Independent bankers question the farm in Farm Credit System
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WASHINGTON, June 25, 2014 - A hearing Wednesday morning on credit availability in rural America turned into a discussion on whether or not the Farm Credit System (FCS) is still serving rural customers.
As of March 31, 2014 the FCS reported gross loans totaling $204.6 billion, a 6.7 percent increase from the same date in 2013. In a prepared opening statement, Farm Credit Administration Board Chair and CEO Jill Long Thompson said FCS “remains fundamentally safe and sound and is well positioned to withstand the challenges facing agriculture.”
Despite the strength of FCS, some panel witnesses wondered if the FCS still considers agriculture its primary client. Many references were made to a loan made to telecommunications giant Verizon Communications. In early September 2013, a deal was struck to buy out British company Vodafone's stake in Verizon Wireless. In October 2013, reports surfaced that FCS lender CoBank financed $725 million as part of the $12 billion sum ultimately paid by Verizon Communications.
“This is a clear breach of FCS lending authority and a misuse of the taxpayer-backed [government-sponsored enterprise] implicit subsidies,” Independent Community Bankers of America (ICBA) President and CEO Camden Fine said at the time. “This egregious loan for a major telecommunications industry buyout between large multi-national corporations located in two of the world's largest cities is the latest example of unjustifiable mission creep and hardly represents a rural loan.”
Attention was also drawn to the sheer size and scope of FCS in comparison to smaller banks. Leonard Wolfe, President and CEO of United Bank & Trust in Marysville, Kansas, compared FCS to federal finance disasters Fannie Mae and Freddie Mac, saying that FCS is a government sponsored entity that “represents a risk to taxpayers.”
FCS' large size also leads to concerns of rivaling public and private interests as government-aided FCS often competes with commercial banks for the same business. That level of competition occasionally leads to accusation of FCS using its size to offer much more generous rates than smaller competitors can afford, something that Thompson said is handled carefully.
“Whenever there is a concern expressed from someone across the country regarding predatory pricing, we take that very seriously,” Thompson said, noting that appropriate actions are taken to address legitimate issues of predatory pricing. “But competitive is not by definition predatory.
Despite the friendly level of competition portrayed by FCS officials, Sean Williams, testifying on behalf of ICBA, said the competition can be largely one-sided.
“I could provide about 30 examples of the last three years where we lost a borrower to (FCS), and without exception it's a rate issue,” Williams said. “We're not afraid to compete, we just would like to be able to level the playing field.”
The price battle is something that Bob Frazee, President and CEO of MidAtlantic Farm Credit in Westminster, Md., said is good for the consumer.
“We're losing deals every day to commercial banks - it's a competitive environment. There's a lot of liquidity in the banking system and we've seen pressure on our loans and our margins. We think that's a good thing for customers, because ultimately farmers are going to benefit.”
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