particularly given market to market requirements have really tightened up credit quite a bit in our industry. a number of ourselves we used to have where you could get a mortgage on an airplane. you can still get it, it just takes what fannie mae requires for her own, more credit, bigger rating, fico score. >> those are all things small businesses have to deal with. captain moak, you want to make a comment. >> only thing i would add, going back to 2008 with the collapse. the u.s. congress over a few days in 2008 was able to deal with that and come out with legislation. i'm confident this body can address reform in less than 90 days on this issue. >> mr. chairman, if i can make a comment. we're focusing on something here that is a symptom with regulatory environment we live in and trying to reauthorize a bank that isn't part of the solution. we should be focusing on the

environment we have. >> the time of the gentlemen has expired. no others in the queue. we thank you for your testimony. we would excuse the first panel at this time. we would invite the members of the second panel to please make their way to the witness table.

committee will come to order. we'll now turn to our second panel of witnesses, many of whom

are familiar faces to this committee, so my introductions will be brief. if staff can be instructed to shut the hearing room doors. honorable fred hockberg serves as chairman of the export-import bank, a position since 2009. the honorable oswaldo, inspector general of the x bank, served in this capacity since 2010. the director of financial markets and community investment, mr. scire at the gao. finally, dr. doug elmendorf, director of nonpartisan budget office. we welcome you to the committee. without objection your written statement will be made part of the record after your oral

remarks. hopefully all of you have testified before the committee before. you know the lighting system. i will not go into that. you are recognized for your testimony, chairman. pull the microphone. >> chairman, 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, x 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 for for reauthorization bill and implemented several of the reforms. at xm bank we're exited to continuous improvement and

effective risk management. when i testified before this committee last june i committed to hiring a risk officer full year-round and we complete thad on time. under his leadership enterprise risk committee azes comprehensive risk issues, reports semiannually to the bank's audit committee and provides me as well as other directors with a monthly update. we've implement add number of other reforms making xm more transparent and account able including we posted in federal register all transactions of $100 million or more. we've reviewed, revised and posted our economic impact procedures on our website. we've implemented, enhanced sanction division, added texas time industry member to advisory committee, 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 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 xm's 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 xm's 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 one-third and it continues to drop. in other words, two-thirds 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 non-existent. today it is rwell over $100 billion, dwarfing what xm bank does. south korea, an economy less than one-tenth or size, now finances $100 billion, nearly four times the $27 billion that we financed last year. other ecas such as south korea are using the certainty surrounding xm's reauthorization to steal contracts. you heard that clearly on panel one from steve wilburn about how this is harming his business. in closing, i'd like to thank you for helping us run a better bank. we have worked cooperatively with gao and accepted all of their recommendations since the last reauthorization.

i want to commend the outstanding professional work of our 400-plus 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. that's why i ask for your support in reauthorizing xm bank for five years with a lending cap of $650 billion. >> good afternoon, mr. chairman. ranking member waters and distinguished members of this committee. 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 . last year i testified about the need for xm to enhancement risk management framework. we stated xm bank should proactive proactively recommend that xm bank establish an officer or create a risk management office with reporteding requirements. assigning qualified, experienced staff, create stress testing on its entire portfolio reflecting different market industry and microeconomic scenarios and actively monitor industry levels. as of today xm bank has taken steps towards improving its risk management framework. however, we think the opportunities for improvements still exist.

for example xm bank establish a higher cro and restructure reporting lines of separate original functions from risk management functions. the cro was established with additional management responsibilities, supervising the legal and administrative functions of the bank which dilute the focus on credit risk issues. the result of the first stress testing process were conveyed to congress and the full report the dated september 2013. bank has also established document on activities to the oig. xm bank commends the use of several factors to account for the impact of factors in the portfolio. the application of such factors in the reestimate process

commence in the fall of 2012. lastly let me address some recent press reporting on investigations. i cannot confirm or deny particular investigations are common or specific personal matters. i can say we have a number of active investigations involving also external participant on xm bank. they are being reported in the semi-annual 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. some of these matters are nearing conclusion and i expect to be able to share information in the coming months, while others are in early stages and may or may not be substantiated. we work close with the justice department on these issues and i hope you understand i'm not in a

position 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. >> 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 xm's 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 recommended 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 one-year forecast with a five-year forecast. we also found that xm had 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 since 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 author arization 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 side or within specific functional areas with a given level of resources. likewise, we reported that xm's 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. >> thank you, mr. chairman. ranking member waters and members of the committee, i'm pleased to be here to discuss cbo's estimates of the budgetary costs of the export/import bank's 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 government's credit assistance. for fiscal years 2015 to 2024, cbo found that xm bank's six largers credit programs would generate budgetary savings of $14 billion under fcra accounting, but cost $2 billion under fair value accounting. both estimates are based on xm bank's projections of cash flows for those credit programs as reported in the federal credit supplement to the administration's 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 high her cost of losses in bad times, as well as lower cost in good times, is capture 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 under bets 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 government's 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 expect 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 cbo's view, therefore, fair value estimates provide a more comprehensive measure of the cost of federal programs. some analysts have expressed concern about potential

drawbacks. 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 non-credit 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 spend being the public's 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 it through established accounting practices. thank you. i'm happy to take your questions. >> chair now yields himself five

minutes for questions. mr. hochberg, my background is not in accounting. vy 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 we're 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 that since we have a witness from gao here, you are familiar with their may

2013 report that criticized the bank for concealing methodilogical weaknesses in the job's claim in that you do not distinguish between full-time, part-time and seasonal employment. you do not control for selection effects between supported firms and injuries -- industries that may depart from the average. gao criticized the bank for not seeing the unseen counterfactual how many jobs would have existed without any intervention at all. are you familiar with gao's 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.

