Farm Credit Agency's Charter Plan Hits Snag

WASHINGTON - The Farm Credit Administration's controversial plan to grant national charters to Farm Credit System lenders beginning Jan. 1 is likely to be delayed until it can be reviewed by Congress.

In a report released Tuesday, the General Accounting Office concluded that the plan - which would allow lenders to make loans outside their designated territories - is subject to a formal review under two federal procedural oversight laws. House Banking Committee Chairman Jim Leach, a vocal critic of the national charter initiative, immediately called on Farm Credit Chairman Michael M. Reyna to suspend all action on pending applications.

For the Farm Credit Administration "to go ahead at this point with national charters absent Congressional authorization [and] Treasury Department approval … would amount to an assault on the constitutional process of American governance," Rep. Leach, R-Iowa, said.

Farm Credit lenders are permitted to make loans in only their own geographic districts, but under the national chartering proposal, lenders could operate anywhere in the country.

Mr. Reyna has argued that Farm Credit lenders must be able to tap new markets to remain viable. And though some smaller Farm Credit lenders have voiced concern about out-of-market lenders picking off their best customers, most of the nation's 159 Farm Credit lenders have applied for national charters.

Hal Decell, a spokesman for the Farm Credit Administration, said the agency would not comment on the GAO report until it had time to review it.

But in a hearing before the House Banking Committee earlier this month, Mr. Reyna told Rep. Leach that he would consider delaying the plan if the GAO report - ordered by Rep. Leach - found that the process for implementing national charters was flawed.

Banking industry officials praised the GAO's findings and urged the Farm Credit Administration not to proceed any further. Bankers have argued that national chartering would essentially pit Farm Credit lenders against one another, leading them to make riskier loans. Bankers also worry that tax-exempt lenders, as they get larger, would have a competitive advantage over banks.

"We believe Congress should closely study the negative and controversial implications this policy would have in terms of reducing credit choices for family farmers," said Thomas Sheehan, president of the Independent Community Bankers of America and president of Grafton State Bank in Wisconsin

Said John Blanchfield, director of the center for rural and agricultural banking at the American Bankers Association: "The proposal to grant national charters to FCS institutions would have destroyed any shred of the notion that the FCS is a borrower-owned and locally controlled lender cooperative."

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