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v.451

D ep artm en t o f the T reasury

PRESS RELEA SES

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Deputy Secretary Robert M. Kimmitt Remarks at the U.S.-lraq Dialogue on
Business and Investment Climate
11/3/2008
HP-1248
Baghdad - It is a pleasure to join in welcoming you to the Dialogue on Business and Investment Climate. On behalf
of the American delegation, including Ambassador Crocker and my colleagues from Washington - John Sullivan and
Mike Delaney - - 1would like to express appreciation to our Iraqi hosts, and particular appreciation to my friend, Vice
President Adil Abdul Mahdi, for hosting this event.
We meet in the midst of historic transformation in the global economy. In just the past few weeks, the United States
and other countries have taken steps to: provide much needed liquidity to the financial system; strengthen financial
institutions; protect investors; and enhance market stability. These actions are a powerful step toward restoring the
health of the global financial system, and creating the conditions for continued increases in cross-border trade and
investment.
Even as we seek to stabilize the major economies' financial markets, we continue to focus attention on supporting
emerging markets, including Iraq, 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 is committed to working
alongside the Iraqi leadership to help create a stable macroeconomic environment, strengthen the financial system,
and build a solid foundation for private sector economic growth.
Private sector development is the engine of a flourishing economy and the only sustainable catalyst for job creation.
Expanding the private sector helps diversify the economy, making the country more resilient to external economic
and financial shocks. It also brings in new management techniques and the latest technology, which create
efficiencies that enable businesses to compete in the regional and global marketplaces.
Iraq has many resources from which to draw, and its immense natural resources are only the most well known.
Companies around the world are beginning to recognize the long-term investment opportunities that now exist in the
agricultural, infrastructure, telecommunications, financial services, and tourism sectors. However, there are many
obstacles that limit business opportunities for Iraqis and their international counterparts.
That is precisely why we are here today. This morning, we will hear from Iraqi leaders discussing the progress they
are making in reforming investment laws and regulations, including through the National Investment Commission.
Later today, we will hear from the private sector and the World Bank, who will discuss ways that the Iraqi government
and its international partners can best promote investment and leverage public and private sector initiatives.
Importantly, key officials from the Council of Representatives as well as provincial governors will also participate in
the dialogue to help shape the vision for Iraq’s economic future.
It is important to emphasize at the outset that today’s dialogue is not the first effort to promote Iraq's private sector. I
would like to note some of the work that Iraq, and we in the international community, are already doing to help
improve the Iraqi economy, as a basis for discussing how to do even more together:
• First, Iraq has made significant progress implementing a sound macroeconomic framework. Their
accomplishments include establishing a strong and respected currency, lowering inflation, improving fiscal
policies, attaining consistent growth, and reducing subsidies. Iraq has also passed an important

•

•
•
•

investment law that will help lay the legal basis for foreign investment in the country. And it has maintained
a trade regime built on a simple, low tariff schedule.
Externally, Iraq has substantially decreased the sovereign debt burden incurred under the former regime by
actively engaging with the international community. By concluding agreements with remaining official
creditors, particularly in the Gulf, Iraq would send a positive signal to investors that it can resolve disputes
amicably. Investors are also closely watching political negotiations in Iraq, including on security
arrangements. We hope that negotiations on a security agreement can be concluded as quickly as
possible.
Second, agencies from across the U.S. Government, many of whom are represented here today, are
implementing initiatives to support Iraq's private sector development. For instance:
The Treasury Department is providing technical assistance and guidance to help Iraq modernize its public
banking sector.
The Department of Defense's Task Force to Improve Business and Stability Operations in Iraq focuses on
encouraging industrial revitalization, attracting foreign investment and market access, and modernizing the
private banking sector.
The United States Agency for International Development helps expand private sector access to financing,
supports regulatory reform, and distributes assistance for development support to Iraqi businesses.
The Overseas Private Investment Corporation, through programs like the Iraq Middle Market Development
Foundation, has created loan programs to support small and middle market businesses initiatives.
Third, and finally, the international community as a whole has also helped Iraq rebuild its economy. At the
Madrid Donors’ Conference in 2003, 45 countries and international institutions pledged $34 billion for
reconstruction and development. In the International Compact with Iraq, agreed to in Sharm el Sheikh in
2007, an even larger group of donors provided additional support in return for Iraqi's commitment to
multiple benchmarks to create an enabling environment for private investment and job creation. And, the
United Nations and World Bank both manage the International Reconstruction Fund Facility for Iraq, into
which donors have contributed almost $80 million focused on private sector development in Iraq.

While much has been done - by Iraq, by the U.S. Government, and by the international community - significant
challenges remain. The World Bank's Doing Business Indicators ranked Iraq 152 of 181 countries. We already know
some of the most important areas for improvement: the complexity of Iraq's existing laws, regulations, and
administrative procedures; the need for competition and consumer protection laws; and importantly, the publication of
implementing regulations for the new investment law. Iraq's ministerial and provincial budget execution also is still too
slow, and the average time and cost to start a business are some of the highest in the region.
The Iraqi government, with the support of international donors, is creating a strategy to overcome these hurdles,
including efforts with the World Bank to improve the ease of doing business. But the Iraqi government and its
international partners also have much to learn from our private sector colleagues, including those in this audience.
You have the resources and experience to help Iraq develop a robust private sector, by helping identify and resolve
some of the major impediments that investors face.
By building a vibrant economy led by the private sector, we will help improve the lives of the Iraqi people, enhance
stability, and bolster prospects for lasting peace. But there are also sound business reasons for exploring investment
opportunities at this time. By leveraging the ingenuity and entrepreneurship of those from all communities involved,
we will achieve much more together than we ever could acting alone.

Treasury Assistant Secretary for Economic Policy Phiiiip Swagei Statement For
the Treasury Borrowing Advisory Committee of the Securities Industry and
Financial Markets Association
11/3/2008
HP-1250

Washington - Economy activity has slowed noticeably in the past several months, with weaker consumer and
business spending, as well as corresponding impacts on the labor market. Financial market strains deepened further
in September, disrupting the flow of credit to businesses and households, and affecting equity prices and consumer
and business confidence. Policy actions taken in recent weeks have helped stabilize markets, but credit conditions
remain strained. Against this backdrop, the housing market adjustment continues, and while energy prices rose to
record levels in July, cutting into consumer budgets, they have fallen considerably in recent months.
The economy as a whole was growing moderately going into the third quarter. Real GDP increased by 2.8 percent in
the second quarter, boosted in large part by a narrowing trade deficit. Exports continued to post solid gains, and
imports declined. Outside of trade, however, growth was weak. A pick-up in consumer spending in the second
quarter, reflecting the effects of stimulus payments, was largely offset by declines in business investment in
equipment and software and residential homebuilding.
Growth slowed sharply in the third quarter, with real GDP declining by 0.3 percent at an annual rate. Consumer
spending fell for the first time since 1991, subtracting 2-1/4 percentage points from third-quarter GDP growth. The
drop in consumption was the largest since 1980. Business investment slipped by 1.0 percent in the third quarter, as
outlays for structures slowed and spending for equipment and software declined for a third straight quarter.
Residential investment, which has been a drag on growth since the start of 2006, subtracted 0.7 percentage points
from real GDP growth.
GDP growth in the third quarter was supported by inventory investment, government spending, and another solid
increase in net exports. Net exports contributed 1.1 percentage points to real growth in the third quarter, compared to
a contribution of 2.9 percentage points in the second quarter.
October indicators suggest a weak start to the final quarter of this year. Consumer optimism as measured by the
Conference Board fell to an all-time low in the wake of pronounced financial market volatility; regional manufacturing
indicators from the New York Fed and the Philadelphia Fed point to a sharp slowdown in industrial activity; and high
initial claims for unemployment insurance indicate a weak labor market. Trade has been a key driver of growth in
recent quarters, but slowing economic activity in several important trading partners suggests that net exports will
make a smaller contribution going forward.
The housing adjustment continues. Home sales are still sluggish, inventories of existing unsold homes remain at a
historically high level, and prices continue to decline. The adjustment in new home inventories, however, is well
underway, with inventories of new homes down from a peak of 572,000 in July 2006 to 394,000 in September. This
adjustment mainly reflects the falloff in building, with the current pace of new residential construction the slowest in
more than two decades. The slow pace of building permit issuance, the historically low level of builder confidence,
and tight credit conditions suggest that a recovery in new home construction will take some time (though a
stabilization of the decline in residential construction will remove an important drag from growth). House prices were

down 5.9 percent in August from year-earlier levels according to the Federal Housing Finance Agency. Other
measures such as the Case-Shiller measures of home prices likewise show continued price declines. Mortgage
delinquencies and foreclosures rose to new highs in the second quarter. Increased foreclosures feed into home
inventories and put additional downward pressure on home prices; homes sold at foreclosure tend to exhibit
particularly large price declines.
The labor market has weakened notably against the backdrop of a slowing economy. Nonfarm payrolls fell by an
average of 100,000 per month in the third quarter, compared to 77,000 jobs lost per month on average in the first half
of 2008. Nonfarm payroll employment is down by about 750,000 jobs on net this year. The unemployment rate stood
at a 5-year high of 6.1 percent in September.
Headline inflation accelerated sharply through the summer as energy prices spiked to record levels and food prices
continued to climb rapidly; the recent sharp reversal of oil prices and the weak real economy, however, are likely to
reverse these inflationary pressures. The consumer price index rose 4.9 percent in the twelve months ending in
September, up from 2.8 percent in the year-earlier period. Energy prices shot up 23 percent over the latest twelve
months, while food prices rose 6 percent. Excluding energy and food prices, core consumer price inflation remained
contained. Over the year ended in September, core inflation was 2.5 percent, roughly within the narrow range that
has prevailed over the past four years.
The trend toward rising headline inflation eased late in the summer, as energy and other commodity prices retreated
sharply. Retail gasoline prices have fallen by $1.45 from their all-time high of $4.11 per gallon recorded in July, and
now stand at $2.66 per gallon. Gasoline prices have moved lower with sliding crude oil prices. The benchmark onemonth futures price of West Texas Intermediate crude oil has declined more than 50 percent from a record intraday
high of $147 per barrel in mid July and on Friday closed at $67.81 per barrel. With the retreat in energy prices and the
slowing of economic growth, headline inflation is expected to ease going forward.
Several factors are affecting consumer demand, including labor market conditions, high energy and food prices, and
wealth declines from lower asset values. The summer surge in headline inflation cut into real wage growth, with real
average hourly earnings falling by 1.9 percent over the year ended in September. Household wealth has been eroded
by falling asset prices. House price declines have eaten away at the value of household real estate holdings, while
equity market declines have reduced the value of financial assets. Between the third quarter of 2007 and the second
quarter of this year, household net worth fell by $2.7 trillion - the first decline in household wealth since 2002. Further
declines appear likely for the third and fourth quarters of this year.
The weak economy has also affected the Federal budget. In FY2008, the fiscal year just ended in September, the
Federal deficit widened by $292 billion to $455 billion (3.2 percent of GDP). That followed three years of improvement
during which the deficit narrowed to $162 billion (1.2 percent of GDP) in FY2007. The higher FY2008 deficit reflects
the slowing economy and the economic stimulus package enacted in early 2008.
Financial market volatility reached unprecedented levels in recent weeks. Important parts of credit markets seized up
and equity markets posted steep losses, triggered by uncertainty about the overall economy and about the
performance and viability of a wide range of assets, as well as the financial institutions holding or providing contingent
guarantees for those assets. These developments have clouded the outlook for the remainder of 2008 and early
2009, prompting forecasters to cut their projections for near-term growth. Most private-sector analysts expect activity
to be weak into next year.
Although it will take time to work through the problems currently plaguing our financial system, recent measures
undertaken by the federal government are expected to help stabilize financial markets and put the economy back on
firm footing. The Emergency Economic Stabilization Act of 2008 (EESA), signed into law on October 3, gives the
Treasury Department the ability to design and deploy a number of tools to restore the flow of credit to consumers and

businesses. 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 asset that the Treasury and
the Federal Reserve deem necessary to promote financial market stability.
The Capital Purchase Program announced by the Treasury allocates $250 billion to be used to inject capital into a
wide range of banks. This action will shore up banks’ capital positions, encourage the resumption of interbank
lending, and translate into increased lending to consumers and business. The FDIC temporarily raised the deposit
insurance limit from $100,000 to $250,000 per depositor per bank, and, in addition has temporarily guaranteed the
newly issued senior unsecured debt of FDIC-insured institutions and their holding companies, as well as deposits in
non-interest bearing deposit transaction accounts. The Federal Reserve has announced a number of actions to
increase liquidity in financial markets, including launching several new liquidity facilities. These include the
Commercial Paper Funding Facility (CPFF) program, which provides a broad backstop for the commercial paper
market by funding purchases of commercial paper of three month maturity from high-quality issuers. The Federal
Reserve has also started the Money Market Investor Funding Facility, which allows private special purpose vehicles
to purchase assets from money market mutual funds and thereby works to restore liquidity to money markets.
There is some evidence that credit markets are beginning to thaw. The TED spread - the rate on 3-month interbank
loans relative to the risk-free 3-month T-bill rate, and a measure of willingness of banks to lend to each other - has
eased substantially. From a high of 457 basis points in early October, the spread has fallen about 200 basis points,
even though it still remains elevated at about 260 basis points. (The TED spread averaged around 40 basis points
prior to mid 2007, when the financial turmoil began in 2007.) Taken together, these policy measures are intended to
boost liquidity and add capital to the financial system, thereby restoring confidence and stability in financial
institutions so they can fuel continued economic growth.
In sum, economic conditions have deteriorated notably over the past few months. It will take time for financial markets
to stabilize and for credit market strains to ease. In the meantime, economic activity is expected to remain weak into
2009. The Emergency Economic Stabilization Act of 2008, along with other policy actions, will help restore stability in
financial markets and reduce uncertainty and improve confidence, fostering better economic performance over time.

Treasury Hires Legal Firms Under the Emergency Economic Stabilization Act
11/3/2008
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HP-1251
Washington - The U.S. Treasury Department today announced that Hughes Hubbard & Reed, LLP and Squire
Sanders & Dempsey, LLP will assist the Department in the implementation of the Capital Purchase Program
authorized under the Emergency Economic Stabilization Act. Treasury procured the services of the law firms on
Wednesday.
The firms will help the Department with executing transactions under the program, which includes reviewing executed
investment agreements, working directly with accepted financial institutions to identify and resolve any legal issues
before closing, and conducting the closing of transactions.
The agreements with the firms are effective until April 28, 2009. Treasury issued a request for quotes from five firms
on the General Services Administration’s Federal Supply Schedules on October 24. The Department received four
quotes in response. Based on the estimated transactions under the program, total costs for each firm is not expected
to exceed approximately $5.5 million. More information on these contracts will be posted at https://www.fpds.gov
(Federal Procurement Data System).

REPORTS
• Hughes Hubbard & Reed Contract
• Squire Sanders & Dempsey Contract

PAGE

ORDER FOR SUPPLIES OR SERVICES
IM P O R T A N T : M a r k

all p a c k a g e s a n d p a p e rs w ith c o n tr a c t a n d /o r o r d e r n u m b e rs .

1. DATE OF ORDER

10/29/2008

O F PAGES

2 CONTRACT NO. (If any)

09BPA002

a. NAME OF CO NSIGNEE

3. O RDER NO.

Indicated on call

4. REQ UISITIO N/REFERENCE NO.

5. ISSUING O FFICE (Address correspondence to)

b. STREET ADDRESS

DEPARTMENT OF THE TREASURY
1500 PENNSYLVANIA AVENUE, NW
PROCUREMENT SERVICES DIVISION
ATTN: STEVEN GORDON
WASHINGTON DC 20220

C. CITY

d STATE

e. ZIP CODE

7. TO:

a. NAME OF CONTRACTOR

HUGHES HUBBARD & REED LLP

8. TYPE O F ORDER

b. COMPANY NAME

□

a. PURCHASE

ONE BATTERY PARK PLAZA

d. CITY

e. STATE

NEW YORK

Please furnish the following on the term s
and conditions specified on both sides of
this order and on the attached sheet, if any,
including delivery as indicated.

f ZIP CODE

Except for billing instructions on the
reverse, this delivery order is subject
to instructions contained on this side
only o f this form and is issued
subject to the term s and conditions
of the above-numbered contract.

10004-1482

8 ACCOUNTING AND APPROPRIATION DATA

10. REQ UISITIO NING OFFICE

Indicated on call

DEPARTMENT OF THE TREASURY

11. BUSINESS CLASSIFICATION

b. DELIVERY

REFERENCE YOUR:

C STREET ADDRESS

(ChecK appropriate box(es))

; a. SMALL

j d. W O M EN-OW NED

l_Je. HUBZone

] b. OTHER THAN SMALL

□

13. PLACE OF

a. INSPECTION

12. F O B. POINT
I

g. SERVICE-

I c. DISADVANTAGED

OWNED

14. G O VERNM ENT B/L NO.

16. D IS C O U N T TERM S

15. DELIVER TO F.O.B. POINT
O N OR BEFORE (D a te )

Indicated on call

b. ACCEPTANCE

Destination

DISABLED
VETERAN-

f. EMERG ING SMALL
BUSINESS

Destination

17 SCHEDULE (See reverse for Rejections)
QUANTITY
ITEM NO.

O RDERED UNIT
(d)

SUPPLIES O R SERVICES

(a)

(c)

<b)

GSA Contract

# :

UNIT
PRICE

AM OUNT

QUANTITY
ACCEPTED

(e)

(9)

GS-23F-0172

Continued ...
18 SHIPPING POINT

19 GROSS SHIPPING W E IG HT

17(h)

20 INVOICE NO

TOTAL

(Cont.
pages)
21. MAIL INVOICE TO:

Indicated on call

a. NAME
SEE BILLING
INSTRUCTIONS
ON REVERSE

$0.00

b. STREET ADDRESS
(or P.O. Box)

17(i)
GRAND
TOTAL
C. CITY

d. STATE

IM lB il

22. UNITED STATES OF AM ERICA

BY (Signature)

AUTHORIZED FOR LOCAL REPRODUCTION
PREVIOUS EDITION NOT USABLE

e. ZIP CODE

$5,645,161.75

23. NAME (Typed)

STEVEN C. GORDON
TITLE: CO NTR ACTING /OR DERING OFFICER

OPTIONAL FORM 347 <*•». otoosi
Presented by GSA/FAR 4« CFR 53.213(n)

PAGE

ORDER FOR SUPPLIES OR SERVICES
SCHEDULE - CONTINUATION

OF PAGES

IM P O R T A N T : Mark all packages and papers with contract and/or order numbers.
DATE OF O RDER

CO NTRACT NO.

O RDER NO.

10/29/2008 09BPA002
QUANTITY UNIT

S U PPU ES/SERVICES

ITEM NO.

O RDERED
(8 )

(A)

(C)

UNIT

AM O U NT

PRICE
<D)

(E)

(F)

QUANTITY
ACCEPTED
(G)

Admin Office:
DEPARTMENT OF THE TREASURY
PROCUREMENT SERVICES DIVISION
1500 PENNSYLVANIA AVE, NW
MAIL STOP: 1425 NEW YORK AVE, NW
SUITE 2100
WASHINGTON DC 20220
Period of Performance: 10/29/2008 to
04/28/2009

TOTAL CARRIED FORWARD TO 1ST PAGE (ITEM 17(H))
NSN 7540-01-152-8062

OPTIONAL FORM 148 (R iv

M S)

Prescribed by GSA
FAR (4« CFR) 53.213(c)

Department o f the Treasury, DO
09BPA002

Legal Support Services
GSA Contract No. GS-23F-0172

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE

In the spirit of the Federal Acquisition Streamlining Act, the Department o f the Treasury and
Hughes, Hubbard & Reed. LLP enter into this Blanket Purchase Agreement (BPA) to further
reduce the administrative costs o f acquiring repetitive services from the General Services
Administration (GSA) Federal Supply Schedule (FSS), Financial and Business Solutions (FABS)
Contract GS-23F-0172P.
Federal Supply Schedule contract BP As 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 otYers. Contractor Team Arrangements are permitted 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 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:
D epartm ent o f the T reasure. D O

D epartm ent o f the T reasury
D epartm ental O ffices
1500 P ennsylvania A venue
(1425 N ew Y ork A venue - 2 nd Floor)
W ashington, D C 20220
202-622-2341 (P)
202-622-2343 (F)

W ashington, D C , 20005-2403
2 0 2-434-9100 (P)
202-783-3420 (F)

Page 3 of 15 Pages

Legal Support Services
G SA Contract N o. G S-23F-0172

D epartm ent o f the Treasury, DO
09BPA002

BLA N K ET PU RCH A SE A G REEM EN T
G SA FED ERA L SU PPLY SCHED ULE

Pursuant to G SA Federal Supply Schedule Contract N um ber G S-23F-0067P, the C ontractor agrees
to the follow ing term s o f a B lanket Purchase Agreem ent (BPA ) exclusively w ith the D epartm ent o f
the Treasury and for use bv the D epartm ent o f the Treasury.
(1) All services/products currently listed on your G SA schedule, to include new service/products
added during the perform ance o f this BPA can be ordered under this B PA in support o f the
requirem ents as set forth in this BPA. All orders placed against this BPA are subject to the
term s and conditions o f the contract.
PRICING: The Contractor’s labor rates, as set forth in its GSA Schedule, are incorporated into this BPA.
(2) Delivery:
D ESTIN A TIO N D ELIV ERY SCHED ULE/DA TES
A ssigned upon issuance o f individual task/deliverv orders.
(3) This BPA does not obligate any funds. The G overnm ent is obligated only to the extent
authorized by task orders issued under this BPA. The BPA is established to fill recurring
requirem ents.
(4) Purchase lim itation: There is no dollar lim itation for each individual purchase. The
contractor’s labor rates, as set forth in A ttachm ent 1, are incorporated into the BPA. The
contractor m ay not exceed the labor rates set forth in A ttachm ent 1 during perform ance o f any
task order. H ow ever, further discounts m ay be negotiated per task/delivery order. Regardless
o f the size o f the task/delivery order the contractor is encouraged to offer additional discounts.
(5) This BPA expires on A p ril 28, 2009 or upon expiration and non-renew al o f the vendor’s GSA
contract. The BPA can be cancelled by the G overnm ent at any tim e. The C ontractor shall
provide all resources necessary to perform services in accordance w ith the requirem ents
specified herein.
All Office o f the General Counsel (OGC) requirem ents w ill be fulfilled on a task order basis.
Individual task orders placed under this BPA m ay be issued on a firm fixed-price o r tim eand-m aterials basis, or any com bination thereof.
(6) The follow ing office is hereby authorized to issue task orders under this BPA:
OFFICE

PO IN T OF CO N TA CT

Treasury, Procurem ent Services D ivision

D esignated Contracting O fficer

Task/delivery orders shall only be placed by designated contracting officers.

Page 4 of 15 Pages

Legal Support Services
G SA Contract No. G S-23F-0172

D epartm ent o f the Treasury, DO
09BPA002

BLANK ET PU RCH A SE A G REEM EN T
G SA FED ERA L SU PPLY SC H ED U LE
(7) Task O rders w ill be issued against this BPA via e-m ail, FA X, o r paper.
(8) U nless otherw ise agreed to, all deliveries under this BPA m ust be accom panied by delivery
tickets or sales slips that m ust contain the following inform ation as a m inim um :
(a) N am e o f Contractor;
(b) BPA N um ber;
(c) GSA C ontract N um ber;
(d) Task/D elivery O rder Num ber;
(e) Date o f Issuance o f Task Order; and
(f) Quantity, U nit Price, and Extension o f Each Item (unit prices and extensions need not be
show n w hen incom patible w ith the use o f autom ated system s; provided, that the invoice is
item ized to show the inform ation).
(9) The requirem ents o f a proper invoice are as specified in the Federal Supply Schedule contract.
Invoices w ill be subm itted to the address specified w ithin the task/delivery order transm ission
issued against this BPA.
(10) The term s and conditions included in this BPA apply to all task orders issued against it. In the
event o f an inconsistency betw een the provisions o f this B PA and the task order, the provisions o f
this BPA will take precedence.
(11) The C ontractor’s proposed conflict o f interest m itigation plan is specifically incorporated into
this BPA and shall be in full effect throughout the life o f the BPA. In the event o f any conflict or
ambiguity, the term s o f the BPA A ttachm ent No. 3 w ill take precedence.
*IM PORTANT -- A new feature to the Federal Supply Schedules Program perm its contractors to
offer price reductions in accordance w ith com m ercial practice. C ontractor Team Arrangem ents are
perm itted w ith Federal Supply Schedule contractors in accordance w ith FA R Subpart 9.6 and are
encouraged.

Page 5 of 15 Pages

Legal Support Services
G SA C ontract No. G S-23F-0172

D epartm ent o f the Treasury, DO
09BPA002

BLA N K ET PU RCH A SE A G R EEM EN T
G SA FED ERA L SU PPLY SCH ED U LE
A ttachm ent No. 1
A ttachm ent No. 2
A ttachm ent No. 3

Hughes, Hubbard & R eed’s Q uotation, dated O ctober 2 7 ,2 0 0 8
Statem ent o f W ork
C onflicts o f Interest, Confidentiality & Publicity R equirem ents

S P E C IA L B P A P R O V IS IO N S /C L A U S E S
1.1

F A R 52-252-2 C L A U S E S IN C O R P O R A T E D BY R E F E R E N C E (F E B 1998)

This BPA incorporates one or m ore clauses by reference, w ith the sam e force and effect as i f they
w ere given in full text. U pon request, the C ontracting O fficer will m ake their full text available.
Also, the full text o f a clause m ay be assessed electronically at w w w .am et.gov.
52.207-3 - Right o f First Refusal o f Em ploym ent (M A Y 2006)
1.2

A U T H O R IT Y - C O N T R A C T IN G O F F IC E R (C O ), C O N T R A C T IN G
O F F IC E R ’S T E C H N IC A L R E P R E S E N T A T IV E (C O T R )
1.2.1

C o n tra c tin g O fficer (C O )

Page 6 of 15 Pages

D epartm ent o f the Treasury, DO
09BPA002

Legal Support Services
G SA C ontract N o. G S-23F-0172

BLANK ET PU RCH A SE A G REEM EN T
GSA FED ERA L SU PPLY SCHED ULE
The CO, in accordance w ith Subpart 1.6 o f the Federal A cquisition R egulation, is the only person
authorized to m ake or approve any changes to any o f the requirem ents o f a task order, and
notw ithstanding any clauses contained elsewhere in this BP A, said authority rem ains solely w ith
the CO. In the event the C ontractor m akes any changes at the direction o f any person other than
the CO, the change will be considered to have been m ade w ithout authority and no adjustm ent
will be m ade in the task order price to cover any increase in cost incurred as a result thereof.
1.2.2. D T A R 1052.201-70 C O N T R A C T IN G O F F IC E R ’S T E C H N IC A L
R E P R E S E N T A T IV E (C O T R ) D E S IG N A T IO N A N D A U T H O R IT Y .
(M A R 2002)
(a) The C O TR is:
Laurie Schaffer. A ssistant General Counsel for Banking and Finance Law.
Office o f the General Counsel
(202) 622-1988
(b) Perform ance o f work under this contract m ust be subject to the technical direction o f
the C O TR identified above, or a representative designated in writing. The term “technical
direction” includes, w ithout lim itation, direction to the contractor that directs or redirects the
labor effort, shifts the w ork betw een w ork areas or locations, fills in details and otherw ise serves
to ensure that tasks outlined in the w ork statem ent are accom plished satisfactorily.
(c) Technical direction m ust be w ithin the scope o f the specification(s)/w ork statem ent.
The CO TR does n o t have authority to issue technical direction that:
(1) constitutes a change o f assignm ent or additional w ork outside the
specification(s)/w ork statement;
(2) constitutes a change as defined in the clause entitled “C hanges” ;
(3) in any m anner causes an increase or decrease in the contract price, or the tim e
required for contract performance;
(4) changes any o f the term s, conditions, or specification(s)/w ork statem ent o f the
contract;
(5) interferes with the contractor’s right to perform under the term s and
conditions o f the contract; or

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(6) directs, supervises or otherw ise controls the actions o f the contractor’s
employees.
(d) Technical direction m ay be oral or in writing. The C O T R shall confirm oral direction
in w riting w ithin five w ork days, w ith a copy to the contracting officer.
(e) The contractor shall proceed prom ptly w ith perform ance resulting from the technical
direction issued by the COTR. If, in the opinion o f the contractor, any direction o f the CO TR , or
his/her designee, falls w ithin the lim itations in (c) above, the contractor shall im m ediately notify
the contracting officer no later than the beginning o f the next G overnm ent w ork day.
(f) Failure o f the contractor and the contracting officer to agree that technical direction is
w ithin the scope o f the contract shall be subject to the term s o f the clause entitled “D isputes.”
(End o f clause)

1.3
S E C U R IT Y S C R E E N IN G R E Q U IR E M E N T S F O R A C C E S S T O S E N S IT IV E B U T
U N C L A S S IF IE D S Y ST E M S O R IN F O R M A T IO N
Security screening requirem ents will be determ ined at the task order level.
(a) In addition to com plying w ith any functional and technical security requirem ents set
forth in the schedule and elsewhere in this BP A, the Contractor shall request that the G overnm ent
initiate personnel screening checks and provide signed user nondisclosure agreem ents, as
required by this clause, for each contractor em ployee requiring staff-like access (e.g. unescorted
or unsupervised physical access or electronic access), specified at the task order level, to lim ited
or controlled areas, system s, program s and data.
(b) The Contractor shall subm it a properly com pleted set o f investigative request
processing forms for each such em ployee in com pliance w ith instructions to be furnished by the
Contracting O fficer or his/her designated representative.

Applicable forms will be furnished to the Contractor at time o f task order award.
(c) D epending upon the nature o f the type o f investigation necessary, it m ay take a period
up to several m onths to com plete com plex personnel screening investigations. A t the discretion
o f the Governm ent, background screening m ay not be required for em ployees w ith recent or
current favorable Federal Governm ent investigations. To verify the acceptability o f a non-

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Treasury, favorable investigation, the C ontractor shall subm it the form s or inform ation needed,
according to instructions furnished by the Contracting Officer.
(d) W hen contractor em ployee access is necessary prior to com pletion o f personnel
screening, each contractor em ployee requiring access m ay be considered for escort access. The
C ontractor shall prom ptly subm it all requests for approval for escort access to the C ontracting
O fficer or his/her designated representative so as not to endanger tim ely contract perform ance.
(e) The Contractor shall ensure that each contractor em ployee requiring access executes
any nondisclosure agreem ents required by the G overnm ent prior to gaining staff-like access. The
Contractor shall provide signed copies o f the agreem ents to the Site Security O fficer (SSO )
for inclusion in the em ployee’s security file. The G overnm ent w ill provide the nam e and
location o f the SSO after contract award. U nauthorized access is a violation o f law and m ay be
punishable under the provisions o f Title 5 U.S.C. 552a, Executive O rder 12356; Section 7211 o f
Title 5, U nited States Code (governing disclosures to Congress); Section 1034 o f T itle 10, U nited
States Code, as am ended by the M ilitary W histleblow er Protection A ct (governing disclosure to
Congress by m em bers o f the m ilitary); Section 2302(b)(8) o f Title 5, U nited States Code, as
am ended by the W histleblow er Protection Act (governing disclosures o f illegality, w aste, fraud,
abuse or public health or safety threats); the Intelligence Identities Protection A ct o f 1982 (50
U.S.C. 421 et seq.) (governing disclosures that could expose confidential G overnm ent agents);
and the statutes w hich protect against disclosure that m ay com prom ise the national security,
including Sections 641, 793, 794, 798, and 952 o f Title 18, U nited States Code, and Section 4(b)
o f the Subversive A ctivities A ct o f 1950 (50 U.S.C. Section 783(b)) and other applicable
statutes.
(f) The Contractor shall notify the Contracting O fficer’s Technical R epresentative
(CO TR) or the Site Security O fficer no later than the end o f the day o f the term ination for cause
o f an authorized em ployee’s access. The Contractor shall notify the C O TR no later than ten days
after an authorized em ployee no longer requires access for any other type o f term ination. Verbal
notifications shall be confirm ed in writing w ithin thirty days.
1.4

ID E N T IF IC A T IO N /B A D G IN G R E Q U IR E M E N T S

D uring the period o f this contract, access to Departm ent o f the Treasury facilities for contractor
representatives shall be granted as deem ed necessary by the Governm ent. All contractor
em ployees w hose 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 Governm ent.
In addition, corporate identification badges shall be w orn on the outer garm ent at all tim es. It is
the sole responsibility o f the Contractor to provide this corporate identification. U pon the
term ination o f the em ploym ent o f any contractor personnel w orking on this contract, all

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governm ent-furnished identification shall be returned to the issuing office. A ll on-site contractor
personnel shall abide by security regulations applicable to that site.
1.5

S E C T IO N 508 C O M P L IA N C E

The Contractor m ust provide a com prehensive list o f all offered specific electronic and
inform ation technology (EIT) products (supplies and services) that fully com ply w ith Section 508
o f the R ehabilitation A ct o f 1973, per the 1998 A m endm ents, and the A rchitectural and
Transportation Barriers C om pliance B oard’s Electronic and Inform ation Technology
A ccessibility Standards at 36 C FR Part 1194. The C ontractor m ust clearly indicate w here this
list w ith full details o f com pliance can be found (e.g., vendors or other exact w eb page location).
The contractor m ust ensure that the list is easily accessible by typical users beginning five
calendar days after award. The contractor m ust m aintain this detailed listing o f com pliant
products for the full contract term , including all form s o f extensions, and m ust ensure that it is
current w ithin three calendar days o f changes to his product line.
The vendor m ust ensure that all EIT products that are less than fully com pliant are offered
pursuant to extensive m arket research, which ensures that they are the m ost com pliant products
and services available to satisfy this solicitation’s requirem ents.
For every EIT product accepted under this contract by the G overnm ent that does not com ply w ith
36 C FR Part 1194, the contractor shall, at the discretion o f the G overnm ent, m ake every effort to
replace or upgrade it w ith a com pliant equivalent product or service, i f com m ercially available
and cost neutral, on either the planned refresh cycle o f the product or service, or on the contract
renew al date, w hichever shall occur first.
1.6.

A D M IN IS T R A T IV E IN S T R U C T IO N S

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o f order and as indicated in the Schedule. O D Cs and travel costs shall be identified by
task/phase and shall include all necessary docum entation supporting the charge(s). A copy o f the
governm ent’s docum ent(s) accepting the covered services m ust accom pany invoices subm itted
for paym ent. A copy o f the invoice w ill be subm itted to the addresses identified in the
task/delivery order to the contracting officer at the sam e tim e it is subm itted to the program
m anager. F a ilu re to com ply w ith th e p ro c e d u re s o u tlin e d ab o v e m ay re s u lt in p a y m e n t
b ein g delayed.

b. Invoices are to be em ailed as soon as possible after the end o f each calendar m onth to:
1. www.vendorpav@ do.treas. gov:
2. Contracting Officer: and
3. COTR.
Subm ittal to “vendorpay” is considered the official invoice subm ittal; and it is through
“vendorpay” that prom pt paym ent com pliance is tracked. Each copy o f each invoice shall clearly
identify the C ontractor’s Taxpayer Identification N um ber (TIN). The C ontractor shall assure that
a responsible official o f the com pany signs the following statem ent on each invoice:
“I certify that the services listed above have been perform ed in accordance w ith the contract
and those personnel hours or other costs are true, correct, and have not been previously
billed.”
Typed N am e and Signature
The Contract and Task O rder N um ber shall be typed on each invoice. Paym ent w ill be m ade in
accordance w ith the Prom pt Paym ent Act (see FA R 52.232-25 Prom pt Paym ent).
The invoice shall be approved by the Contracting O fficer’s Technical R epresentative (CO TR). If
requested by the Governm ent, tim e cards or tim e sheets for each em ployee shall be provided as
evidence o f hours worked by each employee by Task Order. The tim e card or tim e sheet w ill
indicate the date worked, num ber o f hours worked, and the hourly rate for each employee.
All follow-up invoices shall be m arked “Duplicate o f O riginal”. C ontractor questions regarding
paym ent inform ation should be directed to the COTR.
The Contractor shall provide the CO TR with an advance (pre-subm ittal) version o f the invoice for
review.

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1.7

P E R F O R M A N C E M O N IT O R IN G

The G overnm ent shall m onitor and evaluate the contractors overall perform ance and service
delivery.
The G overnm ent m ay convene an A ssessm ent Board to review , analyze, and evaluate the
contractor’s perform ance. The Board will also determ ine the disposition o f extending each
perform ance period, using the data, analysis, and evaluation perform ed. The B oard m em bership
w ill include:
a) C ontracting Officer,
b) Contracting O fficer’s Technical Representative, and
c) Treasury O G C M anagem ent Staff.
1.8

S T A F F IN G PL A N

The contractor shall m aintain the Staffing Plan initially subm itted in the contractor’s
proposal. The staffing plan shall layout the approach, practices, and staffing to accom plish the
requirem ents o f this BP A as well as the specific requirem ents set forth in each Task Order. As
such, the plan shall relate the staffing allocations by organizational or function units o f the
contractor team.
1.9

H O L ID A Y S

OBSERVANCE OF LEGAL HOLIDAYS AND EXCUSED ABSENCES
a) The G overnm ent hereby provides NO TICE and C ontractor hereby acknow ledges
RECEIPT that Governm ent personnel observe the listed days as holidays:
N ew Y ears D ay
M artin Luther K ing’s Birthday
President’s Birthday
M em orial Day
Independence Day
Labor D ay
Colum bus D ay
V eterans D ay
Thanksgiving Day
Christm as
Inauguration Day

January 1
Third M onday in January
Third M onday in February
Last M onday in M ay
July 4
First M onday in Septem ber
Second M onday in O ctober
N ovem ber 11
Fourth Thursday in N ovem ber
D ecem ber 25
January 20 every four years

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b) In addition to the days designated as holidays, the G overnm ent observes the follow ing
days:
A ny other day designated by Federal Statute;
A ny other day designated by Executive Order; and
A ny other day designated by the President’s Proclam ation.
c) It is understood and agreed betw een the G overnm ent and the C ontractor that observances
o f such days by G overnm ent personnel shall not otherw ise be a reason for an additional
period o f perform ance, or entitlem ent o f com pensation except as set forth w ithin the
individual Task Order. In the event the C ontractor’s personnel w ork during the holiday,
they m ay be reim bursed by the Contractor, how ever, no form o f holiday or other prem ium
com pensation will be reim bursed either as a direct or indirect cost, other than their
norm al com pensation for the tim e worked. This provision does not preclude
reim bursem ent for authorized prem ium pay, if applicable to this contract as stated in its
individual Task Orders.
d) W hen the Federal, State, Local and other governm ental entities grants excused absence to
its em ployees, assigned C ontractor personnel m ay also be dism issed. The C ontractor
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 CO TR.
e) In the event that Treasury personnel are furloughed, the contracting officer or the CO TR
w ill com m unicate contractual direction to the contractor regarding perform ance o f work.
f) N othing in this clause abrogates the rights and responsibilities o f the parties relating to
“stop w ork” provisions as cited in other sections o f this contract. Prim arily, w ork shall be
perform ed at the D epartm ent o f the Treasury facility or, upon approval, facilities w ithin
the W ashington, D.C. m etropolitan area. Occasional w ork m ay be perform ed at other
field activity locations, including disaster recovery and/or continuity o f operations
locations. N o locality differential paym ents are applicable to this contract.

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1.10 T A S K O R D E R S
W hen placing task orders, Treasury will not conduct com petitions for individual task orders
am ong BP A holders. How ever, Treasury w ill m ake an effort to ensure equitable distribution o f
w ork am ong BPA holders.
The standard ordering process is set forth below.
Treasury w ill order an approxim ately equally am ount o f w ork from each B PA holder. This will
be achieved by alternating the award o f task orders am ong all BPA holders, to the extent
practicable.
Treasury will m ake its best efforts to adhere to the above process during the first 30 days
follow ing award o f the BPAs. Exceptions to the standard ordering process m ay be m ade in
consideration o f conflicts o f interest, geographical location o f the contractors, and other relevant
considerations.
A fter the first 30 days follow ing BPA award, Treasury expects that it w ill continue to alternate
task orders am ong BPA holders. How ever, Treasury m ay periodically adjust the allocation o f
w ork based on the pricing offered by the BPA holders, and the quality o f their perform ance under
the BPAs. A ny such adjustm ents to the allocation o f w ork w ill not result in m ore than 75% o f
the total w ork being allocated to any single firm.
1.11 IN F O R M A T IO N SA FE G U A R D S AN D P R A C T IC E S
The C ontractor shall be responsible for com pliance w ith Treasury for policy and practice
regarding the storage and rem oval o f electronic and printed m aterials considered sensitive in
nature (i.e., system passw ord and user identification access odes) from printers, desktops,
laptops, furniture, presentation equipm ent, and any other form o f inform ation housing. This is so
that the inform ation is not accessible by unauthorized personnel and so that disposal follows
Treasury inform ation security practices. The contractor m ust ensure that contractor,
subcontractor, or business partner personnel protect all sensitive and secure docum ents to the
extent possible from either inadvertent or deliberate comprom ise.
1.12 S U P E R V IS IO N O F C O N T R A C T O R ’S E M P L O Y E E S
a) Personnel assigned to render services under this contract shall at all tim es be under the
direction and control o f the Contractor N otw ithstanding any other provisions o f this
contract, the C ontractor shall at all tim es be responsible for the supervision o f its
em ployees in the perform ance o f the service required hereunder.

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b) D uring all tim es on governm ent prem ises, the contractor’s personnel shall com ply w ith
the rules and regulations governing conduct o f personnel and operation o f the facility.
c) If the contractor plans to em ploy any N on-English speaking personnel, he shall provide
an on-site bi-lingual supervisor to serve as an interpreter.
d) Contractor personnel shall not at any tim e during the contract period be em ployees o f the
U.S. Governm ent.
END OF BPA A G REEM EN T

Page 15 of 15 Pages

A ttachm ent 2 - Statem ent o f W ork
The D epartm ent o f the T reasury (Treasury) is seeking law firm s to assist it in executing
transactions under the TA R P Capital Purchase Program . The contractor w ill have
expertise in securities and financial institution law and regulations, and w ill be
responsible for handling all or part o f 4000-8000 transactions betw een T reasury and
banks, savings associations and their holding com panies (“financial institutions”). The
investm ent agreem ents provided for T reasury to invest funds in such financial institutions
in exchange for the issuance o f preferred stock and w arrants to T reasury by publicly
traded financial institutions. The Contractor m ay also be responsible for handling
transactions involving privately held financial institutions. The financial institutions w ill
be located in all fifty states and potentially in U.S. possessions and territories. The
Contractor w ill be responsible for: (1) review ing executed investm ent agreem ents for.
legal sufficiency and com pleteness; (2) identifying insufficiencies or legal issues that
require action before the transactions can be closed; (3) notifying and w orking w ith the
financial institution and Treasury in resolving those issues; and (4) conducting the closing
o f the transaction.

C O N F L IC T S O F IN T E R E S T
(a) Treasury HA S N O T W AIVED any potential conflicts o f interest as defined b y Rules
1.7— 1.11 o f the A B A ’s M odel R ules o f Professional Conduct. Further, C ontractor
agrees that its future attorney-client relationship w ith Treasury m ay be governed by
conflict o f interest rules m ore restrictive than the A B A ’s M odel R ules that m ay be issued
b y the Secretary o f the T reasury pursuant to Section 108(b) o f the E m ergency Econom ic
Stabilization A ct o f 2008.
(b) Failure to m ake full and tim ely disclosure o f actual or potential conflicts o f interest, or
m atters that m ay present the appearance o f a conflict, as well as failure to com ply w ith
Treasury conflicts o f interest policies and procedures are extrem ely serious matters. Such
failures m ay subject the Contractor to corrective action including but not limited to: (1)
refusal to waive a conflict; (2) termination o f this contract for default; (3) debarm ent o f the
contractor from federal contracting; (4) referral to the appropriate state licensing authorities;
and, in appropriate cases, and (5) civil or criminal actions.
(c) It is solely within the discretion o f the Treasury Departm ent to determ ine w hether or not
a conflict o f interest exists. Even the appearance o f a conflict m ay result in the denial o f a
waiver or other appropriate actions. In the event that m atters are transferred pursuant to the
corrective actions listed above, Contractor is expected to follow Treasury Departm ent
policies and procedures and to cooperate fully in the orderly transfer o f such matters.
(d) In addition to any other applicable restrictions, the C ontractor shall agree: (1) not to
review capital purchase docum entation o f clients that the C ontractor currently represents;
(2) not to represent any institution w hose capital purchase docum entation the C ontractor
review s for the duration o f the period that Treasury holds equity in that institution under
the Capital Purchase Program ; (3) not to represent any parties in a claim against the
U nited States w ith respect to the Capital Purchase Program during o r follow ing the term
o f the contract; (4) to have all attorneys assigned to w ork under this agreem ent receive
ethics training in consultation w ith the Treasury Departm ent; and (5) to have all attorneys
assigned to w ork under this contract enter into agreem ents at the inception o f the contract
prohibiting such attorneys from review ing capital purchase docum entation o f an
institution in which the attorneys, their spouses, their m inor children, or their other fam ily
m em bers w ith w hom the attorney has a close personal relationship, have a personal,
business, or financial interest. Such agreem ents w ith individual review ing attorneys shall
also require the attorneys to disclose at the inception o f the contract any and all personal,
business, or financial interests o f the individual, his or her spouse, m inor children, or
other fam ily m em bers w ith whom the individual has a close personal relationship that
could adversely affect (i) the individual’s ability to perform under this contract, (ii) his or
her objectivity o r judgm ent in such perform ance, or (iii) his or her ability to represent the
interests o f the Treasury.

P U B L IC IT Y R E Q U IR E M E N T S
The contractor agrees to subm it w ithin 6 hours o f contract or task order aw ard a .p d f file
o f the fully executed contract or order w ith all proprietary inform ation redacted for the
purposes o f having the redacted contract m ade public at the sole discretion o f the
D epartm ent o f the Treasury. The contractor shall supply the point o f contact to w ork
directly w ith the Public Affairs office o f the D epartm ent o f the Treasury.

PAGE

ORDER FOR SUPPLIES OR SERVICES

OF PAGES

IMPORTANT: Mark all package« and papers with contract and/or order numbers.
1 DATE OF ORDER

10/29/2008

6. SHIP TO:

2 CONTRACT NO. (If any)

09BPA001

a. NAME OF C ONSIGNEE

3 ORDER NO.

4. REQUISITION/REFERENCE NO.

5. ISSUING OFFICE (Address correspondence to)

Indicated on call

b. STREET ADDRESS

DEPARTMENT OF THE TREASURY
1500 PENNSYLVANIA AVENUE, NW
PROCUREMENT SERVICES DIVISION
ATTN: STEVEN GORDON
WASHINGTON DC 20220

C. CITY

7. TO;

d. STATE

e. ZIP CODE

f. SHIP VIA

a. NAME OF CONTRACTOR

SQUIRE SANDERS & DEMPSEY LLP

S. TYPE O F O R D E R __________________

b. COMPANY NAME

I "Ja. PURCHASE

c. STREET ADDRESS

REFERENCE YOUR:

□

8000 TOWERS CRESCENT DRIVE
14TH FLOOR

d. CITY

Except for billing instructions on the
reverse, this delivery order is subject
to instructions contained on this side
only of this form and is issued

a. STATE

VIENNA

r. ZIP CODE

Please furnish the following on the terms
and conditions specified on both sides of
this order and on the attached sheet, if any,
including delivery as ImScatad.

10. REQUISITIONING O FFICE

Indicated on call

DEPARTMENT OF THE TREASURY
(Check appropriate bo* (es))

a. SMALL

: d WÛMEN-OWNEO

b. O THER THAN SMALL

J*- HUBZone

13. PLACE OF
a. INSPECTION

Destination

b. ACCEPTANCE

Destination

subject to the terms and conditions
of the above-numbered contract.

22182-6207

9. ACCOUNTING AND APPROPRIATION DATA

11. BUSINESS CLASSIFICATION

b. DELIVERY

12. F O B. POINT
_ J c. DISADVANTAGED
0

1. EMERGING SMALL
BUSINESS

14 GOVERNM ENT B/L NO.

g. SERVICEDISABLED
VETERANOW NED

Destination

15. DELIVER T O F.O.B. P O INT
O N O R BEFORE (Date)

Indicated on call

17. SCHEDULE (See reverse fo r Rejections)

16. DISCO UNT TERMS

PAGE

ORDER FOR SUPPLIES OR SERVICES
____ SCHEDULE - CONTINUATION

OF PAGES

IMPORTANT: Mark all package* and paper« with contract and/or order numbers.
DATE OF O RDER

CONTRACT NO

O RDER NO.

10/29/2008 09BPA001
ITEM NO

SUPPUES/SERVICES

QUANTITY UNIT
O RDERED

(B)

(A)

(C)

(0)

UNIT

AM O U NT

(E)

QUANTITY
ACCEPTED

PRICE

<F)

(G)

Admin O f f ic e :

DEPARTMENT OF THE TREASURY
PROCUREMENT SERVICES DIVISION
1500 PENNSYLVANIA AVE, NW
MAIL STOP: 1425 NEW YORK AVE, NW
SUITE 2100
WASHINGTON DC 20220
Period of Performance: 10/29/2008 to
04/28/2009

TOTAL CARRIED FORWARD TO 1ST PAGE (ITEM 17(H))

NSN 7S40-0l-1$2-IOf2

SOVN-101

OPTIONAL FOAM M (ft*» «1*6)
P m o M k rO IA
FAft(4«CFft|J»2Ufc>

Department of the Treasury, DO
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Legal Support Services
GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE

In the spirit of the Federal Acquisition Streamlining Act, the Department o f the Treasury and
Squire Sanders & Dempsey. LLP enter into this Blanket Purchase Agreement (BPA) to further
reduce the administrative costs o f acquiring repetitive services from the General Services
Administration (GSA) Federal Supply Schedule (FSS), Financial and Business Solutions (FABS)
Contract GS-23F-0120M.
Federal Supply Schedule contract BPAs eliminate contracting and open market costs such as: the
search for sources; the development o f technical documents and solicitations; and the evaluation o f
bids and offers. Contractor Team Arrangements are permitted 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 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:
D e p a rtm e n t o f th
S te v e n C . G ordoi
C o n tra c tin g O ffic e r
D e p a rtm e n t o f the T re a s u ry
D e p a rtm e n ta l O ffic e s
1500 P e n n s y lv a n ia A v e n u e
(1 4 2 5 N e w Y o rk A v e n u e - 2 nd F lo o r)
W a sh in g to n , D C 2 0 2 2 0
2 0 2 -6 2 2 -2 3 4 1 (?)
2 0 2 -6 2 2 -2 3 4 3 (F )
S Q U IR E S A N D E R S & D E M P S E Y . L L P
S te p h e n C . M a h o n
P /
y
y f
P a rtn e r
'
1201 P e n n s y lv a n ia A v e, N W , S u ite 5 0 0
W a sh in g to n , D C , 2 0 0 0 4
5 1 3 -3 6 1 -1 2 3 0 (P )

513-602-1003 (C)

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Department of the Treasuiy, DO
09BPA001

Legal Support Services
GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE

Pursuant to GSA Federal Supply Schedule Contract Number GS-23F-0120M, the Contractor
agrees to the following terms o f a Blanket Purchase Agreement (BPA) Exclusively with the
Department of the Treasury and for use bv the Department o f the Treasury.

( 1) All services/products currently listed on your GSA schedule, to include new service/products
added during the performance o f this BPA can be ordered under this BPA in support o f the
requirements as set forth in this BPA. All orders placed against this BPA are subject to the
terms and conditions o f the contract, except as noted below:

PR IC IN G :
The Contractor's labor rates, as set forth in its GSA Schedule, are incorporated into this BPA.
(2) Delivery:
DESTINATION DELIVERY SCHEDULE/DATES
Assigned upon issuance o f individual task/deliverv 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 fill recurring
requirements.
(4) Purchase limitation: There is no dollar limitation for each individual purchase. The
contractor’s labor rates, as set forth in Attachment 1, are incorporated into the BPA. The
contractor may not exceed the labor rates set forth in Attachment 1 during performance o f any
task order. However, further discounts may be negotiated per task/delivery order. Regardless
o f the size o f the task/delivery order the contractor is encouraged to offer additional discounts.
(5) This BPA expires on A pril 28« 2009 or upon expiration and non-renewal o f 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.
All Office of the General Counsel (OGC) 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.

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Department o f the Treasury, DO
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Legal Support Services
GSA Contract No. GS-23F-0120M

BLANKET PURCHASE A fiR F FM F N T
GSA FEDERAL SUPPLY SCHEDULE
(6)

The following office is hereby authorized to issue task orders under this BPA:
OFFICE

POINT OF CONTACT

Treasury, Procurement Services Division

Designated Contracting Officer

Task/delivery orders shall only be placed by designated contracting officers.
(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 o f Contractor;
(b) BPA Number;
(c) GSA Contract Number;
(d) Task/Delivery Order Number;
(e) Date o f Issuance o f Task Order; and
(f) Quantity, Unit Price, and Extension o f Each Item (unit prices and extensions need not be
shown when incompatible with the use o f automated systems; provided, that the invoice is
itemized to show the information).
(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 BPA.
( 10) The terms and conditions included in this BPA apply to all task orders issued against it. In the
event o f an inconsistency between the provisions o f this BPA and the task Older, the provisions o f
this BPA will take precedence.
(11) The Contractor s proposed conflict of interest mitigation plan is specifically incorporated into
this BPA and shall be in full effect throughout the life o f the BPA with the caveats noted below.
* With regard to SSD’s statement in its proposed mitigation plan that the firm should not
be precluded from representing financial institutions that combine with other financial
institutions that may have a TARP-related conflict, this may occur only with Treasury’s
consent, which will not be unreasonably withheld by Treasury.
* With regard to SSD’s stipulations in its proposed mitigation plan that SSD would not
perform legal services for Treasury with regard to certain institutions because SSD may
be representing those institutions in TARP matters, it is understood that SSD may not
represent such clients in litigation or claims against Treasury with respect to TARP
matters.

Page 5 of IS Pages

Department o f the Treasury, DO
09BPA001

•

Legal Support Services

GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEM ENT
GSA FEDERAL SUPPLY SCHEDULE

* SSD will abide by the ethical restrictions for individuals performing under a task order
as set forth in Attachment 3, even though SSD did not specifically address such
requirements in its proposal.
* With respect to the personal conflicts o f interest referenced in paragraph (d) in
Attachment No. 3, a person involved in performing under a task order would not be
deemed to have a "financial interest" in an entity if such interest derives from a
diversified mutual fund.
In the event o f any conflict or ambiguity, the terms o f the BPA Attachment No. 3 will take
precedence.

*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 accoidance with FAR Subpart 9.6 and are
encouraged.

Attachment No. 1
Attachment No. 2
Attachment No. 3

Squire Sanders & Dempsey’s Quotation, dated October 27,2008
Statement o f Work
Conflicts o f Interest, Confidentiality & Publicity Requirements

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Department of the Treasury, DO
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Legal Support Services
GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
SPECIAL BPA PRO VISIONS/CLAUSES
11

FAR 52-252-2 CLAUSES INCORPORATED BY R E FE R E N C E (FEB 1998)

This BP A 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 o f a clause may be assessed electronically at www.amet.gov.
52.207-3 - Right o f First Refusal o f Employment (MAY 2006)
1.2

A U TH O RITY - CONTRACTING O FFIC ER (CO), C O N TR A C TIN G
O F F IC E R ’S TEC H N IC A L REPRESENTATIVE (C O TR )
1.2.1

C ontracting O fficer (CO)

The CO for award o f this Blanket Purchase Agreement is:
Steven C. Gordon
Department o f the Treasury, Departmental Offices
Procurement Services Division
1425 New York Avenue, 2nd Floor
1500 Pennsylvania Avenue, NW
Washington, DC 20220
(202) 622-2341
steve.gordon@do.treas.gov
The CO, in accordance with Subpart 1.6 o f the Federal Acquisition Regulation, is the only person
authorized to make or approve any changes in any o f the requirements o f this BPA.
Tas.k/Delivery Orders: The Administrative Contracting Officer (ACO) within the Department o f
the Treasury is authorized to issue task orders against this BPA. The ACO for issuance and
administration o f individual task orders will be assigned by letter prior to the issuance o f the first
order against the BPA.
The CO, in accordance with Subpart 1.6 o f the Federal Acquisition Regulation, is the only person
authorized to make or approve any changes to any o f the requirements o f a task order, and
notwithstanding any clauses contained elsewhere in this BPA, said authority remains solely with
the CO. In the event the Contractor makes any changes at the direction o f 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.

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Department of the Treasury, DO
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Legal Support Services
GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDt JIE

1.2.2, DTAR 1052.201-70 CONTRACTING OFFICER’S TECHNICAL
REPRESENTATIVE (COTR) DESIGNATION AND AUTHORITY.
(M A R 2002)
(a) The COTR is:
Laune Schaffer. Assistant General Counsel for B anking aryl Finance f jiw ii
Office o f the General Counsel
(202) 622-1988
(b) Performance o f work under this contract must be subject to the technical direction o f
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 o f the specification(s)/woik statement.
The COTR does not have authority to issue technical direction that:
(1) 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 o f the terms, conditions, or specification(s)/work statement o f the
contract;
(5) interferes with the contractor's right to perform under the terms and
conditions o f the contract; or
(6) directs, supervises or otherwise controls the actions o f 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 o f the contractor, any direction o f the COTR, or
his/her designee, falls within the limitations in (c), above, the contractor shall immediately notify

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GSA Contract No. GS-23F-O120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE

the contracting oflicer no later than the beginning of the next Government work day.
(f)
Failure o f the contractor and the contracting officer to agree that technical direction is
within the scope o f the contract shall be subject to the terms o f the clause entitled “Disputes.”
(End o f clause)

1.3
SECURITY SCREENING REQUIREM ENTS FO R ACCESS T O SEN SITIV E BUT
UNCLASSIFIED SYSTEM S O R INFORM ATION
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 BP A, 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 o f investigative request
processing forms for each such employee in compliance with instructions to be furnished by the
Contracting Officer or his/her designated representative.

Applicableforms m il befurnished to the Contractor at time o f task order award.
(c) Depending upon the nature o f the type o f investigation necessary, it m ay take a period
up to several months to complete complex personnel screening investigations. A t 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 o f 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 o f 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.
(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 o f the agreements to the Site Security Officer (SSO)

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GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
for inclusion in the employee’s security file. The Government will provide the name and
location o f the SSO after contract award. Unauthorized access is a violation o f law and may be
punishable under the provisions o f Title 5 U.S.C. 552a, Executive Order 12356; Section 7211 o f
Title 5, United States Code (governing disclosures to Congress); Section 1034 o f Title 10, United
States Code, as amended by the Military Whistleblower Protection Act (governing disclosure to
Congress by members o f the military); Section 2302(b)(8) o f Title 5, United States Code, as
amended by the Whistleblower Protection Act (governing disclosures o f illegality, waste, fraud,
abuse or public health or safety threats); the Intelligence Identities Protection Act o f 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 o f Title 18, United States Code, and Section 4(b)
o f the Subversive Activities Act o f 1950 (50 U.S.C. Section 783(b)) and other applicable
statutes.
(0 The Contractor shall notify the Contracting Officer’s Technical Representative
(COTR) or the Site Security Officer no later than the end o f the day o f the termination for cause
o f 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 o f termination. Verbal
notifications shall be confirmed in writing within thirty days.
1.4

IDENTIFICATION/BADGING REQUIREM ENTS

During the period o f this contract, access to Department o f 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 o f the Contractor to provide this corporate identification. Upon the
termination o f the employment o f 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 COM PLIANCE

The Contractor must provide a comprehensive list o f all offered specific electronic and
information technology (E1T) products (supplies and services) that fully comply with Section 508
o f the Rehabilitation Act o f 1973, per the 1998 Amendments, and the Architectural and
Transportation Barriers Compliance Board’s Electronic and Information Technology
Accessibility Standards at 36 CFR Part 1194. The Contractor must clearly indicate where this
list with full details o f 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

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GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
calendar days after award. The contractor must maintain this detailed listing o f compliant
products for the full contract term, including all forms o f extensions, and must ensure that it is
current within three calendar days o f changes to his product line.
The vendor 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 o f 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 o f the product or service, or on the contract
renewal date, whichever shall occur first.

1.6.

ADMINISTRATIVE INSTRUCTIONS

1.6.1 Requests For Pavment/Submission O f Invoices.
a.
The 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 (ODCs) that are in direct support o f contractor’s efforts in
performing the task/deliveiy 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 o f direct labor hours performed with
applicable discounts. Fractional parts o f an hour may be payable on a prorated basis. Contractor
shall substantiate vouchers by evidence o f 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 o f issuance
o f 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 o f the
government’s document(s) accepting the covered services must accompany invoices submitted
for payment. A copy o f 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 m ay result in paym ent
being delayed.

b. Invoices are to be emailed as soon as possible after the end o f each calendar month to:
1. www. vendorpav@do.treas .gov:

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GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
2. Contracting Officer, and
3. COTR.
Submittal to “vendorpay” is considered the official invoice submittal; and it is through
“vendorpay” that prompt payment compliance is tracked. Each copy o f each invoice shall clearly
identify the Contractor’s Taxpayer Identification Number (TIN). The Contractor shall assure that
a responsible official o f the company signs the following statement on each invoice:
* 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 and Task Order 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 o f hours worked by each employee by Task Order. The time card or time sheet will
indicate the date worked, number o f hours worked, and the hourly rate for each employee.
All follow-up invoices shall be marked “Duplicate o f Original.” Contractor questions regarding
payment information should be directed to the COTR.
The Contractor shall provide the COTR with an advance (pre-submittal) version o f the invoice for
review.
1.7

PERFORM ANCE M ON ITO RING

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 o f extending each
performance period, using the data, analysis, and evaluation performed. The Board membership
will include:
a) Contracting Officer,
b) Contracting Officer’s Technical Representative, and
c) Treasury OGC Management Staff.

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GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
1.8

STAFFING PLAN

The contractor shall maintain 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 o f the
contractor team.
1.9

H O LID A Y S

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 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;
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
o f such days by Government personnel shall not otherwise be a reason for an additional
period of performance, or entitlement o f 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 o f 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

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GSA Contract No. GS-23F-0120M

BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
reimbursement for authorized premium pay, i f 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 o f the parties relating to
“stop work** provisions as cited in other sections o f this contract. Primarily, work shall be
performed at the Department o f the Treasury facility or, upon approval, facilities within
the Washington, D.C. metropolitan area. Occasional work m ay be performed at other
field activity locations, including disaster recovery and/or continuity o f operations
locations. No locality differential payments are applicable to this contract.
1.10 TA SK ORDERS
The following ordering procedures shall apply to all Task Orders (TOs) issued under this BPA.
When placing task orders, Treasury will not conduct competitions for individual task orders
among BPA holders. However, Treasury will make an effort to ensure equitable distribution o f
work among BPA holders.
The standard ordering process is set forth below.
Treasury will order an approximately equally amount o f work from each BPA holder. This will
be achieved by alternating the award o f task orders among all BPA holders, to the extent
practicable.

Treasury will make its best efforts to adhere to the above process during the first 30 days
following award o f the BP As. Exceptions to the standard ordering process may be made in
consideration of conflicts o f interest, geographical location o f the contractors, and other relevant
considerations.
After the first 30 days following BPA award, Treasury expects that it will continue to alternate
task orders among BPA holders. However, Treasury may periodically adjust the allocation o f
work based on the pricing offered by the BPA holders, and the quality o f their performance under
the BP As. Any such adjustments to the allocation o f work will not result in more than 75% o f
the total work being allocated to any single firm.

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BLANKET PURCHASE AGREEMENT
GSA FEDERAL SUPPLY SCHEDULE
1.11 IN FO RM A TIO N SAFEGUARDS AND PR A CTIC ES
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 o f 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 from either inadvertent or deliberate compromise.
1.12 SU PERV ISIO N O F CO N TR A C TO R’S EM PLO Y EES
a) Personnel assigned to render services under this contract shall at all times be under the
direction and control o f the Contractor Notwithstanding any other provisions o f this
contract, the Contractor shall at all times be responsible for the supervision o f its
employees in the performance o f the service required hereunder.
b) During all times on government premises, the contractor’s personnel shall comply with
the rules and regulations governing conduct o f personnel and operation o f the facility.
c) If the contractor plans to employ any Non-English speaking personnel, he shall provide
an on-site bi-lingua! supervisor to serve as an interpreter.
d) Contractor personnel shall not at any time during the contract period be employees o f the
U.S. Government.
------------------------------------------------END

BPA AGREEMENT----------------------------------------

Page 15 of 15 Pages

ATTACHM ENT 1

A ttachm ent 2 - Statem ent o f W ork
The D epartm ent o f the Treasury (Treasury) is seeking law firm s to assist it in executing
transactions under the TA RP Capital Purchase Program . T he contractor w ill have
expertise in securities and financial institution law and regulations, and w ill be
responsible for handling all or part o f 4000-8000 transactions betw een Treasury and
banks, savings associations and their holding com panies (“financial institutions”)* The
investm ent agreem ents provided for Treasury to invest fluids in such financial institutions
in exchange for the issuance o f preferred stock and w arrants to T reasury b y publicly
traded financial institutions. The Contractor m ay also be responsible for handling
transactions involving privately held financial institutions. The financial institutions will
be located in all fifty states and potentially in U.S. possessions and territories. The
Contractor will be responsible for: (1) review ing executed investm ent agreem ènts for
legal sufficiency and com pleteness; (2) identifying insufficiencies o r legal issues that
require action before the transactions can be closed; (3) notifying and w orking with the
financial institution and Treasury in resolving those issues; and (4) conducting the closing
o f the transaction.

CONFLICTS OF INTEREST
(a) T reasury H A S NOT W AIVED any potential conflicts o f interest as defined by Rules
l .7— 1.11 o f the A B A ’s M odel Rules o f Professional Conduct. Further, Contractor
agrees that its future attorney-client relationship w ith Treasury m ay be governed by
conflict o f interest rules m ore restrictive than the A B A ’s M odel Rules that m ay be issued
by the Secretary o f the Treasury pursuant to Section 108(b) o f the Em ergency Econom ic
Stabilization A ct o f 2008.
(b) Failure to m ake full and tim ely disclosure o f actual or potential conflicts o f interest, or
matters that m ay present the appearance o f a conflict, as well as failure to com ply with
Treasury conflicts o f interest policies and procedures are extremely serious matters. Such
failures m ay subject the Contractor to corrective action including but not limited to: (1)
refusal to waive a conflict; (2) termination o f this contract for default; (3) debarment o f the
contractor from federal contracting; (4) referral to the appropriate state licensing authorities;
and, in appropriate cases, and (5) civil or criminal actions.
(c) It is solely w ithin the discretion o f the Treasury Department to determ ine whether or not
a conflict o f interest exists. Even the appearance o f a conflict m ay result in the denial o f a
waiver or other appropriate actions. In die event that matters are transferred pursuant to the
corrective actions listed above, Contractor is expected to follow Treasury Department
policies and procedures and to cooperate fully in the orderly transfer o f such matters.
(d) In addition to any other applicable restrictions, the C ontractor shall agree: (1) not to
review capital purchase docum entation o f clients that the C ontractor currently represents;
(2) not to represent any institution w hose capital purchase docum entation the Contractor
reviews for the duration o f the period that Treasury holds equity in that institution under
the Capital Purchase Program ; (3) not to represent any parties in a claim against the
United States w ith respect to the Capital Purchase Program during or follow ing the term
o f the contract; (4) to have all attorneys assigned to work under this agreem ent receive
ethics training in consultation w ith the Treasury Departm ent; and (5) to have all attorneys
assigned to w ork under this contract enter into agreements at the inception o f the contract
prohibiting such attorneys from reviewing capital purchase docum entation o f an
institution in w hich the attorneys, their spouses, their m inor children, o r their other fam ily
m em bers w ith w hom the attorney has a close personal relationship, have a personal,
business, or financial interest. Such agreem ents w ith individual review ing attorneys shall
also require the attorneys to disclose at the inception o f the contract any and all personal,
business, or financial interests o f the individual, his or her spouse, m inor children, or
other fam ily m em bers with whom the individual has a close personal relationship that
could adversely affect (i) the individual’s ability to perform under this contract, (ii) his or
her objectivity o r judgm ent in such perform ance, or (iii) his o r her ability to represent the
interests o f the Treasury. Items (4) and (5) above shall apply to attorneys, and also to any
paralegals who w ould perform significant w ork under a task order.
(e) Prior to beginning w ork on a task order, the Contractor shall review the subm issions
required b y section (d)(5) o f this clause for personal conflicts o f interest, and certify in

w riting to Treasury that no such conflicts exist. In m aking this determ ination, the
Contractor m ay rely on the information obtained from the individuals, unless the
C ontractor has reason to believe that the inform ation provided is false or inaccurate.
(f) The Contractor shall include this clause in all subcontracts, consultant agreem ents, and
in low er tier subcontracts unless a w aiver is requested from, and granted by, the
Contracting Officer.

P U B L IC IT Y R E Q U IR E M E N T S
The Contractor agrees to subm it within 6 hours o f contract or task order award a .p d f file
o f the fully executed contract or order w ith all proprietary inform ation redacted for the
purposes o f having the redacted contract m ade public at the sole discretion o f the
D epartm ent o f the Treasury. The Contractor shall supply the point o f contact to work
directly w ith the Public Affairs office o f the D epartm ent o f the Treasury.

C O N F ID E N T IA L IT Y
The C ontractor recognizes that, in perform ing this contract, the C ontractor m ay obtain
access to non-public inform ation that is confidential o r proprietary in nature. Except as
perm itted by the contract, the Contractor agrees that it, its em ployees, its subcontractors,
and its subcontract employees will not disclose to any third party, o r otherw ise use, any
inform ation it obtains or prepares in the course o f perform ance o f this agreem ent for any
purpose other than to perform work under the contract w ithout first receiving w ritten
perm ission from the Contracting Officer. The Contractor shall secure inform ation
received from or prepared or gathered for the Treasury D epartm ent under this contract in
a secure location w ith access lim ited to only those personnel w ith a “need to know .’*

Assistant Secretary Swagei to Hold Monthly Economic Briefing
11/5/2008
HP-1252
Assistant Secretary for Economic Policy Phillip Swagei will hold a media briefing to review economic indicators from
the last month and discuss the state of the U.S. economy. The event is open to the media:
Who
Assistant Secretary for Economic Policy Phillip Swagei
What
Monthly Economic Briefing
When
Friday, November 7 ,11:00 a.m. EST
Where
Treasury Department
Media Room (4121)
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note
Media without Treasury press credentials should contact Frances Anderson at (202) 622-2960, or
Frances.Anderson@treasury.gov with the following information: full name, Social Security number, and date of birth.

Special Envoy for China and the Strategic Economic Dialogue Alan Holmer
Remarks On the Future of U.S.-China Economic Relations at The Johns Hopkins
University-Nanjing University Center for Chinese and American Studies
11/5/2008
HP-1253
NANJING, CHINA - 1am honored to be here in Nanjing today and at The Johns Hopkins UniversityNanjing University Center for Chinese and American Studies, to speak about the future of the economic relationship
between the United States and China.
As the capital of China during several historic periods, Nanjing not only holds a prominent place in Chinese history
and culture, it has also contributed significantly to relations between the United States and China. Just before leaving
the United States I spoke with former Ambassador to China Stapleton Roy, who also serves as Chairman of the
Hopkins-Nanjing Advisory Council. As some of you know, Ambassador Roy was born in Nanjing and raised in China.
Reflecting on your city's historical place in U.S.-China relations, Ambassador Roy recalled that the U.S. diplomatic
mission in China was located in Nanjing from 1928 until 1937, and from 1945 to 1949. The first American
ambassador to China was stationed in Nanjing in 1935, when the U.S. legation there was upgraded to an embassy.
After the end of World War II, it was in Nanjing that General George Marshall met with Zhou Enlai in 1946 as part of
the unsuccessful U.S. effort to negotiate peace between the KMT and the Chinese Communists. The U.S. embassy
remained in Nanjing until 1949.
Just after normalization of U.S.-China relations, now thirty years ago, visionary leaders from both our countries
envisioned a graduate school dedicated to improving relations between China and the West through the development
and training of future leaders - young people who are not only fluent in each others' languages, but are also
equipped to understand each others' perspectives and through their careers committed to building stable and
productive relations. Now, more than ever, we need institutions like the Hopkins-Nanjing Center. The talent and
wisdom of new generations of American and Chinese leaders educated here will contribute to prosperous and stable
U.S.-China relations.
Today, as I speak about the future of U.S.-China economic relations, I would like to challenge and encourage you as
future leaders to seize the vision the Hopkins-Nanjing Center represents.
The Importance of the U.S.-China Relationship
One of the most important decisions facing the new American President will be how to respond to China's emergence
as a global power. Possibly the most consequential economic question of the 21st century for the United States and
for China is whether we get our economic relationship ''right.'*
Our economies are intricately inter-linked. Last year the United States and China combined for more than thirty
percent of worldwide gross domestic product. Chinese exports to the United States in 2007 accounted for 9.5 percent
of Chinese GDP; China is the largest supplier of United States imports. China is now the United States' third largest
export market; in the past decade, our exports to China have increased six times as fast as our exports to the rest of
the world. Investment flows between our two countries are also expanding rapidly.
And our inter-relationship goes well beyond trade and investment. U.S. and Chinese interests increasingly overlap on
virtually every international issue - from global financial developments, to national security, to climate change.

While some in America 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.
What should be our vision for our future relationship? What does it mean to get the relationship "right"? I see a future
in which our ability to work together matches the degree to which our economies are already so deeply integrated. I
see a future in which individuals and leaders in each nation communicate well, grow in trust, work through
misunderstanding and crises, and expand -- where possible - common interests, while recognizing distinct national
goals and interests. In this vision, I also see people in each nation recognizing our commonalities -- that we mutually
benefit from trade, investment, and deepening exchange.
This is the vision the leaders of our two countries promote through the Strategic Economic Dialogue. It is a vision we
must continue to pursue in the months and years to come.
Recent Financial Market Developments
Our interdependence has become all the more apparent during the recent period of worldwide financial turmoil.
Addressing these developments requires the dramatic steps we are taking in the United States, and it requires close
international collaboration and cooperation. U.S. officials have been in close contact with Chinese leaders, as well as
with leaders of many other nations. This has included frequent calls between President Bush and President Hu,
Treasury Secretary Paulson and Vice Premier Wang, and Treasury Undersecretary McCormick with his counterparts
in the Chinese government. These conversations have been useful and constructive. And we welcome recent public
statements by President Hu and Premier Wen about the constructive and cooperative role China has been playing in
global efforts to deal with the current financial market turmoil.
In just over a week, President Bush will host a meeting in Washington with President Hu and 18 other world leaders.
We expect the leaders will discuss the underlying causes of the financial crisis, review progress being made to
address the crisis, begin developing principles of reform needed to ensure it does not happen again, and charge
working groups to develop recommendations to be considered by leaders in a subsequent summit. In our view,
leaders should also discuss the adverse effects of the current crisis on emerging economies and developing nations.
The summit also provides an opportunity to discuss how to enhance our commitment to open, competitive economies
as well as trade and investment liberalization. Strengthening these underpinnings of capitalism is, and will continue to
be, the best way to improve standards of living and assure future prosperity for developed and developing nations
alike.
Strategic Economic Dialogue
Because of the importance of our bilateral relationship, President Bush and President Hu launched the Strategic
Economic Dialogue (SED) in September of 2006. The Special Representatives of the two Presidents are Vice
Premier Wang for China and Secretary Paulson for the United States. When the SED was first launched, few people
thought much progress would be possible because of political changes in both countries.
But our joint approach has proven effective and has achieved important, tangible results, despite the challenges.
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. U.S.-China relations are more productive today than ever before.

The SED has found new and constructive ways to address some of the most significant matters in our economic
relationship — including growth imbalances, financial stability, energy security and environmental sustainability,
maintaining open trade and investment policies, and product safety. Managing these challenges is vital to the United
States, China, and to the future of the global economy.
Establishing a Culture of Collaboration
Perhaps most importantly, we have established new habits of cooperation and a culture of collaboration with our
colleagues in China, across all economic ministries, and at both political and career levels. Despite our long history of
interaction, people in our two countries occasionally have shown a stunning ability to misunderstand each other. In
the SED we have acted to lessen misperceptions and miscommunication between our countries. The mere creation
and sustained attention of the SED demonstrates to the people of both countries that the United States values a
stable, prosperous, and peaceful China. We believe this kind of China is in the U.S. national interest.
Addressing Time-Sensitive, Current Issues
There is no better example of the power and utility of a Strategic Economic Dialogue based on mutual trust than our
recent close and frequent communication and cooperation with Chinese leaders as we address the challenges in the
financial markets.
We have also worked to sustain support for open economies in both of our countries. 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 concentrated and immediately
visible. But succumbing to the temptation to make trade and foreign investment a scapegoat only breeds support for
isolationist policies that will make both countries worse off, sacrificing future job opportunities and higher standards of
living. Through the SED we have addressed short-term and long-term issues, kept our economic relationship on an
even keel, and avoided legislation in the U.S. Congress that would have been harmful and counterproductive.
We have also addressed product safety, an issue that has placed the "China brand" at risk. Last December our two
countries used the SED to achieve two Memoranda of Agreement: one on food and feed, another on medicines and
medical devices. We now need to intensify our work together to enhance China's regulatory and legal infrastructure,
to help China build quality into each stage of the manufacturing and distribution process. A useful step will be the
formal establishment later this month of offices in China for the U.S. Food and Drug Administration in Beijing,
Shanghai, and Guangzhou.
Addressing Long-Term, Strategic Issues
While the SED has provided an important mechanism to address time-sensitive, current issues, our nations' leaders
have also grappled with the most significant, challenging, and strategic issues in our bilateral economic relationship,
issues that will be with us not just this year, but for years to come. Such issues include, for example, managing
financial and macroeconomic cycles; sustaining strong and stable economic growth; strengthening energy security
and environmental cooperation; reforming international economic and financial institutions, maintaining open markets
for trade and investment; encouraging innovation, and advancing the rule of law and transparency. In future years we
need to maintain and grow the quality and depth of our current dialogue on these subjects.
Maintaining Open Markets

I have been deeply involved in international economic issues for over 25 years, beginning in the administration of
President Reagan - nearly as long as China’s "reform and opening" period. One of the clearest lessons I have
learned is that those countries that open themselves to competition, reform their economies, and welcome foreign
investment benefit their citizens greatly. Direct investment in another country, such as manufacturing plants or service
companies, is the ultimate vote of confidence in that country's economy.
Such openness is the most reliable path to economic growth and reduction of poverty: it provides better jobs and
opportunities, improved living standards, greater consumer choice and lower prices and lower inflation. Openness is
not a zero-sum game; it enhances efficiency, productivity, and competitiveness for all sides.
There is no better example of this principle than the experience of China. China's reform and opening over the past
three decades have produced one of the most dramatic economic transformations in world history.
Open Investment
American investors in China, and Chinese investors in America, sometimes 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 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, which will protect those
companies and encourage further foreign investment in China, while also helping China on its path to become an
innovation society and accelerating the development and competitiveness of its economy.
In future years, the economic health of both of our countries will depend in significant part on whether we keep our
markets open to trade and investment.
Energy and Environmental Cooperation
Economic growth must also be sustainable, both economically and environmentally. In this regard, one of the SED's
major achievements is the Ten Year Energy and Environment Cooperation Framework. This framework is a bilateral
mechanism to elevate and intensify our cooperation 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 U.S. administration a critically important platform for engagement
with China.
Balancing Economic Growth
Another key part of sustainable economic growth is the effort of China's top leaders to transition to an economy that is
more services and consumption-oriented, and less reliant on low-value added manufacturing, and that depends more
on the skills and resourcefulness of the Chinese people and less on material inputs and natural resource depletion
and demand in foreign markets. In addition, strong consumption-led growth provides China the surest guarantee of
sustained economic growth in the face of weaker growth in China's trading partners.
We continue to believe that more market-based pricing, including for interest rates and exchange rates, will help
China achieve its goal of more harmonious and balanced growth. And the SED has provided a useful forum for
discussing China's exchange rate policy; we are pleased that since July of 2005 China has appreciated the RMB by
over 20 percent against the dollar over the past several months, and has appreciated the RMB substantially on a
trade-weighted basis, i.e., against an average of the currencies of China's major trading partners. While we

understand that circumstances have changed for China in recent months, we continue to believe that it is in China's
interest to move further in the direction of a more market-determined exchange rate. Such action would provide
Chinese officials with greater tools to effectively manage the economy and, further, help facilitate a needed
reallocation of capital towards production for the domestic market.
Financial Sector Liberalization
In the financial sector, China is in the midst of developing and opening up its institutions. During the recent global
turmoil, we have learned that the U.S. 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). The
Financial Stability Forum recommendations are applicable to the financial markets around the world, and the United
States is committed to implementing them in full.
As China proceeds with financial sector development, it 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. But 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.
Conclusion
When I became Special Envoy for China and the Strategic Economic Dialogue in February of 2007, then-Vice
Premier Wu Yi encouraged me to visit the parts of China beyond Beijing and Shanghai. I have happily followed her
advice. In the past 18 months, I have been privileged to visit Shenyang, Qinghai, Xi’an, Chengdu, Guangzhou,
Shenzhen, Hong Kong, Ningbo, and Yingxiu, a small town at the epicenter of the earthquake in Sichuan Province. My
trips have included visits to rural villages to see both the opportunities and the challenges you face in promoting
balanced, harmonious growth. I was particularly eager to travel across your great nation because, while there is a
huge amount of information about the United States in China, and about China in the United States, there is not
enough genuine understanding, and even less wisdom about how we should manage our relations together.
In that context, I was particularly eager to speak here today because I knew I would be with many future leaders of
the U.S.-China relationship. I appreciate your attention. I hope that you share the vision I spoke of earlier, a
relationship between our two countries based on engagement, communication, trust, working through issues,
understanding, and wisdom.
During the past two years we have seen in both our countries a period of change and turmoil: political and
governmental change in both China and the United States; turmoil in global financial markets; and protectionist trends
in both of our countries among those who would take our relationship in unhelpful directions.
Throughout that period, the Strategic Economic Dialogue has provided a strategic, long-term, steadying forum and
mechanism through which we can at the most senior levels of our two governments constructively address the most
important issues we face. We have established an impressive body of work. Dialogue between the United States and
China is now more productive and sophisticated than ever before. Through the SED we have succeeded in
establishing a culture of collaboration; addressed time-sensitive, current issues, such as financial markets, economic
nationalism, and product safety; grappled with the most important long-term issues in our relationship; promoted
policies for open markets and investment; signed a Ten Year Framework on Energy and Environmental Cooperation;
worked to rebalance economic growth and modernize the financial sector.

