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ICBA Disappointed in FCA Termination Rule

Suggests Moratorium on Future FCS Mergers and New Funding Enhancements

Washington, D.C. (July 13, 2006)—The Independent Community Bankers of America (ICBA) expressed disappointment with the Farm Credit Administration (FCA) board’s approval of a final termination rule and made several policy recommendations.

“ICBA is extremely disappointed in the FCA’s decision to rubber stamp its so-called termination proposal as a final rule,” said Mark Scanlan, ICBA director of agriculture and rural policy. “This action suggests a conflict of interest within FCA. The FCA could have made a distinction between a proposed purchase by a large outside institution and an individual Farm Credit System association seeking to depart the System, but it chose not to.”

The statute lays out a significantly more streamlined method of terminating an FCS charter than the burden-laden rule adopted.  The FCA wants to keep its examined institutions within the FCS, rather than allowing those institutions to become tax-paying commercial banks.  Further, it is contradictory for FCA to regularly approve mergers creating large, non-local FCS institutions while creating obstacles for FCS institutions to exit the system.  Both mergers and terminations reduce the number of FCS institutions.  Therefore, ICBA suggests imposing a moratorium on all future mergers of FCS institutions to prevent further consolidation of the FCS and ensure ongoing local service to system farmer-borrowers and streamlining the termination procedure. 

To encourage greater access to FCS funding, ICBA recommends:  

  • Providing robust funding access to FCS funds for commercial banks and their Other Financial Institutions subsidiaries.
  • After FCS entities exit the system, providing incentives for more loan participations between banks and outside FCS lenders in the exited territory; and
  • Providing commercial banks with the same tax advantages as FCS lenders.

There are approximately 8,500 community banks in the United States, with almost two-thirds in communities of less than 10,000 people.  This vast network of community banks could easily ensure the viability of lending in the exited territory. The moratorium, streamlined exit authorities and funding enhancement ideas should all be considered by Congress.