Transcripts For CSPAN3 Politics Public Policy Today 20140625

So lets try to work this out. I think we can. Again, ive got a whole list of reforms here ill be glad to talk to anybody about. Appreciate the work done, appreciate you gentlemen. Were going to work this out and make it better. Yield back. Thank you. Mr. Delanie. Thank you, mr. Chairman. I want to thank all the witnesses for joining us here today. Mr. Wilburn, captain, thank you. Mr. Anderson, i want to thank you in particular for joining us and for bringing so many of your colleagues. Delta is an important and iconic company. I think you all should be congratulated for the great work youve done positioning this airline in such a successful business. The fact that all your colleagues joined you hear today is a reflection of the good culture of the airline and your good leadership. I just want to make it clear that i think what youre doing is terrific. My question is actually more of a factual question. Perhaps unlike my colleagues i dont know the answer to my question before im asking it. But i was struck by this page when you put it up. I was very concerned by it. As i think many of my colleagues know, i care deeply about three markets and believe that Market Pricing should dictate all of the kind of government financing. When i saw this, i was very concerned about it. It says the government making 3. 4 and the same loan in the market at 6. 1 of thats obviously a big subsidy. As someone not reading the footnotes, i read the for the note. Private market is nim rod air finance alpha. I looked that up. Thats a special Purpose Entity that owns 58 airlines and leases those to carriers, including the emirates. It leases those airplanes on operating lease not capital lease, which means risk of ownership and benefits of ownership are not fully transferred to the lessee. So when i saw this, recalling my days in the credit business, i said, this strikes me as a worse credit. Id rather lend directly to emirates having their full fate and credit saying they are going to pay back every penny of the loan on fixed amortization which is what xm finances versus loans to a special purposenti entity. I may be wrong. I just did searching on my google device here. My question is, a, is that accurate . B, do you think as the ceo of delta, if you were to borrow directly from the bank i recognize you didnt have to borrow to buy your planes, which is great. If you were to put the full faith and credit of the airlines on the line as well as the lien on the aircraft you purchased wouldnt you expect to borrow at a lower rate rather than if you set up an unrelated company that purchases the airlines and signs a lease to you with certain limited recourse and then you were to get a loan for that special Purpose Entity. Im trying to figure out what the apples to apples comparison is. What we do is try to make it apples to apples. These were Public Market financing. The one on the left had an xm Bank Guarantee attached. You can see the collateral. The coupon is beyond question. Thats obvious. The coupon was obvious. The loan to value ratio with the xm you get a higher loan Development Ratio because you dont need as much equity. What youve approximated here is that this is the emirates credit. But its really isnt it true that its actually not the emirates credit . No. It is the emirates credit based on what moody said. I read the moodys Credit Report on my device here. It talked about how the lessor had risk of the value of the asset at the end of the term, and that it wasnt fully recoursed to tte the emirates. This is apples to apples. One of them they decided they were going to lease, so i think the marketbased financing was a leasebased financing on a380s. Right. But at the end of the lease term, the lessor takes back the airplane if you leased the airplane at the end of the 10 years youd give it back. Correct. Someone had a loan on the plan, that wouldnt be your obligation. Airlines lease we tend to want to own, right, because you get the residual value. But part of what the market is reflecting here is that they are going to return they have decided they want the option to return the airplane in 5. 7 years because thats the average life of the lease. Just a quick question. Do you think you should pay less for direct delta credit in the market secured by assets than you do for a lease. Well, yes. I think youre better off depends on the airplane. Thats probably what they are doing here. They probably want to own the 777s but probably only want to lease a380s. This is what a lease looks like at emirates for their credit. Time of the gentleman expired. Chair recognizes gentleman from South Carolina mr. Mulvaney. Thank you, mr. Chairman. What we started, i know somebody on the other side, i believe it was mr. Heck, i wish he was here, charged us not to believe false statements no matter how many times its repeated. That is always good advice. I would think similarly good advice to not believe statements you cant prove. One of the things he said, i dont want to put words in his mouth but i couldnt find transcript, Export Import Bank if i have the exact verbiage wrong i apologize but that was the general extent of things. Nobody can prove that number. Nobody can prove that number. I want to explore weaknesses in the job number. Nobody can prove that number. Mr. Anderson, you have mentioned in your testimony that the exportimport financing in the aviation sector has cost yall 7500 jobs. Xm says boeing related activity created 51,000 jobs. Who am i supposed to believe between those two . Me. Why . Well, in the instance of delta and the example we use with their india, that actually happened. We went through a reduction in force. Fortunately we were able to get enough employees to take voluntary early retirement. When we pulled all that flying out of india, we had a very successful business flying to mumbai. We bought two 777s and financed them ourselves to be able to do that service. So i know those jobs are there. I think you make a correct intellectual point on both sides of the debate, honestly. It is very difficult to put a precise number for you, or for any of us here. So i guess what i rely back on is i see what goes on in the marketplace. We have one in milan, italy, which has financed airlines from xm bank and dumped 65 increased the capacity milan jfk 65 . Thats going to have an impact on jobs in the u. S. Over time. They are deeply subsidized, which probably really gets to the deeper point of trade subsidies. Look, you make the right intellectual point. These are estimates. They are estimates by everyone, and they are a best judgment. I will tell you air india numbers are right because i was involved in pulling it down and having them do the reductions. If you do scratch a little bit deeper at the Export Import Bank numbers, using formulas that use information from 2002. If she was here talk about components, 30 of 787 is made overseas and its unclear how many of those 255,000 jobs, mr. He heck, are jobs overseas. When go asked about that, xm officials told us they had not assessed extent this limitation affects overall jobs estimate. Supported versus created is another twist of the language. Supported and created are not the same thing. Just because a job is supported doesnt mean its going away if Export Import Bank financing goes away timt. Its important to recognize things as we start using these numbers, talk about jobs. The only reason the Exportimport Bank counts jobs is because of us. Thats it. The only reason they count jobs is to come in here and justify existence. Im not making this up im looking at g affirm o report. It says export import told us they use jobs calculation for reporting purposes only. According to xm officials, xm calculates number of jobs supported for the transactions reviewed by the board of records at the request of one of its Board Members. Xm Board Members said the purpose of reporting these numbers is to give congress a sense of the employment effects. They do not use them for decision making. The om reason they are giving you 55,000 jobs number is because they want to continue to exist. At some point we have to decide which numbers are real and which numbers are fake. I suggest to friends on both sides of the aisle between Government Agency and beaurocracy trying to make an argument to get more money and continue to exist and a private Sector Company thats simply saying, please, leave us alone so we can compete, it is the latter that is the more reliable number. 255 is not a real number. 7500 jobs delta lost of real and thats what we should be focusing on. Time of the gentleman expired. Chair recognizes gentleman from washington, mr. Heck. Thank you mr. Chairman. To clarify the record, its 205,000 jobs for 2013. I believe its 255 in 2012. As reported by the industry, actually, to the Exportimport Bank. Mr. Anderson, i want to ask a question i suspect i know the answer to. Would you favor continuation of the Small Business administration . I dont know anything about the Small Business administration. Im a large business. But i could certainly go learn about it. Please dont. I just dont know. Ive never done any studies. Ive never had anything to do with the Small Business administration. I asked because i thought i knew the answer, and i thought you would say yes. I can say yes if you want me to. Its nice to know what kind of thought you give your testimony today, sir. If you think its a program, im happy to support it. I didnt come here to testify about the Small Business administration. Admittedly. And i wanted to make the analogous point that the sba functions as exportimport credit does. The sba enjoys an enormous amount of public support and is kind of a given. I wanted to give color to your early remarks that it was a reformed xm going forward. You were seeking not elimination of it. That was my only motivation. I do want to make the point that those of you who are aggressively seeking reforms, which may or may not enable the continued existence of xm in any kind of a meaningful way are playing with fire. Youre playing with fire. I want to go back to how i ended up my brief time, the gentlelady was talking about. We could wake up in 20 years and still have a duopoly but unfortunately airbus and state of china and their c9 19. I dont think america would be better off with that. I think america would be worse off. It is the broader point i seek to