task forces also were formed and are pursuing such fraud. (AS)

B. Improvements to Investors' COlltributiolls to Market Disciplille
The PWG made several recommendations for improving investors' contributions to market
discipline, including:
•

Overseers of institutional investors (for example, the Department of Labor for private
pension funds; state treasurers for public pension funds; and the Securities and Exchange
Commission (SEC) for money market funds) should require investors (and their asset
managers) to obtain from sponsors and underwriters of securitized credits access to better
infomlation about the risk characteristics of such credits, including information about the
underlying asset pools, on an initial and ongoing basis;

•

Overseers should ensure that these investors (and their asset managers) develop an
independent view of the risk characteristics of the instruments in their portfolios, rather than
rely solely on credit ratings; and

•

The PWG will engage the private sector to create a committee to develop best practices
regarding disclosure to investors in securitized credits, including ABS and COOs of ABS.

Many initiatives have been undertaken, including the following:

Risk disclosures by market participants
•

The Senior Supervisors Group (SSG), in which the FRB, Federal Reserve Bank of New York
(FRBNY), Office of the Comptroller of the Currency (OCC), and SEC participate, released a
report on "Leading-Practice Disclosures for Selected Exposures" in April 2008. The FRB,
SEC, and OCC subsequently sent letters to firms encouraging them to review and, as
appropriate, enhance disclosures in line with the SSG report. The report highlighted some
practices for making infomlative and effective disclosure for instruments such as
collateralized debt obligations (COOs), residential mortgage-backed securities (RMBS),
commercial mortgage-backed securities (CMBS), other special purpose entities (SPEs), and
leveraged finance. Some of the disclosure items highlighted included size, exposure, credit
issues, and collateral. (BI, B4)

•

The SEC staff in March 2008 sent to certain public companies and made public a letter
identifying a number of disclosure issues related to the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards No. 157 (FAS 157) on "Fair
Value Measurements," liquidity, and asset-backed securities valuation for the public
companies to consider in preparing their "Management's Discussion and Analysis" section of
their quarterly reports. (B9, E8)

•

In September 2008, the SEC staff sent to certain public companies and made public another
letter identifying a number of disclosure issues related to providing clearer and more
transparent disclosure regarding FAS 157 fair value measurements. (B9, E8)

•

The SEC staff in December 2007 made public and sent a letter to certain public companies
involved with non-consolidated conduits, structured investment vehicles (SIVs), and COOs
that identified disclosure issues for the public companies to consider in preparing their
"Management's Discussion and Analysis" section of their quarterly reports. The staff letter
identified a number of items associated with off-balance-sheet entities for public companies
to consider, including asset categories and lives, funding, write-downs, downgrades, liquidity
facilities, support, and potential impact of consolidation. (84, 89, E7)

•

In June 2008, the SEC proposed several amendments to the conflict of interest rules that
apply to nationally recognized statistical rating organizations (NRSROs), including
disclosure requirements for assets underlying structured finance products. These disclosures
would enable market participants to conduct independent assessments of structured finance
products, and enable other credit rating agencies to determine unsolicited credit ratings. This
could help address rating shopping by exposing an NRSRO whose ratings methodologies
were less conservative in order to gain business. It also could mitigate the impact of rating
shopping, since NRSROs not hired to rate a deal could nonetheless issue a credit rating. (83)

•

The staff of the SEC formed a subprime working group in spring 2007 to coordinate
investigations and is working closely with banking regulators. The SEC staff has initiated
over four dozen subprime-related investigations. Areas under investigation include: whether
mortgage lenders properly accounted for the loans in their portfolios and whether they
established appropriate loan loss reserves; the roles of the various parties involved in the
securitization process in connection with the sale of mortgage-backed securities (M8S) and
collateralized debt obligations (COOs), including whether lenders adequately disclosed the
risk profiles of underlying loans, whether they valued their portfolios appropriately, and
whether they made adequate risk disclosures to investors; and whether investment banks and
broker-dealers defrauded retail customers by making false representations or putting
investors into unsuitable mortgage-backed investments. (A4, AS, 8 I, 84)

•

The August 2008 report of the Counterparty Risk Management Policy Group III (CRMPG
III), titled "Containing Systemic Risk: The Road to Reform," recommended:
o

specific documentation and disclosure practices for high-risk complex financial
instruments (including asset-backed high-risk complex financial instruments) as industry
best practices. These documents include discussion of economic assumptions giving rise
to expected returns, as well as rigorous scenario analysis and stress tests. The report also
recommends a "financial health" warning, prominently indicating that the presence of the
identified characteristics and risks give rise to the potential for significant loss over the
life of the instrument. (84)
enhanced due diligence processes, particularly with regard to high-risk complex assetbacked securitizations, including: enhanced efforts by underwriters and placement agents
to adhere to existing diligence standards; required statistically valid sampling techniques
to assess the quality of assets in a securitization; and disclosure to investors of due
diligence results. (84)

•

A group led by the American Securitization Forum (ASF) has developed a template for
information that should be disclosed to investors in residential mortgage-backed securities
offerings. The industry already has a template for the disclosure of critical information to
asset backed commercial paper investors that is being rapidly adopted by industry
participants. Further recommendations from this broad group of industry participants are
expected later this year. (87, 8X)

Independent assessment oj"risk by investors
•

As discussed below, the SEC has proposed amending five rules under the Investment
Company Act of 1940 and the Investment Advisers Act of 1940 that rely on the ratings of
nationally recognized statistical rating organizations (NRSROs). The proposed amendments
are designed to address concems that the reference to NRSRO ratings in Commission rules
might have contributed to an undue reliance on credit ratings by market participants. (82, 85,
86)

•

As noted below, other supervisors have reviewed the use of credit ratings in legislation,
regulations, and supervisory guidance and are implementing changes to ensure that investors
develop an independent view of the risk characteristics of the instruments in their portfolios,
rather than relying solely on credit ratings. (82, 85, 86)

•

The SEC staff examined a number of money market funds to determine, among other things,
the extent to which money market funds were able to obtain sufficient information from
sponsors and underwriters of securitized pools, including structured investment vehicles
(SIVs), to evaluate the risks attendant to investment in the pools. The money market fund
advisers examined felt they had adequate access to information about the risk characteristics
of the assets underlying SIVs. (81,82,84)

•

The CRMPG Ill's report also recommended establishing standards of sophistication for all
market participants in high-risk complex financial instruments, guided by the principle that
participants should be capable of assessing and managing the risk of their positions in a
manner consistent with their needs and objectives. (84)

•

As part of its ongoing responsibility to assist employee benefit plan fiduciaries in complying
with the prudence requirements of the Employee Retirement Income Security Act (ERISA),
the Department of Labor (DOL) in 1996 issued guidance addressing the fiduciary
considerations attendant to investment decisions involving derivatives and complex financial
instruments. The guidance explained that, in considering such investments, fiduciaries
should secure from sellers sufficient information to allow an independent analysis of the
credit risk and market risk being undertaken by the plan, and that fiduciaries should
determine whether they possess the requisite expertise, knowledge, and information to
understand and analyze the nature of the risks and conduct stress simulations that would take
into account abnormal markets. When utilizing outside investment managers, the fiduciary
should consider whether such managers have the personnel and expertise to invest in and
monitor investment activities in the complex financial instruments. DOL also made clear

that employee benefit plan fiduciaries making such investments are expected to have the
documentation necessary to support their investment decision. (B I, B2)

The DOL will consider the feasibility of developing additional guidance on a variety of
issues affecting plan investments in structured financial products, derivatives, and
mortgage-backed certi ficates. Such guidance should update the 1996 guidance and offer
more speci fic guidance regarding the requirements for fiduciary investment in these
financial products. (B I, B2)

•

The DOL currently has various enforcement initiatives underway that focus on the fiduciary
duties attendant to selection, monitoring, valuation, and reporting of alternative investments,
such as investments in limited partnerships, hedge funds, private equity funds, and structured
financial products. (B I)

•

The New York State Insurance Department (NYSID) is establishing evaluation criteria to use
in its audit and examination program to assess insurance companies' risk management
practices, including an assessment of the information that insurers receive as investors, the
due diligence they afford their investments, and the degree of their reliance on credit ratings.
In addition to regulating insurance companies, NYSID has oversight of the New York State
Public Retirement Systems, and is developing new pension regulations, including minimum
investment standards for the Systems. (B I, B2, B5, B6)

• The National Association of Insurance Commissioners (NAIC) is enhancing the information
that all state regulators receive on insurance companies' investments, including structured
products, through insurers' financial statement filings. This enhanced information
requirement requires insurance companies to obtain information from sponsors and
underwriters. NAIC also is working to identify and model risks that are not reflected in credit
ratings, and is providing an alternative to credit rating agencies in determining credit quality.
(B I, B2, B5, B6)

Accollnting and disclosure standards/or o.frbalance sheet entities
•

The SEC staff asked the Financial Accounting Standards Board (FASB) to complete
revisions of accounting standards related to consolidation and securitization. F ASB issued
draft standards in September 2008 for public comment by November 14, 2008, and has
scheduled a roundtable for the fourth quarter. The International Accounting Standards Board
(lASB) is conducting a series of roundtables the first of which took place in September 200S,
and plans to issue a draft consolidation standard in the fourth quarter of 200S, and issue a
final standard in the second half of 2009. FASB and IASB are coordinating their respective
efforts and in September 2008 published an update to their Memorandum of Understanding
(MOU) with a plan for completion of joint projects. (E II)

•

The SEC held a public roundtable in August 2008 on the perfornlance of International
Financial Reporting Standards (lFRS) and U.S. Generally Accepted Accounting Principles
(GAAP) during the period of market turmoil. The panels included investors, issuers,
auditors, and other parties, and discussed how the two sets of standards dealt with the key

accounting issues, including off-balance sheet entities and fair value, during the market
pressures. As noted above, FASB and IASB published an update to their MOU that included
progress towards convergence, and IASB expedited its discussions with standard setters and
set 20 II as a target date to complete joint projects towards convergence. (ES)
•

NYSID plans to evaluate the impact of non-regulated affiliates of insurance companies and
to improve the transparency of some investment-related activities of regulated companies,
such as securities lending. Enhanced disclosure of risks by financial guaranty insurance
companies (FGls) will be required under proposed new rules. (B9)

Valuation
•

On September 30, SEC and F ASB staff provided joint clarification on the most urgent fair
value measurement issues in the current environment. On October 3, F ASB proposed
additional interpretative guidance on fair value measurement for financial assets in markets
that are not active. (ES)

•

The SEC held a public roundtable on fair value accounting standards in July 200S. The
panels focused on fair value accounting issues from both the perspectives of larger financial
institutions and the needs of their investors, and all public companies, including small public
companies, and the needs of their investors. Panelists discussed topics related to the benefits
and potential challenges associated with existing fair value accounting and auditing
standards. (ES)

•

IASB issued a draft report in September 200S on fair value measurement and disclosure for
financial instruments in markets that are no longer active. Public comments were due by
October 3, 200S, and IASB expects to publish an exposure draft in mid-2009. Broader
questions related to fair value measurement are being dealt with in a separate IASB project
on measurement, complexity, and comparability issues. IASB published for public comment
a discussion paper in March 200S, with comments due by September 19, 200S. IASB will
decide later in 200S whether to add the project to its agenda. (ES)

•

Effective July 200S, an insurance company that owns a downgraded municipal bond, but
believes that the credit of the municipality is higher than that of the financial guarantor, can
opt to have the NAIC Securities Yaluation Office (SYO) conduct a credit assessment of the
municipality and apply the credit quality designation determined by the SYO to the security.
The NAIC has pledged to continue to use the resources of the SYO to assist regulators in
dealing with disruptions in the capital markets. (E9)

•

The CRMPG III report also recommended that large integrated financial intermediaries
should provide clients with timely and relevant information about a transaction beyond the
disclosures in the initial sale documents. In particular, when a counterparty requests a
valuation of a high-risk complex financial instrument, the report recommends specific
parameters for the provision of that valuation and provision of the basis upon which the
valuation was made. Further, the report recommends that following trade execution, the

intermediary should make reasonable efforts to keep the counterparty informed of material
developments regarding the performance of key positions. (B4)

C. Reforms to tlte Ratillg Agellcies' Process for alld Practices regardillg Structured Credit
alld Otlter Securitized Credit Products
The PWG made many recommendations for reforming the ratings processes for and practices
regarding structured credit and other securitized credit products, including:
•

Credit rating agencies (CRAs) should disclose what qualitative reviews they perform on
originators of assets that collateralize ABS rated by the CRA and should require underwriters
of ABS to represent the level and scope of due diligence perfomled on the underlying assets;

•

The CRAs should reform their ratings processes for structured credit products to ensure
integrity and transparency. The PWG welcomes the steps already taken by the CRAs, and
particularly encourages the CRAs to:
o enforce policies and procedures that manage contlicts of interest, including implementing
changes suggested by the SEC's broad review of contlict of interest issues;
o publish sufficient information about the assumptions underlying their credit rating
methodologies, so that users of credit ratings can understand how a particular credit
rating was detemlined;
o make changes to the credit rating process that would clearly differentiate ratings for
structured products from ratings for corporate and municipal securities;
o make ratings performance measures for structured credit products and other ABS readily
available to the public in a manner that facilitates comparisons across products and credit
ratings;
o work with investors to provide the information investors need to make informed
decisions about risk, including measures of the uncertainty associated with ratings and of
potential ratings volatility; and
o ensure that adequate personnel and financial resources are allocated to monitoring and
updating ratings.

•

The PWG will facilitate formation of a private-sector group (with representatives of
investors, issuers, underwriters, and CRAs) to develop recommendations for further steps
that the issuers, underwriters, CRAs, and policymakers could take to ensure the integrity and
transparency of ratings, and to foster appropriate use of ratings in risk assessment;

•

PWG member agencies will reinforce steps taken by the CRAs through revisions to
supervisory policy and regulation, including regulatory capital requirements that use ratings;
and

•

The PWG will revisit the need for changes to CRA oversight if the reforms adopted by the
CRAs are not sufficient to ensure the integrity and transparency of ratings.

Much progress has been made, including the following:
•

In July 2008, the SEC released findings from staff examinations of three major credit rating
agencies that found significant weaknesses in ratings practices and the need for remedial
action by the firms to provide meaningful ratings and the necessary levels of disclosure to
investors.
o The examinations found that rating agencies struggled significantly with the increase in
the number and complexity of subprime RMBS and COO deals since 2002.
o The examinations uncovered that none of the rating agencies examined had speci fic
written comprehensive procedures for rating RMBS and COOs.
o Significant aspects of the rating process were not always disclosed or even documented
by the firms, and conflicts of interest were not always managed appropriately.
o The report summarized generally the remedial actions that credit rating agencies are
expected to take as a result of the examinations.

•

In June and July of 2008, the SEC proposed a three-part set of comprehensive reforms to
regulate the conflicts of interests, disclosures, internal policies, and business practices of
credit rating agencies. The SEC is reviewing the public comments received.
o The first set of proposed rules addressed conflicts of interest in the credit ratings industry
and would require new disclosures designed to increase the transparency and
accountability of credit ratings agencies. (C2, C3)
o The second set of proposed rules would require credit rating agencies to differentiate the
ratings they issue on structured products from those they issue on bonds through the use
of different symbols or by issuing a report disclosing the differences. (C2)
o The third part of the SEC's proposed rules would clarify for investors the limits and
purposes of credit ratings and ensure that the role assigned to ratings in SEC rules is
consistent with the objectives of having investors make an independent judgment of
credit risks. (B2, B5, B6, E 10)
o These proposed rules would:
• address conflicts of interest by prohibiting credit rating agencies from rating products
they structure; (C2)
• require the public disclosure of the information a credit rating agency uses to
determine a rating on a structured product, including information on the underlying
assets; (C2)
• require public disclosure of ratings histories and ratings performance measures; (C2)
• specify disclosure of the way that rating agencies rely on third-party due diligence,
how frequently credit ratings are reviewed, whether different models are used for
surveillance than for initial ratings, and whether changes made to models are applied
retroactively to existing ratings; (Cl, C2)
• require the differentiation of ratings for structured products from ratings for corporate
and municipal securities through the use of different symbols or by issuing a report
disclosing the differences between ratings of structured products and other securities;
(C2) and
• remove references to NRSROs from SEC rules and forms. (EIO)

•

In May 2008, the International Organization of Securities Commissions (I0SCO) published
its final report containing amendments to its "Code of Conduct Fundamentals for Credit
Rating Agencies." (C4) Changes included issues related to:
o quality and integrity of the rating process: objective review; rigorous ongoing review of
methodologies and models; quality of information; knowledgeable and experienced
employees; new product review function; appropriateness of methodologies and models;
prohibition on design of rated structured finance products; and adequate resources for
monitoring and updating;
o independence and avoidance of conflicts of interest: review of former employees' work;
review of remuneration policies and practices; disclosure of signi ficant contributors to
revenue; public disclosure of information to allow independent analysis and discourage
ratings shopping; and definition of ancillary business;
o responsibilities to investors and issuers: education of investors on meaning and limits of
ratings; disclosure of ratings perforn1ance; disclosure of the basis/sensitivity of a rating
on a structured finance product; differentiation of structure finance product ratings; and
disclosure of the principal rating methodology; and
o disclosure of code of conduct: publication by credit rating agency of its: code of conduct;
methodology description; and historical performance.

•

A group with representatives of all stakeholders led by the Securities Industry and Financial
Markets Association (SIFMA) in July 2008 issued recommendations to ensure the integrity
and transparency of ratings and to foster appropriate use of ratings in risk assessment. Its
recommendations included disclosure by credit rating agencies of rating methodologies, due
diligence on underlying assets, surveillance procedures, performance data, and conflicts of
interest; and investor understanding of the limits and use of ratings as one of many inputs
into their own independent analyses. (C5)

•

US supervisors reviewed whether the inclusion of requirements related to credit ratings in
rules and forms had, in effect, placed an "official seal of approval" on ratings that adversely
affected the quality of due diligence and investment analysis. Supervisors inventoried the use
of credit ratings in legislation, regulations, and supervisory guidance and are implementing
changes to ensure that investors develop an independent view of the risk characteristics of the
instruments in their portfolios, rather than relying solely on credit ratings. (C6)

D. Strellgthelling of Global Fillallcial Illstitutiolls' Risk Mallagemellt Practices
The PWG made many recommendations to strengthen global financial institutions' risk
management practices, including:
•

Global financial institutions should promptly identify and address any weaknesses in risk
management practices that the turmoil has revealed;

•

The PWG will support formation of a private-sector group to reassess implementation of the
Counterparty Risk Management Policy Group II's (CRMPG II) existing guiding principles
and recommendations regarding risk management, risk monitoring, and transparency, and to

modify or develop new principles and recommendations as necessary to incorporate lessons
from the recent turmoil, including lessons regarding valuation practices;
•

Supervisors of global financial institutions should closely monitor the firms' efforts to
address risk management weaknesses, taking action if necessary to ensure that weaknesses
are addressed;

•

U.S. banking regulators and the SEC should promptly assess current guidance and develop
common guidance to address the risk management weaknesses revealed by the recent market
turmoil, including improvements to:
o management information systems, including procedures that ensure aggregation of
exposures across all business lines and ensure rigorous valuations of instruments and
exposures;
o concentration risk management, liquidity risk management, stress testing and other risk
management practices that are necessary to ensure that liquidity and capital cushions are
sufficiently robust to absorb extreme system-wide shocks; and
o governance of the risk management and control framework, including the development
of. and adherence to, practices that address incentive problems in compensation policies.

•

U.S. authorities should encourage other supervisors of global firms to make complementary
efforts to develop guidance along the same lines.

Much progress has been made, including the following efforts:
•

Supervisors are establishing a template for benchmarking firms against the risk management
practices included in the report issued by the Senior Supervisors Group (SSG) and the
CRMPG III recommendations. U.S. supervisors will conduct a comprehensive
benchmarking exercise, reviewing individual firm self-assessments as well as firm
perfornlance against the broader set of issues identified in the supervisory template.
Supervisors will then make an assessment across the industry of the extent to which firms
have responded to the weaknesses identified by the turmoil in credit markets. This
assessment will focus on identifying issues for which industry progress has not been
satisfactory. Finally, U.S. banking supervisors plan to enhance existing guidance to reemphasize fundamental risk management principles, geared specifically to those issues
revealed by the market turmoi I. (0 I, 04)

•

Supervisors have taken action, as appropriate, to address identified deficiencies at individual
firms. Supervisors continue to monitor firms' efforts to address risk management
weaknesses identi fied by the market disruption, and have used their supervisory authority to
require firms to implement promptly corrective measures to address identified weaknesses.
Such corrective actions include addressing weaknesses related to model validation, price
verification processes, risk governance/management, and risk systems. Firnls have
responded positively by strengthening governance processes and improving risk management
systems. However, given the ongoing nature of the market disruption, supervisors expect
continued improvement in risk management. (0 I, 03, 04, 05)

•

Firms have engaged in self-assessment exercises and have begun the process of
benchmarking their performance against lessons leamed, including those highlighted in
relevant public- and private-sector guidance. Firms have taken aggressive actions to correct
risk management deficiencies, strengthen corporate govemance, and reduce risk. These
actions include:
o management changes to strengthen the quality of corporate risk govemance;
o extemal reviews ofrisk management processes to identify gaps and inconsistencies with
industry sound practices;
o changes in VaR methodologies to ensure comprehensive risk measurement;
o strengthening of liquidity risk management, including more thorough contingency
planning;
o improvements to credit underwriting to ensure compliance with regulatory standards
regarding capacity to repay;
o better coordination between managers of market, counterparty credit, and operational
risks to improve firm-wide considerations of risk profiles;
o improvements to risk-related management information systems to ensure timely and
accurate risk reporting;
o adjustments to risk limit structures to provide appropriate controls around risk-taking
activities;
o implementation of counterparty close-out procedures to reduce contagion implications if
a significant market participant should fail; and
o tightening of policies and procedures for leveraged loan commitments and COO
warehouses to appropriately manage pipeline risks. (01)

• NYSrO is creating evaluation criteria to assess enterprise-wide risk management functions,
including their robustness, independence, aggregation of all risks across the organization, and
adherence to strong operational and financial reporting controls. The assessments will begin
in the fourth quarter of 2008, and any weaknesses will be communicated to the company for
immediate remediation and will be closely monitored by the NYSrO. An evaluation of this
function also is being incorporated into examination procedures. (01, 03)
• The NArC's examination guidance has incorporated a risk-focused surveillance framework to
place more emphasis on risks and risk management in the financial solvency oversight of the
insurance industry. The revised framework will be phased in through 2009 and will be
required starting in 2010 from all states seeking NArC accreditation. Riskier companies and
riskier processes will receive a higher level of supervision. (01, 03)
•

US insurance regulators currently participate in a number of information sharing
arrangements with their counterparts in other jurisdictions and are participating in supervisory
colleges for financial conglomerates and insurance groups with significant intemational
activity. The NArC is working towards improving communication among insurance and
other financial regulators within the U.S., as well as regulators abroad. The NArC has a
process that identifies the lead state primarily responsible for coordination ofregulation of
companies whose insurance subsidiaries operate in several states. The NYSrO communicates
directly with the Federal Reserve on issues with a material impact on the insurance sector,

especially when the impact potentially could reach to other sectors of the financial markets.
(05)
•

The CRMPG III was formed and issued its report titled "Containing Systemic Risk: The
Road to Reform" in August 2008. (02)
o The group identified the primary causes of the market turmoil as the abundance of global
liquidity, the mispricing of credit risk due to competitive factors, increased complexity of
finance, speed and breadth of contagion unlike prior periods of financial instability, and
incentives that produced patterns of behavior and allocations of resources that are in
conflict with the goal of financial stability.
o The report emphasizes five "core precepts" upon which the management and supervision
of large integrated financial intermediaries must rest: (1) corporate governance; (2) risk
monitoring; (3) estimating risk appetite; (4) focusing on contagion; and (5) enhanced
oversight.
o CRMPG III made a number of recommendations related to standards for accounting
consolidation, high-risk complex instruments, risk monitoring and risk management,
enhanced credit market resiliency, and emerging issues.

E. E1lhanceme1lts to Prudential Regulatorv Policies
The PWG made many recommendations to enhance prudential regulatory policies, including:
•

Regulators should adopt policies that provide incentives for financial institutions to hold
capital and liquidity cushions (that are forward looking and adjust appropriately through
peaks and valleys of the credit cycle) commensurate with firm-wide exposure (both on and
off-balance sheet) to severe adverse market events.

•

Regulators should enhance guidance related to pipeline risk management for firms that use
an originate-to-distribute model.

•

The Basel Committee on Banking Supervision (BCBS) should promptly complete the work it
has initiated to update the Committee's 2000 guidance on liquidity management, including
the sound practice guidelines to be followed by regulated financial institutions as well as the
oversight principles for supervisors.

•

The BCBS and IOSCO should review capital requirements for ABS COOs and other resecuritizations and for off-balance sheet commitments, with a view toward increasing
requirements on exposures that have been the source of recent losses to firms.

•

Regulators should require financial institutions to make more detailed and comprehensive
disclosures of off-balance sheet commitments, including commitments to support ABCP
conduits and other off-balance sheet vehicles.

•

Regulators should encourage financial institutions to improve the quality of disclosures about
fair value estimates for complex and other illiquid instruments, including descriptions of

valuation methodologies and information regarding the degree of uncertainty associated with
such estimates.
•

Regulators should review the current use of ratings in regulation and supervisory rules. At a
minimum, regulators should distinguish, as appropriate, between ratings of structured credit
products and ratings of corporate and municipal bonds in regulatory and supervisory policies;
and

•

Authorities should encourage F ASB to evaluate the role of accounting standards in the
current market turnl0il. This evaluation should include an assessment of the need for further
modifications to accounting standards related to consolidation and securitization, with the
goal of improving transparency and the operation of U.S. standards in the short-term.
Additionally, authorities should encourage FASB and IASB to achieve more rapid
convergence of accounting standards for consolidation of ABCP conduits and other offbalance sheet vehicles.

Many initiatives are underway, including the following:
•

In July 2008, U.S. agencies issued final Basel Pillar 2 guidance to provide incentives for
financial institutions to hold capital cushions (both forward looking and adjusting
appropriately through peaks and valleys of the credit cycle) commensurate with firm-wide
exposure (both on- and off-balance sheet) to severe adverse market events. This guidance
instructed that: (I) banks' internal capital adequacy assessment processes (ICAAPs) should
assess material risks across the entire bank as well as the potential impact of broader
systemic events; (2) banks' capital should remain adequate over time to account for changes
in their strategic direction, evolving economic conditions, and volatility in the financial
environment; and (3) banks should incorporate liquidity risk in these assessments. This
guidance followed a number of reviews of institutions' internal assessments of capital
adequacy since the 1999 guidance to banks to ensure that their capital is sufficient to support
the full range of their underlying risk positions, both on-and off-balance sheet, and to hold a
capital cushion to provide for a wide range of unexpected events. (E I)

•

Recently-issued U.S. Basel Pillar 2 guidance also describes the need for banks to account for
the potential impact on capital adequacy of risks other than credit, market, or operational
risks. These other risks could include reputation or strategic risk, which could arise from
conduit and asset management businesses. In the area of reputational risk, the guidance
indicated that banks should: (I) understand and identify the linkage between capital
adequacy and the damage to its reputation; and (2) in taking account of that linkage, assess
risks associated with on- and off-balance sheet exposures and activities, affiliates,
subsidiaries, counterparties, clients, or other third parties. The BCBS will issue supplemental
Pillar 2 guidance addressing, among other risk management items, the management of offbalance sheet exposures, including risks related to securitization and reputation risk. A
proposal is expected to be issued for comment in the first quarter of2009. (E5)

•

To address needed improvements in exposure aggregation, valuation, concentration and
liquidity risk management, stress testing, and liquidity and capital cushions, the

supplementary guidance also will cover: (I) oversight of firm-wide risks; (2) management
of risk concentrations; (3) management of off-balance sheet exposures; (4) stress testing for
risk management and capital planning; and (5) management of valuation and liquidity risks.
A proposal is expected to be issued for comment in the first quarter of2009. (E I, E5, E6, E7)
•

Under the supervisory review process of Pillar 2, the U.S. agencies will ensure that each bank
meets the process and system requirements of the Advanced Internal Ratings Based
Approach to Basel II, including the conservatism of estimates of losses from defaults during
a downturn and the robustness of banks' stress tests. As described in the July 2008
Interagency Statement "U.S. Implementation of Basel II Advanced Approaches Framework:
Qualification Process," supervisors are currently reviewing firms' models, underlying
processes and systems, data, validation, and oversight and control mechanisms in preparation
for the qualification process for the advanced approaches rule. (E6)

•

Given the weak controls over balance sheet growth at some firms and the resulting liquidity
pressures, the BCBS updated the Committee's 2000 guidance on liquidity management,
including the sound practice guidelines to be followed by regulated financial institutions as
well as the oversight principles for supervisors. The committee issued a final guidance in
mid-September 2008. (E3)

•

Supplemental Pillar 2 guidance to be issued by the BCBS also will address warehouse/
pipeline risk for firms that use an originate-to-distribute model. The Federal Reserve has
undertaken analysis of CMBS warehouse exposures across a subset of banks. Following this
work, U.S. banking supervisors will continue to monitor financial institutions with large
CMBS warehouse exposures and continue to review their guidance and recommend revisions
as appropriate. Supervisors remain focused on firms' management of illiquid assets and the
adequacy of their exposure measurement and control framework. (E2)

•

The BCBS in July 2008 published a consultative document on guidelines for computing
capital for incremental risk in the trading book, with comments due by October 15, 2008.
The proposed guidelines cover risks related to default, credit migration, credit and equity
spreads, and require banks to model these risks at a 99.9 percent soundness standard over the
one-year capital horizon. The BCBS is seeking to align the capital charges for illiquid
trading book positions with those held in the banking book. The guidelines are expected to
be finalized by the end of2008. (E4)

•

With respect to capital requirements for ABS COOs, other resecuritizations, and off-balance
sheet commitments, particularly the relationship between external credit ratings and capital
charges, the BCBS Pillar I group has addressed resecuritizations under the internal ratingsbased (lRB) approach and capital treatment of ABCP conduit liquidity facilities under
standardized and IRB approaches. The BCBS will propose: (I) raising risk weights for
resecuritizations; (2) extending treatment for such exposures kept in the bank's trading
account before the introduction of an incremental risk charge; and (3) raising the credit
conversion factor from 20 percent to 50 percent for short-term liquidity facilities. The
proposal also will include operational criteria for credit analysis of securitization exposures.
(E4)

•

The Senior Supervisors Group (SSG) released a report on "Leading-Practice Disclosures for
Selected Exposures" in April 2008 to encourage financial institutions to improve their
internal reporting and make more detailed and comprehensive disclosures of ofT-balance
sheet commitments, including commitments to support ABCP conduits and other off-balance
sheet vehicles. Joint letters from the FRB/OCCISEC subsequently were sent to firms
encouraging them to review and, as appropriate, enhance disclosures in line with the SSG
report. The BCBS Pillar 3 group also will address disclosures of off-balance sheet vehicle
sponsorship and ABCP conduit liquidity facilities. (E7, E8)

•

With respect to encouraging financial institutions to improve the quality of disclosures about
fair value estimates for complex and other illiquid instruments, including descriptions of
valuation methodologies and information regarding degree of uncertainty associated with
such estimates, the joint agency letters noted above included issues related to high-risk
instruments, credit valuation adjustments for CDOs for specific counterparties, and
sensitivity of valuation to key assumptions and inputs for CDOs, sub-prime, and Alt-A
instruments. The BCBS Pillar 3 group also is addressing disclosure of securitization
valuations. (E8)

•

With respect to insurance companies, fair value of all investments currently is disclosed in
filings, and NAIC is working to further enhance information provided. NYSID has
proposed through NAIC improving disclosure of the pricing source used for valuation, and
improving the transparency of insurance companies' derivatives positions, including their
purposes and hedge effectiveness. (E8)

•

As noted above, supervisors reviewed the use of credit ratings in legislation, regulations, and
supervisory guidance to ensure that investors develop an independent view of the risk
characteristics of the instruments in their portfolios, rather than relying solely on credit
ratings, and appreciate the different risk characteristics of different types of instruments. As
noted, the SEC proposed a set of rule changes that would require NRSROs to differentiate
ratings on structured products from those on bonds either through the use of different
symbols or by issuing a report disclosing the differences between ratings of structured
products and other securities. The SEC also included refonns to the use of credit ratings in
its own regulatory framework. U.S. supervisors continue to conduct a stocktaking of the use
of credit ratings in federal statutes, rules, regulations, and supervisory guidance. This effort
also will serve as an input into a Joint Forum stocktaking project on the use of credit ratings
that is scheduled to be completed by year-end 2008. However, it should be noted that a
significant use of credit ratings by supervisors is contained in the Basel Capital Accord,
where short-run changes are unlikely. (E 10, C2, C6)

•

With respect to evaluating the role of accounting standards in the current market turmoil,
including modifications related to consolidation and securitization, improvements to
transparency, and convergence of standards for consolidation of ABCP conduits and other
off-balance sheet vehicles, the SEC has asked F ASB to complete revisions of accounting
standards related to consolidation and securitization. Under the latest proposal: (I) the
consolidation determination for variable interest entities (VIEs) will move from a

quantitative to a primarily qualitative assessment approach and (2) the concept of qualifying
special purpose entities (QSPEs) will be eliminated. FASB issued draft standards in
September 2008 and will hold a roundtable in the fourth quarter. IASB plans to issue a draft
consolidation standard in the fourth quarter of 2008 and a final standard in the second hal f of
2009. FASB and IASB are coordinating their respective efforts. (E II)
•

The FRB, FRBNY, OCC, and SEC are active participants in the SSG's supervisory
information exchange and will continue this work. (05)

•

Federal financial institution supervisors currently participate in several colleges that meet
regularly and are working with other supervisors. In particular, the SEC, FRB, and OCC arc
participating in the development of supervisory colleges in an FSF working group. The
federal banking supervisors also have participated in ad hoc colleges for Basel II topics. (05)

•

State insurance commissioners are reviewing the appropriateness of capital requirements and
risk management practices for financial guarantors in light of changes in the firms' business
lines and new activities. In particular, NYSID has proposed changes to strengthen its
supervision process, including draft state legislation and revised regulations to update
oversight of financial guaranty insurers. The items proposed include an increase in required
capital and reserves, a tightening of risk limits, reassessment ofrisk management standards,
additional reporting requirements, and a curtailment of the ability of insurers to guarantee
certain types of structured products such as ABS COOs and collateralized debt obligation
2
squared (C00 ) instruments and certain credit default swaps (C~S). (E9)

•

The NAIC has moved to a risk-focused examination approach for use on all insurers by all
state insurance regulators to help regulators better identify key risk areas, such as risk
modeling by FGIs. Enhanced focus in this area, as well as the proposed more stringent
capital and reporting requirements, should ensure improved oversight of FGIs' modeling.
(E9)

F. Enhancements to the Infrastructure (or OTC Derivatives Markets
The PWG noted that while the infrastructure of the financial markets had coped quite well with
heightened price volatility and surging trading volumes, the PWG believed that the supervisors
ofOTC derivatives dealers, working together under the leadership of the Federal Reserve Bank
of New York, should insist on further enhancements to the infrastructure for the OTC derivatives
markets.
The PWG made several recommendations to enhance the OTC derivative market infrastructure,
including:
•

Supervisors should insist that the industry promptly set ambitious standards for the accuracy
and timeliness of trade data submission and the timeliness of resolutions of trade matching
errors for OTC derivatives.

•

Supervisors should urge the industry to amend standard credit derivative trade documentation
to provide for cash settlement of obligations stemming from a credit event in accordance with
the ternlS of the cash settlement protocol that has been developed but not yet incorporated
into standard documentation; and

•

Supervisors should ask the industry to develop a longer-ternl plan for an integrated
operational infrastructure supporting OTC derivatives that:
o captures all significant processing events over the entire Iifecycle of trades;
o delivers operational reliability and scalability;
o maximizes the efficiencies obtainable from automation and electronic processing
platfornls by promoting standardization and interoperability of infrastructure
components;
o enhances participants' ability to manage counterparty risk through netting
and collateral agreements by promoting portfolio reconciliation and
o accurate valuation of trades;
o addresses all major asset classes and product types; and
o encompasses the buy side as well as the dealer community.

Much progress has been made, including the following:
•

In a letter to regulators in March 2008, major dealers set standards for the accuracy and
timeliness of trade data submission for CDS and the timeliness of resolving errors. In a July
2008 letter to regulators, major industry participants strengthened these standards and
outlined their near-term approach for other perfornlance enhancements across all asset
classes, including: reducing confirmation backlogs, automating key processes such as
novations, and continuing to standardize and automate new products. The industry also
stated that later in 2008 it would provide longer-term strategic plans to improve the
infrastructure, with the ultimate goals of confirming transactions on trade date and
eliminating material processing backlogs. (F I)

•

The International Swaps and Derivatives Association has committed to achieving greater
certainty in credit event management, It will publish by year-end 2008 standardized
documentation establishing an auction-based mechanism for the settlement of obligations in
credit default swaps following a credit event. The documentation initially wi II cover defaults
and failure-to-pay events, and later will be expanded to cover restructuring events and
monoline insurer defaults. (F2)

•

In addition to the operational improvements noted above, market participants are undertaking
other steps to improve risk management in OTC derivatives processing, including, (i)
developing a robust and prudently managed central clearing facility for credit derivatives; (ii)
implementing best practices for collateral management, including performing weekly
portfolio reconciliation; (iii) maximizing the use of multilateral trade termination services;
and (iv) executing an implementation plan aimed at educating buy-side firms about efforts to
improve the OTC derivatives infrastructure. (F3)

Areas (or Further Effort
Notwithstanding the substantial progress that has occurred in implementing its
recommendations, the PWG believes that further effort is still warranted in each of the areas in
which it made recommendations.
•

•

•
•

•

The Federal Reserve has approved new rules to address abuses in the mortgage origination
process, and new legislation creates a licensing system for some parties in this process. But
the success of these steps ultimately depends upon market participants' compliance and
effective oversight by state and federal authorities.
Initial steps, such as the American Securitization Forum (ASF) RMBS template and the
CRMPG III recommendations for disclosure best practices for complex financial
instruments, have been taken to improve the inforn1ation available to investors in securitized
credits, so that they can more effectively contribute to market discipline. The PWG believes,
however, that more remains to be done towards implementation of recommendations, and
that investors should make greater efforts to use information vigilantly and to develop an
independent view of the risk of investments in their portfolios. The PWG also believes that
the success of some of these measures will depend on whether these proposals are accepted
by the industry as best practices.
o A joint securitization project being undertaken by ASF, ESF (European Securitization
Forum), and SIFMA expects to issue recommended market standards to: increase and
enhance initial and ongoing reporting for RMBS transactions; standardize due diligence
and quality assurance practices for RMBS and enhance related disclosures; strengthen
and standardize representations and warranties and repurchase mechanisms for RMBS
transactions; and expand and improve the independent, third-party valuation
infrastructure for securitization and structured finance products.
o Also, additional markets, such as the COO market, may need further review. To that end,
the ASF has indicated that if the COO market begins to emerge again, it will undertake a
project to develop best practices for COO disclosure.
The SEC has proposed a series of reforms to regulate the conflicts of interests, disclosures,
internal policies, and business practices of credit rating agencies registered as NRSROs and
is evaluating comments on the proposed reforn1s. The PWG will not be able to evaluate the
effectiveness of the reforms in ensuring the integrity and transparency of ratings until the
SEC issues final rules and those rules have time to take effect.
Global financial institutions are identifying the gaps in their risk management practices; firms
must dedicate sufficient resources to addressing the weaknesses that are identi fied.
Prudential supervisors have made substantial efforts to identify weaknesses in firms' risk
management practices and to enhance guidance and improve regulations where needed. The
PWG believes that authorities must monitor firms' progress in implementing guidance to
ensure that the benefits of various reforms are realized.
Participants in OTC derivatives markets have made commitments to significantly reform the
clearing and settlement processes. Substantial progress has been made already, and the PWG
is expecting the industry to fulfill the remaining goals.

Conclusioll
While much progress has been made, these efforts are works-in-progress. Implementation of
recommendations must continue in order to address weaknesses in global financial markets,
institutions, and regulatory policies, consistent with the broader goals of mitigating systemic risk,
helping to restore investor confidence, and facilitating economic growth. The PWG will
continue to monitor progress closely and make further recommendations where necessary. The
PWG will continue to work internationally through the FSF to address remaining issues.

Index of Recommendations referenced in Progress Update to PWG Policy Statement

PWG Policy
Statement
Section
A

Pagers)
11-12

AI
A2
A3

11
11
12

12-14

B1
B2
B3
B4

13
13
13
13

B5
B6
B7

13
13
13

B8
B9

13
13-14

14-15

C1
C2

14
14-15

C -'
C4
('5

15
15
15

Progress
Update

Summary of PWG Policy Statement Recommendations

Pagers)
7-8

Mortgage Origination
State financial regulators should implement strong nationwide licensing standards for mortgage brokers.
Federal and state regulators should strengthen and make consistent government oversight of mortgage originators.
The Federal Reserve should issue stronger consumer protection rules and mandate enhanced disclosures regarding mortgage
affordability and to facilitate comparison of mortgage products.
Federal and state authorities should coordinate to enforce consumer protection and disclosure rules across all types of mortgage
originators.
Federal and state authorities should pursue fraudulent mortgage activities.

7
7-8

8
8, 10
8, 10

Investors' Contributions to Market Discipline
Overseers of institutional investors should require investors to obtain better inforn1ation about securitized credits.
Overseers should ensure that investors develop an independent view of risk and do not rely just on credit ratings.
Sponsors of securitized products should disclose rating shopping and ex.plain selective publication of preliminary ratings.
Underwriters and sponsors of structured products, and asset managers and financial institutions, including those running conduits,
should improve disclosures to investors.
Investors should take account of differences in risk between different classes of instruments.
Investors should insist that consultants have an independent view of risk.
The ASF should develop templates for disclosure to investors for other types of securitizations. Supervisors should encourage
disclosure consistent with the templates.
A private-sector group should be fonned to develop best practices regarding disclosures to investors in securitized credits.
Public-company sponsors of ABCP programs should increase disclosure of underlying assets.

9-14
9-12
11- 12, 15
10
9-1 L 13-14
11- 12, 15
11-12, 15
II
II
9-10, 13

Credit Ratings
CRAs should disclose reviews of originators and the due diligence done by underwriters.
CRAs should refonn their ratings processes for structured credit products to ensure integrity and transparency (conflicts, model
assumptions, differentiation, perforn1ance, usefulness, monitoring/updating ratings).
CRAs should be encouraged to conduct reviews of structured credit methodologies.
IOSCO should be encouraged to revise its "Code of Conduct" to address credit rating issues.
A private-sector group should be fonned to recommend steps to ensure the integrity and transparenc) of ratings.

14-16
15
15,22
15
16
16

C6
C7

IS
IS

15-16

01
D2
03
04

16
16
16
16

17-18

EI
E2
E3
E4
E5
E6

17
17
17
17-18
18
18

E7
E8
E9
EIO
Ell

18
18
18
18
18

F
FI
F2
F~

18-19
19
19
19

The PWG agencies will revise supervisory policies and regulations that use or reference ratings, including capital requirements.
The PWG will revisit the need for changes if reforms adopted by CRAs are not sufficient to ensure integrity and transparency of
ratings.

16,22
14

16-19

Risk Management
Finns should promptly identify and address any weaknesses in risk management practices that the turmoil has revealed.
A private-sector group should be formed to reassess the implementation of CRMPG II and make recommendations.
Supervisors should ensure that firms address weaknesses in risk management and monitor their efforts.
Bank regulators and the SEC should assess current guidance and develop common guidance to address the risk management
weaknesses revealed by the recent market turmoil.
U.S. authorities should encourage supervisors of global firms to make complementary effort to develop guidance along the same
lines.

17-18
19
17-18
17
17-19,23

19-23

Regulatory Policy
Regulators should improve incentives to hold capital and liquidity cushions against severe market events, through the credit cycle.
Regulators should enhance guidance on OTO pipeline risk management.
BCBS should update liquidity guidance
BCBS and IOSCO should review, with a view to increasing, capital requirements on ABS, COOs and ABCP programs.
Supervisors should review guidance on reputation risks.
Supervisors should rigorously assess Basel II applications, including default loss estimates in downturns and the robustness of
stress tests.
Regulators should require better internal and external reporting of off-balance sheet commitments.
Regulators should require better disclosure of fair value estimates for complex and illiquid instruments.
State insurance commissioners should review capital requirements for monoline insurers
Regulators should distinguish between structured and corporate/muni ratings in rules and policies.
Authorities should encourage F ASB to evaluate the role of accounting standards in the current market turmoil.

20-21

21
21
21
21
20-21
10, 19-22
9,12-13,22
13,23
IS, 19,22
12, 19, 22-23

OTe Derivatives Markets
Supervisors should insist that the industry promptly set ambitious standards for trade data and matching.
Supervisors should urge the industry to provide for cash settlement in credit derivatives documentation.
Supervisors should request that the industry develop a long-tern1 plan for an integrated operational infrastructure for OTe
derivatives that: (a) captures all significant processing events over the entire lifecycle of trades; (b) delivers operational reliability
and scalability; (c) maximizes the efficiencies obtainable from automation and electronic processing platforms by promoting
standardization and interoperability of infrastructure components; (d) enhances participants' ability to manage counterparty risk
through netting and collateral agreements by promoting portfolio reconciliation and accurate valuation of trades; (e) addresses all
major asset classes and products types; and (0 encompasses the buy side as well as the dealer community.

23-24
24
24

)-1193: loint Siatemfmt by Treawry Secretary Henry M. Paulson, lr. and Department of Educatio...

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October 10, 2008
HP-1193
Joint Statement by Treasury Secretary Henry M. Paulson, Jr.
and Department of Education Secretary Margaret Spellings
Continuing constraints in our capital markets have posed challenges for students
and student lenders throughout the last year. We recognize that education is the
foundation of a strong American workforce and we must not let challenges in our
capital markets hinder our students' opportunities. Given these ongoing concerns,
the Administration is taking a series of steps to support the student loan market.
Earlier this week, President George W. Bush signed H.R. 6889, the extension of the
Ensuring Continued Access to Student Loans Act. We appreciate Congress
providing the Department of Education, in coordination with the Treasury
Department and the Office of Management and Budget, renewed temporary powers
to use federal funds to ensure students and families continue to have access to
student loans.
The loan purchase and participation interest programs implemented over the last
few months have helped ensure that Federal student loans were available to
students enrolling in postsecondary institutions for the 2008-2009 school year, and
Federal student lending is exceeding last year's pace.
Our financing program has supported just over 40 percent of the Federal Family
Education Loan Program (FFELP) loans that have been disbursed this year. Over
800 lenders have enrolled in our loan purchase program. Almost $51 billion of
federally guaranteed loans have been originated for the current school year, up
from approximately $45 billion for the same period last year.
Over the next few months, schools and lenders will be making decisions for the
2009-2010 school year. Using our newly extended authorities, the Administration is
moving aggressively to support the continued availability of funding for federal
student loans in the next school year with the goal of restoring the government
guaranteed student loan market to normal operations. We are working on an
expedited basis and will make further announcements in the coming weeks.

www.treas.goy/oress/releases/hpI193.htm

11/3120()X

P-1194: Statunent by Ser.rrt~r}' I "_'!~:y M, Paulson, lr, Following Meeting of the G7 Finance Mini...

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October 10, 2008
HP-1194
Statement by Secretary Henry M. Paulson, Jr.
Following Meeting of the G7 Finance Ministers and Central Bank Governors
Washington, DC-- At today's meeting of the G7 Finance Ministers and Central
Bank Governors, we finalized an aggressive action plan to address the turmoil in
global financial markets and the stresses on our financial institutions. This action
plan provides a coherent framework that will direct our individual and collective
policy steps to provide liquidity to markets, strengthen financial institutions, protect
savers, and enforce investor protections.
The G7 is compelled to robust international partnership and cooperation. Never has
it been more essential to find collective solutions to ensure stable and efficient
financial markets and restore the health of the world economy.
Global financial market conditions are severely strained. In the United States, our
economy has been facing a prolonged period of uncertainty and our financial
markets are experiencing unprecedented and extraordinary challenges. A root
cause of this situation is the housing correction and a lack of confidence in
mortgage assets, as well as a lack of confidence in many of the financial institutions
that hold these assets. We are squarely focused on the immediate need to stabilize
our financial markets, and recognize that investor confidence is critical to restore
liquidity and enhance the stability of our financial system.
As recent developments have demonstrated, the market turmoil is a global event.
Governments around the world have taken actions to address financial market
developments, and international cooperation and coordination has been robust. It is
critical for governments to continue to take individual and collective actions to
provide much-needed liquidity, strengthen financial institutions, enhance market
stability, and develop a comprehensive regulatory response. We must continue to
closely coordinate our actions and work within a common framework so that the
action of one country does not come at the expense of others or the stability of the
system as a whole.
Central banks from around the world have acted together to provide additional
liquidity for financial institutions, taking the necessary steps to support the global
economy. The Federal Reserve has established swap lines with nine central banks
to reduce pressures in global short-term U.S. dollar markets. Additionally, the U.S.
Treasury implemented a temporary guaranty program for the U.S. money market
mutual fund industry.
Here in the United States, the members of the President's Working Group on
Financial Markets (PWG) made it clear that we will coordinate the use of our
existing and new authorities to restore market confidence. Other countries are
considering appropriate programs given their national circumstances, and we
pledge to stay in close contact as they move forward with their plans.
I briefed my colleagues on the work we are pursuing to implement swiftly and
thoughtfully the new financial rescue package. We are developing strategies to use
the authority to purchase and insure mortgage assets and to purchase equity in
financial institutions, as deemed necessary to promote financial market stability. As
we develop plans to purchase equity, as in the approach we are taking to broad
mortgage asset purchases, we are working to develop a standardized program that
is open to a broad array of financial institutions. Such a program would be designed
to encourage the raising of new private capital to complement public capital.
Consistent with the legislation, any equity the government purchases through a
broadly available equity program would be on a non-voting basis, except with
respect to the market standard terms to protect our rights as investors.

www.treas.goy/press/releases/hpl194.htm

11/3/200S

P-1194: Statelnent by Secret(lry Hen!) M. Paulson, Jr. Following Meeting of the G7 Finance Mini...

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Securities regulators around the world have taken measures to enhance market
stability by addressing market abuse. Here in the United States, we have taken
steps to protect the savings of the American people by increasing deposit insurance
limits, and the European Union member states have raised individual deposit limits
to an EU-wide minimum.
The G7 and others are working together through the Financial Stability Forum
(FSF) to ensure a comprehensive, international regulatory response to the financial
market turmoil. FSF Chairman Mario Draghi reported to us on the good progress
that has been made in improving prudential supervision and regulation, increasing
disclosure and transparency, and enhancing accounting frameworks. I am
committed to making sure this work continues. We are also committed to tackling
the next steps laid out by Chairman Draghi to be done by the end of this year and
our ambitious agenda for 2009.
-30-

www.treas.gov/press/releases/hpl194.htm

I I i3i:200X

)-1195: G-'i

Finance Ministrr') ;lI1d '....entral Bank Governors Plan of Action

Page I of I

October 10, 2008
HP-1195
G-7 Finance Ministers and Central Bank Governors Plan of Action
Washington-- The G-7 agrees today that the current situation calls for urgent and
exceptional action. We commit to continue working together to stabilize financial
markets and restore the flow of credit, to support global economic growth. We
agree to:
1.
2.

Take decisive action and use all available tools to support systemically
important financial institutions and prevent their failure.
Take all necessary steps to unfreeze credit and money markets and ensure
that banks and other financial institutions have broad access to liquidity and
funding.
Ensure that our banks and other major financial intermediaries, as needed,
can raise capital from public as well as private sources, in sufficient
amounts to re-establish confidence and permit them to continue lending to
households and businesses.
Ensure that our respective national deposit insurance and guarantee
programs are robust and consistent so that our retail depositors will
continue to have confidence in the safety of their deposits.
Take action, where appropriate, to restart the secondary markets for
mortgages and other securitized assets. Accurate valuation and transparent
disclosure of assets and consistent implementation of high quality
accounting standards are necessary.

The actions should be taken in ways that protect taxpayers and avoid potentially
damaging effects on other countries. We will use macroeconomic policy tools as
necessary and appropriate. We strongly support the IMF's critical role in assisting
countries affected by this turmoil. We will accelerate full implementation of the
Financial Stability Forum recommendations and we are committed to the pressing
need for reform of the financial system. We will strengthen further our cooperation
and work with others to accomplish this plan.
-30-

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11 !3i2()()X

)-1196: Statement by Secretary H('1~1Y M. Paulson, Jr. at the International Monetary and Financial... Page 1 of J

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October 11 , 2008
HP-1196
Statement by Secretary Henry M. Paulson, Jr.
at the International Monetary and Financial Committee Meeting
Washington, DC - As we meet today, risks to the global economic environment
are the most serious and challenging in recent memory. The financial turmoil over
the last year, coupled with significant ongoing financial deleveraging, commodity
price shocks, and necessary adjustments in housing and other markets are causing
a sharp slowdown in economic growth. The largest advanced economies are
feeling this most acutely. Emerging market countries have made impressive strides
in strengthening fundamentals, enabling their economic growth to accelerate and
their economies to be better cushioned against external shocks. Nevertheless,
emerging markets are not immune from the global financial stress, and
policymakers need to be especially attentive to implementing measures to support
non-inflationary growth, enhance economic resilience, and ensure sound financial
systems.
This is a very challenging period for the United States, as well as the global
economy. In recent weeks, financial market turmoil intensified throughout the world
and credit markets froze, causing a chain reaction resulting in non-financial
companies experiencing difficulty in financing normal business operations. These
extraordinary events require a global response and financial officials from around
the world are working together, taking action individually and collectively as
necessary, to address these challenges. Our current actions focus on five areas:
liquidity, capital, protecting investors, macroeconomic response and the regulatory
environment.
•

•

First, the Federal Reserve, along with other central banks, has acted to
provide additional liquidity. Supplementing these actions, Treasury has
implemented a temporary guaranty program for U.S. money market mutual
funds.
Second, financial authorities are acting swiftly to strengthen our financial
institutions. Recently-approved legislation has created a $700 billion
program in the United States to purchase or insure mortgage assets, and to
purchase equity in financial institutions as Treasury and Federal Reserve
deem necessary to promote financial market stability.
Third, to protect investors, the SEC and its counterparts around the world
have taken action to address market abuse. Separately, the United States
and members of the European Union have increased deposit insurance
coverage.
Fourth, to facilitate tackling the turmoil and the economic slowdown,
macroeconomic policy toolkits can and should be used as appropriate
according to each country's individual circumstances.
Finally, we have worked with market participants and regulators globally to
address the current challenges and to restore stability and confidence to
financial markets around the world. The President's Workjng Group on
Financial Markets (PWG) in the United States, for example, has coordinated
with the Financial Stability Forum on developing and implementing key
policy recommendations that are designed to strengthen market
transparency and disclosure, risk awareness and risk management, capital
and regulatory policies, processes for and practices regarding the use of
credit ratings, and market infrastructure for over-the-counter derivatives
products.

Once we are past this difficult period, we must turn our attention to longer-term
reforms to modernize our outdated financial regulatory structure and address other
weaknesses. 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.

www.treas.goy/press/releases/hpl196.htm

11!J/200X

>-1196: Statement hy Secrr.tClry Hpn!y M. Paulson, lr. at the International Monetary and Financial... Page:2 of 3
Our economies draw significant strength from their openness to international trade
and investment. The United States remains committed to resisting protectionist
pressures and pressing for openness globally.

IMF Reform
As a key force for multilateral ism on global economic issues, a strong and effective
IMF is firmly in the interest of the United States and the international community. In
recent years, the Fund has initiated reforms to update its framework for foreign
exchange surveillance, become more representative of the global economy, and
revise its financing model. The United States remains committed to working with
the U.S. Congress on legislation to implement quota and finance reforms. But the
Fund cannot stop here.
•

•

To strengthen surveillance, the IMF must focus on implementing its new
decision on exchange rate surveillance. This will require IMF staff to apply
its considerable technical expertise to make tough judgments, and the
Board to ensure IMF assessments are clearly and candidly conveyed. In
addition, the Fund must place greater focus on integration of financial and
macroeconomic analysis into the Fund's broader surveillance.
The Fund must build on last spring's quota reform agreement, modernizing
the IMF to reflect the world economy of the 21 51 century and to refocus the
role of the Board. We have called on other chairs to join us in supporting a
reduction in the number of Board chairs to 22 in 2010 and 20 by 2012, while
protecting the chairs of emerging and developing countries.
The IMF, along with the OECD, must continue to facilitate multilateral efforts
to resist protectionism and maintain an open and stable international
financial system. The recent agreement by the International Working Group
of Sovereign Wealth Funds on a set of Generally Accepted Principles and
Practices (GAPP), facilitated by the IMF, is a major step forward. We also
welcome the OECD's work on investment policy principles to promote open,
transparent, and predictable inward investment regimes.
As it reviews its lending role, the Fund must keep its core mission in mind,
and resist seeking "creative" ways to boost lending for its own sake. We are
skeptical of proposals to significantly increase access levels for lending.
IMF lending's relevance comes from defining adjustment paths and playing
the role of catalyst, not by filling a constant proportion of financing gaps.
With respect to new instruments, we have long advocated that the Fund
needs a short-term stabilization instrument (like a Standby Arrangement) for
low income countries, based on an "actual" balance of payments need. We
remain open to creating a well-designed liquidity instrument for middle
income countries.
Finally, through policy advice to low income members and outreach to
emerging creditors, the Fund must promote broader implementation of the
Debt Sustainability Framework and help low-income countries avoid a return
to debt distress.

Other Issues
We support continuing global efforts to combat money laundering, terrorist
financing, weapons of mass destruction proliferation finance, and other forms of
illicit finance, in order to protect the international financial system from abuse and to
support global financial stability and economic development. We support the work
of the Financial Action Task Force (FATF) to safeguard the global financial system
from these threats, and we call for continued close cooperation between the FATF,
the IMF and the World Bank in assisting countries in implementing international
standards to combat these risks.
We remain particularly concerned about risks of illicit finance emanating from Iran.
We urge all nations to fully implement the financial provisions of UNSCR 1803 by
exercising enhanced vigilance over the activities of their financial institutions with
Iranian banks - including their branches and subsidiaries abroad - and particularly
with respect to Bank Saderat and Bank Melli. We further underscore the recent
statements by the FATF highlighting the money laundering and terror financing
risks to the international financial system emanating from Iran, and urge the FATF
to take further action to safeguard the global financial system.
-30-

www.treas.gov/press/reJeases/hpI196.htm

11/3/:200X

)-1197: DeyJty Ser.ret(lry Kimmitt ~tatement on IWG Agreement on Generally Accepted Principl...

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October 11 , 2008
HP-1197
Deputy Secretary Kimmitt Statement on IWG Agreement
on Generally Accepted Principles and Practices for Sovereign Wealth Funds
Washington- Deputy Secretary of the Treasury Robert M. Kimmitt issued the
following statement on today's release of the International Working Group of
Sovereign Wealth Funds' (IWG) Generally Accepted Principles and Practices for
Sovereign Wealth Funds:
"I welcome today's release of the International Working Group of Sovereign Wealth
Funds' (IWG) Generally Accepted Principles and Practices for Sovereign Wealth
Funds, known as the' Santiago Principles.' During these difficult times in the
financial markets, we are encouraged by the cooperative spirit and actions of the 26
countries with SWFs that worked on these principles. I am confident that these
Principles, along with efforts by the Organization for Economic Cooperation and
Development (OECD) to promote sound inward investment policies by recipient
countries, will reduce protectionist pressure by helping support a stable global
financial system and a level playing field for worldwide open investment. Providing
clarity and more certainty in turbulent times is welcome, and the United States
congratulates the IWG on its achievement.
"The Santiago Principles respond to key macroeconomic, financial market, and
investment issues raised by the rapid growth in the size and number of Sovereign
Wealth Funds globally. Implementation of the Principles by Sovereign Wealth
Funds will promote a better understanding of their institutional and operational
practices. On the recipient side of the investment equation, the broadly-accepted
principles identified by the OECD - non-discrimination, transparency, predictability,
proportionality, and accountability - characterize open investment policies and are
guideposts against which countries that receive sovereign wealth investments can
measure their inward investment policies."
Note: The International Working Group of Sovereign Wealth Funds (IWG) report is
available at: http://www.iwg-swf.org/.
-30-

tp:l/www.treas.gov/press/releases/hpI197.htm

I 113i20()S

,-1198: Statement hy S~r,r~tary Henry M. Paulson, lr. at the Development Committee Meeting

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October 12, 2008
hp-1198
Statement by Secretary Henry M. Paulson, Jr.
at the Development Committee Meeting
Washington, DC- We meet at a time when the global economic environment is
undergoing the most serious stresses in recent memory. Financial market
developments are having an acute impact on advanced economies, and we can
expect the crisis to have major ramifications for emerging markets and the poorest
countries as well. These events will test the ability of the World Bank and the IMF
to respond effectively, and it is imperative that they stand ready to deploy their
resources to mitigate the impact of this crisis, especially on the poorest and most
vulnerable.
Just a few months ago, we focused on the vital role of the international community
in responding swiftly to the challenges posed by the large increase in food and fuel
prices. The response was gratifying, with bilateral and multilateral donors
committing substantial amounts of new assistance, and I commend President
Zoellick for leadership in helping coordinate a timely international response.
Now, these same countries are likely to face a host of new pressures stemming
from declines in export demand, private investment and remittances. Emerging
markets, too, are likely to face difficulty accessing private capital necessary to
finance critical priorities, such as infrastructure.
The World Bank Group is well positioned to help respond to these challenges by
maintaining or expanding trade lines, taking measures to maintain well-functioning
domestic financial systems, and ensuring efficient, well-targeted social safety-net
programs. And the role of the IFC may become especially critical in helping to
unlock credit.
Across the globe, policymakers will be faced with difficult choices. As with the food
price crisis, isolationism and protectionism will not offer a way out. Although we in
the United States are taking many extraordinary measures to ease the crisis, we
are not pursuing policies that that would limit the flows of goods, services or capital,
as such measures which would only intensify the risks of a prolonged crisis. The
World Bank and IMF will have a vital role in working with governments to help craft
appropriate responses and discouraging inward-looking policies, and we look to
their leadership in this critical area.
Environment
The next year will be a critical one for the Bank on issues of environment and
climate change as we move toward a climate agreement in Copenhagen. The
United States supports the Bank's increasing focus on climate change as it is clear
that the issue must be addressed in the context of development financing. We
welcome the inaugural meetings of the Climate Investment Funds, including the
Clean Technology Fund and the Strategic Climate Fund. These funds will provide
critical support to developing countries to help integrate climate mitigation and
adaptation activities into their national development plans. We encourage other
World Bank members to support these Funds. We welcome the World Bank's
Strategic Framework for Development and Climate Change and call on the Bank
and its sister agencies to continue their important partnership with the Global
Environment Facility.
Reforming the World Bank Group
We welcome the proposed reform package that will enhance the voice and vote of
the poorest member countries, especially in Africa. The comprehensive options

www.treas.gov/press/releases/hpI198.htm

11 /3/200~

-1198: Statement by Secretary Henry M. Paulson, lr. at the Development Committee Meeting

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presented to Governors, including an additional Board representative for subSaharan Africa, send a strong message of our commitment to the Bank as a
multilateral institution. We also welcome the commitment to continued governance
reforms with the aim of increasing accountability to all shareholders. With progress
on this important issue the Bank can focus on its core missions.
-30-

tp:llwww.treas.gov/press/releases/hpl198.htm

11 i3/20()X

1199: Interir11 Assistant Secre:t(lry for Financial Stability Neel Kashkari Remarks before the Institute

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October 13, 2008
hp1199
Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks
before the Institute of International Bankers
Washington- Good morning and thank you for that kind welcome.
I am here today to provide a comprehensive update on the Treasury Department's
progress in implementing the Troubled Asset Relief Program (T ARP).
As you know, our credit markets are frozen and lending has become extremely
impaired. In recent months our government has taken strong and decisive actions,
but a more systemic approach was needed. Secretary Paulson and Chairman
Bernanke asked Congress for extraordinary authorities to address the extraordinary
challenges in our financial markets. Every American depends on the flow of money
through our financial system. They depend on it for car loans, home loans, student
loans and their individual family needs. Congress recognized the threat frozen
credit markets posed to Americans and to our economy as a whole. On Friday
October 3, Congress passed and President Bush Signed into law the bipartisan
Emergency Economic Stabilization Act of 2008.
The law gives the Treasury Secretary broad and flexible authority to purchase and
insure mortgage assets, and to purchase any other financial instrument that the
Secretary, in consultation with the Federal Reserve Chairman, deems necessary to
stabilize our financial markets -- including equity securities. Treasury worked hard
with Congress to build in this flexibility because the one constant throughout the
credit crisis has been its unpredictability.
The law empowers Treasury to design and deploy numerous tools to attack the root
cause of the current turmoil: the capital hole created by illiquid troubled assets.
Addressing this problem should enable our banks to begin lending again. Our
nation has successfully worked through every economic challenge we have faced
and we are confident this new program will help us overcome these challenges as
well.
Today, I will brief you about three areas. First, I will discuss Treasury's strategy to
develop multiple tools under the Troubled Asset Relief Program. Second, I will give
you a detailed update on the many steps we have already taken to begin to
implement the program. And finally, I will briefly discuss our next steps.
Strategy
Let me begin with our strategy, which is clear and focused.
Treasury is implementing its new authorities with one simple goal - to restore capital
flows to the consumers and businesses that form the core of our economy.
Achieving this goal will require multiple tools to help financial institutions remove
illiquid assets from their balance sheets, and attract both private and public capital.
Our toolkit is being designed to help financial institutions of all sizes so they can
grow stronger and provide crucial funding to our economy.
Implementation
Next, let me turn to implementation. Congress passed the new law just 10 days
ago, but in that time, we have accomplished a great deal on many fronts. We are
moving quickly - but methodically - and I am confident we are building the
foundation for a strong, decisive and effective program.

tP://www.treas.gov/press/releases/hpl199.htm

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First, Treasury is working very closely with both domestic and international
regulators to understand how best to design tools that will be most effective in
dealing with the challenges in our financial system. For example, regulators are
helping us to identify the quickest and most efficient method to purchase equity in
financial institutions so they can resume lending. Throughout this process, we have
kept in mind one clear priority: to protect the taxpayers by making the best use of
their money.
Second, we are using the full resources of the Treasury Department to ensure this
program's success. As soon as the legislation was signed, we immediately created
seven policy teams to develop several tools and other important elements that are
required under the TARP. In each case, we designated team leaders to drive the
work-streams and take responsibility for their success. We've broken the teams
down as follows:

1) Mortgage-backed securities purchase program: This team is identifying which
troubled assets to purchase, from whom to buy them and which purchase
mechanism will best meet our policy objectives. Here, we are designing the detailed
auction protocols and will work with vendors to implement the program.

2) Whole loan purchase program: Regional banks are particularly clogged with
whole residential mortgage loans. This team is working with bank regulators to
identify which types of loans to purchase first, how to value them, and which
purchase mechanism will best meet our policy objectives.

3) Insurance program: We are establishing a program to insure troubled assets. We
have several innovative ideas on how to structure this program, including how to
insure mortgage-backed securities as well as whole loans. At the same time, we
recognize that there are likely other good ideas out there that we could benefit from.
Accordingly, on Friday we submitted to the Federal Register a public Request for
Comment to solicit the best ideas on structuring options. We are requiring
responses within fourteen days so we can consider them quickly, and begin
designing the program.

4) Equity purchase program: We are designing a standardized program to purchase
equity in a broad array of financial institutions. As with the other programs, the
equity purchase program will be voluntary and designed with attractive terms to
encourage participation from healthy institutions. It will also encourage firms to raise
new private capital to complement public capital.

5) Homeownership preservation: When we purchase mortgages and mortgagebacked securities, we will look for every opportunity possible to help homeowners.
This goal is consistent with other programs - such as HOPE NOW - aimed at
working with borrowers, counselors and servicers to keep people in their homes. In
this case, we are working with the Department of Housing and Urban Development
to maximize these opportunities to help as many homeowners as possible, while
also protecting taxpayers.

6) Executive compensation: The law sets out important requirements regarding
executive compensation for firms that participate in the T ARP. This team is working
hard to define the requirements for financial institutions to participate in three
possible scenarios: One, an auction purchase of troubled assets; two, a broad
equity or direct purchase program; and three, a case of an intervention to prevent
the impending failure of a systemically significant institution.

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7) Compliance: The law establishes important oversight and compliance structures,
including establishing an Oversight Board, on-site participation of the General
Accounting Office and the creation of a Special Inspector General, with thorough
reporting requirements. We welcome this oversight and have a team focused on
making sure we get it right.

Recruitment

Recruiting the right people is essential to the success of this program and we are
moving quickly on several fronts.

It will obviously take time to bring on board permanent members of the team that
will manage this program over the long term and provide stability during the
transition. While the permanent team is being identified for tomorrow, we are
tapping the very best, seasoned, financial veterans from across the government to
help launch the program today. We have been successful in recruiting outstanding
interim leaders for key positions in the Office of Financial Stability. In each case, the
interim official is charged with: One, setting up the office; two, hiring permanent
staff; three, operationalizing our programs; and, four, identifying their permanent
successor.

The team continues to grow daily and the team members are too numerous to
name individually. However, I want to highlight a few of our key interim leaders. In
the 10 days since the President signed the law, we have already recruited:

1) Tom Bloom, CFO of the Office of the Comptroller of the Currency and former
CFO of the Commerce Department to serve as the interim Chief Financial Officer.
Tom brings 30 years of financial management and reporting experience in both the
public and private sectors.

2) Jonathan Fiechter, Deputy Director of the IMF Monetary and Capital Markets
Department in charge of financial supervision and crisis management, formerly
Board member of the Resolution Trust Corporation and the FDIC, to serve as
interim Chief Risk Officer. Jonathan has more than 30 years experience that spans
Treasury, the OCC, OTS and the World Bank.

3) Donna Gambrell, Director of the Community Development Financial Institutions
Fund and former Deputy Director of Consumer Protection and Community Affairs of
the FDIC to serve as interim Chief of Homeownership Preservation. Donna brings
17 years of experience at the FDIC, preceded by invaluable experience at the
Resolution Trust Corporation.

4) Don Hammond, Deputy Director of the Division of Federal Reserve Bank
Operations and Payment Systems and former Treasury Fiscal Assistant Secretary
to serve as interim Chief Compliance Officer. Don brings 23 years of experience at
the Treasury in fiscal operations, including developing policy for and overseeing
operations for the Federal government's financial infrastructure.

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5) Reuben Jeffrey, Under Secretary of State for Economic Affairs and former
Chairman of the Commodity Futures Trading Commission (CFTC) to serve as
interim Chief Investment Officer. His public sector experience includes serving on
the President's Working Group on Financial Markets and as a Special Advisor to
the President for Lower Manhattan Development. He brings 18 years of private
sector experience in financial services.

Our ability to quickly attract outstanding talent illustrates the importance of this
program and this is only the beginning. These leaders are actively building out their
operations and contributing to all phases of the TARP.

Procurement

Now, let me turn to procurement.

Our approach to procurement is based on the following strategy. First, in order to
protect the taxpayers, we will seek the very best in private sector expertise to help
execute this program. Second, we believe, to the extent possible, everyone should
have a right to compete for these contracts, especially small businesses, veteranowned businesses, and minority and women-owned businesses. Third, we are
taking appropriate steps to mitigate potential conflicts of interest.

To begin, last Monday, we published three procurement documents:
Procurement authorities and procedures.
Conflict of interest mitigation procedures.
Asset manager selection procedures.

We have established a formal procurement process, to ensure that selections are
fair and in the best interest of the taxpayers. We have established expert review
committees, made up of Treasury employees and outside experts who review
submissions and make recommendations regarding the quality of the proposals.
The review committees make recommendations for a final decision to a senior
career officer in the Treasury.

Taking aggressive steps to manage potential conflicts of interest is essential
because firms with the relevant financial expertise may also hold assets that
become eligible for sale into the TARP. We have asked firms that wish to compete
for contracts to disclose their potential conflicts of interest and recommend specific
steps to manage those conflicts. Firms are evaluated in part on the extent of those
conflicts and their ability to design processes and procedures to manage them that
are satisfactory to Treasury. Treasury then conducts its own independent
examination to determine the firms' potential conflicts of interest, and to help ensure
that the firms have fully disclosed any potential concerns. Treasury will only hire
firms when we are confident in our and their ability to manage any conflicts.

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Secretary Paulson and I believe that it is essential that the TARP be structured in a
manner that encourages participation of small businesses, veteran-owned
businesses, and minority and women-owned businesses. Our initial procurements
set high capability standards; for example, securities asset managers had to have
at least $100 billion of dollar denominated fixed income assets under management.

This is critical given the magnitude of the program - up to $700 billion. Treasury
believes that it would not be fiscally prudent to ask a firm that only had experience
managing only a few billion to manage $100 billion. It could put the taxpayers at
unnecessary risk.

However - and this is very important - we asked vendors to demonstrate their ability
and commitment to working with small, veteran, minority and women-owned
businesses as sub-contractors. And we are evaluating their submissions in part on
their capability to do this. In addition, we plan to go out with subsequent solicitations
with specific opportunities for these businesses.

Last Monday, we put out four notices and requests for proposals, each requiring
responses within 48 hours. We solicited proposals for:

1) Investment management consultant - This is an expert firm to help us review
asset manager proposals. Our request went out to six firms, we received three
proposals and selected Ennis Knupp as the winning vendor on Saturday. They
began working immediately.

2) Master custodian firm - This is the firm which will hold and track the assets we
purchase as well as run and report on the auctions we use to buy the assets. Think
of this as the prime contractor of the purchase program. We received seventy
submissions of which 10 met the eligibility requirements and minimum
qualifications. We invited three firms in for presentations and, in the next twentyfour hours, we will announce the winner, which will begin working immediately.

3) Securities asset manager - This is a firm which will hold, manage and ultimately
sell the mortgage-backed securities we purchase. We received over 100
submissions and are working with the investment management consultant to review
them. We expect to make a selection in the next few days.

4) Whole loan asset manager - This is a firm which holds, manages and ultimately
sells the whole mortgage loans we purchase, including working with servicers. We
received over 100 submissions and are working with the consultant to review them.
We expect to make a selection in the next few days.

In addition, on Thursday we reached out to six specialist law firms to advise us on
the equity program structuring. We received two proposals, and selected Simpson
Thatcher on Friday. They began working immediately.

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These solicitations were just the first wave as Treasury establishes the foundations
of the program. In the coming weeks we expect to select two accounting firms to
provide auditing servicers and to help us design and implement our internal control
systems.

