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WASHINGTON – The U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) announced an agreement to issue three guarantees worth $498 million under the CDFI Bond Guarantee Program, the largest issuance in the program’s history.

The CDFI Bond Guarantee program provides long-term, fixed-rate capital for projects in low-income urban, rural, and Native communities, and the guarantees will be issued on behalf of 10 Eligible CDFIs under the fiscal year (FY) 2024 program round. Nearly $3 billion has been guaranteed since the program began in 2010.

“Community Development Financial Institutions play an essential role to help businesses and organizations get off the ground and expand all over the country. Today’s historic announcement will increase their access to capital to help realize projects that expand housing supply, grow small businesses, and ensure access to health care and child care,” said U.S. Secretary of the Treasury Janet L. Yellen. “Under the Biden-Harris Administration, we’ve made access to capital a top priority and worked with the CDFI Fund to significantly expand its efforts to help all communities grow and thrive.”

The FY 2024 program participants include:

Opportunity Finance Network will issue $173 million in bonds on behalf of the following seven Eligible CDFIs that will use funding for rental or owner-occupied housing, commercial real estate, day care centers, small businesses, and nonprofit organizations. Uses for housing funding include construction lending, mortgages, refinancing, and financing the development of rental housing and homeownership.

• Renaissance Community Loan Fund, Inc. (RCLF) will receive a $20 million bond loan to fund owner-occupied homes in Mississippi and Alabama. RCLF is headquartered in Biloxi, Mississippi, and is a first-time recipient of a bond loan. 
• Greater Minnesota Housing Fund (GMHF) will receive a $25 million bond loan to fund rental housing in Minnesota. GMHF’s home office is in Saint Paul, Minnesota. GMHF has received three prior bond guarantees in 2017, 2019, and 2022. 
• Community Loan Fund New Jersey (LFNJ) will receive a $33 million bond loan to fund rental housing and commercial real estate, as well as fund small businesses, daycare centers, nonprofit organizations, and charter schools. LFNJ is headquartered in New Brunswick, New Jersey. LFNJ has received two prior bond loans in 2015 and 2019.
• Florida Community Loan Fund (FCLF) will receive a $30 million bond loan to fund rental housing and commercial real estate, health care facilities like urgent care centers and physicians’ offices, nonprofit organizations, and rental housing within the state of Florida. FCLF is headquartered in Orlando, Florida, and received one prior bond loan in 2017.
• Homewise will receive a $15 million bond loan to build commercial real estate and owner-occupied homes within the state of New Mexico, primarily Santa Fe and Albuquerque. Homewise is headquartered in Santa Fe, New Mexico, and received one prior bond loan in 2017.
• Community First Fund (CFF) will receive a $20 million bond loan to build rental housing and commercial real estate, as well as fund small businesses, daycare centers, nonprofit organizations, and charter schools in Pennsylvania. CFF is headquartered in Lancaster, Pennsylvania, and received one prior bond loan in 2017.
• Nonprofit Finance Fund (NFF) will receive a $30 million bond loan to build rental housing and commercial real estate, as well as fund small businesses, daycare centers, nonprofit organizations, and charter schools. NFF is headquartered in New York City with geographic presence in New York, Philadelphia, Los Angeles, Boston, and Oakland. NFF is a first-time applicant to the bond guarantee program.

Community Reinvestment Fund, USA (CRF) will issue a $150 million bond on behalf of the Community Development Trust (CDT). CDT plans to use the bond proceeds to fund charter schools and rental housing throughout the United States. CDT’s home office is in New York City and has received one prior bond issue in 2013.

CRF will also issue $175 million in bonds on behalf of the following two Eligible CDFIs:

• The Reinvestment Fund (TRF) will receive a $100 million bond loan to fund rental housing, commercial real estate, day care centers, health care facilities, nonprofit organizations, small businesses, and charter schools in Philadelphia, Atlanta, and Baltimore. TRF is headquartered in Philadelphia, Pennsylvania. TRF has received two prior bond issues in 2014 and 2016.
• IFF will receive a $75 million bond loan to fund rental housing, commercial real estate, day care centers, health care facilities, nonprofit organizations, small businesses, and charter schools in Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Ohio, and Wisconsin. IFF is headquartered in Chicago, Illinois, and has received one prior bond issue in 2014.

Established by the Small Business Jobs Act of 2010, the CDFI Bond Guarantee Program responds to a critical market need—low-cost, long-term capital to spur economic growth and jump start community revitalization. Under the program, Qualified Issuers (CDFIs or their designees) apply to the CDFI Fund for authorization to issue guaranteed bonds worth a minimum of $100 million in total. The bonds provide Eligible CDFIs with access to substantial long-term, fixed-rate capital to reignite the economies of distressed communities.

The program enables Eligible CDFIs to execute large-scale projects, including the development of housing, commercial real estate, charter schools, daycare or health care centers, and rural infrastructure projects, among other asset classes. As of July 31, 2024, more than $1.7 billion in bond proceeds has been disbursed in 32 states and the District of Columbia.

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As Prepared for Delivery 

Thank you, Josh, for your kind introduction, and to the Atlantic Council for having me. It is a pleasure to be here today.

In ten days, we’re going to have nearly the entire global financial policymaking apparatus descend on Washington, D.C. for the IMF and World Bank Annual Meetings. Gatherings like these are a good reminder of the various times policymakers have come together for a big cause.  And, while international economic policy can be a contentious space, allow me to start with something we can all agree on: it’s important to remember your anniversary.

The anniversary I’d like us to remember today is of a previous gathering of finance ministers and financial policymakers: the anniversary of Bretton Woods. Eighty-years ago, a group of 730 delegates representing 44 countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire to hash out the future of the global economy. This was remarkably bold. The end of World War II was more than a year away. Paris was still under the grip of the Nazis. Yet even as they remained squarely focused on winning the war, the delegates at Bretton Woods understood that without planning, without reimagining the global economy and international system, they risked losing the peace. 

So today I’d like to reflect on the importance of the Bretton Woods institutions (The International Monetary Fund and the World Bank) and the international financial institutions writ large to U.S. economic security: that is, how they have lifted up the global economy and supported American strength and prosperity since their founding, how they stepped up through the crises of the past four years, and how we see their role in driving growth and prosperity in the years to come.

Why the Global Economy Matters to US Growth

When U.S. policymakers led in the creation of the Bretton Woods institutions, there was an altruistic motive to be sure.  Helping ensure robust global growth would be good for billions of people.  And that is still true.  Global growth has been the greatest anti-poverty program ever. As the world economy grew more than 250% over the last four decades, global extreme poverty rates fell from over 40% of the population to under 10%. But there was clearly a self-interested rationale as well. By supporting growth and helping fight crises, these institutions would help generate a more stable world. The hope was they could help prevent the economic collapse that came in the decades after World War I that many believe contributed to the rise of fascism and the start of World War II. 

And, a strong and stable global economy was seen as essential for a strong U.S. economy. The U.S. economy is the largest in the world. It is broad and diverse and can provide many of its needs – for example food and energy – domestically. But even the U.S. economy is not an island. 

Time and time again, the decades since Bretton Woods have corroborated this basic intuition of our predecessors at that conference about the importance of the global economy for U.S. growth. U.S. export growth, for example, has tracked growth in foreign GDP quite closely for many decades. This macroeconomic pattern reflects an existential imperative for U.S. businesses with significant exposures to global growth. This includes our largest firms, with for instance as much as 40 percent of all S&P 500 firms’ revenues derived from foreign markets in recent years.  Workers at these firms benefit from this
exposure: jobs in export industries have been shown to pay a wage premium of as high as 20 percent.

It is not just trade or foreign investment that depends on what happens in the rest of the world.  Our own investment levels are in many ways affected by global growth. There is strong empirical evidence that business investment follows an “accelerator” model in which increases in investment depend on increases in the rate of economic growth. To the extent that U.S. firms depend on the rest of the world for much of their revenues, their investment levels will depend on what they see as potential growth abroad.  And the evidence is that this effect of global growth on investment dynamics is significant (OECD 2015). 

The U.S. is roughly 16% of the global economy in purchasing power parity (PPP) terms and contributed 0.4 percentage points to real global growth in 2023. The strength of the U.S. economy was an upside surprise last year and helped drive global growth forward.  But, even in that circumstance, we comprised less than one seventh of total global growth. In addition, over the next half century, the UN estimates that virtually all population growth will occur in countries that are currently low- or lower-middle-income countries. It is essential that the global economy generate jobs and incomes where people are living.

We have also come to understand quite viscerally how crises that begin by threatening economies overseas ultimately impact American workers, families, and businesses. With the COVID-19 pandemic, a viral outbreak across the globe led to the sharpest drop to GDP since the Great Depression. It left many economies around the world smaller than they would have been on their pre-crisis growth trajectories – particularly when compounded by the effects of Russia’s unlawful war against Ukraine on global food and energy prices. Without a strong rebound in growth, we could simply be left poorer going forward than expected prior to these shocks. It is essential that we have institutions able to help the global economy rebound when a slowdown strikes.

Global financial markets are also obviously linked. A shock in the British bond market or yen borrowing or the near failure of a Swiss bank have all reverberated through global markets in the last two years.  And, financial crises with major global impacts have begun on nearly every continent over the last four decades at one time or another. 

The Global Economic Landscape

While the global economy has shown resilience over the last two years, it faces numerous challenges. There are geopolitical risks, changing demographics, and slow productivity growth in many economies. The United States has seen productivity growth rebound – even slightly above its pre-COVID rates – but that is an atypical experience across richer economies. The Biden-Harris Administration has placed an emphasis both on trying to recover from the COVID recession rapidly – generating a return to pre-recession trends faster than in previous recessions and faster than other major economies. It has also emphasized growth over the medium term.  Secretary Yellen has referred to this strand of policymaking as modern supply side economics, focusing on the ways in which proactive government policy can boost long run growth through investments, including in labor supply, human capital, public infrastructure, R&D, and sustainability. 

The world also faces a challenge coming from China’s current economic model. Having a very large economy with such high savings can cause spillovers unless there are domestic uses for much of that savings. Recently, China has been directing large sums towards investment in manufacturing, despite already being over 30% of global manufacturing. And, there appears to be a lack of domestic demand driving growth, potentially leading to a return to a reliance on exports for growth. A very large economy growing above the global growth rate based on exports is both unlikely to be successful and likely to cause spillovers to others. By focusing on manufacturing via nonmarket tools and subsidies despite China’s already outsized role, this also means China may be closing what has been a typical development path to many other countries eyeing low-cost manufacturing as the next stage of their development.  And by channeling the saving to particular sectors, this increases the likelihood of overcapacity and spillovers to other countries. 

It is critical that we use all the tools we have to combat forces that might be pushing the global economy towards slower growth. Global economic growth and stability are essential to our economic security, and the Bretton Woods institutions have played an important role in supporting these since their inception.

