Transcripts For CSPAN3 Politics Public Policy Today 20140627

And then, issued a press release saying it created 40 jobs at delta. Thats just false. Mr. Anderson, let me start. Let me start by saying, someone who lives 60 miles north of he was, i love Delta Airlines. The pilots and the airline the flight attendants, you the a great job so dont hold anything i say against me today as we fly in the future. I was born at night but not last night. I didnt support reauthorization last time of xm bank because i felt that the reforms that needed to be made were not made. But today, listening to the testimony from all three of you and the doctor is gone, reforming xm bank with reforms, i think you all would support reauthorization, correct . We are forms. With reforms. With reforms. As we have been talking and i have a whole package of reforms here and weve been working on for the last six weeks, two months. 1,000 jobs in the eighth Congressional District of tennessee, my district, are support by the investment of xm bank. This is not about ive heard some people today talk about ten Big Companies or whatever. This is not about leadership in our party. I think as republicans were all trying to get to the same place of having a government thats more accountable and more transparent and more responsible with taxpayer dollars. This is about, for me, the jobs in my district. And its going to be hard for me to go back home, mr. Anderson and captain and mr. Wilburn. And my constituents say, congressman, have you balanced the budget and im going to say well were working on it. And theyre going to say congressman, did you get rid of fannie and freddie and im going to say, well, were working on it, and we are with the patback. Well, congressman, the only thing that youve done is youve got rid of an investment that was creating 1,000 jobs in our district. And now im on unemployment. I dont have a job. I have a paper right here. U. S. Economy straing at steep 2. 9 rate at quarter one. The Commerce Department says First Quarter contraction was more severe than the decline it estimates a month ago. Another major factor was a bigger trade deficit than initially estimated. Again, if we dont reform xm bank, then we got some real problems. And as a lot has been said today about the way that xm bank is being operated, i think its mr. Hockberg, if they wont respond to the changes that were trying to make, maybe xm bank needs to be we need to clean house there . But, please, lets dont overreact. Lets try to fix this investment. Lets make it better. Lets get back to the original mission of xm bank. And dont hurt jobs in our districts. Im going to have arrest hard time going back home to my district and telling my people, my folks, the only thing ive done is kill jobs far my district. And so lets try to work this out. I think we can. Again, ive got a whole list of reforms ill be glad to talk to anybody about. Appreciate mr. Campbell and the work hes done. Appreciate all you gentleman and well reform this and make it better. With that i yield back. Chair recognizes gentleman from maryland, mr. Delaney. Thank you, mr. Chairman. I thank the witnesses for joining us here today. Mr. Wilburn, captain, thank you and mr. Anderson, i thank you in particular for joining us and 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 as such a successful business. And the fact all your colleagues joined you here today is a reflection of the good culture of the airline and your good leadership. So i want to make it clear that i think what youre doing is terrific. And my question is actually more of a factual question and perhaps like me 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. And i wases very concerned by it because as i think many of my colleagues know i care deeply about three markets and believe that Market Pricing should dictate all of kind of government financing. And when i saw this i was very concerned about this. It said that the governments making a lot of 3. 4 and the same loan in the market would be made at 6. 1 . Thats a very big subsidy. But as someone whos used to reading foot notes i read if footnote and it said that the private market example is something called doricnimrod air finance alpha. Thats a special Purpose Entity based in ireland that owned 58 airplanes. And leases those 58 airlines to about a dozen carriers including the emirates. And the risk of ownership and benefit of ownerships are not fully transferred to the he lessee so when i saw this and recalling my days in the credit business this strikes me as a worse credit because i would much rather lend directly to emirates and have their fum faith and credit saying theyll pay back every penny h any of the loan on a fixed amortization versus the specialPurpose Entity that has certain limited recourse. I may be wrong about this because, im just reading the footnotes and i did some searching on my little google device here but my question is, a. , is that accurate . And b. , do you think, is the ceo of tell ta if you were to borrow directly from a bank and i recognize you didnt have to borrow to buy your planes which is great. If you put the full faith and credit of Delta Airlines on the line as well as a lien on the aircraft you purchase wouldnt you expect to borrow at a lower rate than to 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 specialPurpose Entity . So im trying to figure out what the apples to apples price is. What we were to do here is to make it apples to apples, okay. And if you go down through the footnotes, obviously, the coupon these were both Public Market financings. The one on the beft had an xm Bank Guarantee attached. Us see the collateral. The coupon is beyond question. Thats obvious. The coupon was obvious. The loantovalue ratio with the xm, you get a higher loantovalue ratio because you dont need as much equity. And what youve approximated here is that this is the emirates credit. But isnt it true that its actually not the emirates credit . No, but it is the emirates credit based on what moody said. I read the moodys Credit Report on my device here. And 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 the emirates. That it wasnt fully recoursed to the emirates. No, this is an apples to apples. They are both issued at the same time. And both of them were public financings. And one of to them, they decided they were going to lease so i think that the market base financing was a leasedbase financing on this. But at the end of the lease term the lessor takes back the airplane, if the lessee doesnt like it. You leased a plane and you had it ten years if you didnt want the plane you give it back. If someone had the loan on the plane that loan is not your obligation. But airlines we 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 theyve decided that they want the option to be able to return the airplane in 5. 