Financial institutions serving agricultural areas are experiencing impacts of severe financial stress among farmers for the second time in this century. In both instances, stress resulted mainly from the burden of large amounts of debt-financed land purchases and other farm investments, based on price and income expectations that were not realized. In the current episode, a large rise in interest rates also reduced the optimal degree of financial leverage. Consequently, many indebted farmers needed to adjust the financial structure of their businesses. Some have been able to do so, while others cannot. While total farm debt apparently peaked in mid-1983, it had dropped only 2% by the end of 1984. At some financial institutions serving farmers and agribusinesses, a large proportion of farm debt is owed by customers who require partial or total liquidation at a time when asset prices and markets are refltiecting sharply reduced expectations. The resulting loan delinquencies and losses far exceed risk premiums incorporated in interest rates, eroding loss reserves and threatening capital positions. The impact is multiplied by the normally high degree of leverage of financial institutions themselves.