Expanding the Farm Credit System won’t help rural America
As a veteran banker with a large agricultural portfolio in Kansas, I worked diligently with my colleagues from across rural America to convince Congress to stay the course and prevent granting the Farm Credit System additional lending authority in the recently enacted five-year farm bill. The ideas presented in the recent BankThink column by Lee Reiners to pursue the opposite path fundamentally ignore the reality on the ground in agricultural lending today. While rural America needs investment and support to thrive, any plan for long-term success should have commonsense proposals informed by full consideration of the facts. Simply put, the U.S. needs to let ag banks be ag banks, subject to the stringent regulations that protect consumers and taxpayers and ensure that the FCS adheres to its statutory mission.
Expanding and empowering a massive, centralized government-sponsored enterprise — and in the process undercutting rural community banks — is simply a bad idea, one which minimizes the important work rural community banks do to maintain and strengthen their communities. It does not take into account the FCS’s questionable track record of service to rural America’s most vulnerable agricultural producers that it was chartered to serve. And it ignores FCS’s blatant flaunting of its tax-preferred status to compete directly with taxpaying institutions and enable large, unrelated lending that puts not only its cooperative members, but all American taxpayers, at risk.
Reiners’ column mentions “you won’t have to go very far before you run across a Farm Credit association” in any rural area, but in my five-county core area in northern Kansas there are 24 community banks with 56 branches, compared to exactly one FCS location. The suggestion that 56 full-service banking locations can be replaced and our customers be served adequately by one FCS branch is ridiculous.
Farm banks like mine provide valuable services to their communities and are the bedrock that America’s agricultural producers rely upon. In 2017, banks provided nearly 50% of all farm loans in the U.S. — $180 billion as of December 2017. Farm banks increased lending nearly 6% across the country that year, from the northeast to the south, from the Corn Belt and the plains to the west. Small loans made up nearly half of bank farm and ranch lending, with $76 billion in small and micro farm and ranch loans recorded at the end of 2017. Reiners’ proposal that banks be given the option to join the FCS shows how little he understands rural community banks. No bank would want to sacrifice its independent ability to support its community for the chance to be subject to the whims of the FCS. Farm banks will continue to serve their communities because they are a part of their communities — they are not beholden to the interests of a centralized GSE.
I have seen Farm Credit institutions cherry-pick healthy farm loans out of the portfolios of ag banks like mine using their tax-free status to offer below market rates to large farms while ignoring the applications of the farmers they are ordered by statute to serve. The FCS has a legal obligation to lend to young, beginning and small farmers, ranchers and producers, and to produce annual reports on that lending. Young farmers are those under 35, beginning are those with fewer than 10 years of experience, small are those with fewer than $250,000 in gross farm sales. These producers need extra support, and the FCS has a mandate to provide it. But it hasn’t: In 2017, new loans from FCS associations to young, beginning and small farmers decreased in all categories.
In a series of hearings in the House and Senate that informed the creation of the newly enacted farm bill, members of Congress and others pointed critically to current practices at some Farm Credit offices that stretch the limits of the law and are similar to what Reiners proposes expanding. Plenty of associations offer “funds held accounts” which function almost identically to traditional checking accounts. Many extend loans for vacation homes and for purposes unrelated to agriculture. By not approving any extension of FCS lending authority, it’s clear that Congress wants to keep a close eye on those Farm Credit activities — not expand Farm Credit’s services that would naturally come at the expense of local banks and local bank shareholders that live and work in the communities they have personally invested in. This is a wise and prudent path.
Reiners’ suggestion that the Farm Credit Administration could oversee an expanded FCS and act on its abuses makes little sense. The FCA’s actions to rein in the FCS have been in many cases too little, too late. Reiners’ assertion that a little more hiring and training will prepare a whole system on “how to supervise the risks associated with deposit-taking and nonagricultural loans” is preposterous. Those highly trained professionals already exist — at the local bank where they perform these duties day in and day out. Unlike FCA, those professionals also have to comply with a long list of banking rules intended to reduce risk, even though I may not think all of those rules make sense.
Rural America needs support, and all of us at farm banks have been hard at work in our communities to make them vibrant and prosperous. Empowering the taxpayer-subsidized FCS is not the answer, and Congress recently spoke volumes when it did not include any expansion of FCS lending authority in the new Farm Bill. America’s farmers don’t need speculation about how to expand GSE lending authority, they need credit.