GOVERNOR OF THE FARM CREDIT ADMINISTRATION HAS BEEN TELLING US AND THE PUBLIC THAT THE SYSTEM WILL NEED HELP IF THE FARM ECONOMY DOES NOT SHOW IMPROVEMENT SOON.

THE QUESTION NOW IS, WHAT ROLE SHOULD CONGRESS PLAY?

THE FIRST NECESSARY STEP MUST BE PASSAGE OF A GENERAL FARM BILL, THAT GOES AS FAR AS POSSIBLE TOWARD PROTECTING FARM INCOME AGAINST FURTHER BLOWS, AND WE ARE ALREADY WELL ALONG IN THAT PROCESS.

THE NEXT STEP BEGINS HERE AND NOW IN THIS SUBCOMMITTEE. I HOPE THE SUBCOMMITTEE WILL BEGIN BY DOCUMENTING THE NATURE OF THE PROBLEMS FACING THE FARM CREDIT SYSTEM. OF COURSE, IT IS OBVIOUS THAT THE SYSTEM IS IN TROUBLE BECAUSE FARM INCOME IS LOW ... BECAUSE SOME BORROWERS CAN'T PAY BACK THEIR LOANS ... AND BECAUSE DECLINING FARM LAND PRICES HAVE REDUCED THE VALUE OF THE SECURITY BEHIND MANY LOANS. BEYOND THAT, WE SHOULD FIND OUT JUST WHAT THE NEEDS OF THE SYSTEM ARE AND HOW THEY CAN BE DEALT WITH.

I WOULD LIKE TO KNOW, FOR EXAMPLE, WHAT CAN BE DONE BY ADMINISTRATIVE ACTIONS UNDER EXISTING LAW. IF THE SYSTEM CAN SOLVE ITS PROBLEMS WITH EXISTING AUTHORITIES, WE SHOULD KNOW THIS. WE SHOULD FIND OUT, ALSO, IF THERE IS A NEED FOR CHANGES IN FARM CREDIT SYSTEM PROCEDURES OR IN THE POWERS OF THE FARM CREDIT ADMINISTRATION WHICH REQUIRE NEW LEGISLATIVE AUTHORITY. AND FINALLY, AS A LAST STEP, WE WANT ΤΟ FIND OUT WHETHER FINANCIAL HELP OF SOME KIND IS NEEDED.

I AM NOT GOING TO PREJUDGE ANY OF THESE MATTERS. I WILL SAY THAT I BELIEVE THE FARM CREDIT SYSTEM IS SO IMPORTANT TO AMERICAN AGRICULTURE THAT CONGRESS WILL NOT WANT TO STAND BY AND WATCH IT OR LARGE SEGMENTS OF IT COLLAPSE. I DO NOT BELIEVE THAT THE SYSTEM WANTS OR SHOULD HAVE A "HANDOUT" OR A "BAILOUT" IN THE ORDINARY SENSE OF THAT TERM. BUT IF THE MATTERS OF OPERATING PROCEDURES AND SYSTEMS ARE DEALT WITH, I WOULD BE PREPARED TO CONSIDER IF THE NEED IS DOCUMENTED SOME FORM OF RENEWED FEDERAL INVESTMENT IN THE SYSTEM. I WOULD NOT REGARD THIS TYPE OF ACTION AS A BAILOUT. ANY ADVANCES WHICH MAY TURN OUT TO BE NEEDED COULD BE TREATED JUST LIKE THE ORIGINAL FEDERAL "SEED MONEY" CAPITAL, AND REPAID WHEN CONDITIONS IMPROVE JUST AS THE ORIGINAL CAPITAL WAS REPAID.

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IN THE END, I BELIEVE THE BASIS OF THE FARM CREDIT PROBLEM IS THE DEPRESSED FARM ECONOMY. WE SHOULD KEEP THAT IN MIND AS WE LOOK AT THE SITUATION. AND I WANT TO REPEAT THAT, WHILE WE MUST WORK WITHIN A FEDERAL BUDGET SITUATION THAT AFFECTS EVERY PROGRAM WE DEAL WITH, I DO BELIEVE THAT IF ASSISTANCE IS NEEDED, WE SHOULD GIVE SERIOUS CONSIDERATION TO SOME FORM OF HELP AFTER CAREFULLY DOCUMENTING OTHER STEPS WHICH COULD BE TAKEN FIRST. THE BOTTOM LINE, MR. CHAIRMAN, IS THAT I DO NOT THINK WE CAN AFFORD A DISASTER IN THE FARM CREDIT SYSTEM.

Mr. JONES of Tennessee. I want you to know, Mr. Chairman, how much this subcommittee, and especially the chairman, appreciates your devotion and interest to this subcommittee's problems. We appreciate very much this very splendid opening statement that has been made by you.

Now with that statement, I'm going to defer to the ranking minority member of the subcommittee, Mr. Coleman, for any statement that he might want to make.

OPENING STATEMENT OF HON. E. THOMAS COLEMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI Mr. COLEMAN. Mr. Chairman, thank you very much.

First of all, let me say that I will have to leave the subcommittee this morning to go to a markup in the Education and Labor Committee. It's progressing right now.

I do want to make my statement and lend my support to these hearings, because I think it is very important that this subcommittee address the problem of farm credit. It is certainly not a new issue to this subcommittee. We have passed the Farm Credit Emergency Act earlier this session. However, it does appear to me that the financial situation of the Farm Credit System needs the immediate attention of this subcommittee, and I congratulate the chairman for calling these hearings.

