Pub. 3 2014 Issue 7

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 18 BERT ELY’S FARM CREDIT WATCH ® SHEDDING LIGHT ON THE FARM CREDIT SYSTEM, AMERICA’S LEAST KNOWN GSE ©2014 Bert Ely Long Thompson warns the FCS On July 14, Jill Long Thompson, whose term as chairman of the Farm Credit Administration (FCA) board expired on May 21, gave what may be her last speech as FCA chairman. She broadcast two warnings to the FCS. First, she addressed the issue of “reputation risk,” in reality political risk, the FCS creates for itself whenever an FCS institution makes a loan or engages in an activity not permitted under the Farm Credit Act. CoBank’s $725 million loan to Verizon is an excellent example of creating reputation risk. Although Long Thompson did not mention Verizon by name, she probably had that loan in mind when she asserted in testimony last month to a House Agriculture subcommittee the “legality” of loans “that some considered to be outside the realm of the [FCS’s] mission.” Long Thompson then warned the FCS, and perhaps more specifically CoBank: “I will also note that sometimes it’s not enough to just be right – you must ensure that your actions also appear to be right. We sometimes refer to this as managing reputation risk. That’s why I encourage all [FCS] institutions to continue emphasizing your mission to serve agriculture and rural America and to tirelessly seek ways to fulfill this mission more completely and effectively.” [italics in the original] She further stated that “[s]ticking to your mission is one important way that you can manage reputation risk. Another important way is to tell your story – not just to potential borrowers but to the broader public. You must help the public understand the critical role the [FCS] plays in agriculture.” [emphasis supplied]. The last time I checked Verizon and Frontier Communications, the recent beneficiary of a $350 million “credit agreement” with CoBank, are not farmers. Second, in a very defensive tone, Long Thompson said she “would argue that the [FCS] actually needs us [i.e., the FCA] to be an independent arm’s length regulator. If your borrowers, if Congress, and if the general public perceive us to be a ‘pocket regulator,’ their confidence in the checks and balances on the [FCS] weakens. Public perception is a powerful thing. Seeing that the [FCS] has an independent, arm’s-length regulator gives investors in [FCS] debt more confidence in the safety and soundness of their investments; it gives borrowers more confidence that they will receive fair treatment; and it gives Congress more confidence that the [FCS] will fulfill the mission for which it was created. It all comes back to reputation.” [italics in the original] Bankers, of course, learned long ago that the FCA turns a deaf ear towards the many complaints about FCS lending abuses. Is CoBank listening? CoBank reportedly has acknowledged that it botched the public-relations aspect of its loan to Verizon, yet its reputation as the rouge elephant in the FCS barnyard was enhanced last week at a White House-sponsored conference, attended by hundreds, at which it was announced that CoBank is joining