FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon and thank you for inviting me to speak to you today. I would like to thank Ken Ferguson for that introduction and Ed Yingling, Executive Director for Government Relations. I would also like to congratulate to congratulate your new President, Don Mengedoth. You come together at a time of considerable change in the banking industry, driven primarily by changes in technology, but also by changes in your regulatory framework. In fact, much has changed in the short time since your last annual meeting.

The reform of our nation's financial services laws has been one of the major achievements of this Administration. Passage of the Financial Modernization Act culminated decades of effort by Congress and various Administrations. We are very proud to have been part of this historic legislation. We took another major step forward for the financial industry in June, when the President signed the Electronic Signatures in Global and National Commerce Act, known as the "E-Sign" Act. This legislation, while less recognized than the Financial Modernization, is an important milestone in the development of electronic commerce and electronic finance. We believe that these changes in our nation's laws will benefit institutions and consumers alike.

Today I would like to speak about some of the important initiatives that we are currently focused on. I would like to mention three areas in particular: (1) updating laws related to derivatives; (2) ensuring that the financial system works fr all Americans, in particular through the President's New Markets Initiative and First Accounts program; and (3) removing barriers to e-commerce.

Commodity Futures Modernization Act

One of the most dramatic changes in the financial markets and in the banking industry over the last two decades has been the development of the $80 trillion over-the-counter derivatives market. This market provides important means to price and allocate risk for the markets and the economy at large.

Thus far, this market has managed to thrive in spite of lingering legal uncertainty arising from the Commodity Exchange Act (CEA). As anyone who owns a house knows, however, it is never a sound idea to have your house built on an unstable foundation. That is why the President's Working Group on the Financial Markets is unanimous in its recommendation that Congress provide the legal certainty needed to ensure that the OTC derivatives market in the United States have a sound and stable foundation.

The measures advocated by the Working Group would provide much-needed legal certainty for OTC derivatives. Those recommendations formed the basis of legislation that has now passed all of the relevant committees in both the House and the Senate.

A primary obstacle to moving this legislation forward has been the issue of single stock futures, an issue that has divided the CFTC and the SEC for eighteen years. Last Thursday, we were very pleased to announce that the two agencies had reached an historic agreement that would allow the trading of single stock futures for the first time. The agreement provides for a shared regulatory framework for futures on single stocks and narrow-based indices. It also provides a clear dividing line between these instruments, which will largely be treated as securities, and futures on broad-based indices, which will be treated as traditional futures.

With this historic agreement, Congress has a tremendous opportunity this year to complete this important legislation. We should not miss this opportunity to modernize the regulatory structure of our derivatives markets, reduce systemic risk, and promote the competitiveness of our markets. If we don't address these issues, we run the real risk that these markets find homes beyond our shores. History tells us that if we don't update our laws and provide legal certainty, other markets certainly will. One can just look at last Friday's announcement by the London International Futures and Options Exchange that it will launch trading of single stock futures on the stock of, not only European companies, but U.S. companies as well.

We are also urging Congress to adopt the Working Group's recommendations on netting of financial instruments under the bankruptcy laws. These provisions are included in H.R.1161. H.R. 1161 would enhance market stability, reducing the impact of the failure of any one institution on the stability of the financial system more broadly. The Administration believes that this is a rare opportunity in which the government can take tangible steps to mitigate systemic risk and improve the integrity of our financial system.

New Markets and First Accounts

As we have worked to modernize the laws that apply to our financial system, we also have sought to ensure that that financial system works for all Americans. Many areas of the country have not enjoyed the full benefits of our nation's economic prosperity - in particular, our inner cities and rural communities.

The President's New Markets Initiative -- through the New Markets Tax Credit, America's Private Investment Companies and New Markets Venture Capital Firms -- will leverage over $22 billion of new private sector equity investment in these underserved communities. It will give banks and other investors new tools and important incentives to invest in areas they may have overlooked, giving business in these neighborhoods access to the capital they need to revitalize the communities in which they operate.

In July, the House of Representative passed legislation reflecting President Clinton's and Speaker Hastert's bipartisan agreement on the Initiative and other tax credits for underserved areas. The Senate is poised to consider legislation as early as this week. We will work closely with Congress over the next few weeks to ensure final passage of this critical legislation. In particular, we believe it is important to include an immediate increase in the Low-Income Housing Tax Credit that will spur the private sector development of an additional 180,000 new units of affordable housing in the next five years.

