Historical developments in agricultural finance and the genesis of America’s farm credit system

2017 ◽  
Vol 77 (1) ◽  
pp. 4-21 ◽  
Author(s):  
Calum G. Turvey
Keyword(s):  
Rural Communities ◽  
Banking System ◽  
Credit System ◽  
Agricultural Credit ◽  
Agricultural Finance ◽  
Content Type ◽  
Farm Credit ◽  
Farm Credit System ◽  
Historical Developments

Purpose The purpose of this paper is to provide a review of major historical developments in agricultural finance, with particular emphasis on agricultural credit. It reviews the development of Raiffeisen and related banks that emerged in Germany and Europe throughout the nineteenth century and how the cooperative banking system made its way into the banking system of the USA in the early twentieth century. The paper emphasizes the role of the state in the developing of agricultural credit, especially with respect to farm mortgages, securitization, and bond structures. Design/methodology/approach This paper presents a historical synthesis of historical literature on agricultural credit. Findings This paper shows the direct linkage between the developments in Raiffeisen credit cooperatives and the Farm Credit System (FCS) and details the emergence of the land banks, farm credit banks, agricultural bonds and the role of joint-stock banks in agricultural credit policy. Originality/value In total, 2016 marks the 100th anniversary of the passing of the 1916 Federal Farm Loan Act which set in motion the USs’ first Government Sponsored Enterprise and catalyzed the formation of the FCS as it operates today to provide credit to farmers and rural communities on a cooperative basis. Although there are a few wonderful books written on certain aspects of the FCS the story of how the FCS was initiated and the many struggles it faced up to the 1933 Act has not been told often enough. This paper tells the story of the evolution of agricultural credit that ultimately led to the formation of the FCS.

Market microstructure and the historical relationship between the US farm credit system, farm service agency and commercial bank lending

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Calum G. Turvey ◽  
Amy Carduner ◽  
Jennifer Ifft
Keyword(s):  
Market Microstructure ◽  
Credit System ◽  
Agricultural Credit ◽  
Agricultural Finance ◽  
Content Type ◽  
Demand Elasticities ◽  
The Us ◽  
Farm Credit ◽  
Farm Credit System

PurposeThe purpose of this paper is to investigate the market microstructure related to the Farm Credit System (FCS), Commercial Banks (CB) and Farm Services Administration (FSA). The commercial banks frequently call out the FCS as having an unfair advantage in the agricultural finance market place due to tax exempt bonds, and an implied guarantee of those bonds. This paper addresses the issue by examining the interrelationships since 1939, while addressing the historically distinctive roles that the FCS, CB and FSA have played in the US agricultural credit market.Design/methodology/approachThere are two components to our model. The first is the estimation of short and long run credit demand elasticities, as well as land elasticities. These are estimated from a dynamic duality model using seemingly unrelated regression. The point elasticity measures are then used as independent variables in least square regressions, combined with farm specific and related macro variables, for the Cornbelt states. The dependent variable is the year-over-year changes in paired FCS, CB and FSA loans.FindingsThe genesis of the FCS was to provide credit to farmers in good and bad years. Therefore, we expected to see a countercyclical relationship between FCS and CB. This is found for the farm crisis years in the 1980s but is not a continuous characteristic of FCS lending. In good times the FCS and CB appear to compete, albeit with differentiated market segmentation into short- and long-term credit. The FSA, which was established to provide tertiary support to both the FCS and CB, appears to be responding as designed, with greater activity in bad years. The authors find the elasticity measures to be economically significant.Research limitations/implicationsThe authors conclude that the market microstructure of the agricultural credit market in the US is important. Our analysis applies a broader definition of market microstructure for institutions and intermediaries and reveals that further research examining the economic frictions caused by comparative bond vs deposit funding of agricultural credit is important.Originality/valueThe authors believe that this is the first paper to examine agricultural finance through the market microstructure lens. In addition our long-term data measures allow us to examine the economics through various sub-periods. Finally, we believe that our introduction of credit and land demand elasticities into a comparative credit model is also a first.

scholarly journals Some Evidence on the Relationship Between Loan Insurance and the Supply of Agricultural Credit From Commercial Banks