Operations

On the operational front, Treasury's management and operations team is working
around the clock to establish the institutional and logistical framework. The team is
led by Treasury Assistant Secretary for Management and Chief Financial Officer
Pete McCarthy, a seasoned official who served 27 years in the banking industry.
Not only is his team integral to the procurement process, but they have identified
temporary space in the Treasury building to house the T ARP staff. As the TARP
staff grows and the program is established, we'll move to more permanent space.

Compliance

Let me now turn to compliance. Consistent with Congress' intent, we are committed
to transparency and oversight in all aspects of the program and have already taken
several important steps in this area:

First, we moved quickly to establish the Financial Stability Oversight Board, which,
by law, includes:
The Secretary of the Treasury
The Chairman of the Federal Reserve Board
The Chairman of the Securities and Exchange Commission
The Secretary of Housing and Urban Development, and
The Director of the Federal Housing Finance Agency

The law required the first board meeting to take place within fourteen days. Again,
we moved very quickly, and the new oversight board met within four days. At that
initial meeting, the members of the board selected Chairman Bernanke to be
Chairman of the Oversight Board. In addition, the Board adopted its bylaws and
reviewed the work-streams I described earlier.

The new law also requires appointment of a Senate-confirmed Special Inspector
General to oversee the program. We are working with the White House to identify
candidates for possible nomination and confirmation in November. In the interim,
we are coordinating closely with Treasury's Inspector General and we had our first
meeting on Monday, October 6, where we walked him through our work-streams,
procurement and operational plans.

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Additionally, the law calls for the General Accounting Office to establish a physical
presence at Treasury to monitor the program. Secretary Paulson had his first call
with the Acting Comptroller General, Gene Dodaro, on Monday, October 6. The
Acting Comptroller General and his team met with our team on Thursday, October
9. And yesterday, the GAO staff came to Treasury to review the contracts we
signed over the weekend.

Treasury is committed to an open and transparent program with appropriate
oversight. We look forward to continuing to work with the Oversight Board, the
Inspector General, the Comptroller General, and the Congress as we set up and
execute this program. Transparency will not only give the American people comfort
in our execution, it will give the markets confidence in what form our action will take.

Next steps

As you can see, we have accomplished a great deal in just 10 days. But our work is
only beginning. A program as large and complex as this would normally take
months - or even years - to establish. We don't have months or years. Hence, we
are moving to implement the TARP as quickly as possible while working to ensure
high quality execution.

Our goal is to use the multiple tools enabled by the TARP to attack the capital and
troubled asset problem from multiple directions, so American families and
businesses can get the credit they need. We will complete the design of these tools
and deploy them as soon as they are ready. This is Secretary Paulson's highest
priority and we are working around the clock to make it happen. We are committed
to helping homeowners and to using the taxpayers' money efficiently.

We will provide you with regular updates on our progress. Thank you.

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hp1200
Plenary Remarks by Assistant Secretary for International Affairs Clay Lowery
at the Annual International Monetary Fund and World Bank Meetings
Washington - Chairman, Governors, Mr. Strauss-Kahn, Mr. Zoellick. I welcome all
of you to Washington.
In the last few days, we have witnessed some of the most extraordinary events in
our careers as finance officials. The strains and stresses in global financial markets
have deepened, posing a great challenge to the global economic and financial
system.
Yet, these very stresses underscore the reality of why we come together annually.
Since last Friday, Washington has been the staging ground for meetings of the G7
and G20 Finance Ministers, the International Monetary and Financial Committee
and the World Bank Development Committee. The Financial Stability Forum and
the IMF hosted a high-level meeting on global financial turmoil.
We have all united with determination and with the singular focus of overcoming the
world's financial turmoil. We have exchanged views, shared experiences and set
out an action plan. We have done so because we know that the problems we face
are global, because the world economy and financial markets are more interconnected than ever before, because we value multilateralism, and because the
answer to overcoming challenges is international partnership, cooperation, and
collaboration.
We must all act decisively, individually and collectively, according to our needs, to
secure stability and growth for the world economic and financial order. None of us
can afford to go it alone and each of us has our part to play. And we must
remember that notwithstanding the temptation to resort to isolationism in the face of
the current turmoil, we all benefit from free, open, competitive and soundly
regulated financial markets.
The housing correction in the United States and the lack of confidence in mortgage
assets has undermined investor confidence at home and abroad. It is profoundly
affecting American families and businesses.
We have tackled this challenge vigorously and head-on.
We have acted boldly to provide liquidity to markets. The United States has
created a number of innovative funding facilities to maintain the functioning of interbank markets, guarantee money market mutual funds, and we have extended dollar
swap lines throughout the world.
We have worked vigilantly to strengthen our financial institutions. A number of
significant institutional problems were addressed on a case-by-case basis over the
last six months. This approach, while necessary, was not sufficient.
Thus, we adopted a systemic approach on a significant scale, to get at the
underlying causes of the turmoil. With our new authority under the Emergency
Economic Stability Act, the Treasury is empowered to use up to $700 billion to
purchase capital in financial institutions, to purchase or insure mortgage assets,
and to purchase any other troubled assets that the Treasury and the Federal
Reserve deem necessary to promote financial market stability.
We have also taken steps to ensure the integrity of our financial markets and
penalize fraud and market manipulation. And we have also protected our retail
savers by temporarily increasing deposit insurance, and thus buttressing stability.

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Every step of the way, we have worked in lockstep with the international
community. Last Wednesday many of the world's major central banks cut official
interest rates in unison with the Fed. Our colleagues in Europe have nationalized
or rescued specific financial institutions to restore confidence. They joined us in
combating market abuse and they too have worked to create a more unified deposit
insurance system.
Let me assure all of you that the United States will remain vigilant and committed to
working with our global partners to take further action as needed to restore
confidence in our markets.
That is why Treasury welcomes the initiatives taken by European nations as part of
the G7 action plan to strengthen their financial system and address funding issues
for their financial institutions.
We in the United States are also moving forward on actions under the G7 Action
Plan announced Friday to improve availability of funding for our banks.
One other area where we will continue our strong work with the international
community is to build a new regulatory framework for the future to limit the chances
that yesterday's mistakes will be repeated tomorrow. The President's Working
Group on Financial Markets has taken important steps to improve market
transparency and disclosure, risk awareness and management, capital and
regulatory policies, practices regarding the use of credit ratings and market
infrastructure for over-the-counter derivatives products. Our work has been
undertaken in conjunction with the Financial Stability Forum and the IMF from day
one.
The path ahead of us remains arduous. The current difficulties will not end
tomorrow and even as confidence is restored, recovery will be slow. But as a
student of financial history, I have little doubt that the vigorous actions we are taking
and our partnership - so readily symbolized by this gathering -- will overcome the
challenges we face and we will in time emerge stronger.
Thank you.
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October 13, 2008
hp1201
Treasury Hires Investment Adviser Under the Emergency Economic
Stabilization Act
Washington- The U.S. Treasury Department today announced that EnnisKnupp
and Associates will serve as its investment adviser for the implementation of the
Troubled Asset Relief Program authorized under the Emergency Economic
Stabilization Act. Treasury hired the Chicago-based firm Saturday and the firm
began work immediately to help the Department administer the complex portfolio of
troubled assets the Department will purchase.
Treasury hired the investment consultant for assistance as it evaluates potential
asset managers and other vendors. The firms' duties also will include developing
and maintaining investment policies and guidelines and assisting with the oversight
of the portfolio's multiple asset managers. This oversight will include helping
Treasury to determine asset allocations for each manager, evaluating the
performance and costs, identifying conflicts of interest and identifying strategic
investment and market issues impacting the overall portfolio.
The investment adviser also will conduct research on mortgage whole loan asset
managers and on servicing organizations. Additionally, the firm will identify qualified
minority- and women-owned businesses to provide services for the portfolio.
Treasury hired EnnisKnupp using a procurement contract under the Federal
Acquisition Regulation. Treasury competitively solicited offers from six firms under
compelling urgency to quickly establish the Troubled Asset Relief Program. Three
firms made offers.
The contract will last for one year. More information on this contract is posted at
(Federal Business Opportunities website) and at
(Federal Procurement Data System).
EnnisKnupp is one of the largest investment consulting firms in the world with
aggregate assets of more than $835 billion under advisement for over 155 retainer
clients, as well as approximately $1 trillion in project-related engagements.
Accustomed to working with large, complex institutional investors, particularly those
that operate in highly visible and transparent environments, they serve a diverse
client base. Their clients include public, corporate, and jointly-trusteed retirement
funds, as well as not-for-profit organizations, foundations, and other endowed
institutions. EnnisKnupp has grown to 121 employees, of which 93 are consulting
professionals, and as a result the firm has extensively deep bench strength and
resources that are devoted to providing world class service to clients. EnnisKnupp
comprehensive advisory services encompass traditional investment consulting
combined with complete coverage of all alternatives consulting needs for private
equity, real estate, and opportunistic strategies. In addition, they are leading experts
in fiduciary services, which includes fiduciary audits and operational reviews,
investment program structure and monitoring, board/committee governance,
strategic planning and organizational design, and trustee education. EnnisKnupp
remains dedicated to maintaining its strict independence from financial service
providers, which ensures that the advice clients receive is unconflicted and always
in their best interest.
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Contract

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hp1202

Deputy Secretary Robert M. Kimmitt Remarks on Policy Principles for
Sovereign Wealth Funds and Recipient Countries to the United States Council
for International Business
Washington - Thank you, Peter, for that warm introduction. It is a pleasure to Join
you today to discuss the importance of keeping markets open for foreign
investment, a particularly timely topic given the current uncertainty in global
financial markets. I would like to thank the U.S. Council for International Business
for hosting this event and for its continuing interest in this important topic, and I also
thank the co-sponsors and supporters of the event.
Before sharing my views on policy principles for sovereign wealth funds (SWFs)
and recipient countries, let me first say a few words, by way of context, on the
present challenges we face.
Recent Developments
We meet today in the midst of an historic reassessment of risk in the world's
financial markets. The United States and other countries are taking steps to
provide much needed liquidity to the financial system; strengthen financial
institutions; protect investors; and enhance market stability. Just this past
weekend, the G-7 countries committed to a plan of action to support systemically
important financial institutions; ensure that financial institutions have access to
necessary financing and can raise capital from public as well as private sources;
and protect savers. Because the market turmoil is a global event, countries must
continue to coordinate their actions and work within a common framework so that
the action of one country does not come at the expense of others or the stability of
the system as a whole.
In this time of heightened market uncertainty and fragility, it is imperative that we do
not turn inward, but rather embrace trade and open investment policies. Allowing
capital to flow freely is vital for economic growth and will enable healthy institutions
to emerge from the current turmoil. Without access to capital, the engines of
economic growth seize up and risk the health of the broader economy.
That being said, one clear lesson from this crisis is the importance of transparency
and proper risk management in capital markets. In addition, sound regulatory
frameworks must protect investors and maintain stability, while supporting the
efficient functioning of markets. In this context, the work of the IMF-sponsored
International Working Group of Sovereign Wealth Funds offers timely guidance for
SWFs as they become increasingly significant actors in global markets. Similarly,
as recipient countries consider policies to address capital market vulnerabilities, we
are well-served to remember that openness to capital from abroad is a source of
economic strength not economic vulnerability. Here, the OECD's work is
particularly helpful. As some question whether rising protectionist sentiment is
eroding countries' professed commitments to open investment principles, the
OECD is providing needed guidance on what open investment means in practice.
Sovereign Wealth Funds
Sovereign wealth funds have received considerable attention in the past year, both
for their growing importance as global financial market participants and for recent
headline investments in major financial institutions. SWFs are not new, but their
rapid growth in number and size is a relatively new development, and a trend that is
expected to continue. SWF assets could reach $7-11 trillion in the next five years,
from current estimated levels of $2-3 trillion. As SWFs invest internationally across
a diverse range of asset classes, their rapid growth brings benefits, but also raises
policy issues in recipient countries.

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Earlier this year, I wrote an article for Foreign Affairs in which I laid out our
"operating assumptions" with regard to sovereign wealth funds. They included the
understanding that SWFs are, in principle, long-term investors, who historically
have maintained their strategic asset allocation in the face of short-term volatility.
SWFs typically are not highly leveraged. SWF managers generally have a higher
tolerance for risk than reserve managers and seek higher returns by investing in a
wider range of asset classes. In addition, sovereign wealth funds have access to,
and frequently make use of, private fund managers, consultants, administrators,
and custodians. SWFs as a group, but particularly the more longstanding funds,
have a track record of making investment decisions on sound economic and
financial grounds. A recently published Survey of SWF Institutional and
Operational Practices confirms many of these assumptions.
Recognizing that better understanding and communication were needed on both
sides of the investment relationship, Treasury made a point of fostering a
constructive bilateral dialogue with a number of SWFs. As part of these efforts,
Secretary Paulson reached agreement with Singapore and Abu Dhabi on a set of
broad policy principles for SWFs and recipient countries in March of this year.
These principles addressed issues surrounding sovereign wealth fund operations
as well as recipient country inward investment regimes, consistent with our view
that the two are closely linked.
While bilateral efforts are essential, Treasury has conSistently taken the position
that policy issues surrounding sovereign wealth funds - as well as recipient country
inward investment regimes - are best addressed in a multilateral context. In that
spirit, Treasury strongly advocated a multilateral approach to these issues, a call
that was taken up by the IMF and the OECD.
Generally Accepted PrinCiples and Practices
I will turn first to the work done by sovereign wealth funds. Answering a call from
the G-7 and other member countries, the IMF facilitated the establishment of a
group of 23 SWF countries, the International Working Group of Sovereign Wealth
Funds or "IWG." The IWG agreed on a set of principles to guide SWF practices
and objectives. The group welcomed input from recipient countries as it
deliberated, demonstrating a collaborative spirit and a common interest in a credible
product. The result is the Generally Accepted Principles and Practices or "Santiago
Principles," which were drafted and agreed in less than half a year. This agreement
represents a milestone in enhancing the openness and transparency of the global
financial system and in promoting open investment worldwide.
The Santiago Principles were publicly released this past weekend following their
presentation at the IMF and World Bank annual meetings. They are a voluntary
framework, consisting of 24 principles and supporting commentary, which will guide
SWFs in establishing sound practices in three key areas: 1) legal framework and
coordination with macroeconomic policies; 2) institutional and governance
framework; and 3) investment framework, including risk management.
Most critically, the Santiago Principles address many of the key macroeconomic,
financial market, and investment issues raised by the rapid growth in the size and
number of SWFs, as well as specific concerns highlighted by recipient countries,
such as transparency and commercial orientation of SWFs:
First, the Santiago Principles emphasize that SWF operations should be
consistent with a sound macroeconomic policy framework, to address the concern
that the formation of SWFs may perpetuate undesirable underlying macroeconomic
and financial policies.
Second, the Santiago Principles reflect commitments on the part of SWFs to
disclose greater information about their institutional and operational practices,
which will help reduce uncertainty and potential volatility in financial markets.
These disclosures include financial information, including asset allocation,
benchmarks, and historical rates of return; a description of the SWF's investment
policy; the SWF's general approach to voting securities of listed entities, and
optional public disclosure of actual votes ex post facto; and the SWF's risk
management framework.
Third, the Principles will help allay concerns that SWF investments are

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politically motivated, by emphasizing that SWFs should publish a clear statement
regarding the SWF's policy purpose; make investment decisions aimed at
maximizing risk-adjusted financial returns and based on economic and financial
grounds; establish operational independence to protect investment decisions from
political interference; and comply with regulatory and disclosure requirements of the
countries in which the SWF invests.
Even before the Santiago Principles were released this week, they had already
produced tangible results. The Government of Singapore Investment Corporation
released its first public report a month ago on how it manages the Government's
portfolio, including key information on its governance framework, investment
processes, asset mix, and
long-term returns. Temasek, Singapore's SWF, already publishes detailed
information annually. The Abu Dhabi Investment Authority has disclosed its broad
asset allocation and is engaged in an ongoing process to enhance disclosure in all
these areas, including compliance verification.
When Treasury first started looking at the issue of sovereign wealth funds in greater
detail, there were a number of skeptics who doubted the willingness and ability of
SWFs to come together and voluntarily agree on a set of principles. Their caution
was justified, given the diversity of SWFs, the complexity of the issues, and the
unchartered territory that the agreement represents for a number of these funds.
That fact makes the IMF's efforts in convening and supporting the group's work,
and IWG members' success in producing a credible product, all the more
impressive.
OECD Work on Recipient Country Policies
Let me now turn to the work of the OECD, because, as mentioned earlier, there are
two important sides to the investment equation. Consistent with the United States'
longstanding commitment to open investment, we were early advocates for the
OECD to identify a broadly-accepted set of principles to underpin open investment
policies for countries that receive SWF investments. Our goal was to preserve and
promote a global paradigm for the free flow of capital in the face of concerns being
raised by the rapid growth of SWFs. The OECD was a logical home for this
process, based on its significant existing body of work promoting open investment.
I understand Secretary General Gurria will discuss later the OECD's plans to
finalize their work, so I thought I might focus my remarks on what the OECD has
concluded to date, starting with its initial report issued in April, and how we view
these principles through the prism of our own experience.
The U.S .Government has carried out significant reforms to the Committee on
Foreign Investment in the United States (CFIUS), stemming from reaction to the
Dubai Ports World transaction in 2006. Throughout this process, we have given a
great deal of attention to explaining in detail our commitment to open investment
and how that commitment plays out in practice in the CFIUS context.
I will begin with what is perhaps the foundational open investment principle: nondiscrimination between domestic and foreign investors. This principle holds that
countries should treat similarly domestic and foreign investors in like
circumstances. When countries embrace this principle, both in law and in practice,
they create conditions where the benefits of international investment can more
easily be realized, namely job creation, innovation, enhanced productivity, and
particularly relevant today, access to capital for domestic firms to grow and prosper.
Governments, of course, must be mindful of particular risks that may arise in some
investments from abroad. Accordingly, OECD members have recognized that
countries may apply the fundamental non-discrimination principle in a manner that
permits addressing genuine national security concerns. Some countries employ
extensive investment screening mechanisms, which consider broad factors such as
"net benefit," "national interest," industrial policy, or other broad economic factors.
In our view such expansive measures are too easily susceptible to, and sometimes
actually serve, protectionist sentiment or goals. In the United States, we take
seriously the narrow intent of the exception for national security and hue as closely
to the non-discrimination principle as the facts of the case allow. CFIUS continues
to focus solely on genuine national security concerns and reviews annually only a

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small portion of transactions - fewer than 10% of transactions involving a foreign
investor and a U.S. business. In 2007, for example, there were over 2,000 crossborder deals, of which only 125 came before CFIUS, none of which was blocked.
A second and closely related principle identified by the OECD - regulatory
proportionality - holds that countries should design measures precisely to address
any particular national security concerns raised by a transaction, as opposed to
blunt tools, such as sectoral restrictions, that may restrict or prohibit investments
that are not problematic. CFIUS achieves this goal by considering transactionspecific risks and working with companies to resolve or mitigate any identified
concerns.
The remaining two principles identified by the OECD - transparency and
accountability - are perhaps where our reforms have been most extensive.
The transparency principle holds that governments should explain clearly how the
investment review process works and what its objectives are, and then implement
measures fairly and in a predictable manner. We have gone to great lengths the
past few years to better explain the CFIUS process to domestic and international
audiences. The President issued an Open Investment policy statement in May
2007, as did the G-8 at its summit in Heiligendamm, Germany, in June 2007. We
also worked with Congress to craft the Foreign Investment and National Security
Act (FINSA), which passed in July 2007 and became effective last October. That
law and the President's related executive order are publicly available. Also, we
held two public meetings to solicit input from stakeholders on implementation of
FINSA, published proposed revisions to the 1992 CFIUS regulations, and accepted
public comments on the proposed regulations. The comments are also publicly
available on our website. We are in the process of considering all the comments
we received during the comment period and will soon issue final regulations that
further elucidate how CFIUS approaches key concepts such as 'control' and
numerous other issues raised by commenters. We will also soon publish additional
guidance on the types of transactions CFIUS has reviewed and which have raised
national security considerations. We have maintained CFIUS' procedural
efficiency, including strict timelines, which increases predictability for investors. In
2007, CFIUS maintained the pace of concluding action on over 80% of transactions
within one 30-day review.
Finally, the OECD identified the principle of accountability, which holds that
governments should ensure proper oversight of implementing officials, while
avoiding political interference in implementation. Accountability is key to ensuring
both public and congressional confidence necessary for the system to function
properly, without politicizing what should be technical decisions. The Congress and
we achieved an outcome in FINSA that provides for higher-level accountability
within CFIUS agencies, but considerably insulates CFIUS from political pressures
by requiring detailed reporting to Congress only after CFIUS has concluded action
on a transaction. High-level scrutiny, at no lower than the Assistant Secretary level,
is required for all transactions, and certain CFIUS decisions must be certified at no
lower than the Deputy Secretary level. As the OECD rightly notes, prohibiting a
transaction is a drastic measure and such decisions should be taken at very high
levels. Thus, FINSA maintains the requirement that only the President may prohibit
a transaction, something that has only occurred once in the 20 years that CFIUS
has been statutorily authorized.
Conclusion
We have made considerable progress in the past year to improve interaction
between SWFs and recipient countries, but there is still work to be done. The
excellent speakers who follow will help explore that important topic.
The Santiago Principles' effectiveness in helping to reduce protectionist pressures
and contribute to global financial stability ultimately will depend on their widespread
adoption and implementation by SWFs. We expect that the successor to the IWG an international Standing Group of SWFs - will address implementation issues and
proposals for further work. Ultimately, SWFs will be judged on how they apply the
Principles in practice, especially in their investment decisions.
Likewise, the OECD can continue to play an important role in promoting open
investment by monitoring and applying peer pressure where investment recipient
countries fall short in living up to the principles laid out by the OECD.

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11202: Deputy Secretllry Robert M. Klmmitt Remarks on Policy Principles for Sovereign Wealth Fund...

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And we expect the excellent communication between the OECD and the IWG to
continue.
Success in these efforts, on both sides of the investment relationship, will build
confidence - a sorely needed commodity in the present economic circumstances and support an open and stable global financial system, in the best interest of the
global economy.
Thanks again to the USCIB for hosting today's event. I regret that the need to
return right away to a very active Treasury Department on this Columbus holiday
prevents me from taking questions. But we very much look forward to continue
dialogue with you on this important subject. Thank you for your kind attention.
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P-1203: Treasury nepartment find Infrastructure Consortium for Africa Host Africa Power Symposium

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October 13, 2008
HP-1203
Treasury Department and Infrastructure Consortium for Africa Host Africa
Power Symposium
Washington, DC -Assistant Secretary of the Treasury for International Affairs Clay
Lowery and African Development Bank President Donald Kaberuka today
addressed a group of African finance ministers, power project developers, and
financiers at a seminar on attracting private investment in Africa's power sector.
The seminar, which was hosted by the Treasury Department and the Infrastructure
Consortium for Africa, follows up on discussions during Secretary Paulson's trip to
Ghana, Tanzania and South Africa last November.
Underinvestment in infrastructure, particularly in the power sector, constrains
economic performance in Africa, and major investments in infrastructure are
needed to boost productivity and competitiveness. The World Bank estimates that,
to meet demand in the power sector alone, sub-Saharan Africa would need to
invest over $30 billion a year, or around 4.5 percent of the continent's GOP, for ten
years. Mobilizing private financing is essential given the magnitude of investment
needs and the constraints on public finance.
Assistant Secretary Lowery stated, "African economies have made great strides in
recent years. But to truly unlock Africa's economic potential, we must address
infrastructure bottlenecks, particularly in power generation. African businesses
must have clean, reliable, affordable energy to be competitive in world markets."
Participants discussed the financing constraints on private investment in many subSaharan African countries and ways in which to address those constraints. The
discussion highlighted the primary role of African governments in creating an
environment conducive to private investment, including critical regulatory and legal
reforms.
In addition to the primary role of governments, participants also discussed the
important supporting role of donors to help catalyze private investment.
The United States Agency for International Development (USAID) announced
the establishment of the Africa Infrastructure Program (AlP). Through AlP, USAID
is committing over $25 million to provide African governments with specialized
project finance transaction experts to help expedite the financial closure of
commercially and financially viable electricity projects in the Sub-Saharan region.
By providing project finance, legal, technical, and environmental expertise to
support the contract negotiation progress on targeted projects, AlP seeks to
leverage more than $1 billion of new investments within Sub-Saharan Africa with
the next two years.
The Infrastructure Consortium for Africa (ICA) unveiled a new guide,
"Attracting Investors to African Public-Private Partnerships," that will help the public
sector in Africa to attract private sector investment through effective project
advertising, management, and implementation. The guide, prepared with a grant
from the multi-donor Public-Private Infrastructure Advisory Facility, will enhance the
chances of developing effective public-private partnerships by overcoming major
obstacles to project delivery by having the right information, on the right projects, for
the right partners, at the right time. To read the electronic version of the guide
please visil: http://www.icafrica.org/en/news/article/view/attracting-investors-toafrican-infrasfruCture-projects-a-new-guidef
ICA also announced that it would continue its outreach to the private sector
through the formation of a new working group that will strengthen communication
between the public and private sectors on key issues surrounding infrastructure
finance. ICA aims to develop a workplan for the group and convene its first meeting

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P-1203: Trehtlury Departmt';nt and Inftastructure Consortium for Africa Host Africa Power Symposium

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by the time of the AfDB Annual Meetings in May 2009. For more information about
ICA, please contact Mr. Andrew Roberts at a.roberts@afdb.org or visit ICA's
website at: http://www.icafrica.or·g/en/
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11131200X

T ARP Capital Purchase Program
Senior Preferred Stock and Warrants
Summary of Senior Preferred Terms

Issuer:

Qualifying Financial Institution ("QFI") means (i) any U.S. bank or U.S
savings association not controlled by a Bank Holding Company ("BHe')
or Savings and Loan Company ("SLHC"); (ii) any top-tier U.S. BHe (iii)
any top-tier U.S. SLHC which engages solely or predominately in
activities that are permitted for financial holding companies under relevant
law; and (iv) any U.S. bank or U.S. savings association controlled by a
U.S. SLHC that does not engage solely or predominately in activities that
are permitted for financial holding companies under relevant law. QFI
shall not mean any BHC, SLHC, bank or savings association controlled by
a foreign bank or company. For purposes of this program, "U.S. bank",
"U.S. savings association", "U.S. BHC" and "U.S. SLHC" means a bank,
savings association, BHC or SLHC organized under the laws of the United
States or any State of the United States, the District of Columbia, any
territory or possession of the United States, Puerto Rico, Northern Mariana
Islands, Guam, American Samoa, or the Virgin Islands. The United
States Department of the Treasury will determine eligibility and
allocation for QFls after consultation with the appropriate Federal
banking agency.

Initial Holder:

United States Department of the Treasury (the "UST").

Size:

QFIs may sell preferred to the UST subject to the limits and terms
described below.
Each QFI may issue an amount of Senior Preferred equal to not less than
1% of its risk-weighted assets and not more than the lesser of (i) $25
billion and (ii) 3% of its risk-weighted assets.

Security:

Senior Preferred, liquidation preference $1,000 per share. (Depending
upon the QFI's available authorized preferred shares, the UST may agree
to purchase Senior Preferred with a higher liquidation preference per
share, in which case the UST may require the QFI to appoint a depositary
to hold the Senior Preferred and issue depositary receipts.)

Ranking:

Senior to common stock and pari passu with existing preferred shares
other than preferred shares which by their tern1S rank junior to any existing
preferred shares.

Regulatory
Capital
Status:

Tier 1.

Term:

Perpetual life.

Dividend:

The Senior Preferred will pay cumulative dividends at a rate of 5% per
annum until the fifth anniversary of the date of this investment and
thereafter at a rate of 9% per annum. For Senior Preferred issued by banks
which are not subsidiaries of holding companies, the Senior Preferred wi II
pay non-cumulative dividends at a rate of 5% per annum until the fifth
anniversary of the date of this investment and thereafter at a rate of 9% per
annum. Dividends will be payable quarterly in arrears on February 15,
May 15, August 15 and November IS of each year.

Redemption:

Senior Preferred may not be redeemed for a period of three years from the
date of this investment, except with the proceeds from a Qualified Equity
Offering (as defined below) which results in aggregate gross proceeds to
the QFI of not less than 25% of the issue price of the Senior Preferred.
After the third anniversary of the date of this investment, the Senior
Preferred may be redeemed, in whole or in part, at any time and from time
to time, at the option of the QFI. All redemptions of the Senior Preferred
shall be at 100% of its issue price, plus (i) in the case of cumulative Senior
Preferred, any accrued and unpaid dividends and (ii) in the case of noncumulative Senior Preferred, accrued and unpaid dividends for the then
current dividend period (regardless of whether any dividends are actually
declared for such dividend period), and shall be subject to the approval of
the QFI's primary federal bank regulator.
"Qualified Equity Offering" shall mean the sale by the QFI after the date
of this investment of Tier 1 qualifying perpetual preferred stock or
common stock for cash.
Following the redemption in whole of the Senior Preferred held by the
UST, the QFI shall have the right to repurchase any other equity security
of the QFI held by the UST at fair market value.

Restrictions
on Dividends:

For as long as any Senior Preferred is outstanding, no dividends may be
declared or paid on junior preferred shares, preferred shares ranking pari
passu with the Senior Preferred, or common shares (other than in the case
of pari passu preferred shares, dividends on a pro rata basis with the
Senior Preferred), nor may the QFI repurchase or redeem any junior
preferred shares, preferred shares ranking pari passu with the Senior
Preferred or common shares, unless (i) in the case of cumulative Senior

Preferred all accrued and unpaid dividends for all past dividend periods on
the Senior Preferred are fully paid or (ii) in the case of non-cumulative
Senior Preferred the full dividend for the latest completed dividend period
has been declared and paid in full.

Common dividends: The UST's consent shall be required for any increase in common
dividends per share until the third anniversary of the date of this
investment unless prior to such third anniversary the Senior Preferred is
redeemed in whole or the UST has transferred all of the Senior Preferred
to third parties.
Repurchases:

The UST's consent shall be required for any share repurchases (other than
(i) repurchases of the Senior Preferred and (ii) repurchases of junior
preferred shares or common shares in connection with any benefit plan in
the ordinary course of business consistent with past practice) until the
third anniversary of the date of this investment unless prior to such third
anniversary the Senior Preferred is redeemed in whole or the UST has
transferred all of the Senior Preferred to third parties. In addition, there
shall be no share repurchases of junior preferred shares, preferred shares
ranking pari passu with the Senior Preferred, or common shares if
prohibited as described above under "Restrictions on Dividends".

Voting rights:

The Senior Preferred shall be non-voting, other than class voting rights on
(i) any authorization or issuance of shares ranking senior to the Senior
Preferred, (ii) any amendment to the rights of Senior Preferred, or (iii) any
merger, exchange or similar transaction which would adversely affect the
rights of the Senior Preferred.
If dividends on the Senior Preferred are not paid in full for six dividend
periods, whether or not consecutive, the Senior Preferred will have the
right to elect 2 directors. The right to elect directors will end when full
dividends have been paid for four consecutive dividend periods.

Transferability:

The Senior Preferred will not be subject to any contractual restrictions on
transfer. The QFI will file a shelf registration statement covering the
Senior Preferred as promptly as practicable after the date of this
investment and, if necessary, shall take all action required to cause such
shelf registration statement to be declared effective as soon as possible.
The QFI will also grant to the UST piggyback registration rights for the
Senior Preferred and will take such other steps as may be reasonably
requested to facilitate the transfer of the Senior Preferred including, if
requested by the UST, using reasonable efforts to list the Senior Preferred
on a national securities exchange. If requested by the UST, the QFI will
appoint a depositary to hold the Senior Preferred and issue depositary
receipts.

Executive
Compensation:

As a condition to the closing of this investment, the QFI and its senior
executive officers covered by the EESA shall modify or terminate all
benefit plans, arrangements and agreements (including golden parachute
agreements) to the extent necessary to be in compliance with, and
following the closing and for so long as UST holds any equity or debt
securities of the QFI, the QFI shall agree to be bound by, the executive
compensation and corporate governance requirements of Section III of
the EESA and any guidance or regulations issued by the Secretary of the
Treasury on or prior to the date of this investment to carry out the
provisions of such subsection. As an additional condition to closing, the
QFI and its senior executive officers covered by the EESA shall grant to
the UST a waiver releasing the UST from any claims that the QFI and
such senior executive officers may otherwise have as a result of the
issuance of any regulations which modify the terms of benefits plans,
arrangements and agreements to eliminate any provisions that would not
be in compliance with the executive compensation and corporate
governance requirements of Section III of the EESA and any guidance or
regulations issued by the Secretary of the Treasury on or prior to the date
of this investment to carry out the provisions of such subsection.

Summary of Warrant Terms
Warrant:

The UST will receive warrants to purchase a number of shares of common
stock of the QFI having an aggregate market price equal to 15% of the
Senior Preferred amount on the date of investment, subject to reduction as
set forth below under "Reduction". The initial exercise price for the
warrants, and the market price for determining the number of shares of
common stock subject to the warrants, shall be the market price for the
common stock on the date of the Senior Preferred investment (calculated
on a 20-trading day trailing average), subject to customary anti-dilution
adjustments. The exercise price shall be reduced by 15% of the original
exercise price on each six-month anniversary of the issue date of the
warrants if the consent of the QFI stockholders described below has not
been received, subject to a maximum reduction of 45% of the original
exercIse prIce.

Term:

10 years

Exercisability:

Immediately exercisable, in whole or in part

Transferability:

The warrants will not be subject to any contractual restrictions on transfer~
provided that the UST may only transfer or exercise an aggregate of onehalf of the warrants prior to the earlier of (i) the date on which the QFI has
received aggregate gross proceeds of not less than 100% of the issue price

of the Senior Preferred from one or more Qualified Equity Offerings and
(ii) December 31,2009. The QFI will file a shelf registration statement
covering the warrants and the common stock underlying the warrants as
promptly as practicable after the date of this investment and, if necessary,
shall take all action required to cause such shelf registration statement to
be declared effective as soon as possible. The QFI will also grant to the
UST piggyback registration rights for the warrants and the common stock
underlying the warrants and will take such other steps as may be
reasonably requested to facilitate the transfer of the warrants and the
common stock underlying the warrants. The QFI will apply for the listing
on the national exchange on which the QFl's common stock is traded of
the common stock underlying the warrants and will take such other steps
as may be reasonably requested to facilitate the transfer of the warrants or
the common stock.
Voting:

The UST will agree not to exercise voting power with respect to any
shares of common stock of the QFI issued to it upon exercise of the
warrants.

Reduction:

In the event that the QFI has received aggregate gross proceeds of not less
than 100% of the issue price of the Senior Preferred from one or more
Qualified Equity Offerings on or prior to December 31,2009, the number
of shares of common stock underlying the warrants then held by the UST
shall be reduced by a number of shares equal to the product of (i) the
number of shares originally underlying the warrants (taking into account
all adjustments) and (ii) 0.5.

Consent:

In the event that the QFI does not have sufficient available authorized
shares of common stock to reserve for issuance upon exercise of the
warrants and/or stockholder approval is required for such issuance under
applicable stock exchange rules, the QF! will call a meeting of its
stockholders as soon as practicable after the date of this investment to
increase the number of authorized shares of common stock and/or comply
with such exchange rules, and to take any other measures deemed by the
UST to be necessary to allow the exercise of warrants into common stock.

Substitution:

In the event the QFI is no longer listed or traded on a national securities
exchange or securities association, or the consent of the QFI stockholders
described above has not been received within 18 months after the issuance
date of the warrants, the warrants will be exchangeable, at the option of
the UST, for senior term debt or another economic instrument or security
of the QFI such that the UST is appropriately compensated for the value of
the warrant, as determined by the UST.

P-1208: Tre3SUry Announces F.1{~.rUtlVe Compensation Rules Under the Emergency Economic Sta... Page I of I

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October 14, 2008
HP-1208
Treasury Announces Executive Compensation Rules
Under the Emergency Economic Stabilization Act
Washington- The U.S. Treasury Department today announced the development of
three programs under the Emergency Economic Stabilization Act and
corresponding executive compensation and corporate governance standards.
These standards generally apply to the chief executive officer, chief financial officer,
plus the next three most highly compensated executive officers. Any firm
participating in the following three programs will be required to adopt these
standards.
Troubled Asset Auction Program- Treasury continues to develop a program to
purchase troubled mortgage-related assets through an auction format, and will be
issuing program guidance for this program in the coming weeks. Treasury is issuing
guidance for the executive compensation requirements that will apply to firms
participating in this program. As prescribed by the Act, any financial institution that
sells more than $300 million of troubled assets to the Treasury via an auction would
be prohibited from entering into new executive employment contracts that include
golden parachutes for the term of the program. Treasury is releasing Treasury
Notice 2008-TAAP regarding this restriction. Furthermore, under the Act, (1) the
financial institution may not deduct for tax purposes executive compensation in
excess of $500,000 for each senior executive, (2) the financial institution may not
deduct certain golden parachute payments to its senior executives and (3) a 20percent excise tax will be imposed on the senior executive for these golden
parachute payments. Treasury is releasing I.R.S. Notice 2008-94 regarding these
new tax rules.
Capital Purchase Program- The Treasury is issuing guidance for this program
designed to provide equity capital under standardized terms directly to certain
financial institutions, further strengthening their capital structures to facilitate their
continued lending in the capital markets. Any financial institution participating in the
Capital Purchase Program will be subject to more stringent executive compensation
rules for the period during which Treasury holds equity issued under this program.
The financial institution must meet certain standards, including: (1) ensuring that
incentive compensation for senior executives does not encourage unnecessary and
excessive risks that threaten the value of the financial institution; (2) required
clawback of any bonus or incentive compensation paid to a senior executive based
on statements of earnings, gains, or other criteria that are later proven to be
materially inaccurate; (3) prohibition on the financial institution from making any
golden parachute payment to a senior executive based on the Internal Revenue
Code provision; and (4) agreement not to deduct for tax purposes executive
compensation in excess of $500,000 for each senior executive. Treasury is issuing
interim final rules for these executive compensation standards.
Programs for Systemically Significant Failing Institutions- The Treasury
Department is currently developing a third program to potentially provide direct
assistance to certain failing firms on terms negotiated on a case-by-case basis.
Treasury is issuing guidance for the executive compensation standards that will
apply to the firms participating in such programs and their senior executives
(Treasury Notice 2008-PSSFI). These standards are similar in all respects to the
Capital Purchase Programs executive compensation standards described above,
with one significant difference. In situations where Treasury provides assistance
under the systemically significant failing institutions programs, golden parachutes
will be defined more strictly to prohibit any payments to departing senior executives.

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P-1209: U.S. Government Actions to Strengthen Market Stability

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October 14, 2008
HP-1209
U.S. Government Actions to Strengthen Market Stability
Washington, DC--Today we are taking decisive actions to protect the U.S.
economy, to strengthen public confidence in our financial institutions, and to foster
the robust functioning of our credit markets. These steps will ensure that the U.S.
financial system performs its vital role of providing credit to households and
businesses and protecting savings and investments in a manner that promotes
strong economic growth in the U.S. and around the world. These actions are
consistent with the strategy announced by the President's Working Group on
October 6 and the action plan announced by the G7 Finance Ministers on October
10.
Purchasing Capital in Financial Institutions
We must restore confidence in our financial system. The first
step in that effort is a plan to make capital available on
attractive terms to a broad array of banks and thrifts, so they
can provide credit to our economy. - Treasury Secretary Henry
M. Paulson, Jr., October 14, 2008
Under the authority of the Emergency Economic Stabilization Act of 2008, the U.S.
Treasury will make available $250 billion of capital to U.S. financial institutions. This
facility will allow banking organizations to apply for a preferred stock investment by
the U.S. Treasury. Nine large financial organizations have already indicated their
intention to subscribe to the facility in an aggregate amount of $125 billion.
The Senior Preferred will pay cumulative dividends at a rate of 5 percent per year
for the first five years, and thereafter at a rate of 9 percent per year. The shares are
non-voting, other than with respect to market standard terms that protect the
taxpayer's rights as an investor. Institutions selling preferred shares to the Treasury
agree that the following executive compensation limitations will apply while the
Treasury owns shares in the company: 1) the Board will certify that that contracts of
the top five executives do not encourage or reward excessive risk taking; 2)
compensation payments made based on earnings, gains, or other criteria that are
later proven to be materially inaccurate must be repaid, and 3) no golden parachute
payments will be made. In addition, the taxpayers will also receive warrants to
purchase common stock with an aggregate market price equal to 15 percent of the
senior preferred investment.
Guaranteeing Certain Obligations of Financial Institutions
The overwhelming majority of banks are strong, safe and
sound. But a lack of confidence is driving the current turmoil.
And it is a lack of confidence that these guarantees are
designed to address. - FDIC Chairman Sheila C. Bair, October

14,2008
After receiving a recommendation from the boards of the FDIC and the Federal
Reserve, and after consulting with the President, Secretary Paulson triggered the
systemic risk exception to the FDIC Act, enabling the FDIC to temporarily
guarantee the senior debt of all FDIC-insured institutions and their holding
companies, as well as deposits in non-interest bearing deposit transaction
accounts. Regulators will implement an enhanced supervisory framework to assure
appropriate use of this new guarantee. The ability to issue guaranteed debt under
the program would expire on June 30, 2009 and the full protection for deposits in
non interest bearing transaction deposit accounts would revert back to the statutory
limits on December 31,2009.

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11/3/:200X

P-1209:

U.~. Government Actions to Strengthen Market Stability

Page:2 01':2

Purchasing Commercial Paper

Over the past year, the Federal Reserve has actively used all its
powers and authorities to try to help our economy through this
difficult time .... The actions today are aimed at restoring
confidence in our institutions and markets and repairing their
capacity to meet the credit needs of American households and
businesses. - Federal Reserve Chairman Ben Bernanke,
October 14, 2008
To further increase access to funding for businesses in all sectors of our economy,
the Federal Reserve has announced further details of its Commercial Paper
Funding Facility (CPFF) program, which provides a broad backstop for the
commercial paper market. Beginning October 27, the CPFF will be able to purchase
commercial paper of 3 month maturity from high-quality issuers.
Coordinated, Comprehensive Plan to Address Financial Market Turmoil
President Bush has made clear that we are committed to using all necessary tools
to support our financial markets and institutions, so they can finance the U.S.
economy. Given the interconnected nature of the global capital markets, we
continue to work closely with our colleagues in the international regulatory
community.
Together these three steps significantly strengthen the capital position and funding
ability of U.S. financial institutions, enabling them to perform their role of
underpinning overall economic growth. These actions demonstrate to market
participants here and around the world the strength of the U.S. government's
commitment to take all necessary steps to unlock our credit markets and minimize
the impact of the current instability on the overall U.S. economy. The actions taken
today are a powerful step toward restoring the health of the global financial system.

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1-1210: Deputy Secretary Rohert M. Kimmitt Remarks at the Palestinian Business and Investment... Page

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u.s. OEPARTME"T OF THE TREASURY

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October 14, 2008
HP-1210
Deputy Secretary Robert M. Kimmitt
Remarks at the Palestinian Business and Investment Forum
Washington - It is a pleasure to be here today with my friends and colleagues, Jim
Jones and Rob Mosbacher. The fact that Jim is on the panel with two economic
policy officials demonstrates the inextricable link among the political, security, and
economic dimensions of U.S. Government support of the Annapolis process and
peace between Palestinians and Israelis.
We meet today in the midst of historic transformation in the global economy. The
United States and other countries are taking steps to: provide much needed liquidity
to the financial system; strengthen financial institutions; protect investors; and
enhance market stability. This past weekend, the G-? countries committed to a plan
of action, and in accordance with the G-? plan, just this morning the President's
Working Group on Financial Markets announced the details of a coordinated,
comprehensive plan to address the current financial market turmoil. The U.S.
Government is purchasing equity in financial institutions so they can provide credit
to our economy; guaranteeing certain obligations of financial institutions to restore
confidence in our financial system; and purchasing commercial paper to further
increase access to funding for businesses in all sectors of our economy. The
actions taken today are a powerful step toward restoring the health of the global
financial system.
Even as we seek to stabilize the major economies' financial markets, we continue
to focus priority attention on supporting emerging markets, including the Palestinian
territories, at this time of global stress. Without economic progress and sound
financial practices, political and security gains will remain temporary. This is why
the U.S. Government and the Treasury Department are committed to work
alongside the Palestinian leadership in helping create a stable macroeconomic
environment, strengthen their financial system, and build a solid foundation for
economic growth.
In addition, the U.S. Government is also increasingly working with business
communities to support private sector development within the Palestinian territories.
In May, I had the honor of leading the U.S. delegation to the Palestine Investment
Conference, hosted in Bethlehem by President Abbas and Prime Minister Fayyad.
That conference showed the strong interest of both the regional and global private
sectors in investments in the Palestinian territories. Today's conference builds upon
that success to include the involvement of even more interested parties, including
the newly formed Palestinian-American Chamber of Commerce.
Often, we at Treasury have to push emerging markets to accept free and open
markets. That is not the case with the Palestinian leadership, which has readily
embraced free-market practices, with the well-crafted Palestinian Reform and
Development Plan providing just one example. This plan to modernize and
strengthen the financial sector is critical to catalyzing private investment flows,
which are the lifeblood of broad-based, sustainable growth in any economy. As a
result, one critical component of our partnership has been to help provide tools to
promote a vibrant market economy, including small- and medium-sized enterprises'
access to credit.
The Palestinian territories have made progress in improving their business climate
over the past year, as demonstrated by the recent release of the World Bank's
Doing Business Indicators. In the latest report, the Palestinian territories excelled at
protecting investors and simplifying the process for business to pay taxes,
particularly when compared to others in their region.
And the Palestinian leadership is taking steps to improve other areas of

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P-121O: Deputy Secretary Rohert M. Kimmitt Remarks at the Palestinian Business and Investment...

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administration that are not quite as advanced. For instance, in the Palestinian
territories, there is credit information for less than ten percent of adults. The
leadership has made progress in addressing this challenge by initiatives such as
introducing a new credit registry. In addition to allowing banks to better evaluate
risks, this action can lead to improved credit flows to small- and medium-sized
businesses. As credit access improves, a virtuous cycle can develop, with
increased revenues reinforcing the government's ability to provide for its people. As
the Palestinian Authority continues to increase its effectiveness and efficiency in
public financial management, security services, and the justice system, the private
sector, too, will have a greater opportunity to improve and grow.
Beyond government-to-government activities, close cooperation between
government and industry can have a significant impact on private sector
development. This is especially the case with the unique challenges of doing
business in the Palestinian territories. Under the leadership of Prime Minister
Fayyad, the PA has made great strides to reduce red tape, and its efforts since
2006 are laudable. The Prime Minister and I spoke on Sunday about ideas he has
for further progress in this area.
The U.S. Government also supports a number of initiatives to encourage private
sector investment in the territories. Due to the wealth of speakers addressing you
today, I will only highlight a few:
First, along with the OPIC initiatives about which Rob Mosbacher will speak, the
U.S. Government promotes investment in human capital and economic governance
within the Palestinian territories. For instance, in 2008, the U.S. Government has
provided almost $600 million to the Palestinians to support economic growth and
good governance, promote infrastructure development, provide food assistance,
improve education, and increase access to healthcare and water. A large portion of
this funding is specifically directed to encouraging private sector development,
channeled through the U.S. Agency for International Development, which has
provided approximately $2 billion in such assistance to the Palestinians over the
past fifteen years.
Second, as Deputy Secretary John Sullivan will discuss in more detail later today,
the Commerce Department's Foreign Commercial Service has been assisting the
Palestinian-American Chamber of Commerce to promote Palestinian business
linkages and U.S.-Palestinian trade. The Commercial Law Development Program
has also worked since 2007 with lawyers in the public and private sector to
modernize and harmonize Palestinian commercial and competition laws.
Third, and of equal importance with U.S. Government initiatives, the United States
also strongly endorses private initiatives, such as the U.S.-Palestinian Public
Private Partnership. This Partnership is developing quick-impact projects to
promote job creation in the West Bank. Its leadership - Walter Isaacson, Ziad
Asali, Jean Case, Sandy Weill, Lester Crown, - as well as the U.S. Government
lead, AID Administrator Henrietta Fore - deserve again to be recognized for their
significant contributions. This Partnership's ability to establish business
opportunities as well as youth development and resource centers throughout the
West Bank is already producing tangible results for the Palestinian society and
economy.
Fourth and finally, the U.S. Government and Treasury encourage international
support for the Palestinian territories, including through the multilateral development
institutions. For instance, the World Bank, Canada, Kuwait, and the United Kingdom
have provided $269 million to assist in providing education, health care, and other
vital social services for the Palestinian people. The International Finance
Corporation of the World Bank has also been active in the Palestinian territories for
over a decade, investing in companies and providing advisory services to the
private sector to support entrepreneurs and small companies. In spite of the
challenging political situation, since 2006 IFC partner banks have reached
thousands of active borrowers. One IFC-partner microfinance bank has extended
almost 3,000 loans, averaging about $4,000 each, and a third of these loans went
to women.
Today's Forum is one more step toward developing economic self-sufficiency in the
Palestinian territories. We need to combine the expertise and business experience
of those in this room with the assistance and political support of governments. By
helping to build a vibrant economy led by the private sector in the Palestinian

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P-1210: Deputy Secretflry Robert M. Kimmitt Remarks at the Palestinian Business and /l1\cstmcnt...

Pagc 3 of 3

territories, we will help improve the lives of people, enhance stability, and bolster
prospects for lasting peace. Together, we can achieve much more than could ever
be done separately, ultimately helping leverage the innate ingenuity and
entrepreneurship spirit of the Palestinian and American business communities.
Thank you for your kind attention and also your continued commitment to such an
important effort for us all.
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www.treas.gov/press/releases/hpI210.htm

11131200X

P-1211: Trel:t~ury Hlrr:s Custodian Under the Emergency Economic Stabilization Act

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October 14, 2008
HP-1211
Treasury Hires Custodian Under the Emergency Economic Stabilization Act
Washington- The U.S. Treasury Department today announced that Bank of New
York Mellon will serve as its custodian for the implementation of the Troubled Asset
Relief Program authorized under the Emergency Economic Stabilization Act.
Treasury hired the New York City-based firm Monday and work began immediately
to help the Department with custodial, accounting, auction management and other
infrastructure services needed to administer the complex portfolio of troubled assets
the Department will purchase.
Treasury hired the Bank of New York Mellon to provide the accounting of record for
the portfolio, hold all cash and assets in the portfolio, provide for pricing and asset
valuation services and assist with other related services. The financial agent will
also track unique asset attributes as required by the Act, such as linkages to
executive compensation limits and to warrants received from selling institutions. In
addition, the financial agent will support the acquisition of securitized assets by
serving as auction manager and conducting reverse auctions for the trouble assets.
Bank of New York Mellon will provide all related infrastructure needs.
Treasury hired Bank of New York Mellon using its Financial Agent selection
authorities. Treasury publicly announced its solicitation on Monday, October 6. The
Department received 70 submissions, of which 10 met the eligibility requirements
and minimum qualifications. The contract will last three years.
The Bank of New York Mellon Corporation is a global financial services company
focused on helping clients manage and service their financial assets, operating in
34 countries and serving more than 100 markets. The company is a leading
provider of financial services for institutions, corporations and high net-worth
individuals, providing superior asset management and wealth management, asset
servicing, issuer services, clearing services and treasury services through a
worldwide client-focused team. It has more than $23 trillion in assets under custody
and administration, more than $1.1 trillion in assets under management and
services $12 trillion in outstanding debt. Additional information is available at
www.bnymellon.com.
-30-

REPORTS
•

Custodian Contract.pdf

wWw.treas ..goy/press/releases/hp1211.htm

I 1/1<200X

FINANCIAL AGENCY AGREEMENT
for
CUSTODIAN, ACCOUNTING, AUCTION MANAGEMENT
AND OTHER INFRASTRUCTURE SERVICES
for
FOR A PORTFOLIO OF
TROUBLED MORTGAGE-RELATED ASSETS
This Financial Agency Agreement (FAA) is entered into as of October 14,2008 (Effective
Date), by and between the U.S. Department of the Treasury (Treasury), and The Bank of New
York Mellon (Financial Agent).

Recitals
To implement the Emergency Economic Stabilization Act of 2008 (Act), the Treasury may
designate Financial Institutions as financial agents of the United States to provide all such
reasonable duties related to the Act as may be required.
Pursuant to the Act, the Treasury is establishing a program to purchase a variety of troubled
assets from Financial Institutions having significant operations in the United States, and has
determined that it is in the interests of the United States to designate a financial agent to provide
custodian, accounting, auction management and other infrastructure services for the portfolio.
The Financial Agent desires to serve as a financial agent of the United States under the terms and
conditions contained herein.
Accordingly, in consideration of the representations, warranties, and mutual agreements set forth
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Treasury and the Financial Agent agree as follows.
1. Designation and authorization

Pursuant to the authority of the Secretary of the Treasury under the Act, the Treasury hereby
designates and authorizes the Financial Agent to act as a financial agent of the United States
under the terms and conditions of this FAA to perform certain services as more fully described in
Exhibit A.

2. Term
A. The initial term of this FAA is for 3 years from the Effective Date and shall expire on
October 14, 20 II, unless terminated earlier by the Treasury pursuant to the provisions hereof.
B. The Treasury shall have the right and option to extend the tenn of this FAA beyond the
initial expiration date for a total of 4 consecutive one-year extensions. The Treasury may
exercise any such extension option by giving written notice to the Financial Agent at least 60

calendar days prior to the end of the then current term. In the event any such extension option is
exercised by the Treasury, this FAA shall continue in full force and effect for the term of the
extension.
C. The Financial Agent acknowledges that the services provided under this FAA are vital to the
United States and must continue without interruption during any transition period if the Treasury
decides to use a di fferent entity to perform such services in the future, if the Treasury decides to
perform such services itself, or if termination requires an orderly shutdown of services. To
provide for such a transition, the Treasury shall have the right to extend the term of this FAA
beyond any expiration date for a period not to exceed I year. The Treasury may exercise such
option by giving written notice of such extension to the Financial Agent prior to the end of the
then current term. The Treasury will use reasonable efforts to provide such written notice at
least 30 calendar days prior to the end of the then current term. The Treasury may reduce the
number or extent of services to be provided by the Financial Agent during any such transition
period. The Treasury agrees that it will work diligently to transfer or shutdown the services
performed hereunder as soon as reasonably possible
D. The Financial Agent agrees to cooperate with the Treasury and/or any successor custodians
and infrastructure providers and to provide such services as are necessary to ensure an effective
and orderly transfer or shutdown of services, functions, records, and data during the transition
period. If the Treasury appoints any successor custodians and infrastructure providers, the
Financial Agent shall deliver to such successors, duly endorsed and in the form for transfer, all
securities, loan documents, funds, and other assets then held by it pursuant to this FAA. If no
successor is appointed, the Financial Agent shall, in like manner, upon receipt of instructions
from the Treasury, deliver to the Treasury such securities, loan documents, funds and other
assets.

3. Services to be provided by Financial Agent
A. The Financial Agent shall perform the services required under this FAA in accordance with
the highest practices and professional standards of care, with a degree of attention used in a wellmanaged operation and no less than that which the Financial Agent exercises for itself and others
receiving comparable services. The Financial Agent shall use qualified individuals with suitable
training, education, experience and skills to perform the services.
B. Unless specifically authorized otherwise by the Treasury in writing, the Financial Agent shall
ensure that all employees of the Financial Agent and its affiliates or contractors providing
services under this FAA are United States citizens or lawful permanent residents performing
their work in the United States, and that the operation and maintenance of all systems and
databases used in providing services under this FAA are in the United States.
C. The Treasury may, in its sole discretion, modify, add to, or reduce the specific services
required under the general scope of this FAA by providing written notice to the Financial Agent.
If any such modification, addition or reduction causes an increase or decrease in the cost of, or
the time required for, performance of any service required by this FAA, the Treasury and the

Financial Agent will negotiate an equitable adjustment in the price of the service or other terms
of performance.
D. The Treasury may periodically issue instructions through bulletins, letters, or other
communications, consistent with this FAA, which will further describe or clarify the scope of the
duties and services of the Financial Agent under this FAA. To the extent that any such
instructions are inconsistent with the terms of this FAA or would constitute a material change in
the terms or scope of services under this FAA, the terms of this FAA shall govern unless
otherwise specified by the Treasury.
E. The Financial Agent shall keep the Treasury informed of changes in technology and business
methods that might allow the Financial Agent to perform its services under this FAA in a more
efficient or cost effective manner.
F. Consistent with Section 3B, the Treasury hereby authorizes the Financial Agent to employ
non-citizens working outside the United States to perform the functions of (i) back office
reconciliation and accounting, and (ii) general software application support, provided such
functions represent routine commercial practices used to support all Financial Agent customers
receiving services similar to those under this FAA.

4. Compensation
A. The Treasury shall compensate the Financial Agent for services in accordance with Exhibit
B, as amended from time to time.
B. The Treasury does not guarantee any set quantity of transactions, minimum volume of assets
or business, or level of compensation to the Financial Agent and shall not adjust compensation
on the basis that volumes or quantities did not meet the Financial Agent's expectations.
C. The Financial Agent shall maintain complete and accurate records of and supporting
documentation for the amounts billable to the Treasury, and payments made by the Treasury.
The Financial Agent shall follow generally accepted accounting principles when recording or
reporting any such administrative accounting of the services provided under this FAA. The
Financial Agent agrees to provide the Treasury with documentation and other information with
respect to any amounts billed to the Treasury as may be reasonably requested by the Treasury.

D. The Treasury may deduct from any amount to be paid to the Financial Agent any amount
that the Financial Agent is obligated to reimburse or pay to the Treasury.

5. Financial Agent's fiduciary duty
The Financial Agent acknowledges and agrees that it owes a fiduciary duty of loyalty and fair
dealing to the United States when acting as a financial agent of the United States. The Financial
Agent agrees to act at all times in the best interests of the United States when carrying out its
responsibilities under this FAA and in all matters connected with this agency relationship. The

Financial Agent acknowledges and agrees that its fiduciary duties under this FAA include, but
are not limited to, the following:
- to perform its obligations with care, competence, and diligence;
- to construe the terms of this FAA and any related instructions from the Treasury in a
reasonable manner to serve the purposes and interests of the United States;
- to use any confidential information or assets of the United States received or developed
in connection with this FAA solely for the purposes of fulfilling its duties to the Treasury
and not for its own commercial purposes or for those of a third party; and
- to act only within the scope of its actual authority and to comply with all lawful
instructions or directions received from the Treasury.

6. Confidential information
A. The Financial Agent shall reasonably safeguard and protect any confidential information
received in connection with this FAA. Confidential information shall include, without
limitation, nonpublic information about the Treasury's business, economic, and policy plans,
nonpublic financial and asset information, trade secrets, information subject to the Privacy Act,
personally identifiable information (PH) , and sensitive but unclassified (SBU) information.
B. SBU information is defined as any information that the loss, misuse, or unauthorized access
to or modification of could adversely affect the national interest or the conduct of Federal
programs, or the privacy of individuals that they are entitled to under the Privacy Act. In
addition, this includes trade secret or other information protected by the Trade Secrets Act. This
definition may include other information designated by the Treasury or as defined by other
Federal Government sources not mentioned above.
C. PII means any information about an individual, including, but not limited to, education,
financial transactions, medical history, and criminal or employment history and information
which can be used to distinguish or trace an individual's identity, such as their name, social
security number, date and place of birth, mother's maiden name, biometric records, etc.,
including any other personal inforn1ation which is linked or linkable to an individual.
D. The Financial Agent shall use such confidential information solely for the purposes of
fulfilling its duties under this FAA and not for its own commercial purposes or for those of a
third party. The Financial Agent may disclose such confidential information only to those
employees of the Treasury or the Financial Agent and its corporate affiliates or contractors, who
have a legitimate need to know the information to assist in the proper performance of services
required by this FAA. The Financial Agent shall require any such affiliate or contractor to agree
in writing to confidentiality obligations substantially the same as those in this FAA.
E. The Treasury may periodically issue other policy statements or guidance to clarify the
Financial Agent's obligations regarding confidential information. If the Financial Agent has any

questions on the designation or proper handling of confidential information, it shall immediately
seek clarification from the Treasury whose decision shall be binding upon the Financial Agent.
F. The Financial Agent's agreement with respect to confidential information is a continuing one
that shall survive the termination or expiration of this FAA. However, the Financial Agent shall
not be required to protect confidential information that is lawfully disclosed independent of the
Financial Agent and is in the public domain.
G. The Financial Agent shall strictly enforce the terms of any non-disclosure agreements it has
with its employees, affiliates, or contractors regarding services provided under this FAA. In
addition, each officer and employee of the Financial Agent and its affiliates and contractors to
whom confidential information is or may be disclosed, shall review and sign a Non-Disclosure
Statement containing substantially the language in Exhibit D.
H. Notwithstanding the requirements of this Section, the Financial Agent may disclose
confidential information if required in response to a subpoena, court order, judicial process, or
regulatory authority, and shall immediately notify the Treasury of any such required disclosure.
7. Breaches of sensitive data
A. The Financial Agent shall immediately notify the Treasury of any actual or suspected
breaches of sensitive data that may occur while handling Treasury data, whether paper or
electronic, including unauthorized access, use, disclosure, or loss of SBU information or PI I.
Such immediate notification should occur whether before or after regular business hours or on a
weekend or holiday, and should not be delayed as the Financial Agent researches or confin11S the
particular details on an incident or suspected incident.
B. In response to a reported breach of sensitive data, the Treasury may request the Financial
Agent to conduct an investigation and report detailed findings as to the cause and impact of the
breach as well as the remediation taken. As determined by the Treasury after reviewing any
investigation conducted by the Financial Agent, the Financial Agent may be liable and may be
required to reimburse the Federal Government or any affected individual for any costs, expenses,
or damages which result from the fraud, theft, willful misuse or negligence of the Financial
Agent or its employees, affiliates, or contractors with respect to the handling and maintenance of
sensitive data.
C. The Financial Agent must ensure that all of its employees and their contractors impacted by
this Section receive the proper education and guidance.

8. Privacy Act
The Treasury may determine that, in connection with the services provided under this FAA, the
Financial Agent has obtained or developed a system of records as defined under the Privacy Act
of 1974,5 U.S.c. § 552a. For purposes of the Privacy Act, when a Government agency
delegates the development, operation or maintenance of a system of records on individuals to
accomplish an agency function, the person that operates the system is bound by the Privacy Act

as ifsuch person were an employee of the agency. Violations of the Privacy Act may involve
the imposition of criminal penalties. If the Treasury makes such a determination, it shall so
notify the Financial Agent. After receiving such notice, the Financial Agent shall promptly
provide training to all of its officers, employees, affiliates, and contractors with access to such
system ofrecords on the duties and responsibilities imposed on them by the Privacy Act and by
applicable regulations and guidance, including the potential penalties for wrongful disclosure.

9. Personnel security
A. The Treasury will rely on the Financial Agent's personnel security screening standards. The
Financial Agent shall ensure that all employees and affiliate or contractor personnel who have
access to Federal Government information that is SBU have appropriate personnel security
background checks.

B. The Financial Agent shall provide the Treasury with a listing of all such background
investigative requirements (e.g., FBI fingerprint check, police check, credit check, verification of
lawful permanent resident status, etc.). The Treasury may request additional personnel security
checks.
C. Consistent with Section 3B, Financial Agent employees and affiliate or contractor personnel
who have access to Federal Government information that is SBU must be U.S. citizens or lawful
permanent residents performing their work in the continental United States.

10. Ethical wall
The Financial Agent shall employ suitably robust internal controls to ensure that its personnel
and those of its affiliates assigned to provide services under this FAA do not divulge information
to other personnel involved with the Financial Agent's other business activities that may conflict
with its duties owed to the Treasury. No information related to the Treasury's custodial assets,
accounting, or other infrastructure services shall be revealed to such other personnel, except as
required by law, or as required for internal senior management or legal purposes consistent with
the Financial Agent's duties owed to the Treasury.
11. Employee codes of conduct and ethics

The Financial Agent must establish policies and procedures reasonably designed to assist its
employees in complying with applicable laws and regulations, and in complying with
requirements for the disclosure and the avoidance, mitigation, or neutralization of any actual or
potential personal conflicts of interest. The Financial Agent mllst have in place policies and
procedures establishing a Code of Conduct and a Code of Ethics.

12. Representations and warranties
The Financial Agent represents and warrants to the Treasury the following, the truth and
accuracy of which are a continuing condition of the Financial Agent's responsibilities to the
Treasury:

A. The Financial Agent is not aware of any legal or financial impediments to performing its
obligations under this FAA that it has not disclosed in writing to the Treasury.
B. The Financial Agent has full corporate power and authority to enter into, execute and
deliver this FAA and to perfoml its obligations hereunder.
C. The Financial Agent is not delinquent on any Federal tax obligation or any other debt
owed to the United States or collected by the United States for the benefit of others.
D. The Financial Agent is not on any Federal excluded Parties, debarments, or suspension
lists.
E. The Financial Agent is not subject to any pending or current enforcement actions that
could impair the Financial Agent's ability to provide any services under this FAA, or that
could in any way harm the reputational interests of the portfolio of troubled assets.
F. The Financial Agent has or shall promptly obtain all required licenses, bonding, facilities,
equipment and trained personnel to perform its obligations under this FAA.
G. The Financial Agent owns or is licensed to use software programs and data processing
hardware that are necessary for it to perform its obligations under this FAA, and to the
best of its knowledge such software programs and data processing hardware do not
infringe upon or constitute an infringement on or misappropriation of any valid United
States patent, copyright, trademark, trade secret or other proprietary rights of any third
party.
H. The Financial Agent covenants to disclose all actual or potential organizational conflicts
of interest, including conflicts with the interests of any corporate parents, affiliates, and
subsidiaries, and to avoid, mitigate, or neutralize to the extent feasible and to the
Treasury's satisfaction any personal or organizational conflicts of interest that may be
identified by the Treasury or the Financial Institution.

If doing other business with the Treasury or another Federal agency, the Financial Agent
is not in any kind of probationary status, and is addressing and resolving any identified
deficiencies in performance.

1. The Financial Agent covenants to disclose any other facts or information that the
Treasury should reasonably expect to know about the Financial Agent to help protect the
reputational interests of the portfolio of troubled assets.
The Financial Agent shall sign an annual certification to the Treasury in the form set forth in
Exhibit C.

13. Use of affiliates and contractors
A. The Treasury authorizes the Financial Agent to use its corporate affiliates, including but not
limited to QSR Management Limited, The Bank of New York Mellon Trust Company, N.A.,
BNY Mellon, N.A., BNY Mellon Trust of Delaware, Colson Services Corp., BNY Trust
Company of Canada, Mellon Analytical Solutions, LLC, Eagle Investment Systems LLC, and
BNY Mellon International Operations (India) Private Ltd, to perform services under this FAA
provided that the Financial Agent shall be fully accountable for any acts or omissions of an
affiliate, as if such acts or omissions were its own. The Financial Agent shall use only its own
employees and employees of corporate affiliates to perform services under this FAA, unless the
Financial Agent obtains the prior written consent of the Treasury to use contractors to perfornl
such services. The Treasury may approve or reject any contractor in its sole discretion. The
Treasury shall have the right to impose requirements for any such contractor including, without
limitation, requirements relating to the location of the contractor's offices, the citizenship of the
contractor's employees, and the contractor's physical and data security systems.
B. The Financial Agent must execute any agreement with a contractor in its own name and not
on behalf of the United States or the Treasury, and any such contractor does not become a
subcontractor, agent, or subagent of the Treasury. The Treasury shall not be deemed a party to
any arrangement or agreement the Financial Agent may enter into with another entity to perform
any services under this FAA. The Treasury will not be liable for any payment to any entity other
than the Financial Agent.
C. The Financial Agent is responsible for the supervision and management of any affiliate or
contractor that assists in the performance of services under this FAA. The Financial Agent shall
remove and replace any affiliate or contractor that fails to perform. The Financial Agent shall
ensure that all of its affiliates and contractors comply with the terms and provisions of this FAA.
The Financial Agent shall be responsible for the acts or omissions of its affiliates and
contractors as if the acts or omissions were by the Financial Agent.

14. Reviews and audits
The Treasury, the Treasury Inspectors General, the Government Accountability Office, and other
entities as authorized by the Treasury shall have the right during normal business hours to
conduct announced and unannounced onsite and offsite physical, personnel and information
technology testing, security reviews, and audits of the Financial Agent, and to examine all books
and records related to the services provided and compensation received under this FAA. The
Financial Agent shall be responsible for implementing corrective actions associated with such
testing, reviews, or audits as directed by the Treasury.
The Financial Agent shall provide the Treasury with a SAS No. 70 Service Organization Type II
report on an annual basis for services provided.

15. Intellectual property rights
A. For purposes of this Section, the following definitions apply:
"Business Methods" means any ideas, concepts, designs, practices, and business methods
created by the Financial Agent or its affiliates or contractors, jointly or independently, after
October 6,2008, expressly for the purpose of providing the services under this FAA.
"Data" means any recorded information, regardless of fornl or the media on which it may
be recorded, regarding any of the services described in this FAA.
"Federal Government" means any Federal Government department, agency, bureau,
corporation or instrumentality, or any Federal Reserve Bank.
"Unlimited Rights" means perpetual rights to, without limitation, use, copy, maintain,
modify, enhance, disclose, reproduce, prepare derivative works, and distribute, in any manner
and for any purpose and to permit others to do so.
B. For use within the Federal Government, the Treasury shall have exclusive Unlimited Rights
to Business Methods and may use them for any purpose within the Federal Government's
authority. For use outside the Federal government, the Treasury shall have non-exclusive
Unlimited Rights to the Business Methods and may use them for any purpose within the
Treasury's authority.
C. Except as otherwise provided herein or prohibited by law, the Treasury shall have nonexclusive Unlimited Rights to all data produced, developed or obtained by the Financial Agent
or its affiliates or contractors for the purpose of providing services under this FAA. If requested,
such data shall be made available to the Treasury in industry standard useable fornlat.
D. In accordance with 28 U.S.c. § 1498, the Treasury hereby authorizes and consents to all use,
manufacture, and production of any invention, product or work described in and covered by a
United States patent or copyright by the Financial Agent or any affiliate or contractor of the
Financial Agent in the performance of this FAA.

16. Liability of Financial Agent
A. If any act or omission by the Financial Agent or an affiliate or contractor of the Financial
Agent results in a delay in processing or transferring funds to the Treasury, or in delivering
transaction information that prevents the Treasury from making use of funds, the Financial
Agent is liable and shall reimburse the Treasury for the time value amount of such loss. The
Treasury may reconsider any liability claim against the Financial Agent if the Treasury, in its
sole discretion, determines that any delay arose out of causes beyond the control and without the
fault or negligence of the Financial Agent.
B. Except as otherwise provided in this Section, the Financial Agent will not be liable to the
Treasury for (i) any action taken or omitted in what the Financial Agent believes in good faith to

be the proper performance of its duties; (ii) any decisions or failures by an Asset Manager,
provided that this provision shall not constitute a waiver of any rights the Treasury may have
under Federal securities or other laws; (iii) acts or omissions of a broker, a clearing agency
which acts as securities depository, or an entity providing a book-entry system for the central
handling of securities; (iv) errors by the Treasury or an Asset Manager in data or instructions
provided to the Financial Agent; (v) any action taken or omitted by its reliance on the receipt of
electronic transmissions with the proper security codes or passwords that the Financial Agent
reasonably believes to be from the Treasury or an Asset Manager; (vi) any property received by
the Treasury and not delivered to the Financial Agent; (vii) any untimely exercise of any tender,
exchange or other right or power in connection with securities or other Treasury property held by
it, unless (a) it is in actual or effective possession of such securities or property and (b) it
receives proper instructions with regard to the exercise of any such right or power, and both (a)
and (b) occur at least three business days prior to Financial Agent's deadline date to exercise
such right or power; (viii) the title, validity or genuineness, including good deliverable form, of
any property or evidence of title thereto received by it or delivered by it pursuant to this FAA;
and (ix) events beyond the control of the Financial Agent and which can not be avoided or
mitigated by the exercise of expected diligence, care, and contingency planning.
D. The Financial Agent is liable and shall reimburse the Treasury for any monetary loss or costs
which result from the fraud, theft, embezzlement, willful misconduct, bad faith, or negligence of
the Financial Agent or its affiliates or contractors, or from the Financial Agent's or its affiliate's
or contractor's breach of a fiduciary duty.
E. The Financial Agent may be liable for costs, expenses, or damages associated with a breach
of sensitive information, as set forth in Section 7.
F. If the Treasury reasonably believes that the Financial Agent is in breach of this FAA, an
investigation of the Financial Agent's actions by the Treasury or another entity may be required.
Ifultimately found to be in breach, the Financial Agent shall be liable for the reasonable costs
and expenses of any such investigation to the extent that such costs and expenses are reasonably
documented.

17. Notice to the Treasury
The Financial Agent shall promptly notify the Treasury if(i) the Financial Agent becomes aware
of any loss, damage, investigation, action, proceeding or claim related to its perfom1ance under
this FAA that may have a material adverse effect on the Treasury or the United States or that
may damage the public's trust in the operations of the Treasury, (ii) the Financial Agent breaches
any material obligation or condition of this FAA, or (iii) any representation or warranty made by
the Financial Agent herein ceases to be true.

18. Defaults
The following, as solely determined by the Treasury, constitute events of default by the Financial
Agent under this FAA:
A. The Financial Agent fai Is to perform or comply with any of its material obligations under
this FAA.
B. The Financial Agent or any of its employees, affiliates, or contractors commits a
negligent, willful, or reckless act in connection with services or activities under this
FAA.
C. The Financial Agent breaches a fiduciary duty to the United States with respect to its
responsibilities under this FAA.
D. Any representation or warranty made herein by the Financial Agent is or becomes
materially false, incorrect, or incomplete.
E. The Financial Agent is or becomes delinquent on any Federal tax obligation or any other
debt owed to the United States Government or collected by the United States for the
benefit of others.
F. The Financial Agent becomes insolvent or a receiver, liquidator, trustee, conservator, or
other custodian is appointed for the Financial Agent.
G. The Financial Agent is in default under any other agreement between the Financial Agent
and the Treasury or any bureau of the Treasury.

19. Remedies for default
The Treasury may take any, all, or none of the following actions in the event ofa default by the
Financial Agent under this FAA:
A. The Treasury may terminate this FAA and cease its perfonnance hereunder. If this FAA
is terminated, the designation and authorization of the Financial Agent for purposes of
providing the services under this FAA are automatically revoked.
B. The Treasury may reduce the scope of services under this FAA and cease a portion of its
perfonnance hereunder. If the scope of this FAA is reduced, the authorization of the
Financial Agent for purposes of providing the discontinued services under this FAA is
automatically revoked.
C. The Treasury may revoke the Financial Agent's designation as a financial agent for the
United States, encompassing this FAA and any other financial agency agreement with the
Treasury, which shall be deemed terminated as of the effective date of such revocation.

