Treasury Sanctions Iran’s Morality Police and Senior Security Officials for Violence Against Protesters and the Death of Mahsa Amini

WASHINGTON — Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is designating Iran’s Morality Police for abuse and violence against Iranian women and the violation of the rights of peaceful Iranian protestors. The Morality Police are responsible for the recent death of 22-year-old Mahsa Amini, who was arrested and detained for allegedly wearing a hijab improperly.

OFAC is also targeting seven senior leaders of Iran’s security organizations: the Morality Police, Ministry of Intelligence and Security (MOIS), the Army’s Ground Forces, Basij Resistance Forces, and Law Enforcement Forces. These officials oversee organizations that routinely employ violence to suppress peaceful protesters and members of Iranian civil society, political dissidents, women’s rights activists, and members of the Iranian Baha’i community.

“Mahsa Amini was a courageous woman whose death in Morality Police custody was yet another act of brutality by the Iranian regime’s security forces against its own people,” said Secretary of the Treasury Janet L. Yellen. “We condemn this unconscionable act in the strongest terms and call on the Iranian government to end its violence against women and its ongoing violent crackdown on free expression and assembly. Today’s action to sanction Iran’s Morality Police and senior Iranian security officials responsible for this oppression demonstrates the Biden – Harris Administration’s clear commitment to stand up for human rights, and the rights of women, in Iran and globally.”

Today’s actions are taken pursuant to Executive Order (E.O.) 13553, which imposes sanctions on certain persons with respect to serious human rights abuses by the Government of Iran.

Iran’s Morality Police

Iran’s Morality Police is the component of Iran’s Law Enforcement Forces (LEF) tasked with enforcing the country’s laws against immodesty and societal vices. The LEF, the Iranian government’s main security apparatus dedicated to crowd control and protest suppression, played a key role in the crackdown on protesters in the aftermath of the disputed Iranian presidential election in 2009 and has been called upon to respond to multiple nationwide protests since then, including the November 2019 protests over gasoline price increases during which Iranian security forces killed at least hundreds of Iranian protestors. Treasury designated the LEF pursuant to E.O. 13553 on June 9, 2011, for its role in the 2009 post-election crackdown.

On September 14, 2022, the LEF’s Morality Police arrested 22-year-old Mahsa Amini for purportedly wearing a hijab improperly and sent her to an “educational and orientation” class at police headquarters. She was transferred to a hospital that same day in a coma and died two days later from internal injuries. Eyewitnesses claim that Amini died due to injuries sustained while in Morality Police custody. Mahsa’s father told the press that authorities covered bruises on her body in the hospital and refused to let the family see them. LEF authorities have blamed her death on a heart ailment, but her family said she had no such condition. Iran’s Morality Police are being designated pursuant to E.O. 13553 for having acted or purported to act for or on behalf of, directly or indirectly, Iran’s LEF.

Mohammad Rostami Cheshmeh Gachi serves as the head of Iran’s Morality Police, which has demonstrated a culture of violence and excessive force under his command. In early 2022, Rostami declared that the Morality Police would punish Iranian women who refuse to wear a hijab. Haj Ahmad Mirzaei served as the head of the Tehran division of Iran’s Morality Police during Amini’s unjust detention and untimely death. Rostami and Mirzaei are being designated pursuant to E.O. 13553 for having acted or purported to act for or on behalf of, directly or indirectly, Iran’s LEF.

Senior Security Services Officials

Esmail Khatib is Iran’s Minister of Intelligence and head of the MOIS, one of the Iranian government’s main security services which is responsible for serious human rights abuses. Under his leadership, the MOIS has cracked down on a large number of human rights defenders, women-rights activists, journalists, filmmakers, and members of religious minority groups. MOIS has also aggressively persecuted individuals reporting on human rights abuses and violations in Iran, as well as their families, and subjected detainees to torture in secret detention centers during his tenure.

Khatib is being designated pursuant to E.O. 13553 for having acted or purported to act for or on behalf of, directly or indirectly, the MOIS and for being a person acting on behalf of the Government of Iran who is responsible for or complicit in, or responsible for ordering, controlling, or otherwise directing, the commission of serious human rights abuses against persons in Iran or Iranian citizens or residents, or the family members of the foregoing, on or after June 12, 2009. Treasury previously designated Khatib on September 9, 2022, pursuant to cybersecurity authorities for having acted or purported to act for or on behalf of, directly or indirectly, the MOIS.

Salar Abnoush is the deputy commander of the Basij and has publicly described his command-and-control role over Basij forces during the November 2019 protests. The Basij have been linked to the killing of unarmed protestors on numerous occasions.

Qasem Rezaei was appointed the LEF deputy commander in May 2020. As a senior LEF official, Rezaei is responsible for serious human rights violations committed by the LEF under his command. Rezaei has also directly overseen violence against detainees, including torture and beatings. He has justified the LEF’s actions following the deadly use of force against Iranian protestors and called for continued violence against protestors in May 2022. As a former border commander of the LEF, Rezaei oversaw the harsh treatment of persons on Iran’s border, including the use of direct fire against persons on Iran’s borders.

Manouchehr Amanollahi is the LEF commander of Iran’s Chaharmahal and Bakhtiari province. During his tenure, the LEF suppressed 2021 protests in the province in response to a lack of water, and 2022 protests in response to food rationing. LEF units under Amanollahi’s command used live rounds against protestors when suppressing the protests, resulting in multiple deaths. As an advisor to LEF leadership, Amanollahi was also involved in the LEF’s response to nationwide protests in November 2019, which resulted in the deaths of hundreds of protestors.

Kiyumars Heidari is the commander of the Iranian Army’s Ground Forces. He has publicly admitted to his and his force’s involvement in the violent response to the November 2019 protests that led to the death of at least hundreds of protesters.

Abnoush, Rezaei, Amanollahi, and Heidari are all being designated pursuant to E.O. 13553 for being persons acting on behalf of the Government of Iran (including members of paramilitary organizations) who are responsible for or complicit in, or responsible for ordering, controlling, or otherwise directing, the commission of serious human rights abuses against persons in Iran or Iranian citizens or residents, or the family members of the foregoing, on or after June 12, 2009, regardless of whether such abuses occurred in Iran.

Sanctions Implications

As a result of today’s action, all property and interests in property of the individuals and entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. OFAC’s sanctions generally prohibit all dealings by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of blocked or designated persons.

In addition, persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation. Furthermore, any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.

The power and integrity of OFAC sanctions derive not only from its ability to designate and add persons to the Specially Designated Nationals and Blocked Persons List (SDN List), but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897.

Identifying information on the individuals and entities designated today.


Remarks by Under Secretary for Domestic Finance Nellie Liang at the Securities Industry and Financial Markets Association’s Prudential and Capital Board Subcommittee

As Prepared for Delivery

Let me begin by thanking SIFMA for inviting me to speak at today’s meeting.  In my remarks, I will focus on the progress made by the official sector towards enhancing the resilience of the Treasury market.[i]

The Treasury market plays a critical role in financing the federal government, supporting the broader financial system, and implementing monetary policy.  To ensure the Treasury market continues to fulfill these vital purposes, the official sector needs to seek continual improvements that strengthen the Treasury market in order to keep pace with changing technology and trading patterns.

In addition, amid the increase in economic and market volatility since the beginning of the year, reduced market liquidity has served as a daily reminder that we need to be vigilant in monitoring market risks.  While the Treasury market continues to operate through today’s macro uncertainties, episodes of market stress, for example in March 2020, September 2019, and October 2014, underline the importance of understanding market vulnerabilities and exploring ways to enhance Treasury market resilience.

Last November, Treasury, in conjunction with the Inter-Agency Working Group on Treasury Market Surveillance (or the IAWG), released a staff progress report to update the public on its work.[ii]  Although each agency has distinct roles and authorities with regard to the Treasury market, the agencies are collaborating to better understand the issues and work together toward shared goals. 

In the ten months since the publication of the staff progress report, we have already made significant progress.  Before highlighting the key elements of progress, I want to be clear about our objectives.  These actions, or any official sector actions for that matter, are not meant to eliminate volatility or completely insulate the market from periods of stress.  Instead, the aim is to increase the ability of the Treasury market to absorb, rather than amplify, potential adverse shocks and disruptions.  At the same time, we recognize that some shocks can be extreme and unpredictable, such as the COVID pandemic, and official interventions may still be necessary even with substantive reforms.

