Transcripts For CSPAN2 Export-Import Bank Reauthorization 20140827

Speakers, interviews and viewer callins with authors. Sundays 9 00 p. M. Eastern, after words, women bureaus, talking about his book the asteroid threat. A documentary about the 1969 apollo 11 moon landing. Say day on the civil war and general shermans atlanta campaign. And the Supreme Court case burb versus for. Talk to us about the programs youre watching. On twitter use the hashtag c123, or email us at comments at cspan. Org. Join the cspan conversation. Like us on facebook. Follow us on twitter. Earlier this year the House Financial Services Committee Held a daylong hearing on the reauthorization of the Exportimport Bank. Its current authorization expires next month. Business, finance and bought officials including Exportimport Bank president Fred Hochberg, provided remarks on the role of the bank and compliance requirements made as part of its 2012 reauthorization. This portion. Hearing is just under two hours. The committee will come to order. We will now turn to our second panel of witnesses, many of whom are familiar faces to this committee. So my introductions will be brief. If staff can be strucked to shut the hearing room doors. First the honorable Fred Hochberg currently serves as chairman of the Exportimport Bank, a position he has held since 2009. The honorable osvaldo currently serves as Inspector General of the exim bank. , served in this capacity since 2010. Matthew scire is director of Capital Markets and Community Investment at gao. Finally dr. Doug elmendorf is the director of the nonpartisan congressional budget office. We welcome you each to the committee today. Without objection your written statements will be made part of the record after your oral remarks. I believe all of you hopefully testified before the committee before. You know the lighting systems, so i will not go into that. Chairman hochberg, at this time you are recognized for your testimony. Thank you. Chairman hensarling could you pull the microphone a little closer to you, chairman . How is that . Is that better . Thank you. Chairman hensarling and Ranking Member waters and Committee Members thank you for testifying before you as the Committee Considers our reauthorization and progress that exim bank has made in supporting u. S. Jobs through exports. Since our last reauthorization just two short years ago exim has supported nearly half a million american jobs while generating nearly 2 billion for the taxpayers. Exim bank has met all of the reporting requirements set forth in our reauthorization bill and has implemented several of the reforms. At exim bank we are committed to Continuous Improvement and effective Risk Management. When i testified before this Committee Last june, i committed to hiring a chief risk officer before yearend. We completed that on time. Under his leadership, the Enterprise Risk Committee assesses comprehensive risk issues, reports semiannually to the Banks Audit Committee and provides me as well as other directors with a monthly update. We implement ad a number of other reforms making exim more transparent and accountable. Including with we posted in the federal register all transactions of 100 million or more. We reviewed, revised and posted our Economic Impact procedures on the website. We implement ad enhanced iran sanctions provision. We add ad textile industry member to our Advisory Committee and implemented portfolio stress testing and reported to congress. The list goes on and on. The longer list is included in my written testimony. At the height of the financial crisis in 2008 our default rate was 1. Is . And today, in our most recent report of march of this year which we issued to congress as part of those reforms every 90 days, it is 0. 211 or less than a quarter of a percentage point. Customers who use the bank pay a service fee which covers all of our reserves and operating costs. We make no grants. Money is not given away. It is lent and repaid and exim bank does not engage in corporate welfare. Since our last appeared before you we accomplished much in our efforts to support Small Businesses. In 2013 the Bank Financed a record 3413 Small Businesses, nearly 90 of exims transactions. That amounted to about 6 billion for Small Business financing of which 5. 2 billion was direct. The Bank Supports tens of thousands of additional Small Businesses whose goods are incorporated into larger exports. We are critical to Small Businesses exporting directly and indirectly across the world. These businesses are operating in an extremely competitive environment. This morning we are releasing exim banks competitive report. In 1999 just 15 years ago, nearly 100 of export credits financing globally was done within agreed upon framework and it was transparent. As this report shows, it is down to 1 3 and it continues to drop. In other words, 2 3 of all official Government Support for exports today is opaque and unregulated. Countries like china and russia frequently engage in marketdistorting financing that threatens u. S. Workers and their jobs. This is deeply concerning to me and should be to every american worker. U. S. Citizens are not competing against Chinese Companies on a level Playing Field. Theyre competing against china inc. In 1999, official chinese financing was almost nonexistent. Today it is well over 100 billion, dwarfing what exim bank does. South korea, an economy less than 1 10 our size, finances 100 billion, nearly four times the 27 billion that we financed last year. Other ecas such as south korea using uncertainty surrounding exims reauthorization to steal contracts. You heard that clearly on panel one from steve wil burn, how this is harming his business. I in closing i want to thank the Inspector General for years at exim bank as he heads to other endeavors. He helped us run a better bank. We worked cooperatively with gao and accepted all the recommendations since last years reauthorization. I want to commend the outstanding work of our 400 plus employees. We live in extremely competitive world and the Playing Field is not level. I wish everyone played by the ruse but our competitiveness report starkly points out. The stakes could not be higher. I ask for your support in reauthorizing exim bank for five years with a lending cap of 160 billion. Thank you for your support and i look forward to answering your questions and working with you on reauthorization. Mr. Gratacos we welcome your testimony now. Good afternoon, mr. Chairman, Ranking Member water and distinguished members of this committee. Chairman hochbergs kind words and thank you for opportunity to testify before you about the oig and exim Bank Oversight as it relates to its spending reauthorization. Before i continue i thank the almighty for opportunity and members of my family and expim bank for the opportunity. Last year i testified before this committee about the exim bank to. Exim bank should proactively manage risk of growing portfolio line with common practices of commercial multilateral banks. Specifically we recommended that exim bank should establish a chief risk officer or create a Risk Management office within with independent reporting requirements to the chairman. A fine, qualified staff to that audit, conduct periodic stress testing on entire portfolio reflecting different markets and. As of can exim bank is taking steps for improving Risk Management framework. Some of them describe described by chairman hochbergs statement, however we see the opportunity for improvements to exist. For example, exim bank establish a higher tro and restructure reporting lines to separate origination functions from Risk Management functions however the tro was established with additional management responsibilities, supervising legal and Administrative Functions of the bank, which could dilute the focus of position on credit risk issues. In addition exim bank utilized hub analysis of the portfolio and bottom up approach. The results of the first stress Testing Process were conveyed to congress and that the default rate report dated september 2013. The bank has also established an enterprise Rick Committee and provided activities to the oig exim bank recommends use of qualitative factors to account for impact much such factors on the portfolio. The application of such factors in the city. Process commented in fall of 2012 and resulted upward revision of loss reserves. Lastly let me address some recent reporting on integrity investigations. I can not confirm or deny particular investigations or comment specifically on particular matters. What i can say we have number of active investigations involving also external participants of exim bank and there have been reported in the semiannual report to congress and fully crop a tiff working relationship with Bank Management on these matters. Bang manement employees referred issues to us for review and bank taken employment actions on the issues we referred to them. Some of these matters are nearing conclusion and i expect to share some information on them in the coming months whiles are at early stages amay or may not be substantiated. We work close with the just disdepartment on these issues. I hope you understand im not in position to comment further at this time on these matters. Mr. Chairman, Ranking Member waters and members of the committee, thank you for my opportunity to testify today. I will respond to any questions that you have. Mr. Scire. Youre recognized for your testimony. Mr. Chairman, Ranking Members waters, members of the committee, thank you for the opportunity today to discuss the actions exim has taken in response to recommendations we made last year. Our reports were completed in response to the export import reauthorization act of 2012. We reported that exims business volume had grown dramatically in recent years and that this rapid growth posed challenges to exim. Outstanding commitments were 114 billion in 2014 double the level in 2008 when exim began to experience rapid growth. Among the challenges we cited is understanding the risk of loss. This is particularly challenging for exim because of the need to anticipate losses far into the future and because of weaknesses in its data. 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 only gore. Obligor. These should help capture risks that historical experience might. Its technique for Global Economic risk for considering longer term forecasts. We therefore recommended exim whether it is using best available data for adjusting loss estimates for longer term transactions to account for Global Economic risk. In response in november exim replaced oneyear forecast with a fiveyear forecast. We also found that exim had not maintained Historical Data on defaults that might be used evaluating the performance and loss potential of the current port foe. That is exim had not maintained record that would permit records comparing performance after transaction with that of a like transaction at a similar age. We therefore recommended that exim retain point in time Historical Data on credit performance. Exim has since begun retaining such data. 