make, however, which is the importance of aerospace production, one of the important beneficiaries of the Exportimport Bank and the domestic base of this great nation. We dont want to lose it. Weve lost really key components of our Industrial Base over the last several decades and most of us have lived to regret it. The difference is, this is not one we can reconstitute easily. In fact, its not unrelated to this nations security. The hundreds of thousands of people that put together those great airplanes and National Security products are a part of keeping this nation safe. And again, i think we are playing with fire if we think that we can do away with Exportimport Bank and not have that critical part of our Industrial Base decline. I think we are playing with fire if we think we can be as aggressive about certain kinds of reforms that would have that effect and not acknowledge it. I was delighted to hear my friend, mr. Campbell, indicate that he had come up with a bill. I respect him a great deal. This institution is going to miss him. Frankly, im going to miss him. This committee is going to miss him. I thought it was an act of considerable integrity this he accepted responsibility for the development of that which he presented today, having been just on that side. He knows i talked to him on the floor months ago and asked our side be a party to those conversations. But we are where we are. Mr. Campbell has taken the constructive step to put a bill on the floor bill on the table which none of us have had the opportunity to read, so we know not what its impacts will be. Here would be my point about that. In granting him credit for that work, which i know is hard. The exact number is 97. 98 days from now, the doors of the Exportimport Bank will shutter and america will be worse off for it. The alternative is that we have a hearing on an actual bill that mr. Campbell has developed and begin the giveandtake about what the path forward might be. In fact, we only have 97 days. I dont want to wake up in 20 or 30 years, should i have the great blessing to still be around and look back and rue that we were the ones that allowed another enormous degradation of our nations basic Industrial Base as we have in so many other sectors. This nation cant afford it. Our quality of work cant afford it, standard of life cant afford it and quality of life cant afford it. Thank you. Chair recognizes the gentleman from kentucky, mr. Barr. Thank you, mr. Chairman. Thanks to the witnesses for your patience and for your persistent testimony here today. First for mr. Wilburn, i appreciate that youre a Small Business owner and youre an entrepreneur. You mentioned that you were, quote, a free market guy, unquote. Are there other means you could identify of making your company more competitive in the global marketplace besides reauthorization of the xm bank. For example lowering highest tax rate in the developed world, ending the war on Domestic Energy production to make sure we have an affordable and reliable supply of Industrial Energy costs, repealing obama care, for example, promoting free trade, lessening the Regulatory Burden on u. S. Companies, which is estimated to cost the American Economy 1. 8 trillion annually. Do you see some of these policies which would produce impairments to our competitiveness as equally or even more important than reauthorization of the xm bank to your bottom line . Speaking of my bottom line, i think all these things that you mentioned need to be considered in the argument that youre going to have in the next couple of days here really. Its important, i think, to give you a number, if i may just diverge from the question for a moment. There were 165 jobs we created. We audited those. Well be happy to share that with the committee, with our project. But to your point, without the Exportimport Bank existing in a form that would allow me to compete with ecas of the world, my product to get there, i cant imagine my company surviving. I also think as a free market person, a lot of the reforms youre talking about, policies youre talking about need to be debated. We dont need words like crony capitalist and insult some of my people and Small Business people. We need productive words like you just mentioned at this point. Just to conclude, you would agree there are many, many ways to make the United States and our businesses here, including yours, much more competitive, independent of the xm bank issue. Absolute ly. Let me just ask the other witnesses to comment on that just very, very briefly. The one thing i would focus on, its one thing competing in a free marketplace. Its another when our government subsidizes our competitor. Thats what were here about, not all these other things people are bringing in. We have somebody, our own government, government policy subsidizing someone putting a piece of equipment on top of us, were losing jobs and thats what were about. Thank you, mr. Moak. Mr. Anderson when you comment, id add something. Ill summarize the argument, since everybody else is doing it, we should, too. Weve heard that in some form or fashion from a number of my colleagues here today. Is that the right attitude, because everybody else is doing it, we should do it . How would you respond to that . In our specific instance, its not everybody else, its three countries. Its england, france, and germany. Our three closest allies and trading partners. So in terms of Aircraft Finance and Everything Else we do with those three countries, this is something immediately solvable with respect to financing. On the broader question, i think the really broader question is, i dont think were very good at negotiating trade agreements in our country. And while we all support i think on both sides of the aisle the free trade, what ends up happening is in our industry, we dont have free trade agreements. We have unfair trade agreements. I think the biggest thing we could do as a country is make sure our trade agreements are in reality free trade agreements and u. S. Companies are not put at a disadvantage. Mr. Anderson, my remaining time i appreciate your lost pensions at your company. In my Congressional District and just outside of my Congressional District, my constituents in the coal industry not only lost their pensions, they have lost their jobs. What the Exportimport Bank looks to do is harmonize with administrations job killing policies that put people out of work. Time of the gentleman expired. Recognize gentleman from michigan, mr. Huisenga. I want to ask you about epa, mulch rlb, a lot of things going on in this administration. It does strike me after doing basic research we might be ta talking about General Electric 606 billion finance sheet, arm capital with 117 billion assets. It makes them the eighth largest Bank Holding Company in the United States. Boeing company with 92. 7 billion in assets on Balance Sheet, with their finance arm with 3. 9 billion in total assets. Caterpillar, im familiar with heavy equipment. I own a small sand and gravel operation. I have owned caterpillar products in the past. Their assets of 89. 9 billion on their Balance Sheet. I guess maybe the question is, youre familiar with how do you finance Large Companies. As youre going through will pay cash. Not sure how that works, if its up front or afterwards, but 100 youre purchasing 100 airplanes. How does financing of these Large Companies work . Typically financing in the Large Companies work through Public Markets in the u. S. So those big firms will go to the public bond markets. The bank markets have really dried up after dodd frank and economic reforms. So theres still some Bank Financing. But by and large its both Public Market equity financing, Public Market secured financings and Public Market financings. I will note gcast and the bank compete all the time. We own a stake in a Company Called aeromexico. Aeromexico bought airplanes. Afterwards they were competing with xm bank to finance the fleet. So ge has a foot in both camps. Hey, if you can have your cake and eat it, too, thats pretty good. They are the largest Aircraft Financer in the world, gcas. At the same time they make engines and participants in xm Bank Financing. They compete all the time against xm Bank Financing arm to see if they can get the Airline Business around the world. There has been i guess my question is this. Couldnt these Companies Find traditional financing. You had put up the emirate air situation. I think its 100 billion wealth fund they have. The number that weve heard is 98. 4 of all exports dont use xm financing. They are done the traditional way. It means about 1. 6 that do, of which about a third probably could not get that kind of traditional financing. I know, mr. Wilburn, you might fall into that. If i were you, frankly, sir, i would be concerned youve got Major Companies like that literally sopping up any opportunity that you have and other Small Business owners might have to access some of these programs. And yet you get trotted around as the showpiece of why we need to keep this, when, in fact, its clearly going to these massive, massive companies. If you care to comment. With all due respect, nobody trots me around. Im sorry, i did not mean specifically you. I have a number of companies that come in. I can tell you this, they dont come in with the big companies, they come in ill give you my Balance Sheet. Im a private company. Its 5 million right now. Just to put it in perspective. Youre right, im competing with billionaires. Okay . But theres a lot in common with these billionaires that im hearing today that encourages me. Because if i can get these type executives to give this kind of focus to Small Business and say they are willing to work and negotiate to keep Exportimport Bank alive, im all for that. I want to sit down with these gentleman at the end. In my last 10 seconds, i would doctor express to you im not concerned thats the focus of the xm, and mr. Anderson ill gently remind you canada is largest as chair of the Parliamentary Group with canada i have to point out they are the largest. Time is up. Gentleman from ohio. Before i give, unanimous consent to commit a letter from a company with 200 employees in my district. Id like to submit their letter for the record. Without objection. Thank you. Thank you for being here. Id like to thank all the witnesses for being here. I guess she could not stay. I care what the panel thinks. I appreciate putting this panel together. You all have spoken earlier. Could you raise your hand if you support xm Bank Reauthorization with meaningful mandatory reforms . With meaningful mandatory reforms, could you support reauthorization . Provided it addresses the issues i laid out. You passionately laid those out. It addresses your issue with mandatory reforms. Are you for reauthorization. Reforms, accountability, and compliance. Okay. Could you please raise your hand if youre for reauthorization of the xm bank with reforms, accountability and compliance, mandatory stop did everybody raise their hand . Okay. Im not sure your microphone is on, mr. Wilburn. You could support the concept . Yes. I just want to show everybody that happens to be watching the panel unanimously. Im sorry she could not stay. She would probably vote no. She might vote no. She didnt say. The panel is unanimous with supporting meaningful mandatory reforms. Many of my colleagues do well in the theoretical world but i live in the real world. 