Farm Credit System regulators are pushing for banks to work more closely with the system's government-sponsored lenders by encouraging the sharing of loans to farmers and ranchers.
Many bankers, however, said they are skeptical about teaming up with lenders they long have feared as tough competitors.
The board of the Farm Credit Administration - which regulates the system's roughly 200 lenders - voted last month to drop rules that regulators said have hampered participation loans involving banks and system lenders.
The rules had required Farm Credit lenders, which divide the country into virtually exclusive geographic territories, to get the local system lender's permission before ranging out of their regions to do participation loans. In many cases that meant Farm Credit lenders could work only with banks in their home territories. But this seldom was done, banks said, because of fears the lender would steal the bank's business.
"It's true there has not been a significant amount of cooperation in the past," said Michael M. Reyna, chairman and chief executive officer of the Farm Credit Administration, "but there's been some. I believe we've created the opportunity for those relationships to evolve and develop further."
He said such relationships would benefit banks that have liquidity concerns and offer a way to make loans that exceed a bank's legal lending limit. Such loan participations could also be used to diversify portfolios geographically, he said.
Maybe so, bankers respond. But many quickly add that they plan to steer clear of the Farm Credit System. Bankers long have accused the tax-exempt, quasi-governmental system of undercutting them on rates.
"Farm Credit is a major competitor," said John Evans Jr., chief executive officer of $202 million-asset D.L. Evans Bank in Burley, Idaho. "It'd make me nervous to participate with them on a loan. I'd be leery of working with any Farm Credit lender, wherever they're located."
But Mr. Reyna said he believes that other banks and Farm Credit lenders could, if given the chance, emulate the success of a program operated by AgPreference Credit Association in Altus, Okla.
AgPreference, a $75 million-asset Farm Credit lender, last year got regulators' permission to expand beyond its six-county region in southwest Oklahoma to arrange participation loans throughout the state. Since starting the program, AgPreference has gone partners with 28 banks on roughly two dozen deals. The biggest loan - $7.5 million - closed in April.
"We're trying to help the development of our little slice of rural America," said Cecil Sheperson, president and chief executive officer of AgPreference. "The general economy has been hot, but that hasn't been the case in rural America."
Mr. Sheperson said the partnership program has worked because AgPreference and participating banks agree not to target one another's customers that are involved in the participation loans.
Said Mr. Reyna, "If the system and the banking industry work together, the ultimate winner in all of this will be the farmer and rural America."
Banks do not dispute that more partnership arrangements are needed.
As farms across the nation have grown, their loan demand often has surpassed what a local community bank can meet. But banks in such situations said they generally have participated in loans only with other banks.
"We've never had a problem finding another commercial bank to work with us," said Mike Wilson, executive vice president of $214 million-asset Security State Bank in Pearsall, Tex. "That's who I'd sooner work with."
Fellow Texas banker Bill Bain said he would avoid turning to a "predatory" organization such as the Farm Credit System. Mr. Bain, president of $60 million-asset Medina Valley State Bank in Devine, Tex., doubted whether he would ever share information on good customers with a Farm Credit lender.
"If we think enough of a customer to seek out more money for them than we can legally lend," he said, "then they likely are a customer the Farm Credit System would seek out for all of the loan in the future."