Agricultural banks are gearing up for a fight over what they say is the latest effort by the Farm Credit Administration to expand the role of government-backed lenders in rural America.
The agency has proposed rules that would enlarge the pool of Farm Credit System borrowers to include vendors and other businesses that bankers say are already served by the private sector. In addition, the system would be able to make a greater variety of loans than is permitted today.
"We see them going for more of the cream of the crop and getting out of ag lending (to pursue) small-business lending," said Terry Jorde, president and chief executive of $25 million-asset Towner County State Bank, Cando, N.D.
A 30-day comment period on the Farm Credit Administration's proposal ended today, and whatever new rules will be forwarded to Congress for a final 30-day review once industry responses are analyzed.
Bankers argue that the proposed changes let the Farm Credit System - a government-sponsored entity that often is one of their biggest competitors - infringe more on their business.
Bankers believe the proposal "allows the Farm Credit System to intrude into their traditional markets," said Mark K. Scanlan, the agriculture and rural America representative at the Independent Bankers Association of America
"They're concerned because it represents significant expansion into areas that Farm Credit hasn't been lending in," he said.
However, Farm Credit maintains that it is updating old codes and giving its institutions the flexibility to meet the credit needs of the agricultural producers it was organized to finance.
"None of these regulatory changes would affect or lessen the statutory restrictions that Farm Credit institutions have to operate under," said Stephen Blakely, vice president of public affairs for the Farm Credit Council, the trade group serving the Farm Credit System.
"What they're doing is removing unneeded regulation that has no basis in law," he added. "Clearly this is hypocritical on the part of the banking industry ... when you look at all of the changes occurring on the commercial bank side."
Besides writing angry letters, it's not clear exactly what commercial bankers could do to block the proposal. House Banking Chairman Jim Leach, R-Iowa, wrote the Farm Credit Administration a letter opposing the expansion in November, the only Congressman to publicly gun for it , but Congress doesn't have final approval power over the change. That power lies with the Farm Credit Administration.
"It's not a legislative issue," said John Blanchfield, associate director of the ABA's agricultural bankers division. "The way you lobby that issue is you file your comment letter. It's not a bill you can go after."
The changes were proposed last summer by the Farm Credit Administration, which governs various Farm Credit System entities nationwide. The regulations define who is eligible to borrow from the system's lenders and for what reasons.
The lengthy and detailed proposal, among other things, would:
*Eliminate restrictions on borrowing eligibility for part-time farmers, as well as certain legal entities and foreign nationals.
*Grant farmers greater access to the Farm Credit System, including the opportunity to apply for home financing, "other domestic needs," and "other business needs."
*Remove restrictions on lending to farm-related businesses, allowing financing for "any individual or legal entity who furnishes services to farmers and ranchers that are directly related to their agricultural operations."
Bankers already are concerned about the Farm Credit System's market share for agricultural loans creeping back up after losing considerable ground from problems during the 1980s' farm crisis.
A 1995 survey by Doane Agricultural Services Co., St. Louis, found that 43% of the 380 farmers surveyed said they used Farm Credit, up from 38% in 1990. Farmers' use of commercial banks declined to 77% in 1995 from 84% in 1990.
The new proposal, they fear, would only make matters worse.
"(V)irtually the entire effect of the proposed changes will be to place the Farm Credit System in a position of greater and unfair direct competition with those banks and other financial service providers who have been meeting the credit needs and providing financial services to small- town businesses and ordinary farmers and ranchers," the North Dakota Bankers Association wrote in a comment letter.
The ABA and IBAA both said they were preparing comments opposing the changes.
"I think that there's great concern, especially when you get into areas like the nonfarm financing," Mr. Blanchfield said.
One commercial banker who spent nearly 16 years with the Farm Credit System, and who asked not to be named, questioned the new definition of eligibility. "Every Tom, Dick, and Harry and every corporation would qualify," he said.
However, Mr. Blakely of the Farm Credit Council said some changes were just a response to changing times.
"American agriculture in the 1990s is very different than it was in the 1970s," he said. "A lot of ag businesses are small businesses."