WASHINGTON (MNI) – The following is the second of three sections of
the text of Treasury Assistant Secretary for Financial Markets Mary
Miller’s remarks Tuesday, prepared for the Futures Industry Association:

Regulatory Reform

The financial regulatory reform legislation signed into law at the
end of July is the beginning of a process to build stronger financial
infrastructure, stronger financial institutions with more capital and
greater liquidity, to enhance transparency and reporting of trading
activity, and to make sure that there is a level playing field for all
market participants.

The financial crisis laid bare some of the regulatory gaps that
existed as well as the lack of tools to combat areas of systemic risk.
The “to do list” from the legislation is quite long with many studies,
definitions, and rulemakings that must be conducted across regulatory
agencies and the Administration. Nevertheless, this is where the real
work begins to protect the American financial system from another
meltdown.

An important component of the bill is the creation of the Financial
Stability Oversight Council. This group is made up of ten voting
members, including the principal regulatory bodies that govern our
banking and securities industries. Additionally, there are five
non-voting members of the Council. The committee will be chaired by the
Secretary of the Treasury. The FSOC, as it is called, will be
responsible for monitoring financial market conditions and managing
systemic risk through the designation of certain firms for heightened
supervision.

The bill also establishes an Office of Financial Research within
the Treasury Department to support the Council through the
standardization, collection and analysis of data concerning risks to
financial stability.

Further, the legislation compels regulators to impose stronger
prudential standards, and establishes a comprehensive regulatory
framework for the derivatives markets.

I know that the derivatives title of the Dodd-Frank legislation is
of particular interest to the people in this room. While much work
remains to be done by the regulatory community before we have final
rules, I believe that the legislation will help to make these markets
safer and more transparent.

Changes to the laws governing financial markets naturally raise
uncertainties and concerns about the future viability of various
segments of and participants in the markets. This has been the case
historically, but the futures exchanges not only survived, they
prospered.

Because the provisions of the Dodd-Frank Act will affect the way
that business in these markets is conducted for years to come, Treasury
will work with the CFTC and SEC, as well as through the new Financial
Stability Oversight Council to ensure that markets thrive and systemic
risk is mitigated.

I know that you are going to have the opportunity later in the day
to explore some of these issues in greater depth with representatives
from the CFTC and the SEC.

Beyond derivatives markets, the bill improves investor protection,
provides for greater alignment of incentives in the securitization
markets, and creates a single agency dedicated to consumer financial
protection. Together, these measures will make our system safer and more
resilient.

Looking forward, we have begun the process of evaluating options to
reform our system of housing finance. The Administration plans to
deliver a proposal on the future of housing finance in January. The plan
will provide for the future of Fannie Mae and Freddie Mac, currently in
conservatorship since September 2008.

Any efforts to reform the system must take into account questions
of transition. We are very mindful of the need to maintain stability in
housing finance and markets as we begin this effort.

These reforms at home will be complemented by efforts abroad. It is
crucial to coordinate with governments from around the world to improve
global financial stability and the safety and security of financial
markets and institutions.

The work of the Basel Committee over the last year, culminating in
the agreement announced earlier this month, will significantly tighten
the system of global capital requirements in a number of important ways.
Critically, the amount of capital that banks will be required to hold
relative to risks they take will increase substantially. In contrast to
the current rules, which allow a wide range of forms of capital, the new
requirements are set in terms of high quality common equity that will
truly absorb losses when firms get into trouble.

We cannot know with certainty how the economy and the financial
system will evolve, but these heightened capital requirements, along
with other important reforms, should substantially reduce the likelihood
that we will soon repeat the sort of severe financial crisis that we
have just lived through.

U.S. Treasury Debt Management

Despite elevated issuance through the past few years, we have been
able to finance our needs at record low cost and with strong interest
from investors, both domestic and international.

Let me begin with the supply side. Since the end of 2008,
outstanding debt held by the public has grown from $5.2 trillion to $8.5
trillion. The balance of our non-public debt is largely held in the
trust funds set up for Social Security and Medicare. To meet the
extraordinary financing needs of the government through this period we
built a large framework of regular auctions, increasing not just the
size of auctions, but the frequency and maturity of bond auctions. For
example, we moved from quarterly to monthly auctions of 10- and 30- year
bonds. We also re-introduced the 3- and 7- year maturities.

At the end of 2008, Treasury was forced to raise a significant
amount of cash in a very short period of time, largely due to financial
stability related capital injections. These needs were met through a
significant increase in the issuance of Treasury bills. As the markets
calmed and liquidity needs subsided, we have been able to moderate bill
issuance and finance more of our needs from Treasury notes and bonds,
from maturities of 2-years out to 30-years. Today, T-bills represent
about 20 percent of our outstanding issuance, down from nearly 35
percent at the end of 2008.

Despite this decrease in bill issuance, this proportion is still
relatively high compared to other sovereign issuers who simply do not
provide the same amount of liquidity at the front-end of the yield
curve. We feel that this liquidity is important for the global economy
to function well.

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** Market News International Washington Bureau: 202-371-2121 **

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