Remarks by

The Honorable Kenneth A. Spearman

AgriBank, FCB, Annual Meeting

St. Louis, Missouri

March 4, 2012

Thank you for that warm greeting. As you probably know, I am filling in for my colleague FCA 

Chairman Lee Strom, who underwent a surgical procedure a few weeks ago. Lee very much 

wanted to be here; however, doctor’s orders were adamant about “no travel.” I know that Lee 

feels a very strong connection to the AgriBank district family, and I send along his best regards 

to you. Lee’s surgery went well, and he is recuperating at home with his family. He will hopefully 

be back to full strength in a few weeks. 

In the meantime, I will certainly do my best as a replacement; but, as you know, few people 

make a speech like Lee Strom. Speaking of filling in for injured colleagues, I would hope my 

time with you brings to mind memories of Tom Brady replacing Drew Bledsoe and leading the 

Patriots to the Super Bowl. Unfortunately, as a long time Chicago Bears fan, I fear that, after I’m 

done speaking, you’ll be thinking more about Caleb Hanie replacing Jay Cutler and leading the 

Bears OUT of the playoffs.

Role of FCA Board

Hard as it is for me to believe, I’ve already spent almost two-and-a-half years on the FCA Board.

Because I was appointed to fill part of Dallas Tonsager’s remaining term, plus a full six-year 

term, my term lasts until May 2016. I have enjoyed my time on the Board and look forward to

the challenges of the next four years. It is also worth noting that we currently have, quite 

possibly, the most well-rounded board in FCA history, with Jill Long Thompson from a political 

background, Lee Strom from a farming background, and myself from a financial and accounting 

background. Having these diverse backgrounds and, at times, very different perspectives on the 

FCA Board has been valuable in developing Agency policy.

While FCA takes action upon the collective vote of its Board members, each FCA Board 

member—each President-appointed FCA Board member—acts independently. This means, 

among other things, that each Board member determines—within the limits of stringent 

Government ethics rules—how best to fulfill his or her duties. This also means that any opinions 

expressed here today are my own and not official Agency views. 

One of the things I want to commend Chairman Strom for is how he has approached his role as 

an independent regulator. Lee came from the System and, upon his nomination, was chastised

by banking lobbyists as being too close to the System. I was similarly singled out as well when 

my nomination was put forward. However, I think Lee has really embraced his role and made a 

diligent effort to be an even-handed, independent, arm’s-length regulator. I have tried to take a 

similar approach, maintaining productive communication with System representatives while 

always being mindful of my role as a Federal official.
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This past November, the FCA Board adopted Policy Statement 81, entitled “Ethics, 

Independence, Arm’s-Length Role, Ex Parte Communications and Open Government.” This 

policy reaffirms the Board’s commitment to the ethics laws and regulations, its avoidance of ex 

parte communications in its judicial and rulemaking roles, its commitment to open Government, 

and its role as an independent, arm’s-length safety and soundness regulator. This Policy 

Statement, which can be found on our website, is important in order to set expectations for 

ourselves and for the public.

We take our independent, arm’s-length role very seriously at the Agency because it is important 

that the System, as a Government-sponsored enterprise, have a strong independent regulator.

Statements in the Congressional Record from the mid-1980s, when Congress established FCA 

as an arm’s-length regulator, showed Congress’ strong desire for FCA to be truly independent, 

with members of Congress specifically emphasizing the need for FCA to be independent from 

the Farm Credit System.

The failure of the biggest GSEs, Fannie Mae and Freddie Mac, was also a failure of its 

regulatory agency and a failure of Congress to protect the independence of the regulator. We 

saw Fannie and Freddie use their lobbying strength to undermine the regulators’ ability to 

effectively regulate. So far, the System has managed to avoid the most onerous provisions of 

the Dodd-Frank Reform Act and to stay out of the debate on GSE reform, in part because of its 

regulator and its differences from the housing GSEs. I believe it is critical for the future of the 

System to have a strong, independent regulator so that the System may differentiate itself from 

its GSE cousins and maintain its GSE status for the long-term.

