The 114th Congress has begun debate over whether to reauthorize the Export-Import Bank of the United States (Ex-Im Bank), set to expire on June 30, 2015. Businesses that have received financing from the Ex-Im Bank, as well as those interested in financing, should be aware of the legal landscape surrounding the reauthorization debate. 

The Ex-Im Bank seeks to promote U.S. exports. Businesses can apply to the bank for financing—through direct loans, loan guarantees, capital finance, or credit insurance—to reduce the risk of exporting U.S. goods to foreign markets. The bank employs more than 400 people and authorized more than US$20 billion in financing in Fiscal Year 2014. Opponents of reauthorization argue that the bank’s financing fails to help small business and distorts the export market. During the last Ex-Im debate, Congress only agreed to reauthorize the bank in its existing form for nine months as part of the Fiscal Year 2015 Continuing Resolution, after failing to reach agreement on a longer reauthorization. 

Representative Stephen Fincher (R-Tenn.) has introduced legislation, H.R. 597, to reauthorize the bank with reforms to its governance and lending policies. House Speaker John Boehner (R-Ohio), who supports reauthorizing the bank with reforms, has told reporters that “there are thousands of jobs on the line that would disappear pretty quickly if the Ex-Im Bank were to disappear.” Meanwhile, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) has said that a majority of Republicans on the House Financial Services Committee do not support reauthorizing the bank.

As Congress prepares to debate the Ex-Im Bank, businesses should be aware of the legal consequences if Congress allows the bank to expire. In sum, the Ex-Im Bank would likely need to continue making payments on obligations incurred before June 30 well beyond the bank’s expiration date.

Legal Consequences if Congress Fails to Reauthorize

Contrary to some opponents’ statements, allowing the Ex-Im Bank to expire would not “kill” the bank. The Export-Import Bank Act of 1945 contains a specific provision, codified in United States Code Title 12, Section 635f, that provides for the termination of the bank. Under Section 635f, as amended by the FY2015 Continuing Resolution, the bank will continue normal functions until close of business on June 30, 2015. After close of business, the bank may not take on any new obligations. But the bank may acquire new obligations up until close of business on June 30, even if those obligations mature after June 30. 

Thus, even if Congress does not reauthorize the Ex-Im Bank, businesses can continue to apply for financing so long as the bank disburses financing before close of business on June 30, 2015. Consider a business that applies to the Ex-Im Bank for credit insurance to protect itself from a foreign purchaser that fails to pay on U.S. goods. The business can apply for credit insurance up until the close of business on June 30. But the bank needs time to approve the application. As long as the bank approves the application and takes on the obligation to provide credit insurance before the bank’s June 30 expiration, the bank is obligated to pay claims on the credit insurance. That remains true for the life of the approved policy, even if the business does not file a claim on the credit insurance for years after the expiration of the bank.

The Ex-Im Bank's plans1 to terminate operations in the absence of appropriations from Congress, prepared for the 2013 government shutdown, also provide possible insight into the winding down of the bank. Under those plans, the bank continues to incur obligations taken on before June 30. Approved disbursements not yet operative would be closed. According to the Ex-Im Bank Inspector General, the bank would need to defer payments on other obligations incurred prior to June 30, unless the payment is reasonably necessary to protect life or property. Under that standard, a U.S. exporter with approved financing would need to argue that the failure to disburse a payment would jeopardize life or property, including risking approved credit or imminent or actual default. 

But under the bank’s plan to terminate operations in the 2013 government shutdown, the bank would likely continue to pay obligations disbursed by June 30, 2015, including for the direct loan, guarantee, and insurance programs. The bank argued that such payment would be authorized, even required, under the necessary implication doctrine to maintain the full faith and credit of the United States government. To avoid conflicting with full faith and credit, the bank would continue to service financing disbursed well after close of business on June 30.

Alternatively, Congress could specify how the Ex-Im Bank winds down. For example, Representative Justin Amash (R-Mich.) and Senator Mike Lee (R-Utah) have introduced legislation, H.R. 1605, to wind down the bank. Under the Amash-Lee bill, the bank would be abolished after three years, and remaining authorized activities would be transferred to the Treasury Department. Similarly, Congress could specify certain activities funded by the Ex-Im Bank to continue; the bank would need to make payments if those activities would be harmed or impaired without payment. But Congress would likely be unable to block payments for obligations like guarantees and insurance implicating the full faith and credit of the United States government.

Special thanks to Timothy J. Ford on his contribution to this upate.