income gains in the developing world promise further increases in demand for higher - protein diets. developing risks in agriculture despite prospects of sustained farm income growth, u. s. producers must remain alert as they face challenges related to their very success and tied to recent developments in financial markets. surging commodity prices and low interest rates have translated into increasing farmland values, which have eclipsed their 1980s peaks. in our bank ’ s fourth quarter 2010 survey of agricultural credit conditions, for example, cropland values in nebraska and kansas were nearly 20 percent above year - ago levels and more than 75 percent higher than five years ago. bis central bankers ’ speeches this run - up in farmland values has occurred, however, amid financial markets characterized by high levels of liquidity and unusually low interest rates. history has taught us that it is nearly impossible to determine how much of the farmland boom may be an unsustainable bubble driven by financial markets and how much results from fundamental changes in demand and supply conditions. therefore, it will surprise no one when i say we are watching the market closely, just as we are watching for imbalances emerging elsewhere in the economy. of particular interest to me is how agriculture might adjust when financial markets return to more - normal interest rate conditions. rising interest rates often coincide with falling farm revenues and higher capitalization rates, a depressing combination for farmland values. moreover, even if crop prices remain high but capitalization rates return to their historic average, farmland values could fall by as much as a third, which most certainly would erode the financial health of the farm sector. fortunately, the industry entered this period with a relatively strong balance sheet. farm leverage ratios are at historic lows, and agricultural banks are well capitalized. in addition, farm operators and banks have strengthened their risk - management practices, using basic hedging strategies and derivative markets to manage price and balance sheet risk, which contributed to smaller increases in problem assets at agricultural banks than at their peers. nevertheless, i follow the basic lesson that bad loans are made in good times, and i remain watchful. in closing, i ’ ll briefly highlight a symposium the federal reserve bank of kansas city hosted last summer to consider agriculture ’ s response to the extraordinary shifts occurring in market conditions. there was a marked and, in my view, a very healthy consensus that the industry ’ s success will lie not in its ability to follow a single path, but in its ability to adapt quickly to shifting economic landscapes and conditions.

thomas m hoenig : central banks : changing markets – changing mandates speech by mr thomas m hoenig, president and chief executive officer of the federal reserve bank of kansas city, at the central bank of argentina 2008 money and banking conference “ financial turbulence – impact on developed and emerging economies ”, buenos aires, 1 september 2008. * * * it is a pleasure to be in buenos aires today to participate in this high - level conference sponsored by the central bank of argentina. revolutionary changes in financial markets, combined with events such as the market disruptions associated with the subprime lending debacle, have raised anew questions about the role of central banks in maintaining financial stability. though central banks have traditionally had some responsibility for financial stability, such responsibility has typically not been placed on par with more explicit mandates for price stability and economic performance, in part perhaps, because of the episodic nature of financial crises. yet, recent market disruptions in the united states make it very clear that the financial markets, the general public and political authorities will look first and foremost to the federal reserve to respond to any significant threats to financial stability. in this context, it may be useful to take a closer look at a central bank ’ s mandate for financial stability. today, the federal reserve plays a role in “ crisis prevention ” through its regulation and prudential supervision of banks and bank holding companies. it also plays a role in “ crisis management ” by providing liquidity to stem financial disruptions and by using monetary policy to reduce the impact of financial disturbances on economic activity. in the current crisis, the federal reserve has taken unprecedented steps to manage and contain the crisis. as we examine lessons learned from these events, we will have to decide whether financial stability can be best maintained in the future, as some have suggested, by extending the federal reserve ’ s supervisory and lending authority to a broader part of the financial system. in doing so, we need to examine both the intended and possible unintended consequences of such a decision. alternatively, if we do not envision a broader role for the federal reserve, we need to articulate what other institutional reforms might be needed to avoid a repeat of the recent crisis and to reduce the crisis management burden on central banks going forward. a second issue worthy of further discussion is how a central bank ’ s mandate for financial stability can be balanced with its other macroeconomic responsibilities. for the federal reserve, adding a more explicit financial stability mandate to its existing dual