World leaders agreed in 2009 at a summit of the Group of Twenty (G-20) major economies to review the capital adequacy of the multilateral development banks (MDBs), following several years of elevated MDB lending since the 2008 financial crisis. Shareholder nations, including the United States, subsequently agreed to increase the capital stock of the World Bank's main lending arm, the International Bank for Reconstruction and Development (IBRD); the World Bank's private-sector loan facility, the International Finance Corporation (IFC); the African Development Bank (AfDB); the Asian Development Bank (AsDB); the European Bank for Reconstruction and Development (EBRD); and the Inter-American Development Bank (IDB). The fact that all of the MDBs were requesting capital increases presented an opportunity for the Obama Administration and Congress to collectively evaluate U.S. participation and leadership in the MDBs, debate whether the MDBs are using their existing capital effectively, and decide whether to participate in any or all of the capital increases, and if so, whether to seek additional reforms. Key issues regarding the MDBs include: the comparative effectiveness of bilateral and multilateral aid, and the responsibilities of the MDBs to assess and pursue effectiveness; the scope of MDB activity, and whether that scope serves U.S. national security, economic, and foreign policy interests; MDB lending to emerging economic powers, and whether lending to China and other dynamic economies should continue to be encouraged; the increasing role of emerging economic powers at the MDBs, and its implications for U.S. influence and role; MDB-funded procurement, and potential U.S. export and commercial opportunities; and anti-corruption efforts, and the responsibility of the MDBs to promote development in poor countries prone to corruption while safeguarding MDB resources and ensuring an open and fair bidding process for MDB procurement. For the purposes of this report, the term "Multilateral Development Bank," or "MDB," refers to the World Bank Group (including the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), as well as several other facilities), and four regional development banks: the African Development Bank (AfDB), the Asian Development Bank (AsDB), the European Bank for Reconstruction and Development (EBRD), and the Inter-American Development Bank (IDB). These international institutions finance development projects and economic policy reform in developing countries. Table 1 provides additional information on the MDBs. MDBs (with the exception of the IFC and the EBRD) have two main lending "windows." The first type of window is to make loans at near market-based interest rates, primarily to middle-income developing countries. To finance these loans, MDBs borrow money from capital markets, much like private financial institutions. MDBs are able to borrow from international capital markets on excellent terms because of their AAA ratings, which in turn reflect in large part their strong capital positions and the financial backing of their member country governments. The second type of window is to provide concessional-rate loans (low interest rates and long repayment periods) to the world's poorest countries using money contributed periodically by the MDBs' member country governments. MDBs borrow in world capital markets at market rates, but the rates they are required to pay reflect their very high creditworthiness. Because these rates are typically much lower than those paid by private borrowers, the banks are able to relend this money to their borrowers at much lower interest rates. As such, the MDBs' non-concessional lending windows are self-financing and generate net income for the institutions, and they help subsidize concessional lending to the poorest countries. Furthermore, by borrowing to finance their lending, the MDBs' capital (and hence, increases in capital) is leveraged, allowing them to lend more than the amount of their capital. The capital that shareholders contribute comes in two forms (with the exception of the IFC): "paid-in capital," which generally requires the payment of cash to the MDB; and "callable capital," which is funds that shareholders agree to provide, but only when necessary to avoid a default on a borrowing or payment under a guarantee. Only a small portion (typically less than 5%) of the value of these capital shares is actually paid to the MDB. The vast bulk is callable capital. Callable capital serves as ultimate backing for the MDBs borrowing in capital markets, though the MDBs have never had to call upon those resources. Callable capital cannot be used to finance loans, but only to pay off bondholders if the MDB is insolvent and unable to pay its bondholders. Two key factors distinguish MDBs from private sector banks: (1) the MDBs' multilateral shareholding structure and preferred creditor status; and (2) capitalization, including callable capital, that is generally much higher than that of commercial lenders. This strong capital position facilitates the AAA rating of these institutions. Thus, the MDBs can offer loans to developing countries at rates lower than many private banks. After the 2008 financial crisis, there was a sharp contraction in capital flows to emerging economies. Although private capital flows are recovering, they remain below pre-crisis levels. Net private-sector inflows to emerging market countries now represent around 4% of world GDP, compared to almost 7% during 2006. Capital from other governments (bilateral aid) and the MDBs has become essential for many countries, both as a source of development finance and as a means of leveraging remaining available private capital, through political risk insurance, bond guarantees, and bridge financing. Since 2008, lending has increased across all MDBs, but most dramatically at the World Bank. Its commitments increased from $13.5 billion in 2008 to $32.9 billion in 2009; this is the largest annual amount ever committed and it significantly exceeds the $22 billion the World Bank lent in 1999 during the Asian financial crisis. Figure 1 shows annual MDB lending to developing countries since 2000. Table 2 provides total outstanding MDB commitments. An across-the-board increase in all members' shares of MDB capital, increasing the amount the MDB can lend through its non-concessional window, is called a general capital increase (GCI). This funding is not to be used to directly increase concessional financial assistance to low-income countries , but rather to increase the capital base of the non-concessional window, allowing the MDB to increase its borrowings on the international capital markets and thus increase the size of its lending operations to market-eligible countries. While Congress appropriates funds annually to help fund the MDBs' concessional lending facilities, capital increases of the main lending windows are rare. U.S. participation in MDB capital increases is especially important, as the United States is the largest shareholder in the MDBs and U.S. funding commitments often spur additional contributions from other member countries. The Center for Global Development estimates that every $1 the United States contributes to the World Bank as part of a GCI enables at least $30 in new World Bank lending and $70 in new AfDB lending. The process for proposing and implementing a GCI is roughly similar for all institutions. New funding plans for an MDB capital increase are discussed informally among member country governments before they are considered by member countries. A supermajority vote of the membership is required to approve capital increases and funding plans for each institution. Only for the World Bank's IBRD, though, does U.S. law require that Congress give its assent before the United States can vote in favor of a new MDB funding plan. Following increased lending after the financial crisis, the United States and other governments agreed to substantial capital increases at the MDBs. Collectively, these capital increases are worth around $348 billion. Assuming full U.S. participation, the total U.S. share of new subscribed capital would be $57 billion. While congressional authorization is required for the full amount, appropriations are required only for paid-in capital, which would total $2.17 billion. The pay-in period for paid-in capital ranges from three to eight years, depending on the MDB. Detailed information on the current GCI requests is provided in Table 3 . While the executive branch manages the day-to-day U.S. participation in the MDBs, Congress decides the overall terms of U.S. involvement by setting the level of U.S. contributions, and it influences, through legislation, how the United States votes on policies and projects. Congress can influence MDB policy by: fully funding or limiting the annual amounts appropriated for U.S. participation; enacting conditions attached to new funding agreements; enacting specific goals and priorities the United States will emphasize; and exercising its oversight responsibilities. This was the first time that capital increases for so many MDBs were considered by Congress at the same time. It also provided an opportunity for the Administration and Congress to evaluate U.S. participation in the institutions, debate whether the MDBs are using their existing capital effectively, and decide whether participation in any or all of the capital increases is in the interest of the United States and what additional policy reforms, if any, the United States should seek. On March 10, 2010, the Senate Foreign Relations Committee's minority staff prepared a report on reforming the MDBs, stating that "the Administration and the other donor countries of the G-20 should be firm in demanding that needed reforms are secured before committing additional funds." The report includes a number of recommendations, including strengthening anti-corruption efforts, improving evaluation frameworks, and improving oversight of budget support lending, among others.