[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

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


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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

                              ----------                              

                         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

                              ----------                              


                         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.

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    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.


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 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.
---------------------------------------------------------------------------
    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.


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