Testimony of the Honorable Kenneth A. Spearman

Chairman and Chief Executive Officer

Farm Credit Administration

Before the U.S. Senate Committee 

on Agriculture, Nutrition, and Forestry

May 19, 2016

Introduction

Chairman Roberts, Ranking Member Stabenow, and Members of the Committee, I am 

Kenneth A. Spearman, Farm Credit Administration (FCA) Board Chairman and Chief 

Executive Officer. Along with my colleagues on the FCA Board, Dallas P. Tonsager of South 

Dakota, Jeffery S. Hall of Kentucky, and on behalf of all the dedicated men and women of 

the agency, it is a privilege to appear before you today.

FCA is an independent agency responsible for examining and regulating the banks, 

associations, and related entities of the Farm Credit System (FCS or System), including the 

Federal Agricultural Mortgage Corporation (Farmer Mac). The banks and associations of the 

FCS form a nationwide network of borrower-owned financial institutions that provide 

competitive credit to all creditworthy farmers, ranchers, and other eligible borrowers.

FCA mission

As directed by Congress, FCA’s mission is to ensure a safe, sound, and dependable source 

of credit and related services for agriculture and rural America. The FCA Board recently 

completed our five-year Strategic Plan. Within that plan we outline the two important ways 

in which we accomplish our mission. 

First, we protect the safety and soundness of the FCS by examining and supervising all FCS 

institutions, including Farmer Mac, and we ensure that they comply with applicable laws and 

regulations. Our examinations and oversight strategies focus on an institution’s financial 

condition and any material existing or potential risk, as well as on the ability of its board 

and management to direct its operations. We also evaluate each institution’s compliance 

with laws and regulations to ensure that it serves all eligible borrowers, including young, 

beginning, and small farmers and ranchers. If a System institution violates a law or 

regulation or operates in an unsafe or unsound manner, we use our supervisory and 

enforcement authorities to take appropriate corrective action. 

Second, we develop policies and regulations that govern how System institutions conduct 

their business and interact with customers. Our policies and regulations protect System 

safety and soundness; implement the Farm Credit Act; provide minimum requirements for 

lending, related services, investments, capital, and mission; and ensure adequate financial 

disclosure and governance. We approve the corporate charter changes of System 

institutions, System debt issuances, and other financial and operational matters. 

Through the oversight and leadership of the House and Senate Agriculture Committees, 

many important reforms were made to the Farm Credit Administration and the FCS as a 

result of the agricultural credit crisis of the 1980s. This included restructuring FCA as an 

independent arm’s-length regulator with enforcement powers, providing borrower rights to 

System borrowers with distressed loans, establishing the Farm Credit Insurance Fund to 

protect System investors, and creating the Federal Agricultural Mortgage Corporation.
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Since then, the Farm Credit System has restored its financial health and the public trust. 

Using our authority as an arm’s-length regulator, we have contributed to the System’s 

success by ensuring that System institutions adhere to safety and soundness standards. The 

Insurance Fund also helps by strengthening investor confidence in System debt.

Both the System and FCA learned much during the crisis of the 1980s, and those lessons 

helped build a much stronger Farm Credit System, as well as a stronger regulator. We will 

continue to ensure that the System remains safe and sound by promulgating regulations, 

providing appropriate guidance, and maintaining strong and proactive examination and 

supervisory programs. With the dynamics and risks in the agricultural and financial sectors 

today, we recognize that FCS institutions must have the appropriate culture, governance, 

policies, procedures, and management controls to effectively identify and manage risks. 

Today the System is a dependable provider of credit to agriculture and rural America as 

Congress intended.

Farm Credit System mission

The FCS is a government-sponsored enterprise (GSE) created by Congress in 1916 to 

provide American agriculture with a dependable source of credit. The System’s banks and 

associations form a nationwide network of cooperatively organized lending institutions that 

are owned and controlled by their borrowers, serving all 50 states and the Commonwealth 

of Puerto Rico. 

