Date: 1985-02-21
Speaker: SAM B. HALL (democrat)
Chamber: H

Mr. Speaker. the Farm Credit Administration is using the Nations farm credit crisis to gain control of the private banks in the farm credit system. The FCA apparently wants the 37 banking institutions in the system to be consolidated into a single bank controlled by the FCA and has for the past year been pursuing policies designed to achieve that end. Consequently. I am today introducing legislation that will restore local control to Federal land banks. Federal intermediate credit banks. and banks for cooperatives. The Farm Credit Administration is concerned about the precarious financial situation of some system banks. That concern is shared by all the 37 system institutions. and. they have made provision in a formal agreement among themselves for coming to the aid of troubled banks within the system. In December the FCA engineered a bailout of a bank in the Spokane district that ignored the systems own agreement and bypassed the use pf a congressionally appropriated discretionary fund that was available to cover the Spokane failures. The FCAs bailout does not require repayment of the moneys transferred into Spokane. and it does not comport with sound banking practices. The FCAs shortterm goalsustaining the solvency of a member bankis one that we all share. However. their avowed goal of creating a single. Federal farm credit bank by 1995 is one that is a sharp departure from 70 years of successful experience. whose E 572 foundation was the idea that credit decisions were safest when made at the local level. The Federal land banks. created in 1916 by Congress to provide for the credit needs of American agriculture through local farmer- and rancherowned and managed institutions. have served us well. Congress over the years added the Federal Intermediate credit banksto serve shorter term credit needsto be owned by farmer- and rancheroperated production credit associations. and the banks for cooperativesto serve the credit needs of local cooperatives. Congress again provided for local ownership and control of these separately created entities. To provide for coordination of agricultural credit activities. Congress created local farm credit district boards of directors. to be elected by the stockholders of the separate banking institutions in each local district. with one member appointed by the Governoran official of the Farm Credit Administration. The Farm Credit Administration itself was created as a regulatory and examination agency. Today. these stockholderowned banking institutions pay out of their earnings the full cost of the Farm Credit Administration. so that the U.S. Treasury has no net outlay even for the regulators. As of the end of June 30. 1984. according to the financial statements of these privately owned banks. the Federal land banks had $54.7 billion in assets. the Federal intermediate credit banks had $20.5 billion in assets. and the banks for cooperatives had $10.5 billion in assets. Up until now. the Federal land banks. the Federal intermediate credit banks. and the banks for cooperatives have been run separately. as Congress intended. by boards of directors that were responsive to the wishes of the stockholders of each bank. respectively. Recently. however. possibly lured by power over the large sums of money. eforts have been made to force actions by the local banks that contravene the wishes of the individual banks stockholders. For example. in the State of Texas. which constitutes the 10th Farm Credit District. actions were taken to force the three congressionally separate banks in the districtthe Federal land bank. the Federal intermediate credit bank. and the bank for cooperativesto have a single management so that the banks are only separate on paper. This directly contravenes the expressed vote of the stockholders who. at three consecutive yearly meetings of the Federal Land Bank Associations of Texas. voted against this single management. How could the stockholders of the Federal Land Bank of Texas. with $2.7 billion in assets. lose control over their bank? How could Congress will be so thwarted? The answer lies in the fact that todayunlike the pastthose running the Farm Credit Administration and those on the district boards are using loosely drafted sections of the Farm Credit Act in ways I do not believe Congress ever intended. First. in section 5 of the Farm Credit Act. Congress failed to provide representation on the district boards of directors proportional to either the assets or the membership of the respective three banking entities. thus allowing directors not elected by the stockholders of a bank to outvote the stockholders representatives. That is what happened in Texas where. by a vote of 5 to 2. the two directors elected by the stockholders of the Federal Land Bank of Texas were outvoted as to who would run the Federal Land Bank of Texas. Second. the Congress in giving the Farm Credit Administration regulatory and supervisory powers. failed to spell out the statutory standards for the exercise of that agency power. The misuse of the power to force the local banks in the system to take actions contrary to the wishes of their stockholderswhich wishes are fully consistent with congressional enactmentsis. unfortunately. rampant. To remedy this situation and to make certain that hereafter the Federal land banks. the Federal intermediate credit banks. and the banks for cooperatives are responsive to their respective stockholders. and that the Federal regulators in the Farm Credit Administration employ their authority only as Congress intended. this bill makes several modifications in the Farm Credit Act of 1971. as amended. In general. the bill provides for: One. separate boards of directors for each of the three banking entities in each district. to be elected solely by the respective stockholders of each bank separatelywith the Governor continuing to appoint one member of each banks board. two. continuation of enlarged farm credit district boards to provide guidance and coordination. and three. statutory guidance as to how the Farm Credit Administration is to exercise its supervisory powers. particularly as to dividends. salaries. bylaws and charters. These modifications will leave intact the basic congressional structure of the farm credit system. but make it more responsive to the needs and wishes of its owners. the farmers and ranchers who are our constituents and who serve all of our country with their vast agricultural production. Let me assure everyone that no modification mandated by this act will force the local banks in a district to adopt. for example. either separate management or joint management. the modifications of this act will simply ensure that the decision is made by the stockholders of each of the individual institutions involved. We in successive Congresses have believed in locally controlled private banks as the means of providing agricultural credit. We in this country have believed in one man. one vote. This act restores representative democracy to the farm credit system. I commend to your attention the following sectionbysection analysis of the Farm Credit Private Ownership Restoration Act of 1985. and ask for your support and cosponsorship. The sectionbysection analysis follows: