If Ex-Im is watching over American Businesses, Who is watching over Ex-Im?
In the war to prevent its due extinction, the Export-Import Bank has hidden behind hard-shelled bureaucratic artillery. Its advocates concede certain dangers and cannot deny taxpayer exposure, but insist they have guarded against the worst. Offered as proof are the reform requirements, stress testing measures and protection provisions reflected in Government Accountability Office reports and the oft-cited recommendations of the Office of the Inspector General of the Export-Import Bank (OIG).
In other words, Ex-Im assures us it is on top of things and presents the in-house supervision of its Inspector General as proof. The IG conducts its scheduled audits, cites areas of concern and makes formal recommendations for reform.
In its September 2012 assessment, for instance, the IG reported, among other inefficiencies, that Ex-Im:
- lacks a systematic approach to identify, price and account for its portfolio risk
- does not conduct sufficient stress testing
- lacks the adequate risk management framework and governance structure to accommodate the size, scope and strategic ambitions of the institution
These are not, you will notice, peripheral issues correctable by tinkering with a few projection models or issuing a persuasive press release. The IG found damning, endemic, top-down flaws with the fundamental operations of the Bank. In response, the report made seven recommendations to Ex-Im management. In the report’s summary, “Management concurred with four of the seven findings and recommendations; three remain open.”
The steps Ex-Im chose not to take?
- Implement soft portfolio concentration sub-limits to inform future pricing, risk management decisions, and business development strategies (i.e. return parameters to the risky loans, analyze transactions according to low risk tolerance)
- Create the position of Chief Risk Officer (CRO) to work with Ex-Im’s senior management and Board of Directors to approve key risk policies (i.e. develop and hire someone to implement a “portfolio risk mitigation policy… as well as broader financial governance policies.”)
- Amend Ex-Im bylaws to include oversight of an agency-wide risk management function covering full range of credit, operational, and other risks (i.e. extend risk management to all of institution’s activities)
Ex-Im dodged all three, insisting that emulating private sector risk management practices is “inconsistent with the demand-driven nature of Ex-Im’s mandate and business.” The Bank’s policy, its managers explained, has been to issue loans so long as the request “meets the requirement of a reasonable assurance of repayment,” and showed no interest in investigating or validating that “reasonable reassurance.” They said a CRO was unnecessary and the role of the Board of Directors “does not include the recommended [risk management] oversight.”
The alleged mechanism for keeping the Bank honest failed to receive the necessary cooperation. Instead, Ex-Im acknowledged the points of weakness and opted for quiet continuation of business as usual (right as it was asking Congress to expand its lending authority by $40 billion—a request both chambers gladly obliged).
If Ex-Im does not want the IG’s suggestions, it should stop hiding behind it as a source of oversight and taxpayer security. Ex-Im is autonomous in its practices, unilateral in its subsidy decisions, and not answerable to any of the American citizens whose interests it purports to represent and whose money it gambles at will.
It is time to bring this reckless institution to an end.