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. Exi am planned to conduct such stress tests and we recommend it report to the congress their content and results. Exim has since begun to include such information in its quarterly default rates and reports. Another challenge facing the bank is understanding what to expect in terms of future activity. In this regard we found the message used by exim to forecast the total exposure for 2013 and 2014 had certain weaknesses, specifically exim had not reassessessed its assumptions to reflect changing conditions or conducted Sensitivity Analysis to assess and report the range of potential out comes. We therefore recommended exim do so. In response in its 2015 budget justification, exim has incorporated historical experience into the forecast and prepared range of authorization and exposure estimates. Another challenge facing exim is the sufficiency of its resources. We noted that the rapid growth in business volume, coupled with a more modest growth in staff levels, created potential Operational Risks for exim and exim recognizes this risk but it had not formally determined the level of business it can prudently manage, either agency wide or within specific functional areas with a given level of resources. Likewise, we were reported that exims Business Plan had not sufficiently assessed adequacy of resources meeting certain congressional mandates to support Small Business and Renewable Energy. We recommended that exim develop benchmarks to monitor and manage work load levels and provide congress with more information on resources associated with meeting the mandates. And in response exim hired a contractor to develop work load benchmarks and workload modeling tool. This effort is ongoing. Going forward till will be important for exim to sustain a commitment to improving its understanding of factors that drive demand for its programs, the performance of its producted and potential Operational Risk it is may face. This conclude my opening remarks. Thank you again for the chance to speak today. I would be grad to take any questions you may have. Dr. Elmendorf, youre now recognized for your testimony. Thank you, mr. Chairman. Ranking member waters and members of the committee, im pleased to be here to discuss cbos estimates of budgetary cost of the Exportimport Banks Credit Programs. I want to emphasize the cbo has not analyzed operations of the bank or the Economic Impact of its programs. Our analysis has been limited to direct effects of bank on the federal budget. As you may know cbo uses two different approaches to estimate the budgetary cost of federal Credit Programs. One approach reflects procedures currently used in the budget under the federal credit reform act of 1990 or fcera. This reflects value of governments Credit Assistance. Cbo found exim banks six large Credit Programs would generate budgetary savings of about 14 billion under fecra accounting but cost 2 billion under fair value accounting. Both estimates are based on exim banks estimates of cash flows for the Credit Programs as reported in the federal credit supplement to the administrations 2015 budget. Thus both estimates reflect amount of lending fees and default rates that are expected prevail under the current structure of the programs and the president s budget requests. The difference between the two estimates lies in the treatment of the costs of market risk which is one component of financial risk. Much of the risk of Financial Investments can be avoided by diversifying a portfolio. Market risks, the component that remains even after a portfolio is diversified is much possible. It arises because most investments perform relatively poorly when the economy is weak and relatively well when the economy is strong. People value income from investments more when the economy is weak and incomes are relatively low and so assign a higher loss to costs that occur during economic downturns. The higher costs of losses in bad times as well as lower cost in good times is captured in the cost of market risk. The government is exposed to market risk through its Credit Program because when the economy is weak, borrowers default on their debts more frequently and recoveries from defaulting borrowers are smaller that. Market risk is effectively passed along to taxpayers and beneficiaries of government programs, because as they bear the consequences of the governments financial losses. Moreover, that risk is costly to those taxpayers and beneficiaries because they tend to value resources more highly when the economy is weak. Under the fecra to approach for accounting for federal Credit Programs, treasury borrowing rates are use to discount expected future cash flows. That is to translate future cash flows into current dollars. That approach essentially treats future cash flows subject to market risk as having the same value as treasury securities that promise the same average payments with no risk. This means that the market risk of federal Credit Assistance is treated implicitly as having no cost to the federal government. That is important consequences. For example the cost of federal Credit Programs reported in the budget are generally lower than the cost of private Financial Institutions for providing credit on the same terms. Also, the budgetary costs of federal Credit Programs are generally lower than those of grants for similar purposes that involve equivalent economic costs. In addition, purchases of loans and loan guaranties at market prices appear to make money for the government and conversely sales at market prices appear to result in losses. To incorporate the cost of market risk, the fair value approach generally entails discount rates on expected future cash flows that private Financial Institutions would use. That approach effect tiffly uses market prices to measure the cost to the public of the lower returns on federal loans and loan guaranties when the economy is weak and incomes are relatively low. In cbos view, therefore, fair value estimates provide more comprehensive measure of the cost of federal programs. Some analysts have expressed concern about the potential drawbacks of using the fair value approach in federal budgeting. They argue, for example, that fair value estimates include costs that will not be paid directly by the federal government if actual cash flows turn out to match expected cash flows. And that including those costs makes comparisons with some nonCredit Programs more difficult. Thieves analysts note that fair value estimates are somewhat more volatile than fecra estimates and more complex to produce. They worry communicate basis for fair value estimates is and public is more difficult for fecra estimates. Proponents of fair value approach respond to the concerns that decisions about spending publics money should take into the account how the public expresses Financial Risks as expressed through market prices. Taking prices into account fair value estimates are unbiased estimates of expected costs of loan and loan guaranties when theyre offered. Other concerns can be mitigate through established accounting practice. Thank you. Im happy to take your questions. All right, chair now yields himself five minutes for questions. Mr. Hochberg, my background is not in accounting. I have a degree in economics and a degree, a jd, but i do know the difference between single entry accounting and double entry accounting. So i just heard your latest jobs claims that seems to increase every type that i see you. I trust you did hear the testimony of the earlier panel, is that correct . Okay. In the claims that you make, is that a net number or is that a gross number . Because were having testimony of job loss caused by your bank. So is the number that you posit a gross number or net number . It is a gross number. Its a number we use that answers the question, mr. Hochberg. I appreciate that. Also i assume since we have a witness from gao here, you are familiar with their may 2013 report that criticized the bank for concealing mettology weaknesses in the jobs claimed including the fact that you do not distinguish between full time, part time and seasonal employment. You do not control for selection effects, between supported firms and injuries, industries that may depart from the average. And again, i just posited, gao just criticized bank for not considering unseen counter factual, how many jobs would have existed without any intervention at all. Are you familiar with gaos work regarding your jobs claim. Yes. We pointed out a number of weaknesses with the methodology and recommended that exim do more to disclose the weaknesses in the with the methodology and since they have done so. Thank you. Dr. Elmendorf, fecara applies, ive seen a report that there are roughly 10,000 federal agencies, programs, frankly ive been here a number of years. I have still cant figure out how many there are, but how many are subject to fecra, how many programs or agencies. I dont know what the count is, mr. Chairman. As you know there are several trillion dollars of outstanding federal loans and loan guaranties. The specific programs. On a fecra basis, the exceptions to fecra among Credit Programs im aware of because of tarp program because congress wrote into the law we should do estimates of that program on adjusting for market risk and for fannie mae and freddie mac because there is no, nothing is specified in law and we do those on fair value basis. This is probably outside of your area of expertise. I think we had some testimony earlier today. Certainly ive seen evidence. Doesnt almost every other private bank or private company that is sub wreck to gaap use fair value accounting . Private Financial Institutions generally use fair value accounting, yes, mr. Chairman. Thank you. Mr. Hochberg, we had a gentleman here on the earlier panel as you well know, one of the recipients of an exim credit guaranty. I think your latest figure that youre supporting roughly 3,000, 3500 Small Businesses is that correct . Correct. Well earlier witness takes some exception of your definition. Well accept the definition for the moment. Ive got information from the sba. By their definition, and i dont know the definitional differences, that there are roughly 30 million Small Businesses across america. So if im doing the math right, you are in some way, shape or form providing Credit Services to roughly one in 10,000. And im still trying to figure out, and im struggling with this, mr. Hochberg. And that is, i have a number of Small Businesses in my district, including catco catalytic Heater Company in texas. They export. They dont use your services. And i quoted this gentleman earlier said as a Small Business owner exports, i think it is outrageous my own government puts my own business and other Small Businesses at competitive disadvantage through the Exportimport Bank. I see my time is starting to run out, but i say that, mr. Hochberg, because i think it is important that we hear from the Small Businesses that actually have to pay for what your bank does and whose Balance Sheet you put at risk. Are those voices i believe are unrepresented, underrepresented in this hearing room today. I will posit that all 3,000 or 3500 Small Businesses that receive your Credit Services would want them extended. I would posit that and i know that you have traveled all around the nation. I think somewhat reminiscent of fannie and freddie. I have no doubt you have come close to finding a customer in every Congressional District in America Today but i do think it is important that these other voices be heard. I notice that you said that it is roughly 90 of your transactions, but isnt it roughly 18 of your exposure is Small Businesses . Is that correct, mr. Hochberg . Actually this year were in the 23, 24 range. Weve had greater use of Small Business and a little, and banks have come