FOR IMMEDIATE RELEASE
ICBA Opposes Farm Credit System Deposit Taking
Washington, D.C. (Aug. 5, 2004) - Independent Community Bankers of America (ICBA) strongly urged the Farm Credit Administration (FCA) not to adopt provisions of a proposed regulation that would allow Farm Credit System (FCS) institutions to issue preferred stock with a short-term maturity of one year.
In a letter this week, Camden R. Fine, president and CEO of ICBA, noted that, "Such preferred stock issuances would be marketed by the FCS as the equivalent of one-year certificates of deposit or money market accounts and essentially take deposits away from community banks. Community banks traditionally have relied heavily on deposits to fund loans to farmers, small businesses and consumers in rural areas."
"As a government-sponsored enterprise, the FCS already has access to our nation's capital markets to raise their loan funds and should not be allowed to invade the traditional deposit source of community banks," Fine continued. "To be in line with banking regulations, FCA should ensure that preferred stock has at least a five-year maturity date." Fine advised that preferred stock should only be redeemable on the basis of an entire class of stock, not on an individual basis upon request of stockholders, otherwise the stock would function as a deposit account.
Fine also questioned the legality of numerous FCS associations implementing so-called cash management accounts, which function as the equivalent of money market and checking accounts, since the Farm Credit Act does not authorize the FCS to engage in deposit taking. ICBA argued that issuance of preferred stock with longer-term maturities as suggested should be in lieu of cash management accounts and questioned why FCS entities should be issuing preferred stock since they have an average capital ratio of 12 percent.