FROM THE OFFICE OF PUBLIC AFFAIRS

I want to speak to you thismorning about something the Clinton Administration is deeplycommitted to: expanding access to financial services for allAmericans. In particular, I抎 like to discuss theAdministration's initiatives in three areas: communityreinvestment, community development financial institutions, andthe electronic delivery of federal benefits and other federalpayments.

I. COMMUNITY REINVESTMENT ACT

The Community Reinvestment Act of1977 has a straightforward purpose: encouraging depositoryinstitutions to serve creditworthy borrowers throughout theircommunities.

CRA requires no public subsidy andno large Washington bureaucracy. Instead it brings banks andcommunities together to make local economic development happen.It抯 the kind of public-private partnership that can reallymake a difference in underserved communities.

Because of CRA more lenders aremaking good loans in all types of communities -- sound,profitable loans to creditworthy low- and moderate-incomepersons.

But think back just two years --to March 1995 -- and remember how CRA really was in gravejeopardy.

Let me set the stage. A newCongress, flush with victory and bold ideas, was getting ready toundermine CRA.

Safe harbors from communityprotests. Self-certification. Exemptions. All these proposalswere being developed in earnest by people who would lose no sleepat all over eviscerating CRA. These rollback provisions wouldhave seriously undermined CRA's effectiveness -- and threatenedto reverse the growing cooperation between mainstream lenders andeconomically disadvantaged communities.

During the spring of 1995, I spentquite a few lonely hours at the witness table, testifying beforeCongressional committees on this precise subject. At times it wasdiscouraging. But over the next year and a half we fought back.

We fought back although theprospects sometimes looked bleak. We fought back because it wasthe right thing to do for America抯 neighborhoods andcommunities. Organizations like yours stepped forward to explainquite eloquently just what CRA means to communities. AndSecretary Rubin made this Administration抯 determinationvery clear, threatening to recommend a veto of any legislationundermining CRA.

In September 1996, when theCongress finally passed regulatory burden relief legislation, theCommunity Reinvestment Act remained intact.

Why did we fight this battle?It抯 actually very simple. We need look no farther than yourown communities to find the reason.

Let抯 look at the some of theencouraging news, beginning with homeownership. According to theDepartment of Housing and Urban Development, nearly two-thirds ofall American families now own their own homes. That抯 a15-year high. Moreover, in recent years the rate of homeownershiphas increased more rapidly for minorities than for the nation asa whole.

A 1996 analysis of Home MortgageDisclosure Act data by economists at the Federal Reserve Bank ofChicago found that "between 1990 and 1995 the annual numberof mortgage originations to low- and moderate-income households,in low- and moderate-income census tracts, and to minoritiesnearly doubled". And generally "there was a significantincrease in the number of loans to individuals targeted by fairlending and CRA regulations." A number of other researchershave reported similar results.

Another element of good news isthe federal banking agencies' new CRA regulation, initiated atPresident Clinton's urging in 1993 and becoming fully applicablethis coming July. We have limited experience with the regulationbecause it started to take effect only in 1996, and we don't yethave Home Mortgage Disclosure Act data for that year.Nevertheless, we have good reason to believe that the newapproach will prove effective.

For example, the new regulationrecognizes that one size does not fit all. To accommodate thevariety of depository institutions, the new regulation providesseveral different performance evaluation methods.

And the regulation recognizes thata broad range of lending -- not just home mortgage lending -- isimportant for community investment. And so regulators will, asappropriate, take account of small business and small farmlending, community development lending, and consumer lending.

But CRA is just one part of theAdministration's approach to encouraging community developmentthrough greater access to credit and capital. You might look atour efforts as representing a balanced top-down/bottom upapproach.

CRA is the top-down aspect,encouraging traditional institutions to go deeper into theircommunities to make loans to qualified borrowers. Anotherimportant program -- CDFI -- represents the bottom-up aspect.Let抯 look at CDFI for a moment.

II. COMMUNITY DEVELOPMENTFINANCIAL INSTITUTIONS FUND

The Community DevelopmentFinancial Institutions Fund, established in 1994, is aninnovative approach to expanding access to capital and credit.

I worked on the legislationestablishing CDFI and now serve on the Fund's CommunityDevelopment Advisory Board -- as does the President of NCRC, JohnTaylor. He's a lively and positive force at Board meetings. Andlet me assure you: John serves you well.

The primary purpose of the CDFIFund is to better enable non-traditional lenders to meet thefinancing needs of economically distressed, underservedcommunities.

A wide range of specializedlenders can tap into the CDFI fund. They include communitydevelopment banks, community development credit unions, communitydevelopment loan funds, micro-enterprise loan funds, venturedevelopment funds, and community development corporations.

The basic idea behind the Fund'sprograms is simple and sound: use small amounts of Federal moneyto leverage significant amounts of private and non-federal publicresources. In helping these institutions, the Fund aims tosupport innovative approaches to locally based private-sectorcommunity lending.

Due to the outstanding efforts ofthe Fund's Director, Kirsten Moy, and her staff, we have anothersuccess story in the Administration抯 efforts to expandaccess to credit.

In 1996, under the first round ofthe CDFI program, the Fund awarded a total of $37 million to 32CDFIs serving communities in 46 states. 50 percent servepredominantly urban areas, 25 percent predominantly rural areas,and the remainder a combination of both. Finally, 24 of the CDFIsserve empowerment zones or enterprise communities.

The Fund estimates that in thenext two or three years the $37 million awarded will leveragethree to four times that amount in total capital raised for theseinstitutions. In the long term, the $37 million is expected tosupport lending and investment of 10 to 20 times that amount.

