Pub. 12 2017-2018 Issue 4

WWW.NEBANKERS.ORG 20 T HEFOURFARMCREDITSYSTEMBANKSAREAMONGTHEWORLD’S 50 safest commercial banks, according to a recent press release issued by the online magazine Global Finance. (View the release at http://bit.ly/SafestBanks. ) Agri- Bank was ranked No. 19, CoBank No. 25, AgFirst No. 28, and Farm Credit Bank of Texas No. 30. The press release states that the banks on its list of the safest commercial banks “were selected through an evaluation of long-term foreign currency ratings—from Moody’s, Standard & Poor’s, and Fitch.” Apart from their equity capital, the Farm Credit System (FCS) banks are almost entirely funded with debt issued by the Federal Farm Credit Banks Funding Corporation and are jointly and severally liable for that debt. Global Finance, though, did not acknowledge that fact nor the fact that the four FCS banks are government-sponsored enterprises (GSEs) implicitly backed by the federal government; they are also the beneficiaries of a $10 billion cost-free line of credit from the U.S. Treasury. Five U.S. bank holding companies alsomade the top-50 list: U.S. Bancorp (21), BNY Mellon (40), State Street (43), Northern Trust (44), and Wells Fargo (49). It is absolutely appalling that Global Finance fails to un- derstand that the FCS banks are not commercial banks. Even worse, when I explained that rather obvious fact to the editors at Global Finance, they would not acknowledge it. More troubling, when CoBank touted its inclusion in the list of Global Finance’s 50 safest banks in a news release (go to http://bit.ly/CoBank- GFList) , it failed to note that its outstanding debt is raised for it by the Funding Corporation and that it was erroneously in- cluded in Global Finance’s companion list of the world’s safest commercial banks. CoBank’s failure to publicly state it should not be characterized as a commercial bank is a tacit admission that it does not mind being viewed by Global Finance’s readers as a commercial bank. Worse, for at least the last six years, CoBank news releases have cited it as being ranked by Global Finance as one of the world’s safest banks without pointing out the magazine’s error in characterizing it a commercial bank. If CoBank has no objection to repeatedly being called a commercial bank, then it should be regulated as if it were a commercial bank. In an attempt to set the record straight, I emailed the editors at Global Finance to explain that the FCS banks are not commercial banks and that they are largely funded by the unranked Funding Corporation. On September 29, Andrea Fiano, Global Finance’s editor, emailed a substantive reply but failed to addressmy central complaint—the magazine's characterization of the FCS banks as commercial banks when they clearly are not. Worse, on October 6, Global Finance published a list of the “Safest 25 Commercial Banks in the World,” which is merely the top 25 banks from its earlier list of the 50 safest commercial banks. Accordingly, this list includedAgriBank andCoBank. So far, Fianohas failed to respond to a follow-up query as towhyGlobal Finance continues to call the FCSbanks commercial banks.Hopefully, Global Financewill soon drop the FCS banks from its list of the safest commercial banks. The FCS’ regulator, the Farm Credit Administration (FCA), should object to any mischaracterization of any FCS institution, if for no other reason than to protect its regulatory turf. Certainly, if a widespread belief developed that FCS banks are commercial banks, then political pressurewould build to subject themto over- sight by the bank regulators, specifically the OCC and the Federal Reserve. The FCA has indicated that it will respond tomy request for a comment onGlobal Finance’smischaracterization of the FCS banks as commercial banks. I will share that response with Farm Credit Watch (FCW) readers after I receive it. Finally, I emailed CoBank to request that it informthemagazine that CoBank is not a commercial bank and to cease publicizing, even indirectly, that it, and the other three FCS banks, are among the world’s safest com- mercial banks. So far, CoBank has not responded to this request. What Is Happening at Lone Star Ag Credit? As previously reported in FCW, on August 9, Lone Star Ag Credit, the FCS association headquartered in Fort Worth, Texas, issued a Notification of Non-Reliance on Previously Issued Fi- nancial Statements Applicable to the financial statements Lone Star issued for 2016 and the first quarter of 2017. In a parallel move, the FCA dropped from its website Lone Star’s quar- terly call reports for 2016 and the first quarter of 2017. Apart from the Notification of Non-Reliance, Lone Star has posted Bert Ely — continued on page 22 Shedding Light on the Farm Credit System, America’s Least Known GSE © 2017 Bert Ely THE FOUR FCS BANKS ARE COMMERCIAL BANKS? BERT ELY’S FARM CREDIT WATCH®