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ICBA Policy Resolutions for 2013
Track I: Legislation and Regulation
THE FARM AND RURAL SAFETY NET
Position
- Community banks are vital to the financial success of rural America and finance a majority of commercial bank lending to rural areas. ICBA urges Congress to maintain adequate funding levels for the Farm Bill and farm safety net.
- ICBA urges Congress to remove volume caps on guaranteed farm loans and rural development (Business & Industry) loans.
- Placing concentration limits on community bank portfolios of agricultural loans would needlessly curtail lending relationships with many agricultural customers whose loans represent extremely solid credits.
- ICBA supports maintaining funding to crop insurance programs without any further cuts.
- Programs designed to spur rural America's economic growth should be user friendly for community banks and their customers.
- Farmer Mac should remain focused on its original mission of being a secondary market for agricultural loans.
Background
Thousands of community banks are located in rural areas. Approximately 2,500 community banks are classified as "agricultural" banks and more than 3,000 community banks have agriculture-related portfolios of at least $5 million. Community banks provide over one-half of all commercial bank agricultural financing. Community banks also often use loan guarantee programs to benefit their customers and manage risks. Continuation of these programs is vital for rural America.
Agricultural Loan Concentration Limits. ICBA is concerned with guidance from the FDIC regarding the potential establishment of portfolio concentration limits for agriculture loans. The FDIC’s guidance suggests that banks should apply commercial real estate (CRE) guidelines – limiting concentration of CRE loans to 300 percent of bank capital – to agricultural loans. ICBA believes the CRE model is inappropriate for agricultural lending. Placing concentration limits on community bank portfolios of agricultural loans will needlessly curtail lending relationships with many agricultural customers whose loans represent extremely solid credits. Many banks in rural areas do not have other economic choices beyond agriculture and such guidance could dramatically increase their risks as they venture into new lending markets. ICBA believes that community banks’ current risk mitigation practices for agricultural lending prevent the need for concentration limits.
Farm Bill Policy, Funding and Programs. The 2008 Farm Bill included funding to maintain agriculture's long-term budget baseline in order to protect farm income during times of low prices. The Farm Bill allows lenders and farm customers to make long-range plans and provides billions of dollars that circulate through rural communities. Congress should provide a similar level of funding under the new Farm Bill and avoid sharp spending reductions to farm programs. A new bill needs to be enacted to replace the 2008 bill that expires in September 2013.
For several major crops, the new farm bill may utilize revenue insurance as its foundation in addition to insuring farmers for protection against so-called “shallow losses” – losses above those reimbursed by crop insurance. In addition, the House Agriculture Committee version adopted a target price approach and a special new program may be utilized for cotton producers. Community banks often encourage farmers to enroll in revenue insurance to enhance farmers’ ability to repay loans. More than 250 million acres are now covered by crop and revenue insurance, providing nearly $80 billion of coverage. The program remains an important safety net for farmers and for rural communities that depend on the farm sector. To ensure that adequate risk management tools for crop and livestock producers are available in the future, funding for revenue insurance should be maintained. Reduced funding would result in fewer companies issuing insurance; fewer choices for farmers; especially in states that are harder to serve; and fewer, more expensive, options for farmers. ICBA is extremely disappointed in the USDA’s insistence on cutting $6 billion from the crop insurance program as part of a mandated contract renegotiation process. This money was lost from the farm bill budget baseline.
Diversifying Rural America. Rural community banks, with their extensive delivery network in thousands of communities, underwrite loans for agriculture, small businesses and general rural economic activity. Rural policy goals should complement community banks' efforts. Such goals should include: creating off-farm jobs; maintaining local tax bases; sustaining the population base necessary to keep experienced local leadership and a skilled workforce; and facilitating the development of the infrastructure and public services necessary to keep rural communities vibrant. ICBA supports efforts to meet a greater percentage of U.S. energy needs from developing domestic and renewable resources.
Guaranteed Loans. USDA's guaranteed loan programs allow community banks to make loans to higher risk borrowers with a guarantee of repayment. Community banks are extensive users of both the Farm Service Agency's (FSA) farm loan programs and the Rural Development Agency’s business loan programs. If such programs are made self-funding through a greater level of user fees, Congress should also remove volume caps on the amount of such loans that can be made and double the size limits for guaranteed ownership loans. ICBA opposes term limits on guaranteed farm operating loans and urges their elimination. Borrowing and lending decisions should be made at the local level between community banks and their farm and ranch customers.
Farmer Mac. Farmer Mac was created to serve as a secondary market providing rural lenders the option to sell agricultural real estate and rural housing loans, thereby enhancing community bank liquidity. Farmer Mac should develop agricultural programs, underwriting procedures, and pricing to attract a large segment of the community bank industry. ICBA opposes granting Farmer Mac any authorities that could be detrimental to community banks. ICBA believes Farmer Mac should remain focused on its original mission of being a secondary market for agricultural loans.
Staff contact: Mark Scanlan
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