[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
ASSESSING REFORM AT THE
EXPORT-IMPORT BANK
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON MONETARY
POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
JUNE 13, 2013
__________
Printed for the use of the Committee on Financial Services
Serial No. 113-30
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81-765 WASHINGTON : 2013
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
GARY G. MILLER, California, Vice MAXINE WATERS, California, Ranking
Chairman Member
SPENCER BACHUS, Alabama, Chairman CAROLYN B. MALONEY, New York
Emeritus NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota DAVID SCOTT, Georgia
KEVIN McCARTHY, California AL GREEN, Texas
STEVAN PEARCE, New Mexico EMANUEL CLEAVER, Missouri
BILL POSEY, Florida GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK, KEITH ELLISON, Minnesota
Pennsylvania ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Monetary Policy and Trade
JOHN CAMPBELL, California, Chairman
BILL HUIZENGA, Michigan, Vice WM. LACY CLAY, Missouri, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma GWEN MOORE, Wisconsin
STEVAN PEARCE, New Mexico GARY C. PETERS, Michigan
BILL POSEY, Florida ED PERLMUTTER, Colorado
MICHAEL G. GRIMM, New York BILL FOSTER, Illinois
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina DANIEL T. KILDEE, Michigan
ROBERT PITTENGER, North Carolina PATRICK MURPHY, Florida
TOM COTTON, Arkansas
C O N T E N T S
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Page
Hearing held on:
June 13, 2013................................................ 1
Appendix:
June 13, 2013................................................ 39
WITNESSES
Thursday, June 13, 2013
Gratacos, Hon. Osvaldo Luis, Inspector General, Export-Import
Bank of the United States...................................... 7
Hochberg, Hon. Fred P., President and Chairman, Export-Import
Bank of the United States...................................... 5
Scire, Mathew J., Director, Financial Markets and Community
Investment, U.S. Government Accountability Office.............. 8
APPENDIX
Prepared statements:
Gratacos, Hon. Osvaldo Luis.................................. 40
Hochberg, Hon. Fred P........................................ 48
Scire, Mathew J.............................................. 56
Additional Material Submitted for the Record
Hochberg, Hon. Fred P.:
Written responses to questions submitted by Representatives
Bachus, Capito, Clay, and Huizenga......................... 69
ASSESSING REFORM AT THE
EXPORT-IMPORT BANK
----------
Thursday, June 13, 2013
U.S. House of Representatives,
Subcommittee on Monetary
Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:03 a.m., in
room 2128, Rayburn House Office Building, Hon. Bill Huizenga
[vice chairman of the subcommittee] presiding.
Members present: Representatives Huizenga, Pearce, Fincher,
Stutzman, Mulvaney, Pittenger, Cotton; Clay, Moore, Peters,
Perlmutter, Foster, Carney, Sewell, Kildee, and Murphy.
Ex officio present: Representative Hensarling.
Also present: Representative Heck.
Mr. Huizenga [presiding]. The subcommittee will come to
order. And without objection, the Chair is authorized to
declare a recess of the committee at any time. Also, without
objection, members of the full committee who are not members of
this subcommittee may sit on the dais and participate in
today's hearing, as well.
At this point, the Chair recognizes himself for 5 minutes
for an opening statement. This morning, we are welcoming the
Honorable Fred Hochberg, chairman and president of the Export-
Import Bank, also known as Ex-Im; the Honorable Osvaldo
Gratacos, Inspector General of the Export-Import Bank; and
Mathew Scire, Director of Financial Markets and Community
Investment for the U.S. Government Accountability Office, the
GAO.
Gentlemen, thank you for joining us. You will be dealing
with me, the vice chairman, today. Our chairman is recovering
back in California right now and, of course, he is in our
thoughts and prayers, and we hope that he is doing well. But it
is my honor to be able to chair this subcommittee today.
The Export-Import Bank of the United States was established
by Executive Order in 1934, and became an independent agency in
1945. The Bank's stated mission is to support domestic job
creation in the United States. The Export-Import Bank is
intended to facilitate the export of U.S. goods and services to
international markets by providing working capital guarantees,
export credit insurance, loan guarantees, and direct loans.
Since its creation, Ex-Im's subsidized lending cap of $5
million has grown to a whopping $140 billion cap, as we sit
here today. Obviously, inflation has occurred.
With the national debt quickly approaching $17 trillion,
many fear that these taxpayer-backed loan guarantees put
taxpayer dollars at significant risk and raise the concern that
Ex-Im is looming towards yet another bailout that the American
people simply cannot afford. My goal here is really making sure
that we have accountability, efficiency and effectiveness of
government, and that responsibility is had by those who are in
charge of all of these various programs.
Last year, the Congress reauthorized Ex-Im, while mandating
several reform provisions that shared broad bipartisan support.
These reform provisions included requiring Ex-Im to monitor and
report not less than quarterly the Bank's overall default rate,
as well as default rates by product, market, and industry
sector. Additionally, Ex-Im is required to establish a business
plan and have a GAO audit of the Bank's risk management
policies. Since that time, the GAO and the Inspector General
have issued reports that found disregard for this congressional
mandate and--to reform some of these policies and to better
protect American taxpayers. And we are hoping to explore that
today.
According to the Inspector General's report, Ex-Im clearly
has not met its obligations to maximize the financing of
exports through the private capital markets while minimizing
the risk to the American taxpayers. Today, I look forward to
hearing from Ex-Im, the Inspector General, and the GAO
regarding the progress and the reforms that we are hoping to
see.
With that, I will yield back the rest of my time, and I
will recognize the distinguished ranking member of the
subcommittee, Mr. Clay of Missouri, for 5 minutes, as well.
Mr. Clay. Thank you, Mr. Chairman. And thank you for
holding this hearing entitled, ``Assessing Reform at the
Export-Import Bank.'' I want to thank the witnesses for
appearing today.
The Export-Import Bank was last reauthorized in 2012, and
includes a congressional mandate of reviews and reporting
requirements from the Bank, the Treasury Department, and the
GAO. This reporting requirement includes risk management,
export subsidy, default rates, and purposes of loans.
Currently, the Bank has a very low default rate of 0.307
percent, and they actually generate revenue for the taxpayer,
more than $800 million last year, plus the additional $400
million Congress rescinded. In Sub-Saharan Africa, the Export-
Import Bank has grown the amount of financing it does by nearly
300 percent, going from $576 million in Fiscal Year 2008 to
more than $1.5 billion in Fiscal Year 2012.
In the last 4 years, the Export-Import Bank has set record
numbers in small business financing. Financing went from $3.2
billion in Fiscal Year 2008 to $6.1 billion in Fiscal Year
2012. In my home State of Missouri, the Export-Import Bank is
financing exports ranging from soybeans to aluminum, to
crushing and pulverizing equipment from St. Louis. As Members
of Congress, we have an obligation to do oversight of the Bank
under our jurisdiction. And by all accounts, the Obama
Administration has been diligent in its risk management
practices, and the Bank has demonstrated an openness to
continue improvements.
In fact, for each of the three GAO reports that have been
done since the Reauthorization Act, the Export-Import Bank has
agreed to each of the recommendations by the GAO. In closing,
the Export-Import Bank benefits the Nation by generating more
than a billion dollars for the taxpayers, while supporting
hundreds of thousands of jobs.
And again, thank you, Mr. Chairman. I look forward to the
questions and comments, and I yield back.
Mr. Huizenga. The gentleman yields back.
With that, I would like to recognize the chairman of our
full Financial Services Committee, the distinguished gentleman
from Texas, Jeb Hensarling, for 3 minutes.
Chairman Hensarling. I thank the chairman. While I don't
often find myself in agreement with statements coming out of
the Obama Administration, I have found occasion to agree with
them on the market-distorting power of the Export-Import Bank.
In a 2012 Treasury report to Congress, the Obama Administration
argued, ``There should be a level playing field for U.S.
exporters, allowing them to compete based on the quality and
price of their goods and services rather than on the quality of
any officially supported financing.''
In addition, the President once described the Bank as
``little more than a fund for corporate welfare,'' and I could
not agree more. The Bank picks winners and losers in our
economy by providing loan guarantees, export credit insurance,
working capital guarantees, and direct loans to American
exporters and purchasers of U.S. exports. Some of those winners
have included the likes of Enron and Solyndra, hardly
worthwhile investments, on behalf of the American taxpayer. And
a review of the Bank's top 10 recipients include companies like
Boeing, General Electric, and Caterpillar. I find it
inconceivable that these companies would be in need of the
government dole.
Put another way, the Bank ostensibly makes loans backed by
taxpayers that the private sector is unwilling to make. And if
private creditors are unwilling to engage in these
transactions, it begs the question, why should the American
taxpayer? Some will argue the Bank is self-sustaining, thus
posing little risk to taxpayers. Unfortunately, we need not
look past Fannie Mae and Freddie Mac, the National Flood
Insurance Program, or the Federal Housing Administration to
know that it is perhaps impossible to provide government
backing at no risk to hardworking taxpayers.
I believe Ex-Im does pose risks to taxpayers, and it could
be doing more to mitigate those risks, many of which have been
identified by the Inspector General. I want to thank the
Inspector General and his team, in particular for the important
work that they have been doing to identify weaknesses in the
Bank's management of its portfolio. By inserting political
considerations into the market, the Bank's activities do expose
taxpayers to risks, while producing a less efficient economy
than would otherwise occur in a free market without the Bank's
interference. I have long believed that many taxpayers feel
that it is indeed time to exit Ex-Im.
With that, Mr. Chairman, I yield back my time.
Mr. Huizenga. The chairman yields back.
With that, the Chair recognizes Mr. Peters, my colleague
from Michigan, for 2 minutes.
Mr. Peters. Thank you, Mr. Chairman. And good morning and
thank you to our witnesses for being here today, and for your
service. I support the Export-Import Bank, and I appreciate all
that they do to help Michigan businesses of all sizes boost
exports and create jobs. I am proud that the Bank chose the
greater Detroit area for one of its new export finance centers,
and I think this speaks both to Michigan's current strength in
exporting as well as our potential for future growth.
Whether it is a cherry producer in Travers City, a robotics
manufacturer in Auburn Hills, a medical equipment company in
Portage, or our auto industry in the greater Detroit area, the
Export-Import Bank provides critical export finance support
that keeps Michigan and the United States competitive in an
increasingly competitive global market. Michigan is a State
that grows and builds things, and the Export-Import Bank helps
get these products to our trading partners as close as across
the Detroit River into Canada, and to the other side of the
globe and places like Turkey.
By providing much-needed capital, the Ex-Im Bank helps
businesses grow their customer base, boost exports abroad, and
create jobs here in the United States, all while earning money
back for the taxpayers. Today, I hope we can put pragmatism
above political point-scoring and, most of all, put job
creation and support for small businesses above ideology. While
I believe I have made it clear that I support the Bank, I think
we can all agree that there is no perfect government program
and we can always do better.
I look forward to hearing how the Bank has implemented
recommendations from their Inspector General and the Government
Accountability Office. And I hope that we can all work in a
bipartisan manner and a practical manner to keep defaults down
and exports up. I yield back.
Mr. Huizenga. The gentleman yields back.
With that, the Chair recognizes the distinguished gentleman
from South Carolina, Mr. Mulvaney, for 2 minutes.
Mr. Mulvaney. Thank you, Mr. Chairman. And thank you,
gentlemen, for being here. As we move forward today, I
recognize the fact that the Bank is up for reauthorization in
September of 2014. And I know many people are eager to begin
the discussion about the next round of reauthorization. I am
coming to this meeting today, Mr. Chairman, with a little bit
different perspective. I want to look at what has happened
since the last reauthorization. We gave the Bank a 40 percent
increase in its lending limits last year. It was a dramatic
increase, dramatic, at a time when we were asking other parts
of the Federal Government to take 40 percent decreases in what
they were able to do.
So I think it is incumbent upon us, before we start talking
about the next reauthorization, to see how we have done since
the last one. As part of the last reauthorization bill, for
example, we required the GAO to conduct a review of the Bank's
risk management and make necessary recommendations. I want to
talk about that today. We also included a provision that
directed the Secretary of the Treasury to initiate and pursue
multilateral negotiations in order to substantially reduce,
with the ultimate goal of eliminating--that is in the text of
the law--all trade-distorting export subsidies, especially
those for a wide array of aircraft.
Finally, we also require the Export-Import Bank to start
submitting multiyear business plans. I know that some
activities have been conducted since the last reauthorization.
