Pub. 7 2018 Issue 1

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 CREDITWATCH® FCS’s $10 Billion Treasury Line-of-Credit Extended Another Year T HE FCS’S $10 BILLION LINE-OF-CREDIT WITH the Treasury Department’s Federal Financing Bank, or FFB, was recently renewed for another year, to expire on Sept. 30, 2018. This line-of- credit was first created in September 2013 and has been renewed annually since then. No public notice was given announcing this renewal — its extension for another year could only be detected by noting the change in expiration date, as reported in a footnote to the FCS’s quarterly financial statements. Technically, the parties to this line-of-credit are the FFB and the Farm Credit System Insurance Corporation (FCSIC), the FCS entity which insures the Systemwide Debt Securities issued by the Federal Farm Credit Banks Funding Corporation. Those securities fund the bulk of the FCS’s balance sheet; at Sept. 30, 2017, outstanding FSCIC-insured securities totaled $257.9 billion. Unlike a line-of-credit issued by a commercial bank, the FCSIC pays nothing for it — it is a freebie provided by taxpayers. The FCSIC “may use these funds to provide assistance to the [FCS] Banks in exigent market circumstances that threaten the Banks’ ability to pay maturing debt obligations.” Any funds the FCSIC borrowed from the FFB to help provide assistance to the four FCS banks would be in addition to the FCSIC tapping its own assets to provide assistance; those assets totaled $4.75 billion at Sept. 30, 2017. Creation of the line-of-credit was driven by the 2008 financial crisis. At least publicly none of FCS banks experienced any difficulty in paying maturing debt obligations. However, and this is an important however, the spread between Treasury debt and FCS debt widened in the aftermath of the crisis. As a report prepared by The Brookings Institution stated in justifying the creation of the line-of-credit, “the unprecedented instability in the global financial markets reduced FCS’ ability to issue debt with preferred maturities and structures” [emphasis supplied]. Consequently, the FCS increased its Billion