Bank trade groups are fuming over a proposed amendment to the agricultural appropriations bill that they say would unfairly broaden the authority of the rival Farm Credit System.

The proposal, introduced by Sen. Tom Harkin, D-Iowa, would transfer the lending and investment powers of a government-funded company -- Alternative Agricultural Research and Commercialization Corp. -- to a Farm Credit System lender, Denver-based CoBank.

Alternative Agricultural Research and Commercialization Corp. invests equity capital in ventures and also lends money to them. Banking associations fear that giving authority over the corporation to the quasi-governmental CoBank would give CoBank an advantage over private-sector agricultural banks in competing for loan business.

"This deal really smells," said John Blanchfield, manager of agricultural banking and rural development at the American Bankers Association. "CoBank wants this authority really bad, and that disturbs me because this appears to be a major expansion of the Farm Credit System."

CoBank officials say the Harkin amendment should not rankle banking groups because, unlike other Farm Credit System lenders, CoBank does not compete directly with community banks. Instead, they say, CoBank finances grain elevators and agricultural cooperatives, the bulk of which have credit needs that exceed the lending limits of most small banks.

"Community banks need to look at this proposal and ask themselves when the last time was that they lost a deal to CoBank," said Jack Cassidy, a CoBank senior vice president.

Funded by the U.S. Department of Agriculture, Alternative Agricultural Research and Commercialization Corp. invests capital in companies that search for nonfood uses of agricultural commodities. These could include producing ethanol, a corn fuel, or making particle board and plastic substitutes from grains. CoBank, with $22 billion of assets, said that if the Harkin amendment passes it plans to broaden its investment program to include more mainstream producers.

Banking groups fear that would give CoBank a competitive edge because customers could borrow money and raise equity capital at one location -- meaning they would be less inclined to apply for loans at their banks. They also worry that the Harkin amendment, if passed, would prompt other Farm Credit banks to enter businesses that stray from their stated missions.

Sen. Harkin has not yet introduced the amendment in the Agriculture Committee. Nevertheless, the proposal is expected to move quickly because the appropriations bill to which it would be attached is for the government's new fiscal year, which began today.

Moreover, Alternative Agricultural Research and Commercialization Corp., which received a $42 million appropriation, is expected to have its funding cut off in the next couple of months because a law passed in 1996 dictates that it be privatized or turned over to a government-sponsored enterprise this year.

"This issue needs more scrutiny," said Mark Scanlan, agricultural affairs director at the Independent Community Bankers of America. "There are too many potential implications that need to be dealt with in a short time."

The Farm Credit Administration, which regulates the nation's roughly 200 Farm Credit System lenders, has not taken a stand on the Harkin amendment because it does not yet know enough about the proposal, spokesman Mark McBeth said.

"We're attempting to research this as quickly as possible because we don't know how long this will be in committee," Mr. McBeth said. "The appropriations bill could take a while, or it could move forward very quickly."

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