Consolidation has been a big topic in agriculture during the last several years, primarily as it relates to some of the largest businesses in the ag sector. However, some of the community banks that lend money directly to farmers have begun to consolidate their businesses as well.
Nathan Kauffman is Vice President of the Omaha, Nebraska, branch of the Federal Reserve Bank of Kansas City. He says the banks are doing their best to address the challenges agriculture is facing.
“A lot of these financial institutions have been proactive in trying to address what these issues have been in agriculture. This year has been challenging in a lot of different ways, but a lot of these institutions, banks specifically, have needed to find ways of trying to address what were growing risks over the past three-to-five years, so this included many difficult conversations; certainly, some institutions are better-placed than others. Some of that has to do with which commodities they may be exposed to, relative to some others.”
Kauffman spoke during the recent Ag Outlook Forum at the Kansas City Federal Reserve, hosted by the Agribusiness Council of Kansas City and Agri-Pulse. Kauffman says bankers serving specific segments of U.S. agriculture have been hit harder by challenges than others.
“The dairy industry has been going through, or had been going through, several consecutive years of challenges and increasing numbers of bankruptcies, so certainly, institutions that might have been exposed to those economic challenges were a bit more vulnerable, and you do see that in other parts of our district as well. Certainly, also owning to some extent, just based on the relative sizes of some of these financial institutions as well. I would say that it’s necessarily one-size-fits-all as it relates to agricultural lending; a lot have, I think, positioned themselves relatively well despite some of the financial challenges.”
Esther George is the President and CEO of the Federal Reserve Bank in Kansas City. She says there is a trend toward consolidation among smaller banks, but a large number of smaller institutions still stand on their own..
“The banking system plays a critical role in providing credit to the economy; it’s not the only place but firms and households get credit, but it is a key one. And it’s a key one for the Federal Reserve because of how monetary policy is transmitted. We know that for the United States, we have one of the most diverse banking systems in the world. What we have seen systematically is a growing concentration into a few very-large banks while we still have thousands of very-small banks.”
She says the smaller banks are the lifeblood of their local communities.
“They really account for a sizable portion of the businesses that employ people in this country, and they are also making their mark in terms of the economic activity that flows from the credit they provide. We also know as those banks disappear from those communities, or concentration and consolidation of that industry occur, businesses feel that in terms of their ability to gain access to credit. It is an important issue for policymakers in this country to make sure that we understand the forces that are contributing to that consolidation.”
George doesn’t want to lose the diversity in the nation’s banking system, something she calls a “big positive for our economy.”
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