Pub. 6 2011-2012 Issue 2

July/August 2011 23 Extraordinary Service for Extraordinary Members. To contact Bert Ely, e-mail bert@ely-co.com ; fax (703) 836-1403; phone (703) 836-4101; or mail PO Box 320700, Alexandria, Va. 22320. FCS’ financial reporting, which raises serious safety-and- soundness and financial-transparency concerns the FCAmay not have fully considered, or even care about. According to FCSA’s first-quarter 2011 financial report, “in April 2011, [AgDirect] purchased participations of $858.7 million in AgDirect loans from [FCSA]. . . . [AgDirect] subsequently sold a like amount of loan participations to AgriBank.” In effect, AgriBank is funding AgDirect’s lending as if AgDirect was an FCS association. Perhaps AgDirect should be called a “shadow FCS association” akin to shadow banking. Quite likely, outstanding loans originated by AgDirect now exceed $1 billion, a number which could quickly grow to multiple billions of dollars. As of March 31, 2011, AgDirect did not file a call report with the FCA. Since AgDirect has multiple partner-investors (in effect its owners), its financial statements most likely will not be consolidated with the financial statements of any FCS institution. Instead, its owners will treat their equity inter- ests in AgDirect as investments while FCS banks will fund AgDirect by purchasing loan participations (whole loans, as a practical matter) fromAgDirect. Hence, AgDirect’s financial results will be spread across FCS associations and banks; there will be no public reporting of its finances. The FCA could fix this lack of transparency by requiring AgDirect to file quarterly call reports. More importantly, Congress should closely examine AgDirect and any imita- tors it spawns by asking at least these two questions: Does AgDirect represent a new formof unfair, taxpayer-subsidized competition for taxpaying banks and finance companies? Does AgDirect contravene the longstanding cooperative structure of the FCS and the discipline FCS owner-borrowers supposedly bring to FCS institutions? Report FCS Lending Abuses Bankers are continuing to send FCW reports of FCS lending abuses such as FCS loans for rural estates, weekend getaways, and hunting preserves. E-mail reports of similar lending abuses in your market to green-acres@ely-co.com. Please provide as much detail as possible about any loan that violates the spirit, if not the law, governing FCS lending. Farm Credit Watch Free to ABA Members If your bank belongs to the American Bankers Association (ABA), you can enjoy a free e-mail subscription to FCW or you can read it monthly online at www.aba.com . To receive FCW by e-mail or to manage your subscription, visit ABA E-Mail Bulletins at www.aba.com/members+only/bulle- tin.htm and check or uncheck the appropriate boxes. For other inquiries, please contact Barbara McCoy at the ABA at 1-800-BANKERS. Z