oversight

Regulatory Development Survey

Published by the Farm Credit Administration, Office of Inspector General on 2002-10-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

October 22, 2002


To:            Michael M. Reyna, Chairman and CEO
               Douglas Flory, Board Member
               Ann Jorgenson, Board Member


From:          Stephen G. Smith
               Inspector General

Subject:       Regulatory Development Survey Results


The Office of Inspector General is pleased to issue the results of the second Farm
Credit Administration Regulatory Development Survey. The OIG conducts the
survey as a service to the Farm Credit Administration (FCA). Respondents to the
survey are assured of anonymity and FCA benefits from the candid feedback that
the survey provides.

The 2002 survey resulted in deterioration in performance indicators for the
regulatory development program. The results cannot be projected to reflect the
opinions of stakeholders in general. However, the survey results and in particular,
the written comments provide information on how FCA can improve its
performance on the regulatory development program.

If you have any questions or comments, please contact me.

cc:            Claire Rusk
               Joy Burr
               Mark McBeth
               Georgellen Shoger
               Kathleen Beery
               Barbara Schlein
               Cheryl Macias
               Jeannette Brinkley
               Michael Dunn
               Philip Shebest
    REGULATORY DEVELOPMENT SURVEY
                                   October 2002

                                Table of Contents

PURPOSE __________________________________________________________________________ 1

SUMMARY _________________________________________________________________________ 1

BACKGROUND _____________________________________________________________________ 2

SURVEY CONTENTS ________________________________________________________________ 3

QUANTITATIVE ANALYSIS__________________________________________________________ 4
 ALL RESPONDENTS __________________________________________________________________ 4
 FCS AFFILIATED RESPONSES ___________________________________________________________ 6
 BANK AFFILIATED RESPONSES__________________________________________________________ 6
 PUBLIC AFFILIATED RESPONSES ________________________________________________________ 7
ANALYSIS OF WRITTEN COMMENTS ________________________________________________ 7

APPENDIX I – COMPARISON CHARTS_______________________________________________ 10

APPENDIX II – WRITTEN COMMENTS ______________________________________________ 12
 PREDATORY PRICING ________________________________________________________________ 12
 TAXATION ________________________________________________________________________ 13
 COMPETITION WITH BANKS ___________________________________________________________ 14
 SCOPE OF LENDING REGULATIONS ______________________________________________________ 15
 YBS _____________________________________________________________________________ 17
 BORROWER RIGHTS _________________________________________________________________ 18
 FARMER MAC______________________________________________________________________ 18
 OFI COMMENTS ____________________________________________________________________ 19
 NATIONAL CHARTERS _______________________________________________________________ 20
 INVESTMENTS, PARTICIPATIONS, AND SYNDICATIONS _______________________________________ 21
 RURAL HOUSING REGULATION ________________________________________________________ 22
 OTHER REGULATIONS _______________________________________________________________ 23
 FCS GOVERNANCE _________________________________________________________________ 24
 ABOUT FCA_______________________________________________________________________ 25
 OTHER ISSUES _____________________________________________________________________ 26
APPENDIX III – SURVEY INSTRUMENT _____________________________________________ 29
     REGULATORY DEVELOPMENT SURVEY
PURPOSE

The Farm Credit Administration (FCA) is committed to a regulatory philosophy that
promotes a safe and sound, competitive Farm Credit System (FCS). The FCA Board hopes
to achieve this goal with minimum regulatory burden while involving the public in
rulemaking activities.

The Office of Inspector General (OIG) surveyed stakeholders and other interested parties as
part of the FCA’s ongoing efforts to measure its performance on the Regulatory
Development Program. The survey was intended to evaluate the FCA's regulatory actions
taken during October 1, 2000 through September 30, 2002.


SUMMARY

This survey provides a valuable mechanism for the FCA Board to obtain information about
the effectiveness of the FCA Regulatory Development Program. Overall, the ratings for each
of the questions were less favorable than the same survey conducted in 2000. In large
measure, the results reflect a much larger number of responses from commercial banks,
which responded much less favorably than other parties. However, even ratings from the
FCS and its customers were slightly less favorable.

The statistics provide a basis to measure performance. However, the reader should note the
results only reflect the opinions of a target audience that chose to respond to the survey. The
methodology targeted parties that may be knowledgeable about the FCA Regulatory
Development Program. However, the results should not be projected as the opinions of FCA
stakeholders in general. For example, no responses were identified as “Congressional” – a
key stakeholder.

The written responses reflected widely divergent views and opinions depending on the
affiliation of the responder. Even with the wide divergence of opinions expressed, the FCA
Board can gain insight and develop conclusions that may be useful to chart future direction
and improve FCA performance. Some examples include:

•   Multiple responses referring to FCA instead of FCS is an indicator of confusion about the
    difference between FCA and FCS.
•   Several responders directly suggested that they need more opportunities to meet and
    communicate with FCA.
•   Comments about the tax status of the FCS suggest that responders may not understand
    cooperatives and their treatment under the tax code.



                                                                                             1
BACKGROUND

In August 2002, OIG sent out 1,437 surveys including all FCS institutions as well as all
groups or individuals that submitted comments on regulatory actions that FCA took during
fiscal years 2001 and 2002. The OIG conducted a similar survey in 2000. The number of
surveys sent increased because FCA received more comments on its regulations. The 2002
survey addressed the same issues as the 2000 survey1. A copy of the survey and its
attachments is in Appendix III.

The following chart compares the surveys sent in 2002 to the surveys sent in 2000. The
overall response rate on the current survey of 20.7 percent represents a sharp decline from
55.9 percent on the survey conducted in 2000. The 2002 survey was sent to a much broader
audience with a 482 percent increase in the number of surveys sent.

                                       Survey Responses

                     1600                                                60.00%




                                                                                   Pct. of Surveys Returned
                                       55.9%       1437
                     1400                                                50.00%
    No. of Surveys




                     1200
                     1000                                                40.00%
                      800                                                30.00%
                      600                                   20.7%        20.00%
                      400       247                         297
                                       138                               10.00%
                      200
                        0                                                0.00%
                               2000 Survey         2002 Survey

                        Surveys Sent     Surveys Received        Response Rate


Respondents self-identified into one of seven categories: (1) FCS Institution or Interest
Group/Lobbyist; (2) Commercial Banker/Lobbyist; (3) FCS Customer; (4) Commercial Bank
Customer; (5) Congressional; (6) Government/Government Sponsored Entity; and (7) Public.
Responses received without designating a category were defaulted to Public.

In 2000, FCS affiliated responses represented 90 percent of the surveys received. In 2002,
only 54 percent of the responses were FCS affiliated. The reduced percentage resulted from
a substantial increase in the commercial bank affiliated responses.




1
  The only change we made to the survey was to reword items posed as questions in the 2000 survey to statements in the
2002 survey.

                                                                                                                         2
                 Survey Responses                                                      Survey Responses

                                    Congressional

100%                                Public                                 300
 90%
 80%                                                                       250
                                    Government/GSE




                                                        No. of Responses
 70%
 60%                                                                       200
 50%                                Commercial Bank
                                    Customer                               150
 40%
 30%                                Commercial Banks                       100
 20%
 10%                                FCS Customer                           50
  0%
       2000 Survey 2002 Survey                                              0
                                    FCS Institutions                             2000 Survey        2002 Survey



       During the period covered by the 2002 survey, one specific regulation received a high
       volume of comments. Many of the comments were form letters from customers/borrowers
       from both FCS institutions and commercial bankers. Some FCS institutions and some
       commercial banks asked customers/borrowers to complete form letters. The return address
       for these types of comments was to the FCS institution or the commercial bank. We sent the
       surveys to the address associated with the comment letter. The OIG received over 60 letters
       returned unopened from one FCS institution. Another FCS institution contacted the OIG and
       stated it was not planning on forwarding the letters to its customers.

       It is important to note that the survey was targeted to individuals and entities that may be
       knowledgeable about the FCA Regulatory Development Program. Therefore we can only
       state that the results reflect the opinions of that group. The results are not necessarily the
       opinion of stakeholders in general. For example, although congressional parties were
       included in the survey audience, none responded. The OIG recognizes the limitations of the
       methodology and expects to refine it in future iterations of the survey. Despite the
       limitations, the comparison of results to the prior survey results provides a valid indicator of
       direction of opinion.