back and so on of our larger exports i would just say then for the record the 90 is fairly misleading. I see i am out of time. Chair now recognizes the gentlelady from new york, miss maloney, the Ranking Member of the Capital Market subcommittee. Thank you, mr. Chairman. Welcome to all of the panelists. Mr. Hochberg, some people on this panel today have suggested that we could let the Exportimport Banks charter expire and that the economy would be fine. That the private sector would just step in and take over, and there would be no impact on the u. S. Exporters or Small Businesses. Can you walk us through what the impact would be . We, thank you, thank you for giving me the opportunity to talk about our Small Business. One, we actually do 90 of our clients are Small Businesses. And Small Business is defind by sba. We dont make our own definition. You heard on panel one, Steve Wilburn of firm green, made a clear articulation of the loss an harm to his business and employment even if just the threat of exim not being here. We had some folks in the audience, a company that i think the chairman sometimes cited, general anys pickles, a woman from north carolina. Who is exporting her pickles and Food Products to china. Britain is looking to expand to germany and mideast. We provide Credit Insurance way businesses get Fire Insurance and Credit Insurance she can not obtain on the private sector. Many Small Businesses how do you know these businesses can not obtain financing in the private market. First of all they have to state that they needed us and they were not able to obtain this privately. Second of all, we survey the private sector all the time and many times they will not make loans or insurance for smaller businesses. The good news is, i will tell you, that the private sector has come back and the private insurers are doing a better job than they did during the crisis but i will also tell you that the word is out that you probably should not get insurance from the exim bank because we may not be here after september 30th. So brokers are telling their clients, i think weve got to get you either more expensive insurance or can insure you because i dont know if you want to take a risk having a policy with a 90 days term. You raised point that, there are people really concerned whether or not youll be there and theyre not providing insurance. The statute gives exim the authority to facilitate an orderly liquidation if its charter expires and a recent memo from the Congressional Research service noted that exim would have considerable discretion in deciding how to manage this liquidation. Well, if the bank is not reauthorized on september 30th, we would have, we would not make any new loans, we would not support any new businesses. I would add that Small Business in particular would probably be hit first and we would simply hold, we would, i dont see a reason, i Hope Congress would not want to liquidate the portfolio which implies selling it off, often at a discount but let the loans mature to term. We have a wellperforming portfolio. Liquidation is often used for a failed bank. The only reason we would be not operating would be because of a political decision not to reauthorize us, not because of a failure at the bank. And, theres a lot of debate this morning about exporting planes, basically exporting boeing. If the u. S. Decided to stop providing any support or assistance for the export of u. S. Made planes, unilaterally, who would, what would happen . Who would stand to benefit. Well, i think that the makers of airbus would be quite excited by this. They would be, they would be cheering because frankly it will no change the amount of airplanes many coulding into the United States carrying passengers. It will simply plane whether theyre made in the United States by boeing and their 15,000 suppliers, 6600 are Small Businesses, first will be made in hamburg and other places. We have a real competitive threat. Threat of china is coming up. They are building a plane to compete with 737s, which is the single aisle, general commercial plane used. That is coming on stream in the next few years. Above the 2 depending on what country youre looking at. Chair now recognizes the gentleman from california, mr. Campbell. Thank you, mr. Chairman. Dr. Elmendorf, mr. Scire and mr. Gratacos, i probably butchered two out of three games. I apologize for the. Dr. Elmendorf, i assiduously enough over the years i know not to butchered that. But i hear all of your issues and agree 100 with the issues relative to the banks accounting risk, chief risk officer having other responsibilities and a number of other factors. I would mention the discussion draft which are released earlier today contains attempts at least to do with all of those issues. I think i agree and believe that the bank is not properly accounting for risk and that if there is a reauthorization that is something we need to do. During the remaining of my time, mr. Hochberg, like to ask a few questions about some things. You actually requested an increase in the authorization of the bank even though the authorizations are doing as you stated the private sector is back in the game and the authorizations are down to what they were in the bank a few years. Why would you want an increase in authorization . Congressman, thank you for your comments and interest in this. We took a look at, we are asking for it by the reauthorization. We are compounded increased 3 per and per annum. I took a modern increased the exports are up close to 45 since 2000. Exports are up, banks continue to tell us through basel iii, doddfrank and other regulations a list of an appetite for Small Business, less of an appetite for longterm loans. Factoring in those factors, export markets, more going to developing nations, i tried to put together okay, even though thats not your experience right now. Two years ago we were in great need. Right now there seems to be a slight reduction in need but im not looking at only six months making this estimate. I try to take a broader view. I was a businessman for 20 years. Okay, gotcha. In the Previous Panel the ceo of delta and others complained about things that were in the previous reauthorization that they are saying youre ignoring which is the main gateway adverse effects of transactions on others. What is your response to that . I completely disagree with mr. Anderson. Congress asked us to simply review our Economic Impact procedures. Those procedures stake we should look at the benefits of the u. S. Economy and getting potential harm. We refuted a number that instead of just reading it was actually published new regulations, put them out for comment and adjusted our impact procedures and put it to a vote for the board. We complied fully and on top of that every transaction the bank would use it gets reviewed. We want to make sure the benefits outweigh any harm. My time is limited to want to get on to other questions. Yesterday there was news that came out about potentially some accusations of things going on in the bank. Now, we know that any organization, certainly element of government that deals with the public that there can be corruption and there can be fraught. Guess what . That has occurred within congress. I know thats a huge shock to everyone listening, but that has occurred here as well. The question i have for you is this. There is i think a question and it is a good one about your handing out loans, guarantees and other things to the private sector. And if people have the ability to make that not just for kickback but to their friends, to political allies, to whatever it may be, thats a bad thing. So it would seem to me that there is not enough, but there are not enough controls, if you will, within the exim bank to stop that sort of thing from happening. How do you judge, how do you make the decision of who gets support and who doesnt . Do you mean what Companies Get support . Yes. One, what the need is. We look at the need whether theres a need for exim bank to be a player in that or whether private sector doesnt by itself. Frequently we dont need to engage apple. Thats was close to 98 exports dont need our assistance. If youre referring, you a few questions and im trying to well, basically, were running out of time but the accusation is that some people got support from exim in exchange for kickbacks. That means somebody else probably didnt, or those were not meritorious or there was a competition for something going on. Im trying to determine what procedures you can place angel not have time to answer this. But what procedures you hav havn place a stop faster thing from happening because that cant happen. I agree. The gentlemans time has expired. The chair recognizes the gentleman from new york, the Ranking Member of the Financial Institutions subcommittee. Thank you, mr. Chairman. The latest trade data shows that the United States trade gap has increased to 47. 2 billion since april 2014. As imports recorded the highest value on record. Purchase of automobiles, capital goods, human goods off at record highs. So in the midst of record trade deficits we are here today debating and i can believe this, we are debating whether not we need to reauthorize the exim bank. That chinese and europeans and the brazilians and the japanese all must be looking at us and shaking their heads and complete a disbelief that we are actually debating this issue. That we could actually voluntarily purposefully killed American Industries and hundreds of thousands of american jobs. Its unbelievable to me. I know when we Start Talking about it, theres a question of uncertainty kept coming up. Want to know the rules are, whether or not who we are now in this atmosphere of uncertainty. What effect is uncertainty creating for u. S. Exports . Thank you, congressman. First of all theres an ad in todays politico that says they meet the exum bank of china, russia and france. They are delighting in his hearing. Theyre delighting in the u. S. Debate. On thank you, mr. Chairman there was a discussion on the direct impact on businesses. I heard that during the shutdown the i heard that during the potential shutdown. We enumerate all of that in this competitiveness report. Again, twothirds in the range of about 200 billion of export finance globe is unregulated, opaque, one off and causes harm to american companies. When i am in africa, chinese governments offers 100 financing for anything you will buy. They will give you 10, 15, up to 40 year terms. So theres a direct impact on our debate here and trying to sell you is bonds. More important for jobs in america, Small Business jobs as well as at large companies. Weve seen a direct impact. I hear it from companies. I hear from their customers. One customer in maryland during the shutdown said he lost a customer determined because he could not take the risk, we would not be around. You mentioned this and i was listening to some my colleagues on the other side of the aisle also, and in a time we had the last reauthorization they were certain reforms that were listening to them i think maybe xms not implement it in reforms but is that true . We have complied with every single reform and recommendation that the community. We have complied or are in the process of complying with every single recommendation gao has made. We would agree with each and everyone of those recommendations. I want to go because you mentioned africa twice and you know i just had an event in new york on energizing africa, and