Pub. 14 2019-2020 Issue 5

WWW.NEBANKERS.ORG 22 A MERICANAGRICULTURE ISEXPERIENCING extraordinary financial stress, un- like anything farmers and ranchers have experienced in several decades. Those stresses, and their consequences, are reverberating within the Farm Credit System (FCS). Bert Ely provides an in-depth discus- sion in 1 The Farm Credit System — Resolve its growing credit-quality problems while strengthening its regulation, an ABA white paper released this month. The FarmCredit Administration (FCA) has effectively acknowledged the growing credit quality problems within the FCS, through its Financial Institution Rating System, or FIRS ratings of FCS banks and associations. FIRS ratings are comparable to bank CAMELS ratings, with a 1 rating for the strongest FCS institutions and 3 or lower for the weakest. As of March 2019, 73 institutions were rated— 33 had a 1 rating, 33 had a 2 rating and seven had a 3 rating. As of December 2016, 77 institutions were rated — 44 had a 1 rating, 31 had a 2 rating and just two had a 3 rating. The increase of five 3-rated institutions over a 28-month period is very troubling, a trend that almost certainly has worsened since March. The key public-policy question today is: How well has the FCS recognized in its fi- nancial statements its likely loan losses? An analysis of the quarterly financial statements FCS institutions file with the FCA indicates the high likelihood that during the first nine months of 2019 many FCS associations were slow to recognize the growing deterioration in their borrowers’ finances. This appended table — 2 Comparing Key Ratios for FCS Associations — which groups Resolving the FarmCredit System’s Growing Credit-Quality Problems Shedding Light on the Farm Credit System, America’s Least Known GSE BERT ELY’S FARM CREDIT WATCH® © 2019 Bert Ely