[Senate Hearing 114-95]
[From the U.S. Government Publishing Office]
S. Hrg. 114-95
OVERSIGHT OF THE EXPORT-IMPORT BANK OF THE UNITED STATES
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
ON
EXPLORING THE EXPORT-IMPORT BANK'S CONTINUING ROLE AND NEED IN THE
UNITED STATES EXPORT-IMPORT INDUSTRY AND CONSIDERING IMPLICATIONS OF
THE BANK'S PENDING CHARTER EXPIRING
__________
JUNE 4, 2015
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
MIKE CRAPO, Idaho SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
DAVID VITTER, Louisiana CHARLES E. SCHUMER, New York
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
MARK KIRK, Illinois JON TESTER, Montana
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina JEFF MERKLEY, Oregon
BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana
JERRY MORAN, Kansas
William D. Duhnke III, Staff Director and Counsel
Mark Powden, Democratic Staff Director
Dana Wade, Deputy Staff Director
John V. O'Hara, Senior Counsel for Illicit Finance and National
Security Policy
Jelena McWilliams, Chief Counsel
Shelby Begany, Professional Staff Member
Laura Swanson, Democratic Deputy Staff Director
Graham Steele, Democratic Chief Counsel
Megan Cheney, Democratic Legislative Assistant
Dawn Ratliff, Chief Clerk
Troy Cornell, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
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THURSDAY, JUNE 4, 2015
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 2
WITNESS
Fred P. Hochberg, President and Chairman, Export-Import Bank of
the United States.............................................. 3
Prepared statement........................................... 33
Responses to written questions of:
Chairman Shelby.......................................... 57
Senator Menendez......................................... 65
Senator Cotton........................................... 66
Senator Sasse............................................ 67
Additional Material Supplied for the Record
List of New Jersey Companies that have received Ex-Im Bank
financing since 2007, submitted by Senator Menendez............ 93
(iii)
OVERSIGHT OF THE EXPORT-IMPORT BANK OF THE UNITED STATES
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THURSDAY, JUNE 4, 2015
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m. in room SD-538 Dirksen Senate
Office Building, Hon. Richard Shelby, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The hearing will come to order.
On Tuesday, the Banking Committee heard a range of
perspectives from a panel of experts and industry
representatives who testified on the future of the Export-
Import Bank. Today, the Committee will receive the testimony of
Fred P. Hochberg, President and Chairman of the Bank, as we
consider any next steps in light of Ex-Im's expiring
authorization.
As I said earlier this week, after years of calls to reform
the Bank right here, I am not convinced that a long-term
reauthorization is merited. Many criticisms of Ex-Im Bank
involve failures in risk management, which are particularly
disturbing considering the 40-percent increase in Ex-Im's
exposure limit, which I opposed in 2012.
At a hearing last year, the Inspector General testified on
concerns related to, and I will quote him: `` . . . several
challenges facing the Export-Import Bank in managing the risks
inherent in its core business activities.''
In recent years, both the Inspector General and the
Government Accountability Office, GAO, have identified hundreds
of recommendations related to Ex-Im's financial and operational
weaknesses. I understand that Mr. Hochberg will address several
of these in his testimony before us today.
I think it goes without saying that taxpayers should not be
asked to backstop Ex-Im's over $110 billion portfolio if the
Bank cannot adequately manage its risk of loss.
Much has been said about how Ex-Im Bank historically
returns money to the taxpayer each year, and I am sure we will
hear that today. This does not take into account losses that
could occur based on a variety of factors, including economic
uncertainty and Ex-Im's disproportionate exposure to several
industries, geographic areas, and large, single foreign
customers.
Any discussion of the Bank's future I believe must include
a serious examination of whether or not Ex-Im Bank can
substantially improve its accounting for these and other risks.
I am concerned that the reforms that are necessary may simply
not be achievable.
Nevertheless, I look forward today to hearing Mr.
Hochberg's remarks as the Committee takes another hard look at
the Export-Import Bank.
Senator Brown.
STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman, for holding today's
hearing, and thank you, Chairman Hochberg, for joining us again
today. I especially want to thank you, Chairman Hochberg, for
the outreach you have done to small businesses in my State, to
the Global Access for Small Business Forums that you held in
Cincinnati and Mentor, Ohio, in northeast Ohio, and Youngstown,
and the roundtables in both Toledo and Columbus. I know you
have done the same kinds of outreach virtually almost
everywhere in the country.
Congress does our country no favors when it lurches from
one self-inflicted crisis to another. At the end of the year,
we saw an ideological fight over an eventual expiration of the
Terrorism Risk Insurance Program. Last Sunday, portions of the
National Security Agency's authority expired. When we have
dealt with the Highway Trust Fund, it has been in the form of
short-term patches one after another, I believe 30 extensions,
something like that. Now we are 27 days away from the Export-
Import Bank's authority expiring.
One member of the Republican leadership has committed to a
floor vote in June. Another said it should happen in the
highway bill extension at the end of July, which most notably
is after this expires. This is not a way to do business for
this Committee, for this Senate, for this Congress. Ex-Im Bank
should be bipartisan and always has been since first authorized
at the end of World War II.
According to the Wall Street Journal, prior to 2012, the
Senate had only once required a roll call vote--only once in 70
years, a roll call vote to reauthorize Ex-Im. The Bank was
reauthorized, for example, by unanimous consent for the Senate
in 2006 under President Bush and Republican majorities in the
House and Senate. The 2006 5-year reauthorization was followed
by a 5-month reauthorization in 2011, a 2-year reauthorization
in 2012, and a 9-month reauthorization at the end of last year.
This history, this recent history--the long-term history has
been done right. This recent history of limping from one short-
term authorization to another is bad for small business owners
who want certainty to plan their investment and hiring but
cannot make long-term decisions because of congressional
inaction. It is bad for the Export-Import Bank to attract
business that will expand U.S. exports and retain the necessary
number of talented employees to oversee an expanding portfolio.
It is bad for our economy because it makes the Bank
riskier, not safer. It makes it riskier. It hurts our
competitiveness.
Of course, Ex-Im Bank is not perfect. No person or
institution in a country this large can be. But its work is so
important. In today's global economy, we need to support
businesses when they sell their products around the globe.
Many on this Committee have argued for fast-track authority
and will support the Trans-Pacific Partnership, which,
arguably, very arguably, may or may not mean an increase, a net
increase, in jobs. But there is no question the Ex-Im Bank
means jobs. It is not easy for small businesses to export, but
making sure they are aware of and have access to tools like Ex-
Im Bank can help them grow.
We know that competitors around the world have their own
version of export-import banks. There are about 60 export
credit agencies worldwide. We should not put our manufacturers
and our exporters at a disadvantage to China, to India, to
European countries. It means more manufacturing, more exports,
more jobs, particularly higher-paying manufacturing jobs. It is
why the work of Ex-Im Bank is so important and why
reauthorizing it by June 30th is essential.
I look forward to working with colleagues, especially
appreciated the comments on Tuesday from Senators Kirk and
Heitkamp and Donnelly, and others who are committed to ensuring
that this authority does not lapse for the first time in seven
decades.
Mr. Chairman, thank you.
Chairman Shelby. Mr. Chairman, your written testimony, we
have reviewed it. It will be made part of the record in its
entirety. If you would sum up your testimony, after that, if
the Senate is on schedule, we will have a vote and a break. But
we will wait and see. You are recognized.
STATEMENT OF FRED P. HOCHBERG, PRESIDENT AND CHAIRMAN, EXPORT-
IMPORT BANK OF THE UNITED STATES
Mr. Hochberg. Thank you. Chairman, Ranking Member,
distinguished Members of the Committee, thank you for inviting
me to testify about how Ex-Im Bank equips U.S. businesses to
compete in the global economy and add jobs here at home.
Ex-Im Bank complements and works with the private sector.
We provide backstop financing so American entrepreneurs can
seize global opportunities to create jobs and not get left
behind by their foreign rivals. And we have been successful,
supporting 164,000 jobs last year alone.
Ex-Im Bank does not pick winners and losers; rather, it
serves any eligible American business seeking competitive
financing. We are, by definition, demand driven. Of course, our
customers pay fees and interest for this service, and as a
result, Ex-Im Bank is completely self-sustaining. Last year
alone, Ex-Im Bank generated $675 million for deficit reduction.
If Ex-Im Bank is not reauthorized, Ex-Im Bank will no longer be
able to generate half a billion dollars in revenue for the
taxpayers.
As you know, in May of 2012, Ex-Im Bank was reauthorized
with overwhelming bipartisan support--78 Members in the Senate
and 330 in the House. And I know our exporters and their
workers are pleased to see movement in the Senate with two
bills introduced this Congress.
I take very seriously my duty to implement the will of
Congress. That is why I have provided each of you with all the
documentation outlining Ex-Im's implementation of every single
requirement from the 2012 reauthorization and why I will work
diligently to implement any future requirements Congress
chooses to enact.
On top of that, Mr. Chairman, we are keenly focused on risk
management demonstrated by a low default rate of 0.167 percent
as of March 2015. In addition, Ex-Im Bank continues to
proactively implement risk management improvements to further
ensure we remain faithful stewards of the taxpayer. Let me just
name two. We increased staffing in our Asset Monitoring
Division by 33 percent, and we went beyond all Federal
requirements to implement mandatory ethics training for all
employees.
Having run a small business, I know how important it is to
continually identify ways to become stronger and sleeker, and
we can always do better. And we continually strive to be better
and improve the way we operate and serve small businesses. Two
particular examples: Davenport Aviation in Columbus, Ohio, and
Xante Printing in Mobile, Alabama.
At Ex-Im Bank, we help U.S. exporters to pursue export
sales, create jobs, and compete more effectively in global
markets. And global competition has ramped up dramatically
since our last reauthorization, and it will continue to do so.
American businesses and workers are not simply competing
against their Chinese, Russian, or French counterparts. Often
they are competing against countries.
Congress, however, has made it clear. They have asked the
Treasury Secretary to ratchet down export credits. And while
that is the Secretary's responsibility, as I said, I take the
will of Congress very seriously. As a result, I recently met
with many of my foreign counterparts to discuss exactly that
topic, and here is what I learned.
To the contrary, our counterparts intend to accelerate the
financial backing for exporters. Their role is clear. When
commercial banks constrict financing, export credit agencies
fill the gap so that their domestic exporters do not lose sales
or workers.
Export-Import Bank is like a fire truck in that sense. You
do not sell off the fire truck just because there is not a fire
currently burning.
In closing, as this Committee is aware, businesses need
certainty to make long-term plans to grow, hire, and innovate.
There are now about 80 other export credit agencies around the
world aggressively fighting for jobs unlike Export-Import Bank.
One of China's export credit agencies recently noted that they
doubled their financing in 2014, and they plan to double it
again in the next year or two.
We look forward to working with you, Mr. Chairman, and the
Committee, to continuing empowering your constituents to export
more and hire more American workers.
Thank you. I look forward to answering your questions.
Chairman Shelby. Thank you, Mr. Chairman.
Since they have not called the vote yet, we will move on to
questions.
In 2012, the Export-Import Bank's Inspector General
reported that Ex-Im's narrow definition of default may result
in an understatement of the Bank's historical defaults. Among
other things, the Inspector General noted that Ex-Im's
definition of default does not include technical defaults,
which reflect a failure to comply with specific conditions in
the loan agreement.
Do you think, Mr. Chairman, that it is a problem that Ex-Im
Bank has not properly estimated historical defaults? And what
are you doing about it? Are you changing it? And how can you
assess future performance at the Bank if you do not have a good
sense of historical defaults?
Mr. Hochberg. Well, Mr. Chairman, we issue this default
report to Congress every 90 days. It is one of the reforms in
Congress. The defaults in here are actually cash outlaid,
claims paid by the Export-Import Bank. They currently are
running less than one-fifth of 1 percent.
In addition, in this report we indicate delinquent
payments, which is an indicator of what might possibly default
in the future because they are late.
In terms of a technical default, sometimes that is
something such as a filing of a financial statement; it could
be running a week or two late, or it could be some kind of
compliance issue like that. So we are on top of that. We
monitor that. But that is not in the definition that Congress
has given us.
Congress, by the way, has updated the definition of our
defaults four times since 2012.
Chairman Shelby. Would a technical default also include
maybe a violation of loan covenants?
Mr. Hochberg. It would depend on--a technical default could
be, as I said----
Chairman Shelby. It could be substantive, could it not, in
nature?
Mr. Hochberg. It could be substantive, but it would not
have any material effect on the ability to repay. If it does,
we have a watch list that we produce every single month of
credits that are requiring extra scrutiny or troubled credits.
Chairman Shelby. Mr. Chairman, according to the Export-
Import Bank's annual report, the OCP, a Moroccan Government-
owned mining company with a questionable history of human
rights violations, received over $92 million in Ex-Im Bank loan
guarantees. Several news sources have reported that OCP donated
millions to the Clinton Foundation and just recently hosted a
Clinton Foundation fundraiser at a five-star luxury hotel in
Morocco.
My question is this: How do you ensure the American people
that none of the money guaranteed by the American taxpayer has
not been used to fund the Clinton Foundation or other unrelated
activities once the money is there?
Mr. Hochberg. Well, for one, the money has not been
disbursed yet, so at the moment the money--we have approved
this loan. We have not finished documentation and disbursed it.
So no money has been used for that purpose.
Second, all money that is borrowed for a specific
transaction relates to the purchase of U.S. goods and services
and the other attendant services around that. So that is what
the money--they have to show invoices of what the money is used
for, and that is when the disbursement is made. So it is when
the shipment is made.
Chairman Shelby. Does it bother you at all if OCP has
donated millions to the Clinton Foundation and just recently
hosted a fundraiser and we are making them a loan? Does that
raise a red flag with you--does that not bother you?
Mr. Hochberg. Well, Senator, we look at every transaction.
We look in terms of--look at reputational risk, integrity of
the transaction. This is a large mining operation in Morocco--
--
Chairman Shelby. State-owned?
Mr. Hochberg. State-owned--well, let us understand one
thing about state-owned. There is a lot of discussion. In the
rest of the world, much of the infrastructure in country after
country is state-owned. Power plants, transportation, rail,
utilities, water services, mining is frequently state-owned. So
that is the way that business--whether we like it or not--is,
regrettably, done around the world.
This is a good project. It is buying almost $100 million
worth of U.S. goods, creating a lot of jobs here in America,
and we obviously make sure that it is creditworthy,
environmentally sound, and has no reputational risk.
Chairman Shelby. Mr. Chairman, in the area of subsidies and
free markets, we have that debate, and I think it is a healthy
debate. In your written testimony, you state, and I will quote:
It is incumbent upon America to strive to level the playing
field in the global export arena--restoring free market factors
to their rightful place at center stage of competition.
What does that mean to you?
Mr. Hochberg. It means very----
Chairman Shelby. What does it mean to us?
Mr. Hochberg. It means very clearly the rest of the world
has a lot more government engagement with their industries and
their companies, as you just mentioned, Mr. Chairman. What we
want to make sure is that by our financing we level the playing
field, so if we use OCP as an example, we want to make sure
that the financing package that backs up U.S. exporters is the
same financing package that backs up our competitors in China
or Germany or much of Europe so that the buyer picks from a
free market the best product, the best service, the best
quality, not because someone has got their finger on the scale
and is providing off-market financing to give their country an
advantage.
Chairman Shelby. We heard testimony a couple of days ago
that a little less than 2 percent of American exports rely on
or do business with the Export-Import Bank, but 98 percent do
not, but they are still exporting. Is that figure about right?
Mr. Hochberg. That is right, and that is a good thing.
Chairman Shelby. OK.
Mr. Hochberg. The private sector does a really good job.
Chairman Shelby. Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
Mr. Hochberg, your charter says that Ex-Im Bank financing
should ``supplement and encourage, not compete, with private
capital.'' A lot of wide-body jets, for example, are sold
without Ex-Im Bank help. Why can't everything be financed
solely by the private sector?
