June 27--WASHINGTON -- Rumblings on Capitol Hill could lead to the overhaul of a cooperative banking network that farmers and ranchers rely on in good times and bad.
Founded nearly 100 years ago to help agricultural producers get affordable loans, the Farm Credit System came under fire Wednesday when community bankers accused it of mission creep in a congressional hearing.
They believe the government-sponsored network of cooperative lenders has no business loaning money in nonfarm arenas and want Congress to rein it in.
The notion of an FCS overhaul did not draw support from U.S. Rep. Mike Conaway, U.S. Rep. Randy Neugebauer and U.S. Rep. Filemon Vela, all members of the House Agriculture Committee panel holding the hearing. But some lawmakers on the panel seemed receptive, especially in light of a multi-million dollar FCS loan to Verizon.
"While it's not illegal to do it, why would you do it?" U.S. Rep. Mike Rogers, an Alabama Republican, asked a federal farm-banking official. "What you're really there for is to help the shaky young farmer."
FCS is a network of lending cooperatives and related institutions providing loans to farmers, ranchers, rural residents, agriculture and rural utility cooperatives and other eligible borrowers.
FCS has a 41 percent share of farm loans in the nation and more than $260 billion in assets. Government sponsorship supports the system.
While the FCS for the most part escaped Dodd-Frank regulations, the system must abide by other government rules and restrictions the rest of the banking sector doesn't, said Jill Long Thompson, chairwoman and chief executive officer of the Farm Credit Administration, which regulates the FCS.
"My experience as a regulator of the system has informed me there really hasn't been significant, if any, mission creep in the Farm Credit System, but it is a balancing act," Long Thompson said.
A $725 million loan from Colorado-based CoBank, an FCS lender, to Verizon raised eyebrows among community bankers who felt it shot beyond the system's intended scope.
"This isn't a rural loan," said Sean Williams, an Arkansas banker testifying for the Independent Community Bankers of America. "The FCS cherry picks the best farm loans. They now seek to aggressively lend for nonfarm purposes."
Thompson said Verizon provides services in rural areas, and a "similar entity" provision in the law allowed the loan. The provision is designed to cut down on risk in a bank's portfolio.
It would be up to Congress to remove that provision, said Long Thompson, a former Indiana member of Congress.
"I think we may have to visit that because this really is pretty indefensible in my world," Rogers said during the hearing titled "A Review of Credit Availability in America" before the Subcommittee on Livestock, Rural Development and Credit
Conaway, Neugebauer and Filemon Vela, all subcommittee members, didn't commit to supporting a review of the FCS when queried.
"Both banks and farm credit are valued members of the West Texas community," Conaway, a Midland Republican, said after attending the hearing. "The House Agriculture Committee will continue to provide the necessary oversight to guarantee that these institutions are effectively serving West Texans."
Neugebauer, a Lubbock Republican and former banker, said most witnesses seemed to agree rural America has good credit access, but the concerns of the few shouldn't be discounted.
"It's our job on the Agriculture Committee to oversee the Farm Credit System and ensure our farmers and ranchers have access to credit," said Neugebauer, who was unable to attend Tuesday's hearing because of a schedule conflict.
Vela, D-Brownsville, who was also unable to attend, stressed the importance of the FCS.
"These financial institutions provide desperately needed credit to farmers, ranchers and rural cooperatives," Vela said. "Congress must ensure that credit is easily accessible to rural Americans -- especially those who operate small farms and ranches."
Washington correspondent Trish Choate can be reached at 202-408-2709 or Trish.Choate@Scripps.com. Follow her on Twitter at Trish_in_DC.
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