       SURVEY CONTENTS

       The survey covered six statements that FCA chose as performance measures for its
       Regulatory Development Program. The statements are listed below. The bolded statements
       (Nos. 2, 4, and 5) are also Agency performance measures and the results are reported in the
       FCA’s annual Performance and Accountability Report.

           1.   FCA achieved the objectives stated in the attached Regulatory Actions.
           2.   FCA adequately involved the public to seek its perspective regarding
                rulemaking activities.
           3.   FCA's rulemaking activities promoted safety and soundness for System
                institutions.
           4.   FCA's rulemaking activities implemented the Farm Credit Act without
                imposing unnecessary regulatory burden.
                                                                                                                  3
       5.   FCA’s rulemaking activities recognized market forces and encouraged
            innovation for System institutions.
       6.   FCA used plain language that is easy to understand in rulemaking activities.

   Respondents were asked to rate FCA’s performance on each statement from 1 (strongly
   agree) to 5 (strongly disagree). Therefore, the lower the numerical score, the more favorable
   the result.

   Respondents also had the opportunity to provide additional input to the survey by providing
   written responses to two additional items. One question asked respondents “What regulatory
   issues would you like to see included in future Regulatory Performance Plans?” The second
   asked for “Additional Comments.” Both items received multiple responses. The full text of
   all written responses is included in Appendix II.


   QUANTITATIVE ANALYSIS

   The following chart and graphs provide a summary of the significant results of the survey. In
   addition to the overall survey responses, for analytical purposes, we combined the survey
   responses into three groups:

   •   FCS Affiliated Parties – Includes surveys identified as FCS Institutions and FCS
                                   Customers responses.
   •   Bank Affiliated Parties – Includes surveys identified as Commercial Banks and
                                   Commercial Bank Customers.
   •   Public Affiliated Parties – Includes surveys identified as Public, GSE/Government and
                                   Congressional.
   All Respondents
   As depicted in the graph below, there was a significant decline in ratings by all respondents.
   The weighted average of all responses in 2000 was 2.29 and it worsened to 3.02 in 2002.

            All Respondents 2000                                     All Respondents 2002



              Strongly                                                              Strongly
                       No Response                                    No Response    Agree
              Disagree                                       Strongly
     Disagree              2% Strongly                                    3%          6%
                 3%             Agree                        Disagree
        6%
                                17%                            13%
Somewhat                                                                                       Agree
  Agree                                                                                        31%
  23%                                                     Disagree
                                                            18%
                               Agree                                     Somewhat
                               49%                                         Agree
                                                                           29%




   In 2000, 89 percent of all respondents indicated a range of agreement from strongly agree to
   somewhat agree. In 2002, the agreement range decreased to 66 percent. The table below
                                                                                                       4
shows much of the decline is directly linked to more responses from commercial banks,
which were more critical of the FCA Regulatory Development Program. However, some of
the decline can also be attributed to less agreement by FCS affiliated responses.

                       Responses to FCA Regulatory Development Program Survey
                       Weighted Average Responses by Affiliated Groups FY 20022

                                                                  Commercial                       Overall
                                                       FCS
                    Survey Item:                                    Bank              Other        Weighted
                                                     Affiliated
                                                                   Affiliated                       Avg.
    FCA achieved the purposes stated in the
                                                        2.49           3.39            3.35            2.90
    enclosed list of Regulatory Actions.
    FCA adequately involved the public in seeking
    its perspective regarding rulemaking                2.21           3.97            3.32            2.98
    activities.
    FCA's rulemaking activities promote safety
                                                        2.28           4.11            3.63            3.09
    and soundness for the System.
    FCA's rulemaking activities implemented the
    Farm Credit Act without imposing                    2.64           3.43            2.95            2.97
    unnecessary regulatory burden.
    FCA's rulemaking activities recognized market
    forces and encouraged innovation for System         2.83           3.62            3.68            3.20
    institutions.
    FCA used plain language that is easy to
                                                        2.47           3.65            3.32            2.98
    understand in rulemaking activities.
    Overall Average for Group                           2.49           3.70            3.38            3.02

    Total Number of Questionnaires Received:            160            118              19             297


The two largest categories of respondents are the FCS affiliated group and the commercial
bank affiliated group. Compared to 2000, respondents were more critical of all six survey
items (See Appendix I). The sharpest decline occurred on the issue of recognizing market
forces and encouraging innovation.

The largest difference in overall opinions occurred on the statement FCA’s rulemaking
activities promote safety and soundness for the System. The difference between FCS and
Commercial Bank affiliated ratings was 1.83. This was closely followed with a 1.76
difference on the statement FCA adequately involved the public in seeking its perspective
regarding rulemaking activities. This latter statement is one of the Agency’s performance
measures. It is interesting to note these two statements accounted for both the best individual
opinion with a score of 2.21 and the least favorable opinion with a score of 4.11.

The two other statements that are Agency performance measures3 were similarly scored more
severely by the commercial bank affiliated group compared to the FCS affiliated group.


2
  1 – Strongly Agree; 2 – Agree; 3 – Somewhat Agree; 4 – Somewhat Disagree; 5 – Strongly Disagree
3
  FCA's rulemaking activities implemented the Farm Credit Act without imposing unnecessary regulatory burden and FCA’s
rulemaking activities recognized market forces and encouraged innovation for System institutions

                                                                                                                    5
      While the difference in opinions was not as great, it was still significant. On both statements,
      there was about an .8 difference in the weighted average response score.

      FCS Affiliated Responses

     2000 Responses By FCS Affliated Parties                 2002 Responses By FCS Affliated Parties

                             No                                                        No
                          Response                                                  Response
             Strongly                                                  Strongly       2%
                            2%                                                                 Strongly
             Disagree                   Strongly                       Disagree
    Disagree                                                                                    Agree
                3%                       Agree           Disagree         3%
       5%                                                                                        10%
                                          18%               9%
Somewhat
  Agree
  21%                                                    Somewhat
                                                           Agree                                   Agree
                               Agree                       29%                                     47%
                               51%




      The 2002 range of agreement for FCS affiliated groups was 86 percent – a declined of 4
      percent from 2000. Even more significant was the sharp 8 percent decline in those who
      strongly agreed from 18 percent in 2000 to only 10 percent in 2002.

      Bank Affiliated Responses

    2000 Responses By Bank Affiliated Parties               2002 Responses By Bank Affiliated Parties


                  No                                                        No          Strongly
                            Strongly
               Response                                                  Response        Agree
                             Agree
                 4%                                                        4%             1%
    Strongly                  0%
                                        Agree                                                      Agree
    Disagree                                                Strongly
                                        15%                                                        11%
      10%                                                   Disagree
                                                              26%
                                                                                                    Somewhat
   Disagree                                                                                           Agree
                                       Somewhat
     33%                                                                                              29%
                                         Agree                      Disagree
                                         38%                          29%




      The commercial bank affiliated group indicated a range of agreement of 53 percent in 2000,
      with 15 percent responding agree, and 38 percent responding somewhat agree. In 2002, this
      group’s range of agreement dropped to 41 percent, with 11 percent responding they agree,
      and only 29 percent responding they somewhat agree. There is also a dramatic increase of
      16 percent in the strongly disagree category, from 10 percent in 2000 to 26 percent in 2002.



                                                                                                               6
      Public Affiliated Responses

   2000 Responses By Public Affiliated Parties                           2002 Responses By Public Affiliated Parties

                                                                                           No
                                                                                                       Strongly
                           No                                                           Response
           Strongly                Strongly                                                             Agree
                        Response                                                          2%
           Disagree                 Agree                                   Strongly                     3%
                          6%         19%                                    Disagree
             11%
                                                                              19%
                                                                                                                      Agree
Disagree                                                                                                              24%
   6%

                                                                          Disagree
                                                                            27%                            Somewhat
          Somewhat                      Agree                                                                Agree
            Agree                       33%                                                                  25%
            25%




      In 2000, those respondents identified as public affiliated4 indicated a range of agreement of
      77 percent, with 19 percent strongly agreeing and 33 percent agreeing. In 2002, this group
      indicated a range of agreement of 52 percent with a 16 percent drop of those strongly
      agreeing to only 3 percent. Additionally, the response from the public who responded agree
      dropped 9 percent to 24 percent agreeing. Somewhat agree remained constant at 25 percent.

