Compliance, Transparency & the American Banking System Presented to The National Association of...
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Compliance, Transparency & the American Banking System Presented to The National Association of State Auditors, Controllers and Treasurers August 2009 Andrew R. Flynn Vice President Product Manager – Municipal Finance
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Transcript of Compliance, Transparency & the American Banking System Presented to The National Association of...
Compliance, Transparency & the American Banking System
Presented to The National Association of State Auditors, Controllers and Treasurers
August 2009
Andrew R. FlynnVice President Product Manager – Municipal Finance
The foundations of change
• Declines in property and sales tax bases
• Credit downgrades of major counterparties
• Auction Rate Security market challenges
• Contraction of liquidity facility access
• Increased demand on fewer resources
• Concerns over quality and value of credit ratings
In the last 18 months, municipal entities have experienced unprecedented market volatility and challenges.
How governments, regulators and the market respond to these challenges will develop the foundations for the future of the municipal capital markets.
TED Spreadsince October 2006
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
* Source: Bloomberg
The foundations of change?
Maybe…
As the credit crisis begins to calm after more than 18 months of market volatility and multiple financial scandals, both Governments and Providers believe their constituents demand greater scrutiny of financial matters and many note that there is now a greater demand for transparency in government spending.
While both Governments and Providers concur that greater oversight is being seen from various sources, a full 29% note that there has been no real change in demand for oversight or transparency.
Have the demands from your constituency changed due to the financial improprieties that are coming to light?
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
All Govt Only Provider Only
There is a greater demandfor transparency.
There is a greater scrutinyof f inancial matters.
There is no real change.
Compliance
Compliance has long been the method used for providing investors and constituents a level of information regarding the financial health of a government entity.
Many of the compliance regulations as we know them today were established in the 1970’s - 1980’s.
- MSRB (1975)
- GASB (1984)
- Arbitrage Regulations (1986)
- Municipal Securities Disclosure - 15c2-12 (1989)
- SEC proposed changes to 15c2-12 disclosure (2009?)
It appears that many of the compliance regulations will again experience changes brought on by fundamental market changes.
Electronic Municipal Market Access (“EMMA”)
EMMA is a platform maintained by the MSRB. Developed over the last several years, it is replacing the NIRMSIRs as the primary reporting location for continuing disclosure.
- Official Statements - Escrows - Advance Refunding Agreements - 15c2-12 disclosures
The evolution of EMMA is on fast-forward at the moment.
- VRDO resets - Derivatives?
The impact of EMMA is still to be determined but market participants are generally receptive to how EMMA is evolving.
What impact will EMMA have on the municipal market?
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
All Govt Only Provider Only
It w ill provide greatertransparency.
It w ill be a burden forgovernmental entities.
It w ill not affect reportingor transparency.
Transparency
Capable of transmitting light so that objects or images can be seen as if there were no intervening material.
This is clearly a broader concept than compliance and suggests a much deeper penetration into the financial activities of government entities.
But what is the purpose of transparency as it relates to government finance?
American Recovery and Reinvestment Act of 2009Conceptual Flow of ARRA authorizations and direct spending
ContractorContractorContractorContractor
Local Government& Agencies
State AgencyProject
State AgencyGrant Program
State AgencyLoan Program
Federal AgencyGrant & Loan
Programs
Federal AgencyGrant & Loan
Programs
ContractorContractorContractorContractor
Taxable CapitalMarket
Tax-ExemptCapitalMarket
Local Government& Agencies
Local Government& Agencies
Local Government& Agencies
Local Government& Agencies
Contractor
American Recovery and Reinvestment Act of 2009rere
Will ARRA transparency requirements change how government provides financial information to constituents?
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
All Govt Only Provider Only
No, this w ill likely onlyimpact ARRA Funding.
Yes, but the scope w ill belimited.
Yes, w e expect majorshif ts tow ard broadtransparancy for allgovernment spending.
Banking Responses
• Enhanced technological solutions for government clients
• End-to-end solutions that provide compliance reporting & transparency solutions
Project Funds
Transparency & Compliance Reporting
State Reporting
Funding Sources
Federal GrantsFederal LoansState GrantsState LoansTax-Exempt BondsTaxable BondsTax Credit BondsLocal Contributions
Project Fund Operations
Trustee/Custodian
CashManagement Accounting Reporting
Federal Reporting State Reporting
Investments
Money Market FundsTreasuriesAgenciesOthers
Global Corporate Trust Contact
Andrew R. FlynnProduct Manager – Public Finance
Phone: 415 263 2422
Cell: 415 439 9851
E-mail: [email protected]
The Bank of New York Mellon Trust Company, N.A. 550 Kearny Street, Suite 600
San Francisco, CA 94108
