Contents of the Treasury Notes blog, from www.treasury.gov.
01 сентября 2016, 20:16

Examining Changes in Non-Residential Asset-Backed Securities Markets

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This blog post is the sixth in a series on fixed income market dynamics by the Department of the Treasury to share our perspective on the available data, discuss key structural and cyclical trends, and reiterate our policy priorities. This post examines the non-residential asset-backed securities markets. Vibrant, responsible securitization has constituted an important financing tool in the U.S. economy in recent decades.  In these asset-backed securities (“ABS”), a group of traditional credit instruments, such as consumer or business loans, are pooled together to create tradable securities.  While ABS represents just one of the many sources of credit for the economy, its role in expanding the availability of capital can have benefits for both businesses and consumers.  It can also benefit the financial system by diversifying the credit risk inherent in the underlying assets and enabling risk to be more efficiently allocated to capital providers. Unlike Treasuries, however, the ABS market is not one homogenous asset class. It encompasses securitization structures backed by a variety of asset classes, from consumer debt to commercial real estate mortgages.  During the financial crisis, after a period of abundant liquidity financed with high degrees of leverage, some ABS asset classes experienced stress, the most significant examples being in the private label mortgage market and asset-backed commercial paper. Key reforms have since been enacted to bolster the structure of securitizations and increase transparency.  In this blog post, we focus on the non-residential ABS market, namely commercial mortgage-backed securities (“CMBS”), collateralized loan obligations (“CLO”) and consumer loan ABS (“Consumer ABS”).  These securities generally had more modest impairment during the credit crisis and continue to serve as an important financing tool for originators of consumer and business loans. While the data remains somewhat limited, we explore how this market has evolved in recent years, current issuance trends, and structural factors that bear continued monitoring.  Our focus as we evaluate this sector is on the stability of liquidity and market functioning, even when broader market conditions are stressed.  Trends in Non-Residential ABS Issuance in the non-residential ABS market, particularly CMBS and CLO, increased significantly in the years leading up to the financial crisis in 2008 – similar to the rise in residential mortgage securitizations.  In certain ABS markets, a lack of incentive alignment and information asymmetry contributed to loosening lending standards and the eventual stress that the market experienced.  Since the crisis, issuance of non-residential ABS has generally rebounded (Figure 1). Liquidity, however, continues to be a topic of concern for market participants. Underlying trends differ by asset class, with significant transitions occurring in certain market structures. Below we examine these recent trends, particularly in the CMBS and CLO markets, in greater detail. Figure 1: Historical US Asset Back Securities Issuance (Source: Standard & Poor’s)   Commercial Mortgage-Backed Securities ​Private label CMBS issuance of $36 billion year to date is down approximately 45 percent from 2015, the post-crisis peak. In addition, both CMBS trade volume (Figure 2) and average trade size (Figure 3) have declined in recent years. Figure 2: CMBS Trade Volume (Source: Federal Reserve, TRACE, J.P. Morgan)   Figure 3: CMBS Average Trade Size (Source: J.P. Morgan) CMBS is just one of several funding vehicles for commercial real estate, and some have pointed to the relative attractiveness of other financing sources, in terms of certainty of execution and pricing irrespective of prevailing market conditions, as at least partially driving the decline in CMBS issuance. As Figure 4 shows, small and large domestic banks, international financial institutions, government agencies, insurance companies, and public market vehicles (included here in “other”) such as real estate investment trusts (REITs) have all stepped in as viable funding alternatives.  Figure 4: US Commercial Mortgage Market (Source: Federal Reserve, Trepp,    Goldman Sachs)   The CMBS market is also undergoing transition as participants evaluate different structures to comply with the Dodd-Frank Act’s risk retention rule that goes into effect for non-residential ABS in December 2016. The risk retention rule is intended to align incentives between securitizers and investors by requiring that securitizers maintain “skin in the game.” The first conduit CMBS transaction compliant with the new risk retention rule closed in early August 2016 and generated significant investor interest, pricing at levels that were considerably tighter than that of other recently issued conduit deals. While the effect that the risk retention rule will have on the CMBS market remains unclear, some market participants suggested that investors were favorably inclined towards the transaction in part due to expectations of more prudent underwriting, as demonstrated by the lower loan-to-value level in the transaction, and greater liquidity support from the securitizer banks that are required, per the risk retention rule, to retain a 5-percent interest in the securitization until the loans backing the security are fully defeased. Collateralized Loan Obligations ​While there was record CLO issuance in 2014 and 2015, issuance is down nearly 50 percent year to date to approximately $36 billion.  Anecdotal reports have pointed to a decline in CLO liquidity; however, traded volume relative to the size of the outstanding market (i.e. market turnover) has been relatively flat over recent years (Figure 5), and although average trade size has declined it has been offset by increased trade count (Figure 6). Figure 5: US CLO Secondary Market Turnover (Source: Morgan Stanley, Intex, TRACE)     Figure 6: US CLO Average Trade Size and Trade Count (Source: Morgan Stanley) ​The recent decline in CLO issuance appears to have been driven in part by lower merger and acquisition and leveraged buyout activity (Figure 7), which is a key source of leveraged loans that CLOs securitize. Figure 7: LBO/M&A as Percentage of New Loans Launched (Source: S&P LCD,  Morgan Stanley) ​The CLO market is also preparing for the year-end deadline for new transactions to include the required 5 percent risk retention.  Compared to the CMBS market, implementation of the risk retention rules began earlier in the CLO space, with a number of compliant deals being completed over the past year (Figure 8). However, market participants remain focused on how the remainder of the market will implement risk retention going forward and this will warrant continued monitoring. Figure 8: Risk Retention Compliant US Deals (Source: Citigroup, LCD, Creditflux, Bloomberg)     Consumer ABS ​Issuance in Consumer ABS is down approximately 12 percent year to date to $133 billion, with reduced issuance across asset classes. Market participants have pointed to lower liquidity as a result of the decrease in primary dealer inventory and, as Figure 9 shows, trading volume in Consumer ABS has trended lower. However, as addressed in previous blog posts in this series, the relationship between inventories and liquidity is not straightforward. Figure 9: Consumer ABS Monthly Trading Volume (Source: Bank of America Merrill Lynch, TRACE) ​Issuances in auto ABS, which was least affected by the financial crisis, and credit card ABS are each down nearly 12 percent year to date, while student loan ABS is lower by over 20 percent. ABS has become a less significant source of financing for student loans in particular over the past few years, given that the direct federal student loan program, which does not rely upon ABS financing, has become the largest issuer of new student loans. As Figure 10 shows however, overall access to credit for consumers remains relatively robust. Figure 10: Non-Mortgage Consumer Debt Outstanding (Source: Morgan Stanley, Federal Reserve) Looking Forward The non-residential ABS sector is currently in a state of transition, particularly as it relates to the CMBS and CLO markets. As a result of the financial crisis, important reforms were put in place to address the shortcomings that plagued certain securitization structures. The reforms, including the Dodd-Frank Act’s risk retention rule and the SEC’s amendments to Regulation AB to increase disclosure and reporting requirements for ABS, were designed to facilitate securitization as a viable source of credit in the economy while increasing incentive alignment, allowing investors to better understand the underlying assets and risks inherent in securitizations and reducing risks to the financial system as a whole. Some form of risk retention was already prevalent in certain non-mortgage asset classes prior to the crisis.  Securitizers’ retained stake in credit card securitizations and the retained subordinated securities held by issuers of auto ABS are two such examples. Due in part to these structural features, both of these asset classes generally proved more resilient to stress during the financial crisis.   In advance of December’s effective date on the risk retention rule for non-residential ABS, securitizers have been experimenting with a number of different risk retention compliant transactions, which will be critical to the successful transition of the industry to the new regulatory framework. Given the likely impact of these and other reforms, we and other interested parties will need time to assess any longer term effects on activity in these markets. As a general matter, however, efforts that promote the efficient and dependable allocation of economic resources and risk taking should be a positive for resilient and liquid markets. Initial evidence from the emerging risk retention transactions indicates that the reforms are a significant step in that direction. Securitized products remain an integral part of the diverse financing channels available to American consumers and businesses. It will be important to continue to monitor the ongoing changes in underlying collateral and deal structures to better understand any emerging risks. Jake Liebschutz is the Director of the Office of Capital Markets and Amyn Moolji is a senior policy advisor in the Office of Capital Markets at the U.S. Treasury Department.​

