EXPORT-IMPORT BANK

Recent Growth 

Underscores Need for 

Improved Risk 

Management and 

Reporting 

Statement of Mathew J. Scirè, Director

Financial Markets and Community Investment

Testimony

Before the Subcommittee on Monetary 

Policy and Trade, 

Committee on Financial Services, House 

of Representatives

For Release on Delivery 

Expected at 10 a.m. EDT

Thursday, June 13, 2013

GAO-13-703T

United States Government Accountability Office
Page 1 GAO-13-703T 

441 G St. N.W.

Washington, DC 20548

Chairman Campbell, Ranking Member Clay, 

and Members of the Subcommittee:

I am pleased to be here today to discuss our recent work on the U.S. 

Export-Import Bank (Ex-Im). Ex-Im serves as the official export credit 

agency of the United States and helps U.S. firms export goods and 

services by providing a range of financial products, including direct loans, 

loan guarantees, and insurance. Ex-Im’s business volume has grown 

dramatically in recent years. From 2008 through 2012, Ex-Im’s 

exposure—that is, its total outstanding financial commitments—rose from 

$58.5 billion to $106.6 billion. Factors associated with this growth include 

the reduced availability of private-sector financing following the 2007-

2009 financial crisis. The rapid increase in business has challenged ExIm’s ability to plan for and manage its portfolio.

My testimony today draws on two reports we issued in March and May of 

this year in response to requirements in the Export-Import Bank 

Reauthorization Act of 2012 (Reauthorization Act).1

For the March and May 2013 reports, we analyzed Ex-Im’s financial data, 

policies and procedures, and processes. We also reviewed Ex-Im’s 

Business Plan, related analyses, and other reports. We examined the 

models Ex-Im used to forecast exposure levels and estimate credit 

losses, including the data and assumptions underlying the models. In 

addition, we reviewed Congressional Budget Justifications, annual 

reports, and other reports for information on Ex-Im’s administrative 

budgets and the size of its workforce. We reviewed various sources of 

guidance on risk management and cost estimation, including federal 

internal control standards, Office of Management and Budget (OMB) 

The act required us to 

assess aspects of Ex-Im’s risk management and 2012 Business Plan in 

the context of the agency’s growth. The act also increased the statutory 

ceiling on the agency’s total exposure (exposure limit). I will discuss ExIm’s efforts to (1) forecast exposure levels, (2) manage financial risks and 

estimate losses, and (3) manage its workload.

 

1

Pub. L. No. 112-122 § 4 and § 5 (2012). See GAO, Export-Import Bank: Recent Growth 

Underscores Need for Continued Improvements in Risk Management, GAO-13-303

((Washington, D.C.: Mar. 28, 2013); and Export-Import Bank: Additional Analysis and 

Information Could Better Inform Congress on Exposure, Risk, and Resources, 

GAO-13-620 (Washington, D.C.: May 30, 2013). 

 
 

Page 2 GAO-13-703T 

guidance, and federal banking regulator guidance. Finally, we interviewed 

Ex-Im officials and other entities involved in export financing. Our prior 

reports each include a detailed description of our scope and 

methodology. We conducted the performance audits on which this 

testimony is based in accordance with generally accepted government 

auditing standards.

Ex-Im is an independent agency operating under the Export-Import Bank 

Act of 1945, as amended. Its mission is to support the export of U.S. 

goods and services, thereby supporting U.S. jobs. Ex-Im’s charter states 

that it should not compete with the private sector. Rather, Ex-Im’s role is 

to assume the credit and country risks that the private sector is unable or 

unwilling to accept, while still maintaining a reasonable assurance of 

repayment.

Ex-Im faces multiple risks when it extends export credit financing. These 

risks include (1) credit risk (the risk that an obligor may not have sufficient 

funds to service its debt or be willing to service its debt), (2) political risk 

(the risk that expropriation of the obligor’s property, war, or inconvertibility 

of the obligor’s currency into U.S. dollars may result in nonrepayment), (3) 

concentration risk (the risk that events could negatively affect not only 

one entity or location but also many entities or locations simultaneously), 

(4) market risk (the risk of loss from declining prices or volatility of prices 

in the financial markets, which could arise from changing macroeconomic 

conditions), and (5) operational risk (the risk that loss may result from 

inadequate or failed internal processes, people, and systems, or from 

external events).

