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ICBA Urges FCS 'Tear Down That Wall'

Bankers Say Unlock Funding Source, Stop Cherry Picking

Washington, D.C. (Sept. 29, 2004) - Responding to issues raised by the recent proposed purchase of the Farm Credit Services of America (FCSA), the Independent Community Bankers of America (ICBA) today told a key House agriculture subcommittee that Farm Credit System institutions should be opened up to provide a stable, long-term funding source for community banks serving rural America and that the system needs to stop pilfering prime farm loans from community banks. ICBA also suggested several ideas regarding FCS associations exiting the system and shared comments from a survey sent to 1,500 agricultural banks.

"Rural America's population is aging and will only grow older. Young people are leaving. Deposits are being drained away. Community banks have competition on every side from a variety of lenders," stated John Evans Jr., CEO of the D.L. Evans Bank, Burley, Idaho, and chairman of ICBA's Agriculture-Rural America Committee. "We also have a predatory lender called the Farm Credit System, which uses tax and funding advantages to cherry pick the best customers from the portfolios of community banks, weakening their long-term ability to serve agriculture and weakening the tax base of rural communities. This cannot be good policy in the eyes of a committee intent on laying the foundation to create a better future for rural America."

Evans told the committee that the FCS has built a wall around the ability of others to access its funding window for the betterment of rural America. At the same time, the FCS wants new powers to act like community banks while denying funding to community banks.

Regarding termination of an FCS association, ICBA stated it was not overly concerned about an FCS association seeking to voluntarily leave the system and convert to a bank. Exiting the system may prevent a smaller association from being swallowed up in a merger, thus allowing it to maintain localized service and decision making and preventing the further concentration of financial assets. However, a distinction could be made where such termination involves purchase by an outside investor with access to worldwide funding sources that would obtain a ready-made regional lending infrastructure with residual GSE benefits, including buildings, professional staff and expertise, and extensive databases.

ICBA recommended any exit fee from a terminating association should go to the U.S. Treasury, not the FCS Insurance Fund. And rather than re-chartering an FCS association to cover the abandoned area, FCA should designate neighboring FCS associations to engage in farm lending through loan participations with community banks, enabling FCS entities to quickly re-establish an ongoing presence by working with other lenders.