Mr. Hochberg. I wish it were such, but it is not. I guess
there are a couple of reasons, Senator. One, we face in the
commercial jet area intense competition with Airbus backed by
the Governments of Germany, France, and Britain. Each of them
has an export credit agency that backs all Airbus purchases. So
if we want a level playing field, if we want to make sure there
is a level playing field between American-produced aircraft,
made through 15,000 suppliers of the Boeing Company, and
Airbus, backed by three governments, we need to provide a
comparable financing package when warranted.
Additionally, from time to time--we have just come through
the worst financial crisis since the Depression when liquidity
tightened up and constricted and we had to really step in and
fill that gap to keep trade growing and jobs being supported in
this country. Since there is more liquidity, since that
recession is more and more in our rearview mirror, our lending
has dropped. We are doing about half of what we did 2 years ago
because banks have come back into the fore, and there is less
need for us today than there even was just 2 years ago.
Senator Brown. Some opponents of Ex-Im Bank--and we have
heard them come out with sort of increasing volume--express
concerns about management risk oversight at the Bank. The
Bank's portfolio has grown in the last 5 or 6 years, since
2009, but the number of employees has not grown by much. Your
Inspector General in April noted that, ``Uncertainty about Ex-
Im's long-term reauthorization is hindering recruitment.''
There is a whole host of reasons that--the fits and starts and
the short-term reauthorization that Congress seems to inflict
on a whole lot of Government programs, including certainly
yours, have had negative impact on investment, on long-term
decisions, and on predictability.
Talk to me, if you would, about how these repeated short-
term reauthorizations and possible expirations affect your
ability to recruit.
Mr. Hochberg. Well, I think that it has certainly made it a
challenge to recruit. There is also a bit of a brain drain as
people get concerned. You know, our employees are no different
than the 164,000 jobs we support around the country. They are
worried about their mortgage, they are worried about making
tuition payments this fall, and the start and stop about what
they do. We have about 450 workers at Ex-Im Bank. I care about
them. They do a spectacular job. Why we have a default rate of
0.167 percent is because we have got really good underwriting
and really good asset management. And I fear that this debate
can jeopardize our ability to retain those people and to bring
in new people as it goes on and on.
Senator Brown. So talk further, if you would--you touched
on it in your testimony--about the repeated short-term
reauthorizations, the continued threats that Ex-Im Bank will
not exist after June 30th. How does it affect your small
business customers? You mentioned Davenport in Columbus, Ohio.
You mentioned a company in Alabama. I met with probably a dozen
businesses, mostly companies I had not heard of. As many
companies as I visit around Ohio, there are obviously hundreds
and hundreds that I do not know yet. The people that came in
that really depend--you know, that gave up their time and
costing their companies money to come here and push, visit
Senators and House Members to push for reauthorization, what
effect do you see this has on small business customers?
Mr. Hochberg. Well, we have seen it firsthand with--one of
the tools that small businesses use is our Working Capital
Program. We work with their bank, provide a 90-percent
guarantee to induce the bank to make working capital loans to
support exports. More than a few banks have stopped, have
pulled back in light of the uncertainty. They do not want to
get into a situation where they have made a commitment, and
then if our authorization should expire, they are not able to
execute that. We have seen some constriction in working capital
lines, forcing--if you are a small exporter with a very small
percentage, you might be able to fit that in your regular
working capital loans. If exporting is 20 or 30 percent, it
probably is too large to fit within your domestic working
capital line. So we have seen that.
A lot of what we do for small business is to provide credit
insurance so when they sell overseas, we insure their
receivable. If they go to a commercial broker for that,
commercial brokers are loath to write a policy that may only
have 20 days left.
Senator Brown. Thank you, Mr. Chairman.
Chairman Shelby. Senator Corker.
Senator Corker. Thank you, Mr. Chairman. And thank you for
your service.
We had a hearing I guess a couple days ago, and it became
pretty evident that, you know, we are involved in a race to the
bottom with these export credit agencies. In essence, the
National Manufacturers Association had a witness in here, and I
guess it really highlighted more than ever that that is really
what we are about, is we are competing with other countries. As
you mentioned, many of the companies that are in these
countries are state-owned enterprises. The export credit
agencies in other countries are putting you, putting our Nation
in a place where we are in a race to the bottom to try to
``level the playing field.'' And I assume you agree with that.
is that correct?
Mr. Hochberg. Yes. I mean, the OECD, the Organization for
Economic Cooperation and Development, which has something
called ``the arrangement,'' where most industrialized countries
are a party to, but, frankly, China, Russia, India, and Brazil
are not. We all have a standard. We all have a minimum fee we
have to charge, so there is not a race to the bottom.
The challenge is that countries that are not members can do
whatever they want. They can be opaque about it, and they cause
some of the most severe challenges to U.S. competitiveness.
Senator Corker. Well I will say, in their testimony they
made it pretty clear that it was all about market conditions
and it was about meeting, especially in the case of--I used the
case of Boeing because their name came up. I have nothing
against Boeing, as I mentioned. I like flying in their
airplanes. But she did lay out the fact that this is really--it
is that. It is a race to the bottom. We are competing against
other countries, and I guess I would ask this question. How do
you, when you are making these loans to a manufacturer like
this, and you know that they are--you are doing this to make it
so that a company in another country is able to buy some type
of equipment, just name whatever type, at a lower rate, and yet
those companies are competing with other U.S. companies that do
not have the benefit of that export credit agency, yours. How
do you reconcile that? In other words, in some cases you are
actually making American companies disadvantaged because
foreign companies are able to purchase goods that are made here
in the country at better financing arrangements than they can
here domestically. How do you reconcile that?
Mr. Hochberg. Well, we do the best we can to level the
playing field, and I will give you a specific example. I was in
South Africa about a year ago actually this week, and I met
with Transnet, which is the rail authority in South Africa.
They had a large tender for locomotives. In the end, they
divided it, half to the Chinese, half to the United States. I
asked the head of Transnet, ``Well, what kind of financing
terms are the Chinese offering you?'' So I would know as a
businessman what the competition is. And he said, ``Well, they
said to me what would I like--10 years, 15 years, 20 years, a
grace period? What do I want to make the deal?'' We do not do
that. We offered--the most we can offer is 14 years.
However, by offering 14 years, maybe we did not equal
precisely the Chinese offer, but we got close enough that we
were at least able to get half that order and not lose the
entire order to the Chinese.
I might just add one last thing. Not surprisingly, about a
month or so before the tender was determined, China made a $5
billion loan to the rail authority for upgrading tracks,
signaling, and so forth. Perhaps that is a coincidence, perhaps
not.
Senator Corker. I think you can see why this would be--we
understand the business you are in, and I was going to allude
to you after 2012 needing to try to get other countries to
lower this amount of activity. You alluded to that in your
opening comments. But you can tell, I mean, this is an unseemly
business to those of us sitting here where basically we have
created this entity to create financing to compete with other
countries that are basically racing to the bottom.
I guess the other part of your ``agenda'' is to make sure
that smaller enterprises have access to credit, and yet we have
looked at your application form, and there is really nothing
there that requires them to make sure--or requires you to make
sure that you are the lender of last resort. I mean, you can
check ``Other'' on the application form and sign it.
I had an amendment a couple years ago to make sure that Ex-
Im Bank was actually the lender of last resort. I know you did
not support that. I know Stephen Fincher over in the House is
leading an effort to reform Ex-Im Bank. Do you support those
types of things for us to know that you, in fact, are the
lender of last resort and just do not allow borrowers to easily
check an ``Other'' box?
Mr. Hochberg. Well, there are actually four questions they
have to answer with seven sub-parts.
Senator Corker. I understand that. But would you allow
that--would you be supportive of that being much stronger so we
know, in fact, you are the lender of last resort?
Mr. Hochberg. It should be stronger, but let us be clear.
You are signing this application. You are committing perjury,
fines and imprisonment if you falsify----
Senator Corker. Not if you check ``Other.'' So will you
support much stronger legislation to absolutely ensure that you
are the lender of last resort in those cases?
Mr. Hochberg. Well, Senator, I guess I believe that--I
believe in the certification, and we verify those when
warranted. We look----
Senator Corker. I think the answer is no. Let me just--I
think we are going to be pressing for that, and I would love to
talk to your office about it. I will just close with this: I
was in Eastern Europe recently dealing with a number of
different issues, and I have to tell you, I was fairly offended
to realize that the Ex-Im Bank basically has taken on some of
the Administration's policies without Congress being involved
in any way. And as I understood it, Ex-Im Bank was no longer
financing coal exports, that somehow or another, you, without a
congressional mandate, had decided that if a company wanted to
export to Eastern Europe, which is a great market for our coal
suppliers, you had decided, the Ex-Im Bank has decided, because
the Administration had laid out this policy, that you would no
longer do that. I find that to be offensive--not that I am a
lover of coal or not a lover of coal, but that you would be
able to do that, and I wonder if you could respond to why Ex-Im
Bank would take on Administration policies when Congress has
not legislated that.
Mr. Hochberg. Well, Congress actually put in our charter 23
years ago that we must take the environment into account before
making any loan agreement. And during the Bush administration,
the Bank was sued and in a settlement, way before I got to the
Bank, had to do a consent decree about how we actually had a
more rigorous environmental policy. So that goes back to 2006,
2007, and 2008, before I got to the Bank.
So over the 23 years, we have had to adjust our
environmental policy to meet the needs of science and industry
over and over again. So this is not a recent--something that
was just inserted recently.
Senator Corker. But if we were to change that, you would be
perfectly fine with that?
Mr. Hochberg. Well, let me say this, I mean--well, we have
an environmental standard. That is up to Congress to determine
it, and we try and comply with other--the World Bank, other
export credit agencies around the world. But I want to be
clear. We actually do support the Administration's Climate
Action Plan to restrict coal-fired power plants except to the
poorest countries, which total about 80 countries now, which
have no restrictions. But in the wealthier countries, we do
support that provision.
Senator Corker. Mr. Chairman, thank you. I did not know we
were carrying out environmental policy through Ex-Im Bank.
Chairman Shelby. I did not either. We found out something
today, didn't we? Thank you, Senator.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. Before I move on
to my questions, I would like to enter into the record a list
of 244 New Jersey companies over 70 percent which are small
businesses that have received Ex-Im Bank financing since 2007.
Chairman Shelby. Without objection.
Senator Menendez. OK. I fully support a timely
reauthorization of the Bank, and I hear regularly from my
constituents of the irreplaceable role that the Bank plays in
making New Jersey exports competitive on the international
market. Many of these companies have come to Washington to
explain how Ex-Im Bank has supported their efforts around the
world. Others have written to me in support of Ex-Im's
reauthorization, and I am speaking for them here today.
Now, I would like to share with my colleagues a story about
a situation in Ukraine, something that provides a great example
of how the Export-Import Bank can play a critical role in
furthering U.S. national security and economic interests.
Ukraine gets fully half of its electricity from nuclear
power. Historically, they have been dependent on Russia to
manage the used fuel from its plants. After the Orange
Revolution, Ukraine moved to break that tie by establishing its
own spent-fuel storage facility.
I know about this issue because a New Jersey firm, Holtec
International, won the contract to construct that state-of-the-
art facility. Because of Russia's economic and military
aggression, the new government in Ukraine did not have the
resources to go forward with that New Jersey firm.
That is where the Ex-Im Bank comes in. By providing loan
guarantees to help manage the risks of investing in this
strategically important country, something that the Senate has
clearly espoused on by virtue of votes that it has had in the
Ukraine Freedom Support Act that I wrote, along with Senator
Corker, Ex-Im Bank can make this deal possible. Such a project
would bring jobs and income into New Jersey where Holtec is
expanding its presence with a new $260 million manufacturing
facility. It would support Ukraine's ability to develop its own
expertise and infrastructure and remove a lever of Russian
influence in Ukraine. Ukraine would also keep over $1.5 billion
in fees that would otherwise be sent to Russia. Unfortunately,
since the contract was awarded, the security situation in
Ukraine has not permitted the project to go forward.
Now, we heard some arguments on Tuesday that American firms
should essentially sink or swim on their own in international
markets, that we do not need additional options to pursue our
diplomatic and security goals, even as other nations, including
our most significant trading partners and rivals, continue to
pour more resources into promoting their exports.
Now, in a world of perfect markets, in a world where all
countries wished us well, in a world where no other nation has
provided support for the international operations of their
industries, that would be an appealing idea. But that is not
the world that we live in.
So here is a medium-sized business, not some major
corporation, that is on the front line of both nuclear
technology and an ongoing national security challenge that
would be an important beneficiary of the kind of work that Ex-
Im Bank does.
So, President Hochberg, how do you see the role that Ex-Im
Bank plays in bolstering U.S. national security and foreign
policies of the services that it provides U.S. companies?
Mr. Hochberg. Well, thank you, Senator Menendez, and thank
you for your support and the many companies we work with in New
Jersey.
Let us be clear. Number one, our number one priority is
U.S. jobs. That is what we are here to do. We are here to
support U.S. jobs through the financing of exports.
That said, obviously economic security and national
security go hand in hand. We work with a number of defense
contractors who are now moving into commercial fields. Oshkosh
is a good example. Darley is another example. There are a
number of them. We are financing theirs. But, most importantly,
it is about U.S. jobs, but clearly if you have energy
security--and you mentioned nuclear. Nuclear is one of the
areas that we have been active in. It is one of the areas
commercial banks are reluctant to engage in, and certainly
reluctant to engage in without our assistance and guarantees.
So I think there is a very close relationship between those
national security interests, economic security, and jobs.
Senator Menendez. Let me ask you one other question. China
has been particularly aggressive in export financing. As of
2013, it extended over $45.5 billion in export credits, 3 times
the amount extended by Ex-Im Bank. So you touch on this in your
written and oral testimony. Could you elaborate on the trends
you are seeing in export financing by major U.S. economic
competitors?
Mr. Hochberg. Well, China is right now the largest exporter
in the world. We were number one a dozen years ago. I actually
believe we could be the number one exporter again because of
the technology and innovation.
That said, China has four different state-owned banks that
do export credits. We have one. Just one of those, called
Sinosure, in 2 years has done about $670 billion worth of loans
and guarantees. It took us 80 years to get to $590 billion. So
they have done more in 2 years than we did in 80 years. And
they have indicated they have no interest in stopping
whatsoever.
That said, the Secretary of the Treasury has been--we have
been working on negotiating that they join an international
framework so we have transparency, and we would try and tamp
that down. But that is an ongoing negotiation, and it is taking
time.
Senator Menendez. Well, Mr. Chairman, I just think that we
should not engage in unilateral disarmament, and that is
exactly what we will do if we let Ex-Im Bank expire and we are
facing global competitors and many countries--China, Brazil,
and others--that are helping their companies create the
opportunity to penetrate markets, which means jobs here at
home.
Thank you.
Chairman Shelby. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman.
You know, I think we should hopefully reach an
understanding of what is and what is not going on here. One of
the arguments that supporters of the Ex-Im Bank make is that
this is somehow a free policy choice, this is a free lunch. The
Ex-Im Bank creates jobs. No jobs are destroyed, no cost to the
taxpayer. In economics, there is no such thing as a free lunch.
There is a cost to everything that is provided.
The chairman states in his testimony that over the last
couple of decades, the Ex-Im Bank has sent nearly $7 billion to
the U.S. Treasury. I am sure that is true. But if you go back a
little further behind that, then we had a period when the Ex-Im
Bank was costing the taxpayer direct money in the form of
bailouts--in the 1980s, a $3 billion bailout; in the mid-1990s,
about $10 billion in taxpayer bailouts. And that was at a time
when the Ex-Im Bank was a fraction of the size that it is
today.
The chairman also testifies that Ex-Im Bank is restoring
free market factors to their rightful place. I do not
understand how we could come to such a conclusion. It is clear
to me that the Ex-Im Bank interferes with the free market.
Now, you may decide that the interference is worthwhile and
is desirable, but let us not pretend that it is not an
interference in the free market. That is my point. The chairman
refers to the Ex-Im Bank finances as filling in the gaps. Well,
if there is a gap, then that tells you something.
