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33-540: Congress established the Farm Credit System in 1916 to provide a reliable source of credit for farmers and ranchers, 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

66-427: 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

99-806: 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

132-542: A strong dollar. Record production led to a fall in the price of commodities. Exports fell at the same time, due in part to the 1980 United States grain embargo against the Soviet Union . The Farm Credit System experienced large losses, which were the first losses since the Great Depression . The price of farmland was a significant factor. Credit availability and inflation had contributed to an increase in

165-657: 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

198-526: 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

231-451: 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

264-804: 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

297-1260: The Agricultural Credit Act of 1987 to help strengthen the FCS. 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. 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. [REDACTED]  This article incorporates public domain material from Jim Monke. Farm Credit System (PDF) . Congressional Research Service . Government-sponsored enterprise A government-sponsored enterprise ( GSE )

330-991: 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

363-528: The Frazier–Lemke Farm Bankruptcy Act . The United States experienced a major agricultural crisis during the 1980s. By the mid-1980s, the crisis had reached its peak. Land prices had fallen dramatically leading to record foreclosures. Farm debt for land and equipment purchases soared during the 1970s and early 1980s, doubling between 1978 and 1984. Other negative economic factors included high interest rates, high oil prices ( inflation ) and

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396-463: 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. 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

429-640: 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,

462-590: 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 provided for

495-577: 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. On May 20, 1988, the FLB of Jackson was placed in receivership and liquidated. On July 6, 1988, the 11 remaining FLBs merged with

528-646: 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

561-566: The GSEs operate. GSEs hold or pool approximately $ 5 trillion worth of mortgages. The U.S. Congress has specified that Federal Reserve Banks must hold collateral equal in value to the Federal Reserve notes that the Federal Reserve Bank puts into circulation. This collateral is chiefly held in the form of U.S. Treasury, federal agency, and government-sponsored enterprise securities. Congress established GSEs to improve

594-609: The bill states "is to keep this noncooperation minority in line, or at least prevent it from doing harm to the majority, that the power of the Government has been marshaled behind the adjustment programs" In other words, the benefits from payments to cooperative farmers were designed to be more beneficial than being noncooperative and flooding the market. The AAA was deemed unconstitutional on January 6, 1936. Further reformation included Farm Credit Act of 1933 , which allowed farmers to re-mortgage no longer affordable property, as well as

627-540: The buyers of their securities offer them high prices. This is partly due to an "implicit guarantee" that the government would not allow such important institutions to fail or default on debt. This perception has allowed Fannie Mae and Freddie Mac to save an estimated $ 2 billion per year in borrowing costs. This implicit guarantee was tested by the subprime mortgage crisis , which caused the U.S. government to bail out and put into conservatorship Fannie Mae and Freddie Mac in September, 2008. Every GSE prospectus contains

660-684: 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 . Congress created the first GSE in 1916 with the creation of the Farm Credit System . It initiated GSEs in

693-511: 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,

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726-423: The efficiency of capital markets and to overcome market imperfections which prevent funds from moving easily from suppliers of funds to areas of high loan demand. This is primarily done by some form of guarantee that limits the risk of capital losses to those supplying funds. Presently, GSEs primarily act as financial intermediaries to assist lenders and borrowers in housing and agriculture. Fannie Mae and Freddie Mac,

759-436: The following text, or something virtually identical, in bold letters, and has since before the sub-prime loans were originated: "Neither the certificates nor interest on the certificates are guaranteed by the United States, and they do not constitute a debt or obligation of the United States or any of its agencies of instrumentalities other than Fannie Mae." Critics of the GSEs have challenged the "implicit guarantee" since before

792-487: The home finance segment of the economy with the creation of the Federal Home Loan Banks in 1932; and it targeted education when it chartered Sallie Mae in 1972 (although Congress allowed Sallie Mae to relinquish its government sponsorship and become a fully private institution via legislation in 1995). The residential mortgage borrowing segment is by far the largest of the borrowing segments in which

825-930: 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

858-407: The price of farm land. Demand was further bolstered by high farm incomes and capital gains on farm real estate, when many farmers expanded their existing operations. The value of farmland increased so drastically that it attracted investment from speculators . Agricultural banks felt the impact of the crisis. There were 10 bank failures in 1981, only one of which was an agricultural bank. In 1985,

891-589: The producer and consumer. The U.S. government continued to instill inflationary policy following World War I. By June 1920, crop prices averaged 31 percent above 1919 and 121 percent above prewar prices of 1913. Also, farm land prices rose 40 percent from 1913 to 1920. Crops of 1920 cost more to produce than any other year. Eventually, a price break began in July 1920 which squeezed farmers between both decreasing agricultural prices and steady industrial prices. Examples of decreasing agriculture prices include: By 1933, cotton

924-470: The risks associated with individual loans. This also provides standardized instruments ( securitized securities) for investors. Some of the GSEs (such as Fannie Mae and Freddie Mac ) have been privately owned but publicly chartered; others, such as the Federal Home Loan Banks , are owned by the corporations that use their services. GSE securities carry no explicit government guarantee of creditworthiness, but lenders grant them favorable interest rates, and

957-493: The sub-prime crisis. Farm crisis A farm crisis describes times of agricultural recession , low crop prices and low farm incomes . The most recent US farm crisis occurred during the 1980s. A farm crisis began in the 1920s, commonly believed to be a result of high production for military needs in World War I . At the onset of the crisis, there was high market supply, high prices, and available credit for both

990-529: The two most prominent GSEs, purchase mortgages and package them into mortgage-backed securities (MBS), which carry the financial backing of Fannie Mae or Freddie Mac. Because of this GSE financial backing, these MBS are particularly attractive to investors and are also eligible to trade in the "to-be-announced," or "TBA" market. In addition, the GSEs created a secondary market in loans through guarantees, bonding and securitization . This has allowed primary market debt issuers to increase loan volume and decrease

1023-476: Was difficult considering the lack of effective communication technology, the lack of electricity on many farms, and the overall size of the country. The Agricultural Marketing Act of 1929 intended to bring government aid to cooperatives. It allowed the Federal Farm Board to make loans and other assistances in hopes of stabilizing surplus and prices. Later, Agricultural Adjustment Act (AAA), which

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1056-470: Was enacted on May 12, 1933, aimed to bring back pre World War 1 Farmers' abilities to sell farm products for the same worth they were able to buy non-farm products. The Act involved seven different crops: corn, wheat, cotton, rice, peanuts, tobacco, and milk. Farmers were paid to not plant those seven crops, thus decreasing supply and returning to market equilibrium. In order to prevent noncooperative farmers from taking advantage of other farmers decreasing supply

1089-427: Was only 5.5 cents per pound, corn was down 19.4 cents per bushel, and hogs declined to $ 2.94 instead of their respective 1909–1914 average prices of 12.4 cents per pound, to 83.6 cents per bushel, and $ 7.24 per hog. Furthermore, a region of the great plains was hit by an extreme drought which added to the agricultural difficulties of the time. Throughout this crisis there were many attempts to form Farmers' Unions. This

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