The System provides credit and financially related services to agricultural producers, aquatic 

producers or harvesters, and farmer-owned agricultural and aquatic cooperatives. It also 

finances agricultural processing and marketing activities, rural housing, farm-related 

businesses, rural utilities, and international agricultural trade. In addition, the System funds 

and discounts loans for certain “other financing institutions.” And together with commercial 

banks, it provides credit to agriculture and rural America through participations and 

syndications. 

As required by law, System borrowers own stock or participation certificates in System 

institutions. The FCS had about 1.3 million loans and approximately 500,000 stockholders at 

year-end 2015. Approximately 86 percent of the stockholders were farmers or cooperatives 

with voting stock. The remaining 14 percent were nonvoting stockholders, including rural 

homeowners and other financing institutions that borrow from the System. The U.S. 

Department of Agriculture’s latest data show that the System’s market share of farm debt 

was 40 percent, compared with 42 percent held by commercial banks.

One of FCA’s oversight roles is to ensure that the System fulfills its mission to agriculture 

and rural America by maintaining its presence in the agricultural marketplace and providing

competitive and dependable credit for all eligible and creditworthy farmers, ranchers, 

aquatic producers or harvesters and agricultural cooperatives. In fact, the System has 

served its mission during the difficult markets of the past years to help producers and rural 

America. When commodity prices soared in early 2008, System institutions stepped forward 

to meet the critical financing needs of the grain elevator industry. Loans to this customerowner segment at CoBank alone increased 176 percent, from $4.2 billion at February 28, 

2005, to $11.6 billion at May 31, 2008. Similar increases in loan demand from grain 

elevators occurred at the other System banks. Since that time, the System has met 

increased demands for financing machinery and higher input costs for producers. System 

institutions also helped Midwest borrowers affected by floods and worked with livestock 

producers, especially dairy and hog producers, as they made difficult decisions during 

stressful market conditions. Overall, the System continued to have access to funds and was 
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able to increase its lending to agriculture and rural America during a financial crisis and 

severe recession.

Condition of the FCS

The FCS remains fundamentally safe and sound and is well positioned to withstand the 

challenges facing U.S. agriculture during the current cyclical downturn. The depth and 

duration of market weakness is unknown, but it will continue to present challenges for the 

System until markets rebound.

The U.S. Department of Agriculture is forecasting lower net cash income in 2016 for the 

third consecutive year as receipts for crops and livestock decline in tandem. Continued weak 

farm prices stem primarily from large U.S. and global crop supplies and expanding livestock 

production. Average prices received by farmers for corn and soybeans have dropped sharply 

from records posted in 2012 and remain near or below levels last received in 2007.

Because of lower prices, margins for many crop producers in 2016 are expected to remain 

low or negative. For livestock producers, lower crop prices translate into lower feed costs, 

but profitability has declined because of lower protein and dairy product prices. Lower grain 

prices have also caused softening in some farmland markets, specifically in the Midwest.

While the current credit stress level in the System’s loan portfolio is well within its riskbearing capacity, asset quality is expected to decline modestly in 2016 from relatively 

strong levels in 2015. Supporting the overall condition of the FCS is moderate loan growth, 

adequate capital, and reliable access to debt capital markets.

The System continues to grow at a moderate pace. As of December 31, 2015, gross loans 

totaled $235.9 billion, up $18.8 billion or 8.7 percent from December 31, 2014. Real estate 

mortgage lending was up $7.0 billion, or 6.9 percent, as demand for cropland continued in 

2015. Production and intermediate-term lending increased by $2.9 billion, or 6.3 percent,

from the year before, and agribusiness lending increased by $3.7 billion, or 11.1 percent.

The System also continues to enhance its capital base, which strengthens its financial 

position as low or negative farm returns increase financial stress on borrowers. As of 

December 31, 2015, System total capital equaled $48.8 billion, up from $45.7 billion the 

year before. The System’s total capital-to-assets ratio was 16.1 percent, compared with 

16.2 percent a year earlier. In addition, more than 82 percent of total capital is in the form 

of earned surplus. 

