WASHINGTON, Feb. 11, 2015 – The American Bankers Association (ABA) wants Congress to hold oversight hearings on the Farm Credit System (FCS), reprising complaints that some commercial bankers have made for at least a quarter century and adding a few more. So far, there’s no hint of congressional interest and the Farm Credit Council (FCC), the system’s trade association, sees no need for hearings.
ABA’s members are “alarmed at the growth and questionable practices of” the system’s four banks and 78 local and regional lending associations, CEO Frank Keating wrote the chairs and ranking members of the House and Senate Agriculture committees Feb. 2 . In the letter, ABA said “ongoing misconduct” by FCS and what it considers “favorable treatment” under the federal tax code are “skewing market forces and harming the ability of local banks to strengthen their communities.”
FCC responded with a Feb. 5 letter characterizing the ABA allegations as “misleading and inaccurate” and their “apparent continued disconnection from the truth.” CEO Ken Auer offered a point-by-point rebuttal of the bankers’ statements. “Perhaps instead of pointing fingers,” he wrote, “ABA could instead join us in figuring out more innovative ways that both commercial banks and system institutions can benefit agriculture and rural America.”
Politically, the likelihood of a detailed congressional look at Farm Credit appears slim. Both ag committees are committed to an extensive legislative and oversight priority list that seems to leave little room for a controversy that offers little political gain for any members. “ABA has been asking for this for several years,” observes John Blanchfield, retired ABA agricultural banking vice president. “Congress has been loath to hold even a single hearing. The Farm Credit Council has been doing a very good job telling Congress that everything is good here.”
The Senate Agriculture Committee could raise some of ABA’s questions when it takes up the nominations of Jeffery S. Hall and Dallas P. Tonsager to the Farm Credit Administration (FCA) Board, the system’s regulator. That hearing will be soon, says Sarah Little, the committee’s communications director. “As with all agencies under the jurisdiction of the Ag Committee, you can expect Chairman [Pat] Roberts to conduct thorough and rigorous oversight,” Little adds.
ABA’s assault was intensified in December with a new website, ReformFarmCredit.org, that it said would to “increase awareness of the risks posed by” FCS. It cited specifically “the risks posed by the FCS’ implicit Treasury backing, the waste generated by its unfair tax advantages and the missed opportunities resulting from the FCS’ neglect of its core mission.”
Among Keating’s specific objections: the “exponential growth” of FCS (to $267 billion in assets) raises concerns of safety and soundness and “amplifies its negative effect on local market competitors.” FCA has allowed some FCS lenders to make “similar entity” loans that, Keating writes, are beyond what Congress intended. He cites FCS loans totaling $1.55 billion to Verizon, Frontier Communications, AT&T and U.S. Cellular and its participation in a $750 million line of credit to Cracker Barrel Restaurants.
“These loans lie far outside CoBank’s authority to lend to cooperatively owned telephone companies, yet it appears [FCA] has done nothing to prohibit CoBank’s lending to corporate America,” according to ABA consultant Bert Ely.
Keating also questions why a “taxpayer-subsidized GSE [government-sponsored enterprise] should own any mineral rights” retained after the sale of foreclosed properties dating from the 1930s. He challenges the idea of FCS institutions selling federal crop insurance policies and urges Congress to examine what he calls “shadow banking activities” of some FCS lenders.
“We would prefer to spend our time talking about [Farm Credit’s] record of success and to work to identify more ways Farm Credit can help rural America thrive economically,” FCC’s Auer writes. ABA’s letter “conveniently overlooks the fact that commercial banks have far greater taxpayer backing than does Farm Credit,” he adds. The FCC letter describes as “fabrications” the bankers' complaints about “similar entity lending authority,” crop insurance and several other activities.
Telecommunications loans and other “similar entity lending” are “exactly what the Congress contemplated” in 1992 and 1994 legislation, Auer asserts, pointing out that many such large loans are made jointly with ABA member banks. He also rebuts ABA complaints about FCS working with farm suppliers to finance equipment and providing borrowers with “closely related services” authorized by law, including farm record-keeping, tax preparation and financial planning. Some FCS lenders’ retained mineral rights, Auer says, have provided “significant income to system institutions” which in turn increases borrowers’ patronage refunds.
Crop insurance “is a critically important risk management tool for system borrowers,” FCC says, and Farm Credit employees who sell crop insurance meet the same licensing and regulatory requirements as other agents. “If ABA has specific evidence of any valid regulatory or legal challenges . . . they should be referred to appropriate authorities. We are not aware of any.”
FCS “has always recognized the value of the commercial banking sector and the role it plays,” Auer writes. “While ABA is loath to mention it, their members and Farm Credit institutions are working together every day. The fact remains that the credit needs in rural America are greater than either the commercial banks or the Farm Credit System can finance alone.”
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