I know, for example, that the international working group has
been put together, and I know they have put a schedule together
for the next round of meetings. And I think that is great. I
think there are some of us who wish that we had been able to
accomplish more than just scheduling the meetings, but we will
talk about that today, and the progress that we are making.
But I think that the focus before we start talking about
the next reauthorization should be on how we have done on the
requirements since the previous reauthorization. I am looking
forward to getting into that today.
Thank you.
Mr. Huizenga. With that, the gentleman yields back.
I want to extend a welcome to our guests today. We thank
you for your time and your ability to come up here and join us
for this very important discussion that we are going to have.
First, we have the Honorable Fred Hochberg. Mr. Hochberg serves
as chairman and president of the Export-Import Bank of the
United States. He previously served as the acting Administrator
for the Small Business Administration, and previously had
served as president and CEO of the Lillian Vernon Corporation,
as well.
Next, we have the Honorable Osvaldo Gratacos. He serves as
the Inspector General of the Export-Import Bank of the United
States. He previously had worked for Motorola as commercial
counsel, and had served as legal counsel to the Inspector
General for the U.S. Agency for International Development.
And finally, last but certainly not least, we have Mr. Matt
Scire, who serves as the Director of Financial Markets and
Community Investment at the U.S. Government Accountability
Office. He has over 30 years of audit experience, including
management of Federal credit programs, and recently completed
the audit work focused on risk management at the Export-Import
Bank.
Thank you, gentlemen, for being here. Each of you will be
recognized for 5 minutes to give an oral presentation of your
testimony. And without objection, your written statements will
be made a part of the record.
On the table, there is a light in front of you that will
start out as green. It will turn yellow when you have 1 minute
left to sum up. And when it turns red, we ask that you please
suspend. Once each of you has finished presenting, members of
the committee will have 5 minutes in which they may ask any or
all of you questions.
Chairman Hochberg, you are now recognized for your 5
minutes. Thank you.
STATEMENT OF THE HONORABLE FRED P. HOCHBERG, PRESIDENT AND
CHAIRMAN, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Hochberg. Thank you. Thank you, Chairman Huizenga,
Ranking Member Clay, and members of the subcommittee. I am
pleased to provide an update about the Export-Import Bank one
year after our reauthorization became law. Our mission supports
U.S. jobs through exports, and I am proud of the work of the
400 employees of Ex-Im Bank to support just that. They do so at
no cost to the taxpayer, and have actually generated more than
$1.6 billion for the taxpayers over the last 5 years.
Since I joined the Bank as chairman and president in 2009,
we have seen significant growth. As acknowledged by the GAO, a
portion of this growth is due in large part to the liquidity
crisis caused by the worst global economic crisis since the
Great Depression. On top of that, our exports now exceed $2.2
trillion. The Bank is continually called upon to step in when
commercial lenders are unwilling or unable to do so. In Fiscal
Year 2008, the Bank authorized $14.4 billion in authorizations,
supporting 144,800 jobs. By Fiscal Year 2012, that grew to
255,000 jobs, with nearly $36 billion in authorization. That is
approximately 1,000 jobs for every working day of the year.
With significant growth comes the responsibility to manage
risk appropriately, which is why I am proud of the Bank's low
default rate of one-third of one percent. Ex-Im Bank has been
developing a more comprehensive risk management framework, as
acknowledged by the recent GAO study. This framework starts
with effective underwriting to ensure reasonable assurance of
repayment, a standard set by our charter decades ago. More than
80 percent of our portfolio is backed by either collateral or
the sovereign guarantee of a foreign government.
Our comprehensive risk management program continues long
after a transaction is approved, with proactive monitoring in
order to ensure timely payments and to minimize defaults. In
those rare cases of actual defaults, the Bank aggressively
seeks recoveries and delivers results. Roughly speaking, we
recover 50 cents on the dollar, a rate far higher than the
recovery rate of most commercial banks. Thanks to our diligent
underwriting and monitoring of transactions, we reduced the
amount of claims paid from $200 million in 2008 down to $37
million in Fiscal Year 2012.
Comprehensive risk management and continuous improvement
are what we strive towards. Our low default rate reflects that.
The Bank has made many improvements over the past 2 years,
including improving our underwriting, creating a special assets
unit to address emerging credit issues, improving our
monitoring, and enhancing reserves with qualitative factors,
including concentration risk. And we are not stopping there.
Specifically, several months ago I asked for the creation of an
enterprise risk committee. And today, I am pleased to announce
to the Inspector General and to Congress that a new Chief Risk
Officer position will be created to head that committee.
The Bank continues to be transparent and open to
suggestions from all quarters in improving our operations.
During the past 24 months, the Bank's risk framework and
financials have been reviewed by our independent auditors,
Deloitte & Touche, the Bank's audit committee, our audit
committee's outside firm, KPMG, our Inspector General, and the
Government Accountability Office. Let me close with two
priorities important to both Congress and, frankly, to all of
us at the Bank. Our support for small business is at record
highs.
In Fiscal Year 2008, the Bank financed $3.2 billion in
direct small business exports. By Fiscal Year 2012, we had
financed a total of $7.5 billion in small business exports, of
which $6.1 billion was direct. We have done more financing of
small business in the past 4 years than the previous 8 years
combined. And financing for minority-and women-owned businesses
is up 17 percent this year. In fact, we have financed more
minority- and women-owned businesses in the past 4 years than
the Bank did in the previous 16 years combined.
In Sub-Saharan Africa, our financing has nearly tripled
over the past 4 years, to a record high of $1.5 billion. In
closing, the thousands of businesses that utilize Ex-Im Bank
financing, of which 88 percent are small businesses, appreciate
that Congress reached a bipartisan agreement to reauthorize the
Bank last year. And let me add, as a former small business
owner, I know that businesses, large and small, need certainty
and continuity.
I look forward to working with the committee to provide
that certainty as we approach our reauthorization next year.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Hochberg can be found on
page 48 of the appendix.]
Mr. Huizenga. Thank you.
We will now go to Mr. Gratacos for 5 minutes.
STATEMENT OF THE HONORABLE OSVALDO LUIS GRATACOS, INSPECTOR
GENERAL, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Gratacos. Thank you. Good morning. Thank you, Chairman
Huizenga, Ranking Member Clay, and members of the subcommittee.
Thank you for the opportunity to testify in front of you today
about Ex-Im Bank, my office, and the challenges Ex-Im Bank is
facing. Before I continue, I would like to thank the Almighty
for the opportunity of being here, my family, and members of
the OIG staff.
In my remarks, I will provide a brief history of the Office
of the Inspector General and some of our accomplishments. And
then, I will discuss some of the challenges and operational
weaknesses that Ex-Im Bank is facing in performing its mission,
given its significant growth since 2008. Some of you may know
Ex-Im Bank OIG, my office, was created by law in 2002. But the
IG, my predecessor, did not officially take office until August
2007. Since reaching its current staffing levels, the OIG has
achieved noticeable success. Specifically, since 2008 the IG
has issued 39 audit and special reports, containing over 165
findings, recommendations just for improving Ex-Im Bank
programs and operations.
Since 2010, our investigative efforts have resulted in a
number of law enforcement actions, including 67 indictments, 32
convictions, over 398 management referrals for enhanced
diligence actions, and over $200 million in court-imposed
restitution and payments. Ex-Im Bank, as official credit agency
of the United States, is experiencing unprecedented growth,
achieving 3 straight years of record authorization levels. In
2012, Ex-Im Bank authorized over $35 billion in export
transactions, a new record high. This is in addition to the
previous record high of $32 billion the year before.
Further, Ex-Im's portfolio has increased by 82 percent
since 2008: $58.4 billion versus $106.6 billion by the end of
2012. At this level, approximately $35 billion, mainly in long-
term and finance transactions, had not been disbursed yet.
Further, in the current charter, Ex-Im Bank has authority to
approve up to $140 billion in export transactions. Naturally,
this rapid growth in Ex-Im total portfolio exposure caught our
oversight attention, as to Ex-Im's ability to manage this
significant portfolio growth from the risk management at the
monitoring and operational perspective.
Specifically, Ex-Im Bank annual reports between 2009 and
2012 show that Ex-Im portfolio loss reserves have declined from
8 percent to 4.3 percent, while the overall exposure growth
grew 82 percent since 2008. Further, long-term direct loan
program authorizations have increased significantly between
2008 and 2012. In 2008, Ex-Im Bank authorized $356 million in
direct loans versus $11.7 billion in 2012. Reports from my
office, as well as GAO, and OMB Circular 129, highlight these
concerns and provide best practice in risk management areas.
Specifically, both reports in the OMB circular recommend,
among other things, that Ex-Im develop a more comprehensive
risk management framework, including establishing a Chief Risk
Officer function that is independent from the business
function. And I am glad to hear that Chairman Hochberg unveiled
the creation of the risk officer position just now and,
hopefully, it is an independent function from the business
function of the Bank. Also, the reports required, or
recommended, that Ex-Im establish risk-appetizing thresholds in
order to better manage its portfolio and risk.
And also that Ex-Im conduct portfolio stress testing. In
addition to the risk management aspect, Ex-Im needs to improve
the efficiency of IT systems in order to better and more
efficiently manage its increased workload. Current systems are
obsolete, fragmented, susceptible to human error, and
inefficient, as highlighted by our IT system audit. I am glad
to see that Ex-Im Bank has taken steps towards addressing some
of the concerns under its new Total Enterprise Modernization
(TEM) initiative. We hope to closely work with Ex-Im Bank in
implementing this initiative.
Finally, we think that the Bank is to continue its effort
to meet the small business goals, as expressed by the chairman.
Ex-Im Bank's charter sets a 20 percent small business
participation goal, in all the authorizations per year. And the
last 2 years, Ex-Im Bank has increased the amount of money
going to small business transactions, but has not met the 20
percent threshold.
Mr. Chairman, Ranking Member Clay, and distinguished
members of the subcommittee, thank you once again for the
opportunity to be in front of you today, and I will be more
than pleased to respond to any questions you may have. Thank
you.
[The prepared statement of Mr. Gratacos can be found on
page 40 of the appendix.]
Mr. Huizenga. Thank you for your testimony. We appreciate
that.
And finally, from the Government Accountability Office, we
have Mr. Mathew Scire, who will be recognized for 5 minutes.
STATEMENT OF MATHEW J. SCIRE, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Scire. Mr. Chairman, Ranking Member Clay, and members
of the subcommittee, thank you for the opportunity to be here
today to discuss our recent work. We conducted this work in
response to the Export-Import Bank Reauthorization Act of 2012.
My statement today focuses on certain aspects of risk
management and reporting.
Ex-Im's business volume has grown dramatically in recent
years, with total outstanding financial commitments exceeding
$100 billion in 2012, an 82 percent increase from its 2008
level. This rapid growth would present challenges to any
organization, and Ex-Im is no exception. One of the first
challenges is to understand what to expect in terms of future
activity. We found the methods used by Ex-Im to forecast its
total exposure for 2013 and 2014 had certain weaknesses. In
estimating new authorizations in its business plan, for
example, Ex-Im followed the same practices that in prior years
resulted in underestimates.
Also, in estimating repayment speeds, Ex-Im used outdated
assumptions. For example, it assumed that the portfolio of new
business that would comprise short-term financing, and
therefore repay or cancel in one year, would be greater than
recent years might suggest. It also assumed that existing long-
term obligations would repay, on average, in 10 years. We found
that changing these assumptions based on recent experience
could result in a forecasted exposure level that exceeds the
exposure limit in 2014. Despite this sensitivity, Ex-Im did not
reassess its assumptions to reflect changing conditions or
conduct sensitivity analysis to assess and report on the range
of potential outcomes. We think that Ex-Im should do so.
Another challenge facing the Bank is understanding the risk
of loss. This is particularly challenging for Ex-Im because of
the need to anticipate losses far into the future, and because
of weaknesses in its data. Most of Ex-Im's recent growth
occurred through its long-term loan guarantee and direct loan
products. Annual production in these programs grew threefold
between 2008 and 2012, and represented three-quarters of annual
authorizations in 2012. To improve its loss modeling, the Bank
added certain qualitative factors.
These include minimum loss rates, global economic risk, and
portfolio concentration risks, whether by region, industry or
obligor. These should help Ex-Im better capture risk that may
be different than historical experience might suggest. But we
found that its technique for assessing global economic risk
could be improved by considering longer-term default forecasts.