>> i've seen a report there are roughly 10,000 federal agencies, programs, frankly i've been here for a number of years, i still can't figure out how many there are. but how many are subject to fcra? how many programs or agencies? >> so i don't know what the count is, mr. chairman. as you know, there are several trillion of outstanding federal loans and loan guarantees. 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. >> this is probably outside your area of expertise -- and i think we had some testimony earlier

today. certainly i've seen evidence. doesn't 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 you're supporting roughly 3,000, 3,500 small businesses. is that correct? >> correct. >> earlier witness taking some exception with your definition. we'll accept the definition for the moment. i've got information from the sba. by their definition -- i don't know the definitional differences -- there are roughly 30 million small businesses across america. so if i'm doing the math right, you are in some way, shape or form providing credit services

to roughly 1 in 10,000. i'm still trying to figure out -- i'm 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 don't 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 isn't it roughly 18% of your exposure is small businesses? is that correct, mr. hochberg? >> actually, this year, we're in the 23%, 24% range. we've 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? >> thank you for giving me the 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 don't 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, jenny's 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 middle east. 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 can't 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 can't insure you because i don't know if you want to take the risk of having a policy that will have a 90-day term. >> well, you raised a point that people really are concerned whether or not you'll be there and they're 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 don't 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 they're 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. frankly the threat of klein is coming up. they are building a plane to compete with 737s. which is the single aisle general commercial plane used. and that's coming onstream in the next few years. >> well, we are often criticized for not exporting enough. we have an export deficit. have you done any work on how much of the american export is because of the xm bank? >> the rough un-cut number is around 2%. many things are not products or not financed. i can give you some specifics. it may be 2% globally. but if we look in sub-saharan

africa, in cameroon, more than 55% 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 is expired. the chair now recognizes the gentleman from california, mr. campbell, chairman of the monetary policy subcommittee. >> thank you, mr. chairman. 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. 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 xrorproperly accounting for risk and if there is a reauthorization that is something we need to do. during the remaining of my time, mr. hochberg, i'd like to ask you a few questions about some things. you actually requested an increase in the authorization of the bank even though the authorizations you're 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 five-year reauthorization. we looked at -- we're compound being the increase 3% per annum 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, dod-frank ad-frank the less of an appetite for small business and less of an appetite for long-term longs. 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 that's 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 i'm not looking at only six months of making an assessment. i am trying to take a badr view. was a businessman for 20 years. don't look at six months at a time. >> in the previous panel the ceo of delta and others complained about things that were in the previous reauthorization that they're 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. 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 pub accomplished new regulations, put them out for comment, went to the entire industry for comment and adjusted our impact procedures and put it to a 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. >> my time is limit sod 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 that's 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 lobes, 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, that's 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 doesn't? >> you mean what companies get support? >> yep. >> well, one is what the need is. we look at whether there is a need for xm bank to be a player in that or whether the private sector does it by itself. frequently we don't need to engage at all. that's why closed to 98% of exports don't need our

assistance. if you're referring to -- you got a few questions. >> well basically, we're running out of time but the accusation is that some people got support from xm in exchange for kickbacks. that means somebody else probably didn't or those weren't meritorious or there was a competition or something going on. i'm trying to determine what procedures have you in place. you won't 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 can't happen. >> i agree. >> the chair recognizes gentleman in new york, mr. meeks, the 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 debating -- and i can't 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 we're actually debating this issue. that we could actually voluntarily, purposely kill american industries and hundreds of thousand of american jobs. i don't -- i mean it is unbelievable to me. i know when we start talking about other reforms, there's always the question of uncertainty kept coming up, people want to know the rules are and whether or not -- certainty was important. here we are now in this atmosphere of uncertainty. chairman hflt chairman. chairman hochberg, what effect is uncertainty creating for u.s. exports, if any? >> thank you, congressman. well, first of all there is an

ad in today's politico that says "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, two-thirds -- in the range of about $200 billion of export finance globally is unrepresentingeu unregulated, opaque and offers harm. china offers 100% for anything you'll buy. they'll give you 10, 15, 20, up to 40-year 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 large companies. so we have seen a direct impact. i hear it from companies.

i hear 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. >> you mentioned this, but i was listening to my colleagues on the other side of the aisle also. i know at the time that we had the last reauthorization, there were certain reforms that were? in there. listening to they will, you would think xm has not implemented any reforms. is that true? >> 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 recommend angs the 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 american-made goods and services on 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 point-blank, china offered 10, 15, 20 years -- what term do you need and what rate do you need to pay and we'll make it work.

>> let me ask this in my little time 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. that's just their xm bank. they have two or three other policy banks that support their exports. canadian bank is three 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. zbl . >> the chair now recognizes the chairman emeritus of the economist, mr. bachus. >> chairman, 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 he take in to account any -- i'm 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 follow-up conversations as late as may 9th about delta's concerns. we voted that bill out on may 15th, and i've really never had an explanation of -- that the

sale of wide-body 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? >> 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 analyd

going back and looking at all of that now? unbiased of is there an oversupply in the aircraft field globally of wide bodies. >> no, that's not what my question was. not whether there were too many wide bodies. the question is the impact on our flag caress. we didn't ask for a study of whether too many wide body jets in the world. >> well, the bank has had

economic impact procedures for 20, 30-plus years. which looks at -- >> you're telling me something i know. i'm asking you something -- i know you've had had procedures. i know you've had economic studies. i'm asking you specifically have you responded to our request and mr. anderson's 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 i'd like copies of the loans, specific analysis of whether 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 i'm very concerned about. august 2nd i wrote a letter to

y'all. we obviously faxed it offense 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 let's just -- what i'm saying, you didn't 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 couldn't respond, couldn't analyze, couldn't have any input. you didn't 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 don't know precisely how it's transmitted but every transaction is transmitted to congress for 35-day review. >> time. expired. 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 you've 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 i'm going to stop talking and any questions that you want to answer or things that you've heard that you want to give a rebuttable to, i'm giving that you opportunity to do that now. >> thank you very much. let me try and answer one or two questions we had have. we look to make sure that any benefit -- any export, the benefit to the u.s. economy outweighs any harm. that's referred to as economic impact. if we're financing the export of an airplane, going 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 we're complying with that. because the last thing we want to do, the people at xm bank, is hur the american people. we're here to support jobs, not take away jobs. that's one. two, the committee staff received every transaction for

345 da 35 days. the committee staff forwards it. we received many times 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. i've had a great working relationship with our inspector general. i think together we've made a better bank. our employees are alert to if they see something suspicious or suspicious claim or suspicious loan or something that doesn't look right, they work directly with the inspector general. they don't go through me. they work -- whether it is in the general counsel's office, cfo's office, anybody that sees something that's suspicious. i'm very proud of the fact that our employees are very concerned about -- they care about their reputation as well. so i'm pleased with the reputation and the work we do with the ig. article that was in yesterday's "wall street journal" in my opinion is actually a good

article because it says to our staff and to any exporter, if you're doing anything funny business, we are on to you and we will work with it. 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 you're not looking to hurt delta. i know you're 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 don't 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 everyone of them. we've complied with everything, or at least so far agreed with everything in the gao. delta airlines made an assertion that 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 delta's 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, among other things that they also talked about impacting their business. for some reason this one route, this one route they decided was only because of xm bank and that doesn't 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 i'm happy to say that in my district, by word of mouth, more and more businesses have been joining and certainly we've seen the growth of the amount of money that's come in to my district. and it's not mine. it's the people working, its he's jobs, and that's the important thing. thank you very much for your time. >> thank you. >> with that, i yield back.

>> gentlelady 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 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 that's 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 there's 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, two things. we review every transaction. we do an in-depth 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 don't deploy the resources to an in-depth study on every single one. for example, congressman, sometimes you have an airplane that's replacing an old plane. sometimes it is an airplane that's never flying to america. so number of those are not part of -- would have no impact.

so we don't waste government resources chasing things that have no potential impact. >> okay. but you've only done one analysis in the last five years on aircraft? >> well, the new procedures went in this april of '13. so first of all, they've been in existence now for 15 months. we review all. we did an in-depth 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 in-depth study. if again, it is 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 that's not going to potentially have an impact. if there is the potential of an

impa impact, we'll do an impact study. >> okay. but to impact -- i mean if you are buying a plane from boeing, it would still have impact on the economy. right? >> well, again -- and the analysis that's 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. so we're always looking at that. what's the balance. >> thank you. is the bank being sued right now on any of your economic impacts? >> delta airlines is suing us. >> they are. >> yes. >> and is that because of the case that you just mentioned? >> well, again, they don't -- they don't -- we have put together economic impact procedures that are consistent with the way we do it for every industry. we're 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. we're happy to do so. but i think the committee should know, this is something unique to the united states. >> you have really since 2011 stopped disclosing the yearly total of the number of aircraft exports. why would that be? >> i'm unaware that we made a change in our disclosure since 2011. >> 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 it's less than that, that's just chump change? >> no, less than that would

be -- first of all, you can't buy a wide body 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 two and fraction of a 737. so that's what congress asks us to say. over $100 million we'd like in the federal register. i can just add, this does have an impact on our competitiveness. again. >> i'm 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, they're trying to lead the public to believe that you're 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 don't 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 they'll 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. that's 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 we're taking from someone and giving

it to somebody else. we don't do that. people come to us if they need our support. also, according to the world trade organization, we have to be self-sustaining. if we're self-sustaining, there is no subsidy from the government because the fees we collect cover our loan lost reserves, cover our operating expenses and for the last several years we transfer back to the tracks pare for deficit reduction. last year over $1 billion. >> mr. hochberg, do you charge interest on loans? >> well, most of the loans are guaranteed but if -- therefore, the bank charges. if it is a direct loan and sometimes we do that, we borrow the money from treasury. by law we add a full percentage point. so if treasury lends us the money for 2%, we must charge at least 3%. on top of that we add fees like points on a mortgage. if we are "providing" welfare, 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 it is welfare. they are paying handsomely for "the privilege" of borrowing. >> so is it because of these fees that you charge and interest if it is a loan that you're able to earn money. and what do you do with the money that you earn? >> well, the money that we learn -- the money we receive -- a prudent portion goes to loan lost reserves to make sure every loan is paid off. congress each year appropriates a certain portion of that back to the agency to run. the balance we transfer to the treasury. >> say that one more time. the balance of this money goes to the treasury. >> the treasury. >> of the united states of america. >> correct. >> is that right? >> 1,057,000,000 last october. >> so are you telling us that you actually earn money for the government that goes in to the

treasury? >> correct. we earn money because we are taking in more money than it requires to run the bank. >> so in earning money, there's no way that anybody can credibly say that you're providing well fair for corporate interest, is that right. >> that's correct. >> it's an absolute untrue statement. >> it is a misstatement as it crony capitalism is a misstatement as well. >> well thank you very much. and i hope that as we go through these discussions, you will say that over and over again. we have got to rob the on opposite side of ability of undermine the tremendous work that you're doing. that you are allowing the united states to get least get the balance of payment and get us into the ex-port business. if it wasn't for your 2% that you're doing we would be out of it together. i thank you and i yield back the balance of time. >> the chair now recognizes the

gentleman from oklahoma mr. lucas chair of the ahouse agricultural committee. >> thank you mr. chairman. mr. hochberg, are you having fun today? >> i have a chance to tell the story of xm banks so more people understand what we do and how we help support jobs in this country so i am doing that. >> that's a good response. clearly you're having a lot of rounds pitched at he politically from a variety of directions today. if i could to the whole panel discussion for a moment with me, the nature of how the rest of the world handles this situation and no we were indeed to step away from the institution, would any of the other country that we're aware of around the world drop their similar type of programs? i address this to anyone on the plan panel who cares to touch it.

does anyone talk about getting out of this business on the planet that you interact with, mr. chairman or any of you. >> i would say i meet with my colleagues in the g 7 and bricks. it's the exact opposite. they are looking for ways to ramp their. they are adding staff. frankly unlike the xm bank, most of them have offices around the world. i think china xm has something like 10 or 12 offices globally. they are going in the opposite direction. they are looking to enhance them. >> so my friends from cbo and gao, if this institution goes away, i know you've addressed this but one more time, please, the impact on the federal budget. >> so congressman, under the federal credit re reform rules that congress legislated and

this is what we included in our budget projections. >> so if i understand the two sets of comments we have a situation were we are not only people engaged in this activity. it would appear that we are the only people discussing not to continue in this activity. the affect of engaging or not engaging has no affect on the federal budget. >> i think the way the federal budget is accounted for right now you really don't yet know. you really won't know what the cost of these programs are until more time has elapsed and basically, the very businesses have had time to mature. i would point out that 11 of cohorts that xm has done actually require subsid yit according to xm and omb's estimates based upon

reestimation. so we really won't know the full cost of these credits until they have had time to mature. >> i want to agree with that. i was careful to me in my comments that under the rules that congress has legislated and we follow the xm bank that negative subsidy. we've also said a number of times and in just a recent report that we think a more comprehensive way to measure of cost of federal programs would show that xm bank is having a positive subsidy cost. that's not the way it is recorded in the budget right now. >> thank you for that clarification. >> just so it's clear a negative subsidy says we get extra money and it goes to the taxpayer for s

reducti reduction. since federal reform in 1992, it's $6.6 billion have gone from the bank to the treasury. the financial crisis from 2008, we have a real life stress test. i understand what gao says, we have complied with everything they have asked us for but on top of that, we have seen the most stressful economic system and stresses on the economy and banking system the world has ever seen since the depression and our defaults are 0.211%. less than a quarter of a percent. i understand the future is uncertain but we've gone through the last six years the world has always seen. >> absolutely. the question is is the glass half full or half empty. what is the impact of having a glass or not having a glass. it is a fascinating subject of discussion. the intensity that i've observed in this committee both p

perspectives is great but whatever we do will impact individuals and businesses and our competitive nature around the whole planet. with that i, i yeerield back toe chairman. >> we now recognize the gentleman from missouri mr. cleever. thank you mr. chairman. >> to the inspector general. there's been some problems obviously with xm bank but has there been something so egregious, so monstrous that congress should give the xm bank a certificate of discontinuation? obviously the decision as to whether or not xm bank still around is for congress to decide. all we've done since we started office is to look at some of the

issues that were apparent on xm bank operations either from the law enforcement side we've been very active on that side and the operation side. we had a hearing last year talking about risk management. we have done work on dealing with customers is one of the complaints we received from customers of the we looked at economic impact and all the aspects of the bank that we thought needed to be needed to be address ed since than the bak has been working with us and addressing those. recommendations are still standing. there's some progress. even the conversation of risk was something two, three years ago wasn't on the table and now we're having conversations about it. is from our perspective we focus on the operations of the batching. >> thank you. so the gao, if we didn't fund the air force, would it have an impact on the budget? >> of course. that simple? >> you asked if we didn't fund

the airforce? >> of course, yes. >> what if we didn't fund toilet tissue for the capital? >> that would have an impact on the budget. >> okay. thank you. so anything we provide would have an impact on the budget, is that correct? >> i'm not sure it's material for this discussion but yes. >> you're absolutely right. you are absolutely right. now let me go further. would it be -- do you know how many times the xm bank has been reauthorized? >> xm bank has been reauthorized better than 16 times in its 80 year history. >> 16 times. >> correct. >> would it be a surprise to you -- probably wouldn't -- that most of them were unanimous

votes or oef overwhelmingly ooun an imo an, unanimous when they went to the floor of the senate and a significant number were actually voice voted out of the house and i think they called it consent in the senate in the lower house. what do they call it in the lower house? >> i think unanimous consent in the senate. >> consent is it -- consent. >> unanimous consent. you would be surprised at the number of unanimous consent. so, i guess the point i'm perhaps making and poorly is that what's different now? what i'm saying is are there some problems? i think there are some things we could do. i think there are some tweaks that should be made. there should be some reform. i think the delta air line representative brought us some things that should be considered but my concern is, the xm bank

has been well received by everybody over the years and now all of a sudden we have this partisanism over the bank and i'm just wondering, what is it about this moment in our history that we don't think we can look at a problem and some of that's not a big problem, and make changes so that our businesses can compete for business abroad? i mean i'm frustrated over the fact that it would seem to me that there are issues that need to be addressed. they can be fixed. has there been anything discussed to the day that can't be dealt with if we sat down and worked? >> congressman, i'm a business map. i came to this after 20 years in the private sector.

so we're constantly and our team is looking for better ways to operate the bank, address reforms and issues brought up by congress so we can do a better job in managing risk and also serving exporters. lastly, i would just add, as under president reagan, a number of reforms went into place and president reagan signed a six year extension of the xm bank. >> the time of the gentleman has expired. the chairman recognize the gentleman from north carolina, the chairman of the investigations subcommittee, i want to ask you about the world street journal story from june 33rd for employees being under investigation for accepting kick backs. is there an internal investigation conducked by the xm bank separate than the office of the inspector general?