      ANALYSIS OF WRITTEN COMMENTS
      Respondents provided comments to the last two items on the survey5. We received written
      comments on more than 100 of the surveys. For presentation, we grouped the written
      responses into the following categories:
      •     Predatory Pricing;                                    •    Other Financing Institutions;
      •     Taxation;                                             •    National Charters;
      •     Competition With Banks;                               •    Investments, Participations, and
                                                                       Syndications;
      •     Scope of Lending Regulations;
                                                                  •    Rural Housing Regulation;
      •     Young Beginning and Small
            Farmers (YBS);                                        •    Other Regulations;
      •     Borrower Rights;                                      •    FCA; and
      •     Farmer Mac;                                           •    Other Issues.




      4
       In the categories other than “Public”, only one response was received from Government/GSE and none from Congress.
      5
       The questions were “What regulatory issues would you like to see included in future Regulatory Performance Plans?” and
      “Additional Comments.”




                                                                                                                              7
A complete set of the responses is included in Appendix II.

The comments contained widely divergent opinions that generally reflected the overall views
of the interest group of the respondent. For example, a respondent from the FCS stated
“FCA seems to have become more concerned about what the bankers think of them than
about the System's success.” On the opposite side a bank wrote, “The FCA is much more
concerned with obtaining new powers than operating in a safe and sound manner.”

There were over 20 different issues or regulations that respondents suggested the FCA
consider in its Regulation Development Program. The most prevalent regulatory issues
discussed included:

   •   Predatory pricing,
   •   Scope of lending and eligibility,
   •   National Charters, and
   •   Investments

In addition to the regulatory issues, there were several similar comments that may be of
interest to the FCA Board. Many comments indicated that there was often little distinction
between FCA and FCS by using FCA when talking about the FCS. For example,

           “I would like FCA to let people know they pay no income tax and are not
           interested in smaller farms that are having a struggle.”

This quote highlights another group of comments about the tax status of FCS. While FLCAs
are tax-exempt, other institutions are not. The comments suggest that there is a lack of
understanding about the cooperative nature of the System and its treatment under the tax
code.

Some of the respondents seemed to believe that Congress intended that the FCS be a lender
of last resort. For example,

           “I would like to see FCS become a lender of last resort again or pay
           taxes.”

           “If FCA is not in existence to primarily work with farmers who have no
           alternative financing, why do they receive Government Agency status?”

The comments also pointed to a strong desire across all interest groups for more dialogue
with the FCA. Examples of these comments include:

            “One public meeting does not constitute adequate public involvement on
           a National basis.”

           “Ask opinions about Proposed Regulatory Actions before they become
           Final Regulations.”


                                                                                          8
            “Associations are somewhat isolated from FCA.               Improved
           communications would allow us to better evaluate FCA's performance i.e,
           informational meetings.”

           “We believe the FCA, as part of its outreach to the public, should conduct
           listening sessions with community bankers in various areas of the country
           to better understand the concerns and issues community banks have with
           FCS lending practices and FCS activities. This would better allow FCA to
           take into consideration ‘market forces’ and would better involve the public
           in FCA’s rulemaking activities and agenda settings.”

Related to the expression of a need for outreach, there was support expressed for an
Ombudsman at FCA.

           Appointment of an Ombudsman – [We] applaud FCA's initiative to
           develop a proposal on appointing an ombudsman within the FCA. Such a
           position would make FCA consistent with other top federal financial
           regulators and would allow FCA to better explain its regulatory policies
           and procedures to the public, commercial lenders and FCS institutions. It
           would also facilitate the development of improved relations between
           commercial lenders and FCS institutions. We encourage FCA to finalize
           action on this initiative in the near future.

Over 40 respondents requested a call from the Inspector General. One of these calls resulted
in a specific complaint about the eligibility of a loan. The caller believed this loan was
outside the FCS field of expertise and resulted in detrimental financing to the point that the
non-farm business had to be sold. The caller felt that this type of financing had been
detrimental to the local economy. This complaint was referred to FCA examiners to
incorporate into an examination. Several other respondents wanted to discuss loan eligibility
in general terms. These individuals expressed concern about loans made by FCS institutions
for purposes other than agriculture. The callers questioned the rates that FCS charged stating
that rates to obtain some loans were far below market rates.




                                                                                            9
                   APPENDIX I – COMPARISON CHARTS

      This Appendix contains more detailed charts of the statistical results of the survey and
      comparison to the 2000 survey results. The first chart is a comparison of affiliated
      groups. Note that a positive number or increase in score is deterioration in the opinion
      rating.



                           Responses to FCA Regulatory Development Program Survey
                                       Change from 2000 to 2002


                                                      Commercial Bank
                                  FCS Affiliated         Affiliated      Public Affiliated         Overall
Survey Items
                                 2000 2002     Diff   2000 2002   Diff   2000 2002    Diff   2000 2002       Diff
FCA achieved the purposes
stated in the enclosed list of   2.34   2.49   0.15   2.57 3.39   0.82   2.17 3.35   1.18    2.35 2.90       0.55
Regulatory Actions
FCA adequately involved the
public in seeking its
                                 2.13   2.21   0.08   4.25 3.97 -0.28    2.33 3.32   0.98    2.27 2.98       0.71
perspective regarding
rulemaking activities.
FCA's rulemaking activities
promote safety and               2.13   2.28   0.15   3.75 4.11   0.36   2.60 3.63   1.03    2.25 3.09       0.84
soundness for the System.
FCA's rulemaking activities
implemented the Farm Credit
Act without imposing         2.28       2.64   0.36   3.13 3.43   0.30   2.80 2.95   0.15    2.35 2.97       0.62
unnecessary regulatory
burden.
FCA's rulemaking activities
recognized market forces and
encouraged innovation for    2.20       2.83   0.63   3.71 3.62 -0.09    2.67 3.68   1.01    2.30 3.20       0.90
System institutions.
FCA used plain language that
is easy to understand in     2.19       2.47   0.28   3.00 3.65   0.65   2.67 3.32   0.65    2.26 2.98       0.72
rulemaking activities.

Overall Average for Group        2.21   2.49   0.28   3.41 3.70   0.29   2.53 3.38   0.85    2.29 3.02       0.73



Number of Surveys Received: 124         160    36      8   118    110     6    19     13     138    297      159




                                                                                                      10
            The following chart provides the detailed ratings for each type of respondent along with the scores from the 2000 survey.

                                                                               Commercial
                                        FCS      Commercial   FCS                                                                     Overall
          Survey Items:                                                           Bank        Gov’tGSE      Public        Congress
                                    Institutions   Banks    Customer                                                                  Average
                                                                                Customer
                                    2000 2002 2000 2002 2000 2002 2000 2002 2000                    2002 2000 2002 2000 2002         2000 2002
FCA achieved the purposes
stated in the enclosed list of      2.39    2.57 2.60       3.38   1.93 2.34   2.50   3.63   2.00   4.00   2.25 3.31                 2.35   2.90
Regulatory Actions.

FCA adequately involved the
public in seeking its perspective   2.16    2.17 4.50       3.94   1.93 2.27   3.50   4.22   1.00   2.00   3.00 3.39                 2.27   2.98
regarding rulemaking activities.

FCA's rulemaking activities
promote safety and soundness for 2.17       2.32 4.17       4.13   1.86 2.20   2.50   3.78   2.00   5.00   3.00 3.56                 2.25   3.09
the System.

FCA's rulemaking activities
implemented the Farm Credit Act
                                    2.32    2.72 3.33       3.41   2.00 2.46   2.50   3.67   2.00   2.00   3.33 3.00                 2.35   2.97
without imposing unnecessary
regulatory burden.

FCA's rulemaking activities
recognized market forces and
                                    2.21    2.97 4.20       3.60   2.07 2.54   2.50   3.89   1.50   5.00   3.25 3.61                 2.30   3.20
encouraged innovation for
System institutions.

FCA used plain language that is
easy to understand in rulemaking 2.19       2.46 3.00       3.64   2.21 2.49   3.00   3.67   3.00   3.00   2.50 3.33                 2.26   2.98
activities.