7 years because thats the average life of the lease. A quick yes. Do you think you should pay less for the direct delta credit in the market than you do for a lease . Well, yes. I think depends on the airplane. Thats probably what theyre doing here. They probably want to own the triple 7s but probably only want to lease the 56789380s and this is what a lease looks for at the emirates at their credit. Time is expired. The chair recognizes the gentlemen from south carolina. Mr. Mull vainy. I believe mr. Hecht, i wish he was still here, who challenged us not to believe false statements regardless of the number of times they are repeated and i think thats always good advice. I would think its similarly good advice to not believe statements that you cant prove and one of the things that i think he said and i dont want to put words in his pout was that Export Import Bank created 255,000 jobs last year. If i got it not exactly right i apologize, but that was the general extent of things. Nobody can that number. Nobody can prove that number and i want to explore that a little bit. I want to explore the weaknesses in these job numbers. Mr. Fincher is talking about 1,000 jobs in his direct. Mr. Anderson you mentioned in your testimony that the export import financing in the aviation sector has cost yall 7500 jobs. Xm says its boeingrelated activities created 51,000 swrobswrobjobs. Who am i supposed to belief sne. Me. Why . Well, in the instance of delta and the example that we used with airindia, that actually happened. We went through a reduction in force. Fortunately we were able to get enough employees to take voluntary early retirement but when we pulled all that flying out of india, we had a very successful business flying to mumbai and we bought, by the way, 777s and finessed to them ours ost 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. In that it is very difficult to put a precise number for you or any of us here. So i guess what i relied back on is i see what goes on in the marketplace. Got one going on right now in jfk to milan, italy, with Emirates Airlines which has financed airplanes from xm bank and they dumped theyve increased their capacity in milan jfk 65 . Thats going to have an impact on jobs in the u. S. Over time and theyre deeply subsidized which probably really gets to the deeper point of trade subsidies. You make the right intellectual point. These are estimates. They are estimates by everyone. And theyre a best judgment. I will tell you the airindia numbers are right and i was involved in pulling it down and having to do the reductions. If you do scratch a little bit deeper at the Export Import Bank numbers and youll see that they use formulas with information from and we could talk about the foreign components. Boeing advertises 30 of a 787 is made overseas and its unclear how many of those 255,000 jobs, mr. Hecht, are actually jobs overseas. When the gao asked the Export Import Bank about that in the may report they said xn kpishls had not assessed the extent to which this limitation affects the overall jobs estimate. Supported versus created. Supported and created are not the same thing. Just because a job is supported doesnt mean its going away if the Export Import Bank financing goes away at the same time. Its important to recognize one thing as we deal with these things. We use these numbers when we talk about swrobs. The only reason the Export Import Bank counts jobs is because of us. Thats it. Thats the only reason they count jobs so they can come in here and try to justify their kp existence. It says, export import officials told us they use the results of its jobs calculations for reporting purposes only according to xm officials xm calculates the number of jobs supported reviewed by the board of records at the request of one of its Board Members. Xm Board Members say the purpose of reporting these numbers is to give congress a sense of the implement affects of xm activities. They do not use them for decisionmaking. The only reason theyre giving you the 255,000 number is because they want to, jobs, is because they want to continue to exist. And at some point we have to decide, which numbers are real and which numbers are fake. I would suggest to friends on mine on both sides of the aisle if between a Government Agency and a bureaucracy trying to make an argument forgetting more money and continuing until it exists, and a private Sector Company that is simply saying leave us alone so that we can compete it is the ladder that is the more reliable number and the 255 is not a real number. The 7500 jobs that delta lost are real. Time to the gentleman is expired. The chair recognizes the gentleman from washington. Thank with you, mr. Chairman. And to clarify the record. Its 205,000 jobs for 2013. I believe its 255 in 2012. As reported by the industry, actually, to the Export Import Bank, mr. Anderson, i want to ask you a question that i suspect i mo the answer to. Would you favor continuation of this Small Business administration . I dont know anything about the Small Business administration. Im a large business. I could certainly learn about it. I just dont know. Ive never done any studies or had anything to do with the mall business. I dont really know what it does. I asked because i thought i knew the answer, which i did. I thought you would have said yes. I can say yes if you want me to. Well, its nice to know what kind of thought you give to your testimony here today, sir. Im totally if you think im happy to support it. I didnt come here to testify about Small Business administration. Admittedly. I wanted to make the analogous point that the they function as the export import credit. The sba enjoys an enormous amount of public support and is kind of a given and i wanted to give color to your earlier remarks that it was a reformed xm Going Forward you were seeking not elimination of it and that was my only motivation. I want to make the point that those of you who are aggressively seeking reforms which may or may not enable to 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, that the gentlelady from wisconsin gave. We could wake up in 20 years. And still have a duopoly. I dont think america would be better off for 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 which is one of the important beneficiaries of the domestic Industrial 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. Most of us have lived to regret it. But the difference is. This is not one we can reconstitute very easily. In fact its not unrelated to this nations security. The hundreds of thousands of people that put together those great airplanes and frankly, those 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 the Export Import Bank and not have that critical part of our Industrial Base decline i think we were playing with fire if we think we can be as aggressive about certain kindtion of reforms that would have that kind of effect and not acknowledge it. I was delighted to hear my friend, mr. Campbell indicate and he had come up with a bill and i respect him a great deal. This institution is going to miss him and frankly im going to miss him and this kwcommitte is going to miss him and i thought it was an act of considerable integrity with the accepted responsibility for the development of that which he presented today having been 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 and mr. Campbell has taken the constructive step to put a bill on the floor which a bill on the table which none of us have had the opportunity to reach 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 was hard. The exact number is 97. 