31 countries have export finance agencies. You know, i think mr. Sherman from mr. California talked about unilaterally disarming. I think thats a bad idea but i think theres a way forward. Mr. Anderson you passionately argued for meaningful reforms. You talked about the handshake agreement between boeing and airbus of france. And they now agree to exclude some things and not cover certain things. If the United States completely walked away and did not reauthorize xm bank, do you believe airbus would hold firm to the handshake agreement . Its kind of like, the handshake agreement is like mutually assured destruction. They each have something and agree not to use it. If boeing didnt have it, do you think airbus would stick with the handshake agreement . The commercial leader john leahy and airbus said yes. The United States you hear this from both sides. Ive heard it from boeing and airbus. If the other side stops using xm Bank Financing, well stop using it. Ive had it from chief officer of airbus i hope thats right. Ill tell you i believe, and im sending a letter to u. S. Trade representative and trying to get some of my colleagues to support it to ask that we immediately enter into kboegss with oedc and with all the countries around the world, 41 countries that have export finance agencies to end them simultaneously. I think if we end ours with the hope of good will they might do the samening that might be short sighted. Im sure she thinks its a good idea in the real world but im not sure it works in the real world. This unilateral talking point we use all the time, the buzzword, the reality is, this government policy, were arming i recognize the need for reform but if we completely walk away from the entire thing and to my previous questioner, 90 are Small Business, like mr. Wilburn. I have one final question. Did anybody read Financial Times today. No, getting ready to do this. Im sure you were. 40 of our finance transactions globally covered by oedc rules. This year down to 34 . The real risk is the rise of transactions not covered by oedc rules. Thats why its so important for us to engage in negotiations to fix this simultaneously across the world. Time expired. Recognize the gentleman from wisconsin, mr. Duffy. Thank you, mr. Chairman. On our side of the aisle, we oftentimes like to talk about free markets and free enterprise, how were big advocates of that. Oftentimes we advocate that in theory and sometimes in practice were not so great at it. I think this has been a fascinating debate and conversation about xm reauthorization and how we fall into the debate. None of us want to see us lose american jobs. No one wants to see xm go away and boeing see substantial job losses. We dont like to see the american taxpayer arm our competitors, which causes delta to lose 7500 jobs or more. I was sensitive to mr. Finchers comments about all of us talk about balance budgets and spending, first thing we do is cut xm bank and he has to go home and explain why we lost 1,000 jobs as a costcutting measure of thats a tough one. Go back to the budget debates we had at the start of this year where we talk about cutting spending all over the place but the first place is cut cost of living increases to our veterans. Our veterans would be in line to cut spending. They say, listen, this is the first place youre going to go . You cut us first . Well do our part like we always have but dont cut us first. Just to comment on our debate in the house. I appreciate mr. Stivers comments on reserve commitment to reauthorization of xm. Mr. Anderson what type of reform do you think is necessary, talk about reform, compliance, accountability. What is needed in the reform front. Not just window dressing, real reform necessary to get you to buy in. Stop arming my competitors and taking my jobs away. Throw me specifics. Specifics are the last time we did this and the committee thumbed its nose. Its specific. We have to stop providing u. S. Government subsidies to foreign flag government owned airlines that are usually subsidized on their own and have enormous creditworthy Balance Sheets. Youve made that clear for three hours. Let me be very blunt about this, lets be clear what happens with the financing. It improves the profit mrngs of the top ten countries in the u. S. That use it all the time. Okay. Thats really what it does. Mr. Wilburn. I have one reform that id like to suggest. Sure. To the committee and to the xm bank. Put more focus on Small Business job growth, simple as that. Not some kind of spacious or specious but real goals, the bank of Small Business. I find it fascinating that those countries who are providing the financing im sor sorry. I want to make the point were missed here, lufthansa, air fans, they want this to come down also because they cant access it. Airbus shouldnt be allowed to access eca subsidies. They are getting killed the same way Delta Air Lines is. We need that reform there also. Thats whats missed here. In the gentlemens agreement i find it interesting the countries that provide the the subsidy, if you want to call it a subsidies are the very countries hurt. Listen, were going to allow United States, Delta Air Lines say, listen, all things equal, i would say boeing makes a better plane. Not always. Boeing and airbus equal, you could say well debate that later. Im not buying any airplane, im going to go buy airbus and get subsidized just like the rest of the world gets subsidized but you dont have that option, right . No. We dont get subsidized. I know you dont, because of the gentlemens agreement. Its between airbus and boeing, its the gentlemans understanding airbus financing wont be used in u. S. , epgd, grmds, france or spain because those are home Market Companies where airbus interesting question when airbus starts making them in alabama. Fair knew enough. I yield back. Gentleman yields back. Gentleman from louisiana. Thank you, gentlemen, for being here today. Ive enjoyed your testimony and comments so far. Obviously this is something thats a big concern to a lot of us and especially those of us who want to see private sector handled as much as possible especially when youre hearing discussion about banks with planned capital, people looking to help. One of the folks that i spoke with in indiana used to be a customer of xm bank. Because of the volatility around it, will his particular interest in finding another solution, he was able to. My first question directed to you, mr. Wilburn. Im a Small Business owner as well. I understand the difficulties, pressures that are on Small Businesses trying to make things work and trying to find new markets. Can you tell us a little bit what else did you look at to see if there was a replacement besides xm, whether it was financing through bank and some sort of insurance, executing transactions. Anything like that you would have looked at before xm. I looked at all of those options with primarily my Bank Wells Fargo who was gracious enough to give me that working capital loan we talked about i had to leverage everything for to support those export activities, but im always, always constantly searching, searching for those type of ill call them private solutions with banks. They are responsive, they will listen to me but they dont respond with the funding. Again, its not my question called in question. When im exporting my product to those exporting countries, i am relying on their credit and their creditworthiness. Its difficult for my banks to get that collateral and seize it. How long have you been in business . Ten years. Ten years. Did you see any difference before the banking collapse . Was there better access to credit . When did you start using xm . My partner was one of the Major Investments banks that was the last im underneath nondisclosure agreement so i have to use caution. Yeah, they went bankrupt. I didnt. My company was strong. It cost me 11 million to unwind that in three years. That was before you started using xm . Yes, absolutely. I responded with a 25 million revolving credit line by that particular agency. Do you think the pressure today on banks, whether through just the Regulatory Environment, dodd frank, do you think thats putting more pressure on banks and theirab ablability to lend Small Businesses and people in situations like yours. I tried to understand and address my remark, i was clumsy at it, doing my research, all i can say is i think theres barrier to entries for Small Business guys like me. We have to take a look at the rules and risk profiles to make it a more level Playing Field to have access to those Capital Markets. Mr. Anderson or even captain moak, would you have any information regarding that, just your experience around xm . I know youre focused more on the bigger side. But smaller businesses. Are there other opportunities and other solutions for smaller businesses to workouts and would you make any comments about just the difficulty with credit today and the Regulatory Environment we live in . I can talk generally that, you know, the credit environment is a much, much tighter credit environment. With the market to market rules, you know, a lot of the bank lending that we used to rely on, particularly in europe to finance airplanes is gone. So the number of sources for large structured finance, particularly given market to market requirements have really tightened up credit quite a bit in our industry. A number of ourselves we used to have where