FCA Board Priorities 

I want to talk a little bit about the Agency’s priorities, which are set forth in the Agency’s 

Strategic Plan, adopted in May 2011. The FCA strategic plan has two basic goals: first, to 

ensure that the System and Farmer Mac fulfill their public mission for agriculture and rural areas 

and, second, to evaluate risk and provide timely and proactive oversight to ensure the safety 

and soundness of the System and Farmer Mac. These goals reflect the FCA Board’s 

commitment to ensuring that the System continues to provide dependable and affordable credit 

to all of America’s farmers and ranchers as well as our commitment to maintaining a robust 

examination function.

Many of the strategies and actions for accomplishing those goals haven’t changed over time.

However, our current strategic plan does have an increased emphasis on better use of 

technology and data so that FCA may more effectively monitor and regulate the System.

This includes enhancing YBS data analysis to better assess System progress in serving this 

important group of borrowers, as well as identifying further opportunities for improved System 

performance in this area. 

With regard to oversight, improved data collection has been a long-term goal of the Agency, and 

we are stepping up our efforts in working with the System in achieving this goal. We intend to 

enhance the Agency’s use of institution and Systemwide loan-level data in examination and 
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policymaking, with emphasis on improving the capacity to measure and monitor Systemwide 

risk. We also intend to leverage improved data through investments in technology, modernized 

examination tools, and enhanced staff skills to advance the Agency’s examination and 

policymaking roles.

I know that this goal of improved data collection to improve Systemwide risk assessment is also 

an important priority of Tracy McCabe, the new head of the Funding Corporation—just as it was 

for Jamie Stewart, the outgoing CEO. We look forward to continuing our work with the System 

and the Funding Corporation to achieve these common goals.

While the Farm Credit System remains fundamentally sound and adequately capitalized, seven 

associations remain under enforcement agreements, and a number of institutions remain under 

special supervision or on our watch lists. However, unlike commercial banks, no Farm Credit 

System institution has failed or been placed under receivership during the financial crisis. I think 

that fact reflects positively on both FCA and the System, and keeping that record intact remains 

a priority for the Agency. 

Mission Priorities

While FCA’s primary purpose is to ensure that Farm Credit System institutions operate in a safe 

and sound manner, Congress gave FCA broad authority over all matters related to the System 

and the Farm Credit Act. Therefore, part of FCA’s job is to ensure that the System—founded by 

Congress as a Government-sponsored enterprise—is fulfilling its public mission.

The first section of the Farm Credit Act states that the System has a specific mission to “meet 

the credit needs of all types of agricultural producers having a basis for credit. . . .” Congress 

also included a specific mandate to serve young, beginning, and small farmers in order to help 

make sure there will be a next generation of American farmers.

Therefore, I think it’s important for the System, and for FCA, to take a broader view and look at 

how the System is serving “all types of agricultural producers” in all segments of the agricultural 

marketplace. This marketplace includes minorities, women, and truly new farmers without family 

ties to farming, as well as producers seeking to capitalize on consumer demand for organic and 

local foods.

As you may know, the Agency has a pending proposed rule that would require System lenders 

to have marketing plans that address service to all types of agricultural producers having a 

basis for credit. A final rule, which is responsive to the comments we received, is scheduled for 

FCA Board consideration at FCA’s April Board meeting. 

I have a particular interest in the development of local food systems and how that movement 

may effectively supplement standard food delivery systems. These are producers who engage 

in what has been called “retail agriculture,” marketing their products directly to consumers, local 

restaurants, schools, hospitals, and other nearby entities. Local food systems frequently include 
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farmers operating in or near to, or directly supplying, urban and suburban areas. These are 

areas in which Farm Credit historically doesn’t have much of a presence.

I often see a high level of apprehension among long-time farmers about organic, local, and 

other unconventional producers. I absolutely agree that the general public needs a better 

understanding about where food comes from and what it takes to feed billions of people. I also 

agree that organic and local farmers will not be able to feed the world—just as I agree that 

ethanol will not be able to fuel all of America’s automobiles. But just as ethanol is part of the 

energy answer, organic and local food producers are a piece of the food supply answer. I think 

that the “unconventional” agricultural producers can supplement—but certainly not replace—

conventional producers. 

There is significant consumer demand for organic and locally produced foods, meaning that 

there are viable business opportunities—and viable customers—for the System. In addition to 

the business opportunities they present, these people are farmers, and I think the System has 

an obligation to support all types of agricultural producers, wherever they operate. Under FCA 

rules, a System lender may provide credit to any bona fide farmer, who is basically anyone 

engaged in the production of agricultural products, for agricultural needs.

