Public Meeting on Other Financing Institutions and Alternative Funding Mechanisms

Summary:

The Farm Credit Administration (FCA) announces a forthcoming public meeting relating to the funding and discount relationship between other financing institutions' (OFIs) and Farm Credit System (FCS or System) banks. [1] Through this meeting, we are seeking the public's view on what changes should be considered to the current regulatory framework, and seek your suggestions for other types of partnering relationships between System and non-System lending institutions that would increase the availability of funds to agriculture and rural America. This meeting will provide an opportunity for existing and potential OFIs, FCS banks and associations, commercial banks, other lending institutions, and other interested parties to express their views and offer constructive suggestions.

Table of Contents

Dates:

The public meeting will begin at 8:30 a.m. local time on August 3, 2001, in Des Moines, Iowa. Interested parties wishing to present their testimony in person may notify us prior to the scheduled meeting date, or may register to speak on the day of the meeting. Interested parties wishing to provide oral testimony as part of a panel presentation should notify us of their request by July 27, 2001. Requests to provide testimony in person will be honored in order of receipt. Requests for sign language interpretation or other auxiliary aids should be received by FCA's Office of Congressional and Public Affairs at (703) 883-4056 (TDD (703) 883-4444) by July 27, 2001.

Addresses:

The public meeting will be held in Des Moines, Iowa. We will publish the name and address of the meeting facility on our Web site and in the Federal Register at least 15 days prior to the date of the public meeting. You may submit requests to appear and present testimony for the public meeting by electronic mail to reg-comm@fca.gov or through the Pending Regulations section of our Web site at “www.fca.gov.” You may also submit your request in writing to Thomas G. McKenzie, Director, Regulation and Policy Division, Office of Policy and Analysis, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090, or by facsimile transmission to (703) 734-5785.

For further information contact:

Dennis Carpenter, Senior Policy Analyst, Office of Policy and Analysis, Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090, (703) 883-4498, TDD (703) 883-4444, or Richard A. Katz, Senior Attorney, Office of General Counsel, Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090, (703) 883-4020, TDD (703) 883-4444.

Supplementary information:

This public notice announces our intention to hold a public meeting that would explore ways to increase the availability of funds to agriculture and rural America through: (1) The funding and discount relationships between System banks and OFIs, and (2) other partnering relationships between FCS banks and associations and non-System financial institutions through alternative funding means. The purpose of this meeting will be to allow us to hear your views on our OFI regulations, existing and potential OFI credit relationships with Farm Credit banks, and other methods for the System and non-System financial institutions to work together to deliver funding to agriculture and rural America. Your suggestions will help us revise our regulations governing the funding and discount relationship between System banks and OFIs. We also welcome your ideas about how we can encourage the FCS and non-System financial institutions to form other partnering relationships that increase the flow of funds to farmers, ranchers, cooperatives, farm-related businesses, and rural utilities through loan participations, Farmers' notes, Aggie bonds, and other similar programs.

This public meeting is another step in the OFI rulemaking process we began with an advance notice of proposed rulemaking (ANPRM) that was published in the Federal Register on April 20, 2000, (65 FR 21121). The meeting will allow us to continue to explore regulatory approaches that will enable FCS institutions to form alliances with commercial banks and other agricultural lenders. Such delivery mechanisms can include funding of OFIs, loan participations, investments in Farmers' notes, [2] and other similar programs.

I. Objective

This public meeting is another step in supporting the FCA Board's commitment to give farmers and ranchers greater access to credit. We hope to identify solutions that would increase the availability of funds through OFI relationships as well as other funding alternatives. This meeting aims to identify new methods and tools that would help meet the financing needs of agriculture and rural America in the 21st century. Specifically, we expect to identify any regulatory barriers that may impede access to funds through the FCS.

II. Background

The comment period for our ANPRM ended on July 19, 2000. We received 37 comment letters from FCS institutions, commercial banks, existing OFIs, and other interested parties. Given the nature of the comments received and the broad spectrum of suggestions offered, we have decided to hold a public meeting in order to seek additional input about various approaches that could be available for FCS institutions to increase the availability of funding to non-System lenders that serve agriculture and rural America. We are also asking additional questions and seeking additional information from OFIs, System institutions, non-System financial institutions, and other interested parties on ways to improve the delivery of credit to agriculture through OFI funding relationships. Additionally, we are seeking information on other alternative funding programs, such as loan participations, investments in Farmers' notes, and similar programs.

Section 1.7(b) of the Farm Credit Act of 1971, as amended (Act), authorizes the Farm Credit banks to fund and discount short- and intermediate-term loans for OFIs, which are non-System lenders. Under section 1.7(b) of the Act, OFIs include:

• National and State banks;

• Trust companies;

• Agricultural credit corporations;

• Incorporated livestock loan companies;

• Savings institutions;

• Credit unions;

• Any association of agricultural producers making loans to farmers and ranchers; and

• Any corporation making loans to producers or harvesters of aquatic products.

Section 1.7(b) of the Act enables OFIs to obtain funding from Farm Credit banks for any loan that a production credit association (PCA) could make under section 2.4 of the 1971 Act. PCAs are authorized to make short- and intermediate-term loans with maturities ranging up to 10 years (15 years to producers or harvesters of aquatic products). An OFI can fund or discount through FCS banks only those loans it makes to farmers, ranchers, aquatic producers and harvesters, processing and marketing operators, farm-related businesses, and rural homeowners, who are eligible to borrow under our regulations in subpart A of part 613.

