Remarks By

The Honorable Jill Long Thompson

Board Chair and CEO, Farm Credit Administration

Farm Credit Council Services

Washington, D.C.

April 29, 2014

Good morning! Thank you for the kind introduction. I appreciate the opportunity to be here with 

you today. 

Setting aside time to focus on leadership is such a valuable thing. It’s so easy to get caught up 

in the day-to-day operations of an organization. Getting together with peers to discuss strategic 

challenges can help us see solutions we might not otherwise have considered. 

I particularly like the title of your workshop—“The Power of Knowledge and Influence,” and I will

talk here today about this idea in the context of two seemingly unrelated ideas—volatility and 

ethics.

Volatility

In the field of agriculture, the issue of volatility comes up a great deal. The same is true in the 

field of finance. And if you work at the intersection of the two fields as we all do, you can hardly

get through the day without hearing the word.

Volatility is a two-edged sword, especially in agriculture. An event that causes prices to 

skyrocket for one sector can cause prices to plummet for another. This makes the effects of 

volatility very difficult to predict. 

So what are the sources of the volatility that plagues farmers and their lenders? Weather comes 

to mind first. Weather has always been a wild card, but it’s gotten wilder in recent years. 

Extreme events have become the new normal. We have barely begun the 2014 crop cycle, and 

already we are facing a huge water deficit in California. And this is the third consecutive year of 

drought in California. 

Another source of volatility is geopolitical instability. In a world in which economies are as 

interdependent as they are today, unrest in a remote corner of the world can have a dramatic 

effect on our own economy. 

Ukraine, for example, is a major exporter of wheat and corn, and it supplies more than half of 

the world’s sunflower oil. The effect on these commodity markets could be dramatic if a 

confrontation disrupts exports. That could drive up American grain prices, which could in turn 

drive down incomes for livestock producers.
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Unrest is not the only source of volatility. Geopolitical prosperity can cause it, too. China, with 

almost 20 percent of the world’s population and only 12 percent of the world’s arable land, has 

an increasingly powerful effect on agricultural markets here at home. Although the economy 

appears to be slowing, its growth is expected to remain in the 7 percent range for the next few 

years—far above the 2 to 3 percent economic growth rate projected for 2014 in the United 

States. 

In recent years, the per capita income of China’s people has been rising steadily and is 

expected to continue to do so. With greater purchasing power, its people are now buying more 

meat and dairy products. This has been a particular benefit to American dairy farmers and 

soybean producers.

Other sources of volatility are crop and livestock disease. PEDV is a recent example. Because 

of concerns about the virus, China, the world’s largest consumer of pork, has imposed 

temporary restrictions on the imports of live U.S. pigs. 

Another source of volatility is interest rates. They have a direct effect on both farmers and farm 

lenders. They’ve been low for so long that the double-digit interest rates of the 1980s seem like 

a bad dream. And although USDA projects that interest rates will remain relatively low over the 

next few years, we are beginning to see them rise with the gradual phasing out of the Federal 

Reserve’s quantitative easing.

These are just a few of the many ways volatility affects farmers and farm lenders. The danger of 

volatility is great whether it happens to bring hardship or prosperity. In fact, prosperity may be

even more risky because it’s seductive. As they say, bad loans are often made in good times. 

So what’s a farmer or a farm lender to do to survive and thrive in volatile times like these? 

Perhaps the most valuable tool for managing volatility is knowledge. By harnessing the power of 

knowledge, lenders can ensure that the loans they make are safe and sound. 

And there are many ways of doing this. Keeping a close watch on emerging risks is one 

important way. You should also conduct regular stress tests on loan portfolios and closely 

monitor loan-to-value ratios. These steps will help you anticipate volatility and mitigate the 

effects of it.

Is knowledge enough to manage volatility? Unfortunately, no. It’s impossible to predict all of the 

circumstances that can affect credit quality. Until someone invents a reliable crystal ball, lenders 

will have to use capital. By maintaining strong capital reserves, you can protect yourselves 

against the painful effects of volatility.

In fact, you proved that just recently. In the wake of the financial crisis that began in 2008, 

System institutions shored up their capital positions. As a result, the System’s financial condition 

remains strong. I encourage you to continue to maintain strong capital ratios. This is particularly 

important in light of declining grain prices. 
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To help ensure that the System remains well-capitalized, we will issue a proposed rule at our 

next regular Board meeting to update our capital requirements. Like regulators around the 

world, we are revising our capital standards in response to recent changes in the international 

regulatory capital framework. This framework, first adopted in the late 1980s, is designed 

primarily for large, internationally active banks. Over the years, bank regulators in the United 

States and other countries have adopted simplified versions of the framework for smaller banks 

in their jurisdictions. 

We intend to propose a simplified version of the international framework that reflects the unique 

characteristics of the Farm Credit System: its cooperative structure and its status as a 

Government-sponsored enterprise. If adopted in final form, the new regulations would replace 

our existing capital regulations.

