Rejecting a banking industry challenge, a federal judge has ruled that the Farm Credit System may lend to equipment dealers and other companies that supply agriculture-related services.

Judge Stanley Sporkin of the U.S. District Court here, in dismissing the suit filed by the Independent Bankers Association of America and the American Bankers Association, said the Farm Credit Administration has broad discretion to decide to whom member institutions may lend.

The IBAA and ABA sued the government in April after the agency adopted a rule letting the Farm Credit System expand beyond its historical role of financing the purchase of seed and livestock by farmers.

Judge Sporkin said he found no support for the trade groups' suit.

"The agency adopted its new regulations in a thoughtful, reasoned manner," he wrote in the Nov. 24 decision. "The broad, permissive language of the statute clearly covers the more expansive lending under the new regulations."

Banking industry officials said they may appeal the decision.

"The Farm Credit System was created to primarily serve farmers and ranchers, not to use their government-induced privileges to displace commercial banks," said Terry Jorde, president and chief executive of Towner County State Bank, Cando, N.D., and chairman of IBAA's agriculture- rural America committee.

"The court's decision, if left standing, blurs the lines between what is the proper role" of the Farm Credit System "and to whom it should lend," ABA executive vice president Donald Ogilvie said.

Farm Credit Administration Chairman Marsha Pyle Martin said she was not surprised by the ruling. "The judge simply verified that farming has changed significantly in the past 25 years since this rule was written," she said Tuesday. "I never questioned that the changes we made to update the rule were well within the law."

William R. Weber, president and CEO of the Farm Credit Council, said the updated rules ensure the survival of the Farm Credit System. "The rule takes a contemporary look at the world of farming and allows the Farm Credit System to respond to the changing marketplace, just like banks want to do in the financial services arena," said Mr. Weber, whose group is the trade association for Farm Credit System members.

The Farm Credit System is a $77.2 billion-asset government-sponsored enterprise comprised of six regional farm credit banks, one national bank for cooperatives, one agricultural credit bank, and 208 farmer-owned credit associations. It had $62.6 billion in outstanding loans as of June 30.

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