The increase in total capital is due in large part to the System’s strong earnings 

performance. For 2015, the System reported net income of $4.69 billion compared with 

$4.72 billion the year before. The small decline results from higher noninterest expenses 

and provisions for loan losses, which offset an increase in net interest income. The increase 

in net interest income stems from a higher level of average earning assets despite a ninebasis-point decline in net interest margin to 2.55 percent. Compression of net interest 

spread is expected to continue as interest rates change and borrowers prepay or reprice 

loans. 

Credit quality in the System’s loan portfolio continues to be strong. In each calendar year 

since 2010, the amount of nonperforming loans has declined, and capital has increased. As 

of December 31, 2015, nonperforming loans totaled $1.6 billion, or 0.69 percent of gross

loans, as compared with $1.7 billion, or 0.80 percent, a year earlier. Relative to total 

capital, nonperforming loans represented 3.3 percent at year-end. For historical 
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comparison, at year-end 2010, nonperforming loans amounted to more than 10 percent of

the System’s capital. 

Lenders expect an uptick in loan delinquencies and other indicators of loan repayment 

problems later in 2016, but they do not foresee a large increase in problem loans. With 

weak margins, more farmers are expected to change their operating structures to reduce 

production costs or rebalance their farm balance sheets by, for example, lengthening loan 

terms or selling unproductive assets.

The System continues to have reliable access to the debt capital markets. Investor demand 

for all System debt products has been strong, allowing the System to continue to issue debt 

on a wide maturity spectrum at very competitive rates. Risk spreads and pricing on System 

debt securities remained favorable relative to corresponding U.S. Treasuries. 

The Farm Credit Insurance Fund, which held just over $4.0 billion at year-end 2015, further 

strengthens the System’s financial condition. Administered by the Farm Credit System 

Insurance Corporation, this fund protects investors in Systemwide consolidated debt 

obligations. 

System banks also maintain liquidity reserves to ensure they can withstand market 

disruptions. As of March 31, 2016, the System had sufficient liquidity to pay its debts and 

fund its operations for 172 days, which is significantly above the 90-day regulatory 

minimum required for each FCS bank. 

A changing risk profile in agriculture 

U.S. farmers and ranchers are in the midst of serious belt tightening. Commodity prices 

have declined sharply while input costs have been slow to adjust downward. Many crop and 

livestock producers are operating with narrow, or even negative, profit margins. 

An extended downturn in the farm sector would be a major challenge for U.S. agriculture. 

Over the past two years, many farmers have been coping with a declining market by using 

working capital generated during the previous period of strong earnings. As a result, the 

System has recorded relatively low loan losses and maintains a strong financial position to

date. However, if commodity prices continue to be weak for another year or two, we expect 

significant financial stress on borrowers as working capital erodes further and as farmers 

make additional cuts to capital expenditures, household spending, and operating costs.

Weakness in commodity prices is due to both supply and demand factors. Globally, good 

weather in major producing regions has resulted in large supplies of grain and oilseeds. 

Expanding stocks have insulated many markets from significant price volatility, and in the 

absence of major weather shocks, commodity prices could remain subdued.

Through 2015 and thus far in 2016, export demand for U.S. agricultural products has been 

slowed by the higher value of the dollar, which reduces our ability to compete in foreign 

markets. Also, while long-run trends are positive, modest economic growth tempers 

demand in major U.S. export markets, including China. Exports of high-value commodities, 

including meat, dairy, fruit, tree nuts, and vegetables, are particularly vulnerable to 

weaknesses in the economies of our trading partners. Further strengthening of the U.S. 

dollar or a downturn in global economic growth would represent additional risk to U.S. farm 

receipts and loan repayment capacity.
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After rising rapidly in recent years, Midwest farmland values have begun a correction 

process that could take a few years. According to surveys conducted by several Federal 

Reserve Banks, the value of farmland dropped during the year ending fourth quarter 2015 

in several areas. The declines varied based on region and type of acreage. Fortunately, the 

declines have been relatively modest so far. Most economists do not anticipate a correction 

of the magnitude experienced in the 1980s. Lower farmland values offer some advantage to 

producers who cash-rent their land. According to USDA, cropland rents in the Midwest have 

declined for the first time in 20 years.

