FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you so much for having me here today.

It’s great to be with a group of financial leaders who are doing so much good for our economy and our country.

Your industry is achieving great things, and posting record results. It’s good to see, since a strong financial services industry is essential to the growth for every other industry in the economy. After all, you provide the funding for expansions.

Here’s some of your good news: The FDIC recently reported that U.S. banks and thrifts earned a record of $120.6 billion in 2003, easily surpassing the previous record total of $105.1 billion in 2002. And over half – 59 percent – of these institutions reported higher earnings in 2003 compared to 2002.

Both the banking industry’s annual return on assets and return on equity reached all-time highs of 1.38 percent and 15 percent, respectively.

Best of all, demand and lending for business loans is up – that’s good news for folks who are looking for jobs, and I appreciate the critical role your industry plays in capitalizing those businesses that create the jobs.

We are in the midst of an economic recovery, and your work is clearly part of the economic growth that we are seeing.

So I’m delighted to be here, and to be able to commend you on your work.

I am encouraged by what I see on the direction of our economy. We’re clearly on the right path and there can be no doubt that President Bush’s leadership on tax cuts has made the biggest difference. When combined with low interest rates, the Bush tax cuts are having the intended impact.

Just one year ago, the American economy was in a very different position than it is today. Then there was talk of a double-dip recession, with some commentators holding out the specter of deflation. Even those who saw the economy in pretty good shape characterized the recovery as at best wobbly, weak or anemic. 

Now, as you well know, the economy is in a strong recovery, with a GDP growth rate of 6.1 percent in the last half of 2003 – the fastest six-month growth rate in nearly 20 years. Leading private forecasts are projecting growth of four percent plus for the 2004 year, well above historical growth rates. The latest Blue Chip report forecast GDP would grow 4.7 percent in 2004, the highest in 20 years.

Exports are up. The manufacturing sector is beginning to come back. The housing industry remains strong. Business confidence is up and business spending has rebounded. We are beginning to see some come-back in the labor markets. It is heartening to see that initial jobless claims have been at their lowest point in over three years.

By sustaining this growth going forward, I am confident that we will see good jobs pick up in the months ahead, as indicated by all the private sector surveys which indicate strong jobs growth over the course of the next year.

I’m optimistic about growth in other industrialized nations as well.  Japan is starting to see sustainable growth.  Although the economies in Germany and France are sluggish, growth is picking up in Europe generally. 

I want to tell you a little bit about the G7 meeting that the United States hosted this February in Boca Raton, Florida.

I was honored to have a series of bilateral meetings at the G7, and had productive conversations with all of my counterparts from other nations.

All parties there agreed on an Agenda for Growth, which urges each country to remove any structural impediments to economic growth, thus increasing jobs and raising incomes. We all recognize that the world suffers from a growth deficit.  A higher growth rate in all G7 countries is good for our country, and vice-versa.  When other G7 countries grow, it creates markets for our manufacturers – which is very important to us and our economy. It also helps exports and our balance of payments. Ultimately, we all have a stake in one another’s growth, and any and all growth is a win-win situation for us.

We also discussed and agreed upon the need for flexibility in setting exchange rates, and how important a strong dollar is to both the U.S. and the global economy.

This is all part of our economic present and future here in the U.S. Another important part of our economic picture is our federal budget and the federal deficit.

The deficit is too large, but it is understandable and it is manageable. While addressing the deficit, we must remember that it is not historically overwhelming.

It is understandable, given the extraordinary circumstances of recent history. Remember that we are fighting a type of war that we have never fought before. We are fighting an enemy that requires a much broader variety of government resources than anything we’ve ever confronted. And we began this fight when we were economically wounded.

With continued economic growth – which depends importantly on making the President’s tax cuts permanent – and restrained federal spending, we can cut the deficit in half over the next five years.

Economic growth increases Treasury receipts and helps to reduce deficits.  But that isn’t enough.  We also have to control government spending.

The President’s proposed budget combines both strategies – making tax cuts permanent and tight spending controls.  By doing so we’ll be able to cut the deficit in half over the next six years to below 2% of GDP – low by historical standards.

The final, and most important, piece of our economic picture that I want to discuss today is jobs.

While the economy is recovering, the Bush Administration is not satisfied with the pace of job creation.  We will not be satisfied until every American who seeks a job can find a job.

However, we are keenly aware of the fact that job creation looks very different depending on which of the surveys you are referencing.