Here is another way to look at this. If the Ex-Im Bank is
creating jobs, if this is to be believed, then it seems to me
it must necessarily be the case that the Ex-Im Bank is
providing financing that would not otherwise occur, or it is
providing it on terms that would not be obtained in the market.
Right? That is the only possible way in which you can say that
it is creating jobs.
But if that is the case, if the Ex-Im Bank is financing at
rates and terms that the market is either unable or unwilling
to offer, then that is not the free market. In fact, that is
the definition of a subsidy. It is the subsidy that the
taxpayers are being forced to pay not in the form at the moment
of writing a check, but in the form of not being adequately
compensated for the risk that taxpayers are being required to
take.
And so I do not think there is even a question that
taxpayers are being forced to take this risk. The question is:
For whom? If it is to large politically connected corporations,
then that strikes me as crony capitalism. If it is less than
creditworthy foreign corporations, then we are putting
taxpayers at risk to benefit them. None of these outcomes in my
view make sense.
Let me ask one specific question of the chairman. When we
talk about the jobs that are created, do you net out the lost
jobs in the industries where the competitive disadvantage that
the Ex-Im Bank confers occurs? So we know, for instance, that
airline companies that have to compete with foreign airlines
that get the subsidy of cheaper aircraft, miners that have to
compete with overseas mining operations that get the subsidy of
mining equipment, refineries in the United States that have to
compete with foreign refineries that benefit in a similar
fashion. It seems to me the lost jobs ought to count. Do you
include that in your analysis?
Mr. Hochberg. Well, Senator, thank you, and thank you for
coming today. First of all, there are a couple of things you
mentioned.
Ex-Im Bank has not received a single bailout. From 1934 to
1992, we sent a billion dollars to the taxpayers. After the
Federal Credit Reform Act of 1990, from 1992 to 2014 we have
sent $6.9 billion. That is cash that leaves the checking
account of the Export-Import Bank and goes to the Treasury. It
is the saddest day for our CFO each year because that money
leaves our bank account. So let me be clear about that.
We do not pick winners and losers. Companies come to us if
they need our financing to compete with overseas competition,
and sometimes the markets are not fully free and open in the
overseas international market. That is where we compete. That
is where we step in, when there is a gap in the marketplace.
We also do something put in Congress since 1968 called an
``Economic Impact Review.'' Economic Impact Review said if we
are going to support the export of capital equipment, use the
example of mining equipment, we have to make sure that the
benefit to the U.S. economy from that will make sure there is a
net benefit to our economy. So we do that in each and every one
of--we, in fact, look at every single transaction to ensure
that----
Senator Toomey. So if you are looking at the net, you are
acknowledging that there are some who win and some who lose,
and then you add it up and see on balance is it a net positive.
Is that the way----
Mr. Hochberg. We look at--we make sure that there is a net
benefit, and the Board, the Board that is Senate-confirmed,
takes that into account.
Senator Toomey. So how does that not include winners and
losers?
Mr. Hochberg. Well, it includes----
Senator Toomey. You have kind of acknowledged that there
are winners, and we count them, and there are losers which we
create, but as long as the net we think is positive in our
analysis, then it is OK.
Mr. Hochberg. Well, the net winners are the United States
economy and U.S. jobs. The choice, sir, is they are going to
build that mine, and we are going to have U.S. mining equipment
or Chinese or Japanese or Korean. So we want the U.S. economy
to win and make sure those jobs are here, not elsewhere.
Senator Toomey. I see I have run out of time, Mr. Chairman.
I appreciate the indulgence. Let me just point out the GAO has
come to the conclusion that this does not create net new jobs.
It shifts job creation. And in that process, in my view, it
certainly is picking winners and losers.
Chairman Shelby. Thank you.
Senator Warren.
Senator Warren. Thank you, Mr. Chairman. I just want to
follow up on this question around jobs.
You know, we talk a lot about the Ex-Im Bank and about
jobs, and I believe that the Ex-Im Bank helps create American
jobs and spur economic growth. But I also think that the Bank's
operations can be improved in certain areas, so I want to
follow up on some questions I asked you the last time that you
were before this Committee.
As I noted at the hearing last year, the core of the Bank's
work is to promote trade by providing financing for foreign
companies to be able to buy U.S. goods. Obviously, that helps
the U.S. economy. We want to sell those goods, as you have been
testifying to this morning.
But in some cases, the foreign company purchasing those
goods also has U.S. competitors, so helping that foreign
company can mean that the foreign buyers get a benefit not
available to their U.S. competitors.
So I want to start where I left off last time. Before
agreeing to finance a deal, just to make sure I hear this
right, does the Bank determine whether the number of U.S. jobs
that could be lost by helping a foreign competitor is counted
into the calculation?
Mr. Hochberg. What we look at, Senator Warren, we look at--
one, we review every transaction. Congress has made it clear
that if the production that would be generated by a capital
equipment export exceeded 1 percent of U.S. production, that
would trigger a more in-depth review. So if a de minimis amount
might go on the market, less than 1 percent--that is a
threshold established by Congress over 30 years ago--that
actually would say that the impact would be de minimis, would
not be adverse.
Senator Warren. I am sorry--just so I am understanding what
you are saying here, you are saying you do not do the
calculation on how many jobs might be destroyed because a
foreign company got a financing benefit that was not available
to its U.S. competitors unless it hits this much higher
threshold. So in all the rest of those cases, even though
cumulatively they may be a lot, you are not doing that
calculation?
Mr. Hochberg. Well, the calculation--what Congress has
established for us in 1986 or 1984, 30 years ago, is that we--
the threshold is 1 percent.
Senator Warren. I am sorry. I think what Congress
established is you must do the calculation if you hit that high
threshold. The question I am asking is whether you do the
calculation--is it only in those cases and you are adding up
the number of jobs lost and the number of jobs gained?
Mr. Hochberg. Well, for example, let me be very clear. Let
us use an airline example. We have an airline that provides
low-cost service in South Africa. There is no impact on the
U.S. economy by that low-cost carrier in South Africa buying
U.S. equipment to fly around South Africa. We do not fly there.
We do not fly within South Africa. In those cases, no, there is
no potential impact on the U.S. economy. So we look at every
transaction.
Senator Warren. So if the foreign buyer has no U.S.
competitors, then you say you do not do the calculation.
Another way to say it is you have done the calculation, and it
is zero.
Mr. Hochberg. Well, we review every single transaction.
Senator Warren. And if there is a domestic competitor, a
U.S. competitor for the foreign company that is about to get
the financing, do you always then do the calculation of how
many jobs might be lost by the U.S. competitor? I am just
asking how this works.
Mr. Hochberg. At that level, we do it at the dollar level.
We do it at the dollar--at the----
Senator Warren. What does that mean at the dollar level? I
am talking jobs.
Mr. Hochberg. We will look at the benefit to the U.S.
economy of selling that product, how much revenue----
Senator Warren. I am asking a jobs measure question.
Mr. Hochberg. We do not do it on a per job basis. We do it
on--at that level, we do it on the economic impact. What was
the economic benefit to the United States versus potential any
economic adverse impact to the United States?
Senator Warren. So is there ever a case in which the Bank
has decided not to finance a deal because of its potential
impact on U.S. competitors and----
Mr. Hochberg. Yeah.
Senator Warren.----particularly on jobs?
Mr. Hochberg. Yeah.
Senator Warren. And is that publicly available?
Mr. Hochberg. Well, what happens is, you know, we are--you
are at a university. We are not--you know, people do not--
universities issue rejection letters. People do not like them
from banks. So if we are----
Senator Warren. Actually, I understood banks did issue
rejection letters.
Mr. Hochberg. Well, they do not like to issue rejection--so
when we sit down with a customer and we look at that situation,
we will have that conversation about, you know what, this is an
economic impact here, we are going to do a more in-depth study,
and this may not pass muster. So in those cases, sometimes they
withdrew. I know in one particular case the entity in Latin
America withdrew--let me just finish--and what happened? They
still built the petrochemical plant. They built it all with
foreign equipment. And you know what happened? We still are
competing with that petrochemical company.
Senator Warren. But I am taking from what you are saying
that none of this is publicly available. Look----
Mr. Hochberg. Sure it is. If we do--if it gets as far as
doing the study and there is a vote. But frequently a client
pulls out before that time.
Senator Warren. I am sorry. So you are saying there is
public available data on how many times you have rejected a
deal because it would cost American competitors jobs?
Mr. Hochberg. Our economic impact data is on the board--is
available after the fact to--that was one of the reforms they
put in. So an exporter can say, ``I want to see what was the
economic impact study you did on this transaction.''
Senator Warren. OK. I think I have got it. But you are
talking dollars here, and I am asking a question about jobs.
Look, I believe that the Ex-Im Bank helps create thousands
of jobs, in Massachusetts and across the country. And it does
it while consistently making money for the taxpayer. I just
believe that the Bank ought to be doing all it can to promote
job growth overall, not helping some companies at the expense
of others. And that is why I think that the Bank needs a
rigorous process for assessing how its work affects U.S.
competitors. And I think the Bank should make those data
publicly available--with redactions if needed--I do not want to
hurt anybody's feelings--but that it ought to be there so that
Congress and so the public can review it. And I understand that
the Bank has taken important steps while it has been under your
leadership, and you have moved it in that direction, and I hope
we can continue to work on this to continue to move in this
direction.
Mr. Hochberg. Let me add, we are the only export credit
agency of the 85 around the world that does this. We are the
only one that actually goes to the effort to say is there going
to be a net benefit to the U.S. economy.
Senator Warren. Well, I----
Mr. Hochberg. We are the only single one. Everyone else
says, in my example of that chemical plant, they are going to
build it anyway, we can either lose once or we will lose twice.
Senator Warren. I appreciate that we may be more
transparent than some other countries. The question we have to
address is whether we are transparent enough and those
calculations are obvious enough when we are trying to evaluate
jobs.
Sorry for going over, Mr. Chairman.
Chairman Shelby. Senator Warren, that is a good question
you raise, and I think it is important that we find out what it
does to our jobs here. And that has not been answered yet, but
a lot of people are concerned about it. Look at some of our
airlines. As you know, Delta has raised that question. For
example, others said, look, they are not getting the financing
that their state-owned competitors overseas are getting, which
is a subsidy, which they argue, and probably rightfully so, it
costs American jobs.
Mr. Hochberg. Well, actually, I would--I have heard Delta
make this claim. They have never substantiated it. They have
never shown where. And, in fact, Richard Anderson just last
August indicated they are adding 1,800 new flight attendants
this year alone. They are the most profitable airline in the
country, perhaps the world at this time.
Chairman Shelby. We have a vote on the floor. We are going
to try to make it. We will come back because we might have some
more Senators here.
We will stand in recess until we get back, maybe 15 minutes
or so.
Mr. Hochberg. Thank you.
[Recess.]
Chairman Shelby. The Committee will come back to order.
Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman.
Mr. Hochberg, I have watched the discussions, and I have
listened to the testimony on Tuesday with regard to what the
Bank does and the fact that literally there are--all of our
competitive nations that we work with have an entity similar to
the Bank that their businesses can rely on in order to compete.
And so it seemed strange to me that we would have the
challenges that we have heard with regard to the renewal of
your ability to continue forward.
And I have tried to search and figure out what it is that
is causing the uproar, and I want to try to get to what I think
might be part of it. And so I want to ask you some questions
here, and I mean this to try to give you the opportunity to
explain it.
Mr. Chairman, I apologize. I was in the chair so I was not
able to hear what the other testimony was earlier, but----
Chairman Shelby. We are glad you are back here.
Senator Rounds. Thank you, sir. But what I would like to do
is just ask a question and then work our way through this and
give you the opportunity to respond, sir, as President of the
Bank.
I understand that the Bank is part of the Federal
Government and that, as a result, there are rules and
regulations that they have to abide by. But I am concerned when
I see that you as the head of the Bank have been making some
rather significant political statements that I think may have
caused part of the problem. It only bolsters the concern that
the Bank is picking winners and losers.
Now, here is the example that I am speaking of. In 2013,
you said, and I quote:
The Bank engages in an important balancing act. In supporting
our exporters, we have to weigh the potential impacts on the
environment associated with our financing. Without guidelines
or limits, ever increasing numbers of new coal plants worldwide
will just continue to emit more carbon pollution into the air
we breathe. But America cannot do this alone. I strongly
support the Administration's efforts to build an international
consensus such that other nations follow our lead in
restricting financing of new coal-fired power plants.
Mr. President, what you call ``carbon pollution'' powers a
lot of the homes in my home State of South Dakota and a lot of
the power on the farms in our part of the country as well. I am
concerned that by using what literally is a loaded carbon
pollution and making personal statements about which types of
exports that you may oppose, the Ex-Im Bank becomes more about
advancing policy goals and less about creating American jobs.
Do you think that making this statement was a mistake and
gives the opponents of the Ex-Im Bank the ammunition to say
that Ex-Im Bank does pick winners and losers?
Mr. Hochberg. Well, Senator, thank you for giving me a
chance to talk about this, and I am glad we had a chance to
meet in your office. I mentioned earlier we have had an
environmental policy that Congress has inserted in our charter
since 1992. For over two decades, we have been required to look
at reasonable assurance repayment and the environmental impact.
That is not my doing. That has been in our charter for over two
decades.
I mentioned earlier that under the first part of--under the
Bush administration, the 2004-06 range, before I got to the
Bank, the Bank got sued, and before I got to the Bank, the Bank
agreed to a consent decree of how to impact--how the Bank could
do a better job to adhere to the will of Congress, which is to
take the environment into account.
So the Bank has been doing this, and it has been an
evolving policy over the last two decades. So this is not
something that I inserted. It is not a personal agenda.
Senator Rounds. Can you show me any place where the
Congress of the United States has identified carbon pollution
as being part of your role in terms of managing the
environment?
Mr. Hochberg. Well, the environment was put in, as I said--
I am happy to share with you the lawsuit that the Bank lost
because the--and the court found that the Bank, before I got
there, was not taking into account the environment
sufficiently, and part of that agreement was some restrictions,
some regulation on the amount of carbon. So that precedes me at
the Bank.
Senator Rounds. I understand that you have an obligation in
which you can and are required or expected to promote renewable
energy. But I cannot find where you are in a position to
determine--and I am just going to ask the question. If an
organization walks in and they say, ``Look, we have got an
opportunity to create and to build a new power plant,'' is it
your role to then say, ``Well, is this a coal-fired plant? And
if it is, it is not something that we can do''?
Mr. Hochberg. No, we do not look at coal-fired--that is not
the issue. We look at the environmental impact, and we look at
the amount of high carbon intensity. It is not about for coal
or against coal. In fact, Senator, we export coal. We export
coal mining equipment. The only thing we have had to do--and,
again, it is part of a consent decree--is to look at to what
degree the environment is impacted by our export. That was put
in by Congress, and, again, the Ex-Im Bank lost a lawsuit about
that. I would be happy to share with you the section of the
law, and I am happy to share with you the consent decree.
Senator Rounds. Mr. President, I think what happens in this
particular case is it gives those individuals who have a
concern about whether or not you are picking winners and
losers, and you should not be picking winners and losers. I
think it gives them the opportunity to point to the fact that
in this particular case, when it comes to your statements on
power plants that are coal-fired, that you do have a desire or
an interest in promoting those that are not coal-fired. I bring
it up because I think it has got to be clarified, that either
you are picking winners and losers and giving people who do not
want to see this Bank continue forward, you are giving them the
ammo that they want to show that you are picking winners and
losers, and that is not the way that it was set up, in their
opinion, nor in my opinion.
But I wanted to give you the opportunity to try to correct
anything if we are misunderstanding the focus that you think
the Bank has got.
Mr. Hochberg. I guess all I can say is that we are doing to
the best of our ability to follow the will of Congress in terms
of taking the environment into account.
Senator Rounds. And so what I understand is that you
believe that it is the will of Congress that we not promote, as
you call it, ``carbon pollution'' through the creation of coal-
fired plants or the use of the Bank to finance coal-fired
plants in other parts of the world.
