The FCS, through its trade association, the Farm Credit Council, quickly fired back at Keating’s call for oversight hearings. Here is the link to the Council’s very evasive, misleading letter. 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’s ability to borrow at close-to-Treasury rates, by virtue of being a 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 the banking industry has fully funded its FDIC deposit insurance. FCS institutions also are largely exempt from a broad range of safety-and-soundness laws and regulations, notably the Dodd-Frank Act, that hobble bank competitiveness.
The Council letter was especially defensive 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 the FCW: Over the last year, CoBank has provided $1.5 billion of financing to four large stockholder-owned telecom companies – Verizon, AT&T, U.S. Cellular, and Frontier Communications – each of whom competes against smaller, cooperatively owned telecom entities that CoBank supposedly is dedicated to serving. The fact that the Council ignored this criticism of CoBank’s lending speaks volumes. Hopefully this aspect of the FCS’s “similar entity” lending will draw sharp questioning during the oversight hearings.
The FCS’s “indirect lending,” notably through AgDirect, is another issue the Council misrepresented when it implied that AgDirect only provides equipment 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 to be 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’s regulator, the Farm Credit Administration (FCA).
On the crop-insurance issue, the Council is simply not credible in stating that it is “not aware of any” valid regulatory 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 address illegal crop-insurance rebating practices by FCS institutions, notably in Illinois and North Dakota. Unfortunately, the FCA, as it has with many other issues, has chosen to ignore this illegal rebating. On the issue of retained mineral rights arising from farmland foreclosures, the FCS is far from transparent about the value of those rights or why the FCS should not be required to sell them.