Missouri Bankers Association

207 E. Capitol Ave.

Jefferson City, MO 65102

August 13, 2008

Mr. Gary K. Van Meter

Deputy Director, Office of Regulatory Policy

Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102-5090

*Sent via Agency FAX*

> RE: Funding and Fiscal Affairs, Loan Policies and Operations, and
> Funding Operations; Mission-Related Investments, Rural Community
> Investments; Farm Credit Administration, 12 CFR Part 615; RIN
> 3052-AC42

Dear Mr. Van Meter,

These comments are being submitted on behalf of almost 400 Missouri
banks and Savings and Loan Associations by the Missouri Bankers
Association (MBA), a Missouri trade association. The MBA is responding
to the proposed rulemaking issued by the Farm Credit Administration
(FCA) regarding rural community investments.

The MBA is writing to express its opposition to the FCA's proposed rule
and believes the proposed regulations present an unprecedented attempt
to fundamentally transform the mission of the Farm Credit System (FCS).
The proposed rule, as written, would shift FCS institutions away from
their express statutory task of serving farming and agriculture and
thrust the FCS into a role of a traditional commercial lender.

It is beyond the authority granted by Congress to the FCA to approve
such a fundamental change in statutory mission. Simply stated, the
present attempt to redirect the FCS away from its mandated limited task
of serving bona fide farmers, ranchers, producers and harvesters of
aquatic products, agricultural processing and marketing operations, and
farm related business operations (farming and agriculture), into
broad-based "investment" in rural revitalization that is
indistinguishable from commercial lending, is an ultra vires exercise of
the FCA's authority.

Moreover, the proposed amendments should be withdrawn due to the
unprecedented expansion of FCS lending authority, and the end result of
placing the capital of FCS farmer and rancher owners at risk. For these
reasons, the members of the MBA urge that the proposed regulations be
abandoned as illegal, ill-considered, and irresponsible.

The proposed amendments to Section 615 are beyond the authority granted
by Congress in the *Farm Credit Act of the 1971* (Act). Congress created
FCS institutions for the purpose of supplying needed credit and
financial services in support of farming, agriculture and related
businesses. However, the stated purpose of the amendments would
fundamentally alter this mission, authorizing FCS institutions to enter
the arena of traditional commercial lending by purchasing and holding
debt securities, and investing in venture capital funds, intended to
facilitate and finance community and economic development in rural
America. The FCA wrongly relies on the non-statutory preamble of the
1971 Act and the FCS's administrative investment powers as authorizing
language to conduct the proposed activity. Congress did not empower FCS
institutions to place their assets and financial health at risk via
"investments" in rural development beyond farming, agriculture and other
legislatively authorized businesses, as identified in the *Farm Credit
Act*.

The proposed rule sets out an expansion of FCS authority that would
empower each FCS institution to make "investments" in all areas of the
country that are not "urban," i.e., those areas with fewer than 50,000
residents, or according to the FCA, "rural" America. Based upon the
definition contained in the proposal, the area considered to be "rural"
(and thus qualifying for "investments" from FCS institutions) is home to
89.5 million people -- representing 31.8 percent of the total population
-- and covers 98 percent of the land area in the United States.

The MBA firmly believe that the proposal is beyond the intent and
purpose of the *Farm Credit Act*, and will result in the diminution of
the capital of FCS farmer and rancher owners. Furthermore, the proposed
amendments ignore decades of banking regulatory practice governing the
principles of safety and soundness.

**Background**

Farm Credit is a GSE system of financial institutions specially created
by Congress for the purpose of meeting the credit and financial needs of
American farming and agriculture. The FCS had its beginnings in the
*Federal Farm Loan Act of 1916*, when credit was often not available or
unaffordable in rural areas. Today, FCS institutions are owned by farmer
and rancher shareholders who receive System credit and other financial
services. The Farm Credit Administration is responsible for ensuring the
safety and soundness of the FCS and protecting farmer and rancher
ownership interests.

On June 16, 2008, the FCA published its proposed regulations: *Funding
and Fiscal Affairs, Loan Policies and Operations, and Funding
Operations; Mission-Related Investments, Rural Community Investments*.
The proposed regulations would authorize FCS institutions to finance the
building of hospitals, healthcare facilities, emergency facilities,
roads, bridges, transportation infrastructure, and any other types of
investments identified as appropriate, potentially including but not
limited to financing the development of hotels, office parks, market
rate housing, and restaurants. FCS institutions would additionally be
permitted to invest in venture capital funds.