Mr. Hochberg. Well, we are open for coal-fired power plants
in the 80 or 82 poorest countries in the world. What our
current law states is that----
Senator Rounds. So you would do it in 80 or 82----
Mr. Hochberg. 80 or--they are called ``IDA'' or ``IDA
blend,'' defined by the World Bank. Those we do not have
restrictions at all. In wealthier countries, countries that
have options, that have options on renewable, gas, nuclear, the
current policy--and it is in our appropriations bill--says that
we do not do any coal-fired power plants in those countries
where they have a lot of options. Poorer countries, 80
countries in the world, approximately today, we do.
Senator Rounds. Is that directed by Congress, or is that a
policy that has been created within the Bank itself?
Mr. Hochberg. No, that is in our current appropriation
language.
Senator Rounds. OK. Thank you, sir. I appreciate your
comments.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Heitkamp.
Senator Heitkamp. Thank you, Mr. Chairman. I just want to
kind of run through this. Basically you are subject to the
requirements of NEPA. You have to do an EIS or some kind of
environmental assessment on the decisions that you make. There
were not any decisions being made regarding carbon. You are
sued. As a result, you signed a consent decree that says, yes,
carbon will be part of that consideration, right?
Mr. Hochberg. My predecessor did, but, yes.
Senator Heitkamp. Right, but I think that the Bank is under
a consent order----
Mr. Hochberg. Exactly.
Senator Heitkamp.----by the court to take that into
consideration. It is similar to what happened to EPA when EPA
said carbon is not a pollutant, the United States Supreme Court
said it could be and you need to take a look at it, that
Massachusetts case. And so I just want to make it clear that
this is not a policy that came into existence when the
President became the President. It is not something that you
initiated at the Bank, although you are administering it. And I
think it has created controversy here, and as a result, the
Kirk-Heitkamp bill addresses this very issue and puts within
there that you cannot discriminate against any legitimate
business, and that is something that was vetted very strongly
during our negotiations on the Kirk-Heitkamp bill with coal
companies as well, or I would not sign on this bill. And so I
think we have addressed a lot of the concerns that the Senators
have
expressed regarding picking winners and losers regarding
environmental impact on carbon.
And so it does not mean--I guess when you look at the
nondiscrimination language, not something that was appreciated,
but obviously if that passes, it will be administered
appropriately by the Ex-Im Bank. Is that correct, Mr. Hochberg?
Mr. Hochberg. Yeah. Obviously, we will totally and
completely follow the will of Congress, and I should even add
that consent decree that you referred to, you know, that is a
regulation put in by the court. We made everybody unhappy. We
made the environmental community unhappy. We made the exporters
unhappy. I would say we left--maybe that makes a good policy
when everybody is unhappy. But everybody was unhappy with that
outcome.
Senator Heitkamp. I want to get to another issue that has
been raised here, which is the criticism that you do not do
enough for small business, that the Bank really represents two
major multinational corporations and that, you know, you are
the piggy bank for these two large corporations.
I would tell you that I have had a fair amount of
experience with the Ex-Im Bank, first working with the Ex-Im
Bank and the Bank of North Dakota, a kind of iconic institution
that is actually the State development bank in North Dakota,
and they have had this very long relationship, I think, that
has been very fruitful for North Dakota exporters.
But I want to have you address what you have done to reach
out to the small businesses like you have reached out in North
Dakota, whether you think--in fact, in the Kirk-Heitkamp bill
we are setting a target of 25 percent, whether you think you
can achieve a 25-percent target in the next authorization
period as established by that bill.
Mr. Hochberg. Well, let me say this--and thank you for your
support of the Bank and thank you for proposing one of the
bills under consideration, because I know our exporters and
their workers are keenly focused on that.
I ran a small business. I am focused on small business. In
this fiscal year, we put in an 800 number. Operators are open 8
to 8 Monday to Friday, standing by right now if you would like.
If you go on our Web site and you cannot find something, we
have an online chat. We do all those things to do outreach.
Senator Heitkamp. I only have so much time, Mr. Hochberg,
so do you think you can achieve a 25-percent target in this
period of time that we have given you in this reauthorization?
Mr. Hochberg. I think that is a very steep target. And the
reason I say that is we are demand-driven. People come to us
when they need us. Right now banks are doing a little bit of a
better job, so in some ways, they have more options. When there
is a financial crisis, they come to us. So that is the
challenge. I mean, I will work toward any target. We will
strive to do better. We are now doing better than 20 percent,
which is our current target. But it is difficult to know,
because we are demand-driven, what the demand is. So that is
the only challenge I say with any particular target in this
regard.
Senator Heitkamp. Finally, obviously, there is a lot of
concern--and I think the Chairman expressed some legitimate
concern--about reforms. And we are very interested in ongoing
activities that the Bank has to address concerns that have been
expressed by this Committee and by GAO and by the Inspector
General.
Where do you think you are in adapting and adjusting and
responding to the concerns that have been expressed about
governance of the Bank?
Mr. Hochberg. Well, let me say, as I mentioned earlier, you
know, these are the reforms that were put in in 2012. We
complied with each and every one of them. There are a number of
reforms that have been proposed in the Kirk-Heitkamp bill, and
there are three other bills that are circulating.
I understand the will of Congress. We will move forward on
any of those reforms that are enacted and do our very, very
level best to enact them quickly and efficiently. All I am
trying to worry about is not creating a burden for small
business or more bureaucracy that makes it harder for us to be
nimble.
Senator Heitkamp. Finally, when you look at the Bank and
you look at the hard deadline that we have at the end of the
month, how disruptive will it be if we allow the charter to
lapse and then try and reinstate that? How much additional
costs would the Bank experience even if we were able to
reinstate it?
Mr. Hochberg. Well, I think the uncertainty has already
caused a lot of concern. Uncertainty has caused some banks and
insurance brokers to pull back. Working capital loan has been
somewhat constricted to small businesses. And my fear is that
we--there has been a lot of uncertainty. I spend a lot of time
convincing foreign buyers we are going to be there and that
they can rely on us and rely on the United States.
So I think that even a temporary lapse will have a very
negative effect because it makes us less reliable and it makes
U.S. companies less reliable, and it puts our workers in
jeopardy.
Senator Heitkamp. Thank you, Mr. Chairman.
Chairman Shelby. Senator Kirk.
Senator Kirk. Thank you, Mr. Chairman.
I want to brief you on a project near and dear to me, and
that is the C919, the Chinese competitor to the Boeing 737,
built with $29 billion in subsidies from the Government of
China. We have already seen 400 of these booked. I think all of
those orders should have come to the United States. I would say
to my colleagues I am for Ex-Im Bank picking winners and
losers, and those winners should be Americans, make sure those
400 orders come to the United States.
If you know aviation as I do, an airplane is a black hole
of spare parts. It needs an unlimited set of spare parts. All
the spare parts for the Boeing 737 are going to be American-
originated. In the case of the C919, they will be largely
Chinese. For the billions coming on this airplane, I would hope
that they come to the U.S.A.
I want to thank Heidi Heitkamp for her great bipartisan
work on this coming amendment that we will do to the National
Defense Authorization bill to reauthorize you and make sure we
win in the competition against the C919.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Merkley.
Senator Merkley. Thank you, Mr. Chairman.
You may have already addressed this, and if you have,
please let me know. But I wanted to have you explore a little
bit about the subsidies that China gives to their exports,
including what we have been hearing about the new initiative to
devote an additional $10 billion in export credit to Africa,
bringing their total to $30 billion in export credits to
Africa, which is roughly equivalent, I believe, to Ex-Im's
global volume for the year.
Mr. Hochberg. China is a particularly formidable competitor
and particularly in Sub-Saharan Africa. Total U.S. exports to
Sub-Saharan Africa are about $23, $24 billion, so that is all
exports. And as you just cited, China is going to devote $30
billion of export finance alone.
We see them everywhere--in power plants, infrastructure,
mining, perhaps soon aircraft, as Senator Kirk mentioned. So
they are a very, very formidable competitor, and particularly
so in Sub-Saharan Africa, the fastest-growing region in the
world right now.
Senator Merkley. And so essentially we have a very unlevel
playing field if they are providing finance support for their
industries and we are not doing the same?
Mr. Hochberg. Well, we exist to try and level that playing
field and do the best we can, but we have a little bit one arm
tied behind our back in terms of we abide by a number of global
guidelines and rules, and China is untethered by that.
Senator Merkley. Yes. We have been having a debate here
over the fast track and the TransPacific Partnership and a
potential transatlantic agreement, and there is a real debate
over whether it will create jobs in America or eliminate jobs.
But in this case, can't we say that this is 100 percent clear
that this financing creates jobs here in the United States of
America?
Mr. Hochberg. I would say without question, and do not take
my word for it. GAO validated our jobs calculation in 2013.
Where there were questions, they validated all of our jobs
calculations.
Senator Merkley. Can you remind us again how many jobs
there are at stake here?
Mr. Hochberg. We supported 164,000 jobs last year, last
year alone; about 1.2, 1.3 billion in the 6 years I have been
at the Bank.
Senator Merkley. Thank you very much.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Scott.
Senator Scott. Thank you, Mr. Chairman. Good morning.
Mr. Hochberg. Good morning.
Senator Scott. Thank you for being here this morning for
such an important topic. I wanted to just share with you two
stories from two of our more important employers in South
Carolina and just get your response to the comments that they
have made to me.
The first one is Sage Automotive Interiors in update South
Carolina. They were a part of the Milliken Group initially, and
because of the downturn in the economy, Milliken decided to
spin them off or basically get rid of them.
Fortunately, the senior management decided to get the
capital together, buy that company, and now they are employing
more than 600 employees in three locations throughout South
Carolina.
For the last 5 years, they have been able to succeed
because of their exporting opportunities. Sage has used,
according to the company--Dirk Pieper, the CEO, has used Ex-Im
Bank backing since its inception to support its export business
because it is necessary for them to do so.
And a very similar story from another company, another
major player in South Carolina, Grace Management Group. Grace
has been around since 1975. They have locations, of course, in
Spartanburg, South Carolina, but they also have locations in
places where Chairman Shelby has a residence, I believe, in
Alabama. And they have done very well, and they have showcases,
showrooms in Atlanta, Dallas, and Las Vegas. They do business
in 90 countries. It is a wonderful success story from
Spartanburg, South Carolina. And they tell me that because
commercial banks in the United States are prohibited from using
foreign receivables as collateral for loans, Grace has no
alternative but to apply for Ex-Im Bank backing to support its
international sales support.
Can you comment on whether or not these companies are
leading me in the wrong direction or not?
Mr. Hochberg. Well, thank you, Senator. In fact, I had a
chance to visit Sage on a recent trip to South Carolina.
Companies come to us when they cannot find the financing at
either comparable or competitive rates so they can compete
overseas. Sage is an excellent example of that, and 90 percent
of our customers are small businesses, and of the exports we
financed last year of $27.5 billion, a full $10 billion came
directly from small businesses.
Senator Scott. I will ask you this question a little
differently: According to Sage, commercial banks in the United
States are prohibited--is that accurate?--from using these
foreign receivables as collateral?
Mr. Hochberg. That is correct. Commercial banks will not
value a foreign receivable. They will value it at zero. When we
insure those receivables through credit insurance, they will
then lend, could lend 75, 80, 90 percent against that
receivable, creating a real borrowing base so those banks can
get the working capital, hire people, get the raw materials,
and ship the goods overseas.
Senator Scott. So for a business having operations and
making sales in 90 countries, not to be able to use a part of
those receivables to determine their cash-flow would be a
crippling impact if they lost that opportunity?
Mr. Hochberg. It totally disables them, and it actually
impedes their seeking export sales and the jobs that come with
them.
Senator Scott. I had a conversation last night--I was
invited to dinner with some of my House friends last night,
which is a rare opportunity for me. They do not invite me
anymore now that I am in the Senate. I am not sure what went
wrong, but, Tom, will you talk to those folks for me, please?
Thank you very much. And they suggested that there are major
players in the aviation world that are very much in opposition
to the Ex-Im Bank.
I wonder if some of those players perhaps access something
like export financing in other countries, if you are aware of
any of those folks that may access----
Mr. Hochberg. Well, the regional jets that we all fly on,
that Delta deploys and all American carriers, are made in two
countries. They are made in Brazil and in Canada. And I know
for a fact that Delta Airlines is a major user of regional jets
and a major user of export credit financing from the Canadian
Government and the Brazilian Government to finance those
regional jets. And if any of us fly to New York on the Delta
shuttle, you are flying on an Embraer Brazilian plane in all
likelihood financed by the Brazilian Government.
Senator Scott. I am hoping that I am able to get a seat on
that plane the next time I go to New York after this question.
[Laughter.]
Mr. Hochberg. Maybe a middle seat.
Senator Scott. I am too big of a boy for that conversation.
On the reform package that has been offered by Senator Kirk
as well as Representative Fincher, some of the questions that
we are pondering as a part of the reform package is to reduce
the borrowing authority. Your thoughts on that?
Mr. Hochberg. Well, I know there are number of reforms we
considered. It concerns me that we would constrict or reduce
the amount of lending authority we have at Ex-Im Bank when we
have got countries like China--Senator Kirk just showed a
picture of the Comac plane, 400 orders. China has given no
indication they are going to follow any rules when it comes to
financing that. So I would certainly have a concern. Obviously,
we will work with Congress on a solution, but I am concerned
about restricting our efforts and sending that bad signal. Even
if we never get there, the signal and the message is very
important that we stand fully behind American workers and
American exports.
Senator Scott. Mr. Chairman, would you provide me with an
additional 30 seconds?
Chairman Shelby. Go ahead.
Senator Scott. Football time 30 seconds.
Chairman Shelby. I will give you more time.
Senator Scott. Thank you, sir.
How about on increasing the reserve requirements?
Mr. Hochberg. Well, you know, there are a number of reforms
that have been proposed. There are currently four different
bills, two from your colleagues in the House and two here in
the Senate.
Senator Scott. Yes.
Mr. Hochberg. What we have done is provided, in the past
and continuing, technical assistance to any member who would
like to review reform by reform. I think that probably is a
more thoughtful way of doing it than just my shooting from the
hip here in terms of some of the generalized reforms. But I
think that we are looking for a solution, our exporters and
their workers are, and we want to work out with this Committee
and with the House to find what is the proper oversight so we
can make sure that we move forward and give some certainty to
those exporters.
Senator Scott. Last question, since you said you were not
going to answer it, I will ask it anyway. On the pilot program
for reinsurance, thoughts?
Mr. Hochberg. I think that is a good--we would be
interested in pursuing that pilot. If it is in our
reauthorization, we certainly would be very much open to that.
Senator Scott. In the House, I have supported the Ex-Im
Bank in the past, and I will support the Ex-Im Bank today as
well or in the future. My concern is that we do need some
reforms in the process. I think it is very important for us to
figure out a path going forward. And, frankly, if we were able
to negotiate something other than a unilateral disarming, I
would be open to that as well. So I wanted to get your thoughts
and perhaps have a longer conversation with you about the
necessity of reforms as we move forward.
Mr. Hochberg. Well, if I can just add, you know, we have
continually improved the Bank. We had 18 reforms in 2012.
Senator Scott. I saw that.
Mr. Hochberg. We have complied with all of them. And we are
not also just waiting for Congress to come up with reforms. I
am very proud of the 450 people at Ex-Im Bank because we are
constantly finding better ways to improve, be sleeker, be more
thoughtful about risk and more attentive to the needs of
workers and taxpayers.
Senator Scott. Thank you.
Thank you for the additional time.
Chairman Shelby. Senator Donnelly.
Senator Donnelly. Thank you, Mr. Chairman. Mr. Hochberg,
thank you for being here.
Yesterday, Mr. Hochberg, one of the witnesses talked about
how the Ex-Im Bank was creating $140 billion in taxpayer risk
to the people of the United States, and I think by that they
were referring to the loan guarantees the Ex-Im Bank has made
for your customers, the other product portfolios. What has your
loss ratio been?
