Farm Banks Got $690 Million in ’88 Under Credit Act

A federal board created to help bail out financially distressed banks of the Farm Credit System spent $690 million in its first year of operation, according to a report to Congress on Monday.

The Farm Credit System Assistance Board’s report said $629 million went to help regional banks in Jackson, Miss.; Louisville, Ky.; Omaha, Neb., and St. Paul, Minn.

Eric P. Thor, president and the board’s chief executive, said the 1987 Farm Credit Act authorized the board “to provide financial assistance to eligible Farm Credit System lending institutions and by so doing to help assure continuing credit services to the nation’s farmers and ranchers.”

The law authorized up to $4 billion in aid to the system that had been hit hard by declining land values, rising farm debt and the inability of farm borrowers to pay their loan installments.

From 1985 to 1987, the cooperatively owned Farm Credit System alone had losses of more than $4.5 billion. Currently, the system has about $55 billion in loans outstanding.

The board is comprised of Agriculture Secretary Clayton K. Yeutter, Treasury Secretary Nicholas F. Brady and Will Erwin, an Indiana farmer.

Funds are raised at the request of the board by the sale of 15-year Treasury guaranteed bonds. Interest on the bonds is paid by the Treasury for the first five years, half by Treasury and half by the system for the second five years, and entirely by the system in the final five years.

The system’s institutions pay the principal upon maturity, plus all interest initially funded by the Treasury.

About $370.6 million in the first year of operation went to the four banks to help them recover. In return, they had to carry out reforms to put the institutions on sound footings.

The four banks and their aid packages included: Federal Land Bank of Jackson, $37.6 million; Farm Credit Bank of Louisville, $90 million; Farm Credit Bank of Omaha, $110 million, and Farm Credit Bank of St. Paul, $133 million.

In addition, the board assumed more than $258.4 million in previous debt owed as IOUs to other banks that are financially healthy in the system under an earlier bailout arrangement. There was no breakdown for that amount.

The balance of the $690 million in expenditures included board expenses, $2 million; retirement of frozen borrower stock, $21 million; interest on promissory notes payable, $563,000; discount of first bond sale, $2.25 million, and pre-funding, $35.2 million.