FCA Defends National Charters

February 27, 2001

Jack Webster, president, Farm Credit Services of America, Monday told the Senate Agriculture Committee that removing geographic limitations on Farm Credit System institutions will provide farmers and ranchers with the opportunity to choose the Farm Credit System institution that best meets their credit needs.

"The proposed regulation (on national charters) sets out the process that a system institution must follow if it desires to obtain a national charter or something less than a national charter. That process includes specific requirements that an institution must meet before it can obtain an expanded geographical service area," he explained.

Service territory limits under which FCA associations now operate date to the 1920s, he said. A farmer's geographic location was "the determining factor in their choice of a lending institution. Needless to say, 80 years has brought a lot of changes to agriculture and to the financial services industry."

Farmers who want to use the Farm Credit System "face geographic hurdles if they want to access financing from a system institution other than the one that is specifically authorized to serve their location. They face arbitrary and outdated restrictions that no longer make sense in our modern world," Webster said.

However, Dale Leighty, Independent Community Bankers of America committee chair, said not only community bankers but "many" in the FCS believe national charters are "bad public policy." Opposing FCS associations expressed concerns that this new direction is a dramatic change in the FCS that would benefit only the large FCS lenders. They argue it would hurt the cooperative nature of the FCS and undermine service to family farmers, he said.

"They further argue it is simply a way for large FCS associations, that had not adequately serviced their existing geographical territories, to cherry-pick the best loans away from other lenders."

One Farm Credit System association, according to Leighty, said a Farm Credit District survey showed "that more than a majority of the associations are opposed to the 'National Charter' approach." Also, based on contacts their management had with association representatives across the country, "we find support is 'luke warm' and only exists at all primarily due to the belief that this is the only approach which FCA will support."

He gave the committee "a partial list of concerns": the proposal will not enhance service to family farmers - it is designed to appeal to large borrowers; it will do nothing to provide loans to struggling borrowers who cannot now find credit; it is likely to lead to much greater consolidation of FCS local lenders and therefore a greater concentration of economic power among fewer, larger FCS lenders at a time when many have raised concerns over concentration of America's farms and agri-businesses; the proposal is unnecessary; "there are much simpler, less disruptive ways to achieve the proposal's stated goals."

Other concerns are that the proposal "is driven by the large institutions within the FCS who will have the financial leverage and resources to drive smaller FCS associations out of business while driving some commercial banks either out of ag lending or out of business." Also, the proposal "could undermine the majority of farmer-borrowers now using the System and lead to a loss of local, farmer-oriented control."