you could get a mortgage on an airplane. You can still get it, it just takes what fannie mae requires for her own, more credit, bigger rating, fico score. Those are all things Small Businesses have to deal with. Captain moak, you want to make a comment. Only thing i would add, going back to 2008 with the collapse. The u. S. Congress over a few days in 2008 was able to deal with that and come out with legislation. Im confident this body can address reform in less than 90 days on this issue. Mr. Chairman, if i can make a comment. Were focusing on something here that is a symptom with Regulatory Environment we live in and trying to reauthorize a bank that isnt part of the solution. We should be focusing on the environment we have. The time of the gentlemen has expired. No others in the queue. We thank you for your testimony. We would excuse the first panel at this time. We would invite the members of the second panel to please make their way to the witness table. Committee will come to order. Well 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 instructed to shut the hearing room doors. Honorable Fred Hockberg serves as chairman of the Exportimport Bank, a position since 2009. The honorable oswaldo, Inspector General of the x bank, served in this capacity since 2010. The director of Financial Markets and community investment, mr. Scire at the gao. Finally, dr. Doug elmendorf, director of nonpartisan budget office. We welcome you to the committee. Without objection your written statement will be made part of the record after your oral remarks. Hopefully all of you have testified before the committee before. You know the lighting system. I will not go into that. You are recognized for your testimony, chairman. Pull the microphone. Chairman, committee members, thank you for inviting me to testify before you as the Committee Considers our reauthorization and progress that xm bank has made in supporting u. S. Jobs through exports. Since our last reauthorization just two short years ago, x has supported nearly half a million american jobs while generating nearly 2 billion for the taxpayers. Xm bank met all of the reporting requirements set for for reauthorization bill and implemented several of the reforms. At xm bank were exited to Continuous Improvement and effective Risk Management. When i testified before this Committee Last june i committed to hiring a risk officer full yearround and we complete thad on time. Under his leadership Enterprise Risk Committee azes comprehensive risk issues, reports semiannually to the Banks Audit Committee and provides me as well as other directors with a monthly update. Weve implement add number of other reforms making xm more transparent and account able including we posted in federal register all transactions of 100 million or more. Weve reviewed, revised and posted our Economic Impact procedures on our website. Weve implemented, enhanced sanction division, added texas time industry member to advisory committee, stress testing, reported that to congress. Frankly, the list goes on and on. The longer list is included in my written testimony. At the height of the financial crisis in rate was 1. 1 . 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 xm bank does not engage in corporate welfare. Since i last appeared before you we have accomplished much in our records to support Small Businesses. In 2013 the Bank Financed a record 3,413 Small Businesses. Nearly 90 of xms 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 xms Bank Competitor report. In 1999, just 15 years ago, nearly 100 of export credit financing globally was done within an agreed upon framework and it was transparent. As this report shows it is down to onethird and it continues to drop. In other words, twothirds of all official Government Support for exports today is opaque and unregulated. Countries like china and russia frequently engage in market distorting financing that threatens u. S. Workers and their jobs. This is deeply concerning to me and should be to every american worker. U. S. Businesses are not competing against Chinese Companies on a level Playing Field. They are competing against china, inc. In 1999, official chinese financing was almost nonexistent. Today it is rwell over 100 billion, dwarfing what xm bank does. South korea, an economy less than onetenth or size, now finances 100 billion, nearly four times the 27 billion that we financed last year. Other ecas such as south korea are using the certainty surrounding xms reauthorization to steal contracts. You heard that clearly on panel one from Steve Wilburn about how this is harming his business. In closing, id like to thank you for helping us run a better bank. We have worked cooperatively with gao and accepted all of their recommendations since the last reauthorization. I want to commend the outstanding professional work of our 400plus employees. We live in an extremely competitive world and the Playing Field is not level. I wish everyone played by the rules, but as our competitiveness report starkly points out, they do not. The stakes could not be higher. We should not cede american jobs to china, russia or other countries. Thats why i ask for your support in reauthorizing xm bank for five years with a lending cap of 650 billion. Good afternoon, mr. Chairman. Ranking member waters and distinguished members of this committee. Thank you for the invitation and opportunity to testify before you about the oig and xm Bank Oversight as it relates to its ending reauthorization. Before i continue i would like. Last year i testified about the need for xm to enhancement Risk Management framework. We stated xm bank should proactive proactively recommend that xm bank establish an officer or create a Risk Management office with reporteding requirements. Assigning qualified, experienced staff, create stress testing on its entire portfolio reflecting different Market Industry and microeconomic scenarios and actively monitor industry levels. As of today xm bank has taken steps towards improving its Risk Management framework. However, we think the opportunities for improvements still exist. For example xm bank establish a higher cro and restructure reporting lines of separate original functions from Risk Management functions. The cro was established with additional management responsibilities, supervising the legal and Administrative Functions of the bank which dilute the focus on credit risk issues. The result of the first stress Testing Process were conveyed to congress and the full report the dated september 2013. Bank has also established document on activities to the oig. Xm bank commends the use of several factors to account for the impact of factors in the portfolio. The application of such factors in the reestimate process commence in the fall of 2012. Lastly let me address some recent press reporting on investigations. I cannot confirm or deny particular investigations are common or specific personal matters. I can say we have a number of active investigations involving also external participant on xm bank. They are being reported in the semiannual report to congress and have had a fully cooperative working relationship with Bank Management on these matters. Bank Management Employees have referred issues to us for review and the bank has taken employment actions based on information we have referred. Some of these matters are nearing conclusion and i expect to be able to share information in the coming months, while others are in early stages and may or may not be substantiated. We work close with the Justice Department on these issues and i hope you understand im not in a position further on these matters. Thank you all once again for the opportunity to testify before you today. I would be pleased to respond to any questions you might have. Thank you. Mr. Chairman, Ranking Member waters, members of the committee, thank you for the opportunity to be here today to discuss the actions xm 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 xms business volume had grown dramatically in recent years and that this rapid growth posed challenges to xm. Outstanding financial commitments were about 114 billion in 2013, nearly double the level of 2008 when xm began to experience rapid growth. Among the challenges we cited is understanding the risk of loss. This is particularly challenging for xm 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 obligor. These should help xm better capture risks that may be different than historical experience might suggest. But we found that its technique for assessing Global Economic risk could be improved by considering longer term default forecasts. We recommended xm consider whether it was using the best available data for adjusting loss estimates for longer term transactions to account for Global Economic risk. In response, in november, xm replaced its oneyear forecast with a fiveyear forecast. We also found that xm had had not maintained Historical Data on defaults that might be used in evaluating the performance and loss potential of the current portfolio. That is xm had not maintained records that would permit comparing the performance of the transaction with that of a like transaction at a similar age. We therefore recommended that xm retain point in time, Historical Data on credit performance, xm has since begun retaining such data. Ultimately, lost estimates can never be certain. For this reason, it is useful to conduct stress tests to better understand and inform congress of the potential outcomes of alternate scenarios. Xm planned to conduct such stress tests and we recommended that a report to the congress their content and results. Xm has since begun to include such information in its quarterly default rate reports. Another challenge facing the bank is understanding what to expect in terms of future activity. In this regard, we found the methods used by xm to forecast its total exposure for 2013 and 2014 had certain weaknesses. Specifically, xm had not reassessed its assumptions to reflect changing conditions or conduct its Sensitivity Analysis to assess and report the range of potential outcomes. We therefore recommended that xm do so. In response in its 2015 budget justification, xm has incorporated historical experience into the forecast and prepared a range of author arization and exposure estimates. Another challenge facing xm is the sufficiency of its resources. We noted that the rapid growth in business