Congressional Testimony: House Financial Services Committee..
WRITTEN TESTIMONY OF
FRED P. HOCHBERG - PRESIDENT AND CHAIRMAN
EXPORT-IMPORT BANK OF THE UNITED STATES
BEFORE THE HOUSE FINANCIAL SERVICES COMMITTEE, SUBCOMMITTEE ON MONETARY POLICY AND TRADE AND THE HOUSE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, SUBCOMMITTEE ON HEALTH CARE, BENEFITS, AND ADMINISTRATIVE RULES
"Assessing Reforms at the Export-Import Bank"
April 15, 2015
Chairman Huizenga, Chairman Jordan, Ranking Member Moore, Ranking Member Cartwright, and distinguished members of the Subcommittees, thank you for inviting me to testify before you today.
ABOUT EXIM BANK
For the past six years, I have had the honor of overseeing a small, yet extremely 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.
In the course of my tenure, I have seen the Bank's role both expand and contract as a natural response to the needs and demands of the free market-as it was designed to do. I have also had the opportunity to oversee a number of reforms and improvements, which is what we are here today to discuss.
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 since 1934, when the Bank was established. I fully respect and would like to thank the Committees, Congress, the Office of the Inspector General, the Government Accountability Office, as well as, the Ex-Im 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 serving and protecting your constituents and 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 better institution supporting job growth.
Ex-Im was created to support American job growth by financing the export of U.S. goods and services. Since its inception 81 years ago, Ex-Im has been supported by thirteen consecutive presidential administrations-six Republican and seven Democratic. The Bank is a self-sustaining agency that charges interest and fees to fund its transactions. As a result, over the past two decades Ex-Im has sent approximately $7 billion in excess revenues to the U.S. Treasury.
Ex-Im fulfills its mission to support U.S. jobs in two ways. First, Ex-Im 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 Ex-Im's authorizations in 2014. Second, it seeks to ensure a level playing field for U.S. exports in the hyper-competitive global marketplace 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.
FACILITATING EXPORTS & PROMOTING DOMESTIC JOB GROWTH
America's private sector is the highest-functioning, most efficient in the world, and does a tremendous job of financing U.S. exports. However, commercial banks and insurers do not always have the capacity or willingness to equip American businesses that want to sell their goods and services overseas.
Ex-Im Bank's role is to complement and work with commercial lenders and brokers in order to fill any market gaps. These gaps might be linked to limited risk appetite, high capital requirements, or unwillingness to extend longer-term credit. The Bank does not compete with the private sector. In fact, approximately 98 percent of the Bank's transactions include a partnering private financial entity. Ex-Im provides a vital backstop to ensure that the American export economy remains vibrant in a world of fluctuating markets. Indicative of this point is the fact that new Ex-Im Bank authorizations are down by 45% from two years ago; in direct correlation to the improving economy and return of the commercial markets. The following graph highlights the impact of major economic events on GDP and business cycles and Ex-Im's corresponding activity.
Ex-Im Bank is entirely demand driven. The Bank is also countercyclical, as evidenced by the 2008 financial crisis. When market liquidity was weak during the financial crisis and the years that followed, Ex-Im Bank support increased dramatically. However, Ex-Im financing has recently declined as private market financing has cycled back to stronger health. This is particularly true in the aircraft sector. In FY 2014, the number of commercial aircraft authorized was less than half the number financed during the peak of the financial crisis, while at the same time overall commercial aircraft deliveries were up approximately 20 percent. This decline in Ex-Im financing occurring at a time of increased overall sales growth further demonstrates that as commercial financing markets become healthier, Ex-Im engages only when necessary.
FOCUSING ON SMALL BUSINESS
Even in stronger economic periods, small businesses frequently have difficulty securing working capital loans or insurance packages from banks and insurers to support their exports. Each year, Ex-Im equips thousands of U.S. companies to convert international sales opportunities into economic growth and new jobs here at home. In FY 2014, Ex-Im supported 164,000 U.S. jobs through financing approximately $20.5 billion worth of exports.
- Cytozyme Laboratories, a family-owned small business exporting agricultural nutrients in Salt Lake City, Utah, that has used Ex-Im Bank's working capital loan guarantee to expand its exports to more countries, and as a result is increasing its workforce by 10 new jobs; and
- Fritz-Pak in Mesquite, Texas, a minority-owned small, family business that manufactures cement additives, who when facing layoffs and potential closure, used Ex-Im Bank's multi-buyer insurance policy to reach new markets, compete, and win. The employees that Fritz-Pak had to let go when the financial crisis hit the construction industry have now been hired back thanks to those newfound export sales.
To these and thousands of other Main Street America small businesses, Ex-Im provides peace of mind, so that entrepreneurs can focus on beating out foreign competition with high quality, innovative products rather than worrying about whether lack of financing will keep them out of the game. Supporting U.S. small businesses is at the heart of Ex-Im's work. In FY 2014, nearly 90 percent of Ex-Im's authorizations directly served small businesses, as defined by the Small Business Administration. Nearly a quarter - 24.7 percent - of Ex-Im's authorizations by dollar value went directly to small business exports, and small businesses accounted for 39 percent of the total value of all exports supported by Ex-Im Bank. Those figures do not include the tens of thousands of additional U.S. small businesses in the supply chains of larger American exporters who see their sales go up each time an American company beats out a rival for a big deal overseas.
U.S. businesses small and large operate in a global economy. As such, Ex-Im's practices adhere to competitiveness and transparency standards established by the Organization 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