Pub. 8 2013-2014 Issue 6

www.nebankers.org 20 Extraordinary Service for Extraordinary Members. from some of the papers presented at the first symposium, continued FCS consolidation clearly is desired bymany within the FCS as well as by its cheerleaders. For example, Chuck Conner, CEO of the National Council of Farmer Cooperatives and former USDA deputy secretary, stated quite emphatically that “nothing in the legislative history [of the FarmCredit Act] suggests that Congress wanted FCA to dictate [FCS] bank size. If anything, the clear direction was for the banks to optimize efficiencies in order to keep [the 1987 ag crisis] from ever happening again.” Interestingly, Conner’s organization shares office space with CoBank’sWashington office, which suggests, quite reasonably, that Conner was providing CoBank’s views on this matter. Prior to the ag crisis, there were 37 FCS banks. Today, there are just four FCS banks. Interestingly, several of the papers presented at the first symposium noted the FCS’ poor performance as a lender to young, beginning, and small (YBS) farmers. Especially telling was this observation by Ferd Hoefner, policy director of the National Sustainable Agriculture Coalition: “Whatever the outcome may be on merger and consolidation proposals, we would strongly encourage an ongoing and enhanced com- mitment to [FCS] YBS activities. . . . Going forward, careful attention should be paid to the roughly third or more of [FCS] associations who have not met their YBS goals in recent years.” [Emphasis supplied.] This statement is a powerful affirmation of what FCA data show—FCS lenders cannot even meet the low YBS lending thresholds established for them by the FCA. We do not know yet how many FCS employees and direc- tors attended the first symposium but we know that five FCS representatives participated in a panel discussion at the sec- ond symposium to present FCS’ “Views of the Future Relative to Consolidation in the [FCS],” including CoBank President Mary McBride and Doug Stark, CEO of Omaha, Neb.-based, FCS of America, the largest FCS association. Unfortunately, no commercial bankers were asked to share their views about consolidation within the FCS. While FCS views are not irrel- evant, the fact that they were conveyed behind closed doors reinforces the widespread belief that the FCA is a “captured regulator” responding to the whims and wishes of the FCS and especially of its largest entities such as CoBank and FCS of America. Congress Kills “Say on Pay” for FCS Borrower-Stockholders Buried in the 2014 Farm Bill is §5404, Compensation Disclosure by [FCS] Institutions. Despite its innocuous title, this small piece of the Farm Bill represented a major victory of the FCS over the FCA. As reported in the June 2013 Farm Credit Watch (FCW), the FCS voraciously opposed an FCA regulation that would give borrower-stockholders of FCS associations the option of calling for an advisory vote on the compensation of the senior management of their association—a so-called “say on pay.” FCS associations—that is, the senior management of those associations and their complicit boards of directors—lobbied long and hard for this Farm Bill provision. After proclaiming that “the participation of stockholders in the election of the boards of directors of [FCS] institutions provides stockholders the opportunity to participate in the management of their institutions,” the bill contends that di- rectors “importantly establish and oversee the compensation practices of [FCS] institutions.” The bill then states that “any regulation should strengthen and not hinder the ability of [FCS] boards of directors to oversee compensation practices.” Now comes the kicker: “The [FCA] shall review its rules to reflect congressional intent that a primary responsibility of the boards of directors of [FCS] institutions . . . is to oversee compensation practices.” The clear-cut message to the FCA: Kill its “say-on-pay” rule. Score an important victory by the FCS over its regulator. Why did the FCS work so hard to get this provision into the FarmBill? This provision, plus the dis- cussions at the FCA’s symposia, could be a signal that major mergers within the FCS are in the offing. FCA Board Member Strom Defends CoBank’s Verizon Loan During his opening remarks at the Jan. 16 symposium, FCA Board member Leland Strom offered a rousing defense of CoBank’s recent $725 million loan to Verizon, stating that “greater lending capacity provides opportunity for [FCS] institutions like CoBank to participate in large corporate banking transactions such as the recent Verizon purchase of Vodaphone’s stake in Verizon Wireless.” This loan was made under the Farm Credit Act’s similar-entity lending authority as it relates to rural telecom lending. In my opinion, not only does that authority not extend to Verizon borrowing from CoBank, but it certainly is contrary to Congress’ rationale for creating the FCS, which is to provide credit to farmers and ranchers unable to obtain credit from other sources. Strom, who recently chaired the FCA Board, must have felt compelled to justify such an egregious loan in public because I Going forward, careful attention should be paid to the roughly third or more of [FCS] associations who have not met their YBS goals in recent years.  Bert Ely — continued