volume, coupled with the more modest growth in staff levels created potential operational risks for xm and xm recognizes this risk. But it had not formally determined the level of business it can prudently manage, either agency side or within specific functional areas with a given level of resources. Likewise, we reported that xms Business Plan had not sufficiently assessed the adequacy of resources for meeting certain congressional mandates to support Small Business and renewable energy. We recommended that xm develop benchmarks to monitor and manage workload levels and provide congress with more information on resources associated with meeting the mandates. In response, xm hired a contractor to develop workload benchmarks and workload modeling tool. This effort is ongoing. Going forward, it will be important for xm to sustain a commitment to improving its understanding of factors that drive demand for its programs. The performance of its products, and the potential operational risks it may face. This concludes my opening remarks. Thank you again for the chance to speak today. I would be glad to take any questions you may have. Thank you, mr. Chairman. Ranking member waters and members of the committee, im pleased to be here to discuss cbos estimates of the budgetary costs of the Export Import Banks credit programs. I want to emphasize that cbo has not analyzes the operations of the bank or the Economic Impact of its programs. Our analysis has been limbed to the direct effects of the bank on the federal budget. As you may know, cbo uses two different approaches to estimate the budgetary costs of federal credit programs. One approach reflects procedures currently used in the budget under the federal credit reform act of 1990, or fcra. The other approach known as fair value reflects the market value of the governments Credit Assistance. For fiscal years 2015 to 2024, cbo found that xm banks six largers credit programs would generate budgetary savings of 14 billion under fcra accounting, but cost 2 billion under fair value accounting. Both estimates are based on xm banks projections of cash flows for those credit programs as reported in the federal credit supplement to the administrations 2015 budget. Thus, both estimates reflect the amount of lending fees and default rates that are expected to prevail under the current structure of the programs and the president s budget request. The difference between the two estimates lies in the treatment of the cost 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 risk is the component that remains, even after a portfolio has been diversified as much as 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 cost to losses that occur during economic downturns. The high her cost of losses in bad times, as well as lower cost in good times, is capture in the cost of market risk. The government is exposed to mask risk through its credit programs because when the economy is weak, borrowers default under bets more frequently and recoveries from defaulting borrowers are smaller. That market risk is effectively passed along to taxpayers and beneficiaries of Government Programs because 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 fcra approach to accounting for federal credit programs, treasury borrowing rates are used 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 costs to 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 guarantees at market prices appear to make money for the government and conversely, sales at market prices appear to result in losses. To encore operate the cost of market risk, the fair value approach generally entails using the discount rates on expect future cash flows that private Financial Institutions would use. That approach effectively uses market prices to measure the cost to the public of the lower returns on federal loans and loan guarantees when the economy is weak and incomes are relatively low. In cbos view, therefore, fair value estimates provide a more comprehensive measure of the cost of federal programs. Some analysts have expressed concern about potential drawbacks. They argue fair value estimate 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. These analysts note that fair value estimates are somewhat more volatile than fcra estimates and more complex to produce, and they worry communicating the basis for fair value estimates to policymakers and the public is more difficult than doing so for fcra estimates. Proponents of the fair value approach respond to those concerns by arguing that decisions about spend being the publics money should take into account how the public assesses Financial Risks as expressed through market prices. That by taking those prices into account, fair value estimates are unbiased estimates of the expected cost of loans and loan guarantees when they are offered. And other concerns can mitigate it through established accounting practices. Thank you. Im happy to take your questions. Chair now yields himself five minutes for questions. Mr. Hochberg, my background is not in accounting. Vy 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 time 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. It is a number we use okay. That answered the question, mr. Hochberg. I appreciate that. Also, i assume that since we have a witness from gao here, you are familiar with their may 2013 report that criticized the bank for concealing methodilogical weaknesses in the jobs claim in that you do not distinguish between fulltime, parttime and seasonal employment. You do not control for selection effects between supported firms and injuries industries that may depart from the average. Gao criticized the bank for not seeing the unseen counterfactual how many jobs would have existed without any intervention at all. Are you familiar with gaos work regarding your jobs claim . Yes. And we point out a number of weaknesses with the methodology and recommended that xm do more to disclose the weaknesses with the methodology and since they have done so. Thank you. Ive seen a report there are roughly 10,000 federal agencies, programs, frankly ive been here for a number of years, i still cant figure out how many there are. But how many are subject to fcra . How many programs or agencies . So i dont know what the count is, mr. Chairman. As you know, there are several trillion of outstanding federal loans and loan guarantees. Exceptions to fcra to credit programs that i am aware of are the t. A. R. P. Program because congress wrote into the law that we should do estimates of that program on adjusting for market risk. And for fannie mae and freddie mac. This is probably outside your area of expertise and i think we had some testimony earlier today. Certainly ive seen evidence. Doesnt almost every other private bank or private company that is subject to gap use fair value accounting . Private Financial Institutions generally use fair value accounting, yes, mr. Chairman. Mr. Hochberg, we had had a gentleman here on the earlier panel, as you well know, one of the recipients of an xm credit guarantee. I think your latest figure is that youre supporting roughly 3,000, 3,500 Small Businesses. Is that correct . Correct. Earlier witness taking some exception with your definition. Well accept the definition for the moment. Ive got information from the sba. By their definition i dont know the definitional differences 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 1 in 10,000. Im still trying to figure out 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 terrell, texas. They export. They dont use your services. And i quoted this gentleman earlier. He said as a Small Business owner of exports, i think it is outrageous that my own government puts my business and other Small Businesses at a competitive disadvantage through the Export Import 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. Those voices, i believe, are underrepresented in this hearing room today. I will posit that all 3,000, or 3,500 Small Businesses that receive your Credit Services would want them extended. I would posit that. I know that you have traveled all around the nation. I think somewhat reminiscent of fannie and freddie, i have no doubt that 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 there 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 banks have come bank. Some of our larger exports i would just say for the record the 90 is fairly misleading. I see that i am out of time. Chair now recognizes the gentle lady from new york, miss maloney, the Ranking Member of the Capital Market subcommittee. Thank you, mr. Chairman. And welcome to all of the panelists. Mr. Hochberg, some people on this panel today have suggested that we could let the Export Import 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 . 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 the Small Business is defined by the sba. We dont make our own definition. You heard on panel one Steve Wilburn made it a clear articulation of the loss and harm to his business and his employment if even just the threat of xm not being here. We had some folks in the audience, a company that i think the chairman has sometimes cited, jennys pickles, a woman from north carolina, who is exporting her pickles and Food Products to china, britain is looking to expand to germany and the middle east. We provide Credit Insurance the way that businesses get Fire Insurance or theft insurance and Credit Insurance she cannot obtain in the private sector. So there are many Small Businesses that cant get how do you know these businesses cannot obtain the financing in the private market . Well, first of all, they have to state that they needed us and they were not able to obtain this privately. And 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, 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 xm bank because we may not be here after september 30th. So brokers are telling their clients, i think we got to either get you more expensive insurance or i cant insure you because i dont know if you want to take the risk of having a policy that will have a 90day term. Well, you raised a point that people really are concerned whether or not youll be there and theyre not providing the insurance. The statute gives xm the authority to facilitate an orderly liquidation if its charter expires. And a recent memo from the Congressional Research service noted that xm would have considerable discretion in deciding