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ICBA Comments on Farm Credit Rulemaking Decisions

Washington, D.C. (April 23, 2004) - The Independent Community Bankers of America (ICBA), the nation's voice for community banks, issued a statement today regarding several rulemaking decisions adopted by the board of the Farm Credit Administration yesterday. The three-member board approved a rule that enhances access to funding by Other Financial Institutions (OFIs), rejected a proposal by a single FCS institution to offer farm management and agricultural trust services, and agreed to submit for public comment a proposed rule on the issuance of preferred stock by System institutions.

"ICBA applauds the FCA board for adopting the proposed rule to enhance access to FCS funding by Other Financial Institutions (OFIs) and we particularly agree with the Board's decision to drop the so-called 'Farmer Notes' proposal from the regulation," stated Mark Scanlan, Director, ICBA Office of Agriculture & Rural Policy. "The farmer notes provision would have allowed FCS institutions to engage in indiscriminate lending to retail merchants and consumers for household appliances and consumer goods and is totally inappropriate, lacked congressional authorization, and was in essence a lending program, not an investment program as originally suggested. ICBA agrees with comments made during the board's discussion that further enhancement of the OFI program will need legislation to make the program more useable by a large number of banks and financial institutions as Congress intended."

Scanlan added, "We also applaud the board's action rejecting the proposal to allow FCS entities to engage in farm management and ag trust services. This would have allowed a government-sponsored enterprise to engage in direct retail activities that are already adequately provided by a number of private sector businesses, including real estate firms and farm management firms, and raised numerous liability and conflict of interest issues. ICBA believes that proposals to expand FCS direct lending powers should be based on a clearly demonstrable need in the marketplace, rather than simply a desire to grow a GSE at the expense of the private sector."

However, ICBA stated it was quite concerned with issues surrounding the offering of preferred stock by FCS entities. The issuance of preferred stock, especially on a short-term basis and as cash management accounts or investment bond programs would suggest the System is seeking to engage in significant deposit taking in competition with commercial banks that traditionally use local deposits to fund loans in rural communities. This is a disservice to rural America. ICBA will urge the banking industry to weigh in against any efforts of FCS lenders to engage in quasi-deposit taking activities.