The OFI discount and funding authorities of System banks help to fulfill their mission of financing agriculture, aquaculture, and other specified rural needs. Legislative history shows that Congress originally granted OFIs discount privileges at System banks because operating credit for farmers and ranchers was scarce. Since then, Congress has updated the authorities of System banks to fund and aid both System and non-System lenders to increase the flow of credit to underserved sectors of agriculture and the rural economy. We continue to explore ways of making competitive credit available through more avenues to farmers, ranchers, and other eligible borrowers.

In the early 1980s, both the number of OFIs and the volume of business they did with System banks peaked, then subsequently declined. As of March 31, 2001, twenty-six (26) OFIs have funding relationships for approximately $297 million with FCS banks. In 1998, we sought to expand OFI access to System funding and discounting by amending our regulations to remove many OFI eligibility limits not required by the 1971 Act. [3] We also required a System bank's assessment of total charges for an OFI loan to be comparable to the charges the bank imposes on its direct lender System associations. In addition, to improve safety and soundness, those amendments also required all OFI loans to be full recourse loans.

However, despite these regulatory changes, the program continues to be underused. We are now considering a new rulemaking with the intent of improving non-System agricultural lenders' access to FCS funding as a means of improving the availability of credit to agriculture and rural America through the OFIs, loan participations, the existing investment in Farmers' notes program, or other investment vehicles, such as Aggie bonds.

We continue to believe that the FCS institutions can more fully serve the credit needs of agriculture and other eligible borrowers, as Congress intended, if they work cooperatively and enhance relationships with other rural credit providers. The OFI relationship is one method that helps FCS banks achieve their objective. For this reason, we continue to look for ways to improve OFIs' access to System funding. We wish to consider whether revising regulatory requirements will spur development of more OFI relationships. We also invite your comments on other funding avenues and partnerships between FCS institutions and non-System lenders that would increase the availability of credit to underserved sectors of the agricultural and rural economy.

III. Questions

In this public meeting, we seek additional information from all interested parties to aid us in developing proposed regulations that increase opportunities for all types of agricultural lenders to access funds through the FCS to the extent allowed by the Act and within appropriate safety and soundness boundaries. Specifically, we seek input on the following questions.

1. What problems/impediments, if any, do you believe exist with the current regulatory requirements relating to OFIs? Please address:

a. Structural impediments (e.g., What type of corporate structure or ownership structure works best for OFI borrowers?)

b. Operational impediments (e.g., cost of establishing an OFI, loan pricing, collateral requirements, capital required, etc.)

c. Geographical impediments (e.g., Where may an OFI establish a funding relationship?); and,

d. Other impediments?

2. What other regulatory changes, if any, are needed to improve the availability and efficiency of OFI relationships?

3. In addition to OFIs, how can we amend our regulations to encourage greater cooperation and partnering between FCS institutions and non-System lenders in increasing credit availability to eligible farmers, ranchers, aquatic producers and harvesters, their cooperatives, rural utilities, and farm-related businesses?

4. What other types of market-based solutions and financial arrangements (e.g., loan participation programs, investments in Farmers' notes, other similar types of programs) could be used to improve the availability of funds to non-System lenders through the FCS?

5. How can such alternative funding arrangements be used to improve the efficiency and availability of funding to agriculture and related rural businesses, including rural utilities and rural housing? Under what conditions should these arrangements be provided?

6. If lending institutions are granted greater flexibility to access FCS funding through OFI relationships, other partnering arrangements, or alternative funding mechanisms (e.g., loan participations, investments in Farmers' notes, Aggie bonds, and other similar programs and activities), what measures should be instituted to ensure the safety and soundness of the FCS institutions?

IV. Request To Present Testimony

In addition to comments on the preceding topics, the FCA invites testimony on all issues relating to existing OFI regulations contained in 12 CFR part 614, subpart P. We anticipate a significant number of presenters and as such, oral testimony at the meeting will be limited to 5 minutes per person and 10 minutes for follow-up questions.

Any interested party wishing to present testimony at the meeting may submit a request to the FCA at one of the addresses we listed at the outset of this notice. You may also identify yourself and your intent to speak the day of the public meeting. In order to provide the most opportunity for interested parties to present their views, we encourage interested parties to provide their testimony in a panel format. However, as time permits we will also accept individual testimony. A request to speak should provide the name, address and telephone number of the person wishing to testify and the general nature of the testimony. Requests will be honored in order of receipt.

We intend to include all comments in our official public record and as such we ask that you provide us with written statements or detailed summaries of the text of your testimony. Such written comments should be presented to us by the close of the public meeting. If time permits, at the end of the public meeting, additional parties who were not scheduled to speak may be invited to provide their thoughts and comments on the questions posed in this notice. For those parties that wish to provide testimony on the day of the meeting, but are not able or do not desire to present testimony in person in front of the meeting panel, we intend to make available additional means of recording such testimony.

In the event that more people wish to testify than time permits, the FCA will accept their written statements for the record. Written copies of the testimony along with a recorded transcript of the proceedings will be included in our rulemaking files. The FCA Board will accept written comments, in support of or in rebuttal to testimony presented at the public meeting or comments submitted for the record. The comment period for such additional comments will end 30 days following the date of this public meeting.

The comments, as well as all documents and testimony received by the FCA as part of the public meeting process, will be available for public inspection at the FCA's Office of Policy and Analysis in McLean, Virginia.

V. Special Accommodations

This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be received by FCA's Office of Congressional and Public Affairs at (703) 883-4056 (TDD (703) 883-4444) by July 27, 2001.

Dated: June 28, 2001. Jeanette C. Brinkley,

Acting Secretary, Farm Credit Administration Board.

Footnotes

1. The terms “Farm Credit, FCS, or System” banks include the Farm Credit Banks (FCBs) and an agricultural credit bank (ACB).

2. Investments in Farmers' notes are authorized by § 615.5172 of our regulations.

3. See63 FR 36541 (July 7, 1998).

References

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