While Ex-Im’s business is generally driven by demand for its services 

from exporters, Congress also mandated that Ex-Im support specific 

objectives. Since the 1980s, Congress has required that Ex-Im make 

available a certain percentage of its total export financing each year for 

small business (in 2002, the small business financing requirement 

increased from 10 to 20 percent). Congress has further instructed that ExIm promote the expansion of its financial commitments in sub-Saharan 

Africa. Finally, in its 2012 appropriations, Congress directed that “not less 

than 10 percent of the aggregate loan, guarantee, and insurance authority 

available to [Ex-Im]...should be used for renewable energy technologies 

or end-use energy efficiency technologies,” to which we refer in this 

statement as the renewable energy mandate.

Background 
 

Page 3 GAO-13-703T 

Ex-Im’s Business Plan concluded that the exposure limits in the 

Reauthorization Act were appropriate, but our May 2013 report found 

weaknesses in the methodology Ex-Im used to justify that conclusion. 

The Reauthorization Act increased the Ex-Im exposure limit to $120 

billion in 2012, with provisions for additional increases to $130 billion in 

2013 and $140 billion in 2014. As shown in figure 1, Ex-Im forecast that 

its year-end exposure would be $120.2 billion in 2013 and $134.9 billion 

in 2014, below the congressionally determined limits. However, the buffer 

between the exposure limit and Ex-Im’s exposure forecast for 2013 and 

2014 is small in comparison with recent historical experience.

Figure 1: Ex-Im Exposure and Exposure Limit, Fiscal Years 2003-2014

Although Ex-Im’s forecast model is sensitive to key assumptions, we 

found that Ex-Im did not reassess these assumptions to reflect changing 

conditions or conduct sensitivity analyses to assess and report the range 

of potential outcomes. For example, certain Ex-Im assumptions about 

product mix and repayments were not consistent with historical trends. 

We used historical data in lieu of these assumptions and found that, if 

Ex-Im’s Process for 

Forecasting Exposure 

Has Weaknesses
 

Page 4 GAO-13-703T 

these conditions were to occur in the future, Ex-Im’s forecast of exposure 

could be higher than the limit set by Congress for 2014. Our cost 

guidance calls for agencies’ assumptions and forecasts to be supported 

by historical data and experience, and a sensitivity analysis, which can 

assess the effect of changes in assumptions. Because Ex-Im has not 

taken these steps, the reliability of its forecasts is diminished. This is of 

particular concern because Ex-Im projects that its outstanding financing in 

the future will be closer to its exposure limit than it has been historically. 

Consequently, any forecast errors could result in the bank having to take 

actions, such as delaying financing for creditworthy projects, to avoid 

exceeding its limit. Thus, in our May report, we recommended that Ex-Im 

(1) compare previous forecasts and key assumptions to actual results and 

adjust its forecast models to incorporate previous experience and (2) 

assess the sensitivity of the exposure forecast model to key assumptions 

and estimates and identify and report the range of forecasts based on this 

analysis. Ex-Im agreed with our recommendations and stated that it 

would incorporate these steps into preparation of updated and revised 

forecasts to be provided to Congress by September 30, 2013.

Our March report found that Ex-Im has been developing a more 

comprehensive risk-management framework, but could take additional 

steps to improve this process. For example, Ex-Im has started addressing 

recommendations by its Inspector General (IG) about portfolio stress 

testing, thresholds for managing portfolio concentrations, and risk 

governance. Our review indicated that the IG’s recommendations 

represent promising techniques that merit continued attention. In addition, 

we concluded that reporting stress testing scenarios and their results 

would aid congressional oversight and be consistent with internal control 

standards for effective external communication. Thus, in our March 2013 

report, we recommended that Ex-Im report this information to Congress. 

Ex-Im agreed with our recommendation and intends to report its stress 

test scenarios and results in quarterly reports to Congress.