98 days from now, the doors of the Export Import Bank will shutter and america will be worse off for it. In the alternative is, we have a hearing on an actual bill that mr. Campbell has developed and begin the give and take about what the path forward might be. Because, in fact, we only have 97 days and 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 domestic Industrial Base as we have in so many other sectors. This nation cannot afford it. Our quality of life cannot afford it. Our standard of life cannot afford it and the health of our economy cannot afford it. Thank you, mr. Chairman. Time to the if he gentlemen is expired and the chair recognizes the gentlemen from kentucky. Mr. Barr. Thank you, mr. Chairman and thanks to the witnesses for your patience and for youre persistent testimony here today. First, for mr. Wilburn, i appreciate that youre a Small Business owner and youre an entrepreneur, you mention that you were, quote, a free market guy, unquote. Are there other means that you could identify a making your company more competitive in the global marketplace besides reauthorization of the xm bank . For example, lowering the highest Corporate Tax rate in the developed world. Ending the war on Domestic Energy production to make sure that 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 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 of these things that you mention need to be considered in the argument that they are going to have the next couple of days here, really. And its important, i think, to give you a number, if i may, to question the eight moment, 165 jobs we created and we audited those and wed be happy to share that with the committee with our project. To your point, without the Export Import Bank, existing in the form that would allow me to compete with the ecas of the world for my products to get there, i cant imagine my company surviving. But i also think as a free market person that a lot of the reforms youre talking about and a lot of the policy youre talking about need to be debated civilly. We dont need to use words like crony capitalists and insult some of my people and Small Business people with that and we need to get to productive words like you just mentioned. You would agree to conclude, then that 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 . Absolutely. Okay. Let me just ask the other witnesses to comment on that as well. Very, very briefly. The one thing i would focus on is its one thing competing in a free marketplace. Its another when our government subsidizes our competitor. Thats what were about. Were not here about 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, thats what were about. Thank you captain moak. And mr. Anderson ill put Something Else out there for you okay comment on in response to my colleagues argument earlier in the hearing today, and ill summarize his argument, since everybody else is doing it, we should too windy weve heard that in some form or fashion from a number of the my colleagues here today. Is that the right attitude . Because everybody else is doing it we should do it and how would you respond to that . In our specific instance, its not everybody else. Its three countries. Its england, france and germany. Three closest allies and trading partners. So in terms of aircraft financing with and Everything Else we do with those three countries, this is something thats 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 we all, in our industry, we dont have free trade agreements. We have unfair trade agreements. And i think the biggest thing we could do as a country is make sure our trade agreements are in reality, free trade agreements and that u. S. Companies are not put at a disadvantage. Mr. Anderson, and my remaining time ill note while i appreciate your comments about lost mentions at your company. In my congressional dakt and just outside of my Congressional District, my constituents in the coal industry have not only lost their pensions theyve lost their jobs and what the Export Import Bank wants to do is to harmonize their policies with the administrations jobkilling policies that put those people out of work. Time and the gentleman has expired. I recognize the gentleman from michigan. Thank you, mr. Chairman. I appreciate that. Mr. Anderson, i though youre being quizzed about the Small Business administration. I wont ask you about the epa and a lot of other things that have been going on in this administration but it does strike me after doing a little basic Internet Research here with, we might be talking about the big business administration, General Electric, 656 billion on their Balance Sheet and total assets making them the eighth largest bankholding company in the United States. Boeing company, with 92. 7 billion in assets on their 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. Have owned caterpillar products in the past. Their assets are 89. 9 billion on their Balance Sheet. I guess, maybe a question is, companies and youre very familiar with how do you finance Large Companies and as youre going through and as you said earlier, you paid cash or will be paying cash. Im not sure how that works. If its up front or afterwards, about 100 youre purchasing 100 airplanes . How does financing of these Large Companies work . Typically, financing and 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 the economic reforms. And theres still some bank finance ng but by and large its both Public Market Equity Financing and Public Market secured financing secured financings and Public Market financings. I will note that in the bank they compete all the time. So we own at stake in a Company Called aeromexico and they bought some boeing airplanes and after it was over with, General Electric was competing against the xm bank to finance the fleet. Ge has a foot in both camps. They fight theyre the largest aircraft theyre the largest aircraft financer in the world with gcass and at the same time, they make engines and they are a participant in xm Bank Financing and then they compete all the time against the xm Bank Financing arm to see if they can get the Airline Business around the world. Theres been i guess my question is this. Couldnt these Companies Find traditional financing . And we had put up the emirates air situation, i think its 100 million wealth fund they Sovereign Wealth Fund that they have and the number that weve heard is 98. 4 of all exports dont use xm financing. Theyre done the traditional way. About 1. 