[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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                 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

                              ----------                              
                                                                   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.]


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