FROM THE OFFICE OF PUBLIC AFFAIRS

May 10, 2004
JS-1531

Treasury Secretary John Snow
Prepared Remarks to Independent Community Bankers
Washington, DC

Thank you so much for having me here today.

It's great to be with a group of lenders who are doing so much for your communities and for our country.

We are in the midst of a strengthening economic recovery, and access to capital for things like homeownership and small business start-ups or expansions is critical. You are playing such an important role in economic growth, and I want to thank you for that.

I know that your communities appreciate your work as well. Your longstanding focus on individual customer relationships and in-depth knowledge of local area credit needs serve your customers well. Of particular importance in achieving major goals set for us by President Bush, your expertise in local area relationship lending enables you to provide financial services to various kinds of small businesses and hard-to-reach customers that might otherwise be overlooked.

And community banks are doing well – according to a recent FDIC study, there were over 1,200 new community banks and thrifts established since the beginning of 1992. After accounting for mergers, acquisitions and only four failures, almost 1,100 of these institutions continue to serve their communities today.

So we see that community banks are thriving, and our economy is thriving, too.

The housing industry is very strong, with homeownership at an all-time high, and this is something to be very proud of, as a nation. New home sales surged in March, rising 8.9 percent to reach a new record high. Also worth noting, housing starts were up in March, as well as building permits, which are a forward-looking measure of housing activity.

I'm really pleased with our overall economic health and outlook.

We had wonderful news on Friday that job growth is very strong. In the eighth straight month of growth, the economy created 288,000 jobs in April, bringing the total increase since August to more than 1.1 million. The unemployment rate, which is down substantially from its peak last summer, fell in April and is below the average of each of the past three decades.

I'm delighted to report that, over the past nine months, we've seen the best growth in almost 20 years; GDP has been averaging an outstanding annual rate of 5.5 percent over the past three quarters.

Business spending has rebounded. Business and consumer confidence is up. Consumer confidence increased 4.4 points in April. This means that American households sense that the job market is strengthening. 

One paper today contains the headline, “Higher-Pay Jobs Make a Comeback.”  The story makes the point that as the U.S. economy grows stronger, the labor market is beginning to create better-paying jobs and that signs point to a turnaround
for professional, service and manufacturing work.

It's great to see that the manufacturing sector is coming back, because it's an important source of jobs… and 37,000 manufacturing jobs have been created since February. Factory orders increased 4.3 percent in March – the biggest increase since July of 2002. The component for durable goods new orders jumped 5 percent in March. A manufacturing activity index signaled expansion in April for the eleventh straight month, remaining near the 20-year high reached in January.

The tide of our economy continues to rise, and there can be no doubt that the President's tax cuts made the critical difference.

Another note on jobs: we still need more, and they tend come from the small-business sector… and those are your customers!

That's one of the top reasons why we've got to make the tax cuts permanent… we can't raise taxes on small business at this critical time. They create three out of four net new jobs.

We can also promote job creation by reducing the burdens of abusive lawsuits and rising health-care costs. These stifle growth – again, particularly for small businesses. We've also got to make sure energy is affordable – for businesses and families.

I know you're working with us to keep small business strong, and I appreciate how that helps the economy and every American who needs a job.

You're also 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, 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. So I want to talk first today about the efforts we are making in partnership to protect America from those who want to harm us.

Out of the horror of September 11 th, 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.

America's community banks have done everything that the Treasury Department has asked of you during this fight, and I want to personally thank you for your efforts.

Your 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 reviews the names and, if appropriate, sends them on to you. We've asked that you then search your recent account and transaction records for potential matches, and report them back to FinCEN.

You are doing 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 you to establish risk-based procedures to verify the identity of your 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 regulation give you the flexibility to decide which forms of identification works 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.

So please know that we appreciate our working relationship on the war on terror, and that we view you as a partner in other critical ways, as well.

You're a partner in economic growth, as I mentioned before.

You are a vital part of two markets that are essential to our continuing economic growth: housing and small business.

As you know, the increase in homeownership and new home construction have been central components in our economic recovery.

And the American system of homeownership is a pillar of our economy, symbolic of our national identity and character, the envy of the world. 

That's why it's so very important to have a solid regulatory structure and a credible regulator for the government sponsored entities: Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBs). With their important role helping to fund our mortgage markets we need to be sure that they are operating safely, prudently, and efficiently. We also want to ensure that GSEs are living up to the highest standards of corporate responsibility.

The Senate Banking Committee passed GSE reform legislation this year that was lacking in one critical respect: it would have tied the hands of the new regulator if it came to the point where a receivership becomes necessary for a GSE.  But, meaningful reform of the housing GSEs remains an important goal of this administration because we want to make sure that your hard work, and your incredible success, is not at risk. Homeownership is too important to all of us to let that happen.

Thank you again for your partnership, for all you do to promote the greatest strengths of the American economy: homeownership and small business.

You are financial heroes, and I appreciate the opportunity to speak with you today.

Thank you – have a great meeting.

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