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Farm Credit Bailout Pressure Mounts As Bank Freezes Stock

December 11, 1987

WASHINGTON (AP) _ Pressure for a congressional bailout of the Farm Credit System is intensifying after financial blows forced a stock freeze at a Federal Land Bank in Mississippi.

″It’s a matter of substantial urgency,″ Sen. Thad Cochran, R-Miss., said Thursday as House and Senate negotiators met to resolve differences between their differing bailout plans.

Senate Agriculture Committee Chairman Patrick J. Leahy, D-Vt., said he still hoped to send such a measure to President Reagan’s desk this year. But prospects for doing so remained uncertain.

There are 12 federal land banks within the Farm Credit System. The bank in Jackson, Miss., has been among the most severely troubled of them, and it announced Thursday it was nearing a state of zero net worth and had frozen borrower stock.

Officials at the system and the Farm Credit Administration, the system’s federal regulator, said it was the first federal land bank stock freeze in memory. It means borrowers who must buy shares when they get their loans may not redeem them for cash for the time being.

It also means the bank must suspend its regular loan business for now, system officials said. But Chairman J.A. McDaniel said in a letter to borrowers the bank would explore interim credit possibilities until a federal rescue package is available.

Meanwhile, existing loans will continued to be serviced and shareholders who retire their loans will receive certificates that may be redeemed for cash when money is available, the bank said.

It said the stock freeze was necessitated because the bank is nearing a state of zero net worth as a result of nonaccruing loans and other problems.

The Farm Credit System is a 70-year-old network of 37 banks and hundreds of local associations that together represent the nation’s largest farm lender. It has suffered $4.8 billion in losses over the last two years and its loan portfolio has shrunk from a 1982 high of $80 billion to about $50 billion.

The system, invisible to most Americans but viewed by farmers as a basic component of U.S. agriculture, holds about a third of the farm lending market nationwide, according to a recent study.

Unlike some other troubled land banks whose market share has shriveled severely, the Jackson institution maintains a 39.5 percent share, according to the study by the Farm Credit Administration.

The problem has been with nonaccrual loans to farmers hammered hard by the agricultural crisis of the early 1980s when land and crop prices took a nosedive.

Frank Naylor, chairman of the Farm Credit Administration, said in a statement that his agency ″has adequate authority to maintain service to farmers-ranchers in the Farm Credit System and to assure that all securities obligations are met.″

He also said the system itself ″has substantial resources which it can marshal to maintain service by system land banks.″

The securities obligations he referred to were bonds that the system sells to raise money to lend to farmers. Unlike most other banks, it does not have depositors. In fact, the high cost of capital borrowing has been blamed along with the rural crisis of the early 1980s for the system’s problems.

In New York, Alan Fass, president of the funding corporation that sells the bonds, said in a statement that the bank ″is not the only Farm Credit System institution that is experiencing severe financial stress but the recent developments at the bank underscore the need for federal legislation providing for capital and other assistance to the system before year end.″

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