Our Position

Reform and Refocus the Farm Credit System

Position

  • Farm Credit System (FCS) lenders enjoy unfair competitive advantages over rural community banks, leveraging their tax and funding advantages as government sponsored enterprises (GSEs) to siphon the best loans from community banks’ loan portfolios. The FCS’s abusive tactic of undercutting market pricing to obtain the best loans jeopardizes the viability of many community banks and the economic strength of the thousands of rural communities they serve.
  • ICBA strenuously opposes the Farm Credit Administration’s (FCA’s) initiative to allow FCS to engage in non-farm financing labeled as investments or investment bonds. This initiative is a successor to the “Rural Community Investments” proposal, which was previously withdrawn.
  • ICBA rejects legislation proposed by the Farm Credit Council to allow blanket approval authority of these FCS “investments” without FCA’s case-by-case review and approval.
  • ICBA opposes allowing FCS lenders to become the equivalent of rural banks with powers to establish checking and savings accounts, take deposits, or establish a consumer-oriented deposit insurance plan within the FCA. FCS lenders also must not have access to the Federal Reserve’s ACH system for clearing electronic credit and debit transfers.
  • ICBA opposes expansion of FCS authorities and supports legislative and regulatory provisions to ensure FCS’s adherence to its historical mission of serving bona fidefarmers and ranchers and a limited number of businesses that provide on-farm services.
  • Congress should reform the FCS’s ‘similar entity’ authorities by which FCS lenders make loans to large non-rural and publicly traded corporations.

Background

Community Banks Serve Rural America. Community banks are four times more likely to operate offices in rural counties and remain the only banking presence in over one-third of all U.S. counties. There are over 1100 agricultural banks (25 percent of portfolios in agriculture). While community banks hold 25 percent of total banking industry assets, they make nearly 90 percent of the banking industry’s farm loans.

In 2021, agricultural loans were extended by over 4,000 banks while 67 FCS institutions held agricultural loans. However, the FCS now holds 22 percent more farm loans than banks due to their rapid growth in tax-free real estate lending, which increased by 45 percent and $45 billion between 2015 to 2020, a growth rate over twice that of commercial banks. Congress should pass legislation similar to ECORA (H.R. 1977 / S. 2202) from the previous Congress (to be renamed the “Access to Credit for our Rural Economy Act of 2023” (ACRE) in the 118th Congress) to address this disparity.

Farm Credit System. As the only GSE competing directly against private lenders the FCS was granted tax and funding advantages by Congress to serve bona-fidefarmers and ranchers and a narrow group of farm-related businesses that provide on-farm services.

Through its regulator, the FCS has sought non-farm lending opportunities through “investment bonds” even though such lending exceeds the constraints of the Farm Credit Act. The FCS also seeks blanket authority to approve their “investments” in lieu of obtaining their regulator’s approval. ICBA opposes granting the FCS’s blanket approval authorities.

Congress should reform and refocus the FCS’s authorities in order to limit FCS’s non-farm and non-statutory lending.

Staff Contact

Mark K. Scanlan

SVP, Agriculture and Rural Policy

ICBA

[email protected]

Ag News

ICBA Supports Senate Bill Offering Tax Relief for Rural Lending

July 01, 2021

ICBA Press Release Banner 2020

Legislation promotes access to credit in rural communities

Washington, D.C. (July 1, 2021) — The Independent Community Bankers of America (ICBA) today expressed its strong support for the Senate introduction of the Enhancing Credit Opportunities in Rural America (ECORA) Act to support farmers, ranchers and rural homeowners.

The ECORA Act (S. 2202/H.R. 1977) would exempt from taxation interest income on farm real estate and rural mortgage loans, allowing community banks to lower loan rates and more efficiently serve these borrowers. Sen. Jerry Moran (R-Kan.) introduced the bill in the Senate following House introduction earlier this year by Reps. Ron Kind (D-Wis.) and Randy Feenstra (R-Iowa).

“With community banks making 80 percent of banking industry agricultural loans, ICBA strongly supports the Enhancing Credit Opportunities in Rural America Act to help them offer lower rates in rural communities," ICBA President and CEO Rebeca Romero Rainey said. "This important legislation will help sustain and revive rural economies affected by the COVID-19 pandemic while providing community bank lenders with benefits they can pass on to customers, similar to other rural credit providers."

With rural America and the agricultural sector facing continued challenges, ECORA will:

  • Exempt from taxation loans secured by agricultural real estate.
  • Provide similar relief to interest on loans secured by rural single-family homes that are the borrower's principal residence in towns with populations under 2,500.
  • Assist those seeking to remain on the farm or acquire a home loan in rural communities by providing borrowers with better rates and loan terms.
  • Offer community banks greater flexibility to work with farmers who may have trouble servicing their debt.
  • Give lenders a strong incentive to remain in the rural farming and housing markets, thereby boosting local economic activity.

ICBA looks forward to working with Congress to advance this critical legislation.

About ICBA

The Independent Community Bankers of America creates and promotes an environment where community banks flourish. ICBA is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education, and high-quality products and services.

With nearly 50,000 locations nationwide, community banks constitute 99 percent of all banks, employ more than 700,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding more than $5 trillion in assets, over $4.4 trillion in deposits, and more than $3.4 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers’ dreams in communities throughout America. For more information, visit ICBA’s website at www.icba.org.

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