The new international framework, known as Basel III, is intended to increase both the quality 

and quantity of capital held by financial institutions. The largest internationally active commercial 

banks in the United States have already begun implementing the full version of the framework. 

All commercial banks are expected to reach full compliance over the next few years. We expect 

that our rules will become effective over the same period. Our objective is to ensure that the 

System continues to operate safely in the new capital regime.

Ethics

And now I will move into the area of ethics. We’ve been hearing a great deal about it lately in 

the context of the U.S. military. A month ago, a widespread cheating scandal emerged at an Air 

Force base in Montana. Numerous individuals entrusted with the launching of our nation’s 

intercontinental ballistic missiles were caught cheating on monthly proficiency tests.

In the wake of these revelations, nine Air Force officers were fired and the base commander 

resigned. According to a Washington Post article, the dismissed officers were not found to have 

facilitated or condoned the cheating, but they were held “accountable for creating a culture that 

enabled it.” 

I’m a strong believer in the sentiment expressed by Alexander the Great: “Upon the conduct of 

each depends the fate of all.” I believe that no organization can be successful for the long term 

without a strong culture of integrity. 

In fact, integrity may be the single most important characteristic of an effective leader, and this 

is particularly true for leaders of Government agencies and Government-sponsored enterprises.

As leaders, we must use our power of influence to emphasize ethics in our organizations. Our

conduct must set the standard for our employees. 

And to conduct business in an ethical manner is not just the right thing to do, it’s the smart thing 

to do. It can provide a significant business advantage. If your organization conducts itself with 
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fairness, you attract customers and you earn public trust. If your organization fails to operate in 

an aboveboard manner, you lose customers and you lose public trust. And maintaining public 

trust is critical to survival for both Government agencies and Government-sponsored 

enterprises. 

The catchphrase to remember is reputation risk. It’s critical to avoid actions that could be 

considered unethical. Sometimes it’s not even a matter of whether something is actually right or 

wrong—the appearance of wrongdoing can be enough to risk your reputation.

Because of our belief in the importance of ethics to the success of organizations, my fellow 

Board members and I adopted a proposed rule in January on standards of conduct for Farm 

Credit System institutions and their employees. The objectives of the proposed rule are

• to clarify prohibitions on lending transactions and the purchase of System-acquired 

property, and

• to require each System institution to adopt a code of ethics and to have an in-house 

standards-of-conduct official. 

The value of this rule is that it elevates ethical considerations within the organization. It will help 

System employees more easily identify both real and apparent conflicts. And having a code of 

ethics and a dedicated standards-of-conduct official is important because it sends the message 

both to employees and to the outside world that your institution takes ethics seriously.

At FCA, we have strengthened the emphasis on ethics among our own employees. We are an 

independent, arm’s-length regulator. In late 2011, the FCA Board issued a policy statement to 

clarify what this means for employees. As an independent agency, we must come to our 

decisions independently. Although we work cooperatively with Congress and the White House, 

we must not allow our decisions to be affected by partisan demands.

And as an arm’s-length regulator, we must keep a certain distance from the institutions we 

regulate. We must make fair, impartial decisions to ensure that the System remains safe and 

sound, that it complies with all laws and regulations, and that it fulfills its congressional mission.

This becomes difficult when the relationship between the regulator and a regulated entity 

becomes too close. For this reason, our employees are ethically bound to keep an arm’s-length 

distance from the entities they must oversee and examine. We provide annual ethics training to 

remind employees of ethical considerations and to help them identify potential conflicts of 

interest. 

It’s a paradox in a way. We, the Agency, and you, the System, share the same goal of ensuring 

a safe, sound, and constructive source of credit for America’s farmers and ranchers, but we 

cannot operate as partners, per se. 
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Not only are we required to be an independent, arm’s-length regulator, but I would also argue 

that the System needs us to be an independent, arm’s-length regulator. If your borrowers, if 

Congress, and if the general public perceive us to be a “pocket regulator,” their confidence in 

the checks and balances on the Farm Credit System weakens. 

Public perception is a powerful thing. Seeing that the System has an independent, arm’s-length 

regulator gives investors in System debt more confidence in the safety and soundness of their 

investments; it gives borrowers more confidence that they will receive fair treatment; and it gives 

Congress more confidence that the System will fulfill the mission for which it was created.

So as you explore leadership principles over the next two days, I hope you will keep these 

things in mind. The power of knowledge (along with strong capital levels) can help you survive 

and thrive in two volatile industries—agriculture and finance. And the power of influence will 

help you reinforce a culture of fairness and integrity in your organizations. 

The System has so much to be proud of. For almost 100 years, it has delivered much-needed 

credit to America’s farmers and ranchers. And in doing so, it has strengthened the security and 

financial strength of our nation, making agricultural products our most valuable exports. 

By harnessing the power of knowledge and influence, you can help ensure that the System will 

continue to serve this nation for the next 100 years.

Thank you.