The report highlighted five workstreams the IAWG has prioritized.[iii]  Today, I plan to focus on progress made on the workstreams related to data transparency and changes in Treasury market liquidity demand, areas where Treasury can and has played a more active role.  I will conclude by mentioning some other important accomplishments from across the IAWG.

Improving Data Quality and Availability

Access to accurate and timely data is vital.  For the official sector, data enable analysis of the effects of current and potential policies, as well as prompt and effective responses if stresses emerge.  For market participants, data provide confidence in the market’s fairness and efficiency and inform trading decisions.

The official sector already collects substantial data on the Treasury market, including data on most cash market transactions through TRACE as well as most centrally cleared or triparty repo transactions.  These data have proven invaluable in policymaking and have been incrementally improved over the years.  Just this month, TRACE began to include data on transactions by certain depository institutions, closing an important data gap.

One of the largest remaining data gaps is in the market for non-centrally-cleared bilateral repo transactions.  The Treasury Department’s Office of Financial Research recently met with various industry participants to better understand current practices in this market and conducted a pilot data collection.  The pilot collection was designed to prepare for rulemaking to establish a permanent data collection covering the broader market.

Treasury is also considering providing additional data to the public on secondary market transactions of Treasury securities.  Previous incremental increases in transparency appear to have benefited markets, and there may be room to do more, though it is important to avoid creating disincentives for intermediaries to provide liquidity.  

In June, Treasury published a request for information to solicit public feedback on additional transparency for secondary market transactions of Treasury securities.  The comment period recently closed, and we received 28 comments from a broad range of market participants.  The comments include diverse opinions on the potential benefits and costs of additional transparency, but were overall supportive of the official sector’s objective to enhance Treasury market resilience.  Differences focused on the pace and ultimate extent of transparency that should be provided.  We plan to provide an update on our initial findings at the upcoming Treasury market conference on November 16.

Also, the SEC recently approved two proposed amendments from the Financial Industry Regulatory Authority regarding TRACE for Treasuries.  First, an amendment to shorten the reporting timeframe to 60 minutes and increase the granularity of transaction details reported.  And, second, an amendment to publish the aggregated Treasury security transaction statistics on a more frequent basis, such as moving from weekly to daily publication.

Examining Effects of Leverage and Fund Liquidity Risk Management Practices

Let me turn next to the growing size and influence of certain investor positions and trading flows on Treasury market liquidity.  Since the global financial crisis, open-end corporate bond funds have grown substantially as a share of corporate bonds and as a share of Treasury securities.  However, the daily liquidity offered to shareholders does not reflect that the funds’ underlying assets can be significantly less liquid, creating a first-mover advantage.  This first-mover advantage can create a surge in demand for bond market liquidity in stress periods when investors want to flee to cash-like assets.  While Treasury securities are an important liquidity risk management tool, they can be the first securities sold in a stress period – given their higher liquidity relative to other bonds – possibly amplifying stresses in markets.  In such periods, highly-leveraged hedge funds may also need to liquidate assets, including Treasury securities.  These scenarios played out in the “dash for cash” in March 2020, when hedge funds and open-ended bond mutual funds were two of the largest participants in the broad selling of Treasury securities.

In 2021, the Financial Stability Oversight Council made it a priority to evaluate and address the risks to U.S. financial stability posed by these funds and established working groups to bring together the agencies to share information and expertise.  SEC Chair Gensler has asked the SEC staff to consider changes to rules for open-end funds, including related to fund liquidity, pricing, and resilience in stress periods.  On the international front, the Financial Stability Board will make a set of recommendations to mitigate issues of structural liquidity mismatch in some open-end funds.  For hedge funds, the SEC and CFTC jointly proposed additional amendments to enhance reporting by large hedge funds, including refining the reporting of investment exposures and leverage as well as better differentiating between positions in the cash versus derivatives markets for Treasury securities, which should improve the ability to monitor systemic risk.

Other Workstreams

As you know, the IAWG highlighted three other workstreams – improving resilience of market intermediation; evaluating expanded central clearing; and enhancing trading venue transparency and oversight – and there has also been progress made by the agencies. 

  • The Federal Open Market Committee announced the establishment of a domestic standing repo facility and a repo facility for foreign and international monetary authorities. 
  • The SEC re-proposed regulations for oversight of and public disclosures by Treasury trading platforms, including removing the prior government securities exemption and expanding the definition of exchange to include a broader set of trading venues, such as request-for-quote platforms.
  • In March, the SEC proposed rules outlining specific qualitative and quantitative criteria for determining whether a market participant must register as a dealer or government securities dealer and comply with the associated rules.
  • And, just last week, the SEC proposed rule changes that would enhance risk management practices for central counterparties in the Treasury market and facilitate additional clearing of Treasury securities transactions.

We have compiled a list of all the progress the IAWG has made, which we will be posting, and plan to discuss more at the November conference. 

To conclude, we have taken important steps forward on enhancing the Treasury market’s resilience and have a strong roadmap for continued improvements.  In addition, we will remain flexible.  I expect the market will continue to evolve, and public policy will need to evolve alongside it.

[i] See the accompanied fact sheet released today on the official sector’s progress in enhancing the resilience of Treasury markets.

[ii] The Inter-Agency Working Group on Treasury Market Surveillance (IAWG) is comprised of staff from the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission.

[iii] The five workstreams are: improving resilience of market intermediation; improving data quality and availability; evaluating expanded central clearing; enhancing trading venue transparency and oversight; and examining effects of leverage and fund liquidity risk management practices.

OCC Hosts Risk Governance and Compliance Risk Workshops in Nashville

News Release 2022-117 | September 21, 2022

WASHINGTON—The Office of the Comptroller of the Currency (OCC) will host two workshops November 1-2 in Nashville, Tenn., for directors, senior management, and other key executives of national community banks and federal savings associations.

The Risk Governance: Improving Director Effectiveness workshop on November 1 combines lectures, discussion, and exercises to provide practical information for directors to effectively identify, measure, monitor, and control risks. The workshop also focuses on the OCC’s approach to risk-based supervision and major risks in the financial industry.

The Compliance Risk: What Directors Need to Know workshop on November 2 is focused on the critical elements of an effective compliance risk management program. The workshop also emphasizes major compliance risks and critical regulations. Topics of discussion include the Bank Secrecy Act, Equal Credit Opportunity Act, and other compliance hot topics.

The workshop fee is $99 and limited to the first 25 registrants. Participants receive course materials, supervisory materials, and lunch.

To register online and view the schedule and locations of other workshops, visit the OCC’s website. For additional questions about the workshops, please contact the OCC Bank Director Workshop Team at (202) 649-6490 or [email protected].

Media Contact

Anne Edgecomb
(202) 649-6870

California to Receive up to $1.1 Billion from U.S. Treasury Department to Promote Small Business Growth and Entrepreneurship through the American Rescue Plan

California Approved to Receive Federal Funding Through the State Small Business Credit Initiative

 WASHINGTON — Today, the U.S. Department of the Treasury announced the approval of California’s application for funding under the State Small Business Credit Initiative (SSBCI) for up to $1.1 billion, the largest funding amount that has been approved in the SSBCI program.

The American Rescue Plan reauthorized and expanded SSBCI, which was originally established in 2010 and was highly successful in increasing access to capital for small businesses and entrepreneurs. The new SSBCI builds on this successful model by providing nearly $10 billion to states, the District of Columbia, territories, and Tribal governments to increase access to capital and promote entrepreneurship, especially in traditionally underserved communities as they emerge from the pandemic. SSBCI funding is expected to catalyze up to $10 of private investment for every $1 of SSBCI capital funding, amplifying the effects of this funding and providing small business owners with the resources they need to sustainably grow and thrive. State governments submitted plans to Treasury for how they will use their SSBCI allocation to provide funding to small businesses, including through venture capital programs, loan participation programs, loan guarantee programs, collateral support programs, and capital access programs.