As Secretary Paulson has said, we hope that the next U.S. President will expand on the SED and take U.S.-China
relations to the next level. At the same time, leaders in both of our nations' capitals understand that if the SED is to be
sustained, it must be more than talk; it must continue to yield specific, tangible results, what we call signposts along
the path toward transformational reform. We look forward to further progress in the on-going discussions at our next
meeting of the SED in Beijing in December. Thank you.

Under Secretary Levey to Hold Press Conference on Iran
11/6/2008
HP-1254
Under Secretary for Terrorism and Financial Intelligence Stuart Levey will make an announcement on Iran today
during press conference at the Treasury Department.
The following event is open to credentialed media:
Who
Under Secretary for Terrorism and Financial Intelligence Stuart Levey
What
Press Conference on Iran
When
Thursday, November 6, 3:30 p.m. EST
Where
U.S. Department of the Treasury
Media Room--4121
1500 Pennsylvania Ave., NW
Washington, DC
Note
Media without Treasury press credentials planning to attend should contact Frances Anderson in Treasury's Office of
Public Affairs at (202) 622-2960 with the following information: name, Social Security number and date of birth. This
information may also be emailed to frances.anderson@treasury.gov.

Statement by Secretary Henry M. Paulson, Jr. on Transition
11/6/2008
HP-1255
Washington, D C - Treasury issued the following statement by Secretary Henry M. Paulson, Jr. following President
Bush's Cabinet meeting this morning to discuss efforts to ensure a seamless transition to the next Administration:
"I congratulate Senator Obama on the election and look forward to working with his team to ensure that there is a
smooth and effective transition. A methodical and orderly transition is in the best interests of the financial markets and
Treasury is committed to making sure that the incoming team can hit the ground running in January. The next
Secretary will also benefit from the support of an exceptional staff of hard-working career employees at Treasury who
are critical to the important work before the Department."

Prepared Remarks of Under Secretary for Terrorism and Financial Intelligence
Stuart Levey
11/6/2008
HP-1256
On the Revocation of Iran’s U-Turn License
Washington, DC--ln September 2006, the Treasury announced that it was cutting off Iran's Bank Saderat from the
U.S. financial system because the bank was facilitating the transfer of millions of dollars every year to terrorist
groups. Along w ith that move, we launched a campaign to warn the world about how Iran's threat to our security
also posed a threat to the integrity of the international financial system.
Since that time, we have shared information with foreign governments and financial institutions about how Iran is
using its banks to finance its nuclear and missile programs and terrorist groups. We have provided reliable
information to back up our words, demonstrating that even seemingly benign business with Iran should be cause for
concern; -P
Combined with this outreach, the United States and a broad multilateral coalition have taken action against
individuals and entities that support Iran's illicit activities. The United Nations Security Council has now adopted five
resolutions against Iran, requiring sanctions on those involved in the regime's nuclear and missile programs and
calling for vigilance when dealing with ail Iranian banks because of the risks they pose. Many allies, including the
European Union and Australia, have taken especially strong action to implement those resolutions - for example, by
designating Iran's Bank Melli.
At the same time, many private financial institutions and companies worldwide have voluntarily shunned business
with Iran. Banks see Iran's behavior as posing an unacceptable risk to their reputations, and they would rather forgo
the business and preserve their integrity . Back in September 2006,1could count on one hand the major banks that
had cut off or dramatically reduced their business with Iran. Now, there are only a few that have not done so.
There is now a global consensus that Iran poses an unacceptable threat to the international financial system. The
Financial Action Task Force (FATF), which has members representing 32 jurisdictions and is the world's premier
standard-setting body on combating money laundering and terrorist financing, issued its fourth warning on Iran last
month, calling for countries worldwide to strengthen measures to protect their financial sectors from this threat.
In the face of all of this, Iran has chosen to continue its pursuit of a nuclear capability and ballistic missiles and to
engage in the deceptive financial conduct necessary to do so. This conduct includes stripping Iranian names from
transactions to hide Iran's involvement. Iran also uses front companies and non-designated Iranian banks to conduct
business for designated proliferation entities, and it misuses bank accounts it holds in non-Iranian banks. The fact
sheet we are providing today gives an overview of Iran's wide-ranging deceptive financial conduct.
As members of the FATF, we are fulfilling our obligation to strengthen measures to protect our financial sector from
those risks. Therefore, today we are revoking the "U-turn" license for Iran, thus terminating the last general entry
point for Iranian banks - both state-owned and private - to the U.S. financial system. U-turn transactions allowed
U.S. banks to indirectly process payments involving Iran if they began and ended with a non-Iranian foreign bank.
Given Iran's conduct, it is necessary to close even this indirect access.

In recent months, many U.S. institutions have refused to host these U-turn transactions for Iran. Still, the exemption
was used by Iran as a hook to solicit foreign banks to process transactions through the United States on its behalf,
sometimes with requests to substitute another bank or code word for the Iranian institution. With today's action,
Iran's potential to manipulate U.S. financial institutions has been significantly curtailed.
We encourage all countries, both FATF members and others, to take action to protect the integrity of their financial
systems from Iran.
Today's action is not aimed at the innocent people of Iran. The Iranian people are already struggling under the
regime's gross economic mismanagement, which has led to spiraling inflation that is now at 30 percent and an
unemployment rate that many experts believe to be well over 20 percent.
To ensure that we can continue to help the Iranian people, today's action does not affect otherwise permissible
payments such as for shipments of food and medicine, family remittances, and the export of informational materials
to Iran, among others.
The Iranian regime’s policies have ensured Iran's political, economic and financial isolation. Iran is still faced with
two clear paths: to continue as a financial pariah, isolated from the world, or to seize the benefit and opportunity that
reintegration into the global community would bring. The choice is Iran's to make.

Treasury Revokes Iran’s U-Turn License
11/6/2008
HP-1257

Washington, DC~The U.S. Department of the Treasury today announced that it is revoking the "U-turn" license for
Iran, further restricting Iran's access to the U.S. financial system.
Treasury’s move today follows a series of U.S. government actions to expose Iranian banks’ involvement in the
Iranian regime's support to terrorist groups and nuclear and missile proliferation.
Prior to today's action, U.S. financial institutions were authorized to process certain funds transfers for the direct or
indirect benefit of Iranian banks, other persons in Iran or the Government of Iran, provided such payments were
initiated offshore by a non-Iranian, non-U.S. financial institution and only passed through the U.S. financial system en
route to another offshore, non-Iranian, non-U.S. financial institution. As a result of today's action, U.S. financial
institutions are no longer allowed to process these U-turn transfers.
The Treasury Department previously designated Iranian state-owned banks Melli, Mellat, Sepah, Future Bank and
the Export Development Bank of Iran for their roles in Iran's weapons proliferation activities, as well as Bank Saderat
for providing support to terrorism. While these banks are already prohibited from taking advantage of the U-turn
authorization, today's action ends this exception for all remaining Iranian banks, both state-owned and private,
including the Central Bank of Iran.
As a member of the Financial Action Task Force (FATF), the United States today fulfilled its obligation to strengthen
measures to protect the financial sector from the risks posed to the international financial system by Iran. In October
2008, FATF issued its fourth statement declaring that Iran continues to "pose a serious threat to the integrity of the
international financial system" and called for countries worldwide to strengthen measures to protect their financial
sectors from this threat.
To ensure that transactions relating to humanitarian aid for the Iranian people and other legitimate activities continue
to flow, today's action will not affect funds transfers by U.S. financial institutions arising from several types of
underlying transactions, including:
• Payment for the shipment of a donation of articles to relieve human suffering;
• A non-commercial remittance to or from Iran (e.g., a family remittance not related to a family-owned
enterprise);
• The exportation to Iran or importation from Iran of information and informational materials;
• Travel-related remittances; and
• An underlying transaction authorized by Treasury’s Office of Foreign Assets Control (OFAC) through a
specific or general license.
Allowable funds transfers under specific or general OFAC licenses would include: payments arising from over-flights
of Iranian airspace; legal services; intellectual property protection; and authorized sales of agricultural products,
medicine, and medical devices to Iran.

Fact Sheet: Treasury Strengthens Preventive Measures Against Iranp1258
11/6/2008
HP-1258
On October 16, the Financial Action Task Force (FATF), which has members representing 32 jurisdictions and is the
world's premier standard-setting body for anti-money laundering and counter-terrorist financing (AML/CFT), warned
for the fourth time about the risks posed to the international financial system by continuing deficiencies in Iran's
AML/CFT regime. The FATF called for all countries to strengthen preventive measures to protect their financial
systems from this risk. Additionally, the UN Security Council called upon all states in March 2008 to exercise
vigilance over the activities of financial institutions in their territories with all Iranian banks.
Consistent with these multilateral calls for action, the Treasury Department is revoking the "U-turn" general license
today to protect U.S. financial institutions individually, and the U.S.financial system as a whole, from the significant
terrorist financing and proliferation risks posed by Iran. This regulatory action will close the last general entry point
for Iran to the U.S. financial system.
Iran's access to the international financial system enables the Iranian regime to facilitate its support for terrorism and
proliferation. The Iranian regime disguises its involvement in these illicit activities through the use of a wide array of
deceptive techniques, specifically designed to avoid suspicion and evade detection by responsible financial
institutions and companies. Iran also is finding ways to adapt to existing sanctions, including by turning to nondesignated Iranian banks to handle illicit transactions.
The Treasury Department is taking a range of measures, including today's action, to counter these deceptive
activities. The Treasury Department encourages all jurisdictions to adopt robust preventive measures consistent
with the FATF warnings and relevant UN Security Council Resolutions (UNSCRs).
Iran Misuses the International Financial System to Support Terrorism
Iran is the world's most active state sponsor of terror. The support provided by the regime to terrorist groups
includes financing that is routed through the international financial system, especially through Iranian state-owned
banks.
•
Iran's Support to Terror. The Department of State designated Iran as a state sponsor of international
terrorism in 1984, and Iran remains the most active of the listed state sponsors of terrorism, routinely providing
substantial resources and guidance to multiple terrorist organizations. For example, Hamas, Hizballah, and the
Palestinian Islamic Jihad (PIJ) maintain representative offices in Tehran to help coordinate Iranian financing and
training of these groups.
•
Iran's IRGC and IRGC-Qods Force Support Terrorist Groups. Elements of Iran's Islamic Revolutionary
Guard Corps (IRGC) have been directly involved in the planning and support of terrorist acts throughout the world,
including in the Middle East, Europe and Central Asia, and Latin America. The IRGC-Qods Force, which has been
designated under Executive Order 13224 for providing material support to the Taliban and other terrorist groups, is
the Iranian regime's primary mechanism for cultivating and supporting terrorist and militant groups abroad. Qods
Force-supported groups include: Lebanese Hizballah; Palestinian terrorists; certain Iraqi Shi'a militant groups; and
Islamic militants in Afghanistan and elsewhere. The Qods Force is especially active in the Levant, providing
Lebanese Hizballah with funding, weapons and training. It has a long history of supporting Hizballah's military,
paramilitary and terrorist activities, and provides Hizballah with more than $100 to $200 million in funding each year.

The Qods Force continues to provide the Taliban in Afghanistan with limited weapons, funding, logistics and training
in support of anti-U.S. and anti-coalition activities.
•
Iran Uses its Banks to Finance Terrorism. In a number of cases, Iran has used its state-owned banks to
channel funds to terrorist organizations. Between 2001 and 2006, Bank Saderat transferred $50 million from the
Central Bank of Iran through Bank Saderat's subsidiary in London to its branch in Beirut for the benefit of Hizballah
fronts that support acts of violence. Hizballah also used Bank Saderat to send funds to other terrorist organizations,
including Hamas, which itself had substantial assets deposited in Bank Saderat as of early 2005. The Treasury
Department designated Bank Saderat under E .0 .13224 for providing financial services to Hizballah, Hamas and PIJ.
Australia has also designated Bank Saderat. Iran's Bank Melli, which has been designated by the United States
under E.O. 13382 for proliferation-related activities, was used to transfer at least $100 million to the IRGC-Qods
Force between 2002 and 2006.
•
Iran Lacks a Counter-Terrorist Financing Legal Regime. In addition to its regime-directed support to
terrorist organizations, Iran continues to lack a legal framework to counter the risk of terrorist financing and has not
indicated a willingness to address this deficiency. The FATF's October statement on Iran notes that, while Iran has
taken some steps towards implementing an anti-money laundering regime, there is a lack of even such a minimal
“corresponding effort" by Iran in the area of counter-terrorist financing.
Iran Misuses the International Financial System to Facilitate Proliferation
•
Iran Continues to Pursue Nuclear Capabilities and Develop Ballistic Missiles. In addition to its active
support to terrorist and militant activities, Iran continues to defy the international community by pursuing nuclear
capabilities and developing ballistic missiles in violation of five UNSCRs. Iran's failure to comply with these various
resolutions has resulted in the UN Security Council's imposing sanctions against Iran. These have included specific
provisions aimed at preventing Iran from abusing banks and the international financial system to pursue nuclear
capabilities and develop ballistic missiles.
•
Iran Uses its Banks to Finance its Nuclear and Missile Programs. Multiple Iranian financial institutions
have been implicated in facilitating Iran's nuclear and ballistic missile programs.
>Bank Sepah. Iran's state-owned Bank Sepah has been designated in the United States under E.O. 13382 and by
the UN Security Council under UNSCR 1747. Bank Sepah has provided direct and extensive financial services,
such as arranging financing and processing dozens of multi-million dollar transactions, for the Shahid Hemmat
Industries Group (SHIG) and the Shahid Bakeri Industries Group (SBIG), two Iranian missile firms designated by the
UN Security Council in UNSCR 1737 and identified by President Bush in the Annex to E.O. 13382 for their direct
roles in advancing Iran’s ballistic missile programs. Bank Sepah also has provided financial services to SHIG's and
SBIG’s parent entity, Iran's Aerospace Industries Organization (AIO), which also was identified by President Bush in
the Annex to E.O. 13382 for its role in overseeing all of Iran's missile industries.
>~Bank Melli. Iran's largest state-owned bank, Bank Melli, has facilitated numerous purchases of sensitive materials
for Iran's nuclear and missile programs on behalf of UN-designated entities. In doing so, Bank Melli has provided a
range of financial services to known proliferators, including letters of credit and the maintenance of accounts. The
United States, the European Union, and Australia have designated Bank Melli.
>Bank Mellat. Iran’s state-owned Bank Mellat has provided banking services in support of Iran's nuclear entities,
namely the Atomic Energy Organization of Iran (AEOI) and Novin Energy Company. Bank Mellat, which was
designated pursuant to E.O. 13382 in October 2007, has serviced and maintained AEOI accounts, mainly through
AEOI's financial conduit, Novin Energy. Bank Mellat has facilitated the movement of millions of dollars for Iran's
nuclear program since at least 2003.

»^Export Development Bank of Iran. On October 22, 2008, the Treasury Department designated the Export
Development Bank of Iran (EDBI) under E .0 .13382 for providing or attempting to provide financial services to Iran's
Ministry of Defense and Armed Forces Logistics (MODAFL), which had been designated by both the European Union
and the United States for its involvement in Iranian proliferation activities. Some MODAFL scientists and officials
have also been designated by the UN. 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. In
addition, since Bank Sepah's designation by the United States and the UN Security Council, the EDBI has served as
one of the leading intermediaries handling Bank Sepah's financing, including WMD-related payments. The EDBI has
also facilitated financing for other proliferation-related entities sanctioned under U.S. and UN authorities.
•
International Focus on Proliferation Risks Associated with Iranian Financial Institutions. The role that
Iranian financial institutions play in Iranian proliferation activities is underscored by UNSCR 1803, which was adopted
in March 2008 and calls upon states to exercise vigilance over the activities of their financial institutions with all
Iranian banks. The FATF issued guidance in October 2008 to assist countries in implementing this provision. That
guidance recommends that jurisdictions encourage their financial institutions to take strong preventive measures for
the mitigation of risks posed by Iranian banks, including refusing to process transactions involving Iranian banks
when full information regarding the parties to the transaction is unavailable. The FATF guidance also recommends
that jurisdictions encourage their financial institutions to reassess, and if necessary, terminate correspondent
relationships with Iranian banks, and take steps to satisfy themselves that their correspondent relationships with nonIranian financial institutions are not used to circumvent the risk-mitigation practices in place for Iranian banks.
Iran Uses Deceptive Financial Practices to Evade Sanctions
•
Iranian Commercial Banks. It has been a standard practice for Iranian financial institutions to conceal their
identity to evade detection when conducting transactions. For example, Bank Sepah has requested that its name be
removed from transactions in order to make it more difficult for intermediary financial institutions to determine the true
parties to a transaction. Following the designation of Bank Sepah under UNSCR 1747, Bank Melli took precautions
not to identify Bank Sepah in transactions. Bank Melli also has employed similar deceptive practices to obscure its
involvement from the international banking system when handling financial transactions on behalf of the IRGC. In
addition, when Iranian assets were targeted in Europe, branches of Iranian state-owned banks in Europe took steps
to disguise ownership of assets on their books in order to protect assets from future actions.
•
Central Bank of Iran. The Central Bank of Iran (CBI), the sole Iranian entity that regulates all Iranian banks,
has not only engaged in deceptive practices itself - such as asking for its name to be removed from transactions but has also encouraged such practices among Iran’s state-owned banks. For example, prior to EU and UN
sanctions, the CBI attempted to help Banks Sepah and Melli protect their assets from being frozen. Later, the CBI
instructed non-sanctioned Iranian state-owned banks to issue payment instructions on behalf of Sepah in order to
circumvent sanctions. In the case of Bank Melli, the CBI provided substantive assistance to minimize the impact of
sanctions. In fact, between January and March 2008, the CBI handled tens of millions of dollars in transactions to
and from the accounts of U.S.- and UN-designated banks held at the CBI.
•
Use of Front Companies and Misuse of Bank Accounts. Iran hides behind front companies and
intermediaries to engage in ostensibly legitimate financial and commercial transactions that are actually related to its
nuclear or missile programs. Iranian entities form front companies outside of Iran for the sole purpose of exporting
dual-use items to Iran that can be used in these programs. These front companies enable the regime to obtain
materials that the country of origin would typically prohibit from being exported to Iran. Iran also has a history of
using accounts set up for one purpose to facilitate activities with designated entities.

•
Use of Money Service Business Accounts. Iran also has exploited its relationship with certain foreign
money service businesses, capitalizing on a business model where the absence of an ongoing account relationship
may mean that less information is collected on certain transactions.
Effect of the Revocation of U-Turn License
OFAC has revoked the authorization of "U-turn" transfers for the direct or indirect benefit of Iran, through an
amendment of the Iranian Transactions Regulations, 31 CFR part 560, to narrow the scope of existing § 560.516.
This action affects the "U-turn" class of funds transfers, which are so named because, while they are conducted on
behalf of Iranian account holders and banks or in connection with Iran-related transactions, they only pass through
the U.S. financial system on their way from one offshore non-Iranian financial institution to another.
As a result of today's action, U.S. depository institutions are no longer allowed to process "U-turn" transfers to or from
Iran, or for the direct or indirect benefit of persons in Iran or the Government of Iran. The prohibition on U-turns
applies not only to state-owned Iranian banks and the Central Bank of Iran, but also to privately-owned Iranian banks,
Iranian companies, and the settlement of third-country trade transactions that involve Iran.
Allowable Transactions
Today’s action will not affect funds transfers by U.S. depository institutions,through intermediary third-country banks,
to or from Iran or for the direct or indirect benefit of the Government of Iran or a person in Iran arising from several
types of underlying transactions including:
• A non-commercial remittance to or from Iran (e.g., a family remittance not related to a family-owned
•
•
•
•

enterprise);
The exportation to Iran or importation from Iran of information and informational materials;
A travel-related remittance;
Payment for the shipment of a donation of articles to relieve human suffering; or
An underlying transaction authorized by OFAC through a specific or general license. Allowable funds
transfers would include, for example, payments arising from over-flights of Iranian airspace, legal services,
intellectual property protection, and authorized sales of agricultural products, medicine, and medical
devices to Iran pursuant to the Trade Sanctions Reform and Export Enhancement Act.

Treasury Calls for Large Position Report
11/7/2008
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HP-1259
The Treasury is calling for Large Position Reports from those entities whose reportable positions in either the 2%
Treasury Notes of September 2010 or the 3-1/8% Treasury Notes of September 2013 equaled or exceeded $2 billion
as of close of business Thursday, November 6, 2008. Entities with reportable positions in either of these notes
equal to or exceeding the $2 billion threshold must submit a separate report for that security to the Federal Reserve
Bank of New York. Entities with positions in these notes below $2 billion are not required to file Large Position
Reports. Reports must be received by the Government Securities Dealer Statistical Unit of the Federal Reserve Bank
of New York before noon Eastern Time (ET) on Friday, November 14,2008, and must include the required positions
and administrative information. Large Position Reports may be faxed to (212) 720-5030 or delivered to the Bank at 33
Liberty Street, 4th floor.
This call for large position information is made under Treasury's large position reporting rules (17 CFR Part 420).
The notice calling for Large Position Reports is also being published in the Federal Register. This press release and
a copy of a sample Large Position Report, which appears in Appendix B of the rules at 17 CFR Part 420, are
available at the Bureau of the Public Debt's website at: www.treasurydirect.gov/instit/statreg/gsarcg/gsareg.htm
Questions about Treasury's large position reporting rules should be directed to Treasury's Government Securities
Regulations Staff at Public Debt on (202) 504-3632. Questions regarding the method of submission of Large
Position Reports should be directed to the Government Securities Dealer Statistical Unit of the Federal Reserve Bank
of New York at (212) 720-7993.

Treasury Announces Solicitation for Financial Agents under the Emergency
Economic Stabilization Act
11/7/2008
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Washington, DC-The Treasury Department posted today a solicitation for financial agents to provide
services that are needed for the effective implementation of the Capital Purchase Program being administered under
the Emergency Economic Stabilization Act. The services being sought are:
• Equity, Debt, Warrants Asset Management Services
All interested and eligible parties that meet the requirements and guidelines required of the service should submit
requests by the 5 p.m. (EST) on Nov 13, 2008.
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://www.treasurv.gov/initiatives/eesa/authorities.sht.ml.
-30REPORTS
•

Notice for Equity Securities. Debt Obligations and Warrants

£3 SHARE

1 | H

U .S . D E P A R T M E N T O F T H E T R E A S U R Y
N O T I C E T O F I N A N C IA L IN S T IT U T IO N S
IN T E R E S T E D IN P R O V ID IN G

ASSET MANAGEMENT SERVICES
F O R A P O R T F O L IO O F

EQUITY SECURITIES, DEBT OBLIGATIONS,
AND WARRANTS
IS S U E D B Y F I N A N C IA L IN S T IT U T IO N S

IN T R O D U C T IO N

The U.S. D epartm ent o f the Treasury (“Treasury”) issues this notice to Financial Institutions
interested in providing asset m anagem ent services for a portfolio o f securities, including senior
preferred shares, senior debt, equity w arrants, or other equity securities or debt obligations,
issued to the Treasury by both public and private Financial Institutions participating in program s
under the Em ergency Econom ic Stabilization A ct o f 2008 (Act).
This notice describes services sought by the Treasury, sets forth the rules for subm itting a
response, and lists the factors that will be considered in selecting Financial Institutions to provide
the services.
This notice is N O T for asset m anagers o f troubled m ortgage-related securities or m ortgage loans,
for w hich the Treasury has previously issued notices. The services described in this notice are
for m anagem ent o f the T reasury’s equity or debt positions in public and private Financial
Institutions participating in program s under the Act.
Financial Institutions selected pursuant to this notice to provide asset m anagem ent services to the
Treasury will be designated as financial agents o f the U nited States.
The Treasury m ay, in its sole discretion, decide not to select all asset m anagers pursuant to this
notice at the same time. Rather, the Treasury m ay select and designate asset m anagers over tim e
in a sequence that m atches the T reasury’s project plans and portfolio needs, as further described
in this notice.

I f your Financial Institution is interested in being designated as a financial agent, and m eets the
organizational eligibility and m inim um requirem ents in Sections VI and VII, you m ay subm it a
response in accordance w ith this notice no la te r th a n 5:00 p .m . E T on N o v em b er 1 3 ,2 0 0 8 .
II. O V E R V IE W
In furtherance o f its m ission to ensure the safety and soundness o f the U.S. financial system , and
to im plem ent the A ct, the Treasury has established a voluntary Capital Purchase Program (CPP)
to encourage public and private Financial Institutions to build capital to increase the flow o f
financing to U.S. businesses and consum ers and to support the U.S. economy.
U nder the CPP, the Treasury w ill purchase capital o f up to $250 billion, including senior
preferred shares, senior debt, or other equity securities or debt obligations depending on the
ow nership structure o f a Financial Institution. In addition, the Treasury m ay obtain w arrants for
com m on stock, or debt in lieu o f warrants, o f the public and private Financial Institutions
equivalent in value to 15 percent o f the am ount o f capital purchased by the Treasury.
The CPP is available to qualifying U.S. controlled banks, savings associations, and certain bank
and savings and loan holding com panies engaged only in financial activities. The Treasury w ill
determ ine the eligibility and allocations for interested public and private Financial Institutions
after consultation w ith the appropriate Federal banking agency.
For m ore inform ation on the initial phase o f the CPP that involves publicly held Financial
Institutions, please refer to the following w eb sites:

http://www.treas.gov/in itiati ves/eesa
http://www.treas.gov/press/releases/hpl222.htm
http://www.treas.gov/press/releases/reports/document5hp 1207.pdf
A ccordingly, the Treasury seeks m ultiple Financial Institutions to provide asset m anagem ent
services for the portfolio o f senior preferred shares, senior debt, w arrants, and other equity
securities and debt obligations that the Treasury w ill receive from public and private Financial
Institutions participating in the CPP. These Financial Institutions m ay be publicly traded on
national exchanges, or over the counter, or they m ay be private Financial Institutions w ith
varying ownership structures.
In addition to the CPP, the Treasury m ay establish other program s under the A ct w here the
Treasury w ill obtain equity securities and debt obligations and warrants o f public and private
Financial Institutions. A sset m anagers selected pursuant to this notice will m anage the assets
obtained under these other program s as well as the CPP.

The T reasury’s prim ary policy goal in m anaging the portfolio o f Financial Institution securities
and obligations is to protect the interests o f taxpayers in light o f the T reasury’s stake in the
public and private Financial Institutions.
I I I . P O R T F O L IO O F A S S E T S
Pursuant to this notice, the Treasury intends to designate m ultiple asset m anagers to handle
Financial Institution equity securities and debt obligations and w arrants issued to the T reasury in
connection w ith the Act.
The T reasury expects that a given asset m anager w ill be assigned a certain num ber o f public
and/or private Financial Institutions and will provide all the services identified in this notice for
the securities and obligations issued by those public and private Financial Institutions. A s m ore
hilly described in Section IV, the services will include valuing the assets issued by the public and
private Financial Institutions, analyzing the on-going financial condition, capital structure, and
risks o f the public and private Financial Institutions, advising on the optim al disposition o f the
T reasury’s assets, executing transactions in accordance w ith the T reasury’s instructions and
Investm ent Policy and G uidelines, and providing the Treasury w ith detailed analysis and
recom m endations on corporate actions, proxy voting, disclosures, consents, w aivers, and other
business events that could have an im pact on T reasury’s ownership stake and com pliance
responsibilities.
The size o f the overall portfolio will reach hundreds o f billions o f dollars, and w ill likely involve
securities and obligations issued by thousands o f public and private Financial Institutions. The
portfolio m andate w ill last at least several years.
Consistent w ith the T reasury’s prim ary policy goal o f protecting the interests o f taxpayers, as
w ell as the goal o f ensuring m arket stability, the portfolio is not expected to be actively traded.
H ow ever, various events, such as changes in m arket valuations and m arket conditions, m ergers
and acquisitions, or im pending exercise or conversion dates, m ay necessitate transfers o r other
transactions, subject to the T reasury’s approval. A sset m anagers will be required to understand
and evaluate these and any other events that m ay have an im pact on the value o f the T reasury’s
holdings, and to provide detailed recom m endations to the Treasury. To the m axim um extent
practicable, the portfolio’s risks will be m anaged to lim it the potential for capital losses as public
and private Financial Institution valuations change over time. The Treasury w ill determ ine the
ultim ate disposition o f holdings or otherw ise issue disposition guidance in its Investm ent Policy
and G uidelines.
A sset m anagers will not acquire the assets in the portfolio. The Treasury will obtain the
Financial Institution securities and obligations as a result o f purchasing capital or executing other
transactions w ith the public and private Financial Institutions under the Act. In addition, asset
m anagers will not provide custody o f any assets. The Treasury has already engaged an
independent custodian to hold and safe keep all assets acquired under the Act, and asset
m anagers w ill be required to w ork in good faith w ith the custodian in carrying out their duties.

The perform ance o f individual asset m anagers will be m easured by a variety o f custom m etrics
and service levels linked to the T reasury’s policy goals.
IV . S E R V IC E S A N D R E Q U IR E M E N T S
Through this notice, the Treasury seeks responses from Financial Institutions qualified to provide
asset m anagem ent services for a m ulti-m anager portfolio o f securities obligations issued to the
T reasury by public and private Financial Institutions participating in the CPP and in other
program s under the Act. These obligations will include senior preferred shares, senior debt,
equity w arrants, or other equity securities or debt obligations. Financial Institutions designated
as financial agents to provide asset m anagem ent services w ill be required to:
Portfolio M anagem ent
•

A ct as the T reasury’s asset m anager, consistent w ith the T reasury’s Investm ent Policy and
Guidelines.

V aluation
•

D eterm ine the on-going m arket or econom ic value o f (i) senior preferred shares, (ii) equity
w arrants, (iii) C C orporation shares, (iv) senior debt issued by m utual and S C orporation
Financial Institutions, and/or (v) other equity securities or debt obligations issued to the
Treasury by public and private Financial Institutions.

M onitoring
•

A nalyze the on-going financial condition and capital structure o f public and private Financial
Institutions, in light o f relevant m arket conditions, and conduct equity and debt financial
analysis, on b e h a lf o f the Treasury as an investor representing the taxpayer.

•

Devise, docum ent, and execute m onitoring and surveillance strategies to m eet the T reasury’s
Investm ent Policy and Guidelines.

•

M onitor risks and volatility o f the portfolio.

•

M onitor public and private Financial Institution com pliance w ith requirem ents im posed by
the Act, such as executive com pensation lim its and dividend restrictions.

D isposition
•

A dvise on the strategy and optim al tim ing to execute w arrants or m onetize preferred shares
and other equity securities or debt obligations, consistent w ith both the duty to the taxpayer
and the goal o f m arket stability, in accordance w ith the T reasury’s Investm ent Policy and
Guidelines.

Input to the Treasury
•

Provide advice and input on the T reasury’s response to corporate actions, proxy voting,
disclosures, m ergers and acquisitions, de-listings, corporate re-organizations and other
business notifications received from the public and private Financial Institutions.

•

A dvise the Treasury on potential recapitalization strategies prior to re-purchase, exercise, or
step-up and step-dow n dates o f equity securities and debt obligations issued by public and
private Financial Institutions, and represent the Treasury in discussions on such
recapitalization strategies w ith such Financial Institutions.

Coordination
•

W ork in good faith and coordinate w ith the Treasury’s designated custodian that w ill hold the
Financial Institution securities and obligations.

•

W ork in good faith and coordinate w ith any Treasury contractors processing or adjudicating
docum ents for the CPP and other program s under the Act.

Trade Execution
•

Execute and confirm transfers, trades, and other transactions as instructed by the T reasury
and in accordance w ith the T reasury’s Investm ent Policy and Guidelines.

O perations
•

M aintain records o f (i) valuations, (ii) principal, interest, and dividend paym ents, (iii) cash
flow projections, and (iv) any trades or transfers executed.

•

Interface w ith the system s o f an independent custodian, selected by the Treasury, that w ill
have possession and safekeeping o f all assets.

•

R econcile books and records w ith the custodian’s and w ith the T reasury’s accounting
system s, as necessary.

•

M aintain a com pliance program designed to detect and prevent violations o f Federal
securities laws, and to identify, docum ent, and enforce controls to m itigate conflicts o f
interest.

•

Provide for all necessary operational and analytical hardw are and softw are to support the
services in this notice.

•

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

•

Perm it the T reasury’s internal and external auditors, or other governm ental oversight entities,
to audit books and records related to the services in this notice.

Portfolio A nalytics and Reporting
•

Produce periodic and ad hoc status reports and analyses o f Financial Institution perform ance
and risks, using m etrics and risk constraints established by the Treasury.

•

Report portfolio perform ance and status against the T reasury’s benchm arks and/or success
m etrics.

•

Report on (i) securities and obligations held, (ii) positions in asset classes, (iii) securities and
obligations characteristics, and (iv) transactions.

•

Forecast expected principal, interest, and dividend paym ents given a range o f m arket
scenarios.

•

Produce required valuation reports, at least m onthly, incorporating pricing and relative value
m easures from external sources and m odels, as appropriate.

•

Support the preparation o f reports to oversight bodies.

•

R etain all docum entation and reports related to the services in this notice, subject to the
T reasury’s recordkeeping requirem ents.

•

Respond prom ptly to the T reasury’s verbal inquiries.

A Financial Institution should be prepared to provide services im m ediately if selected as an asset
m anager.
A s a financial agent, the Financial Institution will have a fiduciary responsibility to perform all
services in the best interests o f the U nited States.
V. M A N A G ER M O D ELS
A s indicated above, the Treasury envisions selecting m ultiple m anagers, large and small,
pursuant to this notice to m anage the equity securities and debt obligations issued to Treasury by
potentially thousands o f public and private Financial Institutions. G iven the scope o f the
portfolio m andate, these asset m anagers m ay be grouped into different tiers or segm ents, based
on m anager size, expertise, assignm ent to different parts o f the capital structure, or other bases,
or m ay be joined as co-m anagers or prim ary and sub-m anagers. O ther asset m anagers m ay stand
alone in handling their assigned portion o f the portfolio. The Treasury w ill institute a fram ew ork
o f one or m ore m anager m odels that w ill support an inclusive approach to involve both large and
sm all asset m anagers. All asset m anagers selected will have a direct relationship w ith the
Treasury as designated financial agents o f the U nited States.

A s part o f this fram ew ork, the Treasury envisions that som e m anagers will be arranged under a
M anager-of-M anagers m odel. I f your Financial Institution is interested in and qualified to serve
as a M anager-of-M anagers, you should answ er the additional items in Section IX o f this notice.
In addition, to ensure a diversity o f participation and ideas, and to identify the best asset
m anagem ent talent and capabilities throughout the industry, the Treasury is interested in
receiving responses from qualified m inority- and w om en-ow ned or controlled Financial
Institutions to be asset m anagers. I f your Financial Institution is m inority- or w om en-ow ned or
controlled, in w hole or in part, you m ay answ er the additional items in Section X o f this notice.
V I. O R G A N IZ A T IO N A L E L IG IB IL IT Y
To be eligible to be selected as a financial agent pursuant to this notice, an organization:
•

M ust be a “Financial Institution” as defined in the Act, m eaning any institution, including,
but not lim ited to, any bank, savings association, credit union, security broker or dealer, or
insurance com pany, established and regulated under the laws o f the U nited States o r any
State, territory, or possession o f the U nited States, the D istrict o f Colum bia, C om m onw ealth
o f Puerto Rico, Com m onw ealth o f N orthern M ariana Islands, Guam , A m erican Sam oa, or the
U nited States V irgin Islands, and having significant operations in the U nited States, but
excluding any central bank of, or institution ow ned by, a foreign governm ent. R egistered
investm ent advisors under the Investm ent A dvisors A ct o f 1940, as am ended, and private
equity firms are considered “Financial Institutions” eligible to be designated as financial
agents for purposes o f this notice.

•

M ust not be on any Federal excluded parties, debarm ent, or suspension lists.

•

M ust not be delinquent on any debts ow ed to the Federal Governm ent;

•

M ust not be subject to any pending or current enforcem ent actions that could im pair its
ability to provide any services under this notice.

•

I f currently doing business w ith the Treasury or another Federal agency, m ust not be in any
kind o f probationary status, and m ust be addressing and resolving any identified deficiencies
in perform ance.

V IL M IN IM U M Q U A L IF IC A T IO N S
The Treasury has established the following m inim um qualifications for considering responses
from interested and organizationally eligible Financial Institutions:
•

The Financial Institution m ust be continuously engaged as a principal business in m anaging
assets, com parable to the services described in Section IV, for the last 3 years.

•

The Financial Institution m ust have at least $ 100 m illion in dollar-denom inated assets under
m anagem ent.

•

The Financial Institution’s prim ary m anager assigned to the T reasury’s account m ust have at
least 10 years o f experience in m anaging assets com parable to those described in this notice.

•

The Financial Institution m ust have financial statem ents prepared by an independent
accounting firm, in accordance w ith generally accepted accounting principles, for the last 3
years.

•

The Financial Institution m ust covenant to disclose all actual and potential conflicts o f
interest, and to avoid, m itigate, or neutralize to the extent feasible and to the T reasury’s
satisfaction any personal or organizational conflicts o f interest that m ay be identified by the
Treasury or the Financial Institution. To this end, the Financial Institution m ust be able and
w illing to enact and enforce inform ation barriers sufficient to prevent the disclosure or
m isuse o f m aterial, non-public inform ation received or obtained from, or derived on b e h a lf
of, the Treasury.

•

The Financial Institution m ust be able and w illing to partner w ith other Financial Institutions
selected to be prim ary m anagers, co-m anagers, sub-m anagers, or M anagers-of-M anagers in
the portfolio, as directed by the Treasury.

•

The Financial Institution m ust be able and w illing to w ork w ith Federal Reserve Banks,
Federal agencies, governm ental entities, and other organizations w hen the Treasury
determ ines it to be in the best interest o f the Governm ent.

•

The Financial Institution m ust m eet all organizational eligibility standards in Section VI.

V III. IN F O R M A T IO N R E Q U E S T E D
This Section identifies the prim ary inform ation the Financial Institution m ust provide in its
response to this notice.
1. Ownership. Please provide a succinct overview o f your firm ’s ow nership structure, and
identify any m ajor changes in the ownership structure that have occurred in the last 3 years.
2. Sum m ary o f Capabilities. Please provide an overview o f your firm ’s specific organizational,
technical, and personnel capabilities to perform the services identified in Section IV o f this
notice.
3. Expertise. D escribe any specific expertise your firm has in m anaging and/or analyzing (i)
preferred shares, (ii) senior debt, (iii) equity w arrants, (iv) C and/or S C orporation shares or
debt, (v) other Financial Institution equity securities or debt obligations, (vi) the financial
institutions and financial services sectors, and (vii) private (non-publicly traded) com panies.
4. A ssets under M anagem ent. Provide inform ation on your num ber o f clients and a breakdow n
o f your firm ’s assets under m anagem ent by asset and/or product type as o f Septem ber 30 for

at least the past 3 years, w ith any relevant details particular to the services and asset types
identified in this notice.
5. Perform ance. Provide a table showing annualized gross-of-fee returns for G overnm ent
Investm ent Perform ance Standards (GIPS) com pliant com posites for 1-year, 3-years, and, if
available, 5-years ending Septem ber 3 0 ,2 0 0 8 , against a broad U.S. m arket benchm ark(s). I f
you are unable to provide a com posite that com plies w ith GIPS, please note this and provide
relevant disclosures on the com posite (num ber o f accounts, dispersion, total assets, etc.).
6. Personnel. D escribe the com position and expertise o f your firm ’s personnel, and provide
b rie f biographies o f the senior team m em bers w ho w ill be assigned to the T reasury’s account.
7. B ack O ffice and Reporting. Discuss your firm ’s back office and reporting capabilities, such
as accounting, reconciliation, valuation, internal controls, and third party service providers,
and such as producing a variety o f standard and custom ized reports (e.g., perform ance
reports, investor letters, risk reports, attribution reports, com pliance reports, etc.).
8. Infrastructure Changes. Discuss what, if anything, your firm w ould need to change w ithin its
infrastructure (e.g., system s, licenses, personnel, etc.) to support the scope o f services
identified in this notice.
9. Conflicts o f Interest. Identify any actual or potential conflicts o f interest you w ould have in
m anaging a portfolio as described in this notice. Include the interests o f your corporate
parents, subsidiaries, and affiliates in your answer. A conflict o f interest is a relationship or
activity that w ould cause a reasonable person to question your objectivity or ability to fulfill
your fiduciary duties to the Treasury. A m ong other situations, conflicts o f interest m ay exist
if you, your corporate parent, or any o f your subsidiaries or affiliates, is a Financial
Institution that m ay be participating in the T roubled A sset R elief Program under the A ct, or if
you (1) have a personal, business, financial, or custom er interest or relationship w ith a
Financial Institution that m ay elect to participate in the Capital Purchase Program , or (2)
m anage proprietary or fiduciary accounts that hold securities issued by such Financial
Institutions.
10. M itigation Plan. D escribe the specific steps you w ill take to avoid, m itigate, or neutralize
any such conflicts.
H i Com pliance. D escribe your firm ’s com pliance and ethics program , including any policies,
procedures, training requirem ents, and audit practices designed to detect and prevent
violations o f Federal securities laws and conflicts o f interest. I f your organization has a
com pliance or risk officer, describe that person’s position in the com pany’s m anagem ent
structure and state w hether that person operates independently from portfolio m anagers and
other investm ent-policy decision makers.
12. R egulatory and Legal Actions. Identify any Federal or State citations or enforcem ent actions
your organization or any affiliate has received or been w arned of, and any litigation or legal

proceeding involving your asset m anagem ent or investm ent consulting services involving
fraud, negligence, crim inal activity, or breach o f fiduciary duty.
13. Ideas and Insights. G iven the unique nature o f the portfolio, the T reasury’s prim ary policy
goal, and the services described in this notice, provide tw o specific ideas, recom m endations,
or insights on the strategy for m anaging the overall portfolio or the investm ent policy to
govern the assets you w ould m anage for the Treasury.
14. R eporting Recom m endation. Provide at least one recom m endation or insight for the type and
form at o f the m ost useful report that the Treasury should receive on the status o f holdings,
the condition and attributes o f Financial Institutions that have issued obligations to the
Treasury, and/or the perform ance or surveillance m etrics for the portfolio.
15. Fees. D escribe your proposed fees, including the reasons and logic behind the proposed fees,
and declare the all-in costs associated w ith your services.
IX . A D D IT IO N A L IT E M S F O R M A N A G E R -O F -M A N A G E R S
I f your Financial Institution is interested and qualified to act as a M anager-of-M anagers for the
portfolio described in this notice, please provide additional inform ation in response to the
follow ing items.
1. M anager-of-M anagers Experience. D escribe your specific experience in serving as a
M anager-of-M anagers or overseeing a stable o f m anagers, and provide inform ation on the
process you use for portfolio construction, operational due diligence, and risk m anagem ent o f
assets under a M anager-of-M anagers m odel.
2. M anager-of-M anager Ideas. Provide one specific idea, recom m endation, or insight for each
o f the following: (i) im plem enting a M anager-of-M anagers m odel for the portfolio described
in this notice, (ii) the type and form at o f the m ost useful report that the Treasury should
receive on the perform ance o f the M anager-of-M anagers m odel and the individual m anagers
under it, and (iii) the strategy for coordinating the individual m anagers.
X . A D D IT IO N A L IT E M S F O R M IN O R IT Y - A N D W O M E N -O W N E D O R
C O N T R O L L E D B U SIN E SS E S
In identifying qualified m inority- and w om en-ow ned or controlled Financial Institutions, the
Treasury is not establishing a specific ownership percentage, nor a particular certification
requirem ent, for qualification or disqualification. Financial Institutions ow ned or controlled, in
w hole or in part, by m inorities or w om en, m ay answ er the following additional items directly
w ithout regard to other external standards for defining m inority or w om en-ow ned status.
1.

M inority/W om en Ownership. Identify the percent o f the business that is either wom enow ned or m inority-ow ned. As part o f your answ er, identify the percent o f the voting
interests that is actually and fully ow ned by w om en or m inorities, and identify the percent o f
net profit and loss that actually and fully accrues to w om en or m inorities.

2. M inority/W om en Executive M anagem ent. I f the day-to-day m anagem ent or operation o f
your Financial Institution is actually and directly carried out by m inorities or w om en, please
identify all such executive and operational officers, their titles, and w ho they report to in the
organization.
3. Certification. I f your Financial Institution is currently certified as a m inority- or w om enow ned business, identify the certifying entity and the certification type and issuance and
expiration date.
Providing the inform ation in this Section is voluntary. The inform ation requested in this Section
w ill not be used in the response evaluation. Congressional and other oversight bodies m ay
request to review the inform ation provided under this Section
X L S E L E C T IO N P R O C E S S
The Treasury w ill evaluate the responses to this notice from all interested and qualified Financial
Institutions, and w ill invite certain candidates to continue to the second phase o f the financial
agent selection process. The second phase, and subsequent phases, m ay be conducted under
confidentiality agreem ents to facilitate inform ation exchange, consistent w ith the public
disclosure and transparency provisions o f the Act. In the second phase, the prospective financial
agents will provide additional inform ation about their expertise, potential conflicts o f interest,
and corporate and ow nership structures, as w ell as inform ation on audited financial statem ents
and filings, insurance and bonding, codes o f conduct and ethics, asset m anagem ent m odels and
strategies, and references. This phase m ay include telephone conversations to allow questioning
by and o f the Treasury.
The Treasury will evaluate the responses from the second phase candidates, and w ill determ ine
w hether a candidate w ill continue to be considered. In this last stage, a Financial Institution m ay
be required to conduct face-to-face discussions on portfolio scenarios, public policy goals, and
statutory requirem ents, and to respond to interview questions to assess the capabilities o f
prospective individuals to be assigned to m anage assets. Follow ing any face-to-face m eetings,
the Treasury will m ake final selections o f the Financial Institutions to be designated as asset
m anagers.
Financial Institutions selected to be asset m anagers m ust sign a Financial A gency A greem ent
w ith the Treasury, a copy o f w hich will be provided for review during the second stage o f the
selection process. The Financial Institution’s w illingness to enter into the standard Financial
A gency A greem ent, w ith the established term s and conditions currently applied to financial
agents o f the U nited States, will be am ong the factors used in evaluating the Financial Institution.
The Treasury m ay, in its sole discretion, decide not to select all asset m anagers pursuant to this
notice at the same tim e, but rather m ay select m anagers over tim e in a sequence that m atches the
T reasury’s project plans and portfolio needs as the CPP and other program s under the A ct
expand in scope.

The Treasury w ill notify the Financial Institution if its response to this notice is selected,
rejected, or requires further information. H ow ever, the Treasury shall have no requirem ent to
discuss the reasons, in either general or specific term s, or at any stage in the selection process,
that the Financial Institution’s response w as not accepted or that the selection process m ay have
been term inated.
The financial agent selection process m ay involve extrem ely short deadlines for subm itting
additional inform ation, participating in conference calls, and for traveling to W ashington, D.C.
for m eetings or interviews. Financial Institutions m ust be prepared to respond im m ediately
during the selection process.
X II. D E A D L IN E AN D S U B M IS S IO N O F R E S P O N S E
T o be c o n sid e red to p ro v id e th e services in th is notice, th e F in a n c ia l In stitu tio n m u st
su b m it its re sp o n se b y 5:00 p .m . E T on N o v em b er 1 3 ,2 0 0 8 .
T h e resp o n se m u st be s u b m itte d in P D F fo rm a t via em ail to : a sse tm a n a g e r@ d o .tre a s.g o v
A dditional inform ation about the A ct and the program s established under it, w hich m ay help in
w riting a response, m ay be found at: http://www.treas.gov/initiatives/eesa
This notice includes the entirety o f instructions and guidance for interested Financial Institutions
to subm it a response. Financial Institutions should not attem pt to obtain additional inform ation
from officers, em ployees, or agents o f the Treasury regarding this notice. N o inform ation gained
from any such com m unication m ay be considered in any w ay binding or lim iting on the
Treasury.
The Treasury, in its sole discretion, m ay change the deadline for subm ission o f responses.
The Treasury has no obligation to consider a response received after the deadline provided
above. The only acceptable evidence o f the tim e o f receipt is the T reasury’s tim e/date stam p on
the response or other evidence o f receipt m aintained by the Treasury.
The Financial Institution, by subm itting a response to this notice, w arrants and represents that it
understands and agrees to all term s o f 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 determ ination o f w hat is in the best interests o f the U nited States.

•

N o com m unication, question, response, or clarification, w hether oral or written, about the
requirem ents o f this notice shall in any w ay serve to lim it the T reasury’s com plete and sole
discretion in selecting a Financial Institution and in m aking decisions in connection w ith this
notice.

The Treasury m ay select, reject, or request additional clarifying inform ation about a
Financial Institution’s response w ithout further discussion w ith the Financial Institution.
B ecause the Treasury m ay select or reject the response w ithout engaging in discussion, the
Financial Institution m ust present its m ost favorable technical and pricing response.
X III. R E S P O N S E F O R M A T
The response m ust include a one-page cover letter, executed by a person legally authorized to
represent the Financial Institution, that includes the following.
•

The nam e, title, address, and office and cell phone num bers o f the individual to receive
com m unications from the Treasury.

•

A certification statem ent that the Financial Institution (i) m eets the organizational eligibility
requirem ents o f Section VI, (ii) m eets the m inim um qualifications in Section VII, (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 II, (v) understands and
agrees that as a financial agent it will have a fiduciary duty to perform all services in the best
interests o f the U nited States, and (vi) is capable o f providing the services identified in this
notice.

The cover letter m ay be addressed to:
G ary G rippo
D eputy A ssistant Secretary
Fiscal O perations and Policy
U.S. D epartm ent o f the Treasury
1500 Pennsylvania Ave, N W
W ashington, DC 20220
In addition to the cover letter, the response m ust include a docum ent not to exceed 20 one-sided
pages, in 12-point font w ith 1-inch m argins, addressing all o f the items in Section V III above.
In addition to the cover letter and the docum ent not to exceed 20 pages, the response should
include, if applicable, a docum ent not to exceed three one-sided pages, in 12-point font w ith 1inch m argins, addressing the items in Section IX for M anager-of-M anagers and/or in Section X
for m inority- and w om en-ow ned or controlled businesses.
The response m ust not include any other docum ents or attachm ents. The response m ust not
include any generic m arketing or sales inform ation, or rely on cross-references to other
docum ents.
T h e resp o n se sh o u ld b e su b m itte d as a single, c o n so lid ated P D F fo rm a tte d file, in c lu d in g
th e cover le tte r, th e d o c u m e n t n o t to exceed 20 pages, a n d , if a p p lic ab le , th e d o c u m e n t n o t
to exceed th re e pages. P lease include th e n am e o f y o u r F in a n cia l In stitu tio n in e ith e r th e

h e a d e r o r fo o te r o f e a ch p a g e o f y o u r resp o n se, a n d p lease in clu d e only th e n a m e o f y o u r
F in a n c ia l In stitu tio n in th e su b je c t line o f y o u r em ail subm ission.
X IV . E V A L U A T IO N O F R E S P O N S E
The T reasury’s overarching objective in evaluating Financial Institution responses and selecting
providers is to ensure that the portfolio is m anaged in the m ost ethical, transparent, accountable,
and cost effective m anner possible.
The Treasury w ill use the follow ing non-exclusive factors in evaluating a Financial Institution’s
response:
•

The value and rigor o f the Financial Institution’s ideas, recom m endations, and insights.

•

The qualifications o f staff to be assigned to the Treasury.

•

The Financial Institution’s experience in m anaging and analyzing the types o f assets and
perform ing the types o f services identified in this notice.

•

The Financial Institution’s existing infrastructural capabilities, or clear and credible evidence
o f the ability to im plem ent necessary infrastructural capabilities, to support the services
identified in this notice.

•

The quality and cogency o f the w ritten response in answ ering the questions directly and
supplying the m ost relevant information.

•

The nature and extent o f the Financial Institution’s conflicts o f interest and its ability to
neutralize or m itigate such conflicts.

•

The Financial Institution’s overall financial and m anagem ent stability.

•

The Financial Institution’s proposed fee schedule and all-in costs.

•

The Financial Institution’s w illingness to enter into the standard Financial A gency
A greem ent, w ith the established term s and conditions currently applied to financial agents o f
the U nited States.

The Treasury w ill notify the Financial Institution i f its response is selected, rejected, or requires
further inform ation. H ow ever, the Treasury shall have no requirem ent to discuss the reasons, in
either general o r specific term s, that the Financial Institution’s response w as not accepted or that
the selection process m ay have been term inated.
X V . C O N F L IC T S O F IN T E R E S T M IT IG A T IO N
Financial Institutions selected under this notice will be required to address and m anage any
actual or potential conflicts o f interest to the satisfaction o f the Treasury. Prior to entering into a

Financial A gency A greem ent w ith the Treasury, the prospective Financial Institution w ill be
required to provide the Treasury w ith sufficient inform ation to evaluate any organizational or
personal conflicts o f interest. In addition, the Treasury and the Financial Institution m ust agree
on a w ritten m itigation plan docum enting the actions or steps the Financial Institution w ill take
to neutralize or m itigate conflicts identified by the Financial Institution or the Treasury, such as
enacting and enforcing inform ation barriers, being subject to certain transaction restrictions
w hile in receipt o f m aterial, non-public inform ation, or divesting assets that give rise to a conflict
o f interest. In addition, a Financial Institution that is selected under the notice w ill be subject to
periodic certification requirem ents regarding its conflicts o f interest as w ell as scheduled or ad
hoc audits by the Treasury or designated representatives o f the Treasury.
X V I. A U T H O R IT Y
The Secretary o f the Treasury has statutory authority to designate Financial Institutions as
financial agents o f the U nited States to perform reasonable duties as determ ined by the Secretary,
pursuant to the Act. A Financial Institution, if designated to provide services pursuant to this
notice, shall be financial agent o f the U nited States, and not a contractor. N either this notice, nor
the services sought by the Treasury, is a procurem ent subject to the Federal A cquisition
Regulation.
X V II. C O N F ID E N T IA L IT Y
The Treasury considers any inform ation provided to a Financial Institution in evaluating its
response to this notice to be strictly confidential and m ust not be disclosed to any third party
outside the Financial Institution’s corporate organization, nor duplicated, used, or disclosed in
w hole or in part for any purpose other than to prepare a response. U nder no circum stances shall
any inform ation received in connection w ith this notice be disclosed to any third party outside
the Financial Institution’s corporate organization w ithout the express prior w ritten consent o f the
Treasury.
In addition, i f selected to provide services pursuant to this notice, a Financial Institution w ill be
required to strictly safeguard and protect any confidential inform ation received in its role as asset
m anager, and will be strictly lim ited to using such confidential inform ation solely for the
purposes o f fulfilling its duties to the Treasury.
X V III. R E S E R V A T IO N O F R IG H T S
The release o f this notice and the T reasury’s receipt o f any inform ation or responses shall not, in
any m anner, obligate the Treasury to perform any act or otherw ise incur any liabilities.
The Treasury assum es no obligation to reim burse or otherw ise com pensate a Financial Institution
for expenses or losses incurred in connection w ith this notice.
The Treasury shall have the unlim ited right to use, for any governm ental purpose, any
inform ation subm itted in connection w ith this notice.

The Treasury reserves the right to: (1) m odify the requirem ents in this notice or w ithdraw this
notice at any tim e; (2) decide not to select any Financial Institution; (3) reject a response w ithout
inviting the Financial Institution to subm it a new response; (4) negotiate w ith and select any
Financial Institution considered qualified; (5) request, orally or in w riting, clarification o f or
additional inform ation on a response; (6) w aive m inor inform alities or irregularities, or a
requirem ent o f this notice; (7) accept any response in part or in total; and (8) reject a response
that does not conform to the specified form at or other requirem ents o f this notice.
A ny selection and designation o f a financial agent pursuant to this notice shall be contingent
upon and subject to availability o f funding.

Treasury to Invest in AIG Restructuring Under the Emergency Economic
Stabilization Act
11/10/2008
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
hp-1261
Washington, DC —The Treasury Department today announced that it will purchase $40 billion in senior preferred
stock from the American International Group (AIG) as part of a comprehensive plan to restructure federal assistance
to the systemically important company. Together with steps taken by the Federal Reserve, this restructuring will
improve the ability of the firm to execute its asset disposition plan in an orderly manner. AIG will use the equity to pay
down $40 billion of the Federal Reserve's secured lending facility.
Under the agreement AIG must be in compliance with the executive compensation and corporate governance
requirements of Section 111 of the Emergency Economic Stabilization Act. AIG must comply with the most stringent
limitations on executive compensation for its top five senior executive officers as required under the Emergency
Economic Stabilization Act. Treasury is also requiring golden parachute limitations and a freeze on the size of the
annual bonus pool for the top 70 company executives. Additionally, AIG must continue to maintain and enforce newly
adopted restrictions put in place by the new management on corporate expenses and lobbying as well as corporate
governance requirements, including formation of a risk management committee under the board of directors.
Treasury exercised its authority to purchase troubled assets under the Emergency Economic Stabilization Act.
-30REPORTS
• AIG Term Sheet

TARP AIG SSFI Investment
Senior Preferred Stock and Warrant
Summarv of Senior Preferred Terms

Issuer:

American International Group, Inc. (“AIG”).

Initial Holder:

United States Department of the Treasury (the “UST”).

Size:

$40 Billion aggregate liquidation preference.

Security:

Senior Preferred, liquidation preference $10,000 per share;
provided that UST may, upon transfer of the Senior Preferred,
require AIG 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 terms rank
junior to the Senior Preferred. At the meeting of stockholders
called to effect the amendments to AIG’s Restated Certificate of
Incorporation contemplated by the terms of the convertible
preferred stock, AIG shall propose an amendment to its Restated
Certificate of Incorporation to allow the Senior Preferred to rank
senior to the convertible preferred stock.

Term:

Perpetual life.

Dividend:

The Senior Preferred will accrue cumulative dividends at a rate
of 10% per annum. Dividends will be payable quarterly in arrears
on February 1, May 1, August 1 and November 1 of each year.
Dividends will be payable when, as and if declared by the Board
of Directors of AIG. Accrued but unpaid dividends shall
compound quarterly.

Redemption:

At any time that (i) the AIG Credit Facility Trust (or any successor
entity established for the benefit of the United States Treasury)
“beneficially owns” less than 30% of the aggregate voting power
of AIG's voting securities and (ii) no holder of the Senior
Preferred controls AIG, then AIG may redeem the Senior
Preferred in whole or in part at a redemption price equal to 100%
of its liquidation preference, plus an amount equal to accrued
and unpaid dividends (including, if applicable, dividends on such
amount). “Control" for this purpose means the power to direct the
management and policies of AIG, directly or indirectly, whether
through the ownership of voting securities, by contract, by the
power to control AIG's Board of Directors or otherwise.
“Beneficially owns” is as defined in Rule 13d-3 under the
Securities Exchange Act of 1934. For the avoidance of doubt,
while there is AIG’s Board of Directors control (or the potential to
gain AIG’s Board of Directors control) by the holder of the Senior
Preferred, then AIG is not permitted to redeem the Senior
Preferred.

Restrictions on
Dividends:

Subject to certain exceptions, for as long as any Senior Preferred

1
(NY) 07865/002/TERMSHEET/AIG.Tcrm.Sheet.doc

is outstanding, no dividends may be declared or paid on junior
preferred shares, preferred shares ranking pari passu with the
Senior Preferred (“Parity Stock”), or common shares (other than
(i) in the case of pari passu preferred shares, dividends on a pro
rata basis with the Senior Preferred and (ii) in the case of junior
preferred shares, dividends payable solely in common shares),
nor may AIG repurchase or redeem any junior preferred shares,
preferred shares ranking pari passu with the Senior Preferred or
common shares, unless all accrued and unpaid dividends for all
past dividend periods on the Senior Preferred are fully paid or
declared and a sum sufficient for the payment thereof set apart.
Common dividends:

The UST’s consent shall be required for any increase in common
dividends per share until the fifth anniversary of the date of this
investment unless prior to such fifth 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 repurchases of any
common shares, other capital stock, trust preferred securities or
other equity securities (other than (i) repurchases of the Senior
Preferred, (ii) repurchases of junior preferred shares or common
shares (“Junior Stock”) in connection with the administration of
any employee benefit plan in the ordinary course of business and
consistent with past practice (including purchases to offset share
dilution pursuant to a publicly announced repurchase plan), (iii)
any redemption or repurchase of rights pursuant to any
stockholders’ rights plan and (iv) the exchange or conversion of
Junior Stock for or into other Junior Stock or of Parity Stock or
trust preferred securities for or into other Parity Stock (with the
same or lesser aggregate liquidation amount) or Junior Stock, in
each case, solely to the extent required pursuant to binding
contractual agreements entered into prior to the signing date of
UST’s agreement to purchase the Senior Preferred or any
subsequent agreement for the accelerated exercise, settlement
or exchange thereof for common stock), until the fifth anniversary
of the date of this investment unless prior to such fifth
anniversary the Senior Preferred is redeemed in whole or the
UST has transferred all of the Senior Preferred to third parties.
Notwithstanding the foregoing, following the redemption in whole
of the Senior Preferred held by UST or the transfer by UST of all
of the Senior Preferred to one or more third parties not affiliated
with UST, AIG may repurchase, in whole or in part, at any time
the Warrant then held by UST at the fair market value of the
Warrant so long as no holder of the Warrant controls AIG as
provided in clause (ii) of “Redemption” above.

Voting rights:

The Senior Preferred shall be non-voting, other than class voting
rights on (i) any authorization or issuance of shares other than
the convertible preferred stock ranking senior or pari passu to the
Senior Preferred, (ii) any amendment that adversely affects the
rights of Senior Preferred, or (iii) any merger, exchange or similar
transaction unless the Senior Preferred remains outstanding or is
converted into or exchanged for preference securities of the
surviving or resulting entity or its ultimate parent and the Senior
Preferred or such preference shares have such rights,
preferences, privileges and voting powers, and limitations and
restrictions thereof, taken as a whole, as are not materially less

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(NY) 07865/002/TERMSHEET/AIG.Tcrm.Shcet.doc

favorable to the holders thereof than those of the Senior
Preferred immediately prior to such transaction, taken as a
whole.
If dividends on the Senior Preferred are not paid in full for four
dividend periods, whether or not consecutive, the Senior
Preferred will have the right to elect the greater of 2 directors and
a number of directors (rounded upward) equal to 20% of the total
number of directors after giving effect to such election. The right
to elect directors will end when full dividends have been paid for
all past dividend periods.
Transferability:

The Senior Preferred will not be subject to any contractual
restrictions on transfer other than such as are necessary to
insure compliance with U.S. federal and state securities laws.
AIG will file a registration statement (which may be a shelf
registration statement) covering the Senior Preferred as promptly
as practicable, but in any event within 15 days, after notification
by the UST and, if necessary, shall take all action required to
cause such registration statement to be declared effective as
soon as possible. During any period that an effective registration
statement is not available for the resale by the UST of the Senior
Preferred, AIG 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 best efforts to list the Senior Preferred on a national
securities exchange. If requested by the UST, AIG will appoint a
depositary to hold the Senior Preferred and issue depositary
receipts.

Claim in
Bankruptcy:

Equity claim with liquidation preference to common equity claim.

Acceleration
Rights:

None

Use of Proceeds:

To repay the senior secured revolving credit facility governed by
the Credit Agreement dated as of September 22, 2008 (the
“Credit Agreement”) between AIG and the Federal Reserve Bank
of New York (“FRBNY”).

Tax Treatment:

Dividends on the Senior Preferred are non tax-deductible to AIG.

Restrictions on
Expenses:

AIG shall continue to maintain and implement its comprehensive
written policy on corporate expenses and distribute such policy to
all AIG employees. Such policy, as may be amended from time
to time, shall remain in effect at least until such time as any of
the shares of the Senior Preferred are owned by the UST. Any
material amendments to such policy shall require the prior written
consent of the UST until such time as the UST no longer owns
any shares of Senior Preferred, and any material deviations from
such policy, whether in contravention thereof or pursuant to
waivers provided for thereunder, shall promptly be reported to
the UST. Such policy shall, at a minimum: (i) require
compliance with ail applicable law; (ii) apply to AIG and all of its
subsidiaries; (iii) govern (a) the hosting, sponsorship or other
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payment for conferences and events, (b) the use of corporate
aircraft, (c) travel accommodations and expenditures, (d)
consulting arrangements with outside service providers, (e) any
new lease or acquisition of real estate, (f) expenses relating to
office or facility renovations or relocations and (g) expenses
relating to entertainment or holiday parties; and (iv) provide for
(a) internal reporting and oversight and (b) mechanisms for
addressing non-compliance with the policy.
Restrictions on
Lobbying:

Reporting:

Executive
Compensation:

AIG shall continue to maintain and implement its comprehensive
written policy on lobbying, governmental ethics and political
activity and distribute such policy to all AIG employees and
lobbying firms involved in any such activity. Such policy, as may
be amended from time to time, shall remain in effect at least until
such time as any of the shares of the Senior Preferred are
owned by the UST. Any material amendments to such policy
shall require the prior written consent of the UST until such time
as the UST no longer owns any shares of Senior Preferred, and
any material deviations from such policy, whether in
contravention thereof or pursuant to waivers provided for
thereunder, shall promptly be reported to the UST. Such policy
shall, at a minimum: (i) require compliance with all applicable
law; (ii) apply to AIG and all of its subsidiaries and affiliated
foundations; (iii) govern (a) the provision of items of value to any
government officials, (b) lobbying and (c) political activities and
contributions; and (iv) provide for (a) internal reporting and
oversight and (b) mechanisms for addressing non-compliance
with the policy.
Except as otherwise agreed, AIG shall provide the UST (i) the
information required to be provided by AIG to the FRBNY
pursuant to Section 5.04 of the Credit Agreement, (ii) the notices
required by Section 5.05 of the Credit Agreement, in each case
within the time periods for delivery thereof specified in the Credit
Agreement and (iii) such executive compensation information as
is required for purposes of the Emergency Economic
Stabilization Act of 2008 (“EESA”) and the regulations and
guidelines thereunder; provided that, after the termination of the
Credit Agreement, such informational and notice requirements as
are provided in Section 5.04 and Section 5.05 of the Credit
Agreement shall remain in full force and effect until such time as
the UST no longer owns any shares of Senior Preferred. In
addition, AIG shall promptly provide the UST such other
information and notices as the UST may reasonably request from
time to time.

As a condition to the closing of this investment, AIG shall be
subject to the executive compensation and corporate
governance requirements of Section 111(b) of the EESA and the
UST’s guidelines that carry out the provisions of such subsection
for systemically significant failing institutions as set forth in Notice
2008-PSSFI. Accordingly, as a condition to the closing of this
investment, AIG and its senior executive officers covered by the
EESA (“SEOs”) shall modify or terminate all benefit plans,
arrangements and agreements (including golden parachute
agreements) to the extent necessary to be in compliance with,
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and following the closing and for so long as the UST holds any
equity or debt securities of AIG issued under this agreement (the
“Relevant Period”), AIG shall agree to be bound by the executive
compensation and corporate governance requirements of
Section 111(b) of the EESA and the guidelines set forth in Notice
2008-PSSFI. As an additional condition to the closing, AIG and
its SEOs shall grant to the UST and the SEOs shall grant to AIG
waivers releasing the UST, and, in the case of the SEOs release,
AIG, from any claims that AIG and such SEOs may otherwise
have as a result of any modification of the terms of any benefit
plans, arrangements and agreements to eliminate any provisions
that would not be in compliance with the executive compensation
and corporate governance requirements of Section 111 of the
EESA and the guidelines set forth in Notice 2008-PSSFI.
In addition to Notice 2008-PSSFI, the following will apply:
1. AIG shall undertake during the Relevant Period to
limit any golden parachute payments to its most senior employee
group, who are currently referred to as Senior Partners (“Senior
Partners”), (other than its SEOs) to the amounts permitted by the
regulations relating to participants in the EESA Capital Purchase
Program and the guidelines and Interim Final Rule (31 CFR Part
30) relating thereto as if they were SEOs (except that equity
denominated awards settled solely in equity shall not be included
in such limit), and AIG shall grant the UST a waiver releasing the
UST, and shall use its best efforts to obtain waivers from the
Senior Partners releasing the UST and AIG, from claims that AIG
may have against the UST and that such Senior Partners may
have against the UST or AIG as a result of such limits, and shall
have obtained such waivers from AIG and its U.S.-based Senior
Partners prior to and as an additional condition to the closing.
2. The annual bonus pools payable to Senior Partners
in respect of each of 2008 and 2009 shall not exceed the
average of the annual bonus pools paid to Senior Partners for
2006 and 2007 (in each case exclusive of AIG’s historic quarterly
bonus program, the amount of which will not increase for any
participant, and subject to appropriate adjustment for new hires
and departures).
Risk Management
Committee:

Miscellaneous:

AIG shall establish, within 30 days of the issuance of the Senior
Preferred, and maintain, at least until the UST ceases to own any
shares of the Senior Preferred, the Warrant or any other equity
or debt securities of AIG, a risk management committee of the
AIG’s Board of Directors that will oversee the major risks
involved in AIG’s business operations and review AIG’s actions
to mitigate and manage those risks.
The dividend rate as provided in “Dividend” above is subject to
adjustment in the sole discretion of the Secretary of the Treasury
in light of, inter alia, then-prevailing economic conditions and the
financial condition of AIG, with the objective of protecting the
U.S. taxpayer.

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Summary of Warrant Terms
Warrant:

The UST will receive a warrant (“Warrant”) to purchase a number
of shares of common stock of AIG (“Common Stock”) equal to
2% of the issued and outstanding shares of Common Stock on
the date of investment. The initial exercise price for the Warrant
shall be $2.50 per share of Common Stock (representing the par
value of the Common Stock on the date of the investment),
subject to customary anti-dilution adjustments; provided that the
initial exercise price per share of Common Stock shall be
adjusted to the par value per share of the Common Stock
following the amendments to AIG’s Restated Certificate of
Incorporation contemplated by the terms of the convertible
preferred stock. The Warrant shall be net share settled or, if
consented to by AIG and the UST, on a full physical basis.

Term:

10 years

Exercisability:

Immediately exercisable, in whole or in part.

Transferability:

The Warrant will not be subject to any contractual restrictions on
transfer other than such as are necessary to ensure compliance
with U.S. federal and state securities laws. AIG will file a
registration statement (which may be a shelf registration
statement) covering the Warrant and the Common Stock
underlying the Warrant as promptly as practicable, but in any
event within 15 days after notification by the UST, and, if
necessary, shall take all action required to cause such
registration statement to be declared effective as soon as
possible. During any period that an effective registration
statement is not available for the resale by the UST of the
Warrant or the Common Stock underlying the Warrant, AIG will
also grant to the UST piggyback registration rights for the
Warrant and the Common Stock underlying the Warrant. AIG will
apply for the listing on the New York Stock Exchange of the
Common Stock underlying the Warrant and will take such other
steps as may be reasonably requested to facilitate the transfer of
the Warrant and the underlying Common Stock.

Voting:

The UST will agree not to exercise voting power with respect to
any shares of Common Stock issued to it upon exercise of the
Warrant.

Substitution:

In the event AIG is no longer listed or traded on a national
securities exchange the Warrant will be exchangeable (in whole
or in part), at the option of the UST, for an economic interest (to
be determined by the UST after consultation with AIG) of AIG
classified as permanent equity under GAAP having a fair market
value (as determined by the UST) equal to the portion of the
Warrant so exchanged.

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Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks at the
SIFMA Summit on the TARP
11/10/2008
HP-1262

New York - 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 (TARP), which is a major
component of the overall coordinated effort by the Federal Government to restore confidence in our financial system
and ensure that credit continues to be available to consumers and businesses. In the past year, a number of
complementary actions have been taken by the Administration, the Federal Reserve, and the financial regulatory
agencies to maintain confidence in the viability and soundness of the U.S. financial sector.
This morning, I'd like to put a special emphasis on the Capital Purchase Program that Secretary Paulson announced
27 days ago on October 14. We at Treasury are in deep execution mode, launching and implementing a program that
would typically take months or years to establish. Since the President signed the legislation creating the TARP, we
have made tremendous progress on several fronts, but recognize that much more work remains to be done.
Today, I will brief you about five areas. First, I will discuss Treasury's progress implementing the Capital Purchase
Program. Second, I will review some of the important developments in procuring essential services for the program.
Third, I will describe how we have built up the leadership of the Office of Financial Stability and note a few of our
recent critical additions to our team. Fourth, I will give you a detailed update on our important continuing work to meet
the highest compliance requirements. And finally, I will briefly discuss our next steps.
However, before I start, I want to take a moment to discuss the actions we took today with American International
Group (AIG) and how that relates to the TARP. The TARP's foremost purpose is to stabilize the financial system. We
used TARP funds to purchase preferred stock in AIG, as part of a broader restructuring of their balance sheet, in
coordination with the Federal Reserve. This action was necessary to maintain the stability of our financial system. In
return, AIG must comply with stringent limitations on executive compensation for its top executives, golden
parachutes, its bonus pool, corporate expenses, and lobbying. We recognize that the financial system remains fragile
and we continue to stand ready to prevent systemic failures. We worked with the Congress to ensure the TARP
included sufficient flexibility to do just this.
Implementation of the Capital Purchase Program
On Tuesday, October 14, Treasury announced a voluntary Capital Purchase Program (CPP), which we subsequently
followed on October 20 with streamlined application guidelines. In developing this program, we worked closely with
the four federal banking regulatory agencies with the following two policy objectives in mind. One, the CPP is
intended to strengthen our financial system by increasing the capital base of a broad array of institutions. And two,
the capital program aims to increase the flow of financing to businesses and consumers to support our economy.
Terms of the Capital Purchase Program
With these policy objectives in mind, let me describe the terms of the program. We designed the terms to be
attractive to encourage broad participation, while also including important taxpayer protections.

Under the program, Treasury will purchase up to $250 billion of senior preferred shares on standardized terms,
including a 5 percent dividend for five years, which then increases to 9 percent. The Capital Purchase Program is
available to a broad array of financial institutions of all sizes- including qualifying U.S. controlled banks, savings
associations, and certain bank and savings and loan holding companies.
We have allocated sufficient capital, $250 billion, so that all qualifying banks, potentially thousands, can participate.
Therefore, it is important to note that Treasury will not implement this program on a first-come-first-served basis;
there is enough capital allocated for all qualifying institutions.
The terms for this program are the same for all institutions that apply before the program deadline of November 14.
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 November 14 deadline will be extended for private banks so they
have time to apply.
The minimum subscription amount available to a participating institution is 1 percent of risk-weighted assets. The
maximum subscription amount in this program is the lesser of $25 billion or 3 percent of risk-weighted assets.
The funds we deploy in this program are an investment for taxpayers. The government will not only own shares which
we expect to yield a reasonable return, but will also receive warrants for common shares in participating institutions.
These warrants allow the taxpayer to benefit from any appreciation in the market value of the institution.
We have designed important features into the Capital Purchase Program to help ensure our policy objectives of
strengthening the financial system and facilitating the availability of credit are met. First, we barred any increase in
dividends for three years. Second, we restricted share repurchases. Increasing dividends or buying back shares
would undermine our policy objective by taking capital out of the financial system. Some people have suggested that
we should have barred dividends altogether. But this would have made private investments in our financial institutions
less attractive. We want to encourage private capital to flow into the financial sector.
The program also has requirements to meet the guidelines set out by Congress in the law on executive
compensation. Institutions that sell shares to the government under the program accept restrictions on executive
compensation during the period that Treasury holds equity. Details of these executive compensation requirements
are listed on the Treasury website.
Linkages to Increased Bank Lending
As Secretary Paulson explained, this program has the objectives of strengthening the financial system and increasing
credit to our economy. A stronger capital base, especially for healthy banks, provides them with additional capacity to
lend. They can provide loans to new or existing customers. Notably, healthy banks that take advantage of this
program can now service clients that impaired banks, constrained by insufficient capital, cannot. We've already heard
from regional banks who have applied to the program and plan to use the funds to take on new borrowers. To many
banks, this is just common sense.
In addition, the financial incentives to make new loans are both strong and clear. A bank's return on capital will
decrease if it simply hoards the additional equity. Its shareholders will demand that the bank put the capital to the
best use possible or watch their returns suffer.
Application Process
Let me now outline the application process for the Capital Purchase Program.

