Trust Issues: October 13, 2008
Last week, I met with a group of grain farmers here in Maryland. It’s always nice to get out and talk with the folks that we serve.
As you can imagine, this meeting was full of tough questions: questions about the economy, and questions about Farm Credit. With everyone painting the financial industry with the same ugly brush, there was some concern about our stability, and whether or not we’ll be able to continue to help farmers in the future.
I’m sure I’m not the only one getting these questions, so I thought I’d share with you some of my answers.
The issue today is an easy one to define—the issue is trust. It seems like no one trusts financial institutions anymore—not the brokers on Wall Street, not consumers, not even other banks. That lack of trust has a direct impact on us—when our Funding Corporation looks for an investor to buy our bonds, there are fewer bids. Fewer bids means money is more expensive (because those bidders only want very profitable, very safe investments right now). The good news is that we still have access to capital .
What do we tell our borrowers? We tell them the truth. The truth is that Farm Credit was not the cause of the current credit crisis, but the crisis is so large that it is affecting financial institutions both good and bad. The truth is that we’re one of the good ones—as both a System and an association, Farm Credit has strong capital reserves, strong earnings and strong credit quality. That’s not to say that we haven’t felt some stress as well; we certainly have borrowers who have been affected by the downturn of the general economy. But that’s why we have diversity in our portfolio—so that we can handle a downturn as well as an upturn. That’s also why we’ve made some of the decisions that we’ve made recently—changes like retaining capital so that we are strong, building our allowance for loan losses, and challenging our ALCO committee to look at our products, fees and rates so that we can continue to strike a balance between being strong financially and serving our membership in good times and bad.
Trust got our industry into trouble. We are very lucky to have the trust of our stockholders, and we don’t want to lose that. We plan to help by explaining the current situation to our customers, giving them honest and open answers, and continuing to work to help them find the right package to finance their farm or home. That will go a long way towards helping to rebuild trust in our industry, and towards helping them keep their trust in Farm Credit.
We’re lucky that we have a great relationship with our borrowers, but we can’t take that for granted. Stay tuned though, as I plan to tell you about some of the things we’re doing as a System to build on that relationship, and continue to foster trust.
(By the way, I saw all my kids Friday night…and they’re just shaking their heads at the thought of me doing a blog. You know the look…it’s the “what are we gonna do with him/ain’t he cute” look you give your crazy uncle!)