Pub. 9 2014-2015 Issue 6

www.nebankers.org 26 Extraordinary Service for Extraordinary Members. I N A FEB. 2 LETTER, ABA PRESIDENT and CEO Frank Keating asked Sen. Pat Roberts, chairman of the Senate Agriculture Committee, and Sen. Debbie Stabenow, ranking member of the committee, to “conduct annual oversight hearings to examine the growth, financial practices, and regulations of the FCS.” It has been more than a decade since the Senate Ag Committee held such a hearing. (Read Keating’s letter at http://bit.ly/Keating- Ltr-AgComm-2015-02.) Keating sent a similar letter to Rep. Mike Conaway, chairman of the House Agriculture Committee, and Rep. Colin Peterson, ranking member of that committee. It last held a Farm Credit System (FCS)- related hearing in 2004. The Keating letters highlighted the following FCS activities, which should be addressed during the hearings: similar entity lend- ing, indirect lending, retained mineral rights, questionable practices involving the sale of Federal Crop Insurance, and the FCS’ shadow banking activities. FCS Offers Weak Defense to Call for Hearings The FCS, through its trade asso- ciation, the FarmCredit Council (FCC), Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2015 Bert Ely ABA Demands FCS Oversight Hearings quickly fired back at Keating’s call for oversight hearings. Read the FCC’s very evasive, misleading letter at www. fccouncil.com/files/FCC_Letters_in_ Response_to_ABA_5Feb2015.pdf. Before addressing specific issues the ABA letter raised, the council asserted that commercial banks enjoy a taxpayer subsidy while ignoring the enormous taxpayer subsidies the FCS has used to maintain a significant competitive edge over banks: the FCS’ ability to borrow at close-to-Treasury rates by virtue of being a government-sponsored enter- prise (GSE); a complete exemption from taxation on profits derived from real estate lending; state income-tax exemptions on non-real-estate lending; and exemptions from numerous state fees such as mortgage recording fees. Not only do banks pay income taxes— either at the bank level or, in the case of Subchapter S banks, at the stockholder level—but also the banking industry has fully funded its FDIC deposit insurance. In addition, FCS institutions are largely exempt froma broad range of safety and soundness laws and regulations, nota- bly the Dodd-Frank Act, that hobble bank competitiveness. The FCC letter was especially de- fensive on the subject of “similar entity lending,” which is how the FCS defends its lending to large, stockholder-owned corporations. While noting that the FCS, through CoBank, can lend to telephone cooperatives, the letter completely ignores a key point Keating made in his letter, and that has been reported in Farm Credit Watch: Over the last year, CoBank has provided $1.5 billion of financing to four large stockholder-owned telecom compa- nies—Verizon, AT&T, U.S. Cellular, and Frontier Communications—each of which competes against smaller, co- operatively owned telecom entities that CoBank supposedly is dedicated to serv- ing. The fact the council ignored this criticism of CoBank’s lending speaks volumes. Hopefully, this aspect of the FCS’ “similar entity” lending will draw sharp questioning during the oversight hearings. The FCS’ “indirect lending,” notably through AgDirect, is another issue the council misrepresented when it implied that AgDirect only provides equip- ment financing to farmers. However, ag equipment dealers acting as agents for AgDirect also sell riding mowers, small tractors, and similar equipment to people who do not generate any farm income and, therefore, cannot be considered farmers. How well these dealers, always trying to get a sale, verify that a prospective borrower is a farmer is highly questionable. AgDirect also sidesteps the territorial boundaries for individual FCS institutions that have been established by the FCS’ regulator, the FarmCredit Administration (FCA). On the crop insurance issue, the council is simply not credible in stating that it is “not aware of any” valid regula- tory or legal challenges “regarding how [FCS] institutions conduct their crop insurance business.” I have written on several occasions about actions state insurance regulators have taken to ad- dress illegal crop insurance rebating practices by FCS institutions, notably in Illinois and North Dakota. Unfortu-