D. The Treasury may declare any other agreement between the Financial Agent and the
Treasury to be in default.
E. The Treasury in its sole discretion may put a Financial Agent on probation for failing to
perform satisfactorily a service (or services) delineated in this FAA. Probation means
that the Treasury will withhold some or all of the Financial Agent's compensation until in
the Treasury's detern1ination the Financial Agent has cured the non-performance issues.
The Treasury reserves the right to consider other measures in addition to withholding the
compensation if the Financial Agent is put on probation, including but not limited to,
preclusion from additional work under the existing agreement and ineligibility to be
designated for other work under a new agreement. The payment of compensation may
also be adjusted consistent with Section 16 (Liability of Financial Agent.)
F. The Treasury may consider information or history regarding any default hereunder when
making any decisions regarding future use of the Financial Agent for performance of
financial agent services.
G. The Treasury may take any other action available at law or in equity.

20. Termination in the interest of the United States
Notwithstanding any other provision of this FAA, when the Treasury in its sole discretion
determines that such actions are necessary to protect the interests of the United States
Government, the Treasury may reduce the authorized scope of work under this FAA, terminate
this FAA, or revoke the Financial Agent's status as a financial agent of the United States even in
the absence of an event of default by the Financial Agent under this FAA.

21. Disputes
The Treasury and the Financial Agent agree that it is in their mutual interest to resolve disputes
by agreement. If a dispute arises under this FAA, the parties will make all reasonable efforts to
resolve the dispute by mutual agreement. If a dispute cannot be resolved informally by mutual
agreement at the lowest possible level, the dispute shall be referred up the respective chain of
command of each party in an attempt to resolve the matter. This will be done in an expeditious
manner. The Financial Agent shall continue diligent performance of the services required by
this FAA pending resolution of any dispute. The Treasury and the Financial Agent reserve the
right to pursue other legal or equitable rights they may have concerning any dispute. However,
the parties agree to take all reasonable steps to resolve disputes internally before commencing
legal proceedings.

22. Data and records retention
In addition to its fiduciary duties and any other obligation to retain financial and accounting
records that may be imposed by Federal.or state law, the Financial Agent shall retain all data,
books, reports, documents, audit logs and records, including electronic records, related to the
performance of services required by this FAA. In addition, the Financial Agent shall maintain a

copy of all computer systems and application software necessary to review and analyze these
electronic records. Unless otherwise directed by the Treasury, the Financial Agent shall retain
these records for at least 7 years from the date the data or record was created. The Treasury may
also notify the Financial Agent from time to time of any additional records retention
requirements resulting from litigation in which the Treasury may have an interest, and the
Financial Agent agrees to comply with these litigation requirements.

23. Transfer or assignment
A. The Financial Agent may not transfer or assign its rights under this FAA without the prior
written consent of the Treasury, which may be granted or withheld in the sole discretion of the
Treasury. Any purported transfer or assignment without the prior written consent of the
Treasury shall be void.
B. The Financial Agent shall notify the Treasury as soon as legally possible of any proposed
merger, acquisition, or other action involving the Financial Agent, its corporate affiliates, or its
contractors that will affect the Financial Agent's ability to carry out its responsibilities under this
FAA.
C. In the event that the Financial Agent is involved in a merger or acquisition, the Treasury
may, in its sole discretion, elect to continue this FAA and to treat the Financial Agent's
successor in interest to be a successor financial agent. If the Treasury elects not to continue this
FAA, the Treasury shall notify the Financial Agent of the tennination date of the FAA.

24. Notices
All notices required to be given herein shall be in writing and shall be given to the following
contacts unless expressly stated otherwise herein:
To the Treasury:
Gary Grippo
Deputy Assistant Secretary
Fiscal Operations and Policy
U.S. Department of the Treasury
1500 Pennsylvania Ave, NW, Room 2112
Washington, DC 20220
To the Financial Agent:
Scott Posner
Executive Vice President
Global Corporate Trust
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286

The party giving the notice should send an e-mail to the party receiving the notice advising that
them that the notice by mail has been given.

25. Publicity and Disclosure
A. The Financial Agent shall not make use of any Treasury name, symbol, emblem, program
name, or product name, in any advertising, signage, promotional material, press release, Web
page, publication, or media interview, without the prior written consent of the Treasury.
B. The Financial Agent, its affiliates or contractors, and their respective employees shall not
make statements to the media or issue press releases regarding their services under this FAA
without the prior written consent of the Treasury.
C. The Financial Agent acknowledges that this FAA contains confidential information and,
consistent with applicable law, shall not disclose this FAA to third parties.

26. Modifications
Modifications to this FAA shall be in writing and signed by the parties. Notwithstanding the
foregoing, the Treasury reserves the right to unilaterally modify the terms and provisions of this
FAA, through written notice to the Financial Agent, to comply with changes in legislation or
regulations, court orders, or audit findings.

27. Miscellaneous
A. This FAA will be interpreted under Federal law, and if there is no applicable Federal law,
under the laws of New York.
B. This FAA is not a Federal procurement contract and is therefore not subject to the provisions
of the Federal Property and Administrative Services Act (41 U.s.c. §§ 251-260), the Federal
Acquisition Regulations (48 CFR Chapter I), or any other Federal procurement law.
C. Any provision of this FAA that is determined to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this FAA, and no such
prohibition or unenforceability in any jurisdiction shall invalidate such provision in any other
jurisdiction.
D. Failure on the part of the Treasury to insist upon strict compliance with any of the terms
hereof shall not be deemed a waiver, nor will any waiver hereunder at any time be deemed a
waiver at any other time. No waiver will be valid unless in writing and signed by an authorized
officer of the Treasury. No failure by the Treasury to exercise any right, remedy, or power
hereunder will operate as a waiver thereof. The rights, remedies, and powers provided herein are
cumulative and not exhaustive of any rights, remedies, and powers provided by law.

E. This FAA shall inure to the benefit of and be binding upon the parties to this FAA. No other
person or entity will have any right or obligation hereunder, except for successor financial agents
accepted by the Treasury.
F. This FAA may be executed in two or more counterparts (and by di fferent parties on separate
counterparts), each of which shall be an original, but all of which together shall constitute one
and the same instrument.
G. This FAA and the attached Exhibits constitute the entire agreement between the parties.

28. Incorporation by reference
Exhibits A-D attached to this FAA are incorporated herein by reference and given the same force
and effect as though fully set forth herein.

In witness whereof, the Treasury and the Financial Agent by their duly authorized officials
hereby execute and deliver this Financial Agent Agreement as of the Effective Date.

Department of the Treasury

Date

Kenneth E. Carfine
Fiscal Assistant Secretary

Financial Agent

Date

Scott F. Posner
Executive Vice President

EXHIBITS

Exhibit A

Services and Other Terms

Exhibit B

Compensation

Exhibit C

Annual Certification Format

Exhibit D

Non-Disclosure Agreement for Employees

EXHIBIT A
SERVICES AND OTHER TERMS
The Financial Agent shall provide the following services as custodian and infrastructure provider
for the portfolio of troubled assets established pursuant to the Emergency Economic Stabilization
Act of 2008 (Act). The Financial Agent shall:
Custodian
•

Provide all necessary custody accounts, cash accounts, and sub-accounts for the portfolio and
for all asset managers appointed by the Treasury.

•

Receive, hold, safe keep, and track all assets and cash in the portfolio, including but not
limited to mortgage-backed securities, whole loans, and preferred shares.

•

Collect income and principal distributions for assets in the portfolio.

•

Release assets and disburse cash, in accordance with the Treasury's instructions.

•

Manage credits and debits to the various cash and custody accounts for all income, receipts,
purchases, and outlays of the portfolio.

•

Confirm acquisitions, settlements, trades, transfers, and other transactions with asset
managers assigned to the portfolio, and other counterparties as necessary.

Asset Tagging
•

Provide asset tagging for unique attributes of assets in the portfolio, including but not limited
to tracking (i) warrants linked to the counterparties that sold assets, (ii) executive
compensation triggers linked to counterparties that sold assets, (iii) tax law triggers linked to
counterparty transactions and trading vol umes, (iv) geographic attributes of assets, and (v)
other attributes across securities, whole loans, warrants, preferred stock, insurance
guarantees and premiums, and other instruments that may be allowed under the Act.

Auctions
•

Serve as auction manager for auctions and/or reverse auctions to acquire securities for the
portfolio.

•

Acquire all necessary expert advice to help the Treasury with the detailed design of auction
protocols to achieve the policy goals of fostering price discovery and observable valuations.

•

Assist the Treasury in designing, implementing, and testing auction protocols under highly
compressed deadlines.

•

Conduct multiple simultaneous auctions with multiple rounds and with up to thousands of
auction participants.

•

Provide the technical infrastructure to collect and process bids from auction participants,
provide appropriate results to participants during auctions.

•

Provide all necessary customer service and support to auction participants before, during, and
after auctions.

•

Work with brokers, dealers, book entry systems providers, and other vendors to assist in
authenticating beneficial owners, protecting against collusion by auction participants, and
conducting pre- and post-auction validations.

•

Clear and settle auction transactions.

•

Work in good faith with the Treasury to integrate the Financial Agent's auction platform, on
a reasonable commercial basis, with other technology that helps implement auction
protocols.

Accounting and Reporting
•

Provide the account of record for the entire portfolio, and all assets contained in it, in
accordance with applicable GAAP for a hold to maturity and/or traded portfolio, as
appropriate.

•

Provide the Treasury with all necessary accounting information to support compliance with
Federal Credit Refoml Act accounting, including but not limited to cash flow analysis and
data for credit reform cost calculations, FASAB standards and technical releases, and Federal
audit standards.

•

Work in good faith and provide necessary resources to support officials responsible for the
Treasury's budgetary and proprietary accounting and the preparation of the Treasury entitylevel and consolidated financial statements.

•

Provide accounting and footnote disclosure information for the portfolio in accordance with
FAS 157, as required by the Treasury.

•

Produce all other management and operational reports, as requested by the Treasury, on
transactions, positions, valuations, cash flows, counterparties, and portfolio characteristics
such as duration and geographic characteristics.

•

Support public transparency reporting, as required by the Act, by providing information on
all transactions and assets for posting on the Internet.

•

Reconcile activities daily, if necessary, with the Treasury and with asset managers.

•

Support the preparation of reports to oversight bodies, as required by the Treasury and by the
Act.

•

Provide Treasury personnel with secure access to the Financial Agent's reporting platform to
allow for ad hoc queries and the direct generation of reports.

Cash Management
•

Sweep all end of day cash balances in accordance with the Treasury's instructions.

Pricing, Valuation, and Market Information
•

Provide all necessary pricing and valuation services for all debt and equity assets in the
portfolio, including the economic value of warrants obtained from Financial Institutions
selling asset to the Treasury, and including all necessary analytics, models, and reports.

•

Provide for valuations of mortgage whole loans, and portfolios of whole loans, according to
different product and performance characteristics, including residential first liens (nonagency Prime, Alt-A, Subprime), residential second liens, commercial mortgages, and other
loans.

•

Produce reference prices, pricing curves, and CUSIP-level asset valuations using widely
accepted software and data resources to support the acquisition of assets through auctions
and other market based mechanisms.

•

Provide the Treasury with all information necessary to issue public reports on the methods
for pricing and valuing assets, as required by the Act.

•

Provide detailed information on the number, values, and characteristics of mortgage-backed
securities in the market, as necessary to develop auction and acquisition strategies.

Operations
•

Confirm transactions, trades, and settlements with asset managers.

•

Maintain records of (i) trades executed, including all pertinent financial and settlement
information, (ii) principal and interest (P&I) payments, and (ii i) cash flow projections of new
trades and P&I payments.

•

Track, maintain records of, and promptly resolve notification and settlement fails.

•

Maintain settlement tolerance thresholds consistent with best practices.

•

Provide for straight-through-processing, to the maximum extent practicable, with asset
managers for trading and post-trading processing.

•

Provide data feeds to the Treasury's management and accounting systems.

•

Enforce intemal controls.

•

Provide for all necessary operational and analytical hardware and software to support all
required services.

Mortgage Whole Loans
•

Provide a technology platform for executing the purchase, sale, and holding of mortgage
whole loans and whole loan portfolios, for use in connection with the activities of multiple
whole loan asset managers assigned to the portfolio.

•

Provide necessary storage facilities for the on-going safekeeping of loan documents.

•

Receive and store physical loan and legal documents, in accordance with industry best
practices for safety and security.

•

Review and certify loan documents to ensure that all necessary data is present.

•

Provide exception reports detail items missing from document requirements, and work with
counterparties until exception items are cleared.

Master Servicer
•

Oversee certain activities of primary servicers, as directed by the Treasury.

•

Disseminate and monitor compliance with the Treasury's servicing guidelines, including but
not limited to loss mitigation guidelines and instructions regarding the HOPE for
Homeowners Program, across all primary servicers.

•

Ensure the accuracy of loan-level payment data from servicers.

•

Conduct periodic on-site reviews of servicers, to include among other things file reviews,
procedures testing, review of account administration, and review of nonperforming loans,
and produce reports with portfolio, operational, financial, and risk characteristics.

The Financial Agent shall provide the custodian services identified above in accordance with the
following procedures and terms.

1. Authorization of custodian
The Treasury authorizes the Financial Agent to be custodian of certain assets and cash in an
account established at the Financial Agent (the "Account"). All cash and assets delivered to the
Financial Agent will be held and administered in accordance with the Financial Agency
Agreement (FAA).

2. Appointment of Investment Manager
The Treasury will designate multiple Asset Managers to manage the investment of all or any
portion of the Account. The Treasury will notify the Financial Agent in writing of the
appointment of Asset Managers, and of the portion of the assets over which a particular Asset
Manager may exercise authority. The Treasury will notify the Financial Agent in writing of the
termination of the appointment of any Asset Manager.

3. Duties as custodian
A. The Financial Agent shall release and deliver assets in the Account only upon receipt of
Proper Instructions (as defined in Section 7 below), which may be standing instructions when
deemed appropriate by the Treasury in the following cases:
(a) Upon sale of such assets for the Account, unless otherwise directed by Proper Instructions, in
accordance with the established procedures for the market or clearing agency where the
transactions occur, including delivery to the purchaser or to a dealer (or an agent of the purchaser
or dealer) against payment;
(b) To a depository agent in connection with tender or other similar transactions for assets of the
Account;
(c) To an issuer or its agent when such assets are called, redeemed, retired or otherwise become
payable, provided that, unless otherwise directed by Proper Instructions, the cash or other
consideration is to be delivered to the Financial Agent;
(d) To an issuer or its agent, for transfer or exchange into the name of the Financial Agent for a
di fferent number of bonds, certi ficates, or other evidence representing the same aggregate face
amount or number of units;
(e) To brokers, clearing banks, or other clearing agents for examination in accordance with
"street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization,

reorganization, or readjustment of the securities of an issuer of the securities, or pursuant to
provisions for conversion contained in the securities, provided that, unless otherwise directed by
Proper Instructions, the new securities and cash, if any, are to be delivered to the Financial
Agent;
(g) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of
such warrants, rights or similar securities or the surrender of interim receipts or temporary
securities for definitive securities, provided that, unless otherwise directed by Proper
Instructions, the new securities and cash, if any, are to be delivered to the Financial Agent;
(h) In connection with the loan of securities or other assets; and
(i) For any other purpose upon receipt of Proper Instructions specifying the assets to be delivered
and naming the person or persons to whom delivery of such assets shall be made.
B. The Financial Agent shall transmit promptly to the Treasury and an Asset Manager written
information, including but not limited to pendency of calls and maturities of securities and any
related expirations of rights, and tender or exchange offers, received by the Financial Agent from
issuers of securities held for the Account.

4. Bank accounts
As part of the Account, the Financial Agent shall provide a bank account(s) subject only to draft
or order by the Financial Agent acting pursuant to the terms of the FAA, to receive and hold cash
received by, from, or for the Treasury. Such funds shall be deposited by the Financial Agent in
its capacity as financial agent pursuant to the FAA and shall be withdrawable by the Financial
Agent only in that capacity. This account shall be collateralized as necessary in accordance with
31 CFR 202.

5. Settlement, credits, and debits
A. The Financial Agent may settle transactions in such markets as the Financial Agent may
determine from time to time.
B. The Financial Agent will credit to the Account all income, sales proceeds, and receipts
generated by assets held in custody immediately as they are received. The Financial Agent shall
immediately notify the Treasury and an Asset Manager if the Financial Agent has actual or
constructive knowledge that any credit to the Account will not settle in accordance with its ten11S
or in the time period ordinarily applicable to a transaction in the applicable market.
C. The Financial agent will debit the Account for any purchase or outlay transaction as of the
time and date that funds would ordinarily be required to settle such transaction in the applicable
market. The Financial Agent shall immediately re-credit the amount and notify the Treasury and
an Asset Manager if the Financial Agent has actual or constructive knowledge that any debit to
the Account will not settle in accordance with its terms or in the time period ordinarily
applicable to a transaction in the applicable market. The Financial Agent shall immediately re-

credit the amount ifan Asset Manager or the Treasury notifies the Financial Agent by Proper
Instruction that a transaction has been canceled prior to settlement.

6. Payment of Account funds
Upon receipt of Proper Instructions, to include written security procedures for payment orders,
which may be standing instructions, or as may be otherwise authorized within the FAA, the
Financial Agent shall payout funds of the Account in the following cases:
(a) Upon the purchase of assets for the Account, unless otherwise directed by Proper
Instructions, in accordance with the established procedures for the market or clearing agency
where the transactions occur, including delivering money to the seller or to a dealer (or an agent
for the seller or dealer) against delivery of the assets;
(b) In connection with the conversion, exchange or surrender of securities of the Account as set
forth in Section 3 above;
(c) For other purposes as provided in Proper Instructions specifying the amount of such payment
and naming the person or persons to whom such payment is to be made.

7. Proper Instructions
A. The term "Proper Instructions" means instructions received by the Financial Agent from the
Treasury, an Asset Manager, or any person duly authorized by either of them. Such instructions
may be in writing signed by an authorized person or may be in a tested and validated electronic
communication between computer systems, or by other means, including oral instructions, as
may be authorized in writing by the Treasury.
B. The Treasury will provide the Financial Agent with the names and specimen signatures of
Treasury and Asset Manager personnel duly authorized to give Proper Instructions or otherwise
act on behalf of the Treasury with respect to the Account. The Treasury will provide prompt
updates as authorized personnel change.

8. Actions permitted without express authority
The Financial Agent may, at its discretion, without express authority from the Treasury or an
Asset Manager (i) endorse for collection checks, drafts and other negotiable instruments, and (ii)
in general attend to all nondiscretionary details in connection with the sale, exchange,
substitution, purchase, transfer and other dealings with the assets and property of the Account.

9. Reliance
A. The Financial Agent may rely upon the identity and authority of each person whom the
Treasury has certified in writing as authorized to give Proper Instructions until it receives written
notice from the Treasury or the Asset Manager to the contrary.

B. The Financial Agent may rely upon transmissions of information secured by security codes
or passwords it has issued to the Treasury or an Asset Manager
C. The Financial Agent, in performing its duties under this FAA, shall rely upon Proper
Instructions from an Asset Manager, subject to any limitations that the Treasury may provide to
the Financial Agent in writing. In the absence of such limitations, the Financial Agent shall rely
on Proper Instructions from an Asset Manager to the same extent as the Financial Agent would
accept such Proper Instructions as if from the Treasury directly.
D. The Financial Agent may rely and act upon any administrative request or consent that it
reasonably believes to be genuine and to have been properly executed or otherwise given by or
on behalf of the Treasury or an Asset Manager.

10. Legal actions
Participation in legal actions (such as class action suits and bankruptcies) pertaining to assets in
the Account :s the responsibility of the Treasury. The Financial Agent will take no action with
respect to such legal actions other than directing them to the Treasury.

11. Unencumbered Assets
All assets in the Account should be free from any security interests, liens or encumbrances
exercisable by any third party against such assets, and the Treasury will not grant a security
interest, lien or encumbrance on any such assets for the benefit of any third party unless it
notifies the Financial Agent. The Treasury and the Financial Agent will notify one another if
they learn that any security interest, lien or encumbrance is created against any assets in the
Account.

EXHIBIT B
COMPENSATION
1. General compensation and pricing provisions

B. The monthly fee will be prorated based on the actual number of
for a
.od of less than one full month.

C. Compensation will be paid monthly after each month for services rendered.
D. The Financial Agent must submit an invoice prior to receiving compensation.

2. Compensation during transition periods
The Financial Agent will be compensated for services rendered during any transition period
under Section 2C of this FAA at the same rate in effect on the last day before the transition
period begins.

3. Methods of compensation
The Treasury retains the right to compensate the Financial Agent for services provided under this
FAA in such a method or methods as the Treasury in its sole discretion deems appropriate
including, but not limited to, direct payments. The Treasury and the Financial Agent may also
mutually agree on other methods.

4. Probationary Status
The Treasury may withhold all or a portion of the compensation if the Financial Agent is placed
on probation.

EXHIBIT C
ANNUAL CERTIFICATION FORMAT
I, [Name of Authorized Official], a duly authorized official of[Financial Institution name],
certi fy that:
1. [Financial Institution name] is taking all reasonable steps to ensure that SBU information and
PII obtained from or on behalf of the Treasury is properly safeguarded;
2. all charges and expenses charged to the Treasury are accurate and attributable to services
provided to the Treasury;
3. [Financial Institution name] is not on any Federal excluded parties, debarments, or
suspension lists;
4. [Financial Institution name] is not delinquent on any federal tax obligation or on any other
debt owed to the United States and that [Financial Institution name] agrees to execute IRS
Form 8821, and any other necessary Federal forms, to allow the Treasury to verify such
information;
5. [Financial Institution name] is not aware of any legal or financial impediments to performing
its obligations to the Treasury;
6. [Financial Institution] is not subject to any pending or current enforcement actions;
7. all employees and affiliate or contractor personnel who have access to Federal Government
information that is SBU are U.S. citizens or lawful permanent residents performing their
work in the continental United States, unless specifically authorized by the Treasury in
writing;
8. [Financial Institution name] covenants to disclose all potential conflicts of interest, including
conflicts with the interests of any corporate parents, affiliates, and subsidiaries, and to avoid,
mitigate, or neutralize to the extent feasible and to the Treasury's satisfaction any personal or
organizational conflicts of interest that may be identified by the Treasury or the Financial
Institution;
9. [Financial Institution name] covenants to disclose any other facts or information that the
Treasury should reasonably expect to know about the Financial Agent to help protect the
reputational interests of the portfolio of troubled assets.
10. any other provisions or statements contained in the Financial Agent Agreement, and any
amendments thereto, remain true and correct.

In the event that any of the representations made herein cease to be true and correct, [Financial
Institution name] agrees to notify the Treasury immediately.

[Name of Authorized Official]
[Title of Authorized Official]

Date

EXHIBIT D
NON-DISCLOSURE AGREEMENT
Conditional Access to Confidential Information

I,
, employee of
(Organization)
hereby consent to the terms in this Agreement in consideration of my being granted conditional
access to certain United States Government confidential information.
I understand and agree to the following terms and conditions:

1. By being granted conditional access to confidential information, the

(Organization)
and the U.S. Department of the Treasury (Treasury) have placed special confidence and trust
in me, and I am obligated to protect this information from unauthorized disclosure, according
to the terms of this Agreement.

2. Confidential information refers to any information, without limitation, about the Treasury's
nonpublic business, economic, and policy plans, nonpublic or proprietary financial
information, trade secrets, infornlation subject to the Privacy Act, personally identifiable
infornlation (PII) , and sensitive but unclassified (SBU) information.
3. PII includes, but is not limited to, information pertaining to an individual's education, bank
accounts, financial transactions, medical history and other information which can be used to
distinguish or trace an individual's identity, including but not limited to social security
numbers.
4. SBU information is any information where the loss, misuse, or unauthorized access to, or
modification of which could adversely affect the national interest or the conduct of Federal
programs, or the privacy of individuals that they are entitled to under the Privacy Act and
other Federal statutes.
5. I am being granted conditional access to confidential information, contingent upon my
execution of this Agreement, to provide authorized services to the Treasury.
6. I shall never divulge any confidential information provided to me pursuant to this Agreement
to anyone, unless I have been advised in writing by the
(Organization) and/or the
Treasury that an individual is authorized to receive it.
7. I will submit to the Treasury for security review, prior to any submission for publication, any
book, article, column or other written work for general publication that is based upon any
knowledge I obtain during the course of my work in connection with the Treasury. I"hereby
assign to the Federal Government all rights, royalties, remunerations and emoluments that
have resulted or will result or may result from any disclosure, publication, or revelation of
confidential information not consistent with the terms of this Agreement.

8. If I violate the terms and conditions of this Agreement, I understand that the unauthorized
disclosure of confidential information could compromise the security of individuals, the
_ _ _ _ _ (Organization) and the Treasury.
9. If I violate the terms and conditions of this Agreement, such violation may result in the
cancellation of my conditional access to confidential information. Further, violation of the
(Organization) and/or the
terms and conditions of this Agreement may result in the
United States taking administrative, civil or any other appropriate relief.
10. I understand that the willful disclosure of information to which I have agreed herein not to
divulge may also constitute a criminal offense.
11. Unless I am provided a written release by the Treasury from this Agreement, or any portions
of it, all conditions and obligations contained in this Agreement apply both during my period
of conditional access, and at which time my affiliation and/or employment with the
_ _ _ _ _ _ _ (Organization) ends.
12. Each provision of this Agreement is severable. Ifa court should find any provision of this
Agreement to be unenforceable, all other provisions shall remain in full force and effect.
13. I understand that the Treasury may seek any remedy available to it to enforce this
Agreement, including, but not limited to, application for a court order prohibiting disclosure
of information in breach of this Agreement.
14. I understand that if! am under U.S. Congressional or judicial subpoena, I may be required by
law to release information.
I make this Agreement in good faith, without mental reservation or purpose of evasion.

Date

Signature

1P-1212: Treasury Requests Public Input on Establishment of Guaranty Program for Troubled Assets Page I of 1

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October 14, 2008
HP-1212
Treasury Requests Public Input on Establishment of
Guaranty Program for Troubled Assets
Washington - The Department of the Treasury released a request for public input
today on an insurance program for troubled assets which is required by the
Emergency Economic Stabilization Act of 2008 (EESA). The purpose of this
program is to restore liquidity and stability to the financial system, while minimizing
any potential long term negative impact on taxpayers.
Under the EESA the Secretary is charged with establishing a program that will
guarantee principal of, and interest on, troubled assets originated or issued prior to
March 14,2008. The program may take any form and may vary by asset class, but
it must be voluntary and self-funding. The Secretary has the authority to set
premiums to reflect the credit risk characteristics of the insured assets so as to
ensure that taxpayers are fully protected.
Treasury invites comment on how the program should be structured to minimize
adverse selection, including how premiums should be calculated, what events
should trigger insurance payout, what form that payout should take, and which
institutions and assets should be eligible. The Department also asks for public
comment on technical considerations, including what legal, accounting, or
regulatory issues would arise and what administrative challenges the program will
create.
Comments are due by Tuesday, October 28 and may be submitted at
www.regulations.gov.

REPORTS
•

Federal RegisterNQtice

P:llwww.treas.goy/press/releases/hp1212.htm

12/c)/200~

Billing code: 4810-25-P
DEPARTMENT OF THE TREASURY
Development of a guarantee program for troubled assets.
AGENCY: Department of the Treasury, Departmental Offices.
ACTION: Notice and request for comments.
SUMMARY:

The Department of the Treasury invites the general public to comment

on a program to guarantee the timely payment of principal of, and interest on, troubled
assets originated or issued prior to March 14, 2008, as authorized by Section 102 of the
Emergency Economic Stabilization Act of 2008 (EESA).
DATES: Written comments should be received on or before October 28, 2008 to be
assured of consideration.
SUBMISSION OF COMMENTS:
Please submit comments electronically through the Federal eRulemaking Portal"Regulations.gov." Go to http://regulations.gov to submit or view public comments. The
"How to Use this Site" and "User Tips" link on the Regulations.gov home page provides
information on using Regulations.gov, including instructions for submitting or viewing
public comments, viewing other supporting and related materials, and viewing the docket
after the close of the comment period.

Please include your name, affiliation, address, e-mail address and telephone number(s) in
your comment. All statements received, including attachments and other supporting

1.1

Should the program offer insurance against losses for both individual whole loans
and individual mortgage backed securities (MBS)?

1.2

What is the appropriate structure for such a program? How should the program
accommodate various classes of troubled assets? Should the program di ffer by
the degree to which an asset is troubled?

1.2.1

What are the key issues to consider with respect to guaranteeing whole first
mortgages?

1.2.2

What are the key issues to consider with respect to guaranteeing HELOCs and
other junior liens?

1.2.3

What are the key issues to consider with respect to guaranteeing MBS?

1.2.4

What are the key issues associated with guaranteeing financial instruments other
than mortgage related assets originated or issued before March 14, 2008 that
could be important for promoting financial market stability?

1.3

What are the key issues to consider with respect to setting the payout of the
guarantee?

under 1.21-1.24. Docs it differ by the degree to which the asset is troubled?

1.7

What arc the key clements the Treasury should consider in setting premiums for
this program? Is it feasible or appropriate to set premiums reflecting the prices of
similar assets purchased under Section 101 of the EESA?

1.7.1

Ifuse of prices of similar assets purchased under Section 101 of the EESA arc not
feasible or appropriate, should premiums be set by use of market mechanisms
similar to (but separate from) those contemplated for the troubled assets purchase
program? How would this be implemented? Ifnot feasible or appropriate, what
methodologies should be used to set premiums?

1. 7.2

Do these considerations of feasibility or appropriateness vary by asset class? If so,
please describe using the same asset classes as enumerated under 1.21-1.24.
Should the premiums vary by the degree to which the asset is troubled?

1.8

How and in what form should payment of premiums be scheduled?

How should a guarantee program be designed to minimize adverse selection,
given that the program must be voluntary? Is there a way to limit adverse
selection that avoids individually analyzing assets?

7.1

Does this preference differ by type and condition of the asset? For what troubled
assets might financial institutions choose to participate in the guarantee program
rather than sell under the troubled asset purchase program? Is accommodating this
choice likely to best promote the goals of the EESA? Does it adequately protect
the taxpayer? If not, what design feature should be included to assure these goals
are met?

Dated: October 10, 2008

Lindsay Valdeon
Deputy Executive Secretary
Treasury Department

).1213: Joint Stat.ement of<hr>Henry M. Paulson, Jr., Secretary of the Treasury,

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October 14, 2008
HP-1213
Joint Statement of
Henry M. Paulson, Jr.,
Secretary of the Treasury,
and
Jim Nussle,
Director of the Office of Management and
Budget,
on
Budget Results for Fiscal Year 2008
SUMMARY
The Administration today released the September 2008 Monthly Treasury
Statement of Receipts and Outlays of the United States Government [1]. The
statement shows the actual budget totals for the fiscal year that ended September
30, 2008, as follows:
•
•
•

A deficit of $455 billion, or 3.2 percent of Gross Domestic Product (GOP)
total receipts of $2,524 billion, or 17.8 percent of GOP; and
total outlays of $2,979 billion, or 21.0 percent of GOP.

"This year's budget results reflect theongoing housing correction, and the
manifestations of that instrained capital markets and slower growth. We are taking
aggressiveactions to stabilize our financial markets and strengthen ourfinancial
institutions so they can finance economic growth. While it will take time towork
through this period, we will overcome the current challengesfacing our nation.
"The budget results reinforce the need to notonly address short term challenges,
but pursue policies that promoteeconomic growth and fiscal responsibility, and
address entitlementreform."
-Treasury SecretaryHenryPaulson
"The bipartisan stimulus bill and the sloweconomy are the primary reasons for the
increase in deficit asreflected in this year's budget results. This increase
reinforcesthe need to adopt and maintain policies that promote economic
growthand fiscal responsibility, including entitlement reform andpro-growth tax
policies. I am confident the economy can return tostronger growth with a declining
deficit - after working throughcurrent challenges - if Congress limits wasteful and
excessivespending. "
-OMBDirectorJimNussle
Table 1. TOTAL RECEIPTS, OUTLAYS AND SURPLUSIDEFICIT (-)
Receipts

Outlays

Surplus/Deficit (-)

2,568

2,729

-162

FY 2009 Budget.

2,521

2,931

-410

FY 2009 Mid-Session Review

2,553

2,942

-389

Actual.

2,524

2,979

-455

FY 2007 Actual.
FY 2008 Estimates:

The FY 2008 unified deficit was $455 billion, or an estimated 3.2 percent of GOP.

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The deficit was $65 billion higher than projected in the July Mid-Session Review
(MSR), because outlays were $36 billion higher than expected and receipts were
$29 billion lower than expected. The deficit was also $45 billion higher than
projected last February in the FY 2009 Budget, with receipts coming in $3 billion
higher and outlays $47 billion higher than projected.
Overall, receipts in FY 2008 were $44 billion, or 1.7 percent, lower than in FY
2007. Receipts were reduced relative to the previous year by the tax rebates and
other provisions of the Economic Stimulus Act enacted in February 2008, and by
the effects of the current economic slowdown on incomes and corporate profits.
Receipts fell from 18.8 percent of GOP in FY 2007 to 17.8 percent of GOP in FY
2008, after rising for the previous four years. This level of receipts is below the 40year historical average of 18.3 percent of GOP.
Outlays for FY 2008 grew by $249 billion, or 9.1 percent, from FY 2007. The
increase was driven by growth in defense outlays, payments of the portion of
stimulus tax rebates that was recorded as outlays, and payments by the Federal
Oeposit Insurance Corporation to resolve recent bank failures. Outlays were also
boosted by increases in unemployment, Food Stamp, and Medicaid benefits due to
slower economic growth. In addition, the growth rate was influenced by proceeds
for spectrum auctions recorded in FY 2007, which held down FY 2007 outlays
relative to FY 2008. Overall, outlays increased as a percent of GOP from 20.0
percent in FY 2007 to 21.0 percent in FY 2008. This spending level is above the
40-year historical average of 20.6 percent.
At $455 billion, the deficit for FY 2008 was $293 billion higher than the deficit for FY
2007. The deficit increased to 3.2 percent of GOP, up from 1.2 percent of GOP for
FY 2007. As a percentage of GOP, the FY 2008 deficit was the largest since the
deficit of 3.6 percent of GOP in FY 2004, but below the peak postwar deficit in FY
1983 (6.0 percent).
Borrowing from the public increased by $768 billion during FY 2008, to $5,801
billion or 40.8 percent of GOP. In addition to the $455 billion needed to finance the
deficit, the increase included $300 billion in debt issued through Treasury's new
Supplementary Financing Program (SFP). Under the SFP, Treasury issues shortterm debt and deposits the cash proceeds with the Federal Reserve for use by the
Federal Reserve in its actions to stabilize the financial markets. Although debt held
by the public as a percentage of GOP increased from 36.9 percent at the end of FY
2007, it remains below the levels of the 1990s, when debt held by the public
averaged 46.1 percent of GOP.
RECEIPTS
Total receipts for FY 2008 were $2,524 billion, $29 billion lower than the MSR
estimate of $2,553 billion. Lower-than-expected collections of individual income
taxes and corporation income taxes accounted for most of the net decrease in
receipts relative to the MSR. Table 2 displays actual receipts and estimates from
the MSR by source.

•

Individual income taxes were $1,146 billion, $23 billion lower than the
MSR estimate. Lower-than-estimated withheld tax payments accounted for
$16 billion of the shortfall in individual income tax receipts relative to the
MSR. Lower-than-anticipated growth in total wages and salaries and a
different distribution of that growth among taxpayers, relative to what was
assumed in the MSR, contributed to most of the shortfall in withheld tax
payments. An accounting adjustment based on more recent data, which
reallocated $1 billion less than had been expected in withheld tax payments
from the Social Security and Medicare Trust Funds to individual income
taxes, also contributed to the shortfall in withheld tax payments. Lowerthan-estimated non-withheld payments reduced individual income taxes an
additional $7 billion below the MSR estimate. Lower-than-anticipated
growth in non-wage sources of income such as capital gains and dividends
contributed to this shortfall in non-withheld payments.
• Corporation income taxes were $304 billion, $5 billion lower than the
MSR estimate. Lower-than-estimated corporate tax payments of $4 billion
and higher-than-estimated refunds of $1 billion were responsible for the
shortfall in collections relative to the MSR. The ability of corporations
affected by Hurricanes Gustav and Ike to delay estimated tax payments
otherwise due on September 15th until January 2009 accounted for $2

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billion of the shortfall in corporate tax payments. Lower-than-expected
corporate profits accounted for the remaining $2 billion shortfall in corporate
tax payments.
• Social insurance and retirement receipts were $900 billion, $1 billion
lower than the MSR estimate. A $2 billion shortfall in State deposits to the
unemployment insurance trust fund was partially offset by a $1 billion
increase in Social Security and Medicare receipts, relative to the MSR. The
increase in Social Security and Medicare receipts was attributable to the
lower-than-expected reallocation of withheld tax payments from the Social
Security and Medicare Trust Funds to individual income taxes, as described
above. Lower-than-expected State tax rates and taxable wages, relative to
what was assumed in the MSR, contributed to the shortfall in State deposits
to the unemployment insurance trust fund.
• Excise taxes were $67 billion, $1 billion lower than the MSR estimate. This
decline was in large part attributable to lower-than-expected demand for
taxed goods, especially transportation
• Other sources of receipts (customs duties, estate and gift taxes, and
miscellaneous receipts) were $106 billion, $1 billion higher than the MSR
estimate. This was the net effect of lower-than-expected customs duties
and deposits of earnings by the Federal Reserve System, which was more
than offset by higher-than-expected estate and gift taxes and other
miscellaneous receipts (gifts, contributions, fines and penalties).
OUTLAYS
Total outlays were $2,979 billion for FY 2008, which was $36 billion above the MSR
estimate. Outlays for many agencies were below MSR estimates, including
differences of $2 billion or more in the Departments of Agriculture, Health and
Human Services, Labor, and Transportation as well as Other Defense Civil
Programs. These lower-than-expected outlays were more than offset by
significantly higher-than-expected outlays in the Departments of Defense and the
Treasury (interest on inflation-adjusted securities), along with the Federal Deposit
Insurance Corporation. Table 3 displays actual outlays by agency and major
program as well as estimates from the Budget and the MSR. The largest changes
in outlays from the MSR were in the following areas:

•

Department of Agriculture - FY 2008 outlays for the Department of
Agriculture (USDA) were $91 billion, $2.6 billion below the MSR estimate.
USDA's actual outlays for its commodity and disaster payments were $1.4
billion lower than projected in the MSR. Programs funded through the
Commodity Credit Corporation were $0.6 billion lower due to higher
commodity prices and fewer requests from producers for advanced Direct
Payments for the 2008 crop year. Outlays for advanced Direct Payments
were lower than anticipated potentially due to several factors, including late
enactment of the farm bill and producers' choices to defer payments until FY
2009. Finally, delays in making crop disaster quality loss payments reduced
FY 2008 outlays by an additional $0.5 billion. These outlays are expected to
occur in FY 2009 rather than FY 2008.
• Department of Defense - Outlays for the Department of Defense (DOD)
were $595 billion, exceeding the MSR estimate by $12.5 billion. The
increase over the MSR was primarily due to outlays for operations and
maintenance, which were $20.5 billion above the MSR estimate. In the
MSR, bridge funding provided by Congress for war-related operations and
maintenance was assumed to have a "normal" outlay rate for supplemental
appropriations, which turned out ultimately to be too low. The fact that the
bridge funding for the war was available early in the fiscal year (midNovember 2007) meant that DOD did not have to use appropriations for its
base activities to support the war and could spend base funding for its nonwar operational needs, thus increasing total outlays. Partially offsetting the
increased outlays for operations and maintenance, outlays for DOD
procurement were $11.7 billion lower than the MSR estimated, primarily
because of lower-than-anticipated outlays for the Mine Resistant Ambush
Protected Vehicles Program.
• Department of Education - Outlays for the Department of Education were
$66 billion in FY 2008, $1.7 billion below the MSR estimate. These
differences were due to three factors. First, while the MSR assumed higher
outlays compared to FY 2007 in the Student Financial Assistance account,
due to projections of a significant increase in the number of Pell Grant
recipients, the actual increase in Pel I recipients and costs was lower than
anticipated. Second, the MSR estimates failed to reflect an increase in
Direct Student Loan volume in the 2008-2009 academic year, resulting in a

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•

reduction in net outlays since this program has a negative subsidy. Finally,
the value of the on-budget Federal Student Loan Reserve Fund increased
more than anticipated. While in prior years the Department of Education did
not update the reserve fund valuation estimates, the Department instituted
this practice in FY 2008 and will continue it in future years.
Department of Health and Human Services - The Department of Health
and Human Services (HHS) had FY 2008 outlays of $701 billion, $5.9 billion
less than the MSR estimate. Medicare gross outlays in FY 2008 were $461
billion, about $1.3 billion (0.3 percent) less than MSR estimates. Part A
expenditures finished FY 2008 about $1.0 billion above MSR estimates due
to slightly higher than projected spending for skilled nursing facility and
hospice services. Part D spending finished FY 2008 about $2.5 billion lower
than projected in the MSR. Medicaid outlays were $201 billion, $3.5 billion
or 1.7 percent below the MSR estimate, due to an unanticipated slowdown
in State Medicaid spending over the second half of FY 2008. The HHS
actuaries will have a better understanding of the factors contributing to this
difference when the final year-end expenditure data are available in about
six months.
Department of Homeland Security - Outlays for the Department of
Homeland Security were $41 billion in FY 2008, $1.2 billion more than the
MSR estimate. The difference was attributable primarily to faster-thanexpected outlays in the aviation security account in the Transportation
Security Administration, which spent $1.0 billion more than projected in the
MSR.
Department of Housing and Urban Development - Outlays for the
Department of Housing and Urban Development were $49 billion in FY
2008, $1.4 billion below the MSR estimate. Siower-than-expected outlays
of Community Development Block Grant disaster supplemental funds
accounted for $1.0 billion of the $1.4 billion difference. These disaster funds
were obligated to the Gulf Coast States after the 2005 hurricanes, but the
States did not expend the funds as quickly as projected. The remaining
difference in outlays was mainly due to slower spending in the TenantBased Rental Assistance and Housing Certificate Fund accounts.
Department of the Interior - Outlays for the Department of Interior were
$9.9 billion, or $1.0 billion less than the MSR estimate. The main driver was
outlays for the Bureau of Reclamation, which were $0.6 billion less than
estimated due to slower-than-expected spending of prior year
appropriations. Fish and Wildlife Service outlays were $0.3 billion below
estimates for several reasons, including slower obligations for operations
(due to project delays as a result of hurricanes and flooding), and grant
programs. In addition, land acquisition programs had difficulty finding willing
sellers. The net reduction in outlays also reflected an increase in
proprietary offsetting receipts of $0.2 billion (3.6 percent) over the MSR
estimates, primarily due to greater onshore oil and gas receipts.
Department of Labor - FY 2008 outlays for the Department of Labor were
$59 billion, $2.2 billion below the MSR estimate. The major contributors to
this difference were the Unemployment Trust Fund and the Pension Benefit
Guaranty Corporation. Actual outlays for the Unemployment Trust Fund
were $0.9 billion (2 percent) below the MSR, largely because of lower-thanprojected outlays for the Emergency Unemployment Compensation program
that was enacted in late June. Actual outlays for the Pension Benefit
Guaranty Corporation were $0.7 billion (34 percent) below the MSR, largely
because of a change in accounting guidance that requires PBGC and other
agencies to no longer mark holdings of zero coupon bonds to market each
month.
Department of State - Outlays for the Department of State were $18 billion
in FY 2008, $1.6 billion below the MSR estimate. Outlays for Administration
of Foreign Affairs were $1.0 billion below the MSR estimate, primarily due to
slower-than-expected spending on capital construction projects and higherthan-expected receipts in the Department's Working Capital Fund. In
addition, outlays for International Organizations and Conferences were $0.6
billion lower than the MSR estimate because bills from the United Nations
for international peacekeeping missions were still in process at the end of
the fiscal year.
Department of Transportation - Outlays for the Department of
Transportation were $65 billion in FY 2008, $2.7 billion below the MSR
estimate. The decrease was due to slower-than-anticipated obligation and
spending of funds for transit formula grants, surface transportation safety
bureaus, and Federal Aviation Administration capital investments.
Department of the Treasury - Actual outlays for the Department of the
Treasury were $549 billion, $12.2 billion higher than the MSR estimate.
Interest on the public debt, which includes interest paid to government

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•

accounts as well as interest paid to the public, was $451 billion, $10.1 billion
higher than the MSR estimate. Of this $10.1 billion difference, $9.7 billion
was due to the increase in interest paid to the public on inflation-indexed
Treasury securities resulting from faster-than-expected inflation in the
Consumer Price Index, and $0.5 billion related to higher interest paid to trust
funds and other government accounts, such as Federal retirement funds.
Higher-than-projected interest paid to credit financing accounts ($0.7
million) and lower-than-anticipated offsetting receipts of interest from credit
financing accounts ($1.8 billion) added to the higher-than-estimated
Treasury outlays. Finally, the portion of Treasury's outlays for the Economic
Stimulus Act of 2008 that was attributed to child tax credits ($2.3 billion) was
lower than anticipated, but recovery rebates were higher than projected
($1.3 billion), resulting in a net decrease of $1.0 billion in projected outlays.
Department of Veterans Affairs - Outlays for the Department of Veterans
Affairs were $85 billion, $1.0 billion lower than estimated in the MSR. This
difference results primarily from lower-than-anticipated outlays for veterans'
benefits and for departmental administration. Within veterans' benefits,
compensation and pension payments were $0.2 billion less than
anticipated. In addition, spending on readjustment benefits was $0.2 billion
less than anticipated. Within departmental administration, spending on
major construction lagged $0.2 billion behind the MSR estimate.
Army Corps of Engineers - Actual outlays for the Army Corps of
Engineers were $5.1 billion, $1.5 billion lower than the MSR estimate. A
number of factors contributed to this discrepancy, including: overly optimistic
assumptions about the spending of supplemental funds; an extensive storm
season that slowed down a number of project operations; and higher-thanexpected reimbursements, also due to storm-related reimbursable activity.
The two accounts with the greatest difference between the estimates and
year-end actuals were the Construction and the Operation and Maintenance
accounts. Actual outlays for the Construction account were $0.7 billion
below the MSR estimate and actual outlays for the Operation and
Maintenance account were $0.4 billion below the MSR estimate, both due to
higher-than-expected reimbursements. Outlays for the Flood Control and
Coastal Emergencies account were $0.2 billion lower than the MSR
estimate.
Other Defense Civil Programs - Actual outlays for Other Defense Civil
programs were $46 billion, $3.2 billion below the MSR estimate. This was
almost entirely the result of $3.1 billion in higher-than-anticipated interest
earnings for the DOD Medicare-eligible retiree health care fund.
International Assistance Programs - Outlays for International Assistance
Programs were $11 billion in FY 2008, $1.0 billion below the MSR estimate.
Within this amount, outlays for the Foreign Military Sales program were $1.4
billion lower than the MSR estimate due to lower-than-expected
disbursements from the Foreign Military Sales Trust Fund for the purchase
of military equipment and services. These lower outlays were offset by a
net increase of $0.4 billion above the MSR resulting from higher-thanestimated outlays in a number of other foreign assistance accounts.
Federal Deposit Insurance Corporation - The Federal Deposit Insurance
Corporation (FDIC) had actual outlays of $18 billion, $15.2 billion higher
than the MSR estimate. Subsequent to the preparation of the MSR
estimates, the FDIC made deposit insurance claim payments related to the
failures of IndyMac Bank and other smaller depository institutions. Almost
$11 billion of the increase was attributable to insurance losses and $4 billion
was attributable to higher-than-expected working capital needed to resolve
the bank failures.
National Credit Union Administration - The National Credit Union
Administration (NCUA) had actual outlays of $1.0 billion, $1.3 billion higher
than the MSR estimate. The additional outlays resulted primarily from the
unexpected use of the NCUA Central liquidity Facility (ClF) by Natural
Person Credit Unions (NPCU), which are non-corporate member credit
unions. loan disbursements from the ClF are recorded on a cash basis due
to the program's statutory exemption from the Federal Credit Reform Act.
The MSR did not estimate that the ClF would be used. During September,
however, NPCUs applied for loans from the facility and as of September 30,
2008, the ClF had $1.1 billion in short-term loans outstanding. These loans
are expected to be repaid in FY 2009. The NCUA also experienced about
$0.2 billion in insurance losses and related resolution expenses in FY 2008
in addition to what was forecast in the MSR.
Railroad Retirement Board - FY 2008 outlays for the Railroad Retirement
Board (RRB) of $9 billion were $2.9 billion higher than estimated in the
MSR. This was the result of market losses on non-Federal securities held
by RRB. The Railroad Retirement and Survivors Improvement Act of 2001

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•

permitted assets of Tier II of the Railroad Retirement program to be invested
in private equities. Net returns for FY 2008 on non-Federal securities,
including unrealized gains and losses, were $2.9 billion lower than
estimated in the MSR.
Undistributed Offsetting Receipts - Undistributed offsetting receipts were
$278 billion in FY 2008, $16.8 billion below the MSR estimate. Offsetting
receipts are deducted from gross outlays in calculating net outlays;
therefore, reductions in these receipts increase outlays and the deficit.
Proceeds from spectrum auctions related to the digital television transition
were $15.1 billion less than estimated in the MSR. While total auction bids
exceeded expectations, these bids are not recorded as receipts until license
applications are approved and licenses are issued. The MSR assumed that
licenses accounting for the bulk of the auction revenue would be issued in
FY 2008, but only $1.8 billion of licenses were actually issued by the end of
the fiscal year. The remaining licenses will be issued in FY 2009, at which
point these offsetting receipts will be recognized, lowering net outlays and
the deficit. Interest received by on- and off-budget trust funds was $2.9
billion lower than the MSR estimate, due primarily to lower-than-estimated
interest earnings for the Civil Service Retirement and Disability Fund.
Partially offsetting these lower receipts, employee contributions to the
military retirement fund account were $1.6 billion above the MSR estimate.
The actual collections exceeded the MSR estimate because the MSR
underestimated contributions due to mobilized reservists.
-30-

[1 ](1) The September 2008 Monthly Treasury Statement of Receipts and Outlays of
the United States Government containing these results can be found on the
Financial Management Service website at www.fms.treas.gov/mts.
REPORTS

•
•

Table II
Table III

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Table 2.--2008 BUDGET RECEIPTS BY SOURCE
(fiscal years; in millions of dollars)

2007
Actual

2008
Estimate
Budget
Mid-Session

Actual

Change, 2008 Actual from
Budget Mid-Session

Receipts by Source
Individual income taxes ............ .
Corporation income taxes .......... .
Social insurance and retirement receipts:
Employment and general retirement:
On-budget. ................ .
Off-budget ...................... .
Subtotal, Employment and general retirement..
Unemployment insurance ..
Other retirement contributions ...
Subtotal, Social insurance and retirement receipts ...
Excise taxes ..
Estate and gift taxes
Customs duties ..
Miscellaneous receipts
Federal Reserve deposits of earnings.
Other miscellaneous receipts .......
SUbtotal, miscellaneous receipts
Allowance for Economic Growth Package ..
Total, Receipts ..
On-budget. ..
Off-budget..

NOTE: Detail may not add to totals or changes due to rounding.

1,163,472
370,243

1,219,661
345,336

1,168,991
309,255

1,145,748
304,346

-73,913
-40,990

-23,243
-4,909

189,170
635,088
824,257
41,091
4,258
869,607

199,808
662,215
862,023
43,382
4,720
910,125

198,032
656,828
854,860
41,577
4,720
901,157

198,412
658,045
856,457
39,741
4,165
900,363

-1,396
-4,170
-5,566
-3,641
-555
-9,762

380
1,217
1,597
-1,836
-555
-794

65,069
26,044
26,010

68,835
26,757
29,208

68,090
28,426
27,709

67,334
28,844
27,568

-1,501
2,087
-1,640

-756
418
-141

32,043
15,185
47,228

31,358
14,895
46,253
-125,000

33,841
15,471
49,312

33,598
16,056
49,654

2,240

1.J..§1

-243
585
342

2,567,672
1,932,584
635,088

2,521,175
1,858,960
662,215

2,552,940
1,896,112
656,828

2,523,858
1,865,813
658,045

3,401
125,000
2,683
6,853
-4,170

-29,082
-30,299
1,217

Table 3.--2008 BUDGET OUTLAYS BY AGENCY

(fiscal years; in millions of dollars)

Outlays by Major Agency
Legislative Branch .....
The Judiciary ..
Agriculture:
Farm Service Agency ..
Food and Nutrition Service:
Food stamps ..... .
Child nutrition programs ...
Other ..
Agriculture Marketing Service ..
Natural Resources Conservation Service ..
Rural Housing Service ..
Risk Management Agency ..
Forest Service .................................................... .
Offsetting receipts ..
Other..
Subtotal, Agriculture ..
Commerce ..
Defense-Military
Military Personnel..
Operations and Maintenance ..
Procurement. .
Research, Development, Test, and Evaluation ..
Military Construction ..
Revolving and Management Funds ..
Other ...
Subtotal, Defense-Military ..
Education
Office of Elementary and Secondary Education ...
Office of Special Education and Rehabilitative Services ..
Office of Postsecondary Education ..
Office of Federal Student
Hurricane education recovery ..
Other ..
Subtotal, Education ..

2007
Actual
4,307
6,008

2008
Estimate
Mid-Session
Budget
4,586
4,588
6,161
6,161

Actual
4,429
6,341

12,336

15,183

14,069

12,697

-2,486

-1,372

34,885
13,045
5,638
967
2,730
685
3,550
5,833
-1,769
6,526
84,427

38,780
14,452
6,343
773
2,916
1,350
4,455
6,215
-2,060
6,357
94,764

39,255
14,477
6,573
775
2,624
1,350
3,969
6,215
-2,060
6,181
93,428

39,319
13,932
6,528
1,022
2,806
986
4,151
5,890
-2,242
5,696
90,786

539
-520
185
249
-110
-364
-304
-325
-182
-661
-3,978

64
-545
-45
247
182
-364
182
-325
-182
-485
-2,642

6,479

8,151

8,323

7,726

-425

-597

127,545
216,631
99,647
73,136
7,898
1,370
2,362
528,590

137,401
225,062
130,477
74,735
10,241
2,333
2,808
583,057

138,659
224,339
129,091
74,537
10,293
2,491
2808
582,218

138,941
244,834
117,397
75,119
11,561
4,801
2,026
594,680

1,540
19,772
-13,080
384
1,320
2,468
-782
11,623

282
20,495
-11,694
582
1,268
2,310
-782
12,462

21,252
15,136
2,481
26,676
415
412
66,372

21,913
15,558
2,313
27,629
359
274
68,046

21,778
15,658
2,238
28,108
209
-348
67,643

21,601
15,714
2,258
26,891
177
-684
65,957

-312
156
-55
-738
-182
-958
-2,089

-177
56
20
-1,217
-32
-336
-1,686

Change, 2008 Actual from:
Mid-Session
Budget
-157
-159
180
180

Table 3.-2008 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

2007
Actual

2008
Estimate
Budget
Mid-Session

Actual

15,763
4,353
20,117

16,502
6707
23,209

15,923
5,605
21,528

15,724
5,680
21,404

-778
-1 027
-1,805

-199
75
-124

440,737
190,624
6,000
1,300
48,468

466,107
203,788
7,600
989
49,991

462,270
204,895
7,065
989
49,718

460,925
201,426
6,900
420
48,419

-5,182
-2,362
-700
-569
-1,572

-1,345
-3,469
-165
-569
-1,299

21,114
26,114
-66,715
4,396
672,036

21,307
26,348
-71,126
4,377
709,381

21,307
26,905
-71,135
4,387
706,401

21,815
26,653
-71,359
5,301
700,501

508
305
-233
924
-8,880

508
-252
-224
914
-5,900

Homeland Secunty
Transportation Security Administration ..
Customs and Border Protection ..
Coast Guard ..
Federal Emergency Management Administration ..
Science and Technology ..
Other ..
Subtotal, Homeland Security ..

3,654
7,922
8,181
14,483
1,118
3,813
39,172

3,423
10,695
8,991
12,159
830
6,242
42,340

3,423
10,127
8,514
11,376
741
5,332
39,513

4,503
9,984
8,826
11,171
959
5,240
40,683

1,080
-711
-165
-988
129
-1 002
-1,657

1,080
-143
312
-205
218
-92
1,170

Housing and Urban Development
Public and Indian Housing Programs ..
Federal Housing Administration.
Other hOUSing programs ..
Community Planning and Development ..
Government National Mortgage Association ..
Other ...
Subtotal, HOUSing and Urban Development...

32,253
-4
480
14,485
-360
-1,295
45,559

32,976
3,822
566
15,316
-396

32,892
3,614
776
13,852
-396
-262
50,476

32,545
3,638
911
12,748
-516
-234
49092

-431
-184
345
-2,568
-120
-219
-3,177

-347
24
135
-1,104
-120
28
-1,384

Outlays by Malor Agency
Energy
Atomic energy defense activities ..
Other ...............
Subtotal, Energy ..
........................
Health and Human Services:
Medicare (gross outlays) ..
Medicaid ..
State children's health insurance fund ..
Other Centers for Medicare and Medicaid Services programs ...
Public Health Service ..
Temporary assistance for needy families and payments to States for
child support enforcement and family support programs.
Other Administration for Children and Families.
Proprietary receipts ..
..........................
Other ..
Subtotal, Health and Human Services ..

52,269

Change, 2008 Actual from
Budget Mid-Session

Table 3.--2008 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

Outlays by Major Agency
Interior ...............................
Justice
Office of Justice Programs
Federal Bureau of Investigation ..................
Federal Prison System ..
Drug Enforcement Administration ..
Other ..
. . . .. . . . . . . . . . . . .
Subtotal, Justice ..

2007
Actual
10,497

2008
Estimate
Budget
Mid-Session
11,081
10,888

Actual
9,887

3,818
5,724
5,173
1,826
6,810
23,351

3,850
6,861
5,310
1,985
7,020
25,026

3,903
6,771
5,470
1,979
7,810
25,933

3,677
6,288
5,655
2,026
8,898
26,544

-173
-573
345
41
1,878
1,518

-226
-483
185
47
1,088
611

Labor
Training and Employment Services.
Unemployment trust fund ..
Pension Benefit Guaranty Corporation ..
Employment Standards Administration ..
Other ....
Subtotal, Labor ..

5,158
36,147
457
3,165
2,616
47,543

3,504
38,327
332
3,191
4,298
49,652

3,668
47,766
2,096
3,316
4,406
61,252

4,307
46,832
1,377
3,195
3,344
59,055

803
8,505
1,045
4
-954
9,403

639
-934
-719
-121
-1 062
-2.197

State.
Administration of Foreign Affairs.
International organizations and conferences.
International narcotics control and law enforcement ..
Andean counterdrug Initiative ...
Other ..
Subtotal, State ..

7,616
2,119
238
698
3,078
13,749

9,908
3,686
708
312
4,278
18,892

9,708
3,739
790
305
4,542
19,084

8,756
3,089
705
757
4,199
17,505

-1,152
-597
-3
445
-79
-1.387

-952
-650
-85
452
-343
-1,579

34,985
9,199
14,154
3,390
61,701

38,933
10,787
14,528
-1
4,415
68,662

37,333
10,787
15,153
-1
4415
67,687

45,176
10,005
14,719
-8,040
3,084
64,945

6,243
-782
191
-8,039
-1 331
-3.717

7,843
-782
-434
-8039
-1,331
-2,742

-1,367
429,978

-1,422
459,186

-1,207
441,028

-1,214
451,154

208
-8.032

-7
10.126

38,274

39,463

40,059

40,601

1,138

542

Transportation
Federal Highway Administration ..
Federal Transit Administration ..
Federal AViation Administration ...
Intrabudgetary transactions ..
Other ...
Subtotal, Transportation.
Treasury
Exchange stabilization fund
Interest on the public debt.
Internal Revenue Service
Earned Income tax credit ..

-27

Change, 2008 Actual from:
Mid-Session
Budget
-1,001
-1,194

Table 3.-2008 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

Outlays by Major Agency
Child tax credit """""""""" """"""""""""'"''''''''''''
Recovery rebates"
Interest on refunds of tax collections"
Other,
...................
Financial Management Service
Payment to Resolution Funding Corporation"
Interest paid to credit financing accounts"
Other.,
Federal Financing Bank"
Offsetting receipts
Other"
Subtotal, Treasury"
Veterans Affairs
Veterans Health Administration,
Benefits Programs"
Other"
Subtotal, Veterans Affairs"
Corps of Engineers,
Other Defense CIVil Programs
Military retirement fund"
Medicare eligible retiree health care"
Intrabudgetary transactions"
Other,
Subtotal, Other Defense Civil Programs"
EnVironmental Protection Agency""
Executive Office of the President
Iraqi relief and reconstruction fund,
Other"
Subtotal, Executive Office of the President..
General Services Administration,,,
International Assistance Programs
International Secunty ASSistance
Foreign military financing program"
Economic support fund,
Other,
Agency for International Development..

2007
Actual
16,159
3,282
10,810

2008
Estimate
Budget
Mid-Session
16,321
36,338
13,928
3,683
4,262
11,516
11,688

Actual
34,018
15,281
4,487
11,374

Change, 2008 Actual from
Budget Mid-Session
-2,320
17,697
15,281
1,353
225
804
-142
-314

1,987
4,604
2,574
-496
-16,677
1,474
490,601

1,533
4,588
2,291
-906
-18,272
2,182
520,163

1,404
4,666
2,199
-882
-18,851
2,003
536,635

1,393
5,407
2,201
-694
-16,986
1,783
548,805

-140
819
-90
212
1,286
-399
28,642

-11
741
2
188
1,865
-220
12,170

33,734
38,998
87
72,820

38,882
46,794
967
86,643

38,565
46,106
1,153
85,824

38,423
45,621
739
84,783

-459
-1,173
-228
-1,860

-142
-485
-414
-1,041

3,918

7,211

6,622

5,077

-2,134

-1,545

43,510
7,604
-4,586
584
47,112
8,258

45,480
8,349
-5,412
650
49,067
7,541

45,326
8,349
-5,351
650
48,974
7,541

45,820
7,915
-8,557
607
45,784
7,938

340
-434
-3,145
-43
-3,283
397

494
-434
-3,206
-43
-3,190
397

2,581
376
2,957
32

1,750
329
2,079
357

1,450
329
1,779
357

840
332
1,172
342

-910

-610

.:2.

-907
-15

-607
-15

4,326
3,285
373
4,126

4,680
3,573
772
3,874

4,698
3,943
774
3,962

4,661
4,089
599
4,185

-19
516
-173
311

-37
146
-175
223

Table 3.-2008 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

Outlays by Major Agency
Overseas Private Investment Corporation ..
Multilateral assistance ..
Military sales programs ..
.........................
International monetary programs ...
Other ..
................
Subtotal, International Assistance Programs
National Aeronautics and Space Administration ..
National Science Foundation ..
Office of Personnel Management
Civil Service Retirement and Disability Fund ..
Employees and Retired Employees Health Benefits Funds ..
Other ..
Subtotal, Office of Personnel Management..
Small Business Administration ...
Social Security Administration:
Old age and survivors insurance (off-budget) ..
Disability insurance (off-budget) ..
Supplemental security income program.
Other
On-budget. ..
Off-budget..
Subtotal, Social Security Administration ..
Other Independent agencies
Corporation for National and Community Service ..
Distnct of Columbia ..
Export-Import Bank ..
Federal Communications CommiSSion
Universal service fund ..
Spectrum auction subsidies.
Universal service fund Income and other ..
Subtotal, Federal Communications Commission.
Federal DepOSit Insurance Corporation
DepOSit Insurance fund ..
FSLlC resolution fund ....
FDIC Inspector General
Subtotal, Federal DepOSit Insurance Corporation ..
Federal Drug Control Programs.
National Credit Union Administration ..

2007
Actual
-416
2,189
-1,646
-258
784
12,764
15,861
5,529

2008
Estimate
Budget
Mid-Session
-592
-592
2,093
2,093
-3,260

Change, 2008 Actual from
Mid-Session
Budget
-94
-94
117
117
-1,397
-4,657
16
16
186
ill
-3,797
-1,014
513
516
-418
-408

824
15,224
17,318
6,256

823
12,441
17,321
6,266

Actual
-686
2,210
-4,657
16
1,010
11,427
17,834
5,848

78,146
-1,031
-18,684
58,431
1,175

64,121
-494
546
64,173
530

64,467
-494
608
64,581
736

63,688
336
369
64,393
528

-433
830
-177
220
-2

-779
830
-239
-188
-208

486,391
99,850
38,461

509,315
106,011
44,352

509,290
106,625
44,290

509,883
107,240
43,872

568
1,229
-480

593
615
-418

16,456
-19,397
621,761

15,683
-18,798
656,563

14,803
-17912
657,096

14,719
-17,915
657,799

-964
883
1,236

-84
703

899
673
-1,365

915
724
-484

891
731
-601

-24
7
-117

7,478
32
-287
7,222

8,492
12
-247
8,257

8,424
12
-247
8,189

7,882
6
-237
7,651

-610
-6
10
-606

-542
-6

-1,235
211
26
-999
377
-363

-1,729
118
27
-1,584
383
-329

2,517
118
27
2,662
383
-280

17,4 70
408
23
17,900
379
972

19,199
290
-4
19.484
-4
1.301

1.Q
-538
14,953
290

:1
15.238
-4

1.252

Table 3.--2008 BUDGET OUTLAYS BY AGENCY
(fiscal years; in millions of dollars)

Outlays by Major Agency
Postal Service
On-budget. ..
Off-budget. ..
Subtotal, Postal Service.
Railroad Retirement Board.
Securities and Exchange Commission ..
Tennessee Valley Authority ...
Other (net) ..
Subtotal, other independent agencies ..
Undistributed offsetting receipts
Employer share, employee retirement (on-budget):
Military retirement and health ...
Other ..
Employer share, employee retirement (off-budget).
Interest received by on-budget trust funds ..
Interest received by off-budget trust funds ..
Rents and royalties on the Outer Continental Shelf lands ..
Spectrum auction proceeds ...
Spectrum relocation activities ..
Digital TV transition ..
Other ..
Subtotal, undistributed offsetting receipts ..
Total, Outlays ..... .
On-budget..
Off-budget..
Deficit( -)/Surplus( +).
On-budget. .....
Off-budget..
* Indicates $500 thousand or less.

NOTE Detail may not add to totals or changes due to rounding.

2007
Actual

2008
Estimate
Budget
Mid-Session

Actual

104
5,093
5,197
2,267
-710
-559
5631
18,271

109
935
1,044
3,258
-408
-32
6,657
18,401

109
1,621
1,730
5,696
-408
-32
6,601
25,696

109
2,417
2,526
8,619
-105
311
5,914
45,190

-28,364
-21,111
-12,299
-71,961
-106,003
-6,762
-6,850
-6,850

-28,887
-22,468
-13,087
-83,527
-114,311
-11,120
-300
-80
-11,800

-28,887
-22,480
-13,137
-80,565
-113,883
-18,632
-50
-80
-16,900

-30,530
-22,503
-13,145
-77,818
-113,719
-18,285

Change, 2008 Actual from
Budget Mid-Session

1,482
1,482
5,361
303
343
-743
26,789

796
796
2,923
303
343
-687
19,494

-1,643
-35
-58
5,709
592
-7,165
300
80
10,021
-10
7,792

-1,643
-23
-8
2,747
164
347
50
80
15.121
16826

:.1

-260,201

-285,581

-294,615

-1,779
-10
-277.789

2,729,199
2,275,562
453,636

2,931,222
2,461,157
470,065

2,942,377
2,469,773
472,604

2,978,664
2,503,903
474,761

47,442
42,746
4,696

36,287
34,130
2,157

-161,527
-342,978
181,452

-410,047
-602,197
192,150

-389,437
-573,661
184,224

-454,806
-638,090
183,284

-44,759
-35,893
-8,866

-65.369
-64,429
-940

:1Q

!P-1214: Under Sec Levey s.tatrmrn~ on Australia's Impiementation of Sanctions Against Iran
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Page 1 of 1

'.:.

October 15, 2008
HP-1214
Under Sec Levey Statement on Australia's
Implementation of Sanctions Against Iran
Washington, DC--Under Secretary for Terrorism and Financial Intelligence Stuart
Levey released the following statement today following Australia's designation of
individuals and entities involved in Iranian proliferation activities, including Iranian
state-owned banks, Melli and Saderat.
"The U.S. Government welcomes the Australian government's imposition of
financial and travel sanctions on individuals and entities involved in Iran's nuclear
and missile programs, including freezing the assets of Bank Melli and Bank
Saderat. We applaud Australia for taking steps to further isolate Iran and we
encourage countries around the world to take similar steps.
"Australia's actions are consistent with United Nations Security Council Resolutions
on Iran, including UNSCR 1803, which calls on Member States to exercise vigilance
over activities between their financial institutions and all banks domiciled in Iran,
and in particular Banks Melli and Saderat.
"Further, these actions are consistent with guidance from the Financial Action Task
Force (FATF), which has already issued three statements warning that the
deficiencies in Iran's anti-money laundering and counterterrorist financing regimes
represent significant vulnerabilities in the international financial system.
"The Iranian people are paying the price for the regime's isolating behavior and
economic mismanagement. Iranian businesses have been cut off from the
international financial system and the Iranian economy is burdened with spiraling
unemployment and an inflation rate approaching 30 percent.
"As the world continues to stand united against Iran's defiance, Iran's leaders are
inflicting hardship on the Iranian people rather than allowing them the opportunities
and prosperity that reintegration into the global community would bring."
-30-

http://www.treas.gov/press/releaseslhp1214.htm

1115/2008

HP-1215: Treasury International Capital (TIC) Data for August

Page 1 of 3

FROM THE OFFICE OF PUBLIC AFFAIRS
We recommend pnnt1l1g this release (lS1I1g the PDF file /Jelow.
To view or print the PDF content on this page. downloael the free

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October 16, 2008
HP-1215

Treasury International Capital (TIC) Data for August
Treasury International Capital (TIC) data for August 2008 are released today and posted on the US Treasury website (
which will report on data for September, is scheduled for November 18, 2008.
Net foreign purchases of long-term securities were $14.0 billion.
•

Net foreign purchases of long-term US. securities were negative $8.8 billion. Of this, net purchases by private foreign investors
net purchases by foreign official institutions were negative $10.2 billion .

•

U.S residents sold a net $22.7 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $0.9 billion
Foreign holdings of dollar-denominated short-term US. securities, including Treasury bills, and other custody liabilities Increased $7.6 t
of Treasury bills increased $20.6 billion
Banks' own net dollar-denominated liabilities to foreign residents declined $8.9 billion.
Monthly net TIC flows were negative $0.4 billion. Of this, net foreign private flows were $3.5 billion, and net foreign official flows were n(

-30-

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

2007

12 Months Through
Aug-07
Aug-08 May-08

Jun-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

26875,6
25790.6
1085.0

32325.9
31527.7
798.2

2599.2
2489.6
109.7

2794
2731
62

4
5
6
7
8

Private, net /2
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

923.0
163,4
136.8
458.9
163.8

535.1
264.2
72,4
134.5
64.0

93.2
9,4
17.1
50.8
15.9

4i
21
22

9
10
11
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

162.1
6,4
122.3
35.3
-2.0

263.1
124.8
47.7
57.9
32.6

16.4
-3.7
11.0
9.1
0.0

ttp:/lwww.treas.gov/press/releases/hpI215.htm

(
-1.

I
C;

4
(

11/5/2008

IP-1215: Trea5!'Ury International Capita? (TIC) Data for August
14
15
16

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

17
18

Foreign Bonds Purchased, net
Foreign Equities Purchased, net

Net Long-Term Securities Transactions (line 3 plus line

Other Acquisitions of Long-term Securities, net /5

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

Page 2 of 3
5515.9
5766.8
-250.9

8187.6
8411.9
-224.3

7438.2
7749.8
-311.6

8281.6
8316.5
-34.8

676.7
703.1
-26.4

-144.5
-106.5

-129.0
-95.3

-165.3
-146.3

-7.8
-27.0

-8.3
-18.1

-IC

892.3

791.6

773.5

763.3

83.2

-174.6

-235.1

-227.9

-220.9

-22.6

-H

717.7

556.5

545.6

542.5

60.6

68~

69/

-9

146.2
-9.0
16.1
-25.0

198.6
49.2
29.7
19.5

115.3
9.2
19.1
-9.9

194.5
133.7
69.0
64.7

9.3
11.4
7.2
4.3

-2

155.1
174.9
-19.8

149.4
73.2
76.1

106.1
85.5
20.6

60.9
45.1
15.8

-2.1
10.2
-12.3

-9

27
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

-11
2

Change in Banks' Own Net Dollar-Denominated Liabilities

198.0

-122.9

-24.1

-423.3

-74.5

1061.8

632.3

636.8

313.7

-4.5

923.0
138.9

345.2
287.1

457.4
179.4

17.6
296.1

-18.3
13.8

2S
13

23
24
25
26

30 Monthly Net TIC Flows (lines 21,22,29) /8
of which
31
Private, net
32
Official, net

11
/2
/3
/4

/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 r
of other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 10.a.4 on tl
Net transactions in foreign securities by U.S. residents. Foreign purchases of foreign securities = U.S. sales of foreign sec
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 are
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 bro~
TIC data cover most components of international 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 SLlmr
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked Question I on tl
describes the scope of TIC data collection.

REPORTS

ttp:IIWW w.treas.gov/press/releases/hpI21S.htm

1115/2008

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
October 16, 2008
EMBARGOED UNTIL 9:00 AM

Contact: Rob Saliterman
(202) 622-2960

TREASURY INTERNATIONAL CAPITAL DATA FOR AUGUST
Treasury International Capital (TIC) data for August 2008 are released today and posted on the U.S.
Treasury website (\\_\\_\~. Ul·~ISg~l\__l!lJ. The next release, which will report on data for September, is
scheduled for November 18, 2008.
Net foreign purchases oflong-term securities were $14.0 billion.
•

Net foreign purchases of long-term U.S. securities were negative $8.8 billion. Of this, net
purchases by private foreign investors were $1.5 billion, and net purchases by foreign
official institutions were negative $10.2 billion.

•

U.S. residents sold a net $22.7 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been $0.9 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities increased $7.6 billion. Foreign holdings of Treasury bills increased $20.6
billion.
Banks' own net dollar-denominated liabilities to foreign residents declined $8.9 billion.
Monthly net TIC flows were negative $0.4 billion. Of this, net foreign private flows were $3.5
billion, and net foreign official flows were negative $3.9 billion.

