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Farm Credit System Oversteps, Competes With Small Banks
by: Marlin Stutzman
Wednesday, July 9, 2014
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Farming should be at the center of the Farm Credit System. Unfortunately, a too-big-to-fail approach has allowed this $247 billion government-sponsored enterprise to overstep its purpose and crowd out private lenders. Unless we return the Farm Credit System to its original mission, taxpayers could be on the hook for a bailout in the near future and farmers’ access to credit could be reduced.

Like other small businesses, family farms depend on capital to grow and, given agriculture’s unique challenges, it’s helpful to have financial institutions that understand how farming works. In 1916, the Farm Credit System was created by Congress to help farmers and ranchers access that capital. Unfortunately, over the past few years lenders within the Farm Credit System have extended themselves beyond their original scope.

Today, the Farm Credit System is roughly the equivalent of the country’s ninth-largest bank. Although its original mission was to provide services to small farmers, the FCS is now directly competing with the private sector for nonagricultural business.

I’ve heard from numerous small lenders across Indiana who are left at a disadvantage when the Farm Credit System seeks nonagricultural business. With the special advantages they enjoy as a GSE, Farm Credit lenders are often able to undercut local lenders with lower rates.

One Hoosier banker wrote: “We lost a loan to Farm Credit earlier this year to fund the purchase of a mobile home park. . . [the borrower went to] Farm Credit because their terms were better. . . we couldn’t compete . . . [the borrower] has nothing to do with farming ” Another said that he’s “just so frustrated with competing against a U.S. Government entity in the private banking sector.”

Like Fannie Mae and Freddie Mac, the Farm Credit System puts taxpayers on the hook for a potential bailout. On September 24, 2013, the Federal Financing Bank -- an agency within the Department of Treasury -- offered a $10 billion line of credit free of charge to the Farm Credit System Insurance Corporation. This line is more than twice the size of the FCSIC’s current $3.5 billion in assets. This startlingly large sum raises significant questions that I recently posed to Treasury Secretary Jacob Lew.

Treasury should tell taxpayers why the $10 billion was necessary. Hoosiers have a right to know if the Department of Treasury is at all concerned that the Farm Credit System Insurance Corporation has adequate funding. Most importantly, because the Federal Financing Bank is able to borrow from the Treasury without limit, Americans should know what protections are in place to prevent a taxpayer funded takeover of the Farm Credit System.

It’s time for the Farm Credit System to focus back on the farm to help farmers. As a member of the House Committee on Financial Services I will further investigate the soundness of the Farm Credit System. Hardworking taxpayers should not be saddled with another bailout and the last thing the government should be doing is competing against businesses still recovering from a difficult recession. It’s time for the government’s manipulative policies to stop picking winners and losers.

Rep. Marlin Stutzman, R-Indiana, is a member of the House Financial Services Committee.

Read more: How Advisors Can Help Small Business Clients

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