On Monday, October 20, Treasury announced a streamlined, systematic process for all publicly owned banks wishing
to access this program. We worked with the four banking regulatory agencies to finalize the application process.
There is a common application form that all qualified and interested financial institutions use to submit to their primary
regulator - the Federal Reserve, the FDIC, the OCC or the OTS. This common application form is available on the
websites of all the regulatory agencies.
As a first step to applying for the program, banks should review the information on the Treasury website and consult
with their primary federal regulator. They can go to the regional office of their primary regulator anywhere in the
country, be it California, Kansas or Texas. After this consultation process, the institution should submit an application
to that same regulator.
Evaluation Process
Treasury worked closely with the banking regulators to establish a standardized evaluation process; this means that
all regulators will use the same standards to review all applications to ensure consistency.
Once a regulator has reviewed an application, it will take one of the following three actions:
1. For applications it does not recommend, it may encourage the institution to withdraw the application.
2. For applications it strongly believes should be included in the program, it directly sends the application and
its recommendation to the TARP Investment Committee at the Treasury Department.
3. For cases that are less clear, the regulator will forward the application to a Regulatory Council, made up of
senior representatives of the four banking regulators for a joint review and recommendation. Treasury is
an observer on the Council. The Regulatory Council will make a joint recommendation of either withdrawal
or approval.
The Treasury TARP Investment Committee reviews all recommendations from the regulators. This committee
includes our top officials on financial markets, economic policy, financial institutions, and financial stability, as well as
the Chief Investment Officer for the TARP, who chairs the Committee.
This is a Treasury program and Treasury makes the final decision on any investments. However, the Investment
Committee gives considerable weight to the recommendations of the banking regulators. The Investment Committee
is an advisory committee which makes recommendations to the Assistant Secretary for Financial Stability who makes
the final decision on preliminary approval. In some cases, the Committee will send the application back to the primary
regulator for additional information, or even remand it to the Regulatory Council for further review. At the end of the
evaluation process, Treasury notifies all approved institutions.
Institutions then have 30 days to complete the required documents before we fund the transaction. All completed
transactions will be publicly announced within two business days of execution, as required by the law. We will not,
however, announce any applications that are withdrawn or denied.
We recognize that, in some cases, participating banks will need shareholder approval before completing the preferred
stock investment. Moreover, the operational and processing complexity of executing hundreds or even thousands of
these transactions is extraordinary. As such, we have brought-in the requisite expertise and are setting up a formal
transaction processing model to ensure high quality and rapid execution. We have asked our master custodian, the
Bank of New York Mellon, to handle much of the document management. In addition, we have engaged two outside
law firms to help manage and close individual transactions. Senior Treasury staff oversee all aspects of the program.
Any questions about the application process should be directed to the regulators.

Capital Deployed
While Treasury kicked off the program by signing final agreements with nine large financial institutions, we are now
working diligently with the federal banking agencies to process applications from hundreds of other institutions. We
have granted preliminary approval to a number of them.
Each transaction includes execution of at least three documents: a stock purchase agreement; a certificate of
designation; and a warrant purchase agreement.
People often ask when we will see banks making new loans. First, we must we must recognize that less than half the
money is out the door. Given the complexity of executing these numerous transactions, it will take a few months to
complete all of these investments. Second, although progress has been made in the last month, our capital markets
remain fragile and confidence is still shaky. As confidence returns to our institutions and our markets, we believe
banks will put this capital to use by extending loans to creditworthy businesses and consumers. The last thing we
want, however, is to encourage banks to resume the poor lending practices that are the cause of the current
economic problems.
Procurement
Now, let me turn to the procurement of services to support the TARP.
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, veteran-owned
businesses, and minority and women-owned businesses. Third, we are taking appropriate steps to mitigate potential
conflicts of interest.
Since our last detailed update, we have hired several firms to assist execution of the programs:
1. Accounting Services: We solicited six firms off GSA Federal Supply Schedule and awarded a contract to
Ernst & Young. We solicited six firms off GSA Federal Supply Schedule and awarded a contract to Ernst &
Young.
2. Accounting Internal Controls Support: We again solicited six firms off GSA Federal Supply Schedule and
awarded a contract to PricewaterhouseCoopers.
3. Legal Services for review of documents under the CPP: We solicited five firms off GSA Federal Supply
Schedule and awarded Blanket Purchase Agreements to: Hughes, Hubbard & Reed and Sanders &
Dempsey.
4. Human Resources Support: We solicited four firms off GSA Federal Supply Schedule and awarded a
contract to Lindholm & Associates.
On Friday, November 7 we published a new notice for financial agents to serve as asset managers for the equity,
warrants and senior debt issued to the Treasury by financial institutions participating in the CPP. This solicitation is
open to all entities that meet minimum qualifications and responses are due within six days on Thursday, November
13 at 5pm. We set the minimum requirement at $100 million in assets under management to ensure that all qualifying
small, veteran, minority and women owned businesses may respond. Finally, all of our completed contracts and
financial agency agreements are available on the Treasury website.
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. While the permanent team is being identified for tomorrow, we are tapping the very best, seasoned, financial
veterans to help launch the program today and provide stability during the transition. 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 is growing daily and the team members are too numerous to name individually. However, I want to highlight
a few of our key interim leaders we have added in the last few weeks:
1. James Lambright, Chairman and President of the Export-Import Bank, has joined as our interim Chief
Investment Officer. At Ex-lm since 2001, Jim brings both public and private sector experience underwriting
and executing multi-billion dollar deals, including invaluable expertise in real estate banking at Credit
Suisse.
2. Don Mclellan is serving as our Capital Purchase Program Manager. He previously worked at Motorola,
where he served as the Senior Vice President for M&A and strategy. A transactional attorney by training,
Don has 18 years of experience managing large, complex corporate transactions, including mergers and
acquisitions, private equity investments, financings, corporate restructurings and IPOs.
3. Howard Schweitzer is serving as interim Chief Operating Officer. He brings in-depth knowledge of
government operations and financial transactions to the TARP team. Since 2005, Howard has been
senior vice president, general counsel and a member of the senior management committee of the ExportImport Bank.
These leaders round out what I call our "Joint Chiefs" - which include previously announced management personnel.
These leaders are actively building out their operations and contributing to all phases of the TARP. The Office of
Financial Stability now has about forty dedicated personnel and will need to expand further to ensure high quality
execution.
Compliance
Let me now turn to compliance. We are committed to transparency and oversight in all aspects of the program and
continue to take strong action to make sure we comply with the letter and the spirit of the requirements established by
the Congress. We want to inform the public as much as possible about our operations, so we have posted an
abundance of information on the Treasury website to allow everyone to have insight into our actions.
First, we moved quickly to establish the Financial Stability Oversight Board. The law required the first board meeting
to take place within fourteen days and then meet monthly thereafter. Again, we moved rapidly and the new Oversight
Board met within four days and has met four times in the five weeks since the President signed the law, including just
yesterday to discuss the AIG investment.
Second, Treasury staff continues to meet regularly with both the Government Accountability Office, who has an on
site presence at Treasury, as well as Treasury's Inspector General. A search is underway to identify a permanent
Special Inspector General for this program.
Third, on October 29, we released transaction reports for the first nine investment commitments we made under the
Capital Purchase Program. The law requires such disclosure within two business days of entering into such a
commitment. Last week, on November 4, we submitted the first Tranche Report to Congress, which is required by law
within seven days of committing each $50 billion. The report we submitted covered the first $125 billion that we

committed under the CPP. We will issue additional reports when further commitments are made and thresholds are
crossed.
As you can see, Treasury is committed to an open and transparent program with appropriate oversight. We look
forward to continuing to brief 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
Since the announcement of our Capital Purchase Program, and the coordinated actions with the Federal Reserve
and FDIC, we have seen numerous signs of improvement in our markets and in the confidence in our financial
institutions. For example, the average credit default swap spread for the eight largest U.S. banks has declined almost
245 basis points since before Congress passed the law. One month LIBOR has declined 243 basis points and three
month LIBOR has dropped 192 basis points.
Nonetheless, while there have been recent positive developments, our markets remain fragile.
We have accomplished a great deal in a short period of time. But our work is only beginning. As I previously
described, the operational scale and complexity to execute hundreds or even thousands of investments in banks
across the country is extraordinary. It will take months to fully execute and fund all of these transactions. We are
working around the clock to make it happen quickly while ensuring high quality execution. We intend to keep the
incoming Administration fully apprised of our initiatives so that there is smooth transition as the leadership of the
Treasury changes hands.
Our goal is to use the TARP to attack the root cause of the financial market turmoil, so American families and
businesses can get the credit they need. This is Secretary Paulson's highest priority.
We will continue to provide you with regular updates on our progress. Thank you.

Treasury to Join FHFA, GSEs, HOPE NOW to Announce Streamlined Modification
Program
11/11/2008
HP-1263
Treasury Assistant Secretary Neel Kashkari will join officials from the Federal Housing Finance Agency (FHFA), the
Department of Housing and Urban Development and HOPE NOW today to announce a new streamlined modification
program. A background briefing with FHFA, GSE and HOPE NOW representatives will follow the press conference.
The following event is open to the media:
Who
Neel Kashkari, Interim Assistant Treasury Secretary for Financial Stability
James B. Lockhart, FHFA Director & Oversight Board Chairman
Brian Montgomery, FHA Commissioner
Faith Schwartz, HOPE NOW
Michael Heid, Wells Fargo
What
Remarks on Streamlined Modification Program
Pen-and-Pad Background Briefing
When
Tuesday, November 11,2008 2 p.m. (EST)
Where
OTS Amphitheatre
1700 G Street, NW
Note
TV crews should bring their own lights and microphones. No stage lights or mult-box will be available. No
cameras will be permitted to the background briefing.

Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks
on GSE, HOPE NOW Streamlined Loan Modification Program
11/11/2008
HP-1264

Washington - Stabilizing our financial system will require not only strengthening our financial institutions so they are
able to lend to our communities, but also helping homeowners avoid preventable foreclosures. As Secretary Paulson
has repeatedly said, there is no silver bullet to address the housing downturn. We are experiencing a necessary
correction and the sooner we work through it, the sooner housing can again contribute to our economic growth. We
must explore all tools to help homeowners and increase the availability of mortgage finance.
Since last year, Treasury has worked with leading housing counselors, mortgage servicers and investors through the
HOPE NOW Alliance to reach and help homeowners who both want to keep their homes and have the basic financial
wherewithal to do so. In that time, industry and government have developed several new tools to help homeowners.
The industry is now helping over 200,000 homeowners a month avoid foreclosure with a loan workout.
Today's announcement by FHFA, the GSEs, and HOPE NOW is an important step forward to make sure the system
has capacity to help all qualifying homeowners who are reaching out for help. We commend FDIC Chairman Sheila
Bair for her leadership in developing a systematic loan modification protocol at IndyMac Bank. FHFA, the GSEs and
HOPE NOW relied heavily on the IndyMac model in developing this new protocol. With such broad adoption, this new
protocol will be a standard for the industry to quickly move homeowners into long-term sustainable mortgages.
The adoption of this streamlined modification framework is an additional tool that servicers will now have to help
avoid preventable foreclosures. This framework will not only help those homeowners who receive a streamlined
modification, it will also further address servicer capacity concerns by freeing up resources, helping ensure that
borrowers do not fall through the cracks because servicers aren't able to get to them.
We commend Director Lockhart and FHFA along with Fannie Mae and Freddie Mac for taking the lead in developing
and adopting this streamlined approach to loan modifications and helping establish these important new industry
standards. We also commend Hope Now for their continued leadership in bringing the industry together for a
common solution. It is important to note the powerful example large lenders are providing by applying this protocol to
their own mortgage portfolios.
The Treasury Department is committed to continuing to take strong action to stabilize our financial system and we
welcome this important announcement to help homeowners avoid preventable foreclosures.

Remarks by Secretary Henry M. Paulson, Jr. on Financial Rescue Package and
Economic Update
11/12/2008
HP-1265
Washington - Good morning. I will provide an update on the state of the financial system, our economy, and our
strategy for continued implementation of the financial rescue package.
Current State of Global Financial System
The actions taken by Treasury, the Federal Reserve and the FDIC in October have clearly helped stabilize our
financial system. Before we acted, we were at a tipping point. Credit markets were largely frozen, denying financial
institutions, businesses and consumers access to vital funding and credit. U.S. and European financial institutions
were under extreme pressure, and investor confidence in our system was dangerously low.
We also acted quickly and in coordination with colleagues around the world to stabilize the global financial system.
Going into the Annual IMF/World Bank meetings in early October, I made clear that we would use the financial rescue
package granted by Congress to purchase equity directly from financial institutions - the fastest and most productive
means of using our new authorities to stabilize our financial system. We launched our capital purchase program the
following week when we announced that nine of the largest U.S. financial institutions, holding approximately 55
percent of U.S. banking assets would sell $125 billion in preferred stock to the Treasury. At the same time, the FDIC
announced it would temporarily guarantee all newly issued senior unsecured debt of participating organizations for up
to three years. In addition, the FDIC provided an unlimited guarantee on non-interest bearing transaction accounts
that expires at the end of next year.
As I assess where we are today, I believe we have taken the necessary steps to prevent a broad systemic event.
Both at home and around the world we have already seen signs of improvement. Our system is stronger and more
stable than just a few weeks ago. Although this is a major accomplishment, we have many challenges ahead of us.
Our financial system remains fragile in the face of an economic downturn here and abroad, and financial institutions'
balance sheets still hold significant illiquid assets. Market turmoil will not abate until the biggest part of the housing
correction is behind us. Our primary focus must be recovery and repair.
Housing and Mortgage Finance
Overall, we are in a better position than we were, but we must address the continued challenges of a weak economy,
especially the housing correction and lending contraction.
On housing, we have worked aggressively to avoid preventable foreclosures and keep mortgage financing available.
In October 2007, we helped establish the HOPE NOW Alliance, a coalition of mortgage servicers, investors and
counselors, to help struggling homeowners avoid preventable foreclosures. HOPE NOW created a streamlined
protocol to assist struggling borrowers who could afford their homes with a loan modification. The industry is now
helping 200,000 homeowners a month avoid foreclosure. In addition, HUD has created new programs to complement
existing FHA options, and to refinance a larger number of struggling borrowers into affordable FHA mortgages.
Most significantly, we acted earlier this year to prevent the failure of Fannie Mae and Freddie Mac, the housing GSEs
that now touch over 70 percent of mortgage originations. I clearly stated at that time three critical objectives: providing
stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers - both by

minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk
created by the inherent conflict in the GSE structure.
Fortunately we acted, citing concerns about both the quality and quantity of GSE capital. Unfortunately, our actions
proved all too necessary. The GSEs were failing, and if they did fail, it would have materially exacerbated the recent
market turmoil and more profoundly impacted household wealth: from family budgets, to home values, to savings for
college and retirement.
Earlier this week, Fannie Mae reported a record loss, including write-downs of its deferred tax assets that make up a
significant portion of its capital. We monitor closely the performance of both Fannie Mae and Freddie Mac, and both
are performing within the range of our expectations. The magnitude of the losses at Fannie Mae were within the
range of what we expected, and further confirms the need for our strong actions.
Eight weeks ago, Treasury took responsibility for supporting the agency debt securities and the agency MBS through
a preferred stock purchase agreement that guarantees a positive net worth in each enterprise - effectively, a
guarantee on GSE debt and agency MBS. We also established a credit facility to provide the GSEs the strongest
possible liquidity backstop. As the enterprises go through this difficult housing correction we will, as needed and
promised, purchase preferred shares under the terms of that agreement. The U.S. government honors its
commitments, and investors can bank on it.
When we took action in September, I said that we would be entering a "time out" - a period where the new President
and Congress must decide what role government in general, and the GSEs in particular, should play in the housing
market. In my view, government support needs to be either explicit or non-existent, and structured to resolve the
conflict between public and private purposes. And policymakers must address the issue of systemic risk. In the weeks
ahead, I will share some thoughts outlining my views on long term reform.
In the meantime, the GSEs now operate on stable footing. They have strong government support backing both future
capital and liquidity needs. We have stabilized the GSEs and limited systemic risk, and our authorities provide us with
additional flexibility to use as necessary to accomplish our objectives.
implementing the Financial Rescue Package
More recently, we have also taken extraordinary steps to support our financial markets and financial institutions. As
credit markets froze in mid-September, the Administration asked Congress for broad tools and flexibility to rescue the
financial system. We asked for $700 billion to purchase troubled assets from financial institutions. At the time, we
believed that would be the most effective means of getting credit flowing again.
During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was
clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that
purchasing troubled assets - our initial focus - would take time to implement and would not be sufficient given the
severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to
improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in
banks.
Of course, before that time, the only instances in which Treasury had taken equity positions was in rescuing a failing
institution. Both the preferred stock purchase agreement for Fannie Mae and Freddie Mac, and the Federal Reserve's
secured lending facility for AIG came with significant taxpayer protections and conditions. As we planned a capital
purchase plan to support the overall financial system by strengthening balance sheets of a broad array of healthy

banks, the terms had to be designed to encourage broad participation, balanced to ensure appropriate taxpayer
protection and not impede the flow of private capital.
Capital Purchase Plan
We announced a plan on October 14th to purchase up to $250 billion in preferred stock in federally regulated banks
and thrifts. By October 26th we had $115 billion out the door to eight large institutions. In Washington that is a landspeed record from announcing a program to getting funds out the door. We now have approved dozens of additional
applications, and investments are being made in approved institutions. Although we are moving very quickly it will
take time to complete legal contracts and execute investments in the significant number of institutions who meet the
eligibility requirements and are approved, but we are on the path to getting this done.
Although this program's primary purpose is stabilizing our financial system, banks must also continue lending. During
times like these with a slowing economy and some deterioration in credit conditions, even the healthiest banks tend
to become more risk-averse and restrain lending, and regulators' actions have reinforced this lending restraint in the
past. With a stronger capital base, our banks will be more confident and better positioned to play their necessary role
to support economic activity. Today banking regulators issued a statement emphasizing that the extraordinary
government actions taken by the Fed, Treasury and FDIC to stabilize and strengthen the banking system are not
merely one-sided; all banks - not just those participating in the Capital Purchase Program - have benefited, so they
all also have responsibilities in the areas of lending, dividend and compensation policies, and foreclosure mitigation. I
commend this action and I am particularly focused on the importance of prudent bank lending to restore our
economic growth.
Since announcing the Capital Purchase Program, we have been examining a wide range of ideas that can further
strengthen the financial system and get lending going again to support the broader economy. First and foremost,
because the system remains fragile, we must continue to stand ready to prevent systemic failures. That is the basis
for Monday's action to purchase preferred shares in AIG. The stability of our system remains the highest priority.
We must also allow markets and institutions to absorb the extensive array of new policies put in place in a very short
period of time. The injection of up to $250 billion of capital into individual banks, the FDIC’s temporary guarantee of
bank debt and the Federal Reserve's multiple liquidity facilities for banks, money funds and commercial paper issuers
have all significantly enhanced liquidity and helped improve market conditions.
Priorities for Remaining TARP Funds
We have evaluated options for most effectively deploying the remaining TARP funds, and have identified three critical
priorities. First, we must continue to reinforce the stability of the financial system, so that banks and other institutions
critical to the provision of credit are able to support economic recovery and growth. Although the financial system has
stabilized, both banks and non-banks may well need more capital given their troubled asset holdings, projections for
continued high rates of foreclosures and stagnant U.S. and world economic conditions. Second, the important
markets for securitizing credit outside of the banking system also need support. Approximately 40 percent of U.S.
consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar
products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt.
Addressing these two priorities will have powerful impacts on the overall financial system, the strength of our financial
institutions and the availability of consumer credit. Third, we continue to explore ways to reduce the risk of
foreclosure.
Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related
assets. Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue
to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP

resources, in helping to strengthen our financial system and support lending. But other strategies I will outline will
help to alleviate the pressure of illiquid assets.
Further Strategies
First, we are designing further strategies for building capital in financial institutions. Stronger capital positions will
enable financial institutions to better manage the illiquid assets on their books and better ensure that they remain
healthy. Any future program should maintain our principle of encouraging participation of healthy institutions while
protecting taxpayers. We are carefully evaluating programs which would further leverage the impact of a TARP
investment by attracting private capital, potentially through matching investments. In developing a potential matching
program, we will also consider capital needs of non-bank financial institutions not eligible for the current capital
program; broadening access in this way would bring both benefits and challenges. Non-bank financial institutions
provide credit that is essential to U.S. businesses and consumers. However, many are not directly regulated and are
active in a wide range of businesses, and taxpayer protections in a program of this sort would be more difficult to
achieve. Also before embarking on a second capital purchase program, the first one must be completed, and we
have to assess its impact and use this information to evaluate the size and focus of an additional program in light of
existing economic and market conditions.
Second, we are examining strategies to support consumer access to credit outside the banking system. To date, Fed,
FDIC and Treasury programs have been targeted at our banking system, and the non-bank consumer finance sector
continues to face difficult funding issues. Specifically, the asset-backed securitization market has played a critical role
for many years in lowering the cost and increasing the availability of consumer finance. This market is currently in
distress, costs of funding have skyrocketed and new issue activity has come to a halt. Today, the illiquidity in this
sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a
heavy burden on the American people and reducing the number of jobs in our economy. With the Federal Reserve
we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities. We are
looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by
providing them access to federal financing while protecting the taxpayers' investment. By doing so, we can lower
costs and increase credit availability for consumers. Addressing the needs of the securitization sector will help get
lending going again, helping consumers and supporting the U.S. economy. While this securitization effort is targeted
at consumer financing, the program we are evaluating may also be used to support new commercial and residential
mortgage-backed securities lending.
Third, we are examining strategies to mitigate mortgage foreclosures. In crafting the financial rescue package, we
and the Congress agreed that Treasury would use its leverage as a major purchaser of troubled mortgages to work
with servicers and achieve more aggressive mortgage modification standards. Now that we are not planning to
purchase illiquid mortgage assets, we must find another way to meet that commitment.
FDIC Chairman Bair has given us a model, in the mortgage modification protocol she developed with IndyMac Bank.
Through the end of October, the FDIC has completed loan modifications for 3,500 borrowers, with several thousand
more modifications currently being processed. These modifications have reduced payments for participating
homeowners by an average of $380 month, or about 23 percent. We have worked with the FHFA, the GSEs, HUD
and the Hope Now alliance who yesterday announced a streamlined industry-wide modification program that for the
first time adopts an explicit affordability target similar to the model pioneered at IndyMac. With this commitment, the
GSEs and large portfolio investors are setting a new industry standard for foreclosure mitigation. Potentially hundreds
of thousands more struggling borrowers will be enabled to stay in their homes at an affordable monthly mortgage
payment.
Beyond these efforts, there has been significant work to design and evaluate a number of proposals to induce further
modifications. Each of these would, however, require substantial government subsidies. The FDIC, for example, has

developed a proposal that Treasury and others in the Administration continue to discuss. I believe it is an important
idea. As we evaluate the merits of any new proposal, we also will have to identify and justify the means to finance it.
We must be careful to distinguish this type of assistance, which essentially involves direct spending, from the type of
investments that are intended to promote financial stability, protect the taxpayer, and be recovered under the TARP
legislation. Maximizing loan modifications, nonetheless, is a key part of working through the housing correction and
maintaining the quality of communities across the nation, and we will continue working hard to make progress here.
We will continue to pursue the three strategies I have just outlined: how best to strengthen the capital base of our
financial system; how best to support the asset-backed securitization market that is critical to consumer finance, and
how to increase foreclosure mitigation efforts. All of these strategies are important, but ensuring the financial system
has sufficient capital is essential to getting credit flowing to consumers and businesses and that is where the bulk of
the remaining TARP funds should be deployed — in a program to support the system and as a contingency reserve
for addressing any unforeseen systemic events.
We are focused on developing and preparing programs which can be implemented for each of these strategies. We
will continue to brief President-elect Obama's transition team on all of these issues.
Global Challenge
Of course managing through this market turmoil while mitigating the impact of the credit crisis is a global as well as a
national issue. We in the U.S. are well aware and humbled by our own failings and recognize our special
responsibility to the global economy. The U.S. housing correction exposed gaping shortcomings in the outdated U.S.
regulatory system, shortcomings in other regulatory regimes and excesses in U.S. and European financial
institutions. These institutions found themselves with large holdings of structured products, including complex and
opaque mortgage-backed securities. Some European institutions were characterized by high leverage, exposure to
their own housing markets, exposure to Central European institutions, weak business models or overly aggressive
expansion, while others faced weaknesses because of inadequate depositor protection systems. It should not be
surprising that after 13 months of stress in the global capital markets, banks from the U.S. to the U.K., from Germany
to Iceland, from Russia to France, had difficulties that exposed some of these weaknesses for the first time. For some
of these banks, this proved to be a hurdle too high and government action was necessary to support financial
stability.
In that regard the G7 Finance Ministers meeting last month represented a major turning point in stabilizing the global
financial system as the ministers came together to support a number of powerful strategies that were soon turned into
effective actions in the United States and Europe. It is also clear that our first priority must be recovery and repair.
And of course we must take strong actions to fix our system so that the world does not have to suffer something like
this ever again. The Leaders summit President Bush will be hosting this weekend marks a very important step in what
will be an ongoing process of recovery and reform.
And to adequately reform our system, we must make sure we fully understand the nature of the problem which will
not be possible until we are confident it is behind us. Of course, it is already clear that we must address a number of
significant issues, such as improving risk management practices, compensation practices, oversight of mortgage
origination and the securitization process, credit rating agencies, OTC derivative market infrastructure and regulatory
policies, practices and regimes in our respective countries. And we recognize that our financial institutions and our
markets are global, but our regulatory regimes are national, so we will examine how best to improve cooperation and
information sharing to foster global financial system stability.
But let us not forget one fundamental issue which lies at the heart of our problems. Over a period of years, persistent
and growing global imbalances fueled a dramatic increase in capital flows, low interest rates, excessive risk taking
and a global search for return. Those excesses cannot be attributed to any single nation. There is no doubt that low

U.S. savings are a significant factor, but the lack of consumption and accumulation of reserves in Asia and oil
exporting countries and structural issues in Europe have also fed the imbalances.
If we only address particular regulatory issues - as critical as they are - without addressing the global imbalances
that fueled recent excesses, we will have missed an opportunity to dramatically improve the foundation for global
markets and economic vitality going forward. The pressure from global imbalances will simply build up again until it
finds another outlet.
The nations attending this weekend's summit represent the 20 largest economies in the world - over 77 percent of
global GDP. President Bush is convening this group of countries to discuss and address problems such as global
imbalances, making regulatory regimes more effective, fostering cooperation among regulators, and reforming
international institutions to better address today's global economy. We can't simply task the IMF, the FSF or other
International Financial Institutions to solve the problems, unless member nations all see that they have a shared
interest in a solution. There are no easy answers, because until we reach a consensus on a broad-based reform
agenda, we will not reach a solution. This weekend provides an opportunity for nations to take an important step, but
only one step, on the necessary path to reform.
Conclusion
The road ahead, for the U.S. economy and the global economy, is full of challenges. And it will take strong leadership
to address them. I am confident the United States, under this and the next Administration, will rise to these
challenges. I will do everything I can to put us on the right path, both by working diligently through the end of my term
and by working closely to ensure the smoothest possible transition.

Agencies Issue Final Rule to Implement Unlawful Internet Gambling Enforcement
Act
11/12/2008
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Washington - The Department of the Treasury and the Federal Reserve Board today announced the release of a
joint final rule to implement the Unlawful Internet Gambling Enforcement Act of 2006. The Act prohibits gambling
businesses from knowingly accepting payments in connection with unlawful Internet gambling, including payments
made through credit cards, electronic funds transfers, and checks.
The Board and the Treasury are required by the Act to develop a joint rule in consultation with the Department of
Justice. The final rule requires U.S. financial firms that participate in designated payment systems to establish and
implement policies and procedures that are reasonably designed to prevent payments to gambling businesses in
connection with unlawful Internet gambling. The rule provides non-exclusive examples of such policies and
procedures and sets out the regulatory enforcement framework. For purposes of the rule, unlawful Internet gambling
generally would cover the making of a bet or wager that involves use of the Internet and that is unlawful under any
applicable federal or state law in the jurisdiction where the bet or wager is initiated, received, or otherwise made.
Compliance with the rule is required by December 1,2009.
The Federal Register notice is attached.
-30REPORTS
• Final Rule

Treasury Designates the Union of Good
11/12/2008
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Washington, DC-The U.S. Department of the Treasury today designated the Union of Good, an organization created
by Hamas leadership to transfer funds to the terrorist organization.
"Terrorist groups such as Hamas continue to exploit charities to radicalize vulnerable communities and cultivate
support for their violent activities," said Stuart Levey, Under Secretary for Terrorism and Financial Intelligence. "The
U.S. Government will continue to expose and undermine the activities of charities working on behalf of Hamas and
other terrorist groups. At the same time, we are working with the charitable sector to expand the range of legitimate
alternatives forproviding charitable assistance to the Palestinian people."
Union of Good was designated today under Executive Order 13224, which targets terrorists, terrorist organizations,
and those providing financial, technological, or material support to terrorists, terrorist organizations, or acts of
terrorism. Any assets the Union of Good holds under U.S. jurisdiction are frozen and U.S. persons are prohibited from
engaging in any transactions with the Union of Good.
The leadership of Hamas created the Union of Good in late-2000, shortly after the start of the second Intifada, in
order to facilitate the transfer of funds to Hamas. The Union of Good acts as a broker for Hamas by facilitating
financial transfers between a web of charitable organizations-including several organizations previously designated
under E .0 .13224 for providing support to Hamas-and Hamas-controlled organizations in the West Bank and Gaza.
The primary purpose of this activity is to strengthen Hamas' political and military position in the West Bank and Gaza,
including by: (i) diverting charitable donations to support Hamas members and the families of terrorist operatives; and
(ii) dispensing social welfare and other charitable services on behalf of Hamas.
Among the primary financiers of Union of Good projects are several organizations designated pursuant to E .0 .13224
for providing support to Hamas and other terrorist groups, including the International Palestine Relief and
Development Fund (Interpal), Al- Aqsa Foundation, Comité de Bienfaisance et de Secours aux Palestiniens (CBSP),
the Association de Secours Palestiniens (ASP) of Switzerland, the Palestinian Association in Austria (PVOE), and the
Sanabil Association for Relief and Development in Lebanon. The Union of Good facilitates the transfer of tens of
millions of dollars a year to Hamas- managed associations in the West Bank and Gaza Strip.
Funds raised by the Union of Good affiliates have been transferred to Hamas-managed organizations in the West
Bank and Gaza. In addition to providing cover for Hamas financial transfers, some of the funds transferred by the
Union of Good have compensated Hamas terrorists by providing payments to the families of suicide bombers. One of
them, the Al-Salah Society, previously identified as a key support node for Hamas, was designated in August 2007
under E .0 .13224. The Society employed a number of members of the Hamas military wing and supported Hamasaffiliated combatants during the first Intifada.
The Union of Good's executive leadership and board of directors includes Hamas leaders, Specially Designated
Global Terrorists (SDGTs), and other terrorist supporters. The secretary general of the Union of Good, for example,
also acts as the vice-chairman of the United Kingdom-based Interpal, which was designated in 2003 for providing
financial support to Hamas under the cover of charitable activity. As of mid-2007, this official served on the Hamas
executive committee under Hamas leader Khaled Misha'al.

Board members of the Union of Good include a West Bank Hamas member, and Abd alMajid al-Zindani, a Yemenbased Hamas fundraiser who was designated pursuant to E.O. 13224 in 2004 for providing support to al-Qaida. In
2006, Zindani delivered a fundraising speech at a Hamas conference in Yemen where the crowd pledged millions of
riyals for Hamas.
The United States is also actively working with the Arab-American community and other interested donors to provide
alternate relief mechanisms to the Palestinian people as we take action against the HAMAS charitable infrastructure.
Identifying Information
UNION OF GOOD
AKAs:
Charity Coalition
Coalition of Good
i'tilaf Al-Khair
I'tiiaf Al-Khayr
101 Days Campaign
Etelaf Al-Khair
Address:
P.O. Box 136301, Jeddah, Saudi Arabia 21313

Treasury Action Targets Burmese Drug Cartel
11/13/2008
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Washington, DC—The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today named 26
individuals and 17 companies tied to Burma's Wei Hsueh Kang and the United Wa State Army (UWSA) as Specially
Designated Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act).
"The United Wa State Army is the largest and most powerful drug trafficking organization in Southeast Asia and is a
major producer and exporter of synthetic drugs, including methamphetamine," said OFAC Deputy Director Barbara C.
Hammerle. "Today OFAC is targeting the Wa's lieutenants and the financial holdings of this massive drug trafficking
organization. We call on other nations to do the same.”
On June 1,2000, the President identified Wei Hsueh Kang as a significant foreign narcotics trafficker under the
Kingpin Act. Wei is a senior commander of the UWSA, which the President subsequently identified as a significant
foreign narcotics trafficker on May 29, 2003. In January 2005, federal prosecutors in the Eastern District of New
York unsealed a criminal indictment charging Wei, along with his brothers Wei Hsueh Lung and Wei Hsueh Ying, who
are designated today, for narcotics trafficking. The U.S. Department of State is offering a reward of up to $2,000,000
for information leading to Wei Hsueh Kang’s capture.
Other key individuals designated by OFAC today are Pao Yu Hsiang, Ho Chun Ting and Shih Kuo Neng. Pao Yu
Hsiang, indicted in 2005 with Wei Hsueh Kang, is the Commander-in-Chief of the UWSA. In May 2005, prosecutors
in the Eastern District of New York charged Ho Chun Ting and Shih Kuo Neng, among others, with money laundering
and narcotics trafficking. In October 2007, Hong Kong authorities arrested Ho Chun Ting, a partner of Wei Hsueh
Kang, but Hong Kong later released him for unknown reasons. Shih Kuo Neng is the manager of the Hong Pang
conglomerate of companies, many of which are also designated today.
Today's designation would not have been possible without key support from the Drug Enforcement Administration's
offices in Thailand and the U.S. Attorney's Office in the Eastern District of New York.
This action is part of ongoing efforts under the Kingpin Act to apply financial measures against significant foreign
narcotics traffickers worldwide. Internationally, 419 businesses and individuals associated with 75 drug kingpins
have been designated by OFAC pursuant to the Kingpin Act since June 2000.
The designation action freezes any assets the 43 designees may have under U.S. jurisdiction and prohibits U.S.
persons from conducting transactions or dealings in the property interests of the designated individuals and entities.
Penalties for violations of the Kingpin Act range from civil penalties of up to $1,075,000 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,
and fines pursuant to Title 18 of the United States Code, for criminal violations of the Kingpin Act.

Paulson to Discuss Economy and Markets
11/13/2008
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Secretary Henry M. Paulson, Jr. will discuss the economy and financial markets Monday at a meeting of the Wall
Street Journal CEO Council. The meeting will bring together CEOs of major global companies for a two day meeting
on the economy and the issues ahead.
Who
Secretary Henry M. Paulson, Jr.
What
Discussion on the Economy and Markets
When
Monday, November 17, 6:30 p.m. EST
Where
Four Seasons Hotel
2800 Pennsylvania Avenue, NW
Washington, D.C.
Note
Press must pre-register at https://ceocouncil.wsj.com/press.html. Check-in will be open from 3:00 - 6:00 p.m. Monday.

Setting the Record Straight
11/13/2008
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Today's story in the Washington Post ("Bailout Lacks Oversight Despite Billions Pledged" -11/13/2008)
leaves out critical steps taken by Treasury to ensure that there is strong oversight in place as the Emergency
Economic Stabilization Act is implemented.
• Treasury worked with Congress to put strong oversight and transparency provisions in the bill and every
reporting requirement in the statute has been fully met on time. All reports have been published on the
Treasury's website.
• The law created a new Special Inspector General for the program, and that position has to be confirmed by
the Senate. The Administration has been working to identify a qualified candidate and will work closely
with the Senate when a nominee is chosen.
• GAO has been on site from the beginning as Treasury has implemented the Emergency Economic
Stabilization Act. Within days of the bill being signed, the Acting Comptroller General spoke with Secretary
Paulson and with Interim Assistant Secretary Kashkari. GAO has had a team of over a dozen specialists
and senior executives working on all aspects of the program. GAO staff typically meets with Treasury staff
several times a week. They have access to contract files as soon as each contract is completed, and they
often begin their review of those files within 24 hours of a contract signing. Every contract is posted on the
Treasury website.
• The Financial Stability Oversight Board was organized and met within days of the bill's enactment, well
before the statutory deadline. EESA required the board to meet within 14 days of enactment, and monthly
thereafter. In fact, the board met within 4 days of enactment, and has met 4 times in the 5 weeks since
EESA was enacted. Meetings have been held both to review overall implementation of EESA as well as to
consider establishment of the Capital Purchase Program and TARP's investment in American International
Group. It has published bylaws and meeting minutes, elected a chair, and appointed a secretary, counsel,
and staff-level executive director.
• Treasury has provided regular briefings to staff from the Congressional oversight committees and leadership
offices on its implementation of the legislation.
• Treasury is prepared to work closely with the Congressional

PWG Announces Initiatives to Strengthen OTC Derivatives Oversight and
Infrastructure
11/14/2008
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Washington- The President's Working Group on Financial Markets today announced a series of initiatives to
strengthen oversight and the infrastructure of the over-the-counter derivatives market.
Initiatives announced today include the development of credit default swap central counterparties, some of which will
commence operations before the end of 2008, and the establishment of a Memorandum of Understanding regarding
CDS central counterparties among the Federal Reserve Board of Governors, the Securities and Exchange
Commission and the Commodity Futures Trading Commission. The PWG also announced a broad set of policy
objectives to guide efforts to address the full range of challenges associated with OTC derivatives and issued a
progress summary to provide an overview of the results of ongoing efforts to strengthen the infrastructure of OTC
derivatives markets.
The Treasury Secretary serves as chair of the group, which includes the Chairs of 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, has been actively overseeing
improvements underway in OTC derivatives markets and the reports issued today identify the progress already made
and specific objectives for the relevant supervisors going forward.
Over-the-counter derivatives are integral to the smooth functioning of today’s complex financial markets and, with
appropriate regulatory oversight and prudent management can enhance the ability of market participants to manage
risk. The rapid growth of OTC derivatives markets over the past several years reflects their increasing importance to
market participants.
Development of CDS Central Counterparties
The PWG's top near-term OTC derivatives priority is to oversee the successful implementation of central counterparty
services for credit default swaps. A well-regulated and prudently managed CDS central counterparty can provide
immediate benefits to the market by reducing the systemic risk associated with counterparty credit exposures. It also
can help facilitate greater market transparency and be a catalyst for a more competitive trading environment that
includes exchange trading of CDS.
At the prompting of the PWG, several potential central counterparty providers have accelerated the development of
their efforts. The relevant regulatory authorities are assessing these central counterparty proposals by conducting
detailed on-site reviews of risk management and other key design elements. After completing the on-site reviews,
regulators expect to proceed toward regulatory approvals and/or exemptions expeditiously and anticipate that one or
more CDS central counterparties will commence operations before the end of 2008.
Memorandum of Understanding among the CFTC, SEC and Federal Reserve

To facilitate the regulatory approval process and to promote more consistent regulatory oversight, the Board of
Governors of the Federal Reserve System, the Securities and Exchange Commission and the Commodity Futures
Trading Commission today signed a Memorandum of Understanding. The Memorandum of Understanding
establishes a framework for consultation and information sharing on issues related to CDS central counterparties.
The PWG's Policy Objectives for OTC Derivatives
The PWG is announcing a set of additional policy objectives to guide efforts to address challenges associated with
OTC derivatives, consistent with the recommendations of the Financial Stability Forum.
U.S. and foreign supervisors embarked on an effort in 2005 to improve how market participants manage their OTC
derivatives operations, which had not matured sufficiently to support increased trading volumes. These efforts sought
to enhance other elements of the market infrastructure, reduce systemic risk and address operational risks that have
accompanied the growth of OTC derivatives.
In light of recent developments, the PWG is issuing broader objectives than those that motivated the PWG’s previous
OTC derivatives recommendations in the March 13 PWG Policy Statement on Financial Market Developments.
The PWG has established the following policy objectives:
1) improve the transparency and integrity of the credit default swaps market;
2) enhance risk management of OTC derivatives;
3) further strengthen the OTC derivatives market infrastructure;
4) strengthen cooperation among regulatory authorities.
The agencies in the PWG will work with other regulators and market participants to achieve these goals over the next
several months. Where necessary, they will support legislative change.

-30-

REPORTS
• MOU
• Progress Summary
• Policy Objectives

M em o ra n d u m o f U nderstan d ing
B et w een t h e B o ard o f G o verno rs o f t h e F ed er a l R eser v e S y stem ,
T h e U .S . C o m m o d it y F utures T ra d in g C o m m issio n
and T h e U .S . S e c u r it ie s and E x c h a n g e C o m m issio n
R eg a r d in g C en tr a l C o u n te r pa r tie s f o r C r e d it D efa u l t S w aps
The Board, the CFTC, and the SEC each have responsibilities in overseeing certain systemically
important payment, clearing, and settlement activities and certain market utilities that support
those activities.
The Board has regulatory and supervisory responsibilities and authorities over banking
companies, including state member banks and their subsidiaries, bank holding companies and
their subsidiaries, financial holding companies and their subsidiaries, foreign banking
organizations with U.S. banking operations, Edge Corporations, and Agreement Corporations.
The CFTC has regulatory and supervisory responsibilities and authorities over markets and
trading facilities with respect to futures on commodities, options on futures, and options on
commodities as well as DCOs that clear and settle derivatives transactions and certain financial
intermediaries, including futures commission merchants. The SEC has regulatory and
supervisory responsibilities and authorities over Clearing Agencies, securities markets, securities
brokers, securities dealers, transfer agents, certain investment advisers, investment companies,
and nationally recognized statistical rating organizations.
This MOU reflects the Parties’ intent to cooperate, coordinate and share information, including
by establishing regulatory liaisons, in carrying out their respective responsibilities and exercising
their respective authorities with regard to Central Counterparties for credit default swaps. The
Parties have a common interest in strengthening the infrastructure supporting the clearing and
settlement of credit default swaps. A Central Counterparty for credit default swaps may be one
or more of the following: a state-chartered bank that is a member of the Federal Reserve; a
DCO; or a Clearing Agency.
The Parties recognize the importance of cooperation and coordination in their respective
approval, ongoing supervision, and oversight of CCPs for credit default swaps, and that sharing
information concerning such CCPs is important in maintaining effective oversight, fostering
stability in the market for credit default swaps and in the financial system as a whole, and
promoting compliance with the banking, commodities, and securities laws. The Parties further
recognize that cooperation and coordination enhance the ability of the Parties to effectively carry
out their respective statutory responsibilities and minimize duplicative efforts.

A R T IC L E 1:

D E F IN IT IO N S

For the purposes of the MOU:
“Board” shall refer to the Board of Governors of the Federal Reserve System.
“CCP,” or Central Counterparty, shall refer to any entity that is engaged in the business of
interposing itself, either through a guarantee or as a principal, between counterparties in

providing clearing and settlement facilities for the post-trade processing of OTC credit default
swap transactions or both OTC and exchange-traded credit default swap transactions. This
definition does not include interdealer brokers or financial institutions providing prime brokerage
services.
“CDS” shall refer to credit default swaps.
“CEA” shall refer to the Commodity Exchange Act.
“CFTC” shall refer to the Commodity Futures Trading Commission.
“Clearing Agency” shall refer to a clearing agency as defined by the Exchange Act.
“DCO” shall refer to a derivatives clearing organization as defined in Section la(9) of the CEA
and that is registered with the CFTC.
“Exchange Act” shall refer to the Securities Exchange Act of 1934.
“Federal Reserve” shall refer to the Board and the individual Federal Reserve Banks, except that
when used with respect to a particular CCP that is supervised by the Federal Reserve, it shall
mean the Board and the appropriate Federal Reserve Bank that has primary responsibility for
supervising the CCP.
“MOU” shall refer to this Memorandum of Understanding.
“OTC” shall refer to over-the-counter.
“Parties” shall refer to the Board or Federal Reserve, as appropriate, CFTC, and SEC,
collectively.
“RFPA” shall refer to the Right to Financial Privacy Act of 1978.
“SEC” shall refer to the Securities and Exchange Commission.

A R T IC L E

G E N E R A L P R O V IS IO N S

1. This MOU is a statement of intent of the Parties to coordinate, cooperate and share
information in connection with the respective oversight, regulatory and supervisory
responsibilities and authorities of the Parties regarding CCPs in a manner consistent with,
and permitted by, the laws and requirements that govern the Parties. The Board, CFTC, and
SEC each acknowledge the other Parties’ respective needs for and interests in the
information to be shared and in coordinating their respective regulatory and supervisory
activities related to CCPs.

2. The MOU does not create legally binding obligations on the Parties and does not create any
right enforceable against the Parties or any of their officers or employees or any other person.
The MOU also does not confer upon any third party any right and specifically does not
confer on any third party the ability directly or indirectly to obtain, suppress, or exclude any
information shared pursuant to this MOU, or to challenge the execution of a request under
the MOU.
3. The MOU is intended to complement, but does not alter the terms and conditions of, existing
bilateral or multilateral arrangements concerning cooperation in supervisory, enforcement or
other matters between the Parties. To the extent any provision in this MOU is construed to
be in conflict with a provision in another arrangement between the relevant Parties, the
provision in this MOU shall govern the arrangements between such Parties in connection
with a CCP. In addition, the Parties encourage their respective staffs to maintain ongoing, ad
hoc, communications to ensure coordination, as appropriate, of their respective day-to-day
operations.
4. Nothing in the MOU modifies in any way the ability and responsibility of the Parties to
enforce their respective statutes and regulations.
5. Nothing in this MOU shall be deemed to diminish or impair in any way the independence of
the Board, the SEC or the CFTC in any of their respective functions.
6. Nothing in this MOU shall be deemed to obligate the Parties to create or maintain any
information.
7. The Parties intend periodically to review the functioning and effectiveness o f this MOU in
light of, among other things, changes in applicable law or international standards relating to
CCPs and the Parties’ experience in implementing the MOU with a view to expanding or
altering the scope or operation o f the MOU as appropriate.

A R T IC L E III:

C O O R D IN A T IO N , C O O P E R A T IO N , A N D S H A R IN G
IN F O R M A T IO N R E L A T IN G T O C C P s

8. The Parties recognize that the use o f consistent principles in the supervision and regulation of
CCPs is important to promote the effective and efficient supervision and regulation of CCPs,
minimize the burden on CCPs, and reduce duplication of effort by the Parties. Consistent
with otherwise applicable statutes and rules, the Parties will take into account in setting
supervisory expectations for CCPs, among other things, the “Recommendations for Central
Counterparties” developed by the Committee on Payment and Settlement Systems of the
central banks of the Group of Ten countries in conjunction with the Technical Committee of
the International Organization of Securities Commissions.

9. The Parties agree to cooperate and, to the extent requested, share information in connection
with the fulfillment of their respective supervisory and regulatory responsibilities for CCPs.
Without limiting the generality of the foregoing, the Parties agree:
a. To the extent practicable and as appropriate in the particular circumstances, to inform
each other, in advance where feasible and otherwise as soon as practicable, of issues that
may affect the respective regulatory or supervisory interests of the other Party or Parties
with respect to CCPs and CDS;
b. To consult with each other and, to the extent requested, share information concerning the
review and approval of any proposed CCP, including the manner in which a proposed
CCP will be assessed against applicable regulatory or supervisory rules or expectations;
c. To consult with each other and, to the extent requested, share information concerning
material proposed changes to the rules, policies or procedures of a CCP regarding the
CCP’s risk management systems, internal controls, liquidity and financial resources,
operations, or governance;
d. To consult with each other and, to the extent requested, share information, including
examination reports or results where appropriate, regarding the financial condition, risk
management systems, internal controls, liquidity and financial resources, operations and
governance of a CCP; and
e. That information requests under the MOU shall not be overly burdensome and, upon
request, shall be initiated by written request.
10. The Parties also agree to consult with each other and, to the extent requested, share
information concerning the market for CDS and the Parties’ assessments of the conditions in
such market.
11. Each Party agrees to designate an individual to serve as its primary regulatory liaison with
the other Parties to arrange and facilitate ongoing and periodic discussions and meetings
related to matters under this MOU. The Liaison will, among other things, discuss and
specify details for implementing this Article III including matters such as the specific reports
or categories of information that will be subject to information sharing, the frequency with
which such information will be shared, and the particular person(s) within each Party to
receive the information.

A R T IC L E IV :

P E R M IS S IB L E U SES AND C O N F ID E N T IA L IT Y O F
IN F O R M A T IO N

12. For purposes of this Article IV, the Federal Reserve, CFTC or SEC is referred to as the
"Providing Party" when it is providing information to one or both of the other Parties and is
referred to as the "Receiving Party” when it is receiving information from one or both of the
other Parties. This Article IV applies only to information shared under this MOU and does
not apply to information obtained by the Federal Reserve, the CFTC or the SEC directly from
a CCP pursuant to such agency’s own authority.

13. To the extent permitted by applicable laws (including with respect to the CFTC, 7 USC § 12)
and in accordance with the regulations of the Providing Party, the Parties will maintain the
confidentiality of all non-public information obtained pursuant to this MOU and will not
disclose such information to any person outside the Federal Reserve, CFTC, or SEC. In
addition, when acting as a Receiving Party, the Federal Reserve, CFTC, and SEC will:
a. establish and maintain such safeguards as are necessary and appropriate to protect the
confidentiality of any non-public information provided pursuant to this MOU, as well as
any information derived therefrom;
b. notify the Providing Party in writing, as soon as practicable, of any legally enforceable
demand or request for such information (including but not limited to, a subpoena, court
order, or request pursuant to the Freedom of Information Act), provide the Providing
Party a reasonable opportunity to respond to the demand or request prior to complying
with the demand or request, and assert all such legal exemptions or privileges on behalf
of the Providing Party as the Providing Party may reasonably request be asserted;
c. not grant any other demand or request for the information, not furnish the information to
any third party, make public any portions of the information or information derived
therefrom, or make public use of the information, without the prior written permission of
the Providing Party; and
d. consent to application by the Providing Party to intervene in any related action solely for
the purposes of asserting and preserving any of its privileges or claims of confidentiality
with respect to non-public information it provided.
14. Use of Information Shared by the Parties under this MOU
a. The Parties intend to continue their ongoing practice of sharing information between their
enforcement functions and nothing in this MOU, including this Article IV, is intended to
modify or replace such sharing or the current practices o f the Parties governing and
permitting the use of such enforcement referral information by a Receiving Party.
b. Information received under this MOU from a Providing Party that, in the judgment of the
Providing Party, reflects the judgment, analysis, opinion or findings of the Providing
Party may be used by the Receiving Party for or in any enforcement investigation,
proceeding, or civil action only with the written consent of the Providing Party. In
considering whether to grant consent under this paragraph, the Providing Party will take
into account, among other things, the public interest, applicable law, and the need to
protect its judgments, analyses, opinions and findings to preserve the integrity of its
supervision, enforcement, examination and oversight processes.
c. A Receiving Party may use non-public information (other than information referred to in
subparagraph b.) that was received from a Providing Party and obtained by such
Providing Party from a person that the Receiving Party has authority to examine regularly
for or in any enforcement investigation, proceeding or civil action. Notwithstanding the
preceding sentence, the Receiving Party may disclose any non-public information
described in the preceding sentence to a third party or to the public only with the written
consent of the Providing Party as provided in paragraph 13.c. above. For purposes of this

subparagraph c., the term “third party” shall not include a person or entity, such as a
consultant or expert, retained by the Receiving Party to assist in the conduct of an
examination, inspection, enforcement investigation, proceeding or civil action and who
has signed a non-disclosure agreement with the Receiving Party that obligates the person
to comply with the restrictions in this Article IV.
d. The Parties share a strong common interest in maintaining an open flow of information in
the supervisory and oversight processes involving CCPs under their respective
supervision or oversight. As a matter of principle, the Parties agree that issues raised by
information obtained from a Providing Party and not dealt with under subparagraphs a.,
b., or c. above should be addressed through supervisory or oversight means and should be
addressed through the enforcement function only if supervisory and oversight tools are
inadequate or ineffective. The Parties intend to apply this prudential supervisory and
oversight approach with respect to information shared under this MOU that is not
otherwise dealt with under subparagraphs a., b., or c. above. Each Party will promptly
inform and consult with the other Parties in the event the Party intends to change this
practice, either as a general matter or with regard to a specific CCP and in any case in
which information under this subparagraph is to be used for or in connection with any
enforcement investigation, proceeding, or civil action.
15. Nothing in the MOU waives or alters any provision of any applicable laws relating to non
public information.
16. The Parties agree to take all actions reasonably necessary to preserve, protect, and maintain
all privileges and claims of confidentiality related to non-public information provided
pursuant to the MOU, in accordance with applicable law.
17. The Parties intend that sharing of non-public information with each other pursuant to the
terms of the MOU will not constitute public disclosure, nor will it constitute a waiver of
confidentiality or any privilege applicable to such information. The Board has authorized the
disclosure of information to the CFTC and SEC under this MOU subject to the provisions of
12 U.S.C. § 1821 (t). The Parties expressly reserve all evidentiary privileges and immunities
applicable to the information shared under this MOU.
18. In the event that the files or information provided by the Parties to each other pursuant to this
MOU contain "financial records" of "customers" of "financial institutions," as those terms are
defined in the RFPA, the exchange of such information is exempt from the customer notice
requirement of Sections 1112(a) and (b) of the RFPA.
19. Nothing in this MOU should be construed to prohibit a Party from complying with an order
of a court of competent jurisdiction.
20. Point(s) of Contact
The Parties designate the following persons as their point(s) of contact for issues related to the
interpretation or application of this MOU and any authorizations, approvals or notices of
requested modifications under this MOU:
a. With respect to the Board, its General Counsel, or his or her designee.

b. With respect to the CFTC, the Director o f the Division o f Clearing and Intermediary
Oversight, or his or her designee.
c. With respect to the SEC, the Director o f the Division o f Trading and Markets, or his or
her designee.

A R T IC L E V:

E F F E C T IV E D A T E AND T E R M IN A T IO N

The MOU shall become effective as of the date of its signing, shall remain in effect unless
terminated by any Party, and may be revised or modified on written agreement of all Parties.
The Party recommending the revision or modification shall provide the other Parties with 30
days’ written notice of the proposed change.
Any of the Parties may terminate the MOU upon 30 days’ written notice to the other Parties.
Following the termination, all information that was provided subject to this MOU shall remain
confidential and shall continue to be governed by the terms of Article IV.

Agreed to this

day of November 2008.

Ben S. Bemanke
Chairman
Board of Governors of the Federal Reserve System

Walter L. Lukken
Acting Chairman
Commodity Futures Trading Commission

Christopher Cox
Chairman
Securities and Exchange Commission
-30-

P W G P r o g r ess S um m a ry
on O T C

D er iv a tiv e s O pe r a tio n a l I m pr o v em en ts

In 2005, the supervisors of major U.S. and foreign over-the-counter (OTC) derivatives dealers expressed
concern over the rapid growth of the credit derivatives market and the resulting operational risks. In
addition to the high and growing level of unconfirmed trades, participants were assigning trades without
informing the original counterparty, and there were a large number of processing and payment errors.
These issues underscored that existing infrastructure was not sufficiently scalable to support the rapid
growth of the market. Regulators embarked on a collective effort to improve participants’ management of
their OTC derivatives operations.
To address these issues, major credit derivatives dealers focused on improvements in automation and on
developing and standardizing legal documentation such as standard contract terms in order to make more
products eligible for electronic processing. These efforts led to the following accomplishments:
•

Since 2005, dealers have reduced by 92% the backlog of credit derivative confirmations outstanding
more than 30 days while trade volumes have increased by more than 300%.

•

Market participants adopted a protocol which requires participants to request original counterparty
consent before assigning trades to a third party, to ensure that market participants know their
counterparties at all times. The industry has also mandated the practice of assigning trades to be done
via electronic platforms by year-end 2008.

•

DTCC launched Deriv/SERV, which electronically matches and confirms OTC credit derivatives.
Additionally, DTCC launched the Trade Information Warehouse (TIW), a central repository with a
legal copy of all electronic transactions which facilitates the processing of various events that can
occur throughout the life of the trades.

•

Market participants implemented an automated settlement process that allows the netting of quarterly
CDS payments across multiple counterparties. The rate of payment errors has declined by more than
50% since this process was established

Over time, dealers’ efforts have been expanded to other OTC derivatives asset classes including equity,
interest rate, commodity, and foreign exchange. Participation in these initiatives was also broadened to
include major buy-side firms and industry associations.
Additionally, the focus on improvements in trade processing efficiency was broadened to include front
office trade capture. The following improvements were achieved:
•

Market participants have dramatically increased the rate of electronic processing for OTC derivative
products. Between November 2006 and September 2008, electronic processing increased from 47%
to 92% for credit derivatives, from 9% to 24% for equity derivatives, and from 30% to 56% for
interest rate derivatives.

•

For electronically eligible credit derivative trades, major dealers have improved the timeliness and
accuracy of trade submission and matching with the majority of trades submitted and matched on or
near trade date.

Market participants have also broadened their focus to include enhancements in market design and risk
management as follows:

•

Market participants, together with regulators, have accelerated efforts to achieve central counterparty
clearing in credit default swaps. A well-regulated and prudently managed CDS CCP can provide
benefits to the market by reducing the systemic risk associated with counterparty credit exposures.

•

Market participants are continuing their efforts to reduce the number of outstanding credit derivatives
trades through multilateral trade terminations, or tear-ups, in order to reduce aggregate counterparty
credit exposures and operational risk. To date in 2008, dealers have eliminated notional amounts of
outstanding credit derivative trades by $24.4 trillion, or more by than one-third, through multilateral
trade terminations.

•

DTCC has begun publishing aggregate data on credit default swaps in an effort to increase market
transparency.

•

Standard methodology is being developed to manage the failure of a major counterparty, and market
participants achieved a successful and orderly close-out of their trades with Lehman Brothers.

•

The industry is working to include language in the legal framework to mandate participation in an
auction that will facilitate orderly resolution of CDS settlement following credit events.

-30-

P r e s id e n t ’s W o r k in g G r o u p on F in a n cia l M a r k ets
P o l ic y O b je c t iv e s fo r t h e O T C D er iv a tiv e s M a r k e t
Under the auspices of the PWG, the Secretary of the Department of the Treasury, the Chairs of the
Board of Governors of the Federal Reserve System, the Securities and Exchange Commission and the
Commodity Futures Trading Commission and the Office of the Comptroller of the Currency have
established the following policy objectives for the OTC derivatives market, with a primary focus on credit
default swaps.
Improve M arket T ransparency and Integrity for Credit Default Swaps

•
•

Public reporting of prices, trading volumes and aggregate open interest should be required to
increase market transparency for participants and public.
Regulators should have access to trade and position information housed at central counterparties
(CCPs) and central trade repositories for the purpose of monitoring market trends, identifying
potential issues, and preventing market manipulation and insider trading.

Enhance Risk M anagem ent of OTC Derivatives

•
•

•

Regulators should establish consistent policy standards and risk management expectations for
CCPs or other systemically important derivatives market infrastructures and apply those
standards consistently.
Regulators and prudential supervisors should set consistent standards for regulated entities that
transact in OTC derivatives instruments, particularly regarding risk management practices.
o
Regulators and prudential supervisors should consider how to enhance the effectiveness
of existing policies applicable to OTC derivatives contracts that are not cleared by a CCP.
Market participants should adopt best practices with respect to risk management for OTC
derivatives activities, including public reporting, liquidity management, senior management
oversight and counterparty credit risk management.
o
Such practices should include the use of legally-enforceable netting and collateral
agreements between counterparties where possible.

Strengthen OTC Derivatives M arket Infrastructure

•

•
•
•

•
•

Regulators and prudential supervisors should require participants in a central counterparty
arrangement to clear all eligible contracts through that CCP.
o
The use of CCPs by end-users should be encouraged by strengthening, where necessary,
the legal framework governing the bankruptcy regime to ensure adequate customer
protection.
Details of all credit default swaps that are not cleared through a CCP should be retained in a
central contract repository.
Central contract repositories should be encouraged for other OTC derivatives asset classes.
Use of exchange or similar trading platforms for standardized CDS contracts should be
encouraged. These trading venues should provide pre-trade transparency to their participants.
Participants should also be able to bilaterally negotiate customized contracts where there are
benefits in doing so, subject to continued oversight by their prudential supervisors.
All market participants should have open and fair access to key infrastructure components, such
as trading venues, CCPs and central contract repositories.
Prudential supervisors should continue their cooperative efforts to improve the operational
infrastructure for all OTC derivatives, including encouraging further improvements to post-trade
automation, frequent portfolio compression for outstanding trades and enhancing standardized
documentation.

Continue Cooperation among Regulatory Authorities

Regulatory agencies should review whether they have adequate enforcement authority to police
against fraud and market manipulation and propose changes in authority where warranted.
Regulatory agencies in the U.S. and other jurisdictions with significant OTC derivatives activity
should expand existing frameworks for cooperation, coordination and information sharing.

-30-

Testimony of Interim Assistant Secretary for Financial Stability Neel Kashkari
Before the House Committee on Oversight and Government Reform,
Subcommittee on Domestic Policy
11/14/2008
HP-1273

Washington, DC--Chairman Kucinich, Ranking Member Issa, members of the Subcommittee, good morning and
thank you for the opportunity to appear before you. I would like to provide an update on the Treasury Department's
actions to stabilize our financial markets and restore the flow of credit to the economy. We have taken action with the
following three critical objectives: one, to provide stability to financial markets; two, to support the housing market by
preventing avoidable foreclosures and supporting the availability of mortgage finance; and three, to protect taxpayers.
We have acted quickly and in coordination with the Federal Reserve, the FDIC, OCC and colleagues around the
world to help stabilize the global financial system and it is clear that our coordinated actions have made an impact.
Before we acted, we were at a tipping point. Credit markets were largely frozen, denying financial institutions,
businesses and consumers access to vital funding and credit. Financial institutions were under extreme pressure,
and investor confidence in our system was dangerously low.
At the same time, we recognize that a program as large and important as this demands appropriate oversight. We are
committed to transparency and oversight in all aspects of the program and continue to take strong action to make
sure we comply with the letter and the spirit of the requirements established by the Congress, including regular
briefings with the Government Accountability Office, the Financial Stability Oversight Board, and the Inspector
General. We are also committed to continuing to meet all of the reporting requirements established by the Congress.
Equity Program
As the markets rapidly deteriorated in October, it was clear to Secretary Paulson and Chairman Bernanke that the
most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through
direct purchases of equity in banks. In early October, after consulting closely with Chairman Bernanke, Secretary
Paulson explained that Treasury would use the financial rescue package granted by Congress to purchase equity
directly from financial institutions - the fastest and most productive way to use our new authorities to help stabilize
our financial system. Working with our banking regulators, we have now approved dozens of applications from banks
across the country. We will soon post the term sheet for private banks. We feel very strongly that healthy banks of all
sizes, both public and private, should use this program to increase lending in their communities.
With a stronger capital base, our banks will be more confident and better positioned to play their necessary role to
support economic activity. Further in support of this goal, just two days ago, our banking regulators issued a
statement underscoring the responsibility that banks have in the areas of lending, dividend and compensation
policies, and foreclosure mitigation. Treasury commends this action and believes it is critical to focus on the
importance of prudent bank lending to restore our economic growth so that we do not repeat the poor lending
practices that are a major cause of the current economic problems.
Housing/mortgage finance

On housing, we have worked aggressively to avoid preventable foreclosures, keep mortgage financing available and
develop new tools to help homeowners. Here, I will briefly highlight three key accomplishments:
One, in October 2007, Treasury helped establish the HOPE NOW Alliance, a coalition of mortgage servicers,
investors and counselors, to help struggling homeowners avoid preventable foreclosures. Through coordinated,
industry-wide action, HOPE NOW has significantly increased the outreach and assistance provided to homeowners.
HOPE NOW estimates that nearly 2.5 million homeowners have been helped by the industry since July 2007; the
industry is now helping about 200,000 homeowners a month avoid foreclosure.
Two, we acted earlier this year to prevent the failure of Fannie Mae and Freddie Mac, the housing GSEs that affect
over 70 percent of mortgage originations. These institutions are systemically critical to financial and housing markets,
and their failure would have materially exacerbated the recent market turmoil and profoundly impacted household
wealth. We have stabilized the GSEs and limited systemic risk.
Three, just three days ago, HOPE NOW, FHFA and the GSEs achieved a major industry breakthrough with the
announcement of a streamlined loan modification program that builds on the mortgage modification protocol
developed by the FDIC for IndyMac. The adoption of this streamlined modification framework is an additional tool that
servicers will now have to help avoid preventable foreclosures. Potentially hundreds of thousands more struggling
borrowers will be enabled to stay in their homes.
Priorities for tarp
On Wednesday, Secretary Paulson outlined three critical priorities and related strategies for the most effective
deployment of remaining TARP funds: one, to further strengthen the capital base of our financial system; two, to
support the asset-backed securitization market that is critical to consumer finance; and three, to increase foreclosure
mitigation efforts. These priorities are necessary to reinforce the stability of the financial system so that banks and
other institutions critical to the provision of credit are able to support economic recovery and growth, and to help
homeowners avoid preventable foreclosures.
Let me briefly discuss these three priorities and strategies. One, in order to continue their critical role as providers of
credit, both banks and non-banks may need more capital given their troubled asset holdings, continued high rates of
foreclosures, and stagnant global economic conditions. To do this, we are designing further strategies for building
capital in financial institutions and are evaluating programs which would further leverage the impact of a TARP
investment by attracting private capital, potentially through matching investments.
Two, we are examining strategies to support consumer access to credit outside the banking system, specifically, the
asset-backed securitization market. This market has played a critical role for many years in lowering the cost and
increasing the availability of consumer finance. However, the market is currently in distress and its illiquidity is raising
the cost and reducing the availability of car loans, student loans and credit cards.
Three, we continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications,
which are a key part of working through the necessary housing correction and maintaining the strength of our
communities. The new program which I highlighted above with the FHFA, the GSEs, and HOPE NOW is just one
example and we will continue working hard to make progress here.
Conclusion
Our system is stronger and more stable than just a few weeks ago. Although a lot has been accomplished, we have
many challenges ahead of us. We will focus on the goals outlined by Secretary Paulson and develop the right

strategies to meet those objectives. Foremost among these will be to ensure that the financial system has sufficient
capital to get credit flowing to consumers and businesses. Thank you and I would be happy to answer your questions.

Statement by Secretary Henry M. Paulson, Jr., on Release of Final Regulations
Governing CFIUS
11/14/2008
hp-1274
Washington - Secretary Henry M. Paulson, Jr., issued the following statement on the Treasury Department's
issuance today of final regulations implementing section 721 of the Defense Production Act, as amended by the
Foreign Investment and National Security Act of 2007:
"The final regulations issued today strengthen the CFIUS process in a manner that reaffirms America's longstanding
policy of openness to investment, consistent with the protection of our national security. These regulations reflect
CFlUS's careful consideration of all comments submitted during the public comment period."
For the final regulations and additional background information, please visit: http:/7www.treas.gov/offices/ïnternationalaffairs/cfius/

Treasury Issues Debt Management Guidance on the Temporary Supplementary
Financing Program
11/17/2008
HP-1275

Washington - The balance in the Treasury's Supplementary Financing Account will decrease in the coming
weeks as outstanding supplementary financing program bills mature. This action is being taken to preserve
flexibility in the conduct of debt management policy in meeting the government's financing needs.
The balance in the Treasury's Supplementary Financing Account will decrease in the coming weeks as outstanding
supplementary financing program bills mature. This action is being taken to preserve flexibility in the conduct of debt
management policy in meeting the government's financing needs.

Remarks by Treasury Under Secretary For International Affairs David H.
McCormick to the Barclays Asia Forum
11/12/2008
HP-1276

"Our Economy, a Global Challenge"
Washington, DC - When I was first asked to speak at Barclay's Asia Forum, I imagined I would be able join you in
Singapore. I am sorry to deliver this speech via videoconference, but at least the title of my talk - "Our Economy, a
Global Challenge," is more appropriate now than ever. The turmoil that started in the United States has resulted in a
fundamental reassessment of risk across the globe, creating credit and liquidity pressures not only in the United
States and Europe, but also in markets that seemed relatively immune to the underlying vulnerabilities. As a result,
the global economy is rapidly slowing, and significant challenges and difficult policy choices lie ahead.
We should take confidence from the fact that countries around the world have responded with comprehensive actions
to help stem the crisis. The Group of Seven (G-7) industrialized countries announced and are implementing a
coordinated action plan to stabilize financial markets, restore the flow of credit, and support global economic growth.
Others throughout Europe, Asia, and Latin America have adopted similar approaches.
While we must confront the immediate challenges before us, this crisis is also an appropriate moment to consider the
more systemic issues raised by recent developments in our global financial system. It is with this in mind that
President Bush chose to host the Summit on Financial Markets and the World Economy with the Group of 20
countries in Washington this weekend to determine a path forward for addressing the root causes of the turmoil. We
recognize that no single country can successfully combat these economic challenges alone, and we are committed to
working hand-in-hand with countries around the world to reform our regulations and institutions.
Today, I would like to take a moment to outline the actions taken by the United States to stabilize our economy and to
discuss some of the larger trends that leaders may consider as they come together this weekend to determine the
first steps ahead on the path to reform.
A Comprehensive Policy Response
Since August last year, when the cracks in the global financial system began to appear, U.S. policymakers have
responded in three phases. In the first phase, recognizing the risk of the housing downturn, the U.S. government
took a number of immediate steps, including implementing a $150 billion stimulus package and launching a number
of other initiatives to help mitigate the impact on the real economy and help preserve home ownership.
In the second phase - as instability in the financial services sector grew - we acted on a case-by-case basis, as, for
example, when the Federal Reserve facilitated the sale of Bear Stearns. These moves were intended to address the
systemic risk to the financial system that would have resulted from a sudden collapse of these firms. Fannie Mae
and Freddie Mac were placed in conservatorship, or government control, so the regulator could put in place business
changes to restore the capital of the enterprises and Treasury could provide a firm commitment to protect agency
debt holders. In each of these cases, policymakers attempted to strike a careful balance between promoting market
discipline and mitigating systemic risk, holding investors and management teams accountable and protecting
consumers from collateral damage.

Despite the hardening of the government's support for Fannie Mae and Freddie Mac and the decisive resolutions of
destabilizing situations ranging from American International Group (AIG) to Wachovia, investors became increasingly
concerned over the possibility of other failing financial institutions. This resulted in a freezing of credit markets and
an unwillingness of investors around the world to assume counterparty risk. Given this fragile environment, U.S.
authorities moved to a third phase of action, taking decisive and comprehensive steps to stabilize the markets and
address the underlying sources of uncertainty. Our actions in early October sought to achieve several goals:
First, authorities in the United States and abroad took steps to improve liquidity. The Federal Reserve launched a
Commercial Paper Funding Facility to further increase access to funding for businesses in all sectors of our economy,
followed by a Money Market Investor Funding Facility to improve money market liquidity by allowing funds to pledge
assets for liquidity. To address U.S. dollar liquidity shortages, the Federal Reserve created swap lines with
European central banks and later - as the effects of the crisis spread to other parts of the world - lines with
Singapore, New Zealand, Korea, Mexico, and Brazil.
Second, with the support of Treasury and the Federal Reserve, the Federal Deposit Insurance Company (FDIC)
launched a program to guarantee newly issued senior debt of participating FDIC-insured institutions for up to three
years, as well as deposits in non-interest bearing deposit transaction accounts. These actions are specifically
designed to unlock interbank lending by mitigating counterparty risk and have provided confidence to the banking
system and averted destabilizing capital flows between banks in the United States.
Finally, and perhaps most important, Treasury is providing 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, eating away at their capital and constraining the flow of new lending.
Under its new Congressional authority, Treasury has carefully designed a capital injection plan through which nine
major financial institutions, comprising more than 50 percent of U.S. deposits and assets, received a combined $125
billion of capital in return for granting the U.S. government minority stakes. An additional $125 billion is available
under the same terms to other banks approved by their regulators. This program is a critical step to restoring
confidence and liquidity, as we continue to explore ways to best leverage additional TARP resources.
Together, these actions demonstrate that the United States is committed to doing whatever is necessary 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, as the steps taken in the United
States are consistent with the efforts undertaken by others around the world to provide liquidity, strengthen financial
institutions, protect savers, enforce investor protections, and prevent bank failures that pose systemic risk.
We see signs of progress. Short term funding spreads have tightened, and funding maturities are extending.
Money markets and the commercial paper market are showing signs of improvement, and credit default swaps for
many financial institutions have narrowed dramatically. Yet, significant challenges remain. Risk spreads remain
high, and lending standards have grown more restrictive. The U.S. and the global economies are slowing rapidly
with every indication that coming quarters in the U.S., Europe, and many emerging markets will be weaker.
Themes for the Global Economy
The Leaders’ Summit in Washington this weekend will provide an unprecedented opportunity for leaders of developed
and emerging economies to discuss the state of the global economy and set forth the outline of a roadmap for reform.
The G-20, established in the wake of the Asian Financial Crisis, offers an established channel for this international
dialogue. Leaders will discuss the responses to the global crisis that we have seen to date, agree on principles to
guide reform efforts, and identify specific actions that can be taken immediately to reform the international financial

system. We expect this to be the first in a series of leaders meetings to be conducted in close consultation with
other countries, financial centers, and international bodies.
While the Summit will focus on a wide-range of near term and longer term challenges, I’d like to reflect on several
themes I suspect will not only frame discussions this weekend, but also the choices policymakers will face in the
months and years ahead. To begin, one maxim should shape our policy choices: We are one global economy, and
in many ways we must act more like it. The myth of decoupling, at least in its most simplistic formulation, has been
debunked. What happens in the United States and Europe affects the rest of the world, and what happens in the
emerging markets is critical to developed countries and overall global growth. This acknowledgement brings both an
opportunity and a challenge for policymakers as we consider reforms of the international financial system.
Sound Macroeconomic Policy
Policymakers have for years long lamented the buildup of global current account imbalances but their implications
have now become clear. The past five years has in many ways been a Goldilocks period for the global economy,
with rapid growth, low inflation, and the near-absence of financial crises. But it depended heavily - too heavily, in
fact - on U.S. spending growth, rising current account surpluses in many regions, and a growing U.S. current account
deficit. The rapid growth of U.S. spending made up for expenditure shortfalls in the rest of the world. Growing
saving-investment gaps, which resulted in current account surpluses, opened up in much of Asia as investment rates
fell short of pre-Asian crisis levels, allowing for a rapid rise in household savings. The efforts of policymakers to
resist currency appreciation and maintain export competitiveness led to large reserve buildups. These reserves,
along with those accumulated from Gulf countries, flowed back into U.S. financial markets, fueling investment in
housing and spurring financial innovation to increase yields.
As a result of the turmoil, U.S. saving rates have already begun to increase, and emerging markets are taking steps
to boost domestic demand. Together these factors will significantly narrow global imbalances. But the key
challenge policymakers will face as the world economy recovers is how to prevent the re-emergence of imbalances
that threaten the sustainability of global growth.
For China, achieving better balance means strengthening the social safety net, providing a greater array of financial
services to households, and increasing dividend payments by state-owned enterprises - all topics we have worked
on in the US-China Strategic Economic Dialogue, a Cabinet-level forum to develop strategies to reach shared long
term objectives while managing short-term challenges in our economic relationship.
For Japan and many parts of Europe, it means regulatory reform to increase competition, spur entrepreneurial activity
and investment to bring about stronger domestic-demand based growth. For the United States, it means measures
to boost domestic saving and reduce the government deficit. In addition to these domestic policy actions,
international steps to assure exchange rate flexibility play a critical role in allowing price changes - and not significant
slowdowns in growth - to bring about needed current account adjustments.
Regulatory Reform
A second area of focus is regulatory reform. One of the lessons from the global financial market crisis was that
policymakers, regulators, and supervisors, along with market participants, did not fully appreciate the risks that built
up over the last few years in the search for yield and product innovation. We have discovered the hard way, for
example, that there was a significant breakdown in our underwriting standards for sub-prime mortgages, weaknesses
in market discipline and risk management practices in our financial institutions, and complex, opaque instruments that
were poorly understood by the market.

Over the past year, we have had an intense effort to address the shortcomings in our national and international
regulatory frameworks. In the United States, the President's Working Group on Financial Markets —or PWG —
released a policy statement in March that outlined an ambitious reform agenda. Internationally, we coordinated our
efforts closely with the Financial Stability Forum, or FSF. Both the PWG and the FSF issued recommendations that
called for stronger risk management and prudential oversight, greater transparency and disclosure, and improved
market infrastructure.
We've made tremendous progress in the last eights months to implement these recommendations, but more work
must be done. For example, firms operating in different countries are burdened by varied accounting and auditing
standards. Deposit insurance schemes are not consistent across countries. Differing policies in some countries can
have spillover effects, resulting in opportunities for regulatory arbitrage. While financial markets are global, financial
market regulation is largely national. Therefore, it is critical that nations around the world work to converge our
standards, when appropriate, and step up our international cooperation wherever possible. Establishing multilateral
supervisory groups for all the major financial institutions is a good step towards greater cooperation.
Regulatory Structures
We can also foster international cooperation by making it easier and more efficient for countries to interact across
national regulatory regimes. My international counterparts often remark to me that they find our system
extraordinarily complex with its seven federal and over 100 state regulators in the banking, securities, and insurance
sectors. Recognizing the importance of having a financial regulatory structure that would be more appropriate for
modem financial markets, Secretary Paulson released in March a Blueprint for a Modernized Financial Regulatory
Structure. The Blueprint proposed an optimal financial regulatory model that links the regulatory structure to the
reasons why we regulate. It proposed three regulators: a market stability regulator; a prudential regulator; and a
regulator focused on protecting consumers and investors. Although Treasury began working on the Blueprint a year
ago, current market conditions have provided a pertinent backdrop for this study's release and highlighted the need to
examine and reform the U.S. regulatory structure.
Other countries, such as the UK, Germany, and France, are also re-examining their structures in light of the lessons
learned from the current crisis, and some in the private sector have advocated closer collaboration among national
market stability regulators. As the crisis passes, policymakers will quickly need to turn their attention to this issue.
International Financial Institution Reform
Finally, our international institutions will also need to adapt their governance structures to represent the shifting
weight of the dynamic emerging market economies and their missions to the changing needs of borrowing members
at different stages of development. In particular, the IFIs need to accelerate their governance reforms as they relate
to representation of countries at their executive boards and their voting power. The IMF quota reform agreement
reached this year and the proposed voice and vote reform package at the World Bank are promising first steps, but to
be meaningful must be furthered by continued voice and board reforms in both institutions.
The IFIs also need to consider new tools and priorities for addressing the modern day challenges of economic
development and financial stability. The World Bank's efforts to develop a climate change framework and establish
mechanisms to address food and energy needs, for example, and the recently launched IMF facility to address
liquidity shortages are excellent steps in this direction. However, these innovations need to be balanced with the
recognition that these institutions will best serve their members when they engage according to their comparative
advantages. Therefore, they must carefully align their activities with one another and other donors. This will ensure
that assistance is effectively targeted, used more efficiently, and that countries receive what they actually need, not
what the donors wish to give them.

Conclusion
At this time of unprecedented change, we should approach the notion of proposing definitive policy priorities for the
future with humility and caution. As I have tried to faithfully describe today, we have a challenging and difficult
journey of reform ahead of us. While the final contours of the path are far from clear, some important milestones are
beginning to come into focus. With this weeks Leaders' meeting, we take an important first step down the path of
reform. I am optimistic that we are headed in the right direction.

