ABA Calls for Privatizing the Farm Credit System

A report funded by the American Bankers Association says that Congress should privatize the Farm Credit System and put its $1 billion annual farm subsidy to use elsewhere.

The association has printed 10,000 copies to distribute on Capitol Hill and mail to agricultural banks nationwide, said Patricia Boerger, a spokeswoman. The group hopes to foster legislation based on the report's suggestions.

"The Farm Credit System increasingly serves America's larger, wealthier, older farmers as well as hobbyist farmers, which I tag the 'wealthy weekenders,' " said Bert Ely, an independent banking consultant who wrote the report for the ABA. "These are not the types of borrowers the FCS was chartered to serve."

Mr. Ely, a frequent Farm Credit critic, delivered his comments and unveiled the report -- "The Farm Credit System: Reckless Past, Doubtful Future" -- at the ABA's National Agricultural Bankers Conference last week in Colorado Springs.

The report has drawn criticism from the Farm Credit Council, a trade association that represents most of the system's 196 lenders, and the Farm Credit Administration, the system's regulator. Ken Auer, the council's president, called the report "nothing more than a lobbying tool" filled with "slanted information."

"The ABA has a long-standing policy of wanting the Farm Credit System out of the hair of commercial bankers," Mr. Auer said. "But that would only serve to drive up the interest rates that farmers pay."

Marsha Pyle Martin, chairman of the Farm Credit Administration, contends that if the system is as robust and expansion-minded as Mr. Ely says, then the banking industry should fear privatization rather than rally for it.

"Does the commercial banking industry really want to compete with these institutions if they're able to take deposits and make loans to anyone, anywhere?" Ms. Martin said. "They'd have more authorities than they do now. One of the biggest drawbacks they face now is that they can't take deposits; and let's face it, people like to do one-stop shopping."

Mr. Ely, who heads Ely & Co. of Alexandria, Va., estimates that farm credit lenders save more than $600 million annually by borrowing from the government at discounted rates. Moreover, he said, Farm Credit lenders save an additional $400 million a year by not paying federal taxes.

In his report, Mr. Ely contends that the federal government could give more help to struggling farmers by privatizing the Farm Credit System and using its $1 billion of annual subsidies to fund a tax credit for farmers regardless of where they borrow money.

Farm Credit System institutions often compete for farmers' loans directly with community banks. The report claims that as much as two-thirds of the system's outstanding loans go to the slim number of farmers who sell more than $250,000 worth of commodities per year or to farmers who earn most of their income from off-farm sources.

Mr. Auer said he doubted that any of his group's 20-member board, which consists entirely of farmers, would describe themselves as "wealthy weekenders" or "hobbyists" who just farm for fun.

"The system is there to provide a competitive source of credit," Mr. Auer said. "If you remove that, farmers across the country would be very concerned."

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