Overall Average for Group           2.24    2.54 3.65       3.69   2.00 2.39   2.75   3.81   1.92   3.50   2.86 3.37                 2.29   3.02


Number of Surveys Received:         110      106    6       108    14    54     2     10      2      1      4     18      0    0     138    297


                                           FCS Affiliated                Bank Affiliated              Public Affiliated

                                                                                                                                                   11
             APPENDIX II – WRITTEN COMMENTS

This Appendix contains a complete set of comments received with the surveys. We made
minor edits to the comments to remove text that identified individuals or institutions. We
used the same categories for both questions because of the nature of the responses that we
received. We present the question numbering so the reader will know the context of the
written comment.

Predatory Pricing
Question 7
         Predatory pricing enforcement.

         Stop loan pricing against specific bonds. The average must be used at all times. This will help
         prevent "cherry picking".

         Predatory pricing by local associations gives an unfair competitive advantage because of taxation
         rates unduly given the FCS system.

         Strict enforcement of the original purpose of the Farm Credit System, i.e., provide for agricultural
         financing when other financing is not available. They are involved in predatory pricing to
         compete with other lenders.

         The issue of predatory pricing and portfolio saturation for a particular ag-industry within the
         local FCS associations. We believe that some lender associations have focused their efforts on
         loans for confinement livestock buildings. Favorable financing terms have been offered to these
         borrowers and new credits booked to the extent that diversification of the local loan portfolio
         might be compromised.

         Implement predatory pricing constraints.

         FCS lenders appear to offer very low interest rates to the strongest customers.

         FCS utilizes subsidized funds to the point commercial banks cannot compete, so they get all the
         top related loans. They are unwilling to work with anyone with tight cash flow.

         Implement Predatory Pricing Constraints - FCA needs to adopt clear, specific guidelines in terms
         of implementing tougher predatory pricing constraints on FCS institutions who are actively
         engaging in predatory pricing practices. The Farm Credit Act (Sec. 1.1. Policy and Objectives)
         states "Further, it is declared to be the policy of Congress that...borrowers from the institutions
         derive the greatest benefit practicable from that Act: Provided, that in no case is any borrower to
         be charged a rate of interest that is below competitive market rates for similar loans made by
         private lenders to borrowers of equivalent credit-worthiness and access to alternative credit."
         However, FCA has not monitored predatory lending practices of FCS institutions as required by
         the law and should now put mechanisms in place to do so. For example, [we] encouraged FCA to
         publish lending rates in local areas to assess the degree that FCS engages in predatory practices.
         All FCA regulations should incorporate provisions that stress avoidance of predatory lending
         practices, which ultimately undermines FCS safety and soundness.

         Implement predatory pricing constraints.

         Reduce the cherry picking of the best customers with low rates.



Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       12
Question 8
         Stop cherry picking A+ borrowers and get back to original mission of helping young and
         distressed farmers.

         I have had 3 loans in our portfolio which only 1 of which would be class 1 business being pirated
         by FCS with below FCS market rates. On the plus side the FMAC II program has been valuable
         to use and has helped those clients FCS is unwilling to serve. Rates? Rates? Rates?

         FCA continues to promote unsafe practices by seeking to make below market loans.

         I find it absurd that the free enterprise financial system is in direct competition with a federal
         agency such as FCA. Particularly, when this agency has access to markets with lower costs of
         funds and uses those funds to offer products at lower interest rates to the public then the
         independent markets that pay taxes to support those agencies. The FCA should be abolished or be
         required to offer rates exceeding the market.

         FCA needs some control over predatory pricing policy.

Taxation
Question 7
         FCS Institutions subject to the same tax code as commercial lenders. Competitive advantage is
         huge.

         Be sure that FCA has every tax and compliance issue that affects commercial banks.

         The unchecked tax-subsidized expansion of the FCA at the expense of the tax-paying private
         sector.

         Pay State and Federal taxes like the rest of U. S. businesses.

         Pay taxes like your competition.

         I disagree with any proposal to expand FCS in any manner that does not convert FCS to a fully
         taxable institution.

         If FCA is going to compete with commercial banks put them on the same tax plan.

         Government backed enterprises – non-taxed should not be competing against tax-paying private
         enterprise.

         Niche performance - are they simply tax exempt competitors, or do they fulfill a real need today?

         FCA should stick to its original charter - supply credit to areas of agriculture that cannot obtain it
         through conventional means. GSE's should not compete with tax paying entities.

         The issue of the continuation of FCS as a GSE. It has become very apparent that the FCS local
         association lenders have drifted away from their focus of lending to independent farming entities
         and instead pursue large-scale commercial credits. For this reason, the time has come to remove
         the tax advantages enjoyed by the FCS as a government sponsored entity.

         I would like to see taxation of income the same as other lenders with the possible exception of
         borrowers with special needs.

         Taxation of the Farm Credit Banks that operate for profit to help level the playing field.


Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       13
         GSE's should not compete with tax paying entities.

Question 8
         Abusing tax-exempt status.

         I would like to see FCS become a lender of last resort again or pay taxes.

         Unfair tax treatment, FCS should pay income taxes when they are the lead competition to
         taxpaying institutions. Beneficial funding sources.

         I would like FCA to let people know they pay no income tax and are not interested in smaller
         farms that are having a struggle.

         I am a former official of AgriBank. FCS is continually seeking ways to expand outside their
         original chartered purpose. This would be acceptable, provided they compete on an equal basis
         with commercial, tax paying institutions.

Competition with Banks
Question 7
         Consider the role of community banks and try to establish partnerships with them instead of being
         a competitor.

         The ability of the system to compete long term should be a factor in adopting regulations to
         recognize industry changes.

         Should have to compete on same grounds as commercial banks - level playing field for everyone.

         Commercial banks should be able to use FCA money without fear of losing the customer in total.

         Need to limit the products available to FCS customers that allow competition with local full
         service banks. FCS offers checking, savings and other bank products while maintaining their
         favorable GSE status and tax exemptions. They should be examined by the OCC in these areas
         and be required to abide by the same rules and regulations that banks are or not be allowed to
         provide these services.

         To have them treated as commercial banks

         Issues that will help FCS be competitive.

         Prohibition on deposit taking.

         Prohibition on Deposit Taking - FCS institutions, due to their GSE status, are supposed to be
         prohibited from taking deposits. In fact, FCA's own website states, "System institutions, unlike
         commercial banks or thrifts, do not take deposits." Yet, several FCS institutions have advertised
         interest-bearing deposit and checking accounts under the labels of "cash management accounts"
         or "funds held accounts". FCA, as the regulator, should take actions against these FCS
         institutions, which are clearly in violation, by taking deposits.

         Prohibition on deposit taking.

Question 8
         Stick to what you were created for and don't try to become commercial banks.

         Everyone should have to compete on the same grounds as commercial banks.

Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       14
         We bailed them out - why did we not learn our lesson. They take our best customers at rates
         below our cost. They finance our bottom third when no other bank will takeover. How do they
         make a profit? Is anyone looking?

Scope of Lending Regulations
Question 7
         Eligibility - FCA notes they amended two regulations that govern eligibility and scope of
         financing for farm-related service businesses and non-farm rural homeowners. However, the
         decision by the U.S. Court of Appeals for the District of Columbia Circuit was made January 19,
         1999. FCA's final rule amending the two regulations, which were required by the Court, were not
         implemented until July 12, 2001 - fully two and one-half years later! This extremely slow
         response to the District of Columbia Circuit Court is inexcusable and undermines FCA's
         credibility as a professional regulator. There was simply no reason for such delays and it gives
         the impression that FCA was showing contempt for the Court's decision. Therefore, FCA's
         rulemaking did not adequately implement the Farm Credit Act.

         In my opinion, FCA has way overstepped the original intent to help America's farmers. FCA
         continues to finance wealthy individuals with minimal farming interest - this is wrong. FCA
         should be a lender of last resort. The only way FCA should make a loan is if a commercial lender
         denies application.

         Eligibility.

         Something on lending, what purposes are covered?

         Expand scope of lending.

         Scope of lending to smaller farmers and part time farmers.

         Remove regulation-limiting service to part time farmers.

         Limiting activities to original intent of System.

         Are they making loans to operations which meet Farm Credit's original intentions? i.e. we have
         noticed an increase in Farm Credit's recruitment of our best customers and also loaning for non-
         ag purposes.

         FCS needs to adhere to the original intent and purpose of their charter. Continual attempts to
         expand beyond the charter are only self-serving to executive management.

         FCS system only makes loans to strong customers.