Historic, Conventional Role of the IFIs

The International Monetary Fund has earned the moniker of the world’s “financial firefighter,” stepping in to offer financing and policy advice to countries in times of economic crises. It is easy to look back and debate the Fund’s successes or missteps, but unquestionably, the global economic system we have today would have an IMF-shaped vacuum in its absence. If it did not exist today, we would create something just like it. It is worth recognizing how an institution initially charged with maintaining a system of fixed exchange rates has evolved to respond to generation-defining events, from the international debt crisis of the 1980s, the fall of the communist bloc and Asian financial crisis in the 1990s, to the global financial crisis and Eurozone crisis in recent decades. Beyond these global shocks, however, the Fund has also stepped in to help individual member countries at pivotal times – as they emerged from conflict or looked to respond to economic downturns, instability, and other shocks.

And the Fund’s role in the international monetary system goes far beyond responding in times of crisis. Through economic surveillance, technical assistance, and precautionary lending facilities, the Fund has also helped promote stability within the international monetary system, offered growth-catalyzing policy guidance, and bolstered countries’ resilience to shocks.

Similarly, The World Bank, initially established to support postwar reconstruction, has evolved to become an essential partner for countries. The World Bank Group’s constituent institutions have emerged as key sources of development finance. Its International Bank for Reconstruction and Development (IBRD) is a key provider of financing, policy advice and technical assistance to middle-income countries across the globe. Its International Development Association (IDA) is the largest source of critical concessional financing and grants for low-income countries, including those affected by fragility and conflict.  And the Bank’s International Finance Corporation (IFC) is a critical investor in developing country private sectors, and key player – along with the Bank’s insurance arm, the Multilateral Investment Guarantee Agency (MIGA) – in mobilizing private investment in those countries.

Often working complementarily with the IMF, the World Bank is also a key purveyor of policy advice and technical assistance to help reduce poverty and advance sustainable and inclusive development. World Bank funding and support has translated into material quality of life improvements for billions of people across the globe, with just those projects currently underway at the Bank yielding improved educational and job opportunities for 280 million people, stronger food and nutrition security for 156 million, and more inclusive access to electricity for 100 million people, just to name a few. Their advice is likely just as important. A finance minister once said to me, “I need the financing, but the most important thing, I need to know where to spend the money and how to grow.”

And although they are not officially Bretton Woods institutions, the regional development banks – primarily founded in the 1950s and 1960s – have become critical sister institutions to the World Bank and the IMF, complementing and deepening the impact of the Bretton Woods system. 

The Last Four Years at the IFIs: Health, IMF, MDBs, Debt 

The importance of the IFIs to U.S. interests and U.S. economy continues, of course, today. There are those who have suggested the U.S. withdraw from these institutions; this would be a step backward for our economic security. Without U.S. leadership at the IFIs, we would have less influence and we would weaken these institutions. We cannot afford that. Consider how the IMF and World Bank sprung into action during the two crises that have defined the global economy the past four years – COVID-19 and Russia’s criminal war on Ukraine. 

Without the urgent work of the IFIs in responding to the pandemic and preparing for future ones, I am certain that the outcomes of the COVID-19 pandemic would have been even more terrible and the economic aftershocks worse. 

The World Bank made over $275 billion in new commitments between mid-2020 to mid-2024, with more than half of those going to the poorest countries in the form of highly concessional loans or grants.  As part of this effort, the Bank made available $10.1 billion specifically for the purpose of getting vaccines to those who needed them. The urgent work of the World Bank also drew attention to the need to establish a permanent body that could respond to the world’s health crises the way financial authorities respond to the world’s financial crises. With our partners in Italy, Indonesia, and elsewhere, we answered that call by seeding this fund – the Pandemic Fund. As of today, the Pandemic Fund has approved over $450 million in funding for more than 40 countries. 

The IMF’s Poverty Reduction and Growth Trust (PRGT), which lends to the world’s poorest countries, has provided $30 billion in zero-interest loans to 50 countries over the past four years alone. This funding helped stabilize vulnerable countries as the global economy was grinding to a halt due to the pandemic, and as inflation and interest rates spiked following Russia’s invasion of Ukraine. The PRGT also helped make sure that even as other creditors withdrew from the developing world, and as private creditors pulled out too, the IMF was there to help. Today’s financing pressures for developing economies would have likely been much worse absent the extraordinary financing support that IFIs extended since the onset of the pandemic. From 2020 to 2022, this collective support accounted for nearly 60 percent of the total net debt inflows to developing countries.

Earlier this year, Congress authorized us to lend to the PRGT at very little cost to taxpayers, and that loan will help this critical work continue in the years ahead.

The IMF has also innovated in the last four years, creating the Resilience and Sustainability Trust (RST) to help countries deal with balance of payments shocks that can stem from longer-term challenges such as climate change and pandemic preparedness. We are encouraged that the IMF, World Bank, and World Health Organization recently announced principles of cooperation for supporting country RSF^[1] programs for pandemic preparedness, and we look forward to them operationalizing these quickly. The IMF also created the temporary food shock window in the wake of Russia’s invasion of Ukraine and the subsequent spike in food insecurity around the globe.  

These institutions play an essential role that world governments on their own could not fill in a timely way. 

Recent Innovations Still Underway

Another essential innovation at these institutions in the last four years has come from the “MDB Evolution” agenda to make the world’s leading providers of development finance – i.e., the multilateral development banks (MDBs), bigger and better. In just two years, there has been substantial progress.  The World Bank has declared a new mission – eliminating extreme poverty and boosting shared prosperity on a livable planet – that recognizes the global challenges we face together and the way the MDBs must be at the forefront of meeting these challenges. MDBs have been hard at work on reforms to their visions, incentives, operations, and financial capacity, all of which are essential to responding to global challenges with sufficient speed and scale, and the G20 has estimated that reforms already identified could enable over $350 billion more in additional lending over the next decade across the MDB system. 

There is still much to be done, particularly in creating institutional incentives for realizing the Bank’s updated mission; improving pandemic prevention, preparedness, and response; addressing fragility and conflict; and boosting private capital mobilization, among other priorities. An additional important ongoing step in Evolution is deepening the work of MDBs as a system. 

Another important change in the international financial architecture in the last few years comes in the form of a new way to handle debt restructuring. The Common Framework, launched by the G20 in November of 2020, is intended to be a method to bring together creditors across the range of official bilateral and private creditors to finalize debt restructurings for low-income countries. The process has been frustratingly slow, especially at the start. Extensive effort has continued to work on the technical details of debt restructurings to make the process more transparent and swift. From our perspective, it would be helpful to have even more explicit timelines and procedures – so countries in distress know how they will be treated – as well as debt service suspensions during negotiations to avoid having delays lead to growing burdens. All creditors need to do their part in making sure a restructuring can occur in the timeliest and fairest manner possible. The World Bank and IMF play important roles both in anchoring the process with their debt sustainability analyses as well as providing crucial financial support to countries going through restructuring. 

The Work Ahead

As noted above, there are many risks to global growth going forward. As countries look to chart paths for their economies, it will be important for the World Bank and IMF to provide the critical advice countries need as to how they can navigate the near term, but also how they can take the steps they need to boost their long run potential. The IMF and World Bank will also need to provide deft policy surveillance and advice to address spillovers from China’s current economic policies.

An urgent issue we at the Treasury Department have been working with our partners to address is the financing challenges facing low- and middle-income countries. We see this work as being urgent: there are pressing needs for investment in these countries to support sustainable development, but recently, funds have been flowing out of – not towards – far too many countries.  

Low-income countries’ average annual spending on debt service has jumped from $20 billion between 2010 and 2020, to $60 billion today. As some of these countries face significant principal repayments in the months ahead, they – and the global debt architecture – may be put under significant strain.

That’s why we think it’s critical for the international community to establish a new Pathway for Sustainable Growth, a process for managing liquidity pressures as they arise. To be clear: if a country needs to restructure its debt, it should. But for the countries that are struggling under temporary financing challenges but for whom debt is sustainable over time, we are working with partners and the international financial institutions to find a better path. If you are a country committed to sustainable development and if you are willing to engage with the IMF and MDBs to unlock significant financing alongside significant reform measures, there needs to be a financing package from bilateral, multilateral, and private sector sources to bridge your liquidity needs in a way that is supportive of your sustainable long-run development. Some creditors may provide net present value-neutral reprofilings, other partners may provide new liquid budget support. We can also use the many tools at the MDBs or at many bilateral development finance institutions to encourage the private sector to stay invested on sustainable terms. It will be important for countries to step up with their own financing by mobilizing domestic resources. The World Bank and IMF can also help with domestic resource mobilization in important ways, as can technical assistance from many countries including Treasury’s Office of Technical Assistance.

For a plan like this to work, it will require hard work and innovation at the International Financial Institutions, and it is encouraging that the institutions have been thinking through these topics lately and putting out papers and blogposts on the ideas. The Annual Meetings represents a real opportunity to make concrete progress. It will be important for countries to have a better understanding of the tools that exist to help them through liquidity challenges, essentially a decision tree that lets countries and creditors understand what is available to countries under different conditions.

The IFIs will need to design their programs in a way that avoids having temporary fiscal adjustments lead to permanent harm due to cuts to important investments. Countries and IFI country teams need to be clear about what investments need to be protected, and they need to be confident the international financial system will step up and provide the required funding. It will be important for the IMF to emphasize when financing assurances are needed from creditors to smooth through a temporary financing challenge even when debt is sustainable. Creditors need to do their part, but in today’s complex sovereign debt landscape, the IMF plays the critical role of guide, and sometimes referee and air traffic controller. The World Bank, other MDBs, and the IMF will also need to use their new financing headroom to aggressively but responsibly support countries.

The responsibility will also fall to the shareholders of these institutions to support them. Many countries – including the United States – need to finalize domestic passage of the 16^th general review of quotas that puts the IMF’s resources on a more durable footing. The IMF and its shareholders must also come together to return the PRGT subsidy account to a self-sustaining model. Utilizing the earned income of the IMF above what is needed for precautionary balances presents a real opportunity to make sure that low-income countries have access to critical financing when they need it.

At the World Bank, countries need to follow through on commitments to boost the concessional lending capacity of the Bank. This fall, a crucial task will be securing a robust and impactful replenishment of IDA, the World Bank’s financing arm for low-income countries. The challenges of the past few years – particularly COVID and the spillovers from Russia’s invasion of Ukraine – have put tremendous pressure on IDA’s borrowers. IDA has risen to this occasion, successfully scaling up disbursements by over 70% over the past four years and providing nearly $20bn in net positive financing flows last year. But all of this has also put pressure on IDA, too. It will take both donors stepping up and financial creativity to optimize the balance sheet to make sure we can deliver on this important goal.