30 августа 2016, 22:08

Complementary Goals - Protecting the Financial System from Abuse and Expanding Access to the Financial System

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​ Correspondent banking relationships serve as important arteries within the global financial system.  By enabling money to flow both within and across economies, they improve livelihoods, bring more people into the financial system and foster global economic growth.  These relationships enable banks to facilitate international trade, conduct cross-border business and charitable activities, send remittances, and provide access to U.S. dollar financing.  They are essential to maintaining an inclusive and open financial system, and we are fully committed to safeguarding that system from abuse.   In order to do this, the United States maintains an effective anti-money laundering (AML) and countering the financing of terrorism (CFT) regime, which rests on clear requirements, strong and effective supervision, and meaningful and proportionate enforcement.   As part of that effort, today Treasury and U.S. Federal Banking Agencies, including the Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency issued a “Joint Fact Sheet on Foreign Correspondent Banking” to further clarify Treasury's and the Agencies' supervisory and enforcement posture regarding AML/CFT and sanctions in the area of correspondent banking.   The Fact Sheet highlights the efforts of U.S. authorities to implement a fair and effective regime when it comes to enforcement of AML/CFT and sanctions violations. Importantly, this regime is not one of “zero tolerance.”  In fact, as the Fact Sheet notes, about 95 percent of AML/CFT and sanctions compliance deficiencies identified by U.S. authorities are corrected through cautionary letters or other guidance by the regulators to the institution’s management without the need for an enforcement action or penalty.   In limited instances, when financial institutions fail to take corrective action, or when serious violations occur, federal banking agencies may take a formal enforcement action, such as a civil money penalty.  The rare but highly visible cases of large monetary penalties or settlements for AML/CFT and sanctions violations have generally involved a sustained pattern of reckless or willful violations over a period of multiple years and a failure by the institutions’ senior management to respond to warning signs that their actions were illegal.  These large cases did not represent small or unintentional mistakes.   Further, the Fact Sheet dispels certain myths about U.S. supervisory expectations. Notably, it confirms that there is no general expectation for banks to conduct due diligence on the individual customers of foreign financial institutions.   The Treasury Department recognizes the critical role that the U.S. financial system plays in the global economy, and firmly believes that expanding access to that system and protecting it from abuse are mutually-reinforcing goals.  Along with our colleagues in the federal banking agencies, we are committed to ensuring a well-functioning, accessible, transparent, resilient, safe, and sound financial system.   Nathan Sheets is the Under Secretary for International Affairs, Adam Szubin is the Acting Under Secretary for Terrorism and Financial Intelligence, and Amias Gerety is the Acting Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury.   ###  

26 августа 2016, 19:22

Secretary Lew and Secretary Burwell Send Letter to Congressional Task Force on Economic Growth in Puerto Rico

