Ag Lenders Under Scrutiny, Despite Strengths

Farm banks largely stayed out of the muck the past few years, but that hasn't stopped regulators from trying to rein in these lenders. In the first quarter, farm banks - those with at least a quarter of their loans in agriculture - outperformed the broader banking industry, reporting fewer credit problems, stronger capital ratios and higher returns on assets. Only 7.28% of farm banks were in the red, compared with 18.67% of all institutions, according to the Federal Deposit Insurance Corp. Economists doubt an agricultural bust is coming, though they expect growth in the business to slow in coming years. Still, regulators are applying lessons from the recent debacles in construction and commercial real estate and stepping up scrutiny of farm banks to guard against surprises. "We are a little bit less willing to accept that ag is immune to a downturn," said James LaPierre, regional office director of the FDIC's division of supervision and consumer protection in Kansas City, Mo. "It would be foolish for us, or for our bankers, to think that while ag has been good that it will continue forever." So far, some agricultural bankers say, the heightened scrutiny has focused on ensuring they could withstand a downturn, rather than making them write down loans.