CBO's Analysis of Ex-Im Bank

Tuesday June 23, 2015

I just read the CBO report applying fair value accounting to the Export-Import Bank of the United States. The numbers are interesting. It’s essentially a benefit-cost analysis, but it doesn’t work. But a lot of Ex-Im’s detractors have hung their hat on it, anyway.

CBO elected to use an discount rate combined with a risk premium that simply does not reflect the actual financing. The effect is to artifically overweight the early years, when the outflows of the loan are happening, and underweight the out years when the returns are coming in. Accordingly, the loans look like a bad deal.

But the risk premium is already accounted for in the interest rate charged to borrowers and in the rate charged to the Bank itself. The CBO analysis would be like your mortgage holder, after the last payment, saying you owed even more money to cover their risk. That’s not how financing works.

Over the long term, and year over year, as long as the Ex-Im Bank charges more interest than it pays, it will make a profit. The CBO analysis is interesting from an academic perspective, but it is not the basis of sound policymaking.

Image by Doug Wertman / Flickr.