Bankers are hoping to build on recent momentum in their efforts to reform the Farm Credit System.

Some lawmakers have recently suggested hosting an oversight hearing on the Farm Credit Administration, the system's regulator, or have vowed to investigate the soundness of the government-sponsored enterprise. A pair of banking trade associations hope to seize on those opportunities to discuss their allegations of Farm Credit abuses.

"We did a survey of bankers that said the Farm Credit System was using its GSE advantages to underprice them in the marketplace and to take away their best customers while ignoring the young, small farmers," said Mark Scanlan, senior vice president of agriculture and rural policy at the Independent Community Bankers of America. "They are taking the largest and best loans from community banks, and that destabilizes their portfolios and leaves banks with fewer borrowers and more highly leveraged borrowers. That raises the risks for community banks."

Sens. Tom Harkin, D-Iowa, and Charles Grassley, R-Iowa, raised similar concerns in a letter to Agriculture Committee Chairman Debbie Stabenow this month. A review of the system, especially its regulator, is overdue, they said.

The Farm Credit Administration "plays an important role across rural America, and yet the committee has not held an oversight hearing on the FCA in at least 10 years."

The letter didn't elaborate on their reasoning, and calls to their offices requesting more information were not returned.

Additionally, Rep. Marlin Stutzman, R-Ind., a member of the House Financial Services Committee, recently wrote an opinion piece for American Banker where he vowed to look into the stability of Farm Credit after a Treasury Department unit offered a $10 billion line of credit to the Farm Credit System Insurance Corp., a federal backstop for debt issued by the roughly 80 Farm Credit lenders.

Bankers believe Congress has been reluctant to act in recent years because of lobbying efforts by the Farm Credit lenders and because more attention has been focused on the troubled GSEs of Fannie Mae and Freddie Mac.

However, bankers believe this attitude is beginning to change. The trade associations have made reforming Farm Credit a priority, and the system has grown in size. If it were a bank, Farm Credit would be the ninth-largest in the country, said John Blanchfield, senior vice president of agricultural and rural banking at the American Bankers Association.

"We are no longer arguing over a loan made to some pig farmer in Indiana," Blanchfield said. "We are seeing things on a much more monumental scale."

Farm Credit officials and their regulator said they are unconcerned about the possibility of an oversight hearing.

They pointed out that Farm Credit has been widely discussed at other hearings, including one in June in front of the House Agriculture subcommittee on livestock, rural development and credit. But the general topic of that meeting was reviewing credit availability in rural America, not Farm Credit specifically.

Still, "people are often interested in credit in rural America, and we are always happy to talk about it," said Michael Stokke, director of the office of congressional and public affairs at the FCA.

"There have been plenty of discussions about issues affecting Farm Credit, and we are up there every day talking to members of Congress" about the system, said Ken Auer, president and chief executive of the trade association Farm Credit Council. "We would be happy to have a hearing if Congress so chooses to do one specifically on Farm Credit."

The ABA and ICBA hope to bring up a variety issues. For one, bankers are concerned about Farm Credit institutions making loans to more than just farmers. Stutzman pointed to an example in his opinion piece where an Indiana bank lost a loan for the purchase of a mobile home park to a Farm Credit lender because the latter could offer better terms.

"As a community banker that deals with Farm Credit every day, I would like to see them answer some questions about their mission, the type of loans they are making and how they have grown over these last few years," said Matt Williams, chairman and president of Gothenburg State Bank in Nebraska. "Part of our goal is to educate people and have them actually hear and understand what is happening today in the arena of agriculture lending."

Farm Credit is the $139 million-asset Gothenburg's biggest competition, Williams said. More than 70% of its loans are directly or indirectly related to agriculture.

Additionally, bankers are concerned about the $10 billion line of credit that's been extended to the Farm Credit System Insurance Corp. without "going through Congress and without any public comment," Scanlan said.

"It raises the question of whether there are risks that aren't being disclosed," he adds.

Auer dismisses these concerns. The system's mission was never to serve only a certain segment of farmers, he said. Instead, it was created to cater to the entire agriculture industry and other businesses in rural America.

Additionally, the line of credit is only meant to serve as a backup if there is a liquidity crisis caused by a market failure, and the banking industry has had similar government backstops for some time, he said.

"The Farm Credit System has a great story to tell, and we are happy to tell it," Auer said.

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