Pub. 10 2015-2016 Issue 6

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 © 2016 Bert Ely FCA Continues to Stonewall House Ag Committee T HE FARM CREDIT ADMINISTRATION (FCA) has yet to answer the questions members of the House Agriculture Committee posed to FCA Chairman and CEO Kenneth Spearman at the Dec. 2, 2015, hear- ing the committee held “to review the FarmCredit System.” As often occurs at such hearings, Spearman, FCA General Counsel Charles Rawls, and FCA Chief Examiner Robert Coleman were unable to answer all the questions fired at them during the three-hour hearing. Howev- er, as is standard procedure, Spearman and his colleagues promised to provide written answers to those questions. Oftentimes, answers to those questions are the only way to extract information from a government agency. So far, the FCA has stiffed its congressional over- sight committee by not answering the questions. How much longer will that continue? Farm Credit Council Blasts ABA Letter to House Ag Leaders In a Feb. 5 letter to Rep. Michael Conaway, chairman of the House Ag Committee, and Rep. Colin Peterson, the rankingDemocrat on the committee, Ken Auer, outgoing president and CEO of the Farm Credit Council (Council), which is the FCS trade association, blasted a Feb. 1 letter ABA President and CEORobNichols sent to Chairman Con- away and Ranking Member Peterson following up on the committee hearing. As is evident below, the Council’s let- ter appears to be a slapdash rehash of earlier Council responses to ABA letters rather than a thoughtful response to the points Nichols made in his letter. The ABA letter (www.aba.com/Ad- vocacy/LetterstoCongress/Documents/ HouseAgLetterFCS-hearing-follow- up02-01-16.pdf) summarized five areas of FCS activities that ABA recommends the House Ag Committee continue to examine: lending outside the FCS’ mission; indirect lending by FCS institu- tions to borrowers ineligible to borrow directly from the FCS; shadow banking activities such as accepting what effec- tively are deposits and providing pay- ment services; retaining mineral rights on property the FCS foreclosed on and then resold; and the FCS’ substantial overstatement of its lending to young, beginning, and small (YBS) farmers. The Council’s five-page, histri- onic rebuttal ( www.fccouncil.com/ news/press-releases/council-debunks- bankers-myths.html) made numerous false assertions about the FCS’ lending and other practices that Ag Commit- tee members had sharply criticized. The Council letter began by asserting that banks “have far greater taxpayer backing than does Farm Credit” while ignoring the fact that: 1) the FCS is a government-sponsored enterprise piggy-backing off the creditworthiness of the U.S. Treasury; 2) the FCS enjoys tremendous tax advantages that banks do not, notably the tax-free profits the FCS earns on its real-estate lending; and 3) deposit-insurance premiums paid by banks not only have covered the full cost of protecting insured depositors in failed banks, but also built the FDIC insurance fund to a $72.6 billion bal- ance as of Dec. 31, 2015. Responding to specific points in the ABA letter, the Council attempted to justify loans by CoBank and other FCS institutions to large, investor-owned, non-agricultural enterprises, such as Verizon, AT&T, Cracker Barrel, and the Saratoga Raceway casino, as lend- ing to “similar entities” that Congress authorized in 1992. It was quite evident at the Dec. 2, 2015, hearing that many Ag Committeemembers believe the FCS has stretched the meaning of “similar entity lending” to include any large company in corporate America. The council’s defense of the FCS’ indirect lending activities, such as AgDi- rect and ProPartners Financial, ignored the fact that much of the lending by these two FCS entities goes to borrowers who are not eligible to borrow directly fromthe FCS, such as a homeowner who finances the purchase of a ridingmower from a farm equipment dealer on paper that is purchased by AgDirect. Retained mineral rights are an es- pecially touchy issue for the Council to defend since the FCS has been barred by law since 1985 from retaining mineral rights when selling foreclosed property. The FCS justification for keeping those rights was that the future income from those rights would help “to recuper- ate losses experienced when a loan failed.” What the Council letter failed