         Eliminate distinction between full and part time farmers with respect to eligibility and scope of
         financing.

         Remove the distinction between full and part time farmers.

         Lending to "non agricultural" borrowers.

         FCA should stick to its original charter - supply credit to areas of agriculture that cannot obtain it
         through conventional means.

         Restrict eligibility to only full time farmers.

         Evaluate present and proposed authorities as compared to the original purpose of the FCS.

         Expanded definition of customer.

Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       15
         Stop FCS abuses such as FCS loans for rural estates, which clearly fall outside the scope and
         intent of FCS!

         Need to quit loaning to grow - you have ideas of grandeur.

         I believe the FCS should be required to satisfy its original goals of providing financing to all
         farmers. In our area they are targeting large farms and provide very low rates while smaller
         farmers pay higher rates and receive a lower level of service. Before any additional powers are
         provided these items should be addressed.

         Return FCS to Congressionally mandated activity.

         They need to stay with the purposes they were chartered for and not expand lending authority or
         become federal or state institution under another charter.

         Wind energy - define as eligible, as it is the "harvest" of a renewable resource.

         Service to medium sized farms in trade area by local FCS associations.

         Eliminating distinctions between full time and part time farmers with regard to eligibility and
         scope of financing issues.

         Remove, reduce, or revise the regulatory limits on serving part time farmers.

         Continue looking at scope and eligibility to ensure FCS can grow with a changing agriculture that
         is more tied to its markets and suppliers then ever before.

         Scope of lending issues for less than full time farmers.

         Clarification of scope of lending issues for less than full time farmers.

         Issues for less than full time farmers.

         Relax eligibility and scope of financing regulations.

Question 8
         Eligibility should remain focused on farmers, ranchers and rural America.

         FCS has expanded into lending not related to agriculture by stretching the rules. In our area
         rural housing loans have been a big focus. There are adequate lenders other than FCS to serve
         this market. FCS tries to go beyond original charter.

         Why are the land banks now promoting "recreational property" loans? This outfit was chartered
         to loan to farmers.

         As a commercial banker I see instances in our area where FCS appears to stretch by advertising
         for and making mortgages to, what I consider, are non-eligible customers. However, there are so
         few situations that it isn't worth the effort to protest.

         The 20A to 35A pastureland is not eligible. No one will loan on this small of a farm. The 10 - 15
         cows it will run are not considered big enough for Farm Credit.

         The FCA needs to focus its attention on farm clients that cannot receive financing from normal,
         financing entities. I believe the FCA has lost its direction and purpose as it was created.

         The FCA has totally lost track of what it's original founders set it up for: to help keep people on
         the farms and ranches and to finance operations that are all sizes including beginning farmers. In


Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       16
         the country it appears FCA is aggressively seeking wealthy, larger farmers who can borrow
         anywhere. They are getting them with interest rates below what locally owned banks can do it for.

         I can only speak of the experience with our local FCA's but they have switched their emphasis
         from helping out the farmer in need to creating a sliding scale for interest rates that only
         encourages the top of the line farmers from borrowing from FCA. FCA is also competing in the
         residential real estate market with long term interest rates using Government supported funding.
         If FCA is not in existence to primarily work with farmers who have no alternative financing, why
         do they receive Government Agency status?

         The entire Farm Credit System is a joke. You use subsidized funds to fund rich people that could
         get a loan anywhere.

         FCA has become a detriment to the family farm by competing for only the bigger wealthier
         businesses, which is expediting the demise of smaller family farms.

         The Farm Credit System is abusing the purpose and intent that the founders of the FCS
         envisioned.

         FCS has moved far beyond its original purpose, which was to fill a gap in Ag Financing. There is
         no gap at present and now FCS is vigorously competing with taxpaying lenders for their best
         customers.

         FCS needs to provide more long-term assistance to small and medium sized farmers not just the
         largest. Requirements to get long-term consideration is unfair competition given the GSE rates.

         I believe FCA has lost sight of its initial purpose and mandate. Their focus has been on larger,
         wealthy, older farm operators.

         Concerned about new emphasis on eligibility requirements. Position of FCA has reversed for no
         stated reason.

YBS
Question 7
         Borrowers Rights, Scope and Eligibility for Rural Housing, Part time Farmers and Related
         Businesses.

         Real assistance to small and beginning farmers.

         A return to the original Farm Credit System goals of assisting farmers that do not have other
         credit sources.

         Beginning Farmer Requirements.

         YBS - seems to have been made too much of a political issue without a clear understanding of the
         intent of Congress.

         Are we (you) reaching out to small farmers and ranchers as required by your government
         charter? - mission?

         Across the spectrum lending to small - medium sized operations and working with existing
         customers who have financial problems.

         A type of "CRA" - Community Reinvestment Act requirement that makes the FCS actually extend
         credit to all classes of customer, not just the highest dollar loan volume.

         CRA performance criteria - not serving the small farm family.

Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       17
Question 8
         FCS does not make loans to younger beginning farmers. Just cherry picks large accounts.

         Every corporation should report to all shareholders on a regular basis. Need to report on lending
         to small and beginning farmers. Prove that the System is Farmer owned and controlled.

         FCA is placing too much emphasis on YBS activity. Data shows this section is being adequately
         served.

         This issue (YBS) has increased or placed an additional burden on associations in terms of
         reporting and time spent on reporting.

         Regulatory burden has lost emphasis in the Agency and needs to be reevaluated. An example is
         YBS focus.

         Are they making small loans to "Beginning Farmers?"

Borrower Rights
Question 7
         Borrower rights should be reviewed and FCS should not be held to a higher standard than non-
         system lenders.

         Relief from borrower rights regulations is needed.

         Borrower rights needs to be updated.

         Borrower Rights – comprehensive review of 12 CFR section 14 to see if it can be simplified.

Question 8
         No comments were received.


Farmer Mac
Question 7
         Capitalization of loans having Farmer Mac Standby Commitments.

Question 8
         Review Farmer Mac regulatory standards and ratios and confirm that Farmer Mac is operating
         safe and sound. Farmer Mac Directors and employees should be held to the same standard of
         conduct as FCS.

         If Farmer Mac Capital Regulation is safe and sound, when can System institutions expect lower
         regulatory capital requirements?

         Some concern over the capital requirements for Farmer Mac i.e., is the level adequate!

         When it comes to Farmer Mac, I question whether FCA does its job. It looks like conflict of
         interest, insider advantages, a selected board by its CEO!

         I would like to know how a CEO of a Farm Credit institution can sell his bad loans to Farmer
         Mac, then get Farmer Mac to put him on their board, and then he is on the audit committee. It
         sure smells!
Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       18
         I wonder if that CEO took vacation days from his FCS position to serve his board job of Farmer
         Mac? Stock options should not be part of their pay.

         Look at Farmer Mac.

         I worry about Farmer Mac, with CEO over paid and Director stock options.

OFI Comments
Question 7
         I would like an Agricultural Banker appointed to the FCS Board so the interest of borrowers
         working with OFI's are addressed. Banks by law are supposed to be able to discount - but
         periodically we cannot!

         To restore an equitable funding and discount relationship with OFI's.

         Promoting access by other financing institutions to FCS funding/discount relationships by
         improving impediments/barriers currently in place.

         Enhance OFIs Funding Access - FCA should adopt recommendations made in recent comment
         letters and in bankers testimony at the meeting in Des Moines, Iowa last year as a final rule for
         Other Financial Institutions or OFIs. The ANPRM was published two years ago and FCA still has
         not come forward with a final rule to enhance access funding to non-FCS institutions. While we
         appreciate FCA's public meeting conducted in Des Moines on this topic, we believe it is now time
         to act.

         Enhance OFIs funding access.

         I am a CEO of a bank that has an OFI. Under the rules of the Farm Credit Act, OFI's were to be
         allowed to do anything that a PCA could do. But in today's world there are only Ag Credit
         Company's, where a lender can make all types of loans both short and long term. Therefore we
         would like the laws changed to allow us to make long-term real estate loans and discount them, as
         our present day equals, the ACC can do.

         Our concern is the regulatory issue pertaining to farm real estate lending requirements for an
         OFI. The regulation, as it stands today, limits an OFI to make a real estate loan to a farmer for a
         maximum amortization of 15 years. With the price of farm real estate in today's market, this is an
         undue hardship to the farmers to cash flow the payments on a 15 year amortization. A survey of
         local lenders indicates that the general practice of farm real estate loans is to have an
         amortization of 25 to 30 years. We would ask that this regulation be reviewed and changed to
         provide a competitive and efficient product for OFI lenders to offer to farmers and ranchers.

