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ICBA to FCA: Withdraw Illegitimate Proposal

Washington, D.C. (Aug. 15, 2008)—The Independent Community Bankers of America (ICBA) today urged the Farm Credit Administration (FCA) to withdraw its "Investments in Rural America" proposal, which would disadvantage community banks and consumers. The proposed rule has no statutory basis and is inconsistent with the agency's mission to provide credit to agriculture producers, ICBA said.

"ICBA calls for the withdrawal of the FCA's proposed rule, which would harm community banks and their customers by allowing Farm Credit System (FCS) lenders to make unfair and otherwise illegal loans under the guise of calling them 'investments,'" said Cynthia Blankenship, ICBA chairman and vice chairman and chief operating officer of Bank of the West, Grapevine, Texas. "The proposal would make FCS lenders the equivalent of commercial banks while letting them retain tax and funding advantages over the private sector. The FCA must not be allowed to unilaterally shift its focus beyond that provided by Congress—without congressional consent."

The proposal would allow FCS lenders to become general credit providers while retaining their subsidized funding advantages as government-sponsored-enterprises, creating a competitively unbalanced playing field for community banks and disadvantaging the nation’s consumers.

The proposed rule would allow FCS lenders to make otherwise illegal loans to businesses not owned by farmers if the loans are labeled "investments." It also would shift FCS lending away from farmers and farmer-owned agribusiness toward all other businesses, rendering the lending constraints in the Farm Credit Act meaningless. Commercial businesses that would be financed by the FCS under the proposal would not be required to contribute to the capital of the FCS, further diminishing the system's cooperative arrangement. Further, this investment authority is completely open-ended, so the public would have no way of determining when a new activity had been approved or assessing the appropriateness of the activity.

The Farm Credit Act restricts these practices, leaving the agency without a statutory basis for its proposal. Congress also rejected adding similar provisions to the Farm Bill of 2008, which was enacted in May. When lobbying Congress for expanded powers, the FCA and FCS have acknowledged that the law does not currently permit the system’s lenders to engage in the activities that would be permitted in the proposed investment regulation. House and Senate banking leaders recently called on the FCA to withdraw the proposal.

Read the letter at www.icba.org.