Ensuring that our nation's financial system works for all Americans also means promoting access to high quality financial services for all Americans. Despite the strong national economy, 10 million American families still do not have a bank account, the most basic level of participation in our financial system. Bringing these families into the financial services mainstream will better enable them to plan financially and to save for the future.

Through its EFT'99 initiative, Treasury has sought to expand access to banking for lower-income families who receive federal benefits by building a private/public partnership with the finanical services industry. Building on this effort, the President included $30 million in this year's budget for the First Accounts program. This initiative will promote private sector solutions by creating incentives for financial institutions, working with the Treasury Department, to pilot new strategies to expand the availability of low-cost banking options for unbanked families who do not receive federal benefits.

We are pleased that this effort has gained bipartisan support and that Congressional appropriators have supported the initiation of this program. The appropriations bill passed in the House last week, however, included funding at a level of only $2 million. We urge Congress to fully fund the $30 million requested by the President for this important initiative.

Removing Barriers to E-Commerce

Finally, I would like to turn to initiatives and issues that arise from the rapid changes technology brings to the world of finance. Looking ahead, there may be no greater challenges and no greater opportunities for the banking industry than those presented by rapidly changing technology. No industry is more suited to garnering the benefits of e-commerce than the financial services industry generally and the banking industry in particular. The advances in this area must be led by the private sector. The government has a role to play a which provides the legal certainty needed to conduct transactions on-line. s well, however, in removing the barriers to e-commerce while ensuring that consumers continue to benefit from the consumer protections that they enjoy off-line.

As part of these efforts, earlier this year we worked successfully with Congress on the E-Sign Bill, which provides the legal certainty needed tp conduct transaction on-line. More broadly, the Administration has been actively engaged in taking a very broad look at Federal laws and regulations that may hinder electronic commerce through the President's E-Commerce Working Group. We have received valuable feedback from consumer groups, industry, and others. Allow me to mention a few areas of interest.

Quite possibly the most significant challenge to the growth of e-commerce is fostering consumer confidence in the safety and security of on-line transactions. Many individuals are hesitant to conduct transactions on-line because they fear identity theft, credit and debit card fraud, and invasions of privacy. Some businesses and consumers are unwilling to engage in e-commerce due to concerns about inadequate enforcement of anti-fraud statutes for e-commerce activities. We need to explore these areas further to see how government, industry, and consumer groups can work together to allay these legitimate concerns and bolster consumer confidence in the Internet.

Another important challenge to the growth of e-commerce is the limitations on existing payment mechanisms that can be used for on-line transactions. By providing efficient and effective electronic payment services, the banking industry has the greatest opportunity to promote e-commerce throughout the economy. Electronic payments today still remain largely tied to the same institutions and systems that existed before the Internet. The challenge for the industry is to adapt and find ways to move payments securely and efficiently on line.

To help promote developments in this area, Treasury is holding a conference later this week that will look at new payments technologies and how they can help the spread of e-commerce. We will be looking at the technical developments and policy issues surrounding these technologies, such as data security and personal privacy.

Looking within the financial services industry, the rise of e-commerce has highlighted a number of important issues. I would like to mention three in particular. First, the importance of regulatory consistency and conformity across financial institutions has been heightened. While regulators have made progress toward greater coordination, we must continue to explore ways in which this can be enhanced. Second, there are issues that result from financial services being offered on-line by firms other than traditional financial institutions. We may need to examine the status and regulatory treatment of such institutions, as well as issues of regulatory parity and responsibility for consumer protections in this new environment. Finally, legal uncertainty can arise when applying old laws to new ways of doing business. We must be vigilant in revisiting existing rules in an ongoing, interactive effort to understand and respond to the changing needs of our economy.

Conclusion

With the rapid changes on technology, this is an exciting time for the financial sector and the banking industry. The U.S. banking industry is the strongest and most competitiev in the world and should be well positioned to move forward in this new environment. While the response to this change should and will come from the private sector, government has a role to play, as well, in providing legal certainty and reducing barriers to e-commerce, and in ensuring that all consumers and communities can share in the benefits of these changes.

Thank you very much.