Pub. 13 2018-2019 Issue 6

WWW.NEBANKERS.ORG 24 Shedding Light on the Farm Credit System, America’s Least Known GSE © 2019 Bert Ely BERT ELY’S FARM CREDIT WATCH® An Academic’s Proposal to Expand FCS’s Banking and Deposit-Taking Powers Poses an Existential Threat to Rural Banks P ROF. LEE REINERSOF THE DUKEUNIVERSITY LAWSCHOOL AND executive director of the law school’s Global Financial Markets Center, recently published a very troubling paper, "A New Proposal to Expand Banking Services in Rural America." The greatly expanded FCS Reiners has pro- posed would pose an existential threat to commercial banking in rural America, and beyond, while being quite damaging to rural America. Essentially Reiners proposes expanding the powers of FCS institutions so that they can “provide a greater variety of financial products to a broader base of customers. Specifically, FCS [associations] should be allowed to offer checking and savings accounts, as well as secured and unsecured loans, to individuals and all businesses (not just agricultural) located in the rural communities they already operate in (I call this idea 'FCS banking')." Reiners points out that “because the FCS enjoys government-sponsored enterprise GSE status and the associ- ated funding advantages, FCS associations should be able to issue loans at interest rates below what a commercial bank would offer.” How stockholder-owned, taxpaying commercial banks could compete against FCS associations with bank-like powers is a question Reiners does not address, although he suggested that “Congress may also want to consider granting existing rural community banks the option of joining the FCS, which would provide these institutions with an additional, low-cost, source