“This is an historic investment in entrepreneurship, small business growth, and innovation through the American Rescue Plan that will help reduce barriers to capital access for traditionally underserved communities,” said Secretary of the Treasury Janet L. Yellen. “I’m excited to see how SSBCI funds will promote equitable economic growth in California and across the country.”

“This historic investment demonstrates why the American Rescue Plan is one of the most transformative pieces of legislation in the 21st Century,” Senator Alex Padilla said. “The $1.1 billion invested in California’s small businesses will help unlock the potential of entrepreneurs in underserved communities across the state who may have never had the support needed to build their businesses and achieve the American Dream. When small businesses succeed, they create good-paying jobs that revitalize our neighborhoods and strengthen our economy.”

“By investing in small businesses, we boost our economy, create jobs, and strengthen the building blocks of communities,” said Representative Katie Porter. As a champion for oversight, I am proud to work in partnership with the Biden Administration to legislate support for our nation’s small businesses and then to verify that entrepreneurs are getting the help they need.”

“Small businesses are the backbone of our economy and I am proud the American Rescue Plan is delivering historic investments to help entrepreneurs thrive, particularly in underserved areas,” said Representative Mike Levin. “My office has heard from local business owners who need more resources and extra help to get off the ground, which is why these SSBCI funds are so important. I look forward to seeing this investment pay off for local small businesses soon.”

With its SSBCI funds, California will operate six programs expected to create jobs, drive key investments in underserved entrepreneurs, and increase small business lending over the long term.

  • California has allocated over $118 million to a capital access program that will help cover potential losses on small business loans to enhance small business lending.
  • California has allocated over $390 million to a small business loan guarantee program that is expected to expand access to capital for underserved communities, including by building on existing relationships with lenders that have strong established presences in those communities.
  • California has allocated over $472 million to a program that will help to provide collateral for small business loans, which is expected to generate over $5 billion in private financing over the next decade.
  • California has allocated $200 million to implement several venture capital strategies intended to provide key investments to small businesses, including through first-time and under-represented fund managers and those with track records of investing in underserved businesses. These venture capital programs are projected to create or retain over 28,000 jobs and generate several billion dollars of private financing over the next decade.

The California Infrastructure and Economic Development Bank (IBank), an agency of the Governor’s Office of Business and Economic Development, will administer the state’s SSBCI loan guarantee program and venture capital programs, and the California Pollution Control Financing Authority, an authority of the State Treasurer’s Office, will administer the capital access program and the collateral support program.

A White House report released in June found that more Americans are starting new businesses than ever before. In 2021, Americans applied to start 5.4 million new businesses – 20% more than any other year on record. It also found that small businesses are creating more jobs than ever before, with businesses with fewer than 50 workers creating 1.9 million jobs in the first three quarters of 2021 – the highest rate of small business job creation ever recorded in a single year. The investments being made through SSBCI are a key part of the Biden Administration’s strategy to keep this small business boom going by expanding access to capital and by providing entrepreneurs the resources they need to succeed. The work Treasury has done through the implementation process to ensure SSBCI funds reach traditionally underserved small businesses and entrepreneurs will also be critical to ensuring the small business boom continues to lift up communities disproportionately impacted by the pandemic. Treasury intends to continue approving state plans on a rolling basis.



READOUT: Under Secretary of the Treasury Brian Nelson’s Stakeholder Meeting at the Center for a New American Security

WASHINGTON —U.S. Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson met today with a group of stakeholders convened by the Center for a New American Security to discuss Treasury’s recent Action Plan to Address Illicit Financing Risks of Digital Assets. Under Secretary Nelson and the participants, which included government stakeholders, private industry, and academics, discussed the report’s findings, including the need for government and external stakeholders to work collaboratively to address the illicit finance risks that virtual assets pose. Under Secretary Nelson recognized the work of many in industry to engage in constructive dialogue and support government efforts to mitigate the misuse of virtual assets for money laundering, terrorist financing and proliferation financing.

Under Secretary Nelson also underscored Treasury’s commitment to the plan’s priority and supporting actions, including promoting implementation of international AML/CFT standards and deepening engagement with the private sector. He noted that the use of virtual assets for illicit activities remains below the scale of traditional finance and represents a small portion of overall digital asset use, but that the increases in illicit finance in digital assets in absolute terms continues to present national security risks. He emphasized the need for adequate compliance with and enforcement of illicit financing laws in the virtual asset space. 

Fact Sheet: Action Plan to Address Illicit Financing Risks of Digital Assets

Biden-Harris Administration Announces Over $8.28 Billion in Investments in Community Development Financial Institutions and Minority Depository Institutions through the Emergency Capital Investment Program

Investments Will Provide Capital and Services to Low- and Moderate-Income and Financially Underserved Communities Hardest Hit by Pandemic

WASHINGTON – Today, Vice President Kamala Harris and Secretary of the Treasury Janet L. Yellen announced that the Department of the Treasury has made over $8.28 billion of investments in 162 community financial institutions across the country through the Emergency Capital Investment Program (ECIP). These funds will support the efforts of community financial institutions to provide loans, grants, and other assistance to small and minority-owned businesses and consumers, especially in low-income and financially underserved communities that struggled during the COVID-19 crisis. The communities served by these ECIP investments are geographically diverse and many share a common characteristic of having suffered from a lack of investment as opportunity has been disproportionately concentrated in certain neighborhoods and areas of the country. The states receiving the most ECIP investments include Mississippi, Louisiana, North Carolina, California, and Texas. A full list of recipient institutions and investment amounts is available here.  

“President Biden and I are fighting to build a nation in which every person, no matter where they start, has an opportunity to succeed and thrive.  Community banks are essential to that goal,” said Vice President Kamala Harris. “Small businesses, non-profits, entrepreneurs, and community organizations are using the ECIP funds to create opportunity and prosperity, not only for their community, but for our nation.”

“These Emergency Capital Investment Program funds are providing opportunity to underserved communities across the country, helping them to regain their footing following the pandemic and strengthening their resilience against future shocks,” said Secretary of the Treasury Janet L. Yellen. “These critical investments represent a significant step toward expanding access to the capital and services required to rebuild and fuel long-term economic growth.”

The community financial institutions that received investments through ECIP include banks, holding companies, and credit unions that are designated as community development financial institutions (CDFIs) or minority depository institutions (MDIs). These mission-driven financial institutions specialize in delivering responsible capital, credit, and financial services to underserved communities. ECIP provides an incentive for institutions to make qualified loans in minority, rural, and urban low-income and underserved communities and to low- and moderate- income borrowers. Institutions that achieve specified benchmarks for increasing their qualified lending will receive a reduction in the dividend or interest rate that they owe to Treasury under their investment.

In its implementation of the ECIP, Treasury is providing additional credit to ECIP participants toward this rate reduction for “deep impact lending,” including loans to low-income borrowers and underserved small businesses, for deeply affordable housing, and in persistent poverty communities.  This additional credit recognizes the fact that the kind of lending that will be most impactful in achieving the statutory purpose of the program often requires more time and resources from the lender. This approach is designed to help level the playing field for borrowers that face the greatest barriers to accessing capital and will provide greater transparency into the impact of the program.

Examples of deep impact lending that have already been done by ECIP participants in recent months include:

  • Native American Bank recently closed a $10 million loan to finance an opioid addiction treatment facility in North Dakota, in partnership with a Tribe that used American Rescue Plan funds as seed funding for the facility.
  • Carver State Bank, based in Georgia, recently extended a working capital loan in the amount of $650,000 to an Atlanta-based, Black owned housing developer that is building affordable single-family homes.
  • Optus Bank, based in South Carolina, lent $4.5 million to a minority-owned, family entertainment center for its facilities and operations in a rural, persistent poverty county. The ECIP investment has allowed Optus to approve more than $30 million in loans over the past four weeks, when their average monthly lending last year was about $1 million.
  • Latino Community Credit Union, based in North Carolina, recently closed a $250,000 loan with a Latino family to finance a mortgage for their very first home.
  • Hope Credit Union, based in Mississippi, recently made a $10,000 small business loan to a Black and Woman owned organic and fresh roasted coffee distribution business based in Louisiana to expand operations.
  • Southern Bancorp, based in Arkansas, made an approximately $700,000 loan to a 501(c)(3) rural, affordable housing provider, which is run by an African American female developer; the proceeds are being used to purchase and develop 82 acres of land in a persistent poverty county to build single family homes as affordable rental units.