6 that do of, of which about a third probably couldnt get that traditional financing. I know, mr. Wilburn, you might fall into that, if i were you, i would be a little concerned that youve got Major Companies like that, literally soming 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. I dont know if you care to comment. With all due respect. Nobody trots me around. Im sorry. I didnt mean specifically you. I have a number of companies that comment. I can tell you this. They dont come in with the Big Companies. Ill give you my Balance Sheet. Im a private company. Its 5 million right now. Lets put it into perspective. So youre right. Im competing with billionaires. Okay . Theres a lot in common with these billionaires that im hearing today that encouraged because if i can get these types of executives to give this kind of focus to Small Businessnd say that theyre willing to work and negotiate yooirt to keep the Export Import Bank alive im all for that. I want to sit down with these gentlemen. And in my last ten seconds i would express to you that im not concerned that thats the focus of the xm and mr. Anderson, ill gently remind you that actually, canada ask the as chair of the Interparliamentary Group with canada i have to point that out. The time has expired. The chair recognizes t s gentle from ohio. Thank you. Before i begin my remarks i would ask unanimous consent to submit a letter from ptg a company with 200 employees in my district. I would like to submit their letter for the record. Without objection. Thank you. Thank you for being here. Id like to thank the witnesses for being here. Mr. Rajay couldnt stay. I care what the panel thinks. I woenlt make a fiveminute statement. Im going to ask you some questions because i came to learn from you and i appreciate the panhandle putting this together. You have all spoken earl earlier. Could you please raise your hand in you support it with meaningful mandatory reforms. With meaningful mandatory reforms could you support reauthorization . Provided it addresses the issues that ive laid out and stopped . You passionately laid those out. Lets assume it addresses your issues with mandatory reforms. Could we see that again . Mr. Wilburn are your reforms accountability and compliance . Reforms, accountability and compliance. Could you please race your hand are reauthorization with reforms, accountability and compliance. Mandatory that stick and that address. Stop wide body financing. Did everybody raise their hand . Okay. Im not sure your microphone is on mr. Wilburn. He wants to know what the mandatory reforms are. You could support that . Yes. So i just want to show everybody that happens to be watching that the panel unanimously im sore mr. Rochet couldnt stay. Shed probably vote no. But she didnt stay so the panel is unanimous in supporting reauthorization with meaningful mandatory reforms. And many of my colleagues, i think, knew very well in the theoretical world but i ditch in the real world and 41 countries have export finance agencies. And you know, i think mr. Sherman from california talked about unilaterally disarming. I think thats a bad idea. But i think theres a way forward here. Mr. Anderson. You passionately argue for some meaningful reforms and you talked about the handshake agreement between boeing and airbus, 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 the xm bank, do you believe airbus would hold firm to the handshake agreement . Kind of like the handshake agreement is like mutually assured destruction, right . They each have something and they agree not to use it. If boeing didnt have it, do you think airbus would stick with the handshaker . The kpler 1458 leader, john leahy at airbus said, yes. If the United States and you hear this from both sides. Ive heard it from boeing and heard it from airbus. If the other side stops using xm Bank Financing well stop using that and i have that from the cheer commercial airbus of from boeing. I hope thats right. Ill tell you i believe that and im sending a letter to the u. S. Trade representative trying to get my colleagues to support it to ask that we immediately enter into negotiations with the oedc and all the countries around the world, the 41 countries that have export finance agencies to end them simultaneously but if we end ours with the hope of good will they might do the same thing . That might be a little shortsighted. Im sure the ones in the academic world thinks its a great idea but im not sure it works in the real world. One point of clarification. Thank you. This unilateral disarmament talking point that people use all the time, that i hear, the buzz word, the reality is, this government policy here, were arming our competitors. I recognize that the need for reform. I recognize the need for reform but if we completely walk away from the entire thing and to my previous questioners, 90 of these transactions are Small Businesses, like mr. Will burn. So i have one last question. Did anybody read the Financial Times today . No, i was getting ready to do this. Im sure you were. So mr. Lukemeyer from missouri represented that 40 of our finance transactions globally were covered by the oedc rules and this year its down to 34 . The real risk is the rise of transactions not covered by the oedc rules and thats why its so important for us to engage in negotiations to fix this simultaneously across the world. Time for the gentleman has expired. The gentleman from wisconsin, mr. Duffy. Thank you, mr. Chairman. I notice out of the aisle we oftentimes like to talk about free markets and free enterprise. Were big advocates of that but 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 a substantial job loss. And 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. Finchs comments about all of us that talk about balanced budget and cutting spending and one of the big first things we do is cut xm bank and he has to explain why he lost a thousand jobs as the one big costcutting measure that hes been done in congress. Thats a tough one. That goes back to the budget meetings that we had at the start of the year where we talk about cutting spending all over the place. But the first place we go is to cut the cost of benefit increases to our retired veterans. Our veterans would be all on to cut spending. But if theyre to say, were the first place you go. Youre going to cut us first . Theres a lot of places you can cut. Well do our part like we always have but dont come to us first. Just a comment on our debate that we have in the house. I would appreciate mr. Stivers comments about the panels commitment to or reserved commitment to reauthorization of xm. Mr. Anderson, what kind of reform do you think is necessary . I know mr. Moak you talked about reform compliance and accountability. What is needed in the reform front . Not just windowdressing. The real reform thats necessary to make xm get you to buy in. Stop arming my competitors and taking my jobs away. Throw me some youre advising. The specifics were the ones that were ignored the last time we did this and the bank thumbed its nose at this committee and it was very specific. And we have got to stop providing u. S. Government subsidies to foreign flag governmentowned airlines that are usually subsidized on their own and have enormous creditworthy Balance Sheets. Let me be very blunt about this. Lets be very clear what happens with this financing. It improves the