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​Today, U.S. Secretary of the Treasury Jacob J. Lew and U.S. Health and Human Services Secretary Sylvia M. Burwell sent the following letter to the Congressional Task Force on Economic Growth in Puerto Rico:    August 26, 2016       The Honorable Senator Orrin Hatch Chairman Committee on Finance United States Senate Washington, DC 20510   Dear Senator Hatch:   We are writing to you and the other members of the Congressional Task Force on Economic Growth in Puerto Rico to underscore the urgency of putting in place policies that restore growth to Puerto Rico.  We appreciate that Congress responded to our call for action by enacting the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) into law and are prepared to continue to work together to promote economic growth.    PROMESA As a result of PROMESA, Puerto Rico now has access to a restructuring process to adjust its debts to a sustainable level with no carve-outs for powerful financial interests.  And the independent fiscal oversight board established by the law will help restore credibility to Puerto Rico’s budgeting and fiscal decision making processes.  Restructuring of Puerto Rico’s debts is essential to establish a foundation for growth, including by ensuring that the government of Puerto Rico has the resources necessary for essential services, pensions, and important public investments.    PROMESA also included several preliminary steps to restore economic growth in Puerto Rico.  For instance, a majority of Puerto Rico is now eligible for a Historically Underutilized Business Zone (HUBZone) certification, which should create new job opportunities by increasing the percentage of federal contracting sourced in Puerto Rico.  The legislation also permits Puerto Rico’s government and municipalities to purchase many of their goods and services using the General Services Administration (GSA) purchasing schedules.  This should enable the procurement of equipment, licenses, and services from GSA at affordable rates and provide better transparency in the purchasing process.  Education efforts on these new opportunities are already being developed so local businesses know how to qualify.     NEXT STEPS FOR ECONOMIC GROWTH The law, however, is only the first step towards Puerto Rico’s recovery.  More work remains.  As proposed in the Administration’s roadmap last fall, only Congress has the power to address two critical issues: inadequate funding for healthcare in Puerto Rico and incentives to support workers and bring them into the formal labor market.  The Administration has reviewed and analyzed a wide range of proposals to support Puerto Rico, and found that the policies we ultimately proposed provide the most powerful tools to support economic growth and long-term stability.    Going forward, addressing Puerto Rico’s inadequate treatment under the federal Medicaid program is critical.  Congress recognized this and directed the Task Force’s final report to include findings regarding “impediments in current Federal law and programs to economic growth in Puerto Rico including equitable access to Federal health care programs.”    Strengthening Healthcare Given the current treatment of Puerto Rico under federal law, the 3.5 million Americans in Puerto Rico do not have access to healthcare services considered standard in the rest of the nation.  In particular, Medicaid in Puerto Rico is fundamentally different from Medicaid in the 50 states.  Medicaid funding in Puerto Rico is capped; beneficiaries are offered fewer benefits; and the federal government contributes less on a per-capita basis than it does to recipients in the rest of the nation.  Puerto Rico provides health insurance coverage to more than 1.6 million Americans through Medicaid and the Children’s Health Insurance Program, representing nearly half of its total population.  When one-time additional funds provided by the Affordable Care Act (ACA) are exhausted in Puerto Rico, as early as December 2017, up to 900,000 Americans living in Puerto Rico could lose their healthcare coverage.    The loss of these funds will create a disruption in cash flow and affect the operations of providers that participate in the Commonwealth’s health insurance program, impairing access to care for all age groups.  This disruption will reduce cash flow and force hospitals to reduce services, lay off staff, and delay payments to suppliers.  As recently as May 2016, two hospital systems and two tertiary hospitals already announced layoffs and service reductions as a result of cash flow disruptions.  While the loss of access to healthcare services is important for all citizens of Puerto Rico, it is especially important for those with chronic diseases which are estimated to account for more than 50 percent of the Medicaid population (including patients with asthma, diabetes, hypertension, cardiovascular disease, and dementia).  This deterioration in services is especially concerning given the public health threat of Zika, in particular to pregnant women, since Zika is a cause of microcephaly and other severe fetal brain defects.  As of August 17, the Centers for Disease Control and Prevention (CDC) has recorded 7,889 Zika virus cases in Puerto Rico.  Because approximately 80 percent of people infected with Zika do not have symptoms, this likely represents only a fraction of those who may be infected to date.  CDC estimates that a quarter of Puerto Rico’s population may be infected with Zika by the end of the year.  Despite this imminent threat, financial constraints have complicated the timely and comprehensive response required.   Congress needs to act to avoid these consequences.  Puerto Rico’s Medicaid program must be reformed to raise the standard of care, strengthen program integrity, prevent unstable Medicaid financing from exacerbating Puerto Rico’s economic crisis, and avoid a drop in coverage when one-time funds from the ACA expire.   Reforms should include removing the cap on Puerto Rico’s Medicaid program and gradually increasing the federal support Puerto Rico receives through the federal Medicaid match.  In conjunction with increased federal support, Puerto Rico also should develop the more robust infrastructure required to offer new Medicaid benefits and strengthen its internal accountability, financial management, and program integrity controls.   One service area Puerto Rico will need to improve to strengthen its Medicaid program is long‑term services and supports.  The Medicaid program in the Commonwealth currently does not cover long-term care in nursing facilities or in the community.  Increasing long-term care capacity will both support the care needs of Medicaid enrollees in Puerto Rico and strengthen the economy through job creation, including in healthcare.   Improving Labor Market Participation and Rewarding Work In addition to fixing Puerto Rico’s inadequate healthcare treatment, Congress must enact proven, bipartisan tools for stimulating economic growth and rewarding work.  Puerto Rico residents currently are not eligible for Earned Income Tax Credit (EITC), and a large body of economic research has found that the EITC is one of the most powerful policy tools to meet those objectives.  At 40 percent, Puerto Rico has the lowest labor market participation in the United States; indeed, participation rates in Puerto Rico are about two-thirds of the U.S. average, which stunts economic growth and undermines Puerto Rico’s economic and fiscal reform efforts.  A federally-financed, locally-administered EITC would create incentives for work and increase participation in the formal economy.  Adopting a locally-administered EITC consistent with the President’s budget proposal would pull 54,000 Puerto Ricans out of poverty and increase Puerto Rico’s Gross National Product by $1.05 billion, or 1.5 percent.  The EITC also can be expected to increase tax compliance and tax revenues, improving Puerto Rico’s fiscal position.  An expanded Child Tax Credit could supplement this effort.   Measuring Economic Growth The ability to benchmark, measure, and track economic growth in Puerto Rico is also critical.  PROMESA laid important groundwork by encouraging the Census Bureau to conduct a study on the feasibility of including Puerto Rico in the Current Population Survey, a primary source of labor force statistics in the United States.  However, this is only a first step: updating Puerto Rico’s statistical methodologies and including Puerto Rico in other data sets is essential.  Congress should encourage the Census Bureau to explore including Puerto Rico in the Census of Governments, which is the primary source for benchmark data on the scope and nature of local government organizations, powers, and activities, as well as the authoritative benchmark for government employment and government finance.  Given the importance of the agricultural industry to Puerto Rico’s economic vitality, the National Agricultural Statistics Service also should determine whether it is feasible to include Puerto Rico in its surveys, which are the authoritative source for agricultural statistics.    Building on Federal Initiatives in Key Industries As described in the examples below, efforts also should build on existing federal initiatives to accelerate progress in key industries such as aerospace, export services, information and bio technology, pharmaceuticals, medical devices, agriculture, infrastructure, and manufacturing:   With the help of Vice President Biden and the Department of Commerce’s SelectUSA, Puerto Rico attracted Lufthansa to open a new maintenance and repair operations facility in Aguadilla to repair and maintain aircraft, creating hundreds of new jobs.  JetBlue, Spirit, and other airlines already use the facility, and expanding capacity would create more jobs and spur further growth.  Additional expansions in aerospace and defense research and development technologies could complement growth in this sector as well.   Similarly, the Department of Transportation identified more than $750 million in available toll credits for Puerto Rico to use in funding new infrastructure projects.  And earlier this year, Secretary of Transportation Foxx announced a memorandum of understanding with Puerto Rico to unlock more than $400 million annually in federal funds to sustain work on infrastructure projects in Puerto Rico that otherwise risked becoming stalled.  The agency also is working to add Highway 22, one of Puerto Rico’s most traveled highways, to the President’s Federal Infrastructure Projects Dashboard, which would expedite federal environmental reviews and permit decisions.  Strategic investment in infrastructure projects could help the economy grow and create jobs.   Finally, the Department of Agriculture recently selected Roosevelt Roads in northeastern Puerto Rico as a federal “Promise Zone.”  This designation will provide Puerto Rico with greater access to federal resources and support from government partners, including assistance with critical infrastructure needs.  In addition, the Department of Agriculture recently launched a strike force initiative in Puerto Rico to help establish new businesses locally, and to address Puerto Rico’s food security; rural economic development; and the needs of community facilities, from the importation of fresh foods to molasses manufacturing and coffee production.  Work is also underway to strengthen Puerto Rico’s nutrition assistance program to further encourage and support participants entering the workforce.  Further collaboration could accelerate the progress of those projects.   We are encouraged by Congress’s attention to the need for additional action to enable growth in Puerto Rico, building on the strong foundation PROMESA established.  Any serious proposal for Puerto Rico’s future growth starts with addressing the inadequacies of Puerto Rico’s treatment in the Medicaid program; without addressing that challenge, a return to growth and opportunity will be a significant challenge.  In addition, an EITC is the single most powerful tool to support growth and encourage work, while also supporting fiscal reforms.  The work of the Task Force can help lay a strong foundation for economic growth in Puerto Rico.  We expect that the Task Force will examine and consider a range of additional proposals as it works to recommend changes to federal law and programs that would spur sustainable long-term economic growth, encourage job creation, reduce child poverty, and attract investment in Puerto Rico.      We stand ready to work with the Task Force as it carries out its important mission.  By working together and with Puerto Rico, we can help Puerto Rico return to growth.                                                                     Sincerely,       Jacob J. Lew                                                                           Sylvia M. Burwell Secretary                                                                                 Secretary Department of the Treasury                            Department of Health and Human Services    

