The chartering of a credit union for Wisconsin Farm Credit System borrowers has unleashed a fire storm of criticism from rural banks and their political allies.
On Wednesday, two banking groups and three banks sued to halt the opening of Countryside Credit Union, Wausau, Wis., which got its state charter Tuesday.
And Thursday, House Banking Committee Chairman Jim Leach blasted the new credit union as an unfair competitor to banks.
"This introduces an extraordinarily unfair tilt in the financial landscape of rural America, and causes taxpaying institutions to compete against nontaxpaying institutions that also have access to agency status," Rep. Leach, R-Iowa, said at a House Banking subcommittee hearing. "Such an arrangement might be appropriate in a socialist economy, but it is an abridgement of a free-market system."
Said Kenneth Guenther, executive vice president of the Independent Bankers Association of America, "The Farm Credit System couldn't get deposit-taking power through the Congress, so they're doing this devious end run."
John O'Day, vice president of governmental affairs for Agribank, the St. Paul Farm Credit bank to which all Wisconsin Farm Credit associations belong, said bankers are overreacting.
"It's not going to be a Farm Credit institution," he said. "There's no intermingling. The employees have to be separate."
Mr. O'Day said that while Farm Credit associations were involved in setting up the credit union, neither Agribank nor the Farm Credit System as a whole played anything more than an advisory role.
The Farm Credit System is a government-sponsored enterprise that raises money by selling bonds, then lends it to farmers and other rural borrowers. Rural bankers have repeatedly branded Farm Credit as an unfair competitor, although it has been steadily losing market share to banks in recent years.
"I can understand if I'm a community banker and I don't like the Farm Credit System and I don't like credit unions, I'm going to complain," Mr. O'Day said. "But as far as we can see it should be a nonissue."
The lawsuit filed Wednesday in U.S. District Court in Madison, Wis., by the IBAA, the Community Bankers of Wisconsin, and three Wisconsin banks, argues that the credit union is in fact a creature of the Farm Credit System, which is barred by state and federal law from taking deposits. A hearing is scheduled for March 8.
Rep. Leach, speaking at a hearing on rural credit held by the House Banking Committee's subcommittee on capital markets, securities, and government-sponsored enterprises, said the Farm Credit System should also expect a prompt congressional response to the Wisconsin move.
"There appears to be an excess of hubris in the St. Paul district," Rep. Leach said. "Even behemoth GSEs such as Fannie Mae and Freddie Mac have not sought deposit-taking authority."