Profit Margins of the Top Ten Companies in the u. S. Thats what it does. I have one reform id like to suggest to the committee. And to the xm bank. More focus on Small Business job growth. Simple as that. Not some kind of spacious goals but some real goals, you know . Thats what id like to see. Id like to really see it become the bank of Small Business. I want to make that point. Its getting missed here. Because here here. But over in europe. British airways, la tan za and air france, they want this to come down because they cant access it. Airbus shoochbt be allowed to access eca subsidies. Theyre getting killed the same way Delta Airlines is. We need that reform there also. And then the gentlemens agreement, i find it interesting that the countries that provide the subsidy, if you want to call it that, are the very countries who are hurt. If you said, listen, were going allow the United States, Delta Airlines to say, listen, all things being equal, i would say, boeing makes a better plane. If boeing and airbus were equal, you could say, listen, im going to im not buying any boeing airplanes. Im going to buy airbus and im going to get subsidized like the rest of the world gets subsidized but you dont have that option. We dont get subsidized. I know you dont. Because of the gentlemens agreement . The gentlemens agreement between airbus and boeing. The gentlemens understanding. That xm Bank Financing wont be used in the u. S. , england, france, germany or, because those are home Market Countries where airbus and boeing amps it will be an interesting question kwhaen airbus starts making them in alabama. Fair enough. Iyearold back. Thank you, mr. Chairman and witnesses for being here today. I enjoyed the testimony and your 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 the vat sector handle as much capacity as possible. Especially when youre hearing a lot of discussion about banks having plenty of capital and theres people are looking to help. One of the folks that i have and spoke with in indiana used to be a customer of xm bank and because of the volatility around it and, also, his particular interest in finding another solution and he was able to. And so, i guess, maybe my first question was directed to you, mr. Wilburn. Im a Small Business owner as well. I understand the difficulties that the 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 another replacement besides xm. Whether it was a financing through a bank and some sort of insurance in executing transactions. Anything like that. That you would have looked at before xm . I looked at all of those options. Primary live my bank, wells fargo, who was gracious enough to give me that working capital loan where i had to leverage everything for to support those export activities. But im always, always constantly searching for those types of ill call them vat solutions with banks. And theyre responsive. They listen to me but they dont respond with the funding. Its not my credit called into question. When im exporting my product to those exporting countries, i am relying on their credit and their credit worthiness. Its difficult for my banks to get that collateral and seize it. How long have you been in business. Ten years. Did you see any difference before the banking collapsed . Was there better access to credit . When did you start using xm . My part her was one of the m major investment banks im under a nondisclosure agreement so i have to be cautious but, yeah. They went bankrupt. I didnt. My company was strong. It cost me 11 million to unwind that in three years, to unwind that. That was before you started using xm . Yes, absolutely. So i responded with a 25 million rerofling credit line. Do you think dodd frank is putting more pressure on banks in their ability to lend to Small Businesses and helping them in situations like yourself . I tried to understand that and tried to address my remarks and i was a little clumsy at it degree my research. All i can say is i think theres some barriers to answer to Small Business guys like me and we can look at the rules and risk profiles to make it a more level playingfield for us to have access to those Capital Markets. Mr. Anderson or captain moak, would you have any information regarding that. Just your experience arent xm . I know youre focused more on the bigger side. Smaller businesses i mean, are there other opportunities. And other solutions for smaller businesses to work outside. Would you make any comments about the difficulty with credit today and the Regulatory Environment we live in. I can talk generally that, you know, the credit environment is much, much much tighter environment and with the markettomarket rules the bank a lot of bank lending that we used to rely on, particularly in europe, to finance airplanes is gone. The number of sources for large structured finance, particularly given the requirements and the markettomarket requirements, have really tightened up credit quite a bit in our industry and a number of sources we used to have where you could get a mortgage on an airplane, you can still get it but it takes what fannie mae requires for a home. A bigger down payment and a better credit rating. A better fico score. Those are all the hard things that Small Businesses have to deal with. Captain moak, you plan on making a comment . The only thank igsd ask, you go back to the 2008 collapse. The u. S. Congress, over a few day in 2008, was able to deal with that and come out with legislation. Im confident they can address the reform in less than 90 days on this issue. Mr. Chairman, were focusing on something here that is a symptom with Regulatory Environment that we live in. Were trying to reauthorization time. There are no other members in the queue, we thank you for your testimony. Well excuse the first panel at this time. We would invite the members of our second panel to, please, make their way to the witness table. The role of the xm bank and its compliance with requirements made as part of the 2012 reauthorization which expires in september. Representative of texas chairs the House Financial Services committee. Committee will come to order. Well now turn to our soaked panel of witnesss so my introductions will be brief since many of you are familiar. If staff can be instructed to shut the hearing room doors, fred hawkberg current approximately serves as chair, a position hes had since 2009. The honorable gratacos serves as Inspector General of the xm bank and served in this capacity since 2010. Matthew sharay, the director of Financial Markets and Community Investment at the gao. Finally, dr. Doug elmandorff is the director of the none partisan Congressional Budget Office and we welcome you each to the committee today windy without ourks your written statements will be made part of the record after your oral remarks. I believe all of you, popefully, have testified before the committee before. You know the lighting system so i will not go into that. Chairman hockberg, at this youre recognized for your testimony. Thank thank you. Could you pull the microphone a little closer to you, chairman . How is that . Is that better . Chairman, Ranking Member wauters, and 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, xm 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 forth in our reauthorization bill and implemented several other reforms. At xm bank were committed to Continuous Improvement and effective Risk Management. When i testified before this Committee Last june i committed to hiring a chief risk officer before year end and we completed that on time. Under his leadership, the Enterprise Risk Committee assesses comprehensive risk issues, reports semiannually to the Banks Audit Committee and provides me as well as our other directors with a pomonthly upda. Weve implemented a 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 provisions, added to our advisory committee, implemented portfolio 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 2008, our default 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 1 3 and it continues to drop. In other words, 2 3 of all official Government Support for exports today is opaque and unregulated. Countries like china and russia frequently engage in 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 well over 100 billion, dwarfing what xm bank does. South korea, an economy less than 1 10 our size now finances 100 billion, nearly 4 times the 27 billion we financed last year. Other ecas such as south korea are using the uncertainty 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, i want to thank Inspector General oswaldo for his years of service at xm bank as he heads to new endeavors. He has helped us without question run a better bank. Weve worked cooperatively with gao and accepted all of their recommendations since the last reauthorization. Lastly, 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 5 years with a lending cap of 160 billion. Thank you for your support, and i look forward to answering your questions and working with you on reauthorization. Mr. Katakos, we welcome your testimony now. Good afternoon, mr. Chairman. Ranking member waters and distinguished members of this committee. And chairman hochberg for his kind words. 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 to thank the almighty. For the opportunity. My family, and members of the xm bank for their hard work. Last year i testified about the need for xm to enhancement Risk Management framework. We stated xm bank should proactively recommend that xm bank establish an officer or create a Risk Management office with independent recording requirements of the chairman. Assign qualified experienced staff to that office, conduct stress testing on its entire portfolio reflecting different Market Industry and microeconomic scenarios and actively monitoring the industry levels. As of today xm bank has taken steps towards improving its Risk Management framework. Some of them described, as chairman hochbergs statement. However, we think the opportunities for improvements still exist. For example, xm bank established a higher cro and restructure reporting lines of separate original functions from Risk Management functions. However, the cro is established with additional management responsibilities, supervising the legal and Administrative Functions of the bank which dilute the focus on credit risk issues. In addition, xm bank initiated stress testing for its portfolio utilizing its hub down analysis of the portfolio as well as bottomup approach. The result of the first stress Testing Process were conveyed to congress and the full rate report, dated september 2013. The bank has also established an enterprise, recently provided dujs on activities to the oig. Finally, xm bank commends the use of several qualitative factors in its reestimate. The application of such factors in the reestimate process commence in the fall of 2012. And resulted in an upward revision of its reserves. Lastly let me address some recent press reporting on investigations. I cannot confirm or deny particular investigations are common or specific personal matters. What i can say is that we have a number of active investigations involving also i 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 to them. Some of these matters are nearing conclusion and i expect to be able to share information on them in the coming months. While others are at 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 to comment 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. Youre now recognized for your testimony. 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 therefore recommended that 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 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 sinces 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 authorization 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 wide 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. Dr. Elmendorf, youre now recognized. 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 largest credit programs would generate budgetary savings of about 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 higher cost of losses in bad times, as well as lower cost in good times, is captured in the cost of market risk. The government is exposed to mask risk through its credit programs because when the economy is weak, borrowers default on their debts more frequently and recoveries from defaulting borrowers are smaller. That market risk is effectively passed along to taxpayers and beneficiaries of Government Programs because 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 expected 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 to federal programs. Some analysts have expressed concern about potential drawbacks of using the fair value approach in federal budgeting. 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 spending 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 through established accounting pr 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. I have 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 since we have a witness from gao here, youre familiar with their may 2013 report that criticized the bank for concealing methodological 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. And, again, as i just posited, gao criticized the bank for not considering 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. Dr. Elmendorf, fcra applies well, ive seen a record that there are roughly 10,000 federal agencies, programs, frankly ive been here for 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 dollars of outstanding federal loans and loan guarantees. But specific programs. Exceptions on a fcra basis, 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. Because there is no nothing is specified in law and we do those on a fair value basis. 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. Well, earlier witness takes some exception to 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 . Well, thank you, thank you for giving me an 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 mideast. 