REGULATORY CALENDAR – PART I: Does FCS Really Face “Regulatory Burden?”

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The Farm Credit System (FCS) is a massive, nearly $330 billion institution that would be the seventh largest bank in the country, if it had the same stringent regulation that other financial institutions have. It doesn’t – instead, it is regulated by the Farm Credit Administration (FCA), which routinely fails to crack down on some of the FCS’s worst offenses.

But to its credit, the FCA has published its plan for new regulations and policy initiatives that it will introduce or develop within the next year. That’s where the kudos ends.

The regulations it plans to introduce – or has already introduced and will develop further – aren’t great. But one regulation – oddly enough, on “Regulatory Burden” –  is in its final stage before implementation.

First, its premise is laughable. If anything, the FCA should be putting out a call for more ideas to implement through regulation, not fewer. The FCS is already wildly underregulated, allowing it to make ridiculous loans for server “farms,” twist the law to justify de facto deposit-taking accounts and extend loans for property under the flimsiest of pretenses.

But FCS institutions are taking advantage of this call to reduce “regulatory burden.” As part of the regulatory implementation process, the public may submit comments on the proposed rule before it is finalized, and CoBank, the System’s largest institution with hundreds of billions in assets, has thrown in its two cents.

Among the many regulations that CoBank considers “burdensome” is one concerning financial crimes, how to report them and when to report them. The long and short of it: CoBank wants to use one fewer form for reporting financial crimes. And it wants to use just one form for “any known or suspected criminal activity involving a financial transaction in which the institution was used as a conduit for such criminal activity (such as money laundering/structuring schemes)” where the reporting threshold is $5,000.

It’s rich for CoBank to issue a comment on burdensome paperwork. This sort of paperwork for suspected money laundering exists, in the first place, to prevent money laundering and other financial crimes. And yet, under CoBank’s watch as the supervisory bank, Farm Credit East likely aided in money laundering by “creating a shell corporation to funnel federal money.”

The watchdog fell asleep, and now it’s asking for a treat?

The premise of the regulation – an ineffectual regulator asking for ways to become even more useless – is already ridiculous. But seriously entertaining the ideas of an entity that fell asleep at the wheel, ideas that are directly related to one of its more recent and egregious offenses? That’s a bit too much.

Fortunately, Congress has the power to act. Congress has the power to review the rule under the Congressional Review Act to see whether the regulation is merited. If it isn’t, then it may repeal it. And in the case of the FCA, which has sat on its hands while the FCS strays so far from its path, “reducing regulatory burden” is the opposite of what it needs – for all our sakes.