Conclusion

The United States benefits immensely from growth abroad. We have an array of tools we use, from USAID’s direct support and programs, to DFC’s investments, to the Millenium Challenge Corporation’s large grants, to State Department engagement, and to technical assistance from Treasury and other agencies that help propel that growth. We use multilateral settings like the G7 and G20 to work with other countries to navigate crises and support policies that drive growth over time. We also help propel world economic growth through our trade and investment relationships with other countries and by pursuing strong economic policy in the United States as well.

But, the institutions created 80 years ago at a meeting in the mountains of New Hampshire remain essential to the mission of seeing living standards rise around the world. These institutions cost the United States very little in budgetary terms, especially relative to spending on defense or other global spending. Yet, they deliver immense value to the United States and to the world. One reason they are still so relevant is the constant re-invention – or evolution – of these institutions. They have made important strides in the last four years, and now we need to continue to challenge them and ourselves to create a better international financial architecture going forward.

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_{[1] Resilience and Sustainability Facility.}

WASHINGTON – Today, the U.S. Department of the Treasury (Treasury) highlighted the Mississippi Development Authority (MDA)’s $4.8 million award to support small business growth. This award is one of 14 recently announced through the Biden-Harris Administration’s State Small Business Credit Initiative (SSBCI) Investing in America Small Business Opportunity Program (SBOP). Mississippi’s initiative will be supported by $2.2 million in matching funds from Innovate Mississippi.  

As part of the Biden-Harris Administration’s economic agenda, this $75 million program provides funding to connect underserved and very small businesses to the capital needed to participate in key Investing in America supply chains, including electric vehicle manufacturing, semiconductor manufacturing, construction, transportation, clean energy generation, and more. The SBOP was designed to catalyze additional private sector investment by supporting small business technical assistance services like accounting and legal services.  

“The Biden-Harris Administration’s economic agenda is focused on continuing the historic small business boom by helping entrepreneurs across the country succeed,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo. “With this new funding, Mississippi will increase access to capital and customers for both high growth startups and Main Street small businesses, and will allow businesses to seize new opportunities created by investments in advanced manufacturing.”   

“Today’s announcement to fund critical small business technical assistance programs will help ensure that more small businesses can thrive, as part of the Biden-Harris Administration plan that is powering a small business boom with a record 19 million new business applications so far,” said National Economic Advisor Lael Brainard.   

“This award is an opportunity to increase small business participation in Mississippi. It’s very much needed, and I look forward to full-throated engagement with the small business community”, said U.S. Representative Bennie Thompson. 

“Small business is the backbone of the Mississippi economy, and these federal funds will further enhance Mississippi’s already strong support of this part of our economy,” said Mississippi Development Authority Executive Director Bill Cork.  

MDA was selected for the SBOP award through a competitive process. MDA will work alongside the Mississippi Small Business Development Center Network (MSBDCN) and Innovate Mississippi (Innovate MS) to assist Mississippi companies in preparing for growth funding. Using this $4.8 million, as well as $2.2 million in matching funds from Innovate Mississippi, MDA will launch ConnectMS, a project aimed to address gaps in the state’s entrepreneurial ecosystem, focusing on helping very small businesses (VSBs) and underserved businesses prepare to raise capital. 

The ConnectMS project will span all of Mississippi’s 82 counties, utilizing state-wide regional clusters to scale business programming and increase access to capital for startups and VSBs. The project will include a five-step approach, which includes the FoundersPlus and CoBuilders Accelerator. FoundersPlus will offer entrepreneurial education and a weekly webinar series, and the CoBuilders Accelerator will provide a multi-week virtual program that will support access to venture capital for startups. The program will also establish a Virtual Small Business Incubator, helping traditional businesses access funding through workshops, one-on-one counseling, pitch events, and tailored technical assistance. 

Selected SBOP jurisdictions will build or expand technical assistance programs focused on connecting very small and underserved businesses to financing available through SSBCI, or other state or federal small business programs, including in the infrastructure, manufacturing, clean energy, or climate resiliency space. Jurisdictions have been selected based on their plans to create innovative, high-impact models of small business technical assistance delivery that demonstrate a vision to improve access to capital for historically overlooked businesses across the nation.   

A fact sheet summarizing all 14 SBOP awards can be found here.

The American Rescue Plan Act reauthorized and expanded SSBCI, which provides nearly $10 billion to support small businesses and empower them to access the capital needed to invest in job-creating opportunities. SSBCI provides funds to states, the District of Columbia, territories, and Tribal governments to promote American entrepreneurship, support small business ownership, and democratize access to capital across the country, including in underserved communities. Through the SSBCI Capital Program, Treasury has approved plans for small business financing programs totaling over $8.7 billion and representing every state and territory, the District of Columbia, and 280 Tribal governments. 

In addition to today’s announcement, Treasury has announced the approvals of SSBCI Technical Assistance grants allocated by formula to states, the District of Columbia, territories, and Tribal governments, representing $145 million for 48 jurisdictions. Treasury anticipates additional approvals of applications to follow. See the full list of approved formula SSBCI Technical Assistance programs here.  

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WASHINGTON – Today, in recognition of Hispanic Heritage Month, the U.S. Department of the Treasury (Treasury) released a fact sheet detailing the critical contributions of Latinos to the U.S. economy and benefits of the Administration’s economic agenda for Latino families, small businesses, and communities. 

When President Biden and Vice President Harris came into office at the height of the COVID-19 pandemic, the health and economic crisis for Latino and other underserved communities was exacerbated by a lack of investment. Long-standing underinvestment limited economic opportunities and contributed to disparities, including lower home ownership rates. Over the past four years, Treasury’s work to deliver a broad-based economic recovery has delivered results for the Latino community and expanded opportunities for all Americans to fully participate and compete in the 21^st century economy.  

Currently, Latinos make up approximately 20% of the total U.S. population, with around 65 million Latinos in the United States. In 2021, Hispanic-owned companies employed 3 million people and paid over $124.4 billion in annual payroll.  

The Biden-Harris Administration’s actions have resulted in strong outcomes for Latino families:

• The Biden-Harris Administration’s economic agenda has created 5 million jobs for Latino workers—achieving a historically low 5.5% Latino unemployment rate through August 2024, down from 8.6% when the Biden-Harris Administration took office. 
• The average annual real wage for Latinos grew 4% from December 2019 to June 2024.   
• Latino business ownership is up 40%, growing at the fastest rate in 30 years.  
• The number of Latino workers that were self-employed—a measure of entrepreneurship—increased by over 30% from 2019 to 2024.     
• Latino net worth is up 47% between 2019 and 2022 and the Latino-white wealth gap is at its narrowest level in nearly 30 years.  

Building on this success, the Treasury is:  

• Growing Latino-owned small businesses: Treasury’s State Small Business Credit Initiative (SSBCI) is supporting underserved entrepreneurs. In addition to direct capital support, SSBCI provided $125 million to support a “Capital Readiness Program” through the Minority Business Development Agency (MBDA), which is building a nationwide network of 43 technical assistance providers to enable underserved entrepreneurs to access government capital programs like SSBCI. As of July 2024, SSBCI has announced $145 million in technical assistance awards to states, territories, Washington D.C., and Tribal governments to support access to capital for underserved and very small companies.¹ During September, Treasury began to announce awards for the Investing in America Small Business Opportunity Program, a competitive grant program that will support innovative, high-impact models of providing underserved and very small companies with access to financial advisory, legal, and accounting services as they prepare to apply for capital. 
• Doing business with Latino owned companies through procurement: Procurement with government agencies plays an important role for many minority-owned businesses. The Administration in 2021 set a goal to increase the federal government’s contracts with minority-owned and small and disadvantaged businesses to 15% by 2025. Since the commitment was made, Treasury’s contracts to Latino-owned businesses have increased by 87%, from $100 million in FY2020 to $187 million in FY2023. Treasury has also designated two minority-owned financial institutions as financial agents of the government. 
• Economic Opportunity Coalition data: The Economic Opportunity Coalition (EOC), launched by Vice President Harris in July 2022, is a group of over 30 companies that have committed to make investments in underserved communities to address economic disparities and jumpstart local economic activity. To date, the EOC has placed more than $850 million in deposits to Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) through partnerships with private companies.    
• Emergency Capital Investment Program (ECIP) data re Community Development Financial Institutions and Minority Depository Institutions: Alongside the efforts of the EOC to support underserved communities, Treasury has invested $1.6 billion in Latino-designated minority depository institutions through the ECIP. This investment is expected to significantly benefit Latino communities, with estimates that investments across the ECIP portfolio could increase lending by over $50 billion over the next decade. ECIP participants unlocked access to capital for the hardest-to-serve small businesses. Through the end of 2023, ECIP resulted in $4.5 billion of lending to small businesses with annual revenues of $1 million or less. Of this lending, $1.2 billion went to the smallest and hardest-to-serve businesses with annual revenues of $100,000 or less, including many start-ups. ECIP participants also reported $1.2 billion of lending to Latino-owned businesses, $10.3 billion in rural communities, and $17.5 billion in minority communities. In the same period, ECIP participants’ lending in some of the most distressed communities in the U.S. included $10.2 billion in persistent poverty counties; $850 million in Indian reservations and Native Hawaiian homelands; and $459 million in Puerto Rico and other U.S. territories. 
• Supporting Latino workers and families: To reduce hardship among families with children, the American Rescue Plan expanded the Child Tax Credit for the 2021 tax year, increasing the amount of the credit for eligible households from $2,000 per child under age 17 to up to $3,000 for children ages six to 17 and up to $3,600 for children under age six. The supplemental Latino child poverty rate was cut nearly in half from around 20% in 2019 to 8% in 2021. However, it rose to about 19% in 2022 following the expiration of the Advanced Child Tax Credit.² The Administration continues to advocate to make this expanded Child Tax Credit permanent. 
• Keeping Latino families in their homes: The American Rescue Plan created two programs to keep families in their homes—the Emergency Rental Assistance (ERA) Program and the Homeowners Assistance Fund (HAF). Treasury’s $46 billion ERA program reached the most vulnerable renters, particularly Latinos, who have been historically hit harder during earlier economic downturns, at higher rates and therefore contributed to housing stability among Latino families. The ERA program has made over 12.3 million payments to families at risk of eviction. As of March 2024, 29% of ERA funding has gone to Latino families. Research from the U.S. General Services Administration found that ERA funds were more likely to reach those with the lowest incomes, including those who were most likely to otherwise be at risk of eviction. More than 450,000 homeowners at risk of losing their homes received assistance through the HAF program, including 86,409 homeowners that self-identified as Latinos. 
• Allowing Latino taxpayers to file online for free and ensuring they receive the credits and deductions for which they are eligible: During the 2024 Filing Season, the Internal Revenue Service (IRS) piloted Direct File, a new tool that allows eligible taxpayers to file their tax returns online, for free, directly with the IRS. Direct File is one of the ways the IRS is helping taxpayers get their maximum refunds as quickly as possible and access the credits and deductions to which they are entitled. The pilot saw 140,000 taxpayers claim more than $90 million in refunds and save an estimated $5.6 million in filing costs. The number of states offering Direct File will double in Filing Season 2025 to 24, and 62% of Americans will live in states that will offer Direct File. Treasury and the IRS have also secured commitments from additional states to join Direct File in Filing Season 2026, as part of their work to progressively expand the tool’s reach. The new tool is available in English and Spanish for eligible tax filers, including those with Individual Tax Identification Numbers (ITINs). Customer service functions, including a live chat feature, are also available in English and Spanish. The IRS also introduced conversational voice technology, available in both English and Spanish, that can route calls based on what a taxpayer says during this year’s Filing Season. 
• Historic investment in Puerto Rico: Puerto Rico governments received approximately $4 billion in American Rescue Plan State and Local Fiscal Recovery Funds to respond to the health and economic impacts of the pandemic. Treasury’s Capital Projects Fund made $158 million available to Puerto Rico to deliver high-speed internet access to households and businesses that currently lack internet access. In 2023, Treasury approved Puerto Rico for up to $109 million in SSBCI funds to provide credit to and investments in small businesses. The CDFI Fund provided Equitable Recovery Program (ERP) awards that include 70 grants totaling $226 million to CDFIs in Puerto Rico to help low- and moderate-income communities recover from the COVID-19 pandemic and invest in long-term prosperity. CDFIs in Puerto Rico received the largest amount of ERP funding of any single state or territory. 