Our financial problems within the Federal Farm Credit System are, indeed, staggering. The system alone holds 37 percent of the Nation's $212 billion farm and ranch debt and has as much as 15 percent of its $74 billion loans in nonperforming loans status.

Last fall, a full 12 months ago, I met with several officials of the Farm Credit Administration, the regulatory body of the Farm Credit System, in anticipation of this financial crisis within the Farm Credit System. For the past year, the Farm Credit Administration has ignored my warnings and others of an inevitable collapse, insisting that the system could work its way out of any problems as long as the agricultural situation did not deteriorate from its condition of 1 year ago.

Last week the Governor of the Farm Credit Administration made a statement which indicated the financial condition of the Farm Credit Systems had worsened to the extent that he is now asking for some Federal financial assistance, but I don't think the worsening of the farm situation is a surprise to any of us. I told the Governor things were going to get bad and they did. The only thing new today is that the head of the Farm Credit Administration has finally agreed with my assessment.

Unfortunately, he is 1 year too late, and the farmers have had to bear the costs of keeping the Farm Credit System solvent through higher interest rates at a time they are being literally kicked off their own land.

This travesty might have been avoided if the FCA hadn't waited until the 11th hour to recognize the degree of financial stress in the agricultural sector.

Since the Farm Credit System was created by Congress in the 1930's, it has always been proud of the fact that it was able to repay all of its Federal funds and maintain itself as a system that

is owned entirely by its borrowers. But because of the unprecedented economic hard times in farm country, I believe it is now inevitable that Congress will be called upon to develop a Federal financial and regulatory assistance package to help the farm credit banks. I thought so a year ago and I think so today.

The structure of any type of assistance package developed by Congress will be of the utmost importance. It must be a plan to help not only the Farm Credit System, but also it must assure a steady and competitive-I underline the word "competitive"-line of credit to farmers.

Investors on Wall Street must be given confidence in the system, and the taxpayers must be assured that their money is being used wisely and prudently.

Several plans have been discussed in the most general of terms. I hope to see a consensus develop between the Farm Credit Administration, the Farm Credit System, the Department of Agriculture, the White House, and, yes, this subcommittee.

I must warn the subcommittee to act cautiously when crafting an assistance package, so that the Agriculture Committee maintains control over the legislative process. The Farm Credit System is a very complicated system. The Agriculture Committee has a unique understanding of the system and the agricultural economy that it serves. If we get into banking issues, we will split the committee jurisdiction between our Agriculture Committee and the Banking Committee and create many difficulties as well as slowing up the entire process.

Last week I met with Frank Naylor, the Under Secretary of Agriculture, and Marvin Duncan, the Senior Deputy Governor of the Farm Credit Administration in separate meetings to discuss the problems facing the Farm Credit System. I personally was encouraged to see that there is more of a consensus for an agreement between the administration and the Farm Credit Administration than the public has been led to believe by press reports. Both Mr. Naylor and Mr. Duncan seemed closer to an understanding that the Farm Credit System would have to tap some of its reserves, possibly up to $4 billion, before the administration or Congress could commit Federal funds. I think that the FCA is realizing that Congress will only be willing to help if the system first takes steps to help itself.

I was further encouraged by the recent actions and steps taken by the Federal Farm Credit Board last week to relieve the financial burdens of the ailing farm credit banks. These steps include giving the Farm Credit Administration officials the authority to order money shifted from anywhere in the system to aid individual banks in trouble, and to shift money within 1 of the system's 12 regions to trouble spots within the region.

Mr. Chairman, in closing, the Farm Credit System is the single largest agricultural lender. If steps are not taken to put its finances back in order, we are going to witness the biggest financial fallout since the Great Depression. I predict it will make the Continental Illinois bailout look like a piggy-bank operation. I am hopeful a solution can be provided that will serve farmers, investors, and the taxpayers.

I agree with you, Mr. Chairman, that even though the Farm Credit Administration and the Farm Credit Systems are not prepared to testify today, we want them before this subcommittee and I would like to encourage each of them to develop a proposal that will restore confidence to the system. We hope that we will be able to have them before our subcommittee before the month is out for their testimony and recommendations.

We certainly look forward to the testimony from our colleagues and other witnesses today, but I think we all recognize that the important information and the strategy and the development of a financial assistance package is going to have to be developed with various parties and a very important party is the Farm Credit Administration. I look forward to those hearings later on this month. Again, thank you, Mr. Chairman, for your cooperation between the two of us personally and for having these hearings at this very important time.

[The prepared statement of Mr. Coleman follows:]

PREPARED STATEMENT OF HON. E. THOMAS COLEMAN, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF MISSOURI

Mr. Chairman, I am pleased to see this Subcommittee addressing the problems of farm credit. It is certainly not a new issue to us as we already passed one emergency farm credit bill earlier in this session. However, it appears that the financial situation of the farm credit system needs the immediate attention of this subcommittee.

The financial problems within the Federal Farm Credit System are staggering. The system alone holds 37 percent of the nation's $212 billion farm and ranch debt and has as much as 15 percent of its $74 billion loans in non-performing loans.

Last fall I met with several officials with the Farm Credit Administration, the regulatory body of the farm credit system, in anticipation of this financial crisis within the farm credit systems. But for the past year, the Farm Credit Administration has ignored my warnings of an inevitable collapse, insisting the system could work its way out of any problems as long as the agricultural situation did not deteriorate from its condition one year ago.

Last week the Governor of the Farm Credit Administration made a statement which indicated the financial condition of the farm credit systems has worsened to the extent that he is asking for some federal financial assistance. Well, I don't think the worsening of the farm situation is a surprise to any of us. I told the Governor things were going to get bad and they did. The only thing new today is that the head of the FCA has finally