**[FCA Does Not Have Authority to Enact the Proposed Rule]{.underline}**

The FCS and FCA operate pursuant to the *Farm Credit Act of 1971*, as
amended. The proposed regulations would radically depart from the FCS's
statutory mission of serving farming, agriculture and other defined
activity, by authorizing FCS institutions to finance economic
development projects in parts of America that are not urban. The
preamble of the *Farm Credit Act of 1971* and the statute's corporate
powers provisions are cited as authorizing this radical departure from
the FCS's traditional mission.

***Preamble as Authority***

The preamble, while explanatory, is merely text preceding the bill and
is not part of enacting or statutory language. The MBA submits that the
preamble of the *Farm Credit Act* does not grant the required authority
for the proposed regulations; it has no legal effect other than to
provide context for the statute. The preamble to the 1971 Act reads:

To further provide for the farmer-owned cooperative system of making
credit available to farmers and ranchers and their cooperatives, for
rural residences, and to associations and other entities upon which
farming operations are dependent, to provide for an adequate and
flexible flow of money into rural areas and to modernize and consolidate
existing farm credit law to meet current and future rural credit needs,
and for other purposes.

The FCA suggests the preamble's emphasis on "rural" and the clause "to
provide for an adequate and flexible flow of money into rural areas,"
provide the Agency its necessary mandate and authority to offer the
proposed rule. The MBA submits that even if a bill's preamble has actual
legal effect over express statutory language, and it does not, the FCA's
interpretation is misplaced. A bill's preamble does not sit in isolation
as an island unto itself, and if used as operative authority for agency
action, the interpretation at the very least must be consistent with the
statutory history and actual statutory text.

The FCA's reliance on "rural" and "flexible flow of money" in the
preamble of the 1971 farm credit legislation completely ignores the
statutory historical context and the plain language of the Act. On
nearly every occasion since 1971, as Congress has considered expanding
FCS financing authority beyond farming and agriculture, Congress has
dictated no expansion.

The thirty seven year history of the *Farm Credit Act of 1971* makes
three things clear: (1) The FCS was created for the limited purpose of
providing credit and financial services for farming and agriculture; (2)
Congress has a strong interest in protecting the Farm Credit ownership
interests of farmers and ranchers; and (3) When there is a departure
from the original mission, Congress is the entity that authorizes
expansion. This is a history the FCA cannot deny, and authority the FCA
cannot usurp.

That said, a historical analysis of non-statutory language, while
providing an excellent lens through which to understand Congressional
intent, cannot take the place of the actual statute. *The Farm Credit
Act*, as amended, clearly defines the limited financing role of the FCS.

Pertinent financing and eligibility provisions of the statute are found
in 12 U.S.C. 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2128, and 2129;
The sections provide authorizing language for the FCS, and importantly
define the recipients of financing. According to the provisions,
eligible recipients include bona fide farmers, ranchers, producers and
harvesters of aquatic products, agricultural processing and marketing
operations, farm related business operations, owners of rural homes
(limited to populations of 2,500), and cooperatives formed for the
purpose of establishing or operating water and waste disposal facilities
(limited to populations of 20,000 and under). In no language of the Act
is an eligible recipient identified as an individual, business, or
project located in rural America, with "rural" being defined as
populations of 50,000 and under. Nonetheless, the FCA proposes, despite
the plain reading of the statute, and regardless of the Congressional
history, Congress intended FCS institutions to finance the building of
hospitals, bridges, schools, roads, office parks, hotels, and
restaurants. The FCA would further propose that Congress gave the FCS
authority to define its service area when seeking to participate in
non-farm and non-agriculture financing.

Reliance on the preamble as statutory authority blatantly ignores the
Congressional history from which the text is derived. Moreover, the
FCA's interpretation of the preamble's enacting authority and meaning is
not reasonable, in that such an interpretation is in direct conflict
with the law; the proposed rule is not a permissible statutory
construction, and cannot be seen as anything other than arbitrary and
capricious. The *Farm Credit Act* and the associated legislative history
are well understood to mandate that FCS institutions are limited-service
entities specifically designed to provide credit and financial services
to farmers and America's agricultural interest.

***Investment Provisions as Authority***

The FCA again misapprehends statutory construction when relying on the
Act's investment powers as delineated in the statute's corporate
administrative provisions. Congress granted FCS institutions the
authority to make investments for the purpose of managing institution
capital, hence the provisions' location in parts of the statute
addressing FCS corporate structure, and not in parts of the Act
addressing financing and eligibility. Historically, the FCA has adopted
the capital management interpretation, as provided in 12 CFR 5132, and
as stated in the Proposed Rule Supplementary Information.

Section 12 CFR 615.5132, *Investment Purposes*, addresses FCS investment
powers provisions, and states: "Each Farm Credit Bank is allowed to hold
eligible investments... in an amount not to exceed 35 percent of its
total outstanding loans, to comply with the liquidity reserve
requirement of section 615.5134, manage surplus short-term funds, and
manage interest rate risk under section 615.5135." Section 12 CFR
615.5133 requires Boards of Directors of the various banks to adopt
written policies for managing investment activities.

