In Focus: Agency Takes Down-Home Approach to Regulation

WASHINGTON - Everybody who cares about the Farm Credit Administration's activities knows that the agency's board voted on an important regulation July 19.

However, all but the extremely well-connected are still waiting to see just what's in the credit administration's proposed rule on "eligibility and scope of financing."

A news release issued by the agency last Thursday says the new rule would allow farmers to borrow from the Farm Credit System for nonfarm purposes, eliminate eligibility distinctions between part-time and full- time farmers, and ease restrictions on nonfarm rural home loans - among a whole lot of other things.

But the actual proposal, though it was approved more than a week ago, is still being fine-tuned by the agency's staff.

The agency likes to compare itself with the banking regulators, but this isn't how things work at the Federal Reserve and the Federal Deposit Insurance Corp. Those agencies' proposals are available for public viewing at the time their boards vote on them.

But then again, you don't see Alan Greenspan asking the reporters and lobbyists who attend Fed board meetings to stand up and be introduced, as FCA board Chairman Marsha Pyle Martin does on a regular basis.

The 384-employee FCA, headquartered in an office park in the Washington suburb of McLean, Va., is a homey little agency, compared with its banking counterparts.

It regulates the Farm Credit System, a $55-billion asset network of six regional farm credit banks, two national banks for cooperatives, and 232 farmer-owned credit associations. The system was created in 1916 to make "the great credit of the country available" to farmers, as President Woodrow Wilson put it.

It has been doing that ever since, with its member associations making loans to farmers and its member banks selling bonds to finance the loans.

Over the years, system institutions have also taken on other roles, selling some kinds of insurance and services such as bookkeeping and tax preparation. But credit has been their main business, and some say they've provided far too much of it.

In a scathing 1990 report for the American Bankers Association, banking consultant Bert Ely and his associate Vicki Vanderhoff said too-liberal lending by Farm Credit institutions helped create a speculative bubble in agricultural land prices in the late 1970s. When farmland values finally collapsed, it took a $1.26 billion congressional bailout in 1987 to keep the Farm Credit System afloat.

According to a 1994 General Accounting Office report, the bailout will end up costing taxpayers $200 million in interest expenses, but the Farm Credit System is now in good shape and should have no trouble paying off the bailout bonds when they come due in 2005.

The problem is, with more conservative lending practices, the agency's share of the agricultural loan market has plummeted - from 33.4% in 1984 to a projected 24.2% in 1995, according to the Department of Agriculture. Banks' share of farm debt, meanwhile, has jumped from 24.4% in 1984 to 40.7% in 1995.

That helps explain why the Farm Credit Council, the system's trade association, has been pressing Congress for increased lending authority. Critics in the commercial banking industry also say that is what's behind the Farm Credit Administration's proposals to ease restrictions on related services offered by farm credit institutions and, now, on loan eligibility.

FCA Chairman Martin, however, emulating the current tone of her counterparts at the banking agencies, says the goal is simply "to keep regulatory burden to an absolute minimum."

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