the want to thank exim for being there. He talked about china, et cetera being there but you also come in because we talked about other roles. Can you tell us what opportunities are there for americanmade goods and services on the continent of africa . Africa is home, depending on your estimate, 6 of the fastestgrowing economies in the world. I just returned two weeks ago. There are great needs in power, transportation water. I was with the president of angola who agreed to by 1 billion worth of locomotives and power units. So there enormous opportunity. But we face very intense competition from china. We will provide financing for any and all exports going to africa. Quickly, i went to meet with transmit as a result split the order between the United States and china. The ceo told me point blank china offered 10, 15, 20 years, what terms to meet and what rate do you need to pay, we will make it work. Let me ask this with a little time i have left. How does the size of fm bank in particular its mission and the terms it is able to offer compare with other foreign export credit agencies . Chine as i mentioned is more than four times our size and thats just there to other of the policy banks to support exports. A Canadian Bank is about three times larger than the United States, and an economy somewhat smaller than the u. S. Korea also does a three to four times more than we do. We probably have a small footprint of an Expert Credit Agency to the size of our economy in the world. I see my time is just expired. Spent indeed it does. The chair recognizes the gentleman from alabama, the chairman emeritus of the committee, mr. Bachus. Thank you. Chairman hochberg come you and i met himet in my office march 27n we are considering reauthorization of 2012. At that meeting we expressed some concerns you about transparency, accountability, and also the mandate requiring the bank to review the economic effects of this financing to take into account and their meaning a sad story, taking account into serious adverse effect of any loan or guarantee on the Competitive Position of the United States industry. And then we have some followup conversations as late as may 9 of about deltas concerns. We voted that bill out on ma may 15, and i never had an explanation that the sale of widebody just to the emirates did not hurt u. S. Airlines in a Competitive Position. Several times this has come up, even i think as early as 2003. Have you ever done an analysis and shared it with the congress of that particular issue that the president of airlines was talking about earlier . We, again, Congress Asked us to review our Economic Impacts. We not only reviewed, we decide to publicize it on our website. We also do an analysis of is that specifically about the effect on look at aircraft and look at every aircraft transaction. Not specifically. Could you supply that specific analysis that you did . What, that concern was directed company was very refined. It was to address the need to subsidize loans to the emirates or to rich countries of widebody jets of carriers that directly compete with american carriers on International Routes. Is there an analysis of that, going back and looking at all of that . We did an analysis. We hired an outside firm to make unbiased of them is there an oversupply in the aircraft field globally of widebodys. No. Thats not what my question was to not whether to mean a widebody. My question is the impact on our flag carriers. Well, the bank as an Economic Impact of we didnt ask for a study of whether there are to me widebody jets in the world. Well, the bank is Economic Impact procedures for 20, 30 plus years. Youre telling me something i know. Im asking you something, you know, i know youve had procedures. I know youve had economic studies. Im asking you specifically, have you responded to our request, and mr. Andersons concerns, that we discussed on two different occasions and . Well, then the edge to the question is yes or. Okay. Would you supply us with those documents and . Would be happy to supply you. When you did the loans, and i like copies of the loans, specific analysis of whether, you know, on any sale to those countries, the effect on the flag, the United States flag carriers. If you could just give me that. We will provide let me take Something Else im very concerned about. You heard what i said earlier. August 2 i wrote a letter to you all. We obviously faxed it over to you because scott responded the same day and promised us, according to his letter, that before the thing was, the loan was made, they referred to the policy division as well as the engineering division, because there are two different studies and they share the concern with the board prior to a vote, and they would share with us any analysis. You know, that was never given to us, but lets just what im saying, you didnt do that or supply it to us before the vote. Your response to me was two months after the vote. Which is not, our committee then could respond, couldnt analyze, couldnt have any input. He didnt even advise is when the vote was going to be. Can i answer that question . Yes. Briefly. We, the board considered it. It comes to congress. Congress has 35 days to comment before a final vote is taken by the board to any transaction over 109 comes to congress for any member to comment. We got a number of comments on the transaction. Who does it come to . It is said to i dont know precisely how it is transmitted at every transaction is transmitted to congress for a 35 day review. The gentlemans time has expired. Or that youre not recognizes the gentlelady from new york, ms. Mccarthy. Thank you, mr. Chairman. Chairman hochberg, i notice that we only get five minutes and then notice that youve always been writing something down. Obviously, was there was somebody on this panel or, i understand that you in the back listening to the first panel. So im going to stop talking and any questions that you want to answer or things that youve heard that you want to give a rebuttal to, im giving you the opportunity to do that now. Thank you very much. Let me try and answer one or two questions we have. We look to make sure that any benefit, any export, the benefit to the u. S. Economy outweighs any harm. Thats referred to as Economic Impact. So if we are financing the export of an airplane, we want to make sure that the dollar amount used economy could outweigh any potential harm. We look at every transaction, not Just Aircraft to make sure were complying. The last thing we want to do, the people at exim bank is refused the company is hurt the u. S. Economy. The Committee Staff receives every transaction over 35 days and the Committee Staff i presume forward to two members of the committee who would like to review it. We receive from time to time many comments, sometimes no comments at the committee has an congress has a full 35 days to send comments back to us before any transaction is finally voted on. There was a question about working with the Inspector General. Ive had a great working relationship with our Inspector General. I think together we have made a better bank. Our employees are alert to if they see something suspicious or suspicious claims or suspicious loan or something that doesnt look right, they were direct with the Inspector General. They dont go through me. They work, whether its in the general counsels office, cfos office can anybody see something thats suspicious, and im very proud of the fact our employees are concerned about they care about their reputation as well. Im pleased with the reputation and the work we do with the ig. The article that was in yesterdays wall street journal in my opinion thats a good article because it says to her staff and says to any exporter, if youre doing anything funny business, were on to you and well work with it. A lot of this has changed since we have Inspector General which is 2007. A number of the things discussed predate the Inspector General. We did not have an Inspector General in those early days. With that, now, one of the things that i wish you would go over one more time is basically, i know that youre not looking to your delta. I know youre not looking start the pilots and the flight attendants. You want them to succeed. Could you go over one more time with their arguments that you heard today on why the situation is where it is cracks and easy anyway to work with them to try to come to some sort of an agreement so we dont go through this every two years of . Well, we fully complied with Congress Request on transparency and reforms. There are over a dozen every complied with each and every one of them. We have complied with everything at least so far agreed everything in the gop are Delta Airlines made an assertion that are financing of plans to air into cost and delay of people. If you look at the facts they did not ground in aircraft. They have added employees since and even stated at the time does not because of competition. They said, we have moved to this the size and scope of deltas operation and our element of our best suited for the capacity of the 777. So for business reasons they moved the flight to atlanta. It was not because of competitive issues or the exim bank. That was a concept they came up with three years later. That was nothing in the press release. They said nothing about the fact there was a global recession in 2000 a. They said nothing about high jet fuel prices. The h1n1 virus, a number of other things but they also talk about impacting their business. Somehow this one route, this one route they decide was only because of exim bank. That doesnt comply with any other public messages. Thank you. And the other thing, too, obviously when i came on this committee and i had to learn a lot of new things, one of the things i did even before you came to be, the chairman, was reach out to the Exportimport Bank, come to my committee, bring my Small Businesses in, to get educated. You did come out when you came on and am happy to say that in my district, by wordofmouth, more and more businesses have been joining and certainly weve seen the growth of the amount of money thats come in to my district. Its not mine. Its the people working, its jobs, and thats the important thing. Thank you very much for your time. Without i yield back. Gentlelady deals back. Just so happens to be my turn, mr. Hochberg. You said you at complied with all the requests that congress had made at the last reauthorization. And you referred to mr. Anderson in that all these things had been complied with, although there are people that were at the table and the delay when these things were being looked at that says they were not complied with. Why do you think theres a difference there . Certainly. We complied with every requirement, every reform that congress put in. We did as i mention an Economic Impact analysis in particularly in aircraft field. How many of those did you do in the aircraft feel . We do want to you. We do a survey we do a survey to determine is there a glut in aircraft field reps which is the criteria thats been deployed by the banks are 20, 30 years in looking at Economic Impact. If theres an oversupply, then any additional capacity to have an impact. It doesnt undersupply okay. So how many of those how many of those Impact Analysis having done on aircraft in the last five years of . Well, we two things to we review every transaction to we do an in depth study. Every transactions be . Every transaction over 10 million we review for Economic