Currently, my colleagues and I have completed an assignment working with the Farm Credit Administration on the development of risk-based capital requirements for Farmer Mac. The topic was believed to be of increasing importance in the future. Clearly, the national chartering issue is not important just for its legal changes, but also for the structure, competitive position, and performance of the Farm Credit System Institutions. Institutional restructuring, new authorizations, contemporary management techniques, and an arms-length regulatory agency have allowed the system to evolve along with the modernization of the rest of the financial markets, domestic and international. The proposed breakdown of exclusive territories through the effects of national chartering is another step in the modernization process.
Several factors warrant consideration in evaluating the National Charter issue.
Substantial variation occurs, especially in non real estate lending, implying considerable differences across regions in the relative competitive positions of different types of lenders. Recently, structural change in banking is bringing greater market shares of farm debt for larger non-agricultural banks. Monitoring the competitive position of commercial banks in the financing of agriculture over the next five to ten years will be important as structural change continues to bring bank consolidations and concentration of banking activities. Risks and Risk Management National chartering could lead to contrasting risk effects in the long-term versus the near term. Institutions that broaden their market and further diversify their loan portfolios should be able to further reduce their credit risks.