GAO Believes FCA Initiative Subject to Rule Making

October 18, 2000

Rep. James A. Leach, chairman of the House Banking and Financial Services Committee, says the General Accounting Office (GAO) has concluded that the Farm Credit Administration's (FCA) "national charter" initiative is subject to rule-making and congressional review. Leach called on FCA to withdraw the initiative and suspend all action on pending applications.

"For the FCA to go ahead at this point with national charters absent congressional authorization, Treasury Department approval, and the following of administrative processes mandated by law would amount to an assault on the constitutional processes of American governance," Leach said. "Although the requirements of the APA are well understood by most federal agencies, Congress has also imposed a second set of requirements through the Congressional Review Act which prescribes specific steps an agency is to take before a rule may take effect, including a requirement that it submit a report to both Houses of Congress and the GAO containing a copy of the rule and a statement as to whether it is a 'major' rule."

In a nine-page opinion to Leach, the GAO concluded, "We find that the (initiative) constitutes a 'rule' under the APA and should have been issued using notice and comment procedures. We also find that (it) is a 'rule' under the CRA and should be submitted by the FCA to Congress and the comptroller general in accordance with the provisions of the CRA."

Leach said, "In addition to the procedural defects with this initiative, it has major policy implications. There are safety and soundness implications for Farm Credit System (FCS) institutions as they venture into geographic areas in which they may be inadequately prepared to assess and manage risk. It has the potential to undermine the FCS' statutory mandate to serve small local family farmers should a large agricultural interest acquire dominant control over a single FCS institution to serve its national needs."

John Blanchfield, director of American Bankers Association's Center for Agricultural and Rural Banking, said the GAO finding constitutes a clear indictment of FCA's proposal. FCA attempted to grant Farm Credit System institutions national charters without any public dialogue and congressional review.

In House testimony earlier this month, FCA Chairman and CEO Michael M. Reyna said the national charter initiative's purpose "is to further the safety and soundness of the Farm Credit System by updating and modernizing the system's credit delivery structure."

He said the system "is overwhelmingly a single-sector lender to an industry that is particularly volatile due to prices, weather, disease, pests and other factors. The National Charter Initiative would enable System institutions to better manage these risks by diversifying their operations geographically and by reducing portfolio concentrations of certain commodities."

Reyna also said that the FCA Board "will seriously consider and weigh all substantive comments received before taking action on any pending national charter application."