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. And frankly the threat of china is coming up. They are building a plane to compete with 737s. Which is the single aisle general commercial plane used. And thats coming on stream in the next few years. Well, we are often criticized for not exporting enough. We have an export deficit. How much have you done any work on how much of the american export is because of the xm bank . Well, the very roughcut number is around 2 , but that includes everything that is exported. Many things are not products or not financed. I can give you some specifics. It may be 2 globally, but if you look in places in subsaharan africa, for example, in cameroon, more than 50 pk 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 of the gentle lady has expired. The chair now recognizes the gentleman from california, mr. Campbell, chairman of the Monetary Policy subcommittee. Thank you, mr. Chairman. And dr. Elmendorf, and mr. Gratavos, i probably butchered those names. Dr. Elmendorf, i said yours enough throughout the years, i know not to butcher that. 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. And so 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 properly 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. Youve 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 the increase 3 per anum 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, dodd frank, they have less of an appetite for Small Business and less of an appetite for longterm loans. 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 broader view. Was a businessman for 20 years. Dont look at six months at a time. Okay. Gotcha. Let me ask you now. 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. We 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 published new regulations, put them out for comment, went to the entire industry for comment and adjusted our impact procedures and put it to 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. Okay. My time is limited so 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 lane loans, 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 the need. Whether theres 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 close to 98 of exports dont need our assistance. If youre referring to you got a few questions. Im trying to 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 you have 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. Time of the gentleman has expired. Chair recognizes the gentleman from new york, mr. Meeks, 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 today 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, its unbelievable to me. And 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 in play and whether or not, you know, certainty was important. Here we are now in this atmosphere of uncertainty. Chairman hochberg, what effect is uncertainty creating for u. S. Exports, if any . Thank you, congressman. Well, firps of all, theres an ad in todays politico they says, quote unquote, 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, 2 3 in the range of about 200 billion of export finance globally is 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 at Large Companies. So we have seen a direct impact. I hear it from companies. I here 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. Let me ask you mentioned this, but i was listening to some of my colleagues on the other side of the aisle, also. And i know at the time that we had the last reauthorization there were certain reforms that were in there. And listening to them, you would i think maybe xm has not implemented any reforms. Is that true . Has xm made reforms . 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 recommendations that 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 from 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 that i have 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 export bank. They have two or three other policy banks that support their exports. The canadian banks is three times 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. Thank you. I see my time has just expired. Indeed, it has. The chair now recognizes the gentleman from alabama, the chairman emeritus of the committee, mr. Bachus. Chairman hochberg, 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 take into 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 . We 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 on aircraft, yes. We look at aircraft and look at every aircraft transaction. No, im talking about specifically could you supply that specific analysis that you did . What 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. My question is the impact on our flag carriers. Well, the bank has done Economic Impact we didnt ask for a study of whether there are too many widebody 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 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, you know, 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. You heard what i said earlier. August 2nd i wrote a letter to you all. We obviously faxed it over 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. Time of the gentleman has expired. The chair now recognizes 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 rebuttal to, im giving you that opportunity to do that now. Thank you very much. Let me try and answer one or two questions we have. We look to make sure that any benefit, any export, the benefit to the u. S. Economy outweighs any arm. Thats referred to as Economic Impact. So if were financing the export of an airplane, we want 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 hurt the u. S. Economy. Were here to support jobs, not take away jobs. So that would be number one. Two, the Committee Staff receives every transaction over 35 days and the Committee Staff, i presume, forwards it to members of the committee who would like to review it. We receive from time to time sometimes many 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 we have made a better bank. We have 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 swre general. They dont go through me. They work, whether its in the general counsels office, cfos office, anybody who sees something thats suspicious, and 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 also says to any exporter, if youre doing anything funny business, we are on to you and we will work with it. And 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 every one of them. Weve complied with everything, or at least so far agreed with everything in the gao. Delta air lines made an assertion of 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, a number of other things that they also talked about impacting their business. Somehow this one route, this one route they decided was only because of xm bank. Its not 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 jobs, and thats the important thing. Thank you very much for your time. Thank you. With that, i yield back. Gentle lady 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 in 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, we 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, sometime you have an airplane thats replacing an old plane. Sometime its 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 in 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, if its 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 impact, well do an impact study. Okay. But to impact i mean, if youre 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. Okay. So were always looking at that. All right. Whats the balance . Thank you. Is the bank being sued right now on any of your Economic Impacts . Delta air lines 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 you 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. I mean, we 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 widebody 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 2 and a 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. Okay. 