Mr. Hochberg. Well, we report our defaults to Congress
every 90 days, so every 90 days Congress is updated. Our
current default rate is running less than one-fifth of 1
percent, 0.167 percent, less than one-fifth of a percent, and
we report that, as I said, every 90 days.
Senator Donnelly. How is that considered industry-wide?
Mr. Hochberg. I would say most commercial banks, apples to
apples, are several multiples of that.
Senator Donnelly. And so when they talk about that, what
they are actually talking about is just the loan portfolio that
any bank would have, that any operation would have. And so at
the end of, you know, just let us say the last 3 years, did you
have a profit or a loss at the end of the last 3 years?
Mr. Hochberg. We have sent money to the Treasury, last year
$675 billion; the year before, over $1 billion; and over the
last two decades, $6.9 billion. And that is actual cash that
leaves the checking account of the Ex-Im Bank and goes to the
Treasury for taxpayer--for deficit reduction. It is not an
accounting adjustment. That is actual cash.
Senator Donnelly. As you know, I am from the State of
Indiana. One of our mutual friends, Peter Baranay, has been
very important in the operations of the Ex-Im Bank, has run a
great company, has used the Ex-Im Bank, has helped in
management of it. And I think that is reflective of our State,
its small and mid-sized businesses, over 100 companies that
have benefited from the Bank in recent years. And, you know,
overall, do you think that those 100 companies would have found
similar financing opportunities had Ex-Im Bank not been around?
Mr. Hochberg. I mean, companies have to certify that we are
the lender of last resort, that they could not find comparable,
competitive financing on the outside. You mentioned Peter. ABRO
is a good example. As they have grown with us, they now are
able--they now can find it in the private sector. They could
not 3 or 4 years ago. But, frankly, working with Ex-Im Bank,
there sales have grown to a point it is now bankable by the
private sector and he is able--and if that changes, we would
welcome that.
Senator Donnelly. Which is pretty much almost a built-in
formula for success for you and for the businesses, which is
they work with you, and it is also good for our banks in that
now there is no need for the Ex-Im Bank, and----
Mr. Hochberg. In that particular case.
Senator Donnelly.----we are sending exports overseas and
jobs that stay right here in the United States of America.
One other question I wanted to ask you. So if the
financing--if the Ex-Im Bank was not there, where would
companies--where would some of these small companies get
financing if they are sending product overseas? What other
opportunities do they have?
Mr. Hochberg. Well, frequently what they have to do, which
is very bad for business, is demand 100 percent payment in
advance, and the problem is that is not very competitive. So
their competitors in China, Germany, Korea, and you name it,
sell in open accounts. So with Ex-Im Bank, we are able to
provide the financing that they can meet the foreign
competition.
I should quickly add in the short-term space, which a lot
of the small businesses are operating in, we have seen as many
as maybe 20 more export credit agencies focused on short-term
and small business in the last couple of years. So I think
there is even more competition for small business exporters
than there has been in the past.
Senator Donnelly. Well, I just want to conclude by saying
that in Indiana, those over 100 businesses appreciate what the
Ex-Im Bank has done. The families who their mom or dad have a
really good job and have the chance to buy a home and take them
on a vacation, those families really appreciate it as well. And
that is the real world. It is not theory. It is not, you know,
some economic postulation. It is the real world of someone who
gets a job because products are being shipped overseas that
were made in Muncie, Indiana, rather than in Beijing or
somewhere else. So thank you very much.
Mr. Hochberg. Thank you.
Chairman Shelby. Senator Cotton.
Senator Cotton. Mr. Hochberg, thank you for being here this
morning. On Tuesday, we had a very lively panel between ardent
opponents of Ex-Im Bank and equally ardent proponents of the
Bank. One point we discussed was an analogy to arms control
that the United States should not unilaterally disarm in the
export credit financing world.
There is disagreement about how much of the Bank's
activities are done for that reason, to meet foreign
competition from foreign ECAs. Veronique de Rugy from the
George Mason Mercatus Center, who, as you know, is an opponent
of the Bank, estimates it at about 30 percent of the Bank's
portfolio. Linda Dempsey, from the National Association of
Manufacturers, an equally strong proponent of the Bank,
disputed that, did not have the numbers at her fingertips. Can
you tell us how much of your portfolio is made to meet
competition from foreign ECAs?
Mr. Hochberg. It is about two-thirds to meet foreign
competition and about one-third or so is where there is not
availability. So sometimes--frequently, that is a lot of the
small businesses, there just simply is not the availability on
any competitive terms.
One exporter said, ``Yes, I can get financing in Qatar, but
they want 22 percent interest.'' And he said, ``I do not need
to do the sale at 22 percent interest. That essentially
takes''--``I would have a loss in that case.
But we verify that in the application. The applicant has to
certify--and I answered earlier--under perjury why they need
the loan from us, why they need the support or the guarantee
from us, why they need our financial assistance.
Senator Cotton. Even Ms. Dempsey, who allowed that this is
the strongest argument in favor of the Bank, had said in a
world where we were not unilaterally disarming but
multilaterally disarming, that she would not think the United
States needs to have an export credit agency like the Ex-Im
Bank. Do you agree with that assessment? If no other government
had an export credit agency, the Export-Import Bank would not
need to exist here?
Mr. Hochberg. Well, the challenge with that is--and I met
with a lot of my foreign counterparts just in the last few
weeks--all of us, including the Ex-Im Bank, really filled in a
gap during the financial crisis. Our lending during the
financial--in 2012 was about double the level today. So when
banks constrict lending--and Basel III is one of the impacts on
that in terms of particularly longer-term loans. I use this
analogy: We are a little bit like the fire truck. You know, we
respond to an emergency, and then we just leave it parked in
the garage when there is not an emergency. So even if everybody
does--if everybody got rid of their export credit agency, I
think they would invent them once again when we have a
financial crisis and banks are reluctant to lend, as they were
just a few years ago.
Senator Cotton. So it sounds like you think we would need
to maintain the Ex-Im Bank even if we can negotiate a treaty
with the other few dozen countries that have their ECAs.
Mr. Hochberg. Well, first of all, there are about 85 export
credit agencies around the world, and some are members of an
international agreement called the ``Organization for Economic
Cooperation and Development'' that does provide some
regulation, guidelines, but many--China, Russia, Brazil,
India--are not a member. So they have very opaque--they can
offer any terms they want, as long as they want, as low an
interest as they want, subsidize rates, and we really are not
able--that is a real threat to U.S. competitiveness.
Senator Cotton. OK. One common point that is made was made
on the panel Tuesday, and you have made it this morning on a
couple occasions, and that is, the lack of private financing
and how you can be a lender of last resort. The obvious
response to that is if there is no market in the private
financing markets for a particular project, maybe that is the
market sending a signal that the profit is not--or that the
project is not going to be profitable or that it is too risky.
What is your strongest response to that?
Mr. Hochberg. Well, first of all, we are countercyclical.
When the banks pull back--I mean, we have the best private
sector in the world, the best private sector banking. But when
the banks pull back, sometimes they pull back for internal
reasons. We are countercyclical, as I mentioned. Senator, in
2012, we did over $36 billion worth of loans, guarantees and
insurance, and last year we did 20. So there was less of a need
for us. There was not zero need. There was less of a need.
Projects like nuclear power plants, certain other
technologies are just harder to finance. Nuclear power plants,
you know, need an 18- to 20-year loan. That is very hard to
secure in the private sector. So we do fill in countercyclical
and also products and services that are particularly hard to
finance.
Senator Cotton. OK. I would like to discuss one particular
example, just to get a sense of your thinking on it. This has
been in the news lately. This is reports from Space News as
well as the Sydney Morning Herald, the NewSat deal. The Ex-Im
Bank helped underwrite loans to NewSat, a startup satellite
company in Australia, that was going to buy a satellite from
Lockheed Martin. I think just 2 weeks ago, it was, the
bankruptcy court in Delaware said that NewSat is in default,
that Lockheed Martin, which has received $193 million for this
satellite, now owns it. Most of that money came from the Ex-Im
Bank.
Lockheed Martin is a top-tier defense contractor. They make
some of the best products in the world. Australia is a First
World country. They are part of our Five Eyes intelligence
partnership. This is not a Third World country that does not
have the rule of law, property rights, independent courts, and
so forth.
If Australian-based NewSat could not get private market
financing to buy this satellite, does that not send a signal
that maybe this small startup satellite company that now is
bankrupt, after widespread reports of mismanagement and
overspending on travel and luxury yachts, should not have
gotten money to buy a satellite in the first place?
Mr. Hochberg. Well, Senator, there are two countries in the
world that make satellites: the United States and France. And,
frankly, we go toe to toe with them all the time. France's
export credit agency fully supports these satellite sales. So
of late, competition has increased, and we have had to do more
in satellites to counter that foreign competition. Similar to
nuclear, satellites are particularly acompetitive and harder to
finance. So----
Senator Cotton. And France's agency was part of this
project. They face losses as well. They have greater chances of
recovery, though, than does the American taxpayer.
Mr. Hochberg. Well, in this case----
Senator Cotton. One might say we should have let France
finance this sale, and they could have taken the entire loss
themselves as opposed to imposing it on the American taxpayer.
Mr. Hochberg. Well, first of all, customers pay us a fee.
The fee fills our loan loss reserve account. So we are so--we
are far ahead of the game here. We are still in the
negotiation. This satellite is not completed. It is not due to
launch. There is a lot of time between now and that point. We
cannot write this book from the last chapter forward. So we
still have a ways to go. In no way is this a done deal.
Second, these were jobs in the United States. We supported
250 jobs at Lockheed and 650 indirect jobs. So there are a lot
of jobs at stake, and we finance a number of satellites. We do
a good due diligence. From time to time, a deal will experience
difficulties. That is what capitalism is about. Everything does
not go perfectly according to plan. Sometimes deals do better
than expected, sometimes worse, sometimes exactly. This is a
project that is in labor. It is difficult right now. We are
working through it. I still think we are going to find a better
solution. Yes, the news sounds rather grim, but I did not write
that story.
Senator Cotton. Well, I will just say in conclusion,
because my time is well past expired, is that what capitalism
is primarily about is putting private dollars at risk. You
never know if a project is going to succeed beyond anyone's
wildest measure or fail unexpectedly. But when profits and
losses are private, then you have the best incentives created.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you.
I have a couple of questions, Mr. Chairman. What percent of
the $47 billion--we have been told $47 billion that you have
underwritten exports. What percent of that are airplanes,
roughly? In other words, of your portfolio, what----
Mr. Hochberg. I am confused. You said $47 billion? Last
year, we did $27 billion.
Chairman Shelby. Well, I am talking about overall. We had a
figure that U.S. exports for 2014 were $2.35 trillion.
Mr. Hochberg. Oh, yes.
Chairman Shelby. And that you financed about 2 percent or
$47 billion.
Mr. Hochberg. Actually, we did about $27 billion worth of
exports.
Chairman Shelby. OK.
Mr. Hochberg. Some of those exports, remember, tourism
coming to America is also an export.
Chairman Shelby. OK. Well, what percentage of your
portfolio dealt with financing airplane sales?
Mr. Hochberg. Last year, in 2014, we financed in the range
of about 35 percent of the----
Chairman Shelby. Thirty-five percent of your portfolio.
Mr. Hochberg. Thirty-five percent. And, actually, I should
add the smallest number of airplanes were financed last year
than the previous dozen years. We actually had the smallest
footprint we ever had in that time period.
Chairman Shelby. This question has been asked many ways, I
guess, but let us say that we have an airline manufacturer--we
know it is Boeing--and they are going to sell some planes to
the United Arab Emirates or their airline--you know, a very
rich country and so forth. Could an airline here like--we will
just use any of our airlines--Southwest, USAir, Delta, you name
it, domestic. Could they get the same kind of financing here
that you give to their world competitor overseas?
Mr. Hochberg. We have the best capital markets in the
world----
Chairman Shelby. I know.
Mr. Hochberg.----so anytime a U.S. carrier finances a
plane, we actually run the numbers, and we say if they were a
foreign carrier, what would we charge, to make sure we are
charging more. We verify every time there is a financing of a
U.S. carrier. We compare that to what a foreign carrier would
pay with the same credit history, the same credit rating.
Chairman Shelby. Do you give them the same rate?
Mr. Hochberg. No, the rates are determined internationally.
What I am trying to say is we want to verify that the rates are
proper and high enough. We have between doubled and tripled
their fees we charge foreign carriers since 2011 to make sure
we are not competing unfairly with the U.S. carriers, to make
sure that the rates are higher than domestic airlines pay.
Chairman Shelby. With what you are just saying, what is the
advantage of and why would you have an Export-Import Bank if
somebody could access a country--we will just use United Arab
Emirates, blue chip, with all the oil and money I guess they
will ever need. They could borrow on the open market, so they
cut a deal with the Export-Import Bank. Obviously, it is a
lower interest rate. It has got to be something. Are you saying
it is not?
Mr. Hochberg. Well, the interest rate, again, they pay us a
fee, and as a result, they can borrow at a lower rate than they
might otherwise be able to borrow. But I am trying to say it is
still lower than U.S. carriers pay. Yes, it is lower than they
could access otherwise, but the difficulty is that we are in
head-to-head competition with Airbus.
Chairman Shelby. We understand that.
Mr. Hochberg. And so we have got to level the playing
field, when they have a choice, they are going to buy an Airbus
plane or a Boeing plane.
Chairman Shelby. But our airlines here are paying more for
their money than, say, their competition in the world if you
finance those airplanes?
Mr. Hochberg. No. Our airlines still pay less----
Chairman Shelby. You just said they did.
Mr. Hochberg. They pay less. I thought the question was
would Emirates----
Chairman Shelby. Who pays less?
Mr. Hochberg. U.S. carriers pay less.
Chairman Shelby. Pay less in finance?
Mr. Hochberg. Yes.
Chairman Shelby. Than the others do overseas?
Mr. Hochberg. Yes. Based on our fees, yes.
Chairman Shelby. Why would an airline like United Arab
Emirates or somebody like that, a very rich country, pay more
when they could go to the market and get less?
Mr. Hochberg. Well, the U.S. carriers pay less because they
can borrow here, and we have the most fluid and the deepest
capital markets. Foreign carriers have a much harder time
accessing--the capital markets in their respective countries
are not frequently--are usually not as deep.
Chairman Shelby. Let me ask you a final question. If 98
percent of our exports, which was $2.35 trillion in 2014, did
not access any credit from the Export-Import Bank, only 2
percent, does that give you room to think if only 2 percent of
our exports are going through the Export-Import Bank, do we
really need the Export-Import Bank? I just pose the question.
Mr. Hochberg. I think we should be proud of the fact that
98 percent in our country have private sector financing. The
fact is we have the best private sector, but it does not do
everything. Small businesses have challenges. We talked about
nuclear. We talked about satellites. We talked about certain--
Sub-Saharan Africa. There are gaps in that field, and we only--
you know, we do not do very much, Senator, in Western Europe.
We do not need to. But we do it in markets that are hard or
products that are hard.
Chairman Shelby. Third World markets.
Mr. Hochberg. Developing economies or where we are facing a
lot of competition such as we mentioned with Airbus or Siemens
or Mitsubishi or some other giant global firms.
Chairman Shelby. Any other questions?
[No response.]
Chairman Shelby. Thank you, Mr. Chairman. Thank you for
your patience with us here today with the break, and the
Committee is adjourned.
[Whereupon, at 11:56 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF FRED P. HOCHBERG
President and Chairman, Export-Import Bank of the United States
June 4, 2015
Chairman Shelby, Ranking Member Brown, and distinguished Members of
the Committee, thank you for inviting me to testify before you today.
ABOUT EXIM BANK
The Export-Import Bank (EXIM Bank) was created to support American
job growth by facilitating the export of American goods and services.
