Debate on US Export-Import Bank Rumbles on as Deadline Looms

Despite long-running bipartisan support, after 80 years’ existence the (Ex-Im) Export-Import Bank of the United States might be on the verge of pulling down the shutters in less than three months’ time.

The bank’s charter expires at the end of September and for the first time ever, Congress might not renew it. The big question is whether the arguments against keeping it stem from genuine concern, or simply represent political posturing?

Established back in the depths of the Great Depression in 1934, Ex-Im Bank provides loans, loan guarantees and credits to foreign buyers making purchases from US exporters. Last year, Ex-Im authorised US$14.9bn in loan guarantees, US$6.9bn in direct loans and US$5.5bn in credit insurance for nearly 4,000 deals.

The financing is for transactions that commercial lenders deem too risky. The bank also provides export insurance, primarily for small and medium-sized enterprises (SMEs). In fact, nearly 90% of Ex-Im’s deals involve SMEs – although the top 10 largest exporters in the US account for 75% of the bank’s business.

Boeing, the largest US exporter by sales, relies on Ex-Im to provide loan guarantees for some of its jet sales. The credit rating agency (CRA) Standard & Poor’s estimates that the aircraft manufacturer would have to double its financial backing to airline and leading company clients in the event of Ex-Im’s demise. This would involve its finance arm having to assume a hefty US$7bn – US$9bn in customer finance needs.

The Issues

Nevertheless, in recent months the bank has become a bone of contention for factions of the Republican Party. Establishment Republicans generally support Ex-Im, viewing it as a necessary means of support for American exporters. Conversely, Tea Party Republicans regard the bank as an example of ‘corporate welfare’ and want to see it shut down.

Just last month, Kevin McCarthy, the newly elected Republican leader of the House of Representatives, said that he favours letting Ex-Im’s charter expire this autumn, insisting that its duties are something that the private sector can handle.

But as a recent
CNN World blog noted
the private sector already covers 98% of export financing, CNN noted. Ex-Im takes on the remaining 2% of customers that the private sector is unwilling to take on.

At issue here is the possibility of US taxpayers being forced to foot the bill should foreign buyers default. The bank’s harshest critic has been House Financial Services Committee (FSC) chairman Jeb Hensarling, a Texas Republican who hasreferred to the bank as the face of “crony capitalism.”

Although Ex-Im’s reported default rate is less than 1%, Hensarling insists that it still poses a major risk to taxpayers. “Fannie Mae and Freddie Mac [the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation] didn’t run a deficit, until they did,” he said. “The federal Pension Benefit Guaranty Corp. [PBGC] never ran a deficit until it did.”

Many US commentators have dismissed this latest move by the Tea Party as political grandstanding. Recently,
Washington Post columnist Robert J. Samuelson
noted that Ex-Im’s operating budget in 2013 totalled no more than US$90m, citing a report from the Congressional Research Service (CRS). That total was fully paid by fees and interest from the bank’s private customers, not taxpayers.

Additionally, the bank turned a profit last year and paid US$1.1bn to the US Treasury Department. As Ex-Im itself points out, over the past five years the bank has earned US$2bn more than the cost of its operations and after covering loan loss reserves

A key argument in favour of keeping Ex-Im intact is that other governments in other nations, such as China, routinely provide export credit subsidies. China’s credit subsidies in 2012 exceeded Ex-Im’s by nearly 50%. Proponents of the bank view it as a way to keep the US competitive with other nations.

All Talk?

Political posturing or not, all the talk about Ex-Im coming to an end might be just that. According to
a newly-published vote count
magazine, the bank has enough support from business-friendly Republicans to win reauthorisation. Based on the fair assumption that Ex-Im has widespread support from Democrats, the bank should survive.

However, it might not get to that point. Senate Majority Leader
Harry Reid
may attach a short-term renewal of Ex-Im to a resolution that would keep the government funding past the 30 September deadline. It would essentially dare Republicans to shut down the government over the bank, mere weeks before US midterm elections – a scenario unlikely to happen.


Related reading