Under the first round of the BankEnterprise Awards program, the Fund awarded a total of $13million to 38 banks and thrifts located in 18 states. Of the 38awards, two-thirds went to recipients who increased theirassistance to CDFIs.

The Fund estimates that the BEAprogram leveraged nearly $66 million in private sector financialsupport for CDFIs, and it catalyzed another $60 million in directlending by banks and thrifts in economically distressedneighborhoods.

Looking forward, the Fund justannounced the availability of up to $16.25 million for the secondfunding round of the BEA program. Second round funding for theCDFI program should be announced in a matter of weeks.

All of this is real money, flowinginto real communities. The CDFI Fund抯 strong showingwarrants continued bipartisan support by the Congress. ThePresident has also reiterated his strong support for the Fund,announcing in January his intention to increase funding by $1billion over the next five years.

III. EFT '99 AND THE UNBANKED

I抎 like to turn now to myfinal topic: Electronic funds transfer and addressing theproblems of the unbanked -- part of an initiative we call EFT�.

EFT is generally understood toinclude some very common things that you are all familiar with:direct deposit, automated teller machines (or ATMs), and creditcard transactions. The goal of EFT is to take advantage of thereduced cost, improved convenience, and enhanced security thatcomes with electronic technology.

Legislation enacted by Congresslast year requires that the Federal government make all of itsrecurring payments by electronic funds transfer, instead of paperchecks, by January 1, 1999. This mandate covers not only vendorand expense reimbursements to businesses, but all wage, salary,retirement, and federal benefit payments to individuals.

The EFT � mandate raises anumber of intriguing issues for government agencies and financialinstitutions. Possibly the most difficult of these issues dealswith serving the needs of a large number of "unbanked"federal benefit recipients.

When we say unbanked, what do wemean? The term "unbanked" refers to people whodon抰 maintain a checking, savings, or other transactionsaccount at a depository institution. Some estimates suggest thatabout 10 million federal benefit recipients are unbanked. Whenyou look at the U.S. population, as many as 20 percent ofAmerican households may be unbanked.

Most studies generally agree thatthe unbanked are largely drawn from lower income, younger, andminority segments of the population. Many of the unbanked cite ahost of reasons why don抰 have a relationship with a"traditional" financial institution. They don抰like the high minimum deposits or monthly balance requirements.They cannot afford the high account maintenance and transactionfees. Some have insufficient savings and a limited need forwriting checks. Others have difficulties in managing an account.And lastly many just dislike or distrust banks.

Nevertheless, the unbanked stillneed and still purchase financial services. And they do solargely from what are known as "alternative" financialservices providers. The latter include pawnshops, check cashingoutlets, money transfer firms, bill paying services, and moneyorder issuers. In many cases, the fees charged by these firmsappear quite high, especially considering the economiccircumstances of the individuals involved.

Treasury and the other federalagencies working to implement the EFT 99 requirement don抰have unlimited time or flexibility to resolve all of the issuespertaining to unbanked federal benefit recipients. But, we have avery rare opportunity to do some good.

The new law requires federalbenefit recipients to designate a financial institution or other"authorized payment agent" to receive their payments.If a recipient does not make such a designation, the Secretary ofthe Treasury has to effectively do so for them, ensuring that therecipient has access to their account at "reasonablecost" and with "the same consumer protections withrespect to the account as other account holders at the sameinstitution."

Against this general background,Treasury抯 Financial Management Service (FMS) is nowconducting additional research on unbanked federal benefitrecipients as well as on alternative electronic delivery options.That research should be completed in the near future. It shouldassist FMS in better profiling unbanked federal beneficiaries,and establishing standards for some key terms such as"payment agents," "reasonable costs," and"consumer protections."

Treasury抯 goal is to publisha notice of proposed rulemaking for implementing EFT � ina matter of months. This will provide individuals, federalagencies, and the financial services industry time to plan whatwill hopefully be a seamless transition. We抳e already spenta fair amount of time during the past few months talking toindustry representatives about their technical capabilities andcurrent plans for meeting the needs of the unbanked. Within thenext few weeks we plan to meet with a wide range of consumer andcommunity groups as well.

While EFT � can抰address the question of meeting the needs of the unbanked in itsentirety, we hope that the lessons learned from this program willhave significant spillover value for everyone concerned.Moreover, we firmly believe that EFT � provides asignificant opportunity for financial institutions to serve alarge and known market of some 10 million individuals. We hopethat banks and others will step forward aggressively to servethese communities.

IV. CONCLUSIONS

Let me close by making a fewobservations.

The Administration抯 programfor expanding access to financial services is a balanced,practical, and workable approach. We抮e trying to addressthe problems of credit and capital deprivation, as well as theunbanked, through measures consistent with the privatemarketplace. We believe this is the key to self-sustainingactivities.

CRA, in concert with fair lending,has proven itself remarkably effective. It fosters partnershipsthat bring hope and opportunity to cities and communities aroundthe country. Looking ahead, we抣l continue to insist thatthe new CRA regulation be given a fair chance to work. And thisAdministration will not tolerate -- let me repeat that -- willnot tolerate attempts to weaken or eviscerate the CommunityReinvestment Act. We made that pledge stick last time around.And, if necessary, we抣l make it stick again.

Next, CDFI has been a rapid,unqualified success. It was enacted with strong bipartisansupport and now, more than ever, it deserves to be funded asfully as possible.

And finally I believe EFT �will provide significant guidance in how to meet the needs ofunbanked households and individuals. Here too, we can expectsubstantial private sector innovation and participation.

As we work though our agenda, welook forward to hearing your views and encourage yourparticipation in the policy making process.

I appreciate the opportunity tospeak to you this morning. Thank you for your work in communitiesacross America.