Each year, EXIM Bank empowers thousands of U.S. businesses--the vast
majority of which are small--to contend for sales in an increasingly
competitive global marketplace. With 95 percent of the world's
consumers living beyond America's borders, U.S. companies are
increasingly looking abroad so that they can grow sales and add jobs
here at home. Because of global trends in financing, however, U.S.
companies are no longer simply competing for sales against foreign
businesses--they're also competing against countries offering generous
financing terms to their domestic exporters. American exporters face
additional competitive headwinds due to broader trends in global trade;
for three decades prior to the financial crisis, global trade grew at
twice the rate of the global economy, but today, that rate has been cut
in half. In an ideal world, competitive financing terms would not be an
additional challenge faced by our businesses; however, countries such
as China, Russia, and others increasingly see expanding their
respective nations' exports as critical to growing their economies. It
is incumbent upon America to continue to lead, and to strive to level
the playing field in the global export arena--restoring free market
factors to their rightful place at center stage of competition. That is
where the EXIM Bank comes in.
EXIM Bank is a small and effective government agency whose
approximately 450 employees are passionate about empowering businesses
to create more American private sector jobs, while serving as
responsible stewards of taxpayer dollars. EXIM fulfills its mission to
support U.S. jobs in two ways. First, EXIM fills the gaps when the
private sector is unable or unwilling to provide financing for U.S.
exports--a particularly important role for American small businesses,
which often find it difficult to obtain export financing from their
local bank, and for exports to the developing world, which accounted
for 68 percent of EXIM's authorizations in 2014. Second, the Bank seeks
to ensure a level playing field for U.S. exports by making available
financing that encourages buyers to make decisions based on free market
factors such as price and quality, rather than on foreign competitors'
state-sponsored or cut-rate financing.
EXIM Bank does not pick winners and losers; rather, it serves any
eligible American business seeking competitive financing to export
goods and services. EXIM's customers pay fees and interest for the
financial services offered by the Bank, and as a result, EXIM Bank is a
self-sustaining agency. Over the past two decades, EXIM Bank has sent
nearly $7 billion to the U.S. Treasury. Consequently, if EXIM Bank were
not reauthorized, the agency would no longer be able to serve as a
budgetary offset.
EXPORT-IMPORT BANK REAUTHORIZATION ACT OF 2012 (P.L. 112-122)
In May 2012, the Export-Import Bank Reauthorization Act of 2012
(P.L. 112-122) was passed by Congress with overwhelming bipartisan
support in both chambers--330 Republicans and Democrats in the House
and 78 in the Senate. The vote carried on a long tradition of
bipartisan support that has existed for 81 years.
To be clear, every action and study required in the Bank's 2012
bipartisan reauthorization has been completed and implemented, or is
being complied with on an ongoing basis (Attachment 1). Of the 16
recommendations made by the Government Accountability Office (GAO)
since the 2012 reauthorization, EXIM has addressed 15, and is working
to address the final recommendation (Attachment 2). Further to the work
we do with the GAO, the Bank regularly consults with the Office of the
Inspector General (OIG). Since early 2012, the Office of Inspector
General has issued 26 reports and follow-up evaluations containing a
total of 145 recommendations. Of those 145 recommendations, EXIM Bank
has fully concurred with 143 and has fully implemented 92 to date. We
are diligently working to fully implement the remaining 51. On the
remaining two unresolved recommendations we continue to work with the
OIG on the best path forward (Attachment 3). We have closed four
additional recommendations since the April 15th hearing.
I fully respect and would like to thank the Committees, Congress,
the Office of the Inspector General, and the GAO, as well as the EXIM
Bank employees, all of whom have played an integral role in ensuring
effective oversight of the Bank. This attention and oversight has
helped the Bank to become a better institution, and has allowed us to
better achieve our shared goals of growing U.S. exports while
protecting American taxpayers. Over the past several years, the Bank
has become more transparent, heightened its focus on risk, expanded its
attention on small business and textiles, and is increasingly mindful
of global competition--all of which has made the Bank a more effective,
more resilient institution supporting U.S. job growth.
ENHANCING PRIVATE SECTOR COMPETITIVENESS
The top priority at EXIM Bank has and will continue to be to
support American jobs by facilitating U.S. exports. In FY 2014, EXIM
Bank supported 164,000 U.S. jobs through financing approximately $27.5
billion worth of exports. In accordance with its Charter, the Bank must
first and foremost consider a reasonable assurance of repayment
standard for the Bank's approval of financing transactions. Except in
certain cases that are clearly and carefully defined in EXIM Bank's
Charter, EXIM Bank support is only available to finance exports to
buyers that lack sufficient private sector liquidity or capital to
finance most transactions.
Transparent & Consistent Lending Standards
EXIM Bank's practices adhere to competitiveness and transparency
standards established by the Organisation for Economic Cooperation and
Development (OECD) Arrangement on Guidelines for Officially Supported
Export Credits. In an effort to promote a level global playing field
for exports based on free market competition, the OECD Arrangement put
into place responsible market based lending and transparency rules,
which for several decades governed the totality (100 percent) of
official export credit support worldwide. Today, only 16 years removed
from that 100 percent figure, the share of official export support that
still falls under these guidelines has now dropped to 35 percent (this
includes tied and untied financing), as countries such as China and
Russia, which operate outside of the OECD Arrangement, have begun to
aggressively back their domestic exporters with unregulated, opaque
financing. Even among countries that adhere to the OECD guidelines,
competition is increasing. For example, Korea's medium- and long-term
official export support was more than double that of the United States
in 2014, despite the fact that the U.S. economy is 11 times larger than
the Korean economy.
Equipping American Businesses To Compete and Promoting a Free and Open
Market
More often than not, American businesses and workers aren't simply
competing against their Chinese, Russian, and French counterparts; more
and more, they're being asked to compete against `China, Inc.' Though
the United States remains well-stocked with innovative businesses of
all sizes--many of which are perfectly capable of winning sales
opportunities on their merits throughout the world--American companies
aren't always able to bring competitive financing packages with them to
close a sale, which is increasingly required today. Even those that can
secure financing from private lenders face a serious disadvantage when
going up against foreign rivals offering generous state financing
support of their national champions. This trend has the potential to
threaten America's global economic leadership.
I just returned from a meeting with the Berne Union, a group made
up of my counterparts from many of the 79 and counting export credit
agencies around the globe. At that meeting, I wanted to know whether
they anticipate doing more or less to support their domestic exporters
over the next 5 years than they currently do. Japan, Korea, Russia,
Germany, France, United Kingdom, Brazil, and others all indicated that
they expect to accelerate their official export credit backing for
their exporters. Generally, China is hesitant to share such forecasts
with the world, but no serious observer could possibly anticipate
anything other than rapid, aggressive acceleration of official export
financing support from China in the years to come. Only Austria and
Norway indicated they did not expect significant growth in the coming
years.
Our European rivals in particular are keenly focused on job growth.
Following our lead, they are putting increased emphasis on supporting
their small business exporters. As a result, there's going to be more
competition than ever for U.S. small businesses looking to win sales in
global markets. And that's to say nothing of larger foreign exporters
who will have access to more financial backing than ever before as they
compete for business against some of America's largest manufacturing
employers. It is also important to remember that those large
manufacturers support extensive small business supply chains in cities
and towns across America.
Additionally, as my foreign counterparts acknowledged their export
credit agencies have become increasingly critical resources in the face
of financial crises--both global and regional. When private financiers
withdraw from regions or sectors that are experiencing downturns,
export credit agencies are equipped to step in so that their domestic
exporters don't experience a drop in sales--thereby maintaining
domestic jobs. Export credit agencies are like fire trucks in that
sense--not always necessary, but, when disaster strikes, absolutely
essential. Like fire trucks, export credit agencies have a security
function, safeguarding U.S. exporters' sales from the fires of global
and regional financial meltdowns. You don't sell off the fire truck
just because there doesn't happen to be a fire at this time. No one can
predict when or where the next crisis will hit.
Other countries are aggressively supporting their commercial
sectors as a means to enhance their sphere of influence. For example,
in February, 12 former national security officials sent a letter to
Congress stating:
By way of example, the government of China has announced a new
initiative to devote an additional $10 billion in export credit
to Africa--bringing China's total to $30 billion, roughly the
equivalent of the EXIM Bank's global volume for the year. This
will enable Chinese firms to expand their reach in the
continent--particularly in the infrastructure sector, where
projects can have a lifespan of 20 to 30 years. In an
environment such as this, we should be exploring how to
strengthen the EXIM Bank through sound reform and expand its
efforts to counter the aggressive moves of our economic
competitors (Attachment 4).
GOVERNMENT ACCOUNTABILITY
EXIM Bank is a demand-driven agency; EXIM does not pick winners and
losers. Therefore, EXIM Bank does not set pre-determined exposure
limits for industries, companies, and countries. Within those
limitations, the Bank's rigorous underwriting and due diligence
processes ensure that the standard of reasonable assurance of repayment
embedded in our charter is achieved for all approved transactions. The
Bank has a comprehensive risk management framework as noted by a recent
GAO Audit (GAO Report 13-303). EXIM Bank continually improves the
accuracy and reliability of its monitoring and loss reserve systems
based on recommendations from internal and external auditors, OMB, OIG,
GAO, as well as private sector best practices. The Bank's Country
Limitation Schedule, which is derived from the Interagency Country Risk
Assessment System (ICRAS, chaired by OMB) country rating process,
provides policy limitations on the Bank's business based on country
credit considerations. The Bank's low default rate is evidence that
this system of portfolio management is effective.
Safeguarding American Taxpayers from Excessive Exposure
Essential to protecting taxpayer dollars is a solid risk management
framework which starts with effective underwriting for potential
transactions. After a new transaction is authorized, the Bank focuses
on proactive monitoring of the credit, through both rigorous due
diligence and documentation. This proactive management framework
prevents potential defaults and allows the Bank to recover the rare
actual defaults, as noted in a recent GAO audit (GA0-13-446).
The result of our strong focus on comprehensive risk management:
our low default rate of 0.167 percent as of March 31, 2015.\1\ As
called for in the 2012 reauthorization, we now report our default rate
to Congress every quarter, using a methodology that is completely
transparent. As illustrated in the chart below, EXIM's default rate
remained low during the global financial crisis--the most realistic
`stress test' imaginable--and has declined since that time. In
addition, in FY 2014, almost 80 percent of the Bank's exposure was
backed by collateral or a sovereign guarantee.
---------------------------------------------------------------------------
\1\ This default rate is different than the default rates published
in the annual Budget Appendix due to differing definitions. The
reported rate in the Budget Appendix reflects projected defaults over
the life of the loan while the default rate in this report reflects
actual defaults at a particular point in time.
---------------------------------------------------------------------------
EXIM Bank's risk management framework has ensured a low number of
defaults, coupled with high recovery rates on those rare credits that
have entered into default. Since the Federal Credit Reform Act went
into effect in 1992, the Bank has succeeded in recovering approximately
50 cents for every dollar defaulted in the portfolio. Claims are paid
from fees collected from the Bank's customers--not from taxpayers.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In addition to closely monitoring its exposure, EXIM Bank performs
regular stress testing of its portfolio to identify how the current
portfolio may perform in the future under stressed scenarios. Those
stress tests results are included in our quarterly default rate reports
that we send to Congress.
Stress testing provides a forward-looking assessment of the
potential impact of various adverse scenarios that could impact a
banking institution's financial condition and capital adequacy. EXIM
Bank's stress testing builds capacity to understand the Bank's risks
and the potential impact of stressful events and circumstances on the
Bank's financial condition. EXIM Bank's Inspector General recommended--
and EXIM accepted--that ``Ex-Im Bank should develop a systematic
approach to stress testing and should conduct stress testing at least
annually as part of its re-estimate process.'' The Bank accepted the
OIG's recommendations and took proactive measures to go one step
further by including an additional stress scenario, which assumes zero
recoveries for the Bank--a highly unlikely, but informative stress
test. The Bank will continue to monitor and report the results of these
future stress test scenarios to the U.S. Congress.
EXIM Bank has a culture of continuous improvement, and has
implemented numerous risk management improvements to further ensure
that we remain effective stewards of the taxpayers we serve. Equally
important is the Bank's commitment to improving how it measures,
controls, and mitigates risks. The Bank has made numerous advancements
in recent years, including:
1. Hiring a Chief Risk Officer;
2. Creating the Enterprise Risk Committee to examine and monitor
all bank-wide risk;
3. Creating a Special Assets unit to enhance recoveries;
4. Expanding proactive monitoring efforts;
5. Increasing staffing in our asset monitoring divisions by 33
percent;
6. Going beyond Federal requirements to implement mandatory ethics
training for ALL Bank employees;
7. Updating, streamlining, and simplifying domestic content
requirements;
8. Streamlining our application process to provide better customer
service and reduce decision time;
9. Enhancing the customer contact center, now operating from 8am to
8pm Monday through Friday with a team of trained operators; and
10. Implementing mandatory training on preventing and detecting
fraud for all loan officers/underwriters.
Small Business, Customer Experience, and Data Quality
EXIM Bank is constantly seeking out new ways to serve its customers
more efficiently without compromising our underwriting standards.
Expanding on the 2012 reauthorization efforts to improve our IT
infrastructure, we have taken additional steps to meet industry
standards and focus on data quality. With a new Chief Information
Officer, the Bank is proactively working to improve these practices.
Alongside this effort to improve technology, EXIM has streamlined its
application processing, which has seen the number of days needed to
reach an authorization decision cut in half since 2009.
Additionally, as part of our ongoing efforts to enhance the
customer experience for current and prospective exporters, EXIM Bank
initiated a new and improved customer contact center that includes an
improved 1-800 number experience, along with a new email response
system. The contact center also has online chat capabilities that
allows small businesses to get questions answered quickly. The new
contact center is the latest EXIM Bank initiative aimed at bringing our
customers ``government at the speed of business.'' EXIM Bank is one of
only four government agencies to have established a dedicated customer
experience function. In addition, to improve the quality, reliability,
and accuracy of the data we collect, we updated our application
processes to require that certain data be included prior to accepting
an application, such as number of employees, annual sales volumes, and
NAICS codes. By requiring this information, we are working to improve
our data quality as well as enhance the support we provide to our
customers, your constituents.
HISTORY OF ONGOING ACTIONS TO PREVENT CORRUPTION & FRAUD
As a U.S. Government agency, EXIM Bank takes rigorous proactive
measures to protect taxpayer dollars. Corruption and fraud mitigation
efforts begin with EXIM Bank participants meeting our ``Know Your
Customer'' requirements and ``Transaction Due Diligence'' standards.
Risk-based due diligence is performed by staff to underwrite
transactions. Subsequent due diligence is performed post-authorization
using a risk-based sampling of authorized transactions to identify
possible corruption and fraud. Any evidence of corruption and/or fraud
uncovered as a result of these activities is referred to the Office of
Inspector General (OIG), which began operating in 2007 and has a team
of 23 employees. The successful record of the OIG in prosecuting
parties involved in attempting to defraud the Bank is an important
deterrent as well.
EXIM Bank has zero tolerance for fraud, waste, or abuse and takes
thorough and immediate action when any hint of misconduct or fraud is
detected by the safeguards we have in place, including working closely
with OIG. EXIM Bank conducts mandatory ethics training for all
employees on an annual basis, including specific segments on rules
relating to gifts from participants in EXIM Bank programs.
Additionally, there is mandatory fraud-awareness training for all loan
officers/underwriters on an annual basis. This training is designed to
maintain a vigilant awareness of the risk of fraud in EXIM Bank
transactions.
EXIM's culture of high ethical standards is evident in the Bank's
collaborative work with the OIG and support of OIG investigations and
Department of Justice prosecutions of fraud matters. Of course, any
organization can experience a bad apple. However, in the last six
years, there has been only one indictment involving an EXIM Bank
employee. In fact, the situation was uncovered thanks to a tip received
by the OIG from a fellow EXIM employee. That employee recently pled
guilty and is facing sentencing. Fortunately, this was an isolated
incident. Unfortunately, like many other government agencies, there are
also those outside the agency who try to take advantage. As Michael
McCarthy, Acting Inspector General, stated in his testimony before the
joint subcommittees of the House Financial Services Committee and House
Oversight and Government Reform Committee on April 15, 2015: ``So what
I can assure you is at this time in those other cases that we are
investigating [sic] do not have evidence that we have developed of EXIM
Bank employee internal complicity or participation . . . In those other
cases, [interruption] at this point, [interruption] within the 31
cases, I would not at this point expect indictments of EXIM
employees.''
