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Remarks by

The Honorable Kenneth A. Spearman

Wisconsin Farm Credit Legislative Conference

Madison, Wisconsin

March 1, 2010

Opening

Thank you for your warm welcome. I appreciate the opportunity to come to Wisconsin and visit 

with you today. As you know, I’ve been a member of the FCA Board only for a brief time—and 

this is my initial foray out into the System since becoming a member. I am excited to provide 

you with a closer look into my background and to share with you some important information 

about FCA that I have gleaned during my brief tenure.

It’s certainly been a whirlwind of activity for me over the past few months—settling into my new 

position and my wife and I moving to the Washington, D.C., area from Florida—just in time to be 

welcomed by Mother Nature with a 100-year snowstorm, I might add!

Background

Weather aside, I am honored to have been selected by the President to serve in this important 

role on the FCA Board, and I take my responsibilities very seriously. I think my extensive

background in the financial arena, specifically in accounting and auditing, will translate well into 

my role as a financial institution regulator. 

My experience includes 28 years working for large cooperatives in the citrus industry in Florida. 

I do recognize that the production of oranges and grapefruit may seem very alien to farmers 

here in Wisconsin and Minnesota. But it also serves to highlight the wide diversity of agricultural 

producers served by the System throughout the country—and the need for local expertise to 

serve all of those farmers and ranchers. 

One of the things I enjoyed during my time as a district bank director was visiting my fellow 

board members’ farms and seeing and learning about different kinds of agricultural production. I 

hope to continue those kinds of visits as an FCA Board Member because I think it’s important 

for those of us at FCA—particularly those who aren’t from farming backgrounds—to have a 

more intimate understanding of how farms work and interact with the people served by the Farm 

Credit System. 

FCA

Now, I’m sure I don’t need to tell you, these are certainly interesting times for FCA and the 

System. I know that some of you were at the Farm Credit Council annual meeting about a 
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month ago and heard FCA Chairman Strom’s speech and the FCA staff’s presentation on the 

state of the System, so I won’t repeat what was said there. 

However, I just want to make clear that I fully support Chairman Strom’s efforts and leadership 

to ensure the continued safety and soundness of the System. I plan on working closely with Lee 

to ensure that the Agency remains focused this year on safety and soundness issues. I am also 

working closely with Board Member Nancy Pellett—for as long as she continues her post at 

FCA—and look forward to working with new Board Member Jill Long Thompson as soon as her 

nomination is confirmed by the Senate. 

This tumultuous economic crisis presents an opportunity for FCA: an opportunity to look at how 

things work in times of stress. We now have a necessary opportunity to look at our rules, to look 

at our policies, and to look at how we examine and supervise institutions; basically, we have an 

opportunity to see what works and what doesn’t and make changes accordingly if need be. 

However, FCA can’t and shouldn’t try to regulate every aspect of a System institution’s 

business. That’s why it’s incumbent upon the board and management of each institution to seize

this necessary opportunity to take a close look at every aspect of its own operations—for 

example, to look at whether your institution needs to hold more capital during good times, to 

look at how you manage growth, and to look at the effectiveness of your business plans.

The Farm Credit System was founded in 1916 to ensure that affordable credit was available to 

America’s farmers and ranchers. That same mission remains necessary and relevant today. In 

modern agriculture, credit is as important an input as fuel and fertilizer. People in the System 

like to say—with some justifiable pride—that, unlike other lenders, the Farm Credit System is 

there to lend to agriculture in good times and bad. Of course, in order to do that, the System 

needs to be there and be in a position to lend during the bad times. In other words, in order to 

fulfill its mission, the System needs to remain safe and sound.

To remain safe and sound during this turbulent period, I think a few key principles are important. 

First, the System needs to focus on its core business of lending to creditworthy farmers and 

ranchers. Second, System management and boards must ensure that good underwriting and 

lending practices are followed and that effective internal controls are in place. And third, each 

System institution needs to have an effective and proactive board of directors. 

Corporate Governance

I want to expand a little more on that last point. As you know, I spent four years as an appointed

director for AgFirst Farm Credit Bank, serving on board compensation and governance 

committees. I came away from my experience with a deep appreciation for the knowledge and 

dedication of my fellow board members. I also came away with an understanding of the need for 

an effective board of directors for each System institution. 
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The governance of all corporations is vested in its board of directors. This role is even more vital 

in a cooperative—such as a System association—where, for most board members, it truly is 

your institution: you own it and you borrow from it. Boards should certainly hire and trust good 

management, but always remember that management works for you and that you, as board 

members, are ultimately responsible for the operation of the institution.

Good corporate governance starts with recruiting good candidates for the board. Good 

governance also requires that board members stay informed about important matters affecting 

their institution and receive the training and support necessary to effectively do their job. 

Additionally, I think good governance includes having a manageable board size that allows the 

institution to be effectively governed. I think that establishing strong committee structures, 

allowing a smaller group of board members to fully delve into particular issues, is also important. 

Getting good people on the board may mean looking beyond the usual suspects and making 

greater efforts to get new people involved. There is significant value in having diverse 

backgrounds and experiences on boards. Notably, the appointed director position provides an 

important opportunity to add expertise and a viewpoint that might otherwise be overlooked. In 

requiring there be at least one appointed director on each board, Congress recognized the 

importance of having an independent voice on the board of each System institution; therefore, 

institutions should look for outside directors who truly are independent of the institution and its 

management. 