how to manage this liquidation. Well, if the bank is not reauthorized on september 30th, we would not make any new loans, we would not support any new businesses. I would add that Small Businesses in particular will probably be hit first and we would simply hold 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 well performing portfolio. Liquidation is often used for a failed bank. The only reason we would be not operating is because of a political decision not to reauthorize us, not because of a failure at the bank. There is 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, 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 cheering because, frankly, it will not change the amount of airplanes coming into the United States carrying passengers. It will simply change whether theyre made in the United States, by boeing and their 15,000 suppliers, 6,600 are Small Businesses, first being made into loose hamburger and other places. I think that we have a very real competitive threat. Frankly the threat of klein is coming up. They are building a plane to compete with 737s. Which is the single aisle general commercial plane used. And thats coming onstream in the next few years. Well, we are often criticized for not exporting enough. We have an export deficit. Have you done any work on how much of the american export is because of the xm bank . The rough uncut number is around 2 . Many things are not products or not financed. I can give you some specifics. It may be 2 globally. But if we look in subsaharan africa, in cameroon, more than 55 of the exports. Senegal, 50 . India, it was 30 in the last 12 months. So there is a large percentage above the 2 depending on what country are you looking at. Time is expired. The chair now recognizes the gentleman from california, mr. Campbell, chairman of the Monetary Policy subcommittee. Thank you, mr. Chairman. I hear all of your issues and agree 100 with the issues relative to banks accounting for risk, the chief risk officer having other responsibilities and a number of other factors. I would mention that the discussion draft which i released earlier today contains attempts, at least, to deal with all of those issues. I think i agree and believe that the bank is not xrorproperly accounting for risk and if there is a reauthorization that is something we need to do. During the remaining of my time, mr. Hochberg, id like to ask you a few questions about some things. You actually requested an increase in the authorization of the bank even though the authorizations youre doing, as you just stated, the private sector is back in the game and the authorizations are down from what they were in the bank a few years ago. Why would you want an increase in authorization then . Congressman, thank you for your comments and interest in this. We took a look at again, we are asking for a fiveyear reauthorization. We looked at were compound being the increase 3 per annum from the 140 billion today. I took a modest increase. Exports are up close to 45 since 2009. So exports are up. Banks continue to tell us due to basel 3, dodfrank adfrank the less of an appetite for Small Business and less of an appetite for longterm longs. Factoring in those factors, export markets more going to developing nations, i tried to put together a prudent estimate of what we need. Okay. Even though thats not your experience right now. Well, 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 of making an assessment. I am trying to take a badr view. Was a businessman for 20 years. Dont look at six months at a time. In the Previous Panel the ceo of delta and others complained about things that were in the previous reauthorization that theyre saying you are ignoring which is the mandate to weigh 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 state we should look at the benefits of the u. S. Economy and any potential harm. We reviewed it. On top of that, instead of just reviewing it, we actually pub accomplished new regulations, put them out for comment, went to the entire industry for comment and adjusted our impact procedures and put it to a vote of the board. So we complied fully and on top of that, every transaction the bank reviews gets reviewed for Economic Impact. We want to make sure the benefits outweigh any harm. My time is limit sod i want to get on to this other question. Obviously yesterday there was some news that came out about potentially some accusations of things going on in the bank. Now we know that any organization certainly any element of government that deals with the public that there can be corruption and there can be fraud. Guess what . That has occurred within congress. I know thats a huge shock to everyone listening. But that has occurred here as well. But the question i have for you is this, is that there is i think a question and it is a good one about you are handing out lobes, guarantees and other things to the private sector. And that if people have the ability to make that not just for kickbacks 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 that there are not enough controls, if you will, within the xm 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 . You mean what Companies Get support . Yep. Well, one is what the need is. We look at whether there is a need for xm bank to be a player in that or whether the private sector does it by itself. Frequently we dont need to engage at all. Thats why closed to 98 of exports dont need our assistance. If youre referring to you got a few questions. Well basically, were running out of time but the accusation is that some people got support from xm in exchange for kickbacks. That means somebody else probably didnt or those werent meritorious or there was a competition or something going on. Im trying to determine what procedures have you in place. You wont have time to answer this but maybe you can later, but what procedures you have in place to stop that sort of thing from happening because that cant happen. I agree. The chair recognizes gentleman in new york, mr. Meeks, the Ranking Member of the Financial Institution subcommittee. Thank you, mr. Chairman. The latest trade data shows that the United States trade gap has increased to 47. 2 billion in april of 2014. As imports recorded the highest value on record. Purchase of automobiles, capital goods, food and consumer goods all hit record highs in april. So in the midst of record trade deficits, we are here debating and i cant believe this we are debating whether or not we need to reauthorize the xm bank. The chinese and the europeans and the brazilians, japanese, all must be looking at us and shaking their heads in complete disbelief that were actually debating this issue. That we could actually voluntarily, purposely kill American Industries and hundreds of thousand of american jobs. I dont i mean it is unbelievable to me. I know when we Start Talking about other reforms, theres always the question of uncertainty kept coming up, people want to know the rules are and whether or not certainty was important. Here we are now in this atmosphere of uncertainty. Chairman hflt chairman. Chairman hochberg, what effect is uncertainty creating for u. S. Exports, if any . Thank you, congressman. Well, first of all there is an ad in todays politico that says meet the xm banks of china, russia and france. They are delighting in this hearing. They are delighting in the u. S. Debate. On panel one, there was a discussion of Steve Wilburn and the direct impact on his business. I heard that during the shutdown and during the potential shutdowns. We enumerate all of that in this competitiveness report. Again, twothirds in the range of about 200 billion of export finance globally is unrepresentingeu unregulated, opaque and offers harm. China offers 100 for anything youll buy. Theyll give you 10, 15, 20, up to 40year terms so there is a direct impact on our debate here and trying to sell u. S. Products and more importantly support jobs here in america. Small business jobs as well as Large Companies. So we have seen a direct impact. I hear it from companies. I hear it from their customers overseas. One customer in maryland during the shutdown said he lost a customer to germany because he could not take the risk we would not be around. You mentioned this, but i was listening to my colleagues on the other side of the aisle also. I know at the time that we had the last reauthorization, there were certain reforms that were . In there. Listening to they will, you would think xm has not implemented any reforms. Is that true . We have complied with every single reform and recommendation that the committee made. We have complied or are in the process of complying with every single recommend angs the gao has made. We have agreed with each and everyone of their recommendations. I want to go you mentioned africa twice. I just had an event in new york on energizing africa and xm, i want to thank xm for being there. You talk about china, et cetera, being there but you also just in your testimony talked about cameroon. Can you tell us what opportunities are there for americanmade goods and services on the continent of africa . Africa is the home to, depending on your estimate, six or seven of the Fastest Growing 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 buy 1 billion worth of locomotives and power units. So there are enormous opportunities. But we face very intense competition from china which will provide financing for any an all exports going to africa. Quickly, i went to meet with transnet that as a result split their order between the United States and china. And the ceo told me pointblank, china offered 10, 15, 20 years what term do you need and what rate do you need to pay and well make it work. Let me ask this in my little time left. How does the size of xm bank, its particular mission, and the terms it is able to offer compare with other foreign export credit agencies . Well, china, as i mentioned, is more than four times our size. Thats just their xm bank. They have two or three other policy banks that support their exports. Canadian bank is three larger than the United States, an economy somewhat smaller than the u. S. Korea also does three to four times more than we do. We probably have the smallest footprint of any export Credit Agency to the size of our economy in the world. Zbl. The chair now recognizes the chairman emeritus of the economist, mr. Bachus. Chairman, you and i met in my office