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 from community banks’ loan portfolios. The FCS’s abusive tactic of undercutting market pricing to obtain the best loans jeopardizes 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) initiative to allow FCS to engage in non-farm financing labeled as investments or investment bonds. This initiative, which the FCA is implementing via regulatory process, is a successor to the “Rural Community Investments” proposal, which was withdrawn in November 2013.
ICBA further rejects legislation proposed by the Farm Credit Council to allow blanket approval authority of these FCS “investments” without FCA’s case-by-case review and approval.
ICBA opposes allowing the FCS lenders to become the equivalent of rural banks with powers to establish checking and savings accounts, take deposits, or establish a consumer-oriented deposit insurance plan within the FCA. FCS lenders must not have access to the Federal Reserve’s ACH system for clearing electronic credit and debit transfers.
ICBA opposes expansion of FCS authorities and supports legislative and regulatory provisions to ensure FCS’s adherence to its historical mission of serving bona fide farmers and ranchers.
Community Banks and the Rural Economy. Thousands of community banks serve rural areas. As of the first quarter 2019, there were 1,315 “farm” banks representing nearly one-quarter of all FDIC-insured institutions. Agriculture loans held by FDIC-insured institutions totaled $184 billion. Community banks hold nearly 70 percent of total agriculture loans from the banking sector. Community banks of less than $10 billion in asset size hold approximately 80 percent of all banking sector agricultural loans. Approximately 3,000 community banks have agriculture-related portfolios of at least $5 million. Community banks are four times more likely to operate offices in rural counties. Community banks remain the only banking presence in more than 600 counties (nearly 20 percent of all U.S. counties) and hold the majority of banking deposits in rural counties.
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. However, in recent years FCS has sought numerous non-farm lending powers in an effort to compete directly with commercial banks for non-farm customers.
FCS’s complicit 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,” even though such lending goes beyond the constraints of the Farm Credit Act. Additionally, the Farm Credit Council has proposed replacing the FCA’s prior approval of these “investments” with blanket authority for FCS lenders to approve any investment without FCA’s up-front review. 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 both in urban and rural and remote areas. Such proposals are another FCS-initiative 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 tax-paying, private sector community banks.
Congress should reform and refocus the FCS’s authorities in order to limit their non-farm lending activities, including through “investments” authorities and “similar entity” loans to large corporations, to ensure these authorities do not circumvent existing statute or go beyond the intent of Congress; prohibit predatory, below-market pricing of loans; equalize tax treatment between community banks and FCS lenders; and changing the makeup of the FCA board.
Staff Contact: Mark Scanlan
Washington, D.C. (April 29, 2019)—The Independent Community Bankers of America® (ICBA) today announced its top legislative and regulatory priorities for 2019. ICBA made the announcement at the 2019 ICBA Capital Summit in Washington, where nearly 1,000 ICBA community bankers this week are pressing policymakers to advance top advocacy priorities.
“Ensuring the economic well-being of our communities, and protecting our customers, is cornerstone to the shared values of community banking,” said ICBA Chairman Preston L. Kennedy, president and CEO of Zachary Bancshares Inc. in Zachary, La. “Alongside ICBA’s Community Focus 2020 policy platform, ICBA’s policy priorities will serve as our guiding light as we advocate on behalf of community banking and local communities—always aiming to tailor federal policies to the unique circumstances of community banks and the customers and communities we serve.”
Approved by ICBA’s Policy Development Committee and board of directors, which is made up of community bankers from coast to coast, ICBA’s top priorities for 2019 include:
RELIEF FROM CRUSHING REGULATORY BURDEN: Building on the success of the landmark S. 2155 regulatory reform law with additional relief from ICBA’s Community Focus 2020 platform to help community banks support local economies.
DATA SECURITY, PRIVACY, AND FRAUD: Supporting a national data security breach-and-notification standard and ensuring all participants in the payments system, including merchants, are subject to Gramm-Leach-Bliley Act-like data security standards.
CYBERSECURITY: Ensuring federal cybersecurity policies recognize existing community bank mandates, supporting voluntary information sharing and industry initiatives such as .BANK and Sheltered Harbor, and expanding prudential regulators’ supervision to include core processors and credit bureaus.
BANK SECRECY ACT AND ENFORCEMENT: Promoting a more efficient Bank Secrecy Act regime and strongly supporting the collection of beneficial ownership information by the appropriate government agency at the time an entity is formed.
HOUSING-FINANCE REFORM AND THE GOVERNMENT-SPONSORED ENTERPRISES: Supporting housing-finance reform that preserves market liquidity and stability while ending the destructive sweep of Fannie Mae and Freddie Mac earnings.
TAX-EXEMPT CREDIT UNIONS: Urging Congress to end the credit union industry’s unwarranted federal tax subsidy and opposing expanded powers for credit unions as long as they remain exempt from taxation and the Community Reinvestment Act.
COMMUNITY REINVESTMENT ACT: Supporting fair, equitable, consistent, and transparent implementation of the Community Reinvestment Act.
CONSUMER FINANCIAL PROTECTION BUREAU: Supporting legislation that ensures accountability at the Consumer Financial Protection Bureau by replacing single-director governance with a five-member commission and promoting greater participation by the prudential banking regulators.
REGULATORY CAPITAL: Setting the Community Bank Leverage Ratio at 8 percent—rather than the 9 percent proposed by regulators—to allow additional well-capitalized community banks to elect this simplified capital measure established by Congress.
PAYMENTS ACCESS AND GOVERNANCE: Urging the Federal Reserve to achieve ubiquitous, nationwide access to safe and efficient faster payments for all financial institutions and their customers.
FINTECH BANK CHARTERS: Continue raising concerns with the Office of the Comptroller of the Currency’s special-purpose national bank charter for fintech companies and urging the OCC not to proceed without explicit statutory authority from Congress.
SEPARATION OF BANKING AND COMMERCE: Urging the Federal Deposit Insurance Corp. to impose a moratorium on industrial loan corporation deposit-insurance applications and Congress to close the ILC loophole to maintain the longstanding U.S. policy of separating banking and commerce.
REFORMING THE FARM CREDIT SYSTEM: Opposing the Farm Credit System’s abuse of its tax-advantaged status and supporting reforms requiring the FCS to adhere to its mission of serving bona fide farmers and ranchers.
TAX POLICY: Supporting tax laws that promote robust economic activity, a vibrant community banking sector, and saving and investment.
CANNABIS BANKING: Advocating federal legislation establishing a safe harbor from federal sanctions for banks that serve cannabis-related businesses in states where cannabis is legal under state law.
The Independent Community Bankers of America® creates and promotes an environment where community banks flourish. With more than 52,000 locations nationwide, community banks constitute 99 percent of all banks, employ more than 760,000 Americans and are the only physical banking presence in one in five U.S. counties. Holding more than $4.9 trillion in assets, $3.9 trillion in deposits, and $3.4 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers’ dreams in communities throughout America. For more information, visit ICBA’s website at www.icba.org.
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