WASHINGTON - One of the Farm Credit System's largest banks is suing its regulator to block new rules that allow Farm Credit lenders to share loans with commercial banks and other private-sector lenders.

The Farm Credit Bank of Texas and five smaller lenders, which filed suit June 30, argue that the Farm Credit Administration overstepped its authority in amending decades-old lending rules without comment from Farm Credit lenders.

The plaintiffs also argue that the rules - which took effect in late May - violate an 11-year-old contract that gave the Farm Credit Bank of Texas and its five affiliates exclusive lending authority in Alabama, Louisiana, and Mississippi.

The Farm Credit Administration, which regulates Farm Credit lenders numbering about 200 nationwide, has not responded to the suit. In April the regulator said the new rules would make more credit available to farmers at a time when they need it most.

"Cooperation among system and nonsystem lenders can increase agricultural credit availability, particularly during downturns in the economic cycle, such as the one that agriculture is currently experiencing," according to a notice published in the Federal Register.

Historically, Farm Credit lenders have been barred from making loans outside their geographic districts unless they were sharing a loan with another Farm Credit lender. They also could not participate in loans with commercial banks or other lenders unless they received approval from the Farm Credit Administration.

Under the new rules, Farm Credit lenders may share loans with commercial banks - no matter where they are based - without specific government approval. That means a Farm Credit lender in California could team up with a bank in New Orleans to lend to a farmer in Louisiana.

The Farm Credit Bank of Texas, with $5 billion of assets, and five federal land bank associations argued that the new rules violate an agreement reached in 1989 when the Texas bank acquired the assets of a failed Farm Credit System lender in Jackson, Miss.

The Farm Credit Bank of Texas "undertook a considerable amount of financial risk" and "has spent over a decade working to gain and keep the trust of long-term borrowers and to stabilize System lending in the former Jackson district," the plaintiffs said in documents filed in the U.S. District Court for the District of Columbia.

The Farm Credit System was established by the federal government in 1916 to ensure that all farmers would have access to credit. Last year, Farm Credit lenders held about 26% of all outstanding agricultural loans.

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