TIC Monthly Reports on Cross-Border Financial Flows
(8i II ions of dollars not seasonallv adiusted)
2006

2007

12 Months Through
Aug-07
Aug-08

Mav-OS

Jun-08

Jul-08

Aug-OS

Foreigners' Acquisitions of Long-term Securities
I
2
3

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

21077.1 29730.6
19933.9 28714.7
1143.2 1015.9

26875.6
25790.6
1085.0

32325.9
31527.7
798.2

2599.2
2489.6
109.7

27940
2731.2
62.8

2819.5
n45.1
-25.6

2165 I
2173.9
-8.8

923.0

535.1
264.2

93.2

136.8
458.9
163.8

72A

134.5
64.0

17.1
50.8
15.9

47.9
27.3
22.3
0.6
-2.3

-20.7

163A

1.5
]0.0
-16.]
-12.6
OA

16.4
-3.7
11.0
9.1
00

14.9
I I
9.1
4.1
0.5

-4.9
10.1
-16.2
0.2
I I

-10.2
48
-13.1
-0.5

719A

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

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

162.1
122.3
35.3
-2.0

263.1
124.8
47.7
57.9
32.6

5515.9
5766.8
-250.9

8187.6
8411.9
-224.3

7438.2
7749.8
-311.6

8281.6
8316.5
-34.8

676.7
703.1
-26.4

688.3
697.5
-9.2

685.2
34.2

588.0
565.2
22.7

-144.5
-106.5

-129.0
-95.3

·165.3
-146.3

-7.8
-27.0

-8.3
-18.1

-10.8
1.6

17.3
16.9

19.7
31

892.3

791.6

773.5

763.3

83.2

53.6

8.6

14.0

-174.6

-235.1

-227.9

-220.9

-22.6

-18.8

-14.3

-13.1

717.7

556.5

545.6

542.5

60.6

34.7

-5.8

0.9

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) /4
Foreign Bonds Purchased. net
Foreign Equities Purchased. net

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

Other Acquisitions of Long-term Securities, net /5

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

180A

24.2

-338
-4.3
-6.8

-IA

146.2
-9.0
16.1
-25.0

198.6
49.2
29.7
19.5

115.3
9.2
19.1
-9.9

194.5
133.7
69.0
64.7

9.3
11.4
7.2
4.3

-2.2
6.9
0.3
6.7

16.7
3.9
-2.0
5.9

7.6
20.6
8.5
12.2

27
28

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

155.1
174.9
-19.8

149.4
73.2
76.1

106.1
85.5
20.6

60.9
45.1
15.8

-2.1
10.2
·12.3

-9.1
·11 I
2.0

12.8
6.6
6.3

-13.0
04.5
·85

Change in Banks' Own Net Dollar-Denominated Liabilities

198.0

-122.9

-24.1

-423.3

-74.5

9.8

-44.6

-8.9

1061.8

632.3

636.8

313.7

-4.5

42.4

-33.6

-0.4

923.0
138.9

345.2
287.1

457.4

17.6
296.1

-18.3
13.8

29.3
13.1

-51.8
18.2

3.5
-3.9

22
23
24
25
26

30 Monthly Net TIC Flows (lines 21.22.29) /8
of which
31
Private. net
32
Official. net
II
/2
/3
/4

/6
17
/8

179A

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 I O.aA on the TIC website.
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 URited States; pOSitive entries
indicate net U.S. sales of foreign 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 Residents of Foreign Countries
These are primarily data on monthly changes in banks' and broker/dealers' custody liabilities. Data on custody claims are collected
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 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 summarized here. the
TIC collects quarterly data on some banking and nonbanking assets and liabilities. Frequently Asked QuestIOn I on the TIC webSite
describes the scope of TIC data collection.

IP-1216: Treasury Responds to PATF s Call for Strengthened Measures Against Iran

.flit· PRESS ROOM
\~~~I

Page 1 of2

''\. '.?;~~',' '~", ,.~.

u.s. DEPARTMENT OF THE TREASURY

"i;

". • "
,,~, ,~

October 16, 2008
HP-1216
Treasury Responds to FATF's Call for Strengthened Measures Against Iran
Washington, DC--The U.S. Department of the Treasury today issued the following
response to a statement issued by the Financial Action Task Force (FATF) on Iran
during its plenary meeting in Rio de Janeiro, Brazil.
Today's statement by the FATF marks the fourth time in the past year that the
organization has warned the world of the serious threat posed by Iran's lack of a
sufficient anti-money laundering and counterterrorist financing regime.
FA TF expressed particular concern about Iran's lack of effort to combat terrorist
financing and declared that this continues "to pose a serious threat to the integrity
of the international financial system." FATF further declared that "urgent action" by
Iran to address these concerns is necessary. As a result, FATF called for countries
throughout the world to strengthen measures to protect their financial sectors from
these risks posed by Iran.
The United States has repeatedly expressed its deep concerns about Iran's
financial and material support to deadly terrorist groups. We have designated
Iranian entities - including Iranian state-owned Bank Saderat - under our domestic
authority, Executive Order 13224, which targets terrorists and those providing
financial, technological, or material support to terrorists or acts of terrorism.
Consistent with FATF's action, we will be employing additional actions to target the
risk of terrorist financing emanating from Iran. We encourage all countries to
implement measures to protect the financial system from this urgent threat.
The FA TF is the foremost standard setting body on preventing money laundering
and terrorist financing. FATF's statement further evidences Iran's ongoing defiance
of the international community.
Sustained action against Iran by the FATF, United Nations Security Council,
European Union and others verifies that the international community's grave
concerns about Iran's conduct transcend borders and politics.
****** *********** *

The text of the FA TF statement on Iran is available through the following link:
11ft,';

",.,',·d1 /, !/I-~l'

'/1,

\'1) fl I i'

"I,')'r- ('/,1

, I'

The June 2008, February 2008 and October 2007 FA TF statements on Iran are
available through the following link:
/I! i/)

I.\. v':", ',' ,t, If t -,

1/,1

11.r;

,II

It", (,'

)';' / ,- r'll

!',I) ;;'(/

The Financial Action Task Force is an inter-governmental body whose purpose is
the development and promotion of policies, both at the national and international
levels, to combat money laundering and terrorist financing. The thirty-four members
of the FATF are: Argentina; Australia; Austria; Belgium; Brazil; Canada; China;
Denmark; the European Commission; Finland; France; Germany; Greece; the Gulf
Cooperation Council; Hong Kong, China; Iceland; Ireland; Italy; Japan;
Luxembourg; Mexico; the Kingdom of the Netherlands; New Zealand; Norway;
Portugal; the Russian Federation; Singapore; South Africa; Spain; Sweden;
Switzerland; Turkey; the United Kingdom; and the United States.

:tp:IIWWw.treas.gov/oress/releases/hp1216.htm

11/5/2008

P.121 7: Trea~'Jry Hires Legal Advis-sr Under the Emergency Economic Stabilization Act

Page 1 of 1
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10 view or pnnt tne put- content on tnlS page, Clown/oaCl tne free

~~
-.:.
-'

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.

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October 16. 2008
HP-1217

Treasury Hires Legal Adviser Under the Emergency Economic Stabilization
Act
Washington- The U.S. Treasury Department this week announced that Simpson.
Thacher and Bartlett will serve as a legal adviser for the implementation of the
Emergency Economic Stabilization Act. Treasury hired the New York City-based
firm Sunday and work began immediately to help the Department with its equity
program structuring.
Treasury contracted with Simpson, Thacher and Bartlett using a procurement
contract under the Federal Acquisition Regulation. Treasury competitively solicited
offers from six firms under compelling urgency to quickly establish the Troubled
Asset Relief Program. Two firms made offers.
The contract will last for six months. More information on this contract will be posted
at www ffodill.'C)IJp:, '1\ Iv (Federal Business Opportunities website) and at
lillp,-;\,-,w\\' fprj<, r II J', (Federal Procurement Data System).
-30-

REPORTS

1p:IIWWw.treas.gov/press/releases/hp1217.htm

11/5/2008

ORDER FOR SUPPLIES OR SERVICES

I 1

IMPORTANT: Mark all pacQge. and papers with contract and/or order numbers.
2. CONTRACT NO. (If any)

1 DATE OF ORDER

PAGE OF PAGES

6. SHIP TO

TOS09007

8. NAME OF CONSIGNEE

10/10/2008

14 REQUISITION/REFERENCE NO

3 ORDER NO

TDP

09PR-TDP-057/A09-008

0001
5. ISSUING OFFICE (AddfeS!; correspond6nc9 to)

b. STREET ADDRESS

DEPARTMENT OF THE TREASURY
PROCUREMENT SERVICES OIVISIONS
1500 PENNSYLVANIA AVENUE, NW
1425 NEW YORK AVE, NW
MAIL STOP:
SUITE 2100
WASHINGTON DC 20220

US DEPARTMENT OF THE TREASURY-DE PAR
FINANCIAL MANAGEMENT, ATT: MET SQUA
1500 PENNSYLVANIA AVE., NW

I DC I:20220

c CITY

d STATE

WASHINGTON

e liP CODE

f. SHIP VIA

7. TO
• NAME Of CONTRACTOR

SIMPSON THACHER

BARTLETT MNP LLP

8. TYPE OF ORDER

PU O. DEUVERY

b. COMPANY NAME

c STReET ADDRESS

REFERENCE YOUR

18 PURCHASE

Except CO( b,UUlg instructions on the
reverse. this delivery orGElr IS subject

425 LEXINGTON AVENUE

to tf\$truction5 contamed on Ihl" stde
only of this torm and IS ISSued

d CITY

NEW YORK

STATE

subject to the terms and condItions
01 the above-numbered conUacl

Please furnish lhe (ollowmg on the terms
and condItions spedfled on bolh sides of
this order and on the attached sheet. if any.
lnduding delivery ~1 indicated

I. ZIP CODE

10017-3954

9 ACCOUNTING AND APPROPRIATION DATA

10. REQUISITIONING OFFICE

See Schedule
11. BUSINESS CLASSIFICATION (Check appropriafe box(es))

I . SMALL

! I d. WOMEN-OWNED

12 F.O.B. POINT

fa HUBZone
13 PLACE OF

I
I

OTHER THAN SMALL

INSPECTION

Destination

: c. DISADVANTAGED

I f.

i g. SERVICE·

Destination

DISABLED
VETERAN·
OWNED

EMERGING SMALL
BUSINESS

15 OEUVER TO FOB POINT
ON OR BEFORE (Dale)

14. GOVERNMENT BIL NO.

10 ACCEPTANCE

16 DISCOUNT TERMS

30 Days After Award

N130 PROMPT PAY

Destination
17. SCHEDULE (5&& reverse for RBjBctlOns)

ITEM NO

QUANTITY
ORDERED UNIT
(d)
(t)

SUPPLIES OR SERVICES
(0)

(0)

UNIT
PRICE

AMOUNT

(oJ

QUANTITY
ACCEPTED
(9)

The purpose of Task Order 0001 is to
provide Equitj Legal Services to the
Department of the Treasury.

Continued

...

18 SHIPPING POINT

17(h)
TOTAL
(Coni
pages)

20. INVOICE NO

\'9 GROSS SHIPPING WEIGHT

21 MAIL INVOICE TO:

SEE8rWNG
lNSrRUCTfONS

00 REVERSE

• NAME

TDP PAYMENT

b STREET ADDRESS
(orPO BOJC)

DEPARTMENT OF THE TREASURY
1500 PENNSYLVANIA AVE, NW
ATTN: OFM, 6TH FLOOR MET SQUARL::

c. CITY

.A I.. fI/
.

WASHINGTON

""~"~.mo".~,,,
BY
~
(Sigr7atllffl)

AUTHQRIZEDfOR lOCAl REPROOUCTION
PREVIOUS EDmON NOT USABl£

. "-'-

$300,000.00

17(0)

GRAND
TOTAL

rSTATE

e ZIP CODE

$300,000.00

20220

23 NAME (Typed)

STEVEN C. GORDON
TITLE CONTRACTING/ORDERING OFFtCER

OPTIONAL FORM 3-(7 {R~
p~

OSNfAA 4IS eFR

",00.,
21l( .. 1

ORDER FOR SUPPLIES OR SERVICES
SCHEDULE· CONTINUATION
IMPORTANT' MilIl< Oil packages and pape....111 conlfad andlO( orde< numb""
OATE OF ORDER

., OROER NO

ICONTRACT NO

ITDOX090002

10110/2008 TOS09007
ITEM NO

SUPPLIES/SERVICES

(AI

(8)

OUANTIn' UNIT
ORDERED
(C)
(D)

UNIT
PRICE
(E)

OUANTln'
ACCEPTED
(G)

AMOUNT

(F)

Admin Office:
DEPARTMENT OF THE TREASURY
PROCUREMENT SERVICES DIVISION
1500 PENNSYLVANIA AVE, NW
MAIL STOf:
1425 NEW YORK AVE, NW
SUITE 2100
WASHINGTON DC 20220
Accounting Info:
TDP0128SE09XX-2009-6l0001-TDP1231100-2524-00
OOOOOO-XXX-XX-XXXXXXXXX-XXXXXXXXX-XXXXXXXXX
Period of Performance: 10/10/2008 to
04/0912009
0001

The contractor will perform legal services
and analyses related to Treasury's role in
stabiliz1ng tte financial market.

300,000.00

The total amo~nt of award: $300,000.00. The
obligation for this award is shown in box
17 (i) .

TOTAL CARRIED FORWARD TO 1ST PAGE (ITEM 17IH))
SOJ.4-IOI

OPTIONAL FORM :wi (A.~ &195:
Ple~t.yG5.'

j:AA

r~a

erR) 53 ;l131c)

U.S. Department of the Treasury

Task Order: 0001

TABLE OF CONTENTS

TABLE OF CONTENTS ................................................................................................... .
A.I
A.2
A.3

GENERAL ......................................... , ........................................................... 4-4
TYPE OF CONTRACT ................................................................................ .4-4
TERM OF SERVICES .................................................................................. 4-4

SECTION B - SUPPLIES OR SERVICES AND PRICE/COSTS
B.l
B.2

GENERAL ..................................................................................................... 5-5
PRICE/COST SCHEDULE ........................................................................... 5-6

SECTION C - DESCRIPTION/SPECIFICATIONS/STATEMENT OF WORK
STATEMENT OF WORK ............................................................................................. 6-6

SECTION D - PACKAGING AND MARKING
D.I
D.2

PAYMENT OF POSTAGE AND FEES ....................................................... 6-6
PRESERVATION, PACKING, AND MARKING ....................................... 6-7

SECTION E - INSPECTION AND ACCEPTANCE
INSPECTION AND ACCEPTANCE ............................................................................. 7-7

SECTION F - DELIVERIES OR PERFORMANCE
F.l
F.2
F.3

TERM OF CONTRACT ................................................................................ 7-7
DELIVERABLES .......................................................................................... 7-7
PLACE OF PERFORMANCE ...................................................................... 7-7

SECTION G - CONTRACT ADMINISTRATION DATA
G.!
G.2

G.3

POINT OF CONTACT ................................................................................. 7-7
CONTRACTING OFFICER'S AUTHORITY .............................................. 8-8
SUBMISSION OF VOUCHERS FOR PA YMENT ...................................... 8-8

SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.I

Key Personnel .................................................................................. ·............. 9-9

Equity Legal Services

U.S. Department of the Treasury

CONTRACf

A.I

GENERAL

Task Order: 0001

The Department of the Treasury, Departmental Offices (Headquarters), 1500 Pennsylvania Avenue,
NW, Washington, DC, has entered into a contractual agreement with:

Simpson Thacher & Bartlett, LLP
425 Lexington Avenue
New York, New York 10017
Phone: 212-455-2000
Fax: 212-455-2502
www.stblaw.com
The Department of the Treasury (Treasury) is seeking the Contractor's expertise and guidance in the
formulation of equity participation documentation including, but not limited to, co-investment
accompanying private sector investment, shelf facilities for government investment without private
sector investment, warrants or senior notes accompanying mortgage-backed securities or whole loan
purchases and other direct investments.
Department of the Treasury
1500 Pennsylvania Ave, NW
ProcuremeritSet:\lic€?s··Division
Washington, DC 20020
A.2

TYPE OF CONTRACT (FAR 52.216-1)

The Government has awarded a Time and Materials Task Order.
A.3

TERM OF SERVICES:

The period of performance is as follows:

Task Order Period

10110/2008

Through

04109/2009

END OF SECTION A

Equity Legal Services

U.S. Department of the Treasury

COST/PRICE

B.1

PRICE/COST SCHEDULE

Task Order: 0001

This is a time and materials task order with a ceiling price not to exceed $300,000_ Labor categories
and associated hourly rates to be used in the performance and pricing of this task order shall be the
following:

*The estimated hours represent 60% of the Government's estimated hours in the solicitation.
Travel shall be reimbursed only if approved in advance by the COTR and only as set forth in
paragraph B.3 ofthe contract. The ceiling price stated above shall apply to all work performed
under this task order, including travel.
Labor rates billed to the Government by the Contractor for each category above shall not exceed the
highest rate stated above for each category billed.
Billing by the Contractor and payment by the Government to the Contractor shall be in accordance
with the Federal Acquisition Regulation clause 52.232-7 (Payments Under Time and Materials and
Labor-Hour Contracts).

B.2

CONTRACT FUNDING

(a) The Contractor shall notify the Contracting Officer in writing whenever it has reason to believe
that -The costs the Contractor expects to incur under this tasking in the next 6 months, when added
to all costs previously incurred, will exceed 85 percent of the estimated cost specified in the
Schedule.
(b) As part of the notification, the Contractor shall provide the Contracting Officer a revised
estimate of the total cost of performing this tasking.
(c) Except as required by other provisions of this contract, specifically citing and stated to be an
exception to this clause -(1) The Government is not obligated to reimburse the Contractor for costs incurred in excess
of -the cost specified in the Schedule.

Equity-Legal Services

U.S. Department of the Treasury

Task Order: 0001

(2) The Contractor is not obligated to continue performance under this tasking (including
actions under the Termination clause of this contract) or otherwise incur costs in excess of
the estimated cost specified in the Schedule, until the Contracting Officer
(i) notifies the Contractor in writing that the cost has been increased and
(ii) provides a revised estimated total cost of performing this contract.

END OF SECTION B
C.

DESCRIPTIONS/SPECIFICATIONSfWORK STATEMENT

The Contractor shall perform in accordance with the Statement of Work found under Section C. I of
the RFP (A;OQQ()S) and as follows:
Contractor shall provide advice, counsel, and necessary documentation, to the Department of the
Treasury regarding formulation, development and implementation of an equity participation program
in various types of institutions including the following components: (1) co-investment
accompanying private section investment; (2) shelf facilities for government investment without
private sector investment; (3) warrants andlor senior notes accompanying mortgage-backed
securities or whole loan purchases; and (4) other direct investments as determined by the Department
of the Treasury. The investments may take the fonn ofthe Department of the Treasury investing
funds and receiving common stock, warrants, preferred stock, debt or any other type of equity or
debt instruments.
In particular, Contractor shall consult with representatives of the Department of the Treasury at its
offices in Washington, D.C., at Contractor's offices in Washington, D.C. or New York, by phone, in
writing, and any other means of communication regarding the structure of the equity participation
program. Based on such consultation, Contractor shall conduct research as necessary and prepare
documentation implementing the program including but not limited to: investment agreements,
warrants, preferred stock, term sheets, draft correspondence, regulatory or other related filings if
necessary. The Contractor shall assist the Department of the Treasury in responding to any public
comments received on the program or documentation and shall made such changes in the
documentation as directed by the Department of the Treasury during the established period of the
task order.

END OF SECTION C

PACKAGING AND MARKING

D.l.

PAYMENT OF POSTAGE AND FEES

All postage and fees related to submitting information to the Contracting Officer or the Contracting
Officer's Technical Representative (COTR) shall be paid by the Contractor.

0.2.

PRESERVATION, PACKING, AND MARKING

EqtiityLegakServices

u.s. Department of the Treasury

Task Order: 0001

(A) All information submitted to the Contracting Officer or the Contracting Officer's
Technical Representative (COTR) shall include the contract number.
(B) Unless otherwise specified, all material shall be preserved, packaged, and packed in
accordance with normal commercial practices to insure acceptance by common carrier
and safe arrival at destination.

END OF SECTION D

INSPECTION AND ACCEPTANCE

Written work products, if any, and other documentation produced by the Contractor in performance
of this task order will be inspected and accepted by the Government in accordance with criteria
established through mutual agreement between the Government and the Contractor.
The above clause does not supersede applicable clauses contained in the contract.

END OF SECTION E

DELIVERIES OR PERFORMANCE

F.l

TERM OF CONTRACT

The total term of task order is 6 months.

F.2

DELIVERABLES

The deliverables will include documentation prepared by the Contractor pursuant to the direction of
the Government Task Manager.

F.3

PLACE OF PERFORMANCE

The Contractor shall perform all work under this task order at the Contractor's offices in
Washington, D.C. or New York, or unless otherwise specified by the COTR and Contracting
Officer.

END OF SECTION F
G.

CONTRACT ADMINISTRATION DATA

G.t

POINT OF CONTACT FOR OGC
Laurie Schaffer
Assistant General Counsel for Banking and Finance
Department of Treasury
Office of the General Counsel (OGC)

.Equityl.egal'Services

U.S. Department of the Treasury

Task Order: 0001

202-622-1988

G.2

CONTRACTING OFFICER'S AUTHORITY

The Contracting Officer designated for this contract is:

Contracting Officer:
Steven C. Gordon
U.S. Treasury Department
Departmental Offices, Procurement Services
Division
1500 Pennsylvania Avenue, NW
(Mail Stop: 1425 New York Avenue, 2nd Floor)
Washington, DC 20220
Email: Steven C. Gordon
Phone: 202-622-2341 Fax: 202-622-2343

Tbe CODtractine Officer is the only person authorized to approve changes in any of the
requirements of this contract. In the event the Contractor effects any changes at the direction of any
person other than the Contracting Officer, the changes will be considered to have been made without
authority and no adjustment will be made in the contract price to cover any increase in costs incurred
as a result thereof. The Contracting Officer shall be the only individual authorized to accept
nonconforming work, waive any requirement of the contract, and/or modify any term or condition of
the contract. The Contracting Officer is the only individual who can legally obligate Government
funds. No cost chargeable to the proposed contract can be incurred before receipt of a fully executed
contract or specific authorization from the Contracting Officer.
G.3 SUBMISSION OF VOUCHERS FOR PAYMENT
Send Electronic Invoices to: VendorPay@do.treas.gov
CC: Steven.Gordon@do.treas.gov and Laurie.Schaffer@do.treas.gov
Send Paper Invoices to:

Attn: Mr. Dale Tarter- Vendor Payment
US Department of the Treasury
Departmental Offices, Office of Financial Management
MailStop: 675 15 th Street, Suite 6084 (Met Sq)
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Include the following information on all invoices and subject line:
TreasuryrrO Obligation Document No. 0001

END OF SECTION G

Equity Legal Services

U.S. Department of the Treasury

Task Order: 0001

H. KEY PERSONNEL
The key personnel specified in this contract are considered to be essential to the work being
performed hereunder. Prior to diverting any of the specified individuals to other programs, the
Contractor shall notify the Contracting Officer reasonably in advance and shall submit justification
(including proposed substitutions) in sufficient detail to permit evaluation of the impact on the
program. No diversion shall be made by the Contractor without the written consent of the
Contracting Officer; provided, that the Contracting Officer may confirm in writing such diversion
and such confirmation shall constitute the consent of the Contracting Officer dictated by this clause.
As appropriate, the list of key personnel may be modified during the term ofthe contract to either
add or delete personnel.
The following key personnel are provided below:
Lee Meyerson
David Eisenberg
William Dougherty
Sean Rodgers
Brian Steinhardt
Gary Rice

END OF SECTION H

Equity Legal Services

[F-1218: Deputy Secretary Kimmitt to Announce $3.5 Billion in Tax Credits for Low-Income... Page 1 of I

tilt' PRESS
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OEPARTMENT OF THE TREASURY

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October 17, 2008
HP-1218

Deputy Secretary Kimmitt to Announce $3.5 Billion in Tax Credits
for
Low-Income Community Investment
U.S. Treasury Deputy Secretary Robert M. Kimmitt and Treasury's Community
Development Financial Institutions (CDFI) Fund Director Donna J. Gambrell will
award on Monday $3.5 billion in tax credits to organizations investing in rural and
urban low-income communities across the United States. The awards are being
made under the 2008 round of the New Markets Tax Credit Program.
Deputy Secretary Kimmitt and CDFI Fund Director Gambrell will highlight the work
of four local Washington, DC organizations receiving New Markets Tax Credits and
on how allocatees are serving rural low-income communities.
The following event is open to credentialed media:

Who
Deputy Treasury Secretary Robert M. Kimmitt
CDFI Fund Director Donna J, Gambrell
What
National New Markets Tax Credit Program Award Announcement
When
Monday. October 20. 11 :00 AM (EDT)
Where
Cash Room
U.S. Department of the Treasury
Washington, DC
Note
Media without Treasury press credentials should contact Frances Anderson at
(202) 622-2960 or I I I" ",'-'I!': , I ' l l ' , : " 'I"'" (jll\ with full name, Social Security
number, and date of birth,
About the New Markets Tax Credit Program
The NMTC Program, established by Congress in December 2000, provides
individual and corporate taxpayers with a credit against federal income taxes for
making qualified equity investments in investment vehicles known as Community
Development Entities (CDEs). Substantially all of the taxpayer's investment must be
used by the CDE to make qualified investments supporting certain business
activities in low-income communities. More information on the NMTC program can
be found at,\' ,', lIiiitlll,l) ';" '.

tp: 11www.treas.gov!press!releases!hp1218.htm

1115/2008

P-1219: Sma11 Business Participation

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Page 1 of 1

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October 17, 2008
HP-1219
Small Business Participation
Washington - Treasury today released the following document on the procurement
process for small business participation in the implementation of the Emergency
Economic Stabilization Act of 2008.
REPORTS

tp:IIWWw.treas.gov/press/releases/hpI219.htm

1115/2008

o
DEPARTMENT OF THE TREASURY'S
EMERGENCY ECONOMIC STABILIZATION ACT PROCUREMENTS
SMALL BUSINESS PARTICIPATION

PROCUREMENT AUTHORITIES AND PROCEDURES

In implementing the Emergency Economic Stabilization Act of 2008, Treasury has
available two mechanisms for engaging private-sector firms. These mechanisms are
financial agent authority, and procurement under the Federal Acquisition Regulation.
Treasury will make a determination on which of these authorities best applies on a case
by case basis.
I. Financial Agent Authority
Treasury has long had the statutory authority to retain financial agents to provide services
on its behalf. Selection of financial agents will occur through processes which will be
posted on the Treasury website. Although the process may be tailored to a specific
situation, typically Treasury prepares a notice to interested and qualified financial
institutions, evaluates the response to that notice, and negotiates one or more financial
agency arrangements. There are no requirements under this authority to set-aside
procurements for small (including small business concerns owned and controlled by
veterans (VOSBs), small business concerns owned and controlled by service-disabled
veterans (SDVOSBs), certified HUBZone small business concerns (HUBZones), certified
small business concerns owned and controlled by socially and economically
disadvantaged individuals (SOBs), and small business concerns owned and controlled by
women (WOSBs), woman- and minority owned businesses; however, the Department of
the Treasury has included these groups as part of the selection process. If small
businesses determine that they do not meet the minimum requirements stated in the
notices, they may participate as subcontractors.
2. Procurement Contracts under the Federal Acquisition Regulation
Treasury also may obtain supplies or services using a procurement contract under the
Federal Acquisition Regulation (FAR). In general, the FAR requires the solicitation of
offers from all interested sources, including small. However, competition for
procurements may be limited for various reasons, including in circumstances of unusual
or compelling urgency. Certain procurements may be set aside for certain small
businesses, including YOSBs, SOYOSBs, HUBZones, SOBs, and WOSBs. Due to the
paramount need for expeditious implementation of the Secretary's authorities under the

Act, Treasury anticipates that, as necessary, certain contracts will be awarded through
other than full and open competition, using the previously established FAR provisions
applicable under conditions of unusual and compelling urgency. Additionally, the Act
grants to the Secretary of the Treasury the authority, under certain specified conditions, to
waive specific provisions of the FAR.
GUIDELINES FOR PURSUING PROCUREMENT OPPORTUNITIES

1. Go to the Emergency Economic Stabilization Act (EESA) webpage on the
Department of the Treasury website at ,11,\ 11',',111, "", II: ,: "
2. Please register your e-mail address so that you can receive regular updates on the
EESA Program.
3. Go to the Federal Business Opportunities (FedBizOpps) website at
II II II Ill:hl/\lI'lh !;,(ll for information on the Department of the Treasury
contracts. FedBizOpps is the U.S. Government's one-stop virtual marketplace.
4. If you haven't already, register your firm at \1 " \' l'l ~" 1\. Central Contractor
Registration (CCR) is the primary registrant database for the U.S. Federal
Government. CCR collects, validates, stores, and disseminates data in support of
agency acquisition missions, including Federal agency contract and assistance
awards. Also, ensure that you complete your Dynamic Small Business Profile.
5. To expedite contract awards, the Department of the Treasury frequently uses the
General Services Administration (GSA) Schedules Program. If you are not a
contractor in the GSA Schedules Program, but are interested in becoming one, go
to II II 'I '-"',I !;', ,\ for additional information.
6. If your firm is interested in the small business certification programs, such as 8(a)
Business Development, Small and Disadvantaged Business, Historically
Underutilized Business, and Women-Owned, please refer to the U.S. Small
Business Administration website at II \1 1\ ·111 ,,"" _'I I,!.
7. Firms may submit a one-page capability statement electronically to the
Department's Office of Small and Disadvantaged Business Utilization at
I ! ,-', I . I!

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8. If you would like additional information on the Department of the Treasury's
Small Business Program, please go to II \\ II 11',1'111' ,:(,' ",,!I'II.

p-1220: Report on IFI Projects that Support Extractive Industries

Page 1 of 10

July 1, 2008
hp-1220
Report on IFI Projects that Support Extractive Industries
Introduction and Executive Summary of 2008 Report by the Treasury
Department on International Financial Institution Projects that Support
Extractive Industries
The report describes the amount and type of assistance provided by each
international financial institution (IFI), from October 1,2006 to March 31,2008, for
the extraction and export of oil, gas, coal, timber, or other natural resources. The
Department of the Treasury prepared this report pursuant to section 684(c)(2) of the
State Department, Foreign Operations, and Related Programs Appropriations Act,
2008, found in the Consolidated Appropriations Act, 2008, Public Law 110-161
(December 26,2007). (A copy of this section is attached.)
The report describes in some detail 18 multilateral development bank (MOB)
projects for activities related to extractive industries. The United States supported
twelve of these projects. In nearly all cases, there were some elements of good
transparency practices, although no project achieved full consistency with the
criteria laid out in this legislation.
The report also briefly discusses IFI efforts to improve governance in extractive
industries beyond IFI projects. Treasury is a key voice supporting these IFI efforts.
The IFls work at several levels beyond projects, including country and sector
strategies, diagnostic studies, and research.
The report demonstrates that the IFls continue to take on the critical challenges
associated with extractive industries. IFI engagement in projects can add value by
promoting transparency, accountability, and good governance for the companies
and governments concerned. IFI engagement in areas outside of projects has led
to important progress as well. However, the IF Is must continue to enhance their
understanding of the role extractive industries can play in development and how
best to manage the economic, environmental, and social implications of these
investments. Treasury will strongly encourage the IFls to add to their existing
expertise in this area.
International Financial Institutions Assistance to Support Extractive
Industries
General Policies
This Administration remains committed to the important goal of promoting
transparency and accountability in and through the International Financial
Institutions (IFls) including with respect to multilateral development bank (MOB)

ill

engagement in extractive industries projects.
Treasury takes the position that
government revenues derived from extractive industries should be reported
accurately and transparently.
Since 2005, Treasury has advised the managements of the IFls that it is U.S. policy
that assistance to a country for the extraction and export of natural resources
should not be provided unless the country has in place or is taking the necessary
steps to establish functioning systems for accountability and reporting. In early
2008, Treasury advised the managements of the IFls of the new legislative

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guidance relating to functioning systems actually being in place. The new
legislative guidance was part of legislation that went into effect on December 26,
2007 and provides that:
"Section 684(c) EXTRACTION OF NATURAL RESOURCES(1) The Secretary of the Treasury shall inform the managements of the international
financial institutions and the public that it is the policy of the United States that any
assistance by such institutions (including but not limited to any loan, credit, grant, or
guarantee) for the extraction and export of oil, gas, coal, timber, or other natural
resource should not be provided unless the government of the country has in place
functioning systems for: (A) accurately accounting for payments for companies
involved in the extraction and export of natural resources; (B) the independent
auditing of accounts receiving such payments and the widespread public
dissemination of the findings of such audits; and (C) verifying government receipts
against company payments including widespread dissemination of such payment
information, and disclosing such documents as Host Government Agreements,
Concession Agreements, and bidding documents, allowing in any such
dissemination or disclosure for the redaction of, or exceptions for, information that is
commercially proprietary or that would create competitive disadvantage."
The operations described below, which occurred during the period for this report,
October 1, 2006 to March 31, 2008, were thus subject to different sets of legislative
guidance.
In addition to advancing a strong transparency and accountability policy, Treasury
stresses the importance of resource revenue transparency in Board consideration
of MOB projects, country and sector strategies, International Monetary Fund (IMF)
Article IV consultations, Poverty Reduction Strategy Papers (PRSPs), and
diagnostic studies, and in bilateral meetings with country counterparts. Treasury
has also secured strong commitments on extractive industries transparency in G-8
declarations.
Treasury promotes resource revenue transparency when considering proposed
MOB policies such as the forthcoming Inter-American Development Bank (lOB) and
Asian Development Bank (AsDB) energy policies, and when overseeing their
implementation in individual hydrocarbon and mining sector operations. In 2007, a
U.S. Government team visited the Peru LNG hydrocarbon project, financed by the
lOB and International Finance Corporation (IFC), to examine environmental issues
and issues on management of the Govemment of Peru's revenues from the project.
We have also encouraged the IFls to make fiscal transparency a central part of
their analytical work, including through application of the updated IMF Guide on
Resource Revenue Transparency; revised IMF Code and Manual of Good
Practices on Fiscal Transparency; IMF Code of Good Practices on Transparency in
Monetary and Financial Policies: Declaration of Principles; World Bank Country
Financial Accountability Assessments; and the joint Public Expenditure and
Financial Accountability (PEFA) indicators. The African Development Bank (AfDB)
commissioned a briefing note on "Revenue and Tax Levels: Mineral Taxation in
Africa" that was presented to the Board in March 2008; one objective was to ensure
transparency in the reporting of revenues.
Following strong U.S. leadership during negotiation of the fifteenth replenishment of
the International Development Association (IDA) in 2007, the World Bank
expressed a continued commitment to enhance transparency of revenue flows to
governments from extractive industry projects. IDA's financial assistance to a
project with significant impact on revenues would continue to be predicated upon
the recipient government having in place, or being in the process of establishing, a
system for accounting for revenues and their use. The government should also
have in place, or be in the process of establishing, a system of independent
auditing of such revenue receipts and the public dissemination of results. IDA is
monitoring the implementation of these systems and will take appropriate actions if
they are not implemented. Although these systems are especially relevant to
extractive industry projects with significant revenue impacts, they are also
applicable to all budget support operations, such as those set out in the World

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12/9/200~

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hp-1220: Report on IFI Projects that Support Extractive Industries

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Bank's operational policy on Development Policy Lending. We are actively working
to establish these standards and policies at all of the MDBs.

Individual MOB Projects That Support Extractive Industries

1. African Development Bank (AfDB)
Democratic Republic of Congo (DRC) - Tenke Fungurume Mining SARL (TFM);
$100 million loan; October 3, 2007: The AfDB approved this private sector loan to
TFM for mining and processing copper and cobalt in the Katanga Province. TFM is
owned by U.S.-based Freeport-McMoRan Copper & Gold Inc., Canada-based
Lundin Mining Corporation, and DRC-owned Gecamines. OPIC and Canada's
Export Development Canada are also lending to TFM. The Bank's proposal
contains several features which address the extent to which the country has
functioning systems for accurately accounting for payments to the government by
companies involved in the extraction and export of the natural resources,
independent auditing of accounts receiving such payments and widespread public
dissemination of the findings of such audits, or the verification of government
receipts against company payments. The DRC subscribed to the Extractive
Industries Transparency Initiative (EITI) principles in March 2005 and is currently
implementing them. Furthermore, as required in the legal agreements between the
sponsor and the lenders, the project company must comply with all requirements of
the EITI Principles and Criteria to the extent that these have been enacted into
legislation in Congo. All revenues to the Government from the project will be
audited by an international auditing firm. The United States abstained on the
project consistent with legislative mandates on copper mining and environmental
assessment disclosure requirements set out in the Pelosi Amendment, and
consistent with Congressional guidance on extractive industry projects.
Madagascar - Ambatovy Nickel; $150 million loan; May 2, 2007: The AfDB
approved the private sector loan to Ambatovy Minerals Societe Anonyme (AMSA)
and Dynatec Madagascar Societe Anonyme (DMSA) for the development of an
open pit mine, an ore slurry preparation plant at the mine site, a 220 km pipeline to
move the ore slurry to the coast, a pressure acid leach processing plant, a metals
refinery, and all the necessary infrastructure. The project will produce
approximately 60,000 tons per annum (TPA) of London Metal exchange deliverable
nickel, 5,300 TPA of cobalt, and 186,000 TPA of fertilizer-grade ammonium
sulphate. The estimated operating life of the project is 27 years. The Bank's
proposal did not explicitly consider the extent to which the country has functioning
systems for accurately accounting for payments to the government by companies
involved in the extraction and export of the natural resource, independent auditing
of accounts receiving such payments and widespread public dissemination of the
findings of such audits, or the verification of government receipts against company
payments. However, AfDB provided EITI implementation support to the
government in 2007 - 08, and consequently, Madagascar's candidacy status was
approved at the EITI Board meeting in February 2008. The United States
abstained on the project consistent with the legislative mandate on environmental
assessment disclosure requirements set out in the Pelosi Amendment, and on
policy grounds because there had been a sudden change of ownership which
merited additional due diligence.

2. Asian Development Bank (AsDB)
Indonesia - Technical Assistance for Preparing a Regional Road Development
Project; $1.3 million Preparatory Technical Assistance Grant; Initial Project
Scheduled for February 14. 2008, and Revised Project Approved May 28,2008:
The AsDB proposed this preparatory technical assistance grant for approval in
February 2008 to examine options to improve roads in Northern Kalimantan and
Southern Java. The United States expressed concern to the Bank and other
shareholders that a proposed road bisected the Kayan Mentarang National Park
and the Betung Kerihan National Park, and that, consequently, the proposed road
would likely increase the extraction and export of illegal logging as well
as increase wildlife poaching, degradation of natural forests, and forest fires. The
AsDB indicated that the government has in place functioning systems to track
company payments but audits are not always made public, nor are the verification

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of government receipts with company payments disseminated. In response to the
strong concerns raised by the United States and other shareholders, the AsDB
withdrew and revised the proposal. The revised proposal did not contain the road
component through these national parks, and therefore the United States supported
the revised proposal for the preparatory technical assistance grant on May 28,
2008.
3. International Finance Corporation (IFC)
IFC's Social and Environmental Sustainability Policy promotes transparency of
revenue payments from extractive industries projects to host governments.
Accordingly, IFC requires that: 1) for significant new extractive industries projects,
clients publicly disclose their material project payments to the host government
(such as royalties, taxes, and profit sharing) and the relevant terms of key
agreements that are of public concern, such as host government agreements
(HGAs) and intergovernmental agreements (IGAs); and 2) from January 1,2007,
clients of all IFC-financed extractive industry projects publicly disclose their material
payments from those projects to the host govemment{s). This policy applies to the
following IFC projects:
Brazil - aCOG Rigs; $50 million loan; June 25, 2007: The IFC approved this
investment in aCOG Rigs, a company awarded contracts by Petrobras, the
Brazilian state-owned oil company, to build and operate two semi-submersible
offshore drilling rigs. The contracts are service contracts that include the purchase
and ownership of the drilling rigs and local-currency service contracts to cover rig
operations. Since aCOG provides services to oilfield operators, this project does
not provide natural resource revenues to the government. As such, the IFC's
proposal did not explicitly consider the extent to which the country has functioning
systems for accurately accounting for payments to the government by companies
involved in the extraction and export of the natural resource, independent auditing
of accounts receiving such payments and widespread public dissemination of the
findings of such audits, or the verification of government receipts against company
payments. The United States supported this services project in an extractive
industry sector because the project will increase participation of domestic service
companies in Brazil's oil and gas sector, domestic employment, and local skills
development in the industry.
Brazil - Schahin Rigs; $50 million loan; September 26, 2007: The IFC approved
this investment in Schahin Rigs, a company awarded contracts by Petrobras, the
Brazilian state-owned oil company, to build and operate two semi-submersible
offshore drilling rigs most likely to be used in the Bacia de Campos off-shore field.
The contracts are charter and service contracts that include the purchase and
ownership of the drilling rigs and local-currency service contracts to cover rig
operations. Since Schahin Rigs provides services to oilfield operators, this project
does not provide natural resource revenues to the government. As such, the IFC's
proposal did not explicitly consider the extent to which the country has functioning
systems for accurately accounting for payments to the government by companies
involved in the extraction and export of the natural resource, independent auditing
of accounts receiving such payments and widespread public dissemination of the
findings of such audits, or the verification of government receipts against company
payments. The United States supported this services project in an extractive
industry sector because the project will increase participation of domestic service
companies in Brazil's oil and gas sector, domestic employment, and local skills
development in the industry.
Democratic Republic of Congo (DRC) - Kalukundi Equity - August 29, 2007: The
IFC approved this equity investment of $15 million for an 11 percent stake in Africo
Resources Ltd, a junior mining company focusing on cobalt and copper exploration
activities in the Kolwezi District of Katanga Province in the south east of the
Democratic Republic of Congo. The project will finance Africo's on-going
exploration and feasibility study work at Kalukundi. The IFC's proposal did not
explicitly consider the extent to which the country has functioning systems for
accurately accounting for payments to the government by companies involved in
the extraction and export of the natural resource, independent auditing of accounts
receiving such payments and widespread public dissemination of the findings of

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such audits, or the verification of government receipts against company payments.
According to the IFC, despite the DRC's endorsement of EITI, EITI implementation
in the Congolese mining sector is expected to be difficult. Africo has indicated that
it would commit to supporting the implementation of the initiative as well as to
declaring on an annual basis all payments made to the DRC Government and
Gecamines, the Congolese national mining company which owns 25 percent of the
project. Disclosure of all payments to the Government by the Company will also
assist in efforts to ensure that 15 percent of the royalties are mobilized to the
districts and provinces impacted by the project, further broadening the project's
positive impacts. Because Africo is listed on the Toronto Stock Exchange (TSE),
there is a requirement to conduct all activities of the company in accordance with
the transparency and disclosure rules of the TSE including disclosure of payments
made by the project to third parties. The United States supported the project
because the development of the DRC's mining sector is vital to the country's
economic recovery from the recent military conflict.
Egypt - IPR Egypt - February 6, 2007: The IFC approved this loan for up to $25
million to IPR Egypt (IPR), an oil and gas exploration company based in Dallas,
Texas. IPR is engaged primarily in two lines of business: oil and gas exploration
and production and oil services and consulting. Its assets are located primarily in
Egypt, and to a lesser extent in Pakistan, Syria, and the United States. The loan
proceeds were used to finance the on-going development, appraisal and
exploration of four oil fields in the remote western desert of Egypt and to finance
two fields in the Gulf of Suez. The IFC's proposal did not explicitly consider the
extent to which the country has functioning systems for accurately accounting for
payments to the government by companies involved in the extraction and export of
the natural resource, independent auditing of accounts receiving such payments
and widespread public dissemination of the findings of such audits, or the
verification of government receipts against company payments. In coming to a view
of whether to support this project, IFC considered the value of the project's benefits,
governance, and risks. It considered a range of indicators of governance, including
but not limited to Transparency International's Corruption Perceptions Index and the
World Bank Institute's Governance Indicators, as well as the current relationship
between Egypt, the World Bank, and the IMF. The Government of Egypt's share of
revenues partly accrues to the Ministry of Petroleum and to the Ministry of Finance
(income taxes). The GOE manages these revenues for reinvestment in the oil and
gas sector and provision of affordable petroleum products to the country's
population. IPR has agreed to publish its annual payments to the whollYgovernment owned Egyptian General Petroleum Corporation on their website. The
United States abstained on this investment because the project did not sufficiently
promote economic development.
Oman - MB Holding Company; $100 million partial credit guarantee; January 23,
2007: The IFC Board approved this partial credit guarantee for 50-65 percent of a
bond issued by MB Holding Company LLC, a privately-owned Omani company with
subsidiaries engaged in oilfield services, exploration and production of oil and gas,
mining, trading and investments. More than 50 percent of the bond proceeds are
expected to be used to expand in countries such as Yemen and India the
operations of the company's oilfield services subsidiary, MB Petroleum Services
LLC's (MBPS.) The remaining bond proceeds are expected to be used to improve
MBPS' financial structure by refinancing its short-term debt and replacing it with
long-term debt at the holding company level. The IFC's proposal did not explicitly
consider the extent to which the country has functioning systems for accurately
accounting for payments to the government by companies involved in the extraction
and export of the natural resource, independent auditing of accounts receiving such
payments and widespread public dissemination of the findings of such audits, or the
verification of government receipts against company payments. The United States
abstained on this guarantee because of lack of additionality and development
impact. It should also be noted that none of the countries where MBPS is expected
to expand its operations is a proponent of the EITI.
Peru - Peru LNG; $300 million loan; February 5,2008: The IFC approved this loan
to the Peru LNG project and its consortium of sponsors. The consortium was led by
Hunt Oil and included SKE (Korea's largest energy and chemical company); Repsol
(a Spanish oil company); and Marubeni (a Japanese trading firm). The project
supported the transportation and export of natural gas originating in the Camisea

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fields through the existing and a new dedicated pipeline, liquefaction of the gas in
facilities at Pampa Melchorita on the Peruvian coast, and off-loading to tankers
under contract with Repsol. Most of the LNG is expected to be used in Mexico;
some may be used in the United States and some may be sent to South America
and Asia. The project is the first Peruvian LNG liquefaction facility and the largest
foreign direct investment in Peru's history.
The IFC and lOB both financed the Peru LNG project. There were several issues
associated with environmental and social risks of the project, including residual
safeguard issues from the earlier Camisea project, governance capacity of the
Government of Peru, and development outcomes. In their project proposals for
Peru LNG, the IFC and lOB did not explicitly consider the extent to which Peru has
the transparency systems in place as described in section 684(c). However, the
lOB and the IFC both have been heavily involved in improving the transparency
regime for extractive industries projects in Peru. At the IFC's request, Peru LNG
will disclose all payments made to the Government in the form of taxes, bonuses or
otherwise. Furthermore, a number of related contracts involving the Government of
Peru (GoP) are disclosed and accessible to the public. In parallel, IFC will help
support the process of revenue distribution and use by increasing transparency and
knowledge about these revenues through the development of an independent
monitoring mechanism at the regional level in the provinces of Ayacucho and
Huancavelica, the two poorest regions along the Peru LNG pipeline route. This
mechanism will be administered by civil society and will promote public disclosure
and accountability related to the use of revenues accruing from the extractive
industries sector.
With respect to the World Bank Group's extractive industry-related commitments,
under a grant agreement between the World Bank and the GoP, a pilot project to
enhance revenue transparency will be started by the World Bank in the Cusco
region. The IFC and Peru LNG are also developing programs to assist
municipalities in developing investment plans and engagement of civil society in
monitoring such investments. In addition, USAID established a partnership with
IFC to strengthen local revenue management of payments from extractive
industries in Peru. Considering the project characteristics and IFC's additionality,
the United States supported IFC financing of this project. At the same time, the
United States encouraged IFC Management to devote significant attention to postBoard monitoring and reporting to IFC's Board as well as to civil society.
Russian Federation - Aricom PLC; $20 million equity investment; May 23, 2007:
The IFC Board approved this investment in Aricom PLC, a mining company.
Aricom PLC was spun off from the gold company, Peter Hambro Mining PLC, in
2003 to develop iron ore, ilmenite and titanium deposits in the Amurskaya and
Evreyskaya Avtonomnaya Oblasts in Far East Russia. The IFC investment
supported the development of key iron ore properties in these areas. The IFC's
proposal did not explicitly consider the extent to which the country has functioning
systems for accurately accounting for payments to the government by companies
involved in the extraction and export of the natural resource, independent auditing
of accounts receiving such payments and widespread public dissemination of the
findings of such audits, or the verification of government receipts against company
payments. Aricom complies with International Standards on Auditing issued by the
Auditing Practices Board and discloses its tax payments. It also plans to disclose
payments to the government on its website and has set up independent audit
committees. The U.S. abstained on this investment due to the lack of development
impact. In addition, this investment did not meet the environmental assessment
disclosure requirements set out in the Pelosi Amendment.
South Africa - Lonmin Platinum Group Metals Equity; $50 million equity investment
and $100 million loan; December 19, 2006: The IFC Board approved this
investment in Lonmin Platinum Group Metals. The project supported: (i) the
development, expansion, and mechanization of Lonmin's South African mines; (ii)
financing planned transactions regarding broader and more equitable ownership of
South African business through Black Economic Empowerment (BEE) participation
in Lonmin development programs; and (iii) the development of a comprehensive
technical assistance program to strengthen the social sustainability of the client and
maximize the development impact of the project and IFC's investment. Lonmin will
export the platinum, according to the IFC. The IFC's proposal did not explicitly

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consider the extent to which the country has functioning systems for accurately
accounting for payments to the government by companies involved in the extraction
and export of the natural resource, independent auditing of accounts receiving such
payments and widespread public dissemination of the findings of such audits, or the
verification of government receipts against company payments. Lonmin in its
annual "Sustainable Development Report" discloses all payments with regard to
government taxes, salaries, social capital, directors' remuneration and shareholder
distributions. These disclosure practices are consistent with the objective of
increasing transparency in the extractive industries sector. However, the United
States abstained on this investment because it did not meet the environmental
disclosure requirements set out in the Pelosi Amendment.
Southeastern/Central Asia - Lydian Resource Company; $2 million equity
investment; June 28,2007: The IFC approved this equity investment for a 15
percent ownership interest in Lydian Resource Company, a mining company
focused on finding and acquiring deposits in Eastern Europe and Central Asia.
Lydian holds licenses for three exploration projects in Kosovo. As part of a 50-50
joint venture with Newmont, the second largest gold producer worldwide and
Lydian's largest shareholder, Lydian shares ownership of a gold property in Turkey
as well as an undrilled gold property in Armenia. IFC's assessment of governance
in Kosovo, Armenia, and Turkey is based on available internal and external
indicators, including the World Bank Institute's governance indicators, the World
Bank's Country Policy and Institutional Assessment ranking, and Transparency
International's corruption index, as well as discussions with regional staff, regional
economists and the Mining Policy Division. Mine development, if realized, would
generate benefits for the host countries through payments made to the
governments in the form of royalties and corporate income taxes. The IFC's
proposal did not explicitly consider the extent to which the country has functioning
systems for accurately accounting for payments to the government by companies
involved in the extraction and export of the natural resource, independent auditing
of accounts receiving such payments and widespread public dissemination of the
findings of such audits, or the verification of government receipts against company
payments. Lydian is committed to disclose publicly all payments made to host
governments. The United States supported the project because of the company's
activities in Armenia and Kosovo, two frontier economies where the mining sectors
have been identified as key sectors for economic development.
4. Multilateral Investment Guarantee Agency (MIGA)
Mozambique - Guarantee to Standard Corporate and Merchant Bank for a Loan
Guarantee and a Loan to Republic Mozambique Pipeline Investment Company;
November 9, 2006: The MIGA board approved a modification to an initial
guarantee approved in 2002 which increased its net exposure from $60.5 million to
$90.4 million. The Sasol Natural Gas project involved the phased extraction,
processing, transportation, and utilization of natural gas reserves in the Pande and
Temane field reservoirs in Mozambique. It has also entailed the conversion of the
Sasol Gas pipeline network and customers in South Africa, the conversion of the
Sasolburg factory to process gas to its hydrocarbon feedstock, and the conversion
of Sasol's Secunda factory to process gas as a supplemental feedstock. The U.S.
supported this project because it was the first cross border initiative in sub-Saharan
Africa in developing regional natural gas markets. The export of natural gas is
expected to enhance regional trade and stability by further linking the economies of
Mozambique and South Africa. The project will contribute towards developing the
Mozambican economy through monetizing its gas reserves. The MIGA's proposal
did not explicitly consider the extent to which the country has functioning systems
for accurately accounting for payments to the government by companies involved in
the extraction and export of the natural resource, independent auditing of accounts
receiving such payments and widespread public dissemination of the findings of
such audits, or the verification of government receipts against company payments.
The Government of Mozambique (GoM) will receive significant royalty payments as
well as dividends, production bonuses, and corporate taxes in excess of $2 billion
over the 25-year lifetime of the project. The GoM has committed to account for the
revenue proceeds from the Project through a line item in its budget. In addition, the
use of the revenues will be reported in the budget execution reports which are
monitored by the Bank and other donors.

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Bff\zil - Delba Vessel Project; $110 million "A" loan & $378 million "B" loan;
Q~t~\:)~r 17, 2007: the IDB approved this loan to Delba Drilling Internacional
Cooperatie, U.A. This project is similar to the IFC projects in Brazil for Schahin
Rigs and QCOG Rigs (projects described in IFC section above). The project
consists of the construction and the operation in offshore Brazil of a semisubmersible offshore mobile oil-drilling vessel. Since Delba provides services to
oilfield operators, this project does not provide natural resource revenues to the
government. As such, the IDB's proposal did not explicitly consider the extent to
which the country has functioning systems for accurately accounting for payments
to the government by companies involved in the extraction and export of the natural
resource, independent auditing of accounts receiving such payments and
widespread public dissemination of the findings of such audits, or the verification of
government receipts against company payments. The United States supported this
services project in an extractive industries sector because large capital investments
are required in this sector and the IDB will help address these investment needs
with its loan and the private sector financing catalyzed via the B-Ioan. Also, the
Bank's prior engagement of providing technical cooperation to the Brazilian
Government helped strengthen the government's environmental systems that will
monitor and manage the impacts of this project and others in the Campos Basin.
Peru - LNG Project; $400 million loan; December 19, 2007: Project details are
discussed in the IFC section above. The IDB approved this loan to the project
sponsors. The project proposals for Peru LNG at the IFC and IDB did not explicitly
consider the extent to which Peru has the transparency systems in place as
described in section 684(c), the legislation that requires this Treasury report.
However, the IDB and the IFC both have been heavily involved in improving the
transparency regime for extractive industries projects in Peru. The United States
supported the IDB portion of the LNG project because the project sponsors
committed to using industry best practices for the mitigation of environmental and
social risks, the Peruvian Finance Ministry's efforts to simplify procedures for using
gas royalties are enabling communities to benefit more directly and expeditiously
from the hydrocarbon revenues, and the Peruvian Government signaled its
willingness to address a number of concerns through a future policy based loan for
a sustainable energy matrix. The Peruvian Finance Ministry also committed to
providing disaggregated data on the use of LNG project royalties that flow through
the Camisea Fund.

6. European Bank for Reconstruction and Development (EBRD)
In financing extractive industry projects, the EBRD aims to incorporate best
practices with respect to transparency, revenue management, and lasting benefits
for the local population. The EBRD's energy operations policy states that "Natural
resource projects need to be well managed to avoid the 'resource curse' that has
befallen many other resource-rich countries. The EBRD will finance projects
designed to yield a lasting benefit for the local population and adhere to best
international transparency and revenue management standards. Going forward,
the Bank will require project sponsors to publicly disclose their material project
payments to the host government as a minimum revenue transparency condition.
In countries where governments have signed up to the Extractive Industry
Transparency Initiative (EITI), the Bank will continue to play an active role to
support its implementation, requiring project sponsors to follow its applicable
methodology principles and criteria."
Kazakhstan - Bautino Atash Marine and Supply Base Project; $24.0 million senior
loan, of which $12.0 million would be for the account of B lenders, and up to $10.0
million in equity split in two tranches; November 7,2006: An $8 million loan
increase was approved on a no objection basis on May 2,2007, to complete the
financing, after negotiations broke down with a potential commercial bank lender.
The EBRD Board approved this investment in Balakshy, a limited liability company
incorporated in Kazakhstan. The project will involve the construction, equipment
and placing into operation of the marine support and supply base of Bautino to be
located in the Kazakh sector of the North Caspian Sea coast, near the village of
Atash. The project will respond to a wide range of off-shore oilfield operators'

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needs, such as fuel and water provision, support base infrastructure and services,
and crew change facilities. Since Balakshy merely provides services to oilfield
operators, there are no natural resource revenues from this project. The EBRD's
proposal did not explicitly consider the extent to which the country has functioning
systems for accurately accounting for payments to the government by companies
involved in the extraction and export of the natural resource, independent auditing
of accounts receiving such payments and widespread public dissemination of the
findings of such audits, or the verification of government receipts against company
payments. Kazakhstan endorsed the Extractive Industries Transparency Initiative
(EITI) in June 2005 and is taking steps to implement its principles. For example,
during April 2006, the World Bank, Government of Kazakhstan, and EITI National
Stakeholders Council agreed on a procedure to select an audit firm to perform the
collection and reconciliation of payments and revenues according to EITI criteria.
The United States supported the project due to its positive impact on the Kazakh
economy and the positive influence it will have on Kazakhstan's transition to a
market economy.
Mongolia - MAK Project; $45 million loan in two tranches; November 6, 2007:
Mongolyn Alt Corporation (MAK) is a medium sized Mongolian mining company
producing coal and gold. Tranche 1 will enable MAK to: (a) introduce advanced
mine management information systems, (b) restructure its balance sheet, and (c)
expand operation at its Eldev mine, including the purchase of a unit for production
of higher quality, cleaner coal. Tranche 2 will enable the company to conduct the
further development of the Naryn Sukhait coal mine. Some of the coal will be
exported to China. The EBRD's proposal did not explicitly consider the extent to
which the country has functioning systems for accurately accounting for payments
to the government by companies involved in the extraction and export of the natural
resource, independent auditing of accounts receiving such payments and
widespread public dissemination of the findings of such audits, or the verification of
government receipts against company payments. This investment will introduce for
the first time the requirement for a mining company to comply with EITI in Mongolia,
which is one of the loan agreement covenants. The United States supported this
project because there is limited financing available for mining companies in
Mongolia and because it would improve corporate governance and transparency.
Regional - Imperial Mining; $30 million equity participation in two phases; January
8. 2008: The investment would finance preparatory work for base metal and
precious metal licenses in Russia and Mongolia. The proposed investment will
enable Imperial Mining to conduct the full feasibility study for the Karakul cobalt and
copper deposit in Russia (including a full environmental impact assessment),
implement preparatory work for the development of Karakul cobalt-copper deposit
in the Altai region of Russia and complete acquisition of nearby satellite deposits.
The cobalt and copper may be exported to Rotterdam in Europe and the Far East,
and the company may pay taxes to Russia and Mongolia on such exports. The
EBRD's proposal did not explicitly consider the extent to which the countries have
functioning systems for accurately accounting for payments to the government by
companies involved in the extraction and export of the natural resource,
independent auditing of accounts receiving such payments and widespread public
dissemination of the findings of such audits, or the verification of government
receipts against company payments. However, the company committed to adopt
the Equator Principles for assessing and managing social and environmental risk
and implement Publish What You Pay/EITI principles, including publication on
Imperial Mining's website of the payments made to the Russian and Mongolian
authorities in relation to extractive operations (PWYP in Russia and EITI in
Mongolia respectively) with text in Russian and Mongolian with an English
translation. The United States supported this project, in part, because of its
contribution to improved corporate governance of a private, independent company
in the Russian and Mongolian mining sectors and because we received assurances
that, if early production activities are to be undertaken, they will be brought back to
the Board for approval and an environmental and social impact assessment will be
carried out as part of the feasibility study for the activities.
State Department. Foreign Operations. and Related Programs Appropriations Act,
2008, found in the Consolidated Appropriations Act. 2008, Public Law 110-161
(December 26, 2007).

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Section 684(c) EXTRACTION OF NATURAL RESOURCES(1) The Secretary of the Treasury shall inform the managements of the international
financial institutions and the public that it is the policy of the United States that any
assistance by such institutions (including but not limited to any loan, credit, grant, or
guarantee) for the extraction and export of oil, gas, coal, timber, or other natural
resource should not be provided unless the government of the country has in place
functioning systems for: (A) accurately accounting for payments for companies
involved in the extraction and export of natural resources; (B) the independent
auditing of accounts receiving such payments and the widespread public
dissemination of the findings of such audits; and (C) verifying government receipts
against company payments including widespread dissemination of such payment
information, and disclosing such documents as Host Government Agreements,
Concession Agreements, and bidding documents, allowing in any such
dissemination or disclosure for the redaction of, or exceptions for, information that is
commercially proprietary or that would create competitive disadvantage.
(2) Not later than 180 days after the enactment of this Act, the Secretary of the
Treasury shall submit a report to the Committees on Appropriations describing, for
each international financial institution, the amount and type of assistance provided,
by country, for the extraction and export of oil, gas, coal, timber, or other natural
resources since September 30, 2006, and whether each institution considered, in
its proposal for such assistance, the extent to which the country has functioning
systems described in paragraph (c)(1).

[1] The MDBs include the 1) World Bank Group (International Bank for Reconstruction and
Development [IBRD], International Development Association [IDA]. International Finance
Corporation [IFC]. and Multilateral Investment Guarantee Agency [MIGA]); 2) Asian Development
Bank Group [AsDB] (Ordinary Capital Resources [OCR]. and Asian Development Fund [AsDF]); 3)
Inter-American Development Bank Group [IDB]. (Ordinary Capital lOC]o Fund for Special Operations
[FSO]. Inter-American Investment Corporation [IIC]. and Multilateral Investment Fund [MIF]); 4)
African Development Bank Group (including African Development Bank [AfDB] and African
Development Fund [AfDF]); and 5) European Bank for Reconstruction and Development [EBRD].
The International Monetary Fund does not engage in extractive industries projects

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~a1 IT-1221: Treasury, Regulators to Issue Additional Guidance on Capital Purchase p~rogram.MI'
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October 20,2008
HP-1221
Treasury, Regulators to Issue Additional Guidance on Capital Purchase
Program
Washington, DC--Secretary Henry M. Paulson, Jr. will deliver a statement today in
the Treasury Department Media Room at 11 :30 a.m. (EDT) to discuss additional
details on the capital purchase program including the process for applying.
Following the statement Treasury and financial regulatory officials will conduct an
off-camera, background briefing in the same room.
Who
Treasury Secretary Henry M. Paulson, Jr.
What
Statement on Capital Purchase Program Application Guidelines
When
Monday, October 20, 11 :30 a.m. (EDT)
Where
Treasury Department
Media Room - 4121
1500 Pennsylvania Avenue
Washington, DC
Note
The pen and pad background briefing will immediately follow at 11 :45 a.m. (EDT) in
the Media Room. No cameras will be permitted for the background briefing.
Media without Treasury press credentials planning to attend should contact
Treasury's Office of Public Affairs with the following information: name, Social
Security number and date of birth.
Clearance contact:
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Washington, DC-- Treasury, the Federal Reserve, the Office of the Comptroller of
the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance
Corporation today issued application guidelines and other documents for the
C, ifill, II t:'IJI ,II, I',"> ~)I ()til II): announced last week. Attached are application
guidelines, an application form and a Frequently Asked Questions document to
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Application Guidelines for TARP Capital Purchase Program
This application is used to request participation in the Treasury Capital Purchase Program (CPP).
Under the CPP, the U.S. Department of the Treasury (Treasury) may purchase qualifying capital
in U.S. banking organizations.
The application must be submitted to the appropriate Federal banking agency (FBA) for the
applicant. If the applicant is a bank holding company, the application should be submitted to
both the applicant's holding company supervisor and the supervisor of the largest insured
depository institution controlled by the applicant. All inquiries regarding preparation of the
application should be directed to the appropriate FBA for the applicant. All applications must be
submitted no later than 5pm (EST), November 14,2008.
More detailed information, including submission instructions, can be found at the applicable
FBA's website:
1. For the
2. For the
3. For the
4, For the

Federal Deposit Insurance Corporation: ~\)_~.Jili~()\
Federal Reserve: ~\'-'U011'L~lrl',>cr\ c~~
Office of the Comptroller of the Currency: \\ \\\\Ul'l'ctrl'd'>~()\
Office of Thrift Supervision: ~_\'.-,()bJrl';I:-.~(~\

The terms of the CPP are described generally in this application. However, this description is
not binding on the Treasury and is intended to provide general information only. The actual
terms and conditions of the CPP are contained in documentation that will be available from the
Treasury Department on its web site at iD~~,--\~\\ .t rCd:-'.~-'-'J.!JJ.l1i.ll!'...t:~ l'l"<l_.
Eligible Institutions
The CPP is available to bank holding companies, financial holding companies, insured
depository institutions and savings and loan holding companies that engage solely or
predominately in activities that are permissible for financial holding companies under relevant
law. To qualify, the applicant must be established and operating in the United States and may
not be controlled by a foreign bank or company.

Institutions must consult with their appropriate FBA prior to submitting this application.
Certain Conditions for Participation in the CPP

To be eligible for the CPP, the applicant must receive the approval of the Treasury. In addition,
the applicant must agree to certain terms and conditions and make certain representations and
warranties described in various agreements prepared by the Treasury and available on Treasury's
website. A summary term sheet is currently available on Treasury's website and a detailed
investment agreement and associated documentation will be posted soon. Each applicant must
obtain and review a copy of these agreements and agree to all of the terms and conditions,
including representations and warranties, contained in these agreements. In the event the
applicant files an application with the appropriate FBA prior to the availability of the investment
agreement, the applicant must file an amended application which includes updated responses to
any items in the application that required prior review of the investment agreement.

In the event that an applicant cannot, by November 14,2008, take action to be in compliance
with all of the terms and conditions, including the representations and warranties, contained in
the Treasury agreements, the applicant must provide an explanation of the condition or
conditions that cannot be met and the reasons the condition or conditions cannot be met. This
explanation must be attached to the application. Failure to agree to all terms and conditions may
result in disqualification from the CPP.
If the applicant receives preliminary approval to participate in the CPP from the Treasury, the
applicant will have 30 days from the date of notification to submit the investment agreements
and related documentation.
Among the conditions to participation in the CPP is the requirement that, for so long as the
Treasury owns shares or warrants in the applicant, certain senior officers of the applicant meet
standards established by the Treasury for executive compensation in certain circumstances.
These standards are explained on the Treasury web site at:
http: \\ \\ \\ .trl'~Ic;.gO\ 1I1IIIatl\_L"~ l'l'C;~I!-'_\CL"lIlJ\ l'l"Oll1pCI1c;at 1(l11. c;hl III I.
For the first three years that the Treasury owns shares or warrants in the applicant, the applicant
may not increase its dividend payments on common shares without the permission of the
Treasury. In addition, the applicant may not repurchase or redeem any junior preferred shares,
preferred shares ranking pari passu with the Senior Preferred, trust preferred, or common shares
(other than in connection with certain employee benefit programs) during the first three years of
the investment without the permission of the Treasury.
Form of Capital Qualifying for Purchase
All capital purchases will occur at the highest-tier holding company in cases in which the
banking organization has a bank holding company or a savings and loan holding company. In
these cases, the capital eligible for purchase by the Treasury under the CPP is cumulative
perpetual preferred stock of the highest tier holding company. The shares must be pari passu
with the most senior preferred shares available by the applicant.

In the case of an insured depository institution that is not controlled by a company, the capital
eligible for purchase by the Treasury under the CPP is non-cumulative perpetual preferred stock

of the insured depository institution. The shares must be pari passu with the most senior
preferred shares available by the applicant.
The maximum amount of capital eligible for purchase by the Treasury under the CPP is the
lesser of (i) an amount equal to 3 percent of the Total Risk-Weighted Assets of the applicant or
(ii) $25 billion. The minimum amount eligible for purchase under the CPP is the amount equal
to 1 percent of the Total Risk-Weighted Assets of the applicant. All measurements will be based
on the information contained in the latest quarterly supervisory report filed by the applicant with
its appropriate FBA, updated to reflect events materially affecting the financial condition of the
applicant occurring since the filing of such report.
The shares purchased by the Treasury will have a dividend rate of 5 percent per year until the
fifth anniversary of the date of the investment and a dividend rate of9 percent per year
thereafter. Dividends not paid must cumulate over the Ii fe of the investment in the case of shares
purchased from a holding company for an insured depository institution. Shares may be
redeemed by the applicant during the first three years following the investment only from the
proceeds of a qualifying stock issuance by the applicant.
In all cases, the Treasury also must obtain warrants for common stock of the applicant. The
terms of the warrants are explained in the Treasury agreements available on the Treasury web
site. In general, the warrants must be convertible into an amount of common stock of the
applicant equivalent in value to 15 percent of the amount of the capital purchased by the
Treasury from the applicant under the CPP, calculated based on the average of closing prices of
the common stock on the 20 trading days ending on and including the last trading day prior to the
date of execution of the Purchase Agreement.
Other Information
The applicant must identify and describe any mergers, acquisitions, or other capital raisings that
are currently pending or are under negotiation and the expected consummation date.
Confidentiality
Any applicant desiring confidential treatment of specific portions of the application must submit
a request in writing with the application. The request must discuss the justification for the
requested treatment. The applicant's reasons for requesting confidentiality should specifically
demonstrate the harm (for example, loss of competitive position, invasion of privacy) that would
result from public release of information (5 U.S.c. 552). Information for which confidential
treatment is requested should be: (1) specifically identified in the public portion of the
application (by reference to the confidential section); (2) separately bound; and (3) labeled
"Confidential." The applicant should follow the same procedure when requesting confidential
treatment for the subsequent filing of supplemental information to the application.
The applicant should contact the appropriate regulatory agency for specific instructions
regarding requests for confidential treatment. The appropriate regulatory agency will determine

whether the information will be treated as confidential and will advise the applicant of any
decision to make available to the public information labeled as "Confidential."

1 •• "111.'•• 1' •• 1....... 1111 •• ' ... 11.'00,000

FDIC
, ..... IHttoek"-_c.._......·,·",.I ..

.,."

, . , .... j

Application for T ARP Capital Purchase Program (CPP)
Please complete the following information and follow the submission instructions as described
on your Federal banking agency's website. In addition to completing the information on this
form, please provide a description of any mergers, acquisitions, or other capital raisings that are
currently pending or are under negotiation and the expected consummation date (no longer than
1 page).
In the event the applicant files an application with the appropriate Federal banking agency
prior to the availability of the investment agreement, the applicant must file an amended
application which includes updated responses to any items in the application that required prior
review of the investment agreement.

Institution Name:
Address of Institution:

Primary Contact Name:
Primary Contact Phone Number:
Primary Contact Fax Number:
Primary Contact Email Address:

Secondary Contact Name:
Secondary Contact Phone Number:
Secondary Contact Fax Number:
Secondary Contact Email Address:

RSSD, Holding Company Docket
Number and / or FDIC Certificate
Number, As Relevant:
Amount of Preferred Shares
Requested:
Amount Of Institution's Authorized
But Unissued Preferred Stock
Available For Purchase:
Amount Of Institution's Authorized
But Unissued Common Stock:
Amount Of Total Risk-Weighted
Assets As Reported On The
Holding Company's Or Applicable
Institution's Most Recent FR-Y9,
Call Report, Or TFR, As Relevant:
Institution Has Reviewed The
Investment Agreements And
Related Documentation On
Treasury's Website (Yes/No):
Describe Any Condition, Including
A Representation Or Warranty,
Contained In The Investment
Agreements And Related
Documentation, The Institution
Believes it Cannot Comply With By
November 14,2008 And Provide A - - - - - - - - - - - - - - - - - - - Timeline For Reaching
Compliance I:
Type ofCompany2:
Signature of Chief Executive
Officer (or Authorized Designee):
Date of Signature:
I

May be provided as an attachment, no longer than I page
Publicly Traded Stock Company; Stock Company Without Publicly Traded Shares; Other (please specify)

Process-Related F AOs for Capital Purchase Program
Q: How does a Qualifying Financial Institution (QFI) know if it is
eligible to participate in the Treasury Department's Capital Purchase
Program (CPP)?
A: A QFI should review the eligibility requirements as described in the TPP
term sheet and related documents (which are available at
http://www.treas.gov/initiatives/eesa/). In addition, a QFI should contact its
appropriate Federal banking agency.

Q: Which financial institutions are eligible as a QFI under the CPP?
A: Generally speaking, any bank, savings association, bank holding
company and savings and loan holding company organized under the laws of
the United States qualifies as a QFI. Financial institutions controlled by a
foreign entity will not be eligible. Specifically, a QFI is defined as:

(i) Any U.S. bank or U.S savings institution not controlled by a Bank
Holding Company ("BHC") or Savings and Loan Company ("SLHC"); and
(ii) any U.S. BHC, or any U.S. SLHC which engages solely or
predominately in activities that are permitted for financial holding
companies under relevant law, and any U.S bank or U.S savings association
controlled by such a qualifying U.S. BHC or U.S. SLHC; except that QFI
shall not mean any BHC, SLHC, bank or savings association controlled by a
foreign bank or company.

Q: If a financial institution cannot qualify for this program, will it still
be eligible to participate in other aspects of the TARP program?
A: Yes.
Q: How does a QFI apply to the Treasury Department's CPP?
A: A QFI must submit an application to the appropriate Federal banking
agency. If the applicant is a bank holding company, the application should
be submitted to both the applicant's holding company supervisor and the
supervisor of the largest insured depository institution controlled by the
applicant. Each Federal banking agency has provided information on its
public web site regarding where an application for participation in the Capital Purchase
Program (CPP) should be directed. This information is
available at:
1. For the Federal Deposit Insurance Corporation: www.fdic.gov
2. For the Federal Reserve: www.federalreserve.gov
3. For the Office of the Comptroller of the Currency: www.occ.treas.gov

4. For the Office of Thrift Supervision: \\ \\ \\()[~.[rc~l~.g()\
Q: What is the deadline for submitting an application?
A: The application by a QFI must be received by the institution's
appropriate Federal banking agency at the location(s) designated by the
agency no later than 5:00 p.m. (EST) on November 14, 2008.
Q: Is there an application form?
A: Yes. The Federal banking agencies, working in consultation with the
Treasury Department, have developed a common application form that may
be used by all QFls seeking to participate in the CPP. The application form
is available on the public web sites of each Federal banking agency and on
Treasury's website referenced above. All inquiries regarding preparation of
the application should be directed to the appropriate FBA for the applicant.
Q: What information will a QFI have to provide on the application?
A: The application form requires the QFI to submit basic information about
the institution, the amount of the perpetual preferred stock investment that
the financial institution is requesting from Treasury, as well as information
regarding the amount of authorized but unissued preferred stock and
common stock that the institution currently has available for purchase.
Q: What happens if a QFI is not able to issue the Preferred Shares by
the application deadline due to the need for a shareholder vote, Board
authorization, or other constraint?
A: QFIs do not need to complete all of the required authorizations by the
submission of the application. If a QFI receives preliminary approval, it will
have 30 days in which to submit final documentation and fulfill any
outstanding requirements. However, the QFI must robustly explain any limitations to
executing the final documentation or meeting the required
conditions on its application form.
Q. Will applications filed by QFIs or the names of applying QFIs be
released publicly?
A. Any applicant desiring confidential treatment of specific portions of the application
must submit a request in writing with the application. The request must discuss the
justification for the requested treatment. The applicant's reasons for requesting
confidentiality should specifically demonstrate the harm (for example, loss of
competitive position, invasion of privacy) that would result from public release of
information (5 U.S.c. 552). Information for which confidential treatment is requested
should be: (l) specifically identified in the public portion of the application (by reference

to the confidential section); (2) separately bound; and (3) labeled "Confidential." The
applicant should follow the same procedure when requesting confidential treatment for
the subsequent filing of supplemental information to the application.
The applicant should contact the appropriate regulatory agency for specific instructions
regarding requests for confidential treatment. The appropriate regulatory agency will
determine whether the information will be treated as confidential and will advise the
applicant of any decision to make available to the public information labeled as
"Confidential. "
Treasury will provide electronic reports detailing any completed transactions, as required
by the Emergency Economic Stabilization Act of 2008, within 48 hours.

