The Independent Community Bankers of America® (ICBA) today highlighted new findings that commercial banks continue meeting the credit needs of agricultural borrowers and that community banks are doing the lion’s share of the banking sector’s ag lending. Nevertheless, the recent University of Illinois Urbana-Champaign farmdocDaily report finds community banks face stiff headwinds, including mounting compliance costs due to regulatory burdens and weak loan and economic growth.
“This new report shows that while agricultural banks continue improving along with the broader economy in the wake of the Wall Street financial crisis, they continue to face increased stress from excessive regulation,” ICBA President and CEO Camden R. Fine said. “These higher compliance costs represent a larger share of operating costs for smaller lenders, fueling the drive to greater mergers and acquisitions. While community bank credit is plentiful for farmers and ranchers, new regulations and competition from tax-exempt credit unions and Farm Credit System (FCS) institutions are inhibiting further growth in banks’ agricultural lending, as would proposals to expand the lending parameters of these institutions.”
The report found that community banks with $10 billion or less in total assets accounted for nearly 80 percent of all agricultural lending from the banking sector in 2013. It also found that agricultural loans at commercial banks have increased 30 percent from 2007 to 2013. However, banks face the lowest loan-to-deposit ratios in 30 years, a dilemma that threatens future community bank profitability. The report also reveals a decline of more than 800 community banks under $100 million in assets since 2007.
The report also indicates challenges to bank profits, which are occurring at the same time that credit unions and FCS lenders are using their taxpayer-funded subsidies and funding advantages to cherry pick community banks’ strongest and most profitable customers. In addition, these tax-advantaged institutions are seeking new powers in an effort to siphon non-farm loans away from banks’ portfolios. This activity increases risks to the community banking industry, leading to fewer lenders and less credit availability for rural America.
As a result, ICBA continues urging Congress to oppose credit union and FCS efforts to expand their mission and lending authorities, either through new laws or new regulations. Restricting credit unions and FCS institutions to their historical missions is essential to ensuring a level playing field that does not unduly harm community banks and the agricultural and other borrowers and communities they serve.