>> let me just begin by saying, frankly -- >> i just want to know. i'm outraged by -- >> i appreciate that. you've answered this question before that you're outraged but is there an investigation by the xm bank separate from the office of inspect ojoor general. >> most of those investigations are transferred over to the investigator general. so they are under the jur is of the inspector general at this point. >> at this level of seriousseri, they are tush turned over. >> well, it's not closed. it is an open issue. >> but if you referred it to them because of the seriousness, then you are done with the investigation, kregt. >> we are awaiting to hear what the inspecton general says. that may recommend what other

actions we take. >> i understand. so as a result of this, have you consulted with the general counsels office about these reported incidents of fraud, waste, and abuse? >> well, let me just make one statement. all of these infractions, all of these individuals you're referring to were all referred to the inspector general by our employees. our employees said there's something suspicious here. i need the inspector generals to look at this. these were all internally generated and sent so the inspector general by our own employees. >> i'm asking about you. >> i'm not sure i understand the question. >> okay. fantastic. so have you consulted the ethics office about these matters? >> well, the matter has been handled by our general counsel and inspector general as is proper. >> and the general counsel referred to over to the office of inspector general? >> on some of them they may have

been turned over by another employee. they don't have to go through a particular channel. any employee can refer and manage -- >> let me ask you a separate question. is there an office of ethics at the xm bank? office of ethics, i mean yes -- in the general counsel's office there's an office of compliance. i know there are two to four attorneys in the administrative law area. >> and they report to the -- >> they report to the general counsel. >> yes. okay. other ethics offices actually directly to the head of the operation in other parts of government. would you support that? >> well, we have a chief risk officer that this committee asked that the inspector general recommend and i committed to. the chief risk officer has reporting to him, it's more broader than just credit risk. it looks at everything. >> i understand. i just asked a simple question, the chief officer reports to me

and he -- >> i understand. i asked about the ethics office not about the risks office. >> well, ethics is part of that. >> i understand but i am talk being a direct report. i move on because i understand you don't want to answer those questions i have been asking so i will ask the question, raw wear of any criminal investigation about the actions that were brought to light in the wall street journal report? >> these matters, i think are better answered by the inspector general since they are an ongoing investigation. i don't want to invade people's privacy. >> are you aware of a criminal investigation about these matters. >> i am aware that they are conducting a investigation. >> are you aware if there's a criminal investigation about this matter? >> i'm aware of the investigation. i still feel the question would be better answered so i don't invade anyone's privacy by the inspector general who's at the table. i don't want to make a misstateme misstatement.

>> i understand in terms of meetings with the office of inspector general, it's much easier to do. i'm just trying to ask you a few questions. so mr. chairman, i'm just trying to get to the bottom of this. if i can ask you a question about the florida construction company. the center of the wall street journal story, have you had any contact or dealing with them personally. >>? oh, no. absolutely no. >> all right thank you. mr. chairman, i yield back. confounded, i yield back. >> gentleman yields back of the the chairman now recognizes the gentleman from florida for five minutes. >> thank you mr. chairman. chairman hochberg good to see you. thank you for your stead past promotion of american jobs and american manufacturing in our country. as a small business owner, i understand that one of the most important things those small businesses need is access to capitol and financing. last year alone ex-port and

impart bank financing supported over 200,000 jobs 90% supported small unilaterally disarms the export financing world and allows xm to lapse, what kind of economic impact could it have on american manufacturing, on our job creators, our exporters, selling goods that are stamped proudly made in america all around the world? so many of which have relied on this export, import bank? >> well on the first panel there was specific testimony about how the threat of it not being here in september has already impacted the awarding of a 57 h million contract that would support a lot of jobs. the smaller transaction of $48 million supported 165 jobs. it would obviously be more. it's an even larger transaction.

we heard small businesses at the time of the shut down were losing sales because of potential we would not be there. small businesses rely on us very deeply. it's 90% of our customers, 90% of clients. frequently they do not have other option. they frequently have few very options. i ran a small business. it's hard to get credit in general and it's even harder for a sha a small business. lastly, many of the small businesses are part of the supply chain. they are part of the boeing supply chain, they are part of space x where congresswoman waters is in her district. there's a wide supply chain. manufacturing like boeing or ge don't make 100% what they do. their supply chain are full of small businesses that would be impacts immediately. >> as fiscal conservative myself i view all government spending with a skeptical eye, one of the things say frequently is isn't

this body's role to create jobs rather that's our role to create an environment conducive to job growth. you developed that environment through stability and certainty not through sequesters. can you talk about some of that uncertainty and what was last year 200,000 jobs what it could potentially be in the future. >> it's hard to be precise. i'm thinking positively that we will reauthorize the bank and do it on time. but let's be very clear. 205,000 in the past year well over a million jobs over the last five years just under 1.2 million were supported by our exports because we filled a gap the private sector could not fill or did it to meet the competition. so those are all at risk. when someone gets a loan from us they have to state why they load the loan from us or the guarantee or why they can't get

it in the private sector. we are there when the private sector can't or won't. >> to that point i feel like i'm in an alternate universe here. this doesn't maek any sense. can you talk about on the international scene how this is affected what some of our competitors are doing. what some of other countries are doing and maybe, you could address if you think they are going to step in to help us. main their export banks will step in to help american manufacturers. >> well, the xm banks of china, russia, and france -- there are 60 countries that have an export bank. they all would gleely take sales from the united states and support more jobs in their community. they are delighted to do that and looking forward to doing that. as i mentioned, china does more than four times the amount of

financing for its exports than we do. >> if anything some could argue we should be expanding the export and import bank. >> if you really care about jobs and you want to make sure we meet the competition and one way to get the competition in line is to meet them toe to toe, head to head over and over again and indicate we're not going to back down unless they play by the rules . it would be one thing if not a single other country in the world had the equivalent of the export, impart baort bank. they do and they are bigger. we live in this reality and we mine as well compete and give them the best opportunity we have. >> the chairman recognizes the gentleman from california. mr. royce. the chairman of the foreign affairs committee. >> thank you very much. a stated goal of xm bank is to provide xm credit assistance to serve customers who are unable to obtain financing through the commercial markets.

