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Farm Credit System confident it can remain exempt from Dodd-Frank

The Farm Credit System, a massive government lender for American farmers and communities, is confident about its exemption from Dodd-Frank oversight, officials for the agency said this week.

“We are competitors,” President Kenneth Auer of the Farm Credit Council, the organization’s lobbying group, said, according to Dairy Herd. “They’d be happy if the system didn’t exist. We had our Dodd-Frank moment in the 1980s,” Auer added, pointing to a congressional bailout that increased industry oversight and ultimately strengthened the present system.

The FCS, with $230 billion in assets, was the first government-sponsored entity established by the U.S. in 1916. Now the strongest GSE financially, huge increases in demand for U.S. agricultural products and land has put the FCS on top.

Last Friday, the FCS, the largest lender to farmers, announced its 2011 earnings at $3.94 billion, a 12.7 percent increase, passing up Bank of America Corp. in profits, according to Dairy Herd.

Banks have recently criticized the FCS for its advantages as a GSE, because Dodd-Frank rules would significantly impact banks’ costs.

Other critics claim that the FCS is protected by members of Congress and is overseen by congressional committees. Though its assets would place the FCS among the top 15 U.S. banks, neither the Federal Reserve, nor the Federal Deposit Insurance Corporation oversees the system, Dairy Herd reports.

John Blanchfield of the American Bankers Association, a top critic of the FCS, said that the FCS has also cut into local community bank business as a significant lender.

“The FCS represents a major threat to the future viability of rural community banks going forward because they have advantages in taxation, funding, scale, and now greatly reduced regulatory burden,” Blanchfield said, according to Dairy Herd.

Auer contends that while Dodd-Frank excludes FCS from its regulations surrounding systematically important financial institutions, the system does not participate in the same activities that spurred the Dodd-Frank Act of 2010.

“We don’t do that,” Auer said, Dairy Herd reports. “That’s not the type of banking activity that the [FCS] is involved in. The view was we don’t represent a systematic risk in the context of what we are doing. We have a very narrow charter. We have strong regulatory oversight. We can’t engage in a lot of the types of activities that created the systematic risk.”

The FCS is a network of 85 farmer financial cooperatives with the mission to ensure funding to farmers and rural communities for production and development.

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