24 августа 2016, 17:16

Treasury Releases White Paper on European Commission’s State Aid Investigations into Transfer Pricing Rulings

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​ Tax avoidance by multinational corporations is a serious concern for the United States and governments around the world. President Obama has proposed a robust tax reform plan that would address this issue and has repeatedly urged Congress to enact it into law.  Moreover, we have made important progress by working with our international counterparts on a number of initiatives—most notably the G-20/OECD Base Erosion and Profit Shifting (BEPS) project—to curtail the erosion of our respective corporate tax bases.  We are concerned that the European Commission’s State aid investigations threaten to undermine progress in this area and could create an unfortunate international tax policy precedent.   Over the last several months, Treasury Secretary Jacob J. Lew and his staff have engaged extensively with the Commission to express our concerns related to its State aid investigations.  Secretary Lew wrote to Commission President Jean-Claude Juncker in February urging the Commission to reconsider these new actions while reaffirming our commitment to continued collaboration through the BEPS project.   These investigations have major implications for the United States.  In particular, recoveries imposed by the Commission would have an outsized impact on U.S. companies.  Furthermore, it is possible that the settlement payments ultimately could be determined to give rise to creditable foreign taxes.  If so, U.S. taxpayers could wind up eventually footing the bill for these State aid recoveries in the form of foreign tax credits that would offset the U.S. tax bills of these companies.  The investigations have global implications as well for the international tax system and the G20’s agenda to combat BEPS while improving tax certainty to fuel growth and investment.   Given these significant implications, today the Treasury Department is releasing a white paper outlining the Department’s concerns with the Commission’s approach.   First, we highlight that the Commission’s approach is new and was unforeseeable by the relevant companies and EU Member States.  Second, we emphasize that the Commission should not seek to impose recoveries under this new approach in a retroactive manner because it sets a bad precedent for tax policymakers around the world.  Finally, we explain that the Commission’s approach undermines U.S. tax treaties and international transfer pricing guidelines already accepted broadly in the global tax community, and undermines the work done as part of the BEPS project.   A strongly preferred and mutually beneficial outcome would be a return to the system of international tax cooperation that has long fostered cross-border investment between the United States and EU Member States.  The U.S. Treasury Department remains ready and willing to look for a path forward that achieves the shared objective of preventing the continued erosion of the corporate tax base while ensuring our international tax system is fair for all.     To read the Treasury Department’s white paper, click here.   To read Secretary Lew’s February letter to Commission President Jean-Claude Juncker, click here.   Robert B. Stack is the Deputy Assistant Secretary for International Tax Affairs at the U.S. Department of the Treasury.