ECIP is one program in a suite of federal investments that are providing access to capital in communities that face barriers to full participation in our financial system, including almost $10 billion through the State Small Business Credit Initiative, $1.25 billion through the CDFI Rapid Response Program, and the $1.75 billion CDFI Equitable Recovery Program. Together, these programs are an historic investment by the Biden-Harris Administration in CDFIs, MDIs, and community development.

For more information about ECIP, please visit


Remarks by Under Secretary for Domestic Finance Nellie Liang During Webinar Hosted by Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government


Thank you, Tim, for inviting me to speak here today about the recent report on the future of the U.S. money and payment system, which was written as part of President Biden’s Executive Order on Ensuring Responsible Development of Digital Assets.  This report was released late last week, along with two others led by Treasury: one focused on current use cases for crypto-assets and their effects on consumers, investors, and businesses, and another laying out an action plan to prevent these assets from being used for illicit finance.  And next month, the Financial Stability Oversight Council will issue a report on the financial stability risks of digital assets and any regulatory gaps.

To look to the future of money and payments, I want to start with where we are today.  The current U.S. system of money and payments has substantial strengths.  The system has supported over a century of U.S. economic and financial leadership; is capable of processing an enormous volume of transactions; and is consistent with privacy and other democratic values.  But there clearly is room for improvement.  Some parts of the payment system are expensive and carry high fees, and other parts are slow.  We also need a more inclusive system: The percentage of people in the United States that are unbanked is higher than in all other G-7 countries.

Recent innovations in digital assets and other technologies could have significant implications for money and payments. These innovations include a central bank digital currency (CBDC), retail instant payment systems, and stablecoins.  

A CBDC is a digital form of a country’s sovereign currency.  A U.S. CBDC would serve as legal tender, and be convertible one-for-one into paper currency (Federal Reserve notes) or reserve balances (deposits at the Fed).  It would clear and settle with finality and nearly instantly. 

Instant payment systems, like the upcoming FedNow, could also support faster and more efficient payments.  As currently envisioned, it would use bank deposit money and settle in central bank reserve balances, preserving the core features of major existing money and payment systems. In contrast, stablecoins aspire to be a new type of money supported by a novel payments technology, with implications that are more difficult to predict.  A proliferation of stablecoins, or other new forms of private money, that are inadequately regulated could pose risks to financial stability or undermine the singleness of the currency. 

With that backdrop, let me turn to the four key recommendations in the report:

Recommendation 1: Advance work on a possible U.S. CBDC, in case one is determined to be in the national interest.

A U.S. CBDC has the potential to offer significant benefits.  It could contribute to a payment system that is more efficient, resilient, and innovative.  It could promote financial inclusion and equity by increasing access to the financial system.  It could help support U.S. global financial leadership, as well as the effectiveness of U.S. sanctions while also being consistent with privacy and other democratic values.  In addition, a CBDC may help preserve the singleness of the currency, which is important for economic growth and stability.       

There also could be unintended consequences of a U.S. CBDC, especially depending on how its design affects private financial intermediation.  As a liability of the central bank, consumers may prefer it to bank deposits, leading to a reduction in private credit availability.  There could be destabilizing runs to U.S. CBDC in times of stress.  In addition, because a CBDC would need to be extremely reliable, technological experimentation would likely need to proceed more cautiously than with private sector payment innovations. 

There are important design choices to be made to achieve the potential benefits while minimizing the risks, which need additional consideration.  For example, a U.S. CBDC could be wholesale or retail, or use direct or indirect access models.  Transactions could be tiered based on amount or counterparty type.  There also is a need for further research and development on the technology to support a U.S. CBDC, which could take years.

For the U.S. to build capacity to adopt a CBDC, even as deliberations continue about whether one is in the national interest, the report envisions work in three areas. 

First, the Federal Reserve should continue evaluating the policy considerations outlined in its January 2022 discussion paper, as well as its research and technical experimentation on CBDCs.  The report also suggests that the Fed provide the public with periodic updates on its initiatives. 

Second, Treasury will lead an inter-agency working group to support the Fed’s efforts and to advance further work on a possible U.S. CBDC.  This Working Group will consider the implications of a CBDC in areas such as financial inclusion, national security, and privacy.  The Working Group also will leverage cross-government technical expertise as useful for the Fed’s efforts.  

Third, leadership from the Federal Reserve, the White House, and the Treasury Department will meet regularly to discuss the progress of the Working Group, and to share updates on CDBC and other payments innovations.

Recommendation 2: Encourage use of instant payment systems to support a more competitive, efficient, and inclusive U.S. payment landscape.

Retail instant payment systems transfer funds nearly instantly, as opposed to the multi-day settlement period that occurs on some legacy systems.  In the U.S., examples include the Clearing House’s RTP Network, launched in 2017, and the FedNow Service, which the Fed plans to launch in 2023.  Global experience suggests that instant payments can make the payment system more competitive, efficient and inclusive.  Yet the potential benefits could be limited by certain frictions, such as inertia or slow adjustments among consumers, businesses, and financial institutions to change their habits and procedures to incorporate new technologies.  In addition, instant payment systems are generally accessible only to depository institutions. 

To maximize the benefits from instant payments, the report suggests several efforts.   First, the U.S. government should continue outreach efforts around instant payments, with a focus on inclusion of underserved communities.  Second, the U.S. government should promote development of technologies that would allow consumers to more readily access instant payment systems.  And third, in settings where appropriate, U.S. government agencies, which send and receive millions of payments a day, should consider and support the use of instant payment systems. 

Recommendation 3: Establish a federal framework for payments regulation to protect users and the financial system, while supporting responsible innovations in payments.

This recommendation recognizes that nonbanks are increasingly providing payment services, and are contributing to competition, innovation, and inclusion.  But, nonbanks that are not adequately regulated and supervised may pose risks to users and the financial system.  Today, oversight of nonbank payment providers is generally at the state level, which varies significantly across states, and may not address certain risks in a consistent and comprehensive manner. 

Accordingly, the report recommends considering the establishment of a federal framework for nonbank payment providers.  A federal framework would provide a common floor for minimum financial resource requirements and other standards that may exist at the state level.  It also would complement existing federal AML/CFT obligations and consumer protection requirements that apply to nonbank payment providers.

A federal framework for payments regulation could work in conjunction with a U.S. CBDC or with instant payment systems.  It could provide oversight of firms that a  U.S. CBDC system may rely on to provide a range of financial services.  In addition, it could provide a pathway for nonbank payment providers to participate directly in instant payment systems.

Recommendation 4: Prioritize efforts to improve cross-border payments.

Cross-border payments – payments that go from one jurisdiction to another — can take multiple days to clear and may have high fees. 

The report’s final recommendation supports work to develop a faster, cheaper, and more transparent international payments system, while considering potential risks associated with greater integration of cross-border payment systems.  It recognizes that the United States has a strong national interest in supporting global standards for cross-border payment systems that reflect U.S. values, including privacy and human rights; are consistent with AML/CFT considerations; and protect U.S. national security.   

Concluding thoughts

To summarize, digital assets and instant payments can transform money and payments.  This report makes four main recommendations to improve the efficiency and inclusiveness of the U.S. money and payments system, support U.S. global economic and financial leadership, while minimizing risks relating to financial stability, consumer protection, and illicit finance.  Treasury will continue to work closely with other parts of the government on these important issues.

Fact Sheet: Treasury Report on the Future of Money and Payments

READOUT: Secretary of the Treasury Janet L. Yellen’s Meeting with the National Association of Manufacturers’ Board of Directors

WASHINGTON — U.S. Secretary of the Treasury Janet L. Yellen met today with the Board of Directors of the National Association of Manufacturers to discuss how the Biden-Harris Administration’s economic plan is spurring a rapid recovery, continued expansion, and creating good, high-quality jobs across America – including in the manufacturing sector.

Secretary Yellen highlighted the Administration’s work to bring about a fast economic recovery while passing into law a historic slate of legislation, including the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act, that will expand the productive capacity of the economy and make us more resilient against global shocks. The Secretary discussed her recent visit to a Ford production plant in Detroit and the ways in which President Biden’s record of legislative accomplishment will create incentives to increase U.S. production of critical items, like semiconductors, while furthering U.S. competitiveness and leadership on research and development.

