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What is a Federal Farm Credit Bank?

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  • Written By: Christine Hudson
  • Edited By: Lauren Fritsky
  • Last Modified Date: 11 April 2018
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A Federal Farm Credit Bank is a financial institution which is part of the Farm Credit Services (FCS) organization. These banks are created by the United States government in order to integrate federal land banks and banks for cooperatives serving agricultural producers in the country. The Federal Farm Credit Bank provides support and backing to several organizations which offer credit and financial support to farmers, ranchers, and rural homeowners. The Federal Farm Credit Bank itself does not normally deal with the individuals themselves.

In 1916, the US government enacted the Federal Loan Act, which designated several federally-sanctioned institutions. Under this act, rural producers could borrow up to 50 percent of the value of their land in order to continue operations. In 1971, the act was amended to give delinquent borrowers more rights and the lending institutions more responsibilities. The Federal Farm Credit Banks were created as a way to provide support to the entire FCS system.

A Federal Farm Credit Bank is offered under the federal government, which means it must operate within government regulations, and funds are backed by the US Treasury. Federal Farm Banks are set up as cooperatives as well. The members of the institution own and have a democratic voice in the operations of the institution. A portion of the bank’s profits are also distributed among the member-owners.

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While a Federal Farm Credit Bank may only deal with local retailers and lenders, its primary interest is in the cash flow and financial health of a region’s farmers, ranchers, and other rural citizens. When providing financial support, the bank’s board may meet with the board members or head of a lending institution and learn their intentions and business practices. Several meetings and even investigations may be conducted to be sure that the business in question does indeed help the local agriculture community.

The Federal Farm Bank in turn receives its funds from the sale of securities and has its own federal insurance allocation as well. Money is then lent to approved local cooperatives and retailers with the agreement that the funds will be paid back with a predetermined amount of interest. As the cooperatives repay the loans, the Federal Farm Bank distributes earnings among investors and then continues lending to other approved FCS members.

Some have claimed that the US agriculture industry would not be what it is today without the aid of institutions like Farm Credit Banks. Some supporters go as far as to say there would be no agriculture industry without them. Whether this is true or not, the Federal Farm Credit Bank has helped millions of rural residents in times of need.

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