We therefore recommended that Ex-Im consider whether it is
using the best available data for adjusting loss estimates for
longer-term transactions to account for global economic risk.
More fundamentally, we found that Ex-Im had not maintained
historical data on defaults that might be used in evaluating
the performance and loss potential of the current portfolio.
That is, Ex-Im had not maintained records that permit comparing
the performance of a transaction with that of a like
transaction at a similar age. Such vintage analysis is critical
for quantitative models that estimate the likelihood and timing
of defaults. We therefore recommended that Ex-Im retain point-
in-time historical data on credit performance.
Ultimately, loss estimates can never be certain. For this
reason, it is useful to conduct stress tests to better
understand and inform the Congress of the potential outcomes of
alternate scenarios. Ex-Im intends to conduct such stress
tests, and we recommend that it report to the Congress their
content and results.
Another challenge facing Ex-Im is the sufficiency of its
resources. We note that the rapid growth in business volume,
coupled with the more modest growth in FTEs, creates potential
operational risks for Ex-Im. And Ex-Im recognizes this risk,
but has not formally determined the level of business it can
prudently manage either agencywide or within specific
functional areas with a given level of resources.
We recommend that Ex-Im develop workload benchmarks,
monitor workload against those benchmarks, and develop control
activities for mitigating risk when workloads approach or
exceed those benchmarks.
The recommendations we make in these most recent studies
provide important guidepost for Ex-Im as it works through the
increased risk represented by its rapid growth. And Ex-Im has
agreed to implement these recommendations. We are glad to help
the Congress in providing critical oversight of this program.
This concludes my opening remarks. Thank you again for the
opportunity to speak today. I would be glad to answer any
questions that you may have.
[The prepared statement of Mr. Scire can be found on page
56 of the appendix.]
Mr. Huizenga. Thank you, we appreciate that.
Now, the Chair recognizes himself for 5 minutes, as we go
into the questioning. And, Mr. Scire, I am curious if we could
maybe unpack this a little bit. You were talking about outdated
assumptions as the risk analysis, no historical data being
retained for comparison of those default rates. Would it be
normal to do that, or to act that way?
Mr. Scire. No, not at all. We have done--GAO does quite a
bit of work looking at management of other Federal credit
programs. You would certainly expect an agency to retain that
kind of historical data. Now, I understand there has been some
movement on this at the agency, and they are finding ways to
retrieve some of these data. But nonetheless, as a routine
matter of management of Federal--any credit program, you should
be maintaining data that tells you something about how your
credits perform.
Mr. Huizenga. And Mr. Hochberg, I am assuming when you were
at Lillian Vernon that would be vital information to have, to
be able to look back and find out what was happening. What is
your position? And I know that some of this may precede you, as
well, but you are the person with the title, just like I get
blamed for Congress even though I have only been here for two
terms. I understand sometimes those burdens of what you come
into.
So why not this historical data, and these outdated
assumptions for your risk analysis?
Mr. Hochberg. First, I just want to start by thanking both
our Inspector General and the Government Accountability Office.
They have both helped, frankly. And I think the three of us
have the same goal in mind, and that is to find ways that we
can continually improve the Bank, enhance our comprehensive
risk management. And I work very closely, particularly with
Osvaldo. We meet once a month to review those kinds of things.
In fact, just as an example, we are renovating our offices, and
his office will be on the 12th floor, right down the hall from
mine.
So my point is, we work very closely because we are trying
to continually find ways that we can do continuous improvement.
Mr. Huizenga. But that has been one of the criticisms,
correct, that there hasn't been as rapid an implementation of
some of the recommendations?
Mr. Hochberg. What we are doing is putting in more and more
of these on a regular basis. And we are looking at historical
data, we are looking at--when we make an estimate of a risk of
a loan, we do it by guidelines that are approved by OMB. They
also--our results each year, Congressman, are reviewed by our
outside auditors, Deloitte & Touche; the audit committee, which
is made up of three independent directors but also has their
own independent, KPMG; the Inspector General; and GAO is
looking at all those.
So, I think that there is a program. And as you mentioned,
I was in business for 20 years. I am continually trying to find
better ways to forecast better ways to evaluate the risk and to
make sure that we don't cause undue risk in the--
Mr. Huizenga. Okay, but you are saying that you have a
0.307 percent rate of default. Now, a number of us believe that
the default rate reported, and maybe the forecasting I think is
what Mr. Scire is getting at, might cause some problems. But
many supporters point to that default rate. However, the
Inspector General's report noted that the Bank uses a very
limited definition of default and ``does not include the
failure to comply with other conditions in the loan
agreement.''
Your disagreement of how to show the Bank's loan portfolio
performance in the best light possible isn't necessarily
limited to the Inspector General, though. The chairman's
testimony, I believe, ignores the White House Office of
Management and Budget's own default projections listed in the
President's budget. So how do you reconcile those two things?
Mr. Hochberg. We look at defaults, Congressman. If we were
to lend you $100, and after paying back $50, you default, we
would have a $50 loss. We would then have to pay that to the
Bank because we loaned you money. We are a guarantee. We will
then go and try and pursue that claim. And as I mentioned, we
then--
Mr. Huizenga. But is it a different formula than what
everybody else is using?
Mr. Hochberg. We are using a formula that, to the best of
my knowledge, is consistent with what everybody else is using.
And we are looking at what are the actual paid out claims that
occur in any particular year.
Mr. Huizenga. Let me ask the other two gentlemen, is the
formula that the Ex-Im Bank is using the formula that you
believe: one, should be the formula; or two, the same one that
you are using? Mr. Scire?
Mr. Scire. There are a couple of issues here. First off, so
far as what they are doing in terms of modeling, I think what
the chairman is saying is that they are complying with the
requirements that are out there for modeling and that is the
case. But what we are really talking about here is best
practices in modeling. And so far as the numbers that are used
for measuring default, what we would urge is caution in use of
that statistic.
Mr. Huizenga. Okay.
Mr. Scire. And it can be easily misinterpreted, especially
when you have rapid growth.
Mr. Huizenga. Right. And I need to adhere to this myself as
Chair. My time has expired.
So with that, I recognize Ranking Member Clay for 5
minutes.
Mr. Clay. Thank you, Mr. Chairman. Let me--Chairman
Hochberg, I understand that Ex-Im uses a number of risk
management techniques throughout the different stages of a
transaction, which include underwriting, monitoring, and
restructuring in claims, and recovery. With regard to the
underwriting function, what kind of collateral standards does
Ex-Im impose, and how often, and what kind of assets might be
used to secure a given transaction?
Mr. Hochberg. Thank you, Ranking Member Clay, for your help
on this. After we underwrite a transaction, our work does not
end there. We monitor a transaction on a regular basis. We have
a separate and distinct from the business units in the chief
financial officer's office that looks at the asset and monitors
on a regular basis. We monitor transactions as small as $1
million. And at the end of each fiscal year, we do a mark-to-
market. We look at each and every transaction, and determine if
the credit has been proved or degraded and, as a result, adjust
our reserves accordingly.
So that is done on a regular basis each and every year to
make sure that our portfolio is properly risk-rated. And it is
approved by our outside auditors, Deloitte & Touche. So, that
is the process we use to set the proper reserves to make sure
we have adequate reserves against any potential loss.
Mr. Clay. And if Ex-Im identifies the deterioration in
credit quality in any of these transactions, what kind of steps
does the Bank take to help prevent the default?
Mr. Hochberg. One, we will therefore monitor it more
closely. We look at both global tends--if there is a political
disruption in part of the world, we will pay more careful
attention to transactions that are housed in that country. We
will look at industry trends, and we do--we have, as I said, a
distinct monitoring group. That team is frequently traveling
around the world visiting different credits or different
countries to make sure that we adequately understand what the
degree of risk is so we can adjust our reserves accordingly.
Mr. Clay. Thank you for that response.
And Mr. Gratacos, what are some of the key areas where Ex-
Im has made progress in implementing the recommendations you
outline in your 2012 report?
Mr. Gratacos. You are alluding to the risk management
report recommendations?
Mr. Clay. Yes.
Mr. Gratacos. There were a number of recommendations that
we issued. The main one in the beginning was the use of
qualitative factors. That was something that, when we started
looking at it, was not done by the Bank at the time. By the
time we worked on the final report, the Bank was taking steps
towards enacting some of the qualitative factors described by
GAO, next to me. We still think that there is a way of--to
learn how to implement those better, down the road. We have to
independently assess and verify those factors.
We are in the follow-up process in that. We also suggested
that independent validation be done by either the consultant or
ourselves. The Bank had KPMG, or the audit committee used KPMG
to look at the factors. We still think that a more independent
process should take place. For those steps have taken place.
Now, I hear about the creation of the Chief Risk Officer.
Obviously, that will be a step in the right direction, from our
perspective.
So we think those two steps are useful. I know the stress-
testing portion--they have been moved to implement it on the
aircraft side. And we have seen some of the discussions in
board meetings, where the aircraft team discusses the stress-
testing scenario for the aircraft side. We haven't
independently validated those yet. That will be our follow-up
in the next semi-annual process.
Mr. Clay. Tell me, what steps has the IG taken to go after
fraud in Ex-Im programs? Are there further actions the IG can
or plans to take to deter bad actors that attempt to defraud
Ex-Im?
Mr. Gratacos. Thanks for the question. That has been the
area where we have been very active since we started in 2008.
The fraud side--when we came in, there was one program
particular in the Ex-Im portfolio that has been susceptible to
fraud. It was a medium term firm. And we came in and have been
very successful in the prosecution, and also deterrence of
fraud. You can see how the claims in the medium term program
have actually gone down 80 percent since that time.
So, we have worked very closely with the Bank. We try to
send information to the front end. And that is why we mentioned
the intelligence changes for enhanced diligence. Every time we
see something in our investigation, we try to send it to the
front end. We also develop red flags for the loan officers to
keep an eye on aspects that might raise concern, and to please
send it to us so we can investigate.
Mr. Clay. Thank you for your response. My time is up, Mr.
Chairman.
Mr. Huizenga. The gentleman's time has expired.
With that, I recognize Congressman Mulvaney for 5 minutes.
Mr. Mulvaney. Great. I want to go over a couple of lines
from the various reports: from the IG's report; and from the
GAO report. And I want to know where we stand on fixing these
things. Starting with the GAO's report, on page three, I am
going to read the text because I don't want to get any of this
stuff wrong. By the way, I was surprised at the candor in some
of these, and I appreciate the candor in both of the reports.
It strikes me that if I had read these types of reports
about private banks, the banks would probably be shut down by
the regulators. So I will be curious to know what is going on
in response to these inquiries: ``Although Ex-Im forecast
models sensitive key assumptions, we found that Ex-Im did not
reassess these assumptions to reflect changing conditions or
conduct sensitivity analyses to assess and report the range of
potential outcomes. For example, certain Ex-Im assumptions
about product mix and repayments were not consistent with
historical trends.''
Are you working to fix that, Mr. Hochberg?
Mr. Hochberg. I'm sorry, I didn't hear what you said.
Mr. Mulvaney. Are you working to fix that?.
Mr. Hochberg. Excuse me. We look at the probability of
default for an entire transaction. We look over the entire life
of the transaction to make sure that we have an adequate risk
reserve policy. And the risk--the reserves that are put on our
books are actually paid for by our customers. So our customers
pay a fee. The fee that they pay us is based on our assessment
of what is the risk in that country, what is the risk in that
particular credit or industry, what is the risk in that
specific transaction.
Mr. Mulvaney. So you are saying you disagree with the GAO
when they said that your assumptions about product mix and
repayments were not consistent with historical trends?
Mr. Hochberg. No, we look at historical trends. That is one
factor in what we look at. We obviously look at historical
trends, but we don't limit ourselves to looking backwards. We
also look forward in terms of--
Mr. Mulvaney. Then help me, Mr. Scire, because it is your
report.
Mr. Scire. I think there is some confusion here. The report
that you are asking questions about--the question is really
about estimation for a forecast of exposure as opposed to
estimates of credit and loss.
Mr. Mulvaney. I will go to the next one and see if we can
find one we can get on the same page on: ``Stemming from our
analysis in the business plan, in our May 23, 2013 report, we
found that Ex-Im had not routinely reported the performance of
its sub-portfolios relating to the small business, Sub-Saharan
Africa, and renewable energy mandates. While Ex-Im provides
quarterly default rate reports to Congress, Ex-Im has not
included in the default rates for transactions supporting these
three congressional mandates in its report.''
