FROM THE OFFICE OF PUBLIC AFFAIRS

It is a pleasure to be with you today. Let me begin by thanking Judy Kennedy and Joe Flatley of NAAHL for inviting me to speak today, and more importantly, for their and your continued leadership toward a goal that I believe -- and that I know Treasury Secretary Rubin and President Clinton believe -- is of immense importance to our society and our economy as we approach the 21st century: Giving every American the opportunity to join and succeed in the economic mainstream.

I'd like to start by discussing the economy as a whole, because the foundation for creating real economic opportunity for all is a strong national economy. When President Clinton came to office, unemployment was 7.3 percent, budget deficits kept interest rates high and confidence low, and job creation was slow. The President put our fiscal house in order, which has been central to low interest rates, low inflation, unemployment now down to 4.6 percent, and strong business investment. The economy has created 15 million new jobs over the last 5 years, and real median wages have begun to rise.

Unemployment in the fifty largest cities is down to 6.5 percent, from 9 percent in 1992. And crime is down substantially. But we know all too well that there is still much to be done to advance the poorest segments of our economy. For example, recently, Second Harvest -- a network of food banks -- reported that more than 21 million people used emergency food programs in 1997, and nearly 40 percent of those seeking aid came from working households.

We can, and we must, do more to ensure that our economy works for all Americans. The key is to identify strategies and replicate them on a national scale and on a sustained basis. Our strategy involves a three pronged approach:

The first is strengthening public safety. In addition to the human costs, high crime rates are a significant barrier to economic activity.

Second, is investing in people, through the Earned Income Tax Credit; through education and training, from pre-school to adult; and through improving the "job readiness" of the least advantaged and connecting them to the workforce.

And third, which I will focus on today, is increa sing access to private sector capital and other measures to restore healthy market forces in the inner cities and distressed rural areas. Despite the fact that financial markets in the United States are today the most innovative, the broadest, and deepest in the world, we still have a severe shortage of capital to create housing and jobs in the inner city and in rural communities.

At Treasury, we have been very focused on these problems. We have enacted new incentives for investments in the inner cities, from our brownfields tax incentive to encourage the revitalization of environmentally contaminated properties in distressed areas, to new rounds of Empowerment Zones, fostering comprehensive approaches to a community's problems. We have enacted incentives to help firms hire low income workers who have a difficult time in the labor markets. And we have made permanent the low income housing tax credit, helping to create 90,000 units of affordable housing every year. This year, the President has proposed expanding the credit by 40%, which would mean an additional 180,000 units of affordable housing over the next five years alone.

And I think one of the most significant things we've done is help make our financial system work better for communities long left behind. At the core of this approach, we have strengthened the Community Reinvestment Act and launched the Community Development Financial Institutions Fund. Let me focus on these two items for a moment.

When President Clinton came into office in 1993, he was determined to strengthen CRA regulations to encourage mainstream financial institutions to lend to creditworthy borrowers throughout their community. The regulators have done just that, focusing CRA on performance, not paperwork. Since taking office we have repeatedly fought off efforts to undermine CRA.

Now in its 20th year, CRA, in my view, is working. In 1996 alone, large commercial banks made $18 billion in community development loans. In the last four years, national banks have invested four times as much in community development as they did in the previous thirty years.

Moreover, Home Mortgage Disclosure Act data for 1996 show that since 1993, private sector conventional home mortgage lending to African Americans has increased by 67.2 percent, lending to Hispanics has risen 48.5 percent, and lending in low and moderate income areas is up 37.9 percent. All this, in a period in which the market grew only 18 percent. This data shows real progress, but much work still needs to be done.

Going forward, nonprofit groups report that there have now been $397 billion in loan pledges to low income areas since CRA was enacted 20 years ago. Over the past five years, loan pledges have totaled $355 billion, 89 percent of all loan pledges made since 1977. Now, that's pledges, and not loans yet made, so you have a lot of work to do to be sure those pledges become reality. Having said that, progress has been remarkable, and you deserve congratulations for your hard work in helping to make this possible.

To cite just one example, since 1990, Bank of America in San Francisco has profitably lent more than $10 billion as part of its Neighborhood Advantage program, a system of low and moderate income home loans, to borrowers in communities across the western United States. And Bank of America is hardly alone. Mainstream banks across the country have developed -- and made money from -- similar initiatives to serve low income markets.

With all this progress, as we move to modernize the nation's financial system, we need to make sure that communities are not left behind. Financial modernization will mean enormous benefits for consumers. We estimate that consumers spend $300 billion a year on financial services, and it is clear that even modest gains in efficiency that can come about through the elimination of barriers to competition can have a significant effect on consumer costs.