Question 8
         I do not have sufficient knowledge to comment on the above 6 items. However, after testifying at
         Des Moines regarding OFI's, I see no change in business practice or attitude by FCS to OFI's or
         people like our bank who own OFI's. We accomplished what?

         One public meeting does not constitute adequate public involvement on a National basis.

         Who was advised of the public meeting held in Des Moines last year??????




Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       19
National Charters
Question 7
         18 Responses stated allow National Charters, open territories, or elimination on territorial
         jurisdiction. Other comments included:

         National Charters - We believe FCA made the right decision to withdraw the National Charter
         proposal. We were disappointed that FCA initially labeled the proposal Customer Choice" which
         was misleading. The label of "National Charters" more adequately described this proposal. Such
         distinctions are important if FCA intends to "adequately involve the public". We also believed this
         proposal would have undermined the safety and soundness of the System and would further
         exacerbate predatory pricing concerns.

         Recall the National Charters.

         Expanded definition of customer and increased mobility of financial services providers.

         National Charter - open competitive environment for FCS entities.

         Chartered territories need to be eliminated. Customer choice is key.

         Need ability for my FCS lender to finance me when I move or chose to finance with any FCS
         lender.

         Need FCS District-wide charters or National Charters.

         Find a solution to "customer choice" for loans and financial services.

         National Charters - let the client decide!!

         Expand authority to serve customers with certain product lines beyond traditional borders.

         Would like to see National Charters taken up again.

         National Charters - National Charters are essential for FCA clients to be able to have a choice of
         who to do business with. With a more global economy this is more and more important.

         I do want to see the eventual approval of National Charters for FCS lending and financial
         services.

         Improved provision for Customer Choice. Implementation of Customer Choice.

         Allow National Charters so direct lenders would be less restricted to geographical boundaries.

         Abandon National Charter proposal audit for compliance of regulations and policy.

         Happy to see the plan for National Charters withdrawn.

         No National Charter.

Question 8
         National Charters should not be allowed.

         National Charters are not necessary as the local association can do a better job of servicing their
         own Districts, as they know the conditions.



Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       20
         National Charters was a total bad idea. It was obvious the route a few "policy makers" were
         moving.

         The proposals to allow National Charters and to terminate its FCS charter and become a
         financial institution under Federal/State charter are ridiculous under present law. If this occurs,
         then the GSE and the vexing tax exemption should be abolished.

         Regulatory action that was withdrawn or denied seems to have primarily centered around some
         within FCS to compete internally.

         FCS does not need National Charters. The idea has only gotten this far because FCA has been
         lax in enforcing regulations as originally intended when established.

         We feel that the proper decision was made concerning National Charters.

         I am opposed to National Charters and Stock Issuances to new entities.

         Regarding #3 and especially #5, I was disappointed that the proposed National Charters
         regulation did not move forward. In light of the continued, rapid consolidation in agriculture, I
         do not believe that dropping this regulation "recognized market forces" or promoted safety and
         soundness.

         Stay in direct Ag lending. Keep the associations in continued lending territories. Will keep them
         from having out-of-area problems in the future.

         It's time for FCA to realize the purposes it was intended to fulfill. No National Charters, financing
         beginning farmer/ag producers.

         FCA blew the National Charters. It was managed very poorly, regardless of the final decision.

         Concerning National Charters, FCA did not adequately seek input from all associations.

Investments, Participations, and Syndications
Question 7
         Purchase of whole loans without keeping originator in the loop or on the hook after the purchase.

         Mission related investments.

         Expand mission related investments.

         Mission related investments.

         Purchase of whole loans by Associations.

         Co-op needs ability to purchase notes receivable from current customers or rural holders of notes.

         Provide authority for association to purchase notes receivable in rural America.

         Association needs authority to purchase secured notes receivable in rural America.

         Notes receivable should be purchased by associations to improve liquidity in rural America.

         Association should have the authority to purchase secured notes from eligible customers.

         Allow association to purchase notes receivable from rural holders of notes.

         My co-op needs authority to purchase notes receivable to facilitate liquidity in my operation and
         in rural America.

Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       21
         Farm Credit Institutions allowed to purchase notes receivable from eligible customers.

         My co-op needs the authority to purchase notes receivable from its co-op members.

         Need ability for ACA, PCA, or FLCA to purchase secured real estate notes from currently eligible
         borrowers.

         Mission related investments.

         Mission related investment regulations are still needed.

         Ability/Authority to purchase secured notes (real estate) from customers to improve rural
         liquidity.

         Treating syndications like participations for purposes of borrower rights, stock, etc.

         Clarification of participation issues.

         Clarification of Syndications/Participations issue.

         Participation issues.

         My greatest concern, at the moment, is the restrictions, which appear to being put upon
         syndications - they should continue to be handled as are participations.

         Syndication Loans

Question 8
         Some concern over "syndication" requirement on borrower stock and "rights".

         Sydicators should be included in some treatment as participations.

Rural Housing Regulation
Question 7
         Modernize definition of "moderately priced" rural homes.

         Banish Rural Home Loan exception! Not even somewhat related to agriculture and/or Farm
         Credit.

         The issue of residential lending. The era has passed when the FCS could draft a loan to the
         farmer who wished to build a modest home on the family farm. Today, the FCS has marketed its
         pricing advantage as a GSE to solicit "upper bracket" residential loans from borrowers with no
         reasonable connection to agriculture. This was not the intent of the farm credit act and defies the
         spirit of the mission of Farm Credit Services.

         Home loans - we can't compete.

         Limits regarding rural housing communities increased above 2,500 limit.

         Update 613.3030(a)(4) moderately priced. Current definition does not reflect current housing
         market nor is it flexible enough to address future housing markets.

Question 8
         Modernize or update the appraised values used in setting limits on rural home loan lending.


Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       22
Other Regulations
Question 7
         Interest rate disclosure not necessary when loans are indexed in contract with customer - mailing
         interest rate changes are costly to system institutions.

         No longer need disclosure of interest rate change on variable rate loans if rate is indexed to a
         known index (i.e. prime or libor).

         Conflict with Insurance Reg. & Patronage or Co-op Insurance eliminated.

         Revisit Capital regulations to allow loans to part time/lifestyle farmers, which include small
         acreages and the borrower's main residence to be capitalized at a risk rating like home loans to
         non-farmers.

         Need risk-based Capital Standards for FCS.

         Require Outside Appraisers - Current FCS lending and appraisal practices raise significant safety
         and soundness concerns that should be addressed by FCA regulations. Banks complain that FCS
         loan officers are using their own in-house appraisals to make mortgage loans for 100 percent of
         property value and then lending additional operating loans on the same property as a second
         mortgage. These in-house appraisals are often inflated and significantly above the levels at which
         independent appraisers would assess the value of the collateral. Community banks and other
         commercial lenders would never be allowed to conduct their own in-house appraisal in many of
         these situations. Banks are required to obtain an "independent" appraisal on any real property
         with an estimated valued over $250,000 under joint interagency real estate and appraisal
         guidelines issued by the Office of the Comptroller of the Currency (OCC), the Federal Reserve
         Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift
         Supervision (OTS). FCS institutions should be required to follow similar requirements, which will
         result in greater safety and soundness of FCS institutions.

         Stock - elimination of stock @1000/270 to 1 share

         Allowing Associations to change funding banks without the competing that currently exists.

         Less.

Question 8
         Proposed regulations for Electronic Commerce (annual reports) and Loans to Designated Parties
         are overly burdensome.

         Need to be more forceful and bold in gaining new regulations.

         New electronic signatures and reporting guidelines represent positive movement forward;
         adapting to the changing times and improved technology. When a proposed rule is published,
         provide copies of Federal register documentation to all FCS institutions.

         Withdrawn Regulations - We agree with FCA's decision to withdraw the National Charter;
         Stockholder Vote on Lending Authority; and Loans to Designated Parties proposals.

