Fed Scrutinizes Farm Banks as Soaring Land Draws Bubble Concern
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When regulators come knocking at the Bank of Newman Grove, Nebraska, inquiring about loan risks, Chairman Jeffrey Gerhart has a “stress test” ready to show how his portfolio would fare if rural land prices dropped 25 percent. Or 50 percent. Or 75 percent.
“I hope it’s not going to go to heck in a handbag out here, but this allows us to look at those worst-case scenarios,” said Gerhart, a fourth-generation banker in the 800-person town two hours west of Omaha, deep in the heart of Nebraska’s corn and soybean belt. He began stress testing his bank’s assets, about 90 percent of which are agricultural, in the last two years after prodding from staffers at the Federal Reserve Bank of Kansas City.