However, Ex-Im could further improve its risk management, including its 

risk modeling. Ex-Im calculates credit subsidy costs and loss reserves 

and allowances with a loss estimation model that uses historical data and 

Ex-Im Could Take 

Additional Steps 

to Improve Risk 

Management and 

Loss Estimates 
 

Page 5 GAO-13-703T 

takes credit, political, and other risks into account.2

Ex-Im also could improve its analysis of the financial performance of its 

portfolio. As of December 2012, Ex-Im reported an overall default rate of 

less than 1 percent. Ex-Im’s default rate declined steadily from about 1.6 

percent as of September 30, 2006, to just under 0.3 percent as of 

September 30, 2012, before edging up slightly by the end of the calendar 

year. However, this downward trend should be viewed with caution 

because Ex-Im’s portfolio contains a large volume of recent transactions 

that have not reached their peak default periods. Moreover, Ex-Im has not 

maintained data needed to compare the performance of newer books of 

business with more seasoned books at comparable points in time, a type 

of analysis recommended by federal banking regulators.

Consistent with 

industry practices, Ex-Im added factors to the model in 2012 to adjust for 

circumstances that may cause estimated credit losses to differ from 

historical experience. For example, Ex-Im uses a 1-year forecast of 

certain bond defaults to predict possible changes in loss estimates from 

changed economic conditions. But a short-term forecast may not be

appropriate for adjusting estimated defaults for longer-term products. 

Guidance from the Federal Accounting Standards Advisory Board for 

federal credit agencies states that agencies should develop cash flow 

projections for their transactions based upon the best available data. In 

our March report, we concluded that Ex-Im might not be making the 

appropriate adjustment to estimate future losses, which could lead to 

underestimation of credit subsidy costs and loss reserves and 

allowances. Thus, we recommended that Ex-Im assess whether it is 

using the best available data for adjusting the loss estimates for longerterm transactions. Ex-Im agreed with our recommendation and said it 

would conduct this assessment as part of its 2013 reevaluation of its loss 

estimation model.

3

 

2

Ex-Im uses the model to build the agency’s credit subsidy estimates in the President’s 

budget as well as for calculating loss reserves and allowances reported in its annual 

financial statements. 

In addition, the 

lack of point-in-time data showing when defaults occur may reduce the 

precision of Ex-Im’s loss estimation model. Therefore, we recommended 

in our March report that Ex-Im retain point-in-time performance data to 

compare the performance of newer and older business and enhance loss 

3

While Ex-Im is not bound by federal banking regulator guidance, it faces similar 

challenges to regulated private financial institutions in managing risks.
 

Page 6 GAO-13-703T 

modeling. Ex-Im agreed with our recommendation and said it has begun 

to retain such data.

Finally, stemming from our analysis of Ex-Im’s Business Plan in our May 

2013 report, we found that Ex-Im had not routinely reported the 

performance of its subportfolios relating to the small business, subSaharan Africa, and renewable energy mandates.4 While Ex-Im provides 

quarterly default rate reports to Congress, Ex-Im has not included the 

default rates for transactions supporting these three congressional 

mandates in its reports. Also, Ex-Im’s annual report documents the 

weighted-average risk rating of its overall portfolio, but has not provided 

further breakdowns of the risk rating for these subportfolios.5 OMB

guidance indicates that agencies should use comprehensive reports on 

the status of the credit financing portfolios to evaluate effectiveness and 

collect data for program performance measures such as default rates. 

Furthermore, federal banking regulator guidance suggests that banks 

should provide financial performance information by portfolio and specific 

product type to allow management to properly evaluate lending activities. 

We concluded that Ex-Im could analyze additional information about its 

subportfolios related to the three mandates. Consequently, we 

recommended in our May report that Ex-Im routinely report the financial 

performance of subportfolios supporting congressional mandates. Ex-Im 

concurred with our recommendation and stated that it would include such 

information in its next quarterly default rate report to Congress on June 

30, 2013.

 

4

The performance of the subportfolios differs from the overall Ex-Im portfolio. For 

instance, the higher risk ratings of the subportfolios suggest these transactions generally 

are more risky than Ex-Im’s overall portfolio.

5

Ex-Im reviews each credit transaction and assigns a numerical risk rating based on 

assessments of credit, political, and market risks. 
 

Page 7 GAO-13-703T 

In our recent reports, we found that Ex-Im faces potential operational 

risks because administrative budgets and staff levels have not kept pace 

with the growth in its portfolio. Ex-Im has reported in its Business Plan 

that its resource levels cannot sustain the bank’s current level of activity 

or meet expected demand in coming years. From 2008 through 2012, ExIm’s annual authorizations grew nearly 150 percent.6

 

6

An authorization is an export financing transaction for which Ex-Im has granted credit 

approval.