12 августа 2016, 21:53

Examining Changes in the Treasury Repo Market after the Financial Crisis

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​ This blog post is the fifth in a series on fixed income market dynamics by the Department of the Treasury to share our perspectives on the available data, discuss key structural and cyclical trends, and reiterate our policy priorities.  This post examines the Treasury repo market.   The Treasury repurchase (repo) market helps facilitate trading in the world’s deepest, most liquid government securities market.  Repos involve a party borrowing cash from another while posting Treasury securities as collateral and paying interest.  Borrowing in the repo market takes place most commonly overnight, although a repo’s term could be for any mutually agreed upon time, such as one week or one month.    This post explores some of the ways in which the Treasury repo market, both in the tri-party and the bilateral segments, has changed over the past several years, including: (1) the volume of market activity, (2) the relative price of repo, and (3) direct repo trading without a dealer intermediary.  Although this market has undergone a variety of changes since the financial crisis, the Treasury repo market continues to function well.   Size of the Treasury Repo Market: During the early- to mid-2000s, Treasury repo activity—defined here as the aggregate volume of overnight and term trades outstanding—increased significantly.  Primary dealer financing statistics collected by the Federal Reserve Bank of New York (FRBNY) indicate that repo activity more than doubled between 2002 and early 2008.  During the financial crisis, however, these volumes began to decline and were down by roughly 40 percent by the middle of 2009.  The data suggests that activity has remained relatively stable in the years since the crisis.  This trend in Treasury repo market activity has largely mirrored cash market trading volumes, which is consistent with the role that repo performs in market intermediation by facilitating the ability of market participants to (1) finance purchases of new Treasury securities from the US government at auction before distributing those securities to end investors and (2) intermediate between buyers and sellers in the secondary cash market.     Source: FRBNY and SIFMA (financing volumes include securities lending activity)   Tri-party and Bilateral Repo Markets: Repo trades are settled in two ways.  In tri-party repos (general collateral, or GC), a clearing bank provides clearing and settlement services including collateral valuation, margining, and management services to ensure the terms of the repo contract are met (see this OFR Working Paper). General Collateral Financing (GCF) Repo Service, another tri-party platform, was introduced in 1998 by the Fixed Income Clearing Corporation and settles tri-party through Bank of New York Mellon and J.P. Morgan Chase.  Last month, J.P. Morgan Chase announced changes to its repo settlement business line, which are to be incorporated over the next couple of years.  Treasury anticipates a smooth transition and minimal impact on the functioning of the repo market.  In bilateral repos, meanwhile, the lender is responsible for the valuation and margining of the collateral pledged by the borrower.  These two segments (tri-party and bilateral) broadly compose the Treasury repo market as a whole.   Size of Tri-party Treasury Repo Market:  Data collected by FRBNY from the two tri-party clearing banks indicate that tri-party repo activity is well within its historical range and on an upward trend.  In fact, the June 2016 monthly snapshot showed volumes at highs since data became available in May 2010.       Source: FRBNY   Money market mutual funds (MMFs), as cash lenders, are significant participants in the tri-party repo market and rely on this market as a source of safe short-term investments.  Since 2011, the SEC and the Office of Financial Research (OFR) have provided a window into the magnitude of these volumes through their data collection efforts, now publicly available through the OFR’s U.S. Money Market Fund Monitor.  These data indicate that the magnitude of MMF repo investments with private sector counterparties—in other words, investments that are exclusive of the Federal Reserve’s reverse repo facility—are currently comparable to the volumes witnessed in 2011-2012.  Moreover, recent months have shown an increase in money market fund repo activity, with April 2016 showing the highest volumes since data became available in January 2011.     Source: SEC and Treasury-OFR   Neither dataset provides an indication of market size pre-crisis, but both indicate that repo market volumes remain in-line with levels witnessed over the past five years.   Prices in the Tri-Party Treasury Repo Market: The price of Treasury repo is the interest rate that market participants pay to borrow cash against Treasury collateral.  Similar to the way in which Treasury repo activity appears to have been range-bound over the past several years, the spread between overnight Treasury GCF and the Federal Reserve’s policy rate (fed funds effective, or FFE) has remained fairly level as well.  If the rate paid on overnight Treasury GCF moved consistently higher relative to FFE, it could reflect potential stresses in the repo market.  During the crisis, there were occasional situations when the unsecured rate traded significantly higher than the secured rate.  Since the crisis, however, the spread between these two rates has generally been reasonably stable.     Source: DTCC and FRBNY   Overnight Treasury GCF transactions have averaged approximately $110 billion over the past year, representing only a small sub-section of the broader Treasury repo market.  These transactions are, however, one of the few publicly available data sources on Treasury repo pricing—particularly over longer time horizons.   Size of the Bilateral Treasury Repo Market: Although the availability of data about Treasury repo activity has increased over recent years, it remains insufficient, particularly for bilateral repo trading. To address this issue, the Office of Financial Research and Federal Reserve, with input from the Securities and Exchange Commission, launched a voluntary bilateral repo data collection in 2014 that collected information from a number of significant market participants (see the description of the interagency bilateral repo pilot).   The pilot showed that transactions involving U.S. Treasuries represented the majority of collateral transacted in the bilateral repo market. The pilot participants reported $416.4 billion of U.S. Treasuries were financed in the bilateral repo market, on average, over the three reporting dates in the first quarter of 2015. During the same period, $711.5 billion of U.S. Treasuries were used as collateral or borrowed by the reporting firms (see the OFR Brief). To put this in context, $416.4 billion is equivalent to nearly a quarter of the primary dealer financing referenced earlier—a very significant proportion, despite the limited scope of the pilot program.  While the pilot data are helpful in estimating the point-in-time size of the bilateral repo market, officials are considering a more permanent data collection process to close this data gap for a large segment of the overall market.   Treasury Repo “Specials”: A security is said to be trading “special” in repo if it is trading at a rate below that of the tri-party GC rate.  That is to say, specials' trading indicates that a specific security is particularly sought after in the repo market, as cash lenders are willing to accept a lower rate for this specific security.  Because specials necessarily involve a specific security, instead of any security acceptable on a tri-party platform as general collateral, repo specials trading is part of the bilateral repo market.  As the following chart illustrates, the aggregated volume and typical pricings (volume-weighted average price, VWAP) in on-the-run, or current-issue, nominal coupon specials have been range-bound over the past six years.    Source: BrokerTec and Treasury   There have been instances in which individual securities trade deeply special in repo.  This occurred, for example, in March 2016 ahead of the first reopening of the 10-year note, although, as the chart above shows, the overall average was not significantly affected.  Although the 10-year note did trade deeply special (near the current “fails charge” of -2.75 percent) for several days, the pricing was not out of line with recent precedent.  The following chart focuses on four highly similar occurrences over the past five years.  In the days leading up to the auction reopening, some market participants sell the security ‘short’ in an effort to clear balance sheet in anticipation of the imminent additional supply.  If, however, a preponderance of investors in that security is unwilling to lend it in repo, that security could trade deeply special for a time.  Once the additional supply settles, the repo specialness typically subsides, as evidenced by the following graph.    Source: BrokerTec and Treasury   Direct Repo Trading: Some market participants have suggested that direct repo trading (i.e., without the typical role of a dealer acting as intermediary between the end cash lender and end cash borrower) could be an alternative means of increasing the supply of repo.  Although it is a small proportion of the overall market at present—about 3 percent of MMF Treasury repo investments as of June 30, 2016—there are signs that this non-traditional form of repo participation is increasing.  For example, MMFs have significantly increased their exposure to direct repo participants over the past year, as seen in the graph below.    Source: SEC and Treasury-OFR   Concluding Thoughts:  The repo market supports trading activity in cash Treasuries by facilitating market participants’ ability to intermediate between buyers and sellers.  As such, the health of both the primary and secondary markets for Treasury securities is tied to that of the repo market.  The fact that repo volumes and pricing have remained within a relatively stable range in recent years demonstrates that, while the market has witnessed a number of changes, the Treasury repo market—like the Treasury market overall (see the first and second blog posts in this series)—continues  to function well .   James Clark is the Deputy Assistant Secretary for Federal Finance and Tom Katzenbach is a financial analyst in the Office of Debt Management at the U.S. Treasury Department.  The authors thank Viktoria Baklanova, a senior financial analyst in Treasury’s Office of Financial Research, for her valuable insights on the Treasury repo market.

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02 августа 2016, 18:57

Treasury Issues Proposed Regulations to Close Estate and Gift Tax Loophole

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Today, the U.S. Department of the Treasury announced a new regulatory proposal to close a tax loophole that certain taxpayers have long used to understate the fair market value of their assets for estate and gift tax purposes.  Estate and gift taxes, or transfer taxes, are taxes on the transfer of assets from one person to another either by gift during his or her lifetime or by inheritance at death. Only transfers by an individual or their estate in excess of $5.45 million are subject to tax. For married couples, no tax is collected on the first $10.9 million transferred. These generous exemption amounts mean that fewer than 10,000 of the largest estates are subject to any transfer tax at all in a year. It is common for wealthy taxpayers and their advisors to use certain aggressive tax planning tactics to artificially lower the taxable value of their transferred assets. By taking advantage of these tactics, certain taxpayers or their estates owning closely held businesses or other entities can end up paying less than they should in estate or gift taxes. Treasury’s action will significantly reduce the ability of these taxpayers and their estates to use such techniques solely for the purpose of lowering their estate and gift taxes. These proposed regulations are subject to a 90-day public comment period. The regulations themselves will not go into effect until the comments are carefully considered and then 30 days after the regulations are finalized. ​View the proposed regulations here​.  Mark Mazur currently serves as the Assistant Secretary for Tax Policy at the U.S. Department of the Treasury.

