7200 EXTENSIONS OF REMARKS April 9, 1981 EXTENSIONS OF REMARKS HOW THE FARM CREDIT structive credit and closely related services As a consequence, the Production Credit AMENDMENTS WILL HELP AG­ to them, their cooperatives, and to selected Associations <PCAs> were established in RICULTURAL BANKS farm-related businesses necessary for effi­ 1933 to distribute the discounted funds to cient farm operations." farmers. But even though PCAs were estab­ In some cases, serving the credit needs of lished to fill the void left by the commercial agriculture means channeling some of the banking industry, the FICB authority to HON. ED JONES funds through commercial banks. And some provide a source of credit to other financial OF TENNESSEE of the changes brought about by the 1980 institutions significantly committed to fi­ IN THE HOUSE OF REPRESENTATIVES Amendments to the Farm Credit Act of nancing agriculture remained intact. Thursday, April 9, 1981 1971 will make it easier for the System to As time went on, the banking industry serve agriculture through your institutions. showed only sporadic interest in accessing • Mr. JONES of Tennessee. Mr. With that understanding let's look at how the discount privilege. Demand on the Speaker, the Farm Credit Act Amend­ the Farm Credit System and agricultural system was heavy when money was tight ments of 1980 was one of the major banks can work together to help agricul­ and bank loan-to-deposit ratios were tempo­ legislative efforts in the agricultural ture, since helping agriculture is our rarily high. This, of course, stressed the area that was approved by the House common objective. You're here today to de­ Farm Credit System's funding mechanisms Agriculture Committee and the Con­ termine what this means to your banks in at their most vulnerable times. This stress gress last year. On March 24, Gover­ light of the recently passed Farm Credit during vulnerable periods forced the Farm nor Donald E. Wilkinson of the Farm Amendment ... and that's what I'm going Credit System to develop and administer to talk about. certain requirements for access to the FICB Credit Administration spoke to the FCA is now in the early stages of imple­ discount window. Las Vegas Convention of the Inde­ menting Public Law 96-592. By early stages, I am neither pointing a finger at commer­ pendent Bankers Association of Amer­ I mean that we have drafted our regulations cial banks nor condoning the past actions of ica, on the subject of "How the Farm and have presented the more complex and the Farm Credit System. Rather, my inten­ Credit Amendments Will Help Agricul­ controversial sections to our Federal Farm tion is to review the past in an effort to tural Banks." The text of Governor Credit Board at its last meeting in early shed some light on the circumstances in Wilkinson's remarks follows: February. At the Federal Board's direction, which the agricultural banks and the Farm How THE FARM CREDIT .AMENDMENTS WILL we have now sent copies of the regulations Credit System found themselves last year. HELP AGRICULTURAL BANKS to the 37 banks and boards of the Farm Returning to the OFI aspect of the 1980 Credit System and to other "interested par­ Amendments, the law sets forth four condi­ I appreciate the opportunity to speak ties" for comment. The IBAA is one of tions for granting commercial banks access before you today. When Tom Bolger, your those "interested parties" and we've re­ to the FICB discount window. president invited me to talk before this con­ ceived some constructive comments from First, the commercial bank or OFI must vention, I accepted gladly, because our orga­ your leadership regarding certain areas be significantly involved in farm lending. nizations have a mutual concern . the which they want us to take into considera­ Second, the bank must have a continuing concern of providing credit to agriculture. tion as the regulations are developed and fi­ It's the primary business of the Farm Credit need for a supplementary source of funds to nalized. We expect and appreciate this kind meet the needs of its agricultural borrowers. System and an important portion of your of participation. And although we may have business. Third, the bank must have only limited During our recent effort to amend and to draw lines in some areas because of the access to regional or national capital mar­ update the Farm Credit Act of 1971, your limitations of our authority or for some kets. leadership demonstrated confidence and other reason, I want you to know that we And fourth, the bank may not use the pragmatism in recognizing that the legisla­ are in continuing communication with your FICB services to expand financing to per­ tion was moving to enactment and in main­ leaders. sons or for purposes other than those au­ taining a position that was in the best inter­ At this