I.
INTRODUCTION
Thank
you for that kind introduction. I am pleased and privileged to have this
opportunity to speak before such a
 broad
range of dedicated organizations that recognize the importance and impact that
U.S. remittances have on Latin America and the Caribbean. I would first like to
thank Mr. Enrique Iglesias and Mr. Donald Terry for inviting me to speak today
and I look forward to our continued dialogue on this issue.
The
IDB has been a leader on the issue of remittances to Latin America and the
Caribbean. In addition to today's conference and the release of the Survey of
Remittances Senders: U.S. to Latin America, the IDB held a regional conference
last May to highlight the role of remittances as a development tool. Through
today's conference and the two regional roundtables that preceded it, the IDB
fulfills an important role in raising awareness of the issue surrounding
remittances, proposing innovative solutions, and promoting cooperation among the
many public- and private-sector groups involved in remittances.
My
role as the Treasury Assistant Secretary for Financial Institutions encompasses
a wide range of responsibilities, but one that holds a particular interest to me
is that of consumer policy. As you know, the majority of remittances sent to
Latin America and the Caribbean are generated at the consumer level - with
individuals making investment decisions on how to spend their money. These
remittances, although small in individual transaction size, have a significant
global impact in the aggregate. Some estimates show that the level of U.S.
remittances sent annually to Latin America and the Caribbean has reached the $15
to $20 billion mark. With the increasing number of Latin American workers
residing in the U.S. and the familial ties that are maintained abroad, the level
of remittances will continue to grow as well.
 At
Treasury, we recognize the importance of remittances to Latin America and
support the efforts of the IDB and other groups and entities to improve existing
remittance systems and provide remittance services at reasonable prices. This
has been a special focus of the Partnership for Prosperity, a key initiative of
President Bush and President Fox, launched during Fox's State visit in September
2001. The Partnership, led by senior government officials from both the U.S. and
Mexico including Deputy Secretary of the Treasury Kenneth Dam, is a
public-private alliance that aims to boost the social and economic well being of
citizens in Mexico particularly in regions and sectors where economic growth has
lagged and fueled migration. Since the Partnership focuses on private capital
flows of capital, the focus on remittances is a natural area to address. I also
look forward to having an ongoing dialogue with IDB and the other organizations
represented here today as we work together to expand the availability and
affordability of remittance services in the United States.
II.
BACKGROUND
According
to an IDB study, Latin American immigrants living in the United States send an
average of $250 home to their native countries eight to ten times per year. This
activity translates into Latin American countries receiving close to $20 billion
annually - about one-fifth of total worldwide remittances. In a number of Latin
American countries, income from remittances accounts for a significant
percentage of the gross domestic product. If current growth rates are
maintained, cumulative remittances to Latin America could reach $300 billion for
the ten-year period ending in 2010.
Although
the sheer volume of remittances to Latin America is a key indicator of their
importance, how recipients are using these funds further demonstrates their
significance. In Latin American countries, most remittances are used to pay for
daily household expenses, including food, clothing, and health care, and
comprise a substantial portion of household income. Recipients may also use
remitted funds to improve their standard of living through spending to build or
improve housing or the purchase of durable consumer goods, such as washing
machines. Finally, some of funds that are remitted to Latin America are spent on
income- and employment-generating activities, such as starting a business or for
community development projects.
As
the volume of funds remitted to Latin American countries is expected to continue
to grow rapidly, and in light of the importance of remittances to the recipient
nations' economies, we intend to support efforts aimed at improving the U.S.
remittance infrastructure and making remittance services more affordable.
Treasury
also is seeking ways to ensure that remittances to Latin America are put to the
most economically efficient uses. In this regard, it is important that the
countries receiving remittances have the financial services infrastructures in
place to translate capital into productive investments. Accordingly, we invite
the IDB, in particular the MIF, to continue funding projects that improve the
financial services infrastructures of Latin American and Caribbean countries,
such as the recent $3.5 million grant to Mexico's Ministry of Finance and Public
Credit for a project to strengthen the Mexican popular savings and loan sector.
