Ex-Im Bank Restored with Greater Ethics and Risk Oversight
[Via Satellite 12-07-2015] The United States government has restored the Export Import Bank of America (Ex-Im Bank) with the recent passage of the “Fixing America’s Surface Transportation (FAST) Act,” which President Obama signed on Dec. 4. The legislation, focused primarily on transportation infrastructure such as roads, bridges and railways, also included Ex-Im Bank’s authorization, but with higher levels of oversight.
Ex-Im Bank’s charter expired June 30 earlier this year, preventing any new projects from being filed. The bank plays a significant role in the satellite industry, as many orders for new satellites are increasingly reliant on Export Credit Agencies (ECAs). In the time since Ex-Im Bank ceased supporting new satellite deals, many U.S. satellite manufacturers noted a weakening of their ability to compete. Boeing had two contracts — one for ABS’s future satellite ABS 8 and another for Kacific’s first spacecraft, Kacific 1 — stall out during the bank’s absence. Orbital ATK also said it lost a deal for the joint satellite Intelsat 38/Azerspace 2, which went instead to Space Systems Loral (SSL), the U.S. arm of Canada-based MacDonald Dettwiler and Associates (MDA).
“One perspective with respect to the satellite sector is that ECAs are ‘filling a gap’ by lending to certain projects that commercial banks or the debt markets may not support due to their perceived specialized or ‘niche’ nature (and attendant perceived risks),” Dara Panahy, partner at Milbank, Tweed, Hadley and McCloy, told Via Satellite in a July 2015 interview. “Interestingly, the historic track record for satellite sector ECA loan facility repayment/non-default is very good as compared to commercial bank or debt market transactions, including for transactions involving other high-value asset classes.”
Satellite manufacturers outside of the U.S. claimed varying industry responses to life without Ex-Im Bank. MDA President and CEO Daniel Friedman said Oct. 28 that, even with access to Export Development Canada (EDC), the ECA of Canada, the company felt the impact of missing Ex-Im Bank just as severely as domestic U.S.-based competitors. A European satellite manufacturer recently told Via Satellite that rather than orders flowing overseas, many seemed to be waiting until the bank was restored. Fast-growing satellite operator ABS has taken this approach, saying that it would rather stick with Boeing, despite offers from alternative manufacturers from outside the U.S.
Congress approved the FAST Act, which included the “Export Import Bank Reform and Reauthorization Act of 2015,” with strong bipartisan agreement. The House of Representatives voted 359 to 65 in favor, with nine not voting, and the Senate voted 83 to 16, with one abstaining. The bill ensures the bank’s continuity until Sept. 30, 2019, at which point it will need authorization again. However, as the name suggests, the four-year reauthorization includes some important changes.
Among the most notable, Ex-Im Bank is now ordered to make 25 percent of its authorizations for small businesses, up from the previous 20 percent requirement. Legislation also requires the establishment of an office of ethics within the bank to be directed by a chief ethics officer, a chief risk officer, and a risk management committee.
The chief ethics officer will function as the designated agency ethics official for the bank. The chief risk officer is responsible for overseeing risk, including establishing new policies and processes for risk oversight. This officer is to develop an integrated risk management program that includes identifying, prioritizing, measuring, monitoring, and managing internal control and operating risks as well as other identified risks, among other tasks.
The risk management committee is to be comprised of the members of Ex-Im Bank’s board of directors, with the president and first vice president of the bank serving as ex officio members. This committee joins the bank’s Chief Financial Officer (CFO) in overseeing several programs and details, including periodic stress testing on the entire bank portfolio, monitoring industry, geographic, and obligor exposure levels, and reviewing required reports on the default rate of the bank before submission to Congress.
The reforms further require Ex-Im Bank to conduct a study of the extent to which the products offered by the bank are available and used by companies that export Information and Communications Technology (ICT) services and related goods.