During the next year, many observers expect farmland values to continue to weaken given 

the outlook for commodity markets. However, any downward movement could be limited by 

investors stepping into the market. Impacts of declining land values on the Farm Credit 

System would be mitigated by the System’s underwriting procedures, which have been 

prudent during the recent run-up in land values.

Anticipation of higher interest rates remains part of the economic landscape. Nevertheless, 

rates are expected to remain relatively low and increase very slowly over the next couple of 

years, which should help maintain economic stability. Higher interest costs could put 

additional pressure on producers, especially those with liquidity problems, and any 

substantial rise in long-term rates would have negative effects on land values.

Farm program payments for major crops will assist many grain and oilseed producers 

through at least this year. Farm financial health also benefits from typical lender practices

that require borrowers to obtain crop insurance and use other risk-mitigating strategies for 

marketing. Over time, though, if market prices remain relatively weak, farm program 

payments will provide less assistance to corn, soybean, and other producers who selected 

Agriculture Risk Coverage as revenue guarantees begin to adjust downward. 

Examination programs for FCS banks and associations

FCA is responsible for regulating and supervising the banks, associations, and related 

entities that compose the Farm Credit System. Our examination and oversight programs 

provide strategic, proactive risk supervision of the System. In conducting our institutionspecific, risk-based oversight and examination activities, we assign highest priority to 

institutions that present the greatest risk. 

We also perform nationally focused examinations that target specific issues and operational 

areas to monitor the condition and operations of the System as a whole. We actively 

monitor risks that may affect groups of System institutions or the entire System, including 

risks from the agricultural, financial, and economic environment.

Through our oversight, we require System institutions to have the programs, policies, 

procedures, and controls to effectively identify and manage risks. Our oversight program 

also requires compliance with laws and regulations. When institutions fail to address unsafe 

and unsound practices or to comply with laws and regulations, we take appropriate 

supervisory or enforcement action. We use a comprehensive regulatory and supervisory 

framework to ensure the System’s safety and soundness. FCS institutions, on their own and 

in response to our efforts, continue to improve their risk management systems.

FCA uses the Financial Institution Rating System (FIRS) to assess the safety and soundness 

threats to each System institution. Similar to the systems used by other federal financial 

regulators, the FIRS is a CAMELS-based system, with component ratings for capital, assets, 

management, earnings, liquidity, and sensitivity, all factoring into an overall composite 
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rating. System institutions are assigned component and composite ratings based on FCA’s 

evaluation of quantitative and qualitative factors. FIRS ratings range from 1 for a sound 

institution to 5 for an institution that is likely to fail. 

Although the System’s financial condition remains sound, a small number of individual 

institutions display some weaknesses. For the most part, these weaknesses stem from the 

financial stress that some borrowers are experiencing because of shrinking profit margins.

As the System’s regulator, we have increased supervisory oversight and dedicated 

additional resources to institutions experiencing stress. As of December 31, 2015, three

System institutions had a composite FIRS rating of 3 or worse. While these institutions 

represent less than 1 percent of System assets and do not meaningfully affect the System’s

consolidated performance, they require significantly more resources to oversee. 

The chart below includes the System banks and their affiliated associations. The figures in 

the bars reflect the number of institutions by FIRS rating.

Regulatory activities

Congress has given the FCA Board statutory authority to establish policy, prescribe 

regulations, and issue other guidance to ensure that System institutions comply with the 

law and operate in a safe and sound manner. We are committed to developing balanced, 

flexible, and legally sound regulations. 
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Over the past few years, we have revised our regulations or issued substantive guidance to 

accomplish the following objectives: 

• To enhance our risk-based capital adequacy framework to more closely align it with that 

of other federal banking agencies and the Basel Accord. We amended our regulations to 

replace the current core and total surplus capital standards with a tier 1/tier 2 capital 

framework. The new framework provides more stringent rules for the quality and 

stability of capital and more sensitivity to risk—with buffers that restrict redemptions 

and payouts as levels approach regulatory minimums.