### 

I. Introduction

Good afternoon and thank you to the Federal Reserve Bank of Chicago for hosting this event and inviting me to speak.  Two years ago, Treasury published a report called The Future of Money and Payments in light of the changing landscape of money and payments.^[i]  Since then, we have continued to evaluate the potential benefits and risks of new technologies, both fast payment systems and tokenization, and new use cases, including cross-border payments initiatives.^[ii]  Today, I would like to focus on another aspect of the report – the recommendation to develop a federal regulatory framework for domestic payments.

In the past few years, we have seen rapid growth in digital payments and development of new payments infrastructure.  We have also seen growth in electronic money, or e-money, by nonbank payment service providers.  Relative to a payment app, e-money issuers may also hold customer balances outside of the traditional system of regulated banks and the central bank.  But an essential and necessary quality of money is trust in its value.  As I will explain, our current state-based regulatory framework has not kept pace with the growth in new kinds of money and payments, raising risks for the integrity of the payment systems and trust in money.  The state-level framework with varying requirements also raises barriers to entry, limiting competition and innovation.  

I will then propose the key foundational elements, including financial resources, risk management, and activities restrictions, that are needed in a modern regulatory framework for nonbank payment service providers, principally for issuers of e-money.  This framework builds on existing rules at the federal level for anti-money laundering and countering the financing of terrorism (or AML/CFT) and for consumer protection.  Of course, setting guidelines and regulations requires the consideration of many factors.  My hope today is to invite a broader discussion.  Through this discussion, we can work towards building a more comprehensive, consistent, and calibrated framework for regulating payments in the United States.

II. What’s changing?

Changes in payments are happening along several dimensions.

First, consumers are increasingly choosing to make payments electronically rather than with cash.^[iii]  This trend predates the COVID-19 pandemic but accelerated during the pandemic as consumers looked for more contactless means of payment.  In the United States, the share of cash payments fell from 31 percent to 16 percent between 2017 and 2023, while the share of payments with credit and debit cards rose from 49 percent to 62 percent.^[iv]  For payments made between individuals, the decline in the use of cash over this same period is more stark, falling from 75 percent to 42 percent, and the use of payment apps rose from 12 percent to 50 percent.^[v]  Relatedly, we are also seeing changes in the types of companies that offer payment services.  For example, nonbank payment service providers that offer user-friendly peer-to-peer payment apps have grown quickly in recent years. 

Second, the infrastructure for payments is advancing and raising the potential for a faster and more efficient payments system.  Adoption of real-time payment systems like FedNow and RTP in the U.S. is increasing, though still relatively limited.  Globally, 119 jurisdictions now have real-time payment systems, and some have seen widespread adoption.^[vi]  At the same time, tokenization based on distributed ledger technologies has emerged as a more ambitious and potentially more transformative alternative to legacy payment systems.  Broadly speaking, these projects aim to reduce frictions and delay in payment and settlement in legacy systems by storing information more centrally, such as on a shared ledger.  A wide range of tokenization projects are being pursued by both the public and private sector, including some joint efforts.^[vii] 

Third, new kinds of private money or money-like instruments are growing.  By “money,” I mean instruments that are designed to have a stable value and can be used for exchange.  In the U.S., like in most countries, money can be either public, like a Federal Reserve note, or privately issued, like a commercial bank deposit.  Funds held at nonbank payment service providers and stablecoins also serve some of the functions of money.  Like deposits, these balances are claims on the nonbank payment service provider represented in dollars, though not backed by the promise of one-to-one conversion to public money.^[viii]  I’ll refer to these nonbank payment service providers as “e-money issuers,” which, as I mentioned earlier, have been growing rapidly.^[ix] 

Relatedly, we have also seen growth in payment apps offered by nonbank firms.  Some may rely on bank partners or are linked to credit cards, but others may offer the ability to hold e-money balances.  Adoption of payment apps – including Venmo, Apple Pay, Google Pay, or CashApp – now rivals adoption of credit cards.  Today, more than three-quarters of U.S. adults have used a payment app.^[x]  While we know that customers are holding balances in e-money, we have relatively little insight into how much e-money is issued in aggregate or how long customers hold balances.^[xi]  We do know that consumers, particularly younger consumers, are increasingly turning to nonbank payment apps and fintechs as their primary banking service.^[xii]

Stablecoins are another new money-like instrument.  Like other forms of private money, a stablecoin typically claims it can be redeemed 1 for 1 in U.S. dollars.^[xiii]  Today, stablecoins are used mostly for payments and trading within the crypto ecosystem, but some proponents believe that stablecoins could become used more widely to pay for real goods and services, such as in situations where people may lack access to other stable assets.  There is some evidence that this is already happening.^[xiv]  Stablecoins have also grown rapidly in the last five years, and now have a market capitalization of $172 billion.^[xv]  And because stablecoins serve as a money substitute in some markets, including increasingly by illicit actors, this market capitalization supports a much larger transaction volume.  Some estimate that Tether supports $190 billion of transaction volume daily.^[xvi]

These changes to how we make payments may offer significant efficiency gains, advance financial equity, and even facilitate new kinds of transactions.^[xvii]  However, they may also present some risks if not appropriately managed, including risks to consumers and financial stability.  

I will turn next to the existing regulatory framework for certain intermediaries in payments – specifically, issuers of e-money – to make the case for a modernized federal framework.  

 

III. The Case for a Federal Payments Regulatory Framework

In the United States, banks are the dominant intermediaries that both issue money and make payments.  They are subject to a comprehensive prudential regulatory framework at the federal level, which reflects that banks also hold longer-term loans and securities, and have direct access to the Fed’s payment rails and federal backstops.^[xviii]

Other intermediaries, like e-money issuers, are overseen primarily at the state level as money transmitters.  The regulatory framework for money transmitters was developed for retail customers to send physical cash, often to family in a different state or country.  Money transmitters with this business model hold customer funds only for the short time period required to send them.  This meant that the customer’s exposure to the money transmitter was limited.  It also meant that money transmitters were prevented from engaging in significant maturity transformation. 

The current regulatory framework for e-money issuers reflects this limited business model.  First, money transmitters are subject to minimum net worth or surety bond requirements, but these financial requirements are generally not tied to the riskiness of their assets.  This means that an e-money issuer that processed 25 billion transactions in 2023 could meet minimum financial requirements with retained earnings of six one thousandths of one percent of its total assets.^[xix]  Money transmitters also may be subject to limits on what they can invest customer funds in.  These investment limits are what maintains 1 for 1 value with the dollar.  But even the most stringent of these requirements permit a relatively wide range of assets.^[xx] 

Second, the requirements vary widely between states.  Some states do not require any minimum financial resources.  Some place a cap on financial resources.^[xxi]  Some states limit investments to only certain kinds of assets.  Others place no restrictions on permissible investments.

Third, and partly as a result of the current state-based regulatory and supervisory framework, e-money issuers do not have direct access to federal payment rails like FedACH or FedNow.^[xxii]

The result is a growing segment of payments that has duplicative and overlapping regulations, but that doesn’t address important risks.  E-money issuers must navigate dozens of state-level licenses with varying requirements, increasing compliance costs and raising barriers to entry.  But there are some types of risks that are difficult for a state regulator to address because they originate outside that state’s borders, create stress in other parts of the financial system, or require coordinated intervention in crisis.  Our conversations with stakeholders highlight both kinds of concerns.  The existing regulatory patchwork is burdensome and inefficient, and at the same time does not adequately address risks to consumers and the financial system or promote competition and innovation by facilitating access to real-time payment systems.

Recognizing these concerns, state regulators have taken steps to improve coordination in supervision and consistency in regulatory requirements.  In 2021, the Conference of State Bank Supervisors released a revised model law after a two-year consultation process.^[xxiii]  Today, about half of states have adopted at least some part of the model law.  States also have recently begun coordinated multi-state exams.  But there are practical challenges to establishing the same standards in every state and limits as to how well those standards can address risks of business models that extend well beyond state borders.  

Goals and Key Elements

A federal framework for nonbank payment service providers may be better able to address these concerns.  Specifically, a federal framework can:

1.  Address risks which are essential to confidence in the money and payments system, like customer runs, payments disruptions, and financial stability risks.  It should better support a degree of confidence in nonbank money instruments.  This would include consistent reserve requirements and being able to intervene immediately in a crisis to ensure trust and continuity of services.  Coordinating an intervention for a nation-wide or global company across dozens of state regulators would not be possible in time.

2.  Promote innovation and fair competition that benefits consumers through a consistent and comprehensive, though calibrated, regulatory framework for bank and nonbank payments providers.  It is not the case today that the same activities and the same risks have the same regulatory requirements.  The introduction of a federal prudential regulatory framework for payments also raises the possibility that e-money issuers could get direct access to some public payment rails, like FedNow.^[xxiv]  Direct access would promote competition and innovation for payment services. 

3.  Support leadership of U.S. financial firms globally.  A clear, robust framework for domestic payments promotes a level playing field internationally.

