Pub. 5 2016 Issue 1

January 2016 21 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 It may take a change in the Farm Credit Act, though, to impose a 15% limit on all FCS institutions. FCS deposit-taking Committee chairman Michael Conaway, a former banker, raised an issue of great importance to bankers – FCS deposit-taking – when he asked how “funds held” accounts are not in fact deposit accounts. The FCA sidestepped his question by answering that “Voluntary Advance Conditional Payment Accounts,” or VACPs, have been authorized by the FCA. However, the FCA seems unaware, or chooses not to be aware, of the extent to which FCS associations are flouting the limitations the FCA has supposedly imposed on VACP accounts. Specifically, an FCA memorandum states that “the VACP balance should be at or below the projected maximum outstanding loan balance for related loans using a revolving line of credit.” However, FCS of America, the largest FCS association, offers a CashPlus program which states on its webpage the following: “Even if you don’t have a need for a line of credit, you can still take advantage of all the great CashPlus benefits as long as you have an active loan of some type. There are no minimum or maximum amount restrictions on CashPlus.” Either the FCA does not have a clue as to what those it regulates are doing or it intentionally misled Chairman Conaway as to the extent of deposit-taking by FCS institutions. YBS lending A number of committee members asked Spearman about the FCS’s lending to young, beginning, and small (YBS) farmers. Again, Spearman and his colleagues tap- danced around this issue, overstating, as the FCA always does, the amount of YBS lending the FCS actually does. That is the case because an FCS loan to a farmer or rancher who is young (under 35), beginning (farming 10 or fewer years), and small (agricultural receipts below $250,000) is tripled-counted as a YBS loan. Despite this overcounting, as the July 2015 FCW reported, FCS loans and commitments to YBS borrowers, as a percentage of total FCS loans and commitments, declined from 2009 to 2014. One positive note: There was broad agreement among committee members that the committee needs to hold FCS oversight hearings more frequently. Hopefully the inadequate job Spearman and his colleagues did in answering questions posed by committee members will cause that to happen. Ideally, the committee will hold annual oversight hearings. Maybe next time it will get better answers. Treasury Dept. still has not responded to my FOIA request Nineteen months ago, on May 8, 2014, I filed a Freedom of Information Act (FOIA) request with the U.S. Treasury Department asking for a copy of all documents pertaining to the establishment of the FCS’s $10 billion line-of-credit at the Treasury Department. First created on September 24, 2013, that line-of-credit has been renewed twice since then; it now expires on September 30, 2016. Technically, the line-of-credit is an agreement between Treasury’s Federal Financing Bank and the Farm Credit System Insurance Corporation, which insures the debt issued by the FCS’s funding arm, the Federal Farm Credit Banks Funding Corporation. This Treasury line-of- credit was created without any congressional authorization and supposedly without the knowledge of anyone in Congress. The creation of this line-of-credit was justified by a report the Brookings Institution issued in November 2012 titled “Farm Credit System Liquidity and Access to a Lender of Last Resort.” One of its authors was Donald Kohn, who was Vice Chairman of the Board of Governors of the Federal Reserve during the 2008 financial crisis, a time when the FCS claims that it experienced difficulty selling its debt at what it considered to be a reasonable spread over the Treasury yield curve. Presumably the documents I have requested will tell the inside story as to how the line-of-credit came to be created and who knew what about its creation. Not surprisingly, the Treasury Department has dragged its feet in releasing the requested documents. I continue to persevere in obtaining them. 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 preserves. Email reports of similar lending abuses in your market to: green-acres@ely-co.com Holiday Greetings and Best Wishes for the New Year FCW wishes its readers as well as their families, friends, associates, and customers the very best for the Holiday Season and the New Year. I join with America’s taxpaying bankers in hoping that in 2016 the FCA will become more aggressive in cracking down on lending violations by FCS institutions as well as other FCS violations of the Farm Credit Act, especially those committed by CoBank. ?