The Export-Import Bank — it’s a term making the rounds today, but many investors are wondering … what the heck is it?
Unless you run Caterpillar (CAT) or Boeing (BA) or another company that relies heavily on exports, there’s little reason to know what the Export-Import Bank is or does. After all, it mostly operates in the background as it facilitates trade between the U.S. and foreign countries.
It’s an important but hardly a sexy job, and so the Export-Import Bank only finds itself in the news because of .
Congress is threatening to let the charter for Export-Import Bank lapse, in which case it will be forced to close at the end of September. That would be a blow to big companies like CAT and Boeing, as well as any smaller firms that rely on trade.
Conservative Republicans decry the Export-Import Bank as a form of crony capitalism, but it does serve a key purpose in supporting foreign trade.
How the Export-Import Bank Backs Trade
Founded in 1934, the federal credit agency provides loans, loan guarantees and credit insurance to help U.S. companies export goods overseas. For example, when a loan from a private bank can’t be lined up for commercial or political reasons, the Export-Import bank could provide credit to a foreign buyer of a U.S. product.
As such, the Export-Import Bank helps U.S. companies be competitive in foreign markets. Supporters say the loss of the Export-Import bank will make it harder for U.S. companies to compete against rivals in Europe, Japan and China.
That’s why corporate America is lining up to support the Export-Import Bank. General Electric (GE) Chairman Jeff Immelt warned that .
China, Japan and the European Union all have booming trade ties to the vast continent. The U.S. is far behind, and needs the help of the Export-Import Bank to catch up. As Immelt said to the Financial Times: “We are basically making a statement as a country that we do not think that exports are important.”
Indeed, a closure of the Export-Import Bank would be a serious blow to U.S. companies generally, according to the Washington Post.
Boeing is the biggest recipient of Export-Import Bank financing, receiving $8.3 billion in backing in fiscal 2013 — or about 30% of the bank’s total financial assistance provided that year, , citing a private report.
The most important thing to know about the Export-Import Bank is that if it goes away, it will leave everything from American blue-chip companies to small business at a big disadvantage at winning overseas trade.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
