Date: 1985-12-10
Speaker: DE LA GARZA (democrat)
Chamber: H

Mr. Speaker. once again we come before the House addressing the Issue of the plight of rural America and our agricultural sector. Mr. Speaker. the Committee on Agriculture brings this bill to the House because it is in the national interest to safeguard the longterm stability of the Nations largest single agricultural lending agency. the Farm Credit System. The System Is a network of borrowerowned cooperatives providing loans to farmers and their marketing and supply coops. It is organized in 12 farm credit districts. Within each district. there is a Federal land bank which makes long term real estate loans. a Federal intermediate credit bank to make short and intermediateterm loans. and a bank for cooperatives. Finally. there is a central bank for cooperatives to participate in loans that exceed district lending limits. The land banks serve their borrowers through a network of local land bank associations. The intermediate credit banks provide operating credit for producers through their network of local production credit associations. The banks for cooperatives makes loans. to agricultural. aquatic. and rural utility coops and provide financial services for cooperatives in international trade. This Systemwhich is regulated by a Federal agency called the Farm Credit Administrationwas set up by Congress. lbeginning in 1916. to meet the unique credit needs of agriculture. Government seed money was used to establish the System units at first. but all of that money was repaid nearly 18 years ago. Ever since 1968. the Farm Credit System banks and associations have been owned completely by their borrower stockholders. The Farm Credit System has about $73 billion in loans outstanding to farmers. ranchers. and agricultural and rural utility cooperativesabout onethird of all credit used in agriculture. This System is in trouble today primarily because it operates in a single industryagricultureand that industry is in the grip of an economic depression. It simply stands to reason that when tens of thousands of farmers cant earn enough to pay their bills. a credit system which serves only agriculture will be under great economic stress. That stress is affecting the Farm Credit System today. The volume of nonaccrual loans on which payments are not being made rose over 150 percent in the first 9 months of 1985 to over $3.5 billion. And on the basis of Agriculture Department projections of continuing stress in the farm economy. the combined total of socalled nonaccrual loans and foreclosed property held by the System is projected to rise to $60 billion by mid1986 and to between $10 billion and $12 billion by the end of 1987. In spite of this bad financial news. I am not telling the House that the System. as a whole.is on the verge of collapse today. It is not. For the short term. the System as a whole appears to have the resources needed to cope with its losses and to pay back the private money market investors who buy its securities. At the same time. however. there is growing concern about the viability of a number of individual banks and associations within the System unless steps are taken to address their problems. Over many years. the System has developed a system in which its units are knitted together by losssharing agreements and by the fact that they are jointly and severally liable for securities sold to the investing public. Those ties made the System strong. produced investor confidence and kept interest rates low for borrowers. More recently. the wellpublicized problems of the System have led buyers of farm credit securities to demand a significantly higher spread between interest rates on System securities and the rates on Treasury securities. We must avoid the possibility that future developments could at some time drive investors out of the market for farm credit securities. In this situation. Congress must act to help the system marshal its own resources to help its weaker units. But we must also provide that. if the System does all it reasonably can to help itself and still needs additional assistance. it can be made available. These actions are needed to preserve the confidence of the investors who furnish the continuing supply of funds needed to operate the entire System. Before discussing in detail what the committee has proposed to meet these problems. let me tell the House what we are not doing. We are not providing a bailout with mandates for Federal loans and guarantees. This bill stops short. in other words. of the mandatory "skstance that was provided in cases like those of Chrysler. Continental Bank of Illinois. Boeing and New York City. -What we bring the House is a carefully designed. barebones approach which does several things: First. H.R. 3792 provides strengthened. more effective Federal regulation of the System. Second. the bill recognizes that much can and should be done by the System itself. using its own reserves. before outside aid is warrantedbut with approporiate protection against endangering sound banks and units and their ability to serve borrowers on reasonable terms. It should be noted that the System already has taken some important steps to share resources with several of its institutions. Third. the bill provides new legal protection for borrowers to help make sure that they get fair treatment and every realistic chance to avoid liquidation. And finally. the bill recognizes that if the situation in agriculture continues to deteriorate. the Federal Government must be authorized to give the System a safety net similar to arrangements that are already authorized for other Governmentsponsored agencies. In this connection. I am proposing an amendment to the bill as reported by the Agriculture Committee. The amendment. which is similar to a provision adopted by the other body. would make the assistance authorized by the bill subject to the appropriations process. Nobody says that passage of this bill can. by itself. solve all the economic problems of agriculture or bring farm prices back to reasonable levels. But we do say two thingsfirst. that the Farm Credit System today provides services which are essential to modern agriculture. and second. that in the unlikely event the entire System was ever allowed to collapse. there would be great damage both to our troubled agricultural industry and to the overall national economy. My statement that the entire Nation has a stake in assuring the continued viability of the Farm Credit System is based on a recent report produced for Farm Credit System institutions by a private economic firm. Chase Econometrics. That study looked at what might happen if the System defaulted on Its obligations in 1986. The Chase study gives us an idea of why the Systems continued viability is important to the whole national economy. The study concludes. for example. that a System default would lead to a general increase in interest rates on other types of securities. and mortgage rates for homeowners around the country would rise. The study predicts that business investment would suffer because of generally higher interests rates. real income for consumers would decline and employment would fall below currently predicted levels. As a result of these and other developments. the Federal deficit by fiscal 1987 could be $53 billion above current baseline forecasts. Before continuing. I want to emphasize and underline again the fact that we do not expect a default and we do not predict one. But I also want to emphasize and underline the fact that the whole Nation has a stake in making sure that we safeguard the stability of the Farm Credit System. Because of that national interest. as well as the welfare of agriculture. the Agriculture Committee has adopted H.R. 3792 on a bipartisan basis. I want now to outline for the House the major features of this legislation.