FCA Comment Letter

							January 30, 2004


S. Robert Coleman
Director, Regulation and Policy Division
Office of Policy and Analysis
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Mr. Coleman:

This letter is in response to your request for comment on an inquiry by a Farm Credit
System (FCS) institution to provide farm management and agriculture trust as
“Related Services” to its members. In addition, we would like to raise our concerns
regarding the “Farm Cash Management Program” as provided by various FCS
institutions. The Conference of State Bank Supervisors (CSBS) requests that you
consider these comments prior to taking any final action.

The Conference of State Bank Supervisors (CSBS)1 has been contacted by several of
our state bank commissioner members who are concerned about the expanding
services the Farm Credit System is beginning to provide. Specifically in regard to
your request for comment on whether to allow FCS institutions the authorization to
provide farm management and trust services as defined in your regulations as
“Related Services,”2 we believe it would be inappropriate for FCS institutions to offer
such fiduciary activities.

These activities require a high level of specialty knowledge, not only in agriculture,
but also in business management and trust services. Fiduciary activities are tightly
regulated and supervised at both the state and Federal levels. It would not be prudent
to merely allow FCS institutions to begin conducting such activity without strict

1 CSBS is the professional organization of state officials responsible for chartering, regulating and supervising
the nation’s 6,410 state-chartered commercial and savings banks and more than 450 state-licensed branches and
agencies of foreign banks. State chartered financial institutions account for 74% of all domestic banks.
2 Related services, as defined in 12 CFR 618.8000(b) means “any service or type of activity provided by a
System bank or association that is appropriate to the recipient’s on-farm, aquatic, or cooperative operations,
including control of related financial matters.”
                      CONFERENCE OF STATE BANK SUPERVISORS
1155 Connecticut Ave., NW, 5th Floor ⋅ Washington, DC 20036-4306 ⋅ (202) 296-2840 ⋅ FAX (202) 296-1928
controls, regulations, and consumer protection guidelines. At a minimum, any
discussion of expanding FCS to allow fiduciary activities should include detailed
regulations for such activities, on which the public may comment as to their
adequacy. Knowledge and history of state-chartered trust services have clearly
indicated that not providing detailed guidance and tight supervision could result in
legal errors or miscalculations in fiduciary activities or farm management consulting,
potentially creating substantial risk to the safety and soundness of the institution.

It should be noted, however, that CSBS believes that it is an inappropriate expansion
of authority for a Government Sponsored Enterprise to participate in fiduciary and
consulting activities currently being provided by and supervised at commercial
financial institutions. Many state chartered banks are heavily involved in agricultural
lending. Some have significant lending concentrations in the agricultural sector. As
competition intensifies, many state chartered agricultural banks face increasing
pressures on earnings which can become a safety and soundness issue.

CSBS is also concerned with the recent promotion of the “Farm Cash Management
Program” offered by the various FCS institutions across the country. A recent article
describes the product as a way to earn significant interest income through an
AgriBank Money Market Investment Account. According the article, the money
market account will pay bills through Credit Line drafts.

In a letter to North Dakota Commissioner Timothy J. Karsky, Carl Clinefelter,
Director of the Office of the Ombudsman at the Farm Credit Administration, aptly
states that, “Each System bank is specifically authorized by Federal statute to sell
investment bonds3.” (Letter dated December 4, 2003.) This money market account,
however, appears to be more of a transactional banking account than the traditionally
understood investment bonds that FCS institutions are allowed to provide.

Furthermore, CSBS has great concern that these accounts are being provided as an
alternative to financial institution deposit accounts, which are federally insured
through the Federal Deposit Insurance Corporation. At best, the program could
mislead consumers (FCS members) to believe the program constitutes a traditional
bank-type interest bearing deposit account. CSBS requests further review of this
money market account by the Farm Credit Administration. The product does not
appear to meet the traditional definition of an investment bond, and accordingly,
would be outside what the regulation provides. We strongly urge that these types of
transaction accounts not be allowed within the FCS.

CSBS welcomes the opportunity to work with the Farm Credit Administration to


3 Farm Credit Investment Bonds are registered bonds issued in definitive or book-entry form depending on
investor preference.


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clarify appropriate activities that should be provided by FCS institutions. Thank you
for your consideration of these comments, and please feel free to contact CSBS to
discuss this subject further.

Best personal regards,


Neil Milner
President and CEO




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