         Examples abound where FCA regulations impose limitations on System operations that exceed
         those contained in the Act. We pointed one such incidence out in our comments on proposed
         changes to regulations guiding Loan Purchases and Sales. We had suggested that the System be
         permitted to purchase interest in loans from individuals and others by removing restrictive
         definitions. The Agency failed to act on this recommendation. It might be more productive that


Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       23
         the Agency survey the System regarding what it would like to see included in the regulatory
         agenda before the agenda is acted upon by the board rather than after the fact.

         My major concern is with the Loan Purchases and Sales regulatory action, which is yet
         unresolved. Performance measures 4, 5, and 6 above were not dealt with adequately on this
         important matter.

         The ability of the system to compete long term should be a factor in adopting regulations to
         recognize industry changes.

         Would suggest the Agency promote true cooperatives and patronage throughout the System.

         FCA should comply with the same set of appraisal rules that the commercial banking industry
         does! Any loan over 200K requires an "outside" appraisal!!!

         613.3020 is not clearly written.      Ambiguity between farm related service and farm related
         business.

         Making 1st mortgage loans for 100 percent of value (on their "own" appraisals), and then lending
         additional "operating" loans on the same property as a second mortgage! In other words, lending
         120 percent of value on land!!! (Are they "hiding" the 2nd mortgage?)

         We trust that natural corporate issues i.e. Enron will not cause a reversal in FCA's regulatory
         philosophy.

FCS Governance
Question 7
         Disclosures to Shareholders - FCA finalized a public rule (66 fr 14299) that allowed FCS banks
         not to distribute their annual reports to shareholders of related associations unless the bank
         experiences a "significant event". [We] believe FCA should require all FCS institutions, including
         FCS Banks, to grant public access to these annual reports via their websites. This benefits
         stockholders and the general public, who as taxpayers are ultimately responsible if a failure of the
         FCS. We believe such public disclosures are necessary to "adequately involve the public".

         Who really are FCS bank shareholders? Do they know who they are? Make clear in laws and
         regulations that if FCS bank needs Capital or goes broke that the FCS shareholders are the folks
         who have to put in the money, not taxpayers.

         Update of standards of conduct, ownership of stock of customers publically traded stocks,
         disclosure/approval guidelines, etc.

         Require better local control with bottom-up input rather than top-down mandatory directions.

         Official Loans.

Question 8
         It appears that Farm Credit has lost sight of why it was created. Farm Credit needs local Boards
         to direct the policy making within Congress' guidelines.

         FCA needs some control over outrageous salaries at some FCA banks.




Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       24
About FCA
Question 7
         Meeting with Community Bankers - We believe the FCA, as part of its outreach to the public,
         should conduct listening sessions with community bankers in various areas of the country to better
         understand the concerns and issues community banks have with FCS lending practices and FCS
         activities. This would better allow FCA to take into consideration "market forces" and would
         better involve the public in FCA's rulemaking activities and agenda settings.

         Appointment of an Ombudsman – [We] applaud FCA's initiative to develop a proposal on
         appointing an ombudsman within the FCA. Such a position would make FCA consistent with
         other top federal financial regulators and would allow FCA to better explain its regulatory
         policies and procedures to the public, commercial lenders and FCS institutions. It would also
         facilitate the development of improved relations between commercial lenders and FCS
         institutions. We encourage FCA to finalize action on this initiative in the near future.

         Addressing Complaints of Illegal Activities - We have observed that FCA does not disclose the
         final resolution of instances where bankers point out when FCS institutions are engaging in illegal
         activities. We believe FCA should fully inform any commercial bank that raises concerns of
         illegal activities of the final outcome of the alleged illegal activities and how the FCS institution
         was dealt with. To do any less avoids public accountability and gives the appearance that FCA is
         hiding instances of illegal actions in order to avoid public scrutiny. Such appearances of
         favoritism are inappropriate for a Federal regulator.

         Meeting with community bankers.

         For a while FCA was willing to work with the System so it could meet the changing needs of
         American Agriculture, now FCA is just enforcing unresponsive regulations.

         The Agency should focus on safety and soundness issues only.

         Until FCA leadership is strengthened, we suggest a low profile related to new FCA regulations.

         Establish an over-site Board with no conflicts of interest and eliminate loans to insiders and
         related parties.

         FCA Governance - it took too long to fill Marsha Martin's position.

         There needs to be an assessment of the performance of the FCA Board.                The inability to
         communicate with one another is inexcusable at this level.

         Continue being a partner to management of associations and boards as well as regulators.

         FCA still struggles to move out of the 1970's/1980's to become an arms length regulator. Focus
         should be safety/soundness not imposing FCA's business perspectives or operational issues and
         governance. Regulations should help us compete and carry out our mandate rather than act as a
         political "olive branch" to commercial banks.

Question 8
         I think FCA does a good job and it will be much better when they have a full Board for
         governance.

         In my opinion, there is no longer a need for FCA. The government should eliminate this agency.
         FSA is available as an agriculture lender and is much more effective then FCA in helping the
         farmer.

Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       25
         FCA seems to have become more concerned about what the bankers think of them then about the
         System's success.

         Excellent working relationship with Bloomington office.

         I think you are doing a good job!

         The FCA is much more concerned with obtaining new powers then operating in a safe and sound
         manner.

         FCA should try to be more in tune with trends in banking and agriculture.

         Too much politics @board level.

         FCA needs to maintain its role as an arms length regulator. Currently the FCA is interfering in
         the management of FCS institutions directly. There also needs to be a realization that the long
         term safety and soundness of the system includes our relevance in the marketplace. Regulations
         (not statutory change) are not keeping pace with market changes.

         The Agency should not attempt to be the marketing cheerleader of the system nor should it be an
         advocate of any authorized structure.

         FCA has come a long way to achieve success to the farmer borrowers since I was elected as a
         director. Keep coming.

         Associations are somewhat isolated from FCA. Improved communications would allow us to
         better evaluate FCA's performance i.e, informational meetings.

         In 1996 Congress provided the Agency clear direction regarding the need for ongoing regulatory
         review. Section 212(b) of the Farm Credit System Reform Act of 1996 states the following, "The
         Farm Credit Administration shall continue the comprehensive review of regulations governing the
         Farm Credit System to identify and eliminate, consistent with law, safety, and soundness, all
         regulations that are unnecessary, unduly burdensome or costly, or not based on law." We believe
         it imperative that the direction Congress provided be adopted by the Agency in establishing its
         regulatory agenda. We are concerned, however, that we continue to see regulations that are
         unduly prescriptive in their approach and that far exceed what is necessary to accomplish the
         safety and soundness oversight responsibility of the Agency.

         As the Inspector General for FCA you have a responsibility to inform the board as to whether they
         are operating in accordance with the law. We strongly urge that you review the regulatory review
         requirements Congress has mandated for the Agency and notify the Board as to whether the
         current regulatory development program of the Agency adequately responds to this Congressional
         mandate.

         We appreciate the opportunity to attend the FCA informational meetings to provide feedback to
         FCA Board and staff.

         The FCA has done a commendable job the last 3 years.

         Keep up the good work FCA!!

Other Issues
Question 7
         More for rural development.

         System probably needs more regulation.


Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       26
         Ask opinions about Proposed Regulatory Actions before they become Final Regulations.

         I would like to know what Regulatory body governs [name deleted] and how they or we can start a
         mortgage company [name deleted] and why I have not heard of it and it is still in business? And
         how FCA is involved with it? And was my stock or money used?

         Expand related services to provide much-needed mortgage (collateral insurance) at affordable
         rates and health care coverage to borrowers who are not in group plans and cannot afford
         individual coverage.

         Abandon loans to designated parties, allow charters to move to other financial institutions,
         restrict stock sales only to members.

         See FCC input document which summarizes a survey of Banks and Associations throughout the
         District.

         Safety – soundness.

         Give people like the management who have time - to study new programs (like marketing) help in
         development.

         Need authority for patronage to be paid on crop insurance income in my co-op to be paid to those
         that use crop insurance services.

         The FCA was bailed out by taxpayers 20 years ago due to overaggressive lending, then
         subsequently pulled out of many borrowing relationships. I feel that today FCA could be
         following this same path.

         Greater recognition of changes occurring in the industry.

         Reduction in the overall cost of system regulations.

         Both who is "farming" and rural America are changing. FCA needs to look at these changes so
         the system can continue to serve rural America.

Question 8
         Farmers and Ranchers are vulnerable. Their number is so small they do not have a voice and
         therefore our number one food provider needs help and it is only going to come from a
         cooperative - not a private owned corporation or bank.

