Like many community bankers, Buckner Woodford is eager for his Federal Home Loan Bank to loosen its collateral restrictions and free up new sources of funding.

Mr. Woodford, president of $339 million-asset Kentucky Bank in Paris, Ky., said changes in collateral rules allowed under last year's financial reform bill would help ease the pinch at many deposit-starved community banks. Kentucky Bank's loan portfolio has grown 15% on average in each of the last three years, while deposits have increased just 5%.

"With that big a difference, it doesn't take long to put pressure on using deposits for funding," said Mr. Woodford, whose bank falls within the district of the Cincinnati Home Loan Bank. "The new advances will be a real benefit, once they're finally available."

Nine months after financial reform was passed, many bankers are growing frustrated with the Home Loan Bank System's delay in implementing the new rules. Moreover, they see no resolution until late this year or early 2001.

The 12 Federal Home Loan Banks gained the right last fall under the Gramm-Leach-Bliley Act, which has cleared the way for banks with less than $500 million of assets to pledge agricultural and small-business loans as collateral for advances. The Home Loan banks previously took only mortgages and securities.

The law left it up the Home Loan banks' regulator, the Federal Housing Finance Board, to pass rules on how to administer the advances; it did so in late June. Now the Home Loan banks are developing their own procedures but do not plan to act until November or December at the earliest.

The sooner the better, bankers say. "There are a lot of community banks sitting out there with very high loan-to-deposit ratios," said Lyle Frederickson, a senior vice president of $90 million-asset First Capital Bank of Arizona in Phoenix. "There are people in a lot of communities that want to borrow money, but banks are having to pull in the horns because there's no way to fund the new loans."

The Home Loan banks say they are working as fast as they can but point out that their staffs have little experience with agricultural or small-business loans. The system never has dealt with these lines since Congress established the banks in 1932.

"Getting our hands around how to manage these loans in a safe and sound manner is hard," said Pat Conway, president of the Federal Home Loan Bank of Des Moines. "It takes time and effort."

Most eyes have turned to the Des Moines Home Loan bank to take the lead within the system. Because Des Moines has more agricultural banks in its district than any of the other 11 banks, it has brought in a team of specialists to analyze the risk profiles of farm and small-business loans. Other Home Loan banks, including those in Chicago and Seattle, are closely monitoring Des Moines as they prepare to finalize their own plans.

Mr. Conway said the Des Moines region's community banks would not gain access to the new funds until at least November. Other Home Loan banks said their own plans could stretch into 2001.

The weak agricultural economy may be one source of the delay. Farmers have been hit by weather-related disasters such as drought in the Northeast and flooding in the Great Plains the last two years. In addition, low commodity prices have them worried about the value of their assets.

"It's a concern," said Steve Reichle, senior vice president of correspondent banking at the Federal Home Loan Bank of Topeka. "It's an issue that we have to make sure we feel comfortable with."

Even though they are pressing for the funds, community bankers said they appreciate the risk the Home Loan banks are weighing.

"If they do something wrong, it can backfire quickly," said Dale Torpey, president and chief executive officer of $60 million-asset Community State Bank in West Branch, Iowa.

"They have to make sure the collateral we put up is more than going to cover the advances we take - just like bankers do when we underwrite a business loan."

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