After a 5-month lapse, Export-Import Bank reauthorization is part of the must-pass highway bill, which the House is expected to vote on this week and the Senate soon thereafter. This is long overdue, as every day of delay is costly to US businesses and American workers, who rely on the bank for trade finance.
Perhaps the most important feature of the current measure on reauthorization is that it runs through September 2019, so next year the same debate will not need to be repeated as has been the case over the last few years. The uncertainty around reauthorization itself has cost US exporters contracts, as importers want to be sure that financing is available, and other countries have stepped in with solid deals, given their expanding export credit agencies. If credit tightens over the next four years, exporters can rest assured that the export credit agency is there to serve them. Short-term reauthorization has also been hard on employees of the bank and the businesses that rely on it, so the four-year charter brings job security. Finally, the Ex-Im Bank's employees have been forced to devote time to justifying their existence rather than serving the American business community that needs them to compete with foreign suppliers. The lapse has allowed a tremendous waste of good resources.
The bill offers a few "reforms." The most useful one is requiring the bank to accept electronic payments in all programs and electronic documents whenever possible within two years. This will make transactions much smoother, especially for small businesses that do not have large accounting departments. Other reforms include the lending limit and expanding the credit share to small businesses. The lending cap will be reduced from $140 billion to $135 billion. This is not a big adjustment at present, as with interest rates low, authorizations have remained well within that limit. It could, however, be a concern going forward. In the event of a credit squeeze, exporters could turn to the Ex-Im Bank in greater numbers, and a higher limit would offer more stability in the event of a downturn. Financing soared in the aftermath of the financial crisis when banks stopped lending. Without Ex-Im Bank financing, the downturn would have been that much harder. As export credit agencies around the world are expanding credit, it is hard to understand why reducing the limit is in American business interests.
The bill also increases the share of what goes to small businesses by 5 percent, from 20 to 25 percent. This reform sounds appealing but fails to recognize that small businesses tend to be small exporters in value terms. In terms of transactions, over 95 percent of transactions are already with small businesses, closely resembling export statistics. Large exporters are few in number but account for the lion's share of exports. The Ex-Im Bank is not favoring large businesses; the statistics on lending merely reflect the distribution of trade. The charter would have done better to focus on maintaining the already high share of transactions with small businesses, no matter the size. (One amendment asks the share of small businesses to increase by 5 percent a year, reaching 40 percent at the end of the period; this is a difficult task and would really mean cutting lending to the big firms, which should be rejected.) Finally, there are some reforms on risk management. It is unclear how costly these will be to implement, but from a risk management perspective the bank has done well, with a default rate of less than one fifth of 1 percent and has been returning money to the Treasury.