• To ensure that FCS institutions comply with the Farm Credit Act and FCA regulations 

when they purchase participations in loans originated by non-System lenders to qualified 

similar-entity borrowers. We issued substantive guidance (a bookletter) that describes

the policy, procedures, and internal controls needed to participate in similar-entity 

lending

• To require each System institution’s business plan to include strategies and actions to 

serve all creditworthy and eligible persons in its territory. In addition, the regulation 

encourages institutions to serve nontraditional customers, such as women and 

minorities, who often operate within local food systems by producing organic or specialty 

crops on small farms. The regulation also seeks to achieve diversity and inclusion in the 

workforce of System institutions.

• To ensure that System funding and liquidity requirements are appropriate and to ensure 

that the discounts applied to investments reflect their marketability. 

• To ensure that prudent practices are in place for the safe and sound management of 

System investment portfolios.

• To establish a regulatory framework for the reporting of System accounts and exposures 

to FCA. The revisions reaffirm our authority to collect data on System institution 

accounts and exposures, including data on shared assets.

• To establish standards for Farmer Mac’s capital planning process. The revised process 

emphasizes the quality and level of capital and annual stress testing.

• To increase the level and quality of assets held in Farmer Mac’s liquidity reserve. 

• To implement the requirements of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act by imposing margin requirements on noncleared derivatives transactions 

and removing references to credit ratings. 

• To implement title III of the Terrorism Risk Insurance Program Reauthorization Act of 

2015, which grants exceptions from the margin requirements of the final rule for 

noncleared swaps.

• To implement the provisions of the Biggert-Waters Flood Insurance Reform Act of 2012, 

as well as the additional provisions of the Homeowner Flood Insurance Affordability Act 

of 2014. 

• To revise regulatory requirements for mergers or consolidations of banks and

associations.

• To seek public input on FCA regulations that may duplicate other requirements, are not 

effective in achieving the stated objectives, are not based on law, or impose burdens 

that are greater than the benefits received.

Currently, we are working on regulatory projects to accomplish these additional objectives: 

• To clarify and strengthen the standards-of-conduct and ethics requirements for System 

directors, employees, and agents.

• To strengthen the safety and soundness of the investment activities of System banks by 

more accurately reflecting the risk in particular investments, and to comply with a 
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provision of the Dodd-Frank Act by replacing credit rating requirements with other 

standards of creditworthiness. 

• To clarify or change the loan amortization limits for agricultural credit associations and 

production credit associations.

• To amend FCA regulations applicable to System lending to conform with the private 

flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012.

• To ensure appropriate and effective risk governance and board oversight at Farmer Mac, 

and to clarify standards-of-conduct and conflict-of-interest requirements. 

• To remove reliance on credit ratings from investment eligibility regulations pertaining to 

Farmer Mac and to maintain the quality and availability of Farmer Mac’s liquid 

investments.

Corporate activities

The number of FCS institutions has declined over the years as a result of bank and 

association mergers. Generally, System institution mergers result in larger, more costefficient and better-capitalized institutions with broad, diversified asset bases, both by 

geography and commodity. 

However, these mergers also increase the complexity of the continuing institutions. The 

increased complexity places greater demands on both FCA staff resources, as well as the 

level of expertise required of staff, particularly in areas of regulation, policy, examination, 

and legal interpretation. As of April 1, 2016, the System consisted of the following:

• Seventy-four direct-lender associations

• Three Farm Credit Banks and one Agricultural Credit Bank

• Five service corporations that provide support, technology, leasing, human capital, and 

other services

• A funding entity that markets the securities—chiefly bonds and discount notes—that the 

banks sell in the capital markets to raise loan funds 

• A GSE with the mission of providing a secondary market for agricultural real estate and 

rural housing mortgage loans 

Federal Agricultural Mortgage Corporation 

Congress established Farmer Mac in 1988 to provide a secondary market for agricultural 

mortgage and rural home loans to improve the availability of cost-effective long-term credit 

and liquidity to America’s farmers, ranchers, and rural communities. Farmer Mac conducts 

secondary market activities that provide liquidity, lending capacity, and credit protection to 

agricultural and rural utility cooperative lenders. Loan originators that participate in Farmer 

Mac’s secondary market programs include community banks, Farm Credit System 

institutions, mortgage companies, commercial banks, insurance companies, and credit 

unions. The 2008 Farm Bill expanded Farmer Mac’s program authorities by allowing it to 

purchase loans for electric and telephone facilities made by cooperative lenders, and to 

guarantee securities backed by such loans.

