When Congress returns from their August recess, they will have two weeks to decide the fate of the Export-Import Bank. The bank’s authorization expires on October 1, and without action from Congress before then, it will shut down, putting American exporters at a competitive disadvantage.
What is the Ex-Im Bank?
The Export-Import (Ex-Im) Bank is a Congressionally-chartered federal agency that provides trade financing to facilitate the purchase of American-made good by foreign customers. In 2013, the bank financed $37.4 billion worth of exported goods and supported over 200,000 jobs.
The Bank was created in 1945 and operates under a renewable charter. Congress last reauthorized its charter in 2012 for two years, and the Bank’s authority will expire on September 30 if lawmakers do not act.
How does the Ex-Im Bank help American businesses?
About 80 to 90 percent of goods traded between countries rely on financing, from both government and the private sector. The bank provides backing in cases where an important opportunity exists for American businesses but private investors will not enter the market without a guarantee. Often, the Ex-Im Bank will use private sector partners to provide financing, with the bank providing guarantees. About 98 percent of the Ex-Im Bank’s transactions in 2013 involved commercial banks.
Loan Guarantees: Loan guarantees are one way the Ex-Im Bank helps exporters. If a foreign buyer cannot obtain a loan from a commercial bank, the Ex-Im Bank may guarantee the repayment of that loan.
Working Capital Guarantees: Many small businesses use the bank for working capital guarantees. A small business with export potential may require a short-term working capital loan from a bank, which the Ex-Im Bank guarantees to reduce the risk.
How much does the Ex-Im Bank cost taxpayers?
Nothing. In fact, the Ex-Im Bank generated profits of $2 billion over the past four years, which it sent to the general fund.
The Ex-Im Bank is designed to be self-sufficient by charging fees to cover the risk of default and its operating costs. The bank is required to aggressively manage its risk and keep default rates under 2 percent. Currently, the default rate for Ex-Im Bank transactions is about 0.2 percent. For comparison, the default rate for corporate bonds in 2013 was about 1 percent. If the rate of default rises, the Bank has built up nearly $4 billion in reserves as insurance.
Do other countries provide similar financing to exporters?
Over 60 countries have export-credit agencies (ECAs), similar to the Ex-Im Bank, to promote exports of nationally-made goods. One study from the National Association of Manufacturers and the Economist Intelligence Unit shows that compared to other countries, the support provided by the Ex-Im Bank is relatively small. The U.S. ranks sixth, behind China, Japan, Canada, South Korea, and Germany, in the total support provided by ECAs.
What kind of companies does the Ex-Im Bank support?
The Ex-Im Bank provided support to 3,400 businesses last year. About 90 percent of those were small businesses, which accounted for 80 percent of the banks transactions. However, small businesses have smaller and shorter-term capital needs, so just less than 20 percent of the bank’s financing directly went to small businesses.
Many large companies that use the Ex-Im Bank rely on small businesses in their supply chains, so the Bank’s support benefits many more small companies indirectly. The Ex-Im supports a variety of industries, but about half of the financing authority is directed to aircraft exports.