McLEAN, Va. - Unlike his predecessor, Michael M. Reyna never made loans to farmers before becoming chairman and chief executive officer of the Farm Credit System

But that should not count as a strike against him, says Mr. Reyna, who replaced Marsha Pyle Martin in January after Ms. Martin died unexpectedly. In fact, Mr. Reyna contends that his inexperience may actually help him to achieve one key objective: smoothing things out between the 200-odd Farm Credit lenders and traditional banks.

"Not being a product of the system is both good and bad," he said in an interview. "I don't have what Marsha had, which was the institutional memory. But that's also good. I can take a fresh look at issues and deal with them on their merits."

Ms. Martin died at age 61 from cancer that was diagnosed late. She had spent her entire career at a Farm Credit bank in Texas before joining the Farm Credit Administration in 1994.

Mr. Reyna, 43, spent the first 11 years of his career as a legislative assistant in California, developing state financial services laws. He later became California director of the Agriculture Department's rural development division, which financed health clinics, child-care centers and other public facilities.

Community bankers are watching him closely. They are particularly anxious to see how he treats a controversial proposal that would tear down geographic barriers within the Farm Credit System and give farmers more borrowing options.

The so-called Customer Choice plan has drawn fire from inside and outside the system. It would eliminate decades-old barriers that prevent Farm Credit lenders from lending outside the territory they are chartered to serve.

Ms. Martin championed the plan, saying it would increase competition and benefit farmers. But Mr. Reyna said that though he also is committed to eliminating geographic barriers, he is not wedded to Customer Choice - and has ordered his staff to research alternatives.

"It's important to the viability of the system that the lines come down," he said, "but whether it's accomplished through this proposal or another mechanism … doesn't matter."

Bank groups are in no mood to compromise. Banks long have accused Farm Credit lenders of using their tax-exempt, government-sponsored-enterprise status to lowball rates. They fear that competition within the system could force rates even lower and lead to Farm Credit lenders' consolidating, which would create even bigger competitors for community banks.

"Even if he can find some compromise to appease the system, there's at least one huge group that will still oppose it - us," said John Blanchfield, director of the American Bankers Association's Center for Agricultural and Rural Banking.

How the Customer Choice proposal pans out remains to be seen. But Mr. Reyna said that even if the two sides cannot agree on that issue, he sees numerous other opportunities for Farm Credit System lenders and community banks to work more closely together.

One proposal, which he said he plans to introduce in the next few months, would encourage banks to participate with Farm Credit lenders on large loans. Another, he said, would make it easier for banks to access low-cost Farm Credit money through the already active Other Financial Institution program.

Also, Mr. Reyna said he plans to urge system lenders to focus more on young farmers just breaking into the business. Commercial banks often have accused the system of ignoring this market and instead targeting larger, established farmers who rank among rural banks' best customers.

He said it was premature to talk specifics on any of these proposals, which he said are in the research-and-development stage.

But North Dakota banker Roger M. Monson said he would welcome any improvements the Farm Credit Administration could make to the Other Financial Institution program, which allows community banks to set up subsidiaries - known as OFIs - that can borrow funds from large Farm Credit banks.

Mr. Monson, president and chief executive officer of $30 million-asset Citizens State Bank of Finley, said the program is useful, but it still requires considerable paperwork to obtain loans through the Farm Credit System.

"We use it more and more as a source of funds for our larger credits that exceed our legal lending limits," Mr. Monson said. "It keeps those borrowers working with our bank. But there's a lot of streamlining that could be done to the program."

Mr. Reyna acknowledged that the program is cumbersome, suggesting that as a reason why only 24 commercial banks use it. Nonetheless, he may have to cross a long bridge to coax community banks into working more closely with their Farm Credit adversaries in other ways.

The plan to share loans with Farm Credit lenders appears to be less popular. Kansas banker Terry L. Barta said he has lost a number of his best agricultural borrowers to Farm Credit lenders over the years and that he would be wary of working with those lenders on loan participations if they remained active competitors.

"Obviously, it's desirable to have a variety of sources you can turn to for funding," said Mr. Barta, senior vice president of $61 million-asset Smith County State Bank and Trust Co. in Smith Center. "But a lot would depend on how competitive they want to be locally. We've lost some loans to them. We don't want to lose more."

Mr. Reyna also risks riling Farm Credit lenders if he proposes a compromise on Customer Choice, the proposal to tear down geographic barriers.

Small Farm Credit institutions, which constitute the bulk of the in-system dissent, said they want regulators to give them the right to make long-term loans for land and other capital purchases at the same time they end geographic restrictions. Otherwise, they fear larger institutions could roll in and cherry-pick their best customers while they could do little to retaliate.

By the nature of their charters, most of the smallest Farm Credit lenders can make only short-term operating loans.

Bill Yoakum, president and chief executive officer of the $48 million-asset Production Credit Association of Eastern New Mexico in Albuquerque, said this compromise would "put us on a level playing field with our larger counterparts."

But that option - which Mr. Reyna admits regulators are researching - still wouldn't satisfy Customer Choice's most vocal opponent. The $5 billion-asset Farm Credit Bank of Texas, one of the system's largest lenders, has threatened legal action if geographic barriers fall.

"We don't see any way that this proposal could be modified that we'd be satisfied, short of deferring its implementation so far out that it wouldn't pose an imminent threat," said Bill Zimmerman, general counsel and senior vice president of the Austin-based lender.

Mr. Reyna said he realizes there will be some opposition. But he said the decision would ultimately be based on what is best for farmers and other agriculture-related businesses.

"The goal isn't 100% support," he said. "The goal is to do the right thing for the customer, and the system will adjust."


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