While we have strongly supported Financial Modernization legislation, we have been very disturbed by some of the amendments that have been grafted on to the bill as it has moved forward. In particular, the bill mounts a frontal attack on the national banking system. It shuts down innovative efforts that the OCC has made to make national banks more competitive, it discriminates against national banks as compared to state banks, it fails to relieve archaic limitations on the ability of national banks to sell insurance, which do not apply to state banks, and it would, in our view, significantly diminish the role of the elected branch of government in financial institutions policy. In particular, we think this formulation of the legislation would diminish the effectiveness of CRA enforcement, by disabling national banks from participating in new financial activities through their own subsidiaries, and forcing all new activities into Federal Reserve-regulated holding company affiliates, where they are beyond the scope of the OCC's ability to judge what a bank's CRA commitments should be. The Secretary has communicated to the House Leadership that he would recommend a veto of the bill if it were enacted in this form. You should have a stake in these issues.

Let me turn now to the CDFI Fund, a key focus for us at Treasury, and, in many respects, a complement to CRA. Inevitably, there are things that banks will have trouble doing. This is especially true in new markets, or forgotten communities where social returns can be particularly large relative to private ones.

The goal of the CDFI Fund is to build a nationwide network of community development financial institutions to expand access to credit and financial services in lower income communities. Often, CDFIs are the pioneers in their marketplaces, making the leading edge investments based on superior local knowledge, providing technical assistance to borrowers, and thereby demonstrating to traditional lenders that these are viable markets. Banks, in turn, are looking for these opportunities, partly as a result of CRA. Banks have partnered with CDFIs, and once they become involved, many of these mainstream institutions are staying at the table as they come to understand these markets and see the available opportunities.

The CDFI Fund has two main programs: the CDFI program, which is designed to assist specialized community development financial institutions, and the Bank Enterprise Award program, which rewards financial institutions that are increasing their lending and providing more financial services in distressed communities. Both programs pursue strategies designed to meet local needs to help each community deal with its particular circumstances, whether it is helping people buy a house, or start a business. They help foster partnerships between mainstream financial institutions and local communities.

The Fund has awarded over $75 million to 80 CDFIs and intermediaries around the country in its first two rounds of awards, and under the BEA program, 92 insured depository institutions have received over $30 million in awards for their activities. This year, the third round of the BEA program will provide another $25 million in incentives to banks and thrifts who increase their investments in distressed communities and in CDFIs; 104 banks have applied, seeking $60 million in funding. The Fund has launched its third round of CDFI awards, for approximately $40 million, with applications due June 12th. And the Fund has launched a special awards round focused on increasing the capacity of CDFIs with the greatest needs for technical assistance.

As with any new organization there have been some growing pains at CDFI. I believe we have dealt with those problems effectively and we will continue to improve procedures as this program grows and matures. In fact, the Fund was recently given an unqualified audit for its activities since inception. We are moving this program forward with the new leadership of Ellen Lazar -- who you know well -- and who I believe brings to the job the dedication, experience and energy needed to implement the CDFI Fund's important work in the years ahead. Most importantly, we have a vision that makes sense, a strong program, and investments that have begun to flow to communities and make a difference in people's lives.

Let me give you just one example. Recently, I visited a CDFI in North Carolina -- Self Help, which operates a credit union and a venture capital fund. I saw first hand how a young man who had been running a marginal fresh fish business, was able to get a $1,000 micro-loan from Self Help to buy a fish fryer and thereby to offer a great fast food menu to his customers. His business began to grow, and now he employs two full-time and two part-time helpers. With his first profits he was able to expand by buying another frier and a stove, and now this determined young man wants to borrow $15,000 to buy a refrigerated truck, so he can drive to the shore and pick up his own fish.

We sometimes forget how much difference even a very small loan can make for a small business entrepreneur, and that's one of the things that CDFIs can do very well.

I also had the opportunity to visit a distressed neighborhood in Durham, where Self Help was rehabilitating rental properties and selling them back to former tenants. I spoke to a minister there who told me that just a few years ago, no one dared to sit on their front steps or go down the street to the store because of all the drug trafficking and violence there. But with funding from Self-Help and other sources, the neighborhood is now beginning to turn around. Houses are being repaired, and families have been given the opportunity to own their own homes for the first time. The increased home ownership is not only benefitting those families, but it has made the neighborhood safer, and has encouraged families on the block -- now homeowners - to become more involved in their community.

Now we must build on these successes and others like them. We are asking Congress for $125 million for CDFI. And we are working with Congress on the re-authorization that is required for this most useful program to continue. Our legislation will make improvements to the CDFI and BEA programs. We are also seeking to launch a new capital access program at CDFI, working with the states to fund loan loss reserves that enable banks and CDFIs to make more difficult small business loans to budding entrepreneurs. These state programs have been enormously successful in reaching new small business borrowers safely and soundly. I think this new CDFI program will be an exciting new initiative for communities. We will be pushing forward with both appropriations for CDFI and reauthorization in the weeks ahead. We look forward to working with Congress to pass these bills on a bipartisan basis.

In conclusion, let me return to where I begin. As a nation, we can never hope to reach our full economic potential unless we succeed in bringing all Americans into the economic mainstream. There are programs that work all around the country. What we need to do is ensure that those programs are replicated on a national scale, commensurate with the problems. This can be done, and it must be done. Thank you very much.