A panel appointed by Congress to oversee the bank bailout issued a special report this week analyzing the state of commercial farm credit markets and the use of loan restructuring as an alternative to foreclosure by banks that received assistance under the Troubled Assets Relief Program or TARP.
Harvard law professor Elizabeth Warren chairs the panel and told reporters the agricultural sector has fared somewhat better than the broader economy providing some protection for rural community banks from the shock of the financial crisis. She says the balance sheets of farmers and agricultural lenders relatively strong and credit is still available many places at reasonable prices.
However; Warren said the panel views recent trends and projections in farm lending as troubling.
"The Department of Agriculture expects that net farm income will decline by about 20% this year," Warren said. "The demand for direct operating loans from the agricultural lenders of last resort, the Farm Service Agency, has increased 81% over last year, and demand for direct ownership loans has increased by 132%."
Congress specifically asked the panel to examine the possibility of establishing a farm loan restructuring mandate for TARP-recipient commercial banks to prevent agricultural foreclosures.
According to Warren the panel decided that might not be the most effective policy choice because TARP-recipient banks hold only about 10% of the total farm real estate.
In addition to actions under TARP, the panel noted that Congress could also choose to help struggling farmers by creating a voluntary restructuring program or by expanding existing farm assistance programs to target assistance to struggling sectors. The full report can be found at http://cop.senate.gov/.