Treasury Releases Capital Purchase Program Term Sheet for Privately Held
Financial Institutions
11/17/2008
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hp1277
Washington- The U.S. Treasury Department today released the term sheet and answers to frequently asked
questions for certain privately-held financial institutions applying for the Capital Purchase Program .
The U.S. Treasury Department today released the term sheet and answers to frequently asked questions for certain
privately-held financial institutions applying for the .
-30REPORTS
• Term Sheet- Privately Held Institutions
• FAQ- Privately Held Institutions

T A R P C a p ita l P u rc h a se P ro g ra m
(N o n -P u b lic Q F Is, excluding S C o rp s a n d M u tu a l O rg a n iz a tio n s)
P re fe rre d Securities
S u m m a ry o f P re fe rre d T e rm s

Issu e r:

Qualifying Financial Institution (“QFI”) means any (i) top-tier Bank
Holding Company (“BHC”), or top-tier Savings and Loan Holding
Company (“SLHC”) that engages solely or predominately in activities
permissible for financial holding companies under relevant law, that in
either case is not publicly traded1, (ii) U.S. bank or U.S. savings
association organized in a stock form that are neither publicly traded nor
controlled by a BHC or SLHC, or (iii) U.S. bank or U.S. savings
association that is not publicly traded and is controlled by a SLHC that is
not publicly traded and does not engage solely or predominately in
activities that are permitted for financial holding companies under relevant
law, other than S Corporations and Mutual Depository Institutions. The
term QFI shall not mean any institution that is controlled by a foreign
bank or company. For purposes of this program, “U.S. bank”, “U.S.
savings association”, “BHC” and “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. T h e U n ited S tates
D e p a rtm e n t o f th e T re a s u ry w ill d e te rm in e th e eligibility a n d
a llo catio n fo r Q F Is a fte r c o n su ltatio n w ith th e a p p ro p r ia te F e d e ra l
b a n k in g agency.

“S Corporation” means any U.S. bank, U.S. savings association, BHC or
SLHC organized as a corporation that has made a valid election to be
taxed under Subchapter S of the U.S. Internal Revenue Code.
“Mutual Depository Institution” means any U.S. bank, U.S. savings
association, BHC or SLHC organized in a mutual form.
In itia l H o ld e r:

United States Department of the Treasury (the “UST”).

1For the purposes of this term sheet “publicly traded” means a company (1) whose securities are traded on a
national securities exchange and (2) required to file, under the federal securities laws, periodic reports such as the
annual (Form 10-K) and quarterly (Form 10-Q) reports with either the Securities and Exchange Commission or its
primary federal bank regulator. A company may be required to do so by virtue of having securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which applies to all
companies that are traded on an exchange or that have $10 million in assets and 500 shareholders of record or
Section 15(d) of the Exchange Act which requires companies that have filed a registration statement under the
Securities Act of 1933, as amended, and have 300 or more securityholders of record of the registered class to file
reports required under Section 13 of the Exchange Act, e.g., periodic reports.

Size:

QFIs may sell preferred to the UST subject to the limits and terms
described below.
Each QFI may issue an amount of 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:

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

R an k in g :

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

R e g u lato ry
C a p ita l
S tatus:

Tier 1.

T erm :

Perpetual life.

D ividend:

The 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 Preferred issued by banks which are not
subsidiaries of holding companies, the Preferred will 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 15 of each year.

R edem ption:

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 Preferred. After the
third anniversary of the date of this investment, the 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 Preferred shall be at 100% of its
issue price, plus (i) in the case of cumulative Preferred, any accrued and
unpaid dividends and (ii) in the case of non-cumulative Preferred, accrued
and unpaid dividends for the then current dividend period (regardless of
whether any dividends are actually declared for such dividend period). All
redemptions 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 (other than any sales made pursuant to agreements
2

or arrangements entered into, or pursuant to financing plans which were
publicly announced, on or prior to November 17, 2008).
R estrictio n s
on D ividends:

Subject to certain exceptions, for as long as any Preferred is outstanding,
no dividends may be declared or paid on junior preferred shares, preferred
shares ranking pari passu with the Preferred, or common shares (other than
in the case of pari passu preferred shares, dividends on a pro rata basis
with the Preferred), nor may the QFI repurchase or redeem any junior
preferred shares, preferred shares ranking pari passu with the Preferred or
common shares, unless (i) in the case of cumulative Preferred all accrued
and unpaid dividends for all past dividend periods on the Preferred are
fully paid or (ii) in the case of non-cumulative Preferred the full dividend
for the latest completed dividend period has been declared and paid in full.

C om m on 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. After the third anniversary and prior to the tenth anniversary,
the UST’s consent shall be required for any increase in aggregate common
dividends per share greater than 3% per annum; provided that no increase
in common dividends may be made as a result of any dividend paid in
common shares, any stock split or similar transaction. The restrictions in
this paragraph no longer apply if the Preferred and Warrant Preferred are
redeemed in whole or the UST has transferred all of the Preferred and
Warrant Preferred to third parties.
R ep u rch ases:

The UST’s consent shall be required for any repurchases of equity
securities or trust preferred securities (other than (i) repurchases of the
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 tenth anniversary of the date of this
investment unless prior to such tenth anniversary the Preferred and the
Warrant Preferred are redeemed in whole or the UST has transferred all of
the Preferred and the Warrant Preferred to third parties. In addition, there
shall be no share repurchases of junior preferred shares, preferred shares
ranking pari passu with the Preferred, or common shares if prohibited as
described above under “Restrictions on Dividends”.

O th e r D ividend a n d
R e p u rc h a se
From and after the tenth anniversary of the date of this investment, the
R estrictio n s:

QFI shall be prohibited from paying common dividends or repurchasing
any equity securities or trust preferred securities until all equity securities
held by the UST are redeemed in whole or the UST has transferred all of
such equity securities to third parties.

V oting rig h ts:

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

T ra n sfe ra b ility :

E xecutive
C om pensation:

The Preferred will not be subject to any contractual restrictions on transfer
or the restrictions of any stockholders’ agreement or similar arrangement
that may be in effect among the QFI and its stockholders at the time of the
Preferred investment or thereafter; provided that the UST and its
transferees shall not effect any transfer of the Preferred which would
require the QFI to become subject to the periodic reporting requirements
of Section 13 or 15(d) of the Exchange Act. If the QFI otherwise becomes
subject to such reporting requirements, the QFI will file a shelf registration
statement covering the Preferred as promptly as practicable and, if
necessary, shall take all action required to cause such shelf registration
statement to be declared effective as soon as possible. In addition, the
UST and its transferees shall have piggyback registration rights for the
Preferred. Subject to the above, the QFI shall take all steps as may be
reasonably requested to facilitate the transfer of the Preferred.

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 111 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 111 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.
4

R e la te d P a rty
T ra n sa c tio n s:

For as long as the UST holds any equity securities of the QFI, the QFI and
its subsidiaries will not enter into transactions with related persons (within
the meaning of Item 404 under the SEC’s Regulation S-K) unless (i) such
transactions are on terms no less favorable to the QFI and its subsidiaries
than could be obtained from an unaffiliated third party, and (ii) have been
approved by the audit committee or comparable body of independent
directors of the QFI.

S u m m a ry o f W a r r a n t T e rm s
W a rr a n t:

The UST will receive warrants to purchase, upon net settlement, a number
of net shares of preferred stock of the QFI (the “Warrant Preferred”)
having an aggregate liquidation preference equal to 5% of the Preferred
amount on the date of investment. The initial exercise price for the
warrants shall be $0.01 per share or such greater amount as the charter
may require as the par value per share of Warrant Preferred. The UST
intends to immediately exercise the warrants.

T e rm :

10 years

E xercisability:

Immediately exercisable, in whole or in part.

W a rr a n t P re fe rre d : The Warrant Preferred shall have the same rights, preferences, privileges,

voting rights and other terms as the Preferred, except that (1) the Warrant
Preferred will pay dividends at a rate of 9% per annum and (2) the
Warrant Preferred may not be redeemed until all the Preferred has been
redeemed.
T ra n sfe ra b ility :

The warrants will not be subject to any contractual restrictions on transfer
or the restrictions of any stockholders’ agreement or similar arrangement
that may be in effect among the QFI and its stockholders at the time of this
investment or thereafter; provided that the UST shall not effect any
transfer of the warrants or underlying Warrant Preferred which would
require the QFI to become subject to the periodic reporting requirements
of Section 13 or 15(d) of the Exchange Act.
If the QFI otherwise becomes subject to the periodic reporting
requirements of Section 13 or 15(d) of the Exchange Act, the QFI will file
a shelf registration statement covering the warrants and the Warrant
Preferred underlying the warrants as promptly as practicable and, if
necessary, shall take all action required to cause such shelf registration
statement to be declared effective as soon as possible. In addition, the
UST and its transferees shall have piggyback registration rights for the
warrants and the Warrant Preferred underlying the warrants. Subject to
the above, the QFI shall take all steps as may be reasonably requested to
facilitate the transfer of the warrants or the Warrant Preferred.

P riv a te B a n k P ro g ra m Q & A

Q . W h a t is th e d e a d lin e fo r ap p ly in g fo r th e p riv a te C P P p ro g ra m ?

Applications must be filed by December 8, 2008.
Q . H ow do I a p p ly ?

Applicants should complete the application and follow the procedures that can be
found on the applicable federal banking agency website or on the Treasury website at
http://www.treasurv.gov/initiatives/eesa/application-documents.shtml.
Q. W h a t if an in stitu tio n h as a b a n k o r th rift h olding c o m p a n y ap p lic atio n
p e n d in g w ith a fe d e ra l b a n k in g re g u la to r?

Institutions that have filed a bank or thrift holding company application on or before
December 8, 2008 may apply to the TARP program through their federal banking
regulator on a conditional basis by the applicable deadline. In order to qualify for the
TARP program, the applicant company must apply for approval to become a bank or
thrift holding company through ownership of an U.S. bank or savings association that
was in existence on or before December 8, 2008. Final approval of the holding
company application must be granted by the applicable federal banking agency by
January 15, 2009. Funding will not be provided prior to consummation of the
transaction for which bank or thrift holding company status was necessary. Any bank
and thrift holding company, which received funding under TARP, must maintain its
status as a bank or thrift holding company for as long as Treasury holds preferred
stock and/or warrants in the company. A bank or thrift holding company seeking to
terminate its status as such must fully redeem all preferred stock and warrants held by
Treasury prior to terminating its status.
Q . W ill you re q u ire th e issu an ce o f W a r r a n t P re fe rre d fro m all Q F Is
p a rtic ip a tin g in th e C a p ita l P u rc h a se P ro g ra m ?

Treasury has discretion to exempt certain investments from the warrant requirements
(Sec. 113(d) (3) of the Emergency Economic Stabilization Act o f 2008). We are using
this discretion conservatively because of our interest in providing a return for the
taxpayer in making these investments. For this reason, we have determined not to
require a warrant to purchase additional preferred stock for a limited class of
qualifying institutions. If a QFI meets the following requirements, then the UST will
not require the issuance of the Warrant Preferred shares: the size of the investment
must be $50 million or less and the QFI must be a certified Community Development
Financial Institution (CDFI). QFIs must file an application for certification as a CDFI
by December 8, 2008. If a QFI has applied for CDFI certification, and it is eligible
for funding under the CPP program, it will receive conditional approval, which will

be contingent on the QFI receiving the CDFI certification. The CDFI certification
must be approved by January 15, 2009.
Q. W h a t is a C D F I a n d w h e re can I get a d d itio n a l in fo rm a tio n a b o u t th em ?
A CDFI is a specialized financial institution that works in market niches that are
underserved by traditional financial institutions. CDFIs provide a unique range of
financial products and services in economically distressed target markets, such as
mortgage financing for low-income and first-time homebuyers and not-for-profit
developers, flexible underwriting and risk capital for needed community facilities,
and technical assistance, commercial loans and investments to small start-up or
expanding businesses in low-income areas.
Q. H ow do I get in fo rm a tio n a b o u t becom ing a C D F I?
Additional information about becoming a CDFI can be found at
http://www.cdfifund.gov/
Q . M u st I c u rre n tly be a C D F I to q ualify fo r th e ex em p tio n fro m th e W a r r a n t
P re fe rre d ?

In order to qualify for the exemption, you must have a completed application to be a
CDFI at the time your application is filed with the CPP. In order to qualify for the
exemption, your CDFI application must be approved at the time of the closing of the
investment. The CDFI Fund has pledged that it will streamline the certification
process to 30 days in order to qualify for this exemption.
Q . Does th is te rm sh eet a n d dead lin e a p p ly to S -C o rp o ra tio n s a n d m u tu a l
o rg an izatio n s?

No. These structures are still under consideration. The deadline for this program will
not apply to programs for S-Corporations and mutuals.

Treasury International Capital (TIC) Data for September
11/18/2008
FROM THE OFFICE OF PUBLIC AFFAIRS
We recommend printing this release using the PDF file below.
To view or print the PDF content on this page, download the free Adobe ® Acrobat® Reader®.
HP-1278
Treasury International Capital (TIC) data for September 2008 are released today and posted on the U.S. Treasury
website ( www.treas.gov/tic). The next release, which will report on data for October, is scheduled for December 15,
2008.
Net foreign purchases of long-term securities were $66.2 billion.
• Net foreign purchases of long-term U.S. securities were $30.9 billion. Of this, net purchases by private
foreign investors were $35.7 billion, and net purchases by foreign official institutions were negative $4.8
billion.
• U.S. residents sold a net $35.4 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $52.7
billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody
liabilities increased $11.6 billion. Foreign holdings of Treasury bills increased $89.9 billion.
Banks’ own net dollar-denominated liabilities to foreign residents increased $79.1 billion.
Monthly net TIC flows were $143.4 billion. Of this, net foreign private flows were $126.9 billion, and net foreign official
flows were $16.4 billion.
-30-

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

2007

12 Months Through |
Sep-07 Sep-08 Jun-08 Jul-08

Aug-08 Sep-0:

Foreigners' Acquisitions of Long-term Securities
Gross Purchases of Domestic U.S. Securities
Gross Sales of Domestic U.S. Securities
Domestic Securities Purchased, net (line 1 less line 2) /1
*

Private, net /2
Treasury Bonds & Notes, net

21077.129730.6
19933.9 28714.7
1143.2
1015.9
946.6
125.9

828.2
197.9

27463.7
26429.8
1033.9
860.2
178.7

33067.9 2794.12819.5
32276.2 2731.4 2835.2
791.7
62.7
-15.7
561.7
269.9

47.8
27.2

-10.9
24.2

2163.9
2165.5
-1.6

308
305
3

8.7
29.9

3
1

3
7
3
1
)
1
?

5
3
7
•3

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

&
1

Other Acquisitions of Long-term Securities, net 15
Net Foreign Acquisition of Long-Term Securities
(lines 19 and 20):

7
3

Increase in Foreign Holdings of Dollar-denominated Short-term
U.S. Securities and Other Custody Liabilities: 16
U.S. Treasury Bills
Private, net
Official, net
Other Negotiable Instruments
and Selected Other Liabilities: 17
Private, net
Official, net

Change in Banks' Own Net Dollar-Denominated Liabilities

3
X
5
3

)Monthly Net TIC Flows (lines 21,22,29) 18

which
Private, net
Official, net

193.8
482.2
144.6

107.0
342.8
180.4

121.5
409.0
150.9

102.1
116.8
72.9

22.3
0.6
-2.3

-23.9
-4.3
-6.8

-9.0
-12.6
0.4

196.6
69.6
92.6
28.6
5.8

187.7
3.0
119.1
50.6
15.1

173.7
13.2
123.6
38.1
-1.2

230.0
115.4
29.9
52.2
32.6

14.9
1.1
9.1
4.1
0.5

-4.9
10.1
-16.2
0.2
1.1

-10.2
4.8
-13.1
-0.5
-1.4

5515.9
5766.8
-250.9

8187.6
8411.9
-224.3

7581.0
7909.2
-328.2

8428.6
8388.6
40.0

688.3
698.2
-10.0

719.4
685.2
34.2

585.5
562.9
22.5

-144.5
-106.5

-129.0
-95.3

-169.2
-159.0

48.4
-8.4

-11.5
1.6

17.3
16.9

19.7
2.9

892.3

791.6

705.7

831.652.7

18.4

21.0

66.2

-174.6

-235.1

-238.3

-210.1- 18.8

-14.5

-12.9

-13.5

717.7

556.5

467.4

621.533.9

3.9

8.1

52.7

146.2
-9.0
16.1
-25.0

198.6
49.2
29.7
19.5

126.5
17.7
18.8
-1.1

191.1-30.6
15.8
22.1
11.6
89.9
239.96.5
4.2
:30.6
17.5
5
-0.2
-1.6
141.4
13.1
3
6.6
5.8
98.5

155.1
174.9
-19.8

149.4
73.2
76.1

108.9
77.8
31.1

-48.8-37.1
-39.1
-47.8
2.0
-1.0

198.0

-122.9

-60.6

-320.1

1061.8

632.3

533.4

492.5

13.3

-25.1

21.4

923.0
138.9

345.2
287.1

351.5
181.9

190.8
301.7

0.3
13.0

-43.4
18.3

24.1
-2.7

12
1

71
67 |
3
3

-8.5-78.3
-0.4
-7
-8.1

11.5
5.1
6.4

10.1-44.8

1.1
-I
1

■-8.8

79.1

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 1 on the TIC website
describes the scope of TIC data collection.
REPORTS
(PDF) TIC Monthly Reports on Cross-Border Financial Flows (Billions o f dollars, not seasonally adjusted)

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS
N ovem ber 18, 2008
E M B A R G O E D U N T IL 9:00 A M

C o n ta c t: R ob S a literm an
(202) 622-2960

T R E A S U R Y IN T E R N A T IO N A L C A P IT A L D A T A F O R S E P T E M B E R

Treasury International Capital (TIC) data for September 2008 are released today and posted on the
U.S. Treasury website (www.treas.gov/tic). The next release, which will report on data for October,
is scheduled for December 15, 2008.
Net foreign purchases of long-term securities were $66.2 billion.
•

Net foreign purchases of long-term U.S. securities were $30.9 billion. O f this, net purchases
by private foreign investors were $35.7 billion, and net purchases by foreign official
institutions were negative $4.8 billion.

•

U.S. residents sold a net $35.4 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have
been $52.7 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and
other custody liabilities increased $11.6 billion. Foreign holdings of Treasury bills increased $89.9
billion.
Banks’ own net dollar-denominated liabilities to foreign residents increased $79.1 billion.
Monthly net TIC flows were $143.4 billion. O f this, net foreign private flows were $126.9 billion,
and net foreign official flows were $16.4 billion.

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

2007

12 Months Through
Sep-08
Sep-07

Jun-08

Jul-08

Aug-08

Sep-08

Foreigners' Acquisitions o f Long-term Securities
1
2
3

Gross Purchases o f Domestic U.S. Securities
Gross Sales o f Domestic U.S. Securities
Domestic Securities Purchased, net (line 1 less line 2) /I

21077.1 29730.6
19933.9 28714.7

27463.7
26429.8

33067.9
32276.2

2794.1
2731.4

2819.5
2835.2

2163.9
2165.5

3082.2
3051.4

1143.2

1015.9

1033.9

791.7

62.7

-15.7

-1.6

30.9

4
5
6
7
8

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

946.6

828.2

860.2

561.7

47.8

-10.9

8.7

35.7

125.9
193.8
482.2
144.6

197.9
107.0
342.8
180.4

178.7
121.5
409.0
150.9

269.9
102.1
116.8
72.9

27.2
22.3
0.6
-2.3

24.2
-23.9
-4.3
-6.8

29.9
-9.0
-12.6
0.4

15.8
14.8
-6.4
11.5

9
10
11
12
13

Official, net 13
Treasury Bonds & Notes, net
Gov't Agency Bonds, net
Corporate Bonds, net
Equities, net

196.6

187.7

173.7

230.0

14.9

-4.9

-10.2

-4.8

69.6
92.6
28.6
5.8

3.0
119.1
50.6
15.1

13.2
123.6
38.1
-1.2

115.4
29.9
52.2
32.6

1.1
9.1
4.1
0.5

10.1
-16.2
0.2
1.1

4.8
-13.1
-0.5
-1.4

4.9
-8.7
-1.2

5515.9
5766.8

8187.6
8411.9

7581.0
7909.2

8428.6
8388.6

688.3
698.2

719.4
685.2

585.5
562.9

710.0
6 /4.6

-250.9

-224.3

-328.2

40.0

-10.0

34.2

22.5

35.4

-144.5
-106.5

-129.0
-95.3

-169.2
-159.0

48.4
-8.4

-11.5
1.6

17.3
16.9

19.7
2.9

37.8
-2.4

892.3

791.6

705.7

831.6

52.7

18.4

21.0

66.2

-174.6

-235.1

-238.3

-210.1

-18.8

-14.5

-12.9

-13.5

717.7

556.5

467.4

621.5

33.9

3.9

8.1

52.7

146.2

198.

126.

191.

-30.6

15.8

22.1

11.0

-9.0

49.

17.

239.

6.5

4.2

30.6

89.9

16.1
-25.0

29.
19.

18.

141.4
98.:

6.6

1.6
5.8

17.5
13.1

58.7
31.2

155.1

149.

108.

-48.:

-37.1

11.5

-8.5

/ -78.3

174.9
-19.8

73.
76.

77.
31.

-47.:

-39.1

- l. i

2.0

5.1
6.4

-0.4
-8.1

-70.0
-8.4

198.0

-122.

-60.

-320.

10.1

-44.8

-8.8

79.1

1061.8

632.

533.

492.

13.3

-25.1

21.4

143.4

923.0
138.9

345.
287.

351.
181.

190.
301.

0.3
13.0

24.1
-2.7

126.9
16.4

14
15
16
17
18

Gross Purchases o f Foreign Securities from U.S. Residents
Gross Sales o f 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 T ransactions (line 3 plus line 16):

O th er Acquisitions of Long-term Securities, net IS

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

27
28

Increase in Foreign Holdings o f D ollar-denom inated Short-term
U.S. Securities and O th er Custody Liabilities: 16
U.S. Treasury Bills
Private, net
Official, net
O th er Negotiable Instrum ents
and Selected O th er Liabilities: /7
Private, net
Official, net

Change in B anks' Own Net D ollar-D enom inated Liabilities

23
24
25
26

30 M onthly Net TIC Flows (lines 21,22,29) /8
of which
31
Private, net
32
Official, net
/I
/2
/3
/4

/6
H

-1.

0.2

-43.4
18.3

0.0

Net foreign purchases o f U.S. securities (+)
Includes international and regional organizations
The reported division o f net purchases o f long-term securities between net purchases by foreign official institutions and net purchases
o f other foreign investors is subject to a "transaction bias" described in Frequently Asked Questions 7 and 10.a.4 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 o f foreign securities, or an outflow of capital from the United States, positive entries
indicate net U.S. sales o f foreign securities.
Minus, estimated unrecorded principal repayments to foreigners on domestic corporate and agency asset-backed securities +
estimated foreign acquisitions o f U.S. equity through stock swaps estimated U.S. acquisitions o f foreign equity through stock swaps +
increase in nonmarketable Treasury Bonds and Notes Issued to Official Institutions and Other Residents o f 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 o f U.S. customers that are managed by U.S. banks or broker/dealers.
TIC data cover most components o f international financial flows, but do not include data on direct investment flows, which are collected
and published by the Department o f 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 1 on the TIC website
describes the scope o f TIC data collection.

Testimony by Treasury Secretary Henry M. Paulson, Jr.
11/18/2008
HP-1279
Before the House Committee on Financial Services
Washington, DC-- Good morning and thank you for the opportunity to testify this morning on implementation of the
Emergency Economic Stabilization Act. I am grateful and everyone in this country should be grateful, for the efforts of
Chairman Frank, ranking member Bachus, this committee and other members of Congress toward adoption of the
financial rescue legislation, which created critically important authorities and financial capacity to stabilize our
financial system. Before Congress provided these tools, we were facing a financial crisis without the authorities and
resources necessary to meet the challenge. At the risk of oversimplification, the financial rescue package is about
restoring confidence - restoring the confidence of depositors and investors in our financial institutions, and restoring
the confidence that our financial institutions need so that they will get back to normal lending practices.
This law has already allowed us to take decisive action to prevent the collapse of our financial system. But more
needs to be done, and it is my responsibility to use the authorities Congress provided to protect and strengthen the
financial system, and in so doing, protect the taxpayer.
Let me summarize what the U.S. financial system has had to digest in just a few months' time. We have not in our
lifetime dealt with a financial crisis of this severity and unpredictability. We have seen the failures, or the equivalent of
failures, of Bear Stearns, IndyMac Bank, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie
Mac, and AIG - institutions with a collective $4.7 trillion in assets when this year began. Each of these failures would
be tremendously consequential in their own right under normal market conditions - but our economy and our financial
system faced them in succession while at the same time the economy was weakening. Other large financial
institutions were under significant pressure and market participants around the world were speculating about which
institution would be next to fall.
And as you well recall, in September, after 13 months of market stress, the financial system essentially seized up and
we had a system-wide crisis. Our markets were frozen, banks had pulled back very substantially from interbank
lending. Confidence in our financial system and a number of our financial institutions had been seriously
compromised. That was the background against which Chairman Bernanke and I met with the Congressional
bipartisan leadership to explain the need for emergency legislation.
Our objectives in asking Congress for a financial rescue package were to first stabilize a financial system on the
verge of collapse, and then to get lending going again to support the American people and businesses. We warned
that the frozen credit markets were already severely damaging the U.S. economy and costing jobs. If the financial
system were to collapse, it would significantly worsen and prolong the economic downturn that was already
underway.
We needed the financial rescue package so we could intervene, stabilize our financial system, and minimize further
damage to our economy. The rescue package was not intended to be an economic stimulus or an economic recovery
package; it was intended to shore up the foundation of our economy by stabilizing the financial system, and it is
unrealistic to expect it to reverse the damage that had already been inflicted by the severity of the crisis.

During the two weeks Congress worked on the legislation, market conditions worsened significantly. Many Americans
look at the stock market as an indicator of the economy, and during this period they saw tremendous volatility. The
Dow Jones Industrial Average fell more than 700 points on one single day, and over 9 percent during the two weeks
the legislation was debated - stock market losses amounted to slightly more than $2 trillion.
But we were focused on the credit markets because they provide our basic economic fuel —borrowing and lending
capital —that supports and creates jobs. The confidence in banks and of banks continued to diminish, as did the flow
of funds between them. Interbank lending rates relative to policy rates were at the highest level this decade,
indicating banks' lack of confidence in one another and in the financial system.
And the problems extended well beyond the banks. Corporate bond spreads continued to increase, as did corporate
credit default spreads and overall market volatility. Industrial company access to all aspects of the bond market was
dramatically curtailed. For example, blue chip industrial companies were frequently unable to issue commercial paper
with maturities greater than a few days as the commercial paper market became severely impaired. We received
reports of small and medium-sized companies, with no direct connection to the financial sector, losing access to the
normal credit needed to meet payrolls, pay suppliers and buy inventory.
Investor concerns became most evident in the "flight to quality" in the Treasury market, with short-term Treasury bill
yields dropping to near zero.
During that same period, the government intervened to protect the financial system. The FDIC acted to mitigate the
failure of Washington Mutual by facilitating its sale, and made clear that it would intervene to prevent Wachovia's
failure. And turmoil had developed in European markets. In a two-day period at the end of September the
governments of Ireland, the UK, Germany, Belgium, France and Iceland intervened to prevent the failure of one or
more financial institutions in their countries.
By the time legislation had passed on October 3, the global market crisis was so broad and so severe, we knew we
needed to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our
initial intent had been to strengthen the banking system by purchasing illiquid mortgages and mortgage-related
securities. But by this time, given the severity and magnitude of the situation, an asset purchase program would not
be effective enough, quickly enough. Therefore we exercised the authority granted by Congress in this legislation to
develop and quickly deploy a $250 billion capital injection program, fully anticipating we would follow that with a
program for troubled asset purchases.
There is no playbook for responding to turmoil we have never faced We adjusted our strategy to reflect the facts of a
severe market crisis always keeping focused on Congress’s goal and our goal - to stabilize the financial system that
is integral to the everyday lives of all Americans.
By mid-October, our actions, in combination with the FDIC's guarantee of certain debt issued by financial institutions,
helped us to accomplish the first major priority, which was to immediately stabilize the financial system. And, as we
worked to hire contractors and prepare our mortgage asset purchase plan for implementation, we continued to
assess the economic and market conditions here and around the world.
As we had seen and communicated to Congress and the American people, much damage had already been done to
our economy. The economic data since the legislation passed underscored the challenges we were facing: On
October 31, third quarter GDP showed negative 0.3 percent growth. Jobs data showed a rise in the unemployment
rate to a level not seen in 15 years, and a loss of 240,000 jobs in October alone. Data released on October 28
showed that through August, home prices in 10 major cities had fallen 18 percent over the previous year,
demonstrating that the housing correction had not abated.

The slowing of European economies has been even more dramatic, as have the actions taken to rescue failing
European banks and nationwide banking systems such as those in Iceland and Hungary.
Throughout this period, we continued to assess how best to use the remaining TARP funds, given the uncertainties
around the deteriorating economic situation in the U.S. and globally, and the continuing financial market stresses. We
have always said that the housing correction is at the root of the economic downturn and our financial market stress.
And as the economy slows further, it threatens to prolong the housing correction, as well as the stress on our
financial institutions and financial markets.
We recognized that a troubled asset purchase program, to be effective, would require a massive commitment of
TARP funds. It became clear that, while in mid-September, before economic conditions worsened, $700 billion in
troubled asset purchases would have had a significant impact. Half of that sum, in a worse economy, simply isn't
enough firepower.
If we have learned anything throughout this year we have learned that this financial crisis is unpredictable and difficult
to counteract. So early last week, we concluded it was only prudent to reserve our TARP capacity, maintaining not
only our flexibility, but that of the next Administration.
We have identified other priorities that I believe the government will need to address through the TARP and other
existing authorities. In particular, by investing only a relatively modest share of TARP funds in a Federal Reserve
liquidity facility, we can improve securitization in this market and have a significant impact on the availability of
consumer credit.
And we need to continue our efforts to use a variety of authorities to reduce avoidable foreclosures. The government
has made substantial progress on that front, through HUD programs, through the FDIC's program with IndyMac,
through our support and leadership of the HOPE NOW Alliance, and through the new GSE servicer guidelines
announced last week that will set a new standard for the entire industry. While I understand the interest in spending
TARP resources on other approaches, the efforts already underway will do more to prevent foreclosures than might
have been achieved through very large purchases of mortgage-related securities through the TARP.
Although we are not planning to initiate another capital program beyond those already announced, an emphasis on
capital seems to us to be the better strategy going forward. In the weeks since enactment of EESA, we have seen
that capital purchases are clearly powerful in terms of impact per dollar of investment, which is a major advantage
under the current circumstances. More capital enables banks to take losses as they write down or sell troubled
assets. And stronger capitalization is also essential to increasing lending which, although difficult to achieve during
times like this, is essential to economic recovery.
Our current Capital Purchase Program for banks and thrifts has already dispersed $148 billion, and we are
processing many more applications. And yesterday we posted the term sheet for participation for non-publicly traded
banks, another important source of credit in our economy. We are developing a matching program for possible future
use which could apply to banks and/or non-bank financial institutions.
Recently I’ve been asked two questions. First, Congress gave you the authorities you requested, and the economy
has only gotten worse. What went wrong and why won't you use this authority for other industries? Second, if housing
and mortgages are at the root of our economic difficulties, why aren't you addressing this?
The answer to the first is that the purpose of the financial rescue legislation was to stabilize our financial system and
to strengthen it. It is not a panacea for all our economic difficulties. The crisis in our financial system had already
spilled over into our economy and hurt it. It will take a while to get lending going and repair our financial system,

which is essential to an economic recovery. This won't happen as fast as any of us would like, but it will happen
much, much faster than it would have had we not used the TARP to stabilize our system. Put differently, if Congress
had not given us the authority for TARP and the Capital Purchase Program and our financial system had continued to
shut down, our economic situation would be far worse today.
The answer to the second question is that the most important thing we can do to mitigate the housing correction and
reduce the number of foreclosures is to increase access to lower cost mortgage lending. The actions we have taken
to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit,
together with our bank capital program, are powerful actions to promote mortgage lending. We are also working
actively to reduce preventable foreclosures.
In summary, I am very proud of the decisive actions by Treasury, the Fed and the FDIC to stabilize our financial
system. We have done what was necessary as facts and conditions in the market and economy have changed,
adjusting our strategy to most effectively address the urgent crisis and preserving the flexibility of the President-elect
and the new Secretary of the Treasury to address the challenges in the economy and capital markets they will face in
the coming months.
While difficult challenges lie ahead, the new administration will begin with two significant advantages: a significantly
more stable banking system where the failure of a systemically relevant institution is no longer a pressing concern
rattling the markets; and the resources, authorities, and potential programs available to deal with the future capital
and liquidity needs of credit providers. Deploying these new tools and programs to restore our financial institutions
and financial markets is critical to restoring the flow of lending and credit - which will determine, to a large extent, the
speed and trajectory of our economic recovery. I am confident in a successful outcome, because our economy is
flexible and resilient, rooted in the entrepreneurial spirit and productivity of the American people. And of course, I will
focus intensely on the challenges before me and on making this a seamless transition during my remaining nine
weeks.
Thank you again for your efforts and for the opportunity to appear today.

In Case You Missed It: “Fighting the Financial Crisis, One Challenge at a Time”
11/18/2008
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By Secretary Henry M. Paulson, Jr.
The New York Times
November 18, 2008
We are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the
failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia,
Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously
consequential in its own right. But we faced them in succession, as our financial system seized up and severely
damaged the economy.
By September, the government faced a systemwide crisis. After months of making the most of the authority we
already had, we asked Congress for a comprehensive rescue package so we could stabilize our financial system and
minimize further damage to our economy.
By the time the legislation had passed on Oct. 3, the global market crisis was so broad and so severe that we needed
to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our initial
intent was to strengthen the banking system by purchasing illiquid mortgages and mortgage-related securities. But
the severity and magnitude of the situation had worsened to such an extent that an asset purchase program would
not be effective enough, quickly enough. Therefore, exercising the authority granted by Congress in this legislation,
we quickly deployed a $250 billion capital injection program, fully anticipating we would follow that with a program for
buying troubled assets.
There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a
severe market crisis, always keeping focused on our goal: to stabilize a financial system that is integral to the
everyday lives of all Americans. By mid-October, our actions, in combination with the Federal Deposit Insurance
Corporation's guarantee of certain debt issued by financial institutions, helped us to accomplish the first major priority,
which was to immediately stabilize the financial system.
As we assessed how best to use the remaining money for the Troubled Asset Relief Program, we carefully
considered the uncertainties around the deteriorating economic situation in the United States and globally. The latest
economic reports underscore the challenges we are facing. The gross domestic product for the third quarter (which
ended Sept. 30, three days before the bill passed) shrank by 0.3 percent. The unemployment rate rose in October to
a level not seen since the mid-1990s. Home prices in 10 major cities have fallen 18 percent over the previous year.
Auto sales numbers plummeted in October and were more than a third lower than one year ago. The slowing of
European economies has been even more drastic.
I have always said that the decline in the housing market is at the root of the economic downturn and,our financial
market stress. And the economy, as it slows further, threatens to prolong this decline, as well as the stress on our
financial institutions and financial markets.
A troubled-asset purchase program, to be effective, would require a huge commitment of money. In mid-September,
before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact.
But half of that sum, in a worse economy, simply isn’t enough firepower.

If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and
difficult to counteract. We decided it was prudent to reserve our TARP money, maintaining not only our flexibility, but
also that of the next administration.
The current $250 billion capital purchase program is strong medicine for our financial institutions. More capital
enables banks to take losses as they write down or sell troubled assets. And stronger capitalization is essential to
increasing lending, which is vital to economic recovery.
Recently I’ve been asked two questions. First, Congress gave you the authority you requested, and the economy has
only become worse. What went wrong? Second, if housing and mortgages are at the root of our economic difficulties,
why aren't you addressing those problems?
The answer to the first question is that the purpose of the financial rescue legislation was to stabilize our financial
system and to strengthen it. It is not a panacea for all our economic difficulties. The crisis in our financial system had
already spilled over into the overall economy. But recovery will happen much, much faster than it would have had we
not used TARP to stabilize our system. If Congress had not given us the authority for TARP and the capital purchase
program and our financial system had continued to shut down, our economic situation would be far worse today.
The answer to the second question is that more access to lower-cost mortgage lending is the No. 1 thing we can do
to slow the decline in the housing market and reduce the number of foreclosures. Together with our bank capital
program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to
increase the flow of mortgage credit, will promote mortgage lending. We are also working with the Department of
Housing and Urban Development, the F.D.I.C. and others to reduce preventable foreclosures.
I am very proud of the decisive actions by the Treasury Department, the Federal Reserve and the F.D.I.C. to stabilize
our financial system. We have done what was necessary as facts and conditions in the market and economy have
changed, adjusting our strategy to most effectively address the crisis. We have preserved the flexibility of President
elect Barack Obama and the new secretary of the Treasury to address the challenges in the economy and capital
markets they will face.
As policymakers face the difficult challenges ahead, they will begin with two considerable advantages: a significantly
more stable banking system, one where the failure of a major bank is no longer a pressing concern; and the
resources, authority and potential programs available to deal with the future capital and liquidity needs of credit
providers.
Deploying these new tools and programs to restore our financial institutions, financial markets and the flow of lending
and credit will determine, to a large extent, the speed and trajectory of our economic recovery. I am confident of
success, because our economy is flexible and resilient, rooted in the entrepreneurial spirit and productivity of the
American people.

Interim Assistant Secretary Neel Kashkari Remarks on Implementation of the
Emergency Economic Stabilization Act
11/19/2008
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
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Washington- Good afternoon. Thank you, Faith, for that kind introduction. I have really enjoyed working with you
over the past year. You are doing an excellent job leading HOPE NOW, getting servicers who are fierce competitors
by day, to work together and with counselors toward the common goal of foreclosure prevention. The organization of
Women in Housing and Finance is fortunate to have you as their President-Elect.
It is an honor for me to be here. Rather than give a long, formal speech, I would like to use this unique opportunity to
do something a little different. I would like to give you a brief overview of our response to the credit crisis, and then
spend most of the time taking your questions and having a thoughtful discussion.
The Treasury, the Federal Reserve and regulators in the U.S. and abroad have taken numerous unprecedented
actions since the beginning of the crisis to reduce systemic risk and stabilize financial markets. Throughout the crisis,
we have been strongly encouraging financial institutions to raise capital and to recognize losses. We have worked
hard to adapt our policies to the rapidly changing circumstances on the ground.
Secretary Paulson and Chairman Bernanke recognized early that there may come a time when the private markets
would become unwilling to provide the necessary capital to our financial system to deal with the large expected
losses from the housing correction. In such a scenario, only the Federal government would be in a position to support
the financial system - to step in to provide the needed capital to prevent collapse. Government intervention was not
our first choice, as it often has unintended, far-reaching consequences.
We evaluated numerous alternatives and focused on a program to buy illiquid mortgage assets in very large scale to
attract private capital to recapitalize our financial system.
We all hoped it would not come to this, but recognized the possibility and began contingency planning in early 2008.
In late summer, after the failure of Bear Stearns, the crisis intensified and our financial institutions came under even
more pressure from deteriorating market conditions and the loss of confidence. In a very short period of time, some of
our largest financial institutions failed or changed structure. In July, IndyMac bank failed. In the month of September
alone, we witnessed the following: conservatorship of Fannie Mae and Freddie Mac, the sale of Merrill Lynch to Bank
of America, the bankruptcy of Lehman Brothers, the rescue of AIG by the Fed, the conversion to bank holding
companies by Morgan Stanley and Goldman Sachs, the distressed sale of Wachovia, and the failure of Washington
Mutual.
As a result, in September, credit markets effectively froze. The commercial paper market shut down, 3-month
Treasuries dipped below zero, and a money market mutual fund "broke the buck" for only the second time in history,
precipitating a $200 billion net outflow of funds from that market.
Recognizing the threat to our financial system, Secretary Paulson and Chairman Bernanke knew the time had come
and on September 18, they went to the Congress to ask for unprecedented authority to prevent a collapse of our

financial system. Congress recognized the threat that frozen credit markets pose to the economy and to every
American. Just two weeks later, on October 3, the Congress passed and President Bush signed into law the
Emergency Economic Stabilization Act of 2008. We worked hard with the Congress to build tremendous flexibility into
the legislation because the one constant throughout the credit crisis has been its unpredictability.
In our discussions with the Congress, we focused on our initial plan to purchase illiquid mortgage assets. In the two
weeks between the time we submitted the draft legislation and the time the bill passed, credit markets deteriorated
more quickly than we had expected. One key measure we looked at was LIBOR-OIS spread —a measure of
perceived credit risk in the financial system. Typically, 5 - 1 0 basis points, on September 1, the one month spread
was 47 basis points. By the 18th, when we first went to Congress, the spread had climbed 88 basis points to 135
basis points. By the time the bill passed, just two week later on October 3, the spread had climbed another 128 basis
points to 263 basis points.
It was clear to Secretary Paulson and Chairman. Bernanke, we needed to use the authority and flexibility granted
under the EESA as aggressively as possible to quickly stabilize the system. We began immediately designing a
capital program in addition to our asset purchase programs. We believed that purchasing equity in healthy banks
would be the fastest way to inject much-needed capital into the financial system and restore confidence, which would
restore the flow of credit. Illiquid asset purchases, which would take longer to implement, would follow.
Meanwhile, credit markets continued to deteriorate. On October 10, LIBOR-OIS spread had risen another 75 basis
points to 338 basis points. So, four days later, on October 14, when our Capital Purchase Program was ready, we
announced a plan to invest up to $250 billion in banks and savings institutions of all sizes, in combination with a
guarantee of senior bank debt by the FDIC. These combined actions were taken to prevent a collapse of the financial
system. We believe these actions were successful.
At the same time, we continued working hard on our illiquid asset purchase programs. We were keenly aware that,
while $700 billion is a large sum of money, it is a finite amount. We needed to use the available funds to provide the
maximum benefit to the system, while leaving enough dry powder to deal with contingencies. Throughout the
process, we carefully monitored how the markets were responding to our actions and conditions in the broader
economy. We asked ourselves: Would banks apply for the capital? Would credit markets respond? What was
happening in the economy?
We were pleased that healthy banks of all sizes were signing up for the capita! program and credit markets were
showing signs of thawing. But the economic indicators were less positive. On October 31, data on third quarter GDP
showed negative 0.3 percent growth. In addition, data released on October 28 showed that through August, home
prices in 10 major cities had fallen 18 percent over the previous year.
It became clear we may need additional capital for both banks and non-bank financial institutions. To prevent the
collapse of the financial system, we also had to restructure the Federal Reserve's loan to AIG, using $40 billion of
TARP funds. With about half the original $700 billion available for asset purchases, would such a program still be the
best approach? For an asset purchase program to be effective, it must be done in very large scale.
While we have taken actions to stabilize the banking sector, supporting the non-banking market is also important to
helping consumers, businesses and our economy get the credit they need. The consumer securitization market
appears to be a promising opportunity. This would help bring down rates of auto loans, credit cards and student loans
and could be achieved with a more modest allocation from the TARP. And although we are not currently planning to
initiate another capital program beyond those already announced, an emphasis on additional capital seems to us to
be an appropriate focus today.

The EESA is not an economic stimulus plan, nor is it an economic growth plan. It was designed to stabilize the
financial system. Today, the LIBOR-OIS spread has fallen 238 basis points from its peak to 100 basis points. We
believe the combined actions of Treasury, the Federal Reserve and FDIC have stabilized the financial system and
prevented a financial collapse. Nonetheless, the current crisis took years to build up and will take time to work
through, and we still face some real economic challenges.
We will remain focused on ensuring the stability of the financial system and have begun working with our successors
as we transition to the next Administration. With that brief overview, I would be happy to take your questions.
-30-

Acting Assistant Secretary for Financial Markets Karthik Ramanathan Testimony
11/20/2008
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Before the House Small Business Committee
Washington - Chairwoman Velazquez, Ranking Member Chabot, and Members of the Committee, thank you for this
opportunity to testify this morning on the recent financial market and economic conditions, Treasury's actions in
implementing the Emergency Economic Stabilization Act (EESA), and how these actions will assist small businesses
and entrepreneurs in leading the economic recovery in the United States.
Small businesses are crucial to the health of the U.S. economy - they provide the entrepreneurial talent that keeps
the economy flexible and dynamic. Small businesses employ over half the workforce in the United States, and are
estimated to generate seventy percent of all new jobs. Given the current economic challenges we are facing, I am
pleased to be here to address this timely topic and to emphasize the importance of this sector for the growth of the
American economy.
As the Acting Assistant Secretary for Financial Markets, I serve as the senior adviser to the Secretary, Deputy
Secretary, and Under Secretary on broad matters related to domestic finance, financial markets, federal, state, and
local finance, including the Federal debt, and Federal Government credit policies. My office is also responsible for the
issuance of over $5 trillion in annual debt and for overseeing the $10 trillion U.S. Treasury debt portfolio.
As you know, the economy is currently working through a prolonged housing correction that began over two years
ago, and has in turn impacted credit markets and financial institutions. The downturn in the housing market as well as
financial and credit market pressures have negatively impacted the real economy. Small businesses and consumers
have also felt these headwinds as employment, capital investment, and consumption have declined.
The financial challenges we currently face have been caused to a great degree by a decline in the value of mortgage
assets and continuing uncertainty about their value in the future. The depreciation of these assets on highly levered
bank balance sheets has resulted in an undercapitalized banking sector, and uncertainty surrounding the value of
these assets makes banks reluctant to lend to one another, which in turn affects credit availability for consumers and
businesses. Community banks, thrifts, and credit unions are vital components of the financial market, and ensuring
their health helps to encourage the lending and borrowing activity that is critical for small businesses and consumers.
Therefore, it is imperative that we, as policy-makers, promote a healthy financial sector as we confront these
challenges.
As the housing correction progresses and home prices stabilize, the turmoil in the financial markets will also subside,
allowing credit once again to flow more smoothly through the economy. In the meantime, to alleviate credit market
strains, the Treasury, the Federal Reserve, and the FDIC, along with our international counterparts, have taken
unprecedented and extraordinary steps to address the current financial crisis-- steps aimed at strengthening bank
balance sheets, easing strains in interbank lending and short-term funding markets, and providing needed liquidity.
Both U.S.-based and international bodies remain committed to restoring and enhancing the strength of the global
financial architecture.
While the long-term economic prospects of the United States are solid, the United States - as well as the global
economy - faces considerable near term challenges. The slowdown in economic activity and consumer discretionary

spending has affected nearly every sector of the U.S. economy. Small businesses have also felt these strains, and
when small businesses suffer, the rest of the economy does as well. Small businesses make a substantial and stable
contribution to our economic growth, consistently producing about one-half of private nonfarm GDP. If small business
cannot meet their capital needs, they will be unable to fulfill their usual role in driving economic recovery.
Let me cite just a few examples. Small businesses in the retail and restaurant trade sector, which represent 90
percent of all such firms, have been particularly affected by recent economic conditions. The retail sector is estimated
to have lost over 250,000 jobs in the past year. The home construction industry, where small businesses make up 80
percent of firms, has also been particularly affected by declining home values and credit market conditions.
Equipment manufacturers have also reported large declines in new orders, capital spending and technology
upgrades have slowed significantly, and the drying up of liquidity has made these businesses less able to obtain
loans and even meet payrolls. The global financial crisis and tight credit markets have made it harder for small
businesses to borrow the money they need to meet their payrolls, create new jobs, and invest in the future.
As the son of a first generation Indian-American engineer who has been building electricity and power generators
across the United States for the past 40 years, I have a particular insight into the difficulties facing small business. I
hear stories about orders for new equipment and contracts for new investments slowing dramatically over the past
twelve months. This illustrates stories from small business across the country we are hearing first hand and reading
about in newspapers.
At Treasury, we know that much of this lack of confidence arises from concerns of suppliers and manufacturers about
the availability of credit to fund and grow their business. While this is just one example of the implications of reduced
credit, I am sure that your Committee has heard other similar stories. These anecdotes aggregate into a worrisome
trend that we understand that we must address.
To counter these difficulties, Treasury has applied the authorities Congress provided in October to stabilize the
financial system, which will promote the flow of credit, while protecting the taxpayer to the maximum extent possible.
Our actions have focused on ensuring adequate capital to financial institutions in order to stabilize markets, promote
increased lending, and foster improved growth and job creation.
The focus of the recently enacted legislation on assisting general bank capitalization has been part of a coordinated
international effort. This assistance is helping our financial institutions to manage the illiquid assets on their balance
sheets and to attract private capital. In addition, we have broadened the Capital Purchase Program to smaller
community banks which interact on a day-to-day basis with small businesses. Importantly, many of these privately
held institutions have strong, long lasting ties with local businesses. By providing capital to such institutions, Treasury
is directly assisting small businesses so that they have the ability to make loans, mitigate funding pressures, and
promote growth locally,
These actions, in turn, will provide stability to markets and restore our financial institutions' ability to provide capital
flows to the consumers and businesses that rely on stable funding to support their normal economic activity.
Strengthening balance sheets of the financial sector will directly benefit small businesses.
In addition to providing capital directly to banks, we are also examining strategies to support access to credit outside
the banking system, such as credit card receivables, which are very important for consumers and small businesses.
This market is currently in distress - costs of funding have skyrocketed and new issue activity has come to a halt.
Today, the illiquidity in the asset-backed securitization market is affecting the availability of car loans, student loans,
and credit cards. With the Federal Reserve, we are exploring the development of a liquidity facility for highly-rated

AAA asset-backed securities. Such a facility could lower costs and increase credit availability for consumers and
small businesses. Addressing the needs of the securitization sector will help get lending going again, helping
consumers and supporting the U.S. economy.
It will take time for the measures we have taken to have their full impact on an economy in which many consumers
and businesses are struggling. But in recent days, we have seen some encouraging signs. The market for lending
between banks has loosened considerably, and the Federal Reserve's efforts to stabilize the commercial paper
market have provided businesses with an urgently needed source of financing for day-to-day operations.
To conclude, Treasury is very mindful of the challenges and difficulties affecting the small business community. With
this pressure in mind, we will continue to focus on stabilizing the overall financial markets, strengthen the banking
system, and reestablish the flow of .credit so that small business, consumers, and all Americans can more easily
obtain credit, and thus grow and expand their businesses.
Thank you for the opportunity to appear today. I will be happy to take your questions.

Treasury Targets Somali Terrorists
11/20/2008
HP-1283
Washington, DC -The U.S. Department o f the Treasury today designated three members o f al-Shabaab, a
violent and brutal extremist group in Somalia.
"Today's action targets three leaders of al-Shabaab, an al Qaida-linked terrorist group that uses lethal tactics to
undermine peace and civil society in Somalia," said Adam Szubin, director of Treasury Office of Foreign Assets
Control. "These terrorist commanders have had direct involvement in the kidnappings and cold-blooded murders of
numerous Somali officials and civilians and they should be cut off from the world's financial system."
Al-Shabaab has used intimidation and violence to undermine the Somali government and threaten civil society
activists working to bring about peace through political dialogue and reconciliation. It has claimed responsibility for
shooting Deputy District Administrators in Somalia and for several bombings and shootings in Mogadishu targeting
Ethiopian troops and Somali government officials.
In addition to attacks that have killed or wounded various Somali government officials, al-Shabaab claimed
responsibility for the February 6, 2008 bombings in Boosaaso, Puntland, which killed 22 Ethiopian civilians and
wounded 66.
Further, a number of al-Shabaab members are affiliated with al Qaida, and many of al-Shabaab's senior leaders are
believed to have trained and fought with al Qaida in Afghanistan.
The U.S. Department of State named al-Shabaab as a Foreign Terrorist Organization and a Specially Designated
Global Terrorist on February 26, 2008.
Today's action was taken pursuant to Executive Order 13224, which targets terrorists and those providing support to
terrorists or acts of terrorism. Any assets these individuals hold under U.S. jurisdiction are frozen and U.S. persons
are prohibited from engaging in any transactions with the designees.
Identifying Information
AHMED ABDI AW-MOHAMED
AKAs:
Ahmed Abdi Aw Mohammed
Muktar Abdulrahim Abuzubair
Shaykh Mukhtar
Abu Zubeyr
Godani
Godane
DOB:
10 July 1977
POB:
Hargeysa, Somalia
Nationality:
Somali

Ahmed Abdi aw-Mohamed is the founder and a current leader of al-Shabaab. He claimed his group was responsible
for the May 2007 assassination of a judge in Beledweyne, Somalia, and in March 2007 he coordinated attacks on
Ethiopian troops in Somalia. Aw-Mohamed has also served as a conduit for financing to al-Shabaab.
ISSA OSMAN ISSA
AKA:
Musse
Abdullah Bur
Abdullah Atto
Abdala Sudani
Afadey
DOB:
1973
POB:
Malindi, Kenya
Nationality:
Kenyan
Issa Osman Issa has a leadership role in al-Shabaab and has served as a commander of al-Shabaab forces in
Somalia.
In late April 2007, Issa led a militia assault against Mogadishu's Basil Hotel, which was often frequented by Ugandan
peacekeepers. He also was reportedly involved in recruiting an individual to carry out a successful April 2007 suicide
attack against the Ethiopian military presence in Afgooye, Somalia.
Before al-Shabaab's creation, Issa was one of the operatives who fired the surface-to-air missiles used in the failed
2002 attempt to shoot down an Israeli airliner in Mombasa, Kenya. Issa was also involved in the planning of the nearsimultaneous attack in 2002 against the Paradise Hotel in Kikambala, Kenya, in which a vehicle-borne explosive
device struck the hotel, killing 12 and injuring 40.
MUKHTAR ROBOW
AKAs:
Mukhtar Ali Rubu
Mukhtar Abdullahi Ali
Mujahid Mukhtar Robow Ali
Shaykh Mukhtar Robo Ali
Abu Mansur
Abu Mansour
DOB:
1969
ALT. DOB:
10 October 1969*
POB:
Xudur, Somalia
ALT. POB:
Keren, Eritrea*
Nationality:
Eritrean*
National ID No.:
1372584, Kenya*

Passport No.:
0310857, Eritrea, issued 21 August 2006, expires 20 August 2008*
*This identifying information is derived from an Eritrean passport issued under the alias name of Mukhtar Abdullahi
AN.
Mukhtar Robow serves as al-Shabaab's spokesperson, communicating to the press and public on its behalf. He has
also served as al-Shabaab's spiritual leader and as its military commander in Southern Somalia.
As an al-Shabaab military commander, Robow has targeted Somali Transitional Federal Government (TFG),
Ethiopian and African Union troops in Somalia. In December 2007, Robow's al-Shabaab forces attacked military
bases of the Somali government forces, Ethiopian forces and African Union peacekeepers in Mogadishu. In addition,
Robow and former al-Shabaab leader Aden Hashi Ayrow (deceased) were responsible for the November 2006
suicide attack against a TFG checkpoint in Baidoa, Somalia. The attack killed at least eight and wounded four.

Treasury Targets Somali Terrorists
11/20/2008
HP-1283
Washington, DC-The U.S. Department o f the Treasury today designated three members o f al-Shabaab, a
violent and brutal extremist group in Somalia.
"Today's action targets three leaders of al-Shabaab, an al Qaida-linked terrorist group that uses lethal tactics to
undermine peace and civil society in Somalia,” said Adam Szubin, director of Treasury Office of Foreign Assets
Control. "These terrorist commanders have had direct involvement in the kidnappings and cold-blooded murders of
numerous Somali officials and civilians and they should be cut off from the world's financial system."
Al-Shabaab has used intimidation and violence to undermine the Somali government and threaten civil society
activists working to bring about peace through political dialogue and reconciliation. It has claimed responsibility for
shooting Deputy District Administrators in Somalia and for several bombings and shootings in Mogadishu targeting
Ethiopian troops and Somali government officials.
In addition to attacks that have killed or wounded various Somali government officials, al-Shabaab claimed
responsibility for the February 6, 2008 bombings in Boosaaso, Puntland, which killed 22 Ethiopian civilians and
wounded 66.
Further, a number of al-Shabaab members are affiliated with al Qaida, and many of al-Shabaab's senior leaders are
believed to have trained and fought with al Qaida in Afghanistan.
The U.S. Department of State named al-Shabaab as a Foreign Terrorist Organization and a Specially Designated
Global Terrorist on February 26, 2008.
Today's action was taken pursuant to Executive Order 13224, which targets terrorists and those providing support to
terrorists or acts of terrorism. Any assets these individuals hold under U.S. jurisdiction are frozen and U.S. persons
are prohibited from engaging in any transactions with the designees.
Identifying Information
AHMED ABDI AW-MOHAMED
AKAs:
Ahmed Abdi Aw Mohammed
Muktar Abdulrahim Abuzubair
Shaykh Mukhtar
Abu Zubeyr
Godani
Godane
DOB:
10 July 1977
POB:
Hargeysa, Somalia

Nationality:
Somali
Ahmed Abdi aw-Mohamed is the founder and a current leader of al-Shabaab. He claimed his group was responsible
for the May 2007 assassination of a judge in Beledweyne, Somalia, and in March 2007 he coordinated attacks on
Ethiopian troops in Somalia. Aw-Mohamed has also served as a conduit for financing to al-Shabaab.
ISSA OSMAN ISSA
AKA:
Musse
Abdullah Bur
Abdullah Atto
Abdala Sudani
Afadey
DOB:
1973
POB:
Malindi, Kenya
Nationality:
Kenyan
Issa Osman Issa has a leadership role in al-Shabaab and has served as a commander of al-Shabaab forces in
Somalia.
In late April 2007, Issa led a militia assault against Mogadishu’s Basil Hotel, which was often frequented by Ugandan
peacekeepers. He also was reportedly involved in recruiting an individual to carry out a successful April 2007 suicide
attack against the Ethiopian military presence in Afgooye, Somalia.
Before al-Shabaab's creation, Issa was one of the operatives who fired the surface-to-air missiles used in the failed
2002 attempt to shoot down an Israeli airliner in Mombasa, Kenya. Issa was also involved in the planning of the nearsimultaneous attack in 2002 against the Paradise Hotel in Kikambala, Kenya, in which a vehicle-bome explosive
device struck the hotel, killing 12 and injuring 40.
MUKHTAR ROBOW
AKAs:
Mukhtar Ali Rubu
Mukhtar Abdullahi Ali
Mujahid Mukhtar Robow Ali
Shaykh Mukhtar Robo Ali
Abu Mansur
Abu Mansour
DOB:
1969
ALT. DOB:
10 October 1969*
POB:
Xudur, Somalia
ALT. POB:
Keren, Eritrea*
Nationality:

Eritrean*
National ID No.:
1372584, Kenya*
Passport No.:
0310857, Eritrea, issued 21 August 2006, expires 20 August 2008*
*This identifying information is derived from an Eritrean passport issued under the alias name of Mukhtar Abdullah!
Ali.
Mukhtar Robow serves as al-Shabaab’s spokesperson, communicating to the press and public on its behalf. He has
also served as al-Shabaab's spiritual leader and as its military commander in Southern Somalia.
As an al-Shabaab military commander, Robow has targeted Somali Transitional Federal Government (TFG),
Ethiopian and African Union troops in Somalia. In December 2007, Robow's al-Shabaab forces attacked military
bases of the Somali government forces, Ethiopian forces and African Union peacekeepers in Mogadishu. In addition,
Robow and former al-Shabaab leader Aden Hashi Ayrow (deceased) were responsible for the November 2006
suicide attack against a TFG checkpoint in Baidoa, Somalia. The attack killed at least eight and wounded four.

Treasury Designates al-Qaida in Iraq Facilitator
11/20/2008
HP-1284
Washington, DC--The U.S. Department of the Treasury today designated Redouane El Habhab, a Germany-based
terrorist financier and facilitator who has provided financial support and other services to al-Qaida in Iraq (AQI).
"We must remain vigilant in our efforts to shut every funding stream terrorists and their supporters exploit to carry out
attacks in Iraq and around the world," said Adam Szubin, director of Treasury’s Office of Foreign Assets Control. "The
power and reach of the UN's counterterrorism authorities continue to be critically important tools to shut down
financing conduits wherever they may develop."
Redouane El Habhab has supported AQI financially, through payments to the group, and logistically, by facilitating
the smuggling of "violence prone activists" into Iraq.
On January 24, 2008, the Schleswig-Holstein Higher Regional Court in Germany convicted Habhab of having
provided support to a foreign terrorist organization and sentenced him to a five year, nine month prison term. Habhab
initially appealed his sentence; however, he subsequently withdrew this appeal, and he remains in prison in Lübeck,
Germany. On November 12, 2008, Habhab’s name was added to the Consolidated List of the U.N. 1267 Committee,
which obligates all U.N. member states to freeze his assets and prevent his travel.
Redouane El Habhab was designated today under Executive Order 13224, which targets terrorists and those
providing support to terrorists or acts of terrorism. Any assets Redouane El Habhab holds under U.S. jurisdiction are
frozen and U.S. persons are prohibited from engaging in any transactions with him.
Identifying Information
REDOUANE EL HABHAB
Nationality:
German
DOB:
December 20, 1969
POB:
Casablanca, Morocco
German Passport:
1005552350
German Federal Identity Card:
1007850441
Address:
Iltisstraße 58, 24143 Kiel, Germany

Remarks by Secretary Henry M. Paulson, Jr. at The Ronald Reagan Presidential
Library
11/20/2008
HP-1285
Simi Valley, C alif.- Good morning. I am honored to be here at the Reagan Library. There is perhaps no more
appropriate place to discuss a topic important to us all - the need to reinvigorate market capitalism, the
foundation o f ou r national prosperity. Although Mrs. Reagan is not with us today, I send her m y best wishes
and thanks fo r her kind invitation to speak at this event.
Good morning. I am honored to be here at the Reagan Library. There is perhaps no more appropriate place to
discuss a topic important to us all - the need to reinvigorate market capitalism, the foundation of our national
prosperity. Although Mrs. Reagan is not with us today, I send her my best wishes and thanks for her kind invitation to
speak at this event.
We are working through a severe financial crisis caused by many factors, including government inaction and
mistaken actions, outdated U.S. and global financial regulatory systems, and by the excessive risk-taking of financial
institutions. This combination of factors led to a critical stage this fall when the entire U.S. financial system was at
risk.
This should never happen again. The United States must lead global financial reform efforts, and we must start by
getting our own house in order.
The most significant discussion of financial system reform in the last 60 years has begun. This debate offers great
opportunities -- and great peril. The events of the last year have exposed excesses and flaws that are, to put it mildly,
humbling. If we do not correctly diagnose the causes, and instead act in haste to implement more rather than better
regulations, we can do long term harm.
Today I will give my view of recent events, the principles that have guided me, our response to the unfolding crisis
and my ideas for regulatory reforms.
My regulatory reform views are based on the principles of transparency and accountability, and my belief that our
entrepreneurial nation must continue to foster prudent risk-taking, while not rewarding failure or encouraging
recklessness. In all that lies ahead we must never forget that our financial system is built on the hard work of our
citizens; it is built on the savings of our citizens - and perhaps most importantly, our financial system depends on the
trust and confidence of our citizens.
As I assess our current situation, I believe we have taken the necessary steps to prevent a financial collapse. And the
authorities and capacity granted to us by Congress has been the key to this accomplishment. Looking forward,
working with the Fed and the FDIC we now have the tools and the commitment to do what is necessary to maintain
the stability of our financial system. Many challenges lie ahead and progress will not be in a straight line. The
excesses in our system built up over years, and it will take time to work through them.
Genesis of Financial Turmoil: Global Imbalances

The U.S. housing correction was clearly the spark that ignited the financial crisis. But the U.S. housing bubble is just
one - albeit the largest - manifestation of global excesses. These excesses have been building for years as benign
markets, strong global growth, low U.S. saving rates, and policy choices led to large global imbalances and an
extraordinary increase in capital flows.
The world was awash in money looking for higher return, and much of this money was invested in U.S. assets. The
combination of a huge amount of capital and low interest rates stoked greater risk taking, financial innovation and
complexity, not all of it healthy. Financial institutions found new ways to increase leverage - from designing complex
new financial instruments, to creating off balance sheet financing vehicles. The global financial system grew
increasingly complex and opaque, and regulation did not keep pace.
Low interest rates and the search for ever higher returns boosted global demand for housing. Home prices rose at
unsustainable rates in the United States and a number of countries, and housing-related investments also surged. A
housing correction was inevitable and when it occurred, home price declines and a wave of foreclosures hit the value
of mortgage-related assets particularly hard. The U.S. housing correction was felt here at home and overseas, and
the global financial system began to suffer. After 13 months of stress, excesses and inadequate risk management
and regulatory policies outside the United States have also been exposed. As Warren Buffet has said, "It's only when
the tide goes out that you learn who's been swimming naked."
Global Financial Turmoil and the U.S. Response
Our economy and the American people are paying a steep price for that neglect. In response, the United States and
many nations have taken a series of urgent, necessary, and temporary steps to limit further damage. Until the
financial crisis is behind us we must remain vigilant, ready to respond to and manage unpredictable events that might
threaten the system, as they occur. Our first priority is stability and recovery and then we need to repair our financial
system to help prevent this from every happening again. Our remedial actions should serve as a bridge to a
permanent, modern regulatory framework to serve as the cornerstone of comprehensive reform to ensure this turmoil
is never repeated.
When I came to Washington in 2006, markets were benign. Notwithstanding this, in my first meeting with President
Bush and his economic team I noted that financial turmoil seems to occur every five to ten years and we needed to
be prepared. Thereafter, I regularly convened the President's Working Group on Financial Markets, the PWG, to
review risk factors and make recommendations for improvements. We focused on systemic weaknesses and how we
might mitigate them in the event of turmoil or - even worse, a financial crisis.
The government-sponsored enterprises, the GSEs, Fannie Mae and Freddie Mac clearly posed a potential systemic
risk. I immediately pursued the Administration's long-sought goal of legislation to improve regulatory oversight of the
GSEs. And I directed Treasury staff to begin a study that would lead to practical recommendations for improving our
outdated financial regulatory architecture.
As the housing correction progressed in 2007, we acted aggressively to help minimize foreclosures. We convened
the industry to develop private sector strategies that now help over 200,000 homeowners avoid foreclosure every
month. Since August of 2007, we have pressed financial institutions to raise more capital, and they have -- over $450
billion, and to recognize losses, which they also have -- over $530 billion.
Bear Stearns on the Brink o f Bankruptcy
Market conditions continued to worsen. And then last March Bear Stearns faced failure, and we faced our first
potential systemic event and major challenge. Regulators did not, and still don’t, have the authority to administer

receivership-like proceedings for non-depository institutions that fail, as they do for commercial banks. The Bear
Stearns situation exemplified something former Federal Reserve Chairman Greenspan has pointed out: the real issue
is not that an institution is too big or too interconnected to fail, but that it is too big or interconnected to liquidate in a
timely and orderly fashion. We were fortunate that JPMorgan purchased Bear Stearns and prevented a bankruptcy,
and that the Federal Reserve has statutory authority to lend against a pool of mortgage loans on a fully secured
basis. The Fed was able to assist the JPMorgan purchase because they believed that there was a reasonable
prospect of avoiding losses.
The Bear Steams situation made it painfully clear that the federal government needed the authorities to wind-down a
failing non-depository institution, particularly if it posed a systemic risk. Chairman Bernanke and I spoke of the need
for this authority in the future but recognized that for the near term we would rely on existing tools, as imperfect at
they were.
We averted this first systemic event by using our existing authorities creatively. Unfortunately, we were about to find
more need to be creative in the coming months. I will leave history to the historians, but from my perspective we
responded as quickly and directly as our authorities allowed as a severe market crisis unfolded, and we have never
lost focus of our singular goal -- to stabilize the financial system that supports our economy and the everyday lives of
all Americans.
There was no playbook for responding to a once or twice in a hundred year event. Instead, I have been guided by
several principles in dealing with the Bear Stearns situation and all that followed. My guiding principles in these past
months have been:
One, never forget our awesome responsibility to the American people who depend on the financial system to save for
college and retirement, for financing homes, cars and companies. If the financial system were allowed to collapse, it
is the American people who would pay the price. This has never been just about the banks; it has always been about
continued prosperity and opportunity for all Americans.
Two, run to problems - the cost of preventing a systemic event is less than the cost of addressing its catastrophic
consequences;
Three, bring people together to work on solutions. Although it is always desirable, in times like these it is essential for
government leaders of both parties and for financial leaders from around the world to work together;
Four, define my portfolio expansively —look beyond how authorities have been used in the past, and motivate the
private sector, Administration colleagues and regulators to do what is needed;
Five, guard against systemic risk while maintaining market discipline and protecting the taxpayer; and,
Six, be pragmatic enough to change plans when facts and conditions change.
Throughout the last several months, as a variety of challenges has surfaced, these principles guided my efforts to
take comprehensive, decisive action to address market issues and build confidence. Three situations in particular
illustrate these principles at work - the loss of investor confidence in Fannie Mae and Freddie Mac, the so-called
GSEs, in July; the failure of Lehman Brothers in September; and the implementation of the financial rescue package
in October.
Fannie Mae and Freddie Mac: a Crisis in Confidence

In June and July, concerns about the GSEs' credit losses and capital strength seriously and rapidly undermined
investor confidence, but legislation to improve GSE oversight was still mired in Congress. With $5.4 trillion in
outstanding GSE debt and agency MBS held by investors around the world, failure of the GSEs posed a huge risk to
our financial system. We couldn't wait for them to fail formally. We moved quickly to address this challenge and, in
late July, Congress provided us authority to backstop the GSEs, and finalized creation of a stronger GSE regulator,
the FHFA.
Throughout August, overall market and housing conditions continued to deteriorate. And we learned that the amount
and quality of the GSEs' capital was inadequate. It was necessary to take action - before any systemic event. And it
was clear that any effective action would require a combined effort on the part of the Federal Reserve, the FHFA and
Treasury. We combined our authorities to find the most effective way forward, and the companies consented to FHFA
conservatorship. On September 7th the FHFA placed Fannie Mae and Freddie Mac into conservatorship, and
Treasury put in place a preferred stock purchase agreement that in essence guarantees all GSE obligations for their
duration. We replaced both companies’ CEOs and took warrants for up to 79.9 percent of each company. By
stabilizing the GSEs, we've enabled them to play their vital role in making mortgage finance available and affordable
as we work through the housing correction.
The conservatorship is a temporary condition, a "time out" period where the new President and Congress must
decide what role government in general, and the GSEs in particular, should play in the housing finance market. In my
view, government support needs to be either explicit or non-existent, structured to resolve the conflict between public
and private purposes, and policymakers must address the issue of systemic risk. This is a situation where the next
Administration and Congress will need to take decisive action.
As we worked on the urgent, comprehensive plan that stabilized the GSEs, we were racing to stay ahead of other,
likely destabilizing market events.
Lehman Brothers Unable to Solve its Problems
There had been rumors of Lehman’s potential failure all summer and Lehman had been searching, without success,
for a buyer or other solutions to the serious problems they were facing. I had monitored these efforts closely, and as
the company reached a critical moment, Fed Chairman Ben Bernanke, New York Fed President Tim Geithner, SEC
Chairman Chris Cox and I sought to do everything we could to avert a Lehman failure. We gathered industry leaders
the weekend of September 13th to explore all possible options. I was actively engaged in the process as we
encouraged two potential buyers to make offers. Each examined Lehman's books, but neither was willing to go
forward without off-loading billions of dollars of assets that they considered had substantial unrealized losses.
Treasury and the Federal Reserve had no authority to resolve this problem. Federal law, and in particular the AntiDeficiency Act, prohibits Treasury from spending money, lending money, and guaranteeing or buying assets without
Congressional approval. The Federal Reserve can and does lend on a secured basis, but only if it expects not to
realize losses. The Fed couldn't legally lend against the Lehman assets if it expected that loan to result in a loss of
any size; this was much different than the case with Bear Stearns.
I tried to put together an industry consortium to facilitate the transaction by purchasing the off-loaded assets, but once
the potential buyer failed to obtain regulatory approval, the entire transaction disappeared. Without any federal
authority to intervene, we had no choice but to do everything possible to try to mitigate the consequences of a
Lehman failure.
That weekend, the management of the nation's largest insurance company, AIG, also informed us that they faced an
imminent bankruptcy. AIG's businesses were intertwined throughout the global financial system. Because AIG s
underlying insurance companies had value, the Fed could use its authority to make a fully secured loan to AIG. By

doing so, it prevented a systemic disruption that would have been an order of magnitude far greater than the Lehman
failure.
Some have chosen to scapegoat the Lehman failure as the cause of the deepening crisis in September, as opposed
to a symptom. That is at best naive, and at worst disingenuous. The U.S. government had no authority to rescue
Lehman Brothers. Even if Lehman had been acquired, it would not have averted the virtually simultaneous collapse of
AIG, or the collapse of Washington Mutual, or the wave of failures that European governments stepped in to avert
shortly thereafter.
Financial Crisis hits the United States and the World
By mid-September, after 13 months of market stress, the financial system essentially seized up and we had a
system-wide crisis. Credit markets froze and banks substantially reduced interbank lending. Confidence was
seriously compromised throughout our financial system. Our system was on the verge of collapse, a collapse that
would have significantly worsened and prolonged the economic downturn that was already underway.
That was the background against which Chairman Bernanke and I met with the Congressional bipartisan leadership
to request emergency legislation. We needed the financial rescue package so we could intervene, stabilize our
financial system, and minimize further damage to our economy.
During the two weeks Congress worked on the legislation, market conditions worsened significantly. Many Americans
look at the stock market as an indicator of the economy, and during this period they saw tremendous volatility. The
Dow Jones Industrial Average fell more than 700 points on one single day, and over 9 percent during the two weeks
the legislation was debated - stock market losses amounted to slightly more than $2 trillion.
As disturbing as this was, we were even more focused on the credit markets because they provide our basic
economic fuel - borrowing and lending capital - that supports and creates jobs. The confidence in banks and of
banks continued to diminish, as did the flow of funds between them. The problems extended to blue chip industrial
companies who could only issue commercial paper with very short maturities as the commercial paper market
became severely impaired. Small and medium-sized companies, with no direct connection to the financial sector,
were losing access to the normal credit needed to meet payrolls, pay suppliers and buy inventory.
During that same period, the government intervened to protect the financial system. The FDIC acted to mitigate the
failure of Washington Mutual by facilitating its sale, and made clear that it would intervene to prevent Wachovia's
failure. And turmoil had developed in European markets. In a two-day period at the end of September the
governments of Ireland, the United Kingdom, Germany, Belgium, France and Iceland intervened to prevent the failure
of one or more financial institutions in their countries.
By the time legislation had passed on October 3, the global financial crisis was so broad and so severe, we knew we
needed to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our
initial intent had been to strengthen the banking system by purchasing illiquid mortgages and mortgage-related
securities. But by this time, given the severity and magnitude of the situation, an asset purchase program would not
be either effective enough or quick enough. Therefore we exercised the authority granted by Congress in this
legislation to quickly deploy a $250 billion capital purchase program, fully anticipating we would follow that with a
program for troubled asset purchases.
Again at this time, we collaborated widely and creatively to combine all the tools of the federal government to most
effectively address the problem. In a unified set of actions, at the same time we announced the capital purchase
program, the Federal Reserve announced a program to support the commercial paper market and the FDIC put in

place a temporary guarantee of certain debt issued by banks. These actions, taken as part of a coordinated strategy
with policymakers around the world, together prevented a very bad outcome, and significantly increased investor and
public confidence in our banks. But it was equally clear we continued to face significant stresses and challenges in
our capital and credit markets.
Since mid-October, we have continued to assess how best to use the remaining TARP funds, given the uncertainties
around the deteriorating economic situation in the U.S. and globally, and the continuing financial market stresses. We
have always said that the housing correction is at the root of the economic downturn and our financial market stress.
And as the economy slows further, it threatens to prolong the housing correction.
We knew, too, that to be effective a mortgage asset purchase program would require a massive commitment of
TARP funds. In September, before economic conditions worsened, $700 billion in troubled asset purchases would
have had a significant impact, providing more flexibility and firepower for this Administration and the next. Although
we are not proceeding with direct asset purchase programs, we plan on using our resources aggressively to support
the normalization of credit markets and the expansion of credit to support economic recovery. We are actively
engaged in developing programs to be implemented when ready.
With the financial system on the verge of collapse, our clear objective when we went to Congress was to stabilize it
through measures that would increase capital strength. Our intended strategy had been to free-up capital by
purchasing illiquid assets. Since we were careful to get broad authorities from Congress, we were able to change our
strategy in order to best achieve our objective.
By proactively addressing the problems we saw coming and being pragmatic enough to change strategy in the face
of changed facts and despite the inevitable criticism - we prevented a far worse financial crisis that would have
severely damaged our economy and the economic well-being of all Americans. Had we executed the wrong strategy,
and depleted the TARP resources in doing so, we would not have achieved our objective and would have deserved
the severe criticism that would have inevitably followed such a failure.
U.S. Regulatory Reform Recommendations
Clearly with the market stresses continuing, maintaining stability throughout the recovery process continues to be our
first priority and recovery will take some time. There is, quite rightfully, focus on reforming the system that enabled the
excesses. We should resist a hasty response for two reasons. First, it is difficult to develop a comprehensive solution
while the situation is still unfolding. Second, simply adding new regulations won't be a long-term solution. We need
more effective regulations within an entirely new regulatory framework and a stronger capacity for resolution and
crisis intervention that reinforces market discipline.
In the Blueprint for Regulatory Reform that we developed prior to this financial turmoil and released last March, and
which has proven to be remarkably appropriate, we recommend a U.S. regulatory model based on objectives that
better align the regulatory structure with the reasons why we regulate —to ensure stability, safety and soundness and
to protect consumers while also supporting innovation.
In our model, a market stability regulator would have authority to review any systemically important financial
company, and to look for problems anywhere in the financial system in order to protect against systemic risk. Our
continuing challenge has been what to do about non-depository institutions that may be too big or too interconnected
to fail. We need a mechanism, essentially an amendment of the federal bankruptcy system, for the orderly wind-down
of such institutions. Also, to ensure the market stability regulator can fulfill its role, large, systemically-important
institutions, including hedge funds, should be required to have a charter that would permit some type of oversight.

Similarly, any financial product whose market size presents a systemic issue should be subject to regulatory
oversight. The PWG has taken steps to achieve this in the crucial OTC derivatives market. Moves to strengthen trade
processing, including centralized clearing, although not yet a complete solution, they should enhance transparency
and promote standardization.
Transparency must be a higher priority. We need disclosures that can be understood, because complexity often hides
risk. Greater standardization would also improve market transparency. And we must conduct a wholesale review of
the originate-to-distribute securitization model, because for every significant financial product each party in the
product chain must bear certain responsibility or potential risk.
We must address those aspects of our system that reinforce rather than counterbalance cycles; regulators and
ratings agencies often take actions after a problem emerges that exacerbates the cycle. For example, mark-to-market
accounting is clearly pro-cyclical. Yet I know of no better accounting method, and welcome the steps to review and
modify its implementation during severe market stress.
And policymakers and regulators must examine financial services industry compensation practices. Given their role in
supporting and sustaining U.S. economic activity, financial institutions' compensation practices should not encourage
unsafe and unsound risk taking or reward failure.
Under a new framework, which includes market infrastructure, transparency and wind-down authorities, we could
achieve again the proper balance between market discipline and regulatory oversight, and no institution should be
deemed to be too interconnected or too big to fail.
Global Reforms
Throughout the period of crisis, I and my team have been in constant communication with our international
colleagues. We have collaborated on many occasions with clear and compelling results. At the height of the turmoil in
October, for example, we and our G-7 colleagues committed to a comprehensive global strategy to provide liquidity to
markets, to strengthen financial institutions through capital investment and guaranteeing interbank lending -- to
prevent failures that pose systemic risk, to protect savers, and to enforce investor protections. This was a first
important step to stabilizing the rapidly deteriorating financial system. I also called a meeting of the G-20 Finance
Ministers, which President Bush attended, to begin to build support for a global response.
These efforts laid a foundation for that response. Under President Bush's leadership, the G-20 nations came together
this past weekend in a confidence-inspiring session to realistically assess the nature of our problems and agree on an
ambitious reform path forward. In several areas, the United States has led the effort for global reform, and these must
remain critical priorities for the future.
First, the Treasury and other U.S. regulators, in collaboration with other members of the G-7, have worked tirelessly
through the Financial Stability Forum, the FSF, to make rapid and meaningful regulatory reforms to address the root
causes of the crisis. There is a growing recognition across major economies that the global financial markets demand
that national financial regulation be as consistent as possible and not working at cross-purposes.
Contradictory global regulation impedes cross-border flows, increases costs to consumers, and hurts market
transparency and efficiency. To address these realities, national regulators must continue to strengthen cooperation
with foreign counterparts in international standard setting bodies and, where appropriate, make regulations more
consistent across the world’s boundaries. We have taken great care to ensure our efforts abroad are closely
integrated with the work of the President's Working Group, which has proven a useful forum for bringing independent
regulators together without undermining their independence to achieve important and timely reforms.

