FINANCIAL regulators in America were criticised for doing too little about the country's housing bubble. Now they face an early test of whether lessons have been learned: a farmland boom. The stakes are lower. America's farms were collectively valued at just under $2 trillion last year, compared with $16 trillion for housing. But a bust would still be painful: more than 1,500 of the country's banks and thrifts specialise in agriculture lending. Nobody wants to see a repeat of the devastating crash of the early 1980s, which drove hundreds of farms and lenders out of business.

Conditions are undeniably frothy. Though down a bit from the highs of 2008, inflation-adjusted farmland values remain well above the last great peak of three decades ago (see chart), buoyed by strong commodity prices, low interest rates and a weak dollar. In parts of the Midwest they rose by more than 20% last year. Feeling flush, farmers have rushed to buy and cultivate more land. Inventories look likely to remain depleted, putting upward pressure on crop and land prices. Investors now account for a quarter of all land purchases in some states.

Is it a bubble? Bulls (of the figurative kind) contend that the economics of farming are enjoying a secular improvement as the climate changes, as people in emerging markets adopt more protein-based diets, and so on. This type of “new paradigm” argument worries some. Robert Shiller of Yale University recently singled out farmland as “my favourite dark-horse bubble candidate for the next decade or so”.

Farmers themselves are edgy. Chris Petersen, president of Iowa's farmers' union, says that years of strong earnings have given them reasonably strong balance-sheets, with only half the amount of leverage they carried into the last downturn. But he worries that farming has been turned into “legalised gambling”. Plenty of farmers are still splashing out on “pieces of dirt”, some with funds borrowed against property they already own. “There's a real risk that a couple of things going wrong could cause a crash overnight,” he frets.

The big fear is falling commodity prices coupled with rising interest rates—hardly an unimaginable combination. Rising rates usually go hand in hand with falling farm revenues and higher capitalisation rates (the ratio of income produced by an asset to the asset's value). The higher the rate, the less promising the asset. A rise in capitalisation rates back to their historic average would imply farmland-price falls of up to a third, estimate officials at the Federal Reserve Bank of Kansas City.

Were that to happen, the impact on farmers would be severe. Property accounts for a very high share of farming wealth: about 90% in the United States, compared with 20% for households—though a farm is at least a productive asset. The effect on overall financial stability would be less scary. It would sink some of those 1,500 agriculture-heavy lenders. But the market these days is more skewed towards big, diversified banks and loans for farm property and equipment make up just 2% of overall bank lending.

Still, regulators want to make sure that they cannot be accused of sitting on their hands. The Kansas City Fed has gone out of its way to highlight the dangers, as has the Federal Deposit Insurance Corporation (FDIC), which supervises two-thirds of America's banks and held an event in March titled “Don't Bet the Farm”. Its examiners are no longer relying so much on aggregate industry data, says one, but are “asking more questions of individual high-flying lenders about how they plan to mitigate the risks of a bubble bursting.” They are urging banks to lend based on cashflow projections, not collateral values.

But supervisors are stopping short of slamming on the brakes. Even the most hawkish participants in the FDIC symposium accepted that it was, even now, impossible to be sure whether the farm boom was justified by shifts in supply and demand or a bubble pumped up by irrational exuberance. In this regard regulators are ploughing the same furrow as before.