GSE Status of FCS/Role of FCA 

I spoke a few minutes ago about the System’s vital public mission. As you know, the Farm 

Credit System was the first Government-sponsored enterprise, or GSE, and the way things are 

going, it may be the last. Unlike the biggest GSEs, Fannie Mae and Freddie Mac, the System is 

unique in that it consists of numerous privately owned institutions. While the joint and several 

liability of the Farm Credit banks certainly bind them together, there are varying viewpoints and 

interests among System institutions. There are even many areas of the country where 

association territories overlap and result in direct competition for customers. This 

“separateness” of System institutions is something policymakers in Washington and the public 

at large do not necessarily understand. Because of this, the System is often viewed by outsiders 

as a single entity. 

I think this means a couple of things. First, this means that we all need to recognize that the 

failure of one System institution, or even just the questionable behavior by one institution,

reflects negatively on the entire System and impacts the System’s ability to fulfill its mission. 

Second, I think this also speaks to the importance of achieving consensus within the System on 

important issues and presenting a united front to policymakers on important issues. 

In addition to Lee’s speech at the recent Farm Credit Council meeting, a number of you also 

may have heard the interesting panel discussion on the future of GSEs. I thought the comments 

by Thomas Stanton, a Funding Corp board member, in regards to identifying for the System 
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where Fannie and Freddie went so wrong, were quite interesting. Among the lessons he 

suggested the System could learn from the Fannie and Freddie meltdown were to avoid 

trouble—to stay out of the newspaper, and to be capable and cautious about taking on risk. 

Another lesson mentioned by Tom that I found particularly notable was his suggestion that the 

System should want a competent independent voice as its Federal regulator—and then to 

champion this regulator as evidence of the strength and safety of the System. 

In considering his comments, I’ve thought a bit about what it means to be a competent 

independent regulator. 

First and foremost, I think FCA needs to be credible in the eyes of Congress and the public; 

Congress and the public need to believe that FCA is truly independent and capable of handling 

the job of regulating the System. 

Secondly, I think FCA needs to keep good lines of communication open with the System—but 

also with Congress and other interested groups as well. 

Thirdly, to be credible, I think FCA needs to consider creative ways of furthering policy goals—

but to apply the law as written when the law is clear. Part of that is respecting Congress’ role in 

changing the law. Having worked on the Horizons project while with the District Bank, I certainly 

recognize the difficulty in achieving legislative change. However, while parts of the Farm Credit 

Act may be outdated or no longer meaningful, FCA is just not authorized to ignore or change 

congressional policy—as expressed in the Farm Credit Act—even if it disagrees with it. 

Fourthly, FCA needs to keep its primary focus on the safety and soundness of the System. This 

means effectively monitoring System operations and acting swiftly when we find problems or 

troublesome risks in the System. A big part of fulfilling this key task is hiring, training, and 

retaining high-quality staff at FCA. During my brief time with the Agency, I’ve been impressed 

with the dedication and professionalism of the staff, and I think its important going forward to 

ensure that FCA staff has the necessary resources to effectively regulate the System. 

FCSIC

In addition to my role as FCA Board Member, I am the Chairman of the Farm Credit System 

Insurance Corporation Board. As you probably know, the Insurance Corporation is essentially a 

separate Government agency, with its own management and staff but with the same Board 

Members as FCA. I would also note that within a week of starting as a Board Member I became 

Chairman of the Insurance Corporation—making that the fastest promotion I’ve ever received!

 

As you may know, the Insurance Corporation Board of Directors voted in January to reduce the 

insurance premium assessment rate for the Farm Credit banks on their adjusted insured debt 

from 20 basis points in 2009 to 10 basis points in 2010. The Board decided to do this because 

the Insurance Fund finished 2009 above the 2 percent secure base amount. This was partly due 
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to the effect of the Insurance Corporation’s use of enhanced authorities provided in the 2008 

farm bill, as well as lower than anticipated growth in insured debt outstanding. 

The 2010 assessment is based on likely growth in insured debt outstanding of 3 to 5 percent 

during 2010. The Insurance Corporation believes that the 10 basis-point assessment should be 

sufficient to maintain the Insurance Fund at the 2 percent secure base amount if growth in 

insured debt does not exceed 5 percent during 2010. I’m pleased that we were in a position to 

lower the rates, but we will look at it again in June to make sure the Insurance Fund remains 

adequately funded. 

Additionally, because the Insurance Fund finished above the secure base amount, we were also 

in a position to distribute approximately $40 million held in the Allocated Insurance Reserves 

Accounts to the Farm Credit banks and to the remaining Financial Assistance Corporation 

stockholders—which are the banks and the AgFirst associations. These payments have now 

been made. I am pleased that one of my first acts as the Insurance Corporation’s Chairman was 

to authorize the return of $40 million to the System, and I will continue to support such 

payments when possible and appropriate. However, I don’t want to raise expectations that this

will become a regular occurrence! 

Closing 

In closing, I’d like to say that I’m looking forward to addressing the challenges—and it appears 

that there will be many of them—that will come my way as an FCA Board Member. I appreciate 

the support shown and the kind words of encouragement given to me by folks in the Farm 

Credit System for my nomination to the FCA Board, and I intend to fulfill my duties to the best of 

my abilities. So thank you again for inviting me, and I look forward to working with you over the 

coming years during my term on the FCA Board. THANK YOU!