Agricultural Lending

Reputation Risk

Banks with lending activities to borrowers in certain agricultural enterprises can face increased reputation risk. For example, a bank may finance operations that generate large amounts of animal waste that may contaminate water sources and cause other ecosystem damage. Public perception and potential litigation may cast the bank, along with the borrower, as an adversary to be held responsible for clean-up.

A bank’s reputation can also be damaged if it reduces the availability of farm credit or forecloses on farm collateral. If the foreclosed farm property has been in a family for generations, the bank’s action — although probably prudent from a safety and soundness perspective — may be negatively viewed by the community.

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