Farm Credit System FCS

Farmers in the early twentieth century struggled to get long-term mortgages from commercial banks. President Woodrow Wilson signed the Federal Farm Loan Act on July 17, 1916, creating twelve federal land banks and the first government-sponsored enterprise. Later laws added short- and intermediate-term credit and banks for farm cooperatives, and over time the government capital was repaid, leaving the system fully owned by its borrowers. It is regulated by the Farm Credit Administration, an independent federal agency.

Today the system consists of a few large wholesale banks and dozens of local lending associations that make real estate, operating, and equipment loans to farmers, ranchers, agricultural cooperatives, rural homeowners, and rural utilities, often providing about 40 percent of all U.S. farm debt. Its institutions raise money by selling bonds through a central funding corporation, and a separate insurance corporation protects investors. Borrowers own their associations as cooperative members and receive a share of profits as patronage refunds.

During the farm crisis of the 1980s, falling land values and high interest rates pushed parts of the system to the brink, and the Agricultural Credit Act of 1987 provided federal assistance and reorganized it. Commercial banks have long argued that the system's tax advantages and government-sponsored status give it an unfair edge, especially as it has expanded lending to large agribusinesses and rural infrastructure. Supporters say it guarantees credit for agriculture in good times and bad, while critics say it competes with private banks using a public subsidy.