Leach Questions FCA Charters

June 26, 2000

House Banking Committee Chairman James Leach (R-IA) has voiced concern about the Farm Credit Administration’s plan to issue charters to member institutions beginning Jan. 1. "The implications of the FCA's announcement ... are extraordinary, and I would urge you to suspend this initiative ... until proper processes involving formal rule making procedures are put in place and until there is adequate opportunity for congressional scrutiny and oversight," Leach said.

In a letter to FCA CEO Michael M. Reyna, Leach said he was concerned "particularly" that national charters "will not only provide license for expansive out-of-territory lending but will represent implicit approval of expansive activities outside of productive agriculture, and that FCS (Farm Credit System) institutions will increasingly cater to the activities of large agricultural conglomerates to the disadvantage of the family farmer."

The letter continued, "After all, the national charter provides the potential for a large agricultural interest to acquire dominant control over a single FCS institution to serve its needs on a national basis, contrary to the intent of Congress when it established the system to serve small family farmers in a generally cooperative fashion.

"Despite the express direction of the FCA Board that institutions with national charters must continue to serve the needs of farmers in their local service areas (LSAs), it is hard to believe that national charters won't pose a new risk of dilution of FCS institutions' commitment and capacity to serve local agricultural producers which should not only be their first but their only mission."

The American Bankers Association, commending Leach for the action, said granting national charters "raises a magnitude of safety and soundness issues regarding this taxpayer-supported lender." Also there was no process involved in this plan, "no rule, comment period or any effort made for public comment," ABA added.

Leach said the FCA's proposal has been touted as an effort to deregulate and promote intra-system competition. "However, questions exist whether national charters will simply facilitate `cherry picking’ and predatory pricing by large FCS institutions at the expense of local FCS institutions, and government privileged institutions at the expense of the private sector."

The FCS "already provides for some distortion of the financial markets to achieve an agreed upon public purpose. However, a fundamental change in the character of the FCS system from one of local service to unlimited national scope could significantly alter the rural financial landscape, perhaps in ways we cannot now anticipate."