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The Farm Credit System (FCS) in the United States is a nationwide network of borrower-owned lending institutions and specialized service organizations. The Farm Credit System provides more than $373 billion (as of 2022) [1] in loans, leases, and related services to farmers, ranchers, rural homeowners, aquatic producers, timber harvesters, agribusinesses, and agricultural and rural utility cooperatives. As of 2021, the Farm Credit System provides more than 45% of the total market share of US farm business debt. [2]
Congress established the Farm Credit System in 1916 to provide a reliable source of credit for farmers and ranchers, [3] by making loans to qualified borrowers at competitive rates and providing insurance and related services.
Congress established the Farm Credit System as a government-sponsored enterprise (GSE) when it enacted the Federal Farm Loan Act of 1916. Current authority is granted by the Farm Credit Act of 1971. The Farm Credit System is considered the first GSE chartered by the United States.
The Farm Credit Administration (FCA), an agency of the federal government created in 1933, provides regulatory oversight for the Farm Credit System. The Farm Credit System Insurance Corporation (FCSIC), established by the Agricultural Credit Act of 1987, insures the timely repayment of principal and interest on FCS debt securities.
Three Farm Credit Banks (FCBs) provide loan funds to 50 Agricultural Credit Associations (ACAs) and one Federal Land Credit Association (FLCA). In turn, ACAs make short-, intermediate-, and long-term loans, while FLCAs make long-term loans, to farmers, ranchers, producers and harvesters of aquatic products, rural residents for housing, and certain farm-related businesses.
The three FCBs are:
There is also one Agricultural Credit Bank, with the authority of a FCB (and a Bank for Cooperatives):
FCBs were created on July 6, 1988, in 11 of the 12 then-existing Farm Credit System (FCS) districts, by merging the Federal Land Bank (FLB) and the Federal Intermediate Credit Bank (FICB) in each of those districts. Those mergers were required by the Agricultural Credit Act of 1987.
A Bank for Cooperatives (BC) provides lending and other financial services to farmer-owned cooperatives, rural utilities (electric and telephone), and rural sewer and water systems. A BC is also authorized to finance U.S. agricultural exports and provide international banking services for farmer-owned cooperatives.
CoBank is an Agricultural Credit Bank (ACB) and has the authority of a Farm Credit Bank and a BC. The last standalone BC, the St. Paul Bank for Cooperatives, merged into CoBank on July 1, 1999.
An Agricultural Credit Association (ACA) is the result of the merger of a FLBA or a FLCA and a PCA and has the combined authority of the two institutions. An ACA obtains funds from a FCB or an ACB to provide short-, intermediate-, and long-term credit to farmers, ranchers, producers and harvesters of aquatic products, and to rural residents for housing. An ACA also makes loans to these borrowers for basic processing and marketing activities, and to farm-related businesses. All ACAs operate with a parent-subsidiary structure, with the ACA as the parent and a wholly owned PCA and FLCA as subsidiaries.
The Agricultural Credit Act of 1987 authorized an FCS bank to transfer its direct-lending authority for long-term mortgage loans to a FLBA. These Associations are designated as FLCAs. Unlike a FLBA, a FLCA owns its loan assets. An FLCA obtains funds from an FCS bank to make and service long-term mortgage loans to farmers and ranchers, and to rural residents for housing. An FLCA also makes loans to these borrowers for basic processing and marketing activities, and to farm-related businesses. Most present-day FLCAs are now subsidiaries of ACAs. Only nine FLCAs operate independently.
The Federal Farm Credit Banks Funding Corporation issues a variety of Federal Farm Credit Banks Consolidated Systemwide Debt Securities (Farm Credit Debt Securities) on behalf of the Farm Credit System Banks with a broad range of maturities and structures.
The Federal Agricultural Mortgage Corporation (Farmer Mac) is a government-sponsored enterprise with the mission of providing a secondary market for agricultural real estate and rural housing mortgage loans.
There are several institutions that have been authorized by law but which have been subsumed by other institutions, which usually retain their authority.
Created by the Agricultural Credit Act of 1987 and chartered in 1988, the Assistance Corporation provided capital to the FCS by purchasing preferred stock from FCS institutions that received financial assistance authorized by the FCS Assistance Board. The Assistance Corporation provided approximately $1.26 billion before its authority to raise additional funds expired on December 31, 1992.
Following statutory requirements, the Assistance Corporation repaid its obligations in June 2005 and received a final audit in September 2005. After determining that the Assistance Corporation had completed its statutory mission, complied with applicable laws and regulations, and operated in a safe and sound manner, the FCA Board canceled the charter of the Assistance Corporation as of December 31, 2006.
