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Export-Import Bank: Should it Stay or Should it Go?

  • By Andrew Deichler
  • Published: 2014-07-10

Despite long-running bipartisan support, the Export-Import Bank of the United States might be on the verge of closing. The bank’s charter expires at the end of September, and for the first time ever Congress might not renew it. Should treasury and finance executives be worried?

The answer is: Probably. Established in 1934, the Export-Import Bank provides loans, loan guarantees and credits to foreign buyers making purchases from U.S. exporters. The financing is for transactions that commercial lenders deem too risky. The bank also provides export insurance, primarily for small businesses. In fact, nearly 90 percent of Ex-Im’s deals involve small businesses—although the top 10 largest exporters in the U.S. account for 75 percent of the bank’s business. Last year, Ex-Im authorized $14.9 billion in loan guarantees, $6.9 billion in direct loan and $5.5 billion in credit insurance in nearly 4,000 deals.

The issues

In recent months, the bank has become a point of contention in the Republican Party. Establishment Republicans generally support the bank, viewing it as a necessary means of support for American exporters. Conversely, Tea Party Republicans view that the bank as an example of “corporate welfare” and want to see it shut down. Just last month, Kevin McCarthy, the newly elected Republican leader of the House of Representatives, said that he favors letting the charter of the Ex-Im Bank expire in the fall, insisting that its duties are something that the private sector can handle.

But the private sector already covers 98 percent of export financing, CNN noted. Ex-Im takes on the other 2 percent of customers that the private sector is unwilling to assume.

The bank’s harshest critic has been House Financial Services Committee chairman Jeb Hensarling (R-Tx.) who referred to the bank as the face of “crony capitalism.” Although Ex-Im’s reported default rate is less than 1 percent, Hensarling insists that it still poses a major risk to taxpayers. “Fannie and Freddie didn’t run a deficit, until they did. The federal Pension Benefit Guaranty Corp. never ran a deficit until it did,” he said.

A key argument in favor of keeping Ex-Im is that other nations, like China, provide export credit subsidies. Proponents of Ex-Im view it as a way to keep America competitive with other nations.

All talk?

According to a new Time vote count, the bank has enough support by Republicans to win reauthorization. Assuming that Ex-Im has widespread support from Democrats, the bank should survive.

But it might not reach that point. Senate Majority Leader Harry Reid (D-Nev.) may attach a short-term renewal of Ex-Im to a resolution that would keep the government funded past Sept. 30. It would essentially dare Republicans to shut down the government over the bank, mere weeks before midterm elections—a scenario unlikely to happen.

Copyright © 2014 Association for Financial Professionals, Inc.
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