Over the same 

period, Ex-Im’s administrative budget increased 15 percent, from $78 

million in 2008 to approximately $90 million in 2012 (see fig. 2). 

Additionally, Ex-Im’s staff level, as measured by full-time equivalents, 

increased less than 11 percent, from 352 in 2008 to 390 in 2012. In 2008, 

the ratio of authorizations to Ex-Im staff was about $40 million per 

employee, while in 2012 the ratio was about $91 million per employee.

Additional 

Information and 

Analysis Could Help 

Ex-Im Manage Its 

Workload 
 

Page 8 GAO-13-703T 

Figure 2: Ex-Im Administrative Budget Requests and Authorizations, Fiscal Years 

2008-2014

While Ex-Im has determined that it needs more staff, it has not formally 

determined the level of business it can properly manage. Federal internal 

control standards state that agencies should develop a risk-management 

approach based on how much risk can be prudently accepted.7

 

7

GAO, Standards for Internal Control in the Federal Government, 

Without 

benchmarks to determine when workload levels have created too much 

risk, Ex-Im’s ability to manage its increased business volume may be

limited. Monitoring workloads against such benchmarks would help Ex-Im 

GAO/AIMD-00-21.3.1 

(Washington, D.C.: November 1999) and Internal Control Management and Evaluation 

Tool, GAO-01-1008G (Washington, D.C.: August 2001). 
 

Page 9 GAO-13-703T 

determine when additional steps—such as tightening underwriting 

standards or increasing requirements for lender participation—may be 

needed to mitigate Ex-Im’s increased risk.

Ex-Im also expected that administrative resource constraints might 

prevent it from meeting its congressionally mandated target for small 

business export financing. The mandated target is fixed to a percentage 

of the dollar value of Ex-Im’s total authorizations. Although Ex-Im has 

dedicated resources to support congressional mandates, as Ex-Im 

authorizations have grown, the growth in the value of the mandated target 

has outpaced Ex-Im’s increasing support. Ex-Im projects that the target 

value will continue to outpace its increasing support for the mandate 

through 2014. According to Ex-Im officials, processing small business 

transactions and bringing in new small business customers is resource 

intensive. Small business authorizations accounted for less than 20 

percent of the dollar amount of Ex-Im’s total authorizations in 2011 and 

2012, but measured in number of transactions, constituted 87 percent of 

all authorizations. Originating, underwriting, and servicing for small 

business deals requires more effort than other transactions because 

small businesses tend to have less exporting experience than larger 

businesses. OMB guidance directs agency leaders to set ambitious, yet 

realistic goals that reflect careful analysis of associated challenges and 

the agency’s capacity and priorities. Communicating information about 

challenges and capacity that may significantly affect achievement of 

agency goals to external stakeholders, such as Congress, is also 

consistent with federal internal control standards.

As a result of the challenges Ex-Im faces in managing its workload, in our 

March and May 2013 reports we recommended that Ex-Im develop 

benchmarks to monitor and manage workload levels and provide 

Congress with additional information on the resources associated with 

meeting mandated targets. Ex-Im concurred with both of these 

recommendations.

Chairman Campbell, Ranking Member Clay, and Members of the 

Subcommittee, this concludes my statement. I would be pleased to 

respond to any questions you may have.

For further information about this testimony, please contact me at 

202-512-8678 or sciremj@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this statement. Individuals making key contributions to this testimony 

Contacts and Staff 

Acknowledgments 
 

Page 10 GAO-13-703T 

include Lawrance L. Evans, Jr., Director; Juan Gobel, Assistant Director;

Steve Westley, Assistant Director; Joshua Akery; Kathryn Bolduc; Marcia 

Carlsen; Anna Chung; Pamela Davidson; Martin De Alteriis; Cole Haase; 

Carol Henn; Michael Hoffman; Christine Houle; Susan Irving; Melissa 

Kornblau; Risto Laboski; Felicia Lopez; Grace Lui; Yesook Merrill; 

Colleen Moffatt Kimer; Barbara Roesmann; Jessica Sandler; Michael 

Simon; Jena Sinkfield; and Celia Thomas.

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