In its latest attack on the Farm Credit System, the American Bankers Association is financing a newsletter designed to fight what it calls "unfair competition."

Bert Ely's Farm Credit Watch premiered last week; the writer, a consultant on monetary policy, is a noted critic of the Farm Credit System.

Banks have complained that the system's lenders are making loans at below-market interest rates, and bank trade groups have filed suit against it.

"We think that the Farm Credit System is, quite frankly, out of control," said John M. Blanchfield, manager of the ABA's agricultural bankers division. "No one's been minding the store."

Ken Auer, executive vice president of government affairs for the Farm Credit System, blasted the newsletter as "a propaganda sheet for the ABA" and said he wondered how much it was paying. Mr. Blanchfield declined to say.

The Farm Credit System uses 213 borrower-owned cooperative banks and associations to distribute low-cost funds to farmers. A lawsuit initiated by the ABA and the Independent Bankers Association of America claims the system's expansion plans would let the government-backed lenders compete more directly with commercial banks.

A recent rule change lets Farm Credit System lenders write agribusiness, processing, and marketing loans as well as rural home loans.

Mr. Ely suggests in the first issue of the newsletter that the Farm Credit System is poised to use its $11.6 billion of capital to make nonfarm loans.

That, he wrote, "could take business away from bankers by expanding its off-farm lending, such as to businesses, homebuyers, and consumers located in rural America's villages, towns, and small cities."

Mr. Auer said Mr. Ely, founder of Ely & Co. in Alexandria, Va., is not qualified to make such evaluations.

"Mr. Ely has not been a student of the system," Mr. Auer said. "Every bit of information is slanted."

He added that the Farm Credit System would use excess capital to "serve agriculture, as it has in the past."

In an interview, Mr. Ely said he fears the system will begin to lend recklessly, as it did in the 1970s, and set up the farm sector for another 1980s-like credit crisis.

He said he hopes the newsletter stirs a policy debate and better informs rural bankers about one of their primary competitors. Future issues will discuss how the Farm Credit System prices its loans, how it is structured, and who borrows from it, he said.

Mr. Ely plans to use anecdotes from bankers who compete with Farm Credit System lenders. In the first issue he urged bankers to submit their stories.

George G. Beattie, executive vice president of the Nebraska Bankers Association, said he expects Mr. Ely to be swamped with responses, particularly from Nebraska bankers, who have been complaining about Farm Credit System competition for years.

"Now the bankers will know they're not alone in this," he said.

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