Bankers: Dealt out on farms

System’s lending is unfair, they say

Thursday, June 26, 2014

WASHINGTON -- Rural banks want a more level playing field when competing with the federal government to offer farm loans, First National Bank of Wynne President Sean Williams told a congressional subcommittee Wednesday.

Williams testified before the U.S. House Agriculture Committee's Livestock, Rural Development and Credit Subcommittee along with others from the banking industry. U.S. Rep. Rick Crawford, R-Ark., is the subcommittee's chairman.

Several witnesses said the Farm Credit System, created nearly 100 years ago to provide long-term fixed-rate credit for farmers, has exceeded its original mission without approval from Congress.

The purpose of the service has extended to lend to agricultural and aquatic cooperatives and rural utilities; finance agricultural exports and imports; and provide international banking services for farmer-owned cooperatives, according to the Farm Credit Administration, which oversees the system.

The Farm Credit System is a Government-Sponsored Enterprise, called a GSE, that is backed by the federal government, and is similar to mortgage giants Fannie Mae and Freddie Mac. Its net income in 2013 was $4.6 billion, and it makes more than $200 billion in loans, according to its website. It receives no federal funds.

Williams testified on behalf of the Independent Community Bankers of America. He said community banks recognize the value of the system but don't think the competition is fair.

"Farm Credit System is a good organization and does a good job, understands agriculture. We just want to compete on a level playing field," Williams said. "When the Farm Credit System was formed, it was really formed to serve a pretty narrow niche of agriculture and so over time the market that they are serving has expanded."

He said the agency is cherry-picking financially strong customers from community banks.

Williams pointed to a $725 million loan made by CoBank, a bank within the Farm Credit System, to Verizon Communications in 2013. The loan was part of Verizon's $12 billion effort to buyout Vodafone's stake in Verizon Wireless.

"Certainly when the Farm Credit System was set up, it was not intended to make a $725 million loan to Verizon," Williams said after testifying. "I think it's gone from just farmers to farm-related businesses to now things like Verizon, hospitals and things of that nature."

Leonard Wolfe, president of United Bank and Trust in Marysville, Kan., said he often loses out on loans because the system can offer lower interest rates. He spoke on behalf of the American Bankers Association.

"We compete with local banks every day, but farm credit is our largest competitor and our biggest competition," he said.

Williams nodded as Wolfe spoke.

"In eastern Arkansas I could provide about 30 examples over the last three years where we lost a borrower to the Farm Credit System," Williams told the subcommittee. "It is a very big issue. Time after time after time, we see it."

He said there doesn't appear to be limits on what the system is allowed to do, and with federal backing, other banks lose.

Bob Frazee, president of MidAtlantic Farm Credit of Westminster, Md., said the competition is good for consumers. He spoke on behalf of the Farm Credit System.

"We're losing deals every day to commercial banks, it's a competitive environment, there's a lot of liquidity in the banking system, and we've seen pressure on our loans and our market. We think that's a good thing for farmers," he said.

Several subcommittee members said Congress should redefine what types of lending the Farm Credit System is allowed to participate in. Crawford did not weigh in.

After the hearing, Crawford said community banks and Farm Credit are both important in rural communities.

He said concerns about the Verizon loan are valid.

"It still remains to be seen whether that was exceeding their charter, the optics of it certainly did not play well," he said. "An opportunity presented itself, they wanted to participate. However, there's still going to be continued debate about whether or not that was appropriate."

Crawford said he started his business renting space at the local farm credit office with a loan from a commercial bank.

"I don't think you can take one side or the other," he said. "I have a respect for both [and] what they do."

Metro on 06/26/2014