Treasury Against FCA Charter Plan

May 8, 2001

The Treasury Department has expressed its opposition to a controversial proposed regulation by the Farm Credit Administration that would grant all interested Farm Credit System institutions nationwide lending charters. The Independent Community Bankers of America says Treasury's position makes "several forceful points" against national charters.

"FCA's proposal is inappropriate for a government sponsored enterprise and would dramatically change the structure and focus of the FCS. We hope the FCA will heed this wise advice and withdraw its national charter proposal," stated ICBA Chairman Bob Gulledge, the chairman, president and CEO of Citizens' Bank Inc., Robertsdale, AL. Click here for the ICBA's press release.

"We continue to have concerns and recommend that the FCA withdraw this proposal," Acting Under Secretary Donald V. Hammond wrote. Contrary to FCA's assertions that the proposal would reduce safety-and-soundness risks, he said, "In a cooperative network of lending associations that are jointly and severally liable for each other's debts, encouraging intra-system competition might be counterproductive to safety and soundness."

The Treasury's three-page letter, submitted as part of the public comment process, also pointed out that national charters may benefit the largest farmers while adversely affecting other farmers. "National charters may indeed be beneficial to the largest, most financially sound System members-and may be a boon to the most aggressive and expansion-minded associations-while leading to the disenfranchisement of other borrowers served by the system today."

Treasury officials also questioned whether national charters are an appropriate proposal by the FCA noting that FCS institutions should exist to overcome a market failure in credit availability to agriculture. "We believe there are strong arguments against this policy. ... The system is a GSE, operating with a federal charter, a federal mission and federal subsidies ... given the system's unique role as a GSE in agricultural credit markets, at its core, the national charter issue raises questions about the system's future role in agricultural credit markets."

"These are critical questions, but questions that should not be answered by the FCA alone," the Treasury Department concluded.