what policies and procedures does the bank have in place to ensure that it is limiting its assistance to these customers and not crowding out opportunities for private capital markets. does xm make any formal analysis of what kind of private capital would enter markets in its absence. >> each application must state why they are looking for our support and why they can't find it in the private sector. that's a requirement whether it's lack of financing, meeting the competition. sometimes banks have limits on what they will do in certain industries in certain countries. that's where we step in. sub-saharan africa is a good example of that. we did a lot of loans in the philippines. we have a list here. in cameroon, i think i mentioned over half the exports we went there, we financed.

why? it's very hard to get any bank to step forward. in place like western europe we do very little business because the banks are able to do. japan, we hardly do any business. there's a very defined banking system. >> let me ask the goa, is xm doing enough to ensuring that companies are going out in the private market and not finding capital before coming to the banks? >> i think that gets into sort of underwriting and what they are doing in terms of looking at eligibility and the anal isysis that's done there. we have work under way that's looking at that but that work is not yet complete. i would point out that we had made some recommendations back in '07 and this is just to clarify a point although xm has been very captive and hkapt coo agreed not all yet have been impleme

implemented. there are some from '07 that it is still working on. okay. well let me ask you also in terms the numbers both sides of the debate are claiming numbers that support their case based on different counting methodologies. the bank claims estimates that it made $1.6 billion in revenues. the cbo reported on may 22nd, that if xm used the fair valuing it would be budgeted as a 2 million cost to the taxpayer each year. can you explain the large gap in numbers even those assessments or in your response can you touch on what kind risk assumptions you use in terms of losses and when you apply this fair value methodology? do you look at historical experience and commercial bank experience and do you factor in

loss reserves in capitol. maybe a quick explanation of how you do this. >> yes, congressman. when the government makes a loan or makes a loan guarantee either through xm bank or some other credit program, the ultimate budgetary effects of that are not known. most loans are repayed some are prepaid in part. sometimes moneys are recovered. last year, xm turned over some amount of money to the federal treasury. that's true. when we give the congress cost estimates, we're trying to give you a sense of what will happen going forward under a certain program from a certain financial -- bit of financial assistance. those estimates are operating in a great world of uncertainty. what the fair value methodology does is to capture in the estimates not only the expected level of default and recoveries but the variation around that expectation and to recognize how

the possibility outcomes -- >> let me put it another way. what i'd be interested in is the risk analysis framework that's employed in accounting the private sector creditors. if you did that -- >> so private sector creditors take account of this market risk and put a price on it because the risk is costly. >> in your opinion if you did that, would it be a $200 million cost to the taxpayers. >> so when we applied that methodology to the xm bank's projections of the size of the credit programs, they will run of the default rates and recovery rates, taking the same set of underlying cash supplies that appears in the credit supplement to the president's budget and that we use in our standard accounting, we apply those cost for market risks than the xm bank's programs are costly to the tune of $200 million ayear as you said.

>> the time of the has expired. the chair now recognizes the gentleman from jorgeorgia, mr. scott. >> thank you mr. chairman. in this morning's hearing, the chairman of delta airlines and the palace associations made some very salient points. i think this. we've got to move the xm bank forward. it helps small businesses. it creates jobs. i believe we can do this as well as address those concerns. so, i know that you know exactly what they are but from what the testimony said this morning, chairman of delta airlines mr. anderson and the head of the

pil pilot's association both made these points that unless there is a level playing field and the exercise of one particular aspect of what you do, which is the financing of these wide body aircraft that puts our airline industry in the united states at a competitive disadvantage with foreign airlines who are able to get these wide bodied aircraft, flying these international routes that are very, very profitable. so if -- you can see the concerns that delta airlines has and the pilot and airline industry has because quite honestly unless we do something to address this, and if xm bank is being used in an unfair way to subsidize for example, the airlines in india, the other

airlines that have been brought up, when they get subsidized by their government and turn around and get subsidized by you. they are able to get the planes cheaper and they can reduce their ticket prices and that makes it very uncompetitive. so what i want to do is -- as i mentioned was find a way that perhaps we can come up with some language as we move forward with this within the 90 days that we have that can address that concern. that doesn't seem that this is mutually exclusive. can you help us with that and give me a little guidance on how we'll be able to move this forward at the same time addressing the concerns of delta airlines. >> i'll do my best. one, let me just -- i have to say, we don't subsidize, people pay us a fee and as a result, they essentially are paying for our guarantee so they can borrow

money through a bank. we are totally self funding and so self sustaining so there's not a subsidy going from us to anybody else. i just need to state that. two, in 2011, without congress asking us, we raised the fees multilaterally across the world. made it more expensive to borrow money from us to buy aircraft in particular. today, foreign carriers all pay more than a comparable u.s. carrier would pay for the same airplane so they are already paying a premium. what delta airlines is unhappy about is they are paying a premium. they pay more. they would like him to pay a lot more. we need to understand the facts. >> but delta airlines does not take any money from the xm bank but these foreign countries do. >> we look at -- that is correct

because the need is -- the united states has the best financial markets, the most liquid creative financial markets so u.s. carriers are borrow at far lower rates than any foreign carrier buying the same airplane. so there isn't an advantage going to the foreign carriers . but here -- granted. it's sort of like we're at a stale mate here. what we have to do is try to lean into one another and try to find out where we can give here because there's absolutely no way that we can move forward with the progression of the xm bank if you've got this salient cry from an unlevel playing field for one of our most significant, most industries world wide. i mean isn't there something we can do even if it's a trigger or a mound. even if it means curtailing

