Reform and Refocus the Farm Credit System
Tax laws should promote robust economic activity and a vibrant community banking sector and foster saving and investment. ICBA opposes any new bank-specific fees, punitive new tax levies, transaction taxes, limitations on the deductibility of FDIC premiums, or other proposals specifically targeting the financial services sector.
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Position & Background
- 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”. ICBA objects to legislation proposed by the Farm Credit Council to allow blanket approval authority of FCS “investments” for non-farm financing without FCA’s case-by-case review and approval as this could open the floodgate to FCS non-farm lending and increase risks to the FCS.
- The FCS is urging Congress to adopt several expansions as part of a new farm bill. ICBA opposes the open-ended nature of these expansions. The FCS proposals include broad lending for ‘essential community facilities’; lending to any business serving aquaculture; expanded non-farm lending via Rural Business Investment Corporations; exemptions from Sec. 1071 of the Dodd-Frank Act; an increase of the population size limit for FCS housing loans from 2,500 population currently to towns of 10,000 population.
- ICBA opposes allowing 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 administered by the FCA. FCS lenders also should not have access to the Federal Reserve’s ACH system for clearing electronic credit and debit transfers.
- ICBA protests the FCS’s use of so-called ‘cash management accounts’ to provide FCS institutions with deposit-like savings and checking accounts.
- 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 and a limited number of businesses that provide on-farm services.
- Congress should reform the FCS’s ‘similar entity’ authorities by which FCS lenders make loans to large non-rural and publicly traded corporations.
Community Banks Serve Rural America.
Community banks are four times more likely to operate offices in rural counties and remain the only banking presence in over one-third of all U.S. counties. There are over 1100 agricultural banks (25 percent of portfolios in agriculture). While community banks hold 25 percent of total banking industry assets, they make nearly 80 percent of the banking industry’s farm loans.
In 2024, agricultural loans were extended by approximately 4,000 banks while 56 FCS institutions held over $400 billion in agricultural loans. However, the FCS now holds more farm loans than banks due to their rapid growth in tax-free real estate lending, which increased by approximately 60 percent and $63 billion between 2016 to 2022, a growth rate over twice that of commercial banks. Congress should pass the Access to Credit for our Rural Economy (ACRE) Act (H.R. 3139 / S. 2371 in the 118th Congress) to address this disparity.
Farm Credit System.
As the only GSE competing directly against private lenders, the FCS was granted tax and funding advantages by Congress to serve bona-fide farmers and ranchers and a narrow group of farm-related businesses that provide on-farm services.
Through its regulator, the FCS has sought non-farm lending opportunities through “investment” even though such financing exceeds the lending constraints of the Farm Credit Act. The FCS also seeks blanket authority to self-approve their non-farm “investments” in lieu of obtaining their regulator’s approval. ICBA opposes granting the FCS’s blanket approval authorities. The FCS also seeks adoption in the farm bill of several legislative proposals referenced above in addition to relaxed regulatory requirements such as less frequent examinations.
Congress should reform and refocus the FCS’s authorities in order to limit FCS’s non-farm and non-statutory lending.
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