The meeting included a discussion of current challenges, such as supply shocks driven by COVID-19 and Putin’s war in Ukraine, which have exacerbated global inflation. Secretary Yellen underscored the Administration’s commitment to taking actions that support a return to an environment of stable prices and reduced economic disruptions. She also noted President Biden’s recent efforts, as well as those of Secretary of Labor Marty Walsh, to broker an agreement to avert a nationwide railway strike. Finally, the Secretary underscored the role that recently enacted legislation will play in building a more resilient economy and reducing costs for families, while positioning American for strong and sustainable growth in the future.

Testimony of Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate

As Prepared for Delivery

Chairman Brown, Ranking Member Toomey, and distinguished Members of the Banking Committee, thank you for the opportunity to speak with you today and provide an update on the Department of the Treasury’s efforts to hold Russia accountable for its brutal and unjustified further invasion of Ukraine.

The U.S. Department of the Treasury is a key agency working alongside others across the Administration to implement the U.S. government’s holistic response to Putin’s war. Since the further invasion began six months ago, we have been advancing President Biden’s promise to “squeeze Russia’s access to finance and technology for strategic sectors of its economy and degrade its industrial capacity for years to come.”[1]

Just last week, we imposed additional sanctions to further degrade Russia’s ability to rebuild its military, hold the perpetrators of this war accountable, and further financially isolate Putin.  To date, Treasury has sanctioned hundreds of Russian individuals and entities, cutting them off from the U.S. financial system. This includes a majority of Russia’s largest financial institutions, key nodes in their military-industrial supply chains, and the oligarchs and cronies who steal from the Russian people to line their own pockets and help Putin perpetuate his war. For example, Treasury’s sanctions over the last few months, including our latest tranche last week, have targeted elites tied to the Kremlin, firms connected to Russian steel production and the military-industrial base, and sanctions evasion networks operating on behalf of designated Russian entities. They have also exposed Russian agents and entities involved with Russian government efforts to promulgate disinformation and election interference in the U.S. and Ukraine.

Treasury has also implemented restrictions on dealings in Russian sovereign debt; prohibited economic dealings with the so-called Donetsk People’s Republic and Luhansk People’s Republic regions of Ukraine; prohibited new investment in the Russian Federation, and imposed services bans covering the provision of quantum computing, accounting, trust and corporate formation, and management consulting services to any person located in the Russian federation. We have also imposed prohibitions on importing certain commodities from Russia into the United States, including oil and natural gas, and similarly imposed prohibitions on exporting certain items like luxury goods and dollar-denominated banknotes.

The United States has been joined by over 30 countries—representing more than half of the global economy—in imposing these measures. The G7, the EU, and other partners like South Korea, Singapore, and Australia have joined us in implementing the largest sanctions regime in modern history. To complement these targeted measures, Treasury has worked alongside colleagues at the Department of Justice to develop unprecedented and wide-reaching international information exchange activities with partner countries, including through the Russian Elites, Proxies, and Oligarchs (REPO) Task Force. These efforts facilitate our ability to share intelligence, law enforcement data, and relevant financial records in order to expose shadowy economic and commercial Russian evasion networks. We are also working with allies and the Government of Ukraine to examine how we may best use Russian assets that have been frozen and forfeited to support the people of Ukraine.

In addition, Treasury has mounted an aggressive campaign to close the global financial policy and regulatory loopholes across jurisdictions that Russian aiders and abettors of this war, and other criminals, use to perpetuate their illicit activity. At home, this includes three key regulatory efforts: FinCEN’s work to stand up a beneficial ownership database pursuant to the Corporate Transparency Act, developing new disclosure requirements for non-financed purchases of real estate, and ongoing analysis related to the illicit finance risks presented by investment advisers and funds. FinCEN has also issued several Russia-related alerts, including on Russia’s attempts to evade sanctions.  Abroad, Treasury is working to strengthen global standards for corporate transparency through the Financial Action Task Force (FATF) and enhance its focus on using financial transparency tools to combat the scourge of corruption. This includes launching new efforts at the FATF to address abuse of Citizenship by Investment, or so-called golden passport programs, and the risks for money laundering, corruption, and evasion of sanctions posed by financial gatekeepers and Politically Exposed Persons (PEPs).  Notably, FATF has also taken the unprecedented step of downgrading Russia’s standing within FATF as a result of its war in Ukraine, further delegitimizing it in the eyes of the international financial community.

On the other side, Russian propagandists have been hard at work. In the style of the former Soviet Union, Moscow is aggressively attempting to bury any unfavorable news and push the paradoxical narrative—and misinformation—that sanctions are simultaneously not working and yet also cause food insecurity. In fact, Russia’s invasion spiked the price of energy earlier this year by 21 percent. Russia’s months-long blockade of Ukraine’s Black Sea ports, coupled with the purposeful destruction and theft of agricultural infrastructure, crippled Ukraine’s farming and export economy, dramatically drove up global grain prices, and outrageously deprived food-insecure recipients of much needed resources.  Its attacks on a major food exporter produced similar shocks to global food prices. To detract focus from its brutal tactics, Russia continues to minimize the dislocations it has caused to global commodity markets and its inhumane deprivation of people in Ukraine and across the globe. 

This lies in stark contrast with the efforts of the U.S. and others to aid Ukraine and developing countries around the world suffering from Putin’s actions. Foremost among these efforts are the Congressional commitments to provide Ukraine with budget support and economic assistance to keep critical government functions going. In addition, we are pushing international donors to accelerate their complementary bilateral support. We thank Congress for already granting $8.5 billion for Ukraine assistance that has gone toward these efforts.

The economic actions we have taken, both independently and jointly with our international partners, have had and will continue to have a significant effect on the Russian economy. Russia had been forced to impose draconian capital controls and is burning through its rainy-day fund, dramatically eroding its economic base and buffers in unsustainable ways. Russia will be in fiscal deficit by the end of this year. The IMF expects Russia’s economy will contract for at least the next two years, a sharp reversal from its 4.7 percent growth in 2021.[2] Russia’s inflation rate after its invasion reached up to 21.3 percent, almost triple the rate from 2021, and remains in the double digits.[3] The Russian stock market also reflects pessimism—its valuation remains depressed, sitting about 35 percent below pre-war levels.[4] Further, the Central Bank Governor of Russia has started to advocate for “structural transformation.” [5] The bottom line is that Russia’s economic picture is bleak and deteriorating.

Significantly, these economic constraints are translating into real battlefield difficulties for Russia. The Russian Duma proposed wartime economic controls over the economy which would allow the state to commandeer private businesses as necessary and force employees of certain enterprises to work overtime.[6] Struggling to import a host of industrial goods and technology, Russia has been forced to cannibalize its domestic industry to assemble battlefield hardware it can no longer buy from responsible countries. Russia has been forced to turn to outdated equipment and approach global pariahs like North Korea and Iran to source the tools to fight.   

Fundamentally, the challenge we face in using financial measures to hold Russia accountable while mitigating the effects of the war on third countries is of a different kind than we face in other sanctions programs. Russia is not North Korea, Iran, or Venezuela. Moreover, Russia is a sizeable international economy, a globally important energy producer, and over the last 30 years has grown closely tied—and in some instances inextricably intertwined—with some of our closest international partners and allies. Imposing financial costs on Russia for its brutal policies while mitigating the consequences of Russia’s actions has required extraordinary planning, coordination, economic analysis and diplomacy, and creative policymaking, all alongside a large group of international partners.

In line with the 2021 Treasury Sanctions Review, we are constantly re-evaluating and reassessing our course of action. We ask ourselves: Do our policies achieve our intended goals? How has the target adapted to our measures? What adjustments do we need to make to increase our effectiveness and mitigate unintended consequences? How do we sustain and strengthen the international coalition of countries working together to hold President Putin accountable for his horrific war?

