Pub. 3 2014 Issue 1

January 2014 17 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 Likewise, if the offer of a lower interest rate on a loan, “is made only to producers who purchased a policy from a specific agent or entity [such as the FCS] then an illegal inducement has occurred.” Willis conclude with a troubling observation – while “RMA has investigated numerous rebating allegations involving [FCS] throughout the United States . . . RMA has generally been unable to determine that an illegal inducement has occurred because it typically receives little or no evidence or documentation to support the complaint.” The Farm Credit Administration [FCA], the FCS regulator, could help the RMA and the states enforce rebating prohibitions by gathering data on illegal FCS rebating during FCA examinations of FCS institutions. FCS’s investments program harder to kill than Dracula Last month’s FCW reported that FCA had terminated its Investments in Rural America initiative, an eight-year pilot program. When FCA killed the pilot program, it said it “can consider investment requests on a case-by-case basis under existing investment regulations.” It did not take the FCA very long to approve a new FCS investment. On December 3, the FCA board authorized Badgerland Financial, the FCS institution serving southern Wisconsin, to invest “up to $5 million in the AgTech II equity venture capital fund as a limited partner.” It will be interesting to see how much information, if any, Badgerland discloses about the success, or lack thereof, of this gamble. A large FCS association is getting larger Much of the consolidation among FCS associations in recent years has consisted of mid-size associations, rather than the largest, bulking up through the acquisition of other associations. The three largest associations – FCS of America, Farm Credit Mid-America, and Northwest FCS – have not acquired another association for at least two decades. On the other hand, some not-quite-so-large associations have grown in recent years through numerous mergers. For example, MidAtlantic ACA is the product of six mergers, American AgCredit, headquartered in Santa Rosa, California, is the product of five mergers, and Capital Farm Credit of Bryan, Texas, the result of four mergers. Farm Credit East, headquartered in Enfield, Connecticut, and the product of three mergers, will soon acquire Farm Credit of Maine, itself the combination of two FCS associations. The expanded Farm Credit East will serve most of New England, New York, and New Jersey; Vermont and portions of New York and New Hampshire are served by the much smaller Yankee FCS association. One can readily imagine that Farm Credit East, already the seventh largest FCS association, will soon gobble up Yankee. Similar consolidation is likely to take place elsewhere within the FCS, with Kansas, Oklahoma, Texas, and California the leading candidates for substantial in-state combinations. Fitch confirms that FCS debt benefits from its GSE status On October 12, Fitch Ratings assigned a Negative Rating Outlook to the FCS, based on a Negative Outlook Fitch assigned to the federal government. Fitch stated that “as a GSE, the ratings of the [FCS] are linked to the U.S. sovereign rating.” Fitch further stated that “a change in GSE status could significantly and negatively impact the [FCS’s] ability to obtain and maintain cost-effective funding, a primary competitive advantage within the market place.” That is not news to bankers. Holiday Greetings and Best Wishes for the NewYear FCW wishes its readers as well as their families, friends, associates, and customers the very best for the Holiday Season and the New Year. While 2014 will be an interesting year for agriculture, one wishes the FCA would become a more vigilant regulator by, to cite just one example, cracking down on the widespread, illegal crop-insurance rebating practices of numerous FCS institutions. Report FCS lending abuses to: green-acres@ely-co.com Bankers are continu- ing to send FCW reports of FCS lending abuses, such as FCS loans for rural estates, weekend getaways, and hunting preserves. Email reports of similar lending abuses in your market to: green-acres@ely-co.com , providing as much detail as possible about the abusive loan.