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 the fees we collect cover our lowest reserves and operating expenses. For the last zef rat years, we transfer back to the taxpayer, last year, over a billion dollars. Mr. Harper, do you charge interest on loans . Well, most of the loans are guaranteed. Therefore, the bank charges, if its a direct loan, and sometimes we do that, we borrow the money. We charge 2 , we must charge at least 3 . On top of that, we add fees, you know, like points on a mort dwaj. 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 its welfare. Theyre paying for the privilege of borrowing. So is it because of these fees that you charge interest if its a loan, that youre able to earn money. And what do you do with the money that you earn . The money that we receive a prudent portion goes to make sure every loan is paid off. Congress, each year, appropriates a portion back to the treasury. The balance of this money goes to the treasury of the United States of america. Correct. Is that right . A billion, 57 57 million, excuse me, last october. The previous october, it was 803 million. So are you telling us that you actually earn money for the government that goes into 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 nobody that can say youre providing welfare for corporate interest. Its just an absolute misstatement. Untrue statement. It is a misstatement. As is croney capitalism is a s misstatement, as well. I hope as we go through these discussions, you will say that over and over again. We have got to rob the opposite side of their ability to undermine the tremendous work that youre doing. The tremendous way that youre allowing the United States to get into the export business. If it wasnt for your 2 or so that youre doing, wed be out of it all together. I thank you and i yield back my time. The chair now recognizes the gentleman from oklahoma. Are you having fun today . I have a clahance to tell th story of banks so more people understand what were doing and how we help people in this country. Thats a good response. Clearly, youre having a lot of rounds pitched at you politically from a variety of directions here today. If i could, to the whole panel, discuss with me the nature of this situation. And if we were to step away from the institution, would my countries around the world drop the similartype programs . Is anyone talking about getting out of this business . That does this on the planet. Are you asking me . No, i meet with my colleagues and the g7 and the bricks. Its the exact opposite. Theyre looking for ways to ramp up. I think theres Something Like ten or 12 offices globally. So theyre going the opposite direction. Theyre looking to enhance the banks. And, to my friends from cbo and gao, if this institution goes away, and i know youve addressed this, but one more time, please, the impact on the federal budget . So, congressman, under the federal credit reform act rules that the congress has legislated and we follow, the export, import bank has a negative subsidy cost. That is the way it is recorded in the budget and the way we include it in our budget projections. Okay,if i understand the two sets of comments, we have a situation where were not the only people engaged in this kind of activity. It would appear were the only people discussing not continuing to engage in this activity. And the effect of engaging or not engaging the activity has no impact on the federal budget. Fair observation . I think the way the federal budget is accounted for right now, you really dont, yet, know i would point out that 11 of the cohorts that has been done require subsidy according to xms estimates, based upon reestimation. So we really wont know the full cost of these credits until they have had time to mature. Congressman, i want to agree with that. What i was careful to say is under the rules that we follow as a negative subsidy, we have said a number of times that we think a more comprehensive way would show a positive cost. Thats not the way its reported 234 the budget now. Just so its clear, a negative subsidy means we transfer, we make extra money, we dont use and it goes to the taxpayers. So we have transferred, this year, oaf a billion dollars. And since federal credit reform in 892, its 6. 6 billion have gone from the bank to the treasury if i could add one last thing, i know our time is lichlted. The fnt crisis from 2008, i understand the stress 2es. But we have seen 2 most stresful Economic System the world has ever seen since the depression. Our defaults are less than a quarter of a percent. We just have fwon through the worst six years the world has ever seen. Absolutely, chairman. What will be the impact on having a glass or not having a glass. Thats a policy decision we have to decide here. The intensity that ive observed, both perspectives, is great. But whatever we do will impact business. It will impact our competitive nature around the whole planet. With that, i yield back to the chairman. Thank you, mr. Chairman. To the Inspector General, and some problems, recently, has there been something so e gree yous, so monstrous that they should give the bank a discontinuation . Obviously, the decision as to whether or not its still around, is for congress to decide. All weve done since we started the office is to look at somg of the issues that were comparing to the operation. Weve been very active. We had it here, last year, talking about Risk Management. We have done work on dealing with customers. We look at all of those aspects we thought needed to be addressed. Since then, the bank has been working and theres some progres. Thank you. To the gao. If we didnt fund an air force, would it have an impact on the budget . Is that simple . If we didnt fund the air force . Yes, sir what if we didnt fund toilet tissue for the capital. That would have an impact. Okay. Thank you. So anything that we do would have an impact . Im not sure its material for this discussion, but, yes. You are absolutely right. You are absolutely right. Now, let me two further. Would it be do you know how many times the xm bank has been reaught rieszed . Better than 16 times in its 80year history. 16 times. Would it be a surprise to you that most of them were unanimous votes . Or overwhelmingly