With these important benefits in mind – trust in money and payments, innovation and competition, and global financial leadership – I will turn next to the key foundational elements of a federal framework and raise some topics for further discussion.  These elements also are consistent with our broader objectives for payment systems operations, including adherence to the standards established by PFMI and FATF, strong governance, and with the approach we’ve suggested for stablecoin issuers.^[xxv]  These elements complement other standards that already exist at the Federal level, like AML/CFT and consumer protection requirements, so I won’t discuss those.^[xxvi] 

I will discuss standards in four categories: (i) financial resources, (ii) risk management, (iii) supervision and enforcement and (iv) affiliation and activities restrictions.

1. Financial Resources.  To function as money, an e-money claim needs to be backed by high-quality and liquid assets so that a claim representing a $1 is worth $1 when redeemed.  E-money issuers also should have some minimum resources to protect against other kinds of loss and reduce the risk of insolvency.  Financial resource requirements thus serve several purposes.  First, they support trust in the value of money.  Second, financial resource requirements ensure that customers are protected if an e-money issuer becomes insolvent.  Finally, financial resource requirements mitigate risk to financial stability from customer runs, which we know can be contagious and destabilizing to the broader financial system.

   Calibrating these requirements raises important questions.  First, these requirements should reflect the products that e-money issuers do and don’t offer.  E-money issuers are not banks.  Instead, they generally offer a more limited range of payment-related services.^[xxvii]  The calibration of financial resource requirements should reflect this more limited product offering while credibly backing customer claims 1 for 1  with high-quality and liquid assets.  The calibration and composition of financial resource requirements may also have broader consequences.  To the extent that deposits flow to e-money issuers from banks, it could reduce credit provision or raise its costs.
     

2. Risk Management.  Risk management standards address a range of concerns.  I will highlight two.

   First, operational risks.  Payment systems need to be resilient and payments need to go to the right place and in the right amount.  Consistent and well-calibrated risk-management standards would help ensure that the system for making payments is accurate, operates under both high and low volumes of payments, at all times during defined operating hours, and is resilient to external threats like cyber-attacks.  This is critical for both users of the system and, potentially, for financial stability.  Failures or delays in some payments could spill over to other parts of the economy and the financial system.

   Second, third-party risk.  Making a payment involves many different intermediaries – from wallets, to banks, to processors, to tech providers and others. 

   I’ll use an example to help illustrate.  Let’s say that you want to buy a cup of coffee here in Chicago with e-money.  If you have funds stored with an e-money issuer and the coffee shop is set up with the same e-money issuer, your digital payment may settle “on the books” of the e-money issuer.  As I’ve just discussed, it is critical that this “on the books” settlement is reliable and resilient.  And, even in this simple case, the transaction may be enabled by technology provided by a third-party, like tap to pay.  Now let’s say instead that you don’t have funds stored with an e-money issuer.  In this case, your digital payment would be funded through a linked credit card or bank account, involving one or more banks, a credit card network, and potentially a mobile wallet.  It might even involve a wholesale settlement system between financial institutions. These interlinkages are usually – and should be! – seamless to the customer.  But for a payment to function smoothly, each of these nodes needs to operate as expected.

   This means that e-money issuers, like banks, must manage the risks associated with these third-party relationships.  The bankruptcy of Synapse – though not a bank or e-money issuer – illustrates the importance of managing risk in relationships among payments service providers.  And by applying a prudential regulatory framework to e-money issuers, we might also hope to facilitate bank partnerships with e-money issuers.  We may also consider whether other service providers – like some critical technology or network providers – should be subject to more supervision more directly.  This does not mean that these firms should be subject to the same kinds of standards as e-money issuers or banks.  Issuing money, as I’ve just discussed, presents special kinds of public policy considerations.  At the same time, the operational resilience of related intermediaries is critical to many payment arrangements.  
    

3. Supervision and Enforcement.  A regulatory framework is only as effective as its oversight and enforcement.  A federal framework should have a federal supervisor with the authority and resources necessary to examine e-money issuers and be able to act if standards are not being met.
    
4. Activities and Affiliation.
   Payment activities. To ensure a level competitive playing field, and to better calibrate requirements for e-money issuers, the regulatory framework needs to restrict e-money issuers to payments-related activities.  To the extent they instead extend credit and engage in significant maturity transformation, they would resemble banks and should be subject to bank-like rules. 
   Affiliation and separation of banking and commerce.  In addition, we may consider whether an e-money issuer’s affiliates should be subject to limitations on their activities.  In the United States, there generally are restrictions to support the separation of banking and commerce, based on competitive concerns and the potential for risks from one part of the business to spill into another.  The combination of a commercial or technology platform and payments presents some of these same themes of banking and commerce but is also distinguishable in some ways.  Some old solutions, like antitrust law or limiting the ability of a non-financial company to own or control payments provider can mitigate anti-competitive behavior.^[xxviii]  And some of these requirements already apply.  Some new solutions, like interoperability standards and restrictions on use of customer data, could also be needed.

V. Conclusion

A federal payments framework that includes the key foundational standards discussed above can both simplify our domestic regulatory patchwork and make the regulatory framework more robust.  We can promote innovation and competition, while better protecting consumers, the payment system, and the financial system.  We can create a more level playing field domestically and also support U.S. global financial leadership. 

These goals and solutions I have offered for e-money issuers are similar to points that the Secretary, the President’s Working Group on Financial Markets, the Financial Stability Oversight Council, and I have made regarding a federal regulatory framework for stablecoins.^[xxix]  We have long identified stablecoins as presenting payments and run risks like those presented today by e-money issuers.  At the same time, stablecoins present some unique risks because they rely on distributed ledger technology and thus may involve a different set of intermediaries and can be transferred peer-to-peer.  We continue to support efforts in Congress to establish such a framework.  

My remarks today were informed by our conversations with many stakeholders – consumer groups, payment providers, fintechs, banks, academics, and others — with a wide range of interests.  They have been invaluable in identifying key questions to consider.  I would like to conclude with an invitation to stakeholders to continue this conversation.  

Thank you.

###

 

---

_[i] U.S. Department of the Treasury, “The Future of Money and Payments: Report Pursuant to Section 4(b) of Executive Order 14067,” September 2022.

_[ii]See e.g., Remarks by Under Secretary for Domestic Finance Nellie Liang “Modernizing U.S. Money and Payments: Technological and Regulatory Considerations” at the Peterson Institute for International Economics | U.S. Department of the Treasury, April 17, 2024; Remarks by Under Secretary for International Affairs Jay Shambaugh on New Technologies and Cross-border Payments, October 17, 2023.

_[iii]Individual consumers have different preferences for and access to payment methods.  See e.g., Berhan Bayeh, Emily Cubides, and Shaun O’Brien 2024 Findings from the Diary of Consumer Payment Choice.

_[iv] Bayeh, Cubides, and O’Brien, 2024.  Measured as total share of payments.

_[v] Id.

_[vi]Frost, Jon, Priscilla Koo Wilkens, Anneke Kosse, Vatsala Shreeti and Carolina Velásquez, 2024.  “Fast Payment Systems: Design and Adoption,” BIS Quarterly Review, Bank for International Settlements, March 4, 2024.

_[vii]A notable effort is Project Agora with joint participation from seven central banks and a consortium of private financial firms to develop and test a cross-border platform for cross-border payments.  See https://www.bis.org/about/bisih/topics/fmis/agora.htm

_[viii]While these new forms of money share a key similarity with deposits and other forms of money, they are not subject to the same regulatory framework or protected by deposit insurance. 

_[ix]See Bayeh, Cubides, and O’Brien, 2024; Consumer Reports, “Peer-to-Peer Payment Services,” January 10, 2023.

_[x] Consumer Reports, “Peer-to-Peer Payment Services,” January 10, 2023.  Similarly, the Federal Reserve Bank of Atlanta’s 2023 Survey and Diary of Consumer Payment Choice found that 72% of customers adopted online or mobile payment accounts like PayPal, Zelle, Venmo and Cash App in 2023, a statistically significant increase from 2022.

_[xi] One recent survey suggested that, on average, customers held about $300 in balances.  See, Erin El Issa, “Most Americans Go Mobile With Payment Apps — Here’s How They Roll – NerdWallet,” February 26, 2020. A 2022 Consumer Report Survey indicates that one in ten consumers hold balances in their payment account.  CFPB estimates customer balances in the “billions” but notes that precise figures are not known.  Consumer Financial Protection Bureau, “Issue Spotlight: Analysis of Deposit Insurance Coverage on Funds Stored Through Payment Apps | Consumer Financial Protection Bureau (consumerfinance.gov),” June 1, 2023.

_[xii]See e.g., Ron Shevlin, The Checking Account War is Over and the Fintechs Have Won, FORBES (July 5, 2023).

_[xiii] This type of stablecoins is distinct from a smaller subset of stablecoin arrangements that use other means to attempt to stabilize the price of the instrument (sometimes referred to as “synthetic” or “algorithmic” stablecoins) or are convertible for other assets.  Because of their more widespread adoption, this discussion focuses on stablecoins that represent a claim on the issuer and can be redeemed for dollars.

_[xiv] Angus Berwick, September 10, 2024, The Shadow Dollar That’s Fueling the Financial Underworld, Wall Street Journal.

_[xv] CoinMarketCap as of October 10, 2024.

_[xvi] Angus Berwick, September 10, 2024.

_[xvii]Nellie Liang, April 17, 2023.

_[xviii] See e.g., E. Gerald Gorrigan, Are Banks Special? Annual Report of the Federal Reserve Bank of Minneapolis, December 31, 1982.

_[xix] See PayPal, Global Payment Processing | PayPal US; Dan Awrey, “Bad Money,” Cornell Law Review, February 5, 2020. Estimating that PayPal’s capital was .0006%.

_[xx] In addition, even high-quality assets can fluctuate in value and may be difficult to monetize in stress.

_[xxi] Dan Awrey, 2020.

_[xxii] 87 Fed. Reg. 51099 (August 19, 2022). A prudential regulatory framework is one consideration used by Reserve Banks in evaluating requests for accounts and services. 

_[xxiii] Conference of State Banking Supervisors, “CSBS Money Transmission Modernization Act,” April 22, 2024, available at https://www.csbs.org/csbs-money-transmission-modernization-act-mtma   

_[xxiv]87 Fed. Reg. 51099 (August 19, 2022). A prudential regulatory framework is one consideration used by Reserve Banks in evaluating requests for accounts and services. 

_[xxv] President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the

Office of the Comptroller of the Currency, Report on Stablecoins (Nov. 2021).

 

_[xxvii]Restrictions on the activities of the issuer – for example, to prohibit lending activities – would ensure that this remains true.  See Activities and Affiliation discussion.

_[xxviii] For example, banks are subject to anti-tying laws and activities limitations.  See 12 U.S.C. 1972(1); 12 U.S.C. 1464(q); 12 U.S.C. 24(seventh).  Parent companies are also subject to restrictions on their activities.  See 12 U.S.C. 1841 et seq.;12 U.S.C. 1467a.

