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18

BERT ELY’S

FARM CREDIT WATCH

®

SHEDDING LIGHT

ON THE

FARM CREDIT SYSTEM,

AMERICA’S LEAST KNOWN GSE

©2014 Bert Ely

Long Thompson warns

the FCS

On July 14, Jill Long Thompson, whose term as chairman of

the Farm Credit Administration (FCA) board expired on May

21, gave what may be her last speech as FCA chairman. She

broadcast two warnings to the FCS. First, she addressed the

issue of “reputation risk,” in reality political risk, the FCS

creates for itself whenever an FCS institution makes a loan

or engages in an activity not permitted under the Farm Credit

Act. CoBank’s $725 million loan to Verizon is an excellent

example of creating reputation risk. Although Long Thompson

did not mention Verizon by name, she probably had that loan

in mind when she asserted in testimony last month to a House

Agriculture subcommittee the “legality” of loans “that some

considered to be outside the realm of the [FCS’s] mission.”

Long Thompson then warned the FCS, and perhaps more

specifically CoBank: “I will also note that sometimes it’s not

enough to just be right – you must ensure that your actions also

appear to be right. We sometimes refer to this as managing

reputation risk. That’s why I encourage all [FCS] institutions

to continue emphasizing your mission to serve agriculture and

rural America and to tirelessly seek ways to fulfill this mission

more completely and effectively.” [italics in the original] She

further stated that “[s]ticking to your mission is one important

way that you can manage reputation risk. Another important

way is to tell your story – not just to potential borrowers but

to the broader public. You must help the public understand

the critical role the [FCS] plays in agriculture.” [emphasis

supplied]. The last time I checked Verizon and Frontier

Communications, the recent beneficiary of a $350 million

“credit agreement” with CoBank, are not farmers.

Second, in a very defensive tone, Long Thompson said

she “would argue that the [FCS] actually needs us [i.e., the

FCA] to be an independent arm’s length regulator. If your

borrowers, if Congress, and if the general public perceive us

to be a ‘pocket regulator,’ their confidence in the checks and

balances on the [FCS] weakens. Public perception is a powerful

thing. Seeing that the [FCS] has an independent, arm’s-length

regulator gives investors in [FCS] debt more confidence in the

safety and soundness of their investments; it gives borrowers

more confidence that they will receive fair treatment; and it

gives Congress more confidence that the [FCS] will fulfill

the mission for which it was created. It all comes back to

reputation.” [italics in the original] Bankers, of course, learned

long ago that the FCA turns a deaf ear towards the many

complaints about FCS lending abuses.

Is CoBank listening?

CoBank reportedly has acknowledged that it botched the

public-relations aspect of its loan to Verizon, yet its reputation

as the rouge elephant in the FCS barnyard was enhanced last

week at a White House-sponsored conference, attended by

hundreds, at which it was announced that CoBank is joining