Impact. How many would that be . Well close to 3500. We look at all of them. We dont deploy the resources and do it in depth study on every single one. For example, some kind of an airplane that is replacing an old plane. Sometimes its an airplane thats never flying to america. A number of those are not part, would have no impact. We dont waste Government Resources chasing things that have no potential impact. But youve only done once analysis in the last five years on aircraft . The new procedures went in in april of 2013. So first of all, they been in existence now for 15 months. We review all. We did an in depth analysis on one transaction, one transaction triggered and said this warrants further review and study. Because the planes our new capacity, potentially flying to american cities, and as a result the triggered a more in depth study. If again, if his replacement aircraft or not flying to the United States, we would not spend the time and money and resources to do a detailed study on something thats not going to potentially have an impact. If theres the potential of an impact, we will do an in depth study. Okay, but impact, me, if youre buying a plane from blowing it could still have impact on the economy, right . The analysis that has been used in every industry, not just for aircraft and we say what of the benefits to u. S. Economy, how much revenue is coming to the United States, what is the potential loss to the us economy . Weve bounced them against each other. We are always looking at that. Whats the balance of . Thank you. Is the banks being sued right now on any of your Economic Impacts . Delta airlines is suing us. They are . Yes. And is a because of the case that you just mentioned . Well again, they dont, they dont agree we put together Economic Impact procedures that are consistent with the way we do it for every industry. We are not going to pick and choose into a special one for aircraft. We look at how we look at Economic Impact as congress has asked us to look at Economic Impact. Just add one more thing. We are the only export Credit Agency in the entire world that does this. No other export Credit Agency, no other country requires this. Are happy to do so but i think the committee should know this is something unique to the United States. You have really sense of 2011 to stop disclosing the yearly total of a number of aircraft exports. Why would that be . Im unaware that we made a change in our disclosure since 2011. I mean, we do you disclose all of them right now . Anything over 100 billion is in the federal register for fall 25 days before final board vote. Above that amount but above 100 million spent if it is less than that it is just chump change of . First of all you cant buy a widebody plane. The items of concerns of delta. None of them cost less than 100 militant dollars. So under 100 million, the aircraft would be two and a fraction of 737. So thats what Congress Asked us to say, over 100 million. I can just add this does have an impact on our competitors. Spent on go to leave by example and cut myself off. Gentlelady from california. Yes. Thank you very much. I would like to go back to a discussion about how you guarantee and how you finance and how you supply support for insurance. The opposite side of the aisle have created these words to describe what you do that are absolutely not true. They talk about corporate welfare in saying that, they are trying to lead the public to believe that youre giving away something to the corporate sector in Foreign Countries. They also talk about crony capitalism, as if you are somehow giving to persons who have some kind of connection with you or with exim, something that they dont deserve. And so i think we need to clear this up. We need to talk about the difference between Loan Guarantees and the kind of financing that you do, and grants. You have made it very clear that these are not grants, but i think we need to say it in words that everybody understands and nobody can deny. And, of course, for those who are saying that, not of them can prove that theres any welfare here, but they will keep saying it unless we keep denying their description of exim. So would you please come in your own words, to talk berg, talk about how you do this . Thank you Ranking Member waters. Thank you for support. We provide loans, loans need to be repaid. We do not provide any grants whatsoever. We have a very tough group of people who enforce alone and make sure loans are paid back and pay back on time. Thats how we can have a default rate of 0. 21 , less than. 25 . At the height of the financial crisis, at the height of the financial crisis the worst crisis since the depression, it was 1. 1 , and he keeps declining. So in terms of Risk Management and in terms of corporate welfare, welfare implies we are taking from some and giving it to someone else. We dont do that. People come to us if they need our support. Also, according to the world trade organization, we have to be selfsustaining. If we are selfsustaining, it is a subsidy from the government. But these we collect, our loan loss reserve, cover operating expenses. And for the last several years we transferred back to the taxpayer for deficit reduction, thats over a billion dollars. Do you charge interest on loans . Well, most of the loans are guaranteed, but if the bank charges, if its a direct loan and sometimes we do that, we borrow the money from treasury by law we add a full percentage point to treasure lenses the money for 2 , we must charge at least 3 ar. On top of that we add these leak points on the mortgage. If i look, if were providing critical welfare, if you talk to any of our customers they feel like they pay a lot of money for our services. None of them feel like its theyre paying handsomely for the privilege of borrowing. Is it because of these fees that you charge in interest alone that youre able to earn money . And what do you do with the money that you earn . The money we receive, one, a prudent portion goes to loan loss reserves to make sure that every loan is paid off. Congress each year appropriate a certain portion of it back to the agency to run. About was we transferred to the treasury. Say that one more time, the balance of this money goes to the treasury of the United States of america. Correct. Is that right . 1,057,000,000 last october, the previous october it was 803 million. So are you telling us that you actually earn money for the government that goes into the treasury . Correct. We are in money because were taking in more money than it requires to run the bank. So, in earning money theres no way that anybody can credibly say that youre providing welfare for corporate interest, is that right . Correct. Thank you very much. And i hope that as we go through these discussions you will say that over and over again. We have got to rob the opposite side of their ability to undermine the tremendous work that you are doing, the tremendous way that you are allowing the United States to get at the balance of payment and get us into the export business. If it wasnt for your 2 or so that you are doing, we would be out of it altogether. I think you and i give back the balance of my time. The chair now recognizes the gentleman from oklahoma, after lucas, chair of the house full committee. Thank you, mr. Chairman. Mr. Hochberg, are you having funded a . I have a chance to, to tell the start of exim bank for more people understood what were doing and how we help support jobs in this country. So i am doing that. Thats a good response. Clearly youre having a lot of rounds pitched at you politically from a variety of directions here today. If i could, to the whole panel, discuss forum within the nature of the rest of the world handles the situation. And if we were indeed to step away from the institution, would any of the other countries that we are aware of around the world drop their similar type of programs . I would address this to anyone on the panel who would care to touch it. Is anyone talk by getting out of this business that does this on the planet that you interact with . Are you asking a . Any of you. I meet with my colleagues and the g7 and the bricks. Its the exact opposite. They are looking for ways to wrap up, adding staff and, frankly, unlike the exim bank some most of them have officers around the world. I think china exim is Something Like 10 or 12 offices globally to so theyre going the opposite direction. None of them are looking to be less robust or handicap the exim bank. Theyre looking to enhance them. And to my friend from cbo and gao, if this institution goes away, i know youve addressed this, but one more time, please. The impact on the federal budget . Congressman, under the federal credit reform act rules that the congress has legislated and we follow, the Exportimport Bank has a negative subsidy cost. That is the way it is recorded in the budget and the way we include in our budget projections. Okay. So if i understand the two sets of comments, we have a situation where we are not the only people engage in this kind of activity. It would appear were the only people discussing not continuing to engage in this activity. And the effect of engaging or not engaging the activity has no real impact on the federal budget. Fair observation . I think away the federal budget is accounted for right now, you really dont yet know, you really wont know what the cost of these programs are into more time has elapsed, and basically business have time to mature i would point out that 11 of the cohorts that xms have actually requires subsidy, according to exim and ombs estimates. Based upon re estimation. So we really wont know the full cost of the credit until they have had time to mature. I want to agree with that. I was careful to say in the comments is that under the rules that congress has legislated at the we, of course, follow the exim bank in the negative subsidy scam weve also said a number of times including just recent report, that we think a more comprehensive way to measure the cost of Credit Programs which of exim bank is having a positive subsidy cost. Thats not the way it is recorded in the budget now. Thank you for the verification. Just so its clear, a negative subsidy needs we transfer your we make extra money if we dont use and it goes to the taxpayers for deficit reduction. Thats what a negative subsidy needs. So we transferred, this year, over a billion dollars. Last year 800 million. Since federal credit reform in 92, its 6. 6 billion have gone from the bank to the treasury. If i could add one less thing. I know our time is limited. The financial crisis in 2008, we have a real life stress test to imagine what gao says. With the one with everything gao has asked us for but on top of that we have seen the most stressful Economic System and stresses and Banking System the world has ever seen since the depression. And our defaults are again 0. 