Examples of the real time adjustment Treasury has made to our financial policies include the multiple fact sheets we have issued just this year, including Preserving Agricultural Trade, Access to Communication, and Other Support to Those Impacted by Russia’s War Against Ukraine in April 2022 and the Food Security Fact Sheet published in July 2022, which both offer expansive information about how sanctions are calibrated to avoid unintended impacts as well as to counter Russian disinformation. These public guidance documents also clarify, in writing, to both industry and the international community that agricultural and medical products are not the targets of U.S. sanctions. Rather, any impediments to the delivery of these vital commodities lie squarely with Russia and its war, theft of food products, and shelling of agricultural sites, in addition to Russia’s own export restrictions on food and fertilizer.

We have also been keenly focused on Russia’s oil exports as we have implemented our evolving policy approach to deny Russia the money needed to sustain its war. At this point, these exports represent Russia’s primary source of hard currency. Moreover, Russia is reaping windfall profits from oil and petroleum products due to rising energy costs, spurred by the geopolitical uncertainty Russia caused by choosing to pursue a land war in Europe. We are concerned with the way energy revenues fuel Russia’s war efforts but the global nature of the oil market requires a careful approach.

Energy security affects us all—including American households that have seen rising prices at the pump and elsewhere as the downstream effects of rising energy costs have applied inflationary pressures across the economy. Elevated energy prices hit the poorest the hardest, in our country and across the world. Simply put, applying financial pressure to curb Russia’s windfall energy profits requires a different, creative approach to make sure that Russian coffers, not regular citizens in our economy and the rest of the world, bear the costs we impose. That challenge—and the need for a carefully tailored policy approach—is urgent. We cannot allow Russia to continue to fund its atrocities, and we must do all we can to prevent the recessionary risks that follow extended painful, unaffordable energy prices.

Our commitment to counter Russia’s energy war profiteering centers on our effort—alongside an international coalition, starting with the G7 countries—to impose a “price cap” on maritime Russian oil and product exports. Ultimately, the price cap policy is the most viable option to support the security and affordability of the global oil supply.

The oil price cap mechanism is a tool for other importers—mainly developing and emerging economies suffering most as a result of Putin’s war—to demand a lower price for Russian oil that they purchase. We are already seeing this take place with Russia negotiating steep discounts for the oil it sells to buyers in Asia. These discounts are already depriving Russia of revenues it would otherwise use to finance its reckless war.

As a technical matter, this policy creates a framework for companies in price-cap-coalition countries offering services for Russia’s maritime transport of oil: They can continue to offer these services for Russian oil priced below the cap, and may not for any Russian oil sold above that price. Given that premium service providers and the majority of providers of some maritime services—like insurance, payments, and trade finance—are located in G7 and EU countries, there is an overwhelming economic incentive for buyers to purchase under the price cap so they can engage these service providers. It will be cheaper and less risky to move Russian oil cargoes this way. We will continue to communicate closely with service providers, as we have already done in developing this framework, to collectively, constructively, and aggressively sustain participation in and the success of this policy.

But make no mistake: This is and will remain very hard work. This is an entirely new way to use financial measures against a global bully. A price cap coalition requires unprecedented coordination with international partners, as well as close partnership with global maritime industries, and exceptional resolve in the face of hostile Russian bluster and threats, including the risk that Russia may seek to retaliate. I can tell you confidently that we at Treasury—and our partners across the U.S. Government—are extraordinarily diligent when it comes to these economic policies and the commitment to extensive and creative multilateral engagement. Moreover, we are laser-focused on the imperative to hold Russia accountable and support the people of Ukraine, to constantly understand the risk environment, and to advance a foreign and financial policy that embodies our goals and does not bend to the rants and coercion of a brutal bully.

We know that Russia’s war in Ukraine is not the only challenge for which the Treasury Department will be called upon to act. Other threats demand our attention as well, and the illicit finance landscape continues to evolve. Additionally, while the U.S. dollar, U.S. financial institutions and services, and our capital markets are still dominant in international finance and trade, our adversaries are actively finding ways to attack this centrality and insulate themselves from touchpoints with the U.S. financial system. These are long-term challenges that we cannot sanction ourselves out of. We must continue to strengthen the U.S. financial system and innovate new ways to use economic policies and authorities to meet both our domestic and foreign policy objectives. The price cap—a bold policy never previously attempted by the U.S. Treasury—is the vanguard for a new form of economic statecraft, and I am proud to be a part of the team pushing these boundaries in the interest of U.S. national security.

Lastly, I’d like to echo Secretary Yellen and Deputy Secretary Adeyemo’s sentiments from when they were last here and express my gratitude for the additional resources Congress has provided in the Ukraine supplemental appropriations packages. Your timely actions are what allow me and the dedicated career staff at Treasury to surge on this urgent national security priority. The partnership between Congress and the Administration has always been very important to U.S. policy toward Russia, sanctions, and responding to the crisis in Ukraine. I would be happy to answer your questions and look forward to working with you as we move forward. Thank you.




[4] Data from time series Moscow Stock Exchange Index available here:


[6] As reported by Russian media:

Remarks by Counselor to the Secretary of the Treasury Brent Neiman at the Peterson Institute for International Economics

As Prepared for Delivery

Thank you, Adam, I appreciate the opportunity to speak here today. I last gave a talk at PIIE a couple of years ago, while wearing my previous hat as an academic. One great thing that you immediately notice about PIIE’s experts and affiliates is that in addition to economic theory, they care about the practical details, institutional and otherwise, that can constitute the difference between a successful or unsuccessful policy. Now, as a policymaker at Treasury, I have a more visceral appreciation for this reality, including when it comes to cross-border lending and to cross-border borrowing. I thought, therefore, this would be a great place to discuss some practical ways to do both better.

Developing and emerging markets were in a very difficult spot at the start of the year. The COVID-19 pandemic led to a 2 percent fall in their collective output in 2020, the first overall contraction in the post-World War II period. Governments, appropriately, borrowed and spent to weather the shock and fight back against the disease. Their debt levels jumped from 54 percent of GDP before Covid to 64 percent by the end of last year.

And then, at this time of great vulnerability, Russia unleashed its brutal and unjustified war against Ukraine. The war has caused food and energy prices to jump and accelerated inflation around the world. As advanced economy central banks have raised rates, cross-border investment flows have retrenched. Net outflows across emerging markets in the first quarter of 2022 were the largest since the global financial crisis. The dollar, in real terms, has appreciated to levels not seen for several decades.

Together, these ingredients all but assure debt distress in a number of countries. We’ve all seen the recent images of social unrest in Sri Lanka. While the specter of a systemic sovereign debt crisis has not materialized, the difficult global conditions are amplifying domestic vulnerabilities, and economic stresses are appearing around the world. More, I fear, may come.

In the short-run turmoil following some episodes of distress, we should be ready to quickly deliver assistance, potentially taking steps such as repurposing existing international programs to fill urgent needs. But what can be done to help after that? And what can we do to reduce the likelihood of these events in the first place?

Today, I would like to discuss the logic behind working together to resolve unsustainable debts, why multilateral restructuring has in practice become more difficult, and how roadblocks in that process prevent countries from being able to take advantage of the international financial institutions that we’ve all worked so hard to build. I’ll suggest some concrete steps that creditors, borrowers, and the global community can take — stopping some practices and ramping up others — to achieve better outcomes now and into the future.

1. Dealing with Overhang 

Let me start by noting that it’s a good thing that developing countries and emerging markets can borrow from abroad and we should continue to pursue policies that allow them to do so. These countries have less capital per worker than advanced economies and so have many investment opportunities offering high economic and social returns. Given their incomes will be higher in the future, it makes good sense for them to finance these opportunities with foreign capital. Not to mention the additional benefits carried by cross-border investment, such as positive technology transfers. These financial flows are also a good thing for the United States, offering our citizens and companies a chance to diversify risks, finance projects complementary to domestic production, and more generally deepen cultural and commercial ties.

Of course, macro shocks and other unpredictable developments can stress the sustainability of this borrowing. For many countries, such stresses can be resolved by pursuing the appropriate reforms, perhaps involving the International Monetary Fund (IMF) or others, without any need to restructure. However, for countries with debt loads that significantly exceed the value of what will likely be repaid – a condition referred to as debt overhang – we have a now-standard playbook.

The first step is to reduce the country’s external debts to make sure the borrower doesn’t forgo useful projects. After all, with debt overhang and no debt restructuring, some of the return to future investments will go toward repaying the existing creditors, leading to underinvestment.[1] It is in the country’s interests and also in the collective interest of the creditors to avoid this outcome.