The second important priority must be continued reform of the International Financial Institutions like the World Bank
and the IMF to allow for greater participation of developing nations. The pressure on these Institutions to respond
swiftly and effectively has never been greater. But they are constrained by outdated governance structures and
policies. Since coming to Washington, I have consistently said that for these institutions to remain relevant, their
membership must reflect the seismic shifts in the global economy. The United States has been the leading advocate
for governance reform, and while there has been some progress, more needs to be done.
As examples, the FSF needs to broaden its membership to include key emerging market economies. Similarly, the
IMF and World Bank need to accord dynamic emerging market economies greater representation and participation in
their daily operations. In addition, the IMF, the World Bank, as well as the regional development banks should
consider how to reform their executive boards to make them more accountable, streamlined, and effective. We
should also consider whether these institutions could benefit from non-resident boards. This proposal could free-up
resources and enable management to focus on issues of more strategic importance. Governance reforms such as
these would be usefully discussed by the outside commissions that Managing Director Dominique Strauss Kahn and
President Bob Zoellick have set up for their respective institutions.
A final reform priority must be consistent liberalization of policies on trade and investment, with an emphasis on
avoiding new protectionist measures and achieving a breakthrough in the Doha round of global trade talks. In this
time of anxiety and uncertainty, we must not lose sight of the importance of free trade and open investment in
spurring economic growth. Expanding markets through trade promotes investment that fuels economic dynamism
and innovation, as well as deployment of new technologies that raise productivity, and ultimately our standard of
living. I have made pro-investment policies for the United States a priority since arriving at Treasury, and we have
made very good progress on this front. But open investment policies are not enough. With global growth expected to
slow, we need to support trade policies that will help lower trade barriers, create market access for developing
countries and a path to prosperity for the world's poor. In the United States, this means finalizing already negotiated
trade agreements and supporting free trade policies in the future. Especially during such a difficult economic period,
we must resist the pressures to turn inward and we must ensure that our international colleagues share this strong
commitment.
Conclusion
Until the financial crisis is behind us, we must remain vigilant, ready to respond and to manage unpredictable events
as they occur. And we have the capacity and the commitment to do just that. Our first priority is on stability and
recovery. And then we will need to repair our financial system and the global system to help prevent this from ever
happening again.
The key to success is pro-active, creative collaboration. In the United States, this means Democrats and Republicans
must cooperate and manage an unprecedented situation, and find solutions that restore and maintain our national
economic well-being. Globally, it means sovereign nations working together to protect economic and social stability.
In this increasingly inter-connected and inter-dependent global economy we are all in the same boat. We must work
together to first plug the leak, bail, and row together to reach the shore. Then we must work as a team to overhaul
and refit the boat so we can handle the rough seas that will undoubtedly test us in the future.
The journey ahead will no doubt be a difficult one. But I am an optimist and believe we will work together, both
domestically and globally, on this path to recovery and an eventual return to prosperity.

Treasury Enters into Agreement to Assist the Reserve Fund’s US Government
Money Market Fund
11/20/2008
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
hp-1286
Washington- The U.S. Treasury Department announced today that it agreed to assist with the liquidation o f
The Reserve Fund's U.S. Government Fund, due to unique and extraordinary circumstances.
The U.S. Treasury Department announced today that it agreed to assist with the liquidation of The Reserve Fund's
U.S. Government Fund, due to unique and extraordinary circumstances.
The fund, which Treasury accepted into its temporary guarantee program for money market funds, has not made a claim
to Treasury under the program. In a separate agreement with the fund, the Treasury has agreed to serve as a buyer
of last resort for the fund's securities, which consist of short-term U.S. government and government sponsored
enterprise securities.
This action is being taken to ensure that the fund is liquidated in an orderly and timely fashion.
The agreement grants the fund a 45-day period where it will continue to sell assets at or above their amortized cost.
At the conclusion of this period, Treasury's Exchange Stabilization Fund will purchase any remaining securities at
amortized cost, up to an amount required to ensure that each shareholder receives $1 for every share they own.
This extraordinary action is in response to the unique situation of the money market fund. This fund was permitted to
suspend share redemptions as of September 17, in accordance with an order issued by the Securities and Exchange
Commission.
No other funds participating in Treasury's temporary guarantee program received a similar order from the SEC.
Because of this, Treasury does not foresee a need to take similar actions with regard to any other funds participating
in Treasury's temporary guarantee program.
Treasury's agreement with the fund requires the fund's adviser and its trustees to waive their fees accrued after
November 19 to the extent that fund shareholders do not receive distributions of $1 per share.
-30REPORTS
• Letter Agreement

U N IT E D S T A T E S D E P A R T M E N T O F T H E T R E A S U R Y

November 19, 2008
The Reserve Fund
1250 Broadway
New York, NY 10001
Attention: President

L etter A greem ent (“L e tte r A greem ent”! Relating to the G uaran tee A greem ent, dated as of
Septem ber 19,2008, betw een the T reasu ry and The Reserve F und (the “ G uarantee
A greem ent”!

Ladies and Gentlemen:
Reference is hereby made to the Guarantee Agreement, dated as of September 19, 2008,
between the United States Department of the Treasury (the “Treasury”) and The Reserve Fund
(the “Investment Company”), a business trust organized under the laws of Massachusetts, on
behalf of the funds listed in Annex A attached thereto, including the U.S. Government Fund (the
“Fund”), a series of the Investment Company. The Treasury has requested, and the Investment
Company has agreed, to enter into this Letter Agreement to address certain matters arising out of
the Investment Company’s decision to suspend the redemption of the Fund’s shares and to
liquidate the Fund,
The Investment Company, on behalf of itself and the Fund, and the Treasury hereby agree
as follows:
1.

Definitions.

;;

(a)
Unless otherwise defined herein, capitalized terms used herein have the
meaning assigned to such terms in the Guarantee Agreement.

H
1
i

(b)
“Amortized Cost” of a security shall mean the acquisition cost of a
security, as adjusted for the amortization of premium or the accretion of discount, plus accrued
but unpaid interest.
(c)
“Portfolio Securities” shall mean all securities held by the Fund other than
investments of the type specified in Section 2(d). For the purposes of clarity, the term Portfolio
Securities does not include cash.
(d)

“Letter Agreement Date” shall mean November 19, 2008.

Sale of Portfolio Securities

(a)
General. The Investment Company shall use its best efforts to sell or
otherwise dispose of all Portfolio Securities not later than the 45th day after the Letter Agreement
Date ('“Final Sale Date”).
(b)
Sales of Portfolio Securities at Amortized Cost. In no event shall the
Investment Company cause the Fund to dispose of any Portfolio Security if the net proceeds to
the Fund from such sale (after deducting brokerage fees or other transaction expenses, if any,
payable to third parties) (the “Net Proceeds”! would be less than such Security’s Amortized Cost
unless
(i)
the Investment Company obtains the prior written consent of the
Treasury to such transaction, which approval Treasury may withhold in its
sole and absolute discretion; or
(ii)
the Net Proceeds from all sales of Portfolio Securities on the date
of such sale is greater than or equal to the aggregate of the Amortized Cost
of the Portfolio Securities sold on such date.
(c)
Use of Proceeds. The Net Proceeds shall be used in furtherance of the
Fund’s liquidation, and such proceeds (net of accrued or anticipated Fund expenses including,
for this purpose, fees that would be payable to the Investment Adviser under the Investment
Management Agreement between the Investment Adviser and the Investment Company, on
behalf of the Fund (the “Investment Management Agreement”! and fees that would be payable to
the Investment Company’s Trustees with respect to the Fund (the “Trustee’s Fees”)
notwithstanding the waiver described in Section 5(a)(viii), provided that the amounts that are
held to pay such fees shall only be paid if permitted by the waiver described in Section 5(a)(viii))
shall be distributed to the Fund’s shareholders as promptly as practicable after the accumulation
by the Fund of cash of sufficient magnitude to make a distribution in an efficient manner
provided, however, that the accumulation of $1 billion of proceeds shall be deemed to be of
sufficient magnitude to make a distribution unless the accounts of the Fund shareholders have
not been reconciled to the extent necessary for a distribution on terms acceptable to the Board of
Trustees, in which case the Investment Company shall use its best efforts to reconcile the
accounts as soon as practicable and shall provide weekly reports to the Treasury describing the
status of the distribution.
(d)
Limitation on Temporary Investments. Pending the application of the Net
Proceeds as required under Section 2(c), such proceeds shall be held in cash or invested solely in
(i) U.S. Treasury bills with a remaining maturity not to exceed 30 days, provided, however, that
the maturity date of such Treasury bills shall be at least one day prior to the anticipated date on
which the Fund will make a distribution to its shareholders; (ii) overnight time deposits placed
with a “bank” (as such term is defined in the 1940 Act) or “foreign bank” (as such term is
defined in Rule 3a-6 under the 1940 Act) whose short-term debt securities, in each case, are

“First Tier Securities” and “Rated Securities” (as such terms are defined in Rule 2a-7 under the
1940 Act) (each an “Eligible Bank”!: and (iii) overnight repurchase agreements entered into with
Eligible Banks or broker-dealers that have outstanding First Tier Securities, which repurchase
agreements are “collateralized fully” (as such term is defined in Rule 5b-3 under the 1940 Act)
by Government Securities (as such term is defined in the 1940 Act).
3.

ESF P urchase of R em aining Securities.

(a) Notice. In the event that the Fund has not sold all of its Portfolio
Securities on or before the Final Sale Date, it shall, not later than the second Business Day
following the Final Sale Date, deliver to the Treasury and its designee a notice in the form of
Exhibit A (the “Sale of Portfolio Securities Notice”!.
(b) Purchase and Sale Conditions. The Investment Company agrees that it
shall cause the Fund to sell to the ESF, and the Treasury, on behalf of the ESF, agrees that it
shall purchase from the Fund, all Portfolio Securities that are owned by the Fund on the Final
Sale Date (the “Remaining Securities”! for a sale price equal to the aggregate of such Securities’
Amortized Cost (the “Purchase Price”!, as Reported in the Sale of Portfolio Securities Notice,
which Purchase Price shall be adjusted as set forth in Section 3(c). Such purchase and sale shall
be subject to the following conditions:
(i)
The settlement of the purchase and sale of the Remaining
Securities shall take place no later than the fifth Business Day following
the Final Sale Date or on such later Business Day as (A) the Investment
Company certifies that, within one Business Day of receipt of the
Purchase Price proceeds, no legal or technical impediment exists that will
prevent the distribution of such proceeds to Fund shareholders (which
settlement date shall be not later than the ninth Business Day following the
Final Sale Date) or (B) may be agreed upon by the Investment Company
and the Treasury (the “Settlement Date”").
(ii)
The obligation of the ESF to consummate the purchase of the
Remaining Securities shall be subject to the conditions (which conditions
may be waived by the Treasury in its sole and absolute discretion) that:
(A)
either the Investment Company or the Fund shall be, on the
Settlement Date, the lawful owner, beneficially and of record, of
the Remaining Securities, free and clear of all security interests,
claims, liens, equities or other encumbrances or adverse claims of
any kind and any other limitation or restriction;
(B)

a Guarantee Event shall not have occurred; and

(C)
the Treasury shall have sufficient funds available for the
payment of the purchase price within the ESF, as determined by
the Treasury in its sole and absolute discretion, which amount may
be further adjusted as set forth in Section 2(f) of the Guarantee
Agreement (for which purpose, the Sale of Portfolio Securities
Notice shall be deemed to be a Payment Request Notice under
Section 7(g) of the Guarantee Agreement).
(iii)
The obligation of each party to consummate the purchase and sale
of the Remaining Securities shall be subject to the conditions that no
statute, rule, regulation, judgment, decree or order of any kind shall have
been enacted, entered, promulgated or enforced by any court or other
governmental authority that prohibits the consummation of the
transactions contemplated hereby or has the effect of making them illegal.
(iv)
(A) The Investment Company shall have provided the Treasury
with a schedule, in the form specified by the Treasury or its designee,
setting forth the basis for the calculation of the Amortized Cost of each of
the Remaining Securities; (B) the Fund’s current independent auditor or
another accounting firm acceptable to the Treasury in its sole and absolute
discretion (the “Independent Auditor”! shall have (I) audited such
schedule and a schedule setting forth the amount of cash and other assets
distributed, or set aside for distribution, by the Fund to its shareholders
after September 17, 2008, and (II) provided the Treasury with an opinion
and/or other report acceptable to the Treasury in its sole and absolute
discretion confirming the accuracy of such calculations and amounts; and
(C) the Treasury shall have determined in its sole and absolute discretion
that such calculations and amounts are true and correct.
(v)
The Investment Company shall not have established any reserves
with respect to the liquidation of the Fund other than for the payment of
permitted Fund operating expenses, which shall not include any reserves
for payments on claims asserted against the Fund and which reserves shall
not exceed the expenses listed on Exhibit D reduced by the expenses
related to Trustees’ fees and the comprehensive management fee.
(c)
exceed an amount equal to:

Adjustment to the Purchase Price. In no event shall the Purchase Price

(i)
the number of the shares of the Fund outstanding on September 17,
2008 (after giving effect to the issuance and redemption of shares, the
orders for which were deemed received by the Fund prior to the
determination, in accordance with Rule 22c-1, of its final NAV for such
date), multiplied by

(ii)

$1.00, plus

(iii) the amount of income earned by the Fund after September 14,
2008; minus
(iv)
the amount of cash and other assets distributed, or set aside for
distribution, by the Fund, including amounts distributed or to be
distributed as income or gains, to Fund shareholders after September 17,
2008.
(d)
Payment of Purchase Price. The Treasury shall deliver to the Investment
Company on the Settlement Date the aggregate Purchase Price for the Remaining Securities in
United States dollars via wire transfer of immediately available funds in accordance with the
written settlement instructions communicated by the Investment Company to the Treasury.
(e)
Delivery of Remaining Securities. The Investment Company shall deliver
or cause the delivery of the Remaining Securities promptly following the receipt of written
notice from the Treasury in accordance with the written settlement instructions communicated by
the Treasury to the Investment Company.
(f)
Distribution of Proceeds. Within three days after receipt or, if the
Settlement Date is determined in accordance with Section 3(b)(i)(A), one Business Day after
receipt by the Fund, the Investment Company shall distribute the proceeds from the sale of the
Remaining Securities to Fund shareholders (net of accrued Fund expenses including, for this
purpose, fees that would be payable to the Investment Adviser under the Investment
Management Agreement and to the Trustees as Trustee’s Fees notwithstanding the waiver
described in Section 5(a)(viii), provided that the amounts that are held to pay such fees shall only
be paid if permitted by the waiver described in Section 5(a)(viii)) in furtherance of the Fund’s
liquidation.
4.

L iquidation and O th er M atters.

(a)
Cash on Hand and Payments Received. Any cash currently held by the
Fund or any principal, interest or other payment paid on or in relation to the Portfolio Securities
or other assets of the Fund that are received by the Fund after the Letter Agreement Date shall be
applied, as promptly as practicable, to (i) distributions to Fund shareholders in the same manner
as the proceeds from the sales of Portfolio Securities pursuant to Section 2(c) and (ii) pay
expenses of the Fund, including fees that would be payable under the Investment Management
Agreement and to the Trustees as Trustee’s Fees notwithstanding the waiver described in Section
5(a)(viii), provided that the amounts that are held to pay such fees shall only be paid if permitted
by the waiver described in Section 5(a)(viii). Pending such application, such proceeds may only
be invested or reinvested as specified in Section 2(d).

(b)
Liquidation. Upon the sale of all of the Portfolio Securities (including the
sale contemplated by Section 3) and the redemption of the Fund’s shares, the Investment
Company shall promptly complete the actions necessary under applicable state and federal law to
liquidate the Fund and, upon completion, the Investment Company shall provide the Treasury
with a certifícate in the form of Exhibit B (the “Certificate of Liquidation”).
5.

R epresentations and Covenants

(a)
represents and warrants that:

Representations.

The Investment Company, on behalf of the Fund,

(i)
The Investment Company has all requisite power and authority to
execute and deliver this Letter Agreement and to perform its obligations
hereunder, and this Letter Agreement has been duly and validly authorized
by all requisite action;
(ii)
The Board of Trustees, including a majority of its members who
are not “interested persons” of the Investment Company as determined
under the 1940 Act, has determined that entering into this Letter
Agreement and the Investment Company’s fulfillment of its obligations
hereunder are in the best interests of the Fund and its shareholders;
(iii)
The execution, delivery and performance of this Letter Agreement
do not violate, conflict with, result in a breach of any provision of,
constitute a default (or an event which with notice or lapse of time or both
would become a default) or give to any third party any right of
termination, cancellation, amendment or acceleration under (A) any law
applicable to the Investment Company, (B) any order or judgment of any
court or other agency of government applicable to it or any of its assets,
(C) any provision of its organizational documents or (D) any contractual
restriction binding on or affecting it or any of its assets;
(iv)
All governmental, third party and other consents or approvals that
are required to have been obtained by the Investment Company with
respect to execution, delivery and performance of this Letter Agreement
have been obtained and are in full force and effect and all conditions of
any such consents have been complied with;
(v)
The Investment Company’s obligations under this Letter
Agreement constitute its legal, valid and binding obligations, enforceable
in accordance with their respective terms (subject to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors’ rights generally and subject, as to enforceability, to

equitable principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law));
(vi)
As of the Letter Agreement Date, no Guarantee Event has
occurred;
(vii) Exhibit C is the Portfolio Schedule of the Fund, which sets forth all
of the Fund’s Portfolio Securities on November 18, 2008, and the Fund
has not entered into any commitment, agreement or understanding to
acquire additional assets that is not reflected on such Portfolio Schedule
except for such investments as are permitted under Section 2(d);
(viii) The Investment Adviser has waived the payment of all fees due
under its Investment Management Agreement and the Trustees have
waived the payment of all Trustee’s Fees that accrue on and after the
Letter Agreement Date to the extent that (A) such fees exceed the amount
of income earned and received by the Fund after September 14, 2008 that
has not been distributed, or set aside for distribution, to Fund shareholders
and (B) Fund shareholders have not received distributions of at least $1.00
per share after September 14, 2008 (after giving effect to the distribution
of the Purchase Price proceeds to Fund shareholders);
(ix)
The Fund suspended the redemption of its shares as of September
17, 2008 and, since such date, has not issued any additional shares;
(x)
The trustees of the Investment Company who are not "interested
persons" of the Investment Company as determined under the 1940 Act
and who constitute a majority of the Board have determined that it should
not be necessary to establish any reserves in connection with the
anticipated liquidation of the Fund; and
(xi)
Exhibit D sets forth a schedule of specific types (including
creditor’s names if available) of expenses that the Investment Company
currently believes will be payable by, or with respect to, the Fund pending
its liquidation, including the party to which such expenses shall be paid.
(b)
Certain Matters Regarding Redemption. The Treasury acknowledges that
the Fund suspended redemption of its shares as of September 17, 2008 in accordance with an
order issued by the SEC (the “SEC Order”!, which order was published in Investment Company
Act of 1940 Release No. 28386 (September 22,2008). The Treasury agrees that such suspension
of redemptions, in accordance with the SEC Order, is not inconsistent with the representation
made by the Investment Company in Section 8(d) of the Guarantee Agreement.
(c)

Additional Covenants of the Investment Company.

(i)
On the first Business Day of each week until the Final Sale Date,
the Investment Company, on behalf of the Fund, shall provide the
Treasury with a Portfolio Schedule as of the close of business on the last
Business Day of the prior week.
(ii)

The Fund shall not issue any additional shares.

(iii) Neither the Investment Adviser, nor any “affiliated person” (as
such term is defined in the 1940 Act) of the Investment Adviser, or
affiliated person of such person, shall receive any fees, payments or other
compensation in connection with the Fund’s disposition of Portfolio
Securities or the investment or reinvestment of Fund assets.
(d)
Guarantee Event. For the avoidance of doubt, the parties agree that if,
prior to the purchase of securities by the ESF as described in Section 3, a Guarantee Event
occurs, the provisions of the Guarantee Agreement shall apply in full force and effect and the
obligations of the parties under the Guarantee Agreement shall continue in full force and effect,
provided, however, that (i) all sales of Portfolio Securities shall be made in accordance with
Section 2(b), (ii) the ESF shall have the option, in its sole and absolute discretion, to purchase
any Portfolio Security at Amortized Cost in accordance with the terms of Section 3 but shall not
otherwise be required to purchase the Remaining Securities, and (iii) the Fund shall be required
to liquidate within 30 days unless the Treasury consents, in writing, to an extension.
6.

G eneral

(a)
Binding Effect. This Letter Agreement, upon execution and delivery by
the parties, shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns as of the Letter Agreement Date.
(b)
Assignments. The Investment Company may not assign its rights under
this Letter Agreement to any person or entity, in whole or in part, without the prior written
consent of the Treasury, whose consent may be withheld in the Treasury’s sole and absolute
discretion.
(c)
Headings. Section and Exhibit References. The headings contained in this
Letter Agreement are for purposes of convenience only and shall not affect the meaning or
interpretation of this Letter Agreement. Unless otherwise specified, all references to a Section or
Exhibit in this Letter Agreement are referenced to a Section of, or Exhibit to, this Letter
Agreement.
(d)
Entire Agreement. This Letter Agreement, together with the Guarantee
Agreement and all other agreements or documents executed by one or more parties hereto and
delivered to one or more other parties hereto in connection herewith, constitutes the entire

agreement and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
(e)
Waivers and Amendments. No waiver of any provision hereof or of any
right or remedy hereunder shall be effective unless in writing and signed by the party against
whom such waiver is sought to be enforced. No delay in exercising, no course of dealing with
respect to or no partial exercise of any right or remedy hereunder shall constitute a waiver of any
other right or remedy, or future exercise thereof.
(f)
Severability. If any provision of this Letter Agreement is determined to be
invalid under any applicable statute or rule of law, it is to that extent to be deemed omitted, and
the balance of the Letter Agreement shall remain enforceable.
(g)
Notices. All Notices under this Letter Agreement shall be made in
accordance with the instructions under the Guarantee Agreement.
(h)
Certain Matters Related to the ESF. Nothing in this Letter Agreement
shall limit the authority of the Treasury or the Secretary to control or use the ESF, including
funds held by the ESF that have been designated for use in the Program, for any other purpose.
For purposes of Section 10(b) of the Gold Reserve Act, as amended (31 U.S.C. 5302(b)), this
Letter Agreement is an “instrument of credit” and the shares of the Fund to which it relates are
“securities.”
(i)
Counterparts. This Letter Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which shall together constitute one and the
same instrument.
(j)

Termination.
(i)
This Letter Agreement shall terminate upon the earlier to occur of
(A) a Guarantee Event, provided, however, that Sections 5(c) and 5(d)
shall continue in full force and effect or (B) the liquidation of the Fund in
accordance with Section 4.
(ii)
In the event that (i) the Program is extended and (ii) the Fund is
eligible to continue to participate in the Program under Section 3(c) of the
Guarantee Agreement, the Fund shall take such actions as are necessary to
continue to participate in the Program, provided, however, that the
Treasury waives the payment by the Fund of any Program Extension
Participation Payment.

(k)
Governing Law and Venue. This Letter Agreement shall be governed by,
and construed in accordance with, the federal law of the United States of America if and to the
extent such federal law is applicable, and otherwise in accordance with the laws of the State of

New York without regard to its conflict of laws provisions (except Section 5-1401 of the New
York General Obligations Law). Except as otherwise required by law, the United States District
Court for the District of Columbia shall have exclusive jurisdiction over all civil actions arising
out of this Letter Agreement, and the venue for any such civil action shall lie exclusively in the
United States District Court for the District of Columbia.
(l)
No Third-Partv Beneficiaries. Nothing in this Letter Agreement shall
confer any rights upon any Designated Shareholder or any other person other than the parties
hereto and their respective successors and permitted assigns.
(m) Limitation of Liability. The Treasury agrees that the obligations and
agreements of the Investment Company under this Letter Agreement are undertaken on behalf of
the Fund and that any claims against the Investment Company hereunder shall be limited in all
cases to the Fund to which the claim relates and its assets. The Treasury agrees that it shall not
seek satisfaction of any claims from any other series or portfolio of the Investment Company that
is not the Fund.
If the above correctly reflects our understanding and agreement with respect to the
foregoing matters, please so confirm by signing the enclosed copy of this letter agreement in the
space provided below.
TH E^PA & M EN T OF THE TREASURY
By:
Name:__

^
Tj
P W P O .M S 0 N

Title:_AsstetentSeeretaiy for FlnairW M Mfolw
Date of Execution:

m - iS L o l _______

Address: Department of the Treasury
Attn: MMFGP
1425 New York Avenue, N.W.
Suite 2100
Washington, DC 20220
E-mail:
moneymarketfundsguaranteeprogram
@do.treas.gov

1 1 /1 8 /2 0 0 8

05:5 8

PAGE

5166275029

Acknowledged and agreed as o f the date first above written; in addition, the Investment
Company confirms all representations, warranties, and covenants made above.

THE RESERVE FUND

Name:_
€T , V tl iwKel
Title:_______ _____________________|L
Date o f Execution: tvLixiMt—
^ ¿OG ft
Address for Notices:

The Investment Adviser of the Fund hereby acknowledges and agrees to this Letter
Agreement and confirms that, to the extent required under Section 5(a)(viii), it has waived the
payment of fees payable under the Investment Management Agreement that accrue on and afte
the Letter Agreement Date.

Date of Execution:

November 18,2008

Address for Notices:
The Reserve
1250 Broadway
32nd Floor
New York, NY 10001

Exhibit A: Form of Sale of Portfolio Securities Notice
To:
Cc:

The Department of the Treasury
The Securities and Exchange Commission
l

This Notice is delivered in accordance with Section 3 of the Letter Agreement dated as of
November 19, 2008 between the United States Department of the Treasury (the “Treasury”! and
The Reserve Fund (the “Investment Company”), a business trust organized under the laws of
Massachusetts (the “Letter Agreement”), with respect to the U.S. Government Fund (the
“Fund”), a series of the Investment Company. Capitalized terms used herein have the meaning
assigned to such terms in the Letter Agreement.
The Investment Company represents and warrants that as of [insert Final Sale Date] (the
“Final Sale Date”), which is not later than the 45th day after the Letter Agreement Date:
1.
The Investment Company has used its best efforts to sell or otherwise dispose of
all Portfolio Securities at or above Amortized Cost. The Portfolio Schedule (as such term is
defined in the Guarantee Agreement) as of the date of this Notice is attached to this Notice as
Schedule A.
2.
Since the Letter Agreement Date, the Investment Company has not disposed of
any Portfolio Security in contravention of Section 2(b) of the Letter Agreement. The list of the
Portfolio Securities which have been sold is attached to this Notice on Schedule B, prepared in
Microsoft Excel format or such other format as the Treasury may request, including, with respect
to each security: (i) the CUSIP number (if any); (ii) principal amount; (iii) maturity date as
determined under Rule 2a-7; (iv) final maturity date, if different from the maturity date referred
to in clause (iii); (v) the net sale price; (vi) the date of the sale; and (vii) the Amortized Cost.
3.
A schedule setting forth the Investment Company’s basis for the calculation of the
Amortized Cost of each of the Remaining Securities, a copy of which is attached hereto as
Schedule C, is true and correct in all respects. The Investment Company has caused the
Independent Auditor to deliver to the Treasury the opinion or report required by the Section 3(b)
of the Letter Agreement.
4.
Either the Investment Company or the Fund is the lawful owner, beneficially and
of record, of the Remaining Securities, free and clear of all security interests, claims, liens,
equities or other encumbrances or adverse claims of any kind and any other limitation or
restriction.
1

[insert date]

No Guarantee Event has occurred after the Letter Agreement Date.

6.
No statute, rule, regulation, judgment, decree or order of any kind has been
enacted, entered, promulgated or enforced by any court or other governmental authority that
prohibits the consummation of the transactions contemplated hereby or has the effect of making
them illegal.
7.
The Investment Company has not established any reserves with respect to the
liquidation of the Fund other than for the payment of permitted Fund operating expenses, which
does not include any reserves for payments on claims asserted against the Fund and which
reserves shall not exceed the expenses listed on Exhibit D reduced by the expenses related to
Trustees’ fees and the comprehensive management fee.
8.
The sale price for the Remaining Securities is in the aggregate $
______________________ (the “Purchase Price”). To the extent necessary, the Purchase Price
has been adjusted as required by Section 3(c) and a detailed report of the calculations underlying
the adjustment is set forth in Schedule D.
9.

The payment instructions for the Purchase Price are attached hereto as Schedule

E.
[10. The Settlement Date shall be [
]. The Investment Company certifies
that that, within one Business Day of receipt, it can distribute the Purchase Price proceeds to
Fund shareholders in accordance with Section 3 of the Letter Agreement.]2

THE RESERVE FUND
By:________________
Name:
Title:
ADDRESS FOR NOTICES

The Investment Adviser confirms the accuracy of the representations set forth above.

[Insert this paragraph if the Settlement Date is determined under Section 3(b)(i)(A).]

SCHEDULE A TO SALE OF PORTFOLIO SECURITIES NOTICE:
THE REMAINING SECURITIES

SCHEDULE B TO SALE OF PORTFOLIO SECURITIES NOTICE:
SALES OF PORTFOLIO SECURITIES

SCHEDULE C TO SALE OF PORTFOLIO SECURITIES NOTICE:
BASIS FOR AMORTIZED COST DETERMINATION FOR REMAINING SECURITIES

SCHEDULE D TO SALE OF PORTFOLIO SECURITIES NOTICE:
BASIS FOR PURCHASE PRICE ADJUSTMENT

Exhibit B: Form of Certificate of Liquidation
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission

[Date]
This Certificate is delivered in accordance with Section 4(b) of the Letter Agreement
dated as of November 19, 2008 between the United States Department of the Treasury (the
“Treasury”) and The Reserve Fund (the “Investment Company”), a business trust organized
under the laws of Massachusetts (the “Letter Agreement”), with respect to the U.S. Government
Fund (the “Fund”), a series of the Investment Company. Capitalized terms used herein have the
meaning assigned to such terms in the Letter Agreement.
The undersigned, a duly appointed officer of the Investment Company, hereby certifies
that as of [insert Date of Liquidation] (the “Liquidation Date”) with respect to the Fund:
1.
The Investment Company has disbursed to the Fund’s shareholders of record all
of the amounts received from the Treasury, net of permissible expenses, in accordance with the
Letter Agreement.
2.
Since September 17, 2008, each shareholder of record of the Fund has received,
with respect to each share such shareholder held of record on such date, an amount equal to, but
not greater than, $1.00 per share plus such shareholder’s pro rata share of the assets attributable
to the Fund’s net income after September 14,2008.
3.
On the Liquidation Date, the amount of the remaining total assets of the Fund,
after giving effect to the distributions to shareholders, was $___________and the amount of the
Fund’s remaining liabilities was $______. Schedule A to this Certificate sets forth a schedule of
the Fund’s remaining assets and liabilities. The Investment Company has not established any
reserves with respect to the liquidation of the Fund other than for the payment of permitted Fund
operating expenses, which does not include any reserves for payments on claims asserted against
the Fund which reserves shall not exceed the expenses listed on Exhibit D reduced by the
expenses related to Trustees’ fees and the comprehensive management fee.

THE RESERVE FUND
By:________________
Name:

Exhibit C: Portfolio Schedule
1.

C-l - Portfolio Schedule with pricing as of November 14,2008.

C-2 - Schedule of Investments as of November 18,2008.

Exhibit C-l: Portfolio Schedule
11/14/2008 Reserve U.S. Government Fund
Custody
Cusip
31331X3B6
31331X3P5
31331XW73
31331Y3A6
31331YDS6
31331YDS6
3133XLZN6
3133XNDG1
3133XNF61
3133XPEC4
3133XPFE9
3133XPFE9
3133XPMW1
3133XPP57
3133XQQC9
3133XQRC8
3133XQTM4
3133XRQA1
3133XRWM8
3136F9GL1
3136F9GL1
31398AKZ4
31398AMA7
31398APF3
31398APF3

Security Description
FED FARM CREDIT
FEDERAL FARM CR BKS CONS SYST
FEDERAL FARM CR BKS
FEDERAL FARM CREDIT BANK
FEDERAL FARM CREDIT BANK
FEDERAL FARM CREDIT BANK
FEDERAL HOME LN MTG DISC NTS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FEDERAL HOME LN BKS
FED HOME LN BANK CONS BD
FANNIE MAE
FANNIE MAE
FEDERAL NATL MTG ASSN
FANNIE MAE
FEDERAL NATL MTG ASSN
FEDERAL NATL MTG ASSN

Security Status
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security
First Tier Security

Maturity
Date
03/11/2009
03/17/2009
02/23/2009
01/ 11/2010

11/16/2009
11/16/2009
02/20/2009
11/20/2009
11/23/2009
01/30/2009
01/30/2009
01/30/2009
08/07/2009
02/20/2009
04/13/2009
04/21/2009
10/28/2009
12/28/2009
01/28/2009
10/07/2009
10/07/2009
01/09/2009
01/23/2009
09/03/2009
09/03/2009

Share /Par
100,000,000
250,000,000
200,000,000
235,000,000
250,000,000
250,000,000
100,000,000
200,000,000
200,000,000
200,000,000
250,000,000
250,000,000
250,000,000
250,000,000
100,000,000
100,000,000
200,000,000
250,000,000
350,000,000
100,000,000
100,000,000
875,000,000
200,000,000
125,000,000
250,000,000
5,635,000,000

Amortized Cost
100,000,000
250,000,000
200,000,000
235,000,000
250,000,000
250,000,000
100,000,000
200,000,000
200,000,000
200,000,000
250,000,000
250,000,000
250,000,000
250,000,000
100,000,000
100,000,000
200,000,000
250,000,000
350,000,000
100,000,000
100,000,000
875,000,000
200,000,000
125,000,000
250,000,000
5,635,000,000

Market Value
99,777,000
249,420,750
199,610,000
234,835,735
248,307,750
248,307,750
99,816,300
199,684,800
199,682,000
199,728,400
249,670,250
249,670,250
248,880,500
249,610,000
99,960,800
99,754,300
199,796,200
249,831,750
350,070,000
99,861,500
99,861,500
875,000,000
199,755,000
124,837,375
249,674,750
5,625,404,660

FT/IDC
%
Vendor
Variance
Price
-0.223
99.777
-0.2317 99.7683
-0.195
99.805
-0.0699 99.9301
-0.6769 99.3231
-0.6769 99.3231
-0.1837 99.8163
-0.1576 99.8424
-0.159
99.841
-0.1358 99.8642
-0.1319 99.8681
-0.1319 99.8681
-0.4478 99.5522
-0.156
99.844
-0.0392 99.9608
-0.2457 99.7543
-0.1019 99.8981
-0.0673 99.9327
0.02
100.02
-0.1385 99.8615
-0.1385 99.8615
0
100
-0.1225 99.8775
-0.1301 99.8699
-0.1301 99.8699

Exhibit C-2

Tli e Reserve
A Tradition o f Financial Innovation“

S ch e d u le o f In vestm en ts ______________

(November 18,2008 Unaudited)_________ F un d N am e: US G O V E R N M E N T

D E S C R IP T IO N

M A T U R IT Y
D A TE *

E F F E C T IV E
M A T U R IT Y
DA TE

10/07/2009
01/23/2009
09/03/2009
01/09/2009

01/07/2009
01/23/2009
12/03/2008
01/09/2009

COUPON
R A T E (% )

F ann ie Mae
F A N N IE M A E (F LO A T IN G R A TE)
FA N N IE MAE (F LO A T IN G R A TE)
FED ER A L N A TL M T G A S S N (F L O A T IN G R A TE)
FED ER A L N A TL M T G A S S N (F L O A T IN G R A TE)

0.6200
1.5600
0.6100
2.1000

F ed eral Farm C re d it B a n k - F lo a tin g R ate
FE D E R A L FA R M C R BKS (F L O A T IN G R A TE )
FED ER A L FA R M C R BKS C O N S S Y S T (F L O A T IN G R A TE )
FED ER A L FARM C R E D IT BANK (F L O A T IN G R A TE )
FED E R A L FA R M C R E D IT BANK (F L O A T IN G R A TE )

03/11/2009
02/23/2009
03/17/2009
01/11/2010
11/16/2009

12/11/2008
11/23/2008
12/17/2008
01/11/2009
02/16/2009

1.5300
1.5000
2.0400
0.7200
1.0600

Federal H om e L oan B a n k
FE D E R A L H O M E LN BK C O N S D S C N T (Z E R O C O U P O N
R A TE)
FED ER A L H O M E LN BKS (F L O A T IN G R A TE )
FED ER AL H O M E LN BKS (F L O A T IN G R A TE )
FED ER AL H O M E LN BKS (F L O A T IN G R A TE )
FE D E R A L H O M E LN BKS (F L O A T IN G R A TE )
FED ER AL H O M E LN BKS (F L O A T IN G R A TE )
FE D E R A L H O M E LN BKS (F L O A T IN G R A TE )
FED ER AL H O M E LN BKS (F L O A T IN G R A TE )
FED ER AL H O M E LN BKS (F L O A T IN G R A TE )
FED ER AL H O M E LN BKS (F L O A T IN G R A TE )
FED ER A L H O M E LN BKS (F L O A T IN G R A TE )

100,000,000
200,000,000
250,000,000
235,000,000
500,000,000
1 ,2 8 5 ,0 0 0 ,0 0 0

T o tal Federal F arm C re d it B a n k - F lo a tin g R ate

FE D H O M E LN BANK C O N S BD (F L O A T IN G R A TE )

200,000,000
200,000,000
375,000,000
875,000,000
1 ,6 5 0 ,0 0 0 ,0 0 0

T o ta l F an n ie M ae

FED FARM C R E D IT (F LO A T IN G R A TE )

U N IT S (U S $ )

3.15%
3.15%
5.91%
13.80%
26.02%

1.58%
3.15%
3.94%
3.71%
7.88%
2 0 .26%

01/28/2009 01/28/2009

0.8700

350,000,000

5.52%

11/19/2008
12/28/2008
11/23/2008
11/20/2008
01/28/2009
02/07/2009
01/21/2009
01/13/2009
11/22/2008
01/30/2009
01/30/2009

0.0500
0.7200
2.6260
2.6300
0.6700
1.1200
1.6650
0.6700
2.1300
1.0600
1.0600

372,715,000
250,000,000
200,000,000
200,000,000
200,000,000
250,000,000
100,000,000
100,000,000
250,000,000
500,000,000
200,000,000

5.88%
3.94%
3.15%
3.15%
3.15%
3.94%
1.58%
1.58%
3.94%
7.88%
3.15%

11/19/2008
12/28/2009
11/23/2009
11/20/2009
10/28/2009
08/07/2009
04/21/2009
04/13/2009
02/20/2009
01/30/2009
01/30/2009

2 ,9 7 2 ,7 1 5 ,0 0 0

T otal F ederal H o m e L oan B a n k
Federal H om e L oan M o rtg a g e C o rp
FE D E R A L H O M E LN M T G D IS C N TS (F L O A T IN G R A TE )

PCTOF
P O R TF O LIO

02/20/2009 11/20/2008

Total Federal H o m e L oan M o rtg a g e C o rp
In vestm en t Total
C ash H eld a t C u s to d ia n B an k*
P ortfo lio Total

2.0200

4 6 .88%

100,000,000

1.58%

100,000,000

1.58%

6 ,0 0 7 ,7 1 5 ,0 0 0

9 4 .73%

334,03 6,18 1

5.27%

6,3 41,7 51,1 81

100.00%
1 D ays

A v e ra g e W eig h te d M a tu rity

+To determine the cash that is available for eventual distribution, add time deposits and securities maturing in one
day to cash held at custodian bank. A negative cash number represents an overdrawn balance.

Page 1 of2

Exhibit C-2

The Reserve
A Tradition of Financial Innovation“

*The maturity dates of the securities in The Reserve funds are less than 397 calendar days, except for some U.S.
government securities which may have maturity dates that are greater than 397 calendar days but less than 762
days. Securities that appear to have longer maturities are subject to maturity-shortening demand features, such as
interest-adjustment provisions or floating interest rates. Maturity dates do not reflect reset or call dates.
Portfolio composition is subject to change at any time. If securities are sold with a delayed settlement date, the
above portfolio listing will not reflect those securities. However, the securities are still assets of the fund and will
continue to earn interest until the trade settles.
This data is unaudited and provided for informational purposes only and is not intended for trading purposes.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. Although money market funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a money market fund. You should carefully consider the
investment objectives, risks and charges and expenses of the Fund before investing. The Fund's Prospectus
contains this and other information about the Fund. The Fund's Prospectus may be obtained by writing to The
Reserve, 1250 Broadway, New York, New York 10001-3701 or by calling 1-800-637-1700 and pressing "0." You
should read the Prospectus carefully before you invest.
This information is for the use of U.S. residents only. The investment products and services referred to should not
be considered a solicitation to buy products or an offering of any investment products to investors residing outside
the United States or to any person in any jurisdiction in which such offers, solicitations, purchases or sales would be
unlawful under the securities or other applicable laws of such jurisdiction.
Resrv Partners, Inc., Distributor. Member FINRA. 11/08

Page 2 of2

Joint Statement by Treasury, Federal Reserve and the FDIC on Citigroup
11/23/2008
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hp-1287
Washington, DC-- The U.S. government is committed to supporting financial market stability, which is a
prerequisite to restoring vigorous economic growth. In support o f this commitment, the U.S. government on
Sunday entered into an agreement with Citigroup to provide a package o f guarantees, liquidity access and
capital.
The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring
vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an
agreement with Citigroup to provide a package of guarantees, liquidity access and capital.
As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the
possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by
residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet. As a
fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary,
the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.
In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for
preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation
restrictions and implement the FDIC's mortgage modification program.
With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and
protect U.S. taxpayers and the U.S. economy.
We will continue to use all of our resources to preserve the strength of our banking institutions and promote the
process of repair and recovery and to manage risks. The following principles guide our efforts:
• We will work to support a healthy resumption of credit flows to households and businesses.
• We will exercise prudent stewardship of taxpayer resources.
• We will carefully circumscribe the involvement of government in the financial sector.
• We will bolster the efforts of financial institutions to attract private capital.

d e m o n s tra te d n e ed s and s o u n d an alysis, n o t fe a r and h ead lin es. T h is is no sm a ll ch allen g e,
e s p e c ia lly a t a tim e w h e n th e fo c u s is on d o m e s tic issu es and w h e n w e fa c e leg itim a te co m p etin g
d e m a n d s fo r re so u rces.
• T h ird , d o n 't let c u rre n t e ffo rts to s ta b ilize th e g lo b al e c o n o m y d e tra c t fro m e x is tin g IFI p rio rities. The
IFIs, and th e M D B s in p artic u la r, have a m an d ate to p ro m o te p o v e rty re d u c tio n and e c o n o m ic
g ro w th in all m e m b e r c o u n trie s , e s p e c ia lly th e p o o rest, and have a k ey ro le to p lay in th e d elivery
o f g lo b al p u b lic g o o d s . T h a t is w h y w e c a n n o t fo rg e t th e im p o rta n c e o f o u r s u p p o rt fo r finan cial
w in d o w s su ch as ID A - th e W o rld B ank's fin an cial arm fo r th e p o o re s t o r th e C lean T e c h n o lo g y
Fund, w h ic h is a n ew m u ltila te ra l in itiative h ou sed at th e W o rld B a n k to c o m b a t clim a te ch an g e by
h elp in g fin a n c e th e d e p lo y m e n t o f c o m m e rcia lly -a v a ila b le clean te c h n o lo g y to th e d evelo p in g
w o rld .
•

F ou rth, m ake th e case th a t fu n c tio n in g m u ltilateral in stitu tio n s are in th e U .S. n atio n al interest.
S k e p tic is m o f th e IFIs, p a rtic u la rly in C o n g ress, runs high. T h is a d m in is tra tio n has m ade a real
e ffo rt to b ack up o u r w o rd s o f s u p p o rt fo r th e IFIs w ith d eed s. T h e im p re s s iv e tra c k record o f
refo rm s is a c re d it to both o u r p e rs is te n c e an d th e a b ility o f th e s e in s titu tio n s to ad apt. T his is not
to s a y th a t th e IFIs are perfect, ra th e r it u n d e rs c o re s th e n eed to re -e v a lu a te c o n s ta n tly th e ir
a p p ro a c h e s to fin d o u t w h a t w o rk s and w h a t d o e s n 't w o rk . It d o e s m ean , h o w e v e r, th a t w e need to
fu n d th em . O u r a rre ars to a lm o s t all o f th e s e in stitu tio n s have b e c o m e rid ic u lo u s and it calls into
q u estio n U.S. lead ersh ip . H o w can w e add cap ital if w e c a n 't p a y o u r e x is tin g b ills? W h y sh ou ld the
in s titu tio n s a c c e p t U .S. led refo rm s if w e d o n 't fin a n c ia lly s u p p o rt th e m ? W ill calls fo r m u ltilateral
s o lu tio n s b y th e U .S. fall on d e a f ears if w e fail to m ake g oo d on o u r c o m m itm e n ts to th e s e
in s titu tio n s ?

C o n clu sio n

The United States must continue to lead on issues of institutional reform. This Administration has been a strong
supporter of the IFIs, especially the concessional lending windows, as an effective tool for leveraging U.S. resources
in promoting development and stability. And if you believe, as I strongly do, that our constructive engagement with the
IFIs is in our own national interest, then we need to ensure that we are in a position to constructively support further
reforms. This is no small challenge, but a challenge we must meet.
While I cannot speak the next administration I am confident they will continue to support and maintain U.S. credibility
and influence at these institutions. This will require continued pressure on the institutions to make good on their
commitments to enhance legitimacy, transparency and effectiveness. It will also require more prominent roles for
emerging market economies (accompanied by emerging markets taking more responsibility within the global financial
system). Finally, it will require that we are mindful that the actions we take today to address the crisis will have
implications for the success of any future reforms.

Assistant Secretary for International Affairs Clay Lowery Remarks
11/24/2008
HP-1288
On International Financial Institution Reform at the Reinventing Bretton Woods Committee Conference on
Building an International Monetary and Financial System fo r the 21st Century

N ew Y o rk - 1 w a n t to th a n k th e R e in v e n tin g B retto n W o o d s C o m m itte e fo r h o ld in g th is c o n fe re n c e on th e
In tern atio n al F in an cial S ystem . Y o u r tim in g c o u ld n 't be m o re im p e c c a b le . J u s t o v e r a w e e k ag o, lead ers from
20 o f th e w o rld 's la rg e s t a d v a n c e d an d em e rg in g m a rk et c o u n trie s - re p re s e n tin g m o re th an 85 p erc e n t o f
g lo b al e c o n o m ic o u tp u t - m et in W a s h in g to n , D .C ., to a d d ress th e c u rre n t c ris is an d la y th e fo u n d a tio n fo r
reform s th a t c o uld help p re v e n t a s im ila r crisis in th e fu tu re. T h e w o rk p lan th a t c a m e o u t o f th e S u m m it on
F in an cial M arkets and th e W o rld E c o n o m y reflects stro n g c o n s e n s u s on th re e critical p rio rities:

I want to thank the Reinventing Bretton Woods Committee for holding this conference on the international Financial
System. Your timing couldn’t be more impeccable. Just over a week ago, leaders from 20 of the world's largest
advanced and emerging market countries - representing more than 85 percent of global economic output - met in
Washington, D.C., to address the current crisis and lay the foundation for reforms that could help prevent a similar
crisis in the future. The work plan that came out of the Summit on Financial Markets and the World Economy reflects
strong consensus on three critical priorities:
• First, meaningful regulatory reforms are needed to address the root causes of the crisis. There is a growing
recognition across major economies that global financial markets require national financial regulation to be
as consistent as possible and not work at cross-purposes.
• Second, reform of the International Financial Institutions is needed to allow for greater participation of
developing nations in order for these institutions to remain relevant.
• Third, we must avoid protectionism, push forward on further trade and investment liberalization, and
implement other pro-growth policies.
In other words, we all must continue to take actions to stabilize our financial systems, promote economic growth, and
assist each other and those less fortunate. I think of this as pragmatic as opposed to profound thinking, and I think of
this as working on the plumbing and the carpentry as opposed to creating some grand international financial
architecture that can grab a newspaper headline but can't be explained with any substance.
Given the sponsor and the context of this conference, I wanted to focus my comments on the reform and role of the
International Financial Institutions, or "IFIs," in responding to the crisis. On the eve of a political transition in the
United States, and amid a global financial crisis, it's worth evaluating the IFIs' abilities to respond to the current crisis
and their roles going forward. I offer these remarks having been closely engaged with the IFIs from the time I first
arrived at Treasury in 1994, and now having been part of two Presidential Administrations that prioritized work with
the IFIs and periodically pushed for various reforms.
Instead of focusing on Bretton Woods II or some grand agenda, I thought it would be helpful to present a framework
for these institutions in a world in which access to capital will be strained, private sector finance of trade and
infrastructure will be lacking, and economic growth will deteriorate. In this Framework, I’ll focus on some of the
variables of reform that we have tried to implement over the last few years as well as the constant lessons that we

simply need to continue to remember. I hope this will help in considering how we should think of the IFIs in the
current storm and what the damage and implications we will likely need to face as that storm continues and as it
subsides.
R efo rm V aria b le s

Upon taking office, the Bush administration developed a set of priorities for IFI reform to preserve the institutions'
relevance and improve their effectiveness. In particular, the United States insisted that the IFIs focus more clearly on
their respective missions and demonstrate measurable efficacy in doing so. For instance, our reform agenda has
taken these institutions to new frontiers on measuring and achieving development results, securing grant finance and
debt relief for the poorest countries, enhancing accountability and transparency, and improving their identification of
emerging vulnerabilities and macro-financial linkages.
At the International Monetary Fund (IMF) for example, the United States led the charge to improve country
surveillance. Former Treasury Under Secretary for International Affairs Tim Adams made headlines when he charged
the Fund with being "asleep at the wheel" when it came to IMF exchange rate surveillance. This emphasis was
related to a growing vulnerability - global financial imbalances - that is one of the underlying causes of today's
problems. Today, thanks to the efforts of Tim and others, the IMF is making progress toward more consistent and
candid assessments of its members' exchange rate policies. However, more work remains to be done to ensure the
Fund is willing to make tough judgments and increase its candor and clarity on external stability and exchange rate
issues. This is not about pointing fingers, it is about calling the situation as you see it.
At the Multilateral Development Banks (MDBs) we have championed development effectiveness by urging the banks
to provide resources to better performing countries, to monitor and measure the effectiveness of projects, and to
expand the transparency of their operations. At the same time, we've pushed them to provide sustainable finance
through grants and debt relief to the poorest countries, recognizing that high debt levels are a key obstacle to
development. I think it is arguable that these initiatives in support of the more important efforts of many of the poorest
countries to implement sounder economic policies has made the fallout from the past year's turmoil much better than
it otherwise would have been.
The United States has been a leading voice on governance, making clear that these institutions must reform to
remain relevant. Reform will not be easily accomplished, but as witnessed by the Summit, there is a growing
recognition that governance issues are central to institutional legitimacy. Emerging markets must have a seat at the
table to reflect more adequately the changing economic weights in the world economy. We fought hard to increase
emerging markets' representation at the IMF, and we while we supported the recent quota reform, it should have
been even more ambitious. We've also strongly advocated a smaller and more focused IMF Board and called on
other nations to work with us to reduce the number of chairs from 24 to 20 by 2012, with no loss in the number of
emerging market or developing country chairs. And just last week, Secretary Paulson called on the IFIs to explore the
possibilities of moving toward non-resident boards. However, governance reform extends beyond the board room and
must include more transparency and accountability at these institutions and better efforts to fight corruption.
"C onstant" Lesson s

We have been working on these initiatives for years, and I believe they have improved the way the IFIs do business.
However, as the Summit underscored, there is more to do especially in the context of the current global financial
crisis. Lessons are already emerging from the current crisis that will shape our approach and thinking going forward.
As a policymaker, I'd suggest there are a few constant lessons that we need to keep reminding ourselves of:
•

G lo b alizatio n is h ere to stay. An in c re a s in g ly g lo b a lize d e c o n o m y h as fu e le d g ro w th and o p p o rtu n ity
all o ver th e w o rld ; g lo b a liza tio n c an no t, and sh ou ld not, be re versed . T h is is a c o n s ta n t lesson

d e s p ite th o s e w h o th o u g h t "g lo b a l" im b alan ces w e re n o t re a lly g lo b a l o r th a t e c o n o m ie s had
"d e c o u p le d " fro m e ach o th er. A reversio n in to p ro te c tio n is t b a rrie rs re m a in s a call o f th e Sirens.
• A lw ays lo o k aro u n d th e co rn e r. I'd like to th in k th a t o u r fo c u s on fin a n c ia l s e c to r is su es and on
m a c ro -fin a n c ia l lin k a g e s w o u ld h ave p o in ted o u t to d a y 's v u ln e ra b ilitie s b efo re th e y h app en ed .
In stead , I n o w k n o w th a t e ith e r b ec a u s e o f lack o f in ce n tiv e s o r la c k o f c re a tiv ity (o r b oth), w e
fa ile d to re c o g n ize an d a d e q u a te ly a d d re s s v u ln e ra b ilitie s in th e g lo b a l fin a n c ia l system . The
lesso n is th a t p o lic y m a k e rs , re g u la to rs an d th e p rivate s e c to r h ave a re s p o n s ib ility to ask
th e m s e lv e s w h a t c o uld g o w ro n g , an d to be recep tive to w a rn in g s o f p o te n tia l vu ln erab ilities.
•

F in an ce is lin ked in v a ria b ly to th e hum an co nd itio n . W h en fin a n c ia l s y s te m s d o n 't w o rk, in d ivid uals
p a y th e price: w h e th e r it's th e e n tre p re n e u r w h o c a n 't g e t th e s ta rt-u p ca p ita l n eed ed to o pen a
b usin ess, th e sm all b u s in e s s o w n e r w h o c an 't g e t th e w o rk in g c a p ita l n e e d e d to m eet payroll, or
th e s tu d e n t w h o c a n 't g e t a loan to p ay fo r co lle g e . T h e resu lts can be th e loss o f w e a lth , loss o f
jo b s , and even th e loss o f d ig n ity. M ake no m istake, a w e ll-fu n c tio n in g fin a n c ia l sy s te m - here in
th e U n ited S tates an d th ro u g h o u t th e w o rld - is cen tral to o p p o rtu n ity an d p ro sp erity.

•

E ffective m u ltila te ra l in s titu tio n s are in o u r n atio n al in terest. T h e U n ited S ta te s has a w id e
in tern atio n al reach; h o w ever, w e c a n ’t do it alo n e. A s th e c u rre n t cris is d e m o n s tra te s , w e need
m u ltilateral a p p ro a c h e s . T o u se th e w o rd s o f a fo rm e r boss, if th e y d id n 't exis t, w e w o u ld have to
in v e n t th e m . T o s u p p o rt th is lesso n , w e need to m ake s u re th e IFIs* rem ain fo c u s e d on th e ir
res p e c tiv e roles, are e q u ip p e d to fu lfill th o s e roles, and are w e ll u n d e rs to o d b y th e ir s h a reh o ld ers
and th e public.

An increasingly globalized economy has fueled growth and opportunity all over the world; globalization cannot, and
should not, be reversed. This is a constant lesson despite those who thought "global" imbalances were not really
global or that economies had "decoupled" from each other. A reversion into protectionist barriers remains a call of the
Sirens. I'd like to think that our focus on financial sector issues and on macro-financial linkages would have pointed
out today's vulnerabilities before they happened. Instead, I now know that either because of lack of incentives or lack
of creativity (or both), we failed to recognize and adequately address vulnerabilities in the global financial system. The
lesson is that policymakers, regulators and the private sector have a responsibility to ask themselves what could go
wrong, and to be receptive to warnings of potential vulnerabilities. When financial systems don’t work, individuals pay
the price: whether it's the entrepreneur who can't get the start-up capital needed to open a business, the small
business owner who can't get the working capital needed to meet payroll, or the student who can't get a loan to pay
for college. The results can be the loss of wealth, loss of jobs, and even the loss of dignity. Make no mistake, a well
functioning financial system - here in the United States and throughout the world - is central to opportunity and
prosperity. The United States has a wide international reach; however, we can't do it alone. As the current crisis
demonstrates, we need multilateral approaches. To use the words of a former boss, if they didn't exist, we would
have to invent them. To support this lesson, we need to make sure the IFIs' remain focused on their respective roles,
are equipped to fulfill those roles, and are well understood by their shareholders and the public.
A d d re s s in g th e C u rre n t G lo bal E c o n o m ic C risis

Knowing some of the variables of reform and the constants does not necessarily provide us a sound equation for how
to think the IFIs should deal with today's crisis. In fact, we do not have the luxury of waiting for further reforms to take
hold. The emerging market and low income countries are now facing the knock-on effects of a crisis that first
metastasized in the industrialized world, and it is the IFIs that are the frontline responders to the fallout from the crisis.
So while reform is critical, we need to think about how to best mobilize these institutions to address the current
situation. With this backdrop, I offer a set of principles for IFI engagement in the current environment:
•

First, m o n e y c a n 't fix p ro b lem s th a t req u ire c h an g es in policy. D e te rm in in g th e u n d erlyin g c au se o f
e c o n o m ic w e a k n e s s , and th e n e c e s s a ry c o rre c tiv e action to a d d re s s th e w e a k n e s s , sh ou ld be
d o n e in a d v a n c e o f s e n d in g m o n e y o u t th e door. L end ing larg e su m s o f m o n e y b e fo re asses s in g

ro o t cau s e s and th e a p p ro p ria te p o licy re s p o n ses can d a m a g e th e IFIs b y re d u c in g th e cap ital
a v a ila b le to a s s is t o th e r c o u n trie s in need and b y u n d e rm in in g th e in s titu tio n s ' cred ib ility. It also
d am a g e s th e affe c te d co u n try in th e long run by a llo w in g it to d e la y n e e d e d p o lic y reform s, o n ly to
d eal w ith p ro b lem s a t a la te r d ate w ith p o te n tia lly g re a te r co sts.
•

S eco n d , c o u n trie s m u s t w o rk b e tte r to g e th e r and w ith m u ltilateral in s titu tio n s to deal w ith the
c u rre n t and fu tu re crises. W e 'v e a lre a d y seen e ffe c tiv e action ta k e n b y a n u m b e r o f co u n tries to
deal w ith th e c u rre n t c risis, in clu d in g c o o rd in ated cen tral b a n k a c tio n s to s u p p o rt global liq uid ity
and en s u re th e p ro p e r fu n c tio n in g o f th e glo b al p aym en ts s y s te m . In ju s t th e last fe w w ee k s ,
b alan ce o f p ay m e n ts c ris e s have req u ired large b ilateral s u p p o rt p a c k a g e s th a t are ap p ro p ria te
an d in d iv id u a lly u n iq u e (i.e., Icelan d , H un g ary). T his m o d el is lik e ly to be m o re p re v a le n t in th e
fu tu re . IFI len d in g c an n o t, and d o es n o t need to, keep up w ith g lo b al cap ita l flo w s, but th e ir
p ro g ra m s sh o u ld p ro v id e th e fra m e w o rk fo r a d d itio n al b ilateral an d o ffic ia l s u p p o rt in o rd e r to
en s u re th a t c o n d itio n a lity and p o lic y m ess a g e s are w e ll c o o rd in a te d . In a d d itio n , IFI e n g a g e m e n t
sh o u ld be ca ta ly tic , c o n trib u tin g to g re a te r s ta b ility and e n c o u ra g in g c o n tin u e d p rivate se c to r
activity.

• T hird , IFIs sh o u ld be fle x ib le an d crea tiv e in u sing th e e x is tin g cap ital and in s tru m e n ts at th e ir
d is p o s a l. W h e n fin a n c ia l assis ta n c e is th e b est re sp o n se to a d d re s s e c o n o m ic w e a k n e s s , th e IFIs
s h o u ld lo o k firs t to th e ir e x is tin g to o lk it to d ete rm in e if th e y a lre a d y h ave a d e q u a te reso u rces to
resp o n d . T h e IM F c u rre n tly has o ver $150 billion in a v a ila b le len d in g c a p a c ity to m e e t m em b ers'
n eeds w ith o u t re s o rtin g to a n o th e r $50 billion in c o n tin g e n t reso u rc e s , w h ile th e W o rld B ank has
th e c a p a c ity to n e a rly trip le c u rre n t len d in g to $35 billion p er y e a r fo r th e n ext th ree. T h e s e
re so u rces are a v a ila b le n o w and it has been e n c o u ra g in g to s e e th e s e in s titu tio n s as w e ll as the
ID B and th e E B R D d e m o n s tra te fle x ib ility and s tep up th e ir c o m m itm e n ts . M D B s are also
d e v e lo p in g in n o v a tiv e w a y s to u se e xistin g to o ls to d e liv e r a s s is ta n c e to c o u n trie s in c risis, in
p a rtic u la r b y fo c u s in g on c o u n try fin a n c ia l secto rs and p o ten tial s h o rtfa lls in tra d e fin a n c e . In
a d dition , th e IM F re c e n tly a n n o u n c e d th e e s ta b lis h m e n t o f th e S h o rt-T e rm L iq u id ity F acility, w h ich
is d e s ig n e d to h elp m e m b e r c o u n trie s th a t are fac in g te m p o ra ry liq u id ity p ro b le m s in th e global
cap ital m arkets.

Determining the underlying cause of economic weakness, and the necessary corrective action to address the
weakness, should be done in advance of sending money out the door. Lending large sums of money before
assessing root causes and the appropriate policy responses can damage the IFIs by reducing the capital available to
assist other countries in need and by undermining the institutions' credibility. It also damages the affected country in
the long run by allowing it to delay needed policy reforms, only to deal with problems at a later date with potentially
greater costs.
L ooking A head: T a k in g th e L on g V ie w

However, as past crises have shown, our policy response to the current crisis will have far ranging consequences in
the distant and not-so-distant future. I see four implications of the principles just outlined:
•

First, w e c a n n o t afford to re p e a t p ast len d -a n d -fo rg iv e cycles. T o th e e x te n t a d d itio n al IFI len d in g is
th e a p p ro p ria te re s p o n s e to th e crisis, and in so m e in s ta n c e s th is w ill be th e case, th ere w ill be
im plicatio n s: Is a d d itio n a l s u p p o rt c o n s is te n t w ith a co u n try 's d e b t s u s ta in a b ility ? D o w e run th e
risk o f u n d e rm in in g a co u n try 's lo n g -te rm d e v e lo p m e n t by c re a tin g a d e p e n d e n c e on external
fin a n c in g an d te c h n ic a l e x p e rtis e ? D oes ad d itio n al IFI a s s is ta n c e run th e risk o f c ro w d in g o u t
p rivate s e c to r a c tiv ity ? T h e a n s w e rs to th e s e q u estio n s are n o t s ta tic an d w ill req u ire c o n s ta n t reevalu atio n and re -a s s e s s m e n t o f th e e ffe c tiv e n e s s o f IFI a s s istan ce.

• Secon d , w e m u s t re m e m b e r th e IFIs are ta x p a y e r-s u p p o rte d in stitu tio n s . C alls fo r cap ital in creases th at is to s a y b u d g e ta ry a p p ro p ria tio n s to en la rg e IFI b a lan ce sh eets - s h o u ld be b ased on

Statement by Secretary Henry M. Paulson, Jr. on Geithner Nomination
11/24/2008
HP-1289

Washington -- The Treasury Department issued the following statement from Secretary Henry M. Paulson, Jr.
on the President-Elect's announcement today that Timothy Geithner w ill be nominated fo r Treasury Secretary
in the next administration:
The Treasury Department issued the following statement from Secretary Henry M. Paulson, Jr. on the PresidentElect’s announcement today that Timothy Geithner will be nominated for Treasury Secretary in the next
administration:
"I have the highest regard for Tim - his judgment and creativity have been critical to designing and implementing the
necessary actions we've taken to protect and strengthen our financial system. I have great confidence in his
understanding of markets, his judgment and leadership, and his ability to meet the challenges that lie ahead."

Treasury Announces Extension of Temporary Guarantee Program for Money
Market Funds
11/24/2008
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
HP-1290

The U.S. Treasury Department today announced an extension o f Treasury’s Temporary
Guarantee Program for Money Market Funds until April 30, 2009 to support ongoing stability in this market.

W a s h in g to n -

- The U.S. Treasury Department today announced an extension of until April 30, 2009 to support ongoing stability in
this market.
All money market funds that currently participate in the program and meet the extension requirements are eligible to
continue to participate. Funds that currently are not participating in the program are not eligible to enter the program.
The temporary guarantee program will continue to provide coverage to shareholders up to amounts that they held in
participating money market funds as of the close of business on September 19.
Funds must make a program extension payment and submit the extension notice by December 5. The amount of the
payment for the extension period will be based on a fund's net asset value as of September 19. For funds that had a
market-based net asset value greater than or equal to 99.75 percent of their stable share price, the payment will be
0.015 percent, 1.5 basis points, multiplied by the number of shares outstanding on September 19. For funds that had
a market-based net asset value less than 99.75 percent of their stable share price but greater than or equal to 99.50
percent of their stable share price, the payment will be 0.022 percent, 2.2 basis points, multiplied by the number of
shares outstanding on September 19.
While the program protects the accounts of investors, each money market fund makes the decision to sign-up for the
program. Investors cannot sign-up for the program individually. The program currently covers over $3 trillion of
assets.
The Secretary may extend the program until September 18, 2009; however, no decision has been made to extend
the program beyond April 30, 2009. If a fund does not participate in this extension, that fund will not be eligible to
participate in any potential further extension of the program.
-30-

REPORTS

•

Extension Notice

UNITED STATES DEPARTM ENT OF THE TREASURY
TEM PORARY M ONEY M ARKET FUND GUARANTEE PROGRAM
E x ten sio n A n n o u n c e m en t
A n d In stru c tio n s fo r M a k in g P ro g ra m E x ten sio n P a rtic ip a tio n P a y m e n t

The Secretary of the Treasury has elected to extend Treasury’s Temporary Guarantee Program
for Money Market Funds (the “Program”) on the terms stated in this Extension Announcement.
O nly F u n d s th a t c u rre n tly p a rtic ip a te in th e P ro g ra m a re eligible to p a rtic ip a te in the
P ro g ra m E xten sio n P e rio d as defined in th e G u a ra n te e A g re e m e n t e n te re d into w ith
resp e c t to each F u n d p a rtic ip a tin g in th e P ro g ra m (th e “ G u a ra n te e A g re e m e n t”).

Capitalized terms used in this Extension Announcement have the same meanings assigned to
such terms in the Guarantee Agreements.
There are four types of Guarantee Agreements under the Program: the Guarantee Agreement,
the Guarantee Agreement (Single Fund), the Guarantee Agreement (Stable Value), and the
Guarantee Agreement (Stable Value Single Fund), all of which are dated as of September 19,
2008. The Guarantee Agreement (Single Fund) and the Guarantee Agreement (Stable Value
Single Fund) are referred to in this Extension Notice as “Single Fund Agreements.” Funds
participating under the Guarantee Agreement (Stable Value) and the Guarantee Agreement
(Stable Value Single Fund) are referred to in this Extension Notice as “Stable Value Funds.”
I)

T E R M S O F T H E E X T E N S IO N P E R IO D

The terms of the extension are as follows:
1.
Program Extension Period. The Program Extension Period shall begin on December 19,
2008 (the “Program Extension Date”) and the new Termination Date shall be April 30, 2009.
The Program may be extended by the Secretary of the Treasury beyond the new Termination
Date in the Secretary’s sole and absolute discretion. No decision has been made with respect to
whether the Program will be extended beyond the new Termination Date.
2.
Program Extension Participation Payment. The Program Extension Participation
Payment with respect to each Fund shall be an amount equal to:
(a)
0.00015 multiplied by the Fund Designated Asset Base, if the Fund’s MarketBased NAV is greater than or equal to $0.9975 (or, in the case of Stable Value Funds, the
Report Value) on September 19, 2008, as determined at the time o f the determination, in
accordance with Rule 22c-1, of the Fund’s final NAV for such date; or
(b)
0.00022 multiplied by the Fund Designated Asset Base, if the Fund’s MarketBased NAV is less than $0.9975 (or, in the case of Stable Value Funds, the Report Value)
but greater than or equal to $0.995 (or the Guarantee Threshold Value in the case of
Stable Value Funds) on September 19, 2008, as determined at the time of the
determination, in accordance with Rule 22c-1, of the Fund’s final NAV for such date.

If the Fund has multiple classes of shares (“Share Classes”), the applicable percentage of
the Program Extension Participation Payment shall be determined on a class-by-class basis.
II)

C O N D IT IO N S F O R P A R T IC IP A T IO N IN T H E E X T E N S IO N P E R IO D

In order for a Fund to continue to participate in the Program, the Fund must meet certain
conditions, including the following:
(a)
No Guarantee Event shall have occurred on or before the Program Extension
Date;
(b)
The Market-Based NAV of the Fund on the Program Extension Date shall be at
least $0,995 (or, in the case of a Stable Value Fund, the Guarantee Threshold Value); and
(c)
The Board, including a majority of its members who are not an interested person
as determined under the 1940 Act, shall have determined, among other things, that the
Fund’s continued participation in the Program is in the best interests of the Fund and its
shareholders.
In addition, the Fund or Share Class must have been participating in the Program at the time of
this announcement. A Fund that is not currently party to a Guarantee Agreement executed by the
Treasury (or a Share Class that is not identified on such an Agreement) is not eligible to
participate in the Program Extension Period. Funds in this category include, without limitation:
(1) Funds (or Share Classes) organized after September 19, 2008; (2) Funds that did not apply to
participate in the Program before the deadline for submitting Guarantee Agreements to the
Treasury (generally, October 8, 2008; in the case of Stable Value Funds, October 10, 2008); and
(3) Funds that applied to participate in the Program but did not meet the conditions for
participation as determined by the Treasury.
An Investment Company may elect to remove a Fund or Share Class from coverage under the
Program. If the Investment Company elects to remove a Fund or Share Class from the Program,
that Fund or Share Class will not be eligible to participate in further extensions of the Program, if
any.
In addition, in order to participate in the Program Extension Period, a Fund must follow the
procedures summarized below.

I ll )

P R O C E D U R E F O R C O N T IN U E D P A R T IC IP A T IO N IN T H E P R O G R A M

1.
General. The Investment Company (or the Fund in the case of a Single Fund Agreement)
must deliver a Program Extension Notice, a Program Extension Participation Payment, and a
Bring-Down Notice in accordance with the procedures specified hereunder.
2.
Submission Instructions. All notices and documents required to be submitted to continue
to participate in the Program must be submitted by email to the address below. While the
Treasury will confirm receipt by email, the Treasury will not return a countersigned document.
The email must contain a scanned copy of the manually executed notice or document in portable
document format (pdf). The email address for emailing the documents is as follows:
monevmarketfunds guaranteenro gram@do.treas.gov
Note that the email must be no greater than 25MB in order to be accepted by the Treasury’s
email server. Documents sent by mail, facsimile, or other means will not be accepted.
3.
Notwithstanding Section 3(c)(ii) of the Guarantee Agreement (or Section 3(c)(iv) in the
case of a Single Fund Agreement), an Investment Company (or a Fund in the case of a Single
Fund Agreement) shall have until 11:59 p.m . W a sh in g to n , D C tim e on D ecem b er 5, 2008 to
deliver to the Treasury the executed Program Extension Notice and the Program Participation
Payment. Any Program Extension Notice or Program Participation Payment received after this
time will not be accepted, and the Funds identified in the Program Extension Notice will not be
eligible to participate in the Program Extension Period.
4.
Program Extension Notice. Forms of the Program Extension Notice applicable to each
type of Guarantee Agreement are attached to this notice as Exhibit A. The following instructions
should be followed in completing and submitting the Program Extension Notice.
(a)

Insert the date.

(b)

Insert the Investment Company’s SEC 1940 Act registration number.

(c)
Insert the name of the Trust or Corporation, and the jurisdiction and form of
organization in the appropriate spaces in the first paragraph.
(d)

Complete the signature block.

(e)
If applicable, attach Annex A in Excel Format, listing the Funds that would
continue to participate in the Program. O nly F u n d s th a t a re c u rre n tly p a rtic ip a tin g in
th e P ro g ra m a n d a re eligible to continue to p a rtic ip a te in th e P ro g ra m should be
listed on A nnex A. The Investment Company may elect to remove Funds from coverage

under the Program by not including them on Annex A.
(f)
The Investment Company (or the Fund in the case of a Single Fund Agreement)
and Investment Adviser(s) must execute the Program Extension Notice. Officers for the

Investment Company (or the Fund in the case of a Single Fund Agreement) and the
Investment Adviser(s) who are authorized to bind the companies must fill out and sign
the signature blocks.
NOTE: In completing Annex A, the following information should be provided with respect to a
Fund with multiple Share Classes:
(i)

The name of the Fund;

(ii)
and

In lieu of the EDGAR series identifier, the EDGAR class identifier for each class;

(iii)

The information required by Annex A separately for each class.

No other changes may be made to the Program Extension Notice.
5.

Program Extension Payment.
(a)
In order to participate in the Program Extension Period, an Investment Company
(or a Fund in the case of a Single Fund Agreement) must pay the applicable Program
Extension Participation Payment (as set forth in Section I of this Extension
Announcement) at the time the Program Extension Notice is delivered.
(b)
The Program Extension Participation Payment must be made by Fedwire to the
Treasury following the instructions in Exhibit B of the Guarantee Agreement (a copy of
which is attached hereto as Exhibit C).
(c)
The Program Extension Notice will not be effective until this payment is made to
the Treasury.
(d)

Any Program Extension Participation Payment received after 11:59 p.m .
W ash in g to n , D C tim e on D ecem b er 5, 2008 will not be accepted, and the Funds for
which the late Program Extension Participation Payment was tendered will not be eligible
to participate in the Program Extension Period.
6.
Bring-Down Notice. Forms of the Bring-Down Notice applicable to each type of
Guarantee Agreement are attached to this notice as Exhibit B.
(a)
The Investment Company (or the Fund in the case of a Single Fund Agreement)
and Investment Adviser(s) must execute the Bring-Down Notice.
(i)
The Investment Company (or the Fund in the case of a Single Fund
Agreement) must accurately complete the information required by inserting the
date, the name of the Trust or Corporation, the jurisdiction and form of
organization, and the Investment Company’s SEC 1940 Act registration number

in the appropriate spaces. No other changes may be made to the Bring-Down
Notice.
(ii)
Officers for the Investment Company (or the Fund in the case of a Single
Fund Agreement) and the Investment Adviser(s) who are authorized to bind the
companies must fill out and sign the signature blocks.
(b)
The Investment Company (or the Fund in the case o f a Single Fund Agreement)
shall have until 11:59 p.m . W a sh in g to n , D C tim e on D e c e m b e r 29, 2008 to deliver to
the Treasury the executed Bring-Down Notice.
I f you have a n y q u estio n s co n cern in g th e execution o f th e d o c u m e n ts o r th e p a y m e n t
of th e P ro g ra m E x ten sio n P a rtic ip a tio n P a y m en t, you m ay c o n ta c t th e D e p a rtm e n t
of th e T re a s u ry a t (202) 927-9770. I f you have q u estio n s fo r th e S ecurities an d
E x ch an g e C om m ission, you m ay c o n ta c t th em a t 202-551-6774.

Exhibit A: Forms o f Program Extension Notice

Guarantee Agreement: Form of Program Extension Notice

Guarantee Agreement (Single Fund): Form of Program Extension Notice

Guarantee Agreement (Stable Value): Form of Program Extension Notice

Guarantee Agreement (Stable Value Single Fund): Form of Program Extension Notice

Exhibit A: Guarantee Agreement

Guarantee Agreement:
Form o f Program Extension Notice
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission
l

This Program Extension Notice is delivered under the Guarantee Agreement dated as of
September 19, 2008 between the United States Department of Treasury and
2

a
(the “Guarantee Agreement”), with respect to the money market funds listed in Annex A thereto.
Capitalized terms used herein have the meaning assigned to such terms in the Guarantee
Agreement.
The Investment Company, on behalf of the money market funds listed in the updated
Annex A attached to this Notice, hereby notifies the Treasury that it will continue to participate
in the Program.

1.
The Investment Company, with respect to each Participating Fund, represents and
warrants that the representations and warranties contained in Section 8 of the Guarantee
Agreement are true and correct on and as of the date of this Notice with the same force and effect
as though made on and as of the date of this Notice.
2.
The Investment Advisers, with respect to each Participating Fund to which it is an
Investment Adviser, represents and warrants that the representations and warranties contained in
Sections 8(c), (d) and (e) of the Guarantee Agreement are true and correct on and as of the date
of this Notice with the same force and effect as though made on and as of the date of this Notice.
3.
The Board, including a majority of the members who are not “interested persons”
of the Investment Company as determined under the 1940 Act, has determined with respect to
1 [insert Date]
2 [insert name o f Trust or Corporation]
3 [insert jurisdiction andform o f organization]

Exhibit A: Guarantee Agreement

each Participating Fund that the Participating Fund’s continued participation in the Program is in
the best interests of the Participating Fund and its shareholders.
4.
The Investment Company, with respect to each Participating Fund, and the
Investment Advisers, with respect to each Participating Fund to which it is an Investment
Adviser, each represent and warrant that on the date hereof, each Fund’s Market-Based NAV is
not less than $0,995.

Investment Company Act Registration
No. 811-________________
By:_____________________________
N ame:__________________
Title:________________ ___________
Date of Execution: _______________
Address for Notices:

4 [Insert Name o f Investment Company ]

Exhibit A: Guarantee Agreement

Investment Adviser for

By:____________
Name:__________
Title:___________
Date of Execution:

Address for Notices:

5 [Insert Name o f Adviser\
[.Insert Name o f Fund]

Exhibit A: Guarantee Agreement (Single Fund)

Guarantee Agreement (Single Fund):
Form o f Program Extension Notice
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission
l

This Program Extension Notice is delivered under the Guarantee Agreement dated as of
September 19, 2008 between the United States Department of Treasury and
2

a
______________________ ___________________________________ __________________
(the “Guarantee Agreement”)- Capitalized terms used herein have the meaning assigned to such
terms in the Guarantee Agreement.
The Fund hereby notifies the Treasury that it will continue to participate in the Program.
1.
The Fund represents and warrants that the representations and warranties
contained in Section 8 of the Guarantee Agreement are true and correct on and as of the date of
this Notice with the same force and effect as though made on and as of the date of this Notice.
2.
The Investment Adviser represents and warrants that the representations and
warranties contained in Sections 8(c), (d) and (e) of the Guarantee Agreement are true and
correct on and as of the date of this Notice with the same force and effect as though made on and
as of the date of this Notice.
3.
The Board, including a majority of the members who are not “interested persons”
of the Fund as determined under the 1940 Act, has determined that the Fund’s continued
participation in the Program is in the best interests of the Fund and its shareholders.
4.
The Fund and the Investment Adviser each represent and warrant that on the date
hereof, each Fund’s Market-Based NAY is not less than $0,995.