Are you working to fix that, Mr. Hochberg?
Mr. Hochberg. The default report, to my knowledge, is in
compliance with what Congress has asked for. At the same time,
we are continually trying to improve it and trying to find
better ways of monitoring our business. We have a comprehensive
risk program. We are looking to find better ways to do so, and
I am always looking for suggestions on how to do so. That is
why I said we work very closely with our Inspector General and
we have taken every single recommendation that the Government
Accountability Office has made and are working to implement
each and every one of those.
Mr. Mulvaney. There are a couple of others, but I only have
a minute-and-a-half, so I will skip to the last one, which was
the most striking to me. This in the Inspector General's
report. It is rather lengthy, but give me a second. It is on
page six: ``One of the patterns our offices observed in
conducting our investigations is the lack of due diligence and
asset monitoring efforts conducted by lenders, specifically the
ones who have a history of defaulted transactions. Even though
there is an expectation that such efforts are taken, Ex-Im Bank
does not require participating lenders to conduct due diligence
or asset monitoring on their transactions.
``In fact, there is no real accountability or penalty for
not performing such operations. The OIG has anecdotal evidence
of loan officers in lending institutions expressing their
position that the lender would not devote resources on due
diligence efforts when there is a government guarantee and such
efforts are not required by Ex-Im Bank. Although the OIG is not
in a position to state this as a behavior demonstrated by all
lenders, we can certainly state that this moral hazard issue
has been prevalent in fraud cases involving multiple
transactions.''
I guess the question is, are we working to fix that, as
well, but really, what strikes me, gentlemen, is this--that
these are the sorts of red flags we will look back at 4 years
from now, when there is a huge taxpayer bill to be picked up. I
am not saying that is--we know that is going on. I am not
trying to cast any aspersions on the Ex-Im Bank. But it strikes
me we could go back and find these exact same statements about
Fannie Mae and Freddie Mac 4 and 5 years before we ended up
paying for their bailout.
These red flags bother me a great deal, and I hope that we
are working very diligently so that we do begin the discussions
on next year's reauthorization so you can come in, Mr.
Hochberg, and say, ``Look, we looked at that section of the IG
report and here is what we did. We looked at that section of
the GAO report and here is what we did.'' Because right now,
like I said, if my private bankers back home got this kind of
report, their examiners would shut them down. And I am not
suggesting that we do that, but I am suggesting that the next
time we come in and start talking about reauthorization again,
we are going to have to look very closely at whether or not
these improvements are being made.
Thank you, gentlemen.
Mr. Huizenga. The gentleman's time has expired.
With that, we go to the gentlelady from Wisconsin, Ms.
Moore, for 5 minutes.
Ms. Moore. Thank you so much, Mr. Chairman. And I want to
thank the panel for the time and the work that they do. I would
like to start out by sort of following up on the questioning
that Mr. Mulvaney had with regard to the moral hazard and
Freddie and Fannie and so forth. Isn't it true, Mr. Hochberg,
that the mission of the Ex-Im Bank is to lend to those
businesses that the private sector would not lend to so that
you don't compete with the private sector? So doesn't that
provide an element of risk just because of that particular
mandate?
Mr. Hochberg. Thank you, Congresswoman. Our mandate is to
fill gaps that the private sector cannot or is unwilling or
unable to, or unwilling to do so at a cost that would make the
transaction go forward. So one could say that frequently it is
because--I will give you an example. A bank may have a certain
lending limit to Sub-Saharan Africa or may have a limit of how
much exposure they will have in a certain industry.
So what we do is, we help fill in the gap. When they have
reached their ceiling, we are able to extend credit to make
sure that U.S. companies can compete overseas, create jobs in
this country, and not--
Ms. Moore. Okay. Okay, thank you. Because they are going to
cut me off, so thank you so much for that. One of the things--
the Ex-Im Bank has a very important mission. A staggering
statistic to me is that 95 percent of all consumers in the
world live outside of the United States. So if we didn't have
an Ex-Im Bank or an ability to export our technology and our
products we would--what would that cost us, sir, in terms of
commerce, do you think?
Mr. Hochberg. Last year, using the Bureau of Labor
Statistics, we supported 255,000 jobs, or better than 1,000
jobs every working day of the year. A large number of those
jobs, perhaps all--certainly all of them would be in jeopardy
because those companies are exporting those products,
sustaining jobs here. And those jobs are here versus being
supplied by foreign governments.
Ms. Moore. Okay, thank you. Sir from the GAO, I really
appreciate the comprehensive report that you did on the Export-
Import Bank and the suggestions that you have given for risk
management in the report, and I hope they follow through with
them. Some questions--one of the things that concerned me was
sort of a suggestion that the congressional mandate with
respect to serving Sub-Saharan Africa and small businesses is a
risk. And I guess I would like you to sort of opine on what
that risk is, as compared to the assets that are there with
respect to serving small businesses.
And Sub-Saharan Africa has three huge assets. One is
demographics, two demographics, and three demographics. There
are an awful lot of consumers in Sub-Saharan Africa. So I am
wondering what the break-even point is for being so risk-averse
that we don't have a program to try to reach those markets, in
your view?
Mr. Scire. We have not assessed what the risk is of lending
under the Sub-Saharan African mandate. I could--as you know,
the Ex-Im is nowhere near reaching the levels that you might
expect. So I would expect, then, that Ex-Im should want to have
sufficient data to know how that portfolio performs so that
then you can have some facts to back up an analysis to back
up--
Ms. Moore. Thank you. That was good. And now, Mr. Hochberg,
I will let you take the last minute on this. Because there was
some suggestion, even in the questioning here among our
colleagues, about that risk of Sub-Saharan African activity.
Mr. Hochberg. Actually, to follow up on that question and
Congressman Mulvaney, in the June default report we will
actually show defaults by the three mandates you are referring
to so that the Members of Congress can see the precise defaults
of each of those programs. But no, we do not see any greater
defaults at the moment, at a macro level, with any of those
programs. Sub-Saharan Africa is growing rapidly, as you
commented. I will actually be joining President Obama there at
the end of the month.
We are seeing a lot of growth in infrastructure, in small
business. It is actually been a very fruitful areas for small
business exports, as well. And our vice chair, who--
Ms. Moore. And also minority and women participation, would
you think?
Mr. Hochberg. Minority women is very high, and I said--our
vice chair of the board, Wanda Felton, one of her prime
responsibilities is to oversee that portfolio and make it grow.
Ms. Moore. Thank you so much. I yield back my time.
Mr. Huizenga. The gentlelady yields back.
With that, we go to one of the new members of the
committee, Mr. Pittenger, for 5 minutes.
Mr. Pittenger. Thank you, Mr. Huizenga. Thank you,
gentlemen, for being with us today. I would like to ask each of
you a question, if we have time. Mr. Gratacos, your office
regularly engages with private shareholders--stakeholders to
obtain input on the Bank's operations. In your opinion, is the
Bank effectively limiting itself to markets and customers not
being served by private lenders? And if not, what steps could
the Bank take to better mitigate the risk that is crowding out
any private capital markets?
Mr. Gratacos. We haven't made an assessment as to whether
or not the Bank is displacing the private sector. We have not
received complaints from commercial banks or any other bank
stating that they have been displaced, either. So from our
perspective, one of the things that we have asked of the Bank
in the past has been whether or not there is any sort of
requirement, proof that a transaction has been denied or
funding has been denied by a private sector institution before
they come to Ex-Im Bank as the lender of last resort.
And there has been a conversation that we have raised on a
number of occasions where the Bank in the project finance long-
term type of deals, there is a number of back and forth for up
to a year before any transaction really makes it to the board.
So there are a lot of communications. On the short-term and
medium-term side, we asked this question as part of our review
of the medium-term program. And the answer was mixed.
And so, in terms of whether or not the Bank requires any
proof of denial of credit, it is a mixed bag, in that sense.
Mr. Pittenger. So do you--if it is a mixed bag, are there
areas you can see that could be better improved or mitigated so
that there wouldn't be that possibility in the future?
Mr. Gratacos. It is hard to tell. It is hard to tell in
that sense. But for--at least from the oversight of the audit
that we do on specific programs, that is one of the questions
we ask. I believe, in certain areas, the application actually
asks the question. But we haven't monitored across the Bank.
Mr. Pittenger. Mr. Scire, what is your assessment of the
Ex-Im Bank's loan loss model?
Mr. Scire. We think that there are certain weaknesses in
the model. And what we look to there is for example, what I
mentioned before in terms of data and the absence of this
historical data that might be used to inform assessments of
risk of transactions. Now, there have been some improvements
that have been made in the model in terms of adding qualitative
factors which will help Ex-Im try to assess risk that is not
necessarily represented by historical experience. And that is a
move in the right direction.
But even there, there is one particular qualitative factor
where we think they could do more in that they are currently
using 1-year forecasts of defaults. And we think they could
move to looking at forecasts for outyears, and they plan to do
that. So I would point to the weaknesses in--in terms of the
data, something that is fairly important. Overall, these models
are estimates, so you can never be certain. And so we also
think it is very important to do stress testing.
And I understand the Bank is moving in that direction. But
you cannot be certain. We heard the chairman say that there are
adequate reserves against any potential loss, and that is not
correct. There are adequate reserves to guard against the
losses that you are expecting. So that is where this kind of
stress testing will help you better understand these potential
outcomes.
Mr. Pittenger. Thank you. Mr. Hochberg, you might want to
respond. But in addition, I would just like to know, are there
any policy prescriptions that you would support? But if you
would like to respond to any other comments, as well, that
would be fine.
Mr. Hochberg. Thank you for your questions. Let me try and
respond quickly to all of them. You asked about crowding out
the private sector, on our application we actually--there is a
question ``reason for requesting Ex-Im Bank support.'' The
applicant has to verify on their application why they are
asking for support, what the need is. And that is then followed
up in the actual due diligence and the underwriting process.
So, we are very careful. We are not interested whatsoever in
crowding out banks, and that is--
Mr. Pittenger. You have 20 seconds.
Mr. Hochberg. Pardon me?
Mr. Pittenger. You have 20 seconds.
Mr. Hochberg. In terms of stress testing, as the GAO said,
we are undertaking stress testing. We will be reporting that in
the fall, and then on a regular basis. And in terms of
weaknesses, the reason we are sitting here, the reason we have
an IG and a GAO is so we can improve those weaknesses. We are
always striving to find better ways of doing what we do. I was
in business for 20 years. You don't sit on your laurels; you
find better ways to do it, better ways to underwrite and better
ways to mitigate against loss.
Mr. Pittenger. Thank you.
I yield back.
Mr. Huizenga. The gentleman's time has expired.
I now recognize the gentleman from Colorado, Mr.
Perlmutter.
Mr. Perlmutter. Thank you, Mr. Chairman. Chairman Hochberg,
let me see if I understand at least a couple of the things that
you do in that Bank, or that the Bank does. So part of the role
is to guarantee loans that are made by other banks to, at least
in Colorado, in my district, 11 small businesses. So you are a
guarantor, right? And then you are also a direct lender in
certain instances. Is that correct?
Okay. And I look at your testimony, and on page two, ``The
Bank continues its prudent risk management, and is proud of the
improvements made during the past few years. In Fiscal Year
2012, the Bank paid $37 million in gross claims on a portfolio
of $106 billion.'' So Mr. Scire, let me see if I understand the
math. Because I listened to Mr. Mulvaney's questions, and I
was--based on his questions, I was very concerned. But if I do
the math, if it is $37 million over $106 billion, that is 37
out of 106,000, is it not? Was that a yes, sir?
Mr. Scire. Yes.
Mr. Perlmutter. Okay. So if losses doubled, it would be 74
out of 106,000, right?
Mr. Scire. Yes.
Mr. Perlmutter. So for me--coming from Colorado, where we
are in the middle of the country--we love to export because
that gives our small businesses business and puts Coloradans to
work. I see this Export-Import Bank assisting either through
direct loans to my small businesses in my district, or by
guaranteeing certain loans. So I have had the pleasure, I
guess, of serving on this committee now for the last 7 years
and went through the travails of Fannie Mae and Freddie Mac,
where they basically bought mortgages that were based upon very
little documentation.
In your study of the Export-Import Bank's loan processing,
do they take--do they have loan applications? Do they demand a
business plan? Were there any problems you saw in the loan
process or the guarantee process?
