Pub. 10 2015-2016 Issue 4

www.nebankers.org 24 Extraordinary Service for Extraordinary Members. Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2015 Bert Ely AgriBank: One of the World’s Safest Commercial Banks? A GRIBANK, THE SECOND-LARGEST Farm Credit System (FCS) bank, issued a news release in September 2015 proclaiming that it had been named “the safest bank in the United States by Global Finance Magazine.” Annually, the magazine publishes various overlapping lists, including the World’s 50 Safest Banks and the World’s 50 Safest Commercial Banks. According to a news release is- sued by the magazine, AgriBank ranked 30th on its Safest Bank list while Co- Bank ranked 45th and AgFirst 50th. The fourth and smallest FCS bank, Farm Credit Bank of Texas, was not ranked. According to the magazine’s news release, the “winners were selected through an evaluation of long-term foreign currency ratings . . . and total assets of the 500 largest banks world- wide.” The three FCS banks also appear on a companion list of the world’s 50 Safest Commercial Banks. These listings clearly demonstrate Global Finance’s ignorance of the FCS banks and the FCS itself, in two important regards. First, the magazine demonstrated no awareness of the interconnectedness of all FCS institutions through the con- gressionallymandated joint-and-sever- al liability of the four FCS banks for debt the FCS issues to the capital markets through its funding arm, the Federal Farm Credit Banks Funding Corpora- tion. Further, that joint-and-several liability is backstopped by the Farm Credit System Insurance Corporation (FCSIC), whose assets can be tapped to ensure timely payment of principal and interest by an FCS bank should that bank not be able to pay its share of debt issued by the Funding Corporation. At June 30, 2015, FCSIC assets equaled 1.73 percent of the bonds and notes issued by the Funding Corporation. FCSIC assets equaled 4.10 percent of CoBank’s share of Funding Corporation debt (CoBank is the largest of the FCS banks), with higher percentages for the other three FCS banks. The rating agencies acknowledge the FCS’ interconnectedness when rating the debt issued by the Funding Corporation; that debt accounted for 95.7 percent of all FCS liabilities at June 30, 2015. FCS debt, of course, is AAA-rated because the FCS is a gov- ernment-sponsored enterprise (GSE) implicitly backed by the U.S. Treasury. That backing was reinforced two years ago when the Federal Financing Bank, an arm of the U.S. Treasury, extended a $10 billion line of credit to the FCSIC. If Global Finance wishes to include the FCS in its listing of theWorld’s 50 Safest Banks, it should name the FCS itself and not individual FCS banks. Second, Global Finance erred in in- cluding the three FCS banks on its list of the World’s 50 Safest Commercial Banks. According to the magazine, “the institutions that make this list are not backed by government guarantees, but nonetheless are among the strongest and most secure banks in the world.” AgriBank was ranked 18th, CoBank 27th, and AgFirst 30th; Farm Credit Bank of Texas did not make the cut. Twenty of the institutions on the 50 Saf- est Banks list are not on the commercial bank list because they are government- owned or government-backed. What is most interesting about the commercial bank list is the classification of the FCS banks as commercial banks. Of course, as Farm Credit Watch readers know, the FCS banks are not commercial