EXIM Bank is committed to operating under the highest ethical
standards. The agency's ethics program is not only fully compliant with
all laws, but goes beyond government regulations, and policies that
govern this aspect of our work. We conduct comprehensive ethics
training for all employees and foster an environment where employees
are encouraged to ask questions and report suspected unethical
behavior. Among other duties, our ethics staff:
Reviews 227 Confidential Financial Disclosure forms and 55
Public Financial Disclosure forms and conducts conflicts
reviews;
Reviews outside activity requests from Bank employees;
Provides advice to employees on ethics questions;
Provides advice on post-employment restrictions for current
and former employees;
Provides travel guideline advice; and
Monitors the Bank's ``Ethics Advice'' email account, which
was created to provide employees quick and discreet ethics
advice on basic ethics questions.
Furthermore, all new employees receive introductory ethics training
upon arrival and mandatory training annually thereafter. The Bank
brings in the Office of Special Counsel (OSC) to conduct Hatch Act
training as well. Our ethics staff ensures 100 percent participation of
all employees (above and beyond the minimum requirements of GS-11) by
tracking who attends the training and following up with employee
supervisors to ensure attendance. Employees who are unable to attend
live sessions take an electronic course through the AGLearn online
learning program.
Also, the Bank introduced the ``Ethics Guide for Federal Government
Employees'' a pocket-sized guide to provide a quick reference for
employees to refer to ethics rules. We incorporated the use of the
guides into the 2013 training module, and we distribute the guides to
all new employees. The guides have been well-received by the staff and
resulted in increased employee engagement in ethics rules.
CONCLUSION
We appreciate the widespread bipartisan support of EXIM, and are
eager to continue to support American jobs, as the Bank has done
effectively and efficiently for more than eight decades. Providing
long-term certainty to U.S. businesses seeking to compete in overseas
markets is imperative as they make long-term plans to grow their global
sales, to hire more workers, and to invest in innovation. Deciding to
export is not a last-minute decision, but one that requires extensive
planning. For companies like Bassett Ice Cream in Philadelphia, L&H
Industrial in Gillette, Wyoming, or Murray Equipment in Fort Wayne,
Indiana, EXIM Bank plays a critical role--and one that by definition
would not be filled by the private sector.
Selling goods across borders is not the same as selling goods
domestically. Access to credit is frequently what is needed to make
global projects happen. When U.S. companies compete for international,
large-scale infrastructure projects, the financial options are more
limited. The larger the project, the greater the impact on a company's
day-to-day cash flow. Zeeco, a combustion technology company in Broken
Arrow, Oklahoma, knows this fact very well. Zeeco started as a small
business, but due to export sales has been able to triple its size and
grow into a medium-sized business. This was primarily due to the
superior products they provide, but also a result of the guarantee they
were able to obtain from EXIM Bank. That guarantee allowed them to
effectively compete with foreign rivals who were offering financing
packages as a part of their sales pitch. When I visited Zeeco in March,
they told me that commercial banks get nervous about making loans on
international transactions, and that unless you are investment-grade,
the commercial sector would not extend credit without a guarantee.
Zeeco is a great example of where EXIM Bank has been able to
simultaneously fill the gap and level the playing field.
Companies face a variety of challenges in competing for sales. The
U.S. Government should be there to break down barriers wherever we can,
not to put up more road blocks. We know that export-backed jobs pay up
to 18 percent more on average than other jobs and we also know that
exports have accounted for nearly one-third of our total economic
growth over the past 5 years. Right now, U.S. exports are at record
levels, representing over 13 percent of our GDP. But I think we can do
better, which is why the President is trying to open more markets for
American goods with bipartisan free trade agreements, and why EXIM
continues to work with the private sector to fill in commercial
financing gaps in order to encourage more U.S. exports.
Rising competition and an ever-globalizing world have made EXIM
Bank more vital than ever for reducing the risks faced by American
exporters so that they can unleash opportunity in the form of new jobs.
I look forward to continuing to work with you on empowering your
constituents to export, grow, and hire more American workers.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN SHELBY FROM FRED P.
HOCHBERG
Technical Defaults
Q.1. In 2012, EXIM's Inspector General reported that EXIM's
limited definition of default may result in an understatement
of the Bank's historical default experience. Specifically, the
IG noted that EXIM uses a definition of default that does not
include technical defaults-that is, defaults that reflect a
client's failure to comply with specific conditions in the loan
agreement other than requirements for repayment.
LDoes EXIM determine the prevalence of technical
defaults in its portfolio?
LTo what extent do technical defaults provide an
early warning of future credit defaults?
LDo you think it is a problem that EXIM may not
properly estimate historical defaults?
LHow can you assess future performance if you do not
have a good sense of historical defaults?
LWhat would EXIM's default rate be if it included
technical defaults?
A.1. The Bank's default rate was established by Congress in
Public Law 112-122, the Export-Import Bank Reauthorization Act
of 2012. Section 6 of the Reauthorization Act mandates the Bank
to calculate the ``default on a payment obligation. by dividing
the total amount of the required payments that are overdue by
the total amount of the financing involved.'' The Bank is fully
compliant with reporting defaults as defined and required by
Congress. During his recent testimony to the U.S. Congress, the
Acting Inspector General for the Export-Import Bank noted on
the default rate that ``Congress provided the formula to how
the Bank calculates that. They have reported that. They have
been transparent about that formula.''\1\
---------------------------------------------------------------------------
\1\ Examining the Export-Import Bank's Reauthorization Request and
the Government's Role in Export Financing: Hearing before the Committee
on Financial Services, U.S. House of Representatives (June 3, 2015)
(Testimony of Mike McCarthy).
---------------------------------------------------------------------------
This default rate is very similar to that of the private
sector. The Federal Reserve reports the charge-off rates from
banks, using data from the Federal Financial Institutions
Examination Council. The definition of charge-offs is similar
to mandated default rate. Charge-offs, which are the value of
loans removed from the books and charged against loss reserves,
are measured net of recoveries as a percentage of average loans
and annualized.
Technical defaults are not predictors of future credit
defaults. Simple reporting requirements such as a 1-day delay
in providing financial statements would be considered a
technical default but has no bearing on future payment
defaults. EXIM Bank risk rates all transactions above $2
million on an annual basis. This risk rating is the appropriate
predictor of future defaults.
The Bank properly estimates historical defaults. Every
year, the Office of Inspector General (OIG) audits the Bank's
financial statements through an external auditor, Deloitte and
Touche. As part of their audit, the external auditors analyze
and review the Bank's historical defaults which are used as the
basis for future loss estimation or future performance. The
Bank has received unqualified or ``clean'' opinions going back
25 years. The Bank was also recently audited by the Government
Accountability Office (GAO). In their audit, GAO noted that the
Bank includes ``default and loss history'' to develop the loss
estimation model.\2\
---------------------------------------------------------------------------
\2\ GAO-13-303, http://www.gao.gov/assets/660/653373.pdf.
---------------------------------------------------------------------------
Lack of Historical Data, Vintage Analysis
Q.2. In 2013, the Government Accountability Office recommended
that EXIM retain point-in-time, historical data on credit
performance to conduct vintage analysis comparing the
performance of newer and older business. This technique can
help evaluate the credit quality of recent business by
comparing the early performance of these cohorts of financing
with the early performance of older financing cohorts. It can
provide early warning of potential performance problems in
newer business.
LFor what product types has EXIM conducted vintage
analysis?
LWhat has EXIM's analysis shown about the early
performance of its recent business compared to older
business at comparable points in time?
LHas EXIM incorporated this data into its risk
management practices?
A.2. The Export-Import Bank of the United States has retained,
beginning in 2013, point-in-time historical data for all major
product types. In fact, GAO recently issued a report examining
the status of this recommendation which stated, ``EXIM began
retaining such data in 2013. We therefore consider this
recommendation implemented and closed.''\3\
---------------------------------------------------------------------------
\3\ GAO-15-557, http://www.gao.gov/assets/670/669646.pdf.
---------------------------------------------------------------------------
This technique has helped EXIM Bank evaluate the credit
quality of recent business by comparing the early performance
of these cohorts of financing with the early performance of
older financing cohorts. Generally, recent business has
performed better than older financing at comparable points in
time. Finally, the Bank has incorporated this data into its
risk management practices.
Stress-Testing
Q.3. In 2013, GAO recommended that EXIM report its stress test
scenarios and results to Congress. Although EXIM subsequently
began providing stress test information in its quarterly
default rate reports, the reports do not analyze the adequacy
of EXIM's loss reserves under the stress scenarios or how the
concentration of EXIM's portfolio in certain industries and
regions could affect losses.
LWithout this data, how can EXIM be sure that it has
sufficient loss reserves?
LUnder what stress scenarios are EXIM's loss
reserves adequate to cover the corresponding losses?
LWhat progress has EXIM made, since 2013, to improve
its stress testing analyses by examining the impact of
correlated risks within the industries and regions
where EXIM's portfolio is concentrated?
A.3. As you mention, EXIM Bank has reported stress testing
scenarios and results to Congress. In fact, GAO issued a report
examining the status of this recommendation which stated ``EXIM
began reporting its scenarios and results in quarterly reports
to Congress on default rates, beginning with the report for the
fourth quarter of 2013. In that report, EXIM described the
stress test scenarios and provided some information about
results. Hence, we consider this recommendation implemented and
closed.''\4\
---------------------------------------------------------------------------
\4\ GAO-15-557, http://www.gao.gov/assets/670/669646.pdf.
---------------------------------------------------------------------------
EXIM Bank compares the adequacy of loss reserves under the
stress scenarios and has reviewed how the concentration of the
Bank's aircraft portfolio could affect losses. The Bank has
appropriate reserves to cover all expected losses. Every year,
the OIG audits the Bank's financial statements through the
external auditor Deloitte and Touche. As part of their audit,
the external auditors analyze and review the Bank's historical
defaults which are used as the basis for reserves for expected
losses. The Bank has received unqualified or ``clean'' opinions
going back 25 years.
Risk and Soft Portfolio Targets
Q.4. The Inspector General has recommended that EXIM set ``soft
portfolio concentration limits'' for EXIM-informal thresholds
for total exposure in industry, region, or risk ratings to use
as internal guidance.
LWhat evaluation has EXIM completed with respect to
this approach?
LWhat decisions has EXIM made about using such
limits to help the bank manage its risk?
LIf such limits are not being implemented, why not?
A.4. EXIM Bank has begun building a portfolio risk dashboard
that has soft portfolio limits within it by industry, region,
and risk ratings. This dashboard has been presented in its test
phase to the Bank's Enterprise Risk Committee (ERC). The ERC
approved the implementation of soft portfolio concentration
limits by the 4th quarter of fiscal year 2015. However, due to
a lapse in EXIM's authority, as of July 1, 2015, the Bank is
unable to process applications or engage in new business or
other prohibited activities. Work on the impact of new
authorizations on soft portfolio concentration limits has
ceased. Currently, the Bank is building functionality into the
dashboard to ascertain the impact of macroeconomic conditions
on the Bank's existing portfolio.
Transparency
Q.5. The National Review reports that around July of last year,
the Bank decided to take down Bank data, listing company and
lender names from ``Data-dot-gov for more than 7 months. When
information reappeared, it was abridged and missing fields like
``primary buyer'' and peppered with references to ``unknown,''
``various,'' and the like. The National Review reports that the
only information on the site was business names, and not
proprietary information.
LWhy did the EXIM first restrict and then ``scrub''
its publicly available data?
LWouldn't the information be useful to inform the
public, and Congress, for that matter, where EXIM's
taxpayer-backed billions are being spent, particularly
what foreign countries?
LThe National Review suggests that the Chairman made
the decision to remove and scrub the data, is that
true?
A.5. In response to exporter feedback, in early 2015, EXIM
undertook a review of the published datasets. The Bank's Office
of General Counsel received customer feedback on the Bank's
data as presented to the public. Based on the feedback
provided, the Bank's Office of General Counsel, the Office of
the Chief Financial Officer, and the Office of the Chief
Information Officer recommended to the Bank's Chief Risk
Officer that the datasets be temporarily taken down and revised
to protect exporters' business confidential information. After
the action was taken, the Chairman was made aware of the
feedback and remedy to temporarily remove the datasets from the
public site in order to clarify and revise the data. The
Chairman directed Bank management and staff to quickly address
any issues and return the data to the public electronic forum.
The datasets were removed from the Bank's Web site for 15 days.
The Bank is committed to transparency and the datasets
continue to provide information useful to inform the public and
Congress on the Bank's transactions. In fact, on May 27, 2015,
at the request of the House Oversight and Government Reform
Committee (HOGR) majority staff, the Bank's Senior Vice
President of Congressional Affairs, Chief Information Officer,
Chief Financial Officer, and Deputy Chief Financial Officer
briefed the majority staff on the datasets as revised and
explained the data provided and clarifications made.
To eliminate duplicative fields, the Bank consolidated two
datasets into one dataset that includes all authorization
supported by the Bank. The single consolidated dataset provides
easier and more user friendly access to Bank information. The
Bank removed certain business confidential fields in the
dataset based on feedback from customers. The following fields
were removed from the dataset: primary supplier, primary buyer,
first claim payment date, claims paid amount, Dun and
Bradstreet (D&B) number, and applicant contact information
(which included various fields such as name, street, city,
etc.). The removal of these fields related only to the Bank's
voluntary and proactive release of information in the
electronic open formats.
The public dataset continues to include the exporter and
primary source of repayment for all transactions. For example,
for medium and long term transactions, the same information was
presented in both the supplier and buyer fields (i.e., the
``exporter `` is also the ``primary supplier'', and the
``primary buyer'' is also the ``primary source of repayment'').
The dataset includes multiple participants for each
authorization (i.e., applicant, lender, exporter, borrower, and
primary source of repayment). These participants can be and
usually are different entities within the same authorization.
As such, claim information fields and D&B number were removed
from our proactive disclosure format as this information, when
associated incorrectly to participants in a specific
authorization, would be misleading.
The Bank added new fields in the dataset to provide more
information to the public. The following data fields were added
to the dataset: ``Primary Export Product NAICS/SOC Code''
(Column 14), ``Primary Exporter City'' (Column 20), ``Primary
Exporter State Abbreviation'' (column 21), and ``Primary
Exporter State Name'' (Column 22).
In addition, the datasets, as they originally appeared,
contained designations of ``N/A'' and ``Various'', however, the
revision of the datasets is eliminating or clarifying such
designations.
In most cases, the ``N/A'' denotes ``not applicable'' as
certain categories do not apply to all transaction types. In
some instances, the ``lender'' field includes authorizations
where the lender is identified as ``N/A.'' The primary reason
for this designation is that these authorizations are insurance
transactions where there is no lender involved. In other cases,
the ``exporter'' field includes various records where the
exporter is identified as ``N/A''. The primary reason for this
designation relates to commercial bank-held insurance policies
which involve multiple buyers and exporters that are not
specifically identified at the time the policy is authorized.
At the time of shipment, the precise names of the exporter and
buyers are then reported to the Bank. To improve clarity of
data, the Bank revised the ``N/A'' value to the ``exporter''
field to ``Multiple-Exporters'' for these transactions. Last, a
smaller sunset of authorizations where the exporter name is
identified as ``N/A'' related to older insurance transactions
that migrated from a legacy system and the information is no
longer available. The information is over 9-years old and dates
from a 2006 data conversion and is a small subset of insurance
transactions.
The ``country'' and ``borrower'' fields include
authorizations listed as ``Various-Insurance''. These
authorizations are for the multi-buyer insurance program where
each transaction can and generally does include more than one
buyer. As such, the ``country'' and ``borrower'' field include
the descriptor ``Various-Insurance''. To better communicate
this information, the Bank revised the field name to
``Multiple-Countries'' and ``Multiple-Borrowers'' to better
reflect these fields.
Attached for your reference is the list and description of
all fields reported in the electronic open formats.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM FRED P.