point, I would like to set the stage thorized in the 1971 Act. est of your membership. We in the Farm by reviewing the specifics of the key amend­ The basic thrust of the regulations will be Credit Administration and the System rec­ ments to the 1971 Act affecting the working to: (1) assure equitable OFI access; (2) pro­ ognize and applaud their fine efforts on relationship between IBAA and the Farm tect the System against misuse; and (3) your behalf. Credit System. eliminate inconsistencies among the dis­ During the year and a half that we The OFI provision is the amendment that tricts. worked on our legislative package, we had to you are most interested in. It is one of the Now let's look at the provisions of the deal with a lot of confusion, misunderstand­ major modifications to the Farm Credit Act draft OFI regulations. Under the draft regu­ ing and misinterpretation of the 1980 Farm of 1971, because it significantly expands the lations, OFI eligibility criteria are clearly Credit Act Amendments. Quite a bit of mis­ access of other financial institutions to the defined, as contrasted with the current reg­ information was published. The leadership Federal Intermediate Credit Bank <FICB> ulations in which the criteria are general, of your organization met with us on numer­ discount window. nonspecific, and lend themselves to either a ous occasions. They raised questions and ex­ I'm sure you recall the debate that cen­ very broad or very narrow interpretation pected straightforward answers. And we did tered on this amendment. Opponents ... depending on your point of view. Oppo­ the same with them. That's the kind of argued that the amendment restricted nents to the new law have argued that the working relationship we developed. And I'm rather than expanded discount window old law and regulations should have been re­ going to adhere to those ground rules in my access. Actually, what this amendment does tained, and the Farm Credit System forced comments to you today. for the first time is define what the access to open the FICB discount window to all My assignment is to talk about "How the will be. commercial banks. Farm Credit Amendments Will Help Agri­ Let's take a step back in FICB history to However, precedents have established a cultural Banks." And, since we have a see what the precedents were that estab­ narrow interpretation of the old law. The straightforward relationship, there is one lished the pattern for discount window 1980 amendment guarantees access to the point that I want to make here, right in the access before the 1980 Amendments. FICB discount window by qualified agricul­ beginning. Actually, the FICBs were originally char­ tural lenders, and new regulations are The business of the Farm Credit System is tered in 1923 to discount agricultural paper needed to more specifically define that not to help agricultural banks. for commercial banks and other lending in­ access. Its business . its only business . and stitutions <OFis). However, this banking au­ Changes that the draft eligibility regula­ here I'd like to quote the mandate from thority never achieved its intended purpose tions would make are: Congress as stated in the Farm Credit Act of making short-term credit more readily 1. Lowering the volume of agricultural of 1971 ... the business of the Farm Credit available to farmers. For one reason or an­ loans required to establish eligibility from System is to improve ". the income and other, commercial banks and other lending 25 to 15 percent of the total loan portfolio. well-being of American farmers and ranch­ institutions did not avail themselves of the 2. Changing the required loan-to-deposit ers by furnishing sound, adequate, and con- authority. ratio from 65 to 60 percent. e This "bullet" symbol identifies statements or insertions which are not spoken by the Member on the floor. April 9, 1981 EXTENSIONS OF REMARKS 7201 3. Restricting access to the FICB discount management problem to be constantly tool­ success in furthering the interests of Ameri­ window to banks or affiliates which have ing up and then tooling down as credit can agriculture.e only limited access to national or regional demand fluctuated. money markets. Closely related to this problem is the im- In addition, a new section in the proposed portance of protecting the Farm Credit Sys­ CONGRESSMAN GREEN INTRO­ regulations establishes appeal rights for re- tern's credibility in the money markets. It is jected applicants. The Farm Credit Admin- a reputation earned over a more than 60- DUCES RESOLUTION FOR DR. istration, the Federal regulatory Agency for year period. And although the System has SEYMON GLUZMAN the System, will have responsibility for re- been unfairly criticized for its "unlimited" viewing appealed decisions on a case-by-case access to the money markets, it has not basis.