The FCA forwards the position that Congress granted FCS investment
powers for the purposes of managing FCS risk and liquidity, *and* to
finance the building of hospitals, schools, bridges, roads, office
parks, hotels, and restaurants. The FCA further proposes that Congress
intended FCS institutions to finance these projects by purchasing
non-marketable securities, using the surplus capital of the farmer and
rancher owners. This interpretation simply cannot be what Congress
intended in light of the statutory history, [Congressional
Record]{.underline}, and the plain statutory language, as discussed
above. Congress would not specifically debate and limit FCS institutions
to farming and agriculture, consider and decline expansion for nearly
four decades, all the while covertly intending to allow institutions to
escape their limited financing mission through the Act's corporate and
administrative investment provisions. The FCA's interpretation plainly
is not reasonable and only represents an interpretation stretched to
permit desired expanded commercial lending activities, and not an honest
attempt to apply the *Farm Credit Act*.

Admittedly, courts provide agencies great deference when evaluating an
agency's interpretation of its own statute; however, as articulated by
the U.S. Supreme Court in [Chevron U.S.A. Inc. v. Natural Resources
Defense Council, Inc.]{.underline}, in analyzing agency action, courts
consider "first whether Congress has directly spoken to the precise
question at issue. If the intent of Congress is clear, that is the end
of the matter... If however, the court determines Congress has not
directly addressed the precise question at issue, the court does not
simply impose its own construction on the statute... Rather, if the
statute is silent or ambiguous with respect to the specific issue, the
question for the court is whether the agency's answer is based on a
permissible construction of the statute."

The FCA's proposal fails under any possible Chevron test. At issue is
whether the System can finance activity not related to farming and
agriculture as specified in the *Farm Credit Act of 1971*, as amended.
The Act is clear that FCS institutions are statutorily restricted and so
the proposed financing is prohibited. Congress has directly spoken on
the issue of what and where FCS institutions can finance and what and
where they cannot, and the activity envisioned in the proposed rule is
not included. Even if the issue were not one of financing but
"investing," the proposal still fails. The FCA's interpretation of
statutory corporate powers provisions cannot be permissible considering
the long-standing limited and restricted mission of the FCS as plainly
provided in the historical [Congressional Record]{.underline} and Act.
In fact, the FCA's interpretation is in direct conflict with the FCS's
mission.

The MBA submits that the proposed interpretation does not serve farming
and agriculture, and arguably dilutes the interests of the farmer and
rancher owners, a concern often voiced by Congress when considering
expanding FCS institution authority. Clearly, throughout the legislative
record and Congressional history, Congress has sought to protect the
interests of farming and to limit the scope of FCS authority. No
reasonable person could conclude that Congress intended the FCS to
finance non-farming/agricultural activity, particularly the
"investments" envisioned by the proposed rule; the Congressional record
is far too complete to reason otherwise. The record also provides plain
evidence that any time Congress expands FCS authority it has done so by
legislative statute. The proposed interpretation of the Act's investment
powers is an impermissible construction of the *Farm Credit Act of 1971*
as amended, and is arbitrary and capricious.

***The Defined Activity is Financing not Investing***

Even if the FCS possessed additional "investment" powers, the proposed
activity is financing and not "investing," and therefore prohibited by
statute. The Office of the Comptroller of the Currency defines an
"investment security" as a "marketable debt obligation that is not
predominantly speculative in nature." The [Oxford Dictionary of Finance
and Banking]{.underline} states that an investment is "the purchase of
assets, such as securities\... with a primary view to their formal
return, either as income or capital gain." [Black's Law
Dictionary]{.underline} defines investment as "an expenditure to acquire
property or assets to produce revenue; a capital outlay." Finance is
defined "to raise or provide funds." [Oxford]{.underline} states that
finance is "\[t\]he capital involved in a project, especially the
capital that has to be raised to start a new business."

The purpose of the proposed rule is to "finance essential community
facilities\... finance basic infrastructure\... \[and\] directly finance
economic development." By definition and practice, FCS institutions
would finance activity unrelated to farming and agriculture. This would
be activity antithetical to the *Farm Credit Act* and inconsistent with
Congressional intent, and therefore prohibited. The FCA proposes FCS
institutions utilize their surplus, not for the purpose of investing,
but to directly fund "rural" economic development, a role more suitable
for traditional commercial lenders. Cloaking financing as investments,
debt securities, or obligations does not cure the statutory prohibition,
in that the literal and practical effect is the direct financing of
rural economic development unrelated to the mandate and authorization of
the *Farm Credit Act*.