211 , less than a quarter of a . I understand the future is uncertain to which is go to the worst six years the world has ever seen. Absolutely chairman. The question always this is the glass halffull or halfempty the what will be the impact of not having a glass . Thats a policy decision we have to decide but it is a fascinating discussion to intensity that ive observed in this committee, both perspectives, is great. But whatever we do will Impact Business but it will impact individuals and impact our competitive nature around the whole planet. And for the i yield back to the chairman. The chair now recognizes the gentleman from missouri, mr. Cleaver. Thank you, mr. Chairman. To the Inspector General, theres been some problems obviously with the exim bank but has there been something so egregious, so monstrous, that congress should give the exim bank a certificate of discontinuation . Obviously the decision as to whether not exim bank is still around is for congress to decide. All weve done since restored the office is to look at some of the issues that we were preparing on the exim Bank Operation either from Law Enforcement side. We didnt act on that site. We were here last to talk about Risk Management. Weve done work on dealing with customers. We look at Economic Impact. We look at all those aspects of the bank that we thought needed to be addressed. And since then the bank has been working with us and addressing those and some recommendations still outstanding but theres some progress and even as the conversation to three years ago wasnt even on the table, were having this conversation. So from our perspective, we focus on the operations of the bank. To gao, if we didnt find the air force would it have an impact on the budget . Funded the air force. Of course. That simple . You asked us if we didnt find the air force . Yes. Of course. What if we didnt find toilet tissue for the capital . That would have an impact on the budget. Okay, thank you. So anything we do would have an impact on the budget, is that correct a . Im not sure its material for this discussion, but yes spent you are absolute right. You are absolutely right. Let me go further. We be mr. Hochberg, deny many times the exim bank has been reauthorized . Exim banks exim bank has been reauthorized 16 times in its 80 year history. Sixteen times. Would it be a surprise to you, probably wouldnt do, that most of them were unanimous votes, or overwhelmingly unanimous when it went to the floor and to the senate bikes and that a significant number, i cant remember the exact number, was actually, they were actually voice bowed out of the house, and then i think they call it consent, in the senate, and the lower house and what do they call it in the lower house speakers unanimous consent in the senate . Unanimous consent. Unanimous consent. Youd be surprised at the number of unanimous consent. So i guess the point i am perhaps making, and poorly, is that whats different now . And what im saying, are there some problems . I think there are some things we could do. I think there are some tweaks that should be made. That should be read some reform. The Delta Airline represented the broadest some things that should be considered. But my concern is it has, the exim bank has been well received by everybody over the years, not all of the sudden we have this partisan is him over the bank. And im just wondering, you know, what is it about this moment in our history that we dont think we can do we have a problem and some of it is not that big a problem, and to make changes so that our businesses can compete for business abroad. I mean, im frustrated over the fact that it would seem to me that there are issues that need to be addressed. They can be fixed. Has to been anything discussed today that cant be dealt with if we sit down and worked . Congressman, you know im a businessman. I came to this after 20th and the private sector. We are constantly a under team s looking for better ways to operate a bank. Address reforms and issues brought up by congress so we can do better job for managing risk and serving exporters. Lastly i would just add, under president reagan the number of reforms to place in present reagan signed a sixyear extension of the exim bank. The gentlemans time has expired. Now recognizes the gentleman from north carolina, mr. Mchenry. Mr. Hochberg, i wanted to ask you about the wall street journal story from june 23 about employees being under investigation for accepting kickbacks and improperly steering contracts to favored firms. Is there an intro investigation conducted by the exim bank on these matters separate from investigation by the office of Inspector General . Let me just begin by saying, frankly speech is actually, i just want to know i am outraged by the number i have appreciated that youve answered this question before your outraged, but is there an investigation by the exim bank separate from the office of Inspector General . Most of those investigations are transferred over to the Inspector General when they reached a certain point. So theyre under the jurisdiction of Inspector General at this point. At this point. No further investigation from the start . This level of seriousness theyre turned over to Inspector General. And so the status of an investigation would be closed their but open at the oig to . Well, its not close. Its an open issue but but if you refer to them because of the seriousness and n youre done with investigation, correct . We are awaiting to what Inspector General says. That may recommend other actions we take either with the employee or in a procedural understand, okay. Have you as a result of this, have you consulted with the generageneral counsels office t these reported incidents of waste, fraud, and abuse in . Well, but me just make one statement. All of these infractions, all of these individuals you are referring to were all referred to Inspector General by our employees to out of place center something suspicious year. I need the Inspector General to look at that. So in terms of these were all internally generated and sent to Inspector General by our own employees, i dont like what i see. Spend im not asking that you. That im not sure i understand the question. Fantastic. Have you consulted the Ethics Office about these matters . Well, matters have been handled by our general counsel and the Inspector General as is proper. And the general counsel referred that over to the office of Inspector General . Well, im some of them to me been turned over by another another employee. They dont have to go to a particular channel to any employee can let me ask a simple question. Is there an office of ethics at the exim bank . Office of ethics . I mean yes, in the general counsels office theres an office of ethics and compliance. I know of too. I think theres two to four attorneys in the administered law area spent and who do they report to . The general counsel. Other Ethics Offices action report directly to the head of the operation. And other parts of government. Would you support that . We have a chief risk officer at this committee asks, that Inspector General recommended. The chief risk officer has reporting to him, its more broader than just credit risk but it looks i just as a simple question. Spent the chief risk officer reports to me and he i understand. I asked about the Ethics Office, not about the risk office. As part of that. I understand what im talking about a direct report. I will move on because i understand you dont want to answer those questions ive been asking so i will ask this question. Are you aware of any criminal investigation about the actions that were brought to light in the wall street journal report . These matters i think are better answered id Inspector General since there is an ongoing investigation. I do want to invade peoples privacy. Are you aware of a criminal investigation about these matters . Unaware of the Inspector General is conducting an investigation. Are you aware if theres a criminal investigation about this matter . Im aware of the investigation. I still feel the question would be better answered so i dont invade anyones privacy by the Inspector General. I just want to make a misstatement. I understand the entrance of meetings with the office of Inspector General i think its much easier to do so im just trying to ask you a few questions. And so, mr. Chairman, you know, just trying to get to the bottom of this. If i can ask you a question about a florida construction company, the center of wall streets general store, have you had any contact argued with them personally . No, absolute and not. I yield back. Confounded, i yield back. That youre now recognizes the gentleman from florida, mr. Murphy, for five minutes. Thank you, mrminutes. Thank you, mr. Chairman. Thank you all for appearing a force to be. Chairman hochberg, thank you. Good to see. Thank you for your steadfast motion of american jobs and American Manufacturing in our country. As a Small Business owner myself i understand the one of the most important things those Small Business folks need is access to capital and financing. Last year alone Exportimport Bank financed supported over 200,000 jobs, 90 of which of those jobs supported Small Businesses. If the United States unilaterally disarmed the export financing world and allows exim to lapse, what kind of Economic Impact could have on American Manufacturing, on our job craters, our exporters, selling goods that are stamped proudly made in america, all the around the world, in so many of which have relied on this Exportimport Bank . Exportimport bank . Well, on the first panel we had specific testimony touches the threat of exim bank not being here in september, has already impacted the wording of 57 Million Contract in this country that would support a lot of jobs. The smaller transaction of 49 support 155 jobs, theres more with larger transactions. We heard Small Businesses at the time of the shutdown touches even the threat of a shutdown were losing sales because of potentially would not be there. Small businesses rely on us very deeply. Its 90 of our customers, 90 of the client. Frequently they did not have another option. They frequently have very few options. I rent a Small Business. Its hard to get credit in general and its even harder for Small Business. Lastly, many of the Small Businesses are part of the supply chain. I know we focus on Small Business but their part of the supply chain, part of spacex where congressman waters has in her district. Theres a large supply chain, manufacture, boeing, ge. They dont make 100 of what to do. They are supply chain is full of Small Businesses that would also be impacted immediately. As a fiscal conservative idea all Government Spending with a skeptical eye. One of the things i say frankly it isnt this bodys will to create jobs. Rather, its our role to create an environment thats conducive to job growth. You have developed that stability, give up that invited to stability and certainty, not shutting down the government, not fiscal cliff and sequestered and putting things Like Exim Bank at risk. Can you talk about some of that uncertainty and what was last year 200,000 jobs, what they could potentially be in the future . Its hard to be precise. Im thinking positively that will that we will reauthorize the bank into antibut thats be clear, to under 5000 jobs in the past year, well over 19 jobs over the last five years, just under 1. 