Cobank, the Denver-based $22 billion-asset Farm Credit System lender, plans to ask the government for permission to directly invest in agricultural cooperative companies.

Though it riles commercial bankers, the request is a step back from Cobank's moves this fall to gain broad authority for venture capital investments.

Cobank, a quasi-governmental enterprise that lends to agricultural cooperatives such as Blue Diamond Growers and Land O' Lakes Inc., met stiff opposition from bank groups when it unsuccessfully lobbied Congress for the right to invest in all sorts of agricultural companies.

The American Bankers Association and the Independent Community Bankers of America said the power would give Cobank an edge over commercial banks. Both groups vowed to fight any new Cobank efforts.

"Cobank's appetite for venture capital is whetted," said Mark Scanlan, the ICBA's agricultural affairs director. "They'll push hard on this next year, but we see no reason they should have this authority."

Cobank has not yet submitted a formal proposal to its regulator, the Farm Credit Administration. However, Jack Cassidy, a Cobank senior vice president, said the lender is talking with Clinton administration officials about how existing law could be used to meet the needs of the lender's customers.

"We already have authority under the current law to invest in mortgage-backed and other credit securities," he said. "The same law hasn't been used as a way for us to gain venture-capital authority, but it could."

Cobank insists it merely wants to meet a need that the private sector is not. The lender said its customers complain about their inability to gain funding from investment firms that demand a higher rate of return than the agricultural cooperatives can provide.

Cobank says it will place less demand on agricultural cooperatives than private venture capitalists would require. For instance, Cobank said it would seek only about a 20% annual rate of return on its investments, versus the 35% to 45% that many venture capitalists seek. Cobank also said it would be willing to fund projects that would require as little as $1 million; venture capitalists often shy away from projects smaller than $10 million.

Mark McBeth, a Farm Credit Administration spokesman, declined to say if Cobank's current charter would give it the right to make such investments. "Until we have a proposal in hand, we really can't say whether it would fall within the guidelines," he said. But in October the agency supported venture-capital authority for Cobank.

In its earlier legislative proposal, Cobank pledged $100 million over five years in venture capital if Congress let it acquire the U.S. Department of Agriculture's Alternative Agricultural Research and Commercialization Corp. That organization, which invests in companies that search for new nonfood uses of agricultural commodities, is expected to run out of funding in late January and be disbanded.

"We're waiting to see if the organizations that killed our proposal now line up the level of capital we were offering," Mr. Cassidy said. "When people call us looking for venture capital, we'll give them the ABA's phone number."

John Blanchfield, the ABA's manager of agricultural banking and rural development, relishes his association's ongoing role in battling Cobank, going so far as to call it a "public service to the American taxpayer."

Mr. Blanchfield points to a report conducted by the Agriculture Department's Inspector General that found the Alternative Agricultural Research and Commercialization Corp. squandered most of its money. The report, released in early December, found that about 75% of the corporation's $27 million of investments were not performing, representing a potential loss of more than $20 million.

"To put the American taxpayer at further risk by giving venture-capital authority to a government-sponsored enterprise is ludicrous," Mr. Blanchfield said. "This report shows what happens when the government or a quasi-governmental group goes on a venture-capital expedition. They lose and lose big."

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