Bankers Association Eyeing Farm Credit System Overhaul Report

(WASHINGTON, DC) The American Bankers Association (ABA) is watching to see what the fallout will be from a recent report on Capitol Hill. Industry veteran Bert Ely called for an overhaul of the Farm Credit System (FCS), arguing that the system operates under an “increasingly outdated structure.” Ely advocated for allowing FCS associations to borrow directly from the Federal Farm Credit Banks Funding Corporation rather than relying on the four FCS banks. “Empowering FCS associations to borrow directly from the Funding Corporation while shifting other FCS bank functions to the Funding Corporation and the FCA would improve the operating efficiency of the FCS while reducing the substantial insolvency risk it now poses to taxpayers,” Ely wrote. Under the current structure of the FCS, the four FCS banks borrow from the Funding Corporation and in turn lend funds to the associations. The FCS banks are jointly and separately liable for debts owed to the Funding Corporation. Changing the system’s structure and enabling the joint-and-several liability to be shared among a greater number of associations would reduce the risk to taxpayers, increase equity capital to the associations through the liquidation of the FCS banks and make it possible for the Treasury Department to cancel a $10 billion line of credit it extended to the Farm Credit Insurance Corporation in 2013.