III.
THE REMITTANCE INDUSTRY
The
IDB's study of remittances has found that although charges have declined
significantly over the past two years,
 transfer
costs for remittances are still high. The average transfer fee and exchange rate
commission to send $200 varies from approximately $15 to $26. The cost varies as
a result of the type of institution used to send the money and the country where
the money is being sent, but can often reach up to 20% of the amount being sent,
when transmission fees and losses on the exchange rate are both factored in. One
of the reasons that prices have remained high is a lack of competition in the
money transfer business. The industry continues to be dominated by a small
number of money transmitters that generally tend to charge higher fees than
banks or credit unions. By increasing competition, the price of remittances
should continue to drop.
With
respect to competition, an important recent trend in the area of remittances has
involved traditional banking institutions increasing their efforts to provide
money transfer services to the immigrant market at lower prices. Wells Fargo
recently introduced a remittance service that charges a flat fee of $10 for
remittances to Mexico of up to $1000. The service is offered through a joint
venture with Mexico's Bancomer. Bank of America is also working on a safe,
low-cost, and convenient remittance product that can be offered to Latino
workers. MetroBank in Houston now offers a Matricula Checking account that
allows the account holder to designate an individual in Mexico to have ATM
access to the account. Another bank that has successfully targeted remittance
services to a particular population is El Salvador's Bancomerio.
Credit
unions provide an alternative for remittance activities in certain markets. For
example, in Durham, North Carolina, the Latino Community Credit Union, which
opened in June 2000 to serve the area's Hispanic population, offers a remittance
service that charges $6.50 to $10 for money transfers to Latin America. Another
credit union initiative is IRnet, the World Council of Credit Unions, Inc.'s
international remittance service, which facilitates credit unions' ability to
transfer of money at reasonable prices to a large of number of countries
throughout the world.
I
am excited to see a focus at these and other depository institutions as they
recognize that large segments of the U.S. population have yet to be courted into
the traditional banking system - a move that makes good business sense and at
the same time can make remittance products more affordable. The recent efforts
of these to entities reach out to the Hispanic population in the United States
and to offer reasonably-priced remittance services is an excellent first step
toward achieving the goal of a more efficient and affordable remittance system.
We
encourage depository institutions to continue their efforts to serve the
Hispanic community in the United States and to take advantage of technological
advances to offer remittance and other services to this population on a broad
basis and at a reasonable price. One example of a depository institution using
technology in this way is Wells Fargo's "Intercuenta Express" service.
Intercuenta Express allows a customer of Wells Fargo to initiate a funds
transfer to Mexico using an ATM, the Internet, or telephone banking, thereby
making such transactions easier for customers by eliminating the requirement to
visit a branch location.
At
Treasury, we understand that the remittances sent to Latin America can serve as
a vital piece of foreign aid that goes beyond consumption. We support any
efforts made to make the process of sending remittances more affordable for the
people that use it - most of whom earn low wages to begin with.
IV. USA PATRIOT ACT'S
EFFECT ON REMITTANCES
On
October 26, 2001, President Bush signed into law the USA Patriot Act. The
Patriot Act requires financial institutions, including money services businesses
such as money transmitters, to establish anti-money laundering programs and
verify the identification of their customers. These requirements are in addition
to the suspicious activity reporting requirements that already apply to money
services businesses.
With
respect to the promulgation of any regulations under the Act, Treasury will seek
to minimize the regulatory burdens on financial institutions in a manner that is
consistent with fighting terrorism and money laundering. The Act's anti-money
laundering provisions, however, undoubtedly will affect industries engaged in
transmitting money to Latin America.
