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Oral Statement by the Honorable Leland A. Strom

Chairman and Chief Executive Officer

Farm Credit Administration

Before the U.S. House Committee on Agriculture 

November 17, 2009

Chairman Peterson, Ranking Member Lucas, and Members of the Committee, I am Leland A. 

Strom, Chairman and CEO of the Farm Credit Administration. I serve on the FCA Board with my 

colleagues Nancy Pellett and Kenneth Spearman.

FCA is an independent arm’s length agency responsible for examining and regulating the 

institutions of the Farm Credit System, including the Federal Agricultural Mortgage Corporation.

The FCS is a network of borrower-owned financial institutions that provide credit to farmers, 

ranchers, rural residents, agricultural and rural utility cooperatives, and other eligible borrowers.

Mr. Chairman, this is a very timely and important hearing today regarding the Financial Stability 

Improvement Act Discussion Draft (FSIA). FCA supports congressional efforts to strengthen 

regulation and supervision of financial markets, as every American has been affected by the 

crisis in our global financial system.

I want to emphasize that System institutions remain safe and sound and did not contribute to 

the recent financial crisis. This was because of the Agriculture Committees’ oversight and the 

significant reforms made to the Farm Credit Administration and the System as a result of the 

agricultural credit crisis of the 1980s. This included restructuring FCA as an independent arm’s 

length regulator with formal enforcement powers, providing borrower rights to System

borrowers, and establishing the Farm Credit System Insurance Corporation to protect System 

investors and resolve failed System institutions.

The draft legislation is a comprehensive proposal designed to strengthen regulation and 

supervision of financial markets and some of the largest, most complex financial institutions. As 

proposed, the legislation does not directly amend the Farm Credit Act. However, a close reading 

reveals potential conflict with the Farm Credit Act as it relates to the credit risk retention 

requirements for securitizations. In addition, the Discussion Draft could create uncertainty in the 

definition of a financial company and other parts that potentially include FCS institutions in the 

regulatory structure or activities authorized.

Over the past weekend, my staff had productive discussions with key policy officials at the 

Treasury. They informed FCA that it was not their intention to include FCS institutions. Further, 

they committed to work quickly to develop clarifying language to ensure this intent is carried out 

in the proposal and does not create a jurisdictional conflict. In our discussions, we expressed 

concerns in three areas which they agreed to remedy.

First, the Financial Services Oversight Council, composed of all Federal financial institutions 

regulatory agencies except the FCA and FCSIC, is established to monitor and address systemic 

risk to the financial stability of the United States. The far-reaching authority and regulatory 

activities of this Council extend broadly to any “financial company,” as defined. Institutions of the 

System would appear to meet that definition. However, Treasury has drafted a proposed 

amendment to the “financial company” definition to clarify that the authorities of the FSOC do 

not extend to FCS institutions, including Farmer Mac, or impact the authorities of the FCA.
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Second, subtitle F of the draft legislation would require creditors and those that securitize loans 

to retain 10 percent of the credit risk on any loan that is transferred, sold, conveyed, or 

securitized. This new requirement would directly apply to the securitization activities of Farmer 

Mac and perhaps to other activities of System institutions. It is important to note that in 1996, 

Congress repealed a similar 10-percent retention requirement for loans sold to Farmer Mac.

Clarifying language is necessary to ensure enforcement of the credit risk retention requirements 

would not fall to another agency and that FCA retains jurisdiction authority in these matters.

Third, subtitle G of the draft legislation would provide the FDIC enhanced resolution authority for 

financial companies that pose systemic risks to the financial stability of the United States.

Although the draft seems to imply that this authority does not cover System institutions, this 

should be clarified. A related issue is confusion over the authority of the FDIC to assess System 

banks and associations that already pay premiums to FCSIC in order to cover the costs of 

resolving large interconnected financial companies that fail. Treasury has drafted a proposed 

amendment to exclude all FCS institutions from the definition of “financial company” used for 

enhanced resolution and assessment authorities.

Mr. Chairman, thank you for the opportunity to participate in today’s hearing. I look forward to 

commenting further on the draft legislation, including any revised proposals, and working with 

the Committee and Treasury on this matter. As new standards evolve for other financial 

institutions, you may require changes in the regulatory oversight of FCS and Famer Mac. As 

appropriate, FCA is prepared to discuss with the Committee suggestions for enhancing FCA 

and FCSIC statutory authorities. This concludes my statement, and I would be happy to answer 

your questions.