ICBA Policy Resolutions for 2013
ICBA Priorities for 2013
THE FARM CREDIT SYSTEM (FCS)
- ICBA urges Congress to abolish the FCS, or at a minimum to restrict the FCS to its historical mission of serving the agricultural marketplace.
- ICBA adamantly opposes the FCS’s expansionist agenda which would allow FCS lenders to become the equivalent of commercial banks while retaining their GSE status with its inherent tax and funding advantages.
- The Farm Credit Act should further define and narrowly target FCS lending activities to refocus on serving bona-fide farmers and ranchers and young, beginning, and small farmers and their farmer-owned cooperatives.
- FCS lenders should be subject to taxes when they exceed a given asset threshold, when they lend to large borrowers and if they engage in any non-farm lending activities.
- ICBA strenuously opposes the Farm Credit Administration’s “Rural Community Investments” proposal to allow FCS institutions to extend non-farm financing in towns and cities of up to and in some cases greater than 50,000 residents if such financing is labeled as “investments” instead of loans.
- FCS lenders should only be allowed to purchase loans or loan pools of failed banks from the FDIC as a purchaser of last resort to fill a gap if there are not enough private sector purchasers available. The FCS should be required to work with commercial banks, particularly as a funding source and through loan participations.
- The three-person board of the FCA, FCS’s regulator, should include a member of a federal banking agency or the U.S. Treasury Department to ensure public transparency and accountability in FCA decision making.
- The FCA should be required to engage in joint rulemaking with federal banking agencies when proposing regulations that could involve allowing non-farm lending activities for FCS lenders.
- Mergers of large FCS entities should be prevented to curtail the concentration of financial assets within the System and provide for more localized service. At the very least such mergers should be subject to the same approval procedures required for associations to exit the System.
- The FCA should require greater transparency of FCS activities and should publish instances of illegal FCS lending; any exemptions granted for such lending and identify the FCS institutions and circumstances involved in large FCS loan losses.
- FCS institutions should be required to register a class of stock with the Securities and Exchange Commission (SEC) and provide full disclosure of financial and other information required by the Securities Exchange Act of 1934. The FCS should face equal regulatory safeguards, disclosures and controls as community banks and the housing GSEs including equal oversight by the CFPB.
Farm Credit System lenders enjoy an unfair advantage over rural community banks in competing for loans by leveraging their tax and funding advantages. The FCS, a government sponsored enterprise (GSE) chartered by Congress to serve bona fide farmers and ranchers, seeks numerous non-farm lending powers in an effort to compete directly with commercial banks for non-farm customers. These new powers would essentially make FCS institutions the functional equivalent of commercial banks and tax-exempt credit unions, but with intrinsic GSE tax and funding advantages. While the FCS’s legislative proposals were not included in the 2008 farm bill, FCS has sought to push its legislative agenda through its regulator, the Farm Credit Administration (FCA).
Farm Credit Administration’s Aggressive Agenda. In addition to the broad consumer, housing, and retail and business lending legislative proposals advocated by the FCS, the FCA proposed a “Rural Community Investments” regulation aimed at allowing non-farm financing if such financing is labeled as “investments.” Such financing would be very broad, allowing FCS institutions to finance otherwise illegal lending in any city of under 50,000 residents, including non-agricultural business loans, light manufacturing, apartment complexes, dental facilities, doctors’ and lawyers’ offices, and many other types of loans currently prohibited by law. FCA has also inappropriately changed the definition of “rural” to apply to localities within metropolitan statistical areas (MSAs) if any other federal program targets rural areas. In recent years, FCA has also allowed various deposit-taking programs by FCS lenders that siphon local funds out of rural communities and has expanded the FCS mission without informing the public. The FCA adopted a proposal allowing FCS lenders to purchase loans and loan pools of failed banks from the FDIC. The cumulative impact of such changes represents a dramatic departure from FCS’s historic mission and congressional intent – to serve bona-fide farmers and ranchers – and has no basis in the law or legislative history.
ICBA Opposes Consolidation of Farm Credit System Lenders. FCS should be refocused as a wholesale funding source for community banks serving agriculture and provide more of a correspondent banking function rather than as a direct retail competitor with GSE tax and funding advantages. Many FCS associations have merged in recent years, resulting in several large multi-state regional lenders. Any future mergers between FCS institutions should abide by the FCA's "termination" regulations and FCA should publicly explain any mergers between geographically distant or separated associations. Large, multi-state or regional FCS entities enjoy tax advantages allowing them to siphon away high-quality loans from much smaller community banks. These tax advantages include exemptions from paying taxes on real estate and mortgage loans; avoidance of state and local taxes and state franchise taxes and an exemption of taxes on retained earnings. These exemptions provide a huge advantage over community banks in their ability to facilitate new growth.
Reform of Farm Credit Administration Governance. Congress should reform the FCA by requiring that one FCA board seat be held by a representative of a federal banking regulator or the Treasury Department. The FCA should refocus its regulatory actions on increasing safety and soundness of FCS institutions in lieu of proposals to expand FCS powers. Any FCA proposal that could allow FCS non-farm lending activities should be subject to joint rule-making with federal banking regulators and should trigger taxes equivalent to those paid by a C corporation.
More Disclosure and Transparency Needed. Since the FCS is a GSE, each Farm Credit System bank should be required to register a class of its equity securities with the SEC under the Securities Exchange Act of 1934 to be consistent with Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Like other GSEs, FCS institutions should also be required to comply with the disclosure requirements of the Act by preparing and filing appropriate reports including audited financial statements.
The FCS is unique in that it is the only GSE that competes against private-sector banks at the retail level yet is exempt from many of the regulatory burdens banks face. FCS lenders should comply with the same disclosures and transparency requirements as community banks as well as the other GSEs and should be subject to the same requirements as banks in regards to the Consumer Financial Protection Bureau.
Staff contact: Mark Scanlan
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