developments during the 1970’s created
pressures to alter and relax the regulatory
climate. After numerous reviews and analyses
of likely implications, Congress passed the
Depository Institution Deregulation and Mon-
etary Control Act (DIDMCA) of 1980 and the
Depository Institute Act (DIA) of 1982.
In general, DIDMCA and DIA provide for
a phasing out of interest rate ceilings on
deposits, authorize interest bearing transac-
tion accounts, and give federally chartered
thrift institutions authority to make con-
sumer, commercial, and agricultural loans as
well as to provide transaction accounts. The
overall effect of the legislation and regulatory
directives of the early 1980’s has been de-
scribed as “providing for a level playing field”
for competing financial institutions. Clearly,
the array of financial services that the differ-
ent institutions offer has been broadened, the
various institutions are less specialized, and
competition among institutions has been
greatly enhanced.
The Congress, to date, has elected to defer
to the various states with respect to regula-
tions concerning geographic expansion of
banking activities. Several states have re-
cently enacted legislation permitting limited
branch banking and multi-bank holding com-
panies. Numerous banks have loan produc-
tion offices in various states and the
Comptroller of the Currency in October 1984
approved several consumer or “non-bank”
banks with branches in several states. How-
ever, full service (deposits and commercial
loans) interstate commercial banks are not
now authorized, although the concensus pre-
diction is that interstate banking is imminent.
The implications of the decontrol of finan-
cial markets and the restructuring of insti-
tutions are far reaching. Small savers have
access to market rates of interest that pre-
viously were available only to large savers
through unregulated jumbo C.D.’s, and the
various interest bearing transaction accounts
provide a form of cash management to con-
sumers and small business firms. With un-
regulated interest rates, savers can “shop”
for the best combination of interest rates and
other service. As a consequence, deposits may
be less stable within individual institutions
and within the various geographic regions,
and the overall cost of money to lenders has
been increased.
In effect, removal of interest rate ceilings
has transformed local financial markets to
national and international markets. When all
depository institutions of a given class were
required to pay identical rates on deposits,
small savers deposited their funds in local
institutions which in turn created a pool of
loanable funds available to local farmers and
other business people. In general, it appears
that to date local financial institutions have
effectively competed with money center in-
stitutions so that there has been no massive
movement of rural area deposits to metro-
politan areas. However, loan demand during
the post deregulation period has not been
unusually strong.
Deregulation has raised interest rates to
borrowers due to the disappearance of cost
free deposits and increased rate volatility re-
flecting national and international financial
market conditions. At the same time, dere-
gulation and access to national and interna-
tional markets permit capital to flow to
geographic areas offering the most favorable
terms. Thus, funds available to banks for local
lending are no longer limited to locally gen-
erated savings and deposits. As financial in-
stitutions consolidate and restructure, larger
effective lending limits will permit banks to
more adequately serve large scale commer-
cial agriculture. An often voiced concern is
that deregulation and restructuring will cause
capital to flow to the financial centers so that
local interests will be less well served. How-
ever, there is a paucity of hard evidence in
support of this view.
THE COOPERATIVE FARM CREDIT
SYSTEM
The Farm Credit System (FCS) held 44
percent of the farm real estate debt, 20 per-
cent of the non-real estate debt, and 33 per-
cent of total farm debt on January 1, 1985.
Thus, the FCS is currently a major, if not the
dominant, source of debt capital for agri-
culture. The FCS long ago developed a struc-
ture that facilitates utilization of national and
international capital markets to provide loan-
able funds to agriculture, along with a na-
tionwide distribution system. In many
respects, the architects of the FCS created an
institution with many of the attributes and
advantages that commercial bankers are cur-
rently seeking through restructuring. The FCS
has a very strong capital base, as compared
to other lenders, but has limited loan di-
versification options.
In anticipation of a decade of further
change, the FCS initiated an extensive study
105