Pub. 12 2017-2018 Issue 6

WWW.NEBANKERS.ORG 22 farm income in 2018, to a level less than half the record income farmers earned in 2013, “there’s a lot of stress and a lot of du- ress on the farms today,” as U.S. Agriculture Secretary Sonny Perdue stated during a recent hearing of the House Agriculture Committee. Has the FCS begun to mask the effect of that stress and distress on its borrowers by encouraging farmers to defer repayment of loan principal? In recent testimony to the House and Senate Agriculture Appropriations Subcommittees, Ton- sager noted that four FCS associations “were under supervisory actions,” which suggests that borrower distress is beginning to surface in FCS associations. Encouraging the deferral of prin- cipal repayments could unwisely delay the FCA’s recognition and acknowledgement of additional credit-quality problems within the FCS. FCA Chairman Again Suggests Changes in FCS Structure In his FCC speech, Tonsager touched on the structure of the FCS, an issue he has previously addressed, as reported most recently in the February and May 2017 editions of Farm Credit Do the larger associations, for example, need to fund themselves through one of the four banks when they could just as easily deal directly with the Federal Farm Credit Banks Funding Corporation, the FCS’ link to the capital markets? Watch. He asserted that while the FCS “has been in a constant state of renewal since its inception in 1916, as it continues to evolve, we must evaluate how any proposed change could impact the integrity and cooperative structure of the [FCS].” In particular, he stated that “we must consider how the change might affect the relationship between the funding bank and its associations.” What Tonsager is implying, but seems unwilling to state explicitly, is that the FCS’ two-tier structure—four regional banks funding 68 associations of widely varied size—is obsolete. Do the larger associations, for example, need to fund themselves through one of the four banks when they could just as easily deal directly with the Federal Farm Credit Banks Funding Corpora- tion, the FCS’ link to the capital markets? Further consolidation within the FCS, particularly at the bank level, will heighten this issue because the strength of the joint-and-several liability of the FCS banks for debt issued by the Funding Corporation will be questioned if the number of banks—not so long ago there were 12—shrinks to three or even two. While Tonsager has repeatedly questioned the FCS’ structure, but noticeably without offering any restructuring proposals, it is most troubling that he views this issue as something to be ad- dressed only within the FCS, as he suggested when he told FCC members that “your members and stakeholders must have confi- dence that structural changes are in the best long-terminterests of the [FCS] and those it serves.”By implication, Tonsager said that all otherswith interests in rural America, including commercial bank- ers, as well as the taxpayers backing the FCS, should be excluded fromany discussions about restructuring theFCS. That shouldnot be the case. Instead, every party with an interest in the health of agriculture and rural America should be involved in a very public discussion about the structure of the FCS, possibly in conjunction with a discussion of its tax status, as suggested above.  To contact Bert Ely, email bert@ely-co.com , phone (703) 836-4101, or send mail to P.O. Box 320700, Alexandria, Va. 22320. Reform Farm Credit: Help educate the public, the press, and policymakers. Get the facts, take a stand at http://reformfarmcredit.org . If your bank belongs to the American Bankers Association (ABA), you can enjoy a free email subscription to Farm Credit Watch or you can read it monthly online at www.aba.com . To receive Farm Credit Watch by email or to manage your subscription, visit ABA Member Email Bulletins at www.aba.com/Tools/Ebulletins/Pages/default.aspx. For other inquiries, please contact Barbara McCoy at the ABA at (800) BANKERS or bmccoy@aba.com . Bert Ely — continued from page 21