Michael Grove, president of a $20 million-asset Montana bank that is the only lender in a county with 2,500 residents, wants to do more to foster economic development, but lacks basic tools that are widely available to urban bankers.

"If these tools were available to our bank, we could do a better job for our community -- there's no doubt about it," he said.

With next year's farm bill on tap and a renewed focus on the economic health of the country's rural towns, more small-town bankers are calling for improvements in the way rural businesses and farms are financed.

The American Bankers Association task force on the issue recently issued a white paper calling for five improvements intended to generate discussions on the best ways for rural bankers to support economic development.

They include new sources of lendable funds, a secondary market for economic development loans, improved access to equity capital, and experts and tools to facilitate intergenerational transfers of existing businesses.

The ABA will use input generated from the task force to develop more detailed proposals for increased rural development lending, said Jeff Plagge, chairman of the trade group's agricultural bankers division.

He said the ideas will ultimately help the ABA formulate its position on the 1995 farm bill and other relate rural banking issues.

"If we don't deal with these issues in this paper, then we are ignoring the future of rural America," said Murray D. Lull, president of Smith County State Bank and Trust, Smith Center, Kan., who was on the task force of bankers and ABA staff members.

His $60 millions-asset bank. serves Smith County's 5,00 residents.

"There's a lot of life left in the rural areas," he said.

The trade group says rural bankers need funding sources sized to meet debt capital require- ments and match the maturities of economic development loans.

"One of the biggest problems we have is attaining the proper mix of lendable funds," said Mr. Grove, also a task force member. His First National Bank of White Sulphur Springs gets most of its funds from six-month deposits, he said.

A suggested solution is allowing more rural bank access to the "agency market" used by government sponsored enterprises.

For example, changes membership requirements for the Federal Home Loan Bank System like reducing threshold home mortgage requirements and adjusting leverage and collateral requirements-could help rural banks participate more, the report said.

And in what is likely to be one of its more controversial recommendations, the paper advocates reconfiguring the Farm Credit System to allow banks to borrow lendable funds,

However, this suggestion "gets right to the heart of what they're trying to expand in," Mr. Plagge said. The system wants to expand its own lending powers and move into larger communities.

The paper also advocates broadening the charter authority of the Federal Agricultural Mortgage Market to authorize purchase of economic development loans from commercial banks.

Streamlining this existing secondary market would allow Mr. Grove's bank to get long-term, fixed-rate loans to fund its longterm, fixed-rate real estate market, he said.

The white paper also suggests generating more access to equity capital for start-up and expansion businesses and support for intergenerational transfers to keep businesses in communities.

In communities that have few businesses to begin with, "If you lose just one, it has a tremendous impact on that community," said Mr. Plagge, who also is president of $85 million-asset First National Bank, Waverly, Iowa.

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