The Farm Credit System’s (FCS) regulator the Farm Credit Administration (FCA) has a far from perfect record, but any regulation of the system is welcome, even if it’s not enough or not perfect. Because FCS is a massive entity with more than $450 billion in total assets and the huge impact it can have on agricultural credit, Congress established the FCA to oversee the FCS. This week, the FCA’s Office of Examination issued its annual National Oversight Plan (NOP) to inform FCS institutions what its priorities will be in examining and overseeing those same institutions.
To its credit, FCA includes some excellent, necessary priorities. The FCA recognizes that supporting YBS farmers is important for sustaining U.S. agriculture, and that the Office of Examination will “continue developing the YBS rating system for institution programs as well as coordinating with the System and other FCA offices to improve the usability and
consistency of YBS lending and nonlending data.” In announcing this, FCA appears to be following through on its shift in the right direction, starting with its proposed rule on standardizing how FCS institutions track and collect their data on YBS lending.
The FCA’s NOP also notes that the Office of Examination will review Farm Credit institutions’ efforts to comply with FCA’s new regulation requiring institutions to put in place standards of conduct programs and a code of ethics. The Office of Examination “will conduct a horizontal examination activity to examine the implementation of the new regulations. This activity will include a review of template policy and procedure guidance being used in the System…Following the horizontal examination activity, our examiners will continue reviewing standards of conduct programs through routine examinations at all Institutions.” This commitment is especially important given the numbingly out-of-touch critique of these basic requirements by Farm Credit’s lobbying arm, the Farm Credit Council.
Credit where credit’s due: the FCA is following through on some important oversight priorities. But it’s leaving too much on the table.
The Office of Examination does not oversee or approve mergers, but it should be examining whether recently-merged institutions are maintaining their credit relationships with YBS farmers. It should be examining whether recently-merged institutions are making good on promises to not reduce services, close offices, or downsize after merging. The wave of mergers across the country in the past few years is an important development that deserves examination, at the very least.
Determining whether FCS house loans comply with the spirit and the letter of the Farm Credit Act should be a priority too. Farm Credit’s history of loans for luxury housing is infamous, and Farm Credit institutions show little appetite for stopping this practice. The Office of Examination ought to make this a standing priority.
The FCA deserves credit for its work to hold Farm Credit accountable, but there’s always work to be done. It ought to revise its NOP to scrutinize the effects of the wave of mergers and to investigate Farm Credit’s advertisement of financing for homes which do not appear to adhere to the letter, nor the spirit, of the Farm Credit Act. FCA ought to make this notice of revision public by the end of this quarter. If it does not, then Congress needs to instruct the FCA to reconsider its priorities.