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Risk in Context

How the US Export-Import Bank Shutdown Could Affect You

Posted by Evan Freely July 15, 2015

On June 30, the US Congress left for recess without reauthorizing the US Export-Import Bank’s (EXIM) charter.  According to EXIM’s website, the bank is no longer able to provide new financing capacity, although it will continue servicing existing obligations and current programs already underway.

What Does EXIM Do?

Backed by the US government, EXIM primarily provides financing to help US companies — particularly manufacturers and small and midsize enterprises — export their goods and services overseas. Its core activities include:

  • Export trade credit insurance, which protects against the risk of buyer nonpayment or default.
  • Loan guarantees, which help companies secure financing.

Fallout From EXIM’s Closure

EXIM stopped accepting new applications for loan guarantees or export credit insurance as of July 1.  It has announced that it will not be able to do any new business until Congress reauthorizes its charter.

Without EXIM’s insurance and loan guarantees, US exporters may not be able to sell to foreign customers or could find themselves at a disadvantage in relation to foreign competitors that can provide open credit terms.

What About Private Insurance?

Private insurers provide similar export credit insurance and financing solutions and are able to partially fill the void left by EXIM’s closure, which is expected to be temporary. Several underwriters offer trade credit insurance and have ample capacity to insure short-term transactions.

The picture for long-term transactions, however, is not so rosy. Part of EXIM’s mission is to provide services and solutions that help rebuild economies in emerging or traditionally unstable countries such as Afghanistan and Iraq.  Private insurance markets typically do not provide structured credit insurance or loan guarantees for these countries. Companies with long-term projects and those that plan to do business in emerging markets could be adversely affected by EXIM’s closure.

Hopeful Signs

Given its importance, there is widespread support for EXIM’s reauthorization. Some experts believe EXIM’s charter will be reauthorized as part of other legislation that will be voted on in the next 60 days.

In the meantime, companies that rely on export credit insurance or financing solutions should consider their options, including checking to see if the private insurance markets can fulfill their needs.

Related to:  Political Risk , Trade Credit

Evan Freely

Evan Freely is a managing director and Global Practice leader for Marsh’s Political Risk and Trade Credit Group. Evan joined Marsh in 2008 following seven years as the head of the Americas within a major broker’s Financial Solutions Division. Based in New York, Evan also specializes in providing political risk and credit insurance expertise to financial institutions and large corporations.