HOCHBERG
EXIM and Free Trade Agreements
Q.1. As we all know, TPP negotiations are nearly complete and a
final agreement for T-TIP is expected in the next year or so.
Given that the U.S. is apparently about to enter into the two
largest free trade agreements it has ever joined, and that
other countries continue to expand their use of export credits,
whatever you make of those agreements themselves, now is
certainly not the time to unilaterally give up this important
economic tool.
President Hochberg, how do you view the relationship of
EXIM to our trade agenda?
A.1. EXIM Bank is, and always has been, a support player or
tool in America's larger trade policy agenda. For example, when
that agenda tilts against an issue or country, such as trade
sanctions, EXIM follows that direction in terms of the
availability of official export credit. When the trade agenda
tilts in support of some issue or country, such as trade
agreements, EXIM supports export sales under those agreements.
In effect, EXIM is used as an implementing tool of a broader
U.S. Government trade policy. Trade agreements open doors for
exporters and EXIM Bank helps them close deals. Without the
tools EXIM provides, many American businesses would be unable
to compete on a level playing field with foreign firms, access
the working capital needed to take on and fulfill sales, and
mitigate the risks of the international marketplace. EXIM
support improves the competitiveness, risk management, and
liquidity of American businesses. The absence of such support
would mean missed opportunities, lost sales, and, ultimately,
fewer jobs.
International Negotiations to Reduce Export Credits
Q.2. Some of the witnesses at the June 2nd hearing argued that
the fact that 60 other countries maintain export credit
agencies should not keep us from shuttering (shutting down) the
EXIM Bank. And I agree that in a perfect world, maybe it would
be best if no country provided government-backed export
financing.
But if Congress were to close the EXIM Bank today, what
options would the U.S. have to convince countries like China,
Brazil, and Russia to refrain from using export credits to
undercut U.S. manufacturers?
A.2. In today's world of long-term export financing, the
arguments available to convince major official export credit
providers are very limited. In recent years, commercial banks
have indicated that the booking and holding of long-term
foreign assets is no longer a core part of their business
model.\1\ In fact, almost all major project financings outside
of the Organisation for Economic Co-operation and Development
(OECD) have an important Export Credit Agency (ECA)
component.\2\ Therefore, foreign governments do not have a
strong incentive to stop providing export financing through
ECAs. Moreover, foreign governments often view export financing
as a vital component in supporting domestic jobs and exports,
whereas EXIM Bank is largely used to fill in the gap and level
the playing field.
---------------------------------------------------------------------------
\1\ EXIM, 2014 Competitiveness Report, http://www.exim.gov/sites/
default/files/reports/EXIM%202014CompetReport_0611.pdf.
\2\ EXIM, 2014 Competitiveness Report, http://www.exim.gov/sites/
default/files/reports/EXIM%202014CompetReport_0611.pdf.
---------------------------------------------------------------------------
Unilaterally disarming means that other countries around
the globe have a financing tool available to them that
exporters in the United States would no longer have available
to them. As a senior official from China's Export-Import Bank
told reporters recently, EXIM going away would be ``a good
thing'' for China.\3\ The Export-Import Bank of India's
chairman also recently commented that ``we think that the role
of ECAs (export credit agencies) in countries like India, ones
in Asia is immense. In fact, seeing our pattern, many other
countries are opening up Exim Banks. With US Exim Bank closing
down, we would now have more market, because, Indian products
were competed by U.S. products. Now that competition will go
away''.\4\
---------------------------------------------------------------------------
\3\ http://www.reuters.com/article/2015/06/24/usa-congress-exim-
idUSL1N0Z80W420150624.
\4\ http://www.business-standard.com/article/finance/q-a-with-exim-
bank-cmd-with-us-exim-bank-closing-we-would-have-more-market-
115071400885_1.html.
---------------------------------------------------------------------------
EXIM has worked with a range of manufacturers including
small, medium, and large, but the majority of our customers are
small businesses. Of the 3,700 authorizations EXIM completed in
2014, more than 3,300--or nearly 90 percent--directly served
U.S. small business. Last year, EXIM supported 164,000 U.S.
jobs and over the past 6 years, more than 1.3 million American
jobs. At the same time, through the fees and interest we charge
our customers, the Bank also generated a surplus of $675
million profit for American taxpayers in 2014, above and beyond
all costs.
Current headlines have argued that the lapse of EXIM will
``leave the field to China'' as China has ``lent extensively to
Africa and has set up a family of joint funds on that
continent, in the Middle East, and in Europe.''\5\ China's
medium- and long-term export credit financing grew by 40
percent last year, from $40.6 billion in 2013 to $58.0 billion
in 2014.\6\ In addition, Japan, Korea, Russia, Germany, France,
United Kingdom, Brazil, and others all indicated that they
expect to accelerate their financial backing for their
exporters.
---------------------------------------------------------------------------
\5\ Financial Times, Demise of the US Eximbank would leave the
field to China, June 22, 2015, http://blogs.ft.com/beyond-brics/2015/
06/22/demise-of-the-us-ex-im-bank-would-leave-the-field-to-china/.
\6\ EXIM, 2014 Competitiveness Report, http://www.exim.gov/sites/
default/files/reports/EXIM%202014CompetReport_0611.pdf.
---------------------------------------------------------------------------
We are very concerned about the impact that the lapse in
authorization is having on U.S. exporters and the ability of
those exporters to receive the financing they need to export
goods.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR COTTON FROM FRED P.
HOCHBERG
Q.1. In response to my question about the percentage of EXIM
Bank's business that is in direct response to foreign
government export subsidies, you stated that it was
approximately ``two-thirds'' of the Bank's portfolio, which is
substantially different than the 32.7 percent calculated from
your 2013 Annual Report and offered by an expert witness in the
Senate Banking Committee's hearing on June 2.
What is the basis for your ``two-thirds'' figure? For
additional reference, your institution's 2013 Competiveness
Report also presented data in line with the estimate of one-
third (see Figure 73, page 113).
Are both of these data sources inaccurate or did you
misstate the extent to which EXIM Bank countervails foreign
subsidies?
A.1. Thank you for the opportunity to clarify the potential
foreign competition data found in the EXIM Bank's Annual Report
\1\ and its Report to the U.S. Congress on Global Export Credit
Competition \2\ (``Competitiveness Report'').
---------------------------------------------------------------------------
\1\ Export-Import Bank of the United States Annual Report 2014.
http://www.exim.gov/sites/default/files/reports/annual/EXIM-2014-
AR.pdf.
\2\ Export-Import Bank of the United States Report to the U.S.
Congress on Global Export Credit Competition, June 2015. http://
www.exim.gov/sites/default/files/reports/EXIM%202014
CompetReport_0611.pdf.
---------------------------------------------------------------------------
Congress requires EXIM to include in the annual
Competitiveness Report a breakdown of the purposes for EXIM
support for transactions. The purposes of EXIM support for
transactions are to fill the financing gap when private sector
financing is limited or unwilling to take risks, or to counter
potential foreign ECA competition.
The two-thirds figure cited at the June 4 Senate Banking
Committee hearing referred to the percentage of FY2014 EXIM
long-term guarantee authorizations ``to meet competition from a
foreign, officially sponsored, export credit agency.''\3\ For
the overall EXIM portfolio, 46 percent of EXIM's authorizations
were to meet foreign competition \4\ in 2014, 38 percent in
2013,\5\ and 34 percent in 2012.\6\
---------------------------------------------------------------------------
\3\ Export-Import Bank of the United States Annual Report 2014, p.
45-49. http://www.exim.gov/sites/default/files/reports/annual/EXIM-
2014-AR.pdf.
\4\ Export-Import Bank of the United States Report to the U.S.
Congress on Global Export Credit Competition, June 2015, p.91. http://
www.exim.gov/sites/default/files/reports/
EXIM%202014CompetReport_0611.pdf.
\5\ Report to the U.S. Congress on the Export-Import Bank of the
United States and Global Export Credit Competition, June 2014, p.113.
http://www.exim.gov/sites/default/files/newsreleases/Eximbank-Bank-
2013-Competitiveness-Report-to-Congress-Complete.pdf.
\6\ Report to the U.S. Congress on Export Credit Competition and
the Export-Import Bank of the United States, June 2013, p. 149. http://
www.exim.gov/sites/default/files/newsreleases/US-Eximbank-Bank-2012-
Competitiveness-Report-to-Congress-Complete.pdf.
---------------------------------------------------------------------------
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE FROM FRED P.
HOCHBERG
Q.1. The Export-Import Bank offers a number of different
products, including loan guarantees, working capital
guarantees, and direct loans. Do you have evidence about
whether these products are equally valuable to companies, or
are certain products more useful than others? For example, can
you quantify how frequently companies use products? Have you
conducted a survey of companies to see which products they
believe are the most useful?
A.1. EXIM Bank creates programs that respond to a wide array of
specific congressional mandates including providing competitive
export credit financing vis-a-vis officially supported export
credits provided by foreign governments and complementing, not
competing with, private sources of financing; Each of the
Bank's programs plays an important role in fulfilling the
objectives set forth in the Bank's charter. Given the broad
scope of these mandates, the Bank has established programs that
cover a cross section of economic sectors, markets, and
exporter size/profiles that address gaps in the availability of
export credits arising from either foreign competition or lack
of commercial financing.
As a counter-cyclical institution, the utilization of EXIM
Bank and its financial products is entirely dependent on the
activity level in the commercial market. The Bank's programs
and activity levels by program are summarized in the attached
chart which indicates EXIM Bank authorizes more Insurance and
Working Capital transactions than Loan Guarantees or Direct
Loans. The Insurance and Working Capital programs are used by
American companies, predominantly small businesses, to finance
their exports of goods, while the Guarantee and Direct Loan
programs are used by foreign buyers to finance their purchases
of U.S. goods and services.
EXIM Bank routinely seeks the feedback of its customers to
improve. Since 2012, EXIM has employed a Vice President of
Customer Experience whose work is dedicated to soliciting and
assessing feedback on EXIM's products in the context of our
customers' business, exports, and employment base. This
division conducts an annual, customer experience survey, which
provides customers with the ability to share their thoughts via
surveys, interviews and roundtables. EXIM then takes the
information to bring attention to issues, identify solutions,
and prioritize action steps. This information is posted on
EXIM.gov.
Q.2. The Export-Import Bank purports to create a ``surplus''
for taxpayers, including in 2014.
a. LSetting aside the debate over the Bank's accounting and
profits, do all of the Bank's main products have
approximately the same fiscal record? Or does one
program that generates a greater ``surplus'' make up
for a program with a weaker track record?
b. LDoes each program generate a surplus, under the Bank's
accounting assumptions?
A.2. EXIM Bank has sent a net $6.9 billion to the U.S. Treasury
since 1992. This net amount sent to the U.S. Treasury is after
paying for all expenses, including prudent loan loss reserves.
In fact, the Government Accountability Office (GAO) issued a
report which determined that ``EXIM's figures for
appropriations received and amounts sent to Treasury were
reasonable based on our analysis of EXIM appropriations acts,
budget appendixes, and financial statements.''\1\
---------------------------------------------------------------------------
\1\ GAO-13-303, http://www.gao.gov/assets/660/653373.pdf.
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The Bank charges fees for its' financing support which are
used to set aside prudent loan loss reserves. Fees in excess of
these loan loss reserves are classified as offsetting
collections which are used to pay for the Bank' administrative
expenses. After paying administrative expenses, the remaining
balances are sent to the U.S. Treasury at the end of each
fiscal year. Typically, large and long-term transactions create
the largest surpluses while small-term transactions are on a
break-even basis. The majority of offsetting collections earned
by the Bank are from long-term transactions. Generally, the
Bank's medium-term, short-term, and working capital programs--
which primarily benefit small businesses--cover all loan loss
reserve requirements but do not generate offsetting
collections.
Q.3. The Bank has a number of lending ``mandates,'' including
that it must make 10 percent of its authority available to
renewable energy, 20 percent available to small business
lending, and that it must also promote activity in Sub-Saharan
Africa.
a. LCan you provide the default rates for the transactions
that purport to meet the ``mandates'' and compare that
to the default rate for the nonmandated transactions?
b. LIs there a higher default rate amongst these products,
compared to the average product?
A.3. EXIM Bank has three congressional mandates for small
business, sub-Saharan Africa; and environmentally beneficial
transactions. The Bank takes very seriously these Congressional
mandates while ensuring a reasonable assurance of repayment to
protect the U.S. taxpayer. The Bank also reports defaults every
90 days to the House Financial Services Committee and Senate
Banking Committee. These default rate reports include a section
on Defaults Rate: by Mandate. This section is located on page 8
of the Bank's June 2015 Default Rate report which is attached.
These mandates account for over 11 percent of the total
amount of EXIM financing and all mandates have experienced a
default rate below the 2 percent threshold established by
Congress for the overall portfolio. As of June 2015, the Bank's
overall default rate was 0.243 percent, small business default
rate was 0.484 percent, sub-Saharan Africa default rate was
0.119 percent, and environmentally beneficial was 1.021
percent.
Q.4. We've heard how the Export-Import Bank ``supports'' jobs
and exports. For example, according to the Bank's analysis, in
2014 the Bank ``supported'' 164,000 jobs and $27.4 billion in
exports. Notably, there's a difference between ``supporting''
jobs and ``creating'' jobs.
a. LWhat percentage of these jobs and exports would disappear
without the Bank, and why?
b. LWhat percentage of this economic activity would exist,
but in a different sector?
c. LHas the Export-Import Bank conducted an in-depth study of
these issues? If not, can the Bank commit to studying
this question in depth?
A.4. EXIM Bank's jobs estimate methodology follows the standard
governmentwide jobs calculation methodology designated by the
Trade Promotion Coordinating Committee, which uses employment
data computed by the Bureau of Labor Statistics (BLS) to
calculate the number of jobs associated with EXIM supported
exports of goods and services.
The Bank uses the latest available domestic employment
requirements table (ERT) as computed by the BLS to calculate
the number of jobs associated with EXIM supported goods and
services. The ERT quantifies the number of direct and indirect
production related jobs associated with a million dollars of
final demand for 196 detailed industries. The ERT is derived
from a set of data showing the relationship between industries,
known as input-output tables. These tables are based on
historical relationships between industry inputs (e.g., labor)
and outputs (e.g., goods for consumption).
For jobs estimates based on FY2014 authorizations, EXIM
Bank supports a baseline average of 6,190 jobs per $1 billion
of U.S. exports. This average is weighted, however, based the
specific exports the Bank finances and on each industry's
relative jobs per $1 billion average at time of calculation.
In 2014, EXIM approved over 3,700 authorizations with a
total estimated export value of nearly $27.5 billion. This
support equipped U.S. businesses to create or sustain
approximately 164,000 export-related U.S. jobs based on the
above criteria.
The basic judgments EXIM makes on every case are that the
transaction is creditworthy to our standards, that the activity
fits our mandates, and that there is a reasonable risk the
transaction will not go forward without EXIM support. EXIM has
been researching this issue for decades because the answers are
central to the long-running question as to the net value added
by the Bank, particularly when EXIM activity carried a budget
cost. However, because the determinants are so transaction/
sector/company-specific, the best examples are of sales EXIM
denied in late stages of =transactions. In cases where
transactions have been denied late in the process, evidence
shows that most of the foreign sales can and do go to companies
from other countries. More importantly, the ``chilling'' effect
of the lack of availability for future EXIM support of American
exporters dramatically contributes to probable job losses.
Without EXIM support, U.S. labor and capital resources may
not simply shift to other sectors. As with all individual
sales, the amount of efficient shifting of U.S. resources to
other production depends greatly on the level of aggregate
demand in the overall economy. Furthermore, any shift of
resources may be to a less efficient use. Given that EXIM
financing ensures that a transaction stimulated by market
factors such as price and quality is not lost due to nonmarket
influences such as foreign ECA competition, there is a real
chance that the associated resources would go to a second or
third-best productivity use, particularly at a time of less
than perfect aggregate demand.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Additional Material Supplied for the Record
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