Ailing Farm Credit System Gets Lift : House Group Plans to Introduce $3-Billion Rescue Bill

The financially ailing Farm Credit System received a significant boost Monday when a bipartisan group of House leaders said it would introduce a $3-billion rescue bill, which won favorable comment from a key Administration official.

The legislation would provide tougher federal regulation and authority to help the loosely knit network of quasi-public lending institutions pool financial resources.

If self-help measures should prove insufficient, $3 billion in backup federal aid would be made available to the $71-billion Farm Credit System, which holds one-third of the nation’s agricultural debt and says it faces huge losses.

The legislation specifies that, if federal regulators certify that the system needs financial aid and has tapped its own resources, the Treasury secretary could buy up to $3 billion in obligations of the Farm Credit System Capital Corp., which would take over troubled farm loans.

“Certainly, giving the secretary discretion to buy securities is better than a capital infusion,” said Kathleen Lawrence, deputy undersecretary of agriculture in charge of farm lending. “It’s very advantageous to the future success of the bill.”

The bill, to be introduced Thursday, was sponsored by House Agriculture Committee Chairman Kika de la Garza (D-Tex.); Rep. Edward R. Madigan of Illinois, ranking Republican on the panel; Rep. Ed Jones (D-Tenn.), chairman of the subcommittee that handles farm credit, and Rep. E. Thomas Coleman of Missouri, ranking Republican on the subcommittee.

Previously, the Administration had said that it would consider the Farm Credit System’s request for a $6-billion line of credit only if Congress imposed more regulatory and pooling requirements. The legislation would impose those conditions, which system officials themselves had requested.

The officials report that the system’s 37 cooperatively owned banks and more than 700 local lending outlets--known as production credit associations--will lose an estimated $2.5 billion this year, with $6 billion in losses possible over the next two years. They would be the first losses that the system had suffered since the Great Depression.

Self-help features in the proposed bill would provide for a central pool of readily available financing to be used for quick aid to ailing system institutions. Some of the healthier institutions in the system have balked at helping sick ones. The legislation would make loss-sharing mandatory.