As a government-sponsored enterprise (GSE), the Farm Credit System (FCS) answers to a regulator, the Farm Credit Administration (FCA). With nominal oversight from the FCA, the FCS often gets away with a lot. It can’t get everything that it wants, but what it gets is bad enough for America’s farmers and taxpayers.
There are few better places to see this in action than the FCA Board’s quarterly reviews of the System. For the first quarter of 2021, the FCA let Farm Credit get away with two violations: one direct and with precedent, the other unquestioned.
On April 7, the FCA Board voted to approve a request by Compeer Financial, a large Farm Credit association with nearly $25 billion in total assets, to purchase bonds from an intermediate care facility. This isn’t without precedent: in September of 2019, the FCA permitted AgCredit, ACA in Ohio to purchase bonds issued by a skilled nursing and rehabilitation facility in rural Wyoming. And before that, the FCA permitted investment in a rural hospital and was grilled by the House Agriculture Committee for doing so.
It was only last month that the Board Chair of the FCA noted to the House Appropriations Agriculture Subcommittee that the System “bump[s] against our authority.” This is yet another link in the chain leading Farm Credit to becoming Health Care Credit. The FCA has allowed Farm Credit to make this transformation and has provided little substantive reasoning for why Farm Credit should be lending to health care facilities. If Congress deems it necessary for Farm Credit to delve into health care, then it should revisit its foundation.
What the FCA didn’t question – rather than what it approved – is just as perplexing. Farm Credit revealed in its report that 88.8 percent of its lending portfolio is not in rural infrastructure. You wouldn’t have known that by the way Farm Credit discusses rural infrastructure. Farm Credit brings up infrastructure, particularly broadband, frequently. And to justify its lending to large telecoms providing broadband services, it employs the “similar entity rule,” which allows Farm Credit to lend to an ineligible entity that has similar operations to an eligible entity. This is for diversification, as one Farm Credit CEO put it: “I respectfully submit that similar entity participations help fulfill Farm Credit’s mission by providing a vital source of diversification.”
Are we really expected to believe that lending to Verizon or another huge telecom is necessary for diversification in the System? Aren’t there other sources of diversification that don’t “bump against [our] authority”? With rural infrastructure composing less than 12 percent of the Farm Credit’s portfolio, is it necessary to use the similar entity rule for diversification? Isn’t that provided by cattle, cash grains, food products, forestry, field crops etc.?
It’s hard to not call foul here. The FCA is both actively and passively allowing Farm Credit to stray from its mission: actively by permitting associations to expand into health care, and passively by not calling out Farm Credit for its bogus claims that it needs the similar entity rule for diversification. If the FCA is going to continue on this track, then Congress needs to revisit what “Farm Credit” really means.