_[xxix]PWG Report on Stablecoins; Financial Stability Oversight Council, Report on Digital Asset Financial Stability Risks and Regulation, 2022.

As Prepared for Delivery 

Thank you. I am glad to join Attorney General Garland, Deputy Attorney General Monaco, and the rest of you here today. I applaud DOJ’s efforts. I won’t speak to its case, but to the separate investigation that Treasury’s Financial Crimes Enforcement Network undertook and the action we’ve taken.

The Department of the Treasury utilizes sanctions and the enforcement of our country’s anti-money laundering (AML) laws to protect our national security from illicit actors. From drug trafficking to combatting Russian aggression, the Treasury Department is committed to using all of the tools available to us to protect the American people.

We are proud of the public-private partnership we have formed with the financial sector to protect our national security. The vast majority of financial institutions work hand-in-hand with Treasury to keep our country and our communities safe.

TD Bank has done the exact opposite. For more than a decade, through deliberate actions—and inaction—TD Bank failed to meet its responsibilities.

TD Bank failed to implement or maintain a sufficient AML compliance program.

TD Bank failed to monitor trillions of dollars in transactions each year, including those the Bank knew posed a high-risk for abuse.

TD Bank failed to conduct adequate due diligence on high-risk customers, ignoring glaring red flags.

TD Bank failed to live up to its responsibilities to the American people.

I want to be clear, these systemic failures did not just create hypothetical vulnerabilities, but they resulted in actual, material harm to American citizens and communities. Time and again, unlike its peers, TD Bank prioritized growth and profit over complying with the law.

The bank enabled drug trafficking. In one example from FinCEN’s investigation, TD Bank facilitated over $400 million in transactions to launder money on behalf of criminals that were selling fentanyl and other deadly drugs that are poisoning our neighborhoods. In exchange for filing false or misleading reports on these transactions, TD Bank tellers accepted gift cards as bribes. In another example, TD Bank failed to detect the suspicious activities of one of its own employees who was accepting bribes in exchange for opening accounts in the name of shell companies.

That’s why today we are announcing the Financial Crimes Enforcement Network’s (FinCEN) $1.3 billion penalty on TD Bank, the largest civil monetary penalty against a bank in Treasury’s history.
In addition to a historic penalty, TD Bank has agreed to a four-year monitor to oversee its extensive remedial measures, including end-to-end review of its AML program. The bank will also be required to provide missing suspicious activity reports and, for the first time, FinCEN will require additional accountability and data governance reviews to provide recommendations for changing TD Bank’s culture of noncompliance.

Together, these requirements hold TD Bank accountable for its egregious and willful disregard of the law and the real harm it caused. This action demonstrates that we are committed to holding individuals and institutions accountable.

Let me end by thanking FinCEN, the IRS Criminal Investigation team, the Office of the Comptroller of the Currency, the Federal Reserve, and the Department of Justice for their collaboration. We look forward to continuing to work together to enforce our nation’s laws and protect our national security.

###

I. Introduction

Good afternoon and thank you to the Federal Reserve Bank of Chicago for hosting this event and inviting me to speak.  Two years ago, Treasury published a report called The Future of Money and Payments in light of the changing landscape of money and payments.^[i]  Since then, we have continued to evaluate the potential benefits and risks of new technologies, both fast payment systems and tokenization, and new use cases, including cross-border payments initiatives.^[ii]  Today, I would like to focus on another aspect of the report – the recommendation to develop a federal regulatory framework for domestic payments.

In the past few years, we have seen rapid growth in digital payments and development of new payments infrastructure.  We have also seen growth in electronic money, or e-money, by nonbank payment service providers.  Relative to a payment app, e-money issuers may also hold customer balances outside of the traditional system of regulated banks and the central bank.  But an essential and necessary quality of money is trust in its value.  As I will explain, our current state-based regulatory framework has not kept pace with the growth in new kinds of money and payments, raising risks for the integrity of the payment systems and trust in money.  The state-level framework with varying requirements also raises barriers to entry, limiting competition and innovation.  

I will then propose the key foundational elements, including financial resources, risk management, and activities restrictions, that are needed in a modern regulatory framework for nonbank payment service providers, principally for issuers of e-money.  This framework builds on existing rules at the federal level for anti-money laundering and countering the financing of terrorism (or AML/CFT) and for consumer protection.  Of course, setting guidelines and regulations requires the consideration of many factors.  My hope today is to invite a broader discussion.  Through this discussion, we can work towards building a more comprehensive, consistent, and calibrated framework for regulating payments in the United States.

II. What’s changing?

Changes in payments are happening along several dimensions.

First, consumers are increasingly choosing to make payments electronically rather than with cash.^[iii]  This trend predates the COVID-19 pandemic but accelerated during the pandemic as consumers looked for more contactless means of payment.  In the United States, the share of cash payments fell from 31 percent to 16 percent between 2017 and 2023, while the share of payments with credit and debit cards rose from 49 percent to 62 percent.^[iv]  For payments made between individuals, the decline in the use of cash over this same period is more stark, falling from 75 percent to 42 percent, and the use of payment apps rose from 12 percent to 50 percent.^[v]  Relatedly, we are also seeing changes in the types of companies that offer payment services.  For example, nonbank payment service providers that offer user-friendly peer-to-peer payment apps have grown quickly in recent years. 

Second, the infrastructure for payments is advancing and raising the potential for a faster and more efficient payments system.  Adoption of real-time payment systems like FedNow and RTP in the U.S. is increasing, though still relatively limited.  Globally, 119 jurisdictions now have real-time payment systems, and some have seen widespread adoption.^[vi]  At the same time, tokenization based on distributed ledger technologies has emerged as a more ambitious and potentially more transformative alternative to legacy payment systems.  Broadly speaking, these projects aim to reduce frictions and delay in payment and settlement in legacy systems by storing information more centrally, such as on a shared ledger.  A wide range of tokenization projects are being pursued by both the public and private sector, including some joint efforts.^[vii] 

Third, new kinds of private money or money-like instruments are growing.  By “money,” I mean instruments that are designed to have a stable value and can be used for exchange.  In the U.S., like in most countries, money can be either public, like a Federal Reserve note, or privately issued, like a commercial bank deposit.  Funds held at nonbank payment service providers and stablecoins also serve some of the functions of money.  Like deposits, these balances are claims on the nonbank payment service provider represented in dollars, though not backed by the promise of one-to-one conversion to public money.^[viii]  I’ll refer to these nonbank payment service providers as “e-money issuers,” which, as I mentioned earlier, have been growing rapidly.^[ix] 

Relatedly, we have also seen growth in payment apps offered by nonbank firms.  Some may rely on bank partners or are linked to credit cards, but others may offer the ability to hold e-money balances.  Adoption of payment apps – including Venmo, Apple Pay, Google Pay, or CashApp – now rivals adoption of credit cards.  Today, more than three-quarters of U.S. adults have used a payment app.^[x]  While we know that customers are holding balances in e-money, we have relatively little insight into how much e-money is issued in aggregate or how long customers hold balances.^[xi]  We do know that consumers, particularly younger consumers, are increasingly turning to nonbank payment apps and fintechs as their primary banking service.^[xii]

Stablecoins are another new money-like instrument.  Like other forms of private money, a stablecoin typically claims it can be redeemed 1 for 1 in U.S. dollars.^[xiii]  Today, stablecoins are used mostly for payments and trading within the crypto ecosystem, but some proponents believe that stablecoins could become used more widely to pay for real goods and services, such as in situations where people may lack access to other stable assets.  There is some evidence that this is already happening.^[xiv]  Stablecoins have also grown rapidly in the last five years, and now have a market capitalization of $172 billion.^[xv]  And because stablecoins serve as a money substitute in some markets, including increasingly by illicit actors, this market capitalization supports a much larger transaction volume.  Some estimate that Tether supports $190 billion of transaction volume daily.^[xvi]

These changes to how we make payments may offer significant efficiency gains, advance financial equity, and even facilitate new kinds of transactions.^[xvii]  However, they may also present some risks if not appropriately managed, including risks to consumers and financial stability.  

I will turn next to the existing regulatory framework for certain intermediaries in payments – specifically, issuers of e-money – to make the case for a modernized federal framework.  

 

III. The Case for a Federal Payments Regulatory Framework

In the United States, banks are the dominant intermediaries that both issue money and make payments.  They are subject to a comprehensive prudential regulatory framework at the federal level, which reflects that banks also hold longer-term loans and securities, and have direct access to the Fed’s payment rails and federal backstops.^[xviii]

Other intermediaries, like e-money issuers, are overseen primarily at the state level as money transmitters.  The regulatory framework for money transmitters was developed for retail customers to send physical cash, often to family in a different state or country.  Money transmitters with this business model hold customer funds only for the short time period required to send them.  This meant that the customer’s exposure to the money transmitter was limited.  It also meant that money transmitters were prevented from engaging in significant maturity transformation. 

The current regulatory framework for e-money issuers reflects this limited business model.  First, money transmitters are subject to minimum net worth or surety bond requirements, but these financial requirements are generally not tied to the riskiness of their assets.  This means that an e-money issuer that processed 25 billion transactions in 2023 could meet minimum financial requirements with retained earnings of six one thousandths of one percent of its total assets.^[xix]  Money transmitters also may be subject to limits on what they can invest customer funds in.  These investment limits are what maintains 1 for 1 value with the dollar.  But even the most stringent of these requirements permit a relatively wide range of assets.^[xx] 

Second, the requirements vary widely between states.  Some states do not require any minimum financial resources.  Some place a cap on financial resources.^[xxi]  Some states limit investments to only certain kinds of assets.  Others place no restrictions on permissible investments.

Third, and partly as a result of the current state-based regulatory and supervisory framework, e-money issuers do not have direct access to federal payment rails like FedACH or FedNow.^[xxii]

The result is a growing segment of payments that has duplicative and overlapping regulations, but that doesn’t address important risks.  E-money issuers must navigate dozens of state-level licenses with varying requirements, increasing compliance costs and raising barriers to entry.  But there are some types of risks that are difficult for a state regulator to address because they originate outside that state’s borders, create stress in other parts of the financial system, or require coordinated intervention in crisis.  Our conversations with stakeholders highlight both kinds of concerns.  The existing regulatory patchwork is burdensome and inefficient, and at the same time does not adequately address risks to consumers and the financial system or promote competition and innovation by facilitating access to real-time payment systems.

Recognizing these concerns, state regulators have taken steps to improve coordination in supervision and consistency in regulatory requirements.  In 2021, the Conference of State Bank Supervisors released a revised model law after a two-year consultation process.^[xxiii]  Today, about half of states have adopted at least some part of the model law.  States also have recently begun coordinated multi-state exams.  But there are practical challenges to establishing the same standards in every state and limits as to how well those standards can address risks of business models that extend well beyond state borders.  

