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ICBA Urges FCA to Withdraw Plan to Expand Farm Credit Lending to Non-Farm Business

Farm Credit Administration Would Exceed Its Authority

Washington, D.C. (February 26, 2007)—The Independent Community Bankers of America (ICBA) called on the Farm Credit Administration (FCA) to withdraw its proposal to expand Farm Credit System (FCS) lending to include non-farmer owned and controlled processing and marketing firms. The Farm Credit System is a unique, tax-advantaged, retail government-sponsored enterprise (GSE) that is seeking to provide credit beyond its legal authority to many businesses already served by private sector community banks which lack these advantages. ICBA presented a list of fifteen reasons why FCA should withdraw its proposed new regulations.

"The law and legislative history, as FCA has stated in earlier rulemakings on this issue, doesn't allow FCS lenders to lend to non-farmer owned and controlled firms, and to do so is inconsistent with the FCS's mission of serving farmers and ranchers," said Mark Scanlan, ICBA director, agriculture and rural policy. "The law does, however, give FCS lenders flexibility to enter into loan participations with banks to reach investor-owned and controlled firms. This proposal only serves to divide banks and FCS lenders and is not helpful. It should be withdrawn."

ICBA says that community bankers are receptive to working with FCS lending institutions through loan participations. "FCA recently suggested FCS lenders seek more opportunities to work cooperatively with commercial banks, but the FCA's proposed regulation completely undermines this option since FCS lenders will use these new authorities to side-step the private sector," said Scanlan.

"This is a case of the old adage, 'if it isn't broken, don't fix it," said Scanlan. "Adding a government-subsidized lender to this mix does not mean there will be enhanced competition in the marketplace because there already is an abundance of lenders who serve these operations," said Scanlan. "FCA's proposal simply means a subsidized lender will likely drive out private sector lenders who offer specialized knowledge and services and who will no longer be able to maintain the staff personnel and knowledge base to continue to serve this sector. The result would be a drain of local tax dollars and fewer competitors serving rural communities, jeopardizing rural communities ability to maintain their infrastructure and services."

The FCA proposal encompasses several regulatory recommendations contained in the System's Horizons Project legislative and regulatory expansion plan. To view the fifteen reasons why FCA should withdraw its proposal along with ICBA's Statement of Additional Views, see ICBA's letter at www.icba.org.