2 million were supported by our exports. Thats because we failed a gap the private sector cannot fill or did it to meet the competition. So those are all at risk. When someone gets alone from us to have to stay why they need to go from us for the guarantee or insurance. Likened to get in the private sector . Where i would rather private sector do everything. We are there when the private sector cant do load. I feel like im in an alternate universe. It doesnt make any sense. And you talk about maybe on the International Scene how this is affecting what some of our competitors globally are doing, what other countries are doing . May be coming to address a few things if you think they will step in to help us. Maybe they will help american manufacturers. Theres an ad in todays politico that talks about the exim bank of china, russia and france and there are 57, 60 countries all have an export ban. They all would gleefully take sales to the United States and support more jobs in their immunity to their delighted to do that. Theyre looking forward to doing that but as i mentioned china does more than four times the amount of financing for its exports that we do. We have a far more modest much more careful, much more prescribed speed some could argue we should be expanding on the Exportimport Bank spent i would agree with that but if you really care about jobs and you want to make sure we meet the competition and, frankly, one way to get the competition is to meet them toe to toe, head to head over and and indicate we are not going to back down unless they play by the rules. It would be one thing, not a single other country in the world had the equivalent of the Exportimport Bank, but they do. They are bigger. So we dont live in that universe so we might as well live in this reality and compete and get our employers the best opportunity they have. Thank you, mr. Chairman. The gentlemans time has expired. The chair now recognizes the gentleman from california, mr. Royce. Thank you, mr. Chairman very much. Mr. Hochberg, a stated goal of exim bank is to provide export Credit Assistance to serve customers that are unable to obtain financing to the commercial markets. What policies and procedures does the bank had in place to ensure that it is limiting its assistance to these customers and not crowding out opportunities for private Capital Markets . And does exim make any kind of formal analysis of what kind of private capital in his absence . Each application must state unequivocally why theyre looking for our support of why they cant find in the private sector. Thats a requirement in imaginga loan application, whether its lack of financing, and beating the competition, sometimes banks have limits on what theyll do in Certain Industries or certain countries. Thats where we step in. Subsaharan africa is a good example of that. You know, weve done a lot of loans in the philippines. I have a list here. Cameroon, i think i mentioned, over have exports that went to cameron for exemplifying as to why . Its hard to get any bank to step forward. In place of like western europe we do very little basis because the banks are able to do this. Japan, we hardly did any business. Let me ask mr. Scire, let me ask the gao. Is exim bank enough to ensure that company for going out in the private market and not finding capital before coming to the banks . [inaudible] i think that gets into sort of the underwriting with you doing in terms of looking at allegedly and the analysis that is done there. We have work underway right now thats looking at that. But at work is yet complete. I would point out that we had made some recommendations back in 07 and this is just to clarify a point. Although exim has been cooperative and agreed with our recommendations, not all have yet been implemented and so theres some back in 2007 which looks at the Economic Impact that it is still working on. Okay. Let me ask also in terms of the numbers, what numbers. Both sides of this debate are claiming numbers that support their case these on different accounting methodologies. So the bank cant estimate it made 1. 6 billion in revenues for taxpayers since 2008. Yet as you know and it has been cited here today the cbo reported on may 22 that if exim used the fair value accounting that it would be budgeted as 200 million cost to the taxpayers this year. Dr. Elmendorf, can you explain the large gap in numbers between these assessments and in your response can be touched on what kind of risk assumptions you used in terms of losses and when you apply this fair value methodology . And you look at historical experience, commercial Bank Experience and do you factor in loss reserves and capital . Made a quick explanation. Yes, congressman. When the government makes a loan or makes a Loan Guarantee, either through exim bank or some other Credit Program, the ultimate budgetary effects of that are not know. Some loans, many loans, most loans are repaid. Some are not only taken part. Sometimes the money is recovered. Budgetary effects are not known until after the fact it last year exim turned over some amount of money to the federal treasury. Thats true. But we give the congress cost estimates. Were trying to a sense of what will happen Going Forward under a Certain Program from a certain Financial Financial assistance. Those estimates are operating in a work of great uncertainty. What the fair value methodology does is to capture in the estimate not only the expected level of default and covers but the very patient about the expectation. And to recognize let me put it another way. Would i would be interested in is the risk analysis framework thats employed in accounting by the private sector creditors. If you did that so private sector critters take account of this market risk and put a price on it because the risk is costly. Would it be 209 cost to the taxpayers or would it be we apply that methodology to the exim banks projections of the size of the Credit Programs that will run the default rates on the cover rates and so on. Taken the same set of underlying cash flows that appeared in the credit supplement to the president s budget and that we use in our standard account can we use the same underlying cash flows, but apply the cost for market risk. In exim Bank Programs are costly by our estimates to the tune of 200 billion a year as you said. I know that you know exactly what they are, but but the testimony said this morning, the the chairman of Delta Airlines, mr. Anderson, and at the head of the Pilots Association booth made these up up that unless there is a lot of Playing Field of the exercise of one particular aspect of what you do which is the financing of these wide dot e. Aircraft that puts our Airline Industry in the United States at a competitive disadvantage with Foreign Airlines who are able to get these wide body aircraft flying of these International Routes that are very profitable. So you can see the concerns that Delta Airlines has and the pilots and Airline Industry has because quite honestly, unless we do something to address this and the bank is being used in an unfair way to subsidize them of the other airlines that have been brought up when they get subsidized by the government they turn around and get subsidized by you and your able to get them cheaper than they can reduce their ticket prices and that makes it very uncompetitive. So what i want to do is perhaps we can come up with some language as we move forward in the 90 days that we have that can address that concern. It doesnt seem that this is mutually exclusive. Can you help with that and give some of guidance on how we will be able to move this forward at the same time addressing the concerns of Delta Airlines . I will do my best. One, we dont subsidize. People pay a fee and as a result they essentially pay for the guarantee so they can borrow money through the bank. And we are totally self funding and selfsustaining. So theres not a subsidy going from us to anybody else. Number two, in 2011, without Congress Asking us, we raised the fees multilaterally across the world, made it more expensive to borrow money from us to buy aircraft in particular. Today foreign carriers all be more than a comparable u. S. Carrier would pay for the same airplane. They are paying a premium indicated they should pay more. One, we need to be on the same set of facts. But Delta Airlines doesnt take any money from exim bank that these Foreign Countries do. Of the United States has the best financial markets, the most liquid creative financial markets, so the u. S. Carriers can borrow at a far lower rate than any carrier buying the same plane. There is an advantage going to the floor for an carriers. Its like we are at a stalemate and what we have to do is try to lean into another and try to find out what we can give here because there is absolutely no way that we can move forward with the progression of the exim bank if you have this cry from an unlevel Playing Field with one of the most significant and Important Industries worldwide. I need isnt there something we can do even if it is a trigger an even if it means for killing certain routes the competition can take. For three years weve been asking ddelta precisely what they would like if they havent given a precise recommendation. Hopefully we will get that recommendation and a way we can address this. The time has expired. Is expired. The gentleman from tennessee. Ms. Hochberg and the rest of the witnesses we appreciate you being here. I was looking over something where delta used the credit export agencies of brazil and canada to purchase hundreds of aircraft made in those countries; is that true . Yes. To the best of my knowledge. So why would a baby to their credit why would they be to their credit and authorization of the bank but what would be the advantage of delta to borrow the money in those countries and not use ours . The products . The United States isnt in the business of making regional jets small, narrow, uncomfortable. We dont make those. They are manufactured today largely in brazil and canada. Japan is coming up on stream. But its the principle of the thing if you are against were against it, you would be against all of it. Correct. They have three or 4 billion worth of credits from brazil and canada. Again i used this this morning. The u. S. Economy shrank its rate in 2001. The First Quarter was even more severe than the 1 annual decline estimated a month ago. Another major factor was a bigger trade deficit had initially estimated. I did not support reauthorization last time because we didnt make the reforms necessary. I have a whole book of reforms now that we have been working on. Something that we tend to in congress. Things are happening. The elections will be next week and have consequences when we forget who we work for. If i forget my district back at home in tennessee then when i go back the elections will have consequences. The number of jobs supported by a thousand jobs plus in my district, 5,000 plus in my state this isnt about big business and Small Business. We want the country to grow and looking at the debt clock. Its unbelievable that this is the program under the current guidelines its not cost. Its returning money back they talked about sending a letter to you and not getting that response in a timely manner. Being accountable to your customers but to just because it doesnt just look right or i dont get everything i want on my watch. I was thinking ive been married 23 years which is a long time. I dont get everything i want at home or anything i want up here. Its not going to happen. I hope you do better at home. Three and a half years ago i promised my constituents that the folks of my district because i have received farm subsidies before i was selected and i promised them that we needed to reform the farm bill. We did away with the farm subsidy programs. It took many steps in the right direction. Was it perfect . I voted over 2400 times and none of the bills have been perfect. But did i say its not everything i thought so im not going to do anything . That would be irresponsible on my part. My part is to do the best i can put but the district and support and investment that creates a thousand jobs in my district and thats what this is about. Hopefully we can reform it and move it forward. With that i move forward. Of the gentleman from the foreign minister sherman. Mr. Hochberg i hope that as you administer the bank in the future that will focus on Small Businesses and focus on new products because we were trying to maintain a wage rate and the only way we are going to do that is by making things here that they dont make elsewhere. A lot of this debate is between those that think we should focus on the books on libertarianism and the purity of that versus the practicality. The practicality is germany has more than three times the exports per person as we do in the United States. Germany has an export Credit Authority in the agency that is roughly three times the size of ours compared to the size of our economy. Obviously germany is a somewhat smaller country. And while we have a declining Manufacturing Sector and huge trade deficit, they have outstanding manufacturing jobs and a huge trade surplus. So the practicality side leads towards us also having an export Credit Agency. So the question is on purity. I want to point out to this committee that exim debate has a little sister and it is also a u. S. Sponsored export Credit Authority. It comes under the jurisdiction of the Foreign Affairs committee weve reauthorized them on of the Florida House of representatives under a bill written by my good friend chairman royce of the affairs committee. 