1980 ◽  
Vol 12 (2) ◽  
pp. 25-29
Author(s):  
L. Upton Hatch ◽  
Wesley N. Musser
Keyword(s):  
Small Business Administration ◽  
Credit System ◽  
Federal Programs ◽  
Agricultural Credit ◽  
Public Programs ◽  
Agricultural Finance ◽  
Public Agency ◽  
Farm Credit ◽  
Farm Credit System ◽  
Farmers Home Administration

Insured farm loans have evolved to be an important component of the federal role in the agricultural credit subsector. Currently, agricultural credit is supplied by three sets of institutions: (1) private firms and individuals, (2) the quasiprivate cooperative Farm Credit System, and (3) the federal public programs of the Farmers Home Administration (FmHA) and Small Business Administration. Statuatory authority currently limits federal programs to a residual role of lending to borrowers who cannot receive credit from the other segments. Though a large component of public programs consists of emergency loans in areas of economic disaster, the FmHA also makes farm operating and real estate loans to farmers who meet the statuatory requirements. The source of funds for some FmHA loans is federal appropriations and money market certificates. However, guaranteed loans have become an important component of FmHA programs. These loans are made in cooperation with other agricultural finance agencies. The public agency insures or guarantees repayment of the loan. The cooperating firm negotiates the loan and provides the funds. Usually the interest payment is below the current market interest rate structure.

scholarly journals Optimal Agricultural Credit Association Branch Office Locations

2003 ◽  
Vol 35 (1) ◽  
pp. 127-141 ◽  
Author(s):  
Timi M. Scaletta ◽  
Jeffrey R. Stokes
Keyword(s):  
Integer Programming ◽  
Optimal Number ◽  
Programming Models ◽  
Mixed Integer ◽  
Credit System ◽  
Agricultural Credit ◽  
Farm Credit ◽  
Farm Credit System ◽  
Branch Office ◽  
Credit Association

Since the farm financial crisis of the 1980s, Farm Credit System banks continue to merge and consolidate to enhance competitiveness. Two mixed-integer programming models of AgChoice Agricultural Credit Association (ACA), a recently merged ACA in Pennsylvania, were developed to determine the optimal number, location, and territory of branches. The approach suggests useful information can be determined regarding the reconfiguration process after bank mergers, especially given the fact that the current AgChoice ACA configuration is available for comparison purposes.

Knowledge sharing and exchange of information within bank and firm networks: the role of the intangibles on the access to credit

2014 ◽  
Vol 18 (5) ◽  
pp. 1036-1051 ◽  
Author(s):  
Maria Rosaria Della Peruta ◽  
Francesco Campanella ◽  
Manlio Del Giudice
Keyword(s):  
Information Exchange ◽  
Banking System ◽  
Credit System ◽  
Content Type ◽  
Access To Credit ◽  
Innovation Activities ◽  
Using Data ◽  
Further Development ◽  
Positive Effect

Purpose – The purpose of this paper is to theoretically develop the idea that the intangible value of the collaboration between firms and the banking system can influence the probability of default (PD) on the part of firms and, therefore, their rating. The authors also propose that collaboration between banks and firms has a positive effect not only on the access to credit but also on the innovation activities and on the intervention of foreign capital in the ownership of Italian businesses. Design/methodology/approach – As pointed out by the literature on smaller businesses finance, investments widely rely on credit availability. Tests using data on a sample investigation involving 5,587 firms, operating in 17 manufacturing sectors in Italy, support the majority of the proposed ideas. Findings – The empirical investigation shows that only some aspects of the collaboration between enterprises and banks influence the PD, the investments in R&D and the internationalisation of ownership of the enterprises. In particular, the three stated variables are positively influenced both by the intensity of the credit relationship and by the level of information exchange with the credit system. Research limitations/implications – Further development of this research, as more empirical data become available, should allow explaining why the level of information exchange with the credit system has the greatest influence on the dependent variables analyzed. Originality/value – This paper aims to extend the current understanding on how the local banking system is developed and is able to increase access to credit after gathering all the information about firms asking for funds.

