Pub. 7 2012-2013 Issue 2

www.nebankers.org 24 Extraordinary Service for Extraordinary Members. Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2012 Bert Ely FCA Continues to Protect FCS Insiders From FCS Owners A CTING MORE LIKE A CHEER- leader than a real regulator, the Farm Credit Administra- tion (FCA) continues to pro- tect the identities of the Farm Credit System (FCS) institutions it takes en- forcement actions against. According to the FCS’ first-quarter 2012 Informa- tion Statement, “the [FCA] had entered into written agreements with seven as- sociations” whose assets totaled $2.22 billion at March 31, 2012. The written agreements require these unnamed associations “to take corrective actions with respect to certain areas of their operations, including asset quality, capital, and portfolio management.” On June 8, the FCA board of directors pursued “a formal enforcement action against [an FCS] institution,” presum- ably yet another association. Assuming enforcement orders are now outstand- ing against eight FCS associations, those associations account for almost 10 percent of the 83 FCS associations in operation on April 1, 2012. It is amazing, given the strength of the farm economy, that nearly one in 10 FCS associations is in such serious financial difficulty that the FCA has had to take a formal en- forcement action against them, yet they go unnamed, even to their own- ers, who are their member-borrow- ers. Sometimes an association will mention in a financial report that it is subject to an enforcement action, but how many member-borrowers/ owners of these associations notice that tidbit of information or fully appreciate its importance? These folks are the very people who should be pounding the table, insisting that the directors and officers of their association take the necessary corrective actions—that is what stockholder discipline is all about. By not publicizing its enforcement actions, the FCA also keeps outside observers of the FCS, such as the media and members of Congress, in the dark about problems within the FCS. As bankers know all too well, the banking regulators have no such reticence; bank regulators publish enforcement orders, which often are reported in the local media. In May, the FCA board voted to “pursue a formal enforcement action against a director of a system institu- tion.” I believe this is the first time I have read about an enforcement action taken against an individual associated with an FCS institution, yet neither the institution nor the individual are named, nor is the director’s specific offense cited. This non-disclosure practice differs from the practice at the bank regulatory agencies which routinely name the individuals they take action against and even ban them from banking. For example, on May 25, the FDIC issued a news release listing 56 enforcement orders it is- sued in April 2012, including removal/ prohibition orders against four named individuals and assessment of civil money penalties against two other named individuals. This is a tough policy—naming names—but if it is acceptable for banking regulators to do it, then it certainly would be ac- ceptable for the FCA to do so, too, if it were a true regulator. FCS Bank Directors Are Big FCS Borrowers It should come as no surprise to Farm Credit Watch readers that the directors of the FCS banks are large borrowers from FCS institutions, ei- ther directly or they are affiliated with organizations that are FCS borrowers. The following table (page 25) , based on data taken from the FCS’ 2011 Annual Information Statement, will give read- ers an insight into these borrowings, as of the end of 2011. A review of the bank-director data in the FCS’ 2010 and 2009 Annual Information Statements show similar results, with one interesting excep- tion: The total amount of borrowings attributed to CoBank’s 16 directors has varied significantly over the last