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September 2014


l e a d i n g

a d v o c a t e

f o r

t h e

b a n k i n g

i n d u s t r y

i n

k a n s a s

with the USDA to create a “new public-private partnership

focused on rural infrastructure investment.” This initiative

will be called the U.S. Rural Infrastructure Opportunity Fund.

According to a CoBank news release, this fund “will serve as

a source of private-sector capital to partner with USDA on [a]

wide variety of infrastructure projects in rural communities.

CoBank will act as anchor investor and has committed $10

billion of balance sheet capacity to co-lend with the fund.” The

fund will be managed by Capitol Peak Asset Management,

an “independent” asset management firm headquartered in

Denver, which happens to be where CoBank is headquartered.

The news release further stated that “CoBank will have

the opportunity to review and approve each transaction

individually, on a case-by-case basis. Loans made by CoBank

side-by-side with the fund will remain on CoBank’s own

balance sheet or be syndicated to Farm Credit institution

partners, and will be supplemented by additional capital

provided by investors brought in by the fund manager,

including pension funds, endowments, sovereign wealth

funds, and other institutional investors. CoBank may also

act as the servicer of some loans made through the fund.”

In other words, CoBank will sit in the catbird’s seat, acting

as if it is an investment-banking firm, putting together deals

and providing some of the funding to help close these deals.

“Target investments will include rural community facilities,

water and wastewater systems, rural energy projects, and rural

broadband.” Rural facilities can include many types of projects

that banks finance, such as hospitals, nursing homes, athletic

facilities, and anything else that is in a “rural” area and can be

classified as “infrastructure.” Of course, as bankers know all

too well, the FCA has defined “rural” very broadly.

One very interesting aspect in the creation of this Rural

Infrastructure Opportunity Fund is the absence of the FCA

and other FCS institutions. There is barely any mention of the

FCS in the CoBank news release and USDA materials about

the fund and, according to attendees at last week’s conference,

no one from the FCA or other FCS institutions appeared to

attend – this was very much a USDA and CoBank affair.

CoBank clearly ignored Long Thompson’s admonition to

the entire FCS, including CoBank, that it be sensitive to the

reputational risk of not sticking to its mission. Almost certainly,

some of the projects CoBank is likely to help finance through

the Opportunity Fund will lie outside its lending authority, as

specified in the Farm Credit Act. Further, in partnering with

the USDA in this undertaking, CoBank is acting almost as if

it is not regulated by anyone, much less the FCA, reinforcing

the widely held and understandable belief that the FCA is a

“captured” regulator, or at least is subservient to CoBank.

Is the Farm Credit Council


The Farm Credit Council, the FCS’s trade association,

is officially recognized as such by the FCA. Council

representatives often testify to Congress on issues affecting

the FCS, as occurred on June 25, when Bob Frazee, president

and CEO of MidAtlantic Farm Credit, testified on behalf of the

Council at the same House Agriculture subcommittee hearing

when Long Thompson testified. In his written testimony,

Frazee repeated the usual FCS litany, that the “FCA is an

arm’s length, independent safety and soundness regulator.”

In discussing the Farm Credit System Insurance Corporation

(FCSIC) and its Farm Credit Insurance Fund, which backstops

FCS debt, Frazee made the absolutely outrageous claim that

“[t]here is no direct taxpayer backstop for the Fund.” FCW

readers know that is simply not true – last September the

FCSIC, whose board is comprised of the three FCA directors,

negotiated a one-year, $10 billion line-of-credit for the Fund

with the Federal Financing Bank, an arm of the United States

Treasury Department. Contrary to Frazee’s assertion, that line-

of-credit puts the American taxpayer directly at risk if the FCS

runs into financial trouble again. It was not that many years

ago, in 1987, that Congress bailed out the FCS following years

of risky FCS lending. Frazee’s deliberate mischaracterization

of this line-of-credit to a congressional committee creates

the reputational damage that Long Thompson warned about

in her July 14 speech. The Council should correct Frazee’s

mischaracterization and acknowledge the taxpayer risk created

by this line of credit.

Report FCS lending abuses to:

Bankers are continuing to send FCW reports of FCS lending abuses, such as

FCS loans for rural estates, weekend getaways, and hunting preserves. Email

reports of similar lending abuses in your market to:


Please provide as much detail as possible about any loan which violates the

spirit, if not the law, governing FCS lending.