Q: Who should a QFI contact if they have questions regarding how to
file an application or the status of a submitted application?
A: The QFI should contact its appropriate Federal banking agency using the
contact information provided on the above referenced agency web site.

Q: Will a QFI receive verification that its application has been filed
with its appropriate Federal banking agency?
A: Yes.

Q: How long will it take for an application to be processed?
A: Treasury, working in consultation with the Federal banking agencies,
will process and preliminarily accept applications submitted under the CPP
as expeditiously as possible. However, because of the diversity of
institutions that are expected to apply, response times may vary.

Q: How will a QFI that has filed a timely application be notified when a
preliminary decision on the application has been made by Treasury?
A: Preliminary decisions on applications will be communicated by Treasury
to the representative of the institution identified on the application form.

Q: When does a QFI submit the final documentation to complete the
Preferred Share purchase?
A: Final documentation must be submitted no later than 30 days after a QFI
has been notified that it has received preliminary acceptance into the
program. Instructions for submitting final documentation will be available
on Treasury's website at http: \\ \\ \\ .trl'a~.!,!,()\ illitiatl\ l'-; CCS~I .

Q: Will capital raised under this program count as Tier 1 capital?

A: Yes.

Please check back regularly for postings of additional Q&As.

p-!223: Statement by Secretary Henry M. Paulson, Jr. on Capital Purchase Program

Page 1 of2

'~MI
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October 20,2008
hp-1223
Statement by Secretary Henry M. Paulson, Jr. on Capital Purchase Program
Washington, DC-- Good morning. As you know, over the last few weeks we have
worked aggressively to implement the authorities provided by Congress in the
financial rescue package enacted earlier this month. This morning, I will provide a
short update on the capital purchase program that is a key component of that
package.

As we have designed the program, Treasury will make $250 billion in capital
available to U.S. financial institutions in the form of preferred stock. Institutions that
sell shares to the government will accept restrictions on executive compensation,
including a clawback provision and a ban on golden parachutes during the period
that Treasury holds equity issued through this program. This is an investment, not
an expenditure, and there is no reason to expect this program will cost taxpayers
anything. They will not only own shares that should be paid back with a reasonable
return, but also will receive warrants for common shares in participating institutions.
We expect all participating banks to continue to strengthen their efforts to help
struggling homeowners who can afford their homes avoid foreclosure. Foreclosures
not only hurt the families who lose their homes, they hurt neighborhoods,
communities and our economy as a whole.
While many banks have suffered significant losses during this period of market
turmoil, many others have plenty of capital to get through this period, but are not
positioned to lend as widely as is necessary to support our economy. This program
is designed to attract broad participation by healthy institutions and to do so in a
way that attracts private capital to them as well. Our purpose is to increase
confidence in our banks and increase the confidence of our banks, so that they will
deploy, not hoard, their capital. And we expect them to do so, as increased
confidence will lead to increased lending. This increased lending will benefit the
U.S. economy and the American people.
In addition to the nine banks who announced their participation last week, we have
received indications of interest from a broad group of banks of all sizes. Today we
are laying out a streamlined, systematic process for all banks wishing to access this
program.
First, we have worked with financial regulators to finalize the application process.
There is now a single application form that qualified and interested publicly-held
financial institutions will use to submit to their primary regulator - the Federal
Reserve, the FDIC, the OCC or the OTS. These regulators will post this application
form on their websites before the end of the day.
The terms for this program are the same for all institutions that apply before the
capital purchase program deadline of November 14, 2008. Sufficient capital has
been allocated so that all qualifying banks can participate. Let me be clear that this
program is not being implemented on a first-come-first-served basis.
Second, to apply for the capital program, banks should review the program
information on the Treasury website and then consult with their primary federal
regulator. After this consultation, institutions should submit an application to that
same primary federal regulator. Treasury has worked with the regulators to
establish streamlined evaluations; this means that all regulators will use a
standardized process to review all applications to ensure consistency.
Third, once a regulator has reviewed an application, it will send the application
along with its recommendation to the Office of Financial Stability at the Treasury
Department

p:IIWWw.treas.gov/press/releaseslhpI223.htm

1115/2008

p.1223: Statement by Secretary Henry M. Paulson, lr. on Capital Purchase Program

Page 2 of2

Once Treasury receives the application with the regulator's recommendation, we
will review it and decide whether or not to make the capital purchase. Treasury
welcomes the expertise of the financial regulators, and will give considerable weight
to their recommendations.
Finally, all transactions will be publicly announced within 48 hours of execution. We
will not, however, announce any applications that are withdrawn or denied.
This efficient process - with standardized forms and standardized review - will
encourage banks and thrifts of all sizes to participate in the program. By so doing.
they will increase their capital base so that they can provide the lending necessary
to support the U.S. economy as we work through this difficult period. Thank you.
-30-

p:IIWWw.treas.gov/press/releaseslhpI223.htm

11/5/2008

J-1225: Treasury HIres Accounting Firms Under the Emergency Economic Stabilization Act

Page 1 of 1

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October 21, 2008
hp-1225
Treasury Hires Accounting Firms Under the Emergency Economic
Stabilization Act
Washington- The U.S. Treasury Department today announced that
PricewaterhouseCoopers LLP and Ernst & Young will assist the Department in the
implementation of the Troubled Asset Relief Program authorized under the
Emergency Economic Stabilization Act. Treasury hired PricewaterhouseCoopers on
Thursday and hired Ernst & Young on Saturday.
The firms will help the Department with accounting and internal controls services
needed to administer the complex portfolio of troubled assets the Department will
purchase, including whole loans and mortgage backed securities.
PricewaterhouseCoopers will help the Department establish a sound internal
control posture and Ernst & Young will provide general accounting support and
expert accounting advice.
The two agreements last until September 30, 2011. Treasury issued two requests
for quotes from 12 firms on the General Services Administration's Federal Supply
Schedules on October 8. The Department received six responses for each request
and awarded contracts to PricewaterhouseCoopers and Ernst & Young. The initial
orders are worth $191,469.27 and $492,006.95, respectively. More information on
these contracts will be posted at illIW; 'NWW fp(i:-; (Ji)V (Federal Procurement Data
System).
-30-

REPORTS
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):IIWWw.treas.gov/press/releases/hpI225.htm

11/5/2008

I4J 001

10/19/2008 07:57 FAX

Department of the Treasury, DO
BPA·2009·TARP-OOOl

Internal Controls Support Setvices
GSA Contract No. os- t OF-0466N

BLANKET PURCHASE AGREEMrnNT
GSA FEDERAL SUPPLY SCHEDULE

In the spirit of the Federal Acquisition Streamlining Act, the De[!artment of the Treasury and
(PWC) enter into this Blanket Purchase Agreement (BPA) to further
reduce the administrative costs of acquiring repetitive services from the General Services
Administration (GSA) Federal Supply Schedule (FSS) Mission, Organization, and Business
Improvement Services (MOBIS) Contract OS-1 OF·0466N.
Pri~waterhouseCoopers

Federal Supply Schedule contract BPAs eliminate contracting and open market costs such as: the
search for sources; the development of technical documents and solioitations; and the evaluation of
bids and offers. Contractor Team Arrangements are pennitted with Federal Supply Schedule
contractors in accordance with Federal Acquisition Regulation (FAR) Subpart 9.6 and are

encouraged.
This BPA will further decrease costs, reduce paperwork and save time by eliminating the need tor
repetitive. individual pUJ'thases from the Schedule contract. The end result is to create a
purchasing mechanism for the Government that works better and costs less.
SIGNATURES:

Department of the Treasury .. DO
Dwight W. Stephens
Contracting Officer
Department of the Treasury
Departmental Offices
1500 Pennsy lvania Avenue
(1425 New York Avenue - 2nd Floor)
Washington, DC 20220
202..622-0632 (P)
202-622~2343 (F)

PricewaterhouseCoQJ;!ers~

Date:

LLP
Date:

Partner
1800 Tysons Blvd
McLean, V·
. 22102-4261

Page 1 of 15 Pages

[4J 002

10/19/2008 07:57 FAX

Department of the Treasury, DO
BPA·2009-TARP-OOO 1

Internal Controls Support Services
GSA Contract No. GS-I OF-0466N

BLANKET PURCHASE AGREEMENT
QSA FEDERAL SUPPLY SCHEDULE
Pursuant to GSA Federal Supply Schedule Contract Number OS-1 OF-0466N, the Contractor
agrees to the following tenns of a Blanket Purchase Agreement (BPA) EXClusively with the
Department of the Treasury and for use b'y the Departrn~nt of the Treasury.
(I) All services/products currently listed on your GSA schedule, to include new service/products
added during the perfonnance of this BPA can be ordered under this BPA in support of the

requirements as set forth in this SPA. All orders placed against this BPA are subject to the
terms and conditions of the contract. except as noted below:
See Attachment No.1 - PWC's Price Quotation, dated October 13, 2008
See Attachment No.2 - PWC's Technical Quotation, dated October 13, 2008
Exceptions to the aforementioned quotations:
(a) Under Attachment No. J. Price Quotation, Deliverable(s) Approval. All deliverable
approvals and timelines under this BPA will be established by the Government on a task
order basis.

(2) Delivery:

DESTINATION DELIVERY SCHEDVLElDATES
Assiined upon issuance Qfjndividual taskldeliveQ'.orders.

(3) This BPA does not obligate any funds. The Government is obligated only to the extent
authorized by task orders issued under this BPA. The BPA is established to flll recurring
requirements.
(4) Purchase limitation: There is no dollar limitation for eltCh individual purchase. The
contractor's discounted labor rates t as set forth in Attachment 1, are incorporated into the
SPA. The contractor may not exceed the discounted rates set forth in Attachment 1 during
performance of any task. order. However, further discounts may be negotiated per
ta.<ilk/delivery order. Regardless of the size of the task/delivery order the contr4Wtor is
encouraged to offer additional discounts.

Page 2 of 1S Pages

141003

10/19/2008 07:57 FAX

Department of the Treasury. DO
BPA-2009-TARP-OOO I

Internal Controls Support Services
GSA Contract No. GS-l OF-0466N

BLANKET PURCHASE AOREEMENT
gSA FEDERAL SUPPLY SCHEDULE
(5) This BPA expires on S,ptember 30. 20P or upon expiration and non-renewal of the vendor's
GSA contract. The BPA can be cancelled by the Government at any time. The Contractor
shall provide all resources necessary to perform services in accordance with the requirements
specified herein. The BPA will consist of the following periods of performance:

BPA PERIOD OF PERFORMANCE
YEAR 1

Aw~rd

Through

09/30/2009

YEAR 2

1010112009

Through

09/30/2010

YEAR 3

10/01/2010

Through

09/30/2011

All Office of Financial Stability (OFS) requirements wiH be fulfilled on a task order basis.
Individual task orders placed under this SPA may be issued on a fIrm fix.ed-price or timeand-materials basis, or any combination thereof.

(6) The following office is hereby authorized to issue task orders under this BPA:
OFFICE

PO,TNT OF CONTACT

Treasury. Procurement Services Division

Designated Contracting Officer

Task/delivery orders shall only be placed by designated contracting officers
(1) Task Orders wHl be issued against this BPA via e-mail, FAX, or paper.

(8) Unless otherwise agreed to, all deliveries under this BPA must be accompanied by delivery
tickets or sales slips that must contain the following infonnation as a minimum:
(a) Name ofContractorj
(b) BPA Number;
(0) GSA Contract Number;

(d) TasklDelivery Order Nwuber;

(e) Date ofIssuance of Task Order
(0 Quantity, Unit Price, and Extension of Each Item (unit prices and extensions need not be
shown when incompatible with the use of automated systems; provided. that the invoice is
itemized to show the information)~ and

Page 3 of 15 Pages

I4J 004

10/19/2008 07: 58 FAX

Department of the Treasury, DO
BPA-2009-TARP-OOOI

Internal Controls Support Services
GSA Contract No. GS .. t OP·0466N

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
(9) The requirements ora proper invoice are as specified in the Federal Supply Schedule contract.
Invoices will be submitted to the address specified within the task/delivery order transmission
issued against this BPA.
(10) The terms and conditions included in this BPA apply to all task orders issued against it. In the
event ofm inconsistency between the provisions of this BPA and the task order, the provisions of
this BPA will take precedence.
(11) The Contractor's conflict of interest mitigation plan, as set forth in Attachment 1, is

specifically incorporated in this BPA and shall be in fun effect throughout the life of the BPA.
(12) The terms of this BPA and those in Attachment No.4 shall take precedence over
Attachments 1 and 2.
*IMPORTANT - A new feature to the Federal Supply Schedules Program penn its contractors to
offer price reductions in accordance with commercial practice. Contractor Team Arrangements
are permitted with Federal Supply Schedule contractors in accordance with FAR Subpart 9.6 and
are encouraged.
Attachment No. I
Attachment No.2
Attachment No.3

Attachment No.4

PWC's Technical Quotation, dated October 13,2008.
PWCs Price Quotation, dated October 13, 2008.

Statement of Work
Conflicts of Interest and Non-Disclosure Requirements

Page 4 of 1S Pagel>

I4J 005

10/19/2008 07: 58 FAX

Department of the Treasury, DO
BPA-2009-TARP-OOOl

Internal Controls Support Services

GSA Contract No. GS-IOF-0466N

BLANKETPURCHASEAGBEEMENT
GSA FEDERAL SUPPLY SCHEDULE

SPECIAL BPA PROVISIONS/CLAUSES

1.1

FAR 5lw252-2 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

This BPA incorporates one or more clauses by reference~ with the same force and effect as if
they were given in full text. Upon request. the Contracting Officer will make their full text
available. Also, the full text ofa clause may be assessed electronically at www.arnet.,gov.
52.201.3 - Right of First Refusal QfEmployment (MAY 2006)

1.2

AUTHORITY - CONTRACTING OFFICER (CO). CONTRACTING
OFFICER'S TECHNICAL REPRESENTATIVE (COTR)
1.2.1

Contracting Officer (CO)

The CO for award of this Blaoket Purchase Agreement is:
Dwight W. Stephens
Department of the Treasury, Departmental Offices
Procurement Services Division
1425 New York Avenue, 2nd Floor
1500 Pennsylvania Avenue, NW
Washington, DC 20220
(202) 622-0632
dwigh~~stephens(a~do.lr~as.gov

The CO, in accordance with Subpart 1.6 of the Federal Acquisition Regulation, is the only
person authorized to make or approve any changes in any of the requirements of this BPA.
TasklDelivery Qrders: The Administrative Contracting Officer (ACO) within the Department of
the Treasury is authorized to issue task orders against this BPA. The ACO for issuance and
administration ofindividual task orders will be assigned by letter prior to the issuance of the first
order against the BPA.

The CO, in accordance with Subpart 1.6 of the Federal Acquisition Regul~tion, i!) the only
person authorized to make or approve any changes to any of the requirements ofa task order,
and notwithstanding any clauses contained elsewhere in this BPA, said authority remains solely

Page 5 of U Pages

141 006

10/19/2008 07:59 FAX

Department of the Treasury, DO
BPA~2009-TARP-OOOl

Internal Controls Support Services
GSA Contract No. GS~JOF~0466N

BLANKETPURCHASEAGBEEMENT
GSA FEDERAL SUPPLY SCHEDULE
with the CO. In the event the Contractor makes any changes at the direction of any person other
than the CO, the change will be considered to have been made without authority and no
adjustment will be made in the task order price to cover any increase in cost incurred as a result
thereof.
1.:1.:1. DTAR 1052.201-70 CONTRACIlNG OFFICER'S TECHNICAL

REPRESENTATIVE (COTR) DESIGNATION AND AUTHORITY.
(MAR 2002)
(a) The COTR is:

Ronald Lindhart
Department of the Treasury
Departmental Offices
Office of Deputy ChiefFirumcial Oflicer
655 IS Ih Street, NW (Metropolitan Square Building)
Washington, DC 20220
ronald.lindhardt@do.treas.gov
(b) Performance of work under this contraot must be subject to the technical direction of
the COTR identified above. or a representative designated in writing. The tenn technical
direction" includes, without limitation, direction to the contractor that directs or redirects the
labor effort, shifts the work between work areas or locations, fills in details and otherwise serves
to ensure that tasks outlined in the work statement are accomplished satisfactorily.

(c) Technical direction must be within the scope of the specification(s)/work statement.
The com does Dot have authority to issue technical direction that:
( 1) constitutes a change of assignment or additional work outside the
speciflcation(s)/work statement;
(2) constitutes a change as defined in the clause entitled Changes";
(3) in any manner causes an increase or decrease in the contract price, or the time
required for contract performance;

(4) changes any of the tenos, conditions, or specification(s)/work statement of
the contract;
(5) interferes with the contractor's right to perform under the terms and
conditions of the contract; or

Page 6 of 15 Pages

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Department of the Treasury, DO

Internal Controls Support Services
GSA Contract No. GS-l OF -0466N

BPA-2009-TARP-OOOI

BLANKEIPURCHASEAGREEMffiNT
GSA FEDERAL SUPPLY SCHEDULE
(6) directs, supervises or otherwise controls the actions of the contractor's

employees.
(d) Technical direction may be oral or in writing. The COrR shall confinn oral
direction in writing within five work days, with a copy to the contracting officer.
(e) The contractor shall proceed promptly with perfonnance resulting from the technical
direction issued by the COTR. If, in the opinion of the contractor, any direction of the COTR, or
his/her designee, falls within the limitations in (c), above, the contractor shall immediately
notifY the contracting officer no later than the beginning of the next Government work day.
(1) Failure of the contractor and the contracting officer to agree that technical direction is
within the scope of the contract shall be subject to the terms ofthe clause entitled Disputes!'

(End of clause)
1.2.3. Key Personnel

(a) Below are the name(s) of the persons proposed to be assigned the responsibility for
success of the work product(s). The below listed individuals are designated as "Key Personnol'~.

EMPLOYEE

POSITION

NAME

TIJLElf'UNCUONAL AREAS

i!=-

I4J 008

10/19/2008 07: 59 FAX

Department of the Treasury, DO
BPA-2009-TARP-OOOI

Internal Controls Support Services
GSA Contract No. OS-1 OF-0466N

BlANKET PURCHASE AGREEMENT
G&AFEDERALSUPPLYSCHEDULE

(d) For planned Key Personnel replacements, the Contractor shall provide the
Government with a minimum of30 calendar days advance notice. Substitutions or additions to
approved key personnel under this BPA shall not be accepted unless specifically approved in writing
by the Contracting Officer ot' a Contracting Officer Technical Representative. Any substitutions
and/or additions shall be subject to the terms and conditions of this clause.
(e) All notification requests for substitutions and additions must provide ajustification
and detailed explanation of the circumstances necessitating the proposed substitution or addition, a
complete resume for the proposed substitute or addition, and any other information requested by the
Contracting Officer needed to approve or disapprove the request. Resumes submitted shall identifY
the education and experience of the Key Personnel candidate(s) relative to the contr~ position
proposed. At a minimum, resumes shall include the name of the candidate, contract position and
labor category level proposed, experience, education, and citizenship status. All proposed
substitutes and additions must have qualifications equal to or better than the person to be replaced.

(f) The Contracting Officer or his authorized representative will evaluate such requests

and promptly notify the contractor of the approval or disapproval thereof.
1.3

SECURITY SCREENING REQUIREMENTS FOR ACCESS TO SENSITIVE BUT
UNCLASSIFIED SYSTEMS OR INFORMATION

Security screening requirements will be detennined at the task order level.
(a) In addition to complying with any functional and technical security roquirements set
forth in the schedule and elsewhere in this BPA, the Contractor shall request that the
Government initiate personnel screening checks and provide signed user nondisclosure
agreements, as required by this clause, for each contractor employee requiring staff-like access
(e.g. Wlescorted or unsupervised physical access or electronic access). specified at the task order
leve~ to limited or controlled areas, systems, programs and data.
(b) The Contractor shall submit a properly completed set of investigative request
processing fonns for each such employee in compliance with instructions to be furnished by the
Contracting Officer or hislher designated representative.

Applicable forms will be furnished to the COnlfactor at time ofaward.
(c) Depending upon the nature of the type ofinvesti8ation nece~sary. it may take a. period
up to several months to complete complex personnel screening investigations. At the discretion
of the Government, background screening may not be required fot employees with recent or
current favorable Federal Government investigations. To verify the acceptability of a non-

PIl84!1 8 of 1S Puges

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Department of the Treasury, DO
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Internal Controls Support Services
GSA Contract No. GS~10F~0466N

BLANKET PURCHASE AGREEMENT
GSAFEDERALSUPPLYSCtl[DULE
Treasury, favorable investigation, the Contractor shall submit the forms or infornlation needed,
according to instructions furnished by the Contracting Officer.
(d) When contractor employee access is necessary prior to completion of personnel
screening, each contractor employee requiring access may be considered for eseort access. The
Contractor shall promptly submit all requests for approval for escort access to the Contracting
Officer or his/her designated representative so as not to endanger timely contract perfonnance.
(e) The Contractor shall ensure that each contractor employee requiring access executes
any nondisclosure agreements requited by the Government prior to gaining staff-like access.
The Contractor shall provide signed copies of the agreements to the Site Security Officer (SSO)
for inclusion in the employee's security file. The Govemment will provide the name and
location of the SSO after contract award. Unauthorized access is a violation of law and may be
punishable under the provisions of Title 5 U.S.C. 552a, Executive Order 12356; Section 7211 of
Title 5, United States Code (governing disclosures to Congress); Section 1034 of Title 10,
United States Code, as amended by the Military Whistleblower Protection Act (governing
disclosure to Congress by members of the military); Section 2302(b)(8) of Title 5t United States
Code, as amended by the Whistleblower Protection Act (goveming disclosures of iHegality,
waste, fraud, abuse or public health or safety threats); the Intelligence Identities Protection Act
of 1982 (50 U.S.C. 421 et seq.) (governing disclosures that could expose confidential
Government agents); and the statutes which protect against disclosure that may compromise the
national security, including Sections 641, 793, 794, 798, and 952 ofTitIe 18, United States Code,
and Section 4(b) of the Subversive Activities Act of 1950 (SO U.S.C. Section 183(b» and other
applicable statutes.
(t) The Contractor shall notify the Contracting Officer's Technical Representative
(Cam.) or the Site Security Officer no later than the end of the da}' of the termination for cause
of an authorized employee's access. The Contractor shall notify the COTR no later than ten days
after an authorized employee no longer requires access for any other o/pe oftennination. Verbal
notifications shall be confinned in writing within thirty days.

1.4

IDENTIFICATIONIBADGING REQUIREMENTS

During the period of this contract, access to Deparbnent of the Treasury facilities for contractor
representatives shall be granted as deemed necessary by the Government All contractor
employees whose duties under this contract require their presence at any Treasury, or Treasury
Bureau facility shall be clearly identifiable by a distinctive badge furnished by the Government.
In addition~ corporate identification badges shall be worn on the outer gannent at all times. It is
the sole responsibility of the Contractor to provide this corporate identification. Upon the
tennination of the employment of any contractor personnel working on this contract, all
govenunent..fumished identification shall be returned to the issuing office. All on·site contractor
personnel shaH abide by security regulations applicable to that site.

~q~

9 Qf IS Pages

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Department of the Treasury~ DO
BPA-2009-TARP-OOO 1

Intel'llal Controls Support Services
GSA Contract No. OS-1 OF -0466N

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE'
l.S

SECTION 508 COMPLIANcE

The Contractor must provide a comprehensive list of all offered specific electronic and
information teclmology (Eln products (supplies and services) that fully comply with Section
508 of the Rehabilitation Act of 1973, per the 1998 Amendments, and the Architectural and
Transportation Barriers Compliance Boardls Electronic and Infonnation Technology
Accessibility Standards 8.t 36 CFR Part 1194. The Contractor must clearly indicate where this
list with full details of compliance can be found (e.g., vendors or other exact web page location).
The contractor must ensure that the list is easily accessible by typical users beginning five
calendar days after award. The contractor must maintain this detailed listing of compliant
products for the full contract term, including all forms of extensions, and must ensure that it is
current within three calendar days of changes to his product line.
The vendor must ensure that all EIT products that are less than fully compliant nre offered
pursuant to extensive market research, which ensures that they are the most compliant products
and services available to satisfy this solicitation's requirements.

For every EIT product accepted under this contract by the Govenun~t that does not comply
with 36 CFR Part 1194, the contractor shall, at the discretion of the Government, make every
effort to replace or upgrade it with a compliant equivalent product or service, if commercially
available and cost neutral, on either the planned refresh cycle of the product or service, or on the
contract renewal date, whichever shall occur first.
1.6.

ADMINISTRATIVE INSTRUCTIONS.

1.6.1 Requests For Payment/Submission Of Invoices.
a. Contractor may submit an invoice once every thirty (30) days to the Contracting

Officer Technical Representative (COTR). The contractor shall have the invoice certified by the
The contractor~s invoice will be for one month. The contractor shall invoice only for the
hours, travel and Other Direct Costs (ODes) that are in direct support of contractor's efforts in
perfonning the task/delivery order SOW. Hours in such invoice shall be identified by task/phase
and by labor category. The amounts for labor shall be l;omputed by multiplying the appropriate
hourly rates prescribed in the Schedule by the number of direct labor hours perfonned with
applicable discounts. Fractional parts of an hour may be payable on a prort\ted basis. Contractor
shall substantiate vouchers by evidence of actual payment and by individual daily job timecards~
or other substantiation as approved by the Contracting Officer. Government will not reimburse
for overtime other than based on what was originally proposed and accepted at time of issuance
of order and as indicated in the Schedule. OOCs and travel costs shall be identified by
task/phase and shall include all necessary documentation supporting the charge(s). A copy of
the government's document(s) accepting the covered services must accompany invoices

com.

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Department of the Treasury, DO
BPA-2009-TARP-OOO 1

Internal Controls Support Services
GSA Contract No. GS-IOF-0466N

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE'
submitted for payment. A copy of the invoice will be submitted to the addresses identified in the
task/delivery order to the contracting officer at the same time it is submitted to the program

manager. Failure to eomply with the procedures outlined above may result in payment
being delayed.

b. Invoices are to be emailed as soon as possible after the end of each calendar month to:
1. www,yendQrpay@do.treas.v;oYi
2. Contracting Officer; and
3. CarR.
Submittal to ''vendorpay'' is considered the official invoice submittal; and it is through
that prompt payment compliance is tracked. Each copy of each invoice sball
clearly identify the Contractor's Taxpayer Identification Number (TIN). The Contractor shall
assure that a responsible official of the company signs the following statement on each invoice;
"v~ndorpay"

"I certify that the services listed above have been performed in accordance with the
contract and those personnel hours or other costs are true, correct., and have not been
previously billed."
Typed 'Name and Signature
The Contract Number shall be typed on each invoice. Payment will be made in accordance with
the Prompt Payment Act (see,FAR 52.232-25 Prompt Payment).
The invoice shall be approved by the Contracting Officer's Technical Representative (COTR).
Ifrequested by the Government, time cards or time sheets for each employee shall be provided
as evidence of hours worked by each employee by Internal Work Order. The time card or time
sheet will indicate the date worked, number of hours worked, and the hourly rate for each
employee.
AU foJIow..up invoices shall be marked "Duplicate ofOrigmaF'. Contractor questions regarding
payment infonnation should be directed to the COTR.
The Contractor shall provide the COTR with an advance (pre~submittaJ) version of the invoice for
review.
1.7.

PERFORMANCE MONITORING

The Government shall monitor and evaluate the contractors overall performance and service
delivery.

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Department of the Treasury. DO
BPA-2009-TARP-OOOI

Internal Controls Support Services
GSA Contract No. as- t OF-0466N

BLANKETPUR~HASEAaREEMENr

GSA FEDERAL SUPPLY SCHEDULE
The Government may convene an Assessment Board to review, analyze. and evaluate the
contractor's perfonnance. The Board will also detennine the disposition of extending each
performance period, using the data, analysis, and evaluation perfonned. The Board membership
will include:
a) Con~ting Officer,

b) Contracting Officer's Technical Representative, and
c) Treasury OFS Management Staff.
1.S.

STAFFINGPLAN
The contractor shall maintain and annually update the Staffing Plan initially submitted

in the contractor's proposal. The staifmg plan shall layout the approach. practices, and staffing
to accomplish the requirements of this BPA as well as the specific requirements set forth in each
Task Order. As such, the plan shall relate the staffing allocations by organizational or function
units of the contractor team. Roles and functions shall be defined to substantiate the labor
categories proposed and the level of effort anticipated. The staffing plan shall address such
attributes as key personnel, personnel security and administration of personnel security t retention
and training of pe~nnel, approach to personnel changes, and development of personnel. As
part of this staffmg plan, there shall be a detailed staffing chart listing the labor categories by the
proposed organizational identities. For each labor category there shall be an indication of the
number ofFfE's by contract year.
1.9.

HOLIDAYS

OBSERVANCE OF LEGAL HOLIDAYS AND EXCUSED ABSENCES
a) The Government hereby provides NOTICE and Contractor hereby acknowledges
RECEIPT that Government personnel observe the listed days as holidays!

New Years Day
Martin Luther King's Birthday
President's Birthday
Memorial Day
Independence Day
Labor Day
Columbus Day
Veterans Day

Thanksgiving Day
Christmas
Inauguration Dlly

January 1
Third Monday in January
Third Monday in February
Last Monday in May
July 4
First Monday in September
Second Monday in Ol;tober
November 11
Fourth Thursday in November
December 25
January 20 every four years

b) In addition to the days designated as holidays, the Goverrunent observes the following

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Department of the Treasury, DO
BPA-2009-TARP-OOOI

Internal Controls Support Services
GSA Contract No. GS-l OF-0466N

BLANKET PURCHASE AGREEMENT
GSA FEDERAL supPLY SCHEDULE

days:
Any other day designated by Federal Statute;
Any other day designated by Executive Order; and
Any other day designated by the President's Proclamation.
c) It is understood and agreed between the Government and the Contractor that observances
of such days by Government personnel shall not otherwise be a reason for an additional
period of perfonnance, or entitlement of compensation except as set forth within the
individual Task Order. In the event the Contractor's personnel work during the holiday,
they may be reimbursed by the Contractor, however, no form ofhoHday or other
premium compensation will be reimbursed either as a direct or indirec;t c;o$1, other than
their normal compensation for the time worked. This provision does not preclude
reimbursement for authorized premium pay, if applicable to this contract as stated ill its
individual Task Orders.
d) When the Federal, State, Local and other govenunentaI entities grants excused absence to
its employees, assigned Contractor personnel may also be dismissed. The Contractor
agrees to continue to provide sufficient personnel to perfow critical tasks alre&dy in
operation or scheduled, and shall be guided by the instructions issued by the COTR.
e) In the event that Treasury personnel are furloughed, the contracting officer or the COTR
will communicate contractual direction to the contractor regarding perfonnance of work.
t) Nothing in this clause abrogates the rights and responsibilities of the parties relating to
"stop work" provisions as cited in other sections of this contract. Primarily, work shall
be performed at the Department of the Treasury facility OT. upon approval. facilities

within the Washington, D.C. metropolitan area. Occasional work. may be performed at
other field activity locations, including disaster recovery and/or continuity of operations
locations. No locality differential payments are applicable to this contract.

1.10

TASK ORDERS

The following ordering procedures shall apply to all Task Orders (TOs) issued under this BPA.
In addition:
a) Only an authorized Government Contracting Officer can issue a TO under this BPA.
b) All TO's are subject to the terms and conditions of the GSA contract. In the event of
conflict between a TO and the GSA contract, the contract will take precedence.

c) All costs associated with preparation, presentation, and/or discussion of the
Contractor's TO proposal shall be at the Contractor's expense; post llward TO
administration (including applicable personnel cost allocations by TO) shall also be at
the Contractor's expense.
d) No work will be performed and no payment will be made except as authorized by a

Page 13 of 15 Pages

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Department of the Treasury, DO

BPA-2009-TARP'()OO 1

Internal Controls Support Services
GSA Contract No. GS-IOF-0466N

BLANKETPURCHASEAGREE~NT

GSA FEDERAL SYPPL Y SCHEDULE
signed Task Order.
1.t t

JDENTIFICATIONIBADGING REQUIREMENT

During the period ofthis contract, access to Government facilities for contractor representatives
shall be granted as deemed necessary by the Government. All Contractor employees, whose
duties under this contract require their presence at any Treasury, or Treasury Bureau, facility,
shall be clearly identifiable by a distinctive badge furnished by the Government. In addition,
corporate identification badges shaU be worn on the outer ganncnt at aU times. It is the sole
responsibility of the Contractor to provide this corporate Identification. Upon the tennination of
employment of any contractor personnel, all Government furnished identification shall be
returned to the issuing office. All on-site contractor personnel shall abide by security regulations
applicable to that site. The Contractor shall administer and maintain an internal accounting of its
personnel relative to badges requested, lost and returned. The accounting shall be provided to
the COTR in the quarterly program review or as mutually agreed upon.
1.11

PHYSICAL SECURITY

Physical security is the action taken to protect Treasury infonnation resources (e.g .• installations,
personnel. equipment, electronic media, documents, etc) from damage, loss. theft, or
unauthorized physical access. The Contractor shall be alert for and establish means to mitigate
potential unauthorized access to these resources or potential internal or external acts of sabotage
on these resourt:es while under the ContJ:actor's custody. The Contractor shall:
a) Comply with all pertinent facility regulations and procedures for Federal agencies, unless
the Government grants a waiver.
Make recommendations for improving protection for Contractor staff if there is a
security issue.
b) Promptly report unlawful acts committed on or against property under the charge and
control of their contract. All such reports should be submitted through the C01R to the
Treasury ChiefInfonnation Security Officer or designee.
1.13

INFORMATION SAFEGUARDS AND PRACTICES

The Contractor shall be responsible for compliance with Treasury for policy and practice
regarding the storage and removal of electronic and printed materials considered sensitive in
nature (i.e., system password and user identification access odes) from printers, desktops,
laptops, furniture, presentation equipment, and any other form of infonnation housing. This is so
that the information is not accessible by unauthorized personnel and so that disposal follows
Treasury infonnation security practices. The contractor must ensure that contractor,
subcontractor, or business partner personnel protect all sensitive and secure documents to the
extent possible from either inadvertent or deliberate compromise.
Page 14 of 1S Pages

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Department oftbe Treasury, DO
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Internal Controls Support Services
GSA Contract No. GS-IOF·0466N

BLANKET PURCHASE AGREEMENT
GSh FEDERAL

1.t4

SU'PPLY SCHEDULE

SUPERVISION OF CONTRACTOR~S EMPLOYEES

a) Personnel assigned to render services under this c()ottact shall at all times be empl()yees
of the Contractor and under the direction and control of the Contractor Notwithstanding
any other provisions of this contract, the Contractor shall at all times be responsible for
the supervision ofits employees in the performance of the service required hereunder.
b) During all times on government premises, the contractor's personnel shall comply with
the rules mtd regUlations governing conduct of personnel and operation of the facility.
c) If the contractor plans to employ any Non-English speaking personnel; he shall provide
an on-site bi.lingual supervisor to serve as M interpreter.
d) Contractor personnel shall not at any time during the contract period be employees of the
U.s. Government.
1.IS

ADVERTISEMENTS, PUBLICIZING AWARDS AND NEWS RELEASES

Under no circumstances sh~dl the Contractor, or anyone acting on behalf of the Contractor. refer
to the supplies, services, or equipment furnished pursuant to the provisions of this contract in any

publicity! news release Or commercial advertising without first obtaining explicit written consent
to do so from the Contracting Officer. The Contracting Officer and COTR will coordinate

requests for written consent through the Treasury Office of Public Affairs.
The Contractor agrees not to refer to awards in commercial advertising in such a manner as to
state or imply that the prodllct or service provided is endorsed or preferred by the Federal
Government or is considered by the Government to be superior to other products or services.
1.16

FIDUCIARY DUTY

The Contractor agrees that it shall have a fiduciary duty to the Government in its performance
under this contract.
________________•___ u_END OF BPA AGREEMENT--------.-----.--.-----

Page IS of 15 Pages

;)epartment of the Treasury, DO
3PA-2009-T ARP-0002

·0:· · ·
.

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE

In the spirit of the Federal Acquisition Streamlining Act, the Department of the Treasury and Ernst
& Young, LLP enter into this Blanket Purchase Agreement (BPA) to further reduce the
administrative costs of acquiring repetitive services from the General Services Administration
(GSA) Federal Supply Schedule (FSS), Financial and Business Solutions (FABS) Contract GS23F-8152H.
Federal Supply Schedule BPAs eliminate contracting and open market costs such as: the search for
sources; the development of technical documents and solicitations; and the evaluation of bids and
offers. Contractor Team Arrangements are permitted with Federal Supply Schedule contractors in
accordance with Federal Acquisition Regulation (F..A..R) Subpart 9.6 and are encouraged.
This BPA will further decrease costs, reduce paperwork and save time by eliminating the need for
repetitive, individual purchases from the Schedule contract. The end result is to create a
purchasing mechanism for the Government that works better and costs less.

SIGNATURES:

L;J()[)ie.

Depa11ment of the TreaSU:T
Julianne L. Odend'hal
•
Contracting Officer
Department of the Treas
Departmental Offices
Procurement Services Division
1500 Pennsylvania Avenue, NW
(MS: 1425 New York Avenue, Suite 2100)
Washington, DC 20220
202-622-0804 (P)
202-622-2343 (F)

Date:

Ernst & Young, LLP
~
--"."
Tom Horton
.._____.,,----........
.~ -:::--. Date:
Executive Director
~-:.
~1101 New York Avenue, NW
Washington, DC, 20005
202-327-7366 (P)
866-427-2881 (F)
tom. horton(aJ,ey. com

Page 1 of 15 Pages

/~./s(f

Department of the Treasury, DO
BPA-2009-T ARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
Pursuant to GSA Federal Supply Schedule Contract Number GS-23F-8152H, the Contractor
agrees to the following terms of a Blanket Purchase Agreement (BPA) exclusively with the
Department of the Treasury and for use by the Department of the Treasury.
(1) All services/products currently listed on your GSA schedule, to include new service/products
added during the performance of this BP A can be ordered under this BP A in support of the
requirements as set forth in this BP A. All orders placed against this BP A are subject to the
terms and conditions of the BP A, except as noted below:
See Attachment No. I - Ernst & Young's Price Quotation, dated October 14,2008
See Attachment No.2 - Ernst & Young's Technical Quotation, dated October 14,2008
Exceptions to the aforementioned quotations:
(a) Under Attachment No. I, Price Quotation, Deliverable(s) Approval. All deliverable
approvals and time lines under this BP A will be established by the Government on a task
order basis.
(b) Under Attachment No.2, Technical Quotation, Mitigation Plan for Organizational
Conflict of Interest, the proposed language that reads, "Should a potential conflict be
identified by Ernst & Young or the Treasury in considering or undertaking performance of
the services under a resultant Task Order, in the interest of protecting the integrity of both
parties Ernst & Young reserves the right to decline to accept or perform any task order
where either Ernst & Young or the Treasury determines that a potential or actual conflict
of interest exists." The Government takes exception to any interpretation of this statement
that would provide Ernst & Young with a unilateral right to decline task order work.
Treasury may waive potential or other identified conflicts of interest and require that the
Contractor perform task order work under this BP A. Failure to proceed with task order
work under these circumstances may be cause to terminate this BP A.
(2) Delivery:
DESTINATION DELIVERY SCHEDULE/DATES
Assigned upon issuance of individual task/delivery orders.
(3) This BPA does not obligate any funds. The Government is obligated only to the extent
authorized by task orders issued under this BP A. The BPA is established to fill recurring
requirements.
(4) Purchase limitation: There is no dollar limitation for each individual purchase. The
contractor's discounted labor rates, as set forth in Attachment 1, are incorporated into the
BPA. The contractor may not exceed the discounted rates set forth in Attachment 1 during
performance of any task order. However, further discounts may be negotiated per
task/delivery order. Regardless of the size of the task/delivery order the contractor is
encouraged to offer additional discounts.

Page 2 of 15 Pages

Department of the Treasury, DO
BPA-2009-T ARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE

(5) This BPA expires on September 30,2011 or upon expiration and non-renewal of the
contractor's GSA contract. The BP A can be cancelled by the Government at any time. The
Contractor shall provide all resources necessary to perform services in accordance with the
requirements specified herein. The BP A will consist of the following periods of performance:
BPA PERIOD OF PERFORMANCE
YEAR 1

Award

Through

09/30/2009

YEAR 2

10101/2009

Through

09/30/2010

YEAR 3

10101/2010

Through

09/30/2011

All Office of Financial Stability (OFS) requirements will be fulfilled on a task order basis.
Individual task orders placed under this BPA may be issued on a firm fixed-price or timeand-materials basis, or any combination thereof.
(6) The following office is hereby authorized to issue task orders under this BPA:
Department of the Treasury
Departmental Offices
Procurement Services Division
(7) Task Orders will be issued against this BPA via e-mail, FAX, or paper.
(8) Unless otherwise agreed to, all deliveries under this BPA must be accompanied by delivery
tickets or sales slips that must contain the following information as a minimum:
(a) Name of Contractor;
(b) BPA Number;
(c) GSA Contract Number;
(d) Task/Delivery Order Number;
(e) Date ofIssuance of Task Order
(£) Quantity, Unit Price, and Extension of Each Item (unit prices and extensions need not be
shown when incompatible with the use of automated systems; provided, that the invoice is
itemized to show the information); and

Page 3 of 15 Pages

Department of the Treasury, DO
BPA-2009-TARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
(9) The requirements of a proper invoice are as specified in the Federal Supply Schedule contract.
Invoices will be submitted to the address specified within the task/delivery order transmission
issued against this BP A.
(10) The terms and conditions included in this BP A apply to all task orders issued against it. In the
event of an inconsistency between the provisions of this BP A and the task order, the provisions of
this BPA will take precedence.
(11) The Contractor's conflict of interest mitigation plan, as set forth in Attachment 2, is
specifically incorporated in this BP A and shall be in full effect throughout the life of the BPA.
(12) The terms of this BPA and those in Attachment 4 shall take precedence over Attachments 1
and 2.
*IMPORTANT -- A new feature to the Federal Supply Schedules Program permits contractors to
offer price reductions in accordance with commercial practice. Contractor Team Arrangements
are permitted with Federal Supply Schedule contractors in accordance with FAR Subpart 9.6 and
are encouraged.
Attachment No. 1
Attachment No.2
Attachment No.3
Attachment No.4

Ernst & Young's Price Quotation, dated October 14,2008 (Redacted)
Ernst & Young's Technical Quotation, dated October 14,2008 (Redacted)
Statement of Work
Conflicts ofInterest and Non-Disclosure Requirements

Page 4 of 15 Pages

Department of the Treasury, DO
BPA-2009-T ARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE

SPECIAL BPA PROVISIONS/CLAUSES
1.1

FAR 52-252-2 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

This BPA incorporates one or more clauses by reference, with the same force and effect as if
they were given in full text. Upon request, the Contracting Officer will make their full text
available. Also, the full text of a clause may be assessed electronically at www.amct.gov.
52.207-3 - Right of First Refusal of Employment (MAY 2006)

1.2

AUTHORITY - CONTRACTING OFFICER (CO), CONTRACTING
OFFICER'S TECHNICAL REPRESENTATIVE (COTR)
1.2.1

Contracting Officer (CO)

The CO for award of this Blanket Purchase Agreement is:
Dwight W. Stephens
Department of the Treasury, Departmental Offices
Procurement Services Division
1425 New York Avenue, 2 nd Floor
1500 Pennsylvania Avenue, NW
Washington, DC 20220
(202) 622-0632
Siwight. stephens@do.treas.gov
The CO, in accordance with Subpart l.6 of the Federal Acquisition Regulation, is the only
person authorized to make or approve any changes in any of the requirements of this BP A.
Task/Delivery Orders: The Administrative Contracting Officer (ACO) within the Department of
the Treasury is authorized to issue task orders against this BPA. The ACO for issuance and
administration of individual task orders will be assigned by letter prior to the issuance of the first
order against the BP A.
The CO, in accordance with Subpart 1.6 of the Federal Acquisition Regulation, is the only
person authorized to make or approve any changes to any of the requirements of a task order,
and notwithstanding any clauses contained elsewhere in this BP A, said authority remains solely
with the CO. In the event the Contractor makes any changes at the direction of any person other
than the CO, the change will be considered to have been made without authority and no
adjustment will be made in the task order price to cover any increase in cost incurred as a result
thereof.
Page 5 of 15 Pages

Department of the Treasury, DO
BPA-2009-TARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE

1.2.2. DTAR 1052.201-70 CONTRACTING OFFICER'S TECHNICAL
REPRESENTATIVE (COTR) DESIGNATION AND AUTHORITY (MAR 2002)
(a) The COTR is:
TBD on Task Order Basis.
(b) Performance of work under this BP A must be subject to the technical direction of the
COTR identified above, or a representative designated in writing. The term technical direction"
includes, without limitation, direction to the contractor that directs or redirects the labor effort,
shifts the work between work areas or locations, fills in details and otherwise serves to ensure
that tasks outlined in the work statement are accomplished satisfactorily.
(c) Technical direction must be within the scope of the specification( s )/work statement.
The COTR does not have authority to issue technical direction that:
(I) constitutes a change of assignment or additional work outside the
specification( s )/work statement;
(2) constitutes a change as defined in the clause entitled Changes";
(3) in any manner causes an increase or decrease in the contract price, or the time
required for contract performance;
(4) changes any of the terms, conditions, or specification(s)/work statement of
the contract;
(5) interferes with the contractor's right to perform under the terms and
conditions of the contract; or
(6) directs, supervises or otherwise controls the actions of the contractor's
employees.
(d) Technical direction may be oral or in writing. The COTR shall confirm oral
direction in writing within five work days, with a copy to the contracting officer.
(e) The contractor shall proceed promptly with performance resulting from the technical
direction issued by the COTR. If, in the opinion of the contractor, any direction of the COTR, or
his/her designee, falls within the limitations in (c), above, the contractor shall immediately
notify the contracting officer no later than the beginning of the next Government work day.

Page 6 of 15 Pages

Department of the Treasury, DO
BPA-2009-T ARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8l52H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
(f) Failure of the contractor and the contracting officer to agree that technical direction is
within the scope of the contract shall be subject to the terms of the clause entitled Disputes."

(End of clause)

1.2.3. Key Personnel
(a) Below are the name(s) of the persons proposed to be assigned the responsibility for
success of the work product(s). The below listed individuals are designated as "Key Personnel".
EMPLOYEE
NAME

POSITION
TITLEIFUNCTIONAL AREAS

Names and Titles Redacted

(b) The individuals named above shall be recommended by the Contractor in its proposal
and subject to approval by the Government prior to award. These individuals shall be in
responsible positions so as to allocate and control personnel.
(c) The Contractor shall identify and propose critical or senior-level Contractor staff
assigned to this BP A.
(d) For planned Key Personnel replacements, the Contractor shall provide the
Government with a minimum of 30 calendar days advance notice. Substitutions or additions to
approved key personnel under this BPA shall not be accepted unless specifically approved in writing
by the Contracting Officer or a Contracting Officer Technical Representative. Any substitutions
and/or additions shall be subject to the terms and conditions of this clause.
(e) All notification requests for substitutions and additions must provide a justification
and detailed explanation of the circumstances necessitating the proposed substitution or addition, a

Page 7 of 15 Pages

Department of the Treasury, DO
BPA-2009-TARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8l52H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
complete resume for the proposed substitute or addition, and any other information requested by the
Contracting Officer needed to approve or disapprove the request. Resumes submitted shall identify
the education and experience of the Key Personnel candidate(s) relative to the contract position
proposed. At a minimum, resumes shall include the name of the candidate, contract position and
labor category level proposed, experience, education, and citizenship status. All proposed
substitutes and additions must have qualifications equal to or better than the person to be replaced.

(0 The Contracting Officer or his authorized representative will evaluate such requests
and promptly notify the contractor of the approval or disapproval thereof.
1.3
SECURITY SCREENING REQUIREMENTS FOR ACCESS TO SENSITIVE BUT
UNCLASSIFIED SYSTEMS OR INFORMATION
Security screening requirements will be determined at the task order level.
(a) In addition to complying with any functional and technical security requirements set
forth in the schedule and elsewhere in this BPA, the Contractor shall request that the
Government initiate personnel screening checks and provide signed user nondisclosure
agreements, as required by this clause, for each contractor employee requiring staff-like access
(e.g. unescorted or unsupervised physical access or electronic access), specified at the task order
level, to limited or controlled areas, systems, programs and data.
(b) The Contractor shall submit a properly completed set of investigative request
processing forms for each such employee in compliance with instructions to be furnished by the
Contracting Officer or his/her designated representative.

Applicable forms will be furnished to the Contractor at time of award.
(c) Depending upon the nature of the type of investigation necessary, it may take a period
up to several months to complete complex personnel screening investigations. At the discretion
of the Government, background screening may not be required for employees with recent or
current favorable Federal Government investigations. To verify the acceptability of a nonTreasury, favorable investigation, the Contractor shall submit the forms or information needed,
according to instructions furnished by the Contracting Officer.
(d) When contractor employee access is necessary prior to completion of personnel
screening, each contractor employee requiring access may be considered for escort access. The
Contractor shall promptly submit all requests for approval for escort access to the Contracting
Officer or his/her designated representative so as not to endanger timely contract performance.

Page 8 of 15 Pages

Department of the Treasury, DO
BPA-2009-TARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
(e) The Contractor shall ensure that each contractor employee requiring access executes
any nondisclosure agreements required by the Government prior to gaining staff-like access.
The Contractor shall provide signed copies of the agreements to the Site Security Officer (SSO)
for inclusion in the employee's security file. The Government will provide the name and
location of the SSO after contract award. Unauthorized access is a violation of law and may be
punishable under the provisions of Title 5 U.S.c. 552a, Executive Order 12356; Section 7211 of
Title 5, United States Code (governing disclosures to Congress); Section 1034 of Title 10,
United States Code, as amended by the Military Whistleblower Protection Act (governing
disclosure to Congress by members of the military); Section 2302(b)(8) of TitIe 5, United States
Code, as amended by the Whistleblower Protection Act (governing disclosures of illegality,
waste, fraud, abuse or public health or safety threats); the Intelligence Identities Protection Act
of 1982 (50 U.S.c. 421 et seq.) (governing disclosures that could expose confidential
Government agents); and the statutes which protect against disclosure that may compromise the
national security, including Sections 641, 793, 794, 798, and 952 of Title 18, United States Code,
and Section 4(b) of the Subversive Activities Act of 1950 (50 U.S.c. Section 783(b» and other
applicable statutes.
(f) The Contractor shall notify the Contracting Officer's Technical Representative
(COTR) or the Site Security Officer no later than the end of the day of the termination for cause
of an authorized employee's access. The Contractor shall notify the COTR no later than ten days
after an authorized employee no longer requires access for any other type of termination. Verbal
notifications shall be confirmed in writing within thirty days.

1.4

IDENTIFICATION/BADGING REQUIREMENTS

During the period of this contract, access to Department of the Treasury facilities for contractor
representatives shall be granted as deemed necessary by the Government. All contractor
employees whose duties under this contract require their presence at any Treasury, or Treasury
Bureau facility shall be clearly identifiable by a distinctive badge furnished by the Government.
In addition, corporate identification badges shall be worn on the outer garment at all times. It is
the sole responsibility of the Contractor to provide this corporate identification. Upon the
termination of the employment of any contractor personnel working on this contract, all
government-furnished identification shall be returned to the issuing office. All on-site contractor
personnel shall abide by security regulations applicable to that site.

1.5

SECTION 508 COMPLIANCE

The Contractor must provide a comprehensive list of all offered specific electronic and
information technology (EIT) products (supplies and services) that fully comply with Section
508 of the Rehabilitation Act of 1973, per the 1998 Amendments, and the Architectural and
Transportation Barriers Compliance Board's Electronic and Information Technology

Page 9 of 15 Pages

Department of the Treasury, DO
BPA-2009-TARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY'SCHEDULE
Accessibility Standards at 36 CFR Part 1194. The Contractor must clearly indicate where this
list with full details of compliance can be found (e.g., contractors or other exact web page
location). The contractor must ensure that the list is easily accessible by typical users beginning
five calendar days after award. The contractor must maintain this detailed listing of compliant
products for the full contract term, including all forms of extensions, and must ensure that it is
current within three calendar days of changes to his product line.
The contractor must ensure that all EIT products that are less than fully compliant are offered
pursuant to extensive market research, which ensures that they are the most compliant products
and services available to satisfy this solicitation's requirements.
For every EIT product accepted under this contract by the Government that does not comply
with 36 CFR Part 1194, the contractor shall, at the discretion of the Government, make every
effort to replace or upgrade it with a compliant equivalent product or service, if commercially
available and cost neutral, on either the planned refresh cycle of the product or service, or on the
contract renewal date, whichever shall occur first.

1.6.

ADMINISTRA TIVE INSTRUCTIONS.

1.6. I Requests For Payment/Submission OfInvoices.
a. Contractor may submit an invoice once every thirty (30) days to the Contracting
Officer Technical Representative (COTR). The contractor shall have the invoice certified by the
COTR. The contractor's invoice will be for one month. The contractor shall invoice only for the
hours, travel and Other Direct Costs (ODes) that are in direct support of contractor's efforts in
performing the task/delivery order SOW. Hours in such invoice shall be identified by task/phase
and by labor category. The amounts for labor shall be computed by multiplying the appropriate
hourly rates prescribed in the Schedule by the number of direct labor hours performed with
applicable discounts. Fractional parts of an hour may be payable on a prorated basis. Contractor
shall substantiate vouchers by evidence of actual payment and by individual daily job timecards,
or other substantiation as approved by the Contracting Officer. Government will not reimburse
for overtime other than based on what was originally proposed and accepted at time of issuance
of order and as indicated in the Schedule. ODCs and travel costs shall be identified by
task/phase and shall include all necessary documentation supporting the charge(s). A copy of
the government's document(s) accepting the covered services must accompany invoices
submitted for payment. A copy of the invoice will be submitted to the addresses identified in the
task/delivery order to the contracting officer at the same time it is submitted to the program
manager. Failure to comply with the procedures outlined above may result in payment
being delayed.

Page 10 of 15 Pages

Department of the Treasury, DO
BPA-2009-T ARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
b. Invoices are to be emailed as soon as possible after the end of each calendar month to:
1. www.contractorpay@do.treas.gov;
2. Contracting Officer; and
3. COTR.
Submittal to "contractorpay" is considered the official invoice submittal; and it is through
"contractorpay" that prompt payment compliance is tracked. Each copy of each invoice shall
clearly identify the Contractor's Taxpayer Identification Number (TIN). The Contractor shall
assure that a responsible official of the company signs the following statement on each invoice:
"I certify that the services listed above have been performed in accordance with the
contract and those personnel hours or other costs are true, correct, and have not been
previously billed."
Typed Name and Signature
The BP A Number shall be typed on each invoice. Payment will be made in accordance with the
Prompt Payment Act (see FAR 52.232-25 Prompt Payment).
The invoice shall be approved by the Contracting Officer's Technical Representative (COTR).
If requested by the Government, time cards or time sheets for each employee shall be provided
as evidence of hours worked by each employee by Internal Work Order. The time card or time
sheet will indicate the date worked, number of hours worked, and the hourly rate for each
employee.
All follow-up invoices shall be marked "Duplicate of Original". Contractor questions regarding
payment information should be directed to the COTR.
The Contractor shall provide the COTR with an advance (pre-submittal) version of the invoice for
review.

1.7

PERFORMANCE MONITORING

The Government shall monitor and evaluate the contractors overall performance and service
delivery.
The Government may convene an Assessment Board to review, analyze, and evaluate the
contractor's performance. The Board will also determine the disposition of extending each
performance period, using the data, analysis, and evaluation performed. The Board membership
will include:
Page 11 of 15 Pages

Department of the Treasury, DO
BPA-2009-TARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
a) Contracting Officer,
b) Contracting Officer's Technical Representative, and
c) Treasury OFS Management Staff.

1.8

STAFFING PLAN

The contractor shall maintain and annually update the Staffing Plan initially submitted
in the contractor's proposal. The staffing plan shall layout the approach, practices, and staffing
to accomplish the requirements of this BPA as well as the specific requirements set forth in each
Task Order. As such, the plan shall relate the staffing allocations by organizational or function
units of the contractor team. Roles and functions shall be defined to substantiate the labor
categories proposed and the level of effort anticipated. The staffing plan shall address such
attributes as key personnel, personnel security and administration of personnel security, retention
and training of personnel, approach to personnel changes, and development of personnel. As
part of this staffing plan, there shall be a detailed staffing chart listing the labor categories by the
proposed organizational identities. For each labor category there shall be an indication of the
number of FTE"s by contract year.
1.9

HOLIDA YS

OBSERVANCE OF LEGAL HOLIDA YS AND EXCUSED ABSENCES
a) The Government hereby provides NOTICE and Contractor hereby acknowledges
RECEIPT that Government personnel observe the listed days as holidays:
New Years Day
Martin Luther King's Birthday
President's Birthday
Memorial Day
Independence Day
Labor Day
Columbus Day
Veterans Day
Thanksgiving Day
Christmas
Inauguration Day

January 1
Third Monday in January
Third Monday in February
Last Monday in May
July 4
First Monday in September
Second Monday in October
November 11
Fourth Thursday in November
December 25
January 20 every four years

b) In addition to the days designated as holidays, the Government observes the following
days:
Any other day designated by Federal Statute;

Page 12 of 15 Pages

Department of the Treasury, DO
BPA-2009-T ARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8152H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
Any other day designated by Executive Order; and
Any other day designated by the President's Proclamation.
c) It is understood and agreed between the Government and the Contractor that observances
of such days by Government personnel shall not otherwise be a reason for an additional
period of performance, or entitlement of compensation except as set forth within the
individual Task Order. In the event the Contractor's personnel work during the holiday,
they may be reimbursed by the Contractor, however, no form of holiday or other
premium compensation will be reimbursed either as a direct or indirect cost, other than
their normal compensation for the time worked. This provision does not preclude
reimbursement for authorized premium pay, if applicable to this contract as stated in its
individual Task Orders.
d) When the Federal, State, Local and other governmental entities grants excused absence to
its employees, assigned Contractor personnel may also be dismissed. The Contractor
agrees to continue to provide sufficient personnel to perform critical tasks already in
operation or scheduled, and shall be guided by the instructions issued by the COTR.
e) In the event that Treasury personnel are furloughed, the contracting officer or the COTR
will communicate contractual direction to the contractor regarding performance of work.
f) Nothing in this clause abrogates the rights and responsibilities of the parties relating to
"stop work" provisions as cited in other sections of this contract. Primarily, work shall
be performed at the Department of the Treasury facility or, upon approval, facilities
within the Washington, D.C. metropolitan area. Occasional work may be performed at
other field activity locations, including disaster recovery and/or continuity of operations
locations. No locality differential payments are applicable to this contract.

1.10 TASK ORDERS
The following ordering procedures shall apply to all Task Orders (TOs) issued under this BPA.
In addition:
a) Only an authorized Government Contracting Officer can issue a TO under this BPA.
b) All TO's are subject to the ternlS and conditions of the BPA. In the event ofcontlict
between a TO and the GSA contract, the contract will take precedence.
c) All costs associated with preparation, presentation, and/or discussion of the
Contractor's TO proposal shall be at the Contractor's expense; post award TO
administration (including applicable personnel cost allocations by TO) shall also be at
the Contractor's expense.
d) No work will be performed and no payment will be made except as authorized by a
signed Task Order.

1.11 IDENTIFICATION/BADGING REQUIREMENT

Page 13 of 15 Pages

Department of the Treasury, DO
BPA-2009-TARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8IS2H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
During the period of this contract, access to Government facilities for contractor representatives
shall be granted as deemed necessary by the Government. All Contractor employees, whose
duties under this contract require their presence at any Treasury, or Treasury Bureau, facility,
shall be clearly identifiable by a distinctive badge furnished by the Government. In addition,
corporate identification badges shall be worn on the outer garment at all times. It is the sole
responsibility of the Contractor to provide this corporate identification. Upon the termination of
employment of any contractor personnel, all Government furnished identification shall be
returned to the issuing office. All on-site contractor personnel shall abide by security regulations
applicable to that site. The Contractor shall administer and maintain an internal accounting of its
personnel relative to badges requested, lost and returned. The accounting shall be provided to
the COTR in the quarterly program review or as mutually agreed upon.

1.12 PHYSICAL SECURITY
Physical security is the action taken to protect Treasury information resources (e.g., installations,
personnel, equipment, electronic media, documents, etc) from damage, loss, theft, or
unauthorized physical access. The Contractor shall be alert for and establish means to mitigate
potential unauthorized access to these resources or potential internal or external acts of sabotage
on these resources while under the Contractor's custody. The Contractor shall:
a) Comply with all pertinent facility regulations and procedures for Federal agencies, unless
the Government grants a waiver.
Make recommendations for improving protection for Contractor staff if there is a
security issue.
b) Promptly report unlawful acts committed on or against property under the charge and
control of their contract. All such reports should be submitted through the COTR to the
Treasury Chief Information Security Officer or designee.

1.13 INFORMATION SAFEGUARDS AND PRACTICES
The Contractor shall be responsible for compliance with Treasury for policy and practice
regarding the storage and removal of electronic and printed materials considered sensitive in
nature (i.e., system password and user identification access odes) from printers, desktops,
laptops, furniture, presentation equipment, and any other form of information housing. This is so
that the information is not accessible by unauthorized personnel and so that disposal follows
Treasury information security practices. The contractor must ensure that contractor,
subcontractor, or business partner personnel protect all sensitive and secure documents to the
extent possible irom either inadvertent or deliberate compromise.

1.14 SUPERVISION OF CONTRACTOR'S EMPLOYEES

Page 14 of 15 Pages

Department of the Treasury, DO
BP A-2009-T ARP-0002

Accounting Support Services
GSA Contract No. GS-23F-8l52H

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
a) Personnel assigned to render services under this contract shall at all times be employees
of the Contractor and under the direction and control of the Contractor Notwithstanding
any other provisions of this contract, the Contractor shall at all times be responsible for
the supervision of its employees in the performance of the service required hereunder.
b) During all times on government premises, the contractor's personnel shall comply with
the rules and regulations governing conduct of personnel and operation of the facility.
c) If the contractor plans to employ any Non-English speaking personnel, he shall provide
an on-site bi-lingual supervisor to serve as an interpreter.
d) Contractor personnel shall not at any time during the contract period be employees of the
U.S. Government.

1.15 ADVERTISEMENTS, PUBLICIZING AWARDS AND NEWS RELEASES
Under no circumstances shall the Contractor, or anyone acting on behalf of the Contractor, refer
to the supplies, services, or equipment furnished pursuant to the provisions of this contract in any
publicity! news release or commercial advertising without first obtaining explicit written consent
to do so from the Contracting Officer. The Contracting Officer and COTR will coordinate
requests for written consent through the Treasury Office of Public Affairs.
The Contractor agrees not to refer to awards in commercial advertising in such a manner as to
state or imply that the product or service provided is endorsed or preferred by the Federal
Government or is considered by the Government to be superior to other products or services.
1.16 FIDUCIARY DUTY

The Contractor agrees that it shall have a fiduciary duty to the Government in its performance
under this contract.
---------------------------------------------END OF BPA AGREEMENT-------------------------------------

Page 15 of 15 Pages

Attachment No.3

Department of Treasury
Statement of Work

ACCOUNTING SUPPORT SERVICES
1.0

Objective

The objective of this Perfonnance Work Statement is to provide the Department of the
Treasury with Accounting Support Services.
2.0

Background

In furtherance of its mission to ensure the safety and soundness of the U.S. financial
system, and to implement the Emergency Economic Stabilization Act of2008 (Act),
the Treasury is establishing a program to purchase and insure a variety of troubled
assets.
Specific assets acquired for the portfolio may include (i) securitized products,
including Prime, Alt-A, and Subprime residential mortgage backed securities (MBS),
home equity backed instruments, commercial MBS, and MBS collateralized debt
obligations, and (ii) whole loans, including residential first mortgages, home equity
loans, commercial real estate loans, and construction and building loans. In addition,
the Treasury may decide to include other types of asset backed securities, and other
obligations in the portfolio as necessary to promote market stability.
Consistent with the purposes of the Act, the Treasury's policy goals for the portfolio of
troubled mortgage-related assets are to (I) provide stability and prevent further
disruption to the financial markets and banking system, (2) ensure mortgage
availability and (3) protect the interests of taxpayers. The portfolio mandate and
specific investment strategies may change over time but will always be consistent with
these policy goals.
By acquiring, managing, and orderly liquidating the troubled assets over time, the
Treasury seeks to improve the capital positions of fmancial institutions, reduce risk
premiums in the market, improve liquidity and credit extension in the financial system,
increase investor confidence, and provide market participants with more price
transparency.

3.0

Scope

The scope of the services required is accounting support for the Department of the
Treasury's Office of Financial Stability (OFS). To support the above office, the
contractor must have expertise in the area of Credit Refonn Accounting, based on the
Statement of Federal Financial Accounting Standards 2: Accounting for Direct Loans
and Loan Guarantees, the Office of Management and Budget (OMB) Circular A-II,
and the Treasury Financial Manual; relevant experience in complex accounting
transactions related to direct loans, loan guarantees, mortgage backed securities, equity

investments including preferred stock, and insurance related to loan guarantees;
contractor should have relevant experience in supporting government sponsored
entities or similar types of organizations.

4.0

Anticipated Work
4.1

4.2

4.3
4.4

4.5

4.6

4.7

4.8
4.9

4.10

4.11
4.12

Assist in performing Credit Reform Accounting including but not
limited to direct loans and loan guarante~s in accordance with generally
accepted accounting principles with a high level of expertise and a
strong knowledge of the Federal Credit Reform Act 1990 (The Act).
This includes but is not limited to assisting in providing the proper
budgetary and proprietary accounting for the 3 main accounts required
by Credit Refonn Accounting - Program Account; Financing Account;
and Receipt Account.
Provides advice on emerging accounting issues related to Credit Reform
Accounting and assistance/support in developing applicable policy and
guidance.
Assist in preparing or reviewing the appropriate accounting journal
entries related to Credit Reform Accounting transactions.
Assist in performing accounting for equity investments in financial
institutions and government sponsored enterprises with a high level of
expertise in conformance with generally accepted accounting principles.
Assist in validating present value estimates per The Act and Statement
of Federal Financial Accounting Standards statement #2 - Accounting
for Direct Loans and Loan Guarantees and Technical Releases #3 and
#6.
Assist in reviewing the Subsidy models estimates for loan programs,
direct loan guarantees and other transactions impacted by Credit
Reform Accounting to determine adequacy and accuracy.
Assist in ensuring cash flow/subsidy models meet all existing
requirements of The Act, Office of Management and Budget (OMB)
directives, and Federal Accounting Standards Advisory Board (FASAB)
standards, statements, technical releases and other requirements.
Assist in streamlining and automating credit reform modeling
processes.
Assist in performing all transaction level and summary level
reconciliations to ensure the general ledger (both proprietary and
budgetary accounts) and related subsidiary systems are in balance.
Assist in developing and implementing appropriate internal accounting
controls, ensuring compliance with OMB Circular A-123, within the
processes and systems impacted.
Assist in preparing all relevant Treasury level reports including but not
limited to the Treasury Report on Receivables (TROR).
Assist and support in preparation of monthly, quarterly, and annual
financial statements including credit reform foot notes.

4.13
4.14
4.15
4.16

4.17

4.18

5.0

Assist and support in preparation of inputs to the Performance and
Accountability Report, concerning OFS activities.
Perfonn other accounting and budgetary analyses and reports as
required.
Assist in documenting systems of internal accounting control as needed.
Provide advice on accounting treatment by financial institutions
(including broker-dealers, commercial banks, credit unions, thrifts,
insurance companies, etc) of their ownership of mortgage-backed
securities (MBS) and whole mortgage loans and possibly other types of
troubled assets
Provide advice on the implications of a sale of MBS, whole loans or
other troubled assets on the capital position of selling fmancial
institutions as well as the capital impacts on fmancial institutions who
do not participate in the sale
Review specific proposed MBS or whole mortgage loan transactions
(up to 10 types) and advise on approaches to mitigating unintended
consequences on participating financial institutions and nonparticipating third parties

Deliverables for individual task orders

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~

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Project Plan

10 days after award

Weekly Status Report
Including; Updated Project Plan, Contract Issues,
List of Current Contractor Personnel, List of
Government Furnished Equipment (GFE)

Day of the Week
determined by CaTR

Monthly BPA and Task Order Performance
Meeting

6.0

Performance Requirements Summary

6.1

Quality Assurance Tools

,
,1

To occur sometime during
the last week of every
month or less if required by
COTR.

The following tools will be used to verify that all deliverables and deadlines are met at
the task order level:
Draft and final deliverables
Weekly status reports

Monthly contract performance meeting

7.0

TASK MANAGEMENT

7.1

Project Management Plan

A Project Management Plan (PMP) is necessary for defining all tasks from inception to
close-out and to track resource allocation to the defmed tasks. PMP is also necessary to
avoid and reconcile potential resource conflicts, identify dependencies, and track
progress through to completion. In developing the proposed PMP, the Contractor shall
include the specific performance measures that are relevant to this contract. A final
PMP is due with each task order proposal submitted and will take effect upon award of
the task order. Along with the Contractor's proposed measures, performance under
this contract will be evaluated according to the following measures:
•

7.2

Deliverables are received at or prior to dates specified in the final project plan; and
A project risk register with a mitigation strategy is updated weekly.

Personnel Management

7.2.1 Key Personnel
The offer shall propose key personnel required under this BPA and as part of task
order awards under individual task orders.

7.2.2 Business Hours and Coverage
The work under this BPA, when possible, will be performed within the normal
business hours of 8:00am - 6:00pm (EST) Monday through Friday. Under special
circumstances, the contractors may be required to work outside normal business hours.
The Contracting Officer's Technical Representative (COTR) must approve exceptions
to the normal business hour schedule in advance.

8.0

PLACE OF PERFORMANCE

The Contractor shall perform the majority of task order activities at Department of the
Treasury space unless otherwise directed. The Treasury office space is located at the
Main Treasury Building (corner of Fifteenth Street and Pennsylvania Avenue NW,
Washington DC) and Metropolitan Square (corner of Fourteenth Street and G Street
NW, Washington DC). The COTR must approve any off-site work. No travel is
expected under this BP A.

9.0

PERIOD OF PERFORMANCE

The period of performance for this BPA is from the date of award through three years.

10.0

CONTRACT TYPE

This will be Blanket Purchase Agreement under which Treasury will award FinnFixed Price or Time and Material Task Orders.
11.0

GOVERNMENT FURNISHED INFORMATION & RESOURCES

The Department of the Treasury will provide access to the local network for email and
document creation necessary to perform the activities outlined in this contract.

12.0

SECTION 508 COMPLIANCE

All applicable sections of Section 508 apply to this task, including 1194.21 Software
applications and operating systems; 1194.22 Web-based Intranet & Internet
information; 1194.25 Self contained, closed products; 1194.31 Functional performance
criteria; 1194.41 Information, documentation, and support.

Attachment No.4

CONFLICTS OF INTEREST
(a) Among other situations, a Contractor may be deemed to have a conflict of interest if
the Contractor or any related entity (1) has a personal, business, or financial interest or
relationship that could adversely affect the Contractor's or any related entity's ability to
perform the Contract or to represent the best interests of the Treasury Department; (2) is
or represents a party in litigation with the Treasury Department; (3) is, seeks to be, or
represents a participant in the Troubled Asset Relief Program as defined in the
Emergency Economic Stabilization Act of2008; or (4) engages in any other activity that
would cause a reasonable person to question the integrity or objectivity of the Contractor
or related entity. For purposes of this clause, a "related entity" is any proposed or actual
subcontractor or consultant; the Contractor's management officials and proposed or
actual key personnel; and any individual, entity, or affiliate that controls or is controlled
by or is under common control with the Contractor.
(b) The Contractor warrants that, to the best of the Contractor's knowledge and
belief, there are no relevant facts or circumstances which could give rise to any potential
conflict of interest as defined above, or that the Contractor has disclosed all relevant
information concerning any past, present or planned interests bearing on whether it
(through itself or any related entity(ies» may have a potential conflict of interest.
(c) The Contractor warrants that all related entities have been informed of their obligation
to report any potential or actual conflicts of interest as defmed above.
(d) The Contractor is responsible for notifying the Treasury Department of any actual or
potential conflict of interest that arises after award of the Contract. The Contractor
agrees that if an actual or potential conflict of interest (through itself or any related
entity(ies» arises or is discovered after award of the Contract, the Contractor shall make
a full disclosure in writing to the Contracting Officer within five (5) days after learning of
the actual or potential conflict. This disclosure shall include a description of actions
which the Contractor has taken or proposes to take, after consultation with the
Contracting Officer, to avoid, mitigate, or neutralize the actual or potential conflict of
interest.
(e) The Contracting Officer may impose appropriate constraints to avoid, mitigate or
neutralize any actual or potential conflict of interest. The Contracting Officer may
terminate this Contract for convenience, in whole or in part, if he or she deems such
terminations necessary to avoid a conflict of interest. If the Contractor was aware of a
potential conflict of interest prior to award or discovered an actual or potential conflict
after award and did not timely disclose or misrepresented relevant information to the
Contracting Officer, the Government may tenninate the Contract for default, recommend
suspension or debannent of the Contractor from Government contracting, or pursue such
other remedies as may be permitted by law or by this Contract. The Government may
terminate the Contract for default if the Contractor fails to implement and follow any

appropriate constraints imposed by the Contracting Officer to avoid, mitigate, or
neutralize any actual or potential conflict of interest.

