1. 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

2. 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.

3. 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.

4. 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.

5. 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.

6. 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?

7. American Recovery and Reinvestment Act of 2009 Conceptual Flow of ARRA authorizations and direct spending Contractor Local Government & Agencies State Agency Project State Agency Grant Program State Agency Loan Program Federal Agency Grant & Loan Programs Contractor Taxable Capital Market Tax-Exempt Capital Market Local Government & Agencies Contractor

8. American Recovery and Reinvestment Act of 2009 rere

9. 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 Grants Federal Loans State Grants State Loans Tax-Exempt Bonds Taxable Bonds Tax Credit Bonds Local Contributions Project Fund Operations Trustee/ Custodian Cash Management Accounting Reporting Federal Reporting State Reporting Investments Money Market Funds Treasuries Agencies Others

10. Global Corporate Trust Contact Andrew R. Flynn Product Manager – Public Finance Phone:415 263 2422 Cell: 415 439 9851 E-mail:andrew.flynn@bnymellon.comandrew.flynn@bnymellon.com The Bank of New York Mellon Trust Company, N.A. 550 Kearny Street, Suite 600 San Francisco, CA 94108