Financial
institutions engaged in the remittance business may face special challenges in
complying with the identification
 requirement
because many of their customers may not have standard forms of U.S.
identification. The issue of how to deal with identification of non-U.S. persons
is being considered carefully by Treasury Domestic Finance, along with Treasury
Enforcement, as they chair an intra-governmental effort to develop
identification standards for the various types of financial services providers.
Recognizing the importance of remittances to Latin America, the Treasury will
strive to find a balance between the need for strong regulation that provides a
real benefit to those working to achieve national security and law enforcement
objectives and the ability of financial institutions to serve Latin American
migrant communities and provide remittance services at a reasonable price.
Non-banking institutions,
including those engaged in the remittance business, are likely to face higher
compliance burdens both as a result of the Patriot Act and the recently
effective requirement that such institutions register with the Treasury as money
services businesses. These requirements should provide additional consumer
protections to the individuals utilizing these businesses.
Subjecting
non-banking institutions to requirements that are similar to those applicable to
banking institutions will create a more level playing field between the two
industries with respect to providing remittance services. A level playing field
provides an incentive for traditional banking institutions to enter the
remittance business, thereby providing additional market competition and leading
to lower prices for remittance services.
The
entry of traditional banking institutions into the remittance business also
should result in an increase in the number of Latin American migrants being
incorporated into the mainstream banking system.
By
attracting Latin American migrants through reasonably priced remittance
services, traditional banks have an opportunity to extend these relationships to
account relationship.
V. FIRST ACCOUNTS
In
addition to seeking improvements in remittance systems, I am also working on a
closely related topic - increasing the number of people using mainstream
financial services. As we bring more mainstream financial institutions into
providing remittance services, we also want to encourage more "unbanked"
families and individuals to use mainstream financial services.
There
are at least three benefits to being banked:
-
Second,
lower financial transaction costs - The costs of financial transactions
outside the banking system are high. Recent Treasury research indicates that
a minimum wage worker can pay an average of $18 per month for cashing
paychecks at a check casher. A Social Security recipient would pay an
average of $9-16 a month to cash his or her risk-free government check.
-
And,
third, the opportunity to build a promising future - It is difficult to
participate in the mainstream economy without a checking account. It is more
difficult to establish a sound credit record, qualify for a car loan, obtain
a home mortgage, and receive a small business loan. Bank accounts can help
families to save and manage their money.
Our
initiative to move unbanked families and individuals into mainstream financial
services is called First Accounts.
This past December 27th, Treasury published a notice of funds
availability, a NOFA, in the Federal Register inviting applications for First
Accounts grants. The amount available is approximately $8 million to fund
projects that can serve as models to connect unbanked low- and moderate-income
individuals to mainstream financial services.
A
wide variety of entities are eligible to apply for the grants - such as
employers, financial services electronic networks, insured depository
institutions, labor organizations, local governments, nonprofit organizations,
and States. Given the number of calls and e-mails Treasury has received, many
applications are expected from a wide range of entities.
The
paramount goal of First Accounts is to move a maximum number of unbanked low-
and moderate-income individuals to a banked status with either an insured
depository institution or an insured credit union through the development of
financial products and services that can serve as replicable models in meeting
the financial services needs of such individuals. Additional goals include the
provision of financial education to unbanked low- and moderate-income
individuals to enhance the sustainability of the new financial relationships. We
will also undertake research to evaluate the success of the funded projects and
to understand what products, services, educational initiatives, marketing
techniques or incentives are needed.
VI. CONCLUSION
In
closing, I would like to reiterate Treasury's support for efforts that will
expand the availability and affordability remittances to Latin America. We
particularly encourage initiatives that, in addition to providing remittance
services, will bring groups that have traditionally been outside of the
mainstream banking system into it. I look forward to learning from the
innovative experience of the MIF and my Latin American colleagues and gaining
knowledge from your valuable insights with respect to this issue. Working
together, I am confident that we can improve the current remittance system in a
manner that is consistent with the global effort to combat money laundering and
terrorism.
Thank
you.
March
4, 2001
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