Mr. Scire. No. I think that they have controls in place in
terms of underwriting and documentation and so forth. But where
I might take issue is the characterization of that percentage
as the best measure of the performance. And especially during a
period where you have rapid growth. You may, today, book
certain claims, and your portfolio may be very, very large. But
much of that portfolio has not aged to the point where you
might expect a claim to occur. And--
Mr. Perlmutter. Okay, but let me--so let's talk about that
for a second. Because I agree with you. I don't know if you
know my background. I did a lot of Chapter 11 and Bankruptcy
work for a long time, and I dealt--I represented banks which
were dealing with stressed or distressed assets. So as I
understand it, the Export-Import Bank has been in existence for
about 79 years? Is that right?
Mr. Scire. I believe so, yes.
Mr. Perlmutter. So in those 79 years, to your knowledge,
have we had any experiences like we had recently with Fannie
Mae and Freddie Mac?
Mr. Scire. I am not sure that there is a direct comparison,
but--
Mr. Perlmutter. And that is my point. That is exactly my
point. The comparison that Mr. Mulvaney is trying to draw I
think is way out in left field. Because--and he will have a
chance to take me to task on this--for 4 years, the last 4
years from 2004 to 2008, they were in the business of
purchasing mortgages which had very little, if any,
underwriting backing them up. That was a real problem.
Now that we have underwriting again, Fannie Mae and Freddie
Mac are making a lot of money. And as I understand it, over the
course of the last few years, not only have exports grown and
jobs been created, but the Export-Import Bank has been making
money for the United States of America. Is that right?
Mr. Scire. I think that estimate has to be used with great
caution.
Mr. Perlmutter. Okay.
Mr. Scire. Those numbers are based upon estimates of credit
subsidy that are done initially, and then updated every year.
And again, much of this portfolio is brand-new.
Mr. Perlmutter. All right. So let's go back to the 79
years. Over the 79 years, how many losses and what kinds of
losses has this Bank had over the last 79 years?
Mr. Scire. I think, as you point out, this is a different
time. The--
Mr. Perlmutter. I understand it is a different time. My
question is, what has happened in the last 79 years? Past is
prologue.
Mr. Scire. I am not sure that is exactly relevant. But I
think it is important to keep in mind that these, all of these
are estimates. And I can guarantee you the estimate is wrong.
It is going to be something different, and that is why I think
it is so important to present a range of potential outcomes so
you can understand the risk that is presented.
Mr. Perlmutter. All right. Thank you very much.
Mr. Huizenga. The gentleman's time has expired.
With that, we go to the distinguished gentleman from New
Mexico, Mr. Pearce, for 5 minutes.
Mr. Pearce. Thank you. Thank you, Mr. Chairman. And thank
you, gentlemen, for being here. Mr. Scire, it is my
understanding that there are single obligors that have more
outstanding than the loan reserves, the loan loss reserves. Is
that correct. Do either of you--Mr. Gratacos, either one of you
understand--know the answer to that?
Mr. Scire. No, I don't.
Mr. Pearce. So how much does Pemax--how much does Pemax
owe? Mr. Hochberg?
Mr. Hochberg. I am not sure I understand the question.
Mr. Pearce. I am asking how much loan value do you have to
Pemax?
Mr. Hochberg. Oh, to Pemex. I'm sorry, excuse me. I didn't
understand.
Mr. Pearce. Sorry, it is west Texan. We speak that--
Mr. Hochberg. I apologize. Pemex, which is the oil company
of Mexico, is our largest creditor. It is in the range--it is
in the $5 billion range.
Mr. Pearce. Five billion?
Mr. Hochberg. Five billion dollar range.
Mr. Pearce. And how much of your loan loss reserves?
Mr. Hochberg. The loan loss reserve, I could not tell you
precisely what it is for each loan. But we risk rate--
Mr. Pearce. No, total. Total for your Bank.
Mr. Hochberg. We have $1.4 billion in cash to back up loans
outstanding.
Mr. Pearce. You have more outstanding in this one--to one
company than you have in cash as a reserve. That is--just
trying to get a little bit more clarity on the last line of
questions. Now, Mr. Hochberg, you had mentioned that the Sub-
Saharan Africa growth, you are seeing tremendous growth in the
Sub-Saharan. Now, I have just, in the past 3 years, visited
probably 10 to 15 Sub-Saharan countries. Can you tell me the
countries where the income is escalating? The growth that you
are seeing?
Mr. Hochberg. Well--
Mr. Pearce. Just name two of them, if you would.
Mr. Hochberg. Where income--where GDP is growing?
Mr. Pearce. Yes, you told me that--you said earlier, in
response to a question, that you are seeing tremendous growth
in the Sub-Saharan. I would like you to now get specific.
Mr. Hochberg. Ethiopia has been a very strong market for
Ex-Im Bank. That is one. South Africa has been a strong market
for Ex-Im Bank. Those are two right there.
Mr. Pearce. Okay.
Mr. Hochberg. I would--there is always Mozambique, most
recently.
Mr. Pearce. Okay. Now, you--in one of the papers it says
that your mission is to support U.S. exports. Is that a correct
statement?
Mr. Hochberg. We support U.S. exports in the interest of
supporting U.S. jobs.
Mr. Pearce. And so why would Pemex have $5 billion in
loans?
Mr. Hochberg. What Pemex is doing is, we are making sure
that when they buy goods and services, they buy from U.S.
companies. So they are buying from companies, a lot of them in
the Texas, Louisiana, Oklahoma area. They have a choice. They
can buy those goods and services from other foreign countries
or from U.S. small businesses, and--
Mr. Pearce. So then how about Abignor? That is a Spanish
company?
Mr. Hochberg. Abengoa?
Mr. Pearce. Yes. And I think maybe in January, they got $87
million. They got quite a few million. And keep in mind that in
quarter one of this year they posted, in euros, about another--
about a 20 percent growth into a billion-dollar range, profits.
And so the taxpayer is standing as a safety net for these
companies that make a lot of money, and we--so Abengoa is--they
are a big user of U.S. domestic products. Is that right?
Mr. Hochberg. The only products that we would finance is
when a company outside the United States wishes to purchase
goods made, produced or serviced--
Mr. Pearce. So you are telling me that is a true statement
about Abengoa?
Mr. Hochberg. I am not fully familiar with the exact
details of what loans are outstanding to Abengoa itself. I can
certainly get back--
Mr. Pearce. Could you find that out?
Mr. Hochberg. I would be happy--
Mr. Pearce. It would be interesting. But, see, what I see
is that Abengoa just went into southern California a couple
years ago, and they were building a solar facility like I
suspect that you are financing for this improving climate in
the Sub-Saharan. And for the people in southern California, who
make a lot of money every year, the hardest hurdle to get over
was the cost of the electrical power, because the cost of solar
power is so much better.
Now, in the Sub-Saharan countries that I traveled through,
the average wage per day is $1 a day. And so, you are financing
these really exotic things that are very problematic to get
placed into our highest, wealthiest place in America, and you
are sending them over somewhere else. And I suspect that it is
going to be a program exactly like I have seen other places. We
were in Burma on one of these trips. They had a 12-lane
highway--one car going on a 12-lane highway in Burma.
So I suspect that some of the times that the jobs that are
being created are ending up with no designation and nobody to
drive on and nobody to use that expensive power.
I yield back, Mr. Chairman.
Mr. Hochberg. Mr. Chairman, can I answer that question?
Mr. Huizenga. The gentleman's time has expired. We will
let--if Mr. Foster, from Illinois, who is going to control the
next 5 minutes can choose to do that, or he may choose to
respond in writing. So with that, you have 5 minutes, Mr.
Foster.
Mr. Foster. I will proceed with my questions, and yield
time if it works. In a perfect world, the Export-Import Bank
would not need to exist. But I am afraid that the dreams of a
pure and undistorted world economy are not met by the realities
due to the asymmetry from subsidized credit by our foreign
creditors. And in my point of view, the next best thing to a
transparent and undistorted world economy is an economy in
which the market-distorting credit subsidies of our competitors
are at least partly offset by equal and opposite distortions on
our side.
So my attitude is very much one of, we will put down our
weapons when they put down theirs. And right now, you are the
best weapon that we have. Quite frankly, you have to look far
and wide to find any weapons system in the United States that
actually turns a profit for the U.S. taxpayer. Now, one of my
concerns is that when you discharge your weapon in a crowded
world economy, innocent bystanders in the U.S. economy are not
damaged.
And, Chairman Hochberg, one specific example that I would
like you to discuss is the unintended consequences specifically
of loans and guarantees to foreign airlines to purchase U.S.
airplanes. These arguably help U.S. exporters of airplanes, but
potentially disadvantage U.S. airlines which do not have access
to the same subsidized credit. And so my question is, in
addition to specific comments on that situation, how do you
generally handle this type of tradeoff, to understand whether a
given transaction actually nets out positive for the U.S.
economy?
Mr. Hochberg. Thank you, Congressman Foster, for giving me
a chance to talk a little bit about that. When foreign airlines
make a purchase of an aircraft, they generally have a choice
between the Boeing company or Airbus. And soon, in the next
several years--in this decade--we are going to see aircraft
being produced by China, Japan, and Russia, and larger aircraft
out of Canada. This is a very competitive market. So, when a
foreign airline has a choice to make, they are going to--they
are generally, today, choosing between Airbus and Boeing.
And the Airbus company, which was originally owned by four
governments and is now less--more and more in private sector
hands, but still owned largely by a number of European
governments--has the export credit agencies of those countries
backing that purchase. So I mentioned Ethiopian Airlines. When
they are making a purchase, they look at the Airbus company and
the financing that they get provided by either the country of
Britain, France or Germany. And they are looking at the Boeing
company and the financing that we would provide to Ethiopia to
buy Boeing aircraft.
We level the playing field. We have put a floor so that no
one entity can have lower financing costs than the other. What
we are trying to do is avoid a race to the bottom. Try to avoid
rogue financing, one-off financing. But simply say that is the
basic financing. It is the same. Let the customer decide do
they want a Boeing aircraft or an Airbus aircraft. And that is
true whether it is Caterpillar or--large companies and small
companies. We put a floor so we stop foreign countries from
providing such low interest rates and such advantageous terms
to disadvantaged U.S. companies and lose jobs in this country.
The second part of your question is, every single
transaction we do at Ex-Im Bank we look at to make sure the
benefits to our economy outweigh any harm. It is called
economic impact. We sent a report to Congress, to this
committee, in November. We implemented new procedures in April.
We make an assessment, an estimate, what are the benefits, what
is the potential harm? And make sure the benefits outweigh any
potential harm. And that is what we do to make sure that what
we are doing is helping the U.S. economy.
Mr. Foster. Do you often reject transactions because it
nets our negative?
Mr. Hochberg. Generally speaking, that would certainly be a
criteria for rejecting an application. We tend to work with the
applicant. So we indicate that if that is going to be an
outcome we will see if they can find some offsets or find ways
that will not be the case so they don't have a flat-out
rejection on that basis. But that certainly is a criteria that
is reviewed, and it is reviewed for large transactions by our
board, who is here today, who actually takes a very careful and
independent look at every single transaction we do above a
certain threshold.
Mr. Foster. And I guess in my remaining time, if you could
just comment quickly on your exposure to sovereign defaults,
which are a non-trivial issue these days. How do you have any
experience with them? How do you intend to handle them? Where
are you on the list of--
Mr. Hochberg. I would say a decade ago the vast majority of
loans at Ex-Im Bank were to sovereign nations. Today, it is--it
continues to decline. And the vast majority of our loans are
actually backed by our private sector. In some cases, we
obviously--if it is a--certain economies are weak we will
require a sovereign guarantee to back a loan to give us greater
security.
Mr. Foster. Okay. I guess I am out of time here, and I
yield back.
Mr. Huizenga. And the gentleman's time has expired.
With that, we go to the gentleman from Indiana, Mr.
Stutzman, for 5 minutes.
Mr. Stutzman. Thank you, Mr. Chairman. And thank you to the
gentlemen for being here and for the information that you
brought forward to us today. I want to start by going to the
testimony of Mr. Hochberg, just really for my information. I am
still trying to understand entirely how Ex-Im Bank does work.
Not only--not just with companies here in the United States.
But you mentioned in your testimony, and it is the purpose of
Ex-Im Bank, that Ex-Im Bank also provides support, when
necessary, to level the playing field when financing is
provided by foreign governments to their companies who compete
for export sales with U.S. exporters.
Could you expound on that a little bit more, and kind of
maybe give us some examples of where, or how, you level the
playing field?