The Agricultural Credits Act of 1923 [4] provided for the creation of 12 FICBs to discount farmers' short- and intermediate-term notes made by commercial banks, livestock loan companies, thrift institutions, and, beginning in 1933, Production Credit Associations. On July 6, 1988, 11 of the 12 then-existing FICBs merged with the Federal Land Banks in their respective districts to form Farm Credit Banks. The mergers were required by the Agricultural Credit Act of 1987. The last remaining FICB, the FICB of Jackson, merged with the FCB of Columbia, which has since been renamed AgFirst Farm Credit Bank on October 1, 1993.
The Federal Farm Loan Act of 1916 provided for the establishment of 12 FLBs to provide long-term mortgage credit to farmers and ranchers, and later to rural homebuyers. [3] On May 20, 1988, the FLB of Jackson was placed in receivership and liquidated. On July 6, 1988, the 11 remaining FLBs merged with the Federal Intermediate Credit Banks in their respective districts to form Farm Credit Banks. The mergers were required by the Agricultural Credit Act of 1987.
An FLBA was a lending agent for a Federal Land Bank and later the Farm Credit Bank and the Agricultural Credit Bank. FLBAs originated and serviced long-term mortgage loans to farmers and ranchers, and to rural residents for housing. FLBAs did not own the loan assets but originated loans on behalf of the Federal Land Banks/FCS banks with which they were affiliated. As of October 1, 2000, there are no longer any FLBAs in the FCS. They either merged with Production Credit Associations to form ACAs or became direct-lender Federal Land Credit Associations when Farm Credit Banks transferred their authority to make long-term mortgage loans to their affiliated FLBAs.
The Farm Credit Act of 1933 authorized farmers to organize PCAs to deliver short- and intermediate-term loans to farmers and ranchers, and to rural residents for housing. A PCA also makes loans to these borrowers for basic processing and marketing activities, and to farm-related businesses. A PCA obtains funds from an FCS bank to lend to its members. PCAs own their loan assets. All present-day PCAs are now subsidiaries of ACAs.
In the 1980s, the United States faced a major farm crisis. With low crop prices, and the value of farm land falling, many farmers were unable to service their debts. This severely affected the Farm Credit System, which experienced losses of $2.7 billion in 1985. [5] Investor confidence in FCS bonds declined, with increased spreads over U.S. treasury debt. The federal government responded by amending the Farm Credit Act of 1971 in 1985 and 1986, and then enacting the Agricultural Credit Act of 1987 to help strengthen the FCS. [6]
The Farm Credit System and a number of FCS banks have faced criticism of their practices. In March 2016, the FCS Funding Corporation disclosed that 45.5% of total FCS taxpayer-subsidized loans outstanding as of year-end 2015 had been borrowed by only 4,458 borrowers. [7] Critics, such as the American Bankers Association, also charge that FCS banks only make large loans (more than $1 million) and are making loans with tax-exempt earnings that have almost nothing to do with farming, such as to Verizon Communications and Cracker Barrel; defenders justified CoBank ACB loans to Verizon and Frontier Communications because they provide landline voice service, Internet and wireless access and other services to rural areas. [8]
The Federal Farm Loan Act of 1916 was a United States federal law aimed at increasing credit to rural family farmers. It did so by creating a federal farm loan board, twelve regional farm loan banks and tens of farm loan associations. The act was signed into law by President of the United States Woodrow Wilson.
The Farm Credit Administration is an independent agency of the federal government of the United States. Its function is to regulate the financial institutions that provide credit to farmers.
The Farm Service Agency (FSA) is the United States Department of Agriculture agency that was formed by merging the farm loan portfolio and staff of the Farmers Home Administration (FmHA) and the Agricultural Stabilization and Conservation Service (ASCS). The Farm Service Agency implements agricultural policy, administers credit and loan programs, and manages conservation, commodity, disaster, and farm marketing programs through a national network of offices. The Administrator of FSA reports to the Under Secretary of Agriculture for Farm Production and Conservation. The current administrator is Zach Ducheneaux. The FSA of each state is led by a politically appointed State Executive Director (SED).
A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. While the terms "S&L" and "thrift" are mainly used in the United States, similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks. They are often mutually held, meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20 percent of their lending in commercial loans—their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns such as the deep one the U.S. experienced in 2007.
The Federal Agricultural Mortgage Corporation, also known as Farmer Mac, is a stockholder-owned, publicly traded company that was chartered by the United States federal government in 1988 to serve as a secondary market in agricultural loans such as mortgages for agricultural real estate and rural housing. The company purchases loans from agricultural lenders, and sells instruments backed by those loans. The company also works with the United States Department of Agriculture. It is based in Washington, D.C.
