Though Iowa banker Jeff Plagge opposes legislation that would expand the scope of the Farm Credit System, he says the issue has prompted much-needed discussion on rural development for community bankers.

The chairman of the American Bankers Association's agricultural bankers division, Mr. Plagge recently testified on ABA's behalf before a House subcommittee against a rural credit and development bill.

The bill is intended to focus Farm Credit System resources on rural development. It would accomplish that by, among other things, increasing the system's residential lending powers and expanding its authority to make rural housing loans to communities of up to 20,000 from its current limit of communities of less than 2,500.

Mr. Plagge, who turns 39 on Friday, is president of $85 million-asset First National Bank, Waverly, Iowa. But he knows the Farm Credit System too he worked there before becoming an ag banker in 1978. He discussed the bill with American Banker.

Q.: What's the nature of the opposition to this proposed legislation?

PLAGGE: Our main testimony focused on the fact that rural development is a huge issue, much bigger than the Farm Credit System. Instead of trying to legislate rural development initiatives through entities, as that legislation does, we would prefer to discuss rural development in general.

The Farm Credit System has been losing market share to the banking industry. Maybe it should be looked at more closely as to why they're losing market share and what they can do to better improve what they're doing within their current charters, rather than focusing on giving them broader charters.

Q.: Are there a significant number of borrowers whose needs are not being met in communities of 2,500 to 20,000 people?

PLAGGE: Most of the groups that may have needs that are not being met are in communities of 2,500 and under. In communities such as the ones I have been in and the one I'm in now, there's plenty of competition.

Q.: And the proposed bill also authorizes nonfarm lending?

PLAGGE: Right. Now, [Farm Credit System entities] can finance agribusiness as long as the industry is primarily owned by farmers producing for farmers.

The element that really changes that basically would allow them to finance businesses that produce goods bought by farmers - an entirely different focus. It is a mammoth change.

Q.: Anything positive here for community banks?

PLAGGE: Through our rural development task force that I'm chairing, we've had some very positive discussions that haven't taken place before between the banking community and the Farm Credit System.

So, although we're in total opposition with them on [the bill], we're certainly willing to continue discussions on rural development in general to find what organizations such as Farm Credit and community banks can do collectively within the current charter powers of the Farm Credit System to enhance rural development for everybody.

ABA's Response to the Rural Credit And Development Act of 1994

* Mr. Plagge wants talks on rural development in general, not initiatives through specific entities.

* Advocates exploring why the Farm Credit System has lost market share to banks before expanding its charters further.

* Claims ABA's proposal would greatly expand the Farm Credit System's retail lending business.

* Says borrowers whose needs aren't being met are mainly in smaller communities that Farm Credit entities already serve.

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