Given this alignment of interests, won’t the creditors on their own offer the efficient level of relief? Unfortunately, no. Together, the creditors would benefit from restoring sustainability and allowing the country to obtain new financing to pursue high-return activities. But individually, each creditor would rather be repaid in full and let the others take losses. Further, some creditors, focused on their own interest, may prefer deeper cuts to local spending than what a global social planner would suggest. Much of the international financial architecture developed over the past several decades aims to deal with these incentive and collective action problems. The Paris Club, for example, was formed to coordinate debt restructuring among bilateral official creditors. The London Club was formed to similarly organize commercial bank creditors.

Once a borrower makes a good faith effort to restructure its private debts and official bilateral creditors provide “financing assurances” – promises that they’ll sufficiently restructure what is owed to them — we reach the second step, an agreed IMF program. The IMF then provides lending — coupled with conditionality and expertise — to help the country restore macroeconomic stability and catalyze fresh lending for high return investments and growth.

I do not mean to make it sound so easy, nor to imply that these elements are sufficient for a good outcome. It is only natural that there may be imperfections when countries work with the IMF to design and implement programs. And, of course, additional shocks and uncertainties often intervene. But having this playbook in place and ready to deploy has been good for the world.

Will this playbook work if we see a new wave of debt crises among developing and emerging market countries? Four major changes in the international lending landscape over the past decade have strained its efficacy. First, the debt burdens of developing and emerging market countries have risen considerably. Second, use of non-traditional arrangements, including collateralized borrowing, has proliferated. Third, private sector creditors have grown in importance. Fourth, while many official creditors have shifted their focus toward offering grants, non-traditional official creditors have increased their lending to developing and emerging markets. In particular, China has vastly expanded its portfolio of loans and trade credits and is now by far the largest bilateral official creditor in the world. All these elements have introduced new complexities to the needed coordination among creditors in debt restructurings. My remarks will focus on some steps that creditors, borrowers, and international financial institutions should take in response.

2. Recent Complications in Sovereign Debt Restructuring

One important change in the creditor landscape stems from how China restructures its bilateral debts. Chinese policy and commercial banks typically rely on limited cash flow treatments and do not write down large losses.  Researchers have found that the majority of Chinese debt relief deals have come with significant delays and have not reduced the borrower country’s nominal debt burden. Instead, the deals involved lengthening maturities or grace periods, and in fewer cases, interest rate reduction or new financing. Only four cases since 2000 have reportedly involved haircuts on Chinese official debt.[2] In some cases, such as the Republic of Congo in 2018, debt restructurings have even increased the net present value of China’s loans.[3]  As a result, the restructurings typically do not resolve the debt overhang and can stoke uncertainty about the need for repeated rescheduling.

Does the approach of any one country in this process matter all that much? In fact, China’s enormous scale as a lender means its participation is essential. Estimates of the total stock of outstanding Chinese official loans range widely from roughly $500 billion to $1 trillion, concentrated in low and middle-income countries.  China became the world’s largest official creditor in 2017, surpassing the claims of the World Bank, IMF, and all Paris Club official creditors combined.[4]   A recent study estimates that as many as 44 countries now owe debt equivalent to more than 10% of their GDP to Chinese lenders after factoring in both on- and off-balance sheet liabilities.[5]  Failure to act on these debts could imply years of ongoing difficulties with the servicing of debts and with underinvestment and lower growth in low and middle income countries.

In November 2020, the G20 established the Common Framework to bring China and other non-Paris Club creditors into a multilateral effort to restructure the debts of low-income countries on a case-by-case basis. This helpful instance of global economic cooperation carried the hope that by bringing all creditors together, the Common Framework would result in needed debt treatments in a timely and orderly manner. However, that ambition has not yet materialized.

There have been three Common Framework cases to date. In the case of Chad, China delayed the formation of a creditor committee.[6] In the case of Ethiopia, China delayed the formation of a creditor committee until it was clear that the IMF program would expire and discussions on a debt treatment would not take place because of the conflict. China did join the creditor committee for Zambia, but only after six months of delays following the staff level agreement with the IMF. Encouragingly, China announced in late July that it and the other official bilateral creditors would provide Zambia with debt treatments, and the IMF approved a three-year lending program for Zambia on August 31. But even if, as I hope, the situations ultimately improve in all three countries, these delays carry suffering and uncertainty, may discourage others from requesting needed treatments, and preclude the best outcomes. Successful efforts under the Common Framework have, alas, been uncommon.

Progress has also been slow on debt restructurings for middle-income countries outside of the Common Framework. Furthermore, China has engaged in unconventional practices that have allowed the IMF to move forward in several recent cases without obtaining standard financing assurances. For example, in 2020, China agreed to $2.4 billion in new lending as a financing assurance for Ecuador’s IMF program and to offset upcoming interest payments due to Chinese creditors, even as private creditors agreed to a $17.4 billion debt restructuring. However, rather than delivering the promised new financing in a matter of months, China only came to terms with Ecuador this past week. In Suriname, China and India have so far failed to provide financing assurances that the IMF considers specific and credible, leading to the IMF’s reliance on an unusual application of its policy to move forward with a program. In the case of Argentina, China is not restructuring debt service, while Paris Club creditors are likely to do so, and China has opted instead to promise net financing by offering new loans.

In many of these cases, China is not the only creditor holding back quick and effective implementation of the typical playbook. But across the international lending landscape, China’s lack of participation in coordinated debt relief is the most common and the most consequential.

3. What Can Creditors, including China, Do?

The immediate priority for creditors is to conclude the pending Common Framework cases as quickly as possible. We are also open to expanding the Common Framework to middle-income countries and should prioritize discussions of ideas, including those offered by new creditors, to boost the speed and predictability of the process.  

Creditors should also focus on making their lending more transparent, since a lack of clear information on a borrower’s indebtedness makes lending to them riskier ex-ante and makes resolutions more difficult ex-post. G7 countries have largely met their commitment to publish their direct lending portfolios on a loan-by-loan basis, and at the U.S. Treasury, we’ve greatly improved our online foreign credit reporting system. G20 creditors should also follow the norms for financing terms and contractual clauses they endorsed in 2018.

A number of features common in China’s lending reduce transparency or differ from international norms in ways that exacerbate the coordination problem in multilateral restructurings. Chinese loan contracts often contain non-disclosure agreements. As a result, liabilities to China are systematically excluded from multilateral surveillance or restructuring efforts.  One study found that all contracts with Chinese state-owned entities after 2014 contain strong confidentiality clauses that prevent the borrower from disclosing any terms unless required to do so by law. Chinese loan contracts also commonly feature novel clauses that allow Chinese lenders to cancel loans and demand immediate repayment in a wide variety of circumstances. Collateral is included in up to half of all Chinese loan contracts, and arrangements for repayment commonly involve escrow accounts. 

All these elements limit a borrower’s ability to engage in standard multilateral restructuring processes and incentivize the borrower to cut side deals on more generous terms with the Chinese creditor. In fact, around three-fourths of all Chinese debt contracts contain clauses that expressly commit the borrower to exclude Chinese debt from Paris Club restructurings or from any comparable debt treatment.[7]  Countries that seek a Paris Club debt restructuring find themselves either having to violate the terms of their borrowing from China or to violate the principle of comparability of treatment.

Additional problems may stem from institutional fragmentation within China’s internal lending bureaucracy.  In contrast to the typical practice among traditional official creditors, debt distress appears to be managed by the specific Chinese creditor, rather than by the Ministry of Finance (MOF) or an agency that is not the lender, like the People’s Bank of China.[8]  But Chinese policy banks and state-owned commercial banks do not report directly to the MOF or to the PBOC.  As a result, the MOF and PBOC have often been unable to provide details on behalf of the creditor banks on a debt treatment for the purpose of providing financing assurances to the IMF. This institutional fragmentation can also keep China’s lenders from coordinating on an assessment of borrowers’ debt sustainability prior to extending loans.

Some of these institutional frictions may simply reflect the fact that China has grown so rapidly as a creditor. And they are only natural given China is so new to the restructuring process. That said, there are many ways China could quickly reduce these frictions.

