Subcommittee Reviews Farm Credit System

Sep 29, 2004

WASHINGTON, D.C.- The Subcommittee on Conservation, Credit, Rural Development, and Research held a hearing today to review the Farm Credit System (FCS) and its provisions for participating associations to exit the system. Recently, Farm Credit Services of America (FCSA), an institution of the FCS, initiated procedures to terminate its involvement in the System.

Subcommittee Chairman Frank Lucas cited the importance of reviewing the FCS in light of recent events. "There is no doubt that the proposed purchase of Farm Credit Services America by Rabobank has generated a great deal of discussion. It is our job in Congress to review the laws and to make sure that they are being interpreted correctly and followed accurately. This hearing is the perfect opportunity to discuss in-depth the current law and how the Farm Credit Administration (FCA) interprets that law," Chairman Lucas said.

On July 30, 2004, FCSA board members accepted a purchase offer from Rabobank, a private Dutch banking cooperative. FCSA is the second-largest lending association in the FCS. FCSA's 43 offices are located in Iowa, Nebraska, South Dakota, and Wyoming.

A statute allowing institutions to exit the system was created under the Farm Credit Act of 1971, as amended. The statute, implemented through FCA regulations, specifies the types of information the exiting institution must provide to the FCA and the institution's shareholders during the termination process.

The FCS was established by Congress in 1916 within the Federal Farm Loan Act. The system was created at a time when credit was largely unavailable or unaffordable in rural areas and lenders avoided agriculture loans due to their associated risks. Since its creation, the FCS has provided a permanent, reliable source of credit to American agriculture; however, the dynamic of financial lending in rural American has changed.

According to the Congressional Research Service, the FCS currently holds 30 percent of the farm sector's total debt which consists of short and long term debt. In comparison, commercial banks hold approximately 39 percent of farm sector debt. Chairman Lucas noted the need to examine the system within the current rural credit environment to determine the role of a federal credit system in today's market.

"Some of the questions we need to address are: What, if anything, has changed that has prompted a commercial bank to become interested in purchasing a Farm Credit System Association? If changes to the exit language are considered, is it the appropriate time consider other changes to the Farm Credit Act? Today's witnesses will provide differing views of what has led us here today and we must be diligent to discuss what if any changes are needed regarding the current law," Chairman Lucas said.

At the conclusion of the hearing, Chairman Lucas pledged the continued oversight of the FCS and the FCA by the subcommittee. "I will work to ensure that any future actions taken by the subcommittee are in the best interest of America 's farmers and ranchers," said Chairman Lucas.