(f) Throughout the term of the Contract, Contractor shall warrant annually, in writing to
the Contracting Officer, that (i) no conflicts or potential conflicts of interest exist
(through itself or any related entity(ies), or that they have been disclosed or mitigated (ii)
all related entities have been informed of their obligation to report any potential or actual
conflicts of interest, and (iii) Contractor understands agrees to its continuing obligation to
search for and to report any actual or potential conflicts of interest. Such annual warranty
shall cover the one-year period from the date of Contract award, and all subsequent
certifications shall cover successive annual periods thereafter, until expiration or
termination of the Contract. The certification must be received by the Contracting
Officer no later than forty-five (45) days after the close of the certification period
covered.
(g) The contractor shall include this clause in all subcontracts, consultant agreements, and
in lower tier subcontracts unless a waiver is requested from, and granted by, the
Contracting Officer.
(h) The Treasury Department intends, pursuant to section 108 of the Emergency

Economic Stabilization Act of 2008, to issue additional regulations or guidelines
concerning conflicts of interest. If such regulations or guidelines differ from or expand
upon the conflict of interest provisions included in this Contract, the Contractor agrees to
negotiate in good faith the inclusion of the different or additional provisions. If
agreement between the parties cannot be reached, the Government may terminate this
contract for convenience. Nothing in this paragraph, however, shall limit the Treasury
Department's rights under the Changes clause of this Contract.

NON-DISCLOSURE
(a) The Contractor recognizes that, in performing this Contract, the Contractor may
obtain access to non-pUblic information that is confidential or proprietary in nature.
Except as permitted by the Contract, the Contractor agrees that it, its employees, its
subcontractors, consultants, and its subcontract or consultant employees will not disclose
to any third party, or otherwise use, any information it obtains or prepares in the course of
performance of this agreement for any purpose other than to perform work under the
Contract without first receiving written permission from the Contracting Officer. The
Contractor shall secure information received from or prepared or gathered for the
Treasury Department under this Contract in a secure location with access limited to only
those personnel with a "need to know."
(b) The Contractor agrees to obtain confidentiality agreements from all of its employees
working on requirements under this Contract. Such agreements shall contain provisions

which stipulate that each employee agrees that the employee will not disclose, either in
whole or in part, to any person or entity other than the Treasury Department and the
Contractor, any information or data provided by the Government or obtained by the
Contractor under this contract without first obtaining the written permission of the
Contracting Officer. Such agreements shall be effective for the life of the contract and
for a period of five (5) years after completion of the contract.
(c) All information gathered by the contractor including but not limited to reports,
research and electronic files shall become the property of the Treasury Department.
Notwithstanding any other provision of this Contract, neither the Contractor nor any
consultant or subcontractor shall make any claim of copyright nor any other ownership
interest in any of the information gathered under this Contract for the Treasury
Department. The Contractor shall ensure that all information gathered or prepared by the
Contractor including but not limited to reports, research and electronic files are not
released to any third parties without prior written authorization from the Contracting
Officer.
(d) Upon expiration or termination of the Contractor's engagement, all documents and
records covered by this clause will be disposed of in accordance with the Contracting
Officer's instructions. The Contractor's duty with respect to the covered information
shall survive the expiration or termination of this Contract.
(e) If an unauthorized disclosure occurs, the Government may terminate the Contract, for
default or convenience, or pursue such other remedies as may be permitted by law or by
this Contract.
(f) The Contractor agrees to insert, in any subcontract or consultant agreement placed
under the contract, provisions which shall conform substantially to the language of this
clause, unless otherwise authorized by the Contracting Officer.

¥-1226: Debt-for-Nature Agreement to Conserve Peru's Tropical Forests

/~~1-!~\,

PRESS ROOM

"r,.~1 u.s. DEPARTMENT Of THE TREASURY
". __I~'_/

Page 1 of 1

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October 21 , 2008
HP-1226
Debt-for-Nature Agreement to Conserve Peru's Tropical Forests
Washington, DC--The Governments of the United States of America and the
Republic of Peru have announced an agreement to reduce Peru's debt payments to
the United States by more than $25 million over the next seven years. In return, the
Government of Peru has committed these funds to support grants to protect the
country's tropical forests.
Secretary Paulson welcomed the agreement with the Government of Peru under
the U.S. Tropical Forest Conservation Act. "This agreement will build on the
success of previous U.S. Government debt swaps with Peru and will further the
cause of environmental conservation in a country with one of the highest levels of
biodiversity on the planet. Such debt-for-nature agreements are a successful
model of government and citizen cooperation to improve and expand conservation
efforts," he said.
Peru is one of the most biologically rich countries on earth. Funds generated by the
debt-for-nature program will help Peru protect tropical rain forests of the
southwestern Amazon Basin and dry forests of the Central Andes. These areas are
home to dense concentrations of endemic birds such as the Andean Condor and
Parakeet; primates including the Peruvian Yellow-tailed Woolly Monkey and Howler
Monkey; other mammals such as the Jaguar, Amazonian Manatee, Giant Otter,
Spectacled Bear and Amazon River Dolphin; as well as unique plants. Rivers
supplying water to downstream settlements originate in many of these forests, and
people living in and around the forests depend on them for their livelihood and
survival.
This agreement with Peru was made possible by the innovative Tropical Forest
Conservation Act of 1998. It will complement an existing TFCA debt-for-nature
program in Peru dating from 2002, a 1997 debt swap under the Enterprise for the
Americas Initiative, and the United States-Peru Trade Promotion Agreement, which
includes a number of forest protection provisions. With this agreement, Peru will be
the largest beneficiary under the Tropical Forest Conservation Act, with more than
$35 million generated for conservation.
The new Peru agreement marks the 14th Tropical Forest Conservation Act pact,
following agreements with Bangladesh, Belize, Botswana, Colombia, Costa Rica, EI
Salvador, Guatemala, Jamaica, Panama (two agreements), Paraguay and the
Philippines, as well as an earlier agreement with Peru. Over time, these debt-fornature programs will together generate more than $188 million to protect tropical
forests.

P:IIWWw.treas.gov/press/releases/hp1226.htm

1115/2008

Page 1 af4

October 21 , 2008
2008-10-21-17 -6-4-1873

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 $71,646 million as of the end of that week, compared to $71,245 million as of the end of the
prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)

[
[

II
IIOctober 10, 2008

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

IEuro

lIyen

IITotal

II
11 12 ,636

11 71 ,646

I(a) Securities

II
11 8 ,955

11 21 ,591

lof which: issuer headquartered in reporting country but located abroad

110

I(b) total currency and deposits with

II
1111 ,300

I(i) other national central banks, BIS and IMF
Iii) banks headquartered in the reporting country

lof which: located abroad

I(iii) banks headquartered outside the reporting country

lof which: located in the reporting country

1(2) IMF reserve position 2

11 4 ,655

1(3) SDRs 2

11 9 ,229

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

111 ,041

I--volume in millions of fine troy ounces

11 261 .499

1(5) other reserve assets (specify)

11 7 ,205

I--financial derivatives

I--Ioans to nonbank nonresidents

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

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

6,625

II
11 17 ,925
110
11 0
11 0
11 0

7,205

18. Other foreign currency assets (specify)
--securities not included in official reserve assets
--deposits not included in official reserve assets
--loans not included in official reserve assets
--financial derivatives not included in official reserve assets
--gold not included in official reserve assets
[-other

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

p:IIWWw.treas.gav/press/releases/2008102117641873.htm

1115/2008

Page 2 of 4

t
[

IIMaturity breakdown
II (residual maturity)
"

1. Foreign currency loans, securities, and deposits

~-outfIOWS (-)

IIprinciPal

[

IIlnterest

~-inflows (+)

IIPrincipal

[

IIlnterest

2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (includinq the forward leq of currency swaps)
[(a) Short

~ositions ( _ ) 4

I
1-

[(b) Long positions (+)

[ 3. Other (specify)

396 ,478

[ --outflows related to repos (-)
[ --inflows related to reverse repos (+)

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

More than 3
months and up to
1 year

More than 1 and
up to 3 months

Up to 1 month

Total

I
I

11- 396 ,478

"II
II

"
"
"II
II

""
II

"
"

"
"
II

"
"
"

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

I
I

II
II
II
I Maturity breakdown (residual maturity, where
applicable)

/Tota

Up to 1 month

(a) Collateral guarantees on debt falling due within 1
year

I(b) Other contingent liabilities

2. Foreign currency securities issued with embedded
options (pultable bonds)

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

[BIS (+)
/JMF(+)

Undrawn, unconditional credit lines provided to:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
Gther national monetary authorities (-)

I
I

tother national monetary authorities (+)

(e) with banks and other financial institutions
headquartered outside the reporting country (+)

"
""I

unconditional credit lines provided by:

(b) with banks and other financial institutions
headquartered in the reporting country (+)

More than 3
months and up to
1 year

More than 1 and
up to 3 months

11. Contingent liabilities in foreign currency

13. Undrawn,

"I
I

I
I

l:IIWWw.treas.gov/press/releases/2008102117641873.htm

11/5/2008

Page 3 of 4
(BIS (-)
(IMF (-)
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )

4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency

I
I

II
II

I
I

II
II
II
II
II
II

[a) Short positions

[(i) Bought puts

~ii) Written calls

I(b) Long positions

II
II

[(i) Bought calls

I(ii) Written puts
[PRO MEMORIA: In-the-money options

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

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

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%)

II
II

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 position
I(b) Long position

II
II
II
II
II
II
II

I
II

II
II
II
II
II
II
II

IV. Memo items

[
~) To be reported

II
with standard periodicity and timeliness:

[a) short-term domestic currency debt indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g., In domestic
currency)
Enondeliverable forwards
[-Short positions
[-long positions
t9ther instruments

~ pledged assets
8ncluded in reserve assets
--included in other foreign currency assets
li'ill'securities lent and on repo

J:IIWWw.treas.gov/press/releases/2008102117641873.htm

7,349

1115/2008

Page 4 of 4
--lent or repoed and included in Section I

--lent or repoed but not included in Section I

--borrowed or acquired and included in Section I

--borrowed or acquired but not included in Section I

7,349

(e) financial derivative assets (net, marked to market)
[forwards
[futures
t-swaps
t-options
t-other
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one year,
which are subject to margin calls.
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)

I
I

lia) short positions ( - )
lib) long pOSitions (+)
t-aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency
I(a) short positions
I(i) bought puts
I(ii) written calls
I(b) long positions
I(i) bought calls
I(ii) written puts

1(2) To be disclosed less frequently:

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

11 71 ,646

I--currencies in SDR basket

11 71 ,646

I--currencies not in SDR basket

II
II
II

I--by individual currencies (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,

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."

P:IIWWw.treas.gov/press/releases/2008102117641873.htm

11/5/2008

Page 1 of 4

October 21 , 2008
2008-10-21-17 -26-17 -2051

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 $71,237 million as of the end of that week, compared to $71,646 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
II0ctober 17, 2008

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

JIEuro

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

Ilyen

IITotal
11 71 ,237

I(a) Securities

II
11 8 ,954

II
11 12 ,665

11 21 ,619

lof which: issuer headquartered in reporting country but located abroad

11 0

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

II
11 11 ,090

II
11 6 ,231

II
11 17 ,321

Iii) banks headquartered in the reporting country

lof which: located abroad

110
11 0

I(iii) banks headquartered outside the reporting country

lof which: located in the reporting country

1(2) IMF reserve position 2

11 4 ,637

1(3) SDRs 2

11 9 ,193

(4) gold (including gold deposits and, if appropriate, gold swapped)

11 0
11 0

1111 ,041

I--volume in millions of fine troy ounces

11 261 .499

1(5) other reserve assets (specify)

11 7 ,426

t-financial derivatives

I--Ioans to nonbank nonresidents

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

J17,426

@. Other foreign currency assets (specify)
--securities not included in official reserve assets
--deposits not included in official reserve assets
--loans not included in official reserve assets
--financial derivatives not included in official reserve assets
--gold not included in official reserve assets

II
II
JI
JI
JI

[other

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

J:IIWWw.treas.gov/press/releases/200810211726172051.htm

11/512008

Page 2 of 4

[
[

I
I

IIMaturity breakdown (residual maturity)

ITota

[

IUp to 1 mooth

More than 1 and
up to 3 months

More than 3
months and up to
1 year

[ 1. Foreign currency loans, securities, and deposits
t-outflOwS (-)

IIPrincipal

[

IIlnterest

t-inflows (+)

IIPrincipal

[

IIlnterest
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)

I (a) Short [20sitions ( _ ) 4

-481,530

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

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

II
II
II
I Maturity breakdown (residual maturity, where

applicable)
Total

Up to 1 month

More than 1 and
up to 3 months

More than 3
months and up to
1 year

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

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

13. Undrawn,

unconditional credit lines provided by:

Wa) other national monetary authorities, BIS, IMF, and
other international organizations

I--other national monetary authorities (+)
[--BIS (+)
t- IMF (+)
(b) with banks and other financial institutions
headquartered in the reporting country (+)
(c) with banks and other financial institutions
headquartered outside the reporting country (+)

~ndrawn,

jl
jl

unconditional credit lines provided to:

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

I
I

[-other national monetary authorities (-)

1!tp:IIWWW.treas.gov/press/releases/200810211726172051.htm

I
I

1115/2008

Page 3 of 4

t.B IS (-)
EMF (-)

(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long positions of options in
foreign currencies vis-a-vis the domestic currency

~) Short positions

@Bought puts

I
I
I

I
I
II

II
II

[ill) Written calls

@) Long positions
~i) Bought calls

I
I
I
I
I
I
I
I

II
II
II

[(1) At current exchange rate
I(a) Short position
I(b) Long position

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

I(a) Short position

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

II
II

II
II
I

In-the-money options 11

I(b) Long position

I(ii) Written puts

~RO MEMORIA:

II
II

I(a) Short position

I(b) Long position

1(4) +10 % (depreciation of 10%)

II
I

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

I"
II

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
II

"
II

IV. Memo items

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

II
II

I(a) short-term domestic currency debt indexed to the exchange rate
(b) financial instruments denominated in foreign currency and settled by other means (e.g., in domestic
currency)
t-nondeliverable forwards
[ --short positions
[ --long positions
t-other instruments

~c) pledged assets
tincluded in reserve assets
--included in other foreign currency assets
[d) securities lent and on repo

ltp:IIWWw.treas.gov/press/releases/200810211726172051.htm

7,574

11/5/2008

Page 4 of 4
--lent or repoed and included in Section I

--lent or repoed but not included in Section I

11
1
1 7,574

I
I
I
I

--borrowed or acquired and included in Section I
--borrowed or acquired but not included in Section I
~) financial derivative assets (net, marked to market)

Qorwards

Qutures

ESwaps

[options

I
I
I
I

[other
(f) derivatives (forward, futures, or options contracts) that have a residual maturity greater than one year,
which are subject to margin calls.
--aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)

[a) short positions ( - )

~b) long positions (+)

t-aggregate short and long positions of options in foreign currencies vis-a-vis the domestic currency

[(a) short positions

l(i) bought puts

I(ii) written calls

I(b) long positions

l(i) bought calls

I(ii) written puts

1(2) To be disclosed less frequently:

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

11 71 ,237

I--currencies in SDR basket

11 71 ,237

I--currencies not in SDR basket

I--by individual currencies (optional)

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."

1tp:/IWWw.treas.gov/presslreleases/200810211726172051.htm

1115/2008

JIP-1229: Secretary Henry M. Paulson, Jr. Remarks on China and the Global Economy to the National C.. Page 1 of 3

/~'~~', PRESS

ROOM

,~ u.s. DEPARTMENT OF THE TREASURY

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October 21,2008
HP-1229
Secretary Henry M. Paulson, Jr. Remarks on China and the Global Economy
to the National Committee on U.S.-China Relations
New York - Good evening. Thank you, Carla, and thanks to all of you at the
National Committee for the exceptional work that you do for U.S. - China relations.
As we approach the 30-year anniversary of a turning pOint in U.S. and Chinese
history, we also recall the strategic vision of the National Committee and its role in
the historic 1971 ping-pong exchange that helped make resumption of normalized
relations possible. Through visions such as yours, the American and Chinese
people began to understand one another and to see the benefits - indeed, the
necessity - of normalization.
I am pleased to accept this award in recognition of the work so many have done to
forward the U.S. - China relationship. This is critically important and I am grateful to
see so many people here this evening who have led this effort, including my friend
Duncan Niederauer. Congratulations to you, Duncan, for your well-deserved
recognition as well.
My remarks will focus on the future of our economic relationship with China. We will
soon have a new U.S. President who will face the continuing challenge and
opportunity of responding to China's emergence as a global economic leader.
Responses to Current Global Financial Market Turmoil
The world's financial markets are undergoing the most serious stresses in recent
memory and this financial crisis has begun to negatively impact real economies
here and around the world. China is feeling this stress as well, but fortunately its
economy is expected to continue to be an important engine for global growth during
this period. In the United States, recent collaborative actions by the Federal
Reserve, the FDIC and the Treasury clearly demonstrate that our government will
do what is necessary to significantly strengthen our banks and financial institutions,
enabling them to increase financing for the consumption and business investments
that drive U.S. economic growth. Through a multitude of powerful actions we have
and will demonstrate our commitment to unlocking our credit markets and
minimizing the impact of the current instability on the rest of the U.S. economy.
Addressing the effects of financial market turmoil around the world requires the
dramatic steps we are taking here in the United States, and it requires close
international corroboration and cooperation. We have been in close contact with
Chinese leaders, as well as with leaders of many other nations. And we welcome
Premier Wen's statement that China will playa constructive and cooperative role in
global efforts to deal with the current financial market turmoil. Throughout this
turbulent time, I have stayed in close touch with Vice Premier Wang Qishan, who
has now been appointed to lead China's newly established international financial
crisis committee. Our conversations have been useful and constructive. It is clear
that China accepts its responsibility as a major world economy that will work with
the United States and other partners to ensure global economic stability.
Governments must continue to take individual and collective actions to provide
much-needed liquidity, strengthen financial institutions through the provision of
capital and the disposition of troubled assets, prevent markets abuse, and protect
the savings of their citizens. We must also take care to ensure that our actions are
closely coordinated and communicated so that the action of one country does not
come at the expense of others or the stability of the system as a whole.
Ten days ago leaders from the world's 20 largest economies met in Washington
and found ways to further enhance our collective efforts to lessen the effects of
global market turmoil. Those meetings brought concrete actions that have

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c.. Page 2 of 3

supported world markets. I am heartened that the international community is
working together for stability and to regain a footing of confidence. As confidence
returns to the system, normal financial activities will resume. And we are all grateful
for President Bush's leadership during this time. As the President said on Friday,
"The American people ... can have confidence that this economy will recover. We're
a country where all people have the freedom to realize their potential and chase
their dreams." As the President knows, Americans are a strong and optimistic
people. Although we expect current challenges to continue for a number of months,
we will overcome them as we have overcome every challenge our Nation has ever
faced.
A Strong Future for U.S. - China Economic Relations
We will elect a new president two weeks from today, and our new President should
start from the perspective that China will continue to playa key role in the world
economy. As a matter of fact, today more than ever the world is looking to China to
be a big contributor to global economic growth. While some see China as a threat
that must be countered or contained, I believe that the only path to success with
China is through engagement. We must recognize that China's growth is an
opportunity for U.S. companies and consumers, for our producers, exporters and
investors. A stable, prosperous and peaceful China is in the best interest of the
Chinese people, the American people and the rest of the world.
U.S.-China relations are more productive today than ever before, largely because
we have engaged China as it is, not as we might wish or imagine it to be. We have
acted to lessen misperceptions and miscommunication between our countries.
An important part of the engagement has been through the Strategic Economic
Dialogue established in 2006 by President Bush and President Hu. We have
worked from the understanding that robust and sustained economic growth is a
social imperative for China and that Beijing views its international interactions
primarily through an economic lens. We have worked with Beijing on economic
issues that are of mutual interest, and we have found that we can produce tangible
results in both economic and noneconomic areas. Our recent close and frequent
communication and cooperation as we address the challenges in the financial
markets is a tangible example of the power and utility of a Strategic Economic
Dialogue based on mutual trust
Over the past two years we have built a strong foundation for this dialogue by
focusing on policy areas in which China's reform agenda and U.S. interests
intersect. The SED has found new and constructive ways to address some of the
most important matters in our economic relationship --- including growth
imbalances, energy security and environmental sustainability, trade and investment
issues, product safety, and China's position in the world economy. Addressing
these questions serves China's interests, and is also vital to the U.S. and global
economic future.
One of the SED's major achievements is the Ten Year Energy and Environment
Cooperation Framework. This framework is a bilateral mechanism to create a new
energy-efficient model for sustainable economic development and to address the
factors that cause climate change. Greater breakthroughs can be expected in the
years ahead, and this framework provides the next administration a critically
important platform for U.S. economic engagement with China.
Trade and investment, once the glue of U.S. -Chinese relations now also represent
a source of increased tension. Any dynamic economy that is constantly creating
new, higher-value jobs faces factory closings and job losses that are real and
painful. The benefits of free trade are often spread across an entire country, while
the lost jobs are more immediately visible. But succumbing to the temptation to
make trade and foreign investment a scapegoat only breeds support for isolationist
policies that will make us worse off, sacrificing future job opportunities and higher
standards of living.
American investors in China, and Chinese investors in America, question whether
the other country is truly open to investment and provides adequate legal
protections. To answer this question, we sent a powerful and clear signal at the
June SED meeting by launching negotiations of a U.S. - China bilateral investment
treaty. Through these negotiations, we seek to assure our people and the world that
our two nations welcome investment and will treat each other's investors in a fair

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IiP-I229: Secretary Henry M. Paulson, Jr. Remarks on China and the Global Economy to the National C.. Page 3 of 3
and transparent manner. And we will work even harder to resolve a critical issue for
American companies working in China --- better enforcement of intellectual property
laws, to help China on its path to become an innovation society, while accelerating
the development and competitiveness of its economy.
In the area of product safety, we have made real progress but need to intensify our
work together to enhance China's regulatory and legal infrastructure, to help them
build quality into each stage of the manufacturing and distribution process.
In the financial sector, we have worked steadily to help China develop and open up
its institutions. Some in China look at the recent failures in our financial markets and
conclude that they should slow down their reforms. But there is a great opportunity
for China to learn from our significant mistakes and move forward with reforms that
have the potential to produce important gains for China and its people.
For example, a capital markets reform agenda will advance China's economic goals
in four important ways. It will rebalance 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. It will create effective macroeconomic
policy tools to ensure stable, non-inflationary growth. It will support China's
transition to a market-driven and innovation-based economy; and, finally, it will
assist China in dealing with its demographic challenges.
The SED has also provided an excellent forum for discussing the value of the RMB;
I am pleased that China has appreciated the RMB by over 20 percent since July of
2005.
More Progress is Possible

The SED has shown that active economic engagement between the highest levels
of U.S. and Chinese leadership can keep our relationship on an even keel even as
we tackle our most challenging issues and manage short-term tensions.
Chinese leaders understand that if the SED is to be sustained, it must be more than
talk; it must continue to yield specific, tangible results, what I call signposts along
the path toward transformational reform. We look forward to further progress in the
on-going discussions with Chinese officials and at our next SED meeting in Beijing
in December.
The successes of the SED in the past two years have created a foundation of
mutual understanding and trust and a platform for further progress. And perhaps
most importantly the SED has established a new model for communication,
enabling us to address urgent issues such as turmoil in our financial markets,
energy security and climate change. I hope that the next U.S. president will expand
on the SED to take U.S.-Chinese relations to the next level. Thank you.
-30-

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1115/2008

HP-1230: Under Secretary for International Affairs David H. McConnick Remarks to the Better Hong K... Page 1 of 5

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October 22,2008
HP-1230
Under Secretary for International Affairs David H. McCormick Remarks to the
Better Hong Kong Foundation
Financial Turmoil and the Global Economy
Hong Kong - These are unprecedented and difficult times for the global economy.
The world's financial market conditions are severely strained, and risks to the global
growth are significant. The largest advanced economies are feeling this most
acutely. In the United States, our financial markets are experiencing unprecedented
challenges, and this is adding even greater pressure to our already slowing
economy.
These developments are affecting the entire globe. Emerging market countries in
recent years, including those in Asia, have made impressive strides in
strengthening their fundamentals, accelerating their economic growth and
cushioning themselves against external shocks. Nevertheless, as the events of the
past several weeks have shown, emerging markets like China are not immune from
the global financial stress. Even financial markets with little direct exposure to
mortgage-related assets risk becoming destabilized by diminishing market
confidence and slowing export growth. Because we are all affected by this crisis,
we must work together to address this instability and restore the health of the world
economy.
Over the past two weeks, we have witnessed an unprecedented international
response to this financial turmoil. The Group of Seven industrialized countries have
announced and are implementing a coordinated action plan to stabilize financial
markets and restore the flow of credit. Others around the world, from Hong Kong to
Denmark, have adopted similar approaches. Together these countries are taking
steps to provide liquidity to markets, strengthen financial institutions, prevent
failures that pose systemic risk, protect depositors, and enhance confidence in
financial institutions. While financial markets have responded positively in some
ways to these unprecedented efforts, much work remains.
Today, I would like to share my views on how we arrived at this place, what the
United States is doing to address the turmoil and suggest some possible early
lessons for both the United States and China.
Root Causes of the Market Turmoil
How did we get to this pOint? The story begins with a decade of benign economic
conditions marked by low interest rates, low inflation, and less volatile asset
markets, leading 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 assets, continued reaching for ever-higher
gains. In response, the financial-services industry created a variety of complicated
new financial products to meet this demand, and regulators and investors alike
showed a growing complacency toward risk. These factors, blended together,
created underlying conditions ripe for instability.
The 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. Last summer, these vulnerabilities in our
financial system became clear, as 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. Shaken investor confidence in housing
assets had a domino effect throughout world markets, ratcheting up demand for

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cash and liquidity, and curtailing the pace of the new lending and investment
necessary for continued growth.
Actions to Mitigate Risk and Stabilize Markets
Recognizing the risk of the housing downturn to the U.S. economy, the Bush
Administration and Congress have taken a number of steps, including a $150 billion
stimulus package, to help mitigate the impact on the real economy. Progress in the
financial markets has been uneven, and additional challenges clearly lie ahead.
In formulating a response, we initially acted on a case-by-case basis to address
deteriorating financial conditions in a number of financial institutions. In March, the
Federal Reserve took unprecedented action to ensure an orderly resolution for Bear
Stearns, and in September, authorities around the world took steps to mitigate the
impact of the bankruptcy of Lehman Brothers, America's fourth largest investment
bank. That same week, the Federal Reserve provided funding to American
International Group (AIG) to address the systemic risk that would have resulted
from a sudden collapse of the firm. Several weeks later, the FDIC facilitated
JPMorgan Chase's acquisition of the banking operations of Washington Mutual,
one of America's largest retail banks.
In each of these cases, policymakers attempted to strike a careful balance of
promoting market discipline while mitigating systemic risk, holding investors and
management teams accountable while protecting blameless consumers from
collateral damage.
We have sought to achieve a similar balance in the cases of Fannie Mae and
Freddie Mac, which are of particular interest to investors around the world, including
here in China. These Government Sponsored Enterprises (GSEs) are the largest
sources of mortgage finance in the United States, affecting roughly 70 percent of
mortgages originated. Not surprisingly, the prolonged housing correction weakened
their financial condition, and both institutions faced a loss of investor confidence.
Fannie Mae and Freddie Mac are so large and interwoven in our financial system
that the failure of either would have far reaching effects on the U.S. and global
economies.
This past summer, investors began to express growing concerns over the stability
of Fannie and Freddie and the ambiguity over the scope and certainty of
government support for these institutions. In response, Secretary Paulson asked
Congress for certain authorities regarding Fannie Mae and Freddie Mac in order to
help stabilize and support our financial and housing markets. Congressional leaders
acted promptly and decisively with the needed legislation. In the days and weeks
that followed, the FHFA, the government regulator responsible for overseeing these
institutions - placed both of Fannie and Freddie under temporary government
control to allow for needed changes at both institutions.
In a complementary step, Treasury established contractual Preferred Stock
Purchase Agreements with both institutions, committing up to $100 billion per
institution to ensure that each GSE maintains a positive net worth, thereby
protecting debt holders. These Preferred Stock Purchase Agreements are intended
to address the underlying ambiguities surrounding the GSEs by explicitly
demonstrating to the holders of Fannie Mae and Freddie Mac debt that the U.S.
government will stand behind and protect their investments.
A Comprehensive Policy Response
Despite the hardening of the government's support for Fannie Mae and Freddie
Mac, and the decisive resolutions of Bear Stearns, Lehman Brothers, AIG,
Washington Mutual, and Wachovia, investors have become increasingly concerned
over the possibility of other failing financial institutions. This has made them
increasingly reluctant to extend credit and has resulted in the further tightening of
our credit markets.
Sharp increases in the cost of credit for financial and non-financial companies, in
the United States and globally, have increased the risk that corporations will be
unable to roll over maturing debt. Given this fragile environment, U.S. authorities
decided there was a need to act decisively and comprehensively to stabilize the
markets and address the underlying sources of uncertainty. The four part plan

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rolled out by earlier this month seeks to achieve these goals.
First, central banks from around the world have acted together in recent months to
provide additional liquidity for financial institutions. The Federal Reserve has
established swap lines with a number of central banks to reduce pressures in global
short-term U.S. dollar markets. Moreover, to further increase access to funding for
businesses in all sectors of our economy, the Federal Reserve launched a
Commercial Paper Funding Facility (CPFF), which provides a broad backstop for
the commercial paper market by funding purchases of commercial paper of three
month maturity from high-quality issuers.
Additionally, in early October, Treasury implemented a temporary guaranty program
for the U.S. money market mutual fund industry, which had experienced funding
problems. This temporary $50 billion guaranty program offers government
insurance to address concerns about whether these money market investments are
safe and accessible.
Second, we have taken steps to improve market operations and market integrity.
For example, 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 were joined by regulators in the UK, France, Germany, and
other countries who also imposed restrictions on short selling. In addition, the SEC
is aggressively pursuing enforcement action against market manipulation that may
have occurred in previous months.
Third, with the support of Treasury and the Federal Reserve, the FDIC has
temporarily guaranteed the senior debt of all FDIC insured institutions and their
holding companies, as well as deposits in non-interest bearing deposit transaction
accounts. These actions are specifically designed to unlock interbank lending by
mitigating counterparty risk. Regulators will implement an enhanced supervisory
framework to assure appropriate use of this new guarantee. This important action,
combined with the increase in the FDIC's deposit insurance from $100,000 to
$250,000, will provide confidence in the banking system and avert destabilizing
capital flows between banks in the United States.
Finally, and perhaps most important, Treasury is acting to provide much-needed
capital to address one of the root causes 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 this would mean
that every aspect of our financial and funding markets, ranging from consumer
credit to money market funds, would remain impaired.
On October 3, Congress passed and President Bush signed into law the bipartisan
Emergency Economic Stabilization Act of 2008. The law gives the Treasury
Secretary broad and flexible authority to purchase and insure mortgage assets, as
well as equity securities, as needed to stabilize our financial markets. The law
empowers Treasury to design and deploy numerous tools to fill the capital hole
created by illiquid troubled assets.
As part of a carefully defined capital injection plan, nine major financial institutions,
which comprise more than 50 percent of all U.S. deposits and assets, have already
agreed to participate and will receive a combined $125 billion of capital and will
grant the U.S. government minority stakes in return. These healthy institutions are
taking these steps to strengthen their own positions and to enhance the overall
performance of the U.S. economy. By participating in this program, these banks,
along with others that will be identified in the future, will have enhanced capacity to
perform their vital function of lending to U.S. consumers and businesses and
promoting economic growth. These nine banks have also committed to continued
aggressive actions to prevent unnecessary foreclosures and preserve
homeownership.
We are also developing plans to add additional capital to reduce market uncertainty
and encourage private investors by purchasing mortgage backed securities and
whole loans off the balance sheets of U.S.-based financial institutions.

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Together, these four steps significantly strengthen the capital positions and funding
ability of U.S. financial institutions, enabling them to perform their role of
underpinning overall economic growth. These actions demonstrate to market
participants around the world that the United States is committed to taking all
necessary steps to unlock our credit markets, minimize the impact of the current
instability on the U.S. economy, and restore the health of the global financial
system.
Much of this action is being coordinated internationally. The steps being undertaken
in the United States are consistent with the efforts undertaken around the globe by
others to provide liquidity, strengthen financial institutions, prevent failures that pose
systemic risk, protect savers, and enforce investor protections. We welcome the
policy decisions announced by European countries, Japan, Australia, and other
nations around the world to stabilize their markets and ensure the health of their
institutions.
Lessons for the Future
Since we are very much in the eye of the storm, it is difficult and premature to draw
definitive lessons. Let me suggest four emerging themes that may be worth
considering.
First, we have undoubtedly learned that our own financial system is in need of
reform. To help rebuild the strength and confidence in our markets, the United
States has worked to implement the findings of international experts in the Financial
Stability Forum (FSF) and U.S. experts in the President's Working Group on
Financial Markets (PWG). These bodies concluded that we must increase
transparency, prudential regulation, risk management, and market diSCipline.
Additional reforms of our regulations, regulatory structure, and international
institutions will most certainly follow.
The Financial Stability Forum recommendations are applicable to the financial
markets around the world, and my country is committed to implementing them in
full. China can and should benefit from the lessons the United States and other
countries have learned from the challenges in our financial markets, and we are
happy to share them. It would be unfortunate if, as a result of this turmoil,
policymakers in China mistakenly abandon their pursuit of financial sector
innovation that has been so important to supporting China's growth in productivity
and macroeconomic stability.
Second, it is clear that the current turmoil has exacerbated macroeconomic policy
challenges the United States and China already faced as a result of structural
imbalances in both economies. For the United States, this has made efficient
management of fiscal policy an even more critical challenge. China's extraordinary
growth has relied on exports and investment to fuel the economy, but this strategy
may no longer be tenable in the face of a global economic slowdown.
As China's leaders recognize, their current growth model has created growing
internal and external imbalances that need to be addressed. Strong domestic
demand growth - with robust contributions from consumption and the services
sector - provides the surest guarantee of both macroeconomic stability and
sustained economic growth in the face of negative external shocks. Achieving
strong demand·led growth is no small policy challenge. However, market·based
pricing, including for interest rates and exchange rates, must playa central role in
the process of allocating resources towards production for the domestic market.
Third, we have learned that our growth and prosperity is more dependent on one
another than at any time in our respective histories. Openness to international trade
and investment has been and will continue to be the linchpin of economic growth for
the global economy. Policy makers around the world must therefore remain vigilant
to guard against the inevitable short-sighted appeals for protectionism during this
period of global financial stress. A central task for policymakers in both the United
States and Asia is to embrace the aggregate benefits of openness to trade and
investment while taking measures to ensure that opportunities to benefit from that
openness are widely shared.
Finally, the recent crisis has highlighted the importance of continued cooperation
among major economies through such fora as the G-20, the Financial Stability

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Forum, and the International Monetary Fund. As recent developments have
demonstrated, the market turmoil is a global event. Governments around the world
have taken actions to address financial market developments, and international
cooperation and coordination has been robust. It is critical for governments to
continue to take individual and collective actions to provide much-needed liquidity,
strengthen financial institutions, enhance market stability, and develop a
comprehensive regulatory response. We must closely coordinate our efforts within
a common framework so that the action of one country does not come at the
expense of others or the stability of the system as a whole.
Conclusion

Ladies and gentlemen, the interdependence of our global economy makes our
current challenges more complex. It also makes our work with international
counterparts to promote growth and financial stability all the more important. We
should take faith from the fact that leaders in America and around the world are
rising to this pressing challenge. In the United States we have faced and overcome
enormous economic challenges like this before. From this crisis, too, I'm confident
we will emerge stronger and wiser.
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1115/2008

!p-1231: Export Development Bank of Iran Designated as a Proliferator

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Page 1 of 2

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October 22. 2008
HP-1231
Export Development Bank of Iran Designated as a Proliferator
Washington, DC--The U.S. Department of the Treasury today designated the
Export Development Bank of Iran (EDBI) pursuant to Executive Order 13382 for
providing or attempting to provide financial services to Iran's Ministry of Defense
and Armed Forces Logistics (MODAFL).
"In response to international sanctions and the refusal of many responsible banks
to do business with Iranian banks, Iran has adopted a strategy of using less
prominent institutions. such as the Export Development Bank of Iran, to handle its
illicit transactions." said Under Secretary for Terrorism and Financial Intelligence
Stuart Levey. "Today's action exposes EDBI's role in helping Iran violate UN
sanctions so that financial institutions around the world can take appropriate steps
to protect themselves."
Established in 1991, the EDBI is an Iranian state-owned financial institution whose
primary purpose is to serve Iran's import and export communities. In addition, the
EDBI operates as the Iranian representative for the Islamic Development Bank. a
multinational institution that cultivates economic and social improvements in
member nations, in accordance with Islamic law.
However, the EDBI provides financial services to multiple MODAFL-subordinate
entities that permit these entities to advance Iran's WMD programs. Furthermore.
the EDBI has facilitated the ongoing procurement activities of various front
companies associated with MODAFL-subordinate entities.
Since the United States and United Nations designated Bank Sepah in early 2007,
the EDBI has served as one of the leading intermediaries handling Bank Sepah's
financing. including WMD-related payments. In addition to handling business for
Bank Sepah. the EDBI has facilitated financing for other proliferation-related entities
sanctioned under U.S. and UN authorities.
Also designated today are three additional entities which were determined to be
owned or controlled by or acting or purporting to act for or on behalf of, directly or
indirectly. the EDBI. These entities are: the EDBI Stock Brokerage Company
and the EDBI Exchange Company. both located in Iran, and Banco Internacional de
Desarollo, CA, a financial institution located in Venezuela.
These actions were taken pursuant to Executive Order 13382, an authority aimed at
freezing the assets of proliferators of WMDs 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.
Background on Entities Previously D~signated Under E.O. 13382
In October 2007. the U.S. Department of State designated MODAFL pursuant to
E.O. 13382. MODAFL controls the Defense Industries Organization, an entity
identified in the Annex to UNSCR 1737 and designated by the United States
pursuant to E.O. 13382 on March 30, 2007.
MODAFL has ultimate authority over the Aerospace Industries Organization (AIO).
an umbrella group that controls Iran's ballistic missile research, development and
production activities and organizations, including the Shahid Hemmat Industrial
group (SHIG) and the Shahid Bakeri Industrial Group (SBIG). AIO, SHIG and SBIG
were named in the Annex to E.O. 13382; SHIG and SBIG were also listed in the

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!p.1231: Expof[ Development Bank ofIran Designated as a Proliferator

Page 2 of2

Annex to UNSCR 1737. MODAFL has publicly stated that one of its major products
is the manufacture of the Shahab-3 ballistic missile.
The Treasury Department designated Bank Sepah under E.O. 13382 in January
2007 for providing financial support and services to Iran's AIO, SHIG and SBIG.
Since at least 2000, Bank Sepah has provided a variety of critical financial services
to Iran's missile industry, arranging financing and processing dozens of multimillion
dollar transactions for AIO and its subordinates, including SBIG and SHIG.

Identifying Information
EXPORT DEVELOPMENT BANK OF IRAN
AKAs:

EDBI

Bank Toseh Saderat Iran
Bank Towseeh Saderat Iran
Addresses:
Tose'e Tower, Corner of 15 St., Ahmad Qasir Ave.,
Argentine Square, Tehran, Iran
No. 129,21 's Khaled Eslamboli, No.1 Building, Tehran, Iran
Export Development Building, Next to the 15 Alley, Bokharest Street, Argentina
Square, Tehran, Iran
C.R. No. 86936 (Iran)
All branches worldwide

EDBI STOCK BROKERAGE COMPANY
Address:

Tehran, Iran

EDBI EXCHANGE COMPANY
Address:

Tehran, Iran

BANCO INTERNACIONAL DE DESAROLLO, C.A.
Address:
Urb. EI Rosal, Avenida Francisco de Miranda, Edificio
Dozsa, Piso 8, Caracas, Venezuela, C.P. 1060
Tax Identification:

RIF No. J294640109 (Venezuela)

SWIFT/BIC No:

IDUNVECA

Note: Banco Internacional de Desarrollo, C.A. is a separate and distinct entity from
Banco Interamericano de Desarrollo, known in English as the Inter-American
Development Bank (lADB) and Banco Desarrollo Economico y Social De
Venezuela (BANDES), an entity owned by the Government of Venezuela.
-30-

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1115/2008

W.1232: Treasury Names Interim ChiefInvestment Officer for TARP

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Page 1 of 1

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October 22, 2008
HP·1232
Treasury Names Interim Chief Investment Officer for TARP
Washington -- The Treasury Department named James H_ Lambright this week to
serve as the interim Chief Investment Officer for the Troubled Asset Relief Program
authorized by Congress earlier this month_
Lambright will serve on an interim basis until the position is filled permanently_ He
will provide counsel to Secretary Henry M_ Paulson, Jr_ and Interim Assistant
Secretary for the Office of Financial Stability Neel Kashkari as they develop and
implement the program_
Lambright brings a strong private and public sector financial background to the
Treasury team:
•

Head of the Export-Import Bank since July of 2005, where he managed 400
employees and a $60 billion credit portfolio with $100 billion in financing
capacity_
• Successfully converted the Export-Import Bank to a self-financing agency,
returning positive net income to the Treasury while taking no appropriated
funds from Congress in FY 2008.
• Came to the Export-Import Bank in 2001 from Credit Suisse First Boston
Corp_ There he worked in private equity and specialized in the underwriting
and negotiation of real estate and venture capital transactions.

Given the upcoming Leaders' meeting on global financial markets, Secretaries
Paulson and Rice determined that Under Secretary Reuben Jeffery, previously
slated to be named interim Chief Investment Officer, should remain at the State
Department
-30-

P:IIWWw.treas.gov/press/releaseslhp1232.htm

1115/2008

~-1233: Paulson Statement on the BSAAG Plenary

Page I of I

ROOM
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October 22, 2008
hp-1233

Paulson Statement on the BSAAG Plenary
--The Treasury Department today released the following statement from Treasury
Secretary Henry M. Paulson, Jr. following his meeting with the semi-annual plenary
of the Bank Secrecy Act Advisory Group (BSAAG).
"I appreciate the hard work by the advisory group in helping to make the financial
sector inhospitable to bad actors and their illicit funds. Terrorists, criminals,
proliferators and other dangerous actors are continuously looking for cracks in our
regulatory framework through which to move or store their funds without detection,
"As stewards of the financial system, we must always keep one step ahead of
criminals to help protect our economic and national security. This includes
remaining vigilant in protecting the financial system from abuse while continuing to
address the current financial market turmoil.
"As representatives of the financial industry, regulatory community, and law
enforcement, the advisory group is an important voice in the financial system. We
will continue to work as partners to ensure that our financial system is safe, sound,
and secure from abuse."
************************

The Secretary of the Treasury was directed by Congress in 1992 to establish the
BSAAG to actively solicit advice on the administration of the Bank Secrecy Act. The
BSAAG consists of representatives from State and Federal regulatory and law
enforcement agencies, financial institutions, and trade groups. It is chaired by the
director of Treasury's Financial Crimes Enforcement Network and BSAAG
membership is solicited via public notice in the Federal Register.
-30-

~:IIWWw.treas.gov/press/releases/hpI233.htm

11/5/2008

W.1 234 : InterIm Assistant Secretary for Financial Stability Neel Kashkari Testimony before the Se... Page I of 5

October 23, 2008
Hp·1234
Interim Assistant Secretary for Financial Stability Neel Kashkari
Testimony before the Senate Committee
on Banking, Housing and Urban Affairs
Washington - Chairman Dodd, Senator Shelby, members of the committee, good
morning and thank you for the opportunity to appear before you today. I would like
to provide an update on the Treasury Department's progress implementing our
authorities under the Emergency Economic Stabilization Act of 2008.
Every American depends on the flow of money through our financial system. They
depend on it for car loans, home loans, student loans and household needs.
Employers rely on credit to pay their employees. In recent months, our credit
markets froze up and lending became extremely impaired.
The President asked Congress to move rapidly last month to grant the Treasury
Department extraordinary authority to address this unprecedented situation.
Congress, led by this Committee and others, recognized the threat frozen credit
markets posed to Americans and to our economy as a whole.
The Treasury has moved quickly since enactment of the bill to implement programs
that will provide stability to the markets and help enable our financial institutions to
support consumers and businesses across the country. We are focused on
applying the authorities you provided in ways that are highly effective and protect
the taxpayer to the maximum extent possible.
Secretary Paulson is implementing the Department's new authorities with one
simple goal· to restore capital flows to the consumers and businesses that form the
core of our economy. To achieve this goal, Treasury is pursuing steps that are
intended to help financial institutions remove illiquid assets from their balance
sheets and to attract both private and public capita/. Our programs are being
designed to help financial institutions of all sizes so they can grow stronger and
provide crucial funding to our economy.
Since the announcement of our capital purchase program, we have seen numerous
signs of improvement in our markets and in the confidence in our financial
institutions. While there have been recent positive developments, the markets
remain fragile.
Implementation
I'd like to spend a few minutes outlining the steps we have taken to implement the
EESA. In the three weeks since Congress passed the new law, we have
accomplished a great deal on many fronts. We are moving quickly - but
methodically - and I am confident we are building the foundation for a strong,
decisive and effective program.
As I have previously described, we have seven policy teams driving forward. They
are making rapid progress:
1) Mortgage-backed securities purchase program: This team has made tremendous
progress. We have announced that the Bank of New York-Mellon has been
selected to serve as our master custodian. A Treasury team has been working with
the Bank of New York to design the auction, identify which mortgage-backed
securities to purchase and determine how best to reach thousands of potential
bidders, quickly and effectively. This team is completing its review of more than 100
securities asset manager solicitations and expects to hire asset managers in the
coming days.

~:IIWWw.treas.gov/presslreleases/hp1234.htm

1115/2008

IP-1234: InterIm Assistant Secretary for Financial Stability Neel Kashkari Testimony before the Se... Page 2 of 5
2) Whple loan purchase program: This team is working with bank regulators to
identify which types of loans to purchase first, how to value them, and which
purchase mechanism will best meet our policy objectives. They also have made
tremendous progress in reviewing over 100 whole loan asset manager proposals
and expect to hire asset managers very soon.
3) Insurance program: We are establishing a program to insure troubled assets. On
Friday, October 10 we submitted a request for comment to the Federal Register
seeking the best ideas on structuring options for the insurance program. That
request posted on Thursday, October 16 and responses are due by Tuesday,
October 28. We already have received responses and expect to receive many more
before the comment period closes. We will begin designing and establishing the
program immediately.
4) Equity purchase program: On Tuesday, October 14, Treasury announced a
voluntary Capital Purchase Program to encourage U.S. financial institutions to build
capital to increase the flow of financing to U.S. businesses and consumers and to
support the U.S. economy. Throughout the process of developing this
comprehensive and effective program, we worked very closely with the four banking
regulatory agencies.
Under the program, Treasury will purchase up to $250 billion of senior preferred
shares on standardized terms. The program is available to qualifying U.S.
controlled banks, savings associations, and certain bank and savings and loan
holding companies engaged solely or predominantly in financial activities permitted
under the relevant law.
The minimum subscription amount available to a participating institution is 1 percent
of risk-weighted assets. The maximum subscription amount is the lesser of $25
billion or 3 percent of risk-weighted assets. Treasury intends to fund the senior
preferred shares purchased under the program by the end of this year.
As Secretary Paulson noted on Monday, this is an investment. The government will
not only own shares that we expect will result in a reasonable return, but also will
receive warrants for common shares in participating institutions. And we expect all
participating banks to continue to strengthen their efforts to help struggling
homeowners avoid preventable foreclosures.
On Monday, October 20, Treasury announced a streamlined, systematic process
for all banks wishing to access this program. We worked with the four banking
regulatory agencies to finalize the application process. Qualified and interested
publicly-held financial institutions will use a single application form to submit to their
primary regulator - the Federal Reserve, the FDIC, the OCC or the OTS. These
regulators have posted this common application form on their websites. We are
working hard to finalize and publish the required legal documents so private banks
can participate as well on the same economic terms as public banks.
The terms for this program are the same for all institutions that apply before the
capital purchase program deadline of November 14, 2008. We have allocated
sufficient capital, $250 billion, so that all qualifying banks can participate. Therefore,
it is important to note that Treasury will not implement this program on a first-comefirst-served basis.
I would like to walk you through the application process, which we made very
simple so that all banks can apply. To apply for the capital program, banks should
review the program information on the Treasury website and consult with their
primary federal regulator. They can go to the regional office of their primary federal
regulator anywhere in the country, be it California, Kansas or Texas. After this
consultation, the institution should submit an application to that same regulator.
Treasury worked with the regulators to establish an evaluation process; this means
that all regulators will use a standardized process to review all applications to
ensure consistency.
Once a regulator has reviewed an application, it will send the application and its
recommendation to the Office of Financial Stability at the Treasury Department.
Treasury will give considerable weight to the regulators' recommendations and
decide whether or not to make the capital purchase. All completed transactions will
be publicly announced within 48 hours of execution, as per the requirements of the

~:IIWWw.treas.gov/press/releases/hp1234.htm

1115/2008

{p.1234: InterIm Assistant Secretary for Financial Stability Neel Kashkari Testimony before the Se... Page 3 of 5
law. We will not, however, announce any applications that are withdrawn or denied.
5) Homeownership preservation: We have begun working with the Department of
Housing and Urban Development and HOPE NOW to maximize the opportunities to
help as many homeowners as possible, while also protecting taxpayers. We have
hired Donna Gambrell, Director of the Community Development Financial
Institutions Fund and former Deputy Director of Consumer Protection and
Community Affairs of the FDIC, to oversee this effort and to serve as interim Chief
of Homeownership Preservation. When we purchase mortgages and mortgagebacked securities, we will look for every opportunity possible to help homeowners.
6) Executive compensation: Companies participating in Treasury's programs must
adopt the Treasury Department's standards for executive compensation and
corporate governance, for the period during which we hold equity issued under this
program. These standards generally apply to the chief executive officer, chief
financial officer, plus the next three most highly compensated executive officers.
We do not believe senior officers should be rewarded for failure. Treasury issued
executive compensation guidelines on Tuesday, October 14, for three TARP
programs:
A.Troubled Asset Auction Program- As prescribed by the Act, any financial
institution that sells more than $300 million of troubled assets to the Treasury via an
auction would be prohibited from entering into new executive employment contracts
that include golden parachutes for the term of the program. Treasury released
Treasury Notice 2008-TAAP regarding this restriction. Furthermore, under the Act,
(1) the financial institution may not deduct for tax purposes executive compensation
in excess of $500,000 for each senior executive, (2) the financial institution may not
deduct certain golden parachute payments to its senior executives and (3) a 20percent excise tax will be imposed on the senior executive for these golden
parachute payments. Treasury released I.R.S. Notice 2008-94 regarding these new
tax rules.
B.Capital Purchase Program- Any financial institution participating in the Capital
Purchase Program will be subject to more stringent executive compensation rules
for the period during which Treasury holds equity issued under this program. The
financial institution must meet certain standards, including: (1) ensuring that
incentive compensation for senior executives does not encourage unnecessary and
excessive risks that threaten the value of the financial institution; (2) required
clawback of any bonus or incentive compensation paid to a senior executive based
on statements of earnings, gains, or other criteria that are later proven to be
materially inaccurate; (3) prohibition on the financial institution from making any
golden parachute payment to a senior executive based on the Internal Revenue
Code provision; and (4) agreement not to deduct for tax purposes executive
compensation in excess of $500,000 for each senior executive.
C.Programs for Systemically Significant Failing Institutions- The Treasury
Department may have to provide direct assistance to certain failing firms on terms
negotiated on a case-by-case basis. Treasury issued guidance for the executive
compensation standards that will apply to the firms participating in such programs
and their senior executives (Treasury Notice 2008-PSSFI). These standards are
similar in all respects to the Capital Purchase Programs executive compensation
standards described above, with one significant difference. In situations where
Treasury provides assistance under the systemically significant failing institutions
programs, golden parachutes will be defined more strictly to prohibit any payments
at all to departing senior executives.
7) Compliance: Treasury is committed to transparency and oversight in all aspects
of the program and has taken several important steps to meet the letter and spirit of
our important compliance requirements.
A.Government Accountability Office: We have been meeting regularly with the
Government Accountability Office to monitor the program. In addition, GAO is
establishing an office at Treasury.
B.Financial Stability Oversight Board: The Financial Stability Oversight Board was
established and the group selected the Chairman of the Federal Reserve Board to
chair the group. While the law requires the Oversight Board to meet once a month,
the Board had its second board meeting only six days later, on Monday, October 13
to review the Capital Purchase Program. The Board met again on Wednesday,

ltp:IIWWw.treas.gov/press/releaseslhp1234.htm

1115/2008

1P-1234: interim AssIstant Secretary for Financial Stability Neel Kashkari Testimony before the Se... Page 4 of 5
October 22 to review progress of the T ARP work-streams, as well as to appoint
staff to the Board, including William Treacy as Executive Director, Kieran J. Fallon
as General Counsel, and Jason A. Gonzalez as Secretary.
C.Special Inspector General: The Administration is working to identify and interview
potential candidates to serve as Special Inspector General for potential nomination
and confirmation in November. In the interim, Treasury's Inspector General has
been monitoring our progress.
Recruitment
Recruiting the right people is essential to the success of this program and we
continue to move quickly. It will obviously take time to bring on board permanent
members of the team that will manage this program over the long term and provide
stability during the transition. While the permanent team is being identified for
tomorrow, we are tapping the very best, seasoned, financial veterans from across
the government to help launch the program today. We have been successful in
recruiting outstanding interim leaders for key positions in the Office of Financial
Stability and the team continues to grow daily.
Procurement
Now, let me turn to procurement.
Our approach to procurement is based on the following strategy. First, in order to
protect the taxpayers, we will seek the very best in private sector expertise to help
execute this program. Second, to the extent possible, opportunities to compete for
contracts and provide services should be available to small businesses, veteranowned businesses, and minority and women-owned businesses. Third, we are
taking appropriate steps to mitigate and manage conflicts of interest.
We have established formal procurement processes, to ensure that selections are
fair and in the best interest of the taxpayers. In many cases, we have established
expert review panels, comprised of Treasury employees, employees of other
federal agencies and expert consultants who review submissions and make
recommendations regarding the quality of the proposals. The review committees
make recommendations for a final decision to a senior career officer in the
Treasury.
As announced, Treasury has retained: The Bank of New York Mellon as our lead
custOdian; EnnisKnupp as our investment adviser; Simpson, Thacher and Bartlett
as our legal adviser for the equity program; Pricewaterhouse Coopers and Ernst &
Young for internal control and accounting services. In the coming weeks we expect
to issue additional procurement requests.
Taking aggressive steps to manage conflicts of interest is essential because firms
with the relevant financial expertise may also hold assets that become eligible for
sale into the TARP or represent other clients who hold troubled assets. Firms
competing to provide services must disclose their potential conflicts of interest and
recommend specific steps to manage those conflicts. Treasury's review team
evaluates firms' conflicts and their plans and ability to impose procedures to
manage them. Treasury will only hire firms when we are confident in our and their
ability to successfully mitigate any conflicts. Furthermore, the Office of Financial
Stability has a Chief Compliance Officer who will be responsible for making certain
that firms comply with agreed upon mitigation procedures.
Secretary Paulson and I believe that it is essential that the TARP be structured in a
manner that encourages participation of small businesses, veteran-owned
businesses, and minority and women-owned businesses. We asked vendors to
demonstrate their ability and commitment to working with small, veteran, minority
and women-owned businesses as sub-contractors. And we are evaluating their
submissions in part on their capability to do this. In addition, we announced on
Friday, October 17 subsequent guidelines for solicitations with specific opportunities.
for these businesses.
As you can see, we have accomplished a great deal in a short time. But our work is
only beginning. A program as large and complex as this would normally take

~:IIWWw.treas.gov/press/releases/hp1234.htm

1115/2008

W.1 234 : Intenm Asslstant Secretary for Financial Stability Neel Kashkari Testimony before the Se... Page 5 of 5
months· or even years· to establish . We don't have months or years . Hence, we
are moving to implement the T ARP as quickly as possible while working to ensure
high quality execution.
-30-

p:IIWWw.treas.gov/press/releaseslhp1234 .htm

11 /5/2008

1P-1235: Statement of the G7 Finance Ministers and Central Bank Governors
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October 26, 2008
HP-1235

Statement of the G7 Finance Ministers and Central Bank Governors
We reaffirm our shared interest in a strong and stable international financial system.
We are concerned about the recent excessive volatility in the exchange rate of the
yen and its possible adverse implications for economic and financial stability. We
continue to monitor markets closely, and cooperate as appropriate.
-30-

ttp:IIWWw.treas.gov/press/releases/hpI235.htm

1115/2008

lp-1236: Treasury Announces Marketable Borrowing Estimates

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November 3, 2008
hp-1236
Treasury Announces Marketable Borrowing Estimates
Washington- Treasury announced its current estimates of marketable borrowing
today for the October - December 2008 and January - March 2009 quarters:
Over the October - December 2008 quarter, the Treasury expects to borrow $550
billion of marketable debt, assuming an end-of-December cash balance of $300
billion, which includes $260 billion for the Supplementary Financing Program (SFP).
Without the SFP, the end-of-December cash balance is expected to be $40 billion.
This borrowing estimate is $408 billion higher than announced in July 2008. The
increase in borrowing is primarily due to higher outlays related to economic
assistance programs, lower receipts, and lower net issuances of State and Local
Government Series securities.
Over the January - March 2009 quarter, the Treasury expects to borrow $368
billion of marketable debt, assuming an end-of-March cash balance of $75 billion.
During the July - September 2008 quarter, Treasury borrowed $530 billion of
marketable debt, including $300 billion for the SFP, and finished with a cash
balance of $372 billion at the end of September. Without the SFP, the end of
September cash balance was $72 billion. In July 2008, Treasury estimated $171
billion in marketable borrowing, assuming an end-of-September cash balance of
$45 billion. The increase in borrowing was related to the SFP, lower receipts, higher
outlays, and lower net issuances of State and Local Government Series securities.
Additional financing details relating to Treasury's Quarterly Refunding will be
released at 9:00 a.m. on Wednesday, November 5.
-30REPORTS
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Sources and Uses Table

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12/9/2008

Sources and Uses Reconciliation Table

, Fillancing
Need
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(1)

Announcemenl Dale

(2)

I
Jan - Mar
2006

Apr - Jun
2006

Jul- Sep
2006

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Jan - Mar
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Oct - Dec
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All Other
Sources

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Apr - Jun
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Jul- Sep
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Oct - Dec
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Jul - Sep

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Oct - Dec
2008

Jan - Mar
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BP-I237: Treasury Acting Assistant Secretary for Financial Markets Karthik Ramanathan November 20...

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November 5, 2008
HP-1237
Treasury Acting Assistant Secretary for Financial Markets Karthik
Ramanathan November 2008 Quarterly Refunding Statement
Washington - Treasury is announcing the following changes to the issuance
calendar:
• A new monthly 3-year note, with the first auction occurring as part of the
November 2008 Refunding auctions,
• A regular second reopening of the quarterly 1O-year note in the month
following the first reopening, beginning in January 2009.
• Quarterly new issue 30-year bonds, beginning in February 2009.
Details of the November Refunding
We are offering $55.0 billion of Treasury securities to refund approximately $54.9
billion of privately held securities maturing or called on November 15 and to raise
approximately $0.1 billion. The securities are:
1.
2,
3.

A new 3-year note in the amount of $25.0 billion, maturing November 15,
2011 ;
A new 10-year note in the amount of $20.0 billion, maturing November 15,
2018;
A reopening of the 29 % -year bond in the amount of $10.0 billion, maturing
May 15, 2038

The 3-year note will be auctioned on a yield basis at 11 :30 a.m. EST on Monday,
November 10, 2008 due to the early government bond market close ahead of the
Veterans Day holiday. The 10-year note and reopened 29 %-year bond will be
auctioned on a yield basis at 1:00 p.m. EST on Wednesday, November 12, and
Thursday, November 13, respectively. All of these auctions will settle on Monday,
November 17.
The balance of our financing requirements will be met with weekly bills, monthly 52week bills, monthly 2-year, 3-year, and 5-year notes, the December and January
10-year note reopenings, and the January 10-year TIPS and 20-year TIPS.
Treasury also expects to issue cash management bills, some longer dated, during
the quarter.
Changes to the Auction Calendar
Over the last several months, changes in economic conditions, financial markets,
and fiscal policy, as well as a decline in nonmarketable debt issuance have
contributed to an increase in Treasury's marketable borrowing needs. Treasury has
responded to the increase in marketable borrowing requirements by raising
issuance sizes of regular weekly and monthly bills, increasing the frequency, terms,
and issuance sizes of cash management bills, and adjusting the issuance sizes of
nominal coupon security offerings.
In response to the large increase in projected financing needs, to better manage the

~://WWw.treas.gov/press/releases/hp1237.htm

12/9/2008

1P-1237: Treasury Acting Assistant Secretary for Financial Markets Karthik Ramanathan November 20...

Page 2 of

overall debt portfolio, and to create additional flexibility in meeting uncertainty in .
borrowing requirements, Treasury is instituting the following changes to the auction
calendar:
Introduction of l'Jlontbl~ear notes: Treasury is announcing the addition of a
monthly new-issue 3-year note. The monthly 3-year notes will have a mid-month
settlement and will also be a part of the regular quarterly refunding auctions. The
first auction will occur on Monday November 10, 2008 at 11 :30 a.m. EST for
settlement on Monday, November 17, 2008. Note that the auction time has been
adjusted because of the early close of the government bond market in advance of
the Veterans Day holiday. The 13-and 26-week bill auctions scheduled for Monday,
November 10, 2008 will occur at.1 0:30 a.m.
Second 10-year note reopening: Treasury is announcing the addition of a regular
second reopening of the 1O-year note in the month following the first reopening. To
clarify: Treasury will auction a new-issue 1O-year note on November 12, 2008
during the refunding. reopen this security in December 2008, and then reopen the
security again in January 2009.
The first auction of the second reopening of 10-year notes will occur on Thursday,
January 8, 2009 at 1:00 p.m. EST, for settlement on Thursday, January 15, 2009.
Note that we have revised the tentative auction calendar, moving the 10-year TIPS
auction, originally scheduled for Thursday, January 8, 2009, to Tuesday, January 6,
2009 because of the second reopening of the 10-year nominal note.
Quarterly new-issue 30-year bonds: Treasury is announcing that it is moving to
new-issue quarterly 30-year bond auctions beginning with the February 2009
refunding and discontinuing the current practice of regular reopenings of 30-year
bonds.
The Tentative Coupon Auction Schedule for the next three months is as follows
(PDF)
See Treasury's complete tentative auction calendar for the next six months at the
following link:
http://www .treas.gov/offices/domestic-fi nance/debtmanagemenUauctions/auctions.pdf
Additional Financing Needs and Portfolio Considerations
In managing the debt portfolio to achieve our objective of lowest cost financing over
time, Treasury constantly reevaluates the nominal and inflation-linked securities
programs. We will continue to monitor projected financing needs and make
adjustments as necessary including, but not limited to, the reintroduction or
establishment of other benchmark securities. As is our practice, Treasury will
announce any guidance or changes regarding instruments or the portfolio in a
transparent manner as part of subsequent quarterly refundings.
Unscheduled Reopenings
Treasury conducted a series of unscheduled reopenings of four off-the-run
securities in October. This action was taken to address upcoming borrowing needs.
At the same time, the reopenings provided the benefit of improving liquidity in the
Treasury market which was experiencing an unprecedented level of settlement
fails.
In general, unscheduled reopenings are contrary to Treasury's policy of
transparency, regularity, and predictability. Treasury's reluctance to conduct
unscheduled reopenings is consistent with our long-standing policy, and
unscheduled reopenings have been, and will remain, the exception.

1ttP>iwww.treas.goy/press/releases/hp1237.htm

12/9/200

HP.1237: Treasury Acting Assistant Secretary for Financial Markets Karthik Ramanathan November 20...

Page 3 of 3

Chronic Settlement Fails in the Treasury Secondary Market

It is in the interests of all participants in the Treasury marketplace to have a wellfunctioning, deep, liquid Treasury securities market. Recent market turbulence and
the low level of short-term interest rates resulted in a substantial and broad
increase in persistent settlement fails in U.S. Treasury securities.
Since 2001 , episodes of chronic fails have increased, and since November 2003,
Treasury has asked the private sector to address this issue proactively. Impaired
liquidity, particularly at a time when the funding demands on Treasury are
increasing, adversely affects borrowing costs. Addressing longstanding trading
conventions in the Treasury market that create economic disincentives to promptly
settle failed transactions in low interest-rate environments will serve to mitigate
such episodes. While some settlement fails are inevitable, widespread and
persistent settlements fails are inconsistent with a well-functioning Treasury market.
Market participants should work to modify the trading conventions and practices
that act as disincentives to avoiding and resolving fails in low-interest rate
environments. Compliance officials and risk managers at institutions actively
managing Treasuries have a responsibility to manage chronic fails by implementing
specific, tangible measures to resolve, mitigate, and prevent such occurrences.
There has been some effort in recent weeks by many market participants to
address these issues, and market participants have assisted in reducing settlement
fails by addressing aged fails and preventing additional fails. Some of the steps
which were taken to resolve settlement fails include, among others, initiatives
related to identifying pair-offs, bilateral processes between counterparties, cash
settlement, and the attempts to initiate negative rate repo trading.
The Treasury strongly encourages continuing private sector efforts to seek changes
to secondary market trading practices designed to provide incentives for market
participants to promptly settle failed transactions to avoid recurrences of chronic
fails episodes. Other regulatory measures may be considered if private sector
efforts are not implemented.
Please send comments and suggestions on these subjects or others related to
Treasury debt management to dJ:!pJJD<3nagement@do.treas.gov.
The next quarterly refunding announcement will take place on Wednesday,
February 4, 2009.

-30-

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HP-1238: Report to The Secretary Of The Treasury from The Treasury Borrowing Advisory Committee ... Page 1 of 4

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November 5,2008
HP-1238

Report to The Secretary Of The Treasury from The Treasury Borrowing
Advisory Committee of The Securities Industry and Financial Markets
Association
November 4, 2008
Dear Mr. Secretary:
Since the Committee's last meeting in late July, credit conditions have become
more challenging and the outlook for the economy has deteriorated. Recent
financial market dislocations and volatility are unprecedented and the resulting
wealth destruction and heightened cost of capital will weigh on the pace of
economic activity for a number of quarters. The unprecedented nature of the
financial shock makes it difficult to forecast with any certainty the depth and
duration of the recession.
Myriad policy action now being put in place will help to prevent an even more
serious downturn than would otherwise occur. Monetary and fiscal policymakers'
efforts to help recapitalize critical financial intermediaries, backstop key funding
markets and stimulate economic activity through lower interest rates and other
measures are positives. Nonetheless, the deleveraging process of both the financial
and household sector has further to run.
Headline inflation is still elevated but is poised to slow notably. Commodity costs
have plunged with the prices of some commodities down by more than half. Just as
rising commodity costs lifted headline price statistics in recent years, the current
decline in these costs will put downward pressure on inflation metrics in coming
quarters. Meanwhile, core inflation also should moderate given sluggish economic
activity and rising unemployment.
Federal Reserve officials have lowered the funds rate to 1% and the FOMC's latest
statement indicated that policymakers are prepared to engage in further actions
should circumstances warrant. Futures markets are discounting another reduction
in the funds rate before year end. The lower policy rate and the volatility among risk
assets has contributed to a marked steepening of the yield curve since the
Committee last convened. The spread between the two- and ten-year Treasury
yield, for instance, has widened by about 100bp since late July.
Despite the creation of a myriad of facilities, direct capital injections into banks and
numerous asset buying programs, credit conditions remain challenging and the
outlook for the economy over the next year remains poor. The ongoing elevated
nature of many money and credit market spreads underscore the still fragile nature
of markets and likely have exacerbated the contraction in U.S. economic growth
that is now underway.
The deterioration in the economy and financial markets has led to a commensurate
decline in individual and corporate tax receipts. Tax receipts for the fiscal year
ending in September 2008 declined by more than 5 percent from a year earlier and
is the first decline since 2003. And while tax receipts registered a significant decline
over the fiscal year, the outlays by the U.S. Government increased approximately
8/"2 percent over this same period.

~:IIWWw.treas.gov/press/releases/hpI238.htm

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IP-1238: Report to The Secretary Of The Treasury from The Treasury Borrowing Advisory Committee ... Page 2 of
Consequently, private forecasts expect the total deficit for fiscal year 2008 which
ended on September 30 to be approximately $455 billion. And, projections for the
fiscal year 2009 budget deficit are now very close to $1 trillion.
The deterioration in the budget deficit, combined with expenditures associated with
the TARP, potential FDIC guarantees and expected additional stimulus spending
have increased private forecasts for net borrowing needs by the U.S. Government
for fiscal year 2009 to approximately $1.4 trillion. This forecast would grow further if
the additional $350 billion T ARP expenditures are approved by Congress within the
fiscal year.
With those dramatic circumstances as a backdrop, the Committee tackled the
Treasury's first charge which was to seek our advice on debt issuance over the
coming quarters.
There was universal consensus on the Committee that the Treasury should
announce major changes to its issuance calendar as soon as possible to insure that
it can fund its obligations across the maturity spectrum.
The Committee strongly recommends a re-introduction of 3-year notes issued
monthly in a size between those of the monthly issuance of 2- and 5-year notes.
The Committee has long noted that this is the best choice for a new issue security,
and financial market participants are widely expecting that this issue will be
introduced.
Additionally, there was universal consensus on the Committee for the Treasury to
increase the frequency of 10-year notes to a monthly schedule. Ten-year notes are
a key benchmark issue and the market again is widely anticipating that monthly
issuance is imminent.
There was also universal agreement on the Committee that the issuance of monthly
10-years notes occur with a quarterly new issue followed by two commensurately
smaller re-openings. For example, a November new issue of $20 billion followed by
December and January re-openings of $15 and $10 billion respectively, or amounts
determined by Treasury to be appropriate given financing needs and market
acceptance. In this way, the Treasury will create large liquid benchmark issues that
should serve as key benchmarks, and at the same time reduce the prevalence of
delivery fails in the marketplace.
And, finally, the Committee also recommends that the Treasury increase both the
size and frequency of 30-year bond issuance over the coming months.
Currently, the Treasury issues the 30-year bonds four times per year - a new issue
in one quarterly cycle followed by a re-opening the next quarter. The Committee
was universal in its recommendation for increased size and issuance of 30-year
bonds but was divided as to the exact schedule. About half the members
recommended that the Treasury issue bonds eight times per year - a new issue
quarterly followed by one re-opening the following month.
While remaining members recommended the Treasury follow the pattern of
proposed 10-year issuance - a new issue quarterly followed by two
commensurately smaller re-openings the next two months.
The Committee recognizes that these are significant changes to Treasury auction
schedules but it is clear that the need for auctions is great and a specific path
needs to be articulated to the market to ensure that the Treasury is able to achieve
the lowest borrowing costs possible.
One member recommended that Treasury isolate and record the issuance and
financing costs associated with the TARP and related "emergency" needs to
distinguish them from the "core" financing needs of the U.S. Government. This
member believes in so doing, policy makers will better control these costs.