In addition to improving its own tracking and transparency of all its foreign lending, China might consider implementing different financial structures, such as the creation of a sovereign asset management entity, or “bad bank,” as a way to allow the various creditor agencies to isolate distressed loans. Specialized management expertise can then focus on restructuring while the development banks and other lending institutions are freed up to return to their normal focus. With the right design features, such a structure might restore incentives toward resolving, rather than holding out, on troubled debts. A useful parallel may be made with reforms to the Chinese bankruptcy system. Amidst large increases in corporate debt and bankruptcies, China reformed its corporate bankruptcy code in 2007 and introduced specialized courts over the following decade. Research suggests these actions led to an increase in the scale and speed of resolutions and boosted productivity in China.[9]

Changes in institutional structure or legal and management practices related to the restructuring of China’s external debts as part of the multilateral process would not only benefit low-income borrowers around the world but could also benefit China itself.

Private creditors could also do more to improve their own transparency. The OECD launched the Debt Transparency Initiative in 2021 to operationalize the Voluntary Principles for Debt Transparency that were helpfully put together by the Institute for International Finance (IIF), but few have participated so far. As with many of these suggestions, by reducing risk, information frictions, and coordination problems, such steps not only help borrowers but can also benefit the creditors themselves.

4. What Can Borrowers Do?

Borrowers can of course take their own steps to maximize the likelihood that, if they do end up in debt distress, they can obtain relief and restore stability and growth, including with an IMF program.

The antidote to non-disclosure by creditors is transparency by borrowers, and a number of countries have made remarkable progress on this dimension. Benin strengthened its level of debt disclosure by creating a debt portal and extending the coverage of its debt statistics. Regular trainings and interactions with the World Bank and IMF have improved capacity. Along with prudent macro-fiscal policies, Benin’s reputation in markets strengthened sufficiently that it was able to issue international debt, even in the middle of the pandemic. Burkina Faso, with the help of the Bank and Fund, last year issued its first Statistical Debt Bulletin that meets international best practices and includes detailed information on loan terms and conditions. It includes government direct debt, guarantees, and public-private partnership contracts. Madagascar in 2014 adopted a Law on Public Debt and Guarantees that introduces reporting requirements, including to their Parliament. As the sovereign debt expert Anna Gelpern has suggested, more countries should consider passing laws requiring their governments to, in essence, make their public debt public.

With a clearer picture of their own consolidated external liabilities, borrowers could implement measures that minimize the likelihood of individual ministries or state-owned enterprises from contracting unsustainable debts. Many low-income countries already have legal provisions that require authorization of all public sector borrowing by the central government, and more should consider doing so. Some, including West African countries such as Cote D’Ivoire and Gambia, have gone further by allowing their central government to impose debt limits on all public entities.

Borrowers should also look around, evaluate which types of arrangements produce positive long-term outcomes, and exercise caution when agreeing to unusual contract terms. If a borrower country has an abundance of labor that is qualified to work on infrastructure, is there a good reason to agree to only deploy foreign workers on financed projects requiring standard construction skills? Is there a good reason for payments to be made via an offshore escrow account that can be controlled by the creditor?

Borrowers might further enhance their sharing of information and best practices with technical-level regional dialogues and conferences, including presentations by experts in procurement, project audits, and debt management. For example, the Uruguay Chamber of Construction recently held such a conference, promoting international best practices in public contracting that brought together experts from across the world to share their experiences. Government officials, financial and legal experts, and construction and infrastructure firms shared their perspectives on how, at each stage of the procurement life cycle, decisions should not entirely reflect price, but also the quality and anticipated return of the projects and the social benefit brought to the local community.

5. What Should Multilaterals and the Rest of the World Do?

We should continue to support initiatives that foster sustainable lending practices and transparency, like the G20’s guidelines or the OECD’s and IIF’s debt transparency initiative. We should also continue to support initiatives that provide capacity building assistance to developing countries, like the World Bank Debt Management Facility.

We should build on recent successes such as the adoption of enhanced collective action clauses in bond contracts to minimize coordination problems and reduce disruption from holdout creditors. The G7 Private Sector Working Group (PSWG), led by the U.K., is making helpful progress in developing templates for majority voting provisions that serve a similar purpose in non-bonded debt.  

We might also strive to create deeper markets for well-designed state-contingent securities, which could reduce the need for debt restructurings in the first place. Borrowing countries should issue whatever securities are best suited to their needs, but we should continue efforts to brainstorm, create, and stress-test contract templates, whether the ideas come from the private sector or from the official sector, such as the climate resilient debt instruments currently worked on by the PSWG.

We must minimize the chances that the IMF provides financing that could ultimately be used to repay select creditors. The IMF’s and WB’s debt sustainability analyses (DSA) constitute the core of efforts to coordinate and overcome debt overhang, modeling quantitatively the needed policies and, potentially, debt treatments. The expanding set of creditors and complexity of lending approaches may have made it more difficult, but the IMF must remain vigilant so that restructurings both meet the terms of the DSAs and are promised with financing assurances that hit the IMF’s standard of specific and credible, especially for creditors without a robust track record of meeting this standard. Details about financing assurances – their form, scale, provenance, etc. – should be more transparently reported and tracked in staff reports. All official bilateral creditors must be treated equally in these restructurings.

Finally, we should increase the scale of high-quality development financing, particularly through the multilateral development banks, by stretching their existing resources and using them to mobilize private capital.  This would not only advance our development goals, but has the added benefit of providing developing countries with a stronger set of alternatives when considering loans with potentially onerous terms.

6. Conclusion

As I mentioned earlier, official bilateral creditors, led by China and France, agreed in late July to offer debt treatment for Zambia. This is a great step, but it is only the first step, toward finalizing technical details and actually delivering the relief. Now that the IMF program for Zambia has been approved, it is vital that creditors move expeditiously to hash out, and then transparently meet, the terms of the debt treatment.

And Zambia is not the only pressing case. Sri Lanka urgently needs a debt restructuring and, unfortunately, is not eligible for the Common Framework. On September 1, Sri Lanka reached a staff-level agreement with the IMF on a robust set of policies to restore economic stability.  In order to bring this lending program forward, creditors now need to step up to negotiate a debt treatment that is line with this economic program.

We are in new territory, but the coming weeks offer a real opportunity for progress. Borrowers, lenders, and multilaterals all have a role to play. Swiftly concluding the first Common Framework case, and making clear progress on multilateral restructuring outside of the Framework, would be a big win not only for current and future debtors and their citizens, but also for all official creditors, whether traditional ones or new ones. We must build on recent experiences, apply lessons learned, and push ahead in these cases to prevent any depreciation of our global financial infrastructure.


[1] See Krugman, Paul, “Financing vs. Forgiving A Debt Overhang,” NBER Working Paper, 1988 and citations therein.

[2] Horn, Sebastian, Carmen Reinhart, Christoph Trebesch, “Hidden Defaults,” AEA Papers and Proceedings, May 2022.

[3] The Republic of Congo’s total indebtedness to China increased by 26% in net present value terms after the 2018 restructuring.  Gardner, Alysha, Joyce Lin, Scott Morris and Brad Parks, “Bargaining with Beijing: A Tale of Two Borrowers,” Center for Global Development and AIDData, November 2020.

[4] Horn, Sebastian, Carmen Reinhart, Christoph Trebesch (2021), “China’s Overseas Lending.” Journal of International Economics, Volume 133.

[5] Nearly 70% of China’s overseas lending is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions, which are often unreported but present balance sheet risks when risks materialize.  Malik, A., Parks, B., Russell, B., Lin, J., Walsh, K., Solomon, K., Zhang, S., Elston, T., and S. Goodman. (2021).” Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects.” Williamsburg, VA: AidData at William & Mary.

[6] The Chad case remains delayed as creditors cannot agree to the terms of the memorandum of understanding.

[7] Gelpern, Horn, Morris, Parks, and Trebesch, “How China Lends.”

[8] In the case of the United States, credit renegotiation is managed by State and Treasury regardless of which agency provides the credit.  The budget costs of debt treatments are typically managed by Treasury.

[9] Li and Ponticelli, “Going Bankrupt in China.” Review of Finance, 2022.