Farmland Is Pricey. The Fed Is Worried
Nervous regulators model for a farmland bust
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When regulators come inquiring about loan risks at the Bank of Newman Grove, in Newman Grove, Neb., Jeffrey L. Gerhart, the chairman of the $35 million lender, has a “stress test” ready to show how his bank’s portfolio would fare if rural land prices dropped 25 percent. Or 50 percent. Or even 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,” says Gerhart, a fourth-generation banker in this 800-person town two hours west of Omaha, in the heart of the corn and soybean belt. He began stress-testing in the last two years after prodding from the Federal Reserve Bank of Kansas City.