Senate Backs Bail-Out of Ailing Farm Credit System

The Senate approved legislation Tuesday that would permit a multibillion-dollar federal bail-out of the troubled Farm Credit System if a new set of self-help measures proved inadequate.

In the House, the Agriculture subcommittee on conservation, credit and rural development was expected to act on a similar bill today as congressional leaders pressed to send rescue legislation to President Reagan by Christmas.

Both bills seek to ease the unprecedented financial crisis gripping the Farm Credit System, a huge, cooperatively-owned banking network that holds one-third of the nation’s $212 billion in farm debt.

Officials of the quasi-public system have pleaded for $6 billion in backup assistance, saying their $71-billion loan portfolio faces ruinous losses of that magnitude over the next two years.

But the Reagan Administration, arguing that the system can weather the crisis if it shifts more of its $12 billion in reserves from healthy to ailing banks, opposes the provision of even standby aid at this time.

In a compromise bid, the pending legislation would give the secretary of the Treasury discretion to buy an unspecified amount of Farm Credit System bonds to provide funds if reserves ran out.

To try to negate the need for federal aid, the legislation would enable the system’s more than 800 lending institutions to pool their diffuse resources. In addition, it would strengthen the regulatory powers of the federal Farm Credit Administration.

Before approving its bill 57 to 34, the Senate rejected an effort by some farm state legislators to extend bail-out coverage to private banks and insurance companies with large holdings of farm debt. Many such institutions contend that they are in dire financial straits as bank closings mount in the economically depressed Farm Belt.

Senate Majority Leader Bob Dole (R-Kan.)--protesting that the amendment by Sen. Rudy Boschwitz (R-Minn.) would provide not only broader coverage but also unacceptably expensive subsidies--warned that he would pull the bill off the Senate floor if the rider was adopted.

Senate Kills Bill

In vain, Sen. Tom Harkin (D-Iowa) argued that the amendment was the only proposal giving substantial help to farmers. It would have guaranteed loans and subsidized lower interest rates.

The Senate voted 54 to 38 to table, and thus kill, the Boschwitz amendment.

Both the Senate and the House subcommittee, which nearly completed work on its bill Tuesday, also turned back attempts to limit the amount of loss sharing that would be required of more prosperous institutions in the Farm Credit System.

Amendments to that effect were offered in both chambers by lawmakers from Vermont and Texas, where system institutions have not been hit as hard as in states such as Iowa, Nebraska and Kansas.

Reps. James M. Jeffords (R-Vt.) and Charles W. Stenholm (D-Tex.) complained that the legislation was set up to drain financial reserves from the Farm Credit System before the federal government would step in.

“These are Civil War-type amendments,” charged Rep. Dan Glickman (D-Kan.), whose constituents are served by a Wichita bank with financial problems. “If the system doesn’t stand together, it will fall together, not separately.”

Debate on the issue was echoed in the Senate. “Let’s not penalize people because they handled their money in a careful and prudent fashion,” argued Sen. Patrick J. Leahy (D-Vt.), whose amendment would have limited the amount of assessments imposed on healthy banks.

Dole rejoined: “This is an effort by two (system) districts to not put any reserves in the pot at the expense of the other eight.” The amendment was tabled 50 to 41.