WASHINGTON — The Farm Credit System, which provides a third of the nation's agricultural loans, reported Tuesday that it lost $2.69 billion in 1985--the biggest deficit in banking history.
The figure, which represented the first loss suffered by the sprawling system since the Depression, was more than double the $1.1-billion setback recorded by Continental Illinois Corp. in 1984.
More losses are expected as a severe economic crisis continues in much of the Farm Belt. But the banking network still has hefty reserves of $11.6 billion, officials noted, and federal bail-out funds are available, if needed, under legislation passed last year by Congress.
The Farm Credit System, whose $66.6 billion in loans makes it the nation's biggest farm lender, is a loose network of 37 district banks with hundreds of local lending outlets. In contrast to its $2.69-billion loss last year, the system made a profit of $373 million in 1984.
Officials said Tuesday that they are using a new set of tools provided under the legislation to try to pull the system out of difficulty.
Peter J. Carney, president of the Federal Farm Credit Banks Funding Corp., attributed most of the system's problems last year to "a near record number of farm and ranch insolvencies."
Playing a role in the collapse, he added, were "changing government agricultural policies, reduced agricultural exports resulting from a strong dollar and expanded foreign agricultural capacity, high real interest rates, abnormal weather patterns and low commodity prices."
Carney said the system currently holds $5.3 billion worth of high-risk, non-accrual loans, on which no interest or principal is being paid, and that other risky loans total $5.2 billion.
But it is too early to predict the size of losses faced by the system this year, said James A. Roll, senior vice president of the funding corporation.
"If and when federal funds have to be triggered will depend to a large extent on what happens to agriculture," he said. "At this point, we're just not prepared to say."
Carney noted that the Farm Credit System had made several changes to try to halt its tailspin, including the shifting of system funds from more prosperous to less healthy institutions. The ailing Federal Intermediate Credit Bank of Spokane received $136.8 million, for example, while a similar bank in Omaha received $380 million and the Federal Land Bank of Omaha received $177 million.
In addition, steps were taken to strengthen the oversight provided by the system's federal regulatory agency, the Farm Credit Administration. For the first time, the combined financial statements of all the system's institutions were audited by an independent accounting firm, Price Waterhouse.