Mr. Hochberg. I would be happy to. Actually, in your home
State of Indiana, EMD, Electro-Motive Diesel, which is now a
division of Caterpillar, is frequently competing to sell
locomotives overseas. In particular, they--we are working with
them on a potential transaction in Pakistan. The alternate bid
is from China, which was providing exceedingly generous terms
of their financing. We were able to learn of that financing and
were able to match it.
In the interest of saying that--let the Pakistan rail
authority decide between EMD or U.S.-made locomotives or
Chinese locomotives, based on the quality, service, value and
price, but not because they got cut-rate or one-off financing
that could not be matched by the United States. So we were able
to, in that case, level the playing field and let the rail
authority decide which is the best locomotive suited to their
needs.
Mr. Stutzman. Thank you. How aggressive is Ex-Im Bank in--
do you operate like a traditional lender would, and with loan
officers that are out pursuing business? Do you typically find
companies that come to you are looking for help? How does that
relationship start?
Mr. Hochberg. Frankly, both ways. Sometimes, the exporter
comes to us because they are facing brutal foreign competition,
and says, ``We need to make sure we have a financing package to
back our export.'' Sometime the importing entity--it could be a
rail company or an airline or a small business--knows of us,
and therefore will go to their exporter and say let's--can we
get Ex-Im back in so we can complete this transaction. I cannot
find the financing locally through conventional terms. So it is
sometime the exporter, sometime it is the actual buyer
overseas.
Mr. Stutzman. So will you ever partner with a traditional
lender on a project, or not?
Mr. Hochberg. Oh, the vast majority of our loans are
guaranteed--a partner with a conventional lender, where we will
guarantee a loan. Frequently, if it is a large project, then
maybe a portion of that is simply commercial. There would be a
portion that might be guaranteed by the Ex-Im Bank. And
frequently, we are co-financing with other export credit
agencies from other countries around the world.
Mr. Stutzman. How do you--when you have an application in
front of you, what sort of stress test measures do you all
take? How do you start to--as you consider these sorts of
opportunities, the taxpayer is backing--not funding, but
backing. Is that correct? Do I understand that correctly? That
it is the full faith and credit of the U.S. Government that
backs the loans? What kind of stress test levels or
measurements do you take to be sure that taxpayers aren't
exposed to default?
Mr. Hochberg. As part of the underwriting process, we will
look at a particular credit and make assessments of what if the
outcomes vary from what is expected. What if the price of oil
goes up? What if there is an interruption in service? It could
be any of those different factors in a transaction. What if the
supply chain is interrupted? So we will run a number of
scenarios and stress tests to say if there is going to be
sufficient cash generated in the project to meet the debt
obligations so we have a reasonable assurance of repayment.
That has been the standard that Ex-Im Bank has been using
for decades to ensure that there is a reasonable assurance of
repayment before we would consider a loan. And those loans of
over $10 million are evaluated by our independent board
members. They are all here. There are two Republicans and two
Democrats on that board who are independently assessing that to
make sure that those standards are met.
Mr. Stutzman. Okay.
Thank you, Mr. Chairman. I yield back.
Mr. Huizenga. The gentleman yields back.
With that, we go to the gentleman from Delaware, Mr.
Carney, for 5 minutes.
Mr. Carney. Thank you, Mr. Chairman. It is a very
interesting hearing. Thank you to the panelists for coming in
today and for your expertise. Obviously, these are very
important questions that the Members have posed today about the
viability and usefulness of the Ex-Im Bank.
I would like to return for a moment first, though, to the
comparisons with Fannie and Freddie, because I didn't find them
helpful myself. And I would just like for you each to comment
on whether or not there are any real comparisons there that we
should keep in mind as we evaluate what the Ex-Im Bank does and
the vulnerabilities there.
Mr. Hochberg, why don't we start with you?
Mr. Hochberg. Thank you for that question. I want to also
thank Congressman Perlmutter for that question. They are
entirely different entities. We operate in 160 countries;
Fannie and Freddie operate in one country. We have no
shareholders that we are accountable to in terms of paying
dividends or increasing earnings. We don't pay any Wall Street-
type bonuses. We don't have any concentration in one industry.
When I look at our portfolio--and, frankly, the 59 other
export credit agencies around the world--we are largely lending
to developing economies which have had better financial
performance in the last several years. So it is convenient, but
I don't think it is an accurate comparison to say that we are
similar to Fannie and Freddie. Also, our portfolio is far
smaller and is collateralized, that is independently assessed
each and every year when we review our portfolio.
Mr. Carney. So in terms of the quality of the underwriting,
is there any comparison? Would the IG or the GAO like to
comment on that?
Mr. Gratacos. In terms of the underwriting, we are talking
about, obviously, different asset classes. The bigger exposure
the Bank has is on the aircraft side, where you have collateral
that historically has performed fairly well. We are more
focused on how the portfolio is growing. It took the Bank 70-
plus years to get $50 billion; it took them 4 years to get to
$106 billion.
Mr. Carney. What is happening now and into the future?
Mr. Gratacos. That is the concern.
Mr. Carney. Right.
Mr. Gratacos. You are getting into more direct lending,
credit finance.
Mr. Carney. In terms of how those loans are going to
perform in the future?
Mr. Gratacos. How those are going to perform in the future?
Mr. Carney. Right.
Mr. Gratacos. It is hard to tell.
Mr. Carney. Mr. Scire?
Mr. Scire. The products are nowhere near the same. So given
that, if there is any similarity here it is this idea of
understanding what is a sufficient level of reserves, or
capital, to withstand unexpected circumstances.
Mr. Carney. So is it your view that the reserves aren't
adequate?
Mr. Scire. The reserves right now are set to provide
sufficient coverage for expected losses. And so if some event
were to happen which would affect some part of that portfolio
that you may not expect or that history may not inform you
about, you don't have reserves to cover that. That is why we
talk about having, or presenting, doing stress testing and
presenting a range of possibilities in terms of expected
losses.
Mr. Carney. Okay, fair enough. So not much comparison
there. Thank you for that. I do have a question about how you
determine--you mentioned, Mr. Hochberg, that Ex-Im Bank fills
in the gaps. How do you determine that it is a gap? It sounds
to me, as you were talking about it with Mr. Stutzman, that it
is more about leveling the playing field. But how do you
determine that you are filling the gaps as opposed to making
loans that the private banks could make?
Mr. Hochberg. Sometimes it is leveling the playing field,
and sometimes we are called upon to fill a gap. We recently
made--
Mr. Carney. Do you have a sense as to what that
distribution is? How much it is leveling the playing field and
how much it is filling a gap?
Mr. Hochberg. We ask that question on our application. That
information is now provided in our annual report. There is a
code whether an application was--whether a loan was made to
fill a gap or to meet the competition or to level the playing
field in that regard. So we do look at that on a regular basis
and report that publicly in our annual report and to Congress.
So there is--I don't have the precise breakdown in my memory,
but I can certainly get that.
Mr. Carney. We could get that.
Mr. Hochberg. Yes, of course we can get that. But
sometimes, it is filling a gap. I will give you an example. We
made a loan to Kazakhstan Rail to purchase locomotives that are
made in Pennsylvania. When we go to the market, we work with
the actual borrower. And they will often send us one bank that
will make the loan, and we can verify it. And they will only
make the loan with our guarantee. That gives me a pretty good
indication. If they have five or six banks that are willing to
make the loan, perhaps one of them would do it without our
guarantee. And that is part of the conversation we have.
We are continually trying to talk clients out of using us.
We would like to be used as little as possible. We have a
precious amount--
Mr. Carney. Thank you. My time has expired. Thanks very
much.
Mr. Huizenga. The gentleman's time has expired.
With that, we go to Mr. Cotton for 5 minutes.
Mr. Cotton. Thank you, Mr. Chairman. Before I get to my
questions, I would just like to correct something for the
record that the gentleman from Colorado said earlier. He
accused my colleague from South Carolina of coming out of left
field. If I know anything about Mr. Mulvaney, he only comes out
of right field in this Congress.
Mr. Huizenga. Point taken.
Mr. Cotton. Mr. Inspector General, you, in your report on
portfolio risk, argue that the Bank lacks a comprehensive risk
management framework. You have several recommendations: one,
establish a Chief Risk Officer or risk management office, with
independent reporting requirements; two, have qualified,
experienced staff; three, have periodic stress testing of the
portfolio; and four, actively monitor industry geographic
exposure levels in lending. I would like to focus in on a
couple of these. Can you elaborate on why you think the Bank
needs to create a Chief Risk Officer?
Mr. Gratacos. For two reasons. The first is best practices.
We learned this from the last several years. We have a number
of institutions and organizations expressing this as one of the
important elements of risk management. We have the--
Mr. Huizenga. Mr. Gratacos, can you pull the microphone
closer to you?
Mr. Gratacos. Yes. We have the international association of
certified portfolio managers, we have guidance from the Federal
Reserve, we have OMB Circular 129, all these different
organizations and guidance are an important element of risk
management. We think that an independent Chief Risk Officer
from--independent from business function is important, given
where we are going in terms of the portfolio.
Mr. Cotton. Okay. Mr. Chairman, so far you have not
implemented this recommendation to create a Chief Risk Officer.
Could you explain, and perhaps respond to the Inspector
General?
Mr. Hochberg. I will be happy to. First, I mentioned in my
opening oral testimony that we are moving in that direction. I
am looking to fill that position this year. We work very
closely with the Inspector General's office. As I mentioned,
Osvaldo and I meet on a regular basis to review his concerns,
and his findings before they come out in a full report. Because
I think both of us are dedicated to continuous improvement at
the Bank.
He made a recommendation, his office made a recommendation,
about a Chief Risk Officer. We took that to heart. I have been
meeting with my colleagues around the world in terms of how
they operate their export credit agencies. We have talked to
other credit agencies in Washington. That is why, a few months
ago, I asked for an enterprise risk committee that would be
look across the entire Bank. Not just credit risk or portfolio
risk, but look at IT risk, human capital. Look at the full
range of risk, and then have, as running that, someone who has
the function of a Chief Risk Officer who is outside of the
actual transaction underwriting side of the Bank.
Mr. Cotton. So we can expect to see the creation and
appointment of a Chief Risk Officer in--
Mr. Hochberg. We are going to be identifying the Chief Risk
Officer so that is clear, and that person will then be
reporting to me. And the enterprise risk committee and the
Chief Risk Officer will be meeting with our independent audit
committee twice a year.
Mr. Cotton. In 2013?
Mr. Hochberg. My goal is to get it completed this fiscal
year. It may be this calendar year, but my goal is to get it
between fiscal and calendar year.
Mr. Cotton. Mr. Inspector General, back to you. Is this
satisfactory, in light of what you have recommended in your
reports?
Mr. Gratacos. We will see. It is not the title; it is a
function. So we will have to see how it is established and what
are the authorities that the position will have. And then, we
will take a look.
Mr. Hochberg. I think, actually, if I can add, the
Inspector General is exactly right. This is not about just
everybody feeling good, we checked the box and we put somebody
on the job. It is about an enterprise risk committee, which is
made up of--is it going to be co-chaired or co-secretary? Have
two career people in the Bank who are going to be looking
across the entire Bank at all possible areas of risk where the
outcome is different than expected. That is what risk is: where
the outcome is different than expected, better or worse.
Mr. Cotton. I take your point that a title is not
necessarily what you need. You need functions, whether those
functions are performed by one person without a title and
staff, or performed by a board or a committee of those people.
I think, Mr. Inspector General, you referenced Circular alpha-
129 in your response earlier. Is that correct?
Mr. Gratacos. Correct.
Mr. Cotton. Now, that document says that representation in
a kind of credit management program should include, but not be
limited to, an agency CFO and the Chief Risk Officer. Do you
think it is satisfactory, and either could answer, to not have
a Chief Risk Officer in light of President Obama's OMB circular
alpha-129?
Mr. Gratacos. That is to me? Yes, if you look at the other
aspects of A-129, which is section B, it talks about credit
program management. And it specifically states that it should
develop oversight and risk assessment officially independent
from the program functions. That is kind of like the trickle
down from your conversation. So if it is set up in a way that
is independent, so they can look at the portfolio rates and
they can communicate without influence back to the front end
and the business folks, then I think we will move in that
direction.
Mr. Cotton. Mr. Chairman, do you agree?
Mr. Hochberg. It is independent today. The credit policy
and CFO is totally independent from underwriting.
