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ICBA: Despite Economic Challenges Community Banks Continue To Lend to Rural America

Washington, D.C. (June 11, 2009)—The Independent Community Bankers of America (ICBA) today told Congress that community banks continue to provide credit to the agricultural sector at historically low interest rates and offered six key recommendations to keep credit flowing at these low rates.

“Despite the challenging economy, our nation's more than 8,000 community banks continue to play a vital role in agricultural lending in towns throughout America-in fact, some community banks have picked up agricultural loans as larger banks have cut back their lines of credit,” said Fred Bauer, president and CEO of Farmers Bank in Ault, Colo., in testimony before the House Agriculture Committee's Subcommittee on Conservation, Credit, Energy and Research.

“More than 6,000 community banks under $1 billion in assets currently make over 60 percent of all agricultural loans from the banking sector even though these banks hold 11 percent of overall banking assets,” Bauer said. He added that banks have increased agricultural lending by $8 billion for the period ending March 31, 2009 compared to a year ago.

Bauer said that although expenses in the farm sector are projected to decline by 9 percent this year, net farm income is projected to fall by 18 percent, following record net farm income over the past two years. He also said that community banks are experiencing harsh bank examinations and encouraged Congress to weigh in with regulators to ensure community banks have adequate flexibility to work with their farm customers who might be experiencing economic stress.

“The vast-majority of community banks remain very well capitalized and are in a good position to assist with new borrowing needs. While there are some sectors of agriculture that are struggling, agricultural portfolios of many rural banks are currently a very strong contributor to the bank's overall income and stability,” Bauer said.

Bauer also put forth the following ICBA policy recommendations:

  • Keep the farm safety net intact without budget cuts.
  • Provide additional funding for USDA direct and guaranteed farm loans.
  • Enhance USDA's Business and Industry (B & I) loan program by reducing fees and increasing guarantee levels.
  • Ensure that the Farm Credit Administration does not proceed with its Rural Community Investments Proposal aimed at allowing the Farm Credit System to provide significant amounts of non-farm credit.
  • Ensure that regulators do not unduly restrict lending by community banks.
  • Avoid unintended consequences resulting from imposing new requirements on the banking sector.

To read ICBA's testimony, visit www.icba.org.