Contending that the Farm Credit System should be allowed to make only agriculture loans, bank trade groups presented their opening arguments Friday in their appeal of a federal court decision handed down last November.
Representatives from the Independent Bankers Association of America and the American Bankers Association told the U.S. Court of Appeals for the District of Columbia that a federal judge erred when he gave the government-sponsored enterprise permission to extend credit to businesses that serve farmers, such as equipment and seed dealers.
They asked the three-judge panel to overturn the federal judge's decision and block the January 1997 rule issued by the Farm Credit Administration that expanded the system's operations.
The new rules "permit the farm credit institutions to move away from the specialized purpose that Congress set out for them and into the general- purpose banking business, " said Michael F. Crotty, an attorney with the ABA.
The Farm Credit System comprises six regional farm credit banks and more than 200 other credit associations.
Until the rules were changed, Farm Credit System institutions could lend only to companies that earned almost all their net income from farm-related businesses. Therefore, 99% of all loans went to ranchers and farmers.
Now, any company that derives more than 50% of net income from farm- related activity is eligible for Farm System credit.
Bank groups said Congress never intended for the Farm Credit System to compete head-to-head with commercial banks. Rather, they argued, lawmakers wanted the system to serve farmers and ranchers in rural areas who had difficulty obtaining credit.
But attorneys for the Farm Credit System maintain that the rule changes are within the guidelines established by Congress.
The judges interrogated both sides during the one-hour hearing, leaving few hints as to which way they were leaning. One plaintiff's attorney was encouraged by judge Laurence H. Silberman's questions about the effect the Farm Credit institutions' increased lending powers would have on community banks.
"It was good to see the justices understood the practical effects this could have on competition," said Leonard J. Rubin, a Washington attorney.