Export-Import Bank 101: What is it and why is a big political fight brewing?

An obscure Washington institution that aims to help US exporters is becoming the venue for one of the big political fights of 2014. The entity is the Export-Import Bank, and after 80 years of generally quiet operations it now faces a fight for survival due to opposition from conservative Republicans.

The battle matters for at least two reasons, one economic and one political.

Closing the bank would harm the export prospects of some companies large and small, potentially damaging an area of the economy with significant growth potential. Meanwhile, on the political front, the “Ex-Im Bank” debate will affect momentum for other conservative efforts to scale back the size of government – including what critics call “corporate welfare” projects like the bank.

Here’s a primer on what the Export-Import Bank does, and why controversy about it is flaring now.

What does the Ex-Im Bank do?

The mission of the Export-Import Bank is to help promote US trade – based on the premise that some beneficial commerce wouldn’t happen without a public-sector entity like Ex-Im as a facilitator.

Why does trade need a bank? Just like when someone buys a car or a house, companies overseas often want to borrow money when they buy machinery or other goods from a US firm. In addition, behind such loans are often “loan guarantees,” contracts designed to protect lenders if borrowers can’t pay.

Private-sector banks do a lot of this, so Ex-Im is chartered with a limited scope – facilitating trade deals only when the desired financing isn’t otherwise available. The bank’s deals represent a small fraction of overall US trade, but include things like loan guarantees and loans for foreign buyers of US goods, and sometimes for American producers that need help filling export orders.

Despite the word “import” in the bank’s name, its activities are focused mainly on boosting exports. The bank estimates that its activities support more than 200,000 private sector jobs by assisting some $37.4 billion in 2013 exports. Many of the deals aid small exporters or emerging-market buyers. In the first half of 2014, for example, the Bank has authorized $1.1 billion to finance exports to sub-Saharan Africa, which bank president Fred Hochberg says “is home to 7 out of 10 of the world's fastest-growing markets.”

Why is the bank suddenly controversial?

The bank periodically needs to be reauthorized by Congress, and this time around – with a Sept. 30 deadline – shifting tides within the conservative movement mean that Republicans aren’t lining up quietly with “yes” votes.

Instead, some powerful members of the Republican-controlled House of Representatives are questioning whether the bank amounts to a needless “corporate welfare” boondoggle that can be safely eliminated.

“Last year more than 60 percent of Ex-Im’s financing benefitted just 10 mega corporations that clearly have a strong political and lobbying presence in this town,” Rep. Jeb Hensarling (R) of Texas, who chairs the House Financial Services Committee, said recently.

Mr. Hensarling is now arguably the most prominent critic of the bank, because his committee is tasked with the reauthorization issue.

He has publicly questioned whether the bank’s existence is justified – arguing that it exposes taxpayers to financial risk while in effect picking winners and losers among corporations that shouldn’t need government help.

Indeed, Ex-Im is sometimes called the “bank of Boeing” because the aircraft manufacturer is a major beneficiary, while Delta Airlines has complained that Ex-Im-subsidized purchases of aircraft by foreign airlines have cost Delta many jobs.

The Ex-Im bank has long been a net positive for the federal budget, sending profits to the US Treasury after setting aside reserves to cover its occasional losses.

But Republican critics of the bank, beyond just Hensarling, say other federal and quasi-federal finance companies have also looked safe until something changed. A housing-market bust, for example, forced the taxpayer bailout of mortgage giants Fannie Mae and Freddie Mac.

The broader political context is that many Republicans say it’s time to get serious about pruning back the size of the federal government – and that the Ex-Im Bank is a good place to start.

What could happen next?

The Sept. 30 deadline puts this issue in the spotlight, even though the midterm election campaign has largely sidelined Congress this year.

To survive, the bank needs some form of authorization vote in the House as well as the Democrat-controlled Senate. The road has become more difficult in the past few weeks. That’s because, if a bill isn’t moved out of Hensarling’s committee, it will be up to the House leadership – newly reshaped after the surprise ouster of majority leader Eric Cantor in a Virginia primary election – whether to let the issue come to the House floor.

Unlike Mr. Cantor, new majority leader Kevin McCarthy of California isn’t an Ex-Im fan.

Hard lobbying on both sides is already under way.

Conservatives who want to eliminate Ex-Im and use the victory as a stepping stone to other downsizing efforts are trying to galvanize resolve in House Republican ranks. They are enlivened not just by opposition to what some call “crony capitalism” but also by big money from people including the libertarian Koch Brothers – industrialists who have become major players in Republican campaign finance.

Backers of the bank are mobilizing small businesses who are Ex-Im beneficiaries to lobby against a shutdown or big cutbacks. Ex-Im supporters also include prominent Republican governors such as Nikki Haley of South Carolina and Rick Perry of Texas.

A key argument for the bank, supporters say, is that other advanced nations have their own export-finance arms, so the US stands to lose jobs if it unilaterally disarms. Americans will build and sell fewer planes if the cost of financing a Boeing jetliner suddenly jumps this fall.

A compromise solution might allow the bank to be reauthorized but with some reforms that conservatives can claim as a victory for free-market, smaller-government principles.