21 июля 2016, 17:36

Wall Street Reform Works - Six Years of Progress and a Stronger, Safer Financial System

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Six years ago, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law—the most comprehensive, far-reaching set of reforms to our financial system since the Great Depression. Today, our economy is back on track, growth has returned, and our financial system is safer because of these historic reforms. The unemployment rate has been cut by half. We continue to enjoy record job growth, averaging more than 150,000 new private sector jobs per month so far in 2016. Household net worth has grown by about $30 trillion, well above pre-crisis levels. And business lending has climbed by more than 60 percent. At the same time, Wall Street Reform has brought greater transparency and stability to the financial system, creating a crucial foundation for sustainable, more inclusive economic growth. Over the past six years: Banks have added more than $700 billion in additional capital – money they can lend to consumers and businesses and that will make these institutions more resilient in the event of unexpected losses. ​Standardized derivatives are required to be centrally cleared and traded on exchanges or transparent trading platforms, increasing transparency and reducing risks to the financial system. The Financial Stability Oversight Council brings the entire financial regulatory community together to identify and respond to potential emerging threats to financial stability. The Consumer Financial Protection Bureau – which this week marks its five-year anniversary – has secured more than $11 billion for more than 27 million hardworking consumers.    As Secretary Lew has made clear, this progress must not lead to complacency. Our work didn’t end with the passage of Wall Street Reform. In many ways, it was just the beginning. Creating a safer, more stable financial system is an ongoing project that requires constant vigilance. And in the coming months, we will remain focused on seeing the implementation of Dodd-Frank through, opposing efforts to weaken the reforms we’ve put in place, and creating a system that protects taxpayers, consumers, and Main Street communities all across the country. Read more about the progress we’ve made over the past six years here.​ Rob Friedlander is a spokesperson at the Treasury Department​.

15 июля 2016, 17:32

Treasury Issues Latest SSBCI and SBLF Reports

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America’s small businesses are the back bone of our economy. They create jobs and drive growth that is important to our nation’s overall economic success. Entrepreneurs and small businesses need capital to start and grow their businesses. We know that access to loans and investments was especially difficult in the wake of the recession, and many new and young businesses still struggle to access capital. Over the past five years, the State Small Business Credit Initiative (SSBCI) and the Small Business Lending Fund (SBLF) have helped entrepreneurs and small businesses bridge the credit gap and access the funds they needed. SSBCI and SBLF programs provide small business owners with greater access to loans and investments throughout the country, and today Treasury is issuing two new reports that measure the progress of these programs.   SSBCI has been providing funds to state lending and investment programs that work at the local level. States work with private lenders to design programs specific to the small business needs of their communities. With a relatively small investment, SSBCI has been able to leverage greater levels of private sector loans and investments and direct them to our nation’s small businesses. More than $1.3 billion in SSBCI Funds have been deployed nationwide, helping boost local economic development efforts and supporting greater levels of private sector lending. States have now drawn 95 percent of the nearly $1.5 billion of available funds.  In all, the program has helped to support $8.5 billion in private loans, supporting more than 16,000 small businesses across the United States. The SBLF program is also helping small businesses access loans. The program encourages lending by providing capital to Main Street banks and community development loan funds.  Since the program’s inception, it has helped to increase small business lending by a remarkable $18.5 billion. More than 90 percent of participating community banks reported stronger small business lending as a direct result of the program.     Please click here to read SSBCI’s Summary of States Quarterly Report Please click here to read SBLF Participants’ Small Business Lending Growth Report Dan Cruz is a Media Specialist and Spokesperson for Domestic Finance at the U.S. Treasury Department.

