Pub. 13 2018-2019 Issue 6

NEBRASKA BANKERS ASSOCIATION 25 Second, did Reiners give any consideration as to how an expansion of the FCS’s banking powers, and especially permitting it to accept insured deposits, would affect how Congress deals with the FCS? of funding.” Admitting commercial banks into the FCS would violate the territorial exclusivity that FCS associations, with a few exceptions, now enjoy, creating a competition between FCS associations and commercial banks admitted to the FCS that does not now exist. This aspect of Reiners’ proposal ignores a key ownership difference between FCS associations and banks — FCS borrowers must also own a nominal amount of stock in the association they are borrowing fromwhile there is a complete separation between commercial bank ownership and being a bank customer. Another issue Reiners does not address satisfactorily is the geographical limitation on where these bank-like FCS associa- tions could and could not operate. He states that “FCS banks would be restricted to serving customers that operate exclusively in rural communities (as defined by some objective standard, e.g., census tracts).” As bankers in rural and semi-rural areas know so well, it is not possible to draw a sharp line between rural and non-rural areas. Worse, that line is constantly shifting on the edge of urban areas as population growth leads to the conversion of farmland and small villages to urban and suburban districts. Further, many retail businesses and other types of businesses with rural locations also have operations in urban areas that presumably could borrow from an FCS bank. On the deposit-taking side of the balance sheet, Reiners help- fully observes that “if [FCS] associations are to attract deposits, these deposits must be insured, similar to how commercial bank deposits are insured by the FDIC.” He then states that “thank- fully the [FCS] Insurance Corporation (FCSIC) already serves as the government insurer for FCS debt obligations.” Today, the deposits some FCS institutions accept are not insured by any government agency. Reiners proposes that “under FCS banking the FCSICwould also serve as the insurer of deposits held at asso- ciations (subject to threshold limits). FCSIC’s deposit-insurance fund would be funded through annual premiums on deposit taking associations.” In effect, Reiners is proposing creating a new deposit-insurance fund not that many years after Congress merged the bankrupt FSLIC into the FDIC. Reiners does acknowledge that the FCS could get into finan- cial trouble, as it did in the 1970s, stating that “should the FCS ever get into trouble, it will require a taxpayer bailout.” That is a startling, but honest admission. He then acknowledges that “while the potential for an FCS bailout remains,” he erroneously states that “in 2008, Congress bailed out the largest banks to the tune of $700 billion — more than twice the amount of current FCS assets.” That is simply false, for as bankers know so well, the banking industry, through higher deposit-insurance premiums, paid for every dollar the FDIC spent protecting in- sured deposits in failed banks. The Reiners paper immediately raises two questions that he did not address. First, why did he write this paper and did any organization sponsor it? Second, did Reiners give any consider- ation as to how an expansion of the FCS’s banking powers, and especially permitting it to accept insured deposits, would affect howCongress deals with the FCS? From its origin over 100 years ago, the FCS has understandably been under the jurisdiction of the Senate and House Agriculture Committees. While I have long argued that the House Financial Services and Senate Banking Committees should exercise some legisla- tive oversight over the FCS as it gets deeper and deeper into the banking business, the banking expansion that Reiners has proposed for the FCS surely would bring the FCS into the orbit of the Banking and Financial Services Committees for the FCS would clearly be a banking organization offering FDIC-like deposit insurance. Accordingly, the Agriculture Committees would no longer have exclusive legislative jurisdiction over the FCS. Also, the FCS banks, as Reiners calls them, surely would be subject to the full panoply of banking regulation, including the Bank Secrecy Act and the Community Reinvestment Act. Does the FCS and the FarmCredit Council, the FCS trade association, really want that? I doubt it. Rural America faces credit challenges, as it always has. Con- verting the FCS into a rural banking monopoly, which Reiners’ FCS banking proposal, if enacted, would effectively accomplish, would greatly worsen those challenges. Neither agriculture, rural America, nor the American economy will benefit from such a monopoly. Instead, Congress should level the playing field between the FCS and commercial banks, by eliminating the favorable funding and tax advantages the FCS has long enjoyed, so that commercial banks can compete more effectively against the FCS in serving agriculture and rural America.  To contact Bert Ely, email bert@ely-co.com , phone (703) 836-4101, or send mail to P.O. Box 320700, Alexandria, Va. 22320. 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.