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 ServicesCommittee 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. T