House Oversight and Government Reform Subcommittee on Economic Growth, Job Creation, and Regulatory Affairs Hearing
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Chairman
The charter of the
Background
The bank provides loans and loan guarantees as well as capital and credit insurance to facilitate U.S. exports. n4 The financing is backed by the "full faith and credit" of the U.S. government, which means taxpayers are responsible for losses that bank reserves fail to cover.
The 2012 Reauthorization Act set Ex-Im's exposure limit at
U.S. exports topped
Very large corporations are the primary beneficiaries of Ex-Im financing. Just10 companies profited from 75 percent of Ex-Im subsidies in FY2013. n9 These major beneficiaries include
A Record of Fraud and Corruption
Advocates of the
Serious procedural failures increase the likelihood of fraud and corruption. In a 2013 review of direct loans, the
(B)ank personnel fail to document applicants' eligibility and application requirements and disregard mandatory checks on applicants' character and financial integrity. Also, loan officers did not always perform or document performance of required tasks intended to ensure (1) borrower eligibility and compliance with
In testimony last month before the
Such operational shortcomings have worsened as bank financing has surged.
Failures in management and monitoring are evident in dozens of cases of fraud and other wrongdoing. Based on a review of
A lack of due diligence was explicitly cited by the
Similar lapses were noted in the bank's
In a number of criminal cases, n20 the bank has engaged in multiple transactions with an individual or company before discovering that taxpayers were being defrauded. For example:
* From 2008 through 2010,
* From 2003 through 2009,
* Between
* From
* Between 2004 and 2009,
*
Mismanagement of Risk
Fraud and corruption are not the only risks to taxpayers related to Ex-Im dealings. Financing exports entails financial and political risks, including changes in interest rates, currency fluctuations, political unrest, and international conflicts. With hundreds of millions of taxpayer dollars at stake, one might reasonably assume that Ex-Im applies rigorous risk analysis to its lending. But according to the inspector general, "
The
The bank does assign a risk rating to each transaction. However, it does not assess the relationships between all the various risks in its portfolio. For example, aircraft transactions account for nearly half of the balance sheet exposure, but each new airline transaction is assigned a risk rate in a vacuum--failing to account for the bank's inordinate investment in that single sector of the economy. n23 The lack of thorough analysis is particularly problematic for taxpayers because Ex-Im financing is heavily concentrated in two geographic regions (
Ex-Im also does not analyze the risk of the "sub-portfolios" mandated by
Without accurate risk assessments, the bank cannot determine the appropriate level of capital reserves that are prudent. A future shortfall could provoke a bailout.
Hidden Losses
The difference between the accounting method used by Ex-Im and the more accurate method applied by the CBO in its report involves factoring for the risk of defaults related to the bank's generous financing. The bank calculates its future revenue from loan repayments based on interest rates tied to Treasury securities. But unlike private banks, Ex-Im does not adjust the amount of anticipated revenue for changes in the market that will reduce future repayments.
Ex-Im has incurred losses, too, accumulating a deficit of
This practice, which artificially increases the appearance of "profit," is no small matter. As noted by the
Ignoring Effects on Domestic Firms
Ex-Im officials also are skirting the bank's charter requirement for determining the potential effects of export subsidies on domestic firms. A review by the inspector general found that the bank did not address directly several elements of economic impact contemplated by the Charter, omitted relevant data and analysis beyond that considered necessary to support the staff's recommendation, did not state the limitations and qualifications of the data, assumptions, estimates, methods and analysis, did not fully address the sensitivity of the staff's conclusions to possible changes in assumptions and estimates that could be reasonably anticipated. n30
Indeed, none of the Ex-Im personnel interviewed by the IG's office possessed professional training or expertise related to economic impact analysis. n31 Moreover, the bank does not consider the impact of any finance deal involving less than
All of this means that bank officials dole out billions of taxpayer dollars to foreign firms without a meaningful consideration of the impacts on American workers and the businesses that employ them.
Many industries are subject to booms and busts. Neither one typically results from a single cause but instead is a product of myriad factors, including changes in demand, currency fluctuations, and innovation. But government policy can dampen gains and exacerbate losses, which is the case with export subsidies. Ex-Im financing of coal mining in
The following Ex-Im deals have been cited by lawmakers and industry experts as examples of just some of the billions of dollars in taxpayer subsidies that put domestic firms at a competitive disadvantage:
*
*
*
*
* Air India (
Conclusion
As detailed herein, government authorities have documented a variety of problems with bank operations, including mismanagement, dysfunction, fraud and corruption. Such problems invariably arise when government assumes a function far beyond its proper purview. Despite promises to improve operations, bank officials continue to neglect due diligence, underestimate costs, misstate losses, and exaggerate benefits. These failures are important to acknowledge as
However, even if the bank were managed expertly, there would be no justification for reauthorization. There is simply no shortage of private financing for exports, as is evidenced by record levels of U.S. trade. Instead,
n1 For details, see
n2
n3
n4 The bank provides foreign firms, both state-controlled and privately held, with loans and other forms of credit to purchase U.S. exports.
n5
n6
n7
n8
n9
n10 Written testimony of
n11
n12 Statement of
n13 Statement of
n14 Not all claims opened or closed in the period are related to cases opened or closed in the period, but may be related to other active investigations. The referral of a claim to the
n15 Administrative actions are responses by
n16
n17
n18 The bank subsequently restructured the loan.
n19
n20 All cases were excerpted from semiannual reports of the
n21
n22
n23
n24
n25 Written testimony of
n26
n27 U.S. General Accounting Office,
n28 U.S. General Accounting Office,
n29
n30
n31
n32
n33 Senators
n34 Nicholas D. Loris, "War on Coal: A House Bill to Stop the Regulatory Assault," Heritage Foundation Issue Brief No. 3733,
n35 In 2013, the bank authorized
n36
n37 Press release, "Copper Market Forecast 2013-2014,"
n38
Read this original document at: http://oversight.house.gov/wp-content/uploads/2014/07/Katz-Testimony-Statement-Ex-Im-7-29.pdf
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