certain routes that the competition can't take. >> for three years we've been asking delta precisely what they would like and they have not given us a precise recommendation. >> i understand and hopefully we'll get that recommendation in an amendment that we can address this to as we move forward. >> time of the gentleman has expired. the chair recognizes the gentleman from tennessee. >> thank you mr. chairman. and the rest of the witnesses. appreciate you being here. a lot has been talked about today with delta airlines. i was looking over something where delta had used the credit export agencies of brazil and canada to purchase hundreds of aircraft made in those countries. is that true? >> yes. to the best of my knowledge. >> so why would they be -- and to be -- to their accredit, they are for reforms but extending the re-authorization of the bank

but what would be to the advantage of delta to borrow the money from those countries and not use ours? the product? >> yes, the united states is not really in the business of making what are called regional jets, those small somewhat uncomfortable narrow jets. old 50 to 75 people that a lot of us fly on. we don't make those. they are largely manufactured in brazil and canada. >> if if you're against it, you'd be against all of it, correct. they avail themselves of estimates of three to $4 billion of exports to canada. >> i will say this. the commerce department says the first quarter contraction was even more severe than the 1% annual decline it estimate a month ago. another major factor was a

bigger trade deficit than initially estimated. i did not make re-authorization last time because we did not make the reforms necessary. i have a whole book of reforms that we've been working on. something that we tend to in congress and now we're in premier election seasons so things are happening. we saw elections lat night and elections will be next week. elections have consequences when we forget who we work for. if i forget my district back at home in tennessee, than when i go back there the elections will have consequences. my district number of job supported and i know the gentleman from south carolina had problems with numbers a few minutes ago but a thousand jobs plus in my district, 5,000 plus in my state. now, that's who i work for. the 8th congressional district

of 10 h tennessee. this is not about big or small business. we want the country to flourish and hopefully have environment in the private sector where they don't need the government and washington but at the same time i'm looking at the debt clock -- it's unbelievable. this is a program under the current guidelines that's not costing. it's actually returning money back. we need to reform it. i heard the chairman -- the former chairman bakrus a few minutes ago talking about sending a letter to you guys and not getting a response in a timely matter. i don't think that's acceptable. i think you have to do a better job of being accountable to your customers but just to -- because it's -- it doesn't look right or i don't get everything i want, my wife and little girl were going to be here today but she's out doing something else and i was thinking i've been married 23 years which is a long time.

i don't get everything i want at home. i'm sure not going to get everything i want up here. it's just not going to happen but my job. >> i hope you better at home. >> my job is not -- i'm a farmer and i came to washington 3 1/2 years ago and i promised my constituents that the folks of my district because i had received farm subsidies before i was selected. and i promised them that we needed a better way. we needed to reform the farm bill. this is just an example. we reformed the farm bill more reforms that had been done, i don't know how many years did away with the farm subsidy program. took many steps in the right direction. was it perfect, no? i voted over 2,400 time since i've been here and none of the bills have been perfect but did i vote no and says not everything i want because it's not going to do everything.

no, that would be responsible on my part. my part is to support investment that creates a thousand jobs in my district. with reforms i can support it. with that i yield back. >> the gentleman yields back. the chair now recognizes the gentleman from california, mr. sherman. >> i'm hoping you as administer xm bank in the future that you will focus especially on small businesses and focus on new products because the future -- we were trying to maintain a wage rate way above the average rate rate in the world. the only way we're going to do that is by making things here that they don't make elsewhere. now, a lot of this debate is between those who think we should focus on ann rrk and's

book and the purity of that versus the practicality. the practicality is germany has more than three times the export per person as we do in the united states. germany has an export credit authority or agency in a is roughly three times the size of ours compared it the size of our economy. obviously germany is a somewhat smaller country. while we have a declining manufacturing sector and a huge trade deficit, they have outstanding manufacturing jobs and a huge trade surplus. so the practicality side leads toward us also having an export credit agency.

so the question is on purity. i want to point out to this committee that xm bank has a little sister, it's called opec. it is also u.s. sponsored export credit authority. it comes under the jurisdiction of the foreign affairs committee. we reauthorize them on the floor of the house of the representatives under a bill written by my good friend chairman royce of the foreign affairs committee. yes. that good friend. 106 republicans voted for that bill. so if you are torn and you think well, the xm bank is good practicality but i got to preserve my oideological purity. if you're one of those 106 republicans that voted for the

opec re-authorization in it. you already lost their ideological purity. come with us and be practical. as to purity as the gentleman from tennessee just left pointed out that delta airlines has no ideological purity nor do i expect them to have it. they bought canadian aircraft and they got financing from the canadian agencies that is analogous to xm bank. one thing that is practical about xm bank is that you are scheduled to make $14 billion over the next ten years. do i have that right. >> that's the cbo estimate. >> that's the cbo estimate. okay. do you have a different estimate. >> well, i don't make estimates for ten years. we simply made a projection, a budget proposal for 2015 and they projected them out ten years. >> okay. and so we have to live under the

tir any of cbo, if they say we lose $14 billion than we have to adjust those debt clocks and announce to the country that we're increasing the national debt by $14 billion or we have to wait for the chairman of this committee to join me in a prorevenue bill. that would take a long, long wait. it's argued that -- the fair value accounting which is not the law. every time somebody wants to increase the national debt by a proposal, they say well, just change the accounting because i'm not increasing the national debt. i've heard this all the time. dynamic scoring. now it's fair value accountable. i want to make sure i understand this. fair value accounting would mean for pizza hut that we don't see whether they made lost or made

money, we see whether they would have lost money if they had to pay as much to borrow money as the local petsizzeria which wou be a very strange thing. the investigators in pizza hut would be very surprised to say that they lost money. >> pizza hut is prohibited from using fair value accounting, thank god -- >> the chair now recognizes the gentleman from south carolina mr. mulvaney. >> thank you mr. chairman. we've heard a lot of talk today in the last 5 1/2 hours about reforming and making a better bank. let's look at that a little bit. you were here a year ago. at that time, i asked you about the inspector general's report who said you had problems that were not routinely reporting the

