April 15, 2017

Give ‘Em a Break!

 |  By: Curt Covington

itting in an over-priced, over-sold and undersized coach seat, on an airline that will remain nameless, got me thinking about all the things in life that irritate me but that I can’t do a thing about. It’s quite a list. I’m sure you’ve had one of those Kodak moments your- self. Take, for example, the last time you visited your banker to get your herd and feed lines renewed. For your grandfather and your father, it was a relatively easy process—go in, talk to your banker, tell him the same story you told him last year (and the year before...), wait a few days, sign the loan documents and you’re off to the races for another year. Then, some- thing happened that changed how banks do business. We refer to it today as the "financial crisis."

Acronyms like OFAC, BSA, KYC sound more like fast food restaurants than abbreviations bankers should use to describe relatively new banking regulations, oh how their jobs have become much more cumbersome. It also might explain why it takes so much longer to get your loans renewed. For the past three years, I’ve had the privilege of working across the country with bank examiners and regulators from the Federal Reserve, FDIC, OCC, National Credit Unions, Farm Credit Administration and state banking examiners. My job is to teach and preach the nuances of agricultural lending and how it became and remains a “high-touch,” rural community driven business. The regulators are eager to learn and in some cases come from farms themselves. For a bank, building and maintaining a good working relationship with their regulator can be a full-time job. Yet, in the end, the regulator’s job is to enforce regulations, not necessarily to create them and to ensure the safety and soundness of that

Give ‘Em a Break! institution in the best interest of the public. All that said, today, your community bank is saddled with daunting regulatory compliance responsibilities that consume time and man-power, and your banker is forced to do a lot more with a lot less. Regulatory compliance while burdensome can also be helpful. Here are some good examples of written guidance from bank regulators about ag lending: “While a bank cannot control commodity prices or production levels, many banks have demonstrated that diligent adherence to prudent lending practices and regulatory guidance helps manage loan losses....”

“[Risk of loan losses is avoided by adhering to strong] Inspection, control and monitoring requirements.... Failure to comply with such requirements can lead to loan collection problems.” “Prudent Ag loan underwriting shares many of the same characteristics as commercial lending in other industries, including strong emphasis on borrower cash flow and loan repayment ability.

What’s the point here? Give your banker a break! Let them buy you lunch occasionally. Your banker carries a huge burden of keeping you and their regulator happy. That’s more than a full-time job. Most bankers won’t complain, but I can assure you the best ag bankers will always try to balance the needs of customers with the demands of regulators.