Goals and Key Elements

A federal framework for nonbank payment service providers may be better able to address these concerns.  Specifically, a federal framework can:

1.  Address risks which are essential to confidence in the money and payments system, like customer runs, payments disruptions, and financial stability risks.  It should better support a degree of confidence in nonbank money instruments.  This would include consistent reserve requirements and being able to intervene immediately in a crisis to ensure trust and continuity of services.  Coordinating an intervention for a nation-wide or global company across dozens of state regulators would not be possible in time.

2.  Promote innovation and fair competition that benefits consumers through a consistent and comprehensive, though calibrated, regulatory framework for bank and nonbank payments providers.  It is not the case today that the same activities and the same risks have the same regulatory requirements.  The introduction of a federal prudential regulatory framework for payments also raises the possibility that e-money issuers could get direct access to some public payment rails, like FedNow.^[xxiv]  Direct access would promote competition and innovation for payment services. 

3.  Support leadership of U.S. financial firms globally.  A clear, robust framework for domestic payments promotes a level playing field internationally.

With these important benefits in mind – trust in money and payments, innovation and competition, and global financial leadership – I will turn next to the key foundational elements of a federal framework and raise some topics for further discussion.  These elements also are consistent with our broader objectives for payment systems operations, including adherence to the standards established by PFMI and FATF, strong governance, and with the approach we’ve suggested for stablecoin issuers.^[xxv]  These elements complement other standards that already exist at the Federal level, like AML/CFT and consumer protection requirements, so I won’t discuss those.^[xxvi] 

I will discuss standards in four categories: (i) financial resources, (ii) risk management, (iii) supervision and enforcement and (iv) affiliation and activities restrictions.

1. Financial Resources.  To function as money, an e-money claim needs to be backed by high-quality and liquid assets so that a claim representing a $1 is worth $1 when redeemed.  E-money issuers also should have some minimum resources to protect against other kinds of loss and reduce the risk of insolvency.  Financial resource requirements thus serve several purposes.  First, they support trust in the value of money.  Second, financial resource requirements ensure that customers are protected if an e-money issuer becomes insolvent.  Finally, financial resource requirements mitigate risk to financial stability from customer runs, which we know can be contagious and destabilizing to the broader financial system.

   Calibrating these requirements raises important questions.  First, these requirements should reflect the products that e-money issuers do and don’t offer.  E-money issuers are not banks.  Instead, they generally offer a more limited range of payment-related services.^[xxvii]  The calibration of financial resource requirements should reflect this more limited product offering while credibly backing customer claims 1 for 1  with high-quality and liquid assets.  The calibration and composition of financial resource requirements may also have broader consequences.  To the extent that deposits flow to e-money issuers from banks, it could reduce credit provision or raise its costs.
     

2. Risk Management.  Risk management standards address a range of concerns.  I will highlight two.

   First, operational risks.  Payment systems need to be resilient and payments need to go to the right place and in the right amount.  Consistent and well-calibrated risk-management standards would help ensure that the system for making payments is accurate, operates under both high and low volumes of payments, at all times during defined operating hours, and is resilient to external threats like cyber-attacks.  This is critical for both users of the system and, potentially, for financial stability.  Failures or delays in some payments could spill over to other parts of the economy and the financial system.

   Second, third-party risk.  Making a payment involves many different intermediaries – from wallets, to banks, to processors, to tech providers and others. 

   I’ll use an example to help illustrate.  Let’s say that you want to buy a cup of coffee here in Chicago with e-money.  If you have funds stored with an e-money issuer and the coffee shop is set up with the same e-money issuer, your digital payment may settle “on the books” of the e-money issuer.  As I’ve just discussed, it is critical that this “on the books” settlement is reliable and resilient.  And, even in this simple case, the transaction may be enabled by technology provided by a third-party, like tap to pay.  Now let’s say instead that you don’t have funds stored with an e-money issuer.  In this case, your digital payment would be funded through a linked credit card or bank account, involving one or more banks, a credit card network, and potentially a mobile wallet.  It might even involve a wholesale settlement system between financial institutions. These interlinkages are usually – and should be! – seamless to the customer.  But for a payment to function smoothly, each of these nodes needs to operate as expected.

   This means that e-money issuers, like banks, must manage the risks associated with these third-party relationships.  The bankruptcy of Synapse – though not a bank or e-money issuer – illustrates the importance of managing risk in relationships among payments service providers.  And by applying a prudential regulatory framework to e-money issuers, we might also hope to facilitate bank partnerships with e-money issuers.  We may also consider whether other service providers – like some critical technology or network providers – should be subject to more supervision more directly.  This does not mean that these firms should be subject to the same kinds of standards as e-money issuers or banks.  Issuing money, as I’ve just discussed, presents special kinds of public policy considerations.  At the same time, the operational resilience of related intermediaries is critical to many payment arrangements.  
    

3. Supervision and Enforcement.  A regulatory framework is only as effective as its oversight and enforcement.  A federal framework should have a federal supervisor with the authority and resources necessary to examine e-money issuers and be able to act if standards are not being met.
    
4. Activities and Affiliation.
   Payment activities. To ensure a level competitive playing field, and to better calibrate requirements for e-money issuers, the regulatory framework needs to restrict e-money issuers to payments-related activities.  To the extent they instead extend credit and engage in significant maturity transformation, they would resemble banks and should be subject to bank-like rules. 
   Affiliation and separation of banking and commerce.  In addition, we may consider whether an e-money issuer’s affiliates should be subject to limitations on their activities.  In the United States, there generally are restrictions to support the separation of banking and commerce, based on competitive concerns and the potential for risks from one part of the business to spill into another.  The combination of a commercial or technology platform and payments presents some of these same themes of banking and commerce but is also distinguishable in some ways.  Some old solutions, like antitrust law or limiting the ability of a non-financial company to own or control payments provider can mitigate anti-competitive behavior.^[xxviii]  And some of these requirements already apply.  Some new solutions, like interoperability standards and restrictions on use of customer data, could also be needed.

V. Conclusion

A federal payments framework that includes the key foundational standards discussed above can both simplify our domestic regulatory patchwork and make the regulatory framework more robust.  We can promote innovation and competition, while better protecting consumers, the payment system, and the financial system.  We can create a more level playing field domestically and also support U.S. global financial leadership. 

These goals and solutions I have offered for e-money issuers are similar to points that the Secretary, the President’s Working Group on Financial Markets, the Financial Stability Oversight Council, and I have made regarding a federal regulatory framework for stablecoins.^[xxix]  We have long identified stablecoins as presenting payments and run risks like those presented today by e-money issuers.  At the same time, stablecoins present some unique risks because they rely on distributed ledger technology and thus may involve a different set of intermediaries and can be transferred peer-to-peer.  We continue to support efforts in Congress to establish such a framework.  

My remarks today were informed by our conversations with many stakeholders – consumer groups, payment providers, fintechs, banks, academics, and others — with a wide range of interests.  They have been invaluable in identifying key questions to consider.  I would like to conclude with an invitation to stakeholders to continue this conversation.  

Thank you.

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_[i] U.S. Department of the Treasury, “The Future of Money and Payments: Report Pursuant to Section 4(b) of Executive Order 14067,” September 2022.

_[ii]See e.g., Remarks by Under Secretary for Domestic Finance Nellie Liang “Modernizing U.S. Money and Payments: Technological and Regulatory Considerations” at the Peterson Institute for International Economics | U.S. Department of the Treasury, April 17, 2024; Remarks by Under Secretary for International Affairs Jay Shambaugh on New Technologies and Cross-border Payments, October 17, 2023.

_[iii]Individual consumers have different preferences for and access to payment methods.  See e.g., Berhan Bayeh, Emily Cubides, and Shaun O’Brien 2024 Findings from the Diary of Consumer Payment Choice.

_[iv] Bayeh, Cubides, and O’Brien, 2024.  Measured as total share of payments.

_[v] Id.

_[vi]Frost, Jon, Priscilla Koo Wilkens, Anneke Kosse, Vatsala Shreeti and Carolina Velásquez, 2024.  “Fast Payment Systems: Design and Adoption,” BIS Quarterly Review, Bank for International Settlements, March 4, 2024.

_[vii]A notable effort is Project Agora with joint participation from seven central banks and a consortium of private financial firms to develop and test a cross-border platform for cross-border payments.  See https://www.bis.org/about/bisih/topics/fmis/agora.htm

_[viii]While these new forms of money share a key similarity with deposits and other forms of money, they are not subject to the same regulatory framework or protected by deposit insurance. 

_[ix]See Bayeh, Cubides, and O’Brien, 2024; Consumer Reports, “Peer-to-Peer Payment Services,” January 10, 2023.

_[x] Consumer Reports, “Peer-to-Peer Payment Services,” January 10, 2023.  Similarly, the Federal Reserve Bank of Atlanta’s 2023 Survey and Diary of Consumer Payment Choice found that 72% of customers adopted online or mobile payment accounts like PayPal, Zelle, Venmo and Cash App in 2023, a statistically significant increase from 2022.

_[xi] One recent survey suggested that, on average, customers held about $300 in balances.  See, Erin El Issa, “Most Americans Go Mobile With Payment Apps — Here’s How They Roll – NerdWallet,” February 26, 2020. A 2022 Consumer Report Survey indicates that one in ten consumers hold balances in their payment account.  CFPB estimates customer balances in the “billions” but notes that precise figures are not known.  Consumer Financial Protection Bureau, “Issue Spotlight: Analysis of Deposit Insurance Coverage on Funds Stored Through Payment Apps | Consumer Financial Protection Bureau (consumerfinance.gov),” June 1, 2023.

_[xii]See e.g., Ron Shevlin, The Checking Account War is Over and the Fintechs Have Won, FORBES (July 5, 2023).

_[xiii] This type of stablecoins is distinct from a smaller subset of stablecoin arrangements that use other means to attempt to stabilize the price of the instrument (sometimes referred to as “synthetic” or “algorithmic” stablecoins) or are convertible for other assets.  Because of their more widespread adoption, this discussion focuses on stablecoins that represent a claim on the issuer and can be redeemed for dollars.

_[xiv] Angus Berwick, September 10, 2024, The Shadow Dollar That’s Fueling the Financial Underworld, Wall Street Journal.

_[xv] CoinMarketCap as of October 10, 2024.

_[xvi] Angus Berwick, September 10, 2024.

_[xvii]Nellie Liang, April 17, 2023.

_[xviii] See e.g., E. Gerald Gorrigan, Are Banks Special? Annual Report of the Federal Reserve Bank of Minneapolis, December 31, 1982.

_[xix] See PayPal, Global Payment Processing | PayPal US; Dan Awrey, “Bad Money,” Cornell Law Review, February 5, 2020. Estimating that PayPal’s capital was .0006%.

_[xx] In addition, even high-quality assets can fluctuate in value and may be difficult to monetize in stress.