07 июля 2016, 15:59

Examining Corporate Bond Liquidity and Market Structure

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This blog post is the fourth in a series on fixed income market dynamics by the Department of the Treasury to share our perspective on the available data, discuss key structural and cyclical trends, and reiterate our policy priorities. This post examines the corporate bond market. The corporate bond market plays a critical role in the U.S. economy.  Businesses tap the bond market to raise over $1 trillion in financing each year, and the more than $8 trillion of corporate bonds outstanding represent an important asset class for a variety of investors.  The corporate bond market, in contrast to the Treasury market discussed previously in this series, is highly diverse with tens of thousands of distinct securities. Accordingly, liquidity differs in the corporate bond market.  While certain bonds trade frequently, many rarely trade.  Recently, some have argued that liquidity conditions in the corporate bond market have deteriorated.  Although there have been anecdotal reports of periods during which liquidity conditions have been challenging, the corporate bond market has always been less liquid than many markets, and the available data does not show convincing broad-based evidence of dwindling liquidity.  Nevertheless, the corporate bond market is undergoing an important transition.  After reviewing common measures of liquidity, we highlight several market trends that are transforming the structure of risk transfer in the marketplace.    Trading Volumes: While traded volume does not reveal the cost of trading nor potential desired but unexecuted trading activity, it is a direct measure of the level of activity that the market accommodates.  Both investment grade and high yield corporate bond average daily trading volumes have trended upward, roughly doubling since the financial crisis.  Despite growing volumes, record-breaking issuance has resulted in a decline in the overall “turnover.”  While turnover is a commonly cited measure of liquidity, its application may be limited given a variety of factors affecting the corporate bond market, including the increase in recent years of smaller issuers whose bonds trade less frequently and the prevalence of long-term holders who naturally trade less frequently.      In addition, the emergence of exchange-traded funds (ETFs) that track corporate bonds has provided market participants with another avenue for trading corporate bond exposure.  Trading in corporate bond ETFs has increased substantially (to about $2.5B average daily volume), with high yield corporate bond ETFs in particular experiencing significant growth in comparison to the amount of trading in the underlying bonds.  However, corporate bond ETFs are relatively new and their effects on market dynamics through the credit cycle are not fully tested.            Bid-Offer Spread: The spread between the average price at which securities are bought and sold provides a measure of the transactions costs in corporate bonds.  Investment grade and high yield bond bid-offer spreads are generally consistent with or below recent historical levels.  It is important to note, however, that the level of bid-offer spread in this market has consistently been fairly high compared to other, more liquid fixed income markets.  Moreover, because these spreads are estimated from transaction data, they do not capture cases where investors may have forgone trading due to high bid-offer spreads.       Trade Size: Corporate bond trade sizes declined through the financial crisis but have generally been increasing since then, though they remain lower than their pre-crisis peak.  The decline from the pre-crisis period may reflect the reduced willingness of intermediaries to bear certain risks associated with facilitating large trades. Anecdotally, market participants have reported more difficulty executing large “block” size trades compared to the pre-crisis period.  However, the changes in market structure discussed below may also be contributing to smaller trade sizes and the implications of the trend for overall liquidity are unclear.       Price Impact of Trades: Another measure of liquidity is the impact that executed trades have on market prices.  In more liquid markets, executed trades of a given size generate less price impact than in less liquid markets, all else equal.  The below chart shows that the price impact per $100 million of corporate bonds traded has declined since the crisis and now sits below pre-crisis levels.     Dealer Inventories: Many commentators have pointed to declining dealer inventories as evidence of reduced corporate bond liquidity.  However, the link between inventories and liquidity is not straightforward.  Historically dealers have held significant inventories to facilitate principal intermediation, while agency intermediation, discussed below, would not require such large inventories.    Furthermore, some have argued that dealer inventories can serve as “shock absorbers” during times of stress, as dealers would expand their inventories by buying bonds.  However, even at their peak in 2006, dealer inventories represented less than half of 1 percent of the corporate bond market, and so were unlikely to provide significant shock absorption.  Moreover, dealers holding large inventories in times of stress may not have capacity to take on significant additional positions.  Instead, they may be motivated to reduce their own positions, often at the same time customers are attempting to do so, potentially adding to a sell-off.  As the following chart plotting changes in dealers’ corporate bond positioning against changes in financial conditions shows, there is little evidence that dealer inventories have expanded during periods of stress (i.e., there are few points in the upper right quadrant).  The points in the lower right quadrant highlight instances of dealers reducing their positions as financial conditions tighten (most dramatically during the financial crisis).       Issuance: Primary issuance in the corporate bond market is important in and of itself as an indicator of financing activity, but it also provides an indirect indicator of the health of the secondary market; investors consider secondary market liquidity in evaluating whether to buy potential new issues.  Corporate bond issuance is influenced by a number of factors, but its continued strength to date suggests secondary market liquidity conditions have not been constraining issuance.  Investment grade issuance has set record highs for four straight years and the first quarter of 2016 was similarly strong.       High yield issuance slowed over the past year as credit concerns in certain sectors increased, but overall issuance remains within historical ranges.     While some measures, such as lower trade sizes and dealer inventories, are frequently cited as evidence of declining liquidity, the available evidence, when viewed holistically and in light of recent market trends, does not suggest a broad-based deterioration in liquidity.  Instead, most measures are within historical ranges.  Nevertheless, the corporate bond market is undergoing significant changes that are reshaping the nature of trading and liquidity provision, including: the shift from principal- to agency-based intermediation, growth in electronic trading, and the emergence of new trading platforms.   Intermediation Model: Buyers and sellers in the corporate bond market, with its large number of diverse securities that generally trade less frequently than standardized securities, have historically relied upon broker-dealers to intermediate transactions in a principal capacity.  Under this model, a potential buyer or seller calls a dealer to request a price for a bond.  If the dealer and the potential buyer or seller agree on a price, the dealer executes the transaction for its own account.  Increasingly, however, dealers have begun acting as agents, looking to match buyers and sellers directly, rather than holding positions on their own balance sheets, to reduce risk and required capital.    One recent study suggested that for the most active dealers the share of agency intermediated trades has roughly doubled from 7 percent to 14 percent since the pre-crisis period; another recent study looking at all dealers estimated that the share could be as high as 42 percent.  Acting as an agent does not require a dealer to hold inventory and could result in tighter bid-offer spreads due to the dealer’s reduced risk.  However, some customers worry that it may take longer for a dealer to find another customer interested in taking the other side of the trade than it would for a dealer to execute as a principal, exposing the customer to intervening price movements.    Electronic Trading: Electronic trading in the corporate bond market has increased significantly since the financial crisis, and an estimated 20 percent of investment grade corporate bond trading is now performed through electronic interfaces instead of by phone.   Electronic trading has had, and continues to have, a profound effect on market structure across many asset classes and is often associated with higher trading volumes and reductions in bid-offer spreads and trade sizes.  Unlike the growth of high-speed algorithmic electronic trading in Treasury markets highlighted in one of our previous blog posts, so far most of the electronic trading in corporate bonds uses the “Request for Quote” model that is used for phone-based trading.  This type of electronic trading can improve operational efficiency for dealers and customers as well as facilitate price competition by allowing potential buyers or sellers to efficiently gather quotes from multiple potential counterparties, which could reduce observed bid-offer spreads (though the likely effects in the corporate bond market are not as dramatic as in other markets with centralized electronic order books).    New Trading Platforms: New corporate bond trading models and platforms are also being developed.  For example, “all-to-all” trading platforms, which generally permit any market actor—including customers, dealers, and principal trading firms—to participate, offer buyers and sellers the opportunity to transact directly without a dealer acting as an intermediary.  Other platforms focus on new methods of facilitating negotiation and trading protocols designed to protect customer information.  While still a small part of the market (with around 1 percent market share), these new models, if successful, could promote new intermediation patterns that meet the needs of different market participants and reduce reliance on dealer intermediation.  However, these platforms face significant hurdles to widespread adoption, in part due to the large number of corporate securities outstanding and the limited frequency with which many of these securities trade.   Given the importance of the corporate bond market to the U.S. economy and the significant transitions underway, we will continue to monitor conditions in both the primary and secondary markets for corporate bonds. Jake Liebschutz is the Director of the Office of Capital Markets and Brian Smith is a senior policy advisor in the Office of Capital Markets at the U.S. Treasury Department.​​

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01 июля 2016, 18:08

An Update on the Fiscal-Federal Student Aid Pilot for Servicing Defaulted Student Loan Debt