scholarly journals Measuring the efficiency of the Farm Credit System

2014 ◽  
Vol 74 (1) ◽  
pp. 38-54 ◽  
Author(s):  
Trang Dang ◽  
David Leatham ◽  
Bruce A. McCarl ◽  
Ximing Wu
Keyword(s):  
Financial Crisis ◽  
Technical Efficiency ◽  
Relative Efficiency ◽  
Farm Income ◽  
Credit System ◽  
Content Type ◽  
Significant Difference ◽  
Farm Credit ◽  
Farm Credit System ◽  
The Impact

Purpose – The purpose of this paper is to develop information on the relative efficiency of Farm Credit System (FCS) lenders. Also the evolution of relative efficiency is examined as influenced by the biofuel boom, the financial crisis, and farm income increases. The paper aims to discuss these issues. Design/methodology/approach – A stochastic frontier production function is used to estimate technical efficiency of FCS banks and associations. Findings – A significant difference is found in efficiency between large and small associations and banks. Larger asset bases and management compensation are found to be positively associated with efficiency. Banks are found to have higher technical efficiency than associations (66-46 percent). Association efficiency is found to be increasing indicating likely effects of recent consolidation. The financial crisis was not found to have a significant effect with the bioenergy and farm income booms being likely countervailing forces. Research limitations/implications – Further work is needed on the impact of the biofuel boom, increases in farm income, and new regulations. Practical implications – The study provides information and indications of strategies for FCS management including additional consolidation. Originality/value – This does an updated assessment of FCS efficiency taking into account changes in consolidation, lending practices, and economic conditions. Implications are developed for management actions such as more consolidation. The study also uses a more advanced methodology compared to older studies.

Farm and lender structural change: implications for federal credit

2017 ◽  
Vol 77 (1) ◽  
pp. 78-94 ◽  
Author(s):  
Charles B. Dodson ◽  
Bruce L. Ahrendsen
Keyword(s):  
Land Tenure ◽  
Commodity Price ◽  
Farm Size ◽  
Farm Income ◽  
Service Agency ◽  
Credit System ◽  
Content Type ◽  
Farm Credit ◽  
Size Groups ◽  
Guaranteed Loans

Purpose The purpose of this paper is to examine changes in the structures of US farms and lenders and identify prospective implications for federal credit. Design/methodology/approach Data from US farm operations for 1996-2014 were adjusted to 2014 values using commodity price indices. Farm size groups were constructed by value of farm production to analyze changes in farm numbers, production, assets, debt, leverage, liquidity, profitability, land tenure, commodity type, contract production, organization type, and use of Farm Service Agency (FSA) direct and guaranteed loans by farm size. Bank, Farm Credit System (FCS), and FSA data from 1996 to 2015 were adjusted to 2014 values. Lender size groups were constructed to analyze changes in bank and association numbers, farm loans, and use of FSA guaranteed loans by lender size. Findings The greatest consolidation has been by farms with over $2 million in production. More farm debt is held by large, complex organizations, frequently with multiple operators, more variable income, and greater reliance on production contracts and operating and nonreal estate credit. Large farms have greater leverage, are more profitable, and have a larger share of household income from the farm. Banks and FCS institutions are fewer and larger, yet smaller institutions use FSA guarantees to a greater extent. Larger farms tend to be more reliant on both direct and guaranteed FSA loans and are likely to become more dependent on FSA credit. Originality/value Changing farm and lender structure together with softening farm income may require FSA farm loan program changes to meet any increase in loan demand. Policy alternatives are provided to meet changing demand for farm credit.

scholarly journals Managing Price Risk in Volatile Grain Markets, Issues and Potential Solutions

2009 ◽  
Vol 41 (2) ◽  
pp. 353-362 ◽  
Author(s):  
Andrew M. McKenzie ◽  
Eugene L. Kunda
Keyword(s):  
Price Volatility ◽  
Price Risk ◽  
Credit System ◽  
Over The Counter ◽  
Grain Markets ◽  
Lines Of Credit ◽  
Farm Credit ◽  
Farm Credit System ◽  
Simulation Results ◽  
Sources Of Capital

During 2008 extreme price volatility in grain markets led to country elevators incurring unprecedentedly large margin calls on their futures hedges. As a result elevators' traditional liquidity sources and lines of credit were stretched to breaking point. This article explores the potential liquidity benefits of