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PolitiFact: Some costs of Export-Import Bank may not be obvious

The statement

The Export-Import Bank "doesn't cost taxpayers anything."

U.S. Rep. Vicky Hartzler, R-Mo., June 24 a Roll Call interview

The ruling

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.

Overall, the bank finances less than 5 percent of exports annually. In 2013, the bank supported about $37.4 billion in exports.

Supporters say the bank makes American companies more competitive globally by incentivizing foreign buyers. Those 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.

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.

Calomiris 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 gain 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.

We rate this claim Half True.

Lauren Carroll, Times staff writer

Edited for print. Read the full version at PolitiFact.com.

PolitiFact: Some costs of Export-Import Bank may not be obvious 07/11/14 [Last modified: Friday, July 11, 2014 12:21am]

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