Additionally, I would note that there are opportunities to finance local food systems as farmrelated businesses that provide services to eligible farmers and ranchers that are directly related 

to the farmers’ and ranchers’ agricultural production. In certain parts of the country, there are 

local food “aggregators” who provide marketing and transportation services to local farmers.

Some of these aggregators also provide a forum for local businesses to order fresh agricultural 

products from local producers. Because the farmers retain ownership of their products until 

delivery of the products to the local business, these should be considered eligible farm-related 

service businesses.

So I think an important question for FCA and for the System is: Is the System meeting its 

mission of serving the needs of all potential creditworthy agricultural borrowers? Part of the 

answer may also be that it isn’t enough to only serve farmers who walk in the door and ask for 

credit; arguably, the System has an affirmative obligation to seek out underserved potential 

borrowers, which also makes good business sense in the long term by cultivating a new 

generation of customers loyal to Farm Credit and making the Farm Credit name more widely 

known.

I’ve heard a variety of interesting stories about how System associations have found 

unconventional borrowers, sometimes in random, unpredictable ways. Upon implementation of 

FCA’s new business planning rule, I look forward to System institutions unleashing their creative 

energies in finding new ways to market themselves to new kinds of borrowers in a more 

systematic way.

We do recognize, for example, that agriculture in Iowa is different from agriculture in New York.

That’s why our proposed business planning rule rejects a one-size-fits-all philosophy. Each 
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association will be facing different sorts of challenges, and each association will need to take 

different steps in order to best serve its particular market.

Some associations have great programs in place already, and I would certainly encourage 

sharing of information and approaches across the System. I also recognize that in order to be 

effective, this cannot become a check-the-box sort of regulatory compliance issue. This will be a 

continuing, evolving journey, one that I hope features FCA and System institutions working 

collaboratively together to reach common goals.

Another important question is how we look at the issue of “creditworthiness.” The risk profile for 

an unconventional borrower is going to be very different from that of a commodity producer with 

crop insurance and Government support programs. However, that doesn’t necessarily mean 

that they aren’t creditworthy and won’t be able to repay debts. In fact, some local food 

producers are able to generate significant cash flow and are able to follow through on 

sophisticated business plans. I’m not suggesting System lenders make loans to people who 

won’t be able to pay it back. I recognize that many small producers are not creditworthy under 

any reasonable standard and are not able to service any significant level of debt. The System is 

NOT the lender of last resort. However, I am suggesting that we make the effort to look 

differently at these types of farmers in making “creditworthiness” decisions. 

Beyond the proposed business planning rule, FCA is actively studying this issue to see what 

other steps we can take to facilitate System efforts and remove barriers to service in this area.

This includes identifying any regulatory impediments to System financing of local and regional 

producers and consideration of enhancements to our YBS rules. Your suggestions and 

questions are always welcome.

In a few years, we will be celebrating the 100th anniversary of the Farm Credit System. I think 

all of us in this room would agree that the System, which was founded by Congress and 

organized by the Federal Government, is an example of a very successful Government 

program. While Congress may eventually get around to figuring out what to do with the housing 

GSEs, I don’t think there is a significant, imminent threat to the System’s status as a 

Government-sponsored enterprise. That doesn’t mean, however, there won’t be unforeseen 

challenges going forward.

In order to meet these challenges, I think we all need to ensure the long-term viability and 

relevance of the Farm Credit System—ensuring that the System is able to continue to meet its 

public mission well into the future. As stewards of the Farm Credit System, we need to think 

beyond short-term profit to ensure there can be another 100 years of service. 

To do this, I think the System needs to continue to keep its focus closely on agriculture. As long 

as people eat, agriculture will remain important. I think it is imperative for the System to expand 

its agricultural borrower base by cultivating the next generation of farmers and ensuring that all 

kinds of agricultural producers are being served. By pursuing new opportunities in previously 

underserved areas and by expanding its presence in areas not usually touched by Farm Credit, 
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the System also creates more people who understand—and care about—Farm Credit, 

something that will be vital in the face of any future political challenges.

As a Government-sponsored enterprise, the System enjoys low funding costs and stable access 

to credit. The continuing Federal Government commitment to the System—in the form of 

foregone tax revenues by virtue of System tax exemptions—amounts to millions of dollars a 

year.

