Pub. 4 2015 Issue 7

September 2015 23 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 FCA reconsiders a proposed regulation, at FCS's request On September 4, 2014, the FCA proposed revisions to its regulatory capital requirements, including “replacing references to credit ratings with alternative risk measurements, as required by the Dodd-Frank Act.” The comment period on these proposed revisions, after an extension, closed on February 16. On March 30, the FCA received a letter from the Farm Credit Council, the FCS’s trade association, “requesting FCA to reopen the comment period” so as to give [FCS] institutions the opportunity to meet with [the new FCA board members, Dallas Tonsager and Jeffrey Hall], in order to discuss the proposed rule.” The FCA did as asked, reopening the comment period for a very short 15-day period, ending on July 10. Only one comment was filed, by Dave Burlage and the FCS Capital Workgroup; Burlage is CoBank’s CFO. The comment consisted of a 12-page PowerPoint presentation to FCA officials on July 7. A key FCS complaint: “The proposed capital rule results in standards that are more stringent than those adopted by U.S. bank regulators for commercial banks and contains provisions that undermine cooperative business principles.” It will be interesting to see the extent to which the final capital rule the FCA issues has been bent to accommodate the FCS’s wishes. Treasury plays hide-the-ball on FOIA request On May 8 of last year, I filed a Freedom of Information Act request with the U.S. Department of the Treasury seeking all documents related to the very secretive manner in which Treasury’s Federal Financing Bank, on September 24, 2013, granted a $10 billion, taxpayer-backed line-of-credit to the Farm Credit System Insurance Corporation (FCSIC), the federal agency which insures debt issued by the FCS’s funding arm, the Federal Farm Credit Banks Funding Corporation. Unlike other federal agencies with Treasury lines-of-credit, such as the FDIC has, Congress did not authorize the FCSIC’s line of credit. Despite numerous follow-up requests, Treasury still has not produced a single document. The current line of credit expires on September 30. Congress should hold a hearing on how this potential tap on taxpayer monies came to be created and ponder whether it should continue. FCS Southwest still in limbo As the FCW reported last November, FCS Southwest, which serves most of Arizona and the Imperial Valley in California, suddenly pulled from its website all of its published financial reports because management had just uncovered potential loan fraud that rendered those statements meaningless, stating that the financial statements it had issued since 2009 “no longer can be relied upon.” At the same time, the FCA pulled from its website all FCS Southwest call reports filed after 2009. The association said it was “working diligently to prepare and republish restated financial reports . . . as quickly as possible.” Nine months later those reports still have not been republished nor have corrected call reports been posted on the FCA website. FCS Southwest has become a dark hole. On February 2, FCS Southwest announced that it would merge with Farm Credit West, a larger FCS association serving much of California. This deal has every indication of being a shotgun merger aimed at burying a weak or failing association into a financially stronger one. In the interim Farm Credit West’s CEO, Mark Littlefield, also is serving as FCS Southwest’s CEO, which suggests that operationally Farm Credit West already has taken over FCS Southwest, but without assuming its liabilities. This arrangement bears a strong resemblance to the “strategic alliance” FCS America entered into with Frontier Farm Credit of Kansas in June of last year – an operational takeover but no actual merger. According to an update currently posted on the FCS Southwest website, “later this summer all stockholders of [FCS Southwest] and Farm Credit West will receive the full merger disclose [sic] package that will include” among other items the “projected financial position of the merged associations.” Presumably those materials will include reissued, and audited, financial statements for FCS Southwest. Member/borrowers of the two associations are supposed to vote on this merger “in the August/September time frame with the anticipated merger date being sometime in the fourth quarter of 2015.” It will be interesting to see what actually transpires, and when.