One of the tea party’s newest pet peeves is the Export-Import Bank -- a little-known government agency that the party is hoping to abolish.
What’s the Export-Import Bank? It’s a government agency that gives low-interest loans and guarantees to foreign buyers in hopes of promoting American exports. The tea party calls it crony capitalism.
We decided to tackle a striking claim that the bank’s supporters, like the U.S. Chamber of Commerce, frequently tout -- but one critics say is misleading.
We heard it most recently from Rep. Vicky Hartzler, R-Mo., in a June 24 Roll Call interview.
She said the Export-Import Bank "doesn't cost taxpayers anything."
A government agency? That doesn't cost taxpayers anything? How can that be?
In contrast, Rep. Jeb Hensarling, R-Texas, who has been leading the current effort against the bank, told the House Committee on Financial Services on June 26, 2014, "We should examine where the money comes from to finance Ex-Im. Whose money is it? Obviously, it’s taxpayers’ money."
What is the Export-Import Bank?
The Export-Import Bank is a federal agency founded in 1934 that finances foreign buyers with loans, guarantees and other products -- at lower interest rates than they would get from a private bank -- to help them purchase American products. About 60 other countries have similar agencies.
Overall, the bank finances less than 5 percent exports annually. In 2013, the bank supported about $37.4 billion in exports. Its biggest, and thus most controversial, beneficiary is Boeing.
Those who support it say the bank makes American companies more competitive globally by incentivizing foreign buyers. Those who are against it say it is corporate welfare that helps hand-picked companies while disadvantaging businesses that don’t use the bank.
It's a hot topic because the agency's charter is up for congressional reauthorization in September. Its current three-year term ends in 2015.
How much does it cost?
Every year Congress sets a limit on the bank’s financial activities. The bank then borrows money from the Treasury to give out direct loans, which it pays back with interest.
Since 2008, the bank has not relied on taxpayer dollars to cover its operational costs and loan loss reserves. Instead, the bank charges customers fees and interest that it uses to cover those costs in full. Often, the fees generate a surplus, which the bank gives back to the Treasury. In the past five years, the bank has given back $2 billion.
Additionally, the bank’s default rates have historically been lower than private financial institutions -- the current default rate is less than 0.25 percent.
The bank hasn’t been completely without losses, though. In 1987, several straight years of losses of more than $250 million to $300 million forced the bank to ask Congress for a $3 billion bailout.
The most recent losses were in the 1990s, following the 1997 Asian financial crisis, said Export-Import Bank Advisory Board member Gary Hufbauer, also a senior fellow at the Peterson Institute for International Economics, a nonpartisan think tank.
Still, the bank has generated an overall profit of more than $5 billion for the Treasury since 1990. But just looking at cash flow doesn’t give us a full picture.
The bank’s overall revenue isn’t as high as it could be because the interest rates are lower than market rate, said Charles Calomiris, a finance professor at Columbia University. This means there is a cost to taxpayers in terms of lost opportunity, and it will eventually become a loss in cash flow. Some economists believe that the incoming revenue will not be able to keep up with defaults adding up over the long term.
It may take 100 years to see the costs in terms of cash flow, but they are always there, Calomiris said.
"Loan subsidies don't come from thin air. They are paid for by the taxpayers. So, saying that the Export-Import bank is free is wrong," he said.
He noted that federal mortgage loan providers Fannie Mae and Freddie Mac rarely reported cash flow losses until 2008, when their monumental losses contributed to the Great Recession.
Adding to the debate is a Congressional Budget Office report from May that gives a 10-year projection for the Export-Import Bank using two different accounting methods -- yielding two disparate outcomes.
One shows the program operating at a $14 billion surplus, the other shows it with a $2 billion loss. The positive results from the method the government has traditionally used to assess the program. The loss results from a fair-value method of examining the program the way a private financial institution would, taking more risk into account.
The bank's proponents say it’s wrong to treat government lenders like private lenders because the conditions are so different. The bank’s accepted accounting method better reflects factors like the Export-Import Bank's high credibility, lower tax burden and lower interest rates.
"Comparable private market interest rates and guarantee fees seldom exist as benchmarks for Ex-Im Bank financing," Hufbauer said in a Peterson Institute blog.
Hartzler said the Export-Import Bank "doesn’t cost taxpayers anything."
It’s true that in recent years, the bank has actually made a net profit on its loans and turned in money to the U.S. Treasury. But in the past, the bank has had years of losses and actually cost taxpayers money. Some economists think that could easily happen again, even if it doesn’t seem like an immediate danger.
We rate this claim Half True.
Roll Call, "Boehner Defers to Hensarling on Export-Import Bank," June 24, 2014
House Committee on Financial Services, "Corporate Necessity or Corporate Welfare," June 25, 2014
U.S. Export-Import Bank, "The Facts about Ex-Im Bank," June 24, 2014
U.S. Export-Import Bank, "Export-Import Bank Fact Sheet," June 24, 2014
U.S. Export-Import Bank, "Annual Report 2013," accessed June 26, 2014
U.S. Export Import Bank, "Statement of Honorable Osvaldo Luis Gratacós Inspector General Export-Import Bank of the United States before the United States House of Representatives Committee on Financial Services," June 25, 2014
U.S. Export-Import Bank, "Audit of Information Technology Support," Jan. 24, 2012
U.S. Export-Import Bank, "Report on Portfolio Risk and Loss Reserve Allocation Policies," Sept. 28, 2012
U.S. Chamber of Commerce, "The Export-Import Bank of the United States: Its Impact on U.S. Competitiveness, Exports, and Jobs," accessed June 26, 2014
Congressional Budget Office, "Fair-Value Estimates of the Cost of Selected Federal Credit Programs for 2015 to 2024," May 2014
Congressional Budget Office, "Testimony on Estimates of the Cost of the Credit Programs of the Export-Import Bank," June 25, 2015
Congressional Research Service, "Export-Import Bank: Background and Legislative Issues," April 3, 2012
New York Times, "U.S. Export Bank Seeks $3 Billion," Dec. 21, 1987
Washington Post, "How a once-obscure agency is dividing the GOP over ‘corporate welfare,’" June 25, 2014
Wall Street Journal, "The Export-Import Bank of the United States: Frequently Asked Questions," Dec 9, 2009
Wall Street Journal, "How Ex-Im Bank Benefits Taxpayer," June 17, 2014
Washington Examiner, "Export-Import Bank costs taxpayers $2 billion a decade," May 24, 2014
Peterson Institute for International Economics, "The ‘Export-Import Bank loses almost $200 million a year.’ Really?," May 13, 2014
Email interview with Don Boudreaux, an economics professor at George Mason University, June 26, 2014
Email interview with Charles Colamiris, a finance professor at Columbia University, June 26, 2014
Email interview with Ex-Im Bank Advisory Board member Gary Hufbauer, June 26, 2014
Email interview with Corinne Krupp, a public policy professor at Duke University, June 25, 2014
Email interview with Dolline Hatchett, Ex-Im Bank spokeswoman, June 25, 2014
Email interview with Steve Walsh, Hartzler spokesman, June 25, 2014
Email interview with Sally-Shannon Birkel, Chamber of Commerce spokeswoman, June 25, 2014
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