Export-Import Bank 101: The 'it makes a profit' argument

By Timothy P. Carney July 29, 2014


Defenders of the Export-Import Bank argue that the agency is profitable.  This argument convinces some people to support (or at least tolerate) Ex-Im. It shouldn’t.

Export-Import Bank logo

Ex-Im’s profit is (1) an accounting fiction, and (2) a temporary, unstable state. And (3) to the degree that some Ex-Im programs may be “profitable,” that’s an argument that the private sector could carry out their functions.

The Export-Import Bank’s profits are an accounting fiction

Loans and loan guarantees are an odd business for government to be in, and so the budgetary accounting rules around them are a bit of a mess. Some recent loan guarantee programs, like the Wall Street bailout, use “fair value accounting” to determine their budgetary costs. Ex-Im uses a different accounting method, created by the 1990 Federal Credit Reform Act, which results in lower budgetary costs.  The Congressional Budget Office consistently argues that FCRA accounting is improper and misleading for Ex-Im. In March 2012, the CBO wrote: “FCRA cost estimates understate the cost of federal credit programs to the government” because they don’t take into account all the risks included in Fair Value Accounting.  Ex-Im would be budgeted as a $2 billion cost to taxpayers over a decade if proper accounting was used, the CBO concluded in May 2014.

Fannie Mae and Freddie Mac didn’t cost taxpayers anything until they did, and Ex-Im poses the same risk....To Read More.......