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HP-1238: Report to Th<: Secretary Of The Treasury from The Treasury Borrowing Advisory Committee ... Page 3 of 4
In the second charge, the committee was asked for recommendations to enhance
the ongoing efficiency of the U.S. Treasury markets in light of the significant
increase in delivery fails. The nature of the broad investor participation in this
market, coupled with recent pressures on U.S. and international financial markets
have presented some near-term anomalies in market functionality. Some of these'
anomalies have developed as a result of extreme volatility in other financial markets
and will naturally be absolved with some form of return to normalcy, yet some
proactive operational adjustments will serve to increase confidence in the market,
as well as reduce overall borrowing costs for Treasury.
The acute desire to own risk less, liquid assets; i.e. Treasury securities has created
extraordinary demand well beyond the existing available supply in the marketplace.
Concerns related to money-market funds, the global banking system, and other
"riskier" assets have been the primary driver of this flight to quality.
In addition, counterparty concerns on the part of the foreign owners of Treasury
assets, which have been described as owning well over 50% of outstanding debt,
has resulted in a greater reluctance to lend out these securities resulting in rampant
fails in the repo markets. More over, the significant drop in rates, especially in the
shorter-end of the curve, has made the cost of failing negligible creating little desire
for short-sellers to close out their positions.
The committee believes that a balanced multi-pronged approach to dealing with
these fails will significantly improve this market functionality. One member
suggested that there should be a cost in the form of a penalty rate associated with
fails in a low-rate environment. He suggested a fail-rate that could reach negative
interest rates (as opposed to zero being the floor), which would allow the free
market to determine the effective cost of the fail, and change the economics of
securities lending. The member went on to suggest a margining charge for fails to
reflect the credit risk associated with that fail activity.
The next part of this fail-directive would be a regular, coordinated tapping of
outstanding issues. This clearly fits well with the aforementioned need for greater
Treasury issuance. A number of proposals were mentioned to this end, such as
frequent auctions of coupons as submitted to Treasury by the primary dealers. It
was broadly felt that the announcement of new and scheduled re-openings of more
"on-the-run" issuance would naturally improve the situation.
In summary, the benefit of this multi-pronged fail directive would be to mitigate the
damage incurred from massive fails in particular on-the-run (and some off-the-run)
securities, with the benefit being lower borrowing rates for Treasury across the
curve.
Treasury's third charge to the Committee was a fairly broad inquiry on the state of
credit market conditions, the effects of previously announced actions and
recommendations for further action.
One member gave a prepared presentation to the group which is attached to these
minutes. In this presentation, the member reviewed the significant changes in credit
conditions over the year and highlighted some of the recent improvements that
have occurred as result of U.S. and foreign government actions and programs.
In particular, this member noted the healing that has occurred in the money markets
and in the libor inter-bank markets.
The member also noted, however, that despite these tentative signs of healing that
credit markets overall remain under severe stress and that credit spreads are very
wide and little new issuance is occurring.
One member recommended that Treasury should consider entering into a swap
agreement with FNMA and FHLMC to enable them to grow their mortgage portfolio
without the need to issue new debt under their name. If the mandate for these
GSE's is to "grow for a short period" and then to "shrink" then it doesn't make sense

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Page 4 01

for them to issue additional paper given the ambiguity of their future mission and
the wide spreads to Treasuries that their bonds trade in the marketplace.
In the final section of the charge, the committee considered the composition of
marketable financing for the October - December Quarter to refund the $55.0 billion
of privately held notes and bonds maturing November 15, 2008 the Committee
recommended a $30bn 3-year note due November 15, 2011, a $20 billion 10-year
note due November 15, 2018 and an $8 billion 30-year bond due November 15,
2038. For the remainder of the quarter, the Committee recommends a $37 billion 2year note in November and a $40bn 2-year note due in December, a $30bn 3 year
note in December, and a $27 billion 5-year note in November and a $28bn 5-year
note in December, and a $15 billion re-opening of the 1O-year note in December.
For the January - March quarter, the Committee recommended financing as found
in the attached table. Relevant figures included three 2-,3-.5- and 10-year note
issuances monthly, a 30-year bond in February followed by a re-opening in March,
as well as a 1O-year TIPs note in January, and a 20-year TIPs re-opening later that
same month.
Respectfully submitted,
Keith T. Anderson
Chairman
Rick Rieder
Vice Chairman
Attachments (2)
Table Q4 08
Table Q1 09

REPORTS
•
•

Table Q4 08
Table Q109

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I

12/9/200

US TREASURY FINANCING SCHEDULE FOR 4th QUARTER 2008
BILLIONS OF DOLLARS

ISSUE

ANNOUNCEMENT AUCTION SETILEMENT
DATE
DATE
DATE
4-WK

4_WEEKAND
3&6 MONTH BILLS

9/25
10/2
10/9
10/16
10/23
10/30
11/6
11/13
11/20
11/26
12/4
12/11
12/18

9/29
10/6
10/14
10/20
10/27
11/3
11/10
11/17
11/24
12/1
12/8
12/15
12/22

10/2
10/9
10/16
10/23
10/30
11/6
11/13
11/20
11/26
12/4
12/11
12/18
12/24

25.00
25.00
27.00
27.00
27.00
34.00

35.00
35.00
35.00
25.00
20.00
15.00
15.00

OFFERED
AMOUNT
3-MO

6-MO

26.00
26.00
25.00
25.00
25.00
27.00
27.00
27.00
27.00
27.00
2700
27.00
2700

27.00
27.00
27.00
26.00
25.00
27.00
27.00
27.00
27.00
27.00
27.00
27.00
27.00

MATURING
AMOUNT

NEW
MONEY

70.00
68.00
75.00
74.00
6900
71.00

800
10.00
4.00
25.00
8.00
17.00

76.00
78.00
78.00
85.00
85.00
87.00
85.00

1300
33.00
11.00
-600
-1100
5.00
-16.00

1036.00

1001.00

101.00

12-MO

21.00

22.00

23.00

CASH MANAGEMENT BILLS
15-DAY BILL

9/30

10/1

45.00

0.00

10/1

10/2

50.00

20.00

30.00

10/2

10/3

45.00

0.00

10/6

10/7

30.00

0.00

10/7

1018

30.00

0.00

10/8

10/9

40.00

10.00

30.00

10/9

10/10

30.00

0.00

30.00

10/15

10/16

45.00

0.00

10/16

10/20

35.00

0.00

35.00

10/16

10/20

35.00

0.00

35.00

10/17

10/20

30.00

0.00

30.00

10/17

10/20

30.00

0.00

30.00

10/20

10/22

3500

000

35.00

10/22

10/23

40.00

0.00

40.00

10/29

10/30

40.00

0.00

40.00

11/13

11/17

40.00

0.00

12/1

12/2

25.00

000

11/4

11/6

40.00

0.00

40.00

Matures 10/16
42-DAYBILL
Matures 11/13
56-DAY BILL
Matures 11/28
72-DAY BILL
Matures 12/18
79-DAY BilL
Matures 12/26
63-DAY BilL
Matures 12/11
97-DAY BILL
Matures 1/15/2009
63·DAY BILL
Matures 12/18
191·DAY BILL
Matures 4/29/2009
247·DAY BILL
Matures 6/24/2009
94·DAY BILL
Matures 1/22/2009
74·DAY BILL
Matures 1/2/2009
225-DAY BILL
Matures 6/4/2009
98·DAY BILL
Matures 1/29/2009
64·DAY BILL
Matures 1/2/2009
28·DAY BILL
Matures 12/15
13·DAY BILL
Matures 12/15
238·DAY BILL
Matures 7/2/2009

77-DAY BILL

11/5
11/6
Matures 1/22/2009
OTHER CMBs TO OFFSET MATURING DEBT OF FED'S SFP PROGRAM

30.00
60.00

0.00

30.00

60.00

0.00
145.00

eMS Funds excluding SFP Program:
COUPONS
CHANGE
IN SIZE
10-Year TIPS
10-Year Note®

10/6
10/8

10/8
10/9

10/15
10/15

6.00
10.00

15.00

1.00

5-Year TIPS ®
2-Year Note
5-Year Note

10/23
10/27
10/27

10/27
10/28
10/30

10/31
10/31
10/31

6.00
34.00
24.00

20.00

44.00

3-Year Note
10-Year Note
30-Year Bond

11/5
11/5
11/5

11/10
11/12
11/13

11/17
11/17
11/17

30.00
20.00
8.00

30.00
3.00
2.00

55.00

3.00

2-Year Note
5-year Note

11/24
11/24

11/25
11/26

12/1
12/1

37.00
27.00

3.00
3.00

20.00

44.00

12/8
12/8

12/11
12/11

12/15
12/15

30.00
15.00

5.00

14.50

0.50

12/22
12/22

12/29
12/30

12/31
12/31

40.00
28.00

3.00
1.00

20.00

48.00

144.50

140.50

Estimates are italicized. Shaded regions in Cash Management Section denote funds raised for Supplementary Financing Program
SFP funds are not technically marketable Treasury borrowing
NET CASH RAISED THIS QUARTER:
R = Reopening

386.50

3-Year Note
10-Year Note®
2-Year Note
5-year Note

315.00

US TREASURY FINANCING SCHEDULE FOR 1st QUARTER 2009
BILLIONS OF DOLLARS

ISSUE

4.WEEK AND
3&6 MONTH BILLS

ANNOUNCEMENT
DATE

AUCTION SETILEMENT
DATE
DATE
4-WK

12/24

12/29

112

12/31
1/8

115
1/12

1/8
1/15

1/15

1/20
1/26

1/22

1/29

25.00
25.00
20.00
12.00
12.00

1/29

2/2

2/5

20.00

2/5
2/12
2/19

2/9
2/16

2/12

30.00

2/19

30.00

2/24
3/2

2/26
3/5

2/26
3/5
3/12
3/19

CASH MANAGEMENT BILLS
13·DAY BILL
Matures 1/15
7·DAY BILL

3/9

3/12

30.00
30.00
20.00

3/16
3/23

3/19
3/26

15.00
15.00

OFFERED
AMOUNT
3-MO

6-MO

28.00
28.00
28.00
28.00
28.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00
30.00

28.00
28.00
28.00
28.00
28.00
29.00
29.00
29.00
29.00
29.00
29.00
29.00
29.00

MATURING
AMOUNT

NEW
MONEY

73.00
69.00
63.00
63.00
7300
76.00
72.00
6600
66.00
73.00
8200
84.00
84.00

8.00
12.00
13.00
30.00
-5.00

-3.00
15.00
-1000

1036.00

944.00

167.00

12-MO

25.00

3.00
17.00
48.00
23.00
16.00

12/31

112

50.00

0.00

1/7

1/8

15.00

0.00

2/11

2/12

35.00

0.00

2/17

2/18

35.00

0.00

2/25

2/26

25.00

0.00

3/2

3/3

20.00

0.00

286.00

0.00

Matures 1/15
64-DAY BILL
Matures 4/17
56·DAY BILL
Matures 4/15
18·DAY BILL
Matures 3/16
IWAY BILL

Matures 3/17
OTHER CMBs TO OFFSET MATURING DEBT OF FED'S SFP PROGRAM

286.00

eMB Funds excluding SFP Program:

0.00

COUPONS
CHANGE
IN SIZE
3·Year Note

1/5

1/7

1/15

30.00

la-Year Note®
la-Year TIPS

1/5
1/5

1/7

1/15

1/8

1115

10.00
8.00

20·Year TIPS
2·Year Note
5·Year Note

1/22

1/27

212

1/26

1/28
1/29

2/2
2/2

10.00
42.00
30.00

3·Year Note

2/4

2/9

2/16

30.00

la-Year Note
30-Year Bond

2/4
2/4

2/10
2/11

2/16
2/16

20.00
15.00

1/26

33.00

-15.00

2.00

2000

62.00

7.00

55.00

1000

20.00

52.00

14.50

0.50

2.00

2-Year Note
5·year Note

2119

2124

3/2

2/19

2/25

3/2

42.00
30.00

J.Year Note

3/9

3/11

3/16

30.00

la-Year Note®

3/9

3/11

3/16

15.00

30-Year Bond®

319

3/11

3116

1000

3/23

3125

3/23

3/26

3/31
3/31

30.00

20.00

5200

394.00

162.50

161.50

2-Year Note
5·year Note

30.00

42.00

"E;iimales are italicized. Shaded regions in Cash Management Section denote funds raised for Supplementary Financing Program
SFP IUnds are not technically marketable Treasury borrowing
NET CASH RAISED THIS QUARTER:
R, Reopening

32850

HP.1239: Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the Securities Ind...

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•

November 5, 2008
Hp-1239
Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the
Securities Industry and Financial Markets Association
November 4, 2008
The Committee convened in closed session at the Hay·Adams Hotel at 10:40 a.m.
All Committee members were present. Acting Undersecretary for Domestic Finance
Anthony Ryan, Acting Assistant Secretary for Financial Markets Karthik
Ramanathan, and Acting Directors of the Office of Debt Management Fred
Pietrangeli and Steve Vajs welcomed the Committee and gave them the charge.
The first item on the charge related to Treasury's financing needs in the coming
years as well as current and medium·term trends in the economic outlook. In
particular, Treasury sought recommendations from the Committee on changes to
the auction calendar. Treasury delivered a presentation to the Committee which
highlighted current market conditions and potential factors to consider in addressing
this issue.
Assistant Secretary Ramanathan stated that the exceptional marketable borrowing
needs in FY09, which according to market estimates could approach $1.4 trillion
and potentially vary by $500 billion, presented a unique set of challenges for
Treasury. Nonetheless, even with the large financing need and the significant
uncertainty around these estimates, Ramanathan noted that Treasury debt
managers were positioned to address these needs within its current framework of
adjustments to issuance sizes and the auction calendar.
Current credit market conditions remained volatile, and potential pressures on
corporate and individual withheld tax receipts could increase Treasury's borrowing
needs in FY08 and FY09, according to Ramanathan. He also noted that volatility
across all markets remained elevated despite recent improvement, and that there
was currently little risk appetite or available balance sheet among investors. In
addition, economic fundamentals appeared challenging as measured by
employment, home sales, and consumer confidence. At the same time, while flightto-quality purchases of government debt was benefiting Treasury in the short-term,
debt managers realize that they needed to be vigilant of a rapid improvement in
broader financial market sentiment or conditions.
A recently provided market-based estimate of the deficit of $988 billion for FY09 is
more than double the estimate released in July 2008 in the Mid-Session Review.
Similarly, marketable borrowing needs are estimated to be double those of FY08.
Lower corporate taxes and weaker withheld receipts in FY08 led to a decline in
revenues for the first time since FY03. Meanwhile, outlays accelerated to their
highest level since FY06, reflecting many of the measures that the government is
undertaking to stabilize financial markets.
A number of initiatives undertaken by the Treasury, the Federal Reserve and the
FDIC, to help stabilize financial markets, have pushed net marketable borrowing
higher. In addition, reduced non-marketable debt issuance, large redemptions by
the Federal Reserve related to the implementation of liquidity initiatives, the
introduction of the Supplementary Financing Program (SFP), and expedited fiscal
stimulus payments - all within a compressed time period - have necessitated the
increased issuance of Treasury bills, cash management bills, and shorter dated
nominal coupons.

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In FY08, SFP bill issuance and redemptions by the Federal Reserve for liquidity
purposes resulted in the Treasury's need to issue over $450 billion in additional bills
and coupons. Moreover, state and local govemment issuance, for which net
issuance was $58 billion in FY07, totaled a net redemption of $35 billion in FY08,
and has continued this trend in FY09 with net redemptions to date of $10 billion.
Ramanathan noted that total cash management bills in FY09 year to date have
totaled $475 billion including $330 billion for SFPs. This amount compares to $725
billion of CMB issuance for all of FY2008, including $300 billion for SFPs. At the
same time, since the beginning of FY08, 2-year note and 5-year note issue sizes
have increased $14 billion and $11 billion, respectively. Finally, in addition to
increasing regular bills in FY08, Treasury introduced a monthly 52-week bill in July
2008. Bill and short-dated coupon issuance sizes stand at record levels. Despite
borrowing across the curve, the average maturity has declined by three months in
the last quarter.
Meanwhile, TIPS as a percentage of the overall portfolio has stabilized at 10
percent. Despite Treasury being the largest global issuer in the inflation-indexed
sector, the sponsorship for shorter dated TIPS among investors is less enthusiastic
than the sponsorship for longer dated TIPS and other Treasury products as
evidenced by auction tails, cover ratios, and participation. Recent cost studies as
well as investor participation statistics suggest that TIPS issuance, particularly for
shorter-dated TIPS, has not reduced borrowing costs nor diversified the investor
base, both of which were objectives at the start of the program.
Ramanathan noted that the breakeven rate on the most recent 5-year TIPS auction
was negative 75 basis points implying higher costs versus nominal securities for
Treasury as an issuer. Such a series of results in upcoming auctions would create
additional costs for Treasury. Focusing on longer dated TIPS may be an approach
to reducing effective costs, capturing a higher inflation premium, and increasing
liquidity among benchmark TIPS instruments while at the same extending the
duration of the portfolio.
Treasury's additional funding needs may need to be focused on other nominal
coupon issuances beyond the short end of the curve. While the 2-year note to 5year note sector raises cash in FY09, Treasury needs to be flexible beyond that
time horizon as a result of the uncertainty regarding financing needs and due to the
debt maturity profile of the portfolio. Treasury will continue to adjust issuance sizes
in the front of the curve, but also look to adjustments in the medium to longer dated
sector of the existing curve to meet additional borrowing needs.
With these highlights, the Committee was asked for its views on debt issuance
options and the optimal financing strategy given current projections and constraints.
A discussion followed with one member stating that Treasury was at a point where
cyclical changes in borrowing needs were intersecting with secular changes in
borrowing needs. Members noted that using bill financing to fund both the cyclical
and secular changes was contributing to a shortening of the average length. A few
members stated that net marketable borrowing could be as high as to $2 trillion in
FY09, and Treasury needed to consider changes in auction sizes, auction
frequencies, and also the offering menu.
Another member suggested that Treasury needed to be more transparent with
some of the extraordinary measures being undertaken to assist financial markets,
including insight into the asset structure of troubled assets being purchased by
Troubled Assets Relief Program (TARP) This member stated that that it may be
prudent to lengthen the average maturity in a manner consistent with the duration of
the TARP assets.
A majority of the members however stated that extending average length at this
point, given current cyclical and future secular shifts, may actually be desirable.
This spurred a discussion about whether Treasury should fund TARP purchases
with special issuances. A member of the committee pointed out that Treasury had

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not matched liabilities with other past extraordinary expenditures such as wars or
disaster relief. While members generally agreed that transparency around TARP
was important, most members thought that issuing special liabilities, different from
benchmark issues, was a more costly way to fund the extraordinary liabilities.
The Committee then turned to a discussion of how to fund the substantial borrowing
needs facing Treasury. All members felt that Treasury should reintroduce 3-year
notes, either on a on a monthly or quarterly basis, and that markets would not be
surprised by the return of the 3-year note. Members debated whether the issue
should be sold at mid-month or at month end as well as potential sizes of an initial
offering.
A consensus developed that the issue should be a mid-month offering, with an
initial offering size somewhere between the current offering sizes of the 2 year and
the 5-year note. One member suggested that FDIC guarantees of bank debt for the
next 3 years had the potential for creating a lot of congestion in the 3-year maturity
sector. Other members pointed out that the FDIC guarantee would be rolling down
the. curve so that it should have minimal impact on Treasury 3-year issuance.
The Committee then suggested that Treasury add a second reopening of the 10year note in the month following the first reopening, essentially creating monthly
issuance of 10s. One member stated that this change in the calendar would create
large liquid 1O-year issues and would assist in mitigating fails in the 1O-year sector.
Several members thought if Treasury introduced a second reopening that it should
offer a large initial size, with scaled down first and second reopenings. Other
members thought that, depending on borrowing needs, Treasury could auction a
large initial size and more uniform second and third reopenings.
All members also felt that Treasury should expand the 3D-year offerings, with
varying opinions on implementation of this expansion. Most members felt it was
sufficient to just offer four new initial bonds a year, one at each quarterly refunding.
Other members suggested that Treasury should offer four new bonds with four
reopenings in the month that followed the initial offering. One member thought that
there was tightness in the current 3D-year and the extra supply would benefit
secondary market liquidity.
It was suggested that a reopening strategy would also reduce the duration and
DV01 risk to the underwriting community by spreading supply across two auctions
instead of one. One member suggested that Treasury consider monthly 3D-year
offerings via an initial offering once a quarter and 2 subsequent reopenings. This
member stated that pension funds would potentially be willing buyers. In the end, it
was the general view that Treasury offer four new initial 30 year bonds each year,
and if the need arises, consider reopenings if financing needs warranted such a
move. The Committee concluded that the 3D-year bond frequency and size should
be increased.
The Committee moved on to the second item in the charge concerning steps that
Treasury could take to ensure efficient market functioning. Treasury outlined the
existing cash and debt management tools available, including modifications to the
Treasury Tax and Loan collateral provisions, the Term Investment option
provisions, and the recently enacted authority to conduct Repurchase Agreement to
a broad set of counterparties. These three programs provide means for Treasury to
invest its cash balances in exchange for collateral in the form of securities. In
addition, Treasury has other debt management tools including making adjustments
to specific issues or to the auction calendar, as well as the ability to repurchase
debt.
Ramanathan then raised the issue of the recent high level of settlement fails, and
showed a chart that demonstrated that such episodes manifest themselves in
periods of low interest rates. In particular, fails as of last week had decreased by
nearly 70% since the reopenings which took place in early October, and Treasury's
actions were well warranted.
While recent concerns by major securities lenders regarding counterparty risk have

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exacerbated the fails to deliver situation, addressing the core issue in light of
existing market conventions is necessary. Changing market-trading conventions to
eliminate the artificial price floor embodied in the master repo agreement and cash
trading practices may provide economic incentives on both the demand and supply
sides in a manner that will mitigate the prevalence of systemic fails.
Since November 2003, Treasury has repeatedly asked the private sector to address
this issue proactively. On several occasions, market participants have emphatically
stated that they would resolve the situation without government intervention, but
such steps have not been implemented. Treasury outlined several private sector
steps which should be taken to resolve settlement fails including identifying pairoffs, bilateral processes between counterparties, cash settlement, and the initiation
of negative rate repo trading.
The discussion turned to the recent unscheduled reopenings of four off-the-run
securities in early October. The reopenings were taken to address borrowing
needs. At the same time, the reopenings provided some ancillary benefit for
improving liquidity in the Treasury market which was experiencing an
unprecedented level of settlement fails.
A member acknowledged the successful steps which Treasury undertook in the
midst of very large market dislocations, and commended the efforts of debt
managers to address these issues quickly. The impact of these actions, according
to this member, helped markets, and assisted in the resolution of certain
dislocations.
One member pointed out that the reopening was not executed well but that it did
help to fix fails, and that Treasury should consider being more opportunistic to take
advantage of rich issues. Being opportunistic in this manner may help Treasury
fund at low costs while also addressing the fails situation. Other members stated
that certainty of supply was a hallmark of Treasury policy. A few members stated
that such reopenings however would create a premium on Treasuries due to
uncertainty of supply.
Another member asked the group if reopening issues was preferable to exchanging
cheap off-the-runs for rich on-the-run issues via some sort of exchange offering
facilitated by Treasury. Several members seemed to prefer the idea of targeting the
demand side.
One member outlined a method of reopening issues where Treasury would offer
certain dislocated securities on a routine basis on which the market could bid on.
Treasury would reopen securities within the basket based on the best bids
received. Over time, this could reduce the level of fails while providing low cost
funding for the Treasury.
Another member cautioned that such a facility would encourage speculators to
short issues in an attempt to guess which securities would be reopened. Other
members questioned Treasury operational ability to implement such a program.
Ramanathan concurred with both points and stated that such a program was
operationally challenging.
Another member suggested that the behavior of holders of securities was adversely
affecting the repo market and causing settlement fails. While this was a factor,
several other members noted that dependence on a specific group of lenders
without implementing potential solutions was not productive These members
pointed out that there was little economic incentive to lend securities when general
collateral rates stood at 20 basis points and the penalty for failing was zero basis
points.
A member suggested that a negative rate of 200 or 300 basis points and margining
of fails would create the correct economic incentives to cause holders of securities
in low interest rate environments to lend securities again. This member suggested
that market practices needed to change. Other members stated that attempting to
force holders to lend was not feasible, and that industry efforts to prevent such

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problems need to be undertaken, particularly related to netting "daisy chain" fails
and other issues.
Ramanathan stated unscheduled reopenings to fund the government would
continue to be the exception, and that such actions were contrary to Treasury's
policy of transparency, regularity, and predictability. Moreover, such actions had
other less positive consequences. This reluctance to use unscheduled reopenings
is consistent with a long-standing policy.
Ramanathan concluded the discussion by stating that the Treasury market must
remain deep and liquid under all types of market conditions. The failure by the
private sector to address the issues could result in the potential imposition of rules
which would limit the overall efficiency of the Treasury market.
The Committee moved on to the third item on the charge dealing with credit market
conditions and the impact of recent actions undertaken by the Treasury, the Federal
Reserve and the FDIC. A Committee member was asked to deliver the
presentation.
The presenting member began by noting that some financial market indicators
suggest that financial markets have seen the worst and that credit market
deterioration has at least stabilized, and may even be improving. The presenting
member noted that swap spreads have narrowed from recent highs, both
domestically and in Europe. In addition, commercial paper outstanding has started
to increase, and the Federal Reserve has been very accommodating, expanding
the monetary base by nearly 39 percent in recent months.
The presenting member also cautioned that while there are some positive
improvements, markets are still showing signs of aversion to risk. Corporate and
agency credit spreads are still high, default risk was elevated as measured by credit
default swaps, and market volatility is still near record levels, reflecting a high
degree of economic uncertainty.
The presenting member also highlighted some challenges including the high level
of fails to deliver in the Treasury market which adversely impacts liquidity, the
weakening balance sheet of the consumer, lending attitudes by banks as reflected
by their hoarding cash, and asset allocations by investors away from risky assets.
The presenting member concluded that it will take time for risk appetite to return to
more historically normal levels.
After the presentation was completed, one committee member commented that this
year was the first year that the Pension Protection Act was effective and that the
recent substantial underfunding of pensions, related to the decline in equity prices,
might create more financial market headwinds to the degree that companies will
need to fund their pensions with cash.
The meeting adjourned at 12:00 PM.
The Committee reconvened at the Department of the Treasury at 6:00 p.m. All of
the Committee members were present. The Chairman presented the Committee
report to Acting Under Secretary for Domestic Finance Tony Ryan.
The Committee then reviewed the financing for the remainder of the October
through December quarter and the January through March quarter (see attached).
A brief discussion followed the Chairman's presentation but did not raise significant
questions regarding the report's content.
The meeting adjourned at 6:15 p.m.

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Karthik Ramanathan
Acting Assistant Secretary for Financial Markets
Director, Office of Debt Management
United States Department of the Treasury
November 4, 2008
Certified by:

Keith T. Anderson, Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
November 4, 2008

Treasury Borrowing Advisory Committee Quarterly Meeting
Committee Charge - November 4, 2008
Fiscal Outlook
Given Treasury's financing needs in the coming years as well as current and
medium-term trends in the fiscal and economic outlooks, what are the Committee's
thoughts on Treasury's debt issuance? What changes to the auction calendar do
you recommend Treasury make at this time?
Treasury Cash and Debt Management Tools
Given the benefits of a liquid Treasury market and broad investor participation, what
steps should be pursued to ensure continued efficient market functioning? Are there
any other approaches to auctions, cash and debt management tools, and/or
instruments that Treasury should consider?
Credit Market Conditions
The Treasury, Federal Reserve, and FDIC have undertaken a series of actions to
strengthen public confidence in U.S. financial institutions and to foster the robust
functioning of credit markets. Please discuss how these actions have impacted
credit markets, what additional steps may be considered, and the implications of
any current or additional steps on the Treasury market.
Financing this Quarter
We would like the Committee's advice on the following:
• The composition of Treasury notes and bonds to refund approximately
$54.9 billion of privately held notes maturing on November 15, 2008.
• The composition of Treasury marketable financing for the remainder of the
October - December quarter, including cash management bills.
• The composition of Treasury marketable financing for the January - March
quarter, including cash management bills.

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iP.1240: Acting Under Secretary for Domestic Finance Anthony Ryan Remarks at the SIFMA Ann... Page 1 of 5

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Acting Under Secretary for
Acting Under Secretary for Domestic Finance Anthony Ryan
Remarks at the SIFMA Annual Meeting
New York - Good morning. I am pleased to represent the Treasury Department at
the Annual Meeting of the Securities Industry and Financial Markets Association
(SIFMA). I welcome this opportunity to update you on the state of the capital
markets and the global economy, and on Treasury's efforts to implement the
Emergency Economic Stabilization Act, the EESA, which was recently passed by
Congress and signed into law by President Bush.
Our primary focus at Treasury is to strengthen U.S. financial institutions and restore
the flow of financing that is necessary to support and build our economy. This
conference presents the ideal venue and is particularly timely given the
convergence of financial market events, the critical contributions of private sector
participants, the broader policy perspectives that need to be addressed, and the
breadth of SIFMA's reach to the financial community. Moreover, this discussion is
also opportune given SIFMA's mission to enhance the public's trust and confidence
in the markets, to deliver an efficient, enhanced member network of access and
forward-looking services, and to be the premier educational resource for
professionals in the industry. We at Treasury appreciate SIFMA's efforts on
disclosure, securitization, credit ratings, the restoration of investor and public
confidence, and securities fails in the Treasury market. But the work is not
complete. SIFMA must continue to address the current challenges as well as
provide material and meaningful input to future policy issues.
Financial Markets
The stresses on U.S. and world financial markets are the most serious in recent
memory. The disruptions of recent months have their roots in the housing
correction. As housing prices have declined and the values of mortgage loans
became more opaque, uncertainty spread to the investors and institutions that
owned these assets. While some argue that this uncertainty has its roots in the
subprime and the Alt-A markets, there are numerous factors to review and to
understand before coming to any conclusions. Credit as a whole - not just in the
housing sector - has been plentiful over the past decade and we have benefited by
being able to finance the spectrum of assets and services, from complex
collateralized obligations, to tender option bonds, to student loans, and to
household spending with credit cards. Today, we are experiencing the
repercussions of this unbridled expansion and access to credit. We needed to strike
a balance between strong market discipline and regulatory oversight and we have
not. Investor confidence was undermined, illiquidity then compromised our credit
markets, and now the housing and financial market turmoil has spilled over into the
rest of the U.S. economy.
Equity, credit, and funding markets remain under considerable strain, as banks
have been forced to delever aggressively and risk appetite has abated. However,
policy measures enacted by the Treasury, the Federal Reserve, the FDIC, other
U.S. policymakers and our counterparts around the world have helped relieve some
pressures in the funding market.
For example, Treasury implemented the temporary Money Market Mutual Fund
Guarantee Program, which has been well received by funds and has helped to
relieve large-scale redemption pressure among money market mutual funds--a key
buyer of commercial paper. The Federal Reserve also introduced three programs:
(i) the Asset-Backed Commercial Paper (ABCP) Money Market Liquidity Facility
(AMLF) to provide investors the opportunity to sell ABCP through broker/dealers to
the Fed; (ii) the Commercial Paper Funding Facility to enhance the availability of
gO-day term funding for issuers of both secured and unsecured paper; and (iii) the
Money Market Investor Funding Facility to further restore liquidity to the money

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market mutual fund industry by purchasing commercial paper, certificates of
deposits, and bank notes with maturities of 90 days or less. The first two Fed
facilities are already operational, and indications are that they too are helping to
stabilize financial institutions' access to the commercial paper market. Accordingly,
commercial paper yields are adjusting, volumes across the maturity spectrum are
expanding and maturities have lengthened, although we are still far from what might
be called "normal" conditions.
Several other funding market sectors, including London Interbank Offer Rates
(LlBOR), have also experienced improvements in response to the passage of the
EESA and the announcement of the FDIC's guarantee of short-term bank debt.
In the longer term credit markets; however, conditions remain quite challenging and
U.S. companies are finding it very difficult to issue long-term debt at attractive rates.
Mortgage markets are also continuing to experience strain. While the yield on the
current coupon mortgage-backed security issued by Fannie Mae and Freddie Mac
has increased, overall consumer mortgage rates have improved, and currently
average around 6.04 percent on fixed rate 3D-year mortgages according to Freddie
Mac's weekly survey, down from 6.35 percent before the GSEs were placed into
conservatorship by their regulator, the Federal Housing Finance Agency (FHFA).
It is important to remember that as part of the Treasury's actions regarding Fannie
Mae and Freddie Mac and in consultation with FHFA, the GSEs entered into a
Preferred Stock Purchase Agreement with Treasury that effectively guarantees all
debt issued by the GSEs, both existing and to be issued. The U.S. Government
stands behind these enterprises, their debt and the mortgage backed securities
they guarantee. Their mission is critical to the housing markets in the United States
and no one will deny the importance of these institutions in assisting our housing
markets in this downturn.
To further address other market issues and offer a comprehensive plan for tackling
challenges in the financial system, the President worked with Congress over the
past 21 days to move quickly to grant the Treasury Department extraordinary
authority to address these unprecedented situations facing Americans. Congress
recognized that frozen credit markets pose a significant threat to our economy and
to all Americans. With unprecedented speed, Congress enacted a rescue package
with a broad set of tools ---including authority to purchase or insure troubled assets
which in turn assists Americans by permitting the extension of credit, and
implementing temporary increases in the FDIC deposit guarantee. These tools are
being deployed aggressively to strengthen large and small financial institutions
across the country that serve businesses and families and directly impact the well
being of Americans.
Treasury is moving rapidly to implement these and other programs and is
continuing collaborative efforts with the Federal Reserve, the FDIC, and other
financial regulators to address the many challenges we face.
Let me summarize our actions thus far and provide some additional details.

Implementation
Treasury has moved quickly since the enactment of the EESA to implement
programs that will provide stability to the markets and help enable our financial
institutions to support consumers and businesses across the country. We are
focused on applying the authorities Congress provided in ways that are highly
effective and protect the taxpayer to the maximum extent possible. As Interim
Assistant Secretary for Financial Stability Neel Kashkari recently testified before the
Senate Committee on Banking, Housing and Urban Affairs, we have accomplished
a great deal in a short time. A program this large and complex would normally take
months or years to establish. We don't have months or years and so we are moving
quickly, and methodically, to facilitate the necessary results. We are also moving
with great transparency, communicating with Congress and the oversight
authorities at every step.

Capital Purchase Program

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Earlier this month we announced a capital purchase program under which Treasury
will purchase up to $250 billion of senior preferred shares from qualifying U.S.
controlled banks and financial institutions. Last week Treasury and financial
regulators outlined a streamlined, systematic process for all banks wishing to
voluntarily participate in the capital purchase program. Since that time, we have
seen a broad range of interest. We signed final agreements with the initial nine
major financial institutions that hold 50 percent of all U.S. deposits over this past
weekend, and directed our custodian to deliver the capital to these institutions
starting today. We also granted preliminary approval to several more regional
banks over the weekend. There will be a rolling process for selecting financial
institutions for capital injections as we go forward.
This program is aimed at healthy banks, and provides attractive terms to encourage
lending. The minimum subscription amount available to a participating institution is
one percent of risk-weighted assets. The maximum subscription amount is the
lesser of $25 billion or three percent of risk-weighted assets. Treasury intends to
fund the senior preferred shares purchased under the program by the end of this
year. We worked with the four banking regulatory agencies to finalize the
application process. Qualified and interested publicly-held financial institutions will
use a single application form to submit to their primary regulator - the Federal
Reserve, the FDIC, the OCC, or the OTS. These regulators have posted this
common application form on their websites.
As Secretary Paulson said last week, this capital purchase program is an
investment, not expenditure. This is an investment in Americans, in our community
banks, credit unions, and main street banks.
As these banks and institutions are reinforced and supported with taxpayer funds,
they must meet their responsibility to lend, and support the American people and
the U.S. economy. It is in a strengthened institution's best financial interest to
increase lending once it has received government funding.
Capital Purchase Program Disclosure
Treasury is committed to transparency and disclosure as we implement this
program. Once a financial institution is granted preliminary approval, Treasury and
the institution will work to complete the final agreement and final authorization of
payments. Once the payment is authorized, within two business days Treasury will
publicly disclose the name and capital purchase amount for the financial institution.
We will disclose the names of financial institutions at the same time every day with
postings on our EESA website.
Financing the Financial Rescue Package
Let me now focus on another topic that is just as important - the financing of the
Troubled Asset Relief Program (TARP) as well as the various initiatives
implemented this past year.
As you know, we make announcements regarding debt management policy at our
Quarterly Refunding after consulting with our Treasury Borrowing Advisory
Committee as well as after significant internal consultation. This year's financing
needs will be unprecedented. We firmly believe that investors value greatly and pay
a premium for Treasury's predictable actions, the certainty of supply, and the
liquidity in the market. To the very best of our ability, we intend to stay the course.
However, specific policy actions or market conditions have recently caused us to
take new actions.
For example, two weeks ago I stated that Treasury will continue to increase auction
sizes of our bills and coupon securities and continue to issue cash management
bills. As has been the case over the past year, some of these cash management
bills may be longer-dated. Treasury is also considering its options regarding the
frequency and issuance of additional nominal coupons, including a possible
reintroduction of the three-year note, beginning in November 2008.

I noted at the time that the announcement was being made, outside the customary
Quarterly Refunding announcements, to allow Treasury to adequately respond to

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the near-term increase in borrowing requirements and to give market participants
notice of the potential changes.
Specifically, Treasury may need to address many different policy objectives,
including TARP related programs and purchases, FDIC bank resolution measures,
liquidity initiatives conducted by the Federal Reserve including the Supplementary
Financing Program, the Agency MBS program, student loan program, and the GSE
Senior Preferred Stock Agreement. All of these initiatives are not factored into the
$482 billion FY 2009 deficit projected by the Office of Management and Budget in
July's Mid-Session review. The potential for deterioration in economic conditions
given the contraction in credit may also affect budget conditions this year.
In addition, Acting Assistant Secretary for Financial Markets Karthik Ramanathan
recently issued a statement regarding dislocations in the Treasury market.
Specifically, Treasury closely monitors conditions in the Treasury securities market
as well as financing markets, and realizes that the depth and liquidity of the
Treasury market benefits investors both domestically and globally. To address its
borrowing needs and further enhance liquidity in the Treasury market, Treasury
reopened multiple securities which relieved severe dislocations in the market
causing acute, protracted shortages. In addition, Treasury stated that regulators will
be monitoring situations in which aged settlement fails are not cleared and will
encourage actions by market participants, including the use of netting and bilateral
processes, cash settlement, negative rate repo trading, margining of aged
settlement fails, and identifying pair-offs.
Once again, we are strongly urging the private sector to lead this effort. We all
benefit from a deep, liquid Treasury market, and SIFMA and the Treasury Markets
Practices Group have the opportunity to take a leadership role in devising and
implementing private sector solutions to current challenges.
Efforts by the private sector to address challenges in the marketplace will go a long
way to strengthen market discipline, improve market liquidity and enhance market
confidence. It will also help build credibility with market regulators.

Addressing the Challenges and Disequilibrium in the Markets
Our financial market system rests on a balanced tension between private-sector
market discipline and public-sector regulatory oversight. However, that balance has
been weakened by deficiencies on both sides; market discipline failed and
regulatory efforts were compromised. Rules, guidance, and oversight did not
mitigate the failures of market discipline. From a public policy perspective, we must
restore equilibrium to financial markets, which in this context means market
stability. We must strike the optimal balance between market discipline and
supervision. Aligning the interests of the private sector and the public sector is
critical to the long term success of our economy. When discipline and oversight are
balanced, market participants better manage risks, financial institutions operate in a
safer and sounder manner, and our economy is served by more competitive,
innovative, and efficient capital markets. In March, Treasury released its Blueprint
for a Modernized Financial Regulatory Structure. This report outlines a series of
steps to improve the U.S.'s antiquated regulatory system. Both market practices
and regulatory practices must be reviewed with a critical eye towards improvement
and material strengthening. We need to focus on moving forward, with all parties
contributing to the collective effort.
President's Working Group on Financial Markets
In order to address the unprecedented and extraordinary disequilibrium and
challenges that our financial markets have experienced, the President's Working
Group on Financial Markets, or "PWG" as it is known, has been taking proactive
steps to mitigate systemic risk, restore investor confidence, and facilitate stable
economic growth. The PWG issued a policy statement on the financial market
turmoil last March, which contained an analysis of underlying factors that
contributed to the market turmoil.
The PWG identified weaknesses in global markets, financial institutions, and
regulatory policies, and made a set of comprehensive recommendations to address
those weaknesses. The analysis focused on six areas: mortgage origination,
improving investors' contributions to market discipline, reforming the ratings

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process and practices regarding structured credit products, strengthening risk
management practices, enhancing prudential regulatory policies, and enhancing the
infrastructure for the OTC derivatives market. The PWG's recommendations cover
the practices of a broad array of market participants, as well as supervisors,
addressing all links in the securitization chain: mortgage brokers, mortgage
originators, mortgage underwriters, securitizers, issuers, credit rating agencies,
investors, and regulators.
Since March, the PWG has worked to ensure implementation of its
recommendations, and issued an update just over two weeks ago on progress to
date. We noted that, while no single measure can be expected to place financial
markets on a sound footing, implementation of the recommendations is an
important step in addressing weaknesses. Substantial progress has occurred, and
more progress has been made in some areas than in others as efforts have been
prioritized to address the most immediate problems. The pace of implementation
must be balanced with a need to avoid exacerbating strains on markets and
institutions. Still, further effort is warranted, and the PWG is continuing to carefully
monitor markets and implementation and will not hesitate to make
recommendations if necessary.
Another PWG effort, which pre-dates the current turmoil, concerns private pools of
capital, including hedge funds. Recognizing that private pools of capital bring
significant benefits to the financial markets, but also can present challenges for
market participants and policymakers, the PWG in February 2007 issued a set of
principles and guidelines to address public policy issues associated with the rapid
growth of private pools of capital and to serve as a framework for evaluating market
developments, including investor protection and systemic risk issues. These
principles contained guidelines for all links in the pooled investment chain: pool
managers, creditors, counterparties, investors, and supervisors. In September
2007, the PWG facilitated the formation of two private-sector groups to develop
voluntary industry best practices: the Asset Managers' Committee and the
Investors' Committee. In April of this year, the two groups issued draft best
practices for hedge fund managers and for investors in pools, and they expect to
issue finalized practices very soon.

Conclusion
We remain vigilant as Americans face strong headwinds in this challenging financial
environment. We will focus on addressing or mitigating immediate problems while
being mindful that longer term regulatory reform is critical to our continued status as
the world's preeminent capital market. Our Blueprint and the PWG's reports clearly
outlined some of the changes that need to be addressed. Maintaining the balance
between regulatory measures and market discipline is critical to highly efficient
markets. Most importantly, such a balance fosters market confidence. There is
important work for all of us and I appreciate your efforts and dedication. Thank you.

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IP-1241: Deputy Secretary Robert M. Kimmitt Remarks at the Dubai International Financial Centre

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Page 1 of6

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October 28,2008
HP-1241
Deputy Secretary Robert M. Kimmitt
Remarks at the Dubai International Financial Centre
"The Stabilizing Force of Open Investment in the Global Economy"

Dubai - Thank you, Nassar, for that kind introduction. It is a pleasure to be back in
Dubai, especially at this magnificent financial center. I want to thank Dr. Omar for
hosting our delegation here today and congratulate him for his success in building
the DIFC into an important financial center for the region and beyond.
As we meet today, countries around the world are encountering unprecedented
economic challenges. Financial market conditions are severely strained, and risks
to the global economic environment are the most serious and challenging in
memory. In recent weeks, it has become evident that the turmoil is not isolated to
the United States and Europe, but has ramifications for all countries, including in
the Gulf.
Our capital markets are more integrated than ever before, allowing opportunities,
but also financial difficulties, to spread rapidly across borders.
It is critical to learn the correct lessons from the current turmoil, starting with the fact
that our economies are stronger acting together than in isolation. Collectively, we
need to rebuild confidence in our markets so that capital can flow again to help spur
global growth.
In the past two weeks alone, we have witnessed an unprecedented international
response to this financial turmoil. The Group of Seven industrialized countries are
implementing a coordinated action plan to stabilize financial markets and restore
the flow of credit. Others around the world, from Hong Kong to Denmark, have
adopted similar approaches. Countries are taking steps to provide liquidity to
markets, strengthen financial institutions, prevent failures that pose systemic risk,
protect depositors, and enhance confidence in financial institutions. While financial
markets have begun to respond positively to these unprecedented efforts, much
work remains.
The Emirates' financial authorities have also taken decisive actions to bolster local
markets and provide valuable feedback on the steps the United States and other
countries have announced. For some time, the United Arab Emirates have been an
example of strength through cooperation, working together to channel natural
resource wealth toward economic diversification. The Emirates have shown
leadership and vision in economic modernization and have become a beacon for
financial market liberalization in the Middle East. The Dubai International Financial
Centre represents the incredible strength that can be achieved through openness.
The DIFC's promotion of better business practices and financial sector reforms has
helped transform Dubai into a globally-recognized hub for international business
and finance.
The UAE's openness has also brought exposure to global economic turmoil, and
changes in global credit markets are affecting both the Emirates and the Gulf more
broadly. This is even more reason why we need to continue to work together to get
through this difficult period. To give investors confidence, promoting a consistent
message on the importance of market stability and investment flows is more
important than ever before. We are economic partners and allies who are taking
decisive steps to address the situation at hand.
Before looking forward to actions we and others need to take, however, it is
important to understand how we got to this point.
Root Causes of the Market Turmoil

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The story begins with a decade of benign economic conditions marked by low
interest rates, low inflation, and less volatile asset markets, leading 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 assets, continued reaching for ever-higher gains. In response, the financial
services industry created a variety of complicated financial products designed to
meet this demand, and regulators and investors alike showed a growing
complacency toward risk. These factors, blended together, created underlying
conditions ripe for instability.
The 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. Last summer, these vulnerabilities in our
financial system became clear, as looser credit standards in the housing market,
combined with an end to years of 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. Shaken investor confidence in
housing-based 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 continued growth.
Current Market Developments
We now find ourselves in the midst of an historic reassessment of risk by the
world's financial markets. For its part, the U.S. Government has taken a number of
bold steps to stabilize markets; mitigate the systemic impact of a number of failed
institutions; and address the underlying sources of market uncertainty. These
measures include:
•

•

First, in early September, the Federal Housing Finance Agency placed
Fannie Mae and Freddie Mac, the government-sponsored enterprises that
are the largest sources of mortgage finance in the United States, into
conservatorship. Under the conservatorship, Treasury will ensure that each
company maintains positive net worth and can fulfill its financial
obligations.
Second, central banks from around the world have acted together in recent
months to provide additional liquidity for financial institutions. The U.S.
Federal Reserve has established swap lines with a number of central banks
to reduce pressures in global short-term U.S. dollar markets. Moreover, to
further increase access to funding for businesses in all sectors of our
economy, the Federal Reserve just yesterday launched a Commercial
Paper Funding Facility, which provides a broad backstop for the commercial
paper market by funding purchases of commercial paper of three-month
maturity from high-quality issuers.
Third, in early October, Treasury implemented a temporary guaranty
program for the U.S. money market mutual fund industry, which had
experienced funding problems. This temporary $50 billion guaranty program
offers government insurance to assure investors that these money market
investments are safe and accessible. The Federal Reserve has followed up
with its Money Market Investor Funding Facility, which supports a private
sector initiative designed to provide liquidity to U.S. money market investors.
Fourth, with the support of Treasury and the Federal Reserve, the FDIC has
temporarily guaranteed newly-issued senior unsecured debt of all FDICinsured institutions and their holding companies, as well as deposits in noninterest bearing deposit transaction accounts. These actions are specifically
designed to unlock interbank lending by mitigating counterparty risk.
Regulators will implement an enhanced supervisory framework to assure
appropriate use of this new guarantee. This important action, combined
with the increase in the FDIC's deposit insurance from $100,000 to
$250,000, will provide confidence in the banking system and encourage
liquidity between banks in the United States.
Fifth, and what has attracted the most attention, Congress passed and the
President signed a financial rescue package that includes, among many
provisions, the authority for Treasury to purchase troubled assets from
banks and financial institutions and also to inject capital into banks through
a voluntary capital purchase program. In mid-October, nine of the largest
U.S. financial institutions indicated that they would seek an aggregate of
$125 billion, and Treasury has begun to approve capital injections into other
institutions on a rolling basis.

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Together, these actions significantly strengthen the capital positions and funding
ability of U.S. financial institutions, enabling them to perform their role of
underpinning and facilitating overall economic growth. These actions demonstrate
to market participants around the world that the United States is committed to
taking all necessary steps to unlock our credit markets, minimize the impact of the
current instability on the U.S. economy, and restore the health of the global financial
system.
As Secretary Paulson has said, it will take time for these measures to work. The
U.S. economy faces difficult quarters ahead. But, the underlying long-term
strengths of the U.S. economy, based on a skilled, productive, entrepreneurial, and
flexible labor force, will enable us to recover stronger than ever.
The steps being taken in the United States are consistent with the efforts underway
around the globe to provide liquidity, strengthen financial institutions, prevent
failures that pose systemic risk, protect savers, and enforce investor protections. I
want to acknowledge in particular the close and constructive engagement we have
had over the past weeks and months with officials from the Gulf, including the UAE,
regarding responses to the global market developments.
Authorities in the Gulf have been proactive in responding to their own tightening
credit markets and weakening investor sentiment, employing a comprehensive set
of policy tools. The authorities here in the UAE have taken important steps to
strengthen the financial sector through the introduction of a large liquidity facility
and measures to recapitalize banks. The region's authorities have complemented
global policy responses by reducing repo rates, injecting capital into banks, and
announcing deposit guarantees. These measures will help restore liquidity to the
markets and rebuild confidence in the financial sector in the region and around the
world.
Moreover, many central banks and financial institutions have worked together
during the past few months to lend Treasury securities from their large portfolios to
encourage deep, liquid Treasury markets. This is another tangible step
demonstrating leadership and cooperation to bolster market stability.
There will undoubtedly be much analysis of the current crisis in the months and
years ahead. But one fact is already clear: opaqueness in our capital markets and
inadequate risk management and supervision by financial sector participants
contributed to the crisis. When we emerge from this period - and we will emerge
from it - our next task will be to strengthen the financial regulatory structure to
forestall such excesses in the future. And we will need to ensure that, just as the
balance is restored between risk and reward in the marketplace, a balance is also
struck between smart regulation and market discipline. The global effort to achieve
these goals will continue with the G-20 leaders meeting on 15 November in
Washington. This leaders meeting is just one step in what will be an ongoing
process, and we will continue to consult closely with key friends in important
economies around the world, including with officials from the Emirates.
The current crisis also reminds us that complacency has no place in financial
policymaking. We need to be proactive and focus vigorously on vulnerabilities,
including how to address emerging threats to our economic stability. One of the
current vulnerabilities that we have seen in parts of the world is the rise of
protectionist sentiment, epitomized in rhetoric questioning the benefits of crossborder investment. President Bush and members of his cabinet, led by Secretary
Paulson, are consistent voices urging that the United States and the world keep
markets open for the benefit of their people. The Treasury Department has worked
hard to combat investment protectionism on multiple fronts, and I would like to
describe actions we are taking to ensure that protectionist pressures do not prevail.
Open Investment
I am pleased to report, especially here in Dubai, that much has changed, and
changed for the good, in the two and half years since the Dubai Ports World issue
was an international headline. That controversy made clear to U.S. policymakers
the importance of reconfirming our commitment to open investment and of taking
proactive steps to respond to the lessons learned. Specifically, we have
implemented five stages of reform in the Committee on Foreign Investment in the
United States (or as we call it: CFIUS).
•
•

First, we significantly improved our internal processes as to how cases are
handled among the agencies that constitute CFIUS.
Second, we worked with Congress to pass a new CFIUS law last summer--

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the Foreign Investment and National Security Act (FINSA). FINSA codifies
many of our internal improvements, and reflects our strong and continuing
commitment to maintaining an open investment climate while protecting
U.S. national security. FINSA requires that CFIUS focus solely on
transactions that raise genuine national security concerns, and it formalizes
the current practice of seeking to resolve any concerns, rather than
prohibiting transactions.
FINSA also improves predictability by maintaining strict deadlines: First-stage
security reviews must be completed within 30 days. Second-stage investigations
must be completed within 45 days, and any action by the President must be taken
within 15 days following the conclusion of an investigation. The law also improves
accountability to our Congress, while considerably insulating CFIUS from political
pressures by requiring detailed reporting to Congress only after CFIUS has
concluded action on a transaction.
•

Third, a new Presidential Executive Order improves coordination among
CFIUS agencies and imposes additional discipline through greater analytical
rigor on the use of mitigation agreements.
• Fourth, in April of this year, we began to rewrite the 1991 CFIUS regulations
and received extensive public comments, all of which are posted on the
Treasury Department website. Our aim is to provide investors as much
clarity as possible while still providing the government with the flexibility it
needs to protect national security. We are carefully considering those
comments, and very soon we will issue final regulations that outline how
CFIUS approaches key concepts such as "control" and numerous other
issues raised by public comment.
• Finally, we will soon also publish guidance on the types of transactions
CFIUS has reviewed that have raised national security concerns. Again,
our goal with the guidance is to make the process more transparent for
investors. Let me stress, though, that while we have made considerable
progress with our CFIUS reforms, we do not see the job as complete. We
will continue to seek improvements to our own policies, just as we
encourage our counterparts in other countries to implement policies that
welcome foreign investment.
Let me shift briefly from the theoretical to the practical. In 2007, there were 2,000
cross-border acquisitions in the United States, only 125 of which - or fewer than 7%
- came before CFIUS, and none was blocked. From 2005 to 2008, CFIUS has
reviewed or is reviewing 30 cases from countries in the Middle East; 20 involved
foreign government control; only six went into a second stage review; only one
came before the President; and none was prohibited.
I layout this important track record because investment from the Gulf region is
playing a growing role in the success of the U.S. economy. The stock of foreign
direct investment in the United States from the Middle East and North Africa was
over $7 billion in 2007, up over 130% from 2001. And the benefits that the United
States receives from foreign investment, including from the UAE, is clear. Foreign
firms employ 5.3 million U.S. workers, or about 4.6% of the U.S. private sector labor
force. Recent figures show that these workers in foreign-owned firms generate
19% of U.S. exports, 14% of R&D spending, 11% of capital investment, and 13% of
corporate tax revenue.
We believe that these statistics provide evidence that neither the United States, nor
the UAE, nor the rest of the world, can afford to turn inward. Instead, we must rely
on increased interaction with each other to help drive our economies forward and
make the benefits of foreign investment available to all countries.

Sovereign Wealth Funds
A little over a year ago, however, even as the furor over Dubai Ports had subsided,
investments by sovereign wealth funds began to attract increased media and
political attention. While some of the attention was focused on legitimate questions
such as the opaqueness of certain funds, much of the commentary raised the
possibility of national security concerns and the potential for sovereign wealth funds
to make investment decisions on political rather than economic grounds. To help
blunt these protectionist pressures, we proposed and strongly supported multilateral
open investment initiatives to help maintain a stable and successful international
financial system.
Working closely with 26 countries that have sovereign wealth funds, the

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International Monetary Fund facilitated a process to develop Generally Accepted
Principles and Practices for sovereign wealth funds, now known as the "Santiago
Principles," derived from a meeting in Santiago, Chile. The group included a
diverse set of nations; all GCC members participated as either members or
observers, with the Abu Dhabi Investment Authority (ADIA), playing a particularly
important role as co-chair.
The Santiago Principles could not have come at a better time, as they promote
better understanding of sovereign wealth fund practices and underscore the
commitment of sovereign wealth funds to global financial stability and the free flow
of capital across borders. The Principles recognize that sovereign wealth funds are
generally long-term investors that make decisions based on commercial, not
political, grounds. These Principles will help give confidence to investors and the
public alike by providing information on sovereign wealth funds' investment policies
and risk frameworks, as well as objectives and coordination with macroeconomic
policies.
In addition, the Principles underscore the fact that sovereign funds have a decadeslong track record of investing on sound economic and financial grounds, and are in
principle long-term investors that can tolerate short-term volatility. This is certainly
welcome in the current environment, and we are thankful for the collaborative
efforts that produced these principles at such an important moment. The Principles'
effectiveness in reducing protectionist pressures and contributing to global financial
stability depends on their widespread adoption. We encourage all funds that invest
sovereign wealth to examine these Principles closely and take steps to implement
them. And the Principles also should be considered carefully by State-Owned
Enterprises (SOEs) as they seek overseas investment opportunities.
Of course, investment is a two-way street, and recipient countries also have
important responsibilities. The United States was an early advocate for the
Organization for Economic Cooperation and Development (OECD) to identify a
broadly-accepted set of principles that underpin open investment policies for
countries that receive sovereign wealth fund investments.
Our goal is to promote a global paradigm for the free flow of capital, both from
sovereign wealth funds and all other overseas investors. The principles identified
by the OECD - transparency, predictability, proportionality, accountability, and nondiscrimination among investors - add needed structure to the concept of open
investment. And rather than presenting a piece of paper that may soon be
forgotten, the OECD will move forward with peer reviews of each country's
investment regimes and will publish the results of these reviews to encourage
greater openness to cross-border investment.

Other Vulnerabilities
During this time of turbulence, investors are seeking safe investments and so are
heavily scrutinizing market integrity and discipline in all countries. It is, therefore,
more important than ever for countries to bolster confidence in their markets,
something that can be greatly aided by preventing the use of their financial systems
for illicit finance. Countries that carefully and systematically address anti-money
laundering and counterterrorist and counterproliferation financing issues will have a
competitive advantage in the marketplace as trusted partners with a good
reputation for clean financial flows.
Protecting the integrity and reputation of a country's financial system is especially
difficult when business is done with Iran. The Financial Action Task Force (FATF)
has highlighted the threat posed to the international financial system by Iran's lack
of a sufficient anti-money laundering and counterterrorist financing regime. Just
recently, on October 16, the Task Force issued a fourth statement calling for
countries to strengthen preventive measures to protect their financial systems from
the risks posed by Iran.
We have seen that a combination of targeted financial measures and isolation from
the private sector has put real pressure on the Iranian regime and its continued
pursuit of a nuclear capability and support for terrorist groups. Enhanced vigilance
over all business with Iran is necessary as we have seen Iran abuse its access to
financial and commercial markets in order to further its proliferation efforts. Iran
continues to employ deceptive practices to mask its illicit activities, which makes it
even more difficult for a business partner to know the true beneficiary of a
transaction or service with an Iranian entity.
We commend the measures taken by regulators in the Gulf to protect their financial

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systems from abuse. Sanctions, and especially targeted financial measures, are
always more effective when done on a multilateral basis. We will thus continue to
engage our international partners to safeguard the international financial system
and address issues of mutual interest and concern.

Conclusion
The United Arab Emirates and the United States have a strong and enduring
relationship based on mutual and reinforcing policy interests: political and security
as well as economic and financial. We see this common commitment
demonstrated in the recent decisions of the UAE to cancel Iraq's debt and expand
diplomatic engagement there, for which we are appreciative. And, as I have
discussed, the UAE and we are also now working more closely together than ever
before on addressing the current global financial crisis and resisting protectionist
pressures, as demonstrated by our partnership leading to the Santiago Principles.
As we emerge from the current turmoil, which we will, it is through this constant
communication, coordination, and collaboration that we enhance the prospects for
prosperity not only in our own countries, but in the Gulf region and beyond.
Thank you for your kind attention, and I would be pleased to take some questions.
-30-

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Page I of 4

October 28, 2008
2008-10-28-18-17 -34-9642

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 $70,825 million as of the end of that week, compared to $71, 237 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
IIOctober 24. 2008

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

IIEuro

Ilyen

IITotal

II
11 8 ,466

II
11 13 ,651

11 70 ,825

ira) Securities

11 22 ,117

lof which: issuer headquartered in reporting country but located abroad

11 0

I(b) total currency and deposits with

II
11 16 ,945

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

10,236

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

11 6 ,709

Iii) banks headquartered in the reporting country

lof which: located abroad

I(iii) banks headquartered outside the reporting country

lof which: located in the reporting country

11 0
11 0

1(2) IMF reserve position 2

11 4 ,539

1(3) SDRs 2

11 8 ,999

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

11 11 ,041

I--volume in millions of fine troy ounces

11 261 .499

1(5) other reserve assets (specify)

11 7 ,185

I--financial derivatives

I--Ioans to nonbank nonresidents

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

11 0
11 0

J7,185
i

lB. Other foreign currency assets (specify)
I--securities not included in official reserve assets
I--deposits not included in official reserve assets
I--Ioans not included in official reserve assets
--financial derivatives not included in official reserve assets

I--gold not included in official reserve assets
I --other

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

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Page 2 of 4

[

II
II
II
IIMaturity breakdown (residual maturity)

Total

[
1 1 . Foreign currency loans, securities, and deposits
t-outflows (-)
IIPrincipal
I
[--inflows (+)

IIlnterest

[

IIlnterest

More than 3
months and up to
1 year

More than 1 and
up to 3 months

Up to 1 month

II
II
II

IIPrincipal

2. Aggregate short and long positions in forwards and

futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)

I (a) Short ~ositions ( _ ) 4
I (b) Long positions (+)

I
" -504,412

11- 504 ,412

I
I

3. Other (specify)

--outflows related to repos (-)

--inflows related to reverse repos (+)

I --trade credit (+)

I --other accounts payable (-)

I --other accounts receivable (+)

--trade credit (-)

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

I Maturity breakdown (residual maturity, where

applicable)

[

IITota,

Up to 1 month

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 falling due within 1
year

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

13. Undrawn, unconditional credit lines provided by:
(a) other national monetary authorities, BIS, IMF, and
other international organizations

I--other national monetary authorities (+)
I--BIS (+)
I--IMF (+)
(b) with banks and other financial institutions
headquartered in the reporting country (+)
(c) with banks and other financial institutions
headquartered outside the reporting country (+)

I
Ii

IUndrawn, unconditional credit lines provided to:
(a) other national monetary authorities, BIS, IMF, and
other international organizations
[--other national monetary authorities (-)

I
I

I
II

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I
I

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Page 3 of 4
[--BIS (-)
(b) banks and other financial institutions headquartered
in reporting country (- )
(c) banks and other financial institutions headquartered
outside the reporting country ( - )
4. Aggregate short and long pOSitions of options in
foreign currencies vis-a-vis the domestic currency

"I
I
II

"
"

II
II

I(ii) Written calls
I(b) Long positions

l(i) Bought calls
I(ii) Written puts
IPRO MEMORIA: In-the-moneyoptions

I(a) Short position

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

"
"/I
"

1(1) At current exchange rate

I(b) Long position

I
I
I

[(a) Short positions

[(i) Bought puts

I--IMF (-)

II
II
II
I

II
II
II
II

I
II
II
II
II

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

I
II
II
II
II
II
II

IV. Memo items

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

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

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

I--nondeliverable forwards
I --short positions
I --long positions
I--other instruments
I(c) pledged assets
I--included in reserve assets
--included in other foreign currency assets
I(d) securities lent and on repo

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Page 4 of 4
--lent or repoed and included in Section I

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

--borrowed or acquired and included in Section I

--borrowed or acquired but not included in Section I

7,331

I(e) financial derivative assets (net , marked to market)
I--forwards
I--futures
I--swaps
I--options
I--other
(f) derivatives (forward, futures, or options contracts) that have a residua l maturity greater than one yea r.
which are subject to margin calls .
II~-aggregate short and long positions in forwards and futures in foreign currencies vis-a-vis the domestic
currency (including the forward leg of currency swaps)

I(a) short positions ( - )
I(b) long positions (+)
I--aggregate short and long pOSitions of options in foreign currencies vis-a-vis the domestic currency
I(a) short positions
I(i) bought puts
I(ii) written calls
I(b) long positions
I(i) bought calls
I(ii) written puts

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

/170 ,825

I--currencies in SDR basket

11 70 ,825

I--currencies not in SDR basket

II
II
II

I--by individual currencies (optional)
I

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 fo re ign 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."

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11 /5/2008

P-1242: Treasury, IRS Issue Guidance on Indirect Ownership of Fannie and Freddie Preferred Stock

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October 29,2008
HP-1242
Treasury, IRS Issue Guidance on Indirect Ownership of Fannie and Freddie
Preferred Stock
Washington, DC--The Treasury Department and the Internal Revenue Service
today issued Revenue Procedure 2008-64 (Rev. Proc. 2008-64), which provides
that certain gains and losses from indirect ownership of Fannie Mae and Freddie
Mac preferred stock can be treated as ordinary income and loss.
The Emergency Economic Stabilization Act of 2008 (EESA) provided banks and
certain financial institutions ordinary treatment for gains and losses on direct
investments in preferred stock of Fannie Mae and Freddie Mac. It also directed the
Treasury Department to issue guidance with respect to the treatment of these gains
or losses when realized indirectly through certain investment vehicles.
Rev. Proc. 2008-64 provides banks and certain other financial institutions the
benefit of ordinary treatment on gains and losses that they are experiencing on
certain indirect investments in this preferred stock.
Many financial institutions have invested in Fannie Mae and Freddie Mac preferred
stock indirectly through certain adjustable rate preferred programs and other
vehicles. Pursuant to the authority granted in EESA, the revenue procedure
includes guidance describing when these financial institutions receive ordinary
treatment on:
gains and losses on this stock recognized by a trust or other entity taxed as a
partnership in which the financial institution is a partner;
gains and losses on the sale of an interest in a partnership that owns this stock;
gains and losses on the sale of this stock that the financial institution received
in a distribution from a partnership;
gains and losses on this stock recognized by certain subsidiaries of financial
institutions; and
gains and losses on the sale of this stock that the financial institution received
in certain "transferred basis" transactions.
Rev. Proc. 2008-64 is effective immediately and includes rules for application to
transactions that occurred prior to issuance of the revenue procedure. The revenue
procedure also requests comments from taxpayers regarding the guidance.
-30REPORTS
•

Rev Proc 200b-b4

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1115/2008

Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.601: Rules and regulations.
(Also Part I, §§ 582,702, 1221)

Rev. Proc. 2008-64

SECTION 1. PURPOSE
This revenue procedure provides guidance under section 301 of the Emergency
Economic Stabilization Act of 2008, Pub. L. No. 110-343, Division A § 301,
122 Stat. 3765 (EESA1). EESA § 301 treats as ordinary income or loss certain gain or
loss recognized by banks and certain other financial institutions on the sale or exchange
of preferred stock of the Federal National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac). EESA § 301 also grants the
Secretary of the Treasury authority to issue guidance as necessary to carry out the
purposes of that section.

1 Only the first of the statute's three divisions is the Emergency Economic Stabilization Act of 2008.
Each of the other two divisions has its own section 301, both of which are unrelated to EESA § 301.

-2SECTION 2. BACKGROUND
.01 Before September 2008, many banks and bank holding companies invested
in the preferred stock of Fannie Mae and Freddie Mac. Many institutions invested
directly in the preferred stock. Others invested indirectly-for example, through
corporate subsidiaries that are not banks or through adjustable rate preferred interests
in certain trusts designed to be treated as partnerships for federal income tax purposes .
.02 Generally, under section 582(c)(1) of the Internal Revenue Code, the sale or
exchange of a bond, debenture, note, and other evidence of indebtedness by banks and
certain other financial institutions is not considered a sale or exchange of a capital
asset. Common stock and preferred stock are not evidences of indebtedness for
federal income tax purposes and, therefore, banks and these other financial institutions
generally treat gain or loss from these instruments as capital.
.03 Under section 702(a) and (b) of the Code, gain and loss from sales of capital
assets are separately stated by a partnership, and the character of gain or loss included
in a partner's distributive share is determined as if the item were realized directly from
the source from which realized by the partnership, or incurred in the same manner as
incurred by the partnership. The partnership tax rules, however, do not generally treat
partners as holding the assets held by their partnerships .
.04 EESA § 301(a) provides, U[G]ain or loss from the sale or exchange of any
applicable preferred stock by any applicable financial institution shall be treated as
ordinary income or loss" (emphasis added). Applicable preferred stock and applicable
financial institution are defined in EESA § 301 (b) and (c).

-3.05 EESA § 301 (b) defines "applicable preferred stock" asany stock(1) which is preferred stock in(A) the Federal National Mortgage Association, established
pursuant to the Federal National Mortgage Association Charter Act
(12 U.S.C. 1716 et seq.), or
(8) the Federal Home Loan Mortgage Corporation, established
pursuant to the Federal Home Loan Mortgage Corporation Act
(12 U.S.C. 1451 et seq.), and
(2) which(A) was held by the applicable financial institution on
September 6,2008, or
(8) was sold or exchanged by the applicable financial institution
on or after January 1,2008, and before September 7,2008 .
.06 For purposes of this revenue procedure, the term "qualified preferred stock"
(QPS) means any stock that is described in EESA § 301 (b)(1), regardless of whether
the stock satisfies EESA § 301 (b )(2) .
.07 EESA § 301 (c) providesFor purposes of [EESA § 301]:
(1) IN GENERAL.-Except as provided in [EESA § 301 (c)(2)], the
term "applicable financial institution" means(A) a financial institution referred to in section 582(c)(2) of the
Internal Revenue Code of 1986, or
(8) a depository institution holding company (as defined in
section 3(w)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(w)(1 ))).
(2) SPECIAL RULES FOR CERTAIN SALEs.-ln the case of(A) a sale or exchange described in [EESA § 301 (b)(2)(8)], an
entity shall be treated as an applicable financial institution only if it
was an entity described in [EESA § 301 (c)(1 )(A) or (8)] at the time
of the sale or exchange, and
(8) a sale or exchange after September 6,2008, of preferred
stock described in [EESA § 301 (b)(2)(A)], an entity shall be treated
as an applicable financial institution only if it was an entity

-4described in [EESA § 301(c)(1)(A) or (B)] at all times during the
period beginning on September 6, 2008, and ending on the date of
the sale or exchange of the preferred stock .
.08 EESA § 301 (d) authorizes administrative extension of the application of
EESA § 301 to all, or a portion, of the gain or loss from certain transactions. In addition,
under EESA § 301 (e), "The Secretary of the Treasury or the Secretary's delegate may
prescribe such guidance, rules, or regulations as are necessary to carry out the
purposes of [EESA § 301 ]." Sections 3 through 7 of this revenue procedure exercise
the authority that is granted by EESA § 301(d) and (e).
SECTION 3. SALE OR EXCHANGE OF QUALIFIED PREFERRED STOCK BY A
PARTNERSHIP IN WHICH AN APPLICABLE FINANCIAL INSTITUTION IS A
PARTNER
.01 Scope. This section applies if either all of the requirements in Paragraph (1)
of this Subsection, or all of the requirements in Paragraph (2) of this Subsection, are
satisfied.
(1) Sale or exchange on or after January 1, 2008, and before September 7, 2008.
(a) A partnership sold or exchanged QPS on or after January 1,2008,
and before September 7,2008 (the Transaction);
(b) The taxpayer was a partner in the partnership on the date of the
Transaction; and
(c) The taxpayer was an applicable financial institution (or a Subsidiary
described in Section 6.01 (1 )(b)-(d) of this revenue procedure) on the date of the
Transaction and at all times thereafter through the earlier of-

-5(i) The closing of the partnership's tax year in which the Transaction
occurred; or
(ii) The date on which the partnership's tax year in which the
Transaction occurred closed with respect to the taxpayer.

(2) Sale or exchange after September 6, 2008.
(a) A partnership sold or exchanged QPS after September 6,2008 (the
Transaction);
(b) The partnership held the QPS on September 6,2008, and at all times
thereafter until the Transaction;
(c) The taxpayer was a partner in the partnership on September 6,2008,
and at all times thereafter through the date of the Transaction; and
(d) The taxpayer was an applicable financial institution (or a Subsidiary
described in Section 6.01 (2)(b)-(e) of this revenue procedure) on September 6, 2008,
and at all times thereafter through the earlier of(i) The closing of the partnership's tax year in which the Transaction
occurred; or
(ii) The date on which the partnership's tax year in which the
Transaction occurred closed with respect to the taxpayer .

.02 Application.
(1) The taxpayer's distributive share of the gain or loss on the Transaction is
treated by EESA § 301 as ordinary income or loss.

-6(2) Section 3.02( 1) of this revenue procedure does not apply to the extent that
the taxpayer's interest in gain or loss on the sale or exchange of the QPS that was sold
or exchanged in the Transaction increased after September 6, 2008, including as a
result of(a) The taxpayer's acquisition of additional partnership interests;
(b) Changes in the manner in which partners share in such gains and
losses; or
(c) Disproportionate distributions of cash or other property to other
partners by the partnership.
(3) The limitation in Section 3.02(2)(a) of this revenue procedure does not apply
to the extent the taxpayer acquired an additional partnership interest as transferred
basis property within the meaning of section 7701 (a)(43) of the Code from a person
that(a) Held the partnership interest on September 6,2008, and at all times
thereafter until the transfer of the partnership interest to the taxpayer; and
(b) Was an applicable financial institution for this entire period .

.03 Reporting Requirements. In accordance with existing requirements, the
partnership must separately state on its information returns gain or loss attributable to
the sale or exchange of QPS. See § 1.702-1 (a)(8)(ii) of the Income Tax Regulations.

-7SECTION 4. SALE OR EXCHANGE BY AN APPLICABLE FINANCIAL INSTITUTION
OF AN INTEREST IN CERTAIN PARTNERSHIPS
.01 Scope. This section applies if either all of the requirements in Paragraph (1)

of this Subsection, or all of the requirements in Paragraph (2) of this Subsection, are
satisfied.
(1) Sale or exchange on or after January 1, 2008, and before September 7, 2008.

(a) A partner (the taxpayer) sold or exchanged a partnership interest on or
after January 1,2008, and before September 7,2008 (the Transaction);
(b) The taxpayer was an applicable financial institution (or a Subsidiary
described in Section 6.01(1)(b)-(d) of this revenue procedure) on the date of the
Transaction; and
(c) At the time of the Transaction, at least 95 percent in value of the
partnership's assets consisted of QPS and cash or cash equivalents.
(2) Sale or exchange after September 6, 2008.

(a) A partner (the taxpayer) sold or exchanged a partnership interest after
September 6,2008 (the Transaction);
(b) On September 6,2008, and at all times thereafter through the date of
the Transaction, the taxpayer was an applicable financial institution (or a Subsidiary
described in Section 6.01 (2)(b)-(e) of this revenue procedure) and a partner in the
partnership; and

-8(c) On September 6,2008, and at all times thereafter through the date of
the Transaction, at least 95 percent in value of the partnership's assets consisted of
QPS and cash or cash equivalents .

.02 Application.
(1) Gain or loss on the Transaction is treated by EESA § 301 as ordinary income
or loss. (Neither EESA § 301 nor this revenue procedure causes QPS to be described
in section 751 (c) or (d) of the Code.)
(2) Section 4.02(1) of this revenue procedure does not apply to the extent that
there was an increase after September 6, 2008, in the taxpayer's indirect interest in
QPS, including as a result of(a) The taxpayer's acquisition of additional partnership interests;
(b) Changes in the taxpayer's interest in partnership income, loss or
capital;
(c) The acquisition by the partnership of additional QPS; or
(d) Disproportionate distributions of other property or cash to other
partners by the partnership.
(3) The limitation in Section 4.02(2)(a) of this revenue procedure does not apply
to the extent the taxpayer acquired an additional partnership interest as transferred
basis property within the meaning of section 7701 (a)(43) of the Code from a person
that(a) Held the partnership interest on September 6,2008, and at all times
thereafter until the transfer of the partnership interest to the taxpayer; and

-9(b) Was an applicable financial institution for this entire period.
SECTION 5. DISTRIBUTION OF QUALIFIED PREFERRED STOCK BY CERTAIN
PARTNERSHIPS TO A PARTNER THAT IS AN APPLICABLE FINANCIAL
INSTITUTION

.01 Scope. This section applies if all of the following are satisfied:
(1) After September 6,2008, a partner (the taxpayer) acquired QPS as a result of
a distribution from a partnership (the Acquisition);
(2) The partnership held the QPS on September 6, 2008, and at all times
thereafter until the distribution to the taxpayer;
(3) On September 6, 2008, and at all times thereafter until the partnership made
the distribution to the taxpayer, at least 95 percent in value of the partnership's assets
consisted of QPS and cash or cash equivalents; and
(4) On September 6,2008, and at all times thereafter until the Acquisition, the
taxpayer was an applicable financial institution (or a Subsidiary described in Section
6.01 (2)(b)-(e) of this revenue procedure) and was a partner of the partnership .

.02 Application.
(1) Solely for purposes of EESA § 301, the taxpayer is treated as having held on
September 6, 2008, the QPS described in Section 5.01 (1) of this revenue procedure.
(Neither EESA § 301 nor this revenue procedure causes QPS to be described in
section 751 (c) or (d) of the Code.)
(2) Section 5.02(1) of this revenue procedure does not apply to QPS that is
received by the taxpayer from the partnership after September 6, 2008, to the extent

-10that receipt of the QPS is as a result of a change or increase after September 6, 2008,
in the taxpayer's partnership interest, including as a result of(a) The taxpayer's acquisition of additional partnership interests;
(b) Changes in the manner in which partners share in rights to
distributions of QPS; or
(c) Disproportionate distributions to other partners by the partnership of
other property or cash.
(3) The limitation in Section 5.02(2)(a) of this revenue procedure does not apply
to the extent the taxpayer acquired additional partnership interests as transferred basis
property within the meaning of section 7701 (a)(43) of the Code from a person that(a) Held the partnership interest on September 6,2008, and at all times
thereafter until the transfer of the partnership interest to the taxpayer and
(b) Was an applicable financial institution for this entire period.
SECTION 6. SALE OR EXCHANGE OF QUALIFIED PREFERRED STOCK BY
CERTAIN SUBSIDIARIES OF APPLICABLE FINANCIAL INSTITUTIONS
.01 Scope. This section applies if either all of the requirements in Paragraph (1)
of this Subsection, or all of the requirements in Paragraph (2) of this Subsection, are
satisfied.
(1) Sale or exchange on or after January 1, 2008, and before September 7, 2008.
(a) A corporation for state law or federal tax law purposes (the Subsidiary)
sold or exchanged QPS on or after January 1,2008, and before September 7,2008 (the
Transaction);

-11(b) At the time of the Transaction, the Subsidiary was owned (in whole or
in part, directly or indirectly) by another corporation that was a financial institution
referred to in section 582(c)(2)(A)(i) or (ii) (Financial Institution);
(c) In the calendar quarter in which the Transaction occurred, the assets of
the Subsidiary were consolidated with the assets of the Financial Institution on a line-byline basis on the Consolidated Reports of Condition and Income and their supporting
schedules (the call report) that the Financial Institution filed with its federal bank
supervisory authorities; and
(d) The Subsidiary and the Financial Institution joined in the filing of a
federal income tax return on which gain or loss from the Transaction was reported.

