The Bush administration is toeing the Clinton line on one issue, at least arguing that the Farm Credit Administration should not grant national charters.
In a May 2 letter, the Treasury Department recommended that the farm credit agency withdraw its proposal to let Farm Credit System lenders extend credit to agricultural borrowers nationwide. As it stands, these institutions can only lend within local areas defined by their charters.
The Farm Credit Administration had planned to begin issuing charters in January, but that plan was stalled last fall when the General Accounting Office, the Clinton administrations Treasury Department, and several members of Congress came out against it.
The Treasury Department submitted testimony to the House Committee on Banking and Financial Services last October that outlined our concerns with the national charter concept, the May 2 letter said. We continue to have those concerns and recommend that the FCA withdraw this proposal.
Testifying to the House Agriculture Committee in March, Farm Credit Administration Chairman Michael M. Reyna and board member Ann Jorgensen argued that the loan portfolios of Farm Credit System lenders are concentrated in a single industry agriculture and that the only way for them to diversify would be to expand into new markets.
Our proposed rule on national charters would help the system modernize its credit delivery structure, Mr. Reyna testified, and at the same time maintain safe and sound operations.
Bankers, however, oppose any plan that expands Farm Credit System powers. Tom Olson, the president of $16 million-asset Lisco State Bank in Nebraska, said the system uses its tax-exempt status to offer lower rates and lure the best borrowers from commercial banks, instead of making loans to those who most need the credit.
So many times theyre identifying the best borrowers and getting those people without giving due consideration to beginning farmers or more leveraged farmers who are good operators, Mr. Olson said.
Mr. Reyna emphasized that the proposed national charters would not expand lending powers and would still give priority status to a local service area. The exact definition of priority, he said, would be determined in the final rule.
He added that lenders could not cherry-pick loan customers because their farmer-stockholders would not let nationally chartered lenders offer lower interest rates and better credit terms to large operators elsewhere than they themselves get.
In its May 2 letter, the Treasury offered a dimmer view of the proposal.
As we have considered the issue in recent months, we have concluded that the arguments in favor of national charters are, in fact, arguments that the 80-year-old system is outdated and in need of reevaluation, the letter said.
The Farm Credit Administration had no immediate reaction to letter, said Mark McBeth, its assistant director of congressional and public affairs. During this review, we cant really discuss any of the comments because we are in a review and consideration stage, he said.
He added that the agency had gotten more than 1,400 letters in response to the proposal and that no date had been set to complete the review. And though he argued that the Treasurys letter would be given the same consideration as all the others, observers said it would carry much more weight.
This letter stands head and shoulders above the others because it comes from a federal agency, said Mark K. Scanlan, director of agricultural finance for the Independent Community Bankers of America.
John M. Blanchfield, director of the American Bankers Association Center for Agricultural and Rural Banking, agreed. Treasurys objections are broad enough and wide enough that [the Farm Credit Administration] cant tweak this thing to make them happy, he said.
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