Pub. 12 2017-2018 Issue 5

WWW.NEBANKERS.ORG 22 Bert Ely — continued on page 24 Shedding Light on the Farm Credit System, America’s Least Known GSE © 2018 Bert Ely FCS’ $10 BILLION TREASURY LINE OF CREDIT EXTENDED ANOTHER YEAR BERT ELY’S FARM CREDIT WATCH® T HE FARM CREDIT SYSTEM’S $10 BILLION LINE OF CREDIT WITH the Treasury Department’s Federal Financing Bank was recently renewed for another year, to expire on September 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 on the quarterly financial state- ments of the FarmCredit System (FCS). Technically, the parties to this line of credit are the Federal Financing Bank (FFB) and the FarmCredit System Insurance Corporation (FCSIC), the FCS entity that insures the systemwide debt securities issued by the Federal Farm Credit Banks Funding Corporation. Those secu- rities fund the bulk of the FCS’ balance sheet; as of September 30, 2017, outstanding FCSIC-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 September 30, 2017. Creation of the line of credit was driven by the 2008 financial crisis. At least publicly, none of the 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 (http://bit.ly/FCSBrook- ingsRpt12) 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 preferredmaturities and structures” [emphasis supplied]. Consequently, the FCS increased its 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 fundingmarket for FCS obligations was temporary and the consequences were not serious” [emphasis supplied]. Most troubling about this line of credit is that Congress never authorized it. Few members of Congress may have even known anything about its creationwhen it occurred. To get the details as to how this line of credit came to be created, inMay 2014—three and a half years ago—I filed a Freedomof InformationAct (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 Newest FCA Director On December 14, 2017, Glen R. Smith of Atlantic, Iowa, was sworn in as a director of the Farm Credit Administration (FCA), following the Senate’s December 5, 2017, confirmation of his appointment as the third member of the FCA’s board of directors. He joins FCA Chairman and CEODallas 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 farmoperation 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 FarmCredit Services of America (FCSAmerica), 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-too-common characteristic of FCABoardmembers. In his written statement at his confirmation hearing, he said he “understood the important