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Bankers’ biggest threat: Regulatory expenses

Ernie Goss released findings on trends affecting banking industry, community

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KEARNEY — Nebraska banks rank rising regulatory costs and competition from credit unions and Farm Credit Services of America as their greatest industry threats.

A new study by Ernie Goss of Goss & Associates was presented to bankers at the Nebraska Bankers Association fall group meeting Thursday morning in Kearney. The association’s officers discussed legislative issues, while Goss released his findings on trends affecting the banking industry and Nebraska communities.

Goss studied how the credit union industry and Farm Credit benefit from federal and state financial subsidies, the long-term implications of these financial advantages, and their effect on taxpayers, commercial banking and rural communities that rely on local commercial banking operations.

Though the study was funded by the bankers association and the Financial Education and Advocacy Initiative, it was developed independently of these organizations.

“Maybe that’s what we need right now — stepping back and being a little more judicious with what’s going on,” Goss said. “We’ve all taken our eye off the ball.”

Goss contacted bank CEOs in 10 states, including Nebraska, and asked what they consider to be their biggest threats.

“Rising regulatory costs,” Goss said he learned. “But they also said that one of your biggest threats is from Farm Credit and credit unions ... in rural areas it’s Farm Credit and in metropolitan areas it’s credit unions. Which is the biggest threat? Credit unions or Farm Credit? 12.8 percent say credit unions and that’s growing. Two years ago we asked the same question, and it was at 8 percent.”

According to Goss’s calculations, for 2014 it is estimated that Nebraska credit unions enjoyed financial subsidies of about $8 million.

“Now that doesn’t sound like a lot, but real problem is that it’s growing,” Goss said.

For 2014, Goss estimated that Farm Credit enjoyed tax subsidies from Nebraska operations of $108.4 million. Nebraska credit unions and Farm Credit also pay much lower federal and state taxes.

In his research, Goss found that Farm Credit has expanded loans into non-agricultural areas such as telecommunications. In the past two years, Farm Credit has loaned more than $1.5 billion to telecommunications firms such as Verizon and U.S. Cellular.

In 2015, CoBank, a Farm Credit association, provided $50 million of a new $300 million unsecured two-year term loan to Black Hills Corp. CoBank also in 2015 provided loans to Cracker Barrel, Inc., a major restaurant chain, while a Farm Credit loan was provided to a farmer for a Lincoln pharmacy. Additionally, despite the existence of 18 private companies providing crop insurance, several FCS associations offer crop insurance.

Ultimately, Goss wishes for more transparency from these institutions.

“We don’t need to know who you’re lending to,” Goss said. “But we would like to know the distribution of your customers.”

Goss also presented a graph of overall rural economy from January 2013 to September 2015.

“This is growth neutral,” Goss said. “It’s almost flat lining ... farm land price is coming down. The beauty of this is the air is coming out of the bubbles: 6-7 percent a year. That’s what the bankers tell us, and next year 6-7 percent again and that’s not such a bad deal.”

Goss referred to farm equipment sales as “the scary one.”

“All the indicators are that the ag sector is not doing well,” Goss said. “Now, we have livestock prices coming down, but livestock is still pretty solid. We’ve got a president who supports the Trans Pacific Partnership, which is a darn good deal for us.”

The Trans Pacific Partnership is a trade deal involving the United States and 11 other countries. Goss believes this agreement will help the overall economy but notes that several presidential candidates, including Hillary Clinton, are not so supportive of the deal.

Goss concluded his presentation by emphasizing the importance of banks in communities.

“Banks reinvest in their communities,” Goss said. “Credit unions have no requirement to do so. As anchors of their local communities, banks are important philanthropic partners.”

“We are the providers of access to capital,” said Mike Pate, the bankers association chairman. “We feed the world by providing agricultural loans.”

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