Through a separate office required by statute (the Office of Secondary Market Oversight), 

FCA examines, regulates, and oversees Farmer Mac’s operations and its safety and 

soundness. As the secondary market GSE devoted to agriculture and rural America, Farmer 

Mac has the statutory authority to, in extraordinary circumstances, issue obligations to the 

U.S. Treasury Department, not to exceed $1.5 billion, to fulfill the guarantee obligations of 

its guaranteed securities. To date, Farmer Mac has not used this borrowing authority.

Although Farmer Mac (including its subsidiaries) is an institution of the FCS, it is not liable 
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for any debt or obligations on any other institution of the FCS. Moreover, the Farm Credit 

System Insurance Corporation does not insure Farmer Mac’s securities.

Farmer Mac continues to grow its business through an increasing network of rural lenders 

and to strengthen operations to advance its statutory mission. Farmer Mac’s outstanding 

business volume reached $15.9 billion as of December 31, 2015, on a compound annual 

growth rate of 12.6 percent from 1999 to 2015. By expanding its product offerings and its

customer base, Farmer Mac grew its outstanding business volume by approximately $1 

billion on average per year over the past four years. In 2015, over 300 lenders participated 

in Farmer Mac programs, including commercial banks, FCS institutions, insurance companies 

and other lenders serving the needs of rural America.

Since 2010, Farmer Mac has steadily improved the quality of its capital base and riskbearing capacity through retained earnings and capital restructuring. As of December 31, 

2015, Farmer Mac’s core capital totaled $564.5 million, $102.4 million above the minimum 

capital level required by Farmer Mac’s statutory charter. As of yearend 2014, Farmer Mac’s 

core capital level was $766.3 million, which was $345.0 million above the minimum 

requirement. Its capital in excess of the statutory minimum declined primarily because of 

the redemption of $250.0 million of Farmer Mac II LLC preferred stock on March 30, 2015. 

Lower-quality capital was replaced with higher-quality capital as part of Farmer Mac’s capital 

restructuring initiative and new regulatory requirements. In accordance with FCA’s capital 

planning rule, Farmer Mac has adopted a policy for maintaining a level of tier 1 capital 

sufficient to meet the general consensus of international regulatory thresholds. (Tier 1 

capital consists of retained earnings, paid-in capital, common stock, qualifying preferred 

stock, and accumulated other comprehensive income allocated to investments not included 

in its four business lines.) At December 31, 2015, Farmer Mac reported a tier 1 capital ratio 

of 10.5 percent. FCA regulations require Farmer Mac to conduct stress tests to evaluate its 

ability to maintain adequate capital under adverse economic conditions and develop 

strategies to address potential risks to capital under such scenarios.

Farmer Mac’s credit quality metrics continue to reflect low levels of risk. As of December 31, 

2015, Farmer Mac’s 90-day delinquencies increased over the 12-month period but remained 

low at $32.1 million, or 0.56 percent of Farm & Ranch volume, compared with $18.9 million, 

or 0.35 percent, as of December 31, 2014. The increase in delinquencies was related to two 

agricultural storage and processing facility loans. Nevertheless, the delinquency rate 

continues to be well below Farmer Mac’s average rate of 1 percent over the past 15 years.

Real estate owned as of December 31, 2015, was $1.4 million, up from $0.4 million a year 

earlier. Farmer Mac reported no delinquencies in its pools of rural utility cooperative loans. 

On December 31, 2015, Farmer Mac’s allowance for losses totaled $6.6 million, compared 

with $10.1 million on December 31, 2014. 

Farmer Mac continues to enjoy reliable access to the debt capital markets to support its 

mission of providing financing and liquidity to agriculture and rural markets. To improve its 

financial flexibility in the event of a financial or market disruption, Farmer Mac has taken 

significant measures to increase the quality of its $4.0 billion liquidity investment portfolio.