106 republicans voted for that bill. So if you are torn and think the bank is good practicality thats how i have to preserve my ideological purity. If you are one of those 106 republicans that voted for the act that had the reauthorization , you have already lost your ideological purity. So come with us and be practical. As to the ideological purity the gentleman from tennessee who just left pointed out that the airlines has no airline has no ideological purity nor do i expect them to have it. They bought canadian aircraft and they got financing from the Canadian Agency that is analogous to xm bank. One thing that is practical about xm bank is if you are scheduled to make 14 billion over the next ten years. Do i have that right clicks that is the cbo estimate. Do you have a different estimate . We simply made a Budget Proposal for 2015 and they took those numbers and projected them out ten years. So we have to live under the benevolent tyranny and if we lose 14 billion, then we have to adjust those clocks and announced to the country that we are increasing the National Debt by 14 billion or we have to wait for the chairman of the committee to join me in a pro revenue bill and that would take a long wait. But its argued that the fair value accounting which is not the law anytime somebody wants to increase the National Debt by a proposal they say we will change the accounting and then im not increasing the National Debt. Ive heard this all the time. Dynamic scoring. Now its fair value accounting. And i want to make sure that i understand this. That would mean for pizza hut we dont see whether they made money or lost money. We would see whether they had lost money or they have had to pay as much to borrow money as the local pizzeria. The investors would be surprised to find that the company lost money. The chair recognizes the gentleman from south carolina. We have heard a lot of talk today. At the last five and half hours of reforms and making aimed at making a better bank lets look at that. You were here a year ago and at that time i asked you about the Inspector Generals report that said you had some problems but were not routinely reported in the performance of your sub portfolios to the Small Business in africa and Renewable Energy mandate to find out from the office today you still havent fixed that one. I also said it sounds like you have trouble according to the ig office with a lack of Due Diligence and asset monitoring conducted by lenders specifically the ones that have a history of the default transaction even though theres an expectation that such efforts are taken bank doesnt require participating lenders to conduct Due Diligence were asset monitoring of their investigations i find out from the ig office this morning you havent done that one either. There is a list of 78 Different Things to various reports since 2010 have asked you to do. 78 things. They asked the import export bank to do. The ig has been able to verify that you have done 33 of the 78. As 236 of them either the ig cant verify that youve extend Committee Say that you are working on them or they know for fact a fact you have not started on them yet to read there are nine of the 78 that say that responses are a responsive and they dont count you as trying to fix things. You are required by law to authorize any loan or guarantee the board of directors shall take into account any serious adverse effects of such Loan Guarantee on the Competitive Position of the United States industry into the available materials in and the short supply in the United States we heard this morning that you have done that one time in the 2001 when it comes to selling aircraft overseas that was put 2001 and the staff tells me now that youve conducted a grand total of 24 of those reports as required by law over the last 17,000 export import transactions. In 2012, we asked for some reforms in 2012 of this body and asked the Export Import Bank for reforms one of which was the secretary of the treasury to initiate and pursue negotiations with other countries including members of the organization for Economic Cooperation development and members to substantially reduce what the ultimate goal of eliminating the subsidized export financing programs and other forms of export subsidies. That was i think almost two years ago. You have managed to set a meeting. The administration recently sent over its proposed reforms i guess. They call it a reauthorization. I dont know if we would call it a form. Essentially it says he wants more money. You want to change the way you count losses and eliminate the need for producing stuff the federal register regarding the notice will bring the accountability transparency and coming coming in by which the gentleman that was here in the Previous Panel of the Small Business as you want to be able to count towards your Small Business quote a Small Businesses that sell to big businesses. So forget about the green energy. Unless you are selling to one of the big guys you dont get to count under the president s proposed reforms which i guess you participated in because it is under your signature. I look at all of that against a political environment where this administration have shown that they dont care following the law very much. They certainly havent followed it on health care. They are not following it on immigration or on how they are supposed to keep their email at the irs. So lets pass some reform. That would be wonderful. Before you run to the reform bandwagon i encourage you to ask some questions to make sure that before we do it but make sure the bank can be for myself under the existing wall that we have already passed. Lets see if the bank can make the suggested reforms that the ig and the g8 have suggested and make sure this administration might be interested in enforcing the bill if we pass it. Until then i would suggest it is too early to talk about reforms and with that i would yield back the balance of my time. The chair recognizes the gentleman from illinois. Thank you all for being here. First i would ask unanimous consent my full statement be inserted into the river. Without objection. Thank you. I would like to thank the panelists. Its been a long day i know and as many of my colleagues we want to get information and know the truth and do the right thing. As i mentioned i think congress should take a hard look at the current structure of the bank and also i hear from my own district businesses that told me they rely on the banks to ensure they reach to customers so before the congress abolishes the bank without a reasonable exit strategy we need to explore the reforms to the bank that leads to my first question and i would address it to the chairman role in providing export Credit Assistance is to serve the markets and customers that are not able to obtain financing through commercial markets. With policies and procedures does the bank have in place but its limiting its assistance to these customers and not crowding out opportunities for private Capital Markets . Thank you for giving me a chance to talk about that. First 98 of the transactions work with a private sector bank to make the loan, guaranteed a loan or a range below. We are doing that with 98 of the transactions. Furthermore every application needs to say why they are coming to us and why they cant do this in the private sector. Thats a requirement for us to make a loud. What additional value are we providing and that is one reason frankly our Loan Portfolio hasnt grown as much in the last two years. I dont know if that will continue but of late has been less need and that is a good sign the banks are making loans and dealing with Small Businesses. My next question to the Inspector General your office regularly engages with stakeholders to obtain input on the banks operations. I wondered in your opinion if the bank is limiting itself to the markets and customers not being served by private lenders and what steps could take to better mitigate the risk crowding out of private markets and that it is the lender of last resort and not the lender of choice. Thanks for the question. To only offer financing one is a lack of financing in the market. If a requirement is anything that goes through the system has to have a declaration to some extent almost like a certification. Whether or not that is verified in the story with a report on the program and we highlighted it in the documents thats the extent of what we are looking to now the Marketing Strategy of the bank needs a charter requirement but as its focused on the regular improvement we did address some of those questions. Chartrand hochberg complex it is required in the loan operations the applicant needs to certify that the financial records are accurate as presented, everything they say is accurate as presented. So i would do and audit but i have to take an assumption if we are signing an application for the Loan Guarantee for the government that did not commit a Corporate Office is not committing fraud in doing so to the two state unequivocally why they are coming to us. The bank is fragmented and neither addresses the totality of enterprise risk or how the risks may be interview he did give him the recent risk trends including the authority to extend from 100 billion to 140 billion what procedures are you putting in place to ensure the Risk Management structures . At the recommendation and i said this a year ago we added the position of the chief risk officer i worked close with the Inspector General of the chief risk officer into the underwriting are entirely separate reporting structures both reporting to me and the chief risk officer looks not only at the credit risk that the employee risk, reputation will risk, the entire risk portfolio there is a Risk Committee and there are two senior career people who my time is expired. The committee will recess until approximately 4 45. The committee stands in recess. [inaudible conversations]