The bank industry is applauding a Republican plan to extend nearly $4 billion in emergency aid to farmers hard hit by poor weather and falling crop prices.

House and Senate Republicans unveiled a relief plan Thursday to provide $2.5 billion for disaster recovery and $1.65 billion in direct payments to farmers hurt by low prices and lost exports. If Congress approves the plan, the aid would come in time for farmers to repay bank loans after the fall harvest.

"Banks are looking at the possibility of farmers' declaring bankruptcy," said Mark Scanlan, agriculture lobbyist for the Independent Bankers Association of America. "The window of opportunity is closing."

Lining up for the aid would be farmers in Texas, Oklahoma, and parts of the upper Midwest, which are bearing the brunt of bad weather and crop prices driven down by economic turmoil in Asia and Russia. Drought-induced agricultural losses in Texas and Oklahoma are estimated at $7 billion. And in North Dakota, where wheat farmers have been stuck with a diseased crop for the past five years, another poor harvest is expected, according to the Federal Deposit Insurance Corp.

Bankers in the hardest-hit regions say farmers will call it quits without more federal aid. That could spell trouble for such banks as $27 million-asset Country Bank USA in Cando, N.D., which has 65% of its loans tied to agriculture. "If we don't have loans on the books, we don't make money," said Terry J. Jorde, president of Country Bank.

Bank trade groups expect the Republican proposal to be adopted as an amendment to an already approved agriculture appropriations bill.

"This plan does go a long way," said John Blanchfield, manager of the agricultural bankers division of the American Bankers Association. "Congress is responding to what we're all hearing from rural communities."

The Republican plan differs from a Democratic proposal presented earlier this summer. That plan would have revived a government loan program that makes nine-month loans directly to farmers to cover planting expenses. Democrats want to reactivate the program for at least a year to boost prices. But Republicans, who have twice killed the idea, say uncapping the loan program would be too expensive and would artificially inflate commodity prices.

Trade groups have not endorsed either party's plan-they just want action before Congress recesses next month. Mr. Scanlan of the IBAA said he expects that legislators will come up with a compromise in the coming weeks.

"The next 60 days will be crucial," he said. "Something needs to be done to help farmers through the next year."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.