_[xxi] Dan Awrey, 2020.

_[xxii] 87 Fed. Reg. 51099 (August 19, 2022). A prudential regulatory framework is one consideration used by Reserve Banks in evaluating requests for accounts and services. 

_[xxiii] Conference of State Banking Supervisors, “CSBS Money Transmission Modernization Act,” April 22, 2024, available at https://www.csbs.org/csbs-money-transmission-modernization-act-mtma   

_[xxiv]87 Fed. Reg. 51099 (August 19, 2022). A prudential regulatory framework is one consideration used by Reserve Banks in evaluating requests for accounts and services. 

_[xxv] President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the

Office of the Comptroller of the Currency, Report on Stablecoins (Nov. 2021).

 

_[xxvii]Restrictions on the activities of the issuer – for example, to prohibit lending activities – would ensure that this remains true.  See Activities and Affiliation discussion.

_[xxviii] For example, banks are subject to anti-tying laws and activities limitations.  See 12 U.S.C. 1972(1); 12 U.S.C. 1464(q); 12 U.S.C. 24(seventh).  Parent companies are also subject to restrictions on their activities.  See 12 U.S.C. 1841 et seq.;12 U.S.C. 1467a.

_[xxix]PWG Report on Stablecoins; Financial Stability Oversight Council, Report on Digital Asset Financial Stability Risks and Regulation, 2022.

WASHINGTON – On Monday, October 7, 2024, the U.S. Department of the Treasury hosted an event with community development financial institutions (CDFIs), state government representatives, nonprofit groups, and stakeholders to discuss how credit support from the State Small Business Credit Initiative (SSBCI) can enable secondary markets for CDFI loans and increase CDFI lending throughout the country.  

At the event, participants discussed public-private partnership models to deploy SSBCI funding through CDFIs, best practices on how to facilitate CDFI participation in the SSBCI program, and ways to scale CDFI microlending to meet the credit needs of underserved small business owners.  

Treasury officials led discussions on ways to support CDFI lenders. These financial institutions play a critical role in reaching the most underserved communities and entrepreneurs, providing responsible and affordable alternatives to a myriad of predatory products in the market, while facing their own balance sheet constraints.  

Panelists discussed how the pandemic-era recovery funding generated opportunities to innovate public-private partnership models in community finance and small business lending, leading to the development of solutions to support the sustainability of federal investments. Panelists also stressed the importance of supporting small dollar lending for businesses owned by people of color. Lastly, the participants discussed ways that these models can be leveraged by jurisdictions and CDFIs with federal opportunities beyond SSBCI.  

Treasury in September 2024 released a report showing that entrepreneurship and small business growth have surged in recent years, with new business applications averaging 430,000 per month in 2024 or 50% more than in 2019.  Recent data shows that accessing the necessary financing to grow their businesses remains a significant challenge for many small business owners. Evidence suggests CDFIs played a key role in supporting small businesses during the pandemic. However, limited sources of capital are one of the key challenges faced by the CDFI industry. Despite growth in the number of CDFIs and growth in assets, CDFIs still make up a relatively small share of the overall lending market. The Treasury Department will continue engaging with stakeholders on ways to improve capital access to underserved business owners while supporting the mission-driven lenders who serve them.   

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WASHINGTON – Today, the U.S. Department of the Treasury announced the full list of awardees receiving funding to support small business growth through the Biden-Harris Administration’s State Small Business Credit Initiative (SSBCI) Investing in America Small Business Opportunity Program (SBOP) following recent announcements of several initial awards. SBOP is a $75 million competitive grant program that provides funding to connect underserved and very small businesses to the financing necessary to participate in key Investing in America supply chains, including electric vehicle manufacturing, semiconductor manufacturing, construction, transportation, clean energy generation, and more.  

As part of the Biden-Harris Administration’s economic agenda, the SBOP was designed to catalyze additional private sector investment by supporting small business in getting the legal, accounting, and financial advisory services they need and helping them to secure SSBCI-supported financing or other state and federal program support.  

“By increasing access to capital and making historic investments in infrastructure, clean energy, and manufacturing, we have spurred record-breaking small business growth over the last three years,” said Vice President Kamala Harris. “Since taking office, I have been proud to work to expand access to opportunity by investing in the small businesses that are the backbone of our communities. This funding from the Small Business Opportunity Program will build on this momentum by allowing tens of thousands of entrepreneurs from historically underserved communities to access the technical assistance they need in order to hire more employees, grow their businesses, and advance innovation.”

“More than 19 million new small business applications have been filed during the Biden-Harris Administration and we’re working to support these entrepreneurs and connect them to the customers and capital they need to grow,” said Secretary of the Treasury Janet L. Yellen. “The Biden-Harris Administration has fueled major investments in key sectors of our economy, and these resources will support technical assistance that connects small businesses around the country to important supply chains and new opportunities.”   

Overview of 14 SBOP Awardees: 

• Arizona, $7.9 million: The Arizona Commerce Authority will expand three existing programs: DreamBuilder, Moonshot, and the Arizona Manufacturing Extension Partnership. These programs will target business owners in rural and mining communities, conduct pitch competitions, and will provide training and advisory services.   
• California, $10 million: The California Office of the Small Business Advocate (CalOSBA) will create a new Procurement & Innovation Capital Leadership for Entrepreneurs (PINNACLE) program. This initiative will be supported by $16.25 million in matching funds from CalOSBA. 
• Cherokee Nation, $2 million: Cherokee Nation Commerce Services will connect underserved small businesses in the 14 Cherokee Nation counties in Oklahoma with industry experts and foster collaboration with local financial institutions. 
• Chickasaw Nation, $2 million: Chickasaw Nation will support businesses located in the Chickasaw Nation treaty territory, as well as Chickasaw-owned businesses across the U.S., with a focus on agriculture and construction businesses. Partners include Murray State College, the Ardmore Chamber of Commerce, and i2E, Inc. This initiative will be supported by $225,000 in matching funds by the Chickasaw Nation Community Development Endeavor.  
• Hawaii, $1.6 million: The Hawaii Technology Development Corporation will build a one-stop marketplace of vetted technical assistance providers. The Chamber of Commerce Hawaii will be an implementation partner.  
• Kansas, $2.6 million: The Kansas Department of Commerce Office of Small Business Development and Entrepreneurship will support the Kansas Launchpad program. Partners include the Kansas Office of Minority and Women Business Development, the Kansas Office of Innovation, the Kansas Office of Rural Prosperity, the Kansas Department of Agriculture, and NetWork Kansas.  
• Louisiana, $5.3 million: The Louisiana Department of Economic Development (LED) will work with regional economic development organizations and accelerators to connect businesses to capital, particularly SSBCI-supported equity capital. This initiative will be supported by $2.4 million in matching funds from LED. 
• Maryland, $10 million: The Maryland Technology Development Corporation will establish the Business Resource Information, Development, and Guidance Ecosystem (BRIDGE) to deliver services through a regional network of new and existing technical assistance providers, and will serve businesses in Maryland, Delaware, D.C., and Virginia. The University of Maryland, University of Maryland Baltimore, and Loaned Executives will be implementation partners. This initiative is supported by $2.2 million in matching funds by TEDCO and the University of Maryland. 
• Michigan, $9.1 million: The Michigan Strategic Fund and the Michigan Economic Development Corporation will implement the Michigan Auto Supplier Transition Program which will serve businesses in their transition from the internal combustion engine auto supply chain to electric vehicle production or an adjacent industry. Partners include the Michigan Minority Supplier Development Council, the University of Michigan Economic Growth Institute, Automaton Alley, the Michigan Manufacturing Technology Center, and the Michigan Manufacturers Association. This initiative is supported by $500 million in matching funds from Michigan Infrastructure Office.   
• Mississippi, $4.8 million: The Mississippi Development Authority will launch the Connect MS program, which will engage eight regional clusters and two program pathways to improve small businesses chances of a successful capital raise. Partners include the Mississippi Small Business Development Center network and Innovate Mississippi. This initiative is supported by $2.2 million in matching funds from Innovate Mississippi  
• Nevada, $4.2 million: The Nevada Governor’s Office of Economic Development will deliver programming to startups, healthcare businesses, rural and Tribal businesses, and advanced manufacturing businesses, particularly those producing lithium batteries and other EV components. Partners include the Nevada Small Business Development Center, the Nevada Tech Hub, and National Science Foundation Engines grantees in Nevada. 
• New York, $9.4 million: Empire State Development (ESD) will launch the Semiconductor Growth Access Program (SGAP) to help businesses grow in or pivot to the semiconductor supply chain in upstate New York. Key partners include NY Smart I-Corridor Tech Hub, Mohawk Valley Economic Development Growth Enterprises Corporation, and the Capital Region Center for Economic Growth. This initiative is supported by $1.5 million in matching funds from ESD.  
• Oklahoma, $4.2 million: The Oklahoma Center of Science and Technology (OCAST) will launch Roadmap2Success, focused on businesses that safeguard Oklahoma’s telecommunications infrastructure from cyber threats and bolster biotechnology and advanced mobility industries. Partners include Oklahoma Biotech Innovation Cluster, Oklahoma Broadband Office, University of Tulsa’s Oklahoma Cyber Innovation Institute, and the Tulsa Regional Advanced Mobility Corridor. This initiative is supported by $384,000 in matching funds by OCAST. 
• Rhode Island, $1.6 million: The Rhode Island Commerce Corporation will expand the RI Rebounds Technical Assistance Program focused on the construction, transportation, and renewable energy industries. Rhode Island’s Future will be an implementation partner. 

A fact sheet summarizing all 14 SBOP awards can be found here. 

Selected jurisdictions will build or expand technical assistance programs focused on connecting very small and underserved businesses to financing available through SSBCI, or other state or federal small business programs, including in infrastructure, manufacturing, clean energy, or climate resiliency. Jurisdictions have been selected based on their plans to create innovative, high-impact models of small business technical assistance delivery that demonstrate a vision to improve access to capital for historically overlooked businesses across the nation.   

The American Rescue Plan Act reauthorized and expanded SSBCI, which provides nearly $10 billion to support small businesses and empower them to access the capital needed to invest in job-creating opportunities. SSBCI provides funds to states, the District of Columbia, territories, and Tribal governments to promote American entrepreneurship, support small business ownership, and democratize access to capital across the country, including in underserved communities. Through the SSBCI Capital Program, Treasury has approved plans for small business financing programs totaling over $8.7 billion and representing every state and territory, the District of Columbia, and 280 Tribal governments. 

In addition to today’s announcement, Treasury has announced the approvals of SSBCI Technical Assistance grants allocated by formula to states, the District of Columbia, territories, and Tribal governments, representing $145 million for 48 jurisdictions. Treasury anticipates additional approvals of applications to follow. See the full list of approved programs here.  

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