Bankers have flooded the Farm Credit Administration with letters complaining about a proposal they say would unfairly expand the role of government-backed agricultural lenders.

Of the roughly 1,300 comment letters sent to the agency, nearly 800 were written by bankers and bank trade groups vehemently opposing the plan. Rural bankers have long labeled the system an unfair competitor, but this so-called "scope and eligibility" rule proposal has sparked a firestorm.

"This proposal vastly expands the Farm Credit System's lending authority," wrote Wells Fargo Bank vice president Leonard A. Monaco Jr. "It would put the (system) into nationwide competition with taxpaying lenders for commercial and consumer credit."

The proposal, published in the Aug. 13 Federal Register, would allow farmers to borrow money for nonagricultural purposes in amounts equal to the value of the farmer's agricultural assets. Bankers are worried that the Farm Credit System would move away from its traditional role as a lender for strictly farm-related purposes. Bankers argue that they would then be forced to compete with government-backed lenders in all areas of their business.

"The proposed revision ... will extend the (system's) competitive advantage into the mortgage, consumer, and commercial lending markets," wrote Michael P. Smith, president of the New York State Bankers Association.

The Farm Credit Administration regulates the Farm Credit System, a $74.8 billion-asset government-sponsored enterprise consisting of six regional farm credit banks, two national banks for cooperatives, and 230 farmer- owned credit associations. The system's member associations lend to farmers, and its member banks sell bonds to finance these loans.

"This proposal would allow Farm Credit System institutions to finance a residential development and a golf course for a 'bona fide' farmer," wrote Harry J. Argue, executive vice president of the Wisconsin Bankers Association. "Obviously, these are loans that Farm Credit System institutions were not originally intended to finance."

Agency officials, however, have argued that bankers "grossly misunderstood" the proposal's intent.

Farm Credit Administration Chairman Marsha P. Martin said the proposal is an attempt to clarify rules that she said are too vague. Her agency's plan is to restrict, not expand, the level of nonfarm loans made by the system.

"What's so frustrating is that we're just trying to provide some specific standards," Ms. Martin said in an interview Wednesday. "Because the system is moving away from being a long-term farm real estate lender and toward being a short-term lender, we've highlighted this in order to cap the nonag credit the system can offer."

Bankers were also upset about the agency's proposed definition of the term "farmer." It said a farmer is someone who generates income from actively producing agricultural products. That would allow any backyard gardener to borrow from the system, bankers argued.

"This opens the door to anyone with ... a small garden in their backyard, raising melons for the local farmers market," said Larry M. Holt, vice president of Central Valley Bank, Toppenish, Wash.

Opposition came not only from bankers but also from several farm groups. "A very significant shift of FCA services away from farm loans to small and medium-size agricultural producers toward consumer and business lending will occur if the proposed rule is approved," said John K. Hansen, president of the Nebraska Farmers Union.

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