on march 27th when we were considering reauthorization of 2012. At that meeting, we expressed some concerns to you about transparency, accountability, and also the mandate requiring the bank to review the economic effects of its financing to he take in to account any im reading the statutory language take into account any serious adverse effect of any loan or guarantee on the Competitive Position of the United States industry. Then we had some followup conversations as late as may 9th about deltas concerns. We voted that bill out on may 15th, and ive really never had an explanation of that the sale of widebody jets to the emirates did not hurt u. S. Airlines and their 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 the airlines was talking about earlier . Again, Congress Asked us to review our Economic Impact. We not only reviewed it, we decided to revise it and to publicize it. It is on our website. We also do an analysis of is that specifically about the effect on yes. Look at aircraft and we look at every aircraft transaction no, im talking about specifically, could you supply that specific analysis that you did . That concern was directed it was very refined. It was to address the need to subsidize loans to the emirates or rich countries of widebody jets, of carriers that directly compete with american carriers on international routes. Is there an analysis of that and going back and looking at all of that now . We did an analysis. We hired an outside firm to make it unbiased of is there an oversupply in the aircraft field globally of wide bodies. No, thats not what my question was. Not whether there were too many wide bodies. The question is the impact on our flag caress. We didnt ask for a study of whether too many wide body jets in the world. Well, the bank has had Economic Impact procedures for 20, 30plus years. Which looks at youre telling me something i know. Im asking you something i know youve had 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 . Well, then the answer to that question is yes, sir. Okay. Would you supply us with those documents . Would be happy to supply you. When you did the loans to and id like copies of the loans, specific analysis of whether on any sale to those countries the effect on the flag United States flag carriers. If you could just give me that. We will provide let me tell you Something Else im very concerned about. August 2nd i wrote a letter to yall. We obviously faxed it offense 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 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 couldnt respond, couldnt analyze, couldnt have any input. You didnt even advise us when the vote was going to be can i answer that question . Yes. Briefly. 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. Any transaction over 100 million comes to congress for any member to comment. We got a number of comments on that transaction. Who does it come to . It is sent to i dont know precisely how its transmitted but every transaction is transmitted to congress for 35day review. Time. Expired. The gentle lady from new york, miss mccarthy. Thank you, mr. Chairman. Chairman hochberg, i notice that we only get five and i notice that youve always been writing something down. Obviously whether it was somebody on this panel or i understand that you were 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 rebuttable to, im giving that you opportunity to do that now. Thank you very much. Let me try and answer one or two questions we had 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. If were financing the export of an airplane, going to make sure that the dollar amount to the u. S. Economy could outweigh any potential harm. We look at every transaction, not just aircraft, to make sure that were complying with that. Because the last thing we want to do, the people at xm bank, is hur the american people. Were here to support jobs, not take away jobs. Thats one. Two, the Committee Staff received every transaction for 345 da 35 days. The Committee Staff forwards it. We received many times comments, sometimes no comments. Committee and 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 weve made a better bank. Our employees are alert to if they see something suspicious or suspicious claim or suspicious loan or something that doesnt look right, they work directly with the Inspector General. They dont go through me. They work whether it is in the general counsels office, cfos office, anybody that sees something thats suspicious. Im very proud of the fact that our employees are very concerned about they care about their reputation as well. So im pleased with the reputation and the work we do with the ig. Article that was in yesterdays wall street journal in my opinion is actually a good article because it says to our staff and to any exporter, if youre doing anything funny business, we are on to you and we will work with it. That a lot of this has changed since we have an 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 hurt delta. I know youre not looking to hurt the pilots and the flight attendants, that 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 and do you see any way to work with them to try to come to some sort of an agreement so we dont go through this every two years . Well, we fully complied with Congress Request on transparency and reforms. There are over a dozen and we complied with each and everyone of them. Weve complied with everything, or at least so far agreed with everything in the gao. Delta airlines made an assertion that our financing of planes to air india caused them to lay off people. If you look at the facts, they did not ground any aircraft. They have added employees since. And they even stated at the time it was not because of competition. They said, we have moved this the size and scope of deltas operation in our atlanta hub are best suited for the capacity of the 777 200lr in terms of cargo and passenger. So for business reasons they moved the flight to atlanta. It was not because of competitive issues or the xm bank. That was a concept they came up with three years later. That was nothing in their press release. They said nothing about the fact there was a global recession in 2008. They said nothing about high jet fuel prices. The h1n1 virus reduced demand, among other things that they also talked about impacting their business. For some reason this one route, this one route they decided was only because of xm bank and that doesnt comply with any of their public messages. Thank you. 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 become the chairman, was reach out to the Export Import Bank, come in to my community, bring my Small Businesses in, to get educated and you did come out when you came on and im happy to say that in my district, by word of mouth, more and more businesses have been joining and certainly weve seen the growth of the amount of money thats come in to my district. And its not mine. Its the people working, its hes jobs, and thats the important thing. Thank you very much for your time. Thank you. With that, i yield back. Gentlelady yields back. Just so happens to be my turn, mr. Hochberg. You said you had 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 were people who were at that table evidently when these things were being looked at that says they were not complied with. Why do you think there is a difference there . Certainly. We complied with every requirement, every reform that congress put in. We did, as i mentioned, an Economic Impact analysis particularly in the aircraft field. How many of those did you do in the aircraft field . We do one a year. We do a survey well, we do a survey to determine is there a glut in the aircraft field, which is the criteria thats been deployed by the bank for 20, 30 years in looking at Economic Impact. If there is an oversupply, then any additional capacity would have an impact. If theres an undersupply okay. So how many of those how many of those impact analyses have you done on aircraft in the last five years . Well, two things. We review every transaction. We do an indepth study. Every transaction. Every transaction over 10 million we review for Economic Impact. How many would that be . Well, close 3,500. We look at all of them. We dont deploy the resources to an indepth study on every single one. For example, congressman, sometimes you have an airplane thats replacing an old plane. Sometimes it is an airplane thats never flying to america. So number of those are not part of would have no impact. So we dont waste Government Resources chasing things that have no potential impact. Okay. But youve only done one analysis in the last five years on aircraft . Well, the new procedures went in this april of 13. So first of all, theyve been in existence now for 15 months. We review all. We did an indepth analysis on one transaction because one transaction triggered and said, this warrants further review and study. Because the planes are new capacity, potentially flying to american cities, and as a result, it triggered a more indepth study. If again, it is 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 there is the potential of an impa impact, well do an impact study. Okay. But to impact i mean if you are buying a plane from boeing, it would still have impact on the economy. Right . Well, again and the analysis thats been used in every industry, not just for aircraft we say what are the benefits of the u. S. Economy, how much revenue is coming to the United States, what is the potential loss to the u. S. Economy and we balance them against each other. So were always looking at that. Whats the balance. Thank you. Is the bank being sued right now on any of your Economic Impacts . Delta airlines is suing us. They are. Yes. And is that because of the case that you just mentioned . Well, again, they dont they dont we have put together Economic Impact procedures that are consistent with the way we do it for every industry. Were not going to pick and choose and do a special one for aircraft. We simply look at how we look at Economic Impact as congress has asked us to look at Economic Impact. I should 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. Were happy to do so. But i think the committee should know, this is something unique to the United States. You have really since 2011 stopped disclosing the yearly total of the number of aircraft exports. Why would that be . Im unaware that