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|ABA Testifies on Lack of Farm Credit System Oversight|
|Friday, 20 May 2016|
WASHINGTON — The American Bankers Association testified today before the Senate Agriculture, Nutrition and Forestry Committee, offering the banking industry’s perspective on credit conditions in rural America and the Farm Credit System’s unwarranted risk to taxpayers, expansive mission creep and lack of support for young, beginning and small farmers.
Leonard Wolfe, president and CEO of United Bank and Trust in Marysville, Kansas, testified on behalf of ABA. United Bank is a $585 million bank with 110 employees and more than $233 million in agricultural real estate and productions loans in the bank’s portfolio. Wolfe is also past chairman of the Kansas Bankers Association and chairman of ABA’s Ag Credit Task Force.
In his testimony, Wolfe expressed concern about the growing size, complexity and tax advantages of the Farm Credit System – a government-sponsored enterprise like Fannie Mae and Freddie Mac – and the risks it poses to American taxpayers.
“The Farm Credit System has seen dramatic growth in the past decade: it has $304 billion in total assets – if it were a bank it would be the ninth largest in the country,” Wolfe said. “And as a government-sponsored enterprise, the Farm Credit System benefits have the implicit guarantee of the U.S. Treasury – and by extension, taxpayers – if it ever requires financial assistance. Since 2013 this guarantee has become more than just implicit: the Farm Credit System’s Insurance Corporation has secured a $10 billion line of credit from the Federal Financing Bank, an arm of the U.S. Treasury. Additionally, the Farm Credit System enjoys significant tax advantages that leave the playing field uneven. This increased reliance on taxpayers is a disturbing development, to say the least, and the Farm Credit Administration should be forthright about what that means for taxpayers,” he said.
“We urge Congress to perform an autopsy on the System to ensure that their charter of helping young, beginning and small farmers is being followed. If it’s not, we urge Congress to remove the significant tax break provided to the System,” Wolfe said.
Wolfe questioned the Farm Credit System’s $750 million dollar loan to Verizon and $350 million credit agreement with Frontier Communications – neither providing explicit benefits to rural America.
Wolfe noted that the nation’s 1,976 farm banks increased lending 7.9 percent in 2015 to meet the rising credit needs of farmers and ranchers, and now provide more than $100 billion in total farm loans. Farm banks are those with more than 15.5 percent of their loans made to farmers or ranchers.
“Farm banks across the country are doing their part to help small farmers by providing them a reliable source of credit,” Wolfe said. “In 2015 farm banks held $48 billion in small farm loans, including $11.5 billion in micro-small farm loans, where the origination value is less than $100,000. In contrast, the Farm Credit System’s investment in small farmers in the last 12 years has dropped precipitously, all while it has seen explosive growth. Farm banks have been helping small farmers immensely, and they have done so without having a legal mandate to.”
Wolfe explained the importance of the USDA’s guaranteed farm loan program to make additional credit available to farmers and ranchers. He also thanked Congress and the agricultural committees for repealing borrower term limits.
“Repealing borrower term limits has helped countless farmers.” Wolfe said. “And that means farmers will have more access to the kinds of loans that can make or break their livelihood. The average outstanding guaranteed real estate loan is $439,000 and the average outstanding guaranteed non real estate secured loan is $250,000. It is clear enough that we are reaching customers who have modest operations, who are in the process of starting their farm or ranch operation or who are recovering from a financial setback.”
Wolfe closed his testimony by expressing the banking industry’s commitment to providing agricultural credit.
“When the agricultural economy collapsed in the middle of the 1980s, community banks worked closely with farmers and ranchers so that they could restructure their businesses and rebuild rural economies across the country,” Wolfe said. “And ever since then, community banks have provided the majority of agricultural credit to farmers and ranchers.
“While other lenders, including the Farm Credit System, shrank their portfolios of agricultural loans or exited the business altogether, community banks expanded agricultural lending. They saw opportunity where others did not – and they still see great opportunities in agriculture. We are prepared and committed to making sure America’s farmers have what they need to keep feeding the nation and the world,” he said.
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