performan performance. i find out from the ig's office today you still haven't fixed that one. i also said a year ago that it looked like you had trouble according to the ig's office with a lack of due diligence and asset monitoring efforts conducted by lenders, specifically the ones who have a history of defaulted trands actions even though there's an expectation that such efforts are taken, xm bank does not require participating lenders to conduct due diligence or asset monitoring of their investigations. i find out you haven't done that one either. there's a list of 78 different things that have asked you to do. either the igo gao has asked you to do. of 36 of them the ig can't

verify that you've fixed them. there are 9 of the 78 that say your responsives are unresponsive and they don't count you as trying to fix things. you are required by law, in authorizing any loan or guarantee the board of directors shall take any account any serious adverse effect of such loan or guarantee on the competitive position of the united states industry. and employment in the united states. we heard this morning that you have done that one time. one time in 2001 when it comes to selling air craft -- helping boeing sell aircraft over sees that was in 2001. staff tells me now that you have conducked a grand total of 24 of those reports as required by law over the last 17,000 export/import transactions. in 2012, we asked for some reforms. in 2012, this body asked the export/import bank for some roo

forms. one of the secretary of the treasury and nonoec members to reduce subsidizing programs and other subsidies. that was almost two years ago. you all have managed to set a meeting. the administration recently sent over its proposed reforms. they call it a re-authorization. i don't know if we call it a reform. it essentially says that you want more money. you want to change the way you count losses. you want to eliminate the need for producing stuff in the federal register regarding notice, lowering the accountability and transparency and i wish the gentleman who was here from the previous panel small businesses, you ought to be able to count toward your mall business quota small businesses that sell to big businesses. so forget about the tipickles o green energy, unless you're

selling to one of the big guys, you don't get to count under the president's proposed reforms which i guess you participated in because it's under your signature. i look at all of that against a political environment where this investigation has regularly shown that they don't really care about following the law very much. they certainly haven't followed it on health care. they are not following it on immigration. don't seem to be involving it on how they are supposed to keep their e-mails over at the irs so it makes me wonder for everybody here who says listen it's great. let's pass some reforms. that would be wonderful. before you run to the reform ban wagon i encourage you to ask some questions to make sure before we do that let's see if the bank can actually reform itself under the existing laws that we have already passed. let's see if maybe the bank can make the suggested reforms that the ig and the gao have suggested.

i say that the time is way too early for talking about reforms with that bank. with that i yield back the balance of my time. >> the gentleman yield back. the chair -- okay. chair now recognizes the gentleman from illinois. mr. holgren. >> thank you mr. chairman. thank you all for being here. first mr. chairman, i would ask to -- for leave to be able to -- i'm sorry for unanimous consent that my full statement be inserted into the record. >> without objection. >> thank you. i really would like to thank the panelis panelists. this is an important discussion. i know as many of my colleagues we want to get information and do the right thing. i think congress should take a hard look at the current structure of the export/import bank but also i hear from my own district's businesses that tell me that they rely on the bank to ensure that their exports reach their customers. so before congress abolishes the

export/import bank without a strategy. we need to explore reforms to the bank. this leads me to my first question. the bank's role in providing export credit assistance is to serve customers who are unable to obtain funding through commercial markets. >> congressman. thank you for giving me a chance to talk a little bit about that. first of all, 98% of the transactions at xm bank we work with a private sector bank to either make the loan guarantee the loan or arrange the loan. we are doing it with 98% the transactions. furthermore, every application needs stay unequivocally why they are coming to us and why they can't do it this in the private sector. that's a requirement for us to be making the loan. the term used is addition alt.

what additional value are we providing. our loan portfolio hasn't grown as much in the last two years. there's been a little less need for us of late. i don't know if that will continue but as of late there's been a little less need. that's a good sign. that's a good sign that banks are making more loans and they are also dealing more with small businesses. >> your office regularly engages with private sector stakeholders to obtain input on the bank's operations. i wondered in your opinion is the bank effectively limiting itself to customers not being served by lenders what steps could the bank take to mitigate the risks and that the export/import bank is the lender of last resort, not the lender of choice. >> thanks for the question. the bank has a requirement to only offer financing for three situations.

one of them is competition, lack of financing in the market or additionalt. so the requirement that he is talking about is a requirement that any transaction that goes through the system has to have a declaration to some extent almost like a certification saying the reason why we come is because x. now whether or not that is verified is another story. we did a report on the direct loan program. we highlighted that sometimes on the loop doan documents we can'd documentation backing of that statement. now that's the extent of what we have looked into. we haven't really got into whether or not marketing strategy of the bank across the country meet the charter requirement on that. we haven't got that far. as focused on the direct loan program we did address some of those questions.

>> chairman, back to you. >> i would just add, it is required in the loan application. so the applicant needs to certify that their financial records are accurate as presented, that everything they state is accurate as presented. so i would -- we do an audit periodically but i have to make an assumption if an applicant is signing an politicsation that they are corporate office is not stating fraud in doing so. they have to state why they are coming to us. >> the current risk management function of the bank is fragments and neither addressed how risks may be interrelated. given the bask as recent risk trends including the authority to extend credit from 1 billion to one $40 billion. what additional procedures are you putting in place to ensure a

central risk management structure. >> as i stated we added the position of a chief risk officer. i work closely with the inspecton general to make sure that they are entirely two different structures both reporting to me and the chief risk officer looks at not only credit risk but legal, it. there's an enterprise risk committee and two senior people who report. >> the time of the gentleman has expired. there are votes currently on the floor. the committee will recess until approximately 4:45. the committee stands in recess.

i know as mr. mchenry brought in theier yesterday "wall street journal," we have the 4 employees under investigation. obviously raised some concern 42%makes sense while only think the organization leaders have honesty and