Pub. 1 2012 Issue 3

April/May 2012 25 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s of the exposure under those rate swaps was $2.611 billion at the end of 2011, up from $1.780 billion at the end of 2010. Arguably the FCC is carrying water for CoBank and one large association. The rest of the FCS should not care a bit how the CFTC rules. The FCS uses rate swaps to enhance its net interest margin Although the FCS is a very limited player in entering into interest- rate swaps with its customers, it uses rate swaps extensively to enhance its net interest margin. Using rate swaps in this manner does not require the FCS to register with the CFTC as a swap dealer. Essentially, the FCS borrows at longer maturities and then uses swaps that effectively convert that debt to short-term, floating-rate debt. As the FCS stated in a footnote to its 2011 financial statements, “Interest rate swaps allow the [FCS] to raise long-term borrowings at fixed rates and swap them into floating rates that are lower than those [rates]available to the [FCS] if floating rate borrowings were made directly.” Swapping from longer term, fixed-rate debt into shorter term debt is opposite to what private-sector lenders generally do, but it works for the FCS because of its GSE status. That is, by being a GSE implicitly backed by federal taxpayers, the FCS has a greater advantage, in terms of the cost of a swap, over banks and other private-sector lenders as it moves out the yield curve. However, the FCS reduced its reliance on rate swaps during 2011 as it more closely aligned its short-term funding with its short-term assets and floating-rate loans. It then used its equity capital to hedge for rate risk further out the yield curve, especially for assets repricing one to five years in the future. Arguably the FCS is bet - ting, with its own capital, that longer term rates will continue at their very low level for at least the next few years. It will be interesting to see how well that rate bet pays off for the FCS. Report FCS lending abuses to: green-acres@ely-co.com Bankers are continuing to send FCW reports of FCS lending abuses, such as FCS loans for rural estates, weekend getaways, and hunting pre- serves. Email reports of similar lending abuses in your market to: green- acres@ely-co.com . Please provide as much detail as possible about any loan which violates the spirit, if not the law, governing FCS lending. To contact Bert Ely: Email: bert@ely-co.com; Fax: 703-836-1403; Phone: 703-836-4101 | Mail: P.O. Box 320700, Alexandria, Virginia 22320 AD INDEX ATM Maintenance Integrated Coating Systems..................................pg 15 Banks Bankers Bank of Kansas (BBOK)..........................pg 2 First Bankers’ Bank Securities, Inc......................pg 27 First National Bank of Hutchinson.......................pg 26 Intrust....................................................................pg 15 Certified Appraisers/Consultants Marketing Consultant Services, Inc.....................pg 26 Core Processors DCI.......................................................................pg 28 CPA/Accountants BKD........................................................................pg 3 EFT Networks Shazam.................................................................pg 19 Health Insurance Blue Cross Blue Shield of Kansas........................pg 19 Integrated Services Diebold...................................................................pg 5