The Corner

Why Ex-Im Really Is Boeing’s Bank: The Bank Actually Privately Consulted Them on Bank Policies

The Wall Street Journal has a incredible piece today (thanks to Scott Lincicome for the pointer) showing the power of regulatory capture — and the sheer dominance of Boeing over the Export-Important Bank.

The reporter, Brody Mullins, draws on e-mails between Exp-Im Bank and its biggest beneficiary, Boeing, to highlight how the company was involved in drafting new bank rules that “would be more palatable to Boeing.” The new rules were supposed to be a response to the Bank’s critics that its loans do not take under consideration the negative impacts they have on non-subsidized U.S. companies and workers:

When the Export-Import Bank sought to respond to critics with tighter rules for aircraft sales, it reached out to a company with a vested interest in the outcome:Boeing Co., the biggest beneficiary of the bank’s assistance…

Yet while the bank helps some American exporters, it irks other domestic firms.

Delta, for one, says the bank’s financing gives rivals such as Emirates Airline, Thai Airways International PLC and Air India an advantage in their aircraft purchases that isn’t available to U.S. carriers. For some foreign airlines, Ex-Im Bank’s financing can be less expensive than a standard commercial loan.

Here’s what regulatory capture looks like:

It’s amid such criticisms that the Ex-Im Bank and Boeing collaboration began. In August 2012, a bank official forwarded a draft proposal on the economic-impact trigger to several senior executives at Boeing and its aircraft-financing unit.

“Please note that this is an internal Ex-Im document still in draft form, but we wanted to get your input on several aspects of it prior to further developing the paper,” wrote Claire Avett, an Ex-Im policy analyst on Friday, Aug. 31.

“We look forward to working closely with you to define concrete next steps to be able to achieve these ends,” she wrote, referring to imminent internal deadlines.

“Subjecting and applying other transactions to detailed analysis under economic impact procedures has had the effect of killing most of those deals,” wrote Mr. Morin, in the Sept. 1 email. “Accordingly, it is very important that we establish the correct procedures here,” he said …

The next month, the partners delved into nitty-gritty details, including the time frame that would be used to assess economic impact (shortening the time period to 12 months might be best, one Boeing official suggested). They settled on 12 months …

In one email where the two sides discussed who should conduct the analysis, Ms. Avett, the Ex-Im Bank policy analyst, asks for input on “what would be most palatable to Boeing.”

There is something really messed up about the whole thing. Sure, forty percent of all Ex-Im activitives benefit Boeing, but if rules are being drafted to make sure Ex-Im isn’t unfair to other companies, why is Boeing getting such prominent input? The federal government already has a way to get input from industry about new rules that may affect them — it’s called the public-comment period, which takes place at regulatory agencies for all to see. Not with Ex-Im. 

It reminds me of the revelations last fall that the regulators at the Federal Reserve in New York were cozying up with one of the nation’s biggest financial institutions it was supposed to oversee. That’s a real problem.

Of course, this isn’t the example of Ex-Im’s trouble with transparency. The data it provides to the public (when it is available) about its activities is messy, incomplete, and not user-friendly. It has even made access to the data even worse in the last month. It suffers from fraud and abuse. Some of its employees are under investigation for taking bribes and kickbacks from beneficiaries. It’s not been at all responsive to recent reforms demanded by Congress.. 

Lawmakers have a chance to make things right with the public and with the millions of unseen victims of the Ex-Im Bank: Come June, they can just do nothing and let its charter expire. The easy, clean, and free-market solution!

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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