1 [insert Date]
2 [insert name o f Trust or Corporation]
3 [insert jurisdiction and form o f organization]

Exhibit A: Guarantee Agreement (Single Fund)

Investment Company Act Registration
No. 811-_____________
By:_____________________________
N ame:___________________________
Title:____________________________
Date of Execution: _______________
Address for Notices:

4 [Insert Name o f Fund ]

Exhibit A: Guarantee Agreement (Single Fund)

Investment Adviser for

By:____________
Name:__________
Title:___________
Date of Execution:

Address for Notices:

5 [Insert Name o f Adviser ]
[Insert Name o f Fund]

Exhibit A: Guarantee Agreement (Stable Value)

Guarantee Agreement (Stable Value):
Form o f Program Extension Notice
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission

This Program Extension Notice is delivered under the Guarantee Agreement dated as of
September 19, 2008 between the United States Department of Treasury and
2

a
______________________ ________________________________
(the “Guarantee Agreement”), with respect to the money market funds listed in Annex A thereto.
Capitalized terms used herein have the meaning assigned to such terms in the Guarantee
Agreement.
The Investment Company, on behalf of the money market funds listed in the updated
Annex A attached to this Notice, hereby notifies the Treasury that it will continue to participate
in the Program.
1.
The Investment Company, with respect to each Participating Fund, represents and
warrants that the representations and warranties contained in Section 8 of the Guarantee
Agreement are true and correct on and as of the date of this Notice with the same force and effect
as though made on and as of the date of this Notice.
2.
The Investment Advisers, with respect to each Participating Fund to which it is an
Investment Adviser, represents and warrants that the representations and warranties contained in
Sections 8(c), (d) and (e) of the Guarantee Agreement are true and correct on and as of the date
of this Notice with the same force and effect as though made on and as of the date of this Notice.
3.
The Board, including a majority of the members who are not “interested persons”
of the Investment Company as determined under the 1940 Act, has determined with respect to

1 [insert Date]
2 [insert name o f Trust or Corporation]

3 [insert jurisdiction andform o f organization]

Exhibit A: Guarantee Agreement (Stable Value)

Investment Company Act Registration
No. 811By:______________
Name:
Title:____________
Date of Execution:
Address for Notices:

4 [Insert Name o f Investment Company ]

Exhibit A: Guarantee Agreement (Stable Value)

Investment Adviser for

By:____________
Name :______ __
Title:___________
Date of Execution:

Address for Notices:

5 [Insert Name o f Adviser]
6 [Insert Name o f Fund]

Exhibit A: Guarantee Agreement (Stable Value Single Fund)

Guarantee Agreement (Stable Value Single Fund):
Form o f Program Extension Notice
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission

This Program Extension Notice is delivered under the Guarantee Agreement dated as of
September 19, 2008 between the United States Department of Treasury and
2

a
______________ ____________ ________________________________ ;-------- ;--------------(the “Guarantee Agreement”). Capitalized terms used herein have the meaning assigned to such
terms in the Guarantee Agreement.
The Fund hereby notifies the Treasury that it will continue to participate in the Program.
1.
The Fund represents and warrants that the representations and warranties
contained in Section 8 of the Guarantee Agreement are true and correct on and as of the date of
this Notice with the same force and effect as though made on and as of the date of this Notice.
2.
The Investment Adviser represents and warrants that the representations and
warranties contained in Sections 8(c), (d) and (e) of the Guarantee Agreement are true and
correct on and as of the date of this Notice with the same force and effect as though made on and
as of the date of this Notice.
3.
The Board, including a majority of the members who are not “interested persons”
of the Fund as determined under the 1940 Act, has determined that the Fund’s continued
participation in the Program is in the best interests of the Fund and its shareholders.
4.
The Fund and the Investment Adviser each represent and warrant that on the date
hereof, each Fund’s Market-Based NAV is not less than the Guarantee Threshold Value.

1 [insert Date]
2 [insert name o f Trust or Corporation ]
3 [insert jurisdiction and form o f organization\

Exhibit A: Guarantee Agreement (Stable Value Single Fund)

Investment Company Act Registration
No. 811-_____________
By:_____________________________
Name:___________________________
Title:___________________________ _
Date of Execution: _ _ ____________
Address for Notices:

4 [Insert Name o f Fund]

Exhibit A: Guarantee Agreement (Stable Value Single Fund)

Investment Adviser for
6

By:____________
Name :__________
Title:__ ________
Date of Execution:

Address for Notices:

[Insert Name o f Adviser ]
[Insert Name o f Fund\

Exhibit B: Forms o f Bring-Down Notice

Guarantee Agreement: Form of Bring-Down Notice

Guarantee Agreement (Single Fund): Form of Bring-Down Notice

Guarantee Agreement (Stable Value): Form of Bring-Down Notice

Guarantee Agreement (Stable Value Single Fund): Form of Bring-Down Notice

Exhibit B: Guarantee Agreement

Guarantee Agreement:
Form o f Bring-Down Notice
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission
l

This Bring-Down Notice is delivered under the Guarantee Agreement dated as of September 19,
2008
between
the
United
States
Department
of
Treasury
and
2

a
(the “Guarantee Agreement”), with respect to the money market funds listed in Annex A thereto.
Capitalized terms used herein have the same meaning assigned to such terms in the Guarantee
Agreement.
1.
The Investment Company, with respect to each Participating Fund, represents and
warrants that the representations and warranties contained in Section 8 of the Guarantee
Agreement were true and correct on and as of the Program Extension Date with the same force
and effect as though made on and as of the Program Extension Date.
2.
The Investment Advisers, with respect to each Participating Fund to which it is an
Investment Adviser, represents and warrants that the representations and warranties contained in
Sections 8(c), (d) and (e) of the Guarantee Agreement were true and correct on and as of the
Program Extension Date with the same force and effect as though made on and as of the Program
Extension Date.
3.
The Investment Company, with respect to each Participating Fund, and the
Investment Advisers, with respect to each Participating Fund to which it is an Investment
Adviser, each represent and warrant that, on the Program Extension Date, each Fund’s MarketBased NAY was not less than $0.995.

1 [insert Date]
2 [insert name o f Trust or Corporation]

3 [insert jurisdiction and fo rm o f organization]

Exhibit B: Guarantee Agreement

Investment Company Act Registration
No. 811-_____________
By:_____________________________
Name:___________________________
T itle:___________________________ _
Date of Execution:

4 [Insert Name o f Investment Company ]

Exhibit B: Guarantee Agreement

Investment Adviser for

By:____________
N ame :__________
Title:___________
Date of Execution:

5 [Insert Name o f Adviser ]
6 [Insert Name o f Fund]

Exhibit B: Guarantee Agreement (Single Fund)

Guarantee Agreement (Single Fund):
Form o f Bring-Down Notice
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission
i

This Bring-Down Notice is delivered under the Guarantee Agreement dated as of September 19,
2008
between
the
United
States
Department
of
Treasury
and
2

a
____________________________________________________________________________
(the “Guarantee Agreement”). Capitalized terms used herein have the same meaning assigned to
such terms in the Guarantee Agreement.
1.
The Fund represents and warrants that the representations and warranties
contained in Section 8 of the Guarantee Agreement were true and correct on and as of the
Program Extension Date with the same force and effect as though made on and as of the Program
Extension Date.
2.
The Investment Adviser represents and warrants that the representations and
warranties contained in Sections 8(c), (d) and (e) of the Guarantee Agreement were true and
correct on and as of the Program Extension Date with the same force and effect as though made
on and as of the Program Extension Date.
3.
The Fund and Investment Adviser represent and warrant that, on the Program
Extension Date, the Fund’s Market-Based NAY was not less than $0.995.

1 [insert Date]
2 [insert name o f Trust or Corporation ]

3 [insert jurisdiction and form o f organization ]

Exhibit B: Guarantee Agreement (Single Fund)

Investment Company Act Registration
No. 811-_____________
By:_____________________________
Name:___________________________
Title:____________________________
Date of Execution: ______________ _

[Insert Name o f Fund ]

Exhibit B: Guarantee Agreement (Single Fund)

Investment Adviser for

By:____________
Name:__________
Title:___________
Date of Execution:

5 [Insert Name o f Adviser ]
6 [Insert Name o f Fund]

Exhibit B: Guarantee Agreement (Stable Value)

Guarantee Agreement (Stable Value):
Form o f Bring-Down Notice
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission

This Bring-Down Notice is delivered under the Guarantee Agreement dated as of September 19,
2008
between
the
United
States
Department
of
Treasury
and
2

a
__________ ^_____________________ ________________ —--------- ;------ ;----------------------(the “Guarantee Agreement”), with respect to the money market funds listed in Annex A thereto.
Capitalized terms used herein have the same meaning assigned to such terms in the Guarantee
Agreement.
\
The Investment Company, with respect to each Participating Fund, represents and
warrants that the representations and warranties contained in Section 8 of the Guarantee
Agreement were true and correct on and as of the Program Extension Date with the same force
and effect as though made on and as of the Program Extension Date.

2.
The Investment Advisers, with respect to each Participating Fund to which it is an
Investment Adviser, represents and warrants that the representations and warranties contained in
Sections 8(c), (d) and (e) of the Guarantee Agreement were true and correct on and as of the
Program Extension Date with the same force and effect as though made on and as of the Program
Extension Date.
3.
The Investment Company, with respect to each Participating Fund, and the
Investment Advisers, with respect to each Participating Fund to which it is an Investment
Adviser, each represent and warrant that, on the Program Extension Date, each Fund s MarketBased NAY was not less than the Guarantee Threshold Value.

1 [insert Date]
2 [insert name o f Trust or Corporation]
3 [insert jurisdiction and fo rm o f organization]

Exhibit B: Guarantee Agreement (Stable Value)

Investment Company Act Registration
No. 811-_____________
By:_____________________________
Name:________ __________________
T itle:___________________________ _
Date of Execution:
___________

4 [Insert Name o f Investment Company ]

Exhibit B: Guarantee Agreement (Stable Value)

Investment Adviser for

By:____________
Name:__________
Title:___________
Date of Execution:

[Insert Name o f Adviser]
[Insert Name o f Fund]

Exhibit B: Guarantee Agreement (Stable Value Single Fund)

Guarantee Agreement (Stable Value Single Fund):
Form o f Bring-Down Notice
To:

The Department of the Treasury

Cc:

The Securities and Exchange Commission

This Bring-Down Notice is delivered under the Guarantee Agreement dated as of September 19,
2008
between
the
United
States
Department
of
Treasury
and
2

a
(the “Guarantee Agreement”). Capitalized terms used herein have the same meaning assigned to
such terms in the Guarantee Agreement.
1.
The Fund represents and warrants that the representations and warranties
contained in Section 8 of the Guarantee Agreement were true and correct on and as of the
Program Extension Date with the same force and effect as though made on and as of the Program
Extension Date.
2.
The Investment Adviser represents and warrants that the representations and
warranties contained in Sections 8(c), (d) and (e) of the Guarantee Agreement were true and
correct on and as of the Program Extension Date with the same force and effect as though made
on and as of the Program Extension Date.
3.
The Fund and Investment Adviser represent and warrant that, on the Program
Extension Date, the Fund’s Market-Based NAV was not less than the Guarantee Threshold
Value.

1 [insert Date]
2 [insert name o f Trust or Corporation]

3 [insert jurisdiction and form o f organization]

Exhibit B: Guarantee Agreement (Stable Value Single Fund)

Investment Company Act Registration
No. 811-_____________
By:_____________________________
N ame:________________________ __
Title:____________________________
Date of Execution: _______________

4 [Insert Name o f Fund ]

Exhibit B: Guarantee Agreement (Stable Value Single Fund)

Investment Adviser for

By:____________
Name:__________
Title:___________
Date of Execution:

5 [Insert Name o f Adviser]
6 [Insert Name o f Fund]

Exhibit C: Payment Instructions
All Program Participation Payments should be made to the Treasury via Fedwire using
the instructions exactly as indicated below.
TYPE 1000 FUNDS TRANSFER MESSAGE TO TREASURY NYC
TAG
TAG NAME

REQUIRED INFORMATION

NUMBER

TYPE/SUBTYPE CODE

(1,510)

1000

AMOUNT

(2,000)

[INSERT AMOUNT OF PAYMENT]

SENDER FINANCIAL INSTITUTION

(3,100)

SENDING FINANCIAL INSTITUTION'S
ROUTING and TRANSIT NUMBER
AND BANK NAME

RECEIVER FINANCIAL INSTITUTION

(3,400)

021030004 TREAS NYC

BENEFICIARY

(4,200)

ORIGINATOR TO BENEFICIARY

(6,000)

D
20014918
ESF GUARANTEE PARTICIPATION PAYMENT
[INSERT INVESTMENT COMPANY NAME]
[TOTAL NUMBER OF FUNDS]

INFORMATION

Secretary Paulson to Provide EESA Update
11/24/2008
hp1291
Secretary Henry M. Paulson, Jr. will provide an update on implementation of the Emergency Economic Stabilization
Act tomorrow in the Treasury Department Media Room at 10 a.m. (EST).
W h o T re a s u ry S e c re ta ry H e n ry M. P au lso n , Jr.

Treasury Secretary Henry M. Paulson, Jr.
W h a t U p d ate on E m e rg e n c y E c o n o m ic S tab ilizatio n A ct

Update on Emergency Economic Stabilization Act
W h e n T u esd ay, N o v e m b e r 2 5 ,1 0 a.m . (E S T)

Tuesday, November 25,10 a.m. (EST)
W h e re T re a s u ry D e p a rtm e n t
M ed ia R oo m - 4121
1500 P e n n s y lv a n ia A ve n u e
W a s h in g to n , DC
N ote M ed ia w ith o u t T re a s u ry press cred e n tia ls p lan n in g to attend s h o u ld c o n ta c t T re a s u ry 's O ffice o f Public
A ffairs w ith th e fo llo w in g in fo rm atio n : nam e, Social S e c u rity n u m b e r and d ate o f birth.

C le a ra n c e co n tact: C o u rtn e y Forsell

courtney.forsdl@treasury.gov
(20 2 )6 22 -2 9 6 0

Treasury Department
Media Room - 4121
1500 Pennsylvania Avenue
Washington, DCMedia
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.Courtney Forsell
courtney.forsell@treasury.gov
(202)622-2960

Treasury Provides TARP Funds to Federal Reserve Consumer ABS Lending
Facility
11/25/2008
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
hp-1292

W a s h in g to n --

The U.S. Treasury Department today announced it will allocate $20 billion to back a lending facility for the consumer
asset backed securities market established by the Federal Reserve Bank of New York.
The asset backed securities market provides liquidity to financial institutions that provide small business loans and
consumer lending such as auto loans, student loans, and credit cards. While ABS issuances in these categories were
roughly $240 billion in 2007, issuance of consumer ABS declined precipitously in the third quarter of 2008 before
essentially coming to a halt in October. Continued disruption in the ABS market could further deteriorate credit
availability for consumers and increase the prospects for further deterioration in the economy generally.
This facility, the Term Asset Backed Securities Loan Facility, is intended to assist the credit markets in
accommodating the credit needs of consumers and small businesses by facilitating the issuance of ABS and
improving ABS market conditions. The underlying credit exposures of eligible securities initially must be newly or
recently originated auto loans, student loans, credit card loans or small business loans guaranteed by the U.S. Small
Business Administration. The facility may be expanded overtime and eligible asset classes may be expanded later to
include other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed
securities or other asset classes.
Under the new facility, the Federal Reserve Bank of New York will lend up to $200 billion on a non-recourse basis to
holders of newly issued AAA-rated ABS for a term of at least one year. The Federal Reserve will lend an amount
equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. The U.S. Treasury
Department will provide a $20 billion of credit protection to the Federal Reserve in connection with the facility, using
its authorities in the Emergency Economic Stabilization Act of 2008. The attached term sheet describes the basic
terms and operational details of the facility.
-30-

REPORTS

• Term Sheet

Term Asset-Backed Securities Loan Facility (TALF)
Terms and Conditions1
Facility
The TALF will be a Federal Reserve credit facility authorized under section 13(3) o f
the Federal Reserve A ct The TALF is intended to assist the credit markets in
accommodating the credit needs o f consumers and small businesses by facilitating the
issuance o f asset-backed securities (ABS) and improving the market conditions for
ABS more generally.
The Federal Reserve Bank o f New York (FRBNY) will make up to $200 billion o f
loans under the TALF. TALF loans will have a one-year term, will be non-recourse
to the borrower, and will be fully secured by eligible ABS. The U.S. Treasury
Department will provide $20 billion of credit protection to the Federal Reserve in
connection with the TALF, as described below.

Eligible Collateral
Eligible collateral will include U.S. dollar-denominated cash (that is, not synthetic)
ABS that have a long-term credit rating in the highest investment-grade rating
category (for example, AAA) from two or more major nationally recognized statistical
rating organizations (NRSROs) and do not have a long-term credit rating o f below
the highest investment-grade rating category from a major NRSRO.
All or substantially all o f the credit exposures underlying eligible ABS must be newly
or recently originated exposures to U.S.-domiciled obligors. The underlying credit
exposures o f eligible ABS initially must be auto loans, student loans, credit card loans,
or small business loans guaranteed by the U.S. Small Business Administration. The
set o f permissible underlying credit exposures o f eligible ABS may be expanded later
to include commercial mortgage-backed securities, non-Agency residential mortgagebacked securities, or other asset classes. The underlying credit exposures must not
include exposures that are themselves cash or synthetic ABS.
Originators o f the credit exposures underlying eligible ABS (or, in the case o f SBAguaranteed loans, the ABS sponsor) must have agreed to comply with, or already be
subject to, the executive compensation requirements in section 111(b) o f the
Emergency Economic Stabilization Act o f 2008.
1 The Federal Reserve reserves the right to review and make adjustments to these terms and conditions - including size
of program, pricing, loan maturity, and asset and borrower eligibility requirements - consistent with the policy objectives
of the TALF.

Eligible collateral for a particular borrower must not be backed by loans originated by
the borrower or by an affiliate o f the borrower.

Eligible Borrowers
All U.S. persons that own eligible collateral may participate in the TALF. A U.S.
person is a natural person that is a U.S. citizen, a business entity that is organized
under the laws o f the United States or a political subdivision or territory thereof
(including such an entity that has a non-U.S. parent company), or a U.S. branch or
agency o f a foreign bank.

Transaction Structure
Credit extensions under the TALF will be in the form o f non-recourse loans secured
by eligible collateral. Substitution o f collateral during the term o f the loan will not be
allowed. TALF loans will have a one-year term, with interest payable monthly. The
term o f TALF loans may be lengthened later if appropriate. TALF loans will not be
subject to mark-to-market or re-margining requirements.
Any remittance o f principal or interest on eligible collateral must be used immediately
to pay interest due on, or reduce the principal amount of, the TALF loan.

Haircuts
Collateral haircuts will be established by the FRBNY for each class o f eligible
collateral. Haircuts will be determined based on the price volatility o f each class of
eligible collateral.

Pricing and Allocation
The FRBNY will offer a fixed amount o f loans under the TALF on a monthly basis.
TALF loans will be awarded to borrowers each m onth based on a competitive, sealed
bid auction process. Each bid must include a desired amount o f credit and an interest
rate spread over one-year OIS. The FRBNY will set minimum spreads for each
auction.
The FRBNY will reserve the right to reject or declare ineligible any bid, in whole or in
part, in its discretion. In this regard, the FRBNY will develop and implement
procedures to identify for further scrutiny potentially high-risk ABS that a borrower
proposes to pledge to the FRBNY under the TALF.
The FRBNY will assess a non-recourse loan fee at the inception o f each loan
transaction.

Roles o f Primary Dealers and Clearing Banks
Each borrower must use a primary dealer, which will act as agent for the borrower, to
access the TALF and must deliver eligible collateral to a clearing bank.

Role o f the U.S. Treasury Departm ent
The FRBNY will create an SPV to purchase and manage any assets received by the
FRBNY in connection with any TALF loans. The FRBNY will enter into a forward
purchase agreement with the SPV under which the SPV will commit, for a fee, to
purchase all assets securing a TALF loan that are received by the FRBNY at a price
equal to the TALF loan amount plus accrued but unpaid interest. The U.S. Treasury's
Troubled Assets Relief Program (TARP) will purchase subordinated debt issued by
the SPV to finance the first $20 billion o f asset purchases. If more than $20 billion in
assets are purchased by the SPV, the FRBNY will lend additional funds to the SPV to
finance such additional purchases. The FRBNY’s loan to the SPV will be senior to
the TARP subordinated loan, with recourse to the SPV, and secured by all the assets
o f the SPV. All cash flows from SPV assets will be used first to repay principal and
interest on the FRBNY senior loan until the loan is repaid in full. Next, cash flows
from assets will be used to repay principal and interest on the TARP subordinated
loan until the loan is repaid in full. Residual returns from the SPV will be shared
between the FRBNY and the U.S. Treasury.

Executive Compensation Requirements
Originators o f the credit exposures underlying eligible ABS (or, in the case o f SBAguaranteed loans, the ABS sponsor) must have agreed to comply with, or already be
subject to, executive compensation standards consistent with the U.S. Treasury’s
TARP guidelines applicable to its Capital Purchase Program.

Termination D ate
The facility will cease making new loans on December 31, 2009, unless the Board
agrees to extend the facility.

Secretary Paulson Remarks on Consumer ABS Lending Facility
11/25/2008
HP-1293
W ashington- Today the Treasury and the Federal Reserve are announcing a facility to finance the issuance
o f non-mortgage asset-backed paper in order to support lending to consumers and sm all businesses that is
vital to our economy.
Today the Treasury and the Federal Reserve are announcing a facility to finance the issuance of non-mortgage
asset-backed paper in order to support lending to consumers and small businesses that is vital to our economy.
The consumer asset backed securities market is a source of liquidity to financial institutions that provide federallyguaranteed small business loans and consumer lending such as auto loans, student loans and credit cards. Issuance
of ABS in these areas reached $240 billion in 2007, but credit market stresses led to a steep decline in the third
quarter of 2008, and the market essentially came to a halt in October. As a result, millions of Americans cannot find
affordable financing for their basic credit needs. And credit card rates are climbing, making it more expensive for
families to finance everyday purchases. This lack of affordable consumer credit undermines consumer spending and
as a result weakens our economy.
To address this need and support the return of consumer lending, the Treasury will provide $20 billion of credit
protection to the Federal Reserve in connection with its $200 billion Term Asset Backed Securities Loan Facility. By
providing liquidity to issuers of consumer asset backed paper, the Federal Reserve facility will enable a broad range
of institutions to step up their lending, enabling borrowers to have access to lower cost consumer finance and small
business loans. The facility may be expanded over time and eligible asset classes may be expanded later to include
other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or
other asset classes.
Throughout this financial market turmoil, our focus has been to stabilize the system and support the lending that is
vital to our economy. Toward that end we've taken steps to strengthen the capital position of our financial institutions,
to stabilize the system and to enable them to increase lending to American consumers and businesses. Similarly,
we’ve acted to stabilize the GSEs and to purchase GSE mortgage-backed securities, in order to increase the
availability of affordable mortgage credit throughout our nation. Today's initiative to support the small business and
consumer finance market is similarly aimed at increasing the availability of affordable lending. Today's announcement
by the Fed that it will purchase direct debt obligations of Fannie Mae, Freddie Mac and the Federal Home Loan
Banks, and also mortgage backed securities guaranteed by Fannie, Freddie and Ginnie Mae, underscores our
support for the housing market. Nothing is more important to getting through this housing correction than the
availability of affordable mortgage finance.
It will take time to work through the difficulties in our markets and our economy, and new challenges will continue to
arise. I and my regulatory colleagues are committed to using all the tools at our disposal to preserve the strength of
our financial institutions and stabilize our financial markets, to minimize the spillover into the rest of the economy.

U.S. and China to Hold Meeting of the Strategic Economic Dialogue
11/26/2008
Treasury Secretary Henry M. Paulson, Jr. will lead
a U.S. delegation to China next week for the fifth
Cabinet level meeting of the SED. Presidents Bush
and Hu established the SED in 2006 to provide a
focused and effective framework for addressing
economic issues of mutual concern. The meeting
will focus on strategies for managing
macroeconomic risks and promoting balanced
economic growth, strengthening cooperation in
energy and environment, confronting the
challenges to trade, promoting open investment
environments, and furthering international
economic cooperation
LINKS
• Media Advisory

• More on the SED

Treasury Designates Mugabe Regime Cronies
11/25/2008
HP-1295
Washington, DC--The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today designated
four Mugabe regime cronies and a number of entities owned or controlled by two of them. The financial and
logistical support they have provided to the regime has enabled Robert Mugabe to pursue policies that seriously
undermine democratic processes and institutions in Zimbabwe.
"The Mugabe regime continues to resist the call of the Zimbabwean people to loosen its corrupt and violent hold on
power," said OFAC Director Adam J. Szubin. "The United States supports the people of Zimbabwe in their struggle
to achieve a political and economic system built on fairness and transparency rather than patronage and self
dealing."
Today's designations include John Bredenkamp, a well-known Mugabe insider involved in various business activities,
including tobacco trading, gray-market arms trading and trafficking, equity investments, oil distribution, tourism, sports
management, and diamond extraction. Through a sophisticated web of companies, Bredenkamp has financially
propped up the regime and provided other support to a number of its high-ranking officials. He also has financed
and provided logistical support to a number of Zimbabwean parastatal entities.
The following entities owned or controlled by John Bredenkamp also are designated: Alpha International (Private)
Ltd., Breco (Asia Pacific) Ltd., Breco (Eastern Europe) Ltd., Breco (South Africa) Ltd., Breco (U.K.) Ltd., Breco
Group, Breco International, Breco Nominees Ltd., Breco Services Ltd., Corybantes Ltd., Echo Delta Holdings Ltd.,
Kababankola Mining Company, Masters International Ltd., Masters International, Inc., Piedmont (UK) Limited,
Raceview Enterprises, Scottlee Holdings (Pvt) Ltd., Scottlee Resorts, Timpani Ltd., and Tremalt Ltd.
Also designated today is Muller Conrad Rautenbach (a.k.a. Billy Rautenbach). Billy Rautenbach is a Zimbabwean
businessman who has maintained close relations with the Mugabe regime. He has provided support to senior
regime officials during Zimbabwe's intervention in the Democratic Republic of the Congo and also provided logistical
support for large-scale mining projects in Zimbabwe that benefit a small number of corrupt senior officials there.
Today’s designations include an entity owned and controlled by Billy Rautenbach, Ridgepoint Overseas
Developments Limited.
In addition, OFAC is designating Nalinee Joy Taveesin, a Thai businesswoman who has facilitated a number of
financial, real-estate, and gem-related transactions on behalf of Grace Mugabe, Gideon Gono, and a number of other
Zimbabwean Specially Designated Nationals (SDNs). Ironically, Nalinee Taveesin has participated in a number of
initiatives on corruption and growth challenges in Africa and Southeast Asia while secretly supporting the kleptocratic
practices of one of Africa's most corrupt regimes.
Finally, OFAC is designating Mahmood Awang Kechik, a Malaysian urologist and one of Robert Mugabe's physicians
and business advisors. Kechik has used his medical practice to conceal the ultimate destination of medical
equipment shipped to Zimbabwe, and he has transacted secretly with a number of SDNs, including Gideon Gono and
Constantine Chiwenga, to generate wealth for these regime officials and the Government of Zimbabwe.
Today's action was taken pursuant to Executive Order 13469, which targets, among others, individuals and entities
who provide financial and other support to the Government of Zimbabwe and Zimbabwean SDNs. As a result of
Treasury's action, any assets of the individuals and entities designated today that are within U.S. jurisdiction must be

U.S., New Zealand to Sign Protocol to Tax Treaty
11/25/2008
HP-1296
Washington, DC--Treasury Deputy Secretary Robert M. Kimmitt will join New Zealand Ambassador to the United
States Roy Ferguson next week to sign a new protocol updating the tax treaty between the United States and New
Zealand.
The following event is open to the press:
Who
Deputy Secretary Robert M. Kimmitt
What
Signing of Protocol to U.S.-New Zealand Tax Treaty
When
4:00 p.m. (EST), December 1,2008
Where
Treasury Department
Diplomatic Reception Room (3311)
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note
Media without Treasury press credentials should contact Frances Anderson at (202) 622-2960, or
Frances.Anderson@treasury.gov with the following information: full name, Social Security number, and date of birth.

Paulson to Deliver Update on Economy and Markets
11/26/2008
HP-1297

Secretary Henry M. Paulson, Jr. will deliver an update on the economy and the markets Monday at the Fortune 500
Forum in Washington. The forum brings together business leaders, policy experts and government representatives to
discuss the current and future business climate.
Who
Secretary Henry M. Paulson, Jr.
What
Update on the Economy and Markets
When
3:00 p.m. (EST) Monday, December 1
Where
The Ritz-Carlton
Ritz-Carlton Ballroom
1150 22nd Street, NW
Washington, D.C.
Note
Press must RSVP to Daniel Kile at 212-522-3640 or daniel_kile@timemagazine.corn.

Paulson to Deliver Remarks on U.S.-China Strategic Economic Dialogue
11/26/2008
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Secretary Henry M. Paulson, Jr. will deliver remarks on the U.S.-China Strategic Economic Dialogue to the World
Affairs Council of Washington, D.C. in advance of the upcoming SED meeting in China. The SED, established by
Presidents Bush and Hu, is a framework for managing our bilateral economic relationship on a long-term strategic
basis.
Who
Secretary Henry M. Paulson, Jr.
What
Remarks on the U.S.-China Strategic Economic Dialogue
When
12:00 p.m. (EST) Tuesday, December 2
Where
Willard Intercontinental Hotel
The Grand Ballroom
1401 Pennsylvania Avenue, NW
Washington, D.C.
Note
Press must RSVP to Mark Fernando at (202) 293-1051 or

mfern and o@ worl daifairsdc.org.

OFAC Identifies Entities Owned or Controlled by the Government of Iran
11/26/2008
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The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has identified the National Iranian Oil
Company (a.k.a. NIOC), Naftiran Intertrade Company Ltd. (a.k.a. NICO), and Naftiran Intertrade Co. Sari as entities
owned or controlled by the Government of Iran.
The Iranian Transaction Regulations (ITR) include an appendix that contains a non-exhaustive list of entities
determined by OFAC to be owned or controlled by the Government of Iran. The appendix can be accessed through
OFAC's website: http://www.treasury.gov/offices/enforcement/ofac/programs/iran/iran.shtm! (see "Overview of Sanctions").
OFAC is adding National Iranian Oil Company, Naftiran Intertrade Company Ltd., and Na ftiran Intertrade Co. Sari to
this appendix. Certain entities listed in this appendix may be subject to further sanctions under other sanctions
programs.
To date, the appendix has listed only financial institutions that were determined to be owned or controlled by the
Government of Iran. The inclusion of the National Iranian Oil Company, Naftiran Intertrade Company Ltd., and
Naftiran Intertrade Co. Sari marks the first non-financial institutions to be added to the appendix. Moving forward,
OFAC will continue to list both financial institutions and other entities that are determined to be owned or controlled
by the Government of Iran.
While the ITR do not impose an asset freeze, they do prohibit most commercial and financial transactions with
entities owned or controlled by the Government of Iran, regardless of where such entities are located or
incorporated. Most transactions with any branches or subsidiaries of these entities are also prohibited, regardless of
where such branches or subsidiaries are located and incorporated.
This appendix serves as a tool to assist U.S. persons in complying with the ITR. The identified entities are
considered to be owned or controlled by the Government of Iran when they operate not only from the locations listed
in the appendix, but also from any other location. The ITR prohibitions apply to all entities owned or controlled by the
Government of Iran, regardless of where they are located or incorporated, even if they are not listed in the appendix.
The prohibitions in the ITR also apply to transactions with entities located in Iran that are not owned or controlled by
the Government of Iran.
Naftiran Intertrade Company Ltd. is a subsidiary of the National Iranian Oil Company that is registered in the United
Kingdom and located in Jersey, Channel Islands, United Kingdom. NICO, in turn, has a subsidiary, called Naftiran
Intertrade Co. (NICO) Sari, which is incorporated and located in Switzerland. The ITR prohibit most transactions with
NIOC, NICO and NICO Sari, in any locations worldwide, because these companies are entities owned or controlled
by the Government of Iran.
The Iranian Transactions Regulations, 31 C.F.R. part 560, define the term "Government of Iran," in section s 560.304,
to include any "entity owned or controlled by the Government of Iran," a term which is itself defined in section
560.313. The relevant ITR language can be accessed through the following link:
http://www.access.gpo.gOv/nara/cfr/waisidx_07/31cfr560_07 .html

Prepared Remarks of Assistant Secretary for Terrorist Financing Patrick O’Brien
12/1/2008
To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
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On Treasury’s Approach Toward Combating Kleptocracy
Washington, DC-Good afternoon, everyone. I thank you all for your active participation in today's first-ever, U.S.
government-wide anti-kleptocracy outreach event to the NGO community.
We come here today as policymakers, stakeholders and concerned citizens in pursuit of a common interest:
stemming the ills of kleptocracy that continue to plague so many parts of the world. Just over two years ago,
President Bush announced the National Strategy To Internationalize Efforts Against Kleptocracy. That Strategy explicitly
recognized the need for a comprehensive global approach to combat high-level, large-scale public corruption,
including an emphasis on the role of private sector actors in denying financial safe haven to kleptocrats. Stated
differently, the U.S. strategy recognizes that government must engage the private sector and NGO community in
developing and implementing a comprehensive anticorruption policy.
One of the primary goals of today’s event is to provide a venue for open and cross-cutting discussion of kleptocracyrelated issues that we encounter on a daily basis. We have heard formal presentations from both U.S. government
officials and NGO representatives whose work focuses on combating corruption, as well as discussion from
representatives of a range of public-sector, non-governmental, and academic institutions. This afternoon, we will
engage in break-out sessions to facilitate discussion on a number of key issues in combating kleptocracy, including:
• addressing those sectors most vulnerable to the threat of kleptocracy;
• pursuing kleptocrats and their enabling networks and recovering stolen assets through law enforcement and
other means;
• providing technical assistance to address systemic vulnerabilities and build capacity to counter kleptocracy;
and
• promoting multilateral and global support for counter-kleptocracy efforts.
I am confident that these discussions will facilitate or strengthen partnerships among several of the organizations
represented here in combating the ongoing threat of kleptocracy that we all face.
In keeping with the conference's aim of promoting collaborative efforts in combating kleptocracy, my remarks today
will focus on explaining how we at Treasury are working together with our interagency partners, our international
counterparts, and with the private sector and the NGO community to combat the threat of kleptocracy. But first, it is
important to recognize the substantial challenges we face and understand why our collective anti-kleptocracy efforts
are needed.
What is kleptocracy, and why is it important?
Although kleptocracy is defined as large-scale corruption by senior government officials, it generally requires
extensive support networks of advisors, attorneys, accountants, family members and close associates, as well the
deliberate exploitation or complicity of corporations, businesses, and other legal entities. Depending on the context,

kleptocracy represents either the politicization of criminality or, even worse, the criminalization of an entire political
class.
Cultures of corruption deserve our condemnation on their own merits because they undercut development and good
governance, breed criminality, and sow mistrust in democracy and the rule of law within their given societies. But
within the sphere of international relations, kleptocracy takes on the added dimension, and increased importance, of a
threat to international peace and security.
How does kleptocracy threaten U.S. national security? Left to its own devices, a kleptocratic political class takes
little or no interest in the well-being of its population. When its greed combines with legal privilege and a robust
security apparatus, what generally results is a marginalized majority beset by poverty and desperation. This
absence of economic and political opportunity invites broader problems, potentially including civil conflict, terrorism,
and long-term regional instability.
In recent decades, we have also witnessed how profit-driven political classes have internationalized the problem of
kleptocracy by taking advantage of globalized markets, advanced technologies, and networks of middlemen. Brazen
regimes have trafficked in persons, narcotics, weapons of mass destruction, and other illicit materials, all in the name
of padding bank accounts and preserving a stranglehold on society. Consequently, the U.S. anti-kleptocracy
strategy represents Presidential-level recognition that corruption has created security threats of the highest
magnitude.
The need for a comprehensive interagency approach
As our national anti-kleptocracy strategy highlights, the U.S. government has adopted a comprehensive public-sector
approach to combat the transnational threats that stem from corruption. Before turning to the work of the
Department of the Treasury, it is important to acknowledge the major anti-kleptocracy efforts that other U.S.
government agencies are undertaking, including:
• The Department of State, which leads U.S. government collaboration with our international partners to
promote the adoption and implementation of common standards against corruption;
• The Department of Justice, which prosecutes all federal corruption and money laundering offenses and
enforces U.S. forfeiture laws to recover the proceeds of kleptocracy and other offenses;
• The Federal Bureau of Investigation, which addresses corruption around the world'through investigations
related to money laundering and to violations of the Foreign Corrupt Practices Act and other financial
crimes;
• U.S. Immigration and Customs Enforcement, which combines international money laundering expertise,
immigration and customs authorities, and extensive international investigative capabilities to combat
corruption;
• The U.S. Agency for International Development, which maintains anticorruption programs around the world
to assist partner countries in strengthening systems to resist corruption; and
• The Millennium Challenge Corporation, which provides large grants, or Compacts, to poorer countries that
perform better than their peers on 17 indicators that rate commitment to Ruling Justly, Investing in People,
and Economic Freedom.
These vital efforts contribute to an interagency approach that is greater than the sum of its parts. They are also
essential to Treasury’s specific role in combating kleptocracy.
A financial component to every national security threat

Treasury's approach to combating kleptocracy begins with an understanding that there is a financial component to
every national security threat and that protecting the international financial system from all forms of illicit finance is a
fundamental national security interest. Recognizing this, President Bush and Congress have given Treasury both
the legal authorities and the resources necessary to make substantive contributions across the full spectrum of
national security issues. I am proud to say that Treasury remains at the forefront among finance ministries
worldwide in developing and applying financial authorities to both: (i) protect the international financial system from
all forms of illicit financing, and (ii) identify and disrupt illicit financing networks that attempt to operate within the
financial system.
Treasury's Office of Terrorism and Financial Intelligence, or TFI, is dedicated to advancing these twin interests. TFI's
mission relies upon the constant support of the interagency community and directs the strategic approach that
Treasury applies to combating national security threats, including kleptocracy.
TFI's comprehensive strategic approach to combating illicit finance
Treasury's fundamental approach to combating kleptocracy and other national security threats encompasses both
systemic and targeted efforts. Our systemic efforts aim to promote transparency across the financial system,
focusing particularly on those vulnerabilities that kleptocractic networks and other illicit financiers exploit to evade
detection. Our targeted efforts rely upon such financial transparency in developing and applying targeted financial
measures to identify and disrupt specific illicit financing networks. Taken together, these systemic and targeted
elements of Treasury's strategic approach make it more difficult, more costly, and riskier for illicit financing networks
to operate within the financial system and serve as an effective deterrent for those who would otherwise exploit the
financial system for criminal purposes.
Effectively implementing systemic and targeted measures to combat illicit financing across the international financial
system requires the ongoing support of not only the interagency community, but also the private sector and the
international community. For these reasons, much of TFI's work involves engaging financial services industries,
other non-governmental stakeholders, and international counterparts. Outreach and engagement are vital
components of the comprehensive strategic approach that Treasury applies in combating all forms of illicit finance.
I would now like to explain how Treasury is applying all elements of this comprehensive strategic approach to the
specific challenges of combating kleptocracy.
Applying TFI's comprehensive approach to combat kleptocracy
The effectiveness of TFI's approach to fighting any form of illicit financing requires that we understand the scope and
character of the problem. In combating kleptocracy, TFI is working with the regulatory, law enforcement, and
intelligence communities to provide, to the extent possible, a baseline assessment of the flow of kleptocracy assets,
including: (i) vulnerabilities in the financial system that may be exploited by kleptocratic networks to move and store
assets, and (ii) critical financing networks for klepocractic regimes. These analytical efforts inform, in turn, the
systemic and targeted elements of TFI's strategy to combating kleptocracy.
Systemic efforts
TFI focuses its domestic systemic efforts to combat kleptocracy on three objectives, each benefiting from and
helping to advance efforts to combat money laundering and other forms of illicit finance more broadly. These
objectives include:

(i)
Requiring financial institutions to identify and apply enhanced due diligence against private banking
accounts held by or for the benefit of senior foreign political officials, commonly known as Politically Exposed Persons
or PEPs;
(ii)
Providing guidance with respect to suspicious activity reporting requirements for U.S. financial
institutions regarding potential kleptocractic activity; and
(iii)
Promoting the transparency of U.S. legal entities that may otherwise mask kleptocractic activities of PEPs
in the financial system.
The Financial Crimes Enforcement Network, a bureau within TFI that is commonly referred to as FinCEN, administers
the Bank Secrecy Act (BSA), which establishes a framework for the U.S. anti-money laundering and counter-terrorist
financing (AML/CFT) regulatory regime. Pursuant to the BSA, FinCEN issues regulations that promote transparency
across the U.S. financial system and facilitate the production of information useful to law enforcement and counter
terrorism authorities in combating money laundering and terrorist financing. Section 312 of the USA PATRIOT Act
amended the BSA to specifically require, in part, U.S. financial institutions to conduct enhanced scrutiny of certain
accounts maintained by or on behalf of PEPs and their immediate family members and close associates. On
January 4, 2006, FinCEN issued a final rule implementing this provision. Notably, this final rule requires U.S.
financial institutions to take reasonable steps to identify all nominal and beneficial owners of private banking accounts
for purposes of applying enhanced scrutiny against those accounts in which a PEP is a nominal or beneficial owner.
The purpose of such enhanced scrutiny is to detect and report transactions that may involve the proceeds of foreign
corruption.
Domestically, FinCEN also helps systemically address the threat of kleptocracy by promoting more effective reporting
of potential illicit activity by financial institutions. FinCEN has worked with law enforcement and regulatory partners
to provide i nstructions for financial institutions on the best ways to highlight kleptocracy in Suspicious Activity
Reports, thereby helping law enforcement more easily identify potential kleptocratic activity. These efforts include an
advisory issued by FinCEN in April 2008 that provides additional guidance on suspicious activity reporting for foreign
corruption and helps financial institutions understand how to proactively prevent PEPs from exploiting those
vulnerabilities in the international financial system that allow them to disguise or otherwise facilitate illicit activities.
In collaboration with the interagency community, state governments and the private sector, Treasury is also pursuing
a number of measures to prevent the kleptocratic and criminal abuse of legal entities in order to hide the proceeds of
illicit crime or to mask illicit actors engaging in financial activity. Specifically, TFI is working with various partners to
promote greater transparency of U.S. legal entities. These efforts include developing effective ways of identifying,
verifying, collecting and disclosing beneficial ownership information of legal entities for purposes of combating money
laundering and terrorist financing. These steps can significantly deter the use of U.S. legal entities to hide the
proceeds of illicit activity, including kleptocracy, in the financial system.
Internationally, TFI and its interagency partners help lead efforts to promote transparency of the international financial
system through ongoing work with global partners in the Financial Action Task Force, or FATF, and related
multilateral organizations. These efforts include the development and implementation of international standards that
require enhanced monitoring of accounts and transactions involving PEPs, as well as standards that require basic
transparency for legal entities that can mask illicit actors and activities in the financial system. Treasury also
supports the efforts of the Departments of State and Justice in developing and facilitating the effective implementation
of international legal standards against kleptocracy, including the United Nations Convention Against Corruption and
the Organization for Economic Cooperation and Development Anti-Bribery Convention.
Targeted efforts

Building upon this systemic approach, TFI is working with all elements of the national security community to develop
and implement ways of calling attention to regimes of public corruption concern, including through certain
jurisdictional sanctions programs. The President has included a corruption component in a number of sanctions
programs administered by Treasury's Office of Foreign Assets Control, commonly referred to as OFAC, the office that
administers and enforces the United States' economic sanctions programs. This authorizes OFAC to target directly
those who improperly benefit from or assist in the public corruption of foreign government officials. Specifically, the
President has included public corruption as a basis for designation in recent Executive orders targeting certain
persons in Zimbabwe, Syria, Burma, and Belarus. In the most recent of these Executive Orders, for example,
involving officials in Zimbabwe, the President delegated to the Treasury the authority to designate for blocking senior
officials from the Government of Zimbabwe and others who are engaged, or have engaged, in activities facilitating
public corruption. We hope to continue using this authority to combat kleptocratic regimes when appropriate and
also aim to expand the scope and effectiveness of these measures by multi-lateralizing our sanctions whenever
possible.
TFI is also working with its interagency partners to develop other ways to call attention to individuals and regimes of
public corruption concern, including potentially through:
• Section 314(a) of the USA PATRIOT Act (Patriot Act), which enables Federal law enforcement agencies,
through FinCEN, to reach out to more than 45,000 points of contact at more than 25,000 financial
institutions to locate accounts and transactions of persons that may be involved in terrorism or money
laundering, including laundering of kleptocractic assets: and
• FinCEN advisories, which FinCEN issues to U.S. financial institutions to alert them of specific illicit financing
risks - including public corruption concerns - and to assist them in effectively applying risk-based controls
to address these risks. These advisories also raise awareness of illicit financing risks and influence the
corresponding application of risk-based controls in the international financial community.
Finally, I would like a take a moment to mention Treasury and broader U.S. government efforts, domestically and
internationally, to develop initiatives that identify, track, and return kleptocratic assets to those who need them most.
In 2003, Treasury helped lead a focused interagency effort to find, freeze, and repatriate Iraqi assets from around the
world, and to find cash and assets within Iraq that were stolen and hidden by elements of the former Hussein regime.
This worldwide hunt resulted in the freezing of nearly $6 billion in Iraqi assets outside of Iraq, the return of over $2.7
billion of those monies, and the recovery of over $1 billion in cash inside Iraq.
Treasury, together with our interagency partners, has also supported multinational efforts - initiatives like that of the
World Bank's Stolen Asset Recovery Program (StAR) - that use a collaborative approach to finding and repatriating
assets stolen by foreign officials and placed in the international financial system. In order to make these international
targeted efforts a success, Treasury's Office of Technical Assistance works with TFI and the interagency community
to provide technical assistance and training to foreign governments, aiming to enhance their ability to prevent, detect,
investigate, and prosecute corruption.
Outreach efforts
Treasury has built upon the aforementioned systemic and targeted approaches by engaging in outreach to the private
sector and non-governmental stakeholders. TFI's domestic work in this area includes FinCEN initiatives with the
Bank Secrecy Act Advisory Group (BSAAG). Internationally, TFI has incorporated efforts to combat kleptocracy into
private sector dialogues with the international banking and financial service industries in the Middle East and North
Africa and in Latin America.
As one example of our outreach efforts in practice, FinCEN recently conducted an industry survey to help increase
our understanding of how banks and other financial institutions identify and verify beneficial ownership. Due

diligence in this context helps safeguard against fraud and credit risk and also helps address the misuse of business
accounts that are opened to hold and move illicit proceeds. An account held in the name of a corporation or other
legal entity can be used to disguise the beneficial owner, the person or persons who actually own or control the funds
in the account. In the case of private banking accounts, U.S. financial institutions are required pursuant to Section
312 of the Patriot Act to undertake reasonable efforts to identify nominal and beneficial owners for among other
purposes combating public corruption. We understand that financial institutions also undertake efforts to determine
the nature of the business holding a commercial account and to identify the individuals who own or control the funds
in the account in other contexts as well.
International private sector outreach is also important. Over the past few years, Treasury has facilitated a series of
private sector dialogues linking the U.S. banking sector together with those from the Middle East/North Africa region
and the Latin American region, with the support of relevant financial and regulatory authorities. These dialogues
raise awareness of terrorist financing and money laundering risks, facilitate a better understanding of effective
practices and programs to combat such risks, and strengthen implementation of effective AMUCFT controls. The
implementation of effective AML/CFT controls regarding PEPs is a key issue in these dialogues. Discussions
include the importance and challenges of implementing Section 312 of the Patriot Act as well as the relevant
international standard (FATF Recommendation 6) that guides financial institutions in identifying and addressing risks
of public corruption associated with PEPs.
Finally, Treasury is pursuing increased engagement with the NGO sector, including through events such as today's
symposium. We hope that this symposium will help expand the NGO community's understanding of the relationship
between combating corruption and our efforts to combat illicit finance more broadly. We also hope that it will help us
develop greater support for the use of systemic and targeted measures against corruption. Ultimately, our multi
sector outreach will help us better understand and integrate the efforts that governments, the private sector, and the
NGO community can undertake to help address problems that allow kleptocrats to exploit both the international
financial system and the resources of their own people.
Challenges moving forward
Our efforts to combat kleptocracy have come a long way in the past decade. The U.S. government has identified
kleptocracy as a national security threat and has developed a necessary comprehensive strategy to combat this
threat. The evolution of TFI at Treasury has enabled us to contribute more effectively to this strategy, including
through systemic and targeted financial measures, as well as through outreach to international counterparts, the
private sector and the NGO community. These efforts have established a sound foundation for developing and
applying financial authorities to combat kleptocracy.
Our focus now must be on facilitating implementation. Consistent with the standards championed by the UN and the
FATF, all countries, including the U.S., need to strengthen their efforts towards three primary objectives:
(1)
We must increase global public awareness of the threat posed by kleptocracy so that our efforts to combat
this threat become a high priority for all;
(2)
We must continue promoting implementation of the FATF's international standards to establish financial
transparency and strong anti-money laundering regimes that protect our global financial system from abuse, including
through implementation of standards requiring enhanced due diligence of PEP accounts to combat public corruption;
and
(3)
We must continue to develop and apply targeted initiatives that effectively identify kleptocratic regimes and
networks.

The NGO community is a crucial partner in these efforts. Working together, we can raise awareness and secure
greater support for the actions needed by all countries to combat kleptocracy. Forums like this will help build the
consensus and capacity to do just that.

REPORTS
Dep Asst Sec o f State Verviile Remarks

THE FIGHT AGAINST KLEPTOCRACY
Elizabeth G. Verville
Deputy Assistant Secretary of State for Crime, INL
Collaborative Efforts to Combat High-Level Corruption
Washington, DC
December 1, 2008
A ssistant Secretary O ’Brien, A cting A ssistant A ttorney General Friedrich, colleagues:
I am pleased to participate in this im portant event to advance our jo in t efforts to prevent and
com bat high-level corruption. Thank you, Patrick, for bringing together so m any o f our private
sector colleagues w ho w ork hand in hand w ith us all over the w orld to com bat kleptocracy and,
indeed, all form s o f corruption. I am glad to see so m any non-governm ental organizations
represented here today and hope this event gives renew ed im petus to the fruitful collaborations
w e have w ith m any o f you.

USG and State Department Interests and E fforts
W e do not need to elaborate to this audience the high costs o f global corruption and the m ultiple
w ays that corruption underm ines governm ents, threatens econom ies and the w ell-being o f
citizens in every country around the w orld, and greases the w heels o f transnational organized
crim e and terrorism . Fighting corruption is a high US G overnm ent priority, both on foreign
policy and national security grounds.
Since no country is im m une from corruption and corrupt actors respect no borders, no country
can successfully fight corruption alone. The State Departm ent, w ith the help o f our colleagues in
other agencies, collaborates w ith our international partners on the bilateral, regional and global
levels to prom ote the adoption and im plem entation o f com m on standards and approaches against
corruption.
W hereas little m ore than a decade ago corruption was a taboo subject, we now regularly
cooperate through frank and open channels to bring corrupt actors to justice and deny them safe
haven and the fruits o f their corruption.
This cooperation produced the m ost com prehensive treaty to date, the U nited N ations
C onvention against Corruption, or “U N C A C ,” w hich has globalized the fight against corruption.
Concluded in 2003, it already has 128 States Parties. The rapid pace o f ratification or accession
reflects the high degree o f interest in the convention. The State D epartm ent is currently leading
negotiations for the term s o f reference for a new review m echanism .
The C onvention establishes for the first tim e near global agreem ent on the legal fram ew ork
countries need to adopt to fight and prevent corruption. N ow , no longer do w e have one country
or set o f countries telling others w hat they should be doing to com bat corruption. For the first

tim e w e have agreed on standards, so the question becom es not w hat w e should be doing but
how w ell are doing in im plem enting our com m itm ents and w hat help states parties m ight need.
N ow that standards are in place, our focus is prom oting and supporting im plem entation. T o that
end, the State D epartm ent w orks in three areas. W e prom ote and participate in m echanism s that
review and spur im plem entation o f existing com m itm ents. W e support regional initiatives that
prom ote policy dialogue and sharing o f good practices. Finally, we fund technical assistance to
help countries im plem ent their com m itm ents, including by reform ing their legal fram ew orks and
institutions and building the capacity o f their officials. The D epartm ent w orks closely w ith other
governm ent agencies, along w ith regional and m ultilateral organizations, to support projects
throughout the globe.
W orking closely w ith the Justice and Treasury Departm ents, w e have also supported
im plem entation o f U N C A C ’s A sset Recovery chapter, w hich provides a novel fram ew ork for
international legal cooperation on recovery o f the proceeds o f corruption.
Prior to the negotiation o f the U N CA C, the U nited States prom oted the conclusion o f a series o f
regional and subject m atter-specific treaties. Each represented a significant advance in the
developm ent o f m ultilateral standards on corruption, and the U SG continues to prom ote their
im plem entation. These netw orks provide reform ers a forum in w hich to spur each other on, and
serve as a platform for the exchange and consideration o f good practices.
H ow ever, to be clear, corruption is not m erely a m atter for action by developing econom ies.
D eveloped econom ies m ust show leadership and keep their ow n houses clean. W e have also
w orked w ith G roup o f Eight partners since the 2003 E vian Sum m it to adopt a w ide variety o f
com m itm ents on G8 and individual actions to address corruption.
Finally, w e also have tools to pursue individual kleptocrats, under the U.S. policy o f denial o f
safe haven to corrupt officials, those w ho corrupt them , and the proceeds o f their corruption.
The State D epartm ent adm inisters the application o f Presidential Proclam ation 7750, issued in
January 2004, w hich establishes the authority for the U.S. to deny or revoke visas to corrupt
officials and those w ho corrupt them , w hen w e determ ine the corruption adversely affects the
U.S. national interests.

Role o f Non-G overnm ental Partners
Efforts to address corruption will never be as successful if they rely on the action o f governm ent
alone. Successful reform requires the collaboration o f governm ent and civil society.
A t the State D epartm ent, we m aintain an active dialogue w ith U.S. and international non
governm ental organizations on our policy initiatives and program s. In m any instances their input
has inform ed or enriched our policy form ulation and im plem entation. In other instances, we
have collaborated w ith N G O s to draw upon their expertise to deliver technical assistance to our
partner countries.

A s a m atter o f policy, we urge sim ilar engagem ent, and the transparency that facilitates it, by
other countries. In the various m ultilateral anticorruption fora in w hich w e participate, w e
encourage sharing o f inform ation and an appropriate role for civil society groups. These
principles are reflected in the U N CA C, as well.
W e hope that this collaboration w ill continue and deepen. To that end, w e w elcom e the dialogue
that this conference is intended to facilitate. I hope that the discussions today are not only
reinforcing the collaboration we have enjoyed to date, but also identifying new areas in w hich w e
can w ork together in our shared long-term effort to fight corruption.

Secretary Paulson Remarks on the U.S. Economy and Financial System
12/1/2008
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Washington- Good afternoon. Thank you for the opportunity to provide an update on the current state of the U.S.
economy, our implementation of the financial rescue package and strategies for use of the remaining TARP funds.
Today we continue to work through a severe financial crisis. While we are making progress, the journey ahead will
continue to be a difficult one. But I have confidence that we are pursuing the right strategy to stabilize the financial
system and support the flow of credit into our economy. The new authorities Congress provided in October
dramatically expanded the tools available to the federal government to address the needs of our system. As I and
my fellow regulators stated clearly at the time, we now have a set of tools - new authorities in addition to our existing
ones- that we can deploy in creative combinations to maximize their impact on our system. And we have taken
significant collaborative actions that demonstrate that strategy in action.
This consistent effort to strengthen our financial institutions so they can support our economy is critical to our
progress through the current economic downturn. Strong financial institutions and a stable financial system will
smooth the path to recovery and an eventual return to prosperity.
The root of this financial turmoil is the housing correction that began and accelerated throughout 2007. As home
prices have declined and foreclosures have risen, housing-related assets have been hit particularly hard. Fifteen
months ago the housing correction spilled over into the financial sector, pushing the banking system into stress.
Consequently, the overall economy has suffered. Third quarter GDP this year showed negative 0.5 percent growth.
The unemployment rate has risen to a level not seen in 15 years, with a loss of 240,000 jobs in October alone. Data
released |ast week showed that through September, home prices in 10 major cities had fallen 19 percent over the
previous year, demonstrating that the housing correction has not abated. And as the economy slows further, it
threatens to prolong the housing correction.
There is no single action the Federal Government can take to end the financial market turmoil and the economic
downturn. In these extraordinary times, we must instead focus on developing the most effective combination of our
tools to further stabilize our financial system and speed the process of recovery.
Financial System Recovery Efforts
We have implemented several programs aimed at improving the flow of credit to businesses and consumers, so they
can spend and invest and restore our economy.
Most significantly, we devoted $250 billion to increasing the capital of our banks. A stronger capital base enables
banks to take losses as they write down or sell troubled assets. Stronger capitalization is also essential to increasing
lending which, although difficult to achieve during times like this, is essential to economic recovery.
Treasury has received hundreds of applications from the regulators, and hundreds more are under review by the
regulators. To date we have purchased preferred shares in 52 institutions, putting $150 billion in additional capital into
the financial system. And we will work through the remaining applications in the coming weeks and months.

We have announced the terms for participation for most non-publicly traded banks, another important source of credit
in our economy. Regulators are already receiving many applications from private banks and are reviewing and
processing those now.
In a powerful joint statement on November 1 2 th, our banking regulators have emphasized that the extraordinary
government actions taken to stabilize and strengthen the banking system are not merely one-sided; all banks - not
just those participating in the Capital Purchase Program —have benefited, so they all also have responsibilities in the
areas of lending, dividend and compensation policies, and foreclosure mitigation. We strongly support this
regulatory initiative.
We expect banks to increase their lending as a result of these efforts and it is important that they do so. This lending
won’t materialize as fast as any of us would like, but it will happen much, much faster as confidence is restored as a
result of having used the TARP to stabilize our system and to increase the capital in our banks.
As we all know, the non-bank financial sector is a critical source of finance for the consumer spending that fuels our
economy. Consumer credit is critical for many households as they consider purchasing a car, new appliances, or
other big ticket items. Like other forms of credit, the availability of affordable consumer credit depends on ready
access to a liquid and affordable secondary market - in this case, the asset backed credit market. Recent credit
market stresses essentially brought this market to a halt in October. As a result, millions of Americans cannot find
affordable financing for their basic credit needs. And credit card rates are climbing, making it more expensive for
families to finance everyday purchases. The Federal Reserve and the Treasury last week announced an aggressive
program to support the normalization of credit markets and the availability of affordable consumer credit to support
economic recovery.
To support the return of consumer lending, the Treasury will provide $20 billion in TARP resources to back a Federal
Reserve facility that will provide liquidity to issuers of consumer asset backed paper, enabling a broad range of
institutions to step up their lending, and enabling borrowers to have access to lower cost consumer finance and small
business loans. The facility may be expanded over time and eligible asset classes may be expanded later to include
other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or
other asset classes.
This consumér lending facility is one example of the creative combination of federal government authorities to ease a
major obstruction to the flow of credit into our economy. The actions taken last week to support Citigroup similarly
demonstrate the creative combination of tools to most effectively strengthen our financial institutions and confidence
in our system.
We are actively engaged in developing additional programs to strengthen our financial system so that lending flows
into our economy. When these programs are ready for implementation, we will discuss them with the Congress and
the next Administration.
We continue to look at additional capital strategies, and as we do so we will assess the impact of the first capital
program, and use this information to evaluate the size and focus of an additional program in light of existing economic
and market conditions.
And we are continuing to examine potential foreclosure mitigation ideas that may be an appropriate and effective use
of TARP resources. This Administration has used a variety of authorities to reduce avoidable foreclosures, through
HUD programs, through the FDIC's program with IndyMac, through our support and leadership of the HOPE NOW
Alliance, and through the new GSE servicer guidelines announced November 11th that will set a new standard for the
entire industry for streamlined modification procedures.

An important complement to those guidelines was the GSEs' announcement on November 2 0 th that they will
suspend all foreclosures for 90 days. The foreclosure suspension will give homeowners and servicers time to utilize
the new streamlined loan modification program and make it possible for more families to work out terms to stay in
their homes.
And of course, as we consider potential new TARP programs, we must also maintain flexibility and firepower for this
Administration and the next, to address new challenges as they arise.
As I have said for some time, the housing correction is at the root of our economic and market difficulties. The most
important thing we can do to mitigate foreclosures and progress through the housing correction is to reduce the cost
of mortgage finance, so more families can afford to buy a home, and so homeowners can refinance into more
affordable mortgages. The actions we have taken to stabilize and strengthen Fannie Mae and Freddie Mac, and
through them to increase the flow of mortgage credit have insulated mortgage rates from the rapid increases and
fluctuations in the cost of other credit. But given that we have essentially guaranteed Fannie Mae and Freddie Mac
securities, the rates on those securities - and corresponding mortgage rates - have not come down as much as we
may have hoped. The Federal Reserve's announcement that it will purchase $100 billion in GSE debt and half a
trillion dollars in GSE mortgage backed securities should have a strongly positive impact on the cost of mortgage
finance. And we continue to look for additional ways to make mortgage credit more affordable, which will stimulate
purchases, help to stabilize prices and end this housing correction.
Conclusion
Until the financial crisis is behind us, we must remain vigilant, ready to respond and to manage unpredictable events
as they occur. Our first priority is on recovery. We work every day fully aware of our awesome responsibility to the
American people who depend on the financial system to save for college and retirement, for financing homes, cars
and companies. I am confident that we will work through this difficult period, and opportunity and prosperity will
again flourish.

Thank you.

Statement by Deputy Secretary Robert M. Kimmitt following Meeting of G-8
Finance Ministers
5/19/2007
HP-1302
Werder (Havel), Germ any-The G-8 Finance M inisters m et today to help prepare fo r the Leaders' Sum m it in
Heiligendamm. We covered a wide range o f im portant topics fo r the international m onetary system , led by
the German Presidency and our very able chair, M inister Steinbruck. I also had the opportunity to m eet w ith
m any o f colleagues, including from A frica, on a bilateral basis.
The G-8 Finance Ministers met today to help prepare for the Leaders' Summit in Heiligendamm. We covered a wide
range of important topics for the international monetary system, led by the German Presidency and our very able
chair, Minister Steinbruck. I also had the opportunity to meet with many of colleagues, including from Africa, on a
bilateral basis.
As always, the global economic outlook and prospects for the U.S. economy were in the foreground. The global
economy continues its strong performance —indeed, the strongest in three decades. I informed my colleagues that
our fiscal deficit continues to decline and the U.S. economy is making the transition to a sustainable growth path.
While the economy grew modestly in the first quarter, we are confident it will return toward trend over the year. We
see evidence that housing is stabilizing and that rising delinquencies in the sub prime mortgage market have not
spread more generally. Inflation remains contained and the job market is strong.
One of the issues I was keen to raise with the G-8 was the ongoing need for open trade and investment climates in
our countries. The United States continues to push for an ambitious outcome to the Doha Round. The United States
also has a longstanding commitment to economic openness to empower individuals and to generate economic
opportunities and prosperity for all. In statements last week by President Bush and Secretary Paulson, the United
States has strongly reaffirmed that commitment.
Foreign firms in the U.S. alone employ more than 5 million workers and account for almost 6 percent of our GDP. At
the same time, rising protectionist sentiment - both at home and abroad - in the fields of trade and investment is
worrisome. With the accumulation of large financial resources in many governmental coffers around the world, some
of which are in turn being recycled into FDI abroad, protectionist pressures could become more acute. The G-8,
individually and collectively, must seek policies that demonstrate the benefits from open trade and investment, while
avoiding the lost jobs and opportunities that would result from increased protectionism.
We discussed our common objective to promote a thriving and competitive hedge fund industry as part of a growing
global financial system while maintaining investor protection and promoting financial stability. We were briefed today
by the Financial Stability Forum, and I commend the Forum's approach to hedge funds in the global markets. Private
pools of capital, including hedge funds, have contributed significantly to the efficiency of capital markets. Recognizing
the important role of these private pools of capital, the President's Working Group on FinancialMarkets issued
principles and guidelines to further enhance vigilance and market discipline. Price discovery, liquidity, and risk
dispersion are vital components in this effort, as are maintaining investor protection and promoting financial stability.
As we learned during the emerging market crises of the 1990s, many developing countries faced large national
balance sheet vulnerabilities because they lacked domestic capital markets and could not borrow in their own
currencies. The G-8 this year placed on its agenda the issue of developing local currency bond markets in emerging
market economies. This is a good issue for the G-8 because there is a wealth of experience in our countries that can

be deployed, in conjunction with the good work of the International Monetary Fund and World Bank, to help emerging
markets develop more robust financial markets and achieve more durable growth and financial stability. I am pleased
to announce that today we endorsed an action plan for developing local bond markets in emerging market economies
and developing countries. The action plan maps out concrete measures to be taken in six areas: market
infrastructure, derivatives and swap markets, institutional investor base, technical assistance, information availability,
regional initiatives and less developed countries.
I was pleased to be able to join in the discussion of good financial governance in Africa at last night's outreach dinner
with our colleagues from Cameroon, Ghana, Mozambique, Nigeria, and South Africa. Good governance is absolutely
critical for economic development. I would like to highlight just one of these issues, which is maintaining sustainable
debt levels in the poorest countries. Official lending activities throughout the world, particularly in Africa, threaten the
hard-won gains from recent debt relief initiatives. It is critical that both borrowers and creditors agree on an approach
to debt sustainability that prevents the reemergence of debt distress.
We discussed our commitments to improve energy efficiency and security, and to address climate change issues
through actions that accelerate the development of clean energy technologies without undermining the economic
growth that will be necessary to deploy those technologies. I highlighted the United States' commitment to improving
energy efficiency and security through such efforts as President Bush's Twenty in Ten initiative.
Finally, we remain engaged in strengthening the international framework against illicit finance, and developing our
national authorities and capabilities to take effective economic and financial action against the global threats of WMD
proliferation and terrorism. We maintain strong support for the Financial Action Task Force's efforts to guide
implementation of the financial provisions of,WMD-related UN Security Council resolutions (UNSCRs), and to
consider the threat of WMD proliferation finance more broadly. We agreed on the need to invest the resources
required to identify and economically sanction the individuals and entities within WMD proliferation and terrorism
support networks, in accordance with various UNSCRs.
Thank you.

United States, New Zealand Sign Protocol to Income Tax Treaty
12/1/2008

To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.
hp-1303
The Treasury Department announced today that Deputy Secretary Robert M. Kimmitt and New Zealand's
Ambassador to the United States Roy Ferguson signed a protocol updating the current income tax treaty between the
United States and New Zealand.
In a ceremony held at the Treasury Department, the two officials signed a Protocol that brings the existing tax treaty
into closer conformity with current U.S. tax treaty policy. The new agreement provides for the elimination of sourcecountry taxation of certain direct dividends, and interest paid to banks and other financial enterprises when the payer
of the interest is not a related party. The new protocol also reduces the existing treaty's limit on taxation of crossborder payments of royalties to five percent.
The new protocol introduces a number of technical updates to the existing treaty, and also contains comprehensive
and modern rules regarding limitation on benefits, non-discrimination and exchange of information.
The signed protocol is attached.
-30REPORTS
• Protocol to the US, New Zealand Income Tax Treaty

U.S. and China Hold Meeting of the Strategic Economic Dialogue
12/3/2008
Treasury Secretary Henry M. Paulson, Jr. led a
U.S. delegation to China last week for the fifth
Cabinet level meeting of the SED. Presidents Bush
and Hu established the SED in 2006 to provide a
focused and effective framework for addressing
economic issues of mutual concern. The meeting
focused on strategies for managing
macroeconomic risks and promoting balanced
economic growth, strengthening cooperation in
energy and environment, confronting the
challenges to trade, promoting open investment
environments, and furthering international
economic cooperation.

LINKS
Opening Remarks
U.S. Fact Sheet
U.S.-China Fact Sheet
U.S. Fact Sheet on Energy and Environment Accomplishments
Joint U.S. - China Fact Sheet on Ten Year Energy and Cooperation
Paulson Statement at the EcoPartnerships Signing
US and China Announce Annual Trade Finance to Assist Global Trade
Closing Remarks
More on the SED

UPDATE: U.S. and China to Hold Meeting of the Strategic Economic Dialogue in China This Week
12/1/2008
HP-1304
Washington —Treasury Secretary Henry M. Paulson, Jr. will lead a U.S. delegation to China this week for the
meeting of the U.S.-China Strategic Economic Dialogue. The talks will take place December 4-5 in Beijing.
Secretary Paulson will be joined by Agriculture Secretary Ed Schafer, Labor Secretary Elaine Chao, Health and
Human Services Secretary Mike Leavitt, Office of Management and Budget Director Jim Nussle, U.S. Trade
Representative Susan Schwab, EPA Administrator Stephen Johnson, and other Administration officials.
The fifth Cabinet-level meeting of the SED will focus on strategies for managing macroeconomic risks and promoting
balanced economic growth, strengthening cooperation in energy and environment, confronting the challenges to
trade, promoting open investment environments, and furthering international economic cooperation. The dialogue
was launched by President Bush and President Hu in September 2006.
The following events are open to media with SED credentials:
What
Opening Statements and Introductions
When
Thursday, December 4, 2008, 8:30 a.m. Local Time
Where
Diaoyutai State Guesthouse
Villa 17, Thousand Person Hall
Beijing
Note
Media must have SED credentials to attend. SED credentialed media must be set by 7:30 a.m.
*****

What
Eco Partnership Signing Ceremony
When
Thursday, December 4, 2008, 5:45 p.m. Local Time
Where
Diaoyutai State Guesthouse
Multi Purpose Room
Beijing
Note
This is a pooled event. Media must have SED credentials to attend. SED credentialed media must be set by 4:45
p.m.
*****
What
Family Photo
When
Friday, December 5, 2008, 8:00 a.m. Local Time
Where
Diaoyutai State Guesthouse
Multi
Purpose Room
Beijing
Note
This is a pooled photo event. Photographers must have SED credentials to attend. SED credentialed photographers
must be set by 7:00 a.m.

*****

I
t

What
Closing Statements by Vice Premier Wang and Secretary Paulson
When
Friday, December 5, 2008,12:05 p.m. Local Time
Where
Diaoyutai State Guesthouse
Multi Purpose Room
Beijing
Note
Media must have SED credentials to attend. SED credentialed media must be set by 11:05 a.m.
*****
What
U.S. Delegation Press Conference
When
Friday, December 5, 2008,1:45 p.m. Local Time
Where
Grand Hyatt Beijing
Grand Ballroom 1
1 East Chang An Avenue
Beijing
Note
Media must have SED credentials to attend. SED credentialed media must be set by 1:15 p.m.

PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED STATES OF
AMERICA AND NEW ZEALAND FOR THE AVOIDANCE OF DOUBLE TAXATION
AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON
INCOME

The Government of the United States of America and the Government of New Zealand,
desiring to amend the Convention Between the United States of America and New Zealand for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes
on Income, signed at Wellington on July 23, 1982 (hereinafter referred to as "the Convention"),
Have agreed as follows:

Article I
1.
Paragraph 3 of Article 1 (General Scope) of the Convention shall be deleted and
replaced by the following:
“3.

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

2.
Article 1 (General Scope) of the Convention shall be amended by adding the following
paragraphs:
“5.

(a)

(b)
6.

Notwithstanding the provisions of paragraph 2(b) of this Article:
(i)

for purposes of paragraph 3 of Article XXII (Consultation) of the
General Agreement on Trade in Services, the Contracting States agree
that any question arising as to the interpretation or application of this
Convention and, in particular, whether a taxation measure is within the
scope of this Convention, shall be determined exclusively in accordance
with the provisions of Article 24 (Mutual Agreement Procedure) of this
Convention; and

(ii)

the provisions of Article XVII (National Treatment) of the General
Agreement on Trade in Services shall not apply to a taxation measure
unless the competent authorities agree that the measure is not within the
scope of Article 23 (Non-Discrimination) of this Convention.

For the purposes of this paragraph, a "measure" is a law, regulation, rule,
procedure, decision, administrative action, or any similar provision or action.

An item of income, profit or gain derived through an entity that is fiscally transparent
under the laws of either Contracting State shall be considered to be derived by a
resident of a State to the extent that the item is treated for purposes of the taxation law
of such Contracting State as the income, profit or gain of a resident.”

Article II
Article 2 (Taxes Covered) of the Convention shall be deleted and replaced by the following:
“Article 2
TAXES COVERED
1.

This Convention shall apply to taxes on income imposed on behalf of a Contracting
State irrespective of the manner in which they are levied.

There shall be regarded as taxes on income all taxes imposed on total income, or on
elements of income, including taxes on gains from the alienation of property.

The existing taxes to which this Convention shall apply are:
(a)

in the case of New Zealand: the income tax (hereinafter referred to as New
Zealand tax;

in the case of the United States: the Federal income taxes imposed by the
Internal Revenue Code (but excluding social security and unemployment taxes),
and the Federal excise taxes imposed with respect to private foundations
(hereinafter referred to as United States tax).
This Convention shall apply also to any identical or substantially similar taxes that are
imposed after the date of signature of the Convention in addition to, or in place of, the
existing taxes. The competent authorities of the Contracting States shall notify each
other of any changes that have been made in their respective taxation or other laws that
significantly affect their obligations under this Convention.”

Article III
1.
Paragraph 1(b) of Article 3 (General Definitions) of the Convention shall be deleted and
replaced by the following:
“(b)

the term “company” means any body corporate or any entity that is treated as a body
corporate for tax purposes according to the laws of the state in which it is organized;”

2.
Paragraph 1(d) of Article 3 (General Definitions) of the Convention shall be deleted and
replaced by the following:
“(d)

the terms “enterprise of a Contracting State” and “enterprise of the other Contracting
State” mean respectively an enterprise carried on by a resident of a Contracting State,
and an enterprise carried on by a resident of the other Contracting State; the terms also
include an enterprise carried on by a resident of a Contracting State through an entity
that is treated as fiscally transparent in that Contracting State;”

3.
Paragraph 1(g) of Article 3 (General Definitions) of the Convention shall be deleted and
replaced by the following:
“(g)

the term "United States" means the United States of America, and includes the states
thereof and the District of Columbia; such term also includes the territorial sea thereof,
the sea bed and subsoil of the submarine areas adjacent to that territorial sea, and any
area beyond that territorial sea, over which the United States exercise sovereign rights
in accordance with international law; the term, however, does not include Puerto Rico,
the United States Virgin Islands, the Commonwealth of the Northern Mariana Islands,
Guam or any other United States possession or territory;"

4.
Paragraph 1(h) of Article 3 (General Definitions) of the Convention shall be deleted and
replaced by the following:
“(h)

the term “New Zealand” means the territory of New Zealand but does not include
Tokelau; it also includes any area beyond the territorial sea designated under New
Zealand legislation and in accordance with international law as an area in which New
Zealand may exercise sovereign rights with respect to natural resources;”

5.
Paragraph l(j) of Article 3 (General Definitions) of the Convention shall be amended by
deleting the final “.” and replacing it with “;”
6.
Paragraph 1 of Article 3 (General Definitions) of the Convention shall be amended by
adding the following subparagraphs:
“(k)

the term “national” of a Contracting State means:
(i)

any individual possessing the nationality or citizenship of that State; and

(ii)
(1)

the term "pension fund" means any person established in a Contracting State that is:
(i)

(ii)

(m)

any legal person, partnership or association deriving its status as such from the
laws in force in that State;

operated principally either:
(A)

to administer or provide pension or retirement benefits; or

(B)

to earn income for the benefit of one or more persons described in clause
(A); and

is either:
(A)

in the case of New Zealand, a superannuation scheme registered under
the Superannuation Schemes Act 1989, a KiwiSaver Scheme registered
under the KiwiSaver Act 2006, the New Zealand Superannuation Fund,
or the Government Superannuation Fund; or

(B)

in the case of the United States, generally exempt from income taxation
in the United States;

the term “enterprise” applies to the carrying on of any business; and

(n)
the term “business” includes the performance of professional services and other
activities of an independent character.”
7.
Paragraph 3 of Article 3 (General Definitions) of the Convention shall be deleted and
replaced by the following:
“3.

As regards the application of the Convention at any time by a Contracting State, any
term not defined therein shall, unless the context otherwise requires, or the competent
authorities agree to a common meaning pursuant to the provisions of Article 24 (Mutual
Agreement Procedure), have the meaning which it has at that time under the law of that
State concerning the taxes to which the Convention applies, any meaning under the
applicable tax laws of that State prevailing over a meaning given to the term under other
laws of that State.”

Article IV
1.
Paragraph 1 of Article 4 (Residence) of the Convention shall be deleted and replaced by
the following:
“1.

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

a pension fund established in that State; and

(b)

an organization that is established and maintained in that State
exclusively for religious, charitable, scientific, artistic, cultural, or
educational purposes,

notwithstanding that all or part of its income or gains may be exempt from tax
under the domestic law of that State.”
2.
Paragraph 2(c) of Article 4 (Residence) of the Convention shall be amended by deleting
the word “citizen” and replacing it with the word “national”.
3.
Paragraph 2(d) of Article 4 (Residence) of the Convention shall be amended by deleting
the word “citizen” and replacing it with the word “national”.
4.
Paragraph 4 of Article 4 (Residence) of the Convention shall be amended by deleting
the words “shall be treated as a resident of neither Contracting State for purposes of the
Convention” and replacing them with the words “will not be treated as a resident of either
Contracting State for purposes of its claiming any benefits provided by the Convention”.

Article V
Article 7 (Business Profits) of the Convention shall be amended by adding the following
paragraphs:
“8.

In applying this Article, paragraph 6 of Article 10 (Dividends), paragraph 4 of Article
11 (Interest), paragraph 4 of Article 12 (Royalties), and paragraph 6 of Article 13
(Alienation of Property), any income or gain attributable to a permanent establishment
during its existence is taxable in the Contracting State where such permanent
establishment is situated even if the payments are deferred until such permanent
establishment has ceased to exist.

Where:
(a)

a resident of a Contracting State beneficially owns (whether directly or
through one or more interposed fiscally transparent entities or trusts) a
share of the profits of a business of an enterprise carried on in the other
Contracting State by the trustee(s) of a trust other than a trust which is
treated as a company for tax purposes; and

(b)

in relation to that enterprise, that resident would have a permanent
establishment in that other State if the resident carried on the business of
the enterprise in its own capacity,

then the business of the enterprise carried on by the trustee(s) shall be deemed
to be a business carried on in the other State by that resident through a
permanent establishment situated in that other State and the resident’s share of
profits may be taxed in the other State but only so much of them as is
attributable to that permanent establishment.”

Article VI
Article 10 (Dividends) of the Convention shall be deleted and replaced by the following:
“Article 10
DIVIDENDS
1.

Dividends paid by a company that is a resident of a Contracting State to a resident of
the other Contracting State may be taxed in that other State.