         As a former employee of the system I am fully aware that the first priority of the system is self-
         preservation. With that in mind more protections for the borrower/member is in order.

         It seems that with the passage of 66FR28641 [an ACA] has become more of a non-farm lender
         and is unwilling to work with its member borrowers in which the FC System was made for!
         Please investigate that!

         When you are accepted as a customer - lets make it a long-term decision (5 yr+) so the time
         wasted on yearly paper work doesn’t eat you up.

         I don't feel knowledgeable enough on these regulatory actions to comment.

         Unable to answer - unfamiliar with regulatory development issues.

         This survey did not include enough background information to allow us to answer the questions
         with any meaning. In fact, it would appear that the survey was in fact designed to bring out
         neutral or no responses.


Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       27
         I am unable to answer because I am unfamiliar with regulatory development issues.

         FCS uses unfair advantage they have to borrow money with its Government Agency Status. This
         needs to change.

         All GSE's should register with the SEC under the SEC Act of 1934, thereby requiring GSEs to
         comply with SEC rules regarding the scope of quarterly and annual financial disclosures.

         No SEC filings or fees.

         Safety and Soundness issues: Someone needs to monitor what the loan officers are doing in the
         field.

         Patronage income in co-op should be shared with those that use the source service, i.e. crop
         insurance.




Question 7: What regulatory issues would you like to see included in future Regulatory Performance Plans?
Question 8: Additional Comments.

                                                                                                       28
              APPENDIX III – SURVEY INSTRUMENT
              FCA Regulatory Development Program Survey Questionnaire

              The Farm Credit Administration (FCA or Agency) is committed to a regulatory philosophy that
              promotes a safe and sound, competitive Farm Credit System (FCS or System). The FCA Board wants to
              achieve this goal with minimum regulatory burden. The objective is to facilitate better customer service
              and improved efficiency for FCS institutions. Management believes this objective will result in better
              competitive, efficient, and relevant financial products and services for America’s farmers, ranchers and
              their cooperatives, and to rural America.

              Please complete the survey below on FCA’s Regulatory Development Program to help measure the
              Agency’s performance. As a part of the FCA’s continuing efforts to improve, The Office of the
              Inspector General is soliciting your input regarding the Agency’s products and services provided since
              October 1, 2000.

              Type of Respondent (Please check one)

              1.   FCS Institutions or Interest Groups/Lobbyist               5. Congressional
              2.   Commercial Banker/Lobbyist                                 6. Government/GSE
              3.   FCS Customer                                               7. Public
              4.   Commercial Bank Customer

              For each statement, please circle the one that best indicates how you feel about the following:




                                                                                                        Somewhat


                                                                                                                    Disagree



                                                                                                                               Disagree
                                                                                     Strongly




                                                                                                                               Strongly
              PERFORMANCE MEASURE


                                                                                     Agree

                                                                                                Agree



                                                                                                        Agree
1. FCA achieved the objectives stated in the enclosed Regulatory Actions.
2. FCA adequately involved the public to seek its perspective regarding
   rulemaking activities.
3. FCA’s rulemaking activities promoted safety and soundness for the
   System.
4. FCA’s rulemaking activities implemented the Farm Credit Act without
   imposing unnecessary regulatory burden.
5. FCA’s rulemaking activities recognized market forces and encourage
   innovation for System institutions.
6. FCA used plain language that is easy to understand in rulemaking
   activities.


7.   What regulatory issues would you like to see included in future Regulatory Performance Plans?

8.   Additional Comments:

9.   If you would like the Inspector General (IG) to contact you, please provide the following:

     Name of Person to contact:
     Phone Number of contact person:

If you want to discuss these questions, please call the Inspector General, Stephen Smith, at (703) 883-4030
or send e-mail to smiths@fca.gov or fca-ig-hotline@starpower.net.




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                                REGULATORY ACTIONS
                                      FY 2001

                REGULATORY              PURPOSE
                  ACTION
FINAL
  Stock Issuances               Allows FCS service corporations to sell stock to non-FCS
  66 FR 16841                   entities but requires adequate disclosures to investors. Also
  3/28/2001                     allows an association to issue unlimited amounts of stock to its
                                funding bank in exchange for capital the association, in turn,
                                may distribute to its borrowers. (Effective date - 5/14/2001)
  Farmer Mac Risk-Based         Establishes risk-based capital regulations for Farmer Mac,
    Capital                     including definitions, methods, parameters, and guidelines for
  66 FR 19048                   developing and implementing the risk-basked capital stress
  4/12/2001                     test. (Effective date - 5/23/2001)
  Disclosures to Shareholders   Provides that an FCS bank need not distribute it annual report
  66 FR 14299                   to shareholders of its related associations unless it experiences
  3/12/2001                     a “significant event.” Requires associations to disclose
                                specified information about their financial and supervisory
                                relationships with their funding bank. (Effective date -
                                4/27/2001)
  Eligibility                   As a result of a 1/19/1999, decision by the U.S. Court of
  66 FR 28641                   Appeals for the District of Columbia Circuit, we issued a
  5/24/2001                     direct final rule amending two regulations that govern
                                eligibility and scope of financing for farm-related service
                                businesses and nonfarm rural homeowners. (Effective date -
                                7/12/2001)
PROPOSED
 National Charters              Would allow FCS direct-lender associations to obtain national
 66 FR 10639                    charters so they are less restricted by geographical boundaries.
 2/16/2001                      (Comment period extended to – 4/20/2001)
 Electronic Commerce            Would remove regulatory barriers to e-commerce and create a
 66 FR 53348                    flexible regulatory environment that facilitates the safe and
 10/22/2001                     sound use of new technologies by FCS institutions and their
                                customers. (Comment period end - 11/21/2001)
  Termination                   Reproposed rules to allow an FCS institution to terminate its
  66 FR 43536                   FCS charter and become a financial institution under another
  8/20/2001                     Federal or state chartering authority. (Comment period end –
                                10/19/2001)
  Loans to Designated Parties   Reproposed rules governing the approval of loans to
  66 FR 48098                   “designated parties,” those FCS “insiders” most likely to have
  9/18/2001                     a conflict of interest and FCA and FCSIC employees who are
                                authorized to borrow from the System. When first proposed,
                                this rule was titled, “Insider Loan Approval.” (Comment
                                period end – 10/18/2001)
PUBLIC MEETING
 Public Meeting on OFIs and     Public meeting in Des Moines, Iowa, about the funding and
   Alternative Funding          discount relationship between other financing institutions and
   Mechanisms                   System banks. The meeting also addressed other partnering
 66 FR 35428                    relationships between FCS and non-FCS financial service
 7/5/2001                       providers.




                                                                                         30
                                     REGULATORY ACTIONS
                                           FY 2002

               REGULATORY                   PURPOSE
                 ACTION
FINAL
Electronic Commerce            Removes regulatory barriers to e-commerce and creates a flexible
67 FR 16627                    regulatory environment that facilitates the safe and sound use of
4/8/2002                       new technologies by FCS institutions and their customers.
                               (Effective date - 5/8/02)
Termination                    Allows an FCS institution to terminate its FCS charter and become
67 FR 17907                    a financial institution under another Federal or state chartering
4/12/2002                      authority. (Effective date – 5/13/02)
Loan Purchase and Sales        Enables FCS institutions to better use existing statutory authority
67 FR 1281                     for loan participations by eliminating unnecessary regulatory
1/10/2002                      restrictions that may have impeded effective participation
                               relationships between System institutions and non-System lenders.
                               (Effective date - 3/4/2002)
WITHDRAWN
National Charters              Would allow FCS direct-lender associations to obtain national
Not Published in the Federal   charters so they are less restricted by geographical boundaries.
  Register
10/11/2001
Stockholder Vote on Like       Would carry out territorial consent requirements of the Farm Credit
  Lending Authority            Act of 1971, as amended (Act). Section 5.17 of the Act requires
Not Published in the Federal   FCS stockholders in certain areas of the country to vote on whether
  Register                     to allow other System associations with like lending authorities to
10/11/2001                     lend in their territories.
Loans to Designated Parties    Reproposed rules governing the approval of loans to “designated
Not Published in the Federal   parties,” those FCS “insiders” most likely to have a conflict of
  Register                     interest and FCA and FCSIC employees who are authorized to
3/12/2002                      borrow from the System.




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