Pub. 5 2016 Issue 5

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 6 KBA LEADERS LEDGER By Chuck Stones, President O N MAY 19, the U.S. Senate Agriculture Committee, chaired by Kansas Senator Pat Roberts, held a long awaited hearing on the Farm Credit Administration and the Farm Credit System in general. Former KBA Chairman, Leonard Wolfe testified on behalf of the ABA. Leonard highlighted the significant risk that FCS poses to taxpayers, who would be left to foot the bill if the GSE – which holds $304 billion in total assets – were to run into financial trouble. This obligation was formalized in 2013 when the Farm Credit System’s Insurance Corporation secured a $10 billion line of credit from an arm of the U.S. Treasury. “[FCS’s] increased reliance on taxpayers is a disturbing development, to say the least, and the Farm Credit Administration should be forthright about what that means for taxpayers,” Wolfe said. “We urge Congress to perform an autopsy on the system to ensure that their charter of helping young, beginning and small farmers is being followed. If it’s not, we urge Congress to remove the significant tax break provided to the system.” Wolfe added that lending by the FCS to YBS farmers has steadily declined over the years, dropping from 30 percent of total new loans in 2003 to just 14.1 percent in 2015. At the same time, FCS has increased its lending to large borrowers: at the end of 2015, 45.5 percent of all outstanding loans made by the GSE were in excess of $5 million, including multimillion dollar loans to telecom giants like Verizon and Frontier Communications. “Clearly, those who would benefit the most from the highly subsidized credit made available by the FCS are not receiving the benefits that Congress intended them to receive,” Wolfe said. Like the hearing in the U.S. House last December, this hearing brought up several important points, mostly during the question and answer period. They were asked how they legally could lend to entities outside of agriculture, how they could legally offer what is advertised as a demand deposit service and there was considerable discussion about why banks in some rural areas, at least in Michigan, were no longer offering agriculture loans. In my opinion, their answers to these questions were vague and did not hold water, and in response to the last issue, Leonard made the strong point that the ability of FCB to undercut local banks was the reason for the lack of competition. We look forward to discussing these issues with Senator Roberts during our annual Federal Affairs trip to DC. After the hearing, there was an interesting series of columns in an ag publication, Agri-Pulse. The first column was written by Todd Van Hoose, President & CEO of the Farm Credit Council, the trade association for the Farm Credit System in Washington, D.C.. The final paragraph in his column reads: “If Mr. Wolfe is sincere in his statements - if he and his fellow community banking executives truly do want to find a way to peacefully and productively coexist with Farm Credit - then we call on them to stop talking about “autopsy” and rein in the irresponsible actions and misleading rhetoric of their trade associations. Farm Credit stands ready to continue working with community banks for the benefit of rural America. But it will be much easier to do so when their lobbyists stop agitating for Farm Credit's demise.” (Read the full column here: http://bit.ly/29xeUvX ) Here is the final paragraph of Leonard’s response: “Community banks and the Farm Credit System can compete, but there needs to be a level playing field, and that can only happen if the System is kept in check by its regulators and Congress. And I earnestly believe that the Farm Credit System and community banks can work together to make sure America's farmers keep feeding the nation and the world. But the Farm Credit System needs to conduct a rigorous examination of its mission, its values, its practices and how these comport with the spirit of its founding law. Congress has begun that work and we will continue to insist that they do so annually. That is the least we can expect for a government-sponsored enterprise.” (You can also read Leonard’s full response here: http://bit.ly/1VC2C5h ) Clearly Leonard’s testimony hit a nerve. We appreciate the House and Senate Agriculture Committee’s holding oversight hearings on the Farm Credit Administration and the Farm Credit System. Hopefully, those hearings will serve as a good “first step” towards understanding how the FCB has come to operate during the last several years. We believe Congress should hold annual oversight hearings on the Farm Credit System. In future hearings, possible suggestions that the Committees could explore would be whether or not the FCB’s “loan pre-payment” option is merely another name for a deposit account in violation of law, how the FCB’s tax exemption impacts local and state governments, exploration of how the federal government could benefit from the FCB’s profitability, and whether or not the FCA enforces the language of the statute that prohibits charging less than prevailing loan rates.