Mr. Cotton. Thank you both for your answers and time.
Mr. Huizenga. The Chair was being generous with that
challenge of time. But with that, we will go to my other
colleague from Michigan who serves on this subcommittee, Mr.
Kildee, for 5 minutes.
Mr. Kildee. Thank you, Mr. Chairman. I would like to just
take a couple of minutes and follow up with Mr. Scire on--is
that the correct pronunciation, by the way?
Mr. Scire. Yes.
Mr. Kildee. Thank you. On Mr. Perlmutter's question, and on
the point of left field to right field, I hope that this is
something that we can keep in mind as we have tonight's
congressional baseball game. I assume that we can instruct our
hitters to hit into left field because you won't have anybody
standing there. Is that right?
[laughter]
Mr. Huizenga. Now, the chairman has to step in. We always
cover our left flank, but we will tend to hit it into the right
field.
Mr. Hochberg. Usually Senator Paul plays left field.
Mr. Kildee. Thank you. So I think you did acknowledge that
of the existing performance that the default rate was
relatively modest compared to other benchmarks. I won't try to
do the math that Mr. Perlmutter did. But that you did
indicate--and this is where I want to have you make some
further comment--that because of the life of the existing
portfolio, or the lack of maturity in the existing portfolio,
that there was built-in risk that has yet to be realized. Could
you explain to me what you mean by that?
In other words, is it something about the structure of the
loans, the characteristic of the guarantee that is being
provided relative to other risk. Or is it something about the
characteristics of the loan recipients or those being
guaranteed themselves? In other words, the sectors that are
being invested in, or the companies that we are engaged with,
or the underwriting process itself, or something about the
political or economic environment. I guess what I am trying to
get at is, what is it about the current portfolio and the
characteristics of those that are yet to be mature that you can
point to that clearly distinguishes them as--in the aggregate
because that is how the risk is measured, from the 79-year
history of the Ex-Im Bank.
It would be helpful to get a sense of why you have a
greater concern about that sector or that section of the loan
portfolio or the guarantee portfolio. And I would actually ask
Mr. Hochberg, immediately following to respond, if you could,
as well.
Mr. Scire. I hope you will find my answers coming from
center field, but the point that I am trying to make there is
that there is uncertainty. And the history will tell you, if
everything plays out in the future exactly as it did in the
past, and all your data from historical experience is applied,
then you will get that outcome. But you can never be certain
that is the case. And so that is why you would want to do some
sort of stress testing to see, well, what if history doesn't
follow through.
And so even though you have had this history without much
default, we don't know what possibly could happen in the
future. And we happen to be at a point in time where we have a
really big, young portfolio.
Mr. Kildee. So is it then the size of the portfolio that is
the primary concern? Because that--I guess at any point in time
during the 79-year history there were loans that were new that
had performed.
Mr. Scire. Right.
Mr. Kildee. And those that have been completed. So guess I
understand theoretically the point, but what I am trying to get
at is, just because, as I see it, there is a clear need that is
being filled. This is one of these cases where it is almost as
if we are sort of penalizing, or some are criticizing the Bank
for being too successful at doing what we have charged them to
do. Is it the fact that there is something unique about the
current practices or the current loans or the environment,
political or otherwise, that these loans are being made in that
distinguished them from past loans?
That we can say yes, that we should assume that there is a
greater risk. Something other than just having a higher level
of activity and a higher--or a larger portfolio?
Mr. Scire. Let's take an example. You could have some sort
of global event that could affect these credits. Something that
we haven't seen before.
Mr. Kildee. Like World War II or something like that?
Mr. Scire. I won't--I can't describe what it might be. But
the point is that you can never be certain about these. And so
that is why we argue for presenting a range of estimates here
so that you can understand the potential outcomes. And it is a
little bit more important, in a way, when you are talking about
Federal credit programs because the estimates that you are
providing in terms of credit subsidy and cost for these
programs is based upon a baseline.
And so it would be worthwhile to take a look to see what a
divergence from that baseline might mean in terms of potential
losses.
Mr. Kildee. And I know I am out of time, so if Mr. Hochberg
can answer that at some other point in time during the other
questioning, or provide an answer to me in writing, I would
appreciate it. Thank you.
Mr. Huizenga. The chairman is at liberty to write you an
answer on that. So, thank you.
With that, we will go to the gentleman from Florida, Mr.
Murphy, for 5 minutes.
Mr. Murphy. Thank you, Mr. Chairman, and Mr. Ranking
Member, and thank you to all the witnesses for taking the time
to be here with us today. Chairman Hochberg, I understand part
of the criteria for you all is to help support small businesses
and companies in the renewable energy sector. Looking forward a
little bit, what are some of the plans to boost some of these
small businesses and renewables so they have more
opportunities?
Mr. Hochberg. Thank you for giving me a chance to talk a
little bit about our small business portfolio. We have had a
lot of focus on risk, but our job is to create jobs in the U.S.
economy and support them. And small businesses are a key
component to that, and making sure that they compete globally.
We are developing one product--to give you an example, we
have a product called Express Insurance. This is for small
businesses that need credit insurance. So when they sell to a
customer in Singapore, Costa Rica, or so forth, we insure that
transaction.
They make an application. It is a one-page application. We
respond in 5 days. And we have, so far, in the last--we have
now written over 600 policies. The Kennedy School of Government
actually thought so highly of this we got an innovation in
government award in terms of meeting the needs of small
business and doing a very fast turnaround time.
Mr. Murphy. So this is an--you are insuring each
transaction?
Mr. Hochberg. We are insuring--when a small business--an
example of that actually was on television recently, called
Jennie's Pickles. When they sell their pickles to China, we can
guarantee that transaction. So if their customer there doesn't
pay, they don't have to go hire a lawyer to collect. We will
make good on the transaction, and then we will go and collect
on their behalf.
Mr. Murphy. And what about for renewable energy companies?
Mr. Hochberg. Renewable energy, our portfolio--our
underwriting annually is up tenfold since 2008. It is more in
solar; solar and wind are the two predominate ones. We have
done a lot of wind in Latin America, and we were the dominant
financier of solar power into India in 2011. That market has
cooled a little bit, but that is a focus of the Bank. It is a
congressional mandate.
We have a team of people who work with the renewable energy
companies in this country. So when they go to market, they
understand that--and they are trying to compete against China,
in particular. But other foreign nations, if they need our
backing to help finance that transaction, we are there for
them.
Mr. Murphy. Switching gears a little bit, can you talk
about how you monitor some of the transactions over a million
dollars from the steps you take?
Mr. Hochberg. Yes, of course. We monitor all transactions
on a regular basis with an asset monitoring division. And
transactions from a million dollars and up are evaluated. We
review financials, sometime we make site visits. And at the end
of each fiscal year, we do a mark-to-market. We look at each--
we look at the transactions and make an evaluation whether the
credit has improved or eroded, and therefore adjust what is
called ``the budget cost level,'' or adjust our reserves
accordingly.
If the credit has declined, we will add reserves to make
sure that we are sufficiently reserved. And if it is improved,
we will release reserves. And that we do in accordance with our
accounting office and is signed off on by Deloitte & Touche.
Mr. Murphy. Okay. Mr. Gratacos and Mr. Scire, can you
comment on these transactions over a million dollars, and if
you are satisfied with their monitoring of them?
Mr. Gratacos. We have issued a few reports on specific
programs and aspects of the monitoring insurance transactions.
Like we did an audit last year on the short-term insurance
program, and we found some issues that we elevated to the Bank,
and the Bank has been working on. And implemented the bulk of
the recommendations. Now, our concern is moving forward with
direct loans. Even though they are underwritten as a guarantee
in the portfolio, some of them are custom--types.
There are lot of local customs involved. And so our
question now is what mechanism the Bank has in place to make
sure that they can verify invoices coming in from the field and
massive construction product finance. That is the aspect of
monitoring that we are paying attention to, given the growth
and given the outstanding disbursements there are in the
pipelines, are going to be disbursed in the future, which ties
in with the risk management in the maturity default rate that
the IG is talking about. So in that sense, that has been--that
is our focus.
Mr. Murphy. Let me just cut you off. Mr. Scire, what are
your thoughts?
Mr. Scire. We looked at their monitoring process, and it
seemed to follow what you might expect in a credit program. And
so I think I defer more to the detailed analysis that the IG
has done.
Mr. Murphy. All right, thank you. I yield back my time.
Mr. Huizenga. The gentleman yields back.
With that, we have a guest to the subcommittee that we are
going to also recognize for 5 minutes, Mr. Heck from
Washington.
Mr. Heck. Thank you very much, Mr. Chairman.
Mr. Hochberg, first, congratulations on your near unanimous
vote of confidence from the recommending committee in the
Senate a couple of weeks ago. That bodes well for you, the Ex-
Im, and America. Congratulations, thus far.
You indicated in your written testimony that Ex-Im had not
been the recipient of any taxpayer support for its operations
in the last year. In fact, Mr. Hochberg, over the course of
your 4-year tenure, have you received any taxpayer support to
subsidize your operations or, in fact, to use popular lexicon,
to ``bail out'' failed loans?
Mr. Hochberg. We have not. We are self-sustaining, and that
is a requirement of WTO in order to be--we have no subsidized
export support.
Mr. Heck. No taxpayer support, coming off the worst global
recession in 80 years.
Mr. Hochberg. That is correct. No taxpayer support.
Mr. Heck. Would it be decently fair, Mr. Hochberg, to,
following the money trail, suggest that it is, in fact, foreign
customers, through the fee structure and loan repayment, who
are subsidizing the Export-Import Bank, whose purpose it is to
create American jobs?
Mr. Hochberg. Yes, foreign customers are actually paying,
through fees and interest--is what we use to run the Bank, to
run the administrative costs and to fund our loan loss
reserves. And the $1.6 billion that we turned over to Treasury
in essentially excess revenue.
Mr. Heck. We send them our gratitude. Thank you. Several
decades ago, I had the privilege to serve in the Washington
State Legislature. I found myself in a bit of a tiff with the
leader of organized labor in our State. And during the
argument, when I suggested to him that what he was advocating
was not in the best interest of organized labor--and he looked
me right in the eye, this was several decades ago, and he said,
``Young man, it is not your job to define our self-interest.
That is my job.'' And I think he was right.
I ultimately had the decision on the policy, but it was his
job. Mr. Hochberg, it has been suggested here that the
existence of the Export-Import Bank disrupts the market, that
it is crowding out private financing, that it is in some
fashion injurious to the private sector. So I ask you, sir, to
enlighten us. For those whose job it is to define the best
interest of the private sector--such as the United States
Chamber of Commerce and the American Bankers Association--what
is their view of the relative merits of the existence of the
Export-Import Bank?
Mr. Hochberg. We enjoy strong support from the Chamber of
Commerce, the National Association of Manufacturers, and many
labor unions, as well as the Council for Employment through
Exports. The private sector that people talk about, you have to
understand the private sector is really the government of
China, the government of Japan, the government of Korea. That
is who U.S. companies are competing against continually to make
sales and keep jobs in our country.
So it is not just another small banker in the adjacent town
that would make the loan. What we are dealing with is--
continually is, we have foreign governments, state-directed
capitalism, that is very much focused on defending the national
interest of other nations against job creation in our country.
Mr. Heck. Great segue. And in my time remaining, I would
like to follow up on that very point. Namely, I don't think
there has been enough said here today about what it is that
other countries are doing in the way of credit guarantees or
credit assurances for their businesses to compete in the global
economy. Is there any way that you can capsulize, distill the
relative participation by other civilized and industrialized
countries? And especially those who are emerging, and with whom
we are directly competing, in effect, for the creation of jobs
in America?
Mr. Hochberg. We issue a competitiveness report that will
be coming to Congress at the end of this month. We do that
annually. It assesses the export credit, Export-Import Bank
versus other export credit agencies around the world. In sum,
we have one of the smallest footprints and most limited
engagement with exports in our economy than almost any other
developed economy in the world. Far less than that large,
gargantuan neighbor to the north, Canada, which has a much
larger export credit agency than we do.
And more importantly, just to quickly add, the real problem
is countries that are outside of the OECD, outside of the
framework, because they are free to do any kind of loan for any
reason at any amount at any term. Countries such as--China is
not a member, Brazil is not a member, Russia is not a member,
although they are looking to be, and India. So, those four
BRICs are totally outside of the system and, therefore, not
controlled whatsoever.