***Authority to Define Rural***

Statutory language is stretched further when the FCA defines "rural."
According to the FCA, "rural" includes all U.S. geography "outside an
urban area," i.e., populations under 50,000. Under the proposed
definition, 89.5 million Americans would qualify for Farm Credit
assistance, covering 98 percent of the country's land mass.

As a rule, Congress defines "rural" under the *Farm Credit Act*. This
has occurred on two occasions, first, for rural housing as noted above,
and second, in regards to banks for cooperatives to finance water and
waste disposal facilities, wherein rural is limited to populations not
exceeding 20,000.

It is significant that Congress specifically and differently defines
rural in some provisions of the Act and is silent in other parts.
"\[W\]here Congress includes particular language in one section of a
statute but omits it in another section of the same Act, it is generally
presumed that Congress acts intentionally and purposefully in disparate
inclusion or exclusion." Because Congress has occupied the field of
defining "rural" under the *Farm Credit Act*, and has specifically done
so in different provisions of the statute governing non-farm activity,
the FCA is prohibited from defining "rural" on its own accord. If the
FCA wants to employ a new definition for purposes of conducting the
proposed activity, it must go before the U.S. Congress, and not to the
Code of Federal Regulations.

**[The Proposed Rule Threatens the Safety and Soundness of the Farm
Credit System]{.underline}**

The FCA, not satisfied with its assault on statutory construction, does
further damage by trampling on general standards guiding safety and
soundness. Section 615.5176(e) of the proposed rule would authorize FCS
institutions to utilize up to 150 percent of their surplus to finance
economic development that is unrelated to farming and agriculture. It is
beyond reason that the FCA, a financial institution regulator, would
authorize the FCS to bet all the surplus of farmer and rancher owners,
plus 50 percent, on investments the FCA admits are not marketable and
would not trade. To redirect farming and agriculture surplus, which
derived from statutory related financing, specifically removes that
surplus from farming and America's agricultural interests, into
financing long-term, uncertain, less liquid "rural" development
projects. Should a significant percentage of the non-*Farm Credit Act*
"investments" fail, the owners of the FCS (farmers and ranchers), and
the country's agricultural industry would suffer severe consequences.
The FCA's first and only priority must be its statutory mission, and not
the role of market speculator. It is extraordinary the FCA would gamble
away 150 percent of the capital Congress specifically designated to
support farming and agriculture. That the FCA proposes to risk such
large amounts of farmer and rancher capital via "investments" in which
the FCS has little or no familiarity exposes the FCA's inexperience and
lack of credibility when managing such non-mission "investments."

The proposed rule also violates principles limiting the mixing of
banking and commerce, a practice long curtailed by banking regulators
due to the potential manipulation of normal market functions. When
banking and commerce are integrated there exists a genuine risk of
insider activity, preferential treatment, undue influence, and
anti-competitive lending.

Under the proposal, FCS institutions could finance Farm Credit eligible
business activity, via an equity stake or securities purchase, and would
then be able to also provide credit as additional financing. As a
result, the institutions would have the ability to exercise undue
influence to coerce the business to accept credit terms, or otherwise
offer attractive terms contingent upon the receipt of the equity stake.
If the business is non-farm or non-agriculture related, FCS institutions
could finance through securities or an equity position and then connect
the business to a favored non-FCS lender for debt financing, from whom
the FCS institution could later purchase the same debt as a security.
FCS institutions could further protect their interests by providing
financing to the suppliers and customers of the businesses in which FCS
institutions have invested.

In essence, businesses, projects, suppliers and customers would become
de-facto commercial affiliates of the FCS, with FCS institutions
possessing the power to control the terms of financing and lending,
while excluding a large portion of the private sector. Such
insider-non-arms length and anti-competitive transactions are the very
type of activities Congress and banking regulators have sought to guard
against.

**Conclusion**

The purpose of the FCS is to provide credit and financial services for
farming and agriculture, as defined by the Act. The FCA proposes to
circumvent express statutory language of the *Farm Credit Act* and
Congressional intent by imposing through regulation what Congress has
refused to grant by legislation. FCS institutions were created to serve
America's farming and agricultural interests; that those interests may
be shrinking does not provide a mandate to move beyond the FCS's
mission. Expansion of the type proposed will erode the interests of the
farmer and rancher owners and forever change the mission of the FCS.

The MBA strongly urges the FCA to abandon this latest attempt to rewrite
the *Farm Credit Act of 1971* through regulation. The proposal that FCS
institutions be the equivalent of non-GSE commercial lenders is illegal,
not a reasonable application of the statute, and not in the best
interest of the FCS and American farming and agriculture. Farmer and
rancher owners require preservation of their capital, and the safety and
soundness of the FCS deserves protection.

Sincerely,

/Signed

Max Cook, President