(2) Sale or exchange after September 6, 2008.
(a) A corporation for state law or federal tax law purposes (the Subsidiary)
sold or exchanged QPS after September 6,2008 (the Transaction);
(b) On September 6, 2008, and at all times thereafter until the
Transaction, the Subsidiary held the QPS that was the subject of the Transaction;
(c) On September 6, 2008, and at all times thereafter until immediately
after the Transaction, the Subsidiary was owned (in whole or in part, directly or
indirectly) by another corporation that was a financial institution referred to in
section 582(c)(2)(A)(i) or (ii) (Financial Institution);
(d) In every calendar quarter that both ends after September 6,2008, and
begins on or before the date of the Transaction, the assets of the Subsidiary were
consolidated with the assets of the Financial Institution on a line-by-line basis on the

-12 Consolidated Reports of Condition and Income and their supporting schedules (the call
report) that the Financial Institution filed with its federal bank supervisory authorities;
and
(e) The Subsidiary and the Financial Institution joined in filing the same
federal income tax return(s) for each taxable year of the Subsidiary and the Financial
Institution that included all, or any portion, of the period beginning on September 7,
2008, and extending through and including the date of the Transaction .

.02 Application. EESA § 301 treats the Subsidiary's gain or loss on the
Transaction as ordinary income or loss.
SECTION 7. SALE OR EXCHANGE BY A TAXPAYER OF QUALIFIED PREFERRED
STOCK THE BASIS OF WHICH IN THE TAXPAYER'S HANDS IS DETERMINED BY
REFERENCE TO THE BASIS OF THAT STOCK IN THE HANDS OF THE PERSON
THAT HAD TRANSFERRED IT TO THE TAXPAYER

.01 Scope. This section applies if all of the following are satisfied:
(1) The taxpayer acquired QPS after September 6,2008 (the Acquisition);
(2) The Acquisition was a transaction in which the taxpayer's basis in the QPS
was determined by reference to the basis of the QPS in the hands of the person (the
Transferor) that transferred the QPS to the taxpayer (that is, the QPS is "transferred
basis property" within the meaning of section 7701 (a)(43) of the Code);
(3) The Transferor held the QPS on September 6, 2008; and
(4) On September 6,2008, and at all times thereafter until the QPS was
transferred to the taxpayer, if the Transferor had sold the QPS, the character of gain or

-13 loss on the sale would have been governed by EESA § 301, either because the
Transferor was an applicable financial institution for that entire time period or because
the sale would have been described in Section 6.01 (2) of this revenue procedure .

.02 Application. Solely for purposes of EESA § 301, the taxpayer is treated as
having held on September 6, 2008, the QPS that it acquired in the Acquisition.
SECTION 8. EFFECTIVE DATE
.01 This revenue procedure is effective for Transactions (as defined in Sections
3,4, and 6 of this revenue procedure), and Acquisitions (as defined in Sections 5 and 7
of this revenue procedure), that occur after October 29, 2008 .
.02 In addition, a taxpayer may apply this revenue procedure to Transactions (as
defined in Sections 3, 4, and 6 of this revenue procedure) that occur on or after
January 1, 2008, and on or before October 29,2008, and to Acquisitions (as defined in
Sections 5 and 7 of this revenue procedure) that occur after September 6,2008, and on
or before October 29, 2008, but only if the taxpayer applies this revenue procedure
consistently to all Transactions and Acquisitions described in this Section 8.02.
SECTION 9. CONTACT INFORMATION.
For further information regarding this revenue procedure, contact Ms. Stacy L.
Short of the Office of the Associate Chief Counsel (Passthroughs and Special
Industries) at (202) 622-3070 (not a toll-free call).
SECTION 10. REQUEST FOR COMMENTS
Comments should be submitted by December 15, 2008, to: Internal Revenue
Service, CC:PA:LPD:PR (Revenue Procedure 2008-64), Room 5203, P.O. Box 7604,

-14 Ben Franklin Station, Washington, DC 20224. Alternatively, comments may be handdelivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: Internal
Revenue Service, CC:PA:LPD:PR (Revenue Procedure 2008-64), Courier'S Desk, 1111
Constitution Avenue, NW, Washington, DC, or sent electronically, via the following
email address: Notice.Comments@irscounseUreas.gov. Please include "Revenue
Procedure 2008-64" in the subject line of any electronic submissions. All comments
received will be open to public inspection and copying.

IP.1243: STATEMENT BY U.S. TREASURY SECRETARY HENRY M. PAULSON, JR. ON FEDE...

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October 29,2008
Hp-1243
STATEMENT BY U.S. TREASURY SECRETARY HENRY M. PAULSON, JR. ON
FEDERAL RESERVE AND IMF LIQUIDITY FACILITIES ANNOUNCED TODAY

Washington· I welcome the decisions by the Federal Reserve to create reciprocal
currency arrangements (swap lines) with Brazil, Mexico and Korea and by the
International Monetary Fund (IMF) to establish a short-term liquidity facility, The
Federal Reserve and IMF actions show international resolve to support strong
performing emerging market economies adversely impacted by the current financial
market turbulence, This concrete action also demonstrates international
cooperation as we move toward the Finance Ministers/Central Bank Governors
meeting next month in Sao Paulo, Brazil and the Leaders Summit to be held on
November 15 in Washington D,C,
-30-

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11/5/2008

1P-1244: Three LIFO Members Designation for Terrorism

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October 30,2008
HP-1244
Three LlFG Members Designation for Terrorism
Washington, DC--The U.S. Department of the Treasury today designated three
members of the Libyan Islamic Fighting Group (LlFG) under Executive Order
13224, which targets terrorists and the financial, technological, or material support
networks of terrorists.
"LlFG, along with other al Qaida affiliates, seeks to exploit our globalized world,
raising funds in Europe for transfer to terror cells operating in North Africa," said
Adam Szubin, director of Treasury's Office of Foreign Assets Control. "To combat
such transnational threats, the power and reach of the U.N.'s counterterrorism
authorities are needed more than ever to shut down financiers of bloodshed
wherever they may be."
LI FG officially announced its formation in 1995 among Libyans who had fought
Soviet forces in Afghanistan and the Qadhafi regime in Libya. The LlFG is believed
to have participated in the planning of the May 2003 Casablanca suicide bombings,
and LlFG has been linked to the 2004 Madrid attacks.
Since the late 1990s, many LI FG members have fled Libya for various countries,
particularly the United Kingdom. In early November 2007, Ayman al-Zawahiri
announced the LlFG had become an official affiliate of al Qaida. The LlFG was
named a Specially Designated Global Terrorist (SDGT) in the annex to E.O. 13224
on September 23, 2001 and was added to the UN 1267 Committee Consolidated
List of individuals and entities associated with al Qaida or the Taliban on October 6,
2001.
These three individuals were also recently added to the UN 1267 Sanctions
Committee's Consolidated List of individuals and entities associated with Usama
bin Laden, al Qaida and the Taliban. All UN member states are obligated to freeze
the funds and other assets of listed individuals and entities included on the List and
to apply other sanctions, including a travel ban and an arms embargo. The United
States implements this asset freeze through E.O. 13224.
Identifying Information

MAFTAH MOHAMED ELMABRUK
AKAs:
Muftah AI Mabrook
Mustah EIMabruk
Maftah EI Mobruk
Muftah EI Mabruk
Elmobruk Maftah
AI-Mabruk Muftah Muhammad AI-Fathali
AI-Mabruk AI-Fathali
AI-Hajj 'Abd AI-Haqq
AI Hajj Abd AI Haqq
AI Haj Abd AI Hak
Haj 'Abd AI-Haq
DOB:
POB:
Nationality:

01 May 1950
Libya
Libyan

As of January 2007, Elmabruk was a U.K.-based LlFG member and active in LlFG
financial matters in the UK Elmabruk has been involved in fundraising activities on

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1115/2008

IP-1244: Three LIFG Members Designation for Terrorism

Page 2 of2

behalf of the LlFG for several years. Elmabruk attended various training camps in
Afghanistan in the mid-1980s to early 1990s.

ABDELRAZAG ELSHARIF ELOSTA
AKAs:
Abdelrazag Elsharif AI Usta
'Abd al-Razzaq Sharif
'Abd AI-Razzaq AI-Sharif AI-Usta
Abu Mu'awiya
'Abd AI-Mulay
DaB: 20 June 1963
POB: Soguma, Libya
Nationality:
British
As of January 2007, Elosta was a U.K.-based LlFG member and LlFG leadership
figure. In January 2005, Elosta maintained funds for the LlFG in the U.K, for various
LlFG-related purposes.

ABDULBASIT ABDULRAHIM
AKAs:
Abdul Basit Fadil Abdul Rahim
Abdelbasit Abdelrahim
Abdullah Mansour
Abdallah Mansour
Abdulbasit Fadil Adbulrahim Mahoud
'Abdallah Mansur
Abdel Bassit Fadil AI Zawy
'Abd AI-Bas it Fadil AI-Zway
'Abd AI-Bas it Fadhil AI-Zawi
Abu Basir
Abou Bassir
DaB: 02 July 1968
POB: Gdabia, Libya
pas: Ajdabiyah, Libya
Nationality: British
As of January 2007, Abdulrahim was a U.K.-based LlFG member. In January 2005,
Abdulrahim was one of the most important LlFG members working on LlFG
finances in the U.K., where the greatest amount of funding for the LlFG originated.
Abdulrahim joined the LlFG in 1993 while living in Saudi Arabia and was
responsible there for the LlFG Islamic Jurisprudence Committee. During this time,
Abdulrahim received material assistance for the LlFG from Saudi supporters, and
tasked individuals to obtain material assistance for the LlFG.

-30-

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1115/2008

]>.1245: Treasury Distributes 1.416 Million Additional Stimulus Checks in October

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October 31, 2008
Hp·1245
Treasury Distributes 1.416 Million Additional Stimulus Checks in October
Washington, DC··The Treasury Department announced today that it has
distributed 1.416 million stimulus payments, totaling $976.561 million in the month
of October. As of the end of October, a total of 117.372 million payments have
been distributed totaling $95.038 billion since disbursements started April 28.
While mass disbursement of stimulus checks ended July 11, 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.
-30-

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1115/2008

P-1246: Report on U.S. Portfolio Holdings of Foreign Securities at End-Year 2007

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October 31 • 2008
HP-1246

Report on U.S. Portfolio Holdings of Foreign Securities at End-Year 2007
The findings from an annual survey of U,S. portfolio holdings of foreign securities
at end-year 2007 are released today and posted on the U.S. Treasury web site
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A complementary survey measuring foreign portfolio holdings of U.S. securities is
also carried out annually. Preliminary results from the most recent such survey.
covering securities held as of June 30. 2008. are expected to be reported by
February 27. 2009.
These surveys are undertaken jointly by the U.S. Treasury. the Federal Reserve
Bank of New York. and the Board of Governors of the Federal Reserve System.
Overall Results
The survey measured the value of U.S. holdings of foreign securities at year-end
2007 of approximately $7.212 billion. with $5.248 billion held in foreign equities.
$1.607 billion in foreign long-term debt securities (original term-to-maturity in
excess of one year). and $357 billion in foreign short-term debt securities. The
previous survey measured U.S. holdings at year-end 2006 of approximately $5.991
billion. with $4.329 billion held in foreign equities. $1.294 billion in foreign long-term
debt securities. and $368 billion in foreign short-term debt securities (see Table 1).
U.S. portfolio holdings of foreign securities by country at the end of 2007 were by
far the largest for the United Kingdom ($1.142 billion). followed by Japan ($594
billion) and Canada ($586 billion) (see Table 2).
The surveys are part of an internationally-coordinated effort under the auspices of
the International Monetary Fund (IMF) to improve the measurement of portfolio
asset holdings.

REPORTS

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11/5/2008

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DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
EMBARGOED UNTIL 4:00 p.m., October 31,2008
Contact: Brookly McLaughlin, (202) 622-2920

REPORT ON U.S. PORTFOLIO HOLDINGS OF FOREIGN SECURITIES
AT END-YEAR 2007
The findings from an annual survey of U.S. portfolio holdings of foreign securities at end-year
2007 are released today and posted on the U.S. Treasury web site (~'0\\~~~Ic".~J()\ tIL·JL~JWlll).
A complementary survey measuring foreign portfolio holdings of U.S. securities is also carried
out annually. Preliminary results from the most recent such survey, covering securities held as
of June 30, 2008, are expected to be reported by February 27,2009.
These surveys are undertaken jointly by the U.S. Treasury, the Federal Reserve Bank of New
York, and the Board of Governors of the Federal Reserve System.
Overall Results
The survey measured the value of U.S. holdings of foreign securities at year-end 2007 of
approximately $7,212 billion, with $5,248 billion held in foreign equities, $1,607 billion in
foreign long-term debt securities (original term-to-maturity in excess of one year), and $357
billion in foreign short-term debt securities. The previous survey measured U.S. holdings at
year-end 2006 of approximately $5,991 billion, with $4,329 billion held in foreign equities,
$1,294 billion in foreign long-term debt securities, and $368 billion in foreign short-term debt
securities (see Table 1).
U.S. portfolio holdings of foreign securities by country at the end of 2007 were by far the largest
for the United Kingdom ($1,142 billion), followed by Japan ($594 billion) and Canada
($586 billion) (see Table 2).
The surveys are part of an internationally-coordinated effort under the auspices of the
International Monetary Fund (lMF) to improve the measurement of portfolio asset holdings.

Table 1. Value of U.S. holdings of foreign securities, by type of security,
at end-2006 and end-2007' (Billions of dollars)
Type of Security

Dec. 31, 2006

Dec. 31, 2007

Long-tenn Securities
Equity
long-tenn debt
Short-tenn debt securities

5,623
4,329
1,294
368

6,855
5,248
1,607
357

Total

5,991

7,212

U.S. Portfolio Investment by Country

Table 2. Value of U.S. holdings of foreign securities, by country and type of security,
for the countries attracting the most U.S. investment, as of December 31, 2007
Billions of dollars
Total

Equity

1,142
United Kingdom
594
Japan
586
Canada
544
Cayman Islands
448
France
426
Gennany
288
Switzerland
273
Bennuda
235
Netherlands
223
Australia
189
Brazil
146
Spain
140
Korea, South
132
Ireland
121
Hong Kong
120
Italy
112
Sweden
110
Mexico
97
China
95
Luxembourg
94
Finland
89
Netherlands Antilles
85
India
81
Taiwan
81
Russia
761
Rest of world
7,212
Total
*Greater than zero, but less than $500,000,000.

715
529
379
232
348
329
281
256
154
138
173
107
129
49
120
97
57
85
96
40
90
88
82
81
74
519
5,248

Debt Securities:
Short-tenn
141
4
22
41
17
8
3
*
5
11
*
2
*
10
33
50
*
2
22
1
29
26
24
*
*
I
44
II
4
*
*
I
*
3
*
0
*
7
211
30
1,607
357

I The stock of foreign securities for December 31, 2007, reported in this survey does 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. An analysis of the relation between the stock and flow data is available in Table 4
and the associated text of the final report on U.S. holdings of foreign securities at end-year 2007.

p.1247: Treasury Issues Additional Infonnation on Capital Purchase Program

,'~~'<t~~i' PRESS ROOM
u.s. DEPARTMENT OF THE TREASURY
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October 31 , 2008
Hp·1247
Treasury Issues Additional Information on Capital Purchase Program
Washington- The Treasury Department today issued additional documents for
publicly traded financial institutions applying for the capital purchase program
authorized by the Emergency Economic Stabilization Act. Documents include:
•

•

•
•

•

•
•

Securities Purchase Agreement: This document describes the terms of the
financial institution's agreement to issue shares and fulfill other
requirements in exchange for Treasury's investment.
Form of Letter Agreement: This contractual agreement describes the firmspecific information necessary to implement the securities purchase
agreement and represents the financial institution's commitment to the
terms of the Securities Purchase Agreement.
Certificate of Designations: This document creates the preferred shares.
Form of Warrant - Stockholder Approval Not Required: This document
describes the terms of the warrants Treasury receives when stockholder
approval is not required.
Form of Warrant - Stockholder Approval Required: This document
describes the terms of the warrants Treasury receives when stockholder
approval is required.
Term Sheet
SEC. FASB Letter on Warrant Accounting

This program is designed to attract broad participation by healthy institutions, to
stabilize the financial system and increase lending for the benefit of the U.S.
economy and the American people,
After a financial institution is granted preliminary approval, the institution must
complete and submit the securities purchase agreement, letter agreement,
certificate of designations and warrant. Financial institutions that are granted
preliminary approval will receive a letter from the Treasury Department with
instructions regarding filing the documents and completing the process.
Once the investment agreements are complete and the investment is authorized,
within two business days Treasury will publicly disclose the name and capital
purchase amount for the financial institution. The information will be posted at
Iiltpwww tlf'i1SlllY ~JOV, 1f1lil,ltlvC~S!CCSCl! and updated daily at 4:30 p.m. (EDT) as
needed,
All publicly traded eligible institutions wishing to participate should submit their
applications no later than 5:00 p.m. (EDT), November 14, 2008.
Treasury will post an application form and term sheet for privately held eligible
institutions at a later date and establish a reasonable deadline for private
institutions to apply.
-30REPORTS
•
•
•
•
•

Securlilc?s Plllclli1SC ACjrr'C:llH:llt
Form of L~;ttpi AgreClllen!
Certlflclte of DeSI()llclil(HlS
Form of WClrr:1Ilt
Form of Wal rclilt
Stocklloldel' ApjJl

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11/5/2008

P.1247: Treasury Issues Additional Information on Capital Purchase Program
•
•

Page 2 of2

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1115/2008

EXHIBIT A

SECURITIES PURCHASE AGREEMENT
STANDARD TERMS

095331-0002-1 0033-NY02.2689565.1 0

TABLE OF CONTENTS
Page

Article I
Purchase; Closing
1.1
1.2
1.3

Purchase ................................................................................................................... 1
Closing ..................................................................................................................... 2
Interpretation ............................................................................................................ 4
Article II
Representations and Warranties

2.1
2.2

Disclosure ................................................................................................................ 4
Representations and Warranties of the Company .................................................... 5
Article III
Covenants

3.1
3.2
3.3
3.4
3.5

Commercially Reasonable Efforts ......................................................................... 13
Expenses ................................................................................................................ 14
Sufficiency of Authorized Common Stock; Exchange Listing .............................. 14
Certain Notifications Until Closing ....................................................................... 15
Access, Information and Confidentiality ............................................................... 15
Article IV
Additional Agreements

4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10

Purchase for Investment. ........................................................................................ 16
Legends .................................................................................................................. 16
Certain Transactions .............................................................................................. 18
Transfer of Purchased Securities and Warrant Shares; Restrictions on Exercise of
the Warrant. ............................................................................................................ 18
Registration Rights ................................................................................................. 19
Voting of Warrant Shares ...................................................................................... 30
Depositary Shares .................................................................................................. 31
Restriction on Dividends and Repurchases ............................................................ 31
Repurchase of Investor Securities .......................................................................... 32
Executive Compensation ....................................................................................... 33
-1-

095331-0002-1 0033-NY02.2689565.1 0

Article V
Miscellaneous
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10

Tennination ............................................................................................................ 34
Survival of Representations and Warranties .......................................................... 34
Amendment ............................................................................................................ 34
Waiver of Conditions ............................................................................................. 34
Governing Law: Submission to Jurisdiction, Etc . ............................................ 35
Notices ................................................................................................................... 35
Definitions .............................................................................................................. 35
Assignment ............................................................................................................ 36
Severability ............................................................................................................ 36
No Third Party Beneficiaries ................................................................................. 36

-11-

095331-0002-1 0033-NY02.2689565.1 0

LIST OF ANNEXES

ANNEX A:

FORM OF CERTIFICATE OF DESIGNATIONS FOR PREFERRED STOCK

ANNEX B:

FORM OF WAIVER

ANNEX C:

FORM OF OPINION

ANNEX D:

FORM OF WARRANT

-1lI-

095331-0002-1 0033-NY02 .2689565.1 0

INDEX OF DEFINED TERMS

Term
Affiliate
Agreement
Appraisal Procedure
Appropriate Federal Banking Agency
Bankruptcy Exceptions
Benefit Plans
Board of Directors
Business Combination
business day
Capitalization Date
Certificate of Designations
Charter
Closing
Closing Date
Code
Common Stock
Company
Company Financial Statements
Company Material Adverse Effect
Company Reports
Company Subsidiary; Company Subsidiaries
control; controlled by; under common control with
Controlled Group
CPP
EESA
ERISA
Exchange Act
Fair Market Value
GAAP
Governmental Entities
Holder
Holders' Counsel
Indemnitee
Information
Initial Warrant Shares
Investor
Junior Stock
knowledge of the Company; Company's knowledge
Last Fiscal Year
Letter Agreement
officers
-\v-

095331-0002-1 0033-NY02.2689565.1 0

Location of
Definition
5.7(b)
Recitals
4.9(c)(i)
2.2(s)
2.2(d)
1.2(d)(iv)
2.2(f)
4.4

1.3
2.2(b)
1.2( d)(iii)
1.2(d)(iii)
1.2(a)
1.2(a)
2.2(n)
Recitals
Recitals
2.2(h)
2.1(a)
2.2(i)(i)
2.2(i)(i)
5.7(b)
2.2(n)
Recitals
1.2(d)(iv)
2.2(n)
2.1 (b)
4.9(c)(ii)
2.1(a)
1.2( c)
4.5(k)(i)
4.5(k)(ii)
4.5(g)(i)
3.5(b)
Recitals
Recitals
4.8(c)
5.7(c)
2.1 (b)
Recitals
5.7(c)

Term
Parity Stock
Pending Underwritten Offering
Permitted Repurchases
Piggyback Registration
Plan
Preferred Shares
Preferred Stock
Previously Disclosed
Proprietary Rights
Purchase
Purchase Price
Purchased Securities
Qualified Equity Offering
register; registered; registration
Registrable Securities
Registration Expenses
Regulatory Agreement
Rule 144; Rule 144A; Rule 159A; Rule 405; Rule 415
Schedules
SEC
Securities Act
Selling Expenses
Senior Executive Officers
Share Dilution Amount
Shelf Registration Statement
Signing Date
Special Registration
Stockholder Proposals
subsidiary
Tax; Taxes
Transfer
Warrant
Warrant Shares

-v-

09533\-0002-\ 0033-NY02.2689565.\ 0

Location of
Definition
4.8(c)
4.5(1)
4.8(a)(ii)
4.5(a)(iv)
2.2(n)
Recitals
Recitals
2.1 (b)
2.2(u)
Recitals
1.1
Recitals
4.4
4.5(k)(iii)
4.5(k)(iv)
4.5(k)(v)
2.2(s)
4.5(k)(vi)
Recitals
2.1 (b)
2.2(a)
4.5(k)(vii)
4.10
4.8(a)(ii)
4.5(a)(ii)
2.1(a)
4.5(i)
3.1(b)
5.8(a)
2.2(0)
4.4
Recitals
2.2(d)

SECURITIES PURCHASE AGREEMENT - STANDARD TERMS
Recitals:

WHEREAS, the United States Department of the Treasury (the "Investor") may from
time to time agree to purchase shares of preferred stock and warrants from eligible financial
institutions which elect to participate in the Troubled Asset Relief Program Capital Purchase
Program ("CPP");
WHEREAS, an eligible financial institution electing to participate in the CPP and issue
securities to the Investor (referred to herein as the "Company") shall enter into a letter agreement
(the "Letter Agreement") with the Investor which incorporates this Securities Purchase
Agreement - Standard Terms;
WHEREAS, the Company agrees to expand the flow of credit to U.S. consumers and
businesses on competitive terms to promote the sustained growth and vitality of the U.S.
economy;
WHEREAS, the Company agrees to work diligently, under existing programs, to modify
the terms of residential mortgages as appropriate to strengthen the health of the U.S. housing
market;
WHEREAS, the Company intends to issue in a private placement the number of shares of
the series of its Preferred Stock ("Preferred Stock") set forth on Schedule A to the Letter
Agreement (the "Preferred Shares") and a warrant to purchase the number of shares of its
Common Stock ("Common Stock") set forth on Schedule A to the Letter Agreement (the "Initial
Warrant Shares") (the "Warrant" and, together with the Preferred Shares, the "Purchased
Securities") and the Investor intends to purchase (the "Purchase") from the Company the
Purchased Securities; and
WHEREAS, the Purchase will be governed by this Securities Purchase Agreement Standard Terms and the Letter Agreement, including the schedules thereto (the "Schedules"),
specifying additional terms of the Purchase. This Securities Purchase Agreement - Standard
Terms (including the Annexes hereto) and the Letter Agreement (including the Schedules
thereto) are together referred to as this "Agreement". All references in this Securities Purchase
Agreement - Standard Terms to "Schedules" are to the Schedules attached to the Letter
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the representations,
warranties, covenants and agreements set forth herein, the parties agree as follows:

Article I
Purchase; Closing
1.1
Purchase. On the terms and subject to the conditions set forth in this Agreement,
the Company agrees to sell to the Investor, and the Investor agrees to purchase from the
Company, at the Closing (as hereinafter defined), the Purchased Securities for the price set forth
on Schedule A (the "Purchase Price").

09533 J-0002- J0033-NY02.2689565. J0

1.2

Closing.

(a)
On the terms and subject to the conditions set forth in this Agreement, the closing
of the Purchase (the "Closing") will take place at the location specified in Schedule A, at the
time and on the date set forth in Schedule A or as soon as practicable thereafter, or at such other
place, time and date as shall be agreed between the Company and the Investor. The time and date
on which the Closing occurs is referred to in this Agreement as the "Closing Date".
(b)
Subject to the fulfillment or waiver of the conditions to the Closing in this Section
1.2, at the Closing the Company will deliver the Preferred Shares and the Warrant, in each case
as evidenced by one or more certificates dated the Closing Date and bearing appropriate legends
as hereinafter provided for, in exchange for payment in full of the Purchase Price by wire
transfer of immediately available United States funds to a bank account designated by the
Company on Schedule A.
(c)
The respective obligations of each of the Investor and the Company to
consummate the Purchase are subject to the fulfillment (or waiver by the Investor and the
Company, as applicable) prior to the Closing of the conditions that (i) any approvals or
authorizations of all United States and other governmental, regulatory or judicial authorities
(collectively, "Governmental Entities") required for the consummation of the Purchase shall
have been obtained or made in form and substance reasonably satisfactory to each party and shall
be in full force and effect and all waiting periods required by United States and other applicable
law, if any, shall have expired and (ii) no provision of any applicable United States or other law
and no judgment, injunction, order or decree of any Governmental Entity shall prohibit the
purchase and sale of the Purchased Securities as contemplated by this Agreement.
(d)
The obligation of the Investor to consummate the Purchase is also subject to the
fulfillment (or waiver by the Investor) at or prior to the Closing of each of the following
conditions:
(i)
(A) the representations and warranties of the Company set forth in (x)
Section 2.2(g) of this Agreement shall be true and correct in all respects as though made
on and as of the Closing Date, (y) Sections 2.2(a) through (f) shall be true and correct in
all material respects as though made on and as of the Closing Date (other than
representations and warranties that by their terms speak as of another date, which
representations and warranties shall be true and correct in all material respects as of such
other date) and (z) Sections 2.2(h) through (v) (disregarding all qualifications or
limitations set forth in such representations and warranties as to "materiality", "Company
Material Adverse Effect" and words of similar import) shall be true and correct as though
made on and as of the Closing Date (other than representations and warranties that by
their terms speak as of another date, which representations and warranties shall be true
and correct as of such other date), except to the extent that the failure of such
representations and warranties referred to in this Section 1.2(d)(i)(A)(z) to be so true and
correct, individually or in the aggregate, does not have and would not reasonably be
expected to have a Company Material Adverse Effect and (B) the Company shall have
-2-

095331-0002-1 0033-NY02.2689565.1 0

performed in all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing;
(ii)
the Investor shall have received a certificate signed on behalf of the
Company by a senior executive officer certifying to the effect that the conditions set forth
in Section 1.2( d)(i) have been satisfied;
(iii)
the Company shall have duly adopted and filed with the Secretary of State
of its jurisdiction of organization or other applicable Governmental Entity the amendment
to its certificate or articles of incorporation, articles of association, or similar
organizational document ("Charter") in substantially the form attached hereto as Annex
A (the "Certificate of Designations") and such filing shall have been accepted;
(iv)
(A) the Company shall have effected such changes to its compensation,
bonus, incentive and other benefit plans, arrangements and agreements (including golden
parachute, severance and employment agreements) (collectively, "Benefit Plans") with
respect to its Senior Executive Officers (and to the extent necessary for such changes to
be legally enforceable, each of its Senior Executive Officers shall have duly consented in
writing to such changes), as may be necessary, during the period that the Investor owns
any debt or equity securities of the Company acquired pursuant to this Agreement or the
Warrant, in order to comply with Section 111 (b) of the Emergency Economic
Stabilization Act of 2008 ("EESA") as implemented by guidance or regulation thereunder
that has been issued and is in effect as of the Closing Date, and (B) the Investor shall
have received a certificate signed on behalf of the Company by a senior executive officer
certifying to the effect that the condition set forth in Section 1.2(d)(iv)(A) has been
satisfied;
(v)
each of the Company's Senior Executive Officers shall have delivered to
the Investor a written waiver in the form attached hereto as Annex B releasing the
Investor from any claims that such Senior Executive Officers may otherwise have as a
result of the issuance, on or prior to the Closing Date, of any regulations which require
the modification of, and the agreement of the Company hereunder to modify, the terms of
any Benefit Plans with respect to its Senior Executive Officers to eliminate any
provisions of such Benefit Plans that would not be in compliance with the requirements
of Section 111 (b) of the EESA as implemented by guidance or regulation thereunder that
has been issued and is in effect as of the Closing Date;
(vi)
the Company shall have delivered to the Investor a written opinion from
counsel to the Company (which may be internal counsel), addressed to the Investor and
dated as of the Closing Date, in substantially the form attached hereto as Annex C;
(vii) the Company shall have delivered certificates in proper form or, with the
prior consent of the Investor, evidence of shares in book-entry form, evidencing the
Preferred Shares to Investor or its designee(s); and

-3-

095331-0002-1 0033-NY02.2689565.1 0

(viii) the Company shall have duly executed the Warrant in substantially the
form attached hereto as Annex D and delivered such executed Warrant to the Investor or
its designee(s).
1.3
Interpretation. When a reference is made in this Agreement to "Recitals,"
"Articles," "Sections," or "Annexes" such reference shall be to a Recital, Article or Section of,
or Annex to, this Securities Purchase Agreement - Standard Terms, and a reference to
"Schedules" shall be to a Schedule to the Letter Agreement, in each case, unless otherwise
indicated. The terms defined in the singular have a comparable meaning when used in the plural,
and vice versa. References to "herein", "hereof', "hereunder" and the like refer to this
Agreement as a whole and not to any particular section or provision, unless the context requires
otherwise. The table of contents and headings contained in this Agreement are for reference
purposes only and are not part of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed followed by the words "without
limitation." No rule of construction against the draftsperson shall be applied in connection with
the interpretation or enforcement of this Agreement, as this Agreement is the product of
negotiation between sophisticated parties advised by counsel. All references to "$" or "dollars"
mean the lawful currency of the United States of America. Except as expressly stated in this
Agreement, all references to any statute, rule or regulation are to the statute, rule or regulation as
amended, modified, supplemented or replaced from time to time (and, in the case of statutes,
include any rules and regulations promulgated under the statute) and to any section of any
statute, rule or regulation include any successor to the section. References to a "business day"
shall mean any day except Saturday, Sunday and any day on which banking institutions in the
State of New York generally are authorized or required by law or other governmental actions to
close.
Article II
Representations and Warranties
2.1

Disclosure.

(a)
"Company Material Adverse Effect" means a material adverse effect on (i) the
business, results of operation or financial condition of the Company and its consolidated
subsidiaries taken as a whole; provided, however, that Company Material Adverse Effect shall
not be deemed to include the effects of (A) changes after the date of the Letter Agreement (the
"Signing Date") in general business, economic or market conditions (including changes
generally in prevailing interest rates, credit availability and liquidity, currency exchange rates
and price levels or trading volumes in the United States or foreign securities or credit markets),
or any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, in
each case generally affecting the industries in which the Company and its subsidiaries operate,
(B) changes or proposed changes after the Signing Date in generally accepted accounting
principles in the United States ("GAAP") or regulatory accounting requirements, or authoritative
interpretations thereof, (C) changes or proposed changes after the Signing Date in securities,
banking and other laws of general applicability or related policies or interpretations of
Governmental Entities (in the case of each of these clauses (A), (B) and (C), other than changes
-4-

095331-0002-1 0033-NY02.268956S.1 0

or occurrences to the extent that such changes or occurrences have or would reasonably be
expected to have a materially disproportionate adverse effect on the Company and its
consolidated subsidiaries taken as a whole relative to comparable U.S. banking or financial
services organizations), or (D) changes in the market price or trading volume of the Common
Stock or any other equity, equity-related or debt securities of the Company or its consolidated
subsidiaries (it being understood and agreed that the exception set forth in this clause (D) does
not apply to the underlying reason giving rise to or contributing to any such change); or (ii) the
ability of the Company to consummate the Purchase and the other transactions contemplated by
this Agreement and the Warrant and perform its obligations hereunder or thereunder on a timely
basis.

"Previously Disclosed" means information set forth or incorporated in the
(b)
Company's Annual Report on Form lO-K for the most recently completed fiscal year of the
Company filed with the Securities and Exchange Commission (the "SEC') prior to the Signing
Date (the "Last Fiscal Year") or in its other reports and forms filed with or furnished to the SEC
under Sections l3(a), l4(a) or l5(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") on or after the last day of the Last Fiscal Year and prior to the Signing Date.
2.2
Representations and Warranties of the Company. Except as Previously Disclosed,
the Company represents and warrants to the Investor that as of the Signing Date and as of the
Closing Date (or such other date specified herein):
(a)
Organization, Authority and Significant Subsidiaries. The Company has been
duly incorporated and is validly existing and in good standing under the laws of its jurisdiction of
organization, with the necessary power and authority to own its properties and conduct its
business in all material respects as currently conducted, and except as has not, individually or in
the aggregate, had and would not reasonably be expected to have a Company Material Adverse
Effect, has been duly qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification; each subsidiary of the Company that is
a "significant subsidiary" within the meaning of Rule 1-02(w) of Regulation s-x under the
Securities Act of 1933 (the "Securities Act") has been duly organized and is validly existing in
good standing under the laws of its jurisdiction of organization. The Charter and bylaws of the
Company, copies of which have been provided to the Investor prior to the Signing Date, are true,
complete and correct copies of such documents as in full force and effect as of the Signing Date.
(b)
Capitalization. The authorized capital stock of the Company, and the outstanding
capital stock of the Company (including securities convertible into, or exercisable or
exchangeable for, capital stock of the Company) as of the most recent fiscal month-end
preceding the Signing Date (the "Capitalization Date") is set forth on Schedule B. The
outstanding shares of capital stock of the Company have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and subject to no preemptive rights (and
were not issued in violation of any preemptive rights). Except as provided in the Warrant, as of
the Signing Date, the Company does not have outstanding any securities or other obligations
providing the holder the right to acquire Common Stock that is not reserved for issuance as

-5-

095331-0002-1 0033-NY02.2689565.1 0

specified on Schedule B, and the Company has not made any other commitment to authorize,
issue or sell any Common Stock. Since the Capitalization Date, the Company has not issued any
shares of Common Stock, other than (i) shares issued upon the exercise of stock options or
delivered under other equity-based awards or other convertible securities or warrants which were
issued and outstanding on the Capitalization Date and disclosed on Schedule Band (ii) shares
disclosed on Schedule B.
(c)
Preferred Shares. The Preferred Shares have been duly and validly authorized,
and, when issued and delivered pursuant to this Agreement, such Preferred Shares will be duly
and validly issued and fully paid and non-assessable, will not be issued in violation of any
preemptive rights, and will rank pari passu with or senior to all other series or classes of
Preferred Stock, whether or not issued or outstanding, with respect to the payment of dividends
and the distribution of assets in the event of any dissolution, liquidation or winding up of the
Company.
(d)
The Warrant and Warrant Shares. The Warrant has been duly authorized and,
when executed and delivered as contemplated hereby, will constitute a valid and legally binding
obligation of the Company enforceable against the Company in accordance with its terms, except
as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and general equitable
principles, regardless of whether such enforceability is considered in a proceeding at law or in
equity ("Bankruptcy Exceptions"). The shares of Common Stock issuable upon exercise of the
Warrant (the "Warrant Shares") have been duly authorized and reserved for issuance upon
exercise of the Warrant and when so issued in accordance with the terms of the Warrant will be
validly issued, fully paid and non-assessable, subject, if applicable, to the approvals of its
stockholders set forth on Schedule C.
(e)

Authorization, Enforceability.

(i)
The Company has the corporate power and authority to execute and
deliver this Agreement and the Warrant and, subject, if applicable, to the approvals of its
stockholders set forth on Schedule C, to carry out its obligations hereunder and
thereunder (which includes the issuance of the Preferred Shares, Warrant and Warrant
Shares). The execution, delivery and performance by the Company of this Agreement and
the Warrant and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the Company
and its stockholders, and no further approval or authorization is required on the part of
the Company, subject, in each case, if applicable, to the approvals of its stockholders set
forth on Schedule C. This Agreement is a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the Bankruptcy
Exceptions.
(ii)
The execution, delivery and performance by the Company of this
Agreement and the Warrant and the consummation of the transactions contemplated
hereby and thereby and compliance by the Company with the provisions hereof and
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thereof, will not (A) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration of, or result in the creation
of, any lien, security interest, charge or encumbrance upon any of the properties or assets
of the Company or any Company Subsidiary under any of the terms, conditions or
provisions of (i) subject, if applicable, to the approvals of the Company's stockholders set
forth on Schedule C, its organizational documents or (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or obligation to
which the Company or any Company Subsidiary is a party or by which it or any
Company Subsidiary may be bound, or to which the Company or any Company
Subsidiary or any of the properties or assets of the Company or any Company Subsidiary
may be subject, or (B) subject to compliance with the statutes and regulations referred to
in the next paragraph, violate any statute, rule or regulation or any judgment, ruling,
order, writ, injunction or decree applicable to the Company or any Company Subsidiary
or any of their respective properties or assets except, in the case of clauses (A)(ii) and
(B), for those occurrences that, individually or in the aggregate, have not had and would
not reasonably be expected to have a Company Material Adverse Effect.
Other than the filing of the Certificate of Designations with the Secretary
(iii)
of State of its jurisdiction of organization or other applicable Governmental Entity, any
current report on Form 8-K required to be filed with the SEC, such filings and approvals
as are required to be made or obtained under any state "blue sky" laws, the filing of any
proxy statement contemplated by Section 3.1 and such as have been made or obtained, no
notice to, filing with, exemption or review by, or authorization, consent or approval of,
any Governmental Entity is required to be made or obtained by the Company in
connection with the consummation by the Company of the Purchase except for any such
notices, filings, exemptions, reviews, authorizations, consents and approvals the failure of
which to make or obtain would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
(f)
Anti-takeover Provisions and Rights Plan. The Board of Directors of the
Company (the "Board of Directors") has taken all necessary action to ensure that the transactions
contemplated by this Agreement and the Warrant and the consummation of the transactions
contemplated hereby and thereby, including the exercise of the Warrant in accordance with its
terms, will be exempt from any anti-takeover or similar provisions of the Company's Charter and
bylaws, and any other provisions of any applicable "moratorium", "control share", "fair price",
"interested stockholder" or other anti-takeover laws and regulations of any jurisdiction. The
Company has taken all actions necessary to render any stockholders' rights plan of the Company
inapplicable to this Agreement and the Warrant and the consummation of the transactions
contemplated hereby and thereby, including the exercise of the Warrant by the Investor in
accordance with its terms.
(g)
No Company Material Adverse Effect. Since the last day of the last completed
fiscal period for which the Company has filed a Quarterly Report on Form IO-Q or an Annual
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Report on Form 10-K with the SEC prior to the Signing Date, no fact, circumstance, event,
change, occurrence, condition or development has occurred that, individually or in the aggregate,
has had or would reasonably be expected to have a Company Material Adverse Effect.
(h)
Company Financial Statements. Each of the consolidated financial statements of
the Company and its consolidated subsidiaries (collectively the "Company Financial
Statements") included or incorporated by reference in the Company Reports filed with the SEC
since December 31, 2006, present fairly in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates indicated therein (or if
amended prior to the Signing Date, as of the date of such amendment) and the consolidated
results of their operations for the periods specified therein; and except as stated therein, such
financial statements (A) were prepared in conformity with GAAP applied on a consistent basis
(except as may be noted therein), (B) have been prepared from, and are in accordance with, the
books and records of the Company and the Company Subsidiaries and (C) complied as to form,
as of their respective dates of filing with the SEC, in all material respects with the applicable
accounting requirements and with the published rules and regulations of the SEC with respect
thereto.
(i)

Reports.

(i)
Since December 31,2006, the Company and each subsidiary of the
Company (each a "Company Subsidiary" and, collectively, the "Company Subsidiaries")
has timely filed all reports, registrations, documents, filings, statements and submissions,
together with any amendments thereto, that it was required to file with any Governmental
Entity (the foregoing, collectively, the "Company Reports") and has paid all fees and
assessments due and payable in connection therewith, except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect. As of their respective dates of filing, the Company Reports complied in
all material respects with all statutes and applicable rules and regulations of the
applicable Governmental Entities. In the case of each such Company Report filed with or
furnished to the SEC, such Company Report (A) did not, as of its date or if amended
prior to the Signing Date, as of the date of such amendment, contain an untrue statement
of a material fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not misleading,
and (B) complied as to form in all material respects with the applicable requirements of
the Securities Act and the Exchange Act. With respect to all other Company Reports, the
Company Reports were complete and accurate in all material respects as of their
respective dates. No executive officer of the Company or any Company Subsidiary has
failed in any respect to make the certifications required of him or her under Section 302
or 906 of the Sarbanes-Oxley Act of2002.
(ii)
The records, systems, controls, data and information of the Company and
the Company Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether computerized or
not) that are under the exclusive ownership and direct control of the Company or the
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Company Subsidiaries or their accountants (including all means of access thereto and
therefrom), except for any non-exclusive ownership and non-direct control that would not
reasonably be expected to have a material adverse effect on the system of internal
accounting controls described below in this Section 2.2(i)(ii). The Company (A) has
implemented and maintains disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act) to ensure that material information relating to the
Company, including the consolidated Company Subsidiaries, is made known to the chief
executive officer and the chief financial officer of the Company by others within those
entities, and (B) has disclosed, based on its most recent evaluation prior to the Signing
Date, to the Company's outside auditors and the audit committee of the Board of
Directors (x) any significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting (as defined in Rule 13a-15( f) of the
Exchange Act) that are reasonably likely to adversely affect the Company's ability to
record, process, summarize and report financial information and (y) any fraud, whether or
not material, that involves management or other employees who have a significant role in
the Company's internal controls over financial reporting.

U)
No Undisclosed Liabilities. Neither the Company nor any of the Company
Subsidiaries has any liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) which are not properly reflected or reserved against in the Company Financial
Statements to the extent required to be so reflected or reserved against in accordance with
GAAP, except for (A) liabilities that have arisen since the last fiscal year end in the ordinary and
usual course of business and consistent with past practice and (B) liabilities that, individually or
in the aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect.
Offering of Securities. Neither the Company nor any person acting on its behalf
(k)
has taken any action (including any offering of any securities of the Company under
circumstances which would require the integration of such offering with the offering of any of
the Purchased Securities under the Securities Act, and the rules and regulations of the SEC
promulgated thereunder), which might subject the offering, issuance or sale of any of the
Purchased Securities to Investor pursuant to this Agreement to the registration requirements of
the Securities Act.
(I)
Litigation and Other Proceedings. Except (i) as set forth on Schedule D or (ii) as
would not, individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect, there is no (A) pending or, to the knowledge of the Company, threatened, claim,
action, suit, investigation or proceeding, against the Company or any Company Subsidiary or to
which any of their assets are subject nor is the Company or any Company Subsidiary subject to
any order, judgment or decree or (B) unresolved violation, criticism or exception by any
Governmental Entity with respect to any report or relating to any examinations or inspections of
the Company or any Company Subsidiaries.

(m)
Compliance with Laws. Except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, the Company and the
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Company Subsidiaries have all permits, licenses, franchises, authorizations, orders and approvals
of, and have made all filings, applications and registrations with, Governmental Entities that are
required in order to permit them to own or lease their properties and assets and to carryon their
business as presently conducted and that are material to the business of the Company or such
Company Subsidiary. Except as set forth on Schedule E, the Company and the Company
Subsidiaries have complied in all respects and are not in default or violation of, and none of them
is, to the knowledge of the Company, under investigation with respect to or, to the knowledge of
the Company, have been threatened to be charged with or given notice of any violation of, any
applicable domestic (federal, state or local) or foreign law, statute, ordinance, license, rule,
regulation, policy or guideline, order, demand, writ, injunction, decree or judgment of any
Governmental Entity, other than such noncompliance, defaults or violations that would not,
individually or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect. Except for statutory or regulatory restrictions of general application or as set forth on
Schedule E, no Governmental Entity has placed any restriction on the business or properties of
the Company or any Company Subsidiary that would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
(n)
Employee Benefit Matters. Except as would not reasonably be expected to have,
either individually or in the aggregate, a Company Material Adverse Effect: (A) each "employee
benefit plan" (within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) providing benefits to any current or former employee,
officer or director of the Company or any member of its "Controlled Group" (defined as any
organization which is a member of a controlled group of corporations within the meaning of
Section 414 of the Internal Revenue Code of 1986, as amended (the "Code")) that is sponsored,
maintained or contributed to by the Company or any member of its Controlled Group and for
which the Company or any member of its Controlled Group would have any liability, whether
actual or contingent (each, a "Plan") has been maintained in compliance with its terms and with
the requirements of all applicable statutes, rules and regulations, including ERISA and the Code;
(B) with respect to each Plan subject to Title IV of ERISA (including, for purposes of this clause
(B), any plan subject to Title IV of ERISA that the Company or any member of its Controlled
Group previously maintained or contributed to in the six years prior to the Signing Date), (1) no
"reportable event" (within the meaning of Section 4043( c) of ERISA), other than a reportable
event for which the notice period referred to in Section 4043( c) of ERISA has been waived, has
occurred in the three years prior to the Signing Date or is reasonably expected to occur, (2) no
"accumulated funding deficiency" (within the meaning of Section 302 of ERISA or Section 412
of the Code), whether or not waived, has occurred in the three years prior to the Signing Date or
is reasonably expected to occur, (3) the fair market value of the assets under each Plan exceeds
the present value of all benefits accrued under such Plan (determined based on the assumptions
used to fund such Plan) and (4) neither the Company nor any member of its Controlled Group
has incurred in the six years prior to the Signing Date, or reasonably expects to incur, any
liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC
in the ordinary course and without default) in respect of a Plan (including any Plan that is a
"multi employer plan", within the meaning of Section 4001(c)(3) of ERISA); and (C) each Plan
that is intended to be qualified under Section 401(a) of the Code has received a favorable
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determination letter from the Internal Revenue Service with respect to its qualified status that has
not been revoked, or such a determination letter has been timely applied for but not received by
the Signing Date, and nothing has occurred, whether by action or by failure to act, which could
reasonably be expected to cause the loss, revocation or denial of such qualified status or
favorable determination letter.
(0)
Taxes. Except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, (i) the Company and the Company
Subsidiaries have filed all federal, state, local and foreign income and franchise Tax returns
required to be filed through the Signing Date, subject to permitted extensions, and have paid all
Taxes due thereon, and (ii) no Tax deficiency has been determined adversely to the Company or
any of the Company Subsidiaries, nor does the Company have any knowledge of any Tax
deficiencies. "Tax" or "Taxes" means any federal, state, local or foreign income, gross receipts,
property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or
add on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any Governmental Entity.

Properties and Leases. Except as would not, individually or in the aggregate,
(p)
reasonably be expected to have a Company Material Adverse Effect, the Company and the
Company Subsidiaries have good and marketable title to all real properties and all other
properties and assets owned by them, in each case free from liens, encumbrances, claims and
defects that would affect the value thereof or interfere with the use made or to be made thereof
by them. Except as would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect, the Company and the Company Subsidiaries hold all leased
real or personal property under valid and enforceable leases with no exceptions that would
interfere with the use made or to be made thereof by them.
(q)
Environmental Liability. Except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect:
(i)
there is no legal, administrative, or other proceeding, claim or action of
any nature seeking to impose, or that would reasonably be expected to result in the
imposition of, on the Company or any Company Subsidiary, any liability relating to the
release of hazardous substances as defined under any local, state or federal environmental
statute, regulation or ordinance, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, pending or, to the Company's knowledge,
threatened against the Company or any Company Subsidiary;
(ii)
to the Company's knowledge, there is no reasonable basis for any such
proceeding, claim or action; and
(iii)
neither the Company nor any Company Subsidiary is subject to any
agreement, order, judgment or decree by or with any court, Governmental Entity or third
party imposing any such environmental liability.
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(r)
Risk Management Instruments. Except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, all derivative
instruments, including, swaps, caps, floors and option agreements, whether entered into for the
Company's own account, or for the account of one or more of the Company Subsidiaries or its or
their customers, were entered into (i) only in the ordinary course of business, (ii) in accordance
with prudent practices and in all material respects with all applicable laws, rules, regulations and
regulatory policies and (iii) with counterparties believed to be financially responsible at the time;
and each of such instruments constitutes the valid and legally binding obligation of the Company
or one of the Company Subsidiaries, enforceable in accordance with its terms, except as may be
limited by the Bankruptcy Exceptions. Neither the Company or the Company Subsidiaries, nor,
to the knowledge of the Company, any other party thereto, is in breach of any of its obligations
under any such agreement or arrangement other than such breaches that would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(s)
Agreements with Regulatory Agencies. Except as set forth on Schedule F, neither
the Company nor any Company Subsidiary is subject to any material cease-and-desist or other
similar order or enforcement action issued by, or is a party to any material written agreement,
consent agreement or memorandum of understanding with, or is a party to any commitment letter
or similar undertaking to, or is subject to any capital directive by, or since December 31,2006,
has adopted any board resolutions at the request of, any Governmental Entity (other than the
Appropriate Federal Banking Agencies with jurisdiction over the Company and the Company
Subsidiaries) that currently restricts in any material respect the conduct of its business or that in
any material manner relates to its capital adequacy, its liquidity and funding policies and
practices, its ability to pay dividends, its credit, risk management or compliance policies or
procedures, its internal controls, its management or its operations or business (each item in this
sentence, a "Regulatory Agreement"), nor has the Company or any Company Subsidiary been
advised since December 31, 2006 by any such Governmental Entity that it is considering issuing,
initiating, ordering, or requesting any such Regulatory Agreement. The Company and each
Company Subsidiary are in compliance in all material respects with each Regulatory Agreement
to which it is party or subject, and neither the Company nor any Company Subsidiary has
received any notice from any Governmental Entity indicating that either the Company or any
Company Subsidiary is not in compliance in all material respects with any such Regulatory
Agreement. "Appropriate Federal Banking Agency" means the "appropriate Federal banking
agency" with respect to the Company or such Company Subsidiaries, as applicable, as defined in
Section 3(q) of the Federal Deposit Insurance Act (12 U.S.c. Section 1813(q».
(t)
Insurance. The Company and the Company Subsidiaries are insured with
reputable insurers against such risks and in such amounts as the management of the Company
reasonably has determined to be prudent and consistent with industry practice. The Company
and the Company Subsidiaries are in material compliance with their insurance policies and are
not in default under any of the material terms thereof, each such policy is outstanding and in full
force and effect, all premiums and other payments due under any material policy have been paid,
and all claims thereunder have been filed in due and timely fashion, except, in each case, as
would not, individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect.
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(u)
Intellectual Property. Except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, (i) the Company and each
Company Subsidiary owns or otherwise has the right to use, all intellectual property rights,
including all trademarks, trade dress, trade names, service marks, domain names, patents,
inventions, trade secrets, know-how, works of authorship and copyrights therein, that are used in
the conduct of their existing businesses and all rights relating to the plans, design and
specifications of any of its branch facilities ("Proprietary Rights") free and clear of all liens and
any claims of ownership by current or former employees, contractors, designers or others and (ii)
neither the Company nor any of the Company Subsidiaries is materially infringing, diluting,
. misappropriating or violating, nor has the Company or any or the Company Subsidiaries received
any written (or, to the knowledge of the Company, oral) communications alleging that any of
them has materially infringed, diluted, misappropriated or violated, any of the Proprietary Rights
owned by any other person. Except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, to the Company's knowledge, no other
person is infringing, diluting, misappropriating or violating, nor has the Company or any or the
Company Subsidiaries sent any written communications since January 1, 2006 alleging that any
person has infringed, diluted, misappropriated or violated, any of the Proprietary Rights owned
by the Company and the Company Subsidiaries.
(v)
Brokers and Finders. No broker, finder or investment banker is entitled to any
financial advisory, brokerage, finder's or other fee or commission in connection with this
Agreement or the Warrant or the transactions contemplated hereby or thereby based upon
arrangements made by or on behalf of the Company or any Company Subsidiary for which the
Investor could have any liability.
Article III
Covenants
3.1

Commercially Reasonable Efforts.

(a)
Subject to the terms and conditions of this Agreement, each of the parties will use
its commercially reasonable efforts in good faith to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable
laws, so as to permit consummation of the Purchase as promptly as practicable and otherwise to
enable consummation of the transactions contemplated hereby and shall use commercially
reasonable efforts to cooperate with the other party to that end.
If the Company is required to obtain any stockholder approvals set forth on
(b)
Schedule C, then the Company shall comply with this Section 3.1(b) and Section 3.1(c). The
Company shall call a special meeting of its stockholders, as promptly as practicable following
the Closing, to vote on proposals (collectively, the "Stockholder Proposals") to (i) approve the
exercise of the Warrant for Common Stock for purposes of the rules of the national security
exchange on which the Common Stock is listed and/or (ii) amend the Company's Charter to
increase the number of authorized shares of Common Stock to at least such number as shall be
sufficient to permit the full exercise of the Warrant for Common Stock and comply with the
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other provisions of this Section 3.1 (b) and Section 3.1 (c). The Board of Directors shall
recommend to the Company's stockholders that such stockholders vote in favor of the
Stockholder Proposals. In connection with such meeting, the Company shall prepare (and the
Investor will reasonably cooperate with the Company to prepare) and file with the SEC as
promptly as practicable (but in no event more than ten business days after the Closing) a
preliminary proxy statement, shall use its reasonable best efforts to respond to any comments of
the SEC or its staff thereon and to cause a definitive proxy statement related to such
stockholders' meeting to be mailed to the Company's stockholders not more than five business
days after clearance thereof by the SEC, and shall use its reasonable best efforts to solicit proxies
for such stockholder approval of the Stockholder Proposals. The Company shall notify the
Investor promptly of the receipt of any comments from the SEC or its staff with respect to the
proxy statement and of any request by the SEC or its staff for amendments or supplements to
such proxy statement or for additional information and will supply the Investor with copies of all
correspondence between the Company or any of its representatives, on the one hand, and the
SEC or its staff, on the other hand, with respect to such proxy statement. If at any time prior to
such stockholders' meeting there shall occur any event that is required to be set forth in an
amendment or supplement to the proxy statement, the Company shall as promptly as practicable
prepare and mail to its stockholders such an amendment or supplement. Each of the Investor and
the Company agrees promptly to correct any information provided by it or on its behalf for use in
the proxy statement if and to the extent that such information shall have become false or
misleading in any material respect, and the Company shall as promptly as practicable prepare
and mail to its stockholders an amendment or supplement to correct such information to the
extent required by applicable laws and regulations. The Company shall consult with the Investor
prior to filing any proxy statement, or any amendment or supplement thereto, and provide the
Investor with a reasonable opportunity to comment thereon. In the event that the approval of any
of the Stockholder Proposals is not obtained at such special stockholders meeting, the Company
shall include a proposal to approve (and the Board of Directors shall recommend approval of)
each such proposal at a meeting of its stockholders no less than once in each subsequent sixmonth period beginning on January 1,2009 until all such approvals are obtained or made.
(c)
None of the information supplied by the Company or any of the Company
Subsidiaries for inclusion in any proxy statement in connection with any such stockholders
meeting of the Company will, at the date it is filed with the SEC, when first mailed to the
Company's stockholders and at the time of any stockholders meeting, and at the time of any
amendment or supplement thereof, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3.2
Expenses. Unless otherwise provided in this Agreement or the Warrant, each of
the parties hereto will bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated under this Agreement and the Warrant, including
fees and expenses of its own financial or other consultants, investment bankers, accountants and
counsel.
3.3

Sufficiency of Authorized Common Stock; Exchange Listing.
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(a)
During the period from the Closing Date (or, if the approval of the Stockholder
Proposals is required, the date of such approval) until the date on which the Warrant has been
fully exercised, the Company shall at all times have reserved for issuance, free of preemptive or
similar rights, a sufficient number of authorized and unissued Warrant Shares to effectuate such
exercise. Nothing in this Section 3.3 shall preclude the Company from satisfying its obligations
in respect of the exercise of the Warrant by delivery of shares of Common Stock which are held
in the treasury of the Company. As soon as reasonably practicable following the Closing, the
Company shall, at its expense, cause the Warrant Shares to be listed on the same national
securities exchange on which the Common Stock is listed, subject to official notice of issuance,
and shall maintain such listing for so long as any Common Stock is listed on such exchange.
(b)
If requested by the Investor, the Company shall promptly use its reasonable best
efforts to cause the Preferred Shares to be approved for listing on a national securities exchange
as promptly as practicable following such request.
3.4
Certain Notifications Until Closing. From the Signing Date until the Closing, the
Company shall promptly noti fy the Investor of (i) any fact, event or circumstance of which it is
aware and which would reasonably be expected to cause any representation or warranty of the
Company contained in this Agreement to be untrue or inaccurate in any material respect or to
cause any covenant or agreement of the Company contained in this Agreement not to be
complied with or satisfied in any material respect and (ii) except as Previously Disclosed, any
fact, circumstance, event, change, occurrence, condition or development of which the Company
is aware and which, individually or in the aggregate, has had or would reasonably be expected to
have a Company Material Adverse Effect; provided, however, that delivery of any notice
pursuant to this Section 3.4 shall not limit or affect any rights of or remedies available to the
Investor; provided,further, that a failure to comply with this Section 3.4 shall not constitute a
breach of this Agreement or the failure of any condition set forth in Section 1.2 to be satisfied
unless the underlying Company Material Adverse Effect or material breach would independently
result in the failure of a condition set forth in Section 1.2 to be satisfied.
3.5

Access, Information and Confidentiality.

From the Signing Date until the date when the Investor holds an amount of
(a)
Preferred Shares having an aggregate liquidation value ofless than 10% of the Purchase Price,
the Company will permit the Investor and its agents, consultants, contractors and advisors (x)
acting through the Appropriate Federal Banking Agency, to examine the corporate books and
make copies thereof and to discuss the affairs, finances and accounts of the Company and the
Company Subsidiaries with the principal officers of the Company, all upon reasonable notice and
at such reasonable times and as often as the Investor may reasonably request and (y) to review
any information material to the Investor's investment in the Company provided by the Company
to its Appropriate Federal Banking Agency. Any investigation pursuant to this Section 3.5 shall
be conducted during normal business hours and in such manner as not to interfere unreasonably
with the conduct of the business of the Company, and nothing herein shall require the Company
or any Company Subsidiary to disclose any information to the Investor to the extent (i)
prohibited by applicable law or regulation, or (ii) that such disclosure would reasonably be
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expected to cause a violation of any agreement to which the Company or any Company
Subsidiary is a party or would cause a risk of a loss of privilege to the Company or any Company
Subsidiary (provided that the Company shall use commercially reasonable efforts to make
appropriate substitute disclosure arrangements under circumstances where the restrictions in this
clause (ii) apply).
(b)
The Investor will use reasonable best efforts to hold, and will use reasonable best
efforts to cause its agents, consultants, contractors and advisors to hold, in confidence all nonpublic records, books, contracts, instruments, computer data and other data and information
(collectively, "Information") concerning the Company furnished or made available to it by the
Company or its representatives pursuant to this Agreement (except to the extent that such
information can be shown to have been (i) previously known by such party on a non-confidential
basis, (ii) in the public domain through no fault of such party or (iii) later lawfully acquired from
other sources by the party to which it was furnished (and without violation of any other
confidentiality obligation»; provided that nothing herein shall prevent the Investor from
disclosing any Information to the extent required by applicable laws or regulations or by any
subpoena or similar legal process.
Article IV
Additional Agreements
4.1
Purchase for Investment. The Investor acknowledges that the Purchased Securities
and the Warrant Shares have not been registered under the Securities Act or under any state
securities laws. The Investor (a) is acquiring the Purchased Securities pursuant to an exemption
from registration under the Securities Act solely for investment with no present intention to
distribute them to any person in violation of the Securities Act or any applicable U.S. state
securities laws, (b) will not sell or otherwise dispose of any of the Purchased Securities or the
Warrant Shares, except in compliance with the registration requirements or exemption provisions
of the Securities Act and any applicable U.S. state securities laws, and (c) has such knowledge
and experience in financial and business matters and in investments of this type that it is capable
of evaluating the merits and risks of the Purchase and of making an informed investment
decision.
4.2

Legends.

(a)
The Investor agrees that all certificates or other instruments representing the
Warrant and the Warrant Shares will bear a legend substantially to the following effect:
"THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD
OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STA TEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS."
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(b)
The Investor agrees that all certi ficates or other instruments representing the
Warrant will also bear a legend substantially to the following effect:
"THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON
TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE
AGREEMENT BETWEEN THE ISSUER OF THESE SECURITIES AND THE
INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE
ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH
SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE
WITH SAID AGREEMENT WILL BE VOID."
(c)
In addition, the Investor agrees that all certificates or other instruments
representing the Preferred Shares will bear a legend substantially to the following effect:
"THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE
A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.
EACH PURCHASER OF THE SECURITIES REPRESENTED BY THIS
INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. ANY TRANSFEREE OF THE SECURITIES REPRESENTED
BY THIS INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL
OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED BY THIS
INSTRUMENT EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT
WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG
AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (C) TO THE ISSUER OR (D) PURSUANT TO ANY
OTHER A VAILABLE EXEMPTION FROM THE REGISTRATION
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REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS
INSTRUMENT ARE TRANSFERRED A NOTICE SUBST ANTIALL Y TO THE
EFFECT OF THIS LEGEND."
(d)
In the event that any Purchased Securities or Warrant Shares (i) become registered
under the Securities Act or (ii) are eligible to be transferred without restriction in accordance
with Rule 144 or another exemption from registration under the Securities Act (other than Rule
144A), the Company shall issue new certificates or other instruments representing such
Purchased Securities or Warrant Shares, which shall not contain the applicable legends in
Sections 4.2(a) and (c) above; provided that the Investor surrenders to the Company the
previously issued certificates or other instruments. Upon Transfer of all or a portion of the
Warrant in compliance with Section 4.4, the Company shall issue new certificates or other
instruments representing the Warrant, which shall not contain the applicable legend in Section
4.2(b) above; provided that the Investor surrenders to the Company the previously issued
certificates or other instruments.
4.3
Certain Transactions. The Company will not merge or consolidate with, or sell,
transfer or lease all or substantially all of its property or assets to, any other party unless the
successor, transferee or lessee party (or its ultimate parent entity), as the case may be (ifnot the
Company), expressly assumes the due and punctual performance and observance of each and
every covenant, agreement and condition of this Agreement to be performed and observed by the
Company.
4.4
Transfer of Purchased Securities and Warrant Shares; Restrictions on Exercise of
the Warrant. Subject to compliance with applicable securities laws, the Investor shall be
permitted to transfer, sell, assign or otherwise dispose of ("Transfer") all or a portion of the
Purchased Securities or Warrant Shares at any time, and the Company shall take all steps as may
be reasonably requested by the Investor to facilitate the Transfer of the Purchased Securities and
the Warrant Shares; provided that the Investor shall not Transfer a portion or portions of the
Warrant with respect to, and/or exercise the Warrant for, more than one-half of the Initial
Warrant Shares (as such number may be adjusted from time to time pursuant to Section 13
thereof) in the aggregate until the earlier of (a) the date on which the Company (or any successor
by Business Combination) has received aggregate gross proceeds of not less than the Purchase
Price (and the purchase price paid by the Investor to any such successor for securities of such
successor purchased under the CPP) from one or more Qualified Equity Offerings (including
Qualified Equity Offerings of such successor) and (b) December 31,2009. "Qualified Equity
Offering" means the sale and issuance for cash by the Company to persons other than the
Company or any of the Company Subsidiaries after the Closing Date of shares of perpetual
Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as
and may be included in Tier 1 capital of the Company at the time of issuance under the
applicable risk-based capital guidelines of the Company's Appropriate Federal Banking Agency
(other than any such sales and issuances made pursuant to agreements or arrangements entered
into, or pursuant to financing plans which were publicly announced, on or prior to October 13,

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2008). "Business Combination" means a merger, consolidation, statutory share exchange or
similar transaction that requires the approval of the Company's stockholders.
4.5

Registration Rights.

(a)

Registration.

(i)
Subject to the terms and conditions of this Agreement, the Company
covenants and agrees that as promptly as practicable after the Closing Date (and in any
event no later than 30 days after the Closing Date), the Company shall prepare and file
with the SEC a Shelf Registration Statement covering all Registrable Securities (or
otherwise designate an existing Shelf Registration Statement filed with the SEC to cover
the Registrable Securities), and, to the extent the Shelf Registration Statement has not
theretofore been declared effective or is not automatically effective upon such filing, the
Company shall use reasonable best efforts to cause such Shelf Registration Statement to
be declared or become effective and to keep such Shelf Registration Statement
continuously effective and in compliance with the Securities Act and usable for resale of
such Registrable Securities for a period from the date of its initial effectiveness until such
time as there are no Registrable Securities remaining (including by refiling such Shelf
Registration Statement (or a new Shelf Registration Statement) if the initial Shelf
Registration Statement expires). So long as the Company is a well-known seasoned
issuer (as defined in Rule 405 under the Securities Act) at the time of filing of the Shelf
Registration Statement with the SEC, such Shelf Registration Statement shall be
designated by the Company as an automatic Shelf Registration Statement.
Notwithstanding the foregoing, if on the Signing Date the Company is not eligible to file
a registration statement on Form S-3, then the Company shall not be obligated to file a
Shelf Registration Statement unless and until requested to do so in writing by the
Investor.
(ii)
Any registration pursuant to Section 4.5(a)(i) shall be effected by means of
a shelf registration on an appropriate form under Rule 415 under the Securities Act (a
"Shelf Registration Statement"). If the Investor or any other Holder intends to distribute
any Registrable Securities by means of an underwritten offering it shall promptly so
advise the Company and the Company shall take all reasonable steps to facilitate such
distribution, including the actions required pursuant to Section 4.5( c); provided that the
Company shall not be required to facilitate an underwritten offering of Registrable
Securities unless the expected gross proceeds from such offering exceed (i) 2% of the
initial aggregate liquidation preference of the Preferred Shares if such initial aggregate
liquidation preference is less than $2 billion and (ii) $200 million if the initial aggregate
liquidation preference of the Preferred Shares is equal to or greater than $2 billion. The
lead underwriters in any such distribution shall be selected by the Holders of a majority
of the Registrable Securities to be distributed; provided that to the extent appropriate and
permitted under applicable law, such Holders shall consider the qualifications of any
broker-dealer Affiliate of the Company in selecting the lead underwriters in any such
distribution.
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(iii)
The Company shall not be required to effect a registration (including a
resale of Registrable Securities from an effective Shelf Registration Statement) or an
underwritten offering pursuant to Section 4.5(a): (A) with respect to securities that are
not Registrable Securities; or (B) if the Company has notified the Investor and all other
Holders that in the good faith judgment of the Board of Directors, it would be materially
detrimental to the Company or its securityholders for such registration or underwritten
offering to be effected at such time, in which event the Company shall have the right to
defer such registration for a period of not more than 45 days after receipt of the request of
the Investor or any other Holder; provided that such right to delay a registration or
underwritten offering shall be exercised by the Company (1) only if the Company has
generally exercised (or is concurrently exercising) similar black-out rights against holders
of similar securities that have registration rights and (2) not more than three times in any
12-month period and not more than 90 days in the aggregate in any 12-month period.
If during any period when an effective Shelf Registration Statement is not
(iv)
available, the Company proposes to register any of its equity securities, other than a
registration pursuant to Section 4.5(a)(i) or a Special Registration, and the registration
form to be filed may be used for the registration or qualification for distribution of
Registrable Securities, the Company will give prompt written notice to the Investor and
all other Holders of its intention to effect such a registration (but in no event less than ten
days prior to the anticipated filing date) and will include in such registration all
Registrable Securities with respect to which the Company has received written requests
for inclusion therein within ten business days after the date of the Company's notice (a
"Piggyback Registration"). Any such person that has made such a written request may
withdraw its Registrable Securities from such Piggyback Registration by giving written
notice to the Company and the managing underwriter, if any, on or before the fifth
business day prior to the planned effective date of such Piggyback Registration. The
Company may terminate or withdraw any registration under this Section 4.5(a)(iv) prior
to the effectiveness of such registration, whether or not Investor or any other Holders
have elected to include Registrable Securities in such registration.
(v)
If the registration referred to in Section 4.5(a)(iv) is proposed to be
underwritten, the Company will so advise Investor and all other Holders as a part of the
written notice given pursuant to Section 4.5(a)(iv). In such event, the right of Investor
and all other Holders to registration pursuant to Section 4.5(a) will be conditioned upon
such persons' participation in such underwriting and the inclusion of such person's
Registrable Securities in the underwriting if such securities are of the same class of
securities as the securities to be offered in the underwritten offering, and each such
person will (together with the Company and the other persons distributing their securities
through such underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company; provided
that the Investor (as opposed to other Holders) shall not be required to indemnify any
person in connection with any registration. If any participating person disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by written notice

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09533\·0002-\ 0033-NY02.2689565.\ 0

to the Company, the managing underwriters and the Investor (if the Investor is
participating in the underwriting).
If either (x) the Company grants "piggyback" registration rights to one or
(vi)
more third parties to include their securities in an underwritten offering under the Shelf
Registration Statement pursuant to Section 4.5(a)(ii) or (y) a Piggyback Registration
under Section 4.5(a)(iv) relates to an underwritten offering on behalf of the Company,
and in either case the managing underwriters advise the Company that in their reasonable
opinion the number of securities requested to be included in such offering exceeds the
number which can be sold without adversely affecting the marketability of such offering
(including an adverse effect on the per share offering price), the Company will include in
such offering only such number of securities that in the reasonable opinion of such
managing underwriters can be sold without adversely affecting the marketability of the
offering (including an adverse effect on the per share offering price), which securities
will be so included in the following order of priority: (A) first, in the case of a Piggyback
Registration under Section 4.5(a)(iv), the securities the Company proposes to sell, (B)
then the Registrable Securities of the Investor and all other Holders who have requested
inclusion of Registrable Securities pursuant to Section 4.5(a)(ii) or Section 4.5(a)(iv), as
applicable, pro rata on the basis of the aggregate number of such securities or shares
owned by each such person and (C) lastly, any other securities of the Company that have
been requested to be so included, subject to the terms of this Agreement; provided.
however. that if the Company has, prior to the Signing Date, entered into an agreement
with respect to its securities that is inconsistent with the order of priority contemplated
hereby then it shall apply the order of priority in such conflicting agreement to the extent
that it would otherwise result in a breach under such agreement.
(b)
Expenses of Registration. All Registration Expenses incurred in connection with
any registration, qualification or compliance hereunder shall be borne by the Company. All
Selling Expenses incurred in connection with any registrations hereunder shall be borne by the
holders of the securities so registered pro rata on the basis of the aggregate offering or sale price
of the securities so registered.
(c)
Obligations of the Company. The Company shall use its reasonable best efforts,
for so long as there are Registrable Securities outstanding, to take such actions as are under its
control to not become an ineligible issuer (as defined in Rule 405 under the Securities Act) and
to remain a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) if it
has such status on the Signing Date or becomes eligible for such status in the future. In addition,
whenever required to effect the registration of any Registrable Securities or facilitate the
distribution of Registrable Securities pursuant to an effective Shelf Registration Statement, the
Company shall, as expeditiously as reasonably practicable:
Prepare and file with the SEC a prospectus supplement with respect to a
(i)
proposed offering of Registrable Securities pursuant to an effective registration
statement, subject to Section 4.5( d), keep such registration statement effective and keep

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such prospectus supplement current until the securities described therein are no longer
Registrable Securities.
(ii)
Prepare and file with the SEC such amendments and supplements to the
applicable registration statement and the prospectus or prospectus supplement used in
connection with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all securities covered by
such registration statement.
(iii)
Furnish to the Holders and any underwriters such number of copies of the
applicable registration statement and each such amendment and supplement thereto
(including in each case all exhibits) and of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the disposition of
Registrable Securities owned or to be distributed by them.
Use its reasonable best efforts to register and qualify the securities covered
(iv)
by such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders or any managing
underwriter(s), to keep such registration or qualification in effect for so long as such
registration statement remains in effect, and to take any other action which may be
reasonably necessary to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such Holder; provided that the Company shall not
be required in connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or jurisdictions.
(v)
Notify each Holder of Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the applicable prospectus, as then in effect,
includes an untrue statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
(vi)

Give written notice to the Holders:

(A)
when any registration statement filed pursuant to Section 4.S(a) or
any amendment thereto has been filed with the SEC (except for any amendment
effected by the filing of a document with the SEC pursuant to the Exchange Act)
and when such registration statement or any post-effective amendment thereto has
become effective;
(B)
of any request by the SEC for amendments or supplements to any
registration statement or the prospectus included therein or for additional
information;

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095331-0002-1 0033-NY022689565.1 0

(C)
of the issuance by the SEC of any stop order suspending the
effectiveness of any registration statement or the initiation of any proceedings for
that purpose;
of the receipt by the Company or its legal counsel of any
(D)
notification with respect to the suspension of the qualification of the Common
Stock for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose;
(E)
of the happening of any event that requires the Company to make
changes in any effective registration statement or the prospectus related to the
registration statement in order to make the statements therein not misleading
(which notice shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made); and
if at any time the representations and warranties of the Company
(F)
contained in any underwriting agreement contemplated by Section 4.S(c)(x) cease
to be true and correct.
(vii) Use its reasonable best efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of any registration statement
referred to in Section 4.S(c)(vi)(C) at the earliest practicable time.
(viii) Upon the occurrence of any event contemplated by Section 4.S(c)(v) or
4.S(c)(vi)(E), promptly prepare a post-effective amendment to such registration statement
or a supplement to the related prospectus or file any other required document so that, as
thereafter delivered to the Holders and any underwriters, the prospectus will not contain
an untrue statement of a material fact or omit to state any material fact necessary to make
the statements therein, in light of the circumstances under which they were made, not
misleading. If the Company notifies the Holders in accordance with Section 4.S(c)(vi)(E)
to suspend the use of the prospectus until the requisite changes to the prospectus have
been made, then the Holders and any underwriters shall suspend use of such prospectus
and use their reasonable best efforts to return to the Company all copies of such
prospectus (at the Company's expense) other than permanent file copies then in such
Holders' or underwriters' possession. The total number of days that any such

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