Mr. Heck. Thank you, Mr. Hochberg. And thank you, Mr.
Chairman, very much for allowing me to participate.
Mr. Huizenga. You are very welcome.
With that, we have gone through our first round. If you
gentleman are open to it, we have some interest in doing a
second round. Obviously a bit more diminished, but if that is
okay, we would like to proceed with that. And I will start off
by recognizing myself for 5 minutes.
I should note that we had tried to get the Treasury
Department to join us here, as well, today during the last
reauthorization. One of the directives was to have the Treasury
start negotiations to end--or to certainly reduce and then,
ultimately, end these types of programs that are happening.
Apparently, Treasury would not come, or was not willing to come
and testify today. It is disappointing to me that would happen.
But Mr. Hochberg, I do have something that I--a couple of
things I want to pursue with you a little bit. One is the
independent Chief Risk Officer that you are talking about. I
want to make sure that there is an independence there. Having
someone, as was alluded by Mr. Gratacos and others, having an
operation like this, you are not running a pizza parlor or a
taco stand or--this is hundreds of billions of dollars that we
are dealing with.
And there is a tremendous number of issues here that we
have to make sure that whoever is appointed--and I think you
said you were ``looking to fill this year,'' 6 months after the
directive from this--I believe, as my military friend referred
to it, alpha-129 directive, that came from the White House. It
is my assumption, and I want reassurances that this person and
department will be independent, will be properly staffed, and
that they will have access, independent access, to the board.
You had made some sort of remark regarding the Inspector
General that should have gone over some of these materials,
some of these recommendations first. And it seems to me that
they shouldn't be doing that. The idea of Mr. Gratacos is to
have him be independent, and to make sure that those
recommendations come out; not before they are cleared with you
or anybody else, but that they are being cleared. Maybe I
misheard you.
But it seems to me that when we are dealing with meaty
issues like this, we have to make sure that Mr. Gratacos or Mr.
Scire or anybody else has the independence that they need. And
I am assuming, OMB, you would agree with that. Wanting to make
sure that there is--I don't want to put words in your mouth. I
am just assuming you want to make sure that you are not being
influenced or having to run anything through anybody.
Mr. Scire. Absolutely.
Mr. Huizenga. Okay. In my remaining time, we have kind of
gone over this. It is not a title; it is a function. I think
that is going to be very important. So I am satisfied, unless
Mr. Hochberg, you have anything quickly you would like to add
to that, or any insight you can give as to what your timing and
what the structure of this office is going to look like.
Mr. Hochberg. I think if I understand our Inspector General
correctly--and he will correct me if I am wrong--is the risk
management needs to be independent of the underwriting. And
that is exactly the way it is today, is a credit policy
committee that determines what is the risk level if you are
doing a transaction in one country or another. They determine
the risk profile from a policy point of view. The underwriters
then use that to make underwriting assessments and decisions.
And then they are independently monitored by a chief financial
officer.
So there is independence out of--from both--on the front
end in terms of policy, and on the back end in terms of the
CFO.
Mr. Huizenga. Okay.
Mr. Hochberg. The criticism that was made by our Inspector
General is, they preferred that one person be in charge of
that. And so the change is that there is going to be--those two
strains will be reporting to a central office that will
therefore make sure that there is tight coordination between
it. Before--up to now--
Mr. Huizenga. All right, I have 1 minute remaining, and I
want to hit one other issue. And we can talk more about that. I
am curious, how big of a risk is Emirates Air? Are they able to
get credit on the open market?
Mr. Hochberg. They get some credit on the open market.
Mr. Huizenga. Or maybe pay cash?
Mr. Hochberg. They don't pay cash. I haven't seen an--the
last time an airline paid cash was in China, and they have
stopped paying cash, as well.
Mr. Huizenga. Okay. It just strikes me, if we are
bankrolling groups like Emirates Air, who are buying Airbus as
well as Boeing, aren't we starting to help finance competition
against U.S. airlines?
Mr. Hochberg. The choice Emirates has is to buy an Airbus
plane or a Boeing plane. And, sir, I am happier when they buy a
Boeing plane, and in the cases where we need to provide
offsetting financing, which is the same financing that Airbus
is offering so that we keep the jobs in the State of
Washington, in the State of South Carolina, and in 48 other
States. That is important.
Mr. Huizenga. We know that companies like Emirates--
Emirates has announced that it wants to be a global-dominant
leader in that. And if your directive is to make sure that we
are protecting U.S. jobs, we ought to make sure that in this
balance, and what was pursued by some of my colleagues over on
the other side, as well, is that we weigh that out on both not
just the manufacturing side, but how it is going to affect the
others. My time is up. I have to be fair to all. So I am sure
we will continue this conversation.
With that, Mr. Clay for 5 minutes.
Mr. Clay. Thank you, Mr. Chairman. And following in that
same vein of inquiry as Mr. Huizenga, Chairman Hochberg, there
has been a lot of press about aircraft financing and assertions
by some domestic carriers that Ex-Im support puts them at a
competitive disadvantage. However, from what I gather, the
Organization for Economic Cooperation and Development recently
raised the rates on official export credit for commercial
aircraft transactions.
Can you explain the OECD process, and is there an un-level
playing field for U.S. carriers, in your opinion?
Mr. Hochberg. I would be happy to. And frankly, this
relates to Chairman Huizenga's question, as well. We evaluate
on every transaction, including aircraft, what are the benefits
to the U.S. economy versus if there are any offsets or harm to
the U.S. economy. As a result of our last reauthorization, we
hired an independent outside firm to evaluate if there was an
oversupply in the aircraft sector. And the conclusion was there
is not.
We use the same criteria for aircraft seats or services
that we do for any other industrial product, which is that--
what the capacity levels of that are. So we make that
evaluation on a single transaction basis. Chairman Huizenga,
you have talked about a concern about Emirates. There is a
recent press article by Richard Anderson of Delta Airlines, who
has been a critic of the Bank. And he quotes that Delta had
quite a profitable year, and 2013 will be the fourth year in a
row of significant profitability.
Today, Delta is the most profitable airline in the United
States, if not the most profitable airline in the world. So it
is hard to fully understand the crying wolf that Delta Airlines
has made about this issue that they are being unfairly competed
against by other airlines, when their chairman of the board
makes those kind of statements about their profitability and
their use of export credit agencies.
The OECD, quickly, does--has mandated, and we work closely
with them to do so, to raise the fees that airlines pay. So an
airline will pay, depending on their creditworthiness, some--
generally speaking, between about 8 percentage points to 15
percentage points for the privilege of borrowing money through
our guarantee program. So on a $100 million loan, they are
going to pay points, like you pay on a mortgage, between $8
million and $15 million to get that loan.
I promise you, if they can find it cheaper or better
someplace else, they are doing so. That is why we raised the
rates, to make sure there was capacity to keep the flow of
trade and keep jobs in the United States. Not in any way to
displace the private sector or in any way to advantage a
foreign carrier over a domestic carrier.
Mr. Clay. Let me follow up. I believe that U.S. domestic
carriers are not able to access export credit assistance from
Ex-Im. However, can you tell me, Chairman Hochberg, are U.S.
domestic carriers able to access export credit assistance from
other governments? And if so, to what extent?
Mr. Hochberg. Two things happen. One, and let's--since we
are talking about Delta, I will continue with Delta. Delta
actively uses export credit agency support from both Brazil and
Canada. They have purchased over $4 billion worth of aircraft
with the assistance of those two governments to supply them
with regional jets. Furthermore, Delta has a--technical
services, where they overhaul engines in Atlanta, a tour I made
with Richard Anderson.
When they sell those services to foreign carriers, such as
Gol which they also shareholder in, we actually financed that
purchase. So in that case, Delta is using the export credit
agency in the United States, the Ex-Im Bank, to finance their
sales of technical services, employing people in Atlanta. They
do that with Gol, they do that with Aeromexico.
Lastly, to your other question, is, the United States--this
is the most rich and the most efficient capital markets in the
world. U.S. carriers generally use something called ``EETC,
Enhanced Equipment Trust Certificates.'' That is the primary
way they finance their aircraft. Each time a U.S. carrier makes
that purchase, we compare what they pay with what a similar
carrier with a similar credit profile would pay under our
program. Because we want to make sure we are not underpricing.
We actually adjust our rates every 90 days to make sure
they are at market and not providing an undue advantage to a
foreign carry.
Mr. Clay. Thank you so much for those responses.
And I will yield back the balance of my time.
Mr. Huizenga. The ranking member yields back.
With that, I think this is going to be our last question.
We will try to get you out as close as we can here, at noon.
Mr. Stutzman, from Indiana, has 5 minutes.
Mr. Stutzman. Thank you, Mr. Chairman. I guess I would kind
of like to follow up on the airline lending and the
relationship between Ex-Im and the airline industry. I guess,
first of all, let me ask this. When Mr. Murphy asked about
their small business portfolio, you brightened up. And I was
glad to see that because I think that is something you are
passionate about. And as a small business owner, I appreciate
that because I know how difficult it is as a small business
owner.
Do you think--is there a cap on--to limit a company to a
certain amount in lending that Ex-Im currently has now?
Mr. Hochberg. We have no self-imposed caps. The only cap
would be what is a reasonable assurance of repayment. We don't
want to lend someone more money than they can reasonably pay us
back.
Mr. Stutzman. Should there be a cap?
Mr. Hochberg. I think the cap is really--there is--I don't
think there should be any preordained cap. What we want to do
is make sure that the credit is there. We are there to fill a
gap. So if, for some reason, they aren't able to secure it
through the private sector, that is what we--that is why
Congress created us. That is what our mission is, is to make
sure that jobs are created in the United States and that we
fill in that gap. So we are not going to lend somebody more
money than can reasonably repay.
Mr. Stutzman. But here is my concern, that you look at the
top 10 companies that are beneficiaries that Ex-Im Bank loans
to. Just the top 2 take 65 percent of the total revenue that is
loaned out, or the total lending that is loaned out in
guarantees by Ex-Im Bank. And you mentioned Delta. And it looks
like the--and I am just going by what I read. But it looks like
Delta was complaining, but now they are involved in the
Brazilian Airline deal.
When is the next company going to come along and complain?
But if they are getting a piece of the pie, at some point, then
they are going to be happy. And we are just--this is just going
to continue to snowball. And then this only becomes a larger
liability, or a larger--the program is larger than what it ever
was intended to be. And that is my concern, that you have just
several large companies that are the real beneficiaries to the
Ex-Im Bank.
Mr. Hochberg. What I have learned in 4 years as president
and chairman of the Bank is that our portfolio is somewhat like
a barbell. We have a large concentration of small businesses
that have a very hard time getting access to credit. And at the
other end of the spectrum is heavy capital goods. It is things
such as satellites, aircraft, locomotives, power plants,
nuclear power, mining equipment. So the--and, frankly, that
parallels, Congressman, what I see when I talk to my
counterparts in Germany or France, and Japan. It is heavy
capital equipment and small business.
Mr. Stutzman. Mr. Scire, I would like to ask you that same
question. Should there be a cap to lending by Ex-Im Bank?
Mr. Scire. So this would follow along the lines of having
some soft portfolio limit.
Mr. Stutzman. Can you pull that microphone a little closer,
please, Mr. Scire? Thanks.
Mr. Scire. This would follow along the lines of a principle
that you would find in, for example, the soft portfolio limits.
And we think that makes sense. So it may not necessarily be a
hard cap, but something that would cause you to give even more
critical attention to underwriting and understanding the risk
that might present.
Mr. Stutzman. Do you think that Ex-Im Bank is too dependent
on some of the larger companies?
Mr. Scire. We haven't done the analysis that would permit
us to answer that question. It you have a portfolio that is
focused on a single company or is heavily influenced by a
single company, that presents an additional kind of risk that
you would want to therefore manage.
Mr. Stutzman. Thank you.
I yield back.
Mr. Huizenga. The gentleman yields back. And with that, I
would like to thank our witnesses. You have been very generous
with your time and your knowledge.
Mr. Ranking Member, yes?
Mr. Clay. Mr. Chairman, I just wanted to include for the
record a question that I was unable to ask. I would like to
submit it in writing today.
Mr. Huizenga. Without objection, it is so ordered.
Mr. Clay. Thank you.
Mr. Huizenga. You are welcome. So as we are concluding
here, I would like to thank each of you for your time and your
knowledge that you have been sharing with us.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 12:05 p.m., the hearing was adjourned.]
A P P E N D I X
June 13, 2013
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