The Federal Home Loan Banks are 11 U.S. government-sponsored banks that provide liquidity to financial institutions to support housing finance and community investment.
A government-sponsored enterprise (GSE) is a type of financial services corporation created by the United States Congress. Their intended function is to enhance the flow of credit to targeted sectors of the economy, to make those segments of the capital market more efficient and transparent, and to reduce the risk to investors and other suppliers of capital. The desired effect of the GSEs is to enhance the availability and reduce the cost of credit to the targeted borrowing sectors primarily by reducing the risk of capital losses to investors: agriculture, home finance and education. Well known GSEs are the Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac.
A mortgage broker acts as an intermediary who brokers mortgage loans on behalf of individuals or businesses. Traditionally, banks and other lending institutions have sold their own products. As markets for mortgages have become more competitive, however, the role of the mortgage broker has become more popular. In many developed mortgage markets today,, mortgage brokers are the largest sellers of mortgage products for lenders. Mortgage brokers exist to find a bank or a direct lender that will be willing to make a specific loan an individual is seeking. Mortgage brokers in Canada are paid by the lender and do not charge fees for good credit applications. In the US, many mortgage brokers are regulated by their state and by the CFPB to assure compliance with banking and finance laws in the jurisdiction of the consumer. The extent of the regulation depends on the jurisdiction.
The Commodity Credit Corporation (CCC) is a wholly owned United States government corporation that was created in 1933 to "stabilize, support, and protect farm income and prices". The CCC is authorized to buy, sell, lend, make payments, and engage in other activities for the purpose of increasing production, stabilizing prices, assuring adequate supplies, and facilitating the efficient marketing of agricultural commodities.
The Farm Credit Act of 1933 established the Farm Credit System (FCS) as a group of cooperative lending institutions to provide short-, intermediate-, and long-term loans for agricultural purposes. Specifically, it authorized the Farm Credit Administration (FCA) to create 12 Production Credit Associations (PCAs) and 12 Banks for Cooperatives (BCs) alongside the 12 established Federal Land Banks (FLBs), as well as a Central Bank for Cooperatives.
A loan guarantee, in finance, is a promise by one party to assume the debt obligation of a borrower if that borrower defaults. A guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt.
CoBank, part of the US Farm Credit System, provides loans and financial services to cooperatives, agribusinesses, rural public utilities and other farm credit associations, who collectively own CoBank. It is also an agricultural export credit agency, exclusive among banks of the Farm Credit System. This makes it an agricultural credit bank, a combination of a farm credit bank and a bank for cooperatives. It is based in Greenwood Village, Colorado, outside Denver.
AgFirst, part of the US Farm Credit System, serves as a wholesale lender and business-service provider to a network of local farm credit associations in 15 southern and eastern states, Washington, D.C., and Puerto Rico. It was formed in 1995 by the merger of the Farm Credit Bank of Baltimore and the Farm Credit Bank of Columbia. The lender is cooperatively owned by 16 local associations. These associations, operating as Farm Credit and Ag Credit associations, provide real estate and production financing to about 80,000 farmers, agribusinesses, and rural homeowners.
Farm Credit Bank of Texas, part of the US Farm Credit System, serves as a wholesale lender and business-service provider to 13 local borrower-owned Farm Credit associations in Alabama, Louisiana, Mississippi, New Mexico and Texas.
A secured loan is a loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral, and if the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally loaned to the borrower. An example is the foreclosure of a home. From the creditor's perspective, that is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount.
Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.
AgStar Financial Services is a US Farm Credit System Agricultural Credit Association (ACA) that delivers a wide range of farm and rural credit programs and services in 67 counties located in Minnesota and northwest Wisconsin. AgStar provides financial products including agricultural loans, leases, crop insurance, life insurance, and home mortgages. The financial services offered include appraisals, money market accounts, online banking, and other consulting services.
Farm Credit of New Mexico is a FCS Agricultural Credit Association that provides New Mexico's farmers, ranchers, agricultural business, farm co-operatives and homeowners in rural communities with loans and banking services related to commercial and consumer needs. Headquartered in Albuquerque, it is the largest agricultural lender serving New Mexico. It is within both CoBank's and Farm Credit Bank of Texas's charter territories.
In United States federal agriculture legislation, the Agricultural Credit Act of 1987 was enacted in response to the severe financial crisis of the early- to mid-1980s, which affected both farmers and their lending institutions.
The Farm Credit Act of 1971 recodified all previous acts governing the Farm Credit System (FCS), a cooperatively owned government-sponsored enterprise (GSE) that provides credit primarily to farmers and ranchers.
This article incorporates public domain material from Jim Monke. Farm Credit System (PDF). Congressional Research Service.