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Today, Treasury’s Bureau of the Fiscal Service (Fiscal) is releasing a report on the first year of its pilot program with the Department of Education’s Office of Federal Student Aid (FSA) launched last year to learn more about the way the government collects on defaulted student loans. In a previous post, I shared some initial observations from the pilot, which will conclude in 2017. The report released today includes detail on the results during the first year of the pilot, describes our initial observations from the experience of assisting defaulted student loan borrowers, and suggests recommendations to improve the experience of defaulted student loan borrowers. During the pilot, FSA referred 16,242 loans owed by 5,729 borrowers with a balance of approximately $80 million to Fiscal. In the first year, Fiscal sent more than 33,000 letters to borrowers and initiated more than 21,000 outbound calls in an attempt to reach borrowers and assist them in resolving the default status of their loans. Based on Fiscal’s first-hand experience working with these borrowers, the report discusses the following challenges inherent in the collection processes for all defaulted student loans: Contacting Borrowers: Speaking with borrowers is critical to helping them enter into a repayment agreement; however, Fiscal was only able to reach approximately 33 percent of borrowers by phone, and borrowers answered less than 2 percent of outbound calls. Borrowers in default may be more willing to take action on their loan if they have clear information about the available options and are contacted using consistent Department of Education branding.    Complexity of Available Repayment Options: The number and complexity of repayment options provide borrowers several alternatives to evaluate to determine the optimal approach for their circumstances. Borrowers are generally unaware of different repayment options and may be ineligible for certain repayment options like rehabilitation and consolidation if they have used these options in the past. Providing more borrower-centric resources, such as clear descriptions of repayment options and a single portal for student loan information, may complement the work of trained call center agents.  Navigating the Rehabilitation Process: Borrowers opting to rehabilitate their loans often have difficulty meeting the program requirements of providing documentation of their income, making nine on-time payments in a period of 10 months, and completing the required paperwork. Simplifying the rehabilitation process and reducing the steps borrowers need to take could potentially ease the burden and increase rehabilitations. Transition to a Sustainable Repayment Plan Following the Completion of Rehabilitation: Once borrowers complete a loan rehabilitation, they will need to interact with a new servicer and may need to select a repayment plan to maintain affordable payments. Further aligning the monthly payment amounts available to defaulted borrowers with those available to current borrowers may help to reduce borrower confusion and re-defaults.  The pilot has already helped provide insight into many of the challenges in servicing defaulted student loans. The second year of the pilot will continue to allow Fiscal and FSA to gather more data about this process, gain further insights, and identify opportunities to better help borrowers. Fiscal and FSA will continue to explore ways to increase borrower contact and effectively counsel borrowers on how to evaluate and implement the best options for resolving their defaulted student loans. Additionally, for borrowers already enrolled in payment agreements, Fiscal will continue to provide assistance to those borrowers as they complete the program requirements. The full report on the pilot’s first year is available here​.​ David Lebryk is the Fiscal Assistant Secretary at the U.S. Treasury Department.​​​

29 июня 2016, 21:46

West Africa -- Treasury Technical Assistance Helps Mobilize Domestic Resources by Strengthening Regional Debt Markets

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​ One of the most important outcomes of the 2015 UN Financing for Development Conference was a global call for countries and regions to mobilize their domestic resources.  While domestic resource mobilization often focuses on increasing tax collections, the development of sovereign debt markets, which constitute the foundation for broader financial market development, is equally important.   Earlier this month, I had the opportunity to see first-hand how Treasury’s Office of Technical Assistance is collaborating with the eight member countries of the West African Economic and Monetary Union (WAEMU) to integrate and deepen West Africa’s regional government securities market.    Collectively, these member countries—Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo—constitute a market with great potential including a population of 111 million, a stable macroeconomic environment (1 percent inflation and a single currency), and strong real GDP growth that would be the envy of many regions.    We provide full-time, in-house expertise for a regional government securities agency that was created in 2013 by the Central Bank of West Africa.  The securities agency—known by its French acronym “AUT”—has a mandate to help WAEMU member countries mobilize resources through capital markets in order to finance economic development at reasonable cost.    In practical terms, AUT organizes the calendar for issuance of government securities, provides critical information to potential investors, and helps develop the features of a well-functioning, modern debt market, including a yield curve, primary dealers system, effective debt management, and a sound reputation reflected in strong credit ratings (both international and regional).   The main challenge, as it is for many regional institutions, is to establish credibility with member country governments that are skeptical of central authority and focused on national interests.  In addition, AUT must bridge the diverse needs and capacity levels of the eight WAEMU member states—a mix of West Africa’s most dynamic and most challenged economies.    Despite these challenges, AUT is off to a good start.  After three years, it has demonstrated value-added.  2015-16 has seen progress towards adoption of market-friendly standardized bonds.  Other accomplishments include introduction of a primary dealer system, fungibility of bonds, and strengthened cash management capacity.    At a dinner that brought together the Treasury Directors General from all eight member countries and in meetings with the Finance Ministers of the region’s two largest economies (Côte d’Ivoire and Senegal), I heard accolades for AUT’s performance to date and appreciation for Treasury’s support.    We look forward to continuing our partnership with WAEMU members as they make progress on these key issues.      Larry McDonald is the Deputy Assistant Secretary for Technical Assistance Policy at the U.S. Department of the Treasury.   # # #

27 июня 2016, 15:27

Congress Must Act Before July 1 to Help Puerto Rico

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​ Today, Secretary Lew sent the following letter to Senate leadership regarding the debt crisis in Puerto Rico:   June 27, 2016     The Honorable Mitch McConnell Majority Leader United States Senate Washington, DC  20510   Dear Mr. Leader:   Puerto Rico is in crisis, and its only hope for recovery and growth is legislation that authorizes the tools necessary for better fiscal management and a sustainable level of debt.  Early in June, the House passed a compromise bill, with an overwhelming bipartisan vote, that will give Puerto Rico the tools to recover without any federal spending.  The Senate should take up the matter immediately.  Delay will only jeopardize the ability of Congress to conclude its work before July 1, a critical deadline Puerto Rico’s leadership has publicly highlighted for months.   On July 1—only four days from now—the crisis in Puerto Rico will ratchet up to an even higher level.  Puerto Rico has $2 billion in debt payments coming due that day, including payments on constitutionally prioritized debt on which Puerto Rico has not previously defaulted.  In the event of default, and if creditor lawsuits are successful, a judge could immediately order Puerto Rico to pay creditors over essential services such as health, education, and public safety.  This could force Puerto Rico to lay off police officers, shut down public transit, or close a hospital.  Even a retroactive stay on litigation passed by Congress a few days later would not reverse such a court order.  This is one of many reasons Congress must act before July 1.  Creditors are hoping to gain the protection of legal judgments as quickly as possible, and this could impair Puerto Rico’s chances of getting on a path to stability and eventual growth.   The people of Puerto Rico are already suffering, as I saw firsthand on my most recent visit there.  About 80 percent of businesses have closed in the Plaza de Diego, once the heart of San Juan’s business district.  Doctors at the island’s only neonatal intensive care unit described how they can order dialysis treatment for premature newborns only if they pay cash-on-demand daily for lifesaving drugs.  While we do not know the full ramifications if Congress fails to act before the end of the month, we know for certain that it is the 3.5 million American citizens who live in Puerto Rico who will be further harmed.    Congress must do more in the future to address long-term economic growth and Medicaid inequalities in Puerto Rico, but doing nothing now to end the debt crisis will result in a chaotic, disorderly unwinding with widespread consequences.  Some well-funded creditors are working hard to delay legislative action this week, even if it comes at the expense of the Puerto Rican people.  I urge Republicans and Democrats to come together in the Senate as you have before to help our fellow citizens, and get a bipartisan bill to the President’s desk before July 1.                                                                           Sincerely,                                                                               Jacob J. Lew   Identical letter sent to:             The Honorable Harry Reid Daniel Watson is a Spokesperson at the U.S. Department of Treasury.