The Farm Credit Administration in Washington will take on new and tougher regulatory powers as part of efforts to save the federal agricultural credit system, bankers here were told.
Marvin Duncan, senior deputy governor of the Farm Credit Administration, outlined for the American Bankers Association’s annual convention here Monday plans that he said would turn the administration into “an arms-length, tough-minded regulator” of the massive and basically decentralized Farm Credit System.
The system includes a variety of components that conduct federal farm lending and assistance programs across the nation. Congress, the Reagan administration, and the Farm Credit Administration are considering ways to rescue the Farm Credit System, which has been hit hard by loan losses and a deteriorating loan portfolio.
Mr. Duncan said at a convention session on the farm credit problem that the Farm Credit Administration would ask Congress for “a stronger regulatory environment” and the power to impose fines and cease-and-desist orders. These, he said, would be similar to the authority of federal regulators of commercial banks. He said that the administration plans to utilize once again its authority to examine the various lending entities that make up the Farm Credit System.
And Mr. Duncan said that the Farm Credit Administration will move further in the direction of “full disclosure and improved accounting procedures.” In this regard, he said that the 37 Farm Credit Banks will use generally accepted accounting principles by yearend.
The administration official also reviewed the magnitude of the system’s loan problems.
“The system,” he said, “looks toward having perhaps to work through over the next three years — 1985, ’86, and ’87 — as much as $13 billion of nonaccrual loans, not all of which are going to be on the books at any point in time. It will probably experience substantial losses on those loans.”
The need to centralize and toughen the regulation of the Farm Credit System also was stated by one of the Reagan administration’s top farm credit authorities, Frank W. Naylor, undersecretary of the Agriculture Department for small community and rural development.
Mr. Naylor added that contrary to some reports, the Farm Credit System “has an enormours amount of financial strength of its own.” He said it had “its own capacity to ‘heal thyself — without substantial federal intervention.”
Another panel member from Washington who agreed that the regulatory system has to be toughened was Rep. Dan Glickman, D-Kan., a member of the House Agriculture Committee. He said that tougher regulation “is going to make a lot of farmers nervous, but I don’t think you can have it both ways.” Mr. Glickman was critical of the Reagan administration, however, for implying that the Farm Credit System needs to do more to help itself.
The House Banking Committee’s economic stabilization subcommittee today begins a series of hearings in Washington on agricultural credit problems. At an ABA legislative update here on Sunday, Rep. John LaFalce, D-N.Y., the subcommittee chairman, said more needs kto be known about the problem before solutions can be fashioned.
However, Mr. LaFalce said that one of the questions is whether to bring the Farm Credit System under regulatory laws similar to those applicable to commercial banks. Another problem, he said, is whether commercial banks that are heavy into farm lending should be included in any assistance programs