Effects of Financial Stress on Rural Communities: Discussion

Abstract

Melichar and Irwin have provided a useful and factual update of the impacts of farm financial stress rural financial intermediaries. I hope that they and their respective agencies will continue to provide objective information on, and analysis of, the farm credit situation. Despite differences in their organizational structures and regulatory constraints, both the Farm Credit System (FCS) and commercial banks have had similar experiences in terms of a continuing deterioration in the quality of their loan portfolios. It is important to note that, contrary to some press reports, a vast majority of individual FCS associations and agricultural banks have thus far been able to absorb their losses; however, continued farm financial stress will challenge those intermediaries whose assets are heavily concentrated in farm loans. I have tried to reconcile the conclusion that on average, farm loans are not responsible for the delinquency problems [of agricultural banks] when they are obviously almost entirely responsible for the delinquency problems of the FCS. Perhaps the problems of small unit banks can be better understood if we recognize the pervasive effects of farm financial stress agribusiness firms, the retail and service sectors, and rural communities as described by Ginder, Stone, and Otto. Their retail sales data suggest that rural banks in towns with populations under 2,500 are especially vulnerable. I would like to see additional work the