WASHINGTON - Phil Burns, president of Farmers and Merchants National Bank in West Point, Neb., fears a new regulatory proposal could lure customers out his door to the Farm Credit System office just down the street.
In a rural community of 3,500, Burns says farmers account for 75% of his business.
"We both make agricultural loans and compete head to head," he said. "This proposal makes me feel like I have to compete with an agency of the federal government to provide loans."
The Farm Credit Administration is an independent agency that regulates the Farm Credit System, a government-sponsored enterprise of seven regional banks and 232 local credit associations that lends to farmers, ranchers, and rural cooperatives.
The Farm Credit Administration proposal would:
* Permit its institutions to provide a wide array of financial services, including estate planning, currency exchange and credit life insurance
* Eliminate requirements that institutions seek regulatory approval for each new service.
* Require farm credit banks to document the feasibility of providing each financial service.
* Authorize farm credit institutions to provide financial services to anyone eligible to borrow from the institution.
* Allow a system bank to offer financial services outside of its chartered lending territory.
The American Bankers Association and the Independent Bankers Association of America are protesting the proposal, saying it exceeds the system's permissible activities under federal law, does not satisfy the system's own feasibility requirements, and encourages predatory pricing.
The proposed regulation was published in the Federal Register on Oct. 31. If the FCA Board adopts the proposal, it could take effect as early as this summer.
Steve Blakely, spokesman for the Farm Credit Council, a trade group of FCS institutions, said the ABA and IBAA charges are false.
"Essentially what this does is update existing regulations," he said. "For the ABA to say it is expanding services is untrue. The fact is that there has never been a single case of predatory pricing that the ABA has complained about that has been upheld."
Mr. Blakely said commercial banks have reaped the benefits of deregulation and should not begrudge the Farm Credit System similar opportunities.
"The ABA has been pushing for regulatory relief itself and won interstate banking and branching," he said. "For commercial banks to be complaining about this being unfair completely ignores the reality of what they have been doing."
Mark Scanlan, IBAA agricultural lobbyist, counters that the association is not seeking unnecessary regulation. "But we feel this is expanding the institution's powers and poses safety and soundness risks to individual institutions."
Ms. Oppenheim writes for Medill News Service.
