Last month the Farm Credit System (FCS) was again trying to obtain special regulatory treatment. In this case, the FCS was trying to side-step a Dodd-Frank requirement that it register as a swap dealer, because two FCS institutions – CoBank and an FCS association – have entered into interest-rate swaps with borrowers. The FCS, through its trade association, the Farm Credit Council (FCC), argued that because Dodd-Frank explicitly exempts insured depository institutions from the swap-dealer registration requirement, the FCS should be exempt because, like banks, the FCS makes loans. Specifically, the FCC asked the CFTC to expand the definition of “insured depository institution” to include FCS institutions.
On April 18, the CFTC adopted a final rule defining who it would regulate as a swap dealer. It appears the FCS has been exempted from having to register as a swap dealer, but not for the reason the FCC gave in pleading for the exemption. One reason the CFTC may have developed a new rationale for exempting the FCS derives from a March 29 letter the leadership of the House and Senate Agriculture Committees sent to CFTC Chairman Gary Gensler.
Read the letter.
The letter noted that “Congress provided an exemption for credit institutions that offer swaps in connection with loans from designation as swap dealers.” This phrasing overlooks the fact that Dodd-Frank provides the exemption only for “insured depository institutions,” which the FCS clearly is not. Then comes the most mysterious sentence in the letter: “This provision ensures that the flow of credit can continue between businesses and small to mid-size lenders and farm credit institutions,” which presumably means the FCS. The CFTC clearly got the message, loud and clear: find a way to exempt the FCS. Perhaps the CFTC will justify its reasoning when it publishes its final swap-dealer rule.
ABA's Farm Credit Watch