Pub. 7 2018 Issue 1

January 2018 19 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 reliance on short-term funding because it was unhappy with the higher rate spread on longer-term FCS debt. However, as the Brookings report also noted, “the disruption of the long- term funding market for FCS obligations was temporary and the consequences were not serious.” Most troubling about this line-of-credit is that Congress never authorized it. Few members of Congress may have even known anything about its creation when it occurred. To get the details as to how this line-of-credit came to be created, in May 2014 — three and one-half years ago — I filed a Freedom of Information Act (FOIA) request with the Treasury Department requesting copies of all documents related to its creation. To date, Treasury has refused to provide any documents to me. Shortly, I will refile my FOIA request — hopefully this time it will be more productive. Glen Smith sworn in as the newest FCA director On Dec. 14, Glen R. Smith of Atlantic, Iowa, was sworn in as a director of the Farm Credit Administration (FCA), following the Senate’s Dec. 5 confirmation of his appointment as the third member of the FCA’s board of directors. He joins FCA chairman and CEO, Dallas Tonsager, and FCA board member Jeffrey Hall. Smith’s term will expire on May 21, 2022. He also will serve, along with Tonsager and Hall, as a director of the FCSIC discussed above. Smith is president and co- owner of Smith Land Service, a company specializing in farm management, land appraisal, and farmland brokerage services. He also owns a family farm operation that encompasses about 2,000 acres of primarily corn and soybeans in western Iowa. Unlike some former FCA directors, Smith has no known prior affiliations with any FCS institution. Iowa is one of four states served by FCS of America, headquartered in Omaha; it is the largest FCS association, with assets of $27 billion. It is unclear at this time what type of regulator Smith will be — a tough, independent regulator characteristic of all bank regulators or a cheerleader for the FCS, an all-to- common characteristic of FCA board members. In his written statement at his confirmation hearing, he said he “understood the important role of the [FCA] in setting policy, examining and regulating our nation’s largest agricultural lender, the [FCS].” He did express concern “about the current agricultural outlook, particularly with younger, risk-prone producers.” That is an excellent concern to have at this time, given the recent downturn in land values and crop prices, but the regulatory crunch will come in dealing with troubled FCS associations and recurring instances where FCS institutions have violated the FCS’s lending authorities. In this regard, Smith should support publication of all FCA enforcement orders. Farm Credit Financial Partners — an unknown FCS entity A little-known element of the FCS is Farm Credit Financial Partners, Inc., or FPI, an FCS service corporation providing back-office services to four FCS associations, the principal owners of FPI (FPI website). The four associations are Northwest FCS, Farm Credit West, AgCountry FCS, and Farm Country East, respectively the fourth, fifth, eighth, and ninth-largest FCS associations. At its Nov. 9 meeting, the FCA board of directors authorized Farm Credit of Illinois, the 10th largest association, to join FPI’s ownership group. The smaller Fresno-Madera Farm Credit and Yankee Farm Credit also belong to FPI. As is evident from its website, FPI provides a broad range of financial products and services to its member associations. One can reasonably ask when other associations will join FPI to take advantage of the economies of scale FPI most likely offers to its owners. A more interesting question: What does FPI’s growth signal in terms of further consolidation within the FCS, not only among associations but eventually between the two levels within the FCS — banks and associations? Put another way, as consolidation among the associations continues, what is the relevance of the FCS’s two-tier structure — the four funding banks and the 69 associations? FCA chairman Tonsager has essentially posed this question in several speeches since becoming chairman, suggesting rather strongly that FCS institutions need to begin considering the future structure of the FCS. It will be interesting to see if director Smith joins in that debate and the role FPI could play in advancing that debate. 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 urging the FCA, and especially its newest board member, to become more aggressive in 2018 in cracking down on FCS lending violations as well as other FCS violations of the Farm Credit Act. Hopefully, too, Congress will impose appropriate constraints on FCS lending when it enacts the next Farm Bill. 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.”