Serving young, beginning, and small farmers and ranchers

As part of their mission to serve all eligible, creditworthy borrowers, System institutions are 

required to develop programs and make special efforts to serve young, beginning, and small 

(YBS) farmers and ranchers. In 2015, the System showed gains in both the number of new 

loans made and the dollar amounts of new loans made to each YBS farmer category. From 
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2014 to 2015, the number of new loans made to young, beginning and small farmers rose 

5.1 percent, 7.5 percent, and 6.7 percent, respectively. 

In 2015, the pace of new lending to YBS farmers equaled or exceeded the pace in overall 

System lending to farmers. Therefore, the share of new total System farm loan volume and 

loan numbers made to all three YBS categories equaled or rose from that of 2014. These 

results are encouraging given the high costs of starting a farm, the declining number of 

people entering agriculture, and the rising average age of farmers. 

FCA issued a bookletter in August 2007 to encourage institutions to seek ways to better 

serve YBS borrowers. The bookletter provides institutions with more flexibility to lend to 

YBS borrowers and encourages them to use credit enhancements to allow more YBS 

borrowers to qualify for credit. Credit enhancements for YBS borrowers may include the 

following: 

• Customized loan underwriting standards 

• Federal and state loan guarantees 

• Lower rates and fees for YBS borrowers 

In response to this guidance, a higher percentage of institutions are committing capital to 

assist in their YBS lending and are using advisory committees to update YBS policies and 

procedures. In addition, many institutions have stepped up their YBS outreach efforts and 

their coordination with outside parties or organizations to serve YBS producers. 

In addition to providing credit to YBS borrowers, FCS institutions offer other financial 

services to YBS borrowers, and many institutions provide special training and educational 

programs that target YBS farmers and ranchers.

Our efforts to encourage System institutions to emphasize diversity and inclusion and to 

serve producers of local and regional foods also benefit YBS producers. In 2012, to ensure 

the System fulfills its congressional mission to serve all eligible and creditworthy borrowers, 

we issued a regulation requiring institutions to develop human capital and marketing plans 

that promote diversity and inclusion. Because many small and beginning farmers belong to 

underrepresented groups, this regulation helps strengthen service to YBS borrowers. 

Likewise, a bookletter we issued in 2012 to provide guidance regarding service to local and 

regional foods producers also benefits YBS borrowers because many of these producers 

would be classified as young, beginning, or small.

Working with financially stressed borrowers

Risk is an inherent part of agriculture, and the causes of risk are many: 

• Adverse weather 

• Changes in government programs 

• International trade issues 

• Fluctuations in commodity prices

• Crop and livestock diseases 

• Interest rate increases 

These risks can sometimes make it difficult for borrowers to repay loans. The Farm Credit 

Act provides System borrowers certain rights when they apply for loans and when they have 

trouble repaying loans. For example, the act requires FCS institutions to notify borrowers of 

the right to seek restructuring of loans before the institutions begin foreclosure. It also 
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provides borrowers an opportunity to seek review of certain credit and restructuring 

decisions. When a System institution acquires agricultural property through liquidation, the 

Farm Credit Act also provides borrowers the opportunity to buy or lease back their former 

properties.

FCA enforces the borrower rights provisions of the Farm Credit Act and examines 

institutions to make sure they are complying with these provisions. We also receive and 

review complaints from borrowers who believe their rights have been denied. Through these 

efforts, we ensure compliance with the law and help FCS institutions continue to provide 

sound and constructive credit and related services to eligible farmers and ranchers. 

Conclusion

We at FCA remain vigilant in our efforts to ensure that the Farm Credit System and Farmer 

Mac remain financially sound and focused on serving agriculture and rural America. While 

we are proud of our record and accomplishments, we remain committed to excellence, 

effectiveness, and cost efficiency, and we will remain focused on our mission of ensuring a 

safe, sound, and dependable source of credit for agriculture and rural America. 

This concludes my statement. On behalf of my colleagues on the FCA Board and at the 

agency, I thank you for the opportunity to share this information.