we made a change in our disclosure since 2011. You disclose all of them right now . Well, anything over is there full disclosure of everything . Everything over 100 million is in the federal register for a full 25 days before final board vote. Above that amount. Above 100 million. If its less than that, thats just chump change . No, less than that would be first of all, you cant buy a wide body plane the item of concern to mr. Anderson at delta none of them cost less than 100 million. So under 100 million is in the aircraft would be two and fraction of a 737. So thats what Congress Asks us to say. Over 100 million wed like in the federal register. I can just add, this does have an impact on our competitiveness. Again. Im going to lead by example and cut myself off. Gentle lady 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, theyre 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 xm, 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 it, none of them can prove that there is any welfare here. But theyll keep saying it unless we keep denying their description of xm. So would you please, in your own words, mr. Hochberg, talk about how you do this. Thank you, Ranking Member waters. Thank you for your support. We provide loans. Loans need to be repaid. We do not provide any grants whatsoever. And we have a very tough group of people who enforce the loan covenants and make sure that loans are paid back and paid 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 it keeps declining. So in terms of Risk Management and in terms of corporate welfare, welfare implies were taking from someone and giving it to somebody 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 were selfsustaining, there is no subsidy from the government because the fees we collect cover our loan lost reserves, cover our operating expenses and for the last several years we transfer back to the tracks pare for deficit reduction. Last year over 1 billion. Mr. Hochberg, do you charge interest on loans . Well, most of the loans are guaranteed but if therefore, the bank charges. If it is a direct loan and sometimes we do that, we borrow the money from treasury. By law we add a full percentage point. So if treasury lends us the money for 2 , we must charge at least 3 . On top of that we add fees like points on a mortgage. If we are providing 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 it is welfare. They are paying handsomely for the privilege of borrowing. So is it because of these fees that you charge and interest if it is a loan that youre able to earn money. And what do you do with the money that you earn . Well, the money that we learn the money we receive a prudent portion goes to loan lost reserves to make sure every loan is paid off. Congress each year appropriates a certain portion of that back to the agency to run. The balance we transfer to the treasury. Say that one more time. The balance of this money goes to the treasury. The treasury. Of the United States of america. Correct. Is that right . 1,057,000,000 last october. So are you telling us that you actually earn money for the government that goes in to the treasury . Correct. We earn money because we are 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 well fair for corporate interest, is that right. Thats correct. Its an absolute untrue statement. It is a misstatement as it crony capitalism is a misstatement as well. Well 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 on opposite side of ability of undermine the tremendous work that youre doing. That you are allowing the United States to get least get the balance of payment and get us into the export business. If it wasnt for your 2 that youre doing we would be out of it together. I thank you and i yield back the balance of time. The chair now recognizes the gentleman from oklahoma mr. Lucas chair of the ahouse agricultural committee. Thank you mr. Chairman. Mr. Hochberg, are you having fun today . I have a chance to tell the story of xm banks so more people understand what we do 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 he politically from a variety of directions today. If i could to the whole Panel Discussion for a moment with me, the nature of how the rest of the world handles this situation and no we were indeed to step away from the institution, would any of the other country that were aware of around the world drop their similar type of programs . I address this to anyone on the plan panel who cares to touch it. Does anyone talk about getting out of this business on the planet that you interact with, mr. Chairman or any of you. I would say i meet with my colleagues in the g 7 and bricks. Its the exact opposite. They are looking for ways to ramp their. They are adding staff. Frankly unlike the xm bank, most of them have offices around the world. I think china xm has Something Like 10 or 12 offices globally. They are going in the opposite direction. They are looking to enhance them. So my friends 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. So congressman, under the federal credit re reform rules that congress legislated and this is what we included in our budget projections. So if i understand the two sets of comments we have a situation were we are not only people engaged in this activity. It would appear that we are the only people discussing not to continue in this activity. The affect of engaging or not engaging has no affect on the federal budget. I think the way the federal budget is accounted for right now you really dont yet know. You really wont know what the cost of these programs are until more time has elapsed and basically, the very businesses have had time to mature. I would point out that 11 of cohorts that xm has done actually require subsid yit according to xm and ombs estimates based upon reestimation. So we really wont know the full cost of these credits until they have had time to mature. I want to agree with that. I was careful to me in my comments that under the rules that congress has legislated and we follow the xm bank that negative subsidy. Weve also said a number of times and in just a recent report that we think a more comprehensive way to measure of cost of federal programs would show that xm bank is having a positive subsidy cost. Thats not the way it is recorded in the budget right now. Thank you for that clarification. Just so its clear a negative subsidy says we get extra money and it goes to the taxpayer for s reducti reduction. Since federal reform in 1992, its 6. 6 billion have gone from the bank to the treasury. The financial crisis from 2008, we have a real life stress test. I understand what gao says, we have complied with everything they have asked us for but on top of that, we have seen the most stressful Economic System and stresses on the economy and Banking System the world has ever seen since the depression and our defaults are 0. 211 . Less than a quarter of a percent. I understand the future is uncertain but weve gone through the last six years the world has always seen. Absolutely. The question is is the Glass Half Full or half empty. What is the impact of having a glass or not having a glass. It is a fascinating subject of discussion. The intensity that ive observed in this committee both p perspectives is great but whatever we do will impact individuals and businesses and our competitive nature around the whole planet. With that i, i yeerield back toe chairman. We now recognize the gentleman from missouri mr. Cleever. Thank you mr. Chairman. To the Inspector General. Theres been some problems obviously with xm bank but has there been something so egregious, so monstrous that congress should give the xm bank a certificate of discontinuation . Obviously the decision as to whether or not xm bank still around is for congress to decide. All weve done since we started office is to look at some of the issues that were apparent on xm Bank Operations either from the Law Enforcement side weve been very active on that side and the operation side. We had a hearing last year talking about Risk Management. We have done work on dealing with customers is one of the complaints we received from customers of the we looked at Economic Impact and all the aspects of the bank that we thought needed to be needed to be address ed since than the bak has been working with us and addressing those. Recommendations are still standing. Theres some progress. Even the conversation of risk was something two, three years ago wasnt on the table and now were having conversations about it. Is from our perspective we focus on the operations of the batching. Thank you. So the gao, if we didnt fund the air force, would it have an impact on the budget . Of course. That simple . You asked if we didnt fund the airforce . Of course, yes. What if we didnt fund toilet tissue for the capital . That would have an impact on the budget. Okay. Thank you. So anything we provide would have an impact on the budget, is that correct . Im not sure its material for this discussion but yes. Youre absolutely right. You are absolutely right. Now let me go further. Would it be do you know how many times the xm bank has been reauthorized . Xm bank has been reauthorized better than 16 times in its 80 year history. 16 times. Correct. Would it be a surprise to you probably wouldnt that most of them were unanimous votes or oef overwhelmingly ooun an imo an, unanimous when they went to the floor of the senate and a significant number were actually voice voted out of the house and i think they called it consent in the senate in the lower house. What do they call it in the lower house . I think unanimous consent in the senate. Consent is it consent. Unanimous consent. You would be surprised at the number of unanimous consent. So, i guess the point im perhaps making and poorly is that whats different now . What im saying is are there some problems . I think there are some things we could do. I think there are some tweaks that should be made. There should be some reform. I think the delta air line representative brought us some things that should be considered but my concern is, the xm bank has been well received by everybody over the years and now all of a sudden we have this partisanism over the bank and im just wondering, what is it about this moment in our history that we dont think we can look at a problem and some of thats not a big problem, and 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 fix