ICBA Policy Resolution: Reform and Refocus the Farm Credit System

Position

  • Farm Credit System (FCS) lenders enjoy unfair competitive advantages over rural community banks, leveraging their tax and funding advantages as government sponsored enterprises (GSEs) to siphon the best loans away from community banks’ portfolios. Such abusive activities wreak havoc on community banks’ lending portfolios, jeopardizing the viability of many community banks and the economic strength of the thousands of rural communities they serve.
  • ICBA strenuously opposes the Farm Credit Administration’s (FCA’s) efforts to allow FCS to engage in non-farm financing labeled as investments or investment bonds. This program, which the FCA has implemented via regulatory guidance, is a successor to the “Rural Community Investments” proposal, which was withdrawn in November 2013.
  • ICBA further rejects proposed legislation by the Farm Credit Council to allow blanket approval authority of FCS investments without FCA approval.
  • ICBA opposes allowing the FCS to become the equivalent of rural banks or credit unions with bank-like powers to establish checking and savings accounts, take deposits, establish a consumer-oriented deposit insurance plan within the FCA or have access to the Federal Reserve’s ACH system for clearing electronic credit and debit transfers.
  • ICBA believes numerous changes to the Farm Credit Act are necessary to reform the FCS, ensuring its adherence to its historical mission of serving bona fide farmers and ranchers while preventing it from engaging in below-market pricing of loans and non-farm lending including the extension of credit to America’s largest corporations.

Background

Community Banks and the Rural Economy

Thousands of community banks are located in rural areas. Approximately 2,000 community banks are classified as "agricultural" banks and more than 3,000 community banks have agriculture-related portfolios of at least $5 million. Community banks under $10 billion in asset size finance approximately over 75 percent of all farm loans from the banking sector. 

Farm Credit System

FCS lenders enjoy unfair advantages over rural community banks and leverage their tax and funding advantages as government sponsored enterprises (GSEs) to siphon the best loans away from community banks. The FCS is the only GSE that competes directly against private sector lenders at the retail level. FCS was chartered by Congress to serve bona fide farmers and ranchers and a narrow group of farm-related businesses that provide on-farm services but has in recent years sought numerous non-farm lending powers in an effort to compete directly with commercial banks for non-farm customers.

FCS’s compliant regulator, the FCA, has also sought to expand FCS activities through regulatory initiatives such as “investment bonds” and the “Rural Community Investments” regulation finalized in 2018. These initiatives provide authority for non-farm lending under the guise of “investments,” though such lending goes beyond the constraints of the Farm Credit Act. Additionally, the Farm Credit Council has proposed replacing the FCA’s approval of these “investments” with blanket FCS authority to finance any investment. ICBA opposes the Farm Credit Council’s legislative proposal. 

Recent proposals to allow the FCS to become the equivalent of rural commercial banks would devastate thousands of rural community banks that serve rural and remote areas of the U.S. Such proposals are another FCS-initiated effort to utilize GSE tax and funding advantages to expand beyond statutory lending constraints, ignore FCS’s GSE mission of serving actual farmers and ranchers, and dramatically increase FCS institutions’ profits at the expense of the private sector.

Congress should, among other actions, reform and refocus the FCS by equalizing tax treatment between community banks and FCS lenders; prohibiting non-farm lending including “similar entity” and other types of loans to large corporations; prohibiting predatory, below-market pricing of loans; enforcing deposit taking prohibitions and changing the makeup of the FCA board. 

Staff Contact: Mark Scanlan