WASHINGTON - Bank trade groups last week blasted a plan to remove geographical restrictions on Farm Credit System lenders, saying the proposal threatens locally based lenders and should be the subject of congressional hearings.

In letters to the Farm Credit Administration, the American Bankers Association and the Independent Community Bankers of America accused the agency of trying to sidestep the public comment process and warned that its plan could create unfair competition and destabilize the very system it is supposed to protect.

The proposal was floated in March by the Farm Credit System, made public in a booklet circulated among system members in May, and published in the Federal Register July 20. It would let system members, who are currently limited to geographic regions, do business anywhere in the country.

ICBA president Tom Sheehan said lifting the restriction would let the largest of the Farm Credit lenders "cherry-pick" the most eligible borrowers in areas already served by commercial banks and other Farm Credit lenders.

Patricia W. DiMuzio, director of the Farm Credit Administration's regulation and policy division, said the agency has gotten at least 600 comments on the proposal. More than half the comments supported it, she said, and most of the critical letters came from commercial banks and their trade associations.

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