According to the Household employment survey conducted by the Department of Labor’s Bureau of Labor Statistics, from January 2001 to January 2004, employment increased in 34 states and fell in 16 states.

While, according to the Payroll survey, also conducted by the Department of Labor's Bureau of Labor statistics – also from January 2001 to January 2004 – employment increased in 15 states and fell in 35 states.

Employment in the Household survey reached a low point in January 2002, two months after the November 2001 recession trough.   Since then, the household survey has registered an employment gain of 2.4 million.     

The Payroll survey, in contrast, continued to show a decline in jobs through August of last year and since January 2002 has fallen by 341,000.     

Thus, the gap in growth shown by the two measures has totaled 2.7 million since January 2002.

The two surveys are conducted differently, and the payroll survey is missing out on a category that is increasingly significant in today’s economy, and that’s the self-employed.

I think that’s significant, because self-employment is becoming a more viable, inviting option to more people all the time.

We also have incredible rates of productivity. That’s good news, but it impacts the jobs numbers as well.

That said, I know that we are going in the right direction, and I know that the financial services community is helping us get there.

In addition to your economic contributions, you’re keeping Americans safer, and that means a lot to our economy at the end of the day.

You’re working with us to protect people from identity theft, and to protect America from terrorists by identifying and cutting off their blood money.

Last year at this time, we were talking about renewing the Fair Credit Reporting Act… and today we’re celebrating it. The work you did to show Congress the importance of our nation’s credit reporting system was invaluable.

Thanks to your help on that legislation last year, information to protect consumers can move faster than identity thieves.

FCRA makes our credit market more robust and available for more Americans, for people who had never been able to get a mortgage before, for young people to finance their education, to welcome people into the financial mainstream out of the reach of the loan sharks… so there is much to celebrate about renewing those national standards.

You’re protecting your customers against identity thieves, and you’re also helping protect America against terrorists.

Out of the horror of September 11th, 2001, came a tremendous resolve in the financial community to cut off the terrorists’ lifeblood: their money.

Institutions large and small have committed themselves to the task.

You’ve done everything that the Treasury Department has asked of you during this fight, and I want to personally thank you for your efforts.

Compliance with Section 314 of the Patriot Act – which requires everyone to share information – has been exemplary.

Under our 314 process, law enforcement provides the names of suspected terrorists or significant money launderers to Treasury’s Financial Crimes Enforcement Network (FinCEN), which vets the requests and, if appropriate, sends them on to your organizations. We’ve asked that you then search your recent account and transaction records for potential matches, and report them back to FinCEN.

You’ve done it, and our country is safer because of it.

We understand that the 314 process is an extraordinary tool… it is one that provides law enforcement with valuable leads to follow the money trail.  And without your help it would be useless.

We’ve also asked financial institutions to establish risk-based procedures to verify the identity of customers who open accounts, pursuant to section 326 of the Patriot Act.   While we insist that you form a reasonable belief as to the customer’s identity, we have also worked hard to ensure that the regulations give you the flexibility to decide which forms of identification work best for you in your communities to verify customer identity.  This reflects our judgment that you are in the best position to make such decisions.  We believe this flexibility enhances the effectiveness of this regulation.

And we’re always looking for ways to provide you with more and better guidance concerning FinCEN’s regulations.  This is our part of the bargain, our half of the partnership.  So let’s keep up the dialog… let us know when we’re not clear, or when we can do better – because the better our regulations are understood by you, the more successful our critical enforcement efforts will be.

And I want to add that that my colleagues at the Securities and Exchange Commission (SEC) have the same thing in mind – that kind of open dialog – as they develop another set of regulations pertaining to your business, and that’s in the area of mutual fund reform.

The Administration supports the SEC taking strong action when harm is done to investors, but believes that care must be taken to preserve the valuable benefits and flexibility that mutual funds provide. They’re focusing primarily on four issues: 1) late trading, market timing and related abuses; 2) mutual fund governance; 3) conflicts of interest and 4) fee disclosure.

So please know that your government wants to work with you… we know that you help this economy grow, and that’s critical to the job creation we need.

And we especially appreciate your role helping us to win the war on terror. It is another way, and it’s a critical way, in which we work together to keep the American economy healthy and growing.

Growth is the key. It will lead to more jobs and deficit reduction. I know that the people in this room today appreciate the benefits of economic growth as well as anyone… maybe that’s why you’re growing so much yourselves.

Your success is good for the American economy. It’s good to see. And it’s great to be here with you today.

Thank you.  I’ll be happy to take your questions now.