In exchange for these public benefits, I believe that ensuring that the System meets its public 

mission of serving all creditworthy producers is the shared obligation of every institution and 

every director in the Farm Credit System—in addition to being key to the System’s long-term 

relevance. I have found Farm Credit directors to be remarkably dedicated to agriculture and to 

the Farm Credit System. I want to thank those associations who have already taken steps to 

broaden their lending base, and I am hopeful that all System directors will take on the important 

mission of ensuring System service to all eligible farmers with the same zeal and dedication.

System Structure

Turning to another issue, in the wake of the CoBank-U.S. AgBank merger, which created the 

largest institution in the System, I’m often asked what I think the future holds in terms of System 

structure. The short answer is: I don’t know.

Absent extraordinary circumstances, Congress left the organization of institutions, including 

mergers, in the hands of System stockholders. FCA is required to review and approve a plan for 

each proposed consolidation or merger and to ensure that the transaction does not present any 

undue safety and soundness risks. However, the transactions themselves come to us from the 

System and must each be evaluated on their own merits.

In light of the significance of the CoBank transaction, FCA conducted an unprecedented amount 

of due diligence, which included getting the views of other System institutions, before allowing 

the merger to proceed. I am comfortable that our review allowed us to understand the knowable 

risks and that the conditions we put in place on the merger—related to capital, fair conduct of 

their participation business, mission service, and other matters—were appropriate to address 

the potential safety and soundness risks presented. I anticipate that any future merger carrying 

the same level of significance will also receive the same level of FCA scrutiny. In looking at 

merger and structure issues, I think FCA always needs to be mindful of its own mission, which is 

to ensure “a safe, sound, and dependable source of credit and related services for all 

creditworthy and eligible persons in agriculture and rural America.”

At one time there were well over 1,000 Farm Credit associations. Today, we are down to 83

associations and four banks. However, there is only one Farm Credit System. The System was 

established as a way to ensure a dependable and affordable source of credit for America’s 

farmers and ranchers. Local associations and regional banks were established as an effective 

means to achieve that end. This setup was considered the most effective for the conditions 

present in 1916, when the System was founded.
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In judging the merits of any further consolidations—or, for that matter, any other significant 

changes in the System—I think we need to be able to look at how the System as a whole is 

fulfilling its purpose of serving all creditworthy agricultural borrowers based on today’s 

conditions and how the proposed action will affect that service. I do note that one way of 

improving service to all customers—as an alternative to merger—is increased collaboration 

among associations. Rather than competing with each other, I believe that finding ways for 

institutions to work together to more effectively serve all of the System’s customers and 

potential customers is very much in the System’s best interest.

I also think that, as a regulator, FCA needs to be continually mindful of the impact that our 

actions have on America’s farmers and ranchers and how what we do impacts the System’s 

ability to serve its important public mission.

FCSIC Issues

As a final note, I would be remiss if I did not mention some of the efforts undertaken over the 

past year by the Farm Credit System Insurance Corporation, of which I serve as the Chairman.

We have a very diligent, professional staff that constantly monitors the Insurance Fund to 

ensure its safety and soundness, stability, and yield. Over the past year, the Insurance 

Corporation has studied, reviewed, and revised its policies and procedures to ensure its 

readiness for resolving a seriously troubled or impaired institution and has extensively studied 

and provided input on important issues facing the System, particularly involving capital and 

liquidity.

With regard to the Insurance Fund, the Insurance Corporation board voted to reduce 2012 

premiums and is currently accruing premiums of 5 basis points on adjusted insured obligations.

Overall, insured obligations declined by 2.1 percent in 2011 to $183.5 billion, and the Insurance 

Fund finished 2011 at $226 million above the secure base amount (SBA). After subtracting $4 

million for the Insurance Corporation’s budget, $222 million was transferred to the Allocated 

Insured Reserve Accounts.

At its April board meeting, the Insurance Corporation board will likely consider returning those 

excess funds to System institutions in the same manner as it did in early 2010.

Conclusion

In closing, I’d like to again thank you for the opportunity to pinch-hit for Chairman Strom and 

share with you some of my thoughts on FCA and the Farm Credit System. While there are many 

challenges facing FCA and the Farm Credit System, I want you to know that I appreciate the 

dedication, knowledge, and expertise of the people of the Farm Credit System and of the public 

servants who work at FCA. I look forward to working with you over the next four years of my 

term at FCA.

THANK YOU!