Pub. 1 2012 Issue 5

24 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 Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE ©2012 Bert Ely A cting more like a cheerleader than a real regulator, the Farm Credit Administration (FCA) continues to protect the identities of the FCS institutions it takes enforcement actions against. According to the FCS’s first-quarter 2012 Information Statement, “the [FCA] had entered into written agreements with seven Associations” whose assets totaled $2.22 billion at March 31, 2012. The written agreements require these unnamed associations “to take corrective actions with respect to certain areas of their operations, including asset quality, capital and port- folio management.” On June 8, the FCA board of directors pursued “a formal enforcement action against [an FCS] institution,” presumably yet another association. Assuming enforcement orders are now outstanding against eight FCS associations, those associations account for almost 10 percent of the 83 FCS associations in operation on April 1, 2012. It is amazing, given the strength of the farm economy, that nearly one in ten FCS associations is in such serious financial difficulty that the FCA has had to take a formal enforcement action against them, yet they go unnamed, even to their owners, who are their member-borrowers. Sometimes an association will mention in a financial report that it is subject to an enforcement action, but howmany member-borrower/owners of these associations notice that tidbit of information or fully appreciate its importance? These folks are the very people who should be pound - ing the table, insisting that the directors and officers of their association take the necessary corrective actions – that is what stockholder discipline is all about. By not publicizing its enforcement actions, the FCA also keeps outside observers of the FCS, such as the media and members of Congress, in the dark about problems within the FCS. As bankers know all too well, the banking regulators have no such reticence – bank regulators publish enforcement orders, which often are reported in the local media. Last month, the FCA board voted to “pursue a formal enforce - ment action against a director of a System institution.” I believe this is the first time I have read about an enforcement action taken against an individual associated with an FCS institution, yet neither the institu- tion nor the individual are named, nor is the director’s specific offense cited. This non-disclosure practice differs from the practice at the bank regulatory agencies who routinely name the individuals they take action against and even ban them from banking. For example, on May 25, the FDIC issued a news release listing 56 enforcement orders it issued in April 2012, including removal/prohibition orders against four named individuals and assessment of civil money penalties against two other named individuals. This is a tough policy – naming names – but if it is acceptable for banking regulators to do it, then it certainly would be acceptable for the FCA to do so, too, if it were a true regulator. FCS Bank Directors Are Big FCS Borrowers It should come as no surprise to FCW readers that the directors of the FCS banks are large borrowers from FCS institutions, either directly or they FCA Continues to Protect FCS Insiders From FCS Owners