WASHINGTON, May 19, 2016 – Members of the Senate Agriculture Committee on Thursday heard the same story their House counterparts listened to at a hearing last December: The nation’s conventional banks aren’t happy with the Farm Credit System (FCS).
The Senate panel’s hearing was technically titled “The Farm Credit System: Oversight and Outlook of the Current Economic Climate,” but most of the discussion was devoted to how the Farm Credit System – the nation’s largest agriculture lender – is being used, rather than whether farmers have adequate access to credit.
As Chairman Pat Roberts, R-Kan., put it in his opening statement, lawmakers needed to look at “whether the Farm Credit Administration is exercising appropriate oversight of the Farm Credit System” in addition to “what impact the current credit environment is having on our nation’s farmers.”
In December, a House hearing on the same subject did not go well for Farm Credit. Lawmakers from both parties called for stronger oversight of the FCS and criticized the system for making loans that went well beyond agriculture – primarily citing a loan to telecommunications giant Verizon.
The criticism at the Senate hearing was not nearly as harsh – the Verizon loan was hardly mentioned. But witnesses testifying on behalf of the banking industry still spoke critically of perceived advantages given to FCS lending operations.
“We compete as much as we can . . . but I just can’t seem to touch the whole array of benefits that the Farm Credit Services has,” said Gus Barker, a banker from Iowa testifying on behalf of the Independent Community Bankers of America.
Barker and other bankers have been speaking against the FCS for years. According to testimony from Leonard Wolfe, the CEO and chairman of United Bank and Trust in Kansas, tax breaks given to FCS were valued at $1.3 billion in 2015. Wolfe, who testified on behalf of the American Bankers Association, said that if FCS were a private bank, it would be the ninth-largest in the nation, bigger than 99.9 percent of the banks in the country.
Doug Stark, the president and CEO of Farm Credit Services of America and Frontier Farm Credit in Omaha, which are part of FCS, said many of the perceived advantages are due to competing business models rather than breaks provided by the federal government.
“As a farmer-owned cooperative, we have a very different business structure. Frankly, community banks enjoy some of the same or similar access and backing by the federal government that the Farm Credit System does,” Stark said, pointing to figures in Barker’s written testimony showing similar growth rates and percentage of the market share in both operations as evidence.
“When you look at the facts, there’s no evidence to indicate that the pendulum is really swung in favor of the Farm Credit System,” he said.
Still, Wolfe said the “biggest threat” to his business is Farm Credit. However, he said he isn’t interested in expelling FCS from the market, but rather he wants the playing field leveled between his bank and his biggest competitor.
“There’s a real misconception that banks want to eliminate the Farm Credit System,” he said. “That’s not correct, I’m not an advocate of that. We have to coexist; we have to find a way to do that.”
Officials from the Farm Credit Administration – the entity appointed by the executive branch and charged with regulating FCS – also testified at the hearing, saying the system is on strong financial footing. The FCA witnesses also defended the broader scope of lending as a way to manage risk and diversify the system’s lending portfolio.
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