The chairman of the House Agriculture Committee has called on the Farm Credit Administration to defend its controversial proposal to let Farm Credit System lenders make loans outside their designated service areas.

In an Oct. 25 letter to Farm Credit Administration Chairman Michael A. Reyna, Rep. Larry Combest, R-Tex., posed seven pointed questions about the agency's so-called national charter plan. The plan already has drawn the ire of Rep. Jim Leach, R-Iowa, who is chairman of the House Banking Committee, and commercial bankers across the country.

Farmers and Farm Credit System lenders generally have applauded the plan. Rep. Combest asked Mr. Reyna to reply to his queries by Nov. 10. He sent his letter five days after Rep. Leach urged the Farm Credit Administration to suspend action on pending national charter applications until it obtains congressional approval.

Rep. Leach based his request on an Oct. 17 opinion by the General Accounting Office that concluded the Farm Credit Administration should have submitted the plan to Congress and the Treasury Department for review. Rep. Leach had requested a ruling on the issue.

Hal Decell, a spokesman for the Farm Credit Administration, declined to comment on the GAO report or Rep. Combest's letter, and said the agency's counsel was still reviewing the opinion.

Rep. Combest has not yet taken a position on the national charter plan. Still, in his letter, he asked the Farm Credit Administration to explain why it is not subject to the oversight procedures outlined in the Congressional Review Act and the Farm Credit Act.

The Farm Credit Administration published its proposal in the Federal Register on July 20 without first consulting Congress or the Treasury Department. It also bypassed the review and comment periods typically observed by agencies proposing major regulatory changes.

Mr. Reyna argues that national charters are essential to the health of the Farm Credit System. Limiting lenders to specific regions makes them vulnerable to any downturn in the local economy, he said in testimony before the House Banking Committee this month.

"An institution's performance can rise and fall with the fortunes of a single crop or perhaps with those of a limited number of customers," he said, quoting a report prepared by the Treasury Department on government sponsored enterprises.

Currently, the 159 Farm Credit lenders cannot make loans outside of their assigned geographic areas. Bert Ely, an Alexandria, Va., bank consultant and longtime critic of the system, said abandoning the principle of exclusivity amounted to a "totally new philosophy" for the 84-year-old system.

"To do that without any congressional oversight at all is outrageous," he said.

John Blanchfield, director of the American Bankers Association's Center for Agricultural and Rural Banking, said banks oppose the plan because they fear it will turn the Farm Credit System - which was founded as a cooperative - into a government-subsidized interstate banking system.

Rep. Leach has expressed similar concerns. "Our financial system could be traumatized with government credit competitively crowding out the private markets," he said.


Related Content Online:

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.