However, such dividends may also be taxed in the Contracting State of which the
company paying the dividends is a resident and according to the laws of that State, but
if the dividends are beneficially owned by a resident of the other Contracting State,
except as otherwise provided, the tax so charged shall not exceed:
(a)

5 percent of the gross amount of the dividends if the beneficial owner is a
company that owns directly at least 10 percent of the voting power of the
company paying the dividends;

(b)

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

This paragraph shall not affect the taxation of the company in respect of the profits out
of which the dividends are paid.
Notwithstanding the provisions of paragraph 2, such dividends shall not be taxed in the
Contracting State of which the company paying the dividends is a resident if the
beneficial owner is a company that is a resident of the other Contracting State that has
owned, directly or indirectly through one or more residents of either Contracting State,
shares representing 80 percent or more of the voting power in the company paying the
dividends for a 12-month period ending on the date on which entitlement to the
dividends is determined and:
(a)

satisfies the conditions of clause (i) or (ii) of paragraph 2(c) of Article 16
(Limitation on Benefits);

(b)

satisfies the conditions of clauses (i) and (ii) of paragraph 2(e) of Article 16,
provided that the company satisfies the conditions described in paragraph 3 of
that Article with respect to the dividends; or

(c)

has received a determination pursuant to paragraph 4 of Article 16 with respect
to this paragraph.

(a)
Paragraphs 2(a) and 3 shall not apply in the case of dividends paid by a U.S.
Regulated Investment Company (RIC) or a U.S. Real Estate Investment Trust (REIT).
In the case of dividends paid by a RIC, paragraph 2(b) shall apply. In the case of
dividends paid by a REIT, paragraph 2(b) shall apply only if:

(b)

(i)

the beneficial owner of the dividends is an individual or pension fund, in
either case holding an interest of not more than 10 percent in the REIT;

(ii)

the dividends are paid with respect to a class of stock that is publicly
traded and the beneficial owner of the dividends is a person holding an
interest of not more than 5 percent of any class of the REIT's stock; or

(iii)

the beneficial owner of the dividends is a person holding an interest of
not more than 10 percent in the REIT and the REIT is diversified.

For purposes of this paragraph, a REIT shall be "diversified" if the value of no
single interest in real property exceeds 10 percent of its total interests in real
property. For the purposes of this rule, foreclosure property shall not be
considered an interest in real property. Where a REIT holds an interest in a
partnership, it shall be treated as owning directly a proportion of the
partnership's interests in real property corresponding to its interest in the
partnership.

For purposes of this Article, the term "dividends" means income from shares or other
rights participating in profits, as well as income that is subjected to the same taxation

treatment as income from shares under the laws of the State of which the payer is a
resident.
The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the
dividends, being a resident of a Contracting State, carries on business in the other
Contracting State, of which the company paying the dividends is a resident, through a
permanent establishment situated therein, and the holding in respect of which the
dividends are paid is effectively connected with such permanent establishment. In such
case, the provisions of Article 7 (Business Profits) shall apply.
A Contracting State may not impose any tax on dividends paid by a resident of the other
State, except insofar as the dividends are paid to a resident of the first-mentioned State
or insofar as the holding in respect of which the dividends are paid is effectively
connected with a permanent establishment, nor may it impose tax on a corporation's
undistributed profits, except as provided in paragraph 8, even if the dividends paid or
the undistributed profits consist wholly or partly of profits or income arising in that
State.
A company that is a resident of New Zealand and that has a permanent establishment in
the United States or that is subject to tax in the United States on a net basis on its
income that may be taxed in the United States under Article 6 (Income from Real
Property) or under paragraph 1 of Article 13 (Alienation of Property) may be subject in
the United States to a tax in addition to the tax allowable under the other provisions of
this Convention. Such tax, however, may be imposed on only the portion of the
business profits of the company attributable to the permanent establishment and the
portion of the income that is subject to tax under Article 6 or under paragraph 1 of
Article 13 that, in the United States, represents the dividend equivalent amount of such
profits or income.
The tax referred to in paragraph 8 shall not be imposed at a rate exceeding the rate
specified in paragraph 2(a). In any case, it shall not be imposed on a company that:
(a)

satisfies the conditions of clause (i) or (ii) of paragraph 2(c) of Article 16
(Limitation on Benefits);

(b)

(c)

has received a determination pursuant to paragraph 4 of Article 16 with respect
to this paragraph.”

Article VII
Article 11 (Interest) of the Convention is deleted and replaced by the following:
“Article 11
INTEREST
1.

Interest arising in a Contracting State and beneficially owned by a resident of the other
Contracting State may be taxed in that other State.

However, such interest may also be taxed in the Contracting State in which it arises and
according to the laws of that State, but if the beneficial owner of the interest is a

resident of the other Contracting State, the tax so charged shall not exceed 10 percent of
the gross amount of the interest.
Notwithstanding paragraph 2, interest shall be exempt from tax by the Contracting State
where it arises if the interest is:
(a)

beneficially owned by the other Contracting State or an instrumentality of that
Contracting State which is not subject to tax on its income by that State;

(b)

beneficially owned by a resident of the other Contracting State with respect to
debt obligations guaranteed or insured by that State or an instrumentality of that
State which is not subject to tax on its income by that State; or

(c)

beneficially owned by a resident of the other Contracting State that is either:
(i)

a bank; or

(ii)

an enterprise substantially deriving its gross income from the
active and regular conduct of a lending or finance business
involving transactions with unrelated parties;

that is unrelated to the payer of the interest. For purposes of this subparagraph
(c), the term "lending or finance business" includes the business of:
(A)

making loans;

(B)

purchasing or discounting accounts receivable, notes, or
installment obligations;

(C)

engaging in finance leasing (including entering into finance
leases and purchasing, servicing, and disposing of finance leases
and related leased assets);

(D)

issuing letters of credit or providing guarantees; or

(E)

providing charge and credit card services.

The provisions of paragraphs 2 and 3 shall not apply if the beneficial owner of the
interest, being a resident of a Contracting State, carries on business in the other
Contracting State, in which the interest arises, through a permanent establishment
situated therein, and the debt-claim in respect of which the interest is paid is effectively
connected with such permanent establishment. In such case the provisions of Article 7
(Business Profits) shall apply.
Interest shall be deemed to arise in a Contracting State when the payer is that State
itself, a political subdivision, a local authority, or resident of that State. Where,
however, the person paying the interest, whether the person is a resident of a
Contracting State or not, has in a Contracting State a permanent establishment in
connection with which the indebtedness on which the interest is paid was incurred, and
such interest is borne by such permanent establishment, then such interest shall be
deemed to arise in the State in which the permanent establishment is situated.
Where, by reason of a special relationship between the payer and the beneficial owner
or between both of them and some other person, the amount of the interest, having
regard to the debt-claim for which it is paid, exceeds the amount which would have
been agreed upon by the payer and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply only to the last-mentioned
amount. In such case the excess part of the payments shall remain taxable according to

the laws of each Contracting State, due regard being had to the other provisions of the
Convention.
7.

The term "interest" as used in this Article means income from debt-claims of every
kind, whether or not secured by mortgage, and whether or not carrying a right to
participate in the debtor's profits, and in particular, income from government securities
and income from bonds or debentures, including premiums or prizes attaching to such
securities, bonds or debentures, and all other income that is subjected to the same
taxation treatment as income from money lent by the taxation law of the Contracting
State in which the income arises. Income dealt with in Article 10 (Dividends) and
penalty charges for late payment shall not be regarded as interest for the purposes of
this Convention.

Notwithstanding the provisions of paragraphs 1, 2 and 3:

10.

11.

(a)

interest arising in the United States that is contingent interest of a type that does
not qualify as portfolio interest under United States law may be taxed by the
United States but, if the beneficial owner of the interest is a resident of New
Zealand, the interest may be taxed at a rate not exceeding 15 percent of the gross
amount of the interest; and

(b)

interest that is an excess inclusion with respect to a residual interest in a real
estate mortgage investment conduit may be taxed by the United States in
accordance with its domestic law.

In the case of the United States, the excess, if any, of the amount of interest allocable to
the profits of a company resident in the other Contracting State that are either
attributable to the permanent establishment in the United States or subject to tax in the
United States under Article 6 (Income from Real Property) or paragraph 1 of Article 13
(Alienation of Property) over the interest paid by that permanent establishment or trade
or business in the United States shall be deemed to arise in the United States and be
beneficially owned by a resident of the other Contracting State. The tax imposed under
this Article on such interest shall not exceed the rate provided for in paragraph 2, unless
the company is described in paragraph 3, in which case it shall be exempt from such
taxation in that other Contracting State.
Notwithstanding paragraph 3, interest referred to in subparagraph (c) of that paragraph
may be taxed in the State in which it arises at a rate not exceeding 10 percent of the
gross amount of the interest if:
(a)

in the case of interest arising in New Zealand, it is paid by a person that has not
paid approved issuer levy in respect of the interest. This subparagraph (a) shall
not apply if New Zealand does not have an approved issuer levy, or the payer of
the interest is not eligible to elect to pay the approved issuer levy, or if the rate
of the approved issuer levy payable in respect of such interest exceeds two
percent of the gross amount of the interest. For the purposes of this Article,
“approved issuer levy” includes any identical or substantially similar charge
payable by the payer of interest arising in New Zealand enacted after the date of
this Convention in place of approved issuer levy; or

(b)

it is paid as part of an arrangement involving back-to-back loans or other
arrangement that is economically equivalent and intended to have a similar
effect to back-to-back loans.

Nothing in this Article shall be construed as restricting, in any manner, the right of a
Contracting State to apply any anti-avoidance provisions of its taxation law.”

Article VIII
Article 12 (Royalties) of the Convention is deleted and replaced by the following:
“Article 12
ROYALTIES
1.

Royalties arising in a Contracting State and beneficially owned by a resident of the
other Contracting State may be taxed in that other State.

However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the beneficial owner of the royalties is a
resident of the other Contracting State, the tax so charged shall not exceed 5 percent of
the gross amount of the royalties.

The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or
scientific work including cinematographic films, films or video tapes for use in
connection with television or tapes for use in connection with radio broadcasting, any
patent, trademark, design or model, plan, secret formula or process, or for information
concerning industrial, commercial or scientific experience. The term "royalties" also
includes income or gains from the alienation of any property or rights described in this
paragraph to the extent that such income or gains are contingent on productivity, use or
disposition of such property or rights.

The provisions of paragraph 2 shall not apply if the beneficial owner of the royalties,
being a resident of a Contracting State, carries on business in the other Contracting
State, in which the royalties arise, through a permanent establishment situated therein,
and the right or property in respect of which the royalties are paid is effectively
connected with such permanent establishment. In such case the provisions of Article 7
(Business Profits) shall apply.

(a) Royalties shall be deemed to arise in a Contracting State when the payer is that State
itself, a political subdivision, a local authority or a resident of that State. Where,
however, the person paying the royalties, whether the person is a resident of a
Contracting State or not, has in a Contracting State a permanent establishment in
connection with which the liability to pay the royalties was incurred, and such royalties
are borne by such permanent establishment then such royalties shall be deemed to arise
in the State in which the permanent establishment is situated.
(b) Where subparagraph (a) does not operate to deem royalties as arising in either
Contracting State and the royalties relate to the use of, or the right to use, in one of the
Contracting States, any property or right described in paragraph 3, the royalties shall be
deemed to arise in that State.

Where, by reason of a special relationship between the payer and the beneficial owner
or between both of them and some other person, the amount of the royalties, having
regard to the use, right, or information for which they are paid, exceeds the amount
which would have been agreed upon by the payer and the beneficial owner in the
absence of such relationship, the provisions of this Article shall apply only to the lastmentioned amount. In such case the excess part of the payments shall remain taxable
according to the laws of each Contracting State, due regard being had to the other
provisions of the Convention.”

ARTICLE IX
1.
Paragraph 6 of Article 13 (Alienation of Property) of the Convention shall be deleted
and replaced by the following:
“6.

Income or gains from the alienation of personal property which are attributable
to a permanent establishment which an enterprise of a Contracting State has or
had in the other Contracting State, and gains from the alienation of such
permanent establishment (alone or with the whole enterprise) may be taxed in
that other State.”

2.
Article 13 (Alienation of Property) of the Convention shall be amended by adding the
following new paragraph 7:
“7.

Where an individual who, upon ceasing to be a resident of one of the
Contracting States, is treated under the taxation law of that State as having
alienated any property for its fair market value and is taxed in that State by
reason thereof, the individual may elect to be treated for purposes of taxation in
the other Contracting State as if the individual had, immediately before ceasing
to be a resident of the first-mentioned State, alienated and reacquired such
property for an amount equal to its fair market value at such time.”

3.
Article 13 (Alienation of Property) of the Convention shall be amended by renumbering
the current paragraph 7 as new paragraph 8.

Article X
j 1.
Article 14 (Independent Personal Services) of the Convention shall be deleted and the
1 succeeding Articles shall not be renumbered.
j

2.
Paragraph 4 of Article 6 (Income from Real Property) shall be amended by deleting the
words "and to income from real property used for the performance of independent personal
services”.
3.
Paragraph 2(c) of Article 15 (Dependent Personal Services) shall be amended by
deleting the words "or a fixed base".
4.
Paragraph 1 of Article 17 (Artistes and Athletes) shall be amended by deleting the
words "Articles 14 (Independent Personal Services) and" and replacing them with the word
"Article".
5.
Paragraph 2 of Article 17 (Artistes and Athletes) shall be amended by deleting the
words "Articles 7 (Business Profits) and 14 (Independent Personal Services)", and replacing
them with the words “Article 7 (Business Profits)”.
6.
Paragraph 3 of Article 19 (Government Service) shall be amended by deleting the
words "14 (Independent Personal Services),".

Article XI
Article 16 (Limitation on Benefits) of the Convention shall be deleted and replaced by the
following:
“Article 16
1

LIMITATION ON BENEFITS
I.

Except as otherwise provided in this Article, a resident of a Contracting State shall not
be entitled to the benefits of this Convention otherwise accorded to residents of a
Contracting State unless such resident is a "qualified person" as defined in paragraph 2.

A resident of a Contracting State shall be a qualified person for a taxable year if the
resident is:

(a)

an individual;

(b)

a Contracting State, or a political subdivision or local authority thereof;

(c)

(i)
its principal class of shares (and any disproportionate class of shares) is
a company, if:
regularly traded on one or more recognized stock exchanges, and either:

(ii)

(A)

its principal class of shares is primarily traded on one or more
recognized stock exchanges located in the Contracting State of
which the company is a resident; or

(B)

the company's primary place of management and control is in the
Contracting State of which it is a resident; or

at least 50 percent of the aggregate vote and value of the shares (and at
least 50 percent of any disproportionate class of shares) in the company
is owned directly or indirectly by five or fewer companies entitled to
benefits under clause (i) of this subparagraph, provided that, in the case
of indirect ownership, each intermediate owner is a resident of either
Contracting State;

(d)

a person described in paragraphs 1(a) or 1(b) of Article 4 (Residence) of this
Convention, provided that, in the case of a person described in subclause (A) of
clause (i) of paragraph 1(1) of Article 3 (General Definitions), more than 50
percent of the person's beneficiaries, members or participants are individuals
resident in either Contracting State; or

(e)

a person other than an individual, if:
(i)

(ii)

on at least half the days of the taxable year, persons who are residents of
that Contracting State and that are entitled to the benefits of this
Convention under subparagraph (a), subparagraph (b), clause (i) of
subparagraph (c), or subparagraph (d) of this paragraph own, directly or
indirectly, shares or other beneficial interests representing at least 50
percent of the aggregate voting power and value (and at least 50 percent
of any disproportionate class of shares) of the person, provided that, in
the case of indirect ownership, each intermediate owner is a resident of
that Contracting State, and
less than 50 percent of the person's gross income for the taxable year, as
determined in the person's State of residence, is paid or accrued, directly
or indirectly, to persons who are not residents of either Contracting State

I
I
j
I
|
1

entitled to the benefits of this Convention under subparagraph (a),
subparagraph (b), clause (i) of subparagraph (c), or subparagraph (d) of
this paragraph in the form of payments that are deductible for purposes
of the taxes covered by this Convention in the person's State of residence
(but not including arm's length payments in the ordinary course of
business for services or tangible property and payments in respect of
financial obligations to a bank that is not related to the payor).
3.

(a)

A resident of a Contracting State will be entitled to benefits of the Convention
with respect to an item of income derived from the other State, regardless of
whether the resident is a qualified person, if the resident is engaged in the active
conduct of a trade or business in the first-mentioned State (other than the
business of making or managing investments for the resident's own account,
unless these activities are banking, insurance or securities activities carried on
by a bank, insurance company or registered securities dealer), and the income
derived from the other Contracting State is derived in connection with, or is
incidental to, that trade or business.

(b)

If a resident of a Contracting State derives an item of income from a trade or
business activity conducted by that resident in the other Contracting State, or
derives an item of income arising in the other Contracting State from a related
person, the conditions described in subparagraph (a) shall be considered to be
satisfied with respect to such item only if the trade or business activity carried
on by the resident in the first-mentioned Contracting State is substantial in
relation to the trade or business activity carried on by the resident or such person
in the other Contracting State. Whether a trade or business activity is substantial
for the purposes of this paragraph will be determined based on all the facts and
circumstances.

(c)

In determining whether a person is “engaged in the active conduct of a trade or
business” in a Contracting State under subparagraph (a) of this paragraph,
activities conducted by a partnership in which that person is a partner and
activities conducted by persons connected to such person shall be deemed to be
conducted by such person. A person shall be connected to another if one
possesses at least 50 percent of the beneficial interest in the other (or, in the case
of a company, at least 50 percent of the aggregate vote and value of the
company's shares or of the beneficial equity interest in the company) or another
person possesses at least 50 percent of the beneficial interest (or, in the case of a
company, at least 50 percent of the aggregate vote and value of the company's
shares or of the beneficial equity interest in the company) in each person. In any
case, a person shall be considered to be connected to another if, based on all the
relevant facts and circumstances, one has control of the other or both are under
the control of the same person or persons.

If a resident of a Contracting State is neither a qualified person pursuant to the
provisions of paragraph 2 nor entitled to benefits with respect to an item of income
under paragraph 3 of this Article the competent authority of the other Contracting State
may, nevertheless, grant the benefits of this Convention, or benefits with respect to a
specific item of income, if it determines that the establishment, acquisition or
maintenance of such person and the conduct of its operations did not have as one of its
principal purposes the obtaining of benefits under this Convention.

Notwithstanding the preceding provisions of this Article, where an enterprise of a
Contracting State derives income from the other Contracting State, and that income is
attributable to a permanent establishment which that enterprise has in a third
jurisdiction, the tax benefits that would otherwise apply under the other provisions of
the Convention will not apply to that income if the combined tax that is actually paid
with respect to such income in the first-mentioned Contracting State and in the third

jurisdiction is less than 60 percent of the tax that would have been payable in the firstmentioned State if the income were earned in that Contracting State by the enterprise
and were not attributable to the permanent establishment in the third jurisdiction. Any
dividends, interest or royalties to which the provisions of this paragraph apply shall be
subject to tax in the other Contracting State at a rate that shall not exceed 15 percent of
the gross amount thereof. Any other income to which the provisions of this paragraph
apply shall be subject to tax under the provisions of the domestic law of the other
Contracting State, notwithstanding any other provision of the Convention. The
provisions of this paragraph shall not apply if:
(a)

in the case of royalties, the royalties are received as compensation for the use of,
or the right to use, intangible property produced or developed by the permanent
establishment itself; or

(b)

in the case of any other income, the income derived from the other Contracting
State is derived in connection with, or is incidental to, the active conduct of a
trade or business carried on by the permanent establishment in the third
jurisdiction (other than the business of making, managing or simply holding
investments for the enterprise’s own account, unless these activities are banking
or securities activities carried on by a bank or registered securities dealer).

For purposes of this Article:
(a)

the term "recognized stock exchange" means:
(i)

the NASDAQ System owned by the National Association of Securities
Dealers, Inc. and any stock exchange registered with the U.S. Securities
and Exchange Commission as a national securities exchange under the
U.S. Securities Exchange Act of 1934;

(ii)

the New Zealand Stock Market; and

(iii)

any other stock exchange agreed upon by the competent authorities;

(b)

the term "principal class of shares" means the ordinary or common shares of the
company, provided that such class of shares represents the majority of the voting
power and value of the company. If no single class of ordinary or common
shares represents the majority of the aggregate voting power and value of the
company, the "principal class of shares" are those classes that in the aggregate
represent a majority of the aggregate voting power and value of the company;

(c)

the term "disproportionate class of shares" means any class of shares of a
company resident in one of the Contracting States that entitles the shareholder to
disproportionately higher participation, through dividends, redemption payments
or otherwise, in the earnings generated in the other State by particular assets or
activities of the company; and

(d)

a company's "primary place of management and control" will be in the
Contracting State of which it is a resident only if executive officers and senior
management employees exercise day-to-day responsibility for more of the
strategic, financial and operational policy decision making for the company
(including its direct and indirect subsidiaries) in that State than in any other state
and the staff of such persons conduct more of the day-to-day activities necessary
for preparing and making those decisions in that State than in any other state.”

Article XII
1.
The last sentence of paragraph 1 of Article 22 (Relief from Double Taxation) shall be
deleted and replaced by the following:
“For the purposes of this paragraph, the taxes referred to in paragraphs 3(a) and 4 of
Article 2 (Taxes Covered) shall be considered income taxes.”
2.
Paragraph 2 of Article 22 (Relief from Double Taxation) of the Convention shall be
amended by deleting the final sentence.
3.
Paragraph 5 of Article 22 (Relief from Double Taxation) of the Convention shall be
deleted and replaced by the following:
“5.

No provision of this Convention relating to source of income shall apply in
determining credits against United States tax for foreign taxes other than those
referred to in paragraphs 3(a) and 4 of Article 2 (Taxes Covered).”

Article XIII
Article 23 (Non-Discrimination) of the Convention shall be deleted and replaced by the
following:
“Article 23
NON-DISCRIMINATION
1.

Nationals of a Contracting State shall not be subjected in the other Contracting State to
any taxation or any requirement connected therewith that is more burdensome than the
taxation and connected requirements to which nationals of that other State in the same
circumstances, in particular with respect to residence, are or may be subjected. This
provision shall also apply to persons who are not residents of one or both of the
Contracting States. However, for the purposes of United States taxation, United States
nationals who are subject to tax on a worldwide basis are not in the same circumstances
as nationals of New Zealand who are not residents of the United States.

The taxation on a permanent establishment that an enterprise of a Contracting State has
in the other Contracting State shall not be less favourably levied in that other State than
the taxation levied on enterprises of that other State carrying on the same activities.

The provisions of paragraphs 1 and 2 shall not be construed as obliging a Contracting
State to grant to residents of the other Contracting State any personal allowances,
reliefs, and reductions for taxation purposes on account of civil status or family
responsibilities that it grants to its own residents.

Except where the provisions of paragraph 1 of Article 9 (Associated Enterprises),
paragraph 6 of Article 11 (Interest), or paragraph 6 of Article 12 (Royalties) apply,
interest, royalties, and other disbursements paid by a resident of a Contracting State to a
resident of the other Contracting State shall, for the purpose of determining the taxable
profits of the first-mentioned resident, be deductible under the same conditions as if
they had been paid to a resident of the first-mentioned State.
Enterprises of a Contracting State, the capital of which is wholly or partly owned or
controlled, directly or indirectly, by one or more residents of the other Contracting
State, shall not be subjected in the first-mentioned State to any taxation or any
requirement connected therewith that is more burdensome than the taxation and
connected requirements to which other similar enterprises of the first-mentioned State
are or may be subjected.

Nothing in this Article shall be construed as preventing the United States from imposing
a tax as described in paragraph 8 of Article 10 (Dividends).

This Article shall not apply to any provision of the taxation laws of a Contracting State
which is reasonably designed to prevent or defeat the avoidance or evasion of taxes.”

Article XIV
Article 25 (Exchange of Information and Administrative Assistance) shall be deleted and
replaced by the following:
“Article 25
EXCHANGE OF INFORMATION AND ADMINISTRATIVE ASSISTANCE
1.

The competent authorities of the Contracting States shall exchange such information as
may be relevant for carrying out the provisions of this Convention or of the domestic
laws of the Contracting States concerning taxes of every kind imposed by a Contracting
State to the extent that the taxation thereunder is not contrary to the Convention,
including information relating to the assessment or collection of, the enforcement or
prosecution in respect of, or the determination of appeals in relation to, such taxes. The
exchange of information is not restricted by paragraph 1 of Article 1 (General Scope) or
Article 2 (Taxes Covered).

Any information received under this Article by a Contracting State shall be treated as
secret in the same manner as information obtained under the domestic laws of that State
and shall be disclosed only to persons or authorities (including courts and administrative
bodies) involved in the assessment, collection, or administration of, the enforcement or
prosecution in respect of, or the determination of appeals in relation to, the taxes
referred to above, or the oversight of such functions. Such persons or authorities shall
use the information only for such purposes. They may disclose the information in public
court proceedings or injudicial decisions.

In no case shall the provisions of the preceding paragraphs be construed so as to impose
on a Contracting State the obligation:
(a)

to carry out administrative measures at variance with the laws and
administrative practice of that or of the other Contracting State;

(b)

to supply information that is not obtainable under the laws or in the normal
course of the administration of that or of the other Contracting State;

(c)

to supply information that would disclose any trade, business, industrial,
commercial, or professional secret or trade process, or information the
disclosure of which would be contrary to public policy (ordre public).

If information is requested by a Contracting State in accordance with this Article, the
other Contracting State shall use its information gathering measures to obtain the
requested information, even though that other State may not need such information for
its own purposes. The obligation contained in the preceding sentence is subject to the
limitations of paragraph 3 but in no case shall such limitation be construed to permit a
Contracting State to decline to supply information because it has no domestic interest in
such information.

In no case shall the provisions of paragraph 3 be construed to permit a Contracting State
to decline to supply information requested by the other Contracting State because the
information is held by a bank, other financial institution, nominee or person acting in an
agency or a fiduciary capacity or because it relates to ownership interests in a person.

If specifically requested by the competent authority of a Contracting State, the
competent authority of the other Contracting State shall provide information under this
Article in the form of depositions of witnesses and authenticated copies of unedited
original documents (including books, papers, statements, records, accounts, and
writings).

Each of the Contracting States shall endeavor to collect on behalf of the other
Contracting State such amounts as may be necessary to ensure that relief granted by the
Convention from taxation imposed by that other State does not inure to the benefit of
persons not entitled thereto. This paragraph shall not impose upon either of the
Contracting States the obligation to carry out administrative measures that would be
contrary to its sovereignty, security, or public policy.

The requested State shall allow representatives of the requesting State to enter the
requested State to interview individuals and examine books and records with the
consent of the persons subject to examination.”

Article XV
Paragraph 1 of the Protocol to the Convention shall be deleted and replaced by the following:
“1.

With reference to Articles 11 and 12:

If in any future double taxation convention with any other country, New Zealand agrees
to limit its taxation at source on any interest or royalties to rates lower than the ones provided in
this Convention, New Zealand shall notify the United States, and the Contracting States shall,
at the request of the United States, and without undue delay, consult each other with a view to
concluding an additional protocol to incorporate such lower rates into this Convention.”

Article XVI

This Protocol shall be subject to ratification in accordance with the applicable
procedures in the United States and New Zealand. The Contracting States shall notify
each other in writing, through diplomatic channels, when their respective applicable
procedures have been satisfied.

The Protocol shall enter into force on the date of the later of the notifications referred to
in paragraph 1. The provisions of this Protocol shall have effect:

(a)

in respect of taxes withheld at source, for amounts paid or credited on or after
the first day of the second month next following the date on which the Protocol
enters into force;

(b)

in the United States, in respect of other taxes, for taxable periods beginning on
or after the first day of January next following the date on which the Protocol
enters into force;

(c)

in New Zealand, in respect of other taxes, for taxable periods beginning on or
after the first day of April next following the date on which the Protocol enters
into force.

Notwithstanding paragraph 2, the provisions of Article 25 (Exchange of Information
and Administrative Assistance) shall have effect from the date of entry into force of this
Protocol, without regard to the taxable period to which the matter relates.”

IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their
respective Governments, have signed this Protocol.
DONE at Washington, in duplicate, this first day of December 2008, in the English
language.
FOR THE GOVERNMENT OF
NEW ZEALAND:

FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA:

Assistant Secretary Swagel to Hold Monthly Economic Briefing
12/2/2008
HP-1305
A ssistant Secretary fo r Econom ic P olicy P hillip Swagel w ill hold a media briefing Friday to review econom ic
indicators from the la st m onth and discuss the state o f the U.S. economy. The event is open to the media:
Assistant Secretary for Economic Policy Phillip Swagel will hold a media briefing Friday to review economic indicators
from the last month and discuss the state of the U.S. economy. The event is open to the media:
Who
Assistant Secretary for Economic Policy Phillip Swagel
What
Monthly Economic Briefing
When
Friday, December 5,11:00 a.m. EST
Where
Treasury Department
Media Room (4121)
1500 Pennsylvania Avenue, NW
Washington, D.C.
Note
Media without Treasury press credentials should contact Frances Anderson at (202) 622-2960, or
Frances.Anderson@treasury.gov with the following information: full name, Social Security number, and date of birth.

Secretary Henry M. Paulson, Jr. Remarks on U.S.-China Economic Relations
12/2/2008
HP-1306
Washington- Good afternoon. I am pleased to join you and preview the SED, the Strategic Economic Dialogue’s
fifth meeting, which will begin Thursday in Beijing. I am particularly pleased to appear before the World Affairs
Council, an organization dedicated to expanding understanding of global issues.
President Bush and President Hu formed the SED in late 2006, to foster direct engagement as the optimal way to
build a mutually beneficial economic relationship. They agreed that, because of the many critical economic issues
between the U.S. and China, a new approach was warranted
and so for more than two years the SED has brought
together government leaders from the highest levels in both nations to prioritize and work on issues of the day while
also setting long-term objectives and building a stronger, long-term, strategic relationship.
Direct Engagement Yields Results
We have learned that engagement works, that engagement can help achieve meaningful, tangible results that would
not have been possible otherwise. Just this year, we had a productive SED meeting in June, a productive Joint
Commission on Commerce and Trade meeting in September, and on-going meetings on a variety of issues --- from
economics and trade to product safety to transportation.
Engagement has helped us manage the current financial market crisis. This crisis is a global event, and governments
around the world have engaged directly and responded with actions to restore stability and address market
developments. International cooperation and coordination have been robust. In this regard, we appreciate the
responsible role China has played during the turmoil. We have welcomed China's active participation, along with
other members of the G-20, in the Summit on Financial Markets and the World Economy, and in multilateral
mechanisms for cooperation including the G-20, APEC, and the International Financial Institutions.
Looking ahead, as we agreed to at the Summit held a few weeks ago, it is critical that the United States, China and
other major economies continue our vigorous efforts and take whatever further actions are necessary to stabilize the
financial system, including using appropriate monetary, fiscal, and financial regulatory policies. We have also agreed
that major economies will reconvene before May 2009 to review progress.
Engagement with China has helped us manage and address issues surrounding consumer and product safety.
Under the leadership of Secretary Leavitt, we have completed two Memoranda of Agreement, established three FDA
offices in China, and developed a true culture of collaboration between our respective health ministries. Now we
need to intensify our work further, to build quality into each stage of the manufacturing and distribution process, and
engage stakeholders among the private sector, academia, and all levels of government.
Even during a period of trade tension, the SED has helped us manage difficult issues and kept our markets open to
trade and investment. We have avoided harmful and counterproductive market-closing initiatives and productive
negotiations are underway on a new Bilateral Investment Treaty. Our cooperation benefits from the common
premise that countries benefit their citizens greatly when they open themselves to competition, reform their
economies, and welcome foreign investment. Direct investment, such as manufacturing plants or service
companies, is the ultimate vote of confidence in any economy.

In the area of transportation, the SED was instrumental in achieving a landmark civil aviation agreement in 2007 and
launching a Transportation Forum this year to identify and address the key transportation challenges affecting trade
between our countries.
We have developed a constructive and productive rhythm to our interactions. Half of the U.S. Cabinet and our
Chinese counterparts meet and talk twice a year, build trust, work through misunderstanding and crises and,
wherever possible, expand common interests. We have built confidence in our ability to work together. And
between each Cabinet-level meeting there have been hundreds of meetings, videoconferences and teleconferences
to advance issues further.
We have grappled with the most important and challenging issues in our bilateral economic relationship, issues like
rule of law, transparency, innovation, rebalancing growth and intellectual property rights. Our discussions have been
uniformly candid, meaningful, and respectful.
Preview of Fifth SED Meeting
Our meetings later this week in China will focus on the building blocks for an enduring U.S. - China economic
partnership. We will continue to work on strategies for managing macroeconomic risks and promoting balanced
growth; open investment and trade policies, including strengthening product, food and drug safety; our respective
roles in international institutions and strengthening cooperation in energy and the environment. And, we will discuss
a new topic as well - for the first time during the SED, the U.S. and China will focus on how our two countries can
work together through international forums to strengthen the global economic system.
China's structural reform agenda, including exchange rate reform and financial sector liberalization, will continue to be
a central focus of our discussions in Beijing. We will also take advantage of the opportunity to discuss other critical
policy issues, including our respective commitments to maintaining open trade and investment policies, measures we
are taking to improve financial regulation, and opportunities to cooperate in supporting emerging and developing
countries through multilateral institutions such as the World Bank and International Monetary Fund. Consumer and
product safety will also, of course, be a significant focus.
I am grateful to my Cabinet colleagues for their contributions to, and support of, the SED these past two-plus years,
and for their participation in this week's meetings, including Secretaries Chao, Leavitt and Schafer, Ambassador
Schwab, Assistant to the President Dan Price, Director Nussle, Administrator Johnson and our Ambassador to China
Sandy Randt.
Current Economic Conditions
Our discussions of balanced growth, open investment and trade and international economic cooperation couldn't
come at a more critical time. The United States economy has turned down sharply, the Chinese economy and the
global economy have also slowed. Both the U.S. and China have been engines of global economic growth. The
strength of our economies is not only critical to our own citizens, but to people in every corner of the globe. The
world will watch both of us as we grapple with these difficult economic times.
Fifteen months ago the U.S. housing correction spilled over into the financial sector, pushing the banking system into
stress. Consequently, the overall U.S. economy has suffered. On October 31, third quarter GDP showed negative
0.5 percent growth. The unemployment rate has risen to a level not seen in 15 years, with a loss of 240,000 jobs in
October alone. Data released on November 25 showed that through September, home prices in 10 major cities had
fallen 19 percent over the previous year, demonstrating that the housing correction has not abated. And as the U.S.
economy slows further, it threatens to prolong the housing correction.

The authorities and capacity granted by Congress have been the key to avoiding a financial collapse. Looking
forward, working with the Fed and the FDIC we now have the tools and the commitment to do what is necessary to
maintain the stability of our financial system. Many challenges lie ahead and progress will not be in a straight line,
but I believe we have taken the necessary steps to put us on the right path to recovery and an eventual return to
prosperity. The excesses in our system built up over many years, and it will take time to work through them.
China's Economy
While China itself has been relatively insulated from the current financial turmoil, it still faces mounting economic
challenges. As global economic growth slows, so too will demand for Chinese exports. And as Chinese leaders are
acutely aware, China's economic growth has already begun to slow. In November, China announced a major fiscal
stimulus package to strengthen domestic demand, a welcome policy measure for sustaining global growth. And the
rural land reform plan announced in October has the potential - if effectively implemented —to help China make
significant inroads in its efforts to boost rural productivity. These are important steps and we urge China to seize the
opportunity to build on them.
Now is an opportunity for China to take measures to ensure sustainable, strong and balanced economic growth for its
future. This means relying more on domestic demand and less on exports to drive growth. Making this shift will
take bold leadership and decisive structural reforms to boost demand among households and to improve the
allocation of capital within the Chinese economy. As I have emphasized in the past, continued reform of China's
exchange rate policies is an integral part of this broader reform process. China has appreciated the RMB over 20
percent against the dollar since 2005 - this is important and significant, but it is important that the reform process
continue.
Addressing the needs of each of our economies is both a short-term and a long-term process. In the midst of this
crisis, our priority must be stability and recovery. As we take steps now to address the immediate needs of our
economies, there are significant lessons we must leam, which in turn will help us reform our global economic system
to prevent this from ever happening again
Addressing Energy and Environmental Challenges
The second major topic for the SED this week is addressing the energy security and environmental protection,
challenges faced by both our nations.
The United States is the world's largest consumer of energy, the world’s largest consumer and importer of oil and the
world's second largest source of greenhouse gas emissions. As the world's largest and fastest-growing emerging
economy, China knows what the United States has learned: economic prosperity also increases energy demand and
environmental degradation. To fuel economic growth, China relies on domestic coal for 70 percent of its energy
needs. The consumption of coal has led China to overtake the United States as the world's largest source of
greenhouse gas emissions.
Growing economies need to move goods and people, and increased transportation has led to a near doubling of
China’s oil consumption over the last decade. China is now the world's second largest market for new vehicles, and
the second largest consumer of oil, behind the United States. Building cooperation and trust between our countries
can help prevent future competition over scarce energy resources.
Mutual interest in jointly tackling these energy and environmental challenges has given rise to a hallmark SED
achievement — the Ten Year Framework for Energy and Environment Cooperation.

Signed at last June's SED meeting, this is a comprehensive framework to promote collaboration between the United
States and China to advance technological innovation, adopt highly-efficient clean energy technology, and promote
natural resource sustainability.
Our initial efforts within the Framework have focused on developing shared objectives in five areas: electricity
generation, transportation, clean water, clean air, and protecting wetlands and other natural areas. We will announce
agreements at this week's SED detailing joint cooperative actions and the establishment of short, medium and long
term deliverables in each of these areas.
The Ten Year Framework is intended to augment multilateral efforts on climate change, such as the United Nations
Framework Convention on Climate Change. The UN Convention is also being actively supported through the Major
Economies Process, a parallel effort initiated by President Bush in September of 2007. Earlier this year, the
Treasury Department led the creation of an international clean energy technology fund at the World Bank to address
climate change worldwide. This multibillion dollar global effort is aimed at enabling the deployment of cleaner, more
efficient technologies in developing nations by closing the financial gap that exists between current industry practices
and available advanced technology.
In drawing distinctions among these many important energy and environmental efforts, it is helpful to think of the Ten
Year Framework as focused on building the capacity to address specific challenges faced by the United States and
China in meeting energy and environmental goals. Our countries are approaching these solutions in similar ways, by
ensuring implementation of proven and effective policies, educating our citizens so that they can make
environmentally sound decisions, and increasing the affordability of new or existing technology by reducing market
access barriers.
EcoPartnerships
In addition to the Ten Year Framework, at last June's SED meeting we agreed to actively explore EcoPartnerships to
demonstrate new models for sustainable economic growth. Targeted at the sub-national level, these are voluntary,
cooperative partnerships between U.S. and Chinese entities. They include local, state or provincial government-togovernment partnerships, and partnerships among businesses, universities and non-profits. The Chinese have
loosely modeled EcoPartnerships after the Special Economic Zones' created in the 1980s, where economic reform
policies were tested in targeted areas such as Shenzhen and Hainan Province before introduction to the whole of
China. EcoPartnerships bring a similar approach for energy and environmental innovation and policies.
At this SED meeting, the United States and China will recognize the establishment of initial EcoPartnerships. As an
example, we have actively discussed a partnership between the city of Greensburg, Kansas and a town in Sichuan
province. Both towns have been devastated by natural disasters. On May 4, 2007, Greensburg was nearly completely
destroyed by a tornado, and the Sichuan province suffered massive damage from an earthquake last May.
Greensburg has made a commitment to rebuild in an environmentally sustainable manner, with all new buildings
adhering to LEED-platinum standards. The city is also actively working to create a new model for economic
development based upon green business and industry. The Sichuan town will also focus on rebuilding with
environmentally sustainable development and green businesses. Through this partnership, and the relationships
that develop between U.S. and Chinese industry as part of this partnership, our two countries will develop a new low
energy intensive model for sustainable economic growth.
With both the Ten Year Framework and EcoPartnerships, we have benefited from the ideas and leadership outside
government, and especially the private sector, in addressing the energy and environmental challenges faced by our
two countries. Yesterday, we held the first meeting of our new Federal Advisory Commission on energy and
environment cooperation with China, bringing together leaders from academia, NGOs, and the private sector to
discuss additional ways to accelerate and enhance these efforts. And this past summer, I was pleased to recognize

the public-private partnership that made the 2008 Olympic Games the most environmentally sustainable version of
the Games through the award of a LEED Gold Award to the Olympic Village complex.
Addressing Shared Challenges through Concrete Actions
As both countries begin to implement the Ten Year Framework, we recognize that many changes will occur in the
United States and China over the next decade. To ensure that the Framework endures and remains relevant, we
have developed a durable organization with sufficiently flexible goals. The success of an initiative spanning ten
years will depend largely on clearly defining early expectations and immediately addressing initial concerns. We have
jointly focused our efforts in this way.
These first steps represent some very promising progress, yet we also recognize that neither China's nor the United
States' energy and environmental challenges will be solved quickly. Our goal has always been to make long run,
meaningful achievements through the ingenuity, commitment and dedication of government, business, and scientific
leaders.
Conclusion
China will continue to play a key role in the world economy, and 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.
These first years of the Strategic Economic Dialogue have demonstrated that direct engagement achieves results.
Just as importantly, it has improved the relationship between our two countries so that we can effectively manage
complex issues, such as the recent global financial turmoil. What we have accomplished is due, first, to the vision of
President Bush and President Hu and second, to the hard work and open discussions among all officials. We have
stood many tests so far, and I believe we can withstand many more if we continue to engage with China as it is, not
as we would imagine it to be.
Thank you.

Deputy Assistant Secretary Sobel Remarks on the Global Financial Crisis and the
IMF’s Response
12/2/2008
hp-1307
Thank you for this opportunity to speak about the global financial crisis and the IMF's response. The IMF is also
facing a critical juncture in implementing its agenda for institutional reform, and I would like to touch today on this
subject as necessary changes underway in the IMF will require Congressional support.
The Evolving Role of the IMF
The IMF is a vital and necessary institution for international monetary cooperation. The need for such cooperation
and the rationale for the Fund's existence is every bit as strong today as it was in 1944, when the IMF was created in
the aftermath of the Depression, protectionism and beggar-thy-neighbor currency policies, and World War II.
Throughout its sixty-year plus existence, the Fund has well served the global financial community. It helped Europe
and Japan achieve sustained growth and liberalization in the post-war period. After the demise of the Bretton Woods
System, it helped resolve the Latin American debt crisis of the 1980s, support economic transition in Eastern Europe
and the former Soviet Union in the 1990s and address the Asian and emerging market financial crisis late in the
1990s and earlier this decade. The Fund has supported low-income countries, and provided significant debt relief to
the Heavily Indebted Poor Countries.
This is a record of success and all along the way, through bipartisan backing in the United States, the IMF's efforts
have been consistent with the U.S. interest in promoting strong macroeconomic and financial policies around the
globe. Recent events vividly demonstrate that the global economy has not outgrown the need for international
monetary cooperation. Instead, they remind us that the world needs a nimble and well-equipped IMF.
The Global Financial Crisis
We are in the midst of a deep global financial crisis, one that historians will analyze for decades to come. Against this
background, I will only focus on two points about the crisis in order to tee up my discussion about the Fund's role in it.
First, at the outset of the crisis, economic performance in many of the leading emerging market economies remained
robust. This remarkable performance was testimony to years of hard effort in many countries to put in place sound
macroeconomic frameworks and institutions. However, as global de-leveraging has accelerated in recent months
with a significant retrenchment in risk appetite, on top of sharp declines in commodity prices, emerging markets have
increasingly been impacted and in some cases significant weaknesses exposed. Their outlooks for growth and trade
have been substantially pared back and external financing has become increasingly difficult and stressed.
Second, the recent Declaration of the Leaders of the Group of Twenty includes a blunt section on the root causes of
the crisis. It notes that amid a period of remarkable stability and large-scale capital flow earlier this decade, market
participants reached for yield without exercising proper due diligence or comprehending the risks they were taking.
Financial firms also engaged in unsound risk management practices, products became more opaque and complex,
and policy-makers, regulators, and supervisors failed to keep pace with these changes and the excessive leverage
and risks building up in the system. Global imbalances were an important backdrop with their correspondingly large
build-up in foreign exchange reserves.

The Role of the IMF in Response to the Current Crisis
These two points underscore that the IMF, given its unique role as a balance of payments lender and its global
mandate for macroeconomic and financial surveillance has critical responsibilities in responding to the crisis. Let me
turn to each.
Crisis Lending
With the crisis increasingly affecting emerging market economies, the IMF is reprising its role as crisis lender and has
moved quickly to use its existing tools creatively and flexibly, and to adopt new tools, when necessary. This is to be
welcomed. It is important that the IMF help members facing legitimate needs, and the Fund should respond flexibly
in doing so.
In Hungary, Ukraine, Iceland and Pakistan, concerns about large current account deficits and external sustainability
predated the crisis. As capital flows reversed in the current crisis, these vulnerabilities, particularly in Hungary,
Ukraine and Iceland, translated into enormous balance of payments financing gaps. The IMF responded in each
case with lending through a Standby Arrangement, the Fund's workhorse financing tool that can be quickly
implemented via "emergency procedures" and expanded in magnitude under certain circumstances via the Fund's
"exceptional access policy.'' Stand-by arrangements include a commitment by each country to undertake key policy
measures necessary to address underlying vulnerabilities.
The Fund has worked in close consultation with a number of additional countries that are also susceptible to balance
of payments pressures due to some combination of large current account deficits, inflexible exchange rate regimes,
and large foreign exchange-denominated credit exposures. The Fund has publicly indicated it has held discussions
with Turkey, Belarus, Latvia and Serbia.
Other countries have performed very well in recent years and are fundamentally sound, but they are now facing
weaknesses due to tight liquidity conditions. Such countries would not necessarily require the combination of
financing and policy adjustment comprised by a traditional Standby Arrangement. But they could need liquidity to
tide them over for a several month period. In anticipation of potential member needs along these lines, the IMF
recently created a Short-Term Liquidity Facility, to provide such members with large-scale, three-month loans on the
basis of preceding strong policy performance indicating the financing difficulties are not home grown.
With the IMF now back in the lending business amid this deep crisis and after a lull in recent years, there has been
some public speculation about whether the IMF might need a massive increase in its capital.
A few months ago, the IMF had about $200 billion in loanable resources from its normal "quota-based" resources,
plus an additional $50 billion as a backstop in times of need, for a total of $250 billion. In addition, Japan has
recently offered to provide a further $100 billion on a temporary basis to help ensure that IMF resources are
adequate, consistent with the Fund's ability to borrow supplemental resources from its members.
Prior commitments and those in recent weeks to Ukraine, Hungary, Iceland and Pakistan, total on the order of $50
billion, still leaving $200 billion for additional lending under Standbys or the new Short-Term Liquidity Facility. There
could be prospective commitments that are significant in the near term, perhaps of a similar order of magnitude, but
the jury is out. Potential demands on the Short-Term Liquidity Facility are difficult to gauge.
Our view is that the IMF is well positioned to meet prospective demands from its quota resources. This is not to
imply that we should be complacent. History tells us that the unexpected happens and one must prepare
contingency scenarios, especially for downward deviations from the baseline scenario. In their Declaration, G-20

Leaders recognized that resource adequacy of the IFIs needs to remain under close review and that resources
should be increased if necessary. We completely agree. If a need for additional resources is asserted, though, it
will be important for the IMF's leadership to make a credible case to shareholders as to why more money is needed
and for what purposes. Further, should such a demonstrated need arise, we think there is a strong chance the need
would be temporary, stemming from a once-in-a-generation financial crisis, and thus we think there would be a good
case for relying on temporary funding rather than a permanent quota increase.
Strengthening the Global Financial System
Another aspect of the IMF's crisis role revolves around global efforts to repair regulation and financial systems and
the Fund's proper role.
For many years, the IMF has played an active role on this front. The IMF's Financial Sector Assessment Program
(FSAP) has provided invaluable insights to countries around the world with respect to their implementation of
standards and codes, stresses faced by their financial systems, and other aspects of regulatory regimes. Indeed,
the United States agreed prior to the onset of the current crisis to undergo a FSAP. It is expected to be undertaken
in the run-up to the 2009-2010 U.S. Article IV review, and the United States is already in discussion with the Fund on
the components. The IMF's semi-annual Global Financial Stability Report is a flagship publication, offering insightful
commentary on current conditions and vulnerabilities in the global financial system. IMF Article IV bilateral
surveillance reports typically cover financial sector issues. IMF programs have often sought to tackle weaknesses in
countries' financial system and ensure that they remain strong or are restored to health. This is a rich and invaluable
body of work.
Regulation is a national activity, and sound regulation begins at home. But today's markets are global in scope.
Also, regulation is generally micro-prudential in nature, yet the sum of the parts of micro-prudential actions clearly can
and does have macro-economic and systemic ramifications. So, how does one square these circles? One answer
might be to have a new international treaty establishing a global regulator and supervisory body. Yet, in a world in
which the nation-state remains the dominant geopolitical actor, it is unlikely that countries would cede regulatory
authority to a supra-national authority.
Hence, there is a far greater need for international cooperation among national regulators and for strengthening our
understanding of the interface between micro-prudential and macro-prudential issues. Such cooperation is needed
to ensure more effective and consistent regulation to protect against adverse cross-border developments affecting
global stability and negative spillover effects from one country to another.
The good news is that there are many standard setting bodies (SSBs) where national regulators meet to advance
international cooperation - the Basel Committee on Banking Supervision, the International Organization of Securities
Commissions, the International Association of Insurance Supervisors, to name just a few. These groups work on
micro-prudential regulation and they have intensified their work since the onset of the crisis. The Financial Stability
Forum (FSF), created in the wake of the Asian crisis, also acts as an informal hub, pulling together much of the work
of standard setting bodies. It has played a very strong role in advancing the international regulatory agenda,
particularly since September of 2007, when the G7 countries set forth many tasks for the FSF to coordinate.
The IMF, while lacking a mandate in regulating financial sectors, clearly has a leadership role in macroeconomics and
financial sector surveillance and must contribute to making the global financial system stronger and more secure. To
that end, it is critical for the future of international financial stability that these micro- and macro-prudential
perspectives are successfully woven together. Against this background, the United States welcomes and supports
the recent agreement between the IMF and FSF to enhance their collaboration and clarify their respective roles in this
process, consistent with their mandates. This agreement, in particular, underscores that:

• The IMF has the lead on surveillance of the global financial system through its important role in FSAPs,
standards, and Article IVs.
• The elaboration of international financial sector supervisory and regulatory policies and standards, and
coordination across standard setting bodies, is the principle task of the FSF, and the IMF participates in
this work and provides input as an FSF member.
• The IMF and the FSF will together cooperate in conducting early warning exercises.
In short, strong IMF-FSF-SSB collaboration, teamwork and respect for individual mandates, is a pragmatic and sound
answer for squaring the circle. The IMF's role in this regard is absolutely vital. Also, to enhance the global
legitimacy of the FSF, its membership needs to be broadened on an immediate basis.
The recent Declaration of the Leaders of the Group of Twenty focused heavily on tackling regulatory weaknesses to
minimize the chances of a repeat of another crisis. There is much good work underway and much more to do.
IMF Reform Agenda
It is essential to the health and resilience of the global economy that the IMF adeptly carry out these crisis-related
roles, but it is equally important that the IMF continue root-and-branch reforms to modernize itself and retain its
relevance and legitimacy to the international system. This point, as well, was underscored by the Leaders of the
G20.
The United States has been a strong proponent of the IMF, but we have not shied away from insisting on vigorous
institutional reform. The Administration has sent legislation to Congress in order to implement reforms - reforms that
the United States has strongly backed in international discussions - and I would like to take this opportunity to touch
on this issue.
Evolving its Mission
First, for the IMF to remain vital, its mission needs to evolve and not just on the global financial crisis.
We well appreciate that exchange rate determination is an inherently complex subject and that exchange rates reflect
a host of macroeconomic and microeconomic forces in an economy and the global system. Over the years, the
Fund has done an outstanding job in its surveillance work on fiscal and monetary policy issues. Exchange rate
analysis had not been conducted with the same vigor, yet it is one of the Fund s most basic tasks to exercise firm
surveillance over a member’s exchange rate policy. Last year, the Fund recognized the need to intensify its efforts
and updated its 30-year old exchange rate surveillance decision. Since that time, the analytical quality, focus and
depth of the Fund's exchange rate work has improved significantly. But as stated in a Treasury report to Congress in
August, the vital task of making tough judgments and increasing candor and clarity on external stability and exchange
rate issues has not yet met with the same success. {1) The IMF itself echoed this finding in its recent Triennial
Surveillance Review. We look forward to further progress.
Another area where the IMF has sharpened the focus of its mission is on promoting global financial stability and
openness to international investment through its work on sovereign wealth funds. The recent agreement by the
International Working Group of Sovereign Wealth Funds on a set of Generally Accepted Principles and Practices
(GAAP) was an important and welcome step forward and a credit to the IMF's role as a facilitator.
In addition, macroeconomic stability is a necessary but not sufficient condition for growth in low-income countries,
and the Fund has a vital role to play in this regard through its policy advice, technical assistance, and lending as
appropriate. The IMF has adapted its tools to better meet the needs of its low-income members. It has strengthened

its advice on policy responses to scaled up aid, and food and fuel price volatility. And it has helped break the cycle
of over-dependence on Fund lending by providing deep debt relief to highly-indebted poor countries, implementing a
new Debt Sustainability Framework, and introduced a non-borrowing "Policy Support Instrument" to untie intensive
policy engagement from IMF borrowing.
Governance Structure
The second major area for reform is the IMF's governance structure. The United States has long recognized that the
Fund's governance structure does not reflect the realities of today's global landscape and we have been a leading
advocate for reforming the IMF's voting weights to reflect the rise of dynamic emerging markets.
The quota reform deal secured last April, in which the United States played a key leadership role, is a useful first
step, although we would have preferred to see greater ambition and change.
• The reform package includes a new formula for determining country quotas. It will give significantly more
weight to GDP and thus better reflect countries' relative weights in the global economy.
• The reform also includes a tripling of “basic votes" which will boost the voice of the poorest countries.
• Finally, the package includes a targeted quota increase aimed at the most under-represented countries.
Under the reform, 54 under-represented countries will receive a combined increase of about 5 percentage
points of total IMF quotas.
The U.S. quota share in the IMF is roughly 17 percent and this allows the United States to play a special role in
influencing key IMF decisions such as quota increases, gold sales and charter changes. With the United States
representing roughly one-quarter of global GDP, the new IMF formulas would have indicated a much higher U.S.
quota share. In order to provide more room for quota increases for emerging market and developing countries, we
decided to forgo the increase in voting power we would have otherwise been entitled to. That said , we felt that
keeping our voting share broadly constant was important to ensuring a strong and continued U.S. leadership position
in the IMF.
Yet, this leadership position would have been jeopardized by the increase in the nominal size of the Fund, if our
nominal quota had not risen commensurately. Accordingly, the U.S. nominal quota in the IMF will need to increase,
on the order of $7Vz billion. In return for claims on the IMF, the United States receives an interest-bearing and liquid
reserve asset, making IMF drawings on the U.S. quota part of our international reserve position. Thus although
Congressional authorization and appropriation are required for an increase in our nominal quota, IMF use of our
quota line does not entail any net budgetary outlay.
Our advocacy for governance reform is not limited to changes in voting weights. In addition, we have sought
changes to the Executive Board to make it more effective. A recent analysis by the Fund's Independent Evaluation
Office confirmed that the size of the Board is unwieldy. The United States has called for a reduction in Board chairs
from 24 presently to 22 in 2010 and 20 in 2012, without any reduction in the chairs of developing countries and
emerging markets. The IMF's Managing Director has appointed a panel of external experts to further study possible
reform of the Board. We hope this panel will seriously consider the U.S. proposal and develop other
recommendations to improve Board effectiveness.
Financing Model
The IMF relies predominantly on lending income to finance not just lending-related activities but also its global,
regional, and bilateral surveillance and technical assistance. While the recent uptick in Fund programs will boost
lending income in the short term, IMF lending is subject to wide fluctuations and is projected to be on a downward

trend, making IMF finances no longer sustainable. Crises and periods of high Fund lending will periodically occur,
but generally stronger emerging market policies and institutions appear likely to put IMF lending (and lending income)
on a permanently lower path over the long term.
In response to the steep decline in Fund lending in 2006 and 2007, the Fund initiated a review of its long-term
finances by a distinguished external committee led by Andrew Crockett. The Committee had a mandate to propose
alternate, sustainable sources of income to meet IMF administrative expenses. At the same time, the United States,
joined by others, insisted that the Fund undertake a comprehensive review of IMF administrative expenditures, with a
view to significant cuts.
On balance, estimates suggest that the Fund could face budget gaps on the order of $400 million per annum over the
longer term. To address the vulnerabilities in the IMF's financing model:
• IMF Management has already carried out significant staff cuts - over 380 positions, out of 3,000 total -reducing expenditures by roughly 10 percent, for an annual savings of about $100 million.
• The IMF agreed to conduct a limited sale of IMF gold, the proceeds of which would be placed in an
endowment that would generate annual interest earnings and cover the bulk of the remaining gap. The
IMF would minimize risk of market disruption by (1) pursuing off-market sales to central banks; (2)
conducting sales over several years; and (3) coordinating with the European central banks in accordance
with the Central Bank Gold Agreement to fit IMF gold sales into existing expectations for official gold sales.
Key global gold producers have indicated a willingness to go along with a sale, subject to these terms.
• Other Crockett Committee recommendations accepted by the IMF Board include a conservative expansion
of the IMF’s investment mandate to generate higher average returns over time.
The Need for Congressional Action
These important governance and finance reforms have been set in motion, but cannot be completed without support
from the U.S. Congress. Changes in the U.S. quota and amendments to the IMF's Articles of Agreement to increase
basic votes and expand the IMF's investment mandate require Congressional authorization for U.S. assent.
Likewise, U.S. assent to the sale of IMF gold to finance an endowment requires authorization by Congress. In
addition, a budgetary appropriation is needed for the approximately $71/2 billion nominal quota increase, although no
budgetary outlay would be involved. Pursuant to the quota reform and IMF income negotiations, the Administration
has submitted legislation to the U.S. Congress to gain the required legislative authorizations.
Conclusion
This is an important moment for the IMF and its future. The IMF has a critical role to play in the global resolution of
the financial crisis. The proposed modernizing reforms will begin the process of making the IMF more representative
of the global economy. It is strongly in the U.S. interest that the Fund fulfills these responsibilities in order to retain
its relevance and preeminent place in the international monetary system. The need for a strong and effective IMF is
all the more pressing in the challenging global economic environment we find ourselves in today.
Thank you.

[1] U.S. Treasury; "Report to Congress on Implementation of the International Monetary Fund's 2007 Decision on
Bilateral Surveillance over Members' Policies"; August 2008.

Paulson Speaks on SED
12/2/2008
Secretary Henry M. Paulson, Jr. delivered
remarks Tuesday in advance of the fifth Cabinet
level meeting of the Strategic Economic Dialogue.
Presidents Bush and Hu established the SED in
2006 to provide a focused and effective framework
for addressing economic issues of mutual concern.
LINKS

• Remarks
• More on the SED

Opening Remarks by Secretary Henry M. Paulson, Jr.
12/3/2008
HP-1308
At the U.S. - China Strategic Economic Dialogue
Beijing - On behalf of the U.S. delegation, we are particularly pleased to be here with our distinguished
Chinese counterparts in Beijing for two days of work on critical issues in the U.S. - China economic
relationship. This will be the final SED meeting for me and my U.S. cabinet colleagues, and we are committed
to a strong finish, to having perhaps our most productive and cooperative sessions to date. Thank you to
Vice Premier Wang for his hospitality here today, and for the hard work he and his colleagues put into the
SED and into building a stronger U.S.-China economic relationship that benefits both our peoples.
On behalf of the U.S. delegation, we are particularly pleased to be here with our distinguished Chinese counterparts
in Beijing for two days of work on critical issues in the U.S. - China economic relationship. This will be the final SED
meeting for me and my U.S. cabinet colleagues, and we are committed to a strong finish, to having perhaps our most
productive and cooperative sessions to date. Thank you to Vice Premier Wang for his hospitality here today, and for
the hard work he and his colleagues put into the SED and into building a stronger U.S.-China economic relationship
that benefits both our peoples.
President Bush and President Hu formed the SED in late 2006, to foster direct engagement as the optimal way to
build a mutually beneficial economic relationship. For more than two years the SED has brought together government
leaders from the highest levels in both nations to prioritize and work on issues of the day, while also setting long-term
objectives.
We have learned that engagement works, that engagement can help achieve meaningful, tangible results that would
not have been possible otherwise.
Engagement has helped us manage the current financial market crisis. This crisis is a global event, and governments
around the world have engaged directly and responded with actions to restore stability and address market
developments. International cooperation and coordination have been robust, and we appreciate the responsible role
China has played during the turmoil. We have welcomed China's active participation, along with other members of the
G-20, in the Summit on Financial Markets and the World Economy, and in multilateral mechanisms for cooperation
including the G-20, APEC, and the International Financial Institutions.
Engagement with China has helped both countries manage and address consumer and product safety issues. We
have completed two Memoranda of Agreement, established three FDA offices in China, and developed a true culture
of collaboration between our respective health ministries. Now we need to intensify our work further, to build quality
into each stage of the manufacturing and distribution process, and engage stakeholders among the private sector,
academia, and all levels of government.
During a period of trade tension, the SED has helped us manage difficult trade and investment issues. We have
avoided harmful and counterproductive market-closing initiatives, and productive negotiations are underway on a new
Bilateral Investment Treaty. Overall, we cooperate based on the common premise that countries benefit their citizens
greatly when they open themselves to competition, reform their economies, and welcome foreign investment. Direct
investment, such as manufacturing plants or service companies, is the ultimate vote of confidence in any economy.

We have developed a constructive and productive rhythm to our interactions. We have built trust, worked through
misunderstandings and crises and, wherever possible, expanded common interests. We have built confidence that
the United States and China can work together.
We have grappled with the most important and challenging issues, including the rule of law, transparency, innovation,
rebalancing growth and intellectual property rights. Our discussions have been uniformly candid, meaningful, and
respectful.
Our meetings this week will focus on the building blocks for an enduring U.S. - China economic partnership. We will
continue to work on strategies for managing macroeconomic risks and promoting balanced growth, on open
investment and trade policies, including strengthening product, food and drug safety; on our respective roles in
international institutions and to strengthen cooperation in energy and the environment. And, for the first time during
the SED, the U.S. and China will focus on how we can work together through international forums to strengthen the
global economic system.
Mutual interest in jointly tackling energy and the environment issues has given rise to a hallmark SED achievement,
the Ten Year Framework for Energy and Environment Cooperation, signed last June. This comprehensive framework
promotes collaboration to advance technological innovation, adopt highly-efficient clean energy technology, and
promote natural resource sustainability.
We expect to reach substantive agreements this week, establishing short, medium and long-term deliverables in five
areas: electricity generation, transportation, clean water, clean air, and protecting wetlands and other natural areas.
I am grateful to my cabinet colleagues for their contributions to, and support of, the SED these past two-plus years.
And we are all grateful for the vision of President Bush and President Hu; by creating a structure focused on mutual
success, they laid the foundation for what we have achieved thus far. These first years of the Strategic Economic
Dialogue have demonstrated that direct engagement achieves results. Just as importantly, it has improved the
relationship between our two countries so that we can effectively manage complex issues, such as the recent global
financial turmoil. We have stood many tests so far, and I believe we can withstand many more. Thank you.

Statement by Secretary Henry M. Paulson, Jr.
12/4/2008
HP-1309
At the EcoPartnerships Signing During the U.S. - China Strategic Economic Dialogue
Beijing - Today we mark the beginning of what i believe will be a very powerful model for identifying,
developing and implementing energy and environmental innovations that will benefit both the American and
Chinese people.
Today we mark the beginning of what I believe will be a very powerful model for identifying, developing and
implementing energy and environmental innovations that will benefit both the American and Chinese people.
We are here to witness the signing of 7 EcoPartnerships - voluntary, cooperative partnerships between U.S. and
Chinese entities including local, state or provincial government-to-government partnerships, and partnerships among
businesses, universities and non-profits. By partnering at the sub-national level, ideas can be tested in targeted areas
before broad introduction as a new model for sustainable growth, based on energy and environmental innovations.
The signing of the Framework and these EconPartnerships mark new progress in the U.S. -China energy and
environment cooperation. With partnerships focused on electric and plug-in hybrid vehicles, sustainable economic
revitalization in rural areas, cleaner and more energy efficient ports, and other areas, we are together tackling the
critical energy and environment challenges facing our two countries.
These voluntary EcoPartnerships will deepen and broaden the ties between the people of our two nations, as we
together make progress toward shared goals of energy security and environmental sustainability. I look forward to
significant progress through these and other efforts, and congratulate the participants here today for their innovation
and dedication to these efforts

U.S. Fact Sheet: Energy and Environment Accomplishments
12/4/2008
HP-1310
During the first day of the fifth Cabinet-level meeting of the Strategic Economic Dialogue (SED), 15 U.S. Cabinet
officials and agency heads joined Secretary Paulson for discussions with China's Vice Premier Wang Qishan and a
delegation of 21 Chinese ministers and agency heads. Following a robust and productive discussion on strengthening
cooperation in energy and the environment, the officials signed an EcoPartnerships Framework, which resulted from
the June commitment to explore EcoPartnerships as a means of concrete cooperation between our two nations.
The dialogue in Beijing builds upon the progress that has been made in previous meetings of the SED to promote
energy security and further environmental sustainability. Specific energy and the environment steps previously
agreed to by both countries include a Ten Year Framework on Energy and Environment Cooperation, an agreement
to establish a national emissions trading program in China, and an agreement to strengthen cooperation on strategic
oil stocks with the International Energy Agency.
EcoPartnerships
Today, the United States and China signed an EcoPartnership Framework that describes the scope and establishes
objectives for EcoPartnerships. Targeted at the sub-national level, EcoPartnerships are voluntary, cooperative efforts
between U.S. and Chinese entities. They include local, state or provincial government-to-government partnerships,
and partnerships among businesses, universities and non-profits, where ideas can be tested in targeted areas before
broad introduction. Through voluntary cooperative partnerships, EcoPartnerships will demonstrate new models for
sustainable economic growth and advance energy security, economic sustainability and environmental sustainability.
The US and China welcomed the creation of seven EcoPartnerships:
•

•

Denver, Colorado / Ford Motor Company and the City of Chongqing / Chang'an Motors: Focused on
implementation of electric and plug-in hybrid vehicles, this partnership has the potential to significantly
advance the global development of electric and plug-in hybrid vehicles.
Greensburg, Kansas and Mianzhu City, Sichuan: Greensburg, Kansas was 95 percent destroyed by a
tornado in May 2007 and made a commitment to sustainable redevelopment. Mianzhu City was one of the
most heavily devastated areas in the May 2008 earthquake in Sichuan province. The EcoPartnership
represents an opportunity to demonstrate new models for comprehensive, eco-friendly sustainable
development and is focused on economic revitalization in rural America and China.
Energy Future Holdings Corp. (U.S.) and China Huadian Corporation (China): Both companies are pursuing
the development of sustainable business models for "clean energy" in the United States and China,
particularly in the area of clean coal.
Tulane University (Louisiana) and East China Normal University (Shanghai): The two universities will work
together to develop a global model for the sustainability of coastal cities, focused on restoration,
conservation and enhancement of environmentally sensitive wetland areas.
Port of Seattle (Washington) and Dalian Port Corporation (Liaoning): The partnership between two of the
world's largest sea ports aims to develop a global model for energy efficient and environmentally
sustainable ports.
Wichita, Kansas and Wuxi City, Jiangsu Province: The partnership is focused on demonstration and
implementation of advanced technological solutions for clean air and clean water.

•

Floating Windfarms Corporation (U.S.) and Tangshan Caofeidian New Development Area, Hebei (China):
Floating Windfarms Corporation is developing clean energy technologies for the Tangshan Caofeidian
New Development Area, focusing on offshore wind farm technology.: Focused on implementation of
electric and plug-in hybrid vehicles, this partnership has the potential to significantly advance the global
development of electric and plug-in hybrid vehicles.: Greensburg, Kansas was 95 percent destroyed by a
tornado in May 2007 and made a commitment to sustainable redevelopment. Mianzhu City was one of the
most heavily devastated areas in the May 2008 earthquake in Sichuan province. The EcoPartnership
represents an opportunity to demonstrate new models for comprehensive, eco-friendly sustainable
development and is focused on economic revitalization in rural America and China.: Both companies are
pursuing the development of sustainable business models for "clean energy" in the United States and
China, particularly in the area of clean coal.: The two universities will work together to develop a global
model for the sustainability of coastal cities, focused on restoration, conservation and enhancement of
environmentally sensitive wetland areas.: The partnership between two of the world's largest sea ports
aims to develop a global model for energy efficient and environmentally sustainable ports.: The
partnership is focused on demonstration and implementation of advanced technological solutions for clean
air and clean water.: Floating Windfarms Corporation is developing clean energy technologies for the
Tangshan Caofeidian New Development Area, focusing on offshore wind farm technology.

Each of these EcoPartnerships will last a minimum of two years, and will report progress on their initiatives at future
meetings of the SED. Additional information about EcoPartnerships can be found online at www.EcoPartnerships.gov
beginning on Friday, December 5.
The U.S. - China Ten Year Energy and Environment Cooperation Framework
Building upon the signing of the Ten Year Framework at the fourth Cabinet-level SED meeting in June 2008, the
United States and China today announced consensus on action plans for each of the five goals under the
Framework: 1. Clean, Efficient and Secure Electricity Production and Transmission; 2. Clean and Efficient
Transportation; 3. Clean Water; 4. Clean Air; and 5. Conservation of Forest and Wetland Ecosystems. Short-term,
medium-term and long-term goals were identified under each of the five goals. The U.S. and China also reached
agreement on the establishment of a goal for energy efficiency to address: 1. Energy efficiency in buildings and
communities; 2. Industrial energy efficiency; and 3. Consumer recognition of energy efficient products. An action plan
detailing cooperation between the United States and China will be developed before the next meeting of the SED.
Cooperation on Energy and Environment Challenges
Additional steps to enhance collaboration between the two countries to promote energy security and further
environment sustainability reached at the fifth Cabinet-level SED meeting include.
• Support for China's Membership in the International Energy Agency (IEA): The U.S. announced supportfor
China to join the IEA as a non-OECD member. China acknowledged the U.S. position and intends to
further enhance its dialogue and cooperation with the IEA. This position builds upon previous
commitments at the oast two Cabinet-level SED meetings.
• Trade and Investments in Energy Efficiency Projects: The U.S. Trade and Development Agency (USTD.A)
and U.S. Export-Import Bank, in cooperation with Chinese partners, will jointly support public-private
partnerships to address energy efficiency in Chinese businesses. China commits to identifying suitable
energy efficiency projects, and the U.S. and Chinese export-import banks will facilitate financing fo rthe
projects that involve U.S. exports.
• Cooperation on Clean Water: The U.S. Trade Development Agency (USTDA) and U.S. Environmental
Protection Anencv (EPAi. in partnership with U.S. trade associations, will form a public-private partnership
to leverage U.S. private sector expertise and resources to support China's clean water program...

• Sustainable Forest Management: Both the U.S. and China agreed to jointly support a pilot project on wood
charcoal alternatives in Central Africa. This joint project represents the first third-country cooperation effort
involving the United States and China in Africa. Both countries have also agreed to sponsor a sustainable
forest management and forest rehabilitation training workshop before June 2009 under the Asia-Pacific
Network for Sustainable Forest Management and Rehabilitation (APFNet).
• Combating Illegal Logging: The U.S. and China have agreed to co-host an international workshop on
"Policies on Trade in Timber and Timber Products" in December 2008. Additionally, both countries have
established a mechanism for exchanging trade data on wood and wood products, in support of
cooperative efforts under the memorandum of understanding on Combating Illegal Logging and
Associated T rade.
• Reducing Mercury Emissions: Both the U.S. and China have agreed to strengthen cooperation in addressing
mercury, with the goals of reducing demand for mercury in products and processes, more effectively
managing mercury-containing wastes, and promoting best practices and technioues for reducing mercury
emissions.
-30: The U.S. announced support for China to join the IEA as a non-OECD member. China acknowledged the
U.S. position and intends to further enhance its dialogue and cooperation with the IEA. This position builds
upon previous commitments at the past two Cabinet-level SED meetings.: The U.S. Trade and
Development Agency (USTDA) and U.S. Export-Import Bank, in cooperation with Chinese partners, will
jointly support public-private partnerships to address energy efficiency in Chinese businesses. China
commits to identifying suitable energy efficiency projects, and the U.S. and Chinese export-import banks
will facilitate financing for the projects that involve U.S. exports.: The U.S. Trade Development Agency
(USTDA) and U.S. Environmental Protection Agency (EPA), in partnership with U.S. trade associations,
will form a public-private partnership to leverage U.S. private sector expertise and resources to support
China's clean water program.: Both the U.S. and China agreed to jointly support a pilot project on wood
charcoal alternatives in Central Africa. This joint project represents the first third-country cooperation effort
involving the United States and China in Africa. Both countries have also agreed to sponsor a sustainable
forest management and forest rehabilitation training workshop before June 2009 under the Asia-Pacific
Network for Sustainable Forest Management and Rehabilitation (APFNet).: The U.S. and China have
agreed to co-host an international workshop on "Policies on Trade in Timber and Timber Products" in
December 2008. Additionally, both countries have established a mechanism for exchanging trade data on
wood and wood products, in support of cooperative efforts under the memorandum of understanding on
Combating Illegal Logging and Associated Trade.: Both the U.S. and China have agreed to strengthen
cooperation in addressing mercury, with the goals of reducing demand for mercury in products and
processes, more effectively managing mercury-containing wastes, and promoting best practices and
techniques for reducing mercury emissions.
REPORTS
• Paulson Statement at the EcoPartnerships Signing
•

U.S. - China Joint Fact Sheet: Ten Year Energy and Environment Cooperation

U.S. - China Joint Fact Sheet: Ten Year Energy and Environment Cooperation
12/4/2008
HP-1311
Recognizing that energy and environmental challenges represent two important issues facing our two countries, the
United States and the People’s Republic of China signed the Ten Year Framework on Energy and Environment
Cooperation in Annapolis, Maryland during SED IV on June 18, 2008. Building upon the Ten Year Framework, the
U.S. and China agreed to the following:
• Building upon existing bilateral agreements and recent accomplishments between the United States and
China, the two countries reached consensus on initial areas of cooperation and identified milestones and
actions to be taken in efforts to achieve the Ten Year Framework goals of Clean, Efficient and Secure
Electricity Production and Transmission; Clean Water; Clean Air; Clean and Efficient Transportation; and
Conservation of Forests and Wetlands Ecosystems;
• The United States and China agreed to establish a sixth goal on energy efficiency cooperation under the
Ten Year Framework;
• Building upon the announcement made at SED IV, the United States and China signed the Framework for
EcoPartnerships under the Ten Year Framework, aimed at developing new models for energy security,
economic sustainability, and environmental sustainability in both countries. The following seven initial
EcoPartnerships were announced:
o Energy Future Holdings Corp. and China Huadian Corporation;
o Denver, Colorado, USA, Ford Motor Company and Chongqing, China, Changan Auto Group
Corporation;
Wichita, Kansas, USA and Wuxi, Jiangsu, China;
Floating Windfarms Corporation and Tangshan Caofeidian New Development Area, Hebei, China
Port of Seattle, Washington, USA and Dalian Port Corporation, Liaoning, China;
Greensburg, Kansas, USA and Mianzhu, Sichuan, China; and
Tulane University and East China Normal University (ECNU).
• The United States, through the Department of Energy, and the People's Republic of China, through the
Ministry of Housing and Urban-Rural Construction, agreed to conduct an EcoCity policy study, strengthen
capacity building, promote science and technology development, and design an EcoCity demonstration

o
o
o
o
o

project under the Ten Year Framework;
• The U.S. Trade and Development Agency (USTDA) and China's National Development and Reform
Commission (NDRC) will jointly develop a curriculum and training to expand capacity within the Chinese
national and provincial governments, and within industry, on conducting energy efficiency audits to
promote pollution reduction and energy efficient enterprises;
• Under the MOU on energy conservation and environmental protection signed at SED V, the United States,
through the U.S. Trade and Development Agency (USTDA) and the U.S. Export-Import Bank, and the
People's Republic of China, through the National Development and Reform Commission (NDRC) and the
Export-Import Bank of China, will jointly support public private partnerships to address deficiencies in
energy efficiency in Chinese enterprises; the U.S. and Chinese export-import banks will facilitate the
financing for select projects that involve U.S. exports; and both sides will jointly organize trade facilitation
activities;
• Under the MOU on clean water signed at SED V, the United States, through the U.S. Trade and
Development Agency (USTDA) and the U.S. Environmental Protection Agency (EPA) and the People's
Republic China, through the Ministry of Environmental Protection, will cooperate to establish a partnership,
working through U.S. trade associations, to leverage U.S. private sector expertise and resources to build

U.S. - China Joint Fact Sheet: Ten Year Energy and Environment Cooperation
12/4/2008
HP-1311
Recognizing that energy and environmental challenges represent two important issues facing our two countries, the
United States and the People's Republic of China signed the Ten Year Framework on Energy and Environment
Cooperation in Annapolis, Maryland during SED IV on June 18, 2008. Building upon the Ten Year Framework, the
U.S. and China agreed to the following:
• Building upon existing bilateral agreements and recent accomplishments between the United States and
China, the two countries reached consensus on initial areas of cooperation and identified milestones and
actions to be taken in efforts to achieve the Ten Year Framework goals of Clean, Efficient and Secure
Electricity Production and Transmission; Clean Water; Clean Air; Clean and Efficient Transportation, and
Conservation of Forests and Wetlands Ecosystems;
• The United States and China agreed to establish a sixth goal on energy efficiency cooperation under the
Ten Year Framework;
• Building upon the announcement made at SED IV, the United States and China signed the Framework for
EcoPartnerships under the Ten Year Framework, aimed at developing new models for energy security,
economic sustainability, and environmental sustainability in both countries. The following seven initial
EcoPartnerships were announced:
o Energy Future Holdings Corp. and China Huadian Corporation;
o Denver, Colorado, USA, Ford Motor Company and Chongqing, China, Changan Auto Group
Corporation;
Wichita, Kansas, USA and Wuxi, Jiangsu, China;
Floating Windfarms Corporation and Tangshan Caofeidian New Development Area, Hebei, China
Port of Seattle, Washington, USA and Dalian Port Corporation, Liaoning, China;
Greensburg, Kansas, USA and Mianzhu, Sichuan, China; and
Tulane University and East China Normal University (ECNU).
• The United States, through the Department of Energy, and the People's Republic of China, through the
Ministry of Housing and Urban-Rural Construction, agreed to conduct an EcoCity policy study, strengthen
capacity building, promote science and technology development, and design an EcoCity demonstration

o
o
o
o
o

project under the Ten Year Framework;
• The U.S. Trade and Development Agency (USTDA) and China’s National Development and Reform
Commission (NDRC) will jointly develop a curriculum and training to expand capacity within the Chinese
national and provincial governments, and within industry, on conducting energy efficiency audits to
promote pollution reduction and energy efficient enterprises;
• Under the MOU on energy conservation and environmental protection signed at SED V, the United States,
through the U.S. Trade and Development Agency (USTDA) and the U.S. Export-Import Bank, and the
People's Republic of China, through the National Development and Reform Commission (NDRC) and the
Export-Import Bank of China, will jointly support public private partnerships to address deficiencies in
energy efficiency in Chinese enterprises; the U.S. and Chinese export-import banks will facilitate the
financing for select projects that involve U.S. exports; and both sides will jointly organize trade facilitation
activities;
• Under the MOU on clean water signed at SED V, the United States, through the U.S. Trade and
Development Agency (USTDA) and the U.S. Environmental Protection Agency (EPA) and the People's
Republic China, through the Ministry of Environmental Protection, will cooperate to establish a partnership,
working through U.S. trade associations, to leverage U.S. private sector expertise and resources to build

on current bilateral efforts under the Ten-Year Framework to support China's high priority clean water
program.
-30-

REPORTS
•

Paulson Statement at the EcoPartnerships Signing

•

U.S. Fact Sheet: Energy and Environment Accomplishments

Interim Assistant Secretary for Financial Stability Neel Kashkari Testimony
12/4/2008
HP-1312
Before the Senate A ppropriations Subcom m ittee on Financial Services and General Government
Washington - Chairman Durbin, Members of the Subcommittee, good morning and thank you for the opportunity to
appear before you. I would like to provide an update on the Treasury Department's actions to work through the
financial crisis and restore the flow of credit to the economy. We have taken multiple actions with the following three
critical objectives: one, to provide stability to financial markets: two, to support the housing market by preventing
avoidable foreclosures and supporting the availability of mortgage finance; and three, to protect taxpayers. Before we
acted, we were at a tipping point. Credit markets were largely frozen, denying financial institutions, businesses and
consumers access to vital funding and credit. Financial institutions were under extreme pressure, and investor
confidence in our system was dangerously low.
We have acted quickly and creatively in coordination with the Federal Reserve, the FDIC, OTS, and the OCC to help
stabilize the financial system and it is clear that our coordinated actions have made an impact. Our coordinated
effort to strengthen our financial institutions so they can support our economy is critical to working through the current
economic downturn. Strong financial institutions and a stable financial system will smooth the path to recovery and
an eventual return to prosperity.
We believe we have taken the necessary steps to prevent a financial collapse and the authorities and flexibility
granted to us by Congress are key to this. I will briefly discuss some of Treasury's policies and priorities today.
Recent Actions
First, I will start by discussing some of our most recent actions. Consistent with our commitment to stabilize the
financial system and strengthen our financial institutions, while also protecting U.S. taxpayers, we took two recent
actions in coordination with our regulators. On November 9, Treasury announced an investment to support the
restructuring of the American Insurance Group (AIG), together with the Federal Reserve Bank of New York. On
November 23, the U.S. government - Treasury, the Fed and the FDIC - entered into an agreement with Citigroup to
provide a package of guarantees, liquidity and capital. We will continue to take the necessary steps to protect the
financial system and believe these actions, together with others we have taken since the onset of the financial crisis,
demonstrate a decisive use of tools to strengthen our financial institutions and increase confidence in our system.
Equity Program
Next, I will discuss the Capital Purchase Program, one of the most significant and effective programs we have
implemented to stabilize financial markets and improve the flow of credit to businesses and consumers. As the
markets rapidly deteriorated in October, it was clear to Secretary Paulson and Chairman Bernanke that the most
timely, effective way to improve credit market conditions was to strengthen bank balance sheets quickly through
direct purchases of equity. Secretary Paulson announced that we would commit $250 billion of the financial rescue
package granted by Congress to purchase equity directly from a range of financial institutions. With a stronger
capital base, our banks will be more confident and better positioned to continue lending which, although difficult to
achieve during times like this, is essential to economic recovery. Moreover, a stronger capital base also enables
banks to take losses as they write down or sell troubled assets.

In just over one month, Treasury has already disbursed an estimated $151 billion to 52 institutions and has pre
approved many additional applications from public depositories across the country. This progress is remarkable not
only in its speed and efficacy but also in its scope. We have touched every banking market in the nation already with
applications representing small and large banks alike. Taking into account the needs of the range of institutions
across the country, on November 17, Treasury released a term sheet for privately-held institutions, and we have
provided even more streamlined terms to facilitate capital investment into community development financial
institutions. Regulators are already receiving and reviewing many applications from these private depositories,
another important source of credit in our economy.
We strongly believe that healthy banks of all sizes, both public and private, should use this program to continue
making credit available in their communities. Therefore, Treasury strongly supports the statement issued by bank
regulators on November 12 in support of this goal. The inter-agency statement emphasized that the extraordinary
government actions taken to stabilize and strengthen the banking system are not merely one-sided; all banks - not
just those participating in the Capital Purchase Program - have benefited from the government's actions to restore
confidence in the U.S. banking sector. Banks, in turn have obligations to their communities, particularly in this time
of economic disruption. They have an obligation to continue to make credit available to creditworthy borrowers and an
obligation to work with borrowers who are struggling to avoid preventable foreclosures.
The statement also urges banks to carefully review their dividend and compensation policies during this time of
scarce resources. We fully support this regulatory initiative and believe it is crucial to focus on prudent lending so
that institutions do not repeat the poor lending practices that were a root cause of today's problems. Restoring a
vibrant economy won't materialize as quickly as all of us would like, but it will happen much quicker as confidence in
our financial sector is restored in part due to the TARP
Housing/Mortgage Finance
Our other critical and related objective is to support the housing market and avoid preventable foreclosures. We
have worked aggressively to avoid preventable foreclosures, keep mortgage financing available and develop new
tools to help homeowners. Here, I will briefly highlight three key accomplishments:
First, in October 2007, Treasury helped establish the HOPE NOW Alliance, a coalition of mortgage servicers,
investors and counselors, to help struggling homeowners avoid preventable foreclosures. Through coordinated,
industry-wide action, HOPE NOW has significantly increased the outreach and assistance provided to homeowners.
HOPE NOW estimates that nearly 2.7 million homeowners have been helped by the industry since July 2007; the
industry is now helping about 225,000 homeowners a month avoid foreclosure.
Second, we acted earlier this year before enactment of the EESA to prevent the failure of Fannie Mae and Freddie
Mac, the housing GSEs that affect over 70 percent of mortgage originations. These institutions are systemically
critical to financial and housing markets, and their failure would have materially exacerbated the recent market turmoil
and profoundly impacted household wealth. We have stabilized the GSEs and limited systemic risk.
Third, on November 11, HOPE NOW, FHFA and the GSEs achieved a major industry breakthrough with the
announcement of a streamlined loan modification program that builds on the mortgage modification protocol
developed by the FDIC for IndyMac. The adoption of this streamlined modification framework is an additional tool
that servicers now have to help avoid preventable foreclosures. Potentially hundreds of thousands more struggling
borrowers will be enabled to stay in their homes.
An important complement to those guidelines was the GSEs' announcement on November 2 0 th that they will
suspend all foreclosures for 90 days. The foreclosure suspension will give homeowners and servicers time to utilize

the new streamlined loan modification program and make it possible for more families to work out terms to stay in
their homes.
Term Asset Backed Securities Loan Facility
Next, I will discuss our most recent program, the Term Asset Backed Securities Loan Facility (TALF). As Secretary
Paulson noted on November 12, support of the consumer finance sector is a high priority for Treasury because of its
fundamental role in fueling economic growth. Like other forms of credit, the availability of affordable consumer credit
depends on ready access to a liquid and affordable secondary market - in this case, the asset backed credit market.
Additionally, consumer finance relies on the non-bank financial sector as a source of finance. However, recent credit
market stresses essentially brought this market to a halt in October, resulting in climbing credit card rates. As a
result, millions of Americans cannot find affordable financing for their basic credit needs and everyday purchases.
Last week, on November 25, Treasury and the Federal Reserve announced an aggressive program aimed at
supporting the normalization of credit markets and making available affordable credit for all consumers. Under the
TARP, Treasury will provide $20 billion to invest in a Federal Reserve facility that will provide liquidity to issuers of
consumer asset backed paper, enabling a broad range of institutions to step up their lending, and enabling borrowers
to have access to lower-cost consumer finance and small business loans. The facility may be expanded over time
and eligible asset classes may be expanded later to include other assets, such as commercial mortgage-backed
securities, non-agency residential mortgage-backed securities or other asset classes.
Priorities for TARP
On December 1, Secretary Paulson underscored the critical priorities for the most effective deployment of remaining
TARP funds, foremost of which is to ensure our banking sector has the necessary capital base to continue lending to
consumers and businesses and support economic growth, and to help homeowners avoid preventable foreclosures.
I will briefly discuss these priorities:
One, in order to continue their critical role as providers of credit, both banks and non-banks may need more capital
given their troubled asset holdings, continued high rates of foreclosures, and stagnant global economic conditions.
We continue to look at additional capital strategies and, as we do so, we will assess the impact of the first capital
program and also take into consideration existing economic and market conditions.
Two, we continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications, which
are a necessary part of working through the necessary housing correction and maintaining the strength of our
communities. The new program which I highlighted above with the FHFA, the GSEs, and HOPE NOW is just one
example and we will continue working hard to make progress here.
Finally, as we consider potential new TARP programs, we must also maintain flexibility and firepower for this
Administration and the next, to address new challenges as they arise.
Oversight
Concurrently, we recognize that a program as large and important as the TARP demands appropriate oversight and
we are committed to transparency and oversight in all aspects of the program. We continue to take necessary
measures to ensure compliance with the letter and the spirit of the requirements established by the Congress,
including regular briefings with the Government Accountability Office, the Financial Stability Oversight Board, the

Inspector General and the Congressional Oversight Panel. We will also continue to meet all of the reporting
requirements established by the Congress.
Conclusion
Our system is stronger and more stable due to our actions. Although a lot has been accomplished, we have many
challenges ahead of us. We will focus on the goals outlined by Secretary Paulson and develop the right strategies to
meet those objectives. Thank you and I would be happy to answer your questions.

Treasury Designates Members of German IJU Terrorist Cell
12/4/2008
HP-1313
Washington, DC--The U.S. Department of the Treasury today designated three members of a German Islamic Jihad
Union (IJU) cell under Executive Order 13224 (E .0 .13224), which targets terrorists and those providing support to
terrorists or acts of terrorism.
"We commend the vigilant and effective work of German authorities in apprehending this terrorist cell before it could
carry out its brutal and horrifying attack plans," said Adam Szubin, director of Treasury's Office of Foreign Assets
Control. "In concert with this important law enforcement action, United Nations global sanctions provide a tool of
unparalleled scope to disrupt the support lines of this and other al Qaida-affiliated cells.“
On September 4, 2007, German authorities arrested three members of a German IJU cell—Fritz Martin Gelowicz,
Daniel Martin Schneider, and Adem Yilmaz-on suspicion that they were preparing terrorist attacks on public places
and possibly U.S. military facilities in Germany. German authorities had monitored the three for months and arrested
them when they advanced the plot to the point of building explosive devices. The suspects had acquired 735
kilograms of 35 percent hydrogen peroxide-enough to produce approximately 550 kilograms of explosives-in order
to build bombs.
German authorities also found military detonators, apparently intended for use in car bombs. Had the attacks
occurred, estimates show the casualty toll could have far exceeded the 2004 train bombings in Madrid or the 2005
transport bombings in London.
Following the arrests, IJU leadership issued a statement confirming that Gelowicz, Schneider and Yilmaz had been
operating under IJU direction in plotting the attacks. According to the statement, the terror plot was intended to hit
U.S. and Uzbek targets in Germany.
Gelowicz reportedly played a key role in the Germany plot by purchasing the chemicals necessary for the attacks. In
addition, Gelowicz allegedly was part of a group of IJU members who cased U.S. military facilities in Hanau,
Germany in December 2006. Gelowicz and others reportedly were observed driving back and forth in front of the
U.S. military base in Hanau.
The IJU, formerly known as the Islamic Jihad Group (IJG), is a terrorist organization that has coordinated multiple
attacks in Central Asia, including the July 2004 bombings of the U.S. and Israeli Embassies in Tashkent, Uzbekistan.
The IJG was added to the UN 1267 Sanctions Committee's Consolidated List of individuals and entities associated
with Usama bin Ladin, al Qaida and the Taliban on June 1,2005 and Gelowicz, Schneider, and Yilmaz were added to
the Consolidated List on October 27, 2008. The IJG was named a Specially Designated Global Terrorist (SDGT)
pursuant to E.O. 13224 on May 25, 2005.
Under E.O. 13224, any assets these three individuals hold under U.S. jurisdiction are frozen and U.S. persons are
prohibited from engaging in any transactions with the designees.
identifying Information
FRITZ MARTIN GELOWICZ
AKAs:

Abdullah Gelowicz
Fritz Martin Abdullah Gelowicz
Fritz Martin Abdullah Gelowitz
Benzl
Robert Konars
Markus Gebert
DOB:
September 1,1979
Alt. DOB:
April 10, 1979
POB:
Munich, Germany
Alt. POB:
Liege, Belgium
Citizenship:
German
Personal ID Card:
No. 7020783883
Passport:
German, 7020069907
Address:
Prison at Stuttgart-Stammheim, Germany
Former Address:
Boefinger Weg 20
89075 Ulm, Germany
Alt. Former Address:
Eberhardstrasse 70
89073 Ulm, Germany
DANIEL MARTIN SCHNEIDER
AKA:
Martin Daniel Schneider
DOB:
September 9,1985
POB:
Neunkirchen, Germany
Citizenship:
German
Federal ID Card:
No. 2318229333
Passport:
German, 2318047793
Address:
Prison at Schwalmstadt, Germany
Former Address:
Petrusstrasse 32
66125 Herrensohr Dudweiler
Saarbruecken, Germany
Alt. Former Address:
zum Gruehlingsstollen 1A

66299 Friedrichstahl, Germany
Alt. Former Address:
Rosenstrasse 2
66299 Friedrichstahl, Germany
ADEM YILMAZ
DOB:
November 4,1978
Alt. DOB:
April 11, 1978
POB:
Bayburt, Turkey
Citizenship:
Turkish
Passport:
Turkish, TR-P 614166
Alt Passport:
Turkish, 0018850
Address:
Prison at Weiterstadt, Germany
Former Address:
Sudliche Ringstrasse 133
63225 Langen, Germany

Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks on
Financial Markets and TARP Update
12/5/2008
hp-1314

Washington - Good morning and thank you for the opportunity to address you today. I am going to give a few
minutes of prepared remarks and then I look forward to taking your questions. We are in an unprecedented period
and market events are moving rapidly and unpredictably. We at Treasury have responded quickly to adapt to events
on the ground. Throughout the crisis, we have consistently acted with the following three critical objectives: one, to
stabilize financial markets and reduce systemic risk; two, to support the housing market by avoiding preventable
foreclosures and supporting mortgage finance; and three, to protect taxpayers. The authorities and flexibility granted
to us by Congress have been essential to developing the programs to meet these objectives.
Today, I will focus my remarks on one of our vital programs, the Capital Purchase Program, which Treasury launched
on October 14 to stabilize the financial system by increasing the capital in banks. I cannot think of an example where
a program of this scale and complexity has been launched and executed as quickly and as effectively as the Capital
Purchase Program - in either the public or private sectors.
Backdrop to the Capital Purchase Program
Before we launched this program in October, we were at a tipping point. Credit markets were largely frozen, denying
businesses and consumers access to vital funding and credit. Financial institutions were under extreme pressure,
and investor confidence in our system was dangerously low. A number of institutions had failed or been re-structured.
Throughout the crisis, we have been strongly encouraging financial institutions to raise capital and to recognize
losses. However, as markets continued to deteriorate, it was clear to Secretary Paulson that we needed to use the
authority and flexibility granted by Congress as aggressively as possible to quickly stabilize the system. And we
believed that purchasing equity in healthy banks would be the fastest and most effective way to inject much-needed
capital to the financial system and restore confidence and the flow of credit.
On October 24, Secretary Paulson announced that we would allocate $250 billion of the financial rescue package for
a voluntary capital purchase program for banks and savings institutions of all sizes. We did this in combination with a
guarantee of senior bank debt by the FDIC.
Goals of the Capital Purchase Program
The Capital Purchase Program was designed to first stabilize the financial system by increasing the capital in our
banks, and then to restore confidence so credit could flow to our consumers and businesses.
As we have seen throughout this crisis, the loss of confidence in and between financial institutions can happen with
lightning speed and with devastating effects. Increasing capital levels helps banks retain the confidence of depositors,
investors and counterparties alike.
A stronger capital base stabilizes the system by enabling banks to take losses as they write down or sell troubled
assets. With higher capital levels and restored confidence, our banks can continue to play their role as lenders in our
communities; while difficult to achieve during times like this, this lending is essential to economic recovery.

Program Success
It has been 51 days since Secretary Paulson announced the Capital Purchase Program. In those seven weeks, the
CPP has gone from an idea to a fully-functioning program. We started from scratch, recruited and built a world class
team, designed the program details, hired necessary outside vendors, and implemented a complex, but efficient
processing model: Applications are submitted to and reviewed by regulators. They recommend them to Treasury,
where we review them before a final decision is made. And numerous transaction agreements are processed for
each investment before it is funded. In just under two months, the CPP has achieved operational speed and quality
that few government or private sector programs have ever reached. And our program is becoming more efficient each
day.
Let me briefly touch upon the process, which is quite important because we are focused on meticulous execution,
transparency and compliance with all oversight requirements set out by Congress.
Treasury created a standard investment agreement for all banks, regardless of size. We worked with the regulators to
develop a consistent process for the regulators to review applications and make recommendations.
The Treasury Investment Committee meets daily and reviews dozens of applications per meeting and Treasury
makes the final decision on all investments. It is typically less than a week between when a regulator submits a
recommendation to Treasury and when Treasury makes an investment decision. It sometimes takes as little as two
days.
We often close transactions in a couple weeks - which is a record for either the private or public sector.
• On October 28, we funded eight transactions for $115 billion to banks in four states.
• On November 14, we funded 21 transactions for $33.5 billion to banks in 16 states.
• On November 21, we funded 23 transactions for $2.9 billion to banks in 16 states.
In just over one month, we have disbursed an estimated $151 billion to 52 institutions in 25 states across the country,
which means that over half the money is already out the door. We are ramping up quickly from here.
We have more applications under-review in the pipeline and many others have already been pre-approved from
depositories across the country. Often banks need more time to complete their legal requirements than Treasury
needs to execute the investments.
This progress is remarkable not only in its speed and quality, but also in its scope. We have touched almost every
banking market in the nation with applications representing small and large banks alike. The largest investment has
been $25 billion. The smallest investment has been $9 million.
Measuring Results
People often ask: how do we know our program is working? First, we did not allow the financial system to collapse.
That is the most direct, important information. Second, we know the system is more stable than it was when
Congress passed the legislation. While it is difficult to isolate one program's effects given regulators' numerous
actions, one indicator that has pointed to reduced risk in the system is the average credit default swap spread for the
eight largest U.S. banks, which has declined almost 207 basis points since before Congress passed the EESA.

Another key indicator of perceived risk that we are tracking is LIBOR: 1 month LIBOR has declined 217 basis points
and 3 month LIBOR 202 basis points.
People also ask: when we will see banks making new loans? First, we must remember that just over half the money
is out the door. Although we are executing at record speed, it will take a few months to process all the remaining
applications. The money needs to get into the system before it can have the desired effect. Second, we are still at a
point of low confidence - both due to the credit crisis and due to the economic downturn. While confidence is low,
banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking
on new loans. As confidence returns, we expect to see more credit extended.
This lending won't materialize as fast as any of us would like, but it will happen much faster as a result of having used
the TARP to stabilize the system and to increase the capital in our banks.
We firmly believe that healthy banks of all sizes should use this program to continue making credit available in their
communities. As Secretary Paulson has said, we expect banks to increase their lending as a result of these efforts
and it is important that they do so. As such, Treasury supports the statement issued by bank regulators on
November 12 to that effect. The statement emphasized that the extraordinary government actions taken to stabilize
and strengthen the banking system are not merely one-sided; all banks - not just those participating in the Capital
Purchase Program - have benefited from the government's actions to restore confidence in the financial system.
Banks, in turn have obligations to their communities, particularly in this time of economic disruption. They have an
obligation to continue making credit available to creditworthy borrowers and an obligation to work with borrowers who
are struggling to avoid preventable foreclosures. At the same time, institutions must not repeat the poor lending
practices that were a root cause of today's problems.
Treasury is focused on determining the extent of the CPP's desired effect and contributions to our policy objectives,
an issue raised by the GAO’s first report on the program. As noted by the GAO, given the number and variety of
financial stability actions being put in place by multiple entities, it will be extremely difficult to view the CPP effects in
isolation. Moreover, each individual financial institution's circumstances are different making comparisons challenging
at best. Tracking where individual dollars flow through an organization is also difficult. However, we are working with
the regulators to try to develop ways to determine the effectiveness of the program.
Conclusion
While we have made significant progress, we recognize challenges lie ahead. As Secretary Paulson has said, there
is no single action the Federal Government can take to end the financial market turmoil and the economic downturn,
but the new authorities Congress provided in October dramatically expanded the tools available to address the needs
of our system. In these extraordinary times, we must focus on developing the most effective combination of our tools
to further stabilize our financial system and speed the process of recovery. We are confident that we are pursuing the
right strategy to stabilize the financial system and support the flow of credit to our economy. Thank you and I would
be happy to take your questions.

Closing Statement by Secretary Henry M. Paulson, Jr.
12/5/2008
HP-1315
A t the F ifth M eeting o f the U.S. - China Strategic Econom ic Dialogue
Beijing - Good afternoon. Thank you to my counterpart, Vice Premier Wang Qishan, and our Chinese colleagues for
their hospitality during these past days. And thank you to my Cabinet colleagues for your active participation in and
continued commitment to the Strategic Economic Dialogue between the United States and China.
These last two days, we have made progress on a number of important fronts. Our discussions have been
productive, characterized by the straightforward back-and-forth that is only possible among colleagues who have built
a relationship of trust and confidence. Broad participation on both sides allowed us to engage on a wide range of
critical issues, from trade and investment to transportation, from currency reform to energy security, and from product
safety to environmental sustainability.
We had a robust discussion of the current global financial market turmoil and economic downturn, its implications for
both our nations and our efforts to address it. We are both committed to strengthening the global economy. I
reviewed our efforts in the United States to stabilize our financial markets and restore our economy, and I welcomed
the recent measures China has taken to strengthen domestic demand and maintain economic growth. As in the past,
we discussed the importance of domestic-led growth, and the importance of a market-determined currency in
promoting balanced growth in China that will contribute to a healthy global economy. I welcome the steps announced
by the Chinese to further open their financial markets, such as allowing foreign banks to trade bonds on the same
terms as Chinese banks. Strong financial markets will enable healthy economic development across China.
Protectionist sentiments grow during periods of economic downturn. We recognized this, and reiterated our
commitment to fight protectionism, because open trade and investment are in the best interest of our people. Both
nations reiterated the importance of completing a successful Doha round and meaningful progress toward that goal
by the end of this year. The Chinese economy, like the US economy, depends on global trade, and China is stepping
up its efforts to promote global growth and stability. I am particularly pleased to support China's membership in the
Financial Stability Forum, which is charged with facilitating action on many of the global stability commitments
endorsed by the G20 last month. To support trade flows during this period of financial turmoil, the US and China
announced today that our two Export-Import Banks will make available an additional $20 billion for trade finance,
particularly for creditworthy importers in developing economies. This effort should support over $38 billion in annual
financing for exports from the US and China, and will benefit the global economy. Finally, global trade depends on the
confidence of consumers in the safety of the products they buy. Again during this meeting of the SED, the US and
China deepened cooperation on product safety and food safety protocols.
We also made significant strides at this meeting in cooperation on energy and the environment. Following up on the
establishment of the 10 Year Framework for Energy and Environment Cooperation, which we launched at our SED
meeting this past June, we announced today action plans on each of the five goals, and established a sixth goal of
energy efficiency. The Ten Year Framework is a signature accomplishment of the SED. Sustained, comprehensive,
constructive cooperation between the United States and China, reaching out to all parts of society, offers the best
way to harness the resources and creativity of our two nations to meet the enormous environmental challenges facing
our planet.

I particularly welcome yesterday's announcement of seven EcoPartnerships that will take concrete steps to share
learning and test new ideas in targeted parts of both our nations. By creating partnerships between local
governments in our two countries, and between US and Chinese universities and non-profits, these EcoPartnerships
deepen the ties between the people of our two nations. Strong ties, on many levels, will contribute to the strength and
vitality of the US-China relationship.
At this meeting, we have again shown that direct engagement is a pathway to success, that through engagement the
United States and China can build a stronger relationship that benefits our citizens and the global economy. As I and
my US colleagues take our leave, we all can be proud of what we have built in the SED. We have managed through
times of tension, and through China's leadership transition earlier this year. The United States is now undergoing our
own transition, and the U.S. - China economic relationship will continue to be vital to the health of our two economies
and the global economy. Our countries will no doubt face future challenges, and through the foundation of mutual
respect, trust and candor fostered by the SED, I have no doubt we will manage through those challenges as well.
Thank you.
-30REPORTS
•

U.S. Fact Sheet: Fifth Meeting o f the SED

• Joint U.S.—China Fact Sheet: The Fifth U.S.— China SED
• US and China Announce Annual Trade Finance to Assist Global Trade

U.S. Fact Sheet: Fifth Cabinet-Level Meeting of the U.S.-China Strategic Economic
Dialogue
12/5/2008
HP-1316
At the fifth Cabinet-level meeting of the Strategic Economic Dialogue (SED), United States and Chinese policymakers
grappled with the most significant issues in our bilateral economic relationship, including strategies for managing
macroeconomic risks and promoting balanced economic growth; strengthening cooperation in energy and the
environment; confronting the challenges to trade; promoting open investment environments; and furthering
international economic cooperation. Cooperation to address the current global financial turmoil and economic
slowdown and cooperation on key energy and environmental challenges were two areas of particular focus as 15
U.S. Cabinet officials and agency heads joined Secretary Paulson for discussions with China's Vice Premier Wang
Qishan and a delegation of 21 Chinese minister and agency heads.
President George W. Bush and President Hu Jintao established the SED to create a Cabinet-level forum to develop
strategies to reach shared long-term objectives while managing short-term challenges in our economic relationship.
The dialogue this week in Beijing demonstrates that through the SED, the U.S. and China have built a foundation of
understanding which enables frank discussion and timely resolution of differences, and enables both sides to focus
on areas of shared goals where working together can increase the progress of both nations.
International Economic Cooperation
The global economic and financial stresses require a global response. The United States welcomes recent Chinese
measures to strengthen domestic demand and maintain economic growth. We welcome China’s commitment to the
declaration of the G-20 Summit on Financial Markets and the World Economy and the action plan to implement
principles for reform, including: strengthening transparency and accountability; enhancing sound regulation;
promoting integrity in financial markets; reinforcing international cooperation; and reforming international financial
institutions. International financial institutions have a vital role to play in promoting global growth and stability. The
U.S. therefore has supported the inclusion of China in multilateral institutions, such as the Inter-American
Development Bank, as well as measures to adjust shares in the international financial institutions to better reflect the
relative weight of dynamic emerging market economies in the world economy. China's accession to the Financial
Action Task Force (FATF), following the May 2007 SED meeting, has led to stronger anti-money laundering
regulations and greater cooperation in cutting off financing to terrorists.
• Trade Finance - Current financial stresses have impaired access to trade finance to help emerging market
businesses and consumers purchase imports. To support exports of products from the U.S. and China to
emerging economies, both countries will make additional resources available to increase access to
affordable trade finance. To maintain trade flows, including with emerging and developing economies in
the current difficult financial conditions, the United States Export-Import Bank and the Export-Import Bank
of China agreed to make available additional resources for trade financing facilities. The U.S. ExportImport Bank is prepared to provide additional resources of $12 billion, and the Export-Import Bank of
China is prepared to provide additional resources of up to $8 billion, if needed to assist in the financing of
the export of U.S and Chinese goods and services. This is expected to increase the availability of trade
finance bv $38 billion, due to the ability of short-term trade financing to support three or more times the
value of financing in trade volume during a year. These efforts will be undertaken in coordination with
financial institutions in developing economies and multilateral institutions to ensure that our efforts
maximize the positive impact of this new liquidity on global trade.

• Financial Stability Forum - The United States supports extending membership in the Financial Stability
Forum (FSF) to China and other important emerging market economies, bringing the world’s third largest
economy into an important global organization charged with promoting financial stability through
cooperation in financial supervision. The FSF has plaved an important role in securing international
agreement on regulatory measures needed to address financial weaknesses and in facilitating action on
many of the global stability commitments endorsed bv the recently concluded G-20 Summit on Financial
Markets and the World Economy. - Current financial stresses have impaired access to trade finance to
help emerging market businesses and consumers purchase imports. To support exports of products from
the U.S. and China to emerging economies, both countries will make additional resources available to
increase access to affordable trade finance. To maintain trade flows, including with emerging and
developing economies in the current difficult financial conditions, the United States Export-Import Bank
and the Export-Import Bank of China agreed to make available additional resources for trade financing
facilities. The U.S. Export-Import Bank is prepared to provide additional resources of $12 billion, and the
Export-Import Bank of China is prepared to provide additional resources of up to $8 billion, if needed to
assist in the financing of the export of U.S and Chinese goods and services. This is expected to increase
the availability of trade finance by $38 billion, due to the ability of short-term trade financing to support
three or more times the value of financing in trade volume during a year. These efforts will be undertaken
in coordination with financial institutions in developing economies and multilateral institutions to ensure
that our efforts maximize the positive impact of this new liquidity on global trade. - The United States
supports extending membership in the Financial Stability Forum (FSF) to China and other important
emerging market economies, bringing the world's third largest economy into an important global
organization charged with promoting financial stability through cooperation in financial supervision. The
FSF has played an important role in securing international agreement on regulatory measures needed to
address financial weaknesses and in facilitating action on many of the global stability commitments
endorsed by the recently concluded G-20 Summit on Financial Markets and the World Economy.
Financial Sector Reform
During the fifth Cabinet-level SED in Beijing, both sides discussed market turmoil of recent months and the repricing
of risk in global markets. The United States reported on steps it is taking to address market turmoil in the short-term,
and intermediate-term steps to address policy issues arising from recent turmoil. The Chinese also reported on steps
they are taking to open their financial services sector and further integrate into global markets.
The United States and China reached agreement on a number of issues resulting in further opening of China’s
financial services sector:
• Bond Trading: Foreign incorporated banks in China will be allowed to trade bonds in China in the inter-bank
market, both for their customers or their own accounts, on the same basis as Chinese-invested banks.
This action opens u p market opportunities for U.S. banks that were previously limited to Chinese banks.
• Increasing Liquidity for Foreign Banks: To promote financial stability. China's State Administration of Foreign
Exchange will allow foreign banks to increase their liquidity through either guarantees or foreign currency
loans from overseas affiliates on a temporary basis, notwithstanding foreign currency debt guotas. This
action helps maintain investor and depositor confidence so that U.S. banks can continue to grow their
business in China.
• Eouator Principles: China's Industrial Bank announced adoption of the Eouator Principles. This action, as an
important step in the implementation of China's green credit program, demonstrates the increased
emphasis Chinese banks and regulators are placing on borrowers adhering to strong environmental
standards in China and abroad.
• RMB Appreciation: The RMB has appreciated 20.3% since July 2005 against the U.S. dollar, and 22% on a
trade-weighted basis. While recognizing that currency movements will be uneven over shorter periods, the

United States encouraged China to continue, and accelerate. RMB appreciation and flexibility,: Foreign
incorporated banks in China will be allowed to trade bonds in China in the inter-bank market, both for their
customers or their own accounts, on the same basis as Chinese-invested banks. This action opens up
market opportunities for U.S. banks that were previously limited to Chinese banks.: To promote financial
stability, China’s State Administration of Foreign Exchange will allow foreign banks to increase their
liquidity through either guarantees or foreign currency loans from overseas affiliates on a temporary basis,
notwithstanding foreign currency debt quotas. This action helps maintain investor and depositor
confidence so that U.S. banks can continue to grow their business in China.: China's Industrial Bank
announced adoption of the Equator Principles. This action, as an important step in the implementation of
China's green credit program, demonstrates the increased emphasis Chinese banks and regulators are
placing on borrowers adhering to strong environmental standards in China and abroad.: The RMB has
appreciated 20.3% since July 2005 against the U.S. dollar, and 22% on a trade-weighted basis. While
recognizing that currency movements will be uneven over shorter periods, the United States encouraged
China to continue, and accelerate, RMB appreciation and flexibility.
Cooperation on Energy and the Environment
The United States and China announced a number of steps that enhance collaboration between the two countries to
promote energy security and further environmental sustainability. Highlights include the signing of the EcoPartnership
Framework, the announcement of seven separate EcoPartnerships, consensus on five action plans and the
establishment of a goal for energy efficiency under the Ten Year Framework. A Fact Sheet on Energy and
Environment Accomplishments was released on December 4.
Food and Product Safety
The United States is one of the most open economies in the world. Ensuring the integrity of trade, the quality of
products, and the safety of food, drugs and medical devices is a continuing priority for the United States. Americans
expect that goods and products sold in our marketplace are safe, and the United States continues to take steps with
all trading partners to ensure the safety and quality of these goods and products.
Both the United States and China reaffirmed the implementation and progress of existing memoranda of agreements
and understanding concerning food and product safety, with the aim of enhancing cooperation and dialogue on
product quality and food safety. Additionally, the two countries agreed to participate in the activities and capacity
building of international organizations related to food and agricultural products.
Trade and Investment
Advancing open investment and trade remains a key area of discussion for the SED. During a period of slowing
global demand, it is especially important that both countries avoid protectionism. Open markets will speed economic
recovery, and the United States and China have made joint commitments and taken joint actions to ensure that our
economies remain open and competitive, including:
• Doha: The United States and China reiterated commitments to pushing forward toward a successful
completion of the WTO's Doha Development Agenda, including the commitment at the recent G-20
Summit to reach agreement on modalities bv the end of the year.
• Bilateral Investment Treaty: Building upon the agreement at the June 2008 meeting of the SED to begin
bilateral investment treaty (BIT) negotiations, three productive negotiation rounds have been held. Our
objective is an agreement that facilitates and protects investment and enhances transparency and
predictability for investors.

• Transportation Forum: The United States and China held the first meeting of the Transportation Forum on
December 3. 2008. with specific areas of discussion that included urban congestion and infrastructure
development. The U.S. and China signed a joint statement, including an agreement to hold the second
Transportation Forum in 2009 in the U.S. and establishment of working groups to discuss priority areas of
cooperation including railway technologies, urban congestion, innovative financing, transport of hazardous
goods, and disaster assistant coordination.
• investment Forum: The United States and China held the second meeting of the Investment Forum on
December 3. 2008. with specific areas of discussion including creating conditions that will increase
investment between the United States and China and enhance transparency and predictability for
investors and how investment can make sustained contributions to bilateral economic cooperation and
development. Both nations agreed that the forum discussions should be continued.
• Innovation Forum: At the second U.S.-China Conference on Innovation and Commercialization, held on
December 2. 2008. the United States and China brought together government, industry, and university
leaders to address kev challenges and opportunities for fostering innovation and commercialization. The
two sides discussed wavs in which to develop human talent for innovation, attract financial investment for
entrepreneurial enterprises, adapt policies and regulatory frameworks to promote and protect innovation,
commercialize technologies, and recognize the importance of market-driven standards.
• Cooperation on Metrology: The U.S. Department of Commerce and China's General Administration of
Quality Supervision Inspection and Quarantine signed a Protocol for Cooperation on Metrology, Standards
and Conformity Assessment. This protocol will advance measurement sciences in both countries by
facilitating bilateral trade, improving product Quality, and increasing the development of technical
standards and collaboration.
-30: REPORTS
•

Paulson Closing Statement at the SED

• Joint U.S.— China Fact Sheet: The Fifth U.S.— China SED
• US and China Announce Annual Trade Finance to Assist Global Trade

Joint U.S.—China Fact Sheet: The Fifth U.S.—China Strategic Economic Dialogue
12/5/2008
HP-1317
The United States and China held the fifth Strategic Economic Dialogue (SED) at the Beijing Diaoyutai Guest House
on December 4 and 5, 2008. As special representatives of President George W. Bush and President Hu Jintao,
Treasury Secretary Henry M Paulson, Jr. and Vice Premier Wang Qishan served as co-chairmen of the SED.
Discussions at the fifth SED meeting led to a number of results in areas of strategic importance that strengthen and
deepen the bilateral economic relationship, including:
I: Macroeconomic Cooperation & Financial Services
The United States and China agree to continue their close communication on systemically significant macroeconomic
policies, and reaffirm their commitment to continue to take material measures as necessary to maintain financial
market stability, promote sustained global growth, and continue their cooperation on issues related to global
economic and financial stability, and consider ways to further enhance the exchange of information on regulatory
issues. In this regard, the United States and China took the following actions and made the following commitments:
• China will allow foreign incorporated banks in China to trade bonds in the inter-bank market, both for their
customers or their own accounts, on the same basis as Chinese-invested banks, and, in exceptional
circumstances, allow qualified foreign banks to increase their liquidity either through guarantees or foreign
currency loans from overseas affiliates on a temporary basis, notwithstanding short-term external debt
quotas.
• The United States reaffirmed that it welcomes foreign investment, including in its financial sector and
commercially-oriented investments made through China's foreign exchange reserves and sovereign
wealth fund, and its commitments to: 1) the open and non-discriminatory principles for recipients of
sovereign wealth fund investment identified by the Organization for Economic Cooperation and
Development; 2) apply the same regulatory standards to all applications made by Chinese banks,
securities and fund management companies, as they apply to U.S. or other foreign financial institutions in
like circumstances; 3) process expeditiously Chinese financial institutions' applications and 4) ensure that
the Committee on Foreign Investment in the United States (CFIUS) process accords consistent and fair
treatment of all foreign investment without prejudice to the place of origin.
• The United States and China welcome the recent approval of Industrial and Commercial Bank of China's
application to establish a U.S. bank branch, the announcement that China's Industrial Bank will adopt the
Equator Principles, and discussions and continued work on cooperation between relevant authorities on
cross border auditor oversight, and agree to expand existing cooperation on risk management practices
for agriculture insurance, and conduct technical cooperation on preferential tax treatment of defined
contribution pension plans.
II: Cooperation on Energy and Environment
The United States and China agree to continue their close communication and extensive collaboration in addressing
the challenges of environmental sustainability, climate change, and energy security. In this regard, the United States
and China took the following actions and made the following commitments:

• The United States and China announced consensus on action plans for each of the five goals under the Ten
Year Energy and Environment Cooperation Framework (TYF), including: Clean, Efficient and Secure
Electricity Production and Transmission; Clean Water; Clean Air; Clean and Efficient Transportation; and
Conservation of Forests and Wetlands Ecosystems. The U.S. and China also announced the
establishment of an Energy Efficiency goal, with the aim of completing the action plan by the next meeting
of the Ten Year Framework Steering Committee.
• The United States and China signed the EcoPartnerships Framework under the Ten Year Framework.
Statements of Intent for implementation of each EcoPartnership were signed between the following
EcoPartners from the U.S. and China: Energy Future Holdings and Huadian Power (clean energy
generation); Denver, Colorado and Chongqing (electric and plug-in hybrid vehicles); Wichita, Kansas and
Wuxi, Jiangsu (clean water and air); Floating Windfarms and Caofeidian (wind energy); Port of Seattle and
Dalian Port ("green" ports); Greensburg, Kansas and Mianzhu, Sichuan (post-disaster "green"
reconstruction); and Tulane University and East China Normal University (wetlands research).
• The United States supports enterprises and academic institutions of both countries to conduct technology
cooperation on gas hydrates exploration and development; and the U.S. agrees to work with China
regarding the possibility of providing marine acoustics equipment for geophysical exploration.
• China notes U.S. support for China to join the International Energy Agency (IEA) as a non-OECD member
and China intends to maintain a good cooperative relationship with the IEA and further enhance their
dialogue and cooperation.
• The United States and China signed two memorandums of understanding (MOU) on energy conservation
and environmental protection and clean water cooperation. Under the first MOU, the two sides will jointly
support public private partnerships to address deficiencies in energy efficiency in Chinese enterprises.
Among other things, USTDA and NDRC will jointly work to expand capacity within the Chinese national
and provincial governments, and within industry, on conducting energy efficiency audits to promote
pollution reduction and energy efficient enterprises. Under the framework of the above-mentioned MOU,
both sides will jointly organize trade facilitation activities. The second MOU will establish a partnership to
leverage U.S. private sector expertise and resources in support of the TYF Clean Water Action Plan.
• The United States and China agreed to co-sponsor a sustainable forest management and forest
rehabilitation training workshop before June 2009, under the Asia-Pacific Network for Sustainable Forest
Management and Rehabilitation (APFNet); and agreed to jointly support a pilot project on wood charcoal
alternatives in Central Africa.
• The United States and China agreed to support their efforts in combating illegal logging and associated
trade by exchanging data including import and export data on wood and wood products bilaterally and
review expanding the scope after a year; to continue to enhance our shared understanding of "illegal
logging" and explore its practical applications; and to co-host an international workshop on "Policies on
Trade in Timber and Timber Products" in December 2008.
• The United States and China agreed to enhance marine cooperation including data sharing/exchange and
joint strategies concerning sea-air interaction and climate change, ecosystem-based management, marine
conservation, ocean governance, and coastal resiliency. They also agree to convene in 2009 the Joint
Working Group on the Protocol on Marine and Fishery Science and Technology Cooperation.
• The United States and China will strengthen their cooperation in addressing the mercury issue, building
upon their cooperation under the United Nations Environment Program's Global Mercury Partnership.
• The United States and China agreed to continue technology cooperation on disaster prevention under the
Framework of U.S.-China Joint Commission Meeting on Science and Technological Cooperation.
Ill: Trade and Investment
Against the background of deteriorating economic conditions worldwide, the U.S. and China highlighted the
importance of and their shared commitment to fighting protectionism and promoting open trade and investment. To
this end, both countries:

• Held the second U.S.-China Investment Forum and exchanged views on how to create the conditions that
will increase investment between our countries; agreed that Forum discussions were valuable to the
bilateral investment relationship and should be continued.
• Jointly convened the first meeting of the Transportation Forum and signed a Joint Statement that included a
commitment to establish working groups on new technologies in transport, urban congestion, innovative
financing, transport of hazardous goods and disaster assistance coordination. These working groups will
meet in the upcoming year to assess goals and objectives for the 2nd Transportation Forum.
• Conducted a joint Experts Dialogue on rules of origin issues, and agreed to hold another such Dialogue
before the next SED to guide future cooperation.
• Jointly held the second U.S.-China Innovation Conference and will continue innovation cooperation and
related initiativeswhile coordinating with the work of the U.S.-China Joint Commission Meeting on Science
and Technology (JCM).
• Held three productive rounds of bilateral investment treaty negotiations. Our shared objective is to achieve
an agreement of mutual benefit that facilitates and protects investment and enhances transparency and
predictability for investors of both countries.
• Signed a Protocol on Cooperation in the fields of Metrology, Standards and Conformity Assessment.
IV: Food and Product Safety
Recognizing the vital importance of consumer product safety to bilateral trade and striving to safeguard consumers of
both countries, the United States and China agreed to build upon the concrete progress made at SED III and SED IV
in this area by enhancing dialogue and cooperation, improving information exchange, organizing technical training,
and strengthening capacity to jointly address emergencies. To this end, both countries:
• Agreed to review our implementation of existing bilateral agreements, identify any gaps in performance, and
prepare a corresponding progress report in advance of the next SED.
• Agreed that the U.S. Consumer Product Safety Commission will continue to consider in accordance with its
procedures Chinese comments regarding the implementation rules of the 2008 U.S. Consumer Product
Safety Improvement Act.
• Agreed to further promote implementation of the bilateral agreement on Food and Feed Safety.
• Agreed to further promote implementation of the MOU on Food Safety Information Notification to strengthen
bilateral cooperation, jointly address emergencies, effectively protect consumers of both countries and
promote the healthy development of bilateral trade.
• Agreed to participate in activities and capacity building of international organizations like the World
Organization for Animal Health, International Plant Protection Convention, and Codex Alimentarius.
• Established a cooperation committee or working group on traditional Chinese medicine and identified the
first round of cooperation projects. The alternatives to the use of endangered wildlife and derivative
products in Traditional Chinese Medicine will be included on the agenda of this working group.
V: International Economic Cooperation
Following the cooperative spirit of discussions on international economic cooperation at the Summit on Financial
Market and World Economy on November 15 in Washington, D .C ., the United States and China discussed ways to
best utilize international financial institutions and economic organizations to promote global growth and stability, and
to improve our capacity to jointly promote global economic development including tackling the challenges of food
security, public health and poverty alleviation. Both sides:
• Agree that representation in international financial institutions should be adjusted to reflect better changing
economic weights in the world economy.

• Support extending membership in the Financial Stability Forum to China and other important emerging
market economies.
• Agree to support the Asia Pacific Economic Cooperation (APEC) forum’s ongoing work to expand the
institutional investor base to encourage and promote capital market development in the APEC region.
• To maintain U.S. and Chinese trade, including with emerging and developing economies in the current
difficult financial conditions, the United States Export-Import Bank and the Export-Import Bank of China
agreed to make available additional resources for trade financing facilities. The U.S. Export-Import Bank is
prepared to provide additional resources of $12 billion, and the Export-Import Bank of China is prepared to
provide additional resources of up to $8 billion, if needed to assist in the financing of the export of U.S. and
Chinese goods and services.
Both sides are satisfied with the positive achievements made over the course of five rounds of formal dialogue since
the launch of the SED in September 2006.
In reviewing the SED process, the U.S. participants believe that cooperation with China is the foundation of a
sustained and healthy bilateral relationship, which is vital to the economic futures of both countries and the global
economy. Building on existing collaborative mechanisms, the SED has created constructive new ways to identify
areas of mutual benefit and produce tangible results that advance simultaneously China's reform agenda and U.S.
economic interests.
The Chinese participants view the SED as an important platform to enhance mutual strategic trust and strengthen
mutually beneficial economic cooperation, which is an important building block for strengthened and enduring U.S.China relations. Our close and frequent communication and cooperation in jointly confronting challenges in global
financial markets is a concrete example of the value and effectiveness of the SED.
The SED process has achieved mutual benefits that can only arise through consistent, candid dialogue and
consultation. It has become an effective framework for resolving differences and addressing challenges arising from
fast-moving bilateral trade and investment issues, thereby advancing the fundamental interests of our countries and
peoples.

United States and China Announce $20 Billion in Finance Facilities
12/5/2008
HP-1318
W ill Create up to $38 B illio n in A nnual Trade Finance to A ssist Global Trade
Beijing —Consistent with the direction of G-20 Leaders to improve trade finance for emerging markets, Secretary
Henry M. Paulson, Jr. and Chinese Vice Premier Wang Qishan today announced a new partnership for increasing
trade related finance to emerging markets. Together, the United States and China expect that their efforts will
generate total trade financing for up to $38 billion in exports over the next year.
Trade finance is credit to allow exporters and importers to ship their goods and services. Companies involved with
trade finance include importers, exporters, financiers, insurers and other service providers. Everyday trade in raw
materials, intermediate goods and consumer goods is dependent upon the availability of trade financing. Shortages of
trade finance can immediately retard economic output and employment through reductions in trade flows, and can
restrict financing for capital goods necessary for world economic growth.
Current financial stresses have impaired access to trade finance to help emerging market businesses and consumers
purchase imports. To support exports of products from the U.S. and China to emerging economies, both countries
are making additional resources available to increase access to affordable trade finance
Secretary Paulson stated: "These new sources of financing will send an important signal to emerging markets that we
are committed to sustaining trade flows, the lifeblood of the global economy. China's decision to play a central role in
supporting trade finance reflects its stature in the global financial system and its commitment to help reinforce growth
in economies around the world. I also appreciate the leadership of Bob Zoellick at the World Bank and Luis Alberto
Moreno at the Inter-American Development Bank for increasing the amount of trade finance that their respective
institutions are prepared to back. As the largest shareholder of both institutions, we are supportive of their efforts."
Specifically, the United States, through the U.S. Export-Import Bank, announced its intention to provide $4 billion in
new short-term trade finance facilities and $8 billion in new medium- and long-term trade finance facilities for export
of U.S. goods and services to emerging markets. China, through the Export-Import Bank of China, is providing $8
billion in short-, medium-, and long-term trade finance facilities for export of Chinese goods and services to emerging
markets. Short term trade financing, typically 90 to 180 days in maturity, effectively supports three or more times the
value of financing in trade volume during a year. Both countries will also coordinate with the International Finance
Corporation and the Regional Development Banks to complement existing emerging market liquidity efforts.
The program will be implemented through bilateral export credit agencies in the form of direct loans, guarantees or
insurance to creditworthy banks. Both the U.S. Export-Import Bank and the Export-Import Bank of China will identify
transactions for financing according to their respective views of the importance of the transaction and its need for
financing.
-30REPORTS
•

Paulson Closing Statement at the SED

• U.S. Fact Sheet: Fifth Meeting o f the SED

Joint U.S.— China Fact Sheet: The Fifth U.S.— China SED

Treasury Distributes 1.546 Million Additional Stimulus Checks in November
12/5/2008
HP-1319
Washington-The Treasury Department announced today that it distributed 1.546 million additional stimulus
payments in November, totaling $1.092 billion. As of the end of November, a total of 118.919 million payments have
been distributed totaling $96,130 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.

Treasury Official to Provide Update on Financial Rescue Implementation

U.S., Liechtenstein Sign Tax information Exchange Agreement
12/8/2008

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HP-1320
Washington - The Department of the Treasury today announced that the United States and Liechtenstein have
signed an agreement to allow for exchange of information on tax matters between the two countries. The agreement
was signed by U.S. Charge d'Affairs Leigh Carter and Liechtenstein Prime Minister Otmar Hasler in Vaduz,
Liechtenstein.
The Tax Information Exchange Agreement (TIEA) with Liechtenstein will provide the United States with access to
information it needs to enforce U.S. tax laws, including information related to bank accounts in Liechtenstein.
The TIEA will permit the United States to seek information from Liechtenstein on all types of federal taxes, and in
both civil and criminal matters. Under the TIEA, the requested information must be obtained and exchanged without
regard to whether the country receiving the request needs the information for its own tax purposes or whether the
conduct being investigated would constitute a crime under its law. If the country receiving the request for information
does not have the requested information in its possession, it must take relevant information gathering measures to
provide the requested information. Moreover, requests from one country to the other must be honored, even if the
information relates to, or is held by, nonresidents.
As with all agreements to exchange information, only specific tax authorities are allowed to receive and send
information. Information exchanged pursuant to the TIEA may be used only for tax purposes, and the competent
authorities must safeguard the confidentiality of information exchanged pursuant to the TIEA.
The TIEA will allow the United States to ask for information relating to 2009 and years following. Documents or other
information created before 2009 can be obtained from Liechtenstein provided that the request relates to an
investigation of a post-2008 year. In the case of pre-2009 years, the United States can currently obtain information
regarding criminal tax matters under the U.S.-Liechtenstein Mutual Legal Assistance Treaty.
As part of the signing of the TIEA, the United States is extending Liechtenstein's treatment as an eligible Qualified
Intermediary (Ql) jurisdiction until December 31,2009. This one-year extension is intended to provide Liechtenstein
with time to enact the legislation necessary for full implementation of the TIEA. If Liechtenstein fully implements the
TIEA by the end of 2009, Liechtenstein's Ql status will be renewed for the standard six-year term. The Ql program
generally allows financial institutions that are located in an eligible Ql jurisdiction to enter into an agreement with the
1RS in which the foreign financial institution assumes certain documentation and withholding responsibilities in
exchange for simplified information reporting for its non-U.S. account holders.
The TIEA also anticipates further dialogue and cooperation between the tax authorities of the United States and
Liechtenstein.
-30REPORTS
• U.S., Liechtenstein Tax Information Exchange Agreement

AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA
AND THE GOVERNMENT OF THE PRINCIPALITY OF LIECHTENSTEIN ON TAX
COOPERATION AND THE EXCHANGE OF INFORM ATION RELATING TO TAXES

Preamble
Whereas the Government of the United States of America and the Government of the
Principality of Liechtenstein ("the parties") recognize that the well-developed
economic ties between the parties call for further cooperation;
Whereas the parties wish to develop their relationship further by cooperating to their
mutual benefits in the field of taxation;
Whereas the parties wish to strengthen the ability of both parties to enforce their
respective tax laws; and
Whereas the parties wish to establish the terms and conditions governing the
exchange of information relating to taxes.

Now, therefore, the parties have agreed as follows:

Article 1
Scope of the Agreement
The parties shall provide assistance through exchange of information that is foreseeably
relevant to the administration and enforcement of the domestic laws of the parties
concerning the taxes covered by this Agreement, including information concerning the
determination, assessment, enforcement or collection of tax with respect to persons
subject to such taxes, or the investigation or prosecution of criminal tax matters.

Article 2
Jurisdiction
Information shall be exchanged in accordance with this Agreement by the competent
authority of the requested party without regard to whether the person to whom the
information relates is, or whether the information is held by, a resident of a party.
However, a requested party is not obliged to provide information which is neither held by
its authorities nor in the possession or control of persons who are within its territorial
jurisdiction.
For purposes of the preceding sentence, "authorities" includes all
government agencies, political subdivisions, and local authorities.

Article 3
Taxes Covered
1. This Agreement shall apply only to the following taxes imposed by the parties:
(a)

in the case of the United States, all federal taxes,

(b)

in the case of the Principality of Liechtenstein, all taxes imposed on the
countrywide level.

2. This Agreement shall apply also to any identical or substantially similar taxes Imposed
after the date of signature of this Agreement in addition to or in place of the existing
taxes only if the parties so agree. The competent authority of each party shall notify the
other of changes in laws which may affect the obligations of that party pursuant to this
Agreement.

Article 4
Definitions
1. In this Agreement:
"competent authority" means, for the United States, the Secretary of the Treasury or his
delegate, and for Liechtenstein, the Government or its authorized representative.
"criminal tax matters" means tax matters involving intentional conduct which is liable to
prosecution under the criminal laws of the requesting party;
"criminal laws" means all criminal laws designated as such under domestic law,
irrespective of whether contained in the tax laws, the criminal code or other statutes;
"information" means any fact, statement, document or record in whatever form;
"person" means a natural or legal person, an estate, a trust, a partnership, a company,
and any other body of persons;
"requested party" means the party to this Agreement which is requested to provide or
has provided information in response to a request;
"requesting party" means the party to this Agreement submitting a request for or having
received information from the requested party;
"tax" means any tax covered by this Agreement that is imposed at the national or federal
level by a party, not including customs duties.
2. For purposes of determining the geographical area within which jurisdiction to compel
production of information may be exercised, the term "United States" means the United
States of America, including Puerto Rico, the Virgin Islands, Guam, and any other United
States possession or territory.
For purposes of determining the geographical area within which jurisdiction to compel
production of information may be exercised, the term "Liechtenstein" means the
Principality of Liechtenstein.
3. As regards the application of this Agreement at any time by a party, any term not
defined in this Agreement, unless the context otherwise requires or the competent
authorities agree to a common meaning pursuant to the provisions of Article 10 of this
Agreement, shall have the meaning which it has under the laws of that party, any
meaning under the applicable tax laws of that party prevailing over a meaning given to
the term under other laws of that party.

Article 5
Exchange of Information Upon Request
1.

The competent authority of the requested party shall provide upon request by the

requesting party information for the purposes referred to in Article 1 of this Agreement
and in accordance with its further provisions.
2. Any request for information made by a party shall be framed with the greatest degree
of specificity possible. In all cases, such requests shall specify in writing the following:
(a)

the identity of the taxpayer whose tax or criminal liability is at issue;

(b)

the period of time with respect to which the information is requested;

(c)

the nature of the information requested and the form in which the
requesting party would prefer to receive it;

(d)

the m atter under the requesting party's tax law with respect to which the
information is sought;

(e)

the reasons for believing that the information requested is foreseeably
relevant to tax administration and enforcement of the requesting party,
with respect to the person identified in subparagraph (a) of this paragraph;

(f)

grounds for believing that the information requested is present in the
requested party or is in the possession or control of a person within the
jurisdiction of the requested party;

(g)

to the extent known, the name and address of any person believed to be in
possession or control of the information requested;

(h)

a statement that the requesting party would be able to obtain and provide
the requested information if a similar request were made by the requested
party;

(i)

a statement that the requesting party has pursued all reasonable means
available in its own territory to obtain the information, except where that
would give rise to disproportionate difficulty.

3. Information shall be obtained and exchanged under this Agreement without regard to
whether the requested party needs such information for its own tax purposes or whether
the conduct being investigated would constitute a crime under the laws of the requested
party if it had occurred in the territory of the requested party. The competent authority
of the requesting party shall only make a request for information pursuant to this Article
when it is unable to obtain the requested information by other means available in its own
territory, except where recourse to such means would give rise to disproportionate
difficulty.
4. If the information in the possession of the competent authority of the requested party
is not sufficient to enable it to comply with the request for information, the requested
party shall take all relevant information gathering measures to provide the requesting
party with the information requested, notwithstanding that the requested party may not,
at that time, need such information for its own tax purposes. Privileges under the laws
and practices of the requesting party shall not apply in the execution of a request by the
requested party and such matters shall be reserved for resolution by the requesting
party.

5. Each party shall take all necessary measures to compel production of the information
requested, and if specifically requested, the information shall be provided in the

form specified by the competent authority of the requesting party, including depositions
of witnesses and authenticated copies of original documents.

6. Each party shall ensure that it has the authority, for the purposes referred to in
Article 1 of this Agreement and subject to Article 2 of this Agreement, to obtain and
provide, through its competent authority and upon a request:
(a) information held by banks, other financial institutions, and any person,
including nominees and trustees, acting in an agency or fiduciary capacity;
(b) (i) information regarding the ownership of companies and other legal entities,
including within the constraints of Article 2 of this Agreement, information on
all persons in an ownership chain; (ii) in the case of partnerships, information
regarding the identities of the members of the partnership; (iii) in the case of
trusts, information on the settlors, trustees and beneficiaries; and (iv) in the
case of foundations, information on the founders, members of the foundation
council, and beneficiaries.

Article 6
Tax Investigations Abroad
1. By reasonable notice given in advance, the authorities of the requested party may
allow officials of the requesting party to enter the territory of the requested party, to the
extent permitted under its domestic laws, to interview individuals and examine records
with the prior written consent of the individuals concerned. The competent authority of
the requesting party shall notify the competent authority of the requested party of the
time and place of the intended meeting with the individuals concerned. At the option of
the requested party, an official of the requested party may attend such meeting.
2. At the request of the competent authority of the requesting party, the competent
authority of the requested party may permit representatives of the competent authority
of the requesting party to attend a tax examination in the territory of the requested
party, in which case the competent authority of the requested party conducting the
examination shall, as soon as possible, notify the competent authority of the requesting
party of the time and place of the examination, the authority or person authorized to
carry out the examination and the procedures and conditions required by the requested
party for the conduct of the examination. All decisions regarding the conduct of the
examination shall be made by the requested party conducting the examination.

Article 7
Possibility of Declining a Request
1.

The competent authority of the requested party may decline to assist:
(a)

where the request is not made in conformity with this Agreement and, in
particular, where the requirements of Article 5 are not met;

(b)

where the requesting party has not pursued all means available in its own
territory to obtain the information, except where recourse to such means
would give rise to disproportionate difficulty; or

(c)

where the disclosure of the information requested would be contrary to the
public policy of the requested party.

2. This Agreement shall not impose upon a party any obligation:
(a)

to provide information that under the laws of the requested party is (i)
subject to legal privilege or (ii) contains any trade, business, industrial,
commercial or professional secret, or trade process, provided that
information that would not otherwise constitute a trade, business,
industrial, commercial or professional secret or trade process, shall not be
treated as such merely because it is held by banks, other financial
institutions, and any person, including nominees and trustees, acting in an
agency or fiduciary capacity; or

(b)

to carry out administrative measures at variance with its laws and
administrative practices, provided that nothing in this subparagraph shall
affect the obligations of a party under paragraph 6 of Article 5 of this
Agreement.

For purposes of paragraph 2(a), the term "information subject to legal privilege" means
information that would reveal confidential communications between a client and an
attorney, where such communications are made for the purpose of seeking or providing
legal advice or for the purpose of use in existing or contemplated legal proceedings.
3. A request for information shall not be refused on the ground that the tax liability
giving rise to the request is disputed by the taxpayer.
4. The requested party shall not be required to obtain and provide information which the
requesting party would be unable to obtain in similar circumstances under its own laws
for the purpose of the administration or enforcement of its own tax laws or in response to
a valid request from the requested party under this Agreement.
5.
Notwithstanding paragraph 4, the statute of limitations of the requesting party
pertaining to the taxes described in paragraph 1 of Article 3 of this Agreement shall
govern a request for information. The expiration of a statute of limitations for taxes of
the requested party shall not preclude the requested party from obtaining and providing
the requested information.

Article 8
Confidentiality
Any information received by the requesting party under this Agreement shall be treated
as confidential and may only be disclosed to persons or authorities (including courts and
administrative bodies) in the jurisdiction of the requesting party concerned with the
assessment or collection of, the enforcement or prosecution in respect of, or the
determination of appeals in relation to, the taxes covered by this Agreement, or to
supervisory bodies, and only to the extent necessary for those persons, authorities or
supervisory bodies to perform their respective responsibilities.
Such persons or
authorities shall use such information only for such purposes. They may disclose the
information in public court proceedings or in judicial decisions. The information shall not
be disclosed to any other person, entity, or authority, or used for any purpose other than
for the purposes stated in Article 1, except in cases where the requested party provides
prior, written consent that the information may also be used for purposes allowed under
the provisions of the existing Treaty on Mutual Legal Assistance in Criminal Matters
between the parties, signed July 8, 2002, that allows for the exchange of certain tax
information. In no event shall information provided under this Agreement be disclosed to
another country without the express written consent of the competent authority of the
requested party. Information received by the requested party in conjunction with a

request for assistance under this Agreement shall likewise be treated as confidential in
the requested party.

Article 9
Costs
Unless the competent authorities of the parties otherwise agree, ordinary costs incurred
in providing assistance shall be borne by the requested party and extraordinary costs
incurred in providing assistance shall be borne by the requesting party.

Article 10
Mutual Agreement Procedure
1. Where difficulties or doubts arise between the parties regarding the implementation
or interpretation of this Agreement, the respective competent authorities shall use their
best efforts to resolve the m atter by mutual agreement.
2. The competent authorities may adopt and implement procedures to facilitate the
implementation of this Agreement.
3. The competent authorities of the parties may consult and exchange information as
necessary regarding this Agreement or any related matter.

Article 11
Mutual Assistance Procedure
If both competent authorities of the parties consider it appropriate to do so they may
agree to exchange technical know-how, develop new audit techniques, identify new areas
of non-compliance, and jointly study non-compliance areas.

Article 12
Dialogue on further Cooperation
The parties shall continue the dialogue on the possibilities for further cooperation in the
taxation area. The parties have the right to submit proposals for discussion and to ask for
a meeting with the other party to address such proposals. In the context of such
discussions the parties may inform each other of possible changes to their internal tax
legislation and they may take into account any such changes.

Article 13
Implementing Legislation
Legislation necessary to comply with and give effect to the terms of this Agreement shall
be enacted by December 31, 2009, to the extent necessary.

Article 14
Appendix
The Appendix to this Agreement constitutes an integral part thereof.

Article 15
Entry into Force
This Agreement shall enter into force when each party has notified the other in writing of
the completion of its necessary internal procedures for entry into force. Upon entry into
force, it shall have effect for requests made oh or after the date of entry into force with
regard to tax years beginning on or after January 1, 2009. This agreement is not
intended to prejudice or interfere with any investigations or other proceedings that are in
process as of the date of entry into force of this Agreement.
Article 16
Termination
1. This Agreement shall remain in force until terminated by either party.
2. Either party may terminate this Agreement by giving notice of termination in writing.
Such termination shall become effective on the first day of the month following the
expiration of a period of three months after the date of receipt of notice of termination by
the other party.
3. If a party terminates this Agreement, notwithstanding such terminations, both parties
shall remain bound by the provisions of Article 8 of this Agreement with respect to any
information obtained under this Agreement.

In witness whereof the undersigned, being duly authorized thereto by their respective
Governments, have signed this Agreement.
Done a t _____________ , in duplicate, in the English and German languages, each text
being equally authentic, th is __________ day o f ________ , 2008.

FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA:

FOR THE GOVERNMENT OF THE PRINCIPALITY OF LIECHTENSTEIN :

A P P E N D IX
At the signing of the Agreement between the Government of the United States of
America and the Government of the Principality of Liechtenstein on Tax Cooperation and
the Exchange of Information Relating to Taxes (hereinafter referred to as "the
Agreement"), the Government of the United States and the Government of the
Principality of Liechtenstein have agreed to the following provisions:
1. With respect to Article 4 of the Agreement (Definitions), the term "person" also
includes foundations ("Stiftungen") and "Anstalten."
2. For purposes of paragraph 3 of Article 5 of the Agreement (Exchange of Information
Upon Request), the requesting party shall look only to domestic recourse in determining
disproportionate difficulty, and it is not contemplated that the requesting party pursue
the requested information through extraterritorial measures beyond those measures
specified in the Agreement in determining disproportionate difficulty.
3. For purposes of paragraph 4 of Article 5 of the Agreement (Exchange of Information
Upon Request), the term "information gathering measures" includes measures such as
requiring the presentation of records for examination; gaining direct access to records;
copying such records; and interviewing persons having knowledge, possession, control,
or custody of pertinent information.
4. With respect to paragraph 5 of Article 5 of the Agreement (Exchange of Information
Upon Request), the requested party shall have procedures and enforcement mechanisms
under its domestic laws permitting the competent authority of the requested party to
obtain the following information from or perform the following acts on all persons on
behalf of the requesting party:
(a) specify the time and place for the taking of testimony or the production of books,
papers, records, and other tangible property;
(b) place the individual giving testimony or producing books, papers, records and
other tangible property under oath;
(c) permit the presence of individuals designated by the competent authority of the
requesting party as being involved in or affected by execution of the request,
including an accused, counsel for the accused, individuals charged with the
administration and enforcement of the domestic laws of the requesting party
covered by the Agreement, or a commissioner or magistrate for the purpose of
rendering evidentiary rulings or determining issues of privilege under the laws of
the requesting party;
(d) provide individuals permitted to be present with an opportunity to question,
directly or through the executing authority, the individual giving testimony or
producing books, papers, records and other tangible property;
(e) secure original and unedited books, papers, and records, and other tangible
property;
(f)

secure or produce true and correct copies of original and unedited books, papers
and records;

(g) determine the authenticity of books, papers, records and other tangible property
produced, and provide authenticated copies of original records;

(h) examine the individual producing books, papers, records and other tangible
property regarding the purpose for which and the manner in which the item
produced is or was maintained;
(i)

permit the competent authority of the requesting party to provide written
questions to which the individual producing books, papers, records and other
tangible property is to respond regarding the items produced;

(j)

perform any other act not in violation of the laws or at variance with the
administrative practice of the requested party;

(k) certify either that procedures requested by the competent authority of the
requesting party were followed or that the procedures requested could not be
followed, with an explanation of the deviation and the reason therefor.
5. Pursuant to Article 8 of the Agreement (Confidentiality), any information received
pursuant to the Agreement is confidential and the parties shall take appropriate
measures to safeguard the confidentiality of information received pursuant to the
Agreement.
6. If an information request under the Agreement is believed to be deficient in some
respect, but other parts of the request meet the requirements of the Agreement, the
competent authority of the requested party shall provide any information that is
responsive to that part of the request that meets the requirements of the Agreement.
7. The parties express their wish to further their cooperation in tax matters beyond this
Agreement. In particular, the parties intend to explore whether additional agreements or
actions, such as agreements related to transfer pricing, may be undertaken.
8. Although the Agreement allows only for requests for information with regard to tax
years beginning on or after January 1, 2009, the Agreement provides for exchange of
documents or information created in or derived from a date preceding January 1, 2009,
that are foreseeably relevant to a request relating to tax years beginning on or after
January 1, 2009. Such information may be used only if there is an ongoing investigation
or examination with respect to a tax year that begins on or after January 1, 2009. For
example, if assistance is requested with respect to a taxpayer's bank transactions
occurring after December 31, 2008, and documents such as, but not limited to, a
signature card for the account in question were executed prior to January 1, 2009, the
parties would exchange the documents.
9. The parties acknowledge the availability of programs generally applicable to
taxpayers, including the voluntary disclosure practice of the Internal Revenue Service.
10. Upon signature of the Agreement, the United States is extending Liechtenstein's
treatm ent as an eligible Qualified Intermediary (Q I) jurisdiction until December 31, 2009.
Following agreement by the competent authorities that Liechtenstein has taken the steps
necessary to implement fully the Agreement, the United States shall extend
Liechtenstein's eligibility as a QI jurisdiction for the same period and subject to the same
restrictions, that the United States extends QI eligibility generally, with the
understanding that, under applicable regulatory and administrative rules, the terms of a
QI agreement between the Internal Revenue Service and any individual financial
institution may vary depending on the needs of sound tax administration.

Interim Assistant Secretary for Financial Stability Neel Kashkari Update on the
TARP Program
12/8/2008
HP-1321

Washington - Good afternoon, thank you John for that kind introduction and for the invitation to address this
audience today. We are in an unprecedented period and market events are moving rapidly and unpredictably. We at
Treasury have responded quickly to adapt to events on the ground. Throughout the crisis, we have always acted with
the following critical objectives in mind: one, to stabilize financial markets and reduce systemic risk; two, to support
the housing market by avoiding preventable foreclosures and supporting mortgage finance; and three, to protect
taxpayers. The authorities and flexibility granted to us by Congress have been essential to developing the programs
necessary to meet these objectives.
Today, I will focus my remarks on a couple of very important issues -- compliance and oversight of the TARP and on
measuring the results of this program. The American people provided Treasury with broad authorities to stabilize the
financial system and it is essential we communicate our actions in an open and transparent manner to maintain their
trust. I will describe the many steps we are taking to ensure compliance with both the letter and spirit of the law and
what measurements we look at to gauge the success of our programs. A program as large and complex as the TARP
would normally take many months or years to establish. But, we don't have the luxury of first building the operation,
then designing our programs and then executing them. Given the severity of the financial crisis, we must build the
Office of Financial Stability, design our programs, and execute them - all at the same time. We have made
remarkable progress since the President signed the law only 66 days ago.
Oversight
The first topic I will address is oversight of the TARP. In addition to the normal oversight provided by Congressional
committees of jurisdiction, the Congress established four important avenues of oversight: one, the Financial Stability
Oversight Board; two, the Special Inspector General; three, the Government Accountability Office; and four, the
Congressional Oversight Panel. I will review Treasury's interaction with each body in detail.
First, we moved immediately 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. We moved very quickly, and the
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. The law requires the Board to meet once a month, but it has already met five
times in the just two months since the law was signed, with numerous staff calls between meetings, and expects to
meet again this week. We've also posted the bylaws and minutes of the Board meetings on Treasury's website. In
addition, the Oversight Board has interacted with other oversight bodies, such as the GAO and the Congressional
Oversight Panel.

Second, the law also requires appointment of a Senate-confirmed Special Inspector General to oversee the program.
On November 17, the President nominated a candidate who is awaiting confirmation in the Senate. In the interim, we
are coordinating closely with Treasury's Inspector General. We held our first meeting on Monday, October 6, and
have had numerous meetings since then to keep the Inspector General apprised of all TARP activity. We look
forward to continuing our active dialogue with the Treasury IG, and with the Special IG, upon his confirmation.
Third, the law calls for the Government Accountability Office to establish a physical presence at Treasury to monitor
the program. Treasury provided workspace for our auditors within days of the President signing the law and Secretary
Paulson had his first call with the Acting Comptroller General, Gene Dodaro, on Tuesday, October 7. The Acting
Comptroller General and his team met with our team for the first time on Thursday, October 9. Since then, I have
participated in multiple briefings with the GAO and our respective staffs are meeting almost daily for program updates
and also to review contracts.
The GAO published its first report on TARP to Congress on December 2, which the law required within 60 days of
enactment. The GAO met with our team on Saturday, November 22, before their report was finalized. They provided
a thorough review of the TARP programs and progress - essentially a snapshot at the 60 day mark of a large,
complex project that continues to be a successful work in progress. As I noted above, given the intensity of the
financial crisis, we must build our operation, design our programs and execute them all at the same time. The GAO
report identified nine "areas that warrant Treasury's ongoing attention." We are pleased with our auditors'
recommendations because the GAO had identified topics that we already had focused on. The report was quite
helpful because it provided us with thoughtful, independent verification that Treasury is, indeed, focused on the right
topics and Treasury agrees with the GAO on the importance of these issues.
Given the importance of the GAO's feedback, I want to spend a few minutes going through the nine areas that GAO
identified and describe what we are doing in each case:
1. Monitoring and reporting of financial institutions activities
• As the report indicated, given the number and variety of financial stability actions being put in place by
multiple entities, it will be challenging to view the impact of the Capital Purchase Program in isolation and
at the institutional level. Moreover, each individual financial institution's circumstances are different,
making comparisons challenging at best, and it is difficult to track where individual dollars flow through an
organization. Nonetheless, we are working with the banking regulators to develop appropriate
measurements and we are focused on determining the extent to which the CPP is having its desired
effect.
2. Compliance of CPP participants with program requirements
• The key first step to effective compliance was developing effective program agreements and we
have already accomplished that for publicly traded institutions and most private institutions. The
CPP agreements are designed to require that the participants comply fully with the executive
compensation restrictions set out by Congress in the legislation. We are now developing
procedures to ensure that compliance with these restrictions is maintained.
3. Formalize existing communication strategies to keep people informed about our strategy
• Treasury recognizes the importance of a more comprehensive communication strategy and we are
looking at ways to enhance our communications, while recognizing that the TARP program is just

one piece of a comprehensive response to the financial market crisis. Very detailed updates, such
as this speech, are part of that strategy.
4. Develop a definitive transition plan
• Our team has been meeting regularly with the transition team and discussing our ongoing
activities to ensure a smooth transition. We intend to have a fully functioning TARP organization in
place as the new Administration takes office.
5. Expedite hiring efforts to ensure the Office of Financial Stability has the needed personnel
• From day one, hiring has been a key focus area for the entire TARP team and we are making
concrete progress every day as we staff up our team. Our Chief Operating Officer is coordinating
an intense effort with our human resources office to identify and fill critical staff needs both for the
immediate and long term.
6. Ensure sufficient personnel are assigned to oversee performance of contractors
• Working with the Treasury procurement staff, we are implementing a comprehensive process for
monitoring contractors. We view staffing in this area as a high priority and are bringing staff on
board now to make sure it is done right.
7. Continue to develop a comprehensive system of internal controls
• Here, we appreciate the acknowledgement by GAO of the work we are doing in this area. Internal
controls were one of the first areas that we addressed. For example, we contracted Price
Waterhouse Coopers to help us develop a system of internal controls, and we contracted Ernst
and Young to advise us on accounting procedures. While we have more to do, we are making
excellent progress.
8. Issue final regulations on conflicts of interest
• Treasury submitted conflict of interest regulations to OMB for review and expects to publish
them soon. We will then work diligently with our existing service providers to make any necessary
adjustments to bring their mitigation plans into conformance with these regulations. In the
meantime, we are proud that some of our conflict of interest requirements have been described by
commentators as some of the “toughest" out there.
9. Institute a system to manage and monitor the mitigation of conflicts of interest
• Treasury is requiring firms to provide detailed information about their compliance programs,
potential conflicts, and their mitigation plans b e fo re any contracts are signed, and we are using
this information to select the best vendors. In addition, we will soon have regulations in place with
rigorous monitoring and certification requirements and we are considering third party reviews and
audits as well.
The GAO report is just one example of our compliance with the tough oversight Congress has correctly established
over the TARP. Treasury will continue to have an open dialogue with the GAO through regular briefings to keep them
informed of our progress and welcome their additional feedback as we move forward.

Finally, the law called for the establishment of a Congressional Oversight Panel to review the TARP. That Oversight
Panel was recently formed and we had our first meeting with them on Friday, November 21. We look forward to future
discussions with the Panel.
Reporting and Transparency
Next, I would like to discuss reporting requirements and transparency. Reporting results to the Congress and the
American people is a critical responsibility of the TARP. People need to see what we are doing, understand why we
are doing it, and know the effects of our actions. The law defined numerous reporting requirements for the TARP,
which I will review here in detail. Treasury has met all of our reporting requirements on time, and we will continue to
do so. All of our reports are posted on the Treasury website.
First, the law requires Treasury to publish a Transaction Report within two business days of completing each
transaction. Many of our transactions are executed on the same day and so we have published four transaction
reports on October 29, November 17, 25 and 26 for the 54 transactions we have completed so far. We will issue
another transaction report tomorrow for the investments completed last Friday.
Second, the law requires Treasury to publish a Tranche Report to Congress within seven days of each $50 billion
commitment that is made. The comprehensive report must provide details on the following topics: the transactions
made to date, the impact on the financial system, the challenges that remain, and additional actions that may be
necessary to address those challenges. To date, Treasury has published three Tranche Reports on November 3 and
21 and December 2.
Finally, the law requires Treasury to provide a detailed report on the overall program within 60 days of the first
exercise of the TARP purchase authority. We sent that report to Congress last Friday, December 5. It is available on
our website today.
Measuring Results
People often ask: how do we know our program is working? First, we did not allow the financial system to collapse.
That is the most direct, important information. Second, the system is fundamentally more stable than it was when
Congress passed the legislation. While it is difficult to isolate one program's effects given policymakers' numerous
actions, one indicator that points to reduced risk of default among financial institutions is the average credit default
swap spread for the eight largest U.S. banks, which has declined more than 200 basis points since before Congress
passed the EESA. Another key indicator of perceived risk is the spread between LIBOR and OIS: one-month and
three-month LIBOR-OIS spreads have each declined about 100 basis points since the law was signed and about 180
basis points from their peak levels before the CPP was announced.
People also ask: when we will see banks making new loans? First, we must remember that just over half the money
allocated to the Capital Purchase Program has been received by the banks. Although we are executing at record
speed, it will take a few months to process all the remaining applications. The money needs to get into the system
before it can have the desired effect. Second, we are still at a point of low confidence - both due to the financial crisis
and the economic downturn. As long as confidence remains low, banks will remain cautious about extending credit,
and consumers and businesses will remain cautious about taking on new loans. As confidence returns, we expect to
see more credit extended.
This lending won't materialize as fast as any of us would like, but it will happen much faster as a result of having used
the TARP to stabilize the system and increase capital in our banks.

We firmly believe that healthy banks of all sizes should use this program to continue making credit available in their
communities. Treasury expects banks to increase their lending as a result of these investments and we firmly support
the statement issued by bank regulators on November 12 to that effect. The statement emphasized that the
extraordinary government actions taken to strengthen the banking system are not one-sided; all banks - not just
those participating in the CPP - have benefited from the government’s actions. Banks, in turn, have obligations to
their communities to continue making credit available to creditworthy borrowers and to work with struggling borrowers
to avoid preventable foreclosures. At the same time, Treasury believes institutions must not repeat the poor lending
practices that were a root cause of today's problems.
Conclusion
Treasury is committed to an open and transparent program with appropriate oversight. We look forward to continuing
to work with the Financial Stability Oversight Board, the Inspector General, the Comptroller General, and the
Congressional Oversight Panel as we execute this important program. Transparency will not only give the American
people comfort in our stewardship of these funds, it will give the markets confidence that we are stabilizing and
strengthening the financial system.
While we have made significant progress, we recognize challenges lie ahead. As Secretary Paulson has said, there
is no single action the federal government can take to end the financial market turmoil and the economic downturn,
but the new authorities Congress provided in October dramatically expanded the tools available to address the needs
of our system. We are confident that we are pursuing the right strategy to stabilize the financial system and support
the flow of credit to our economy. Thank you and I would be happy to take your questions.

Treasury Official Testifies on Financial Rescue Program
12/10/2008
Interim Assistant Secretary for Financial Stability
Neel Kashkari testified Wednesday before the
House Committee on Financial Services at a
hearing on oversight of the Troubled Asset Relief
Program.
LINKS
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