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Overview of Dodd-Frank’s impact on you and your banker

John Blanchfield Published on 27 April 2011


Our communities cannot reach their full potential without the local presence of a bank – a bank that understands the financial and credit needs of its citizens, farmers, businesses and government.



I am concerned this model may be in jeopardy, given the massive weight of new rules and regulations that will result from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The vast majority of banks in this country have never made an exotic mortgage loan or taken on excessive risks.

They had nothing to do with the events that led to the financial crisis and are as much victims of the devastation as the rest of the economy. Banks on Main Street are the survivors, yet they are the ones that will pay the price for the mess others created.

Banks work every day to make credit available. Those efforts, however, are made more difficult by regulatory costs and second-guessing by bank examiners.

In agricultural lending, for example, the banking regulators are reacting very negatively to the recent increases in farm real estate prices – even though there is sufficient evidence that farm real estate prices are increasing as a result of farmer prosperity in corn, beans and cotton country, and that land is being acquired with cash, not increased debt.

According to the USDA, farm debt declined by over $6 billion between 2009 and 2010. Despite this evidence, banking regulators are putting additional pressure on banks that make farm real estate mortgages. I am very concerned that excessive regulatory focus on farm mortgage lending will have a chilling effect on the availability of farm mortgages in the future.


Managing these new regulations will be a significant challenge for a bank of any size, but for the median-sized bank with only 37 employees, it is overwhelming. Increased regulation means more money spent on outside lawyers to manage the risk of compliance errors and greater risk of litigation.

All of these expenditures take away from resources that can be directly applied to serving customers.

Impact on farm lending
Despite all of the uncertainty Dodd-Frank has brought to the banking industry, banks maintained their lending to farmers and ranchers in 2010. According to the FDIC Q4 report for 2010, banks held $120 billion in farm and ranch loans – the same level they held at year-end 2009.

While there was no increase in farm loans by banks last year as we have seen in past years, the fact that banks maintained their commitment to the sector is an encouraging sign.

Many bankers I have talked to around the country have indicated that farmers are responding to the same signals consumers are responding to and that they too are reducing leverage. The USDA predicts total farm debt will increase by less than $1 billion in 2011, but in fact we may see farm debt levels decline again in 2011.

Clearly the events of 2008/2009 have changed Americans’ outlook toward leverage, and farmers are no exception.


In agricultural lending, the basics remain the basics. Our association and our members have been telling farmers and ranchers that they have to improve their business practices including their marketing plans, their capital expenditure planning and their risk management practices, to name a few.

Overall, many producers have responded positively to these messages, and have stepped up their game to meet the challenges of this period. Proven cash flow, and being able to demonstrate the ability to repay a loan, continue to be bedrock principles of agricultural lending by banks.

If a producer cannot show adequate repayment ability, it will be hard to obtain credit.

Again, the regulators have made it very clear to the bankers that they expect bankers to adhere to the basics, and that demand is being followed by the bankers I know.

What changes can you expect to see?
Dairymen should expect their bankers to request more in-depth information about their business plans, their past performance, their marketing plans and their crop protection program, and should expect requests for additional information.

Understand the banker is responding to all of the pressures described above. It isn’t that he or she does not trust or respect the customer – understand that the banker is expected by bank management, and by the banking regulators, to have as clear an understanding as he or she can have about the business that is borrowing money.

Be patient. Anticipate that there could be some delay in processing credit requests. Understand that the more complicated your credit request is, the more time it may take for the banker to get back to you with an answer.

Do not have an attitude, because in this environment, “No” becomes the default response.

Finally, think about your ultimate goal. Your goal is to obtain the credit you need. Banks exist to finance their customers’ requests. With the new regulations coming out of Dodd-Frank, banks and bankers are in a period of uncertainty.

That does not mean you will not get credit – it means the environment has changed. In order to be a successful dairyman, you will have to understand that new environment as best you can and you will have to function in that new environment if you need to borrow money.

Understand that the banker is successful in his or her job only if you are successful. Doing your homework before you go to the bank so you can present the best possible case for your loan request is the best advice I can give. PD

John Blanchfield is a senior vice president over agricultural and rural banking with the American Bankers Association, based in Washington, D.C.

References omitted due to space but are available upon request to .

Dairymen should expect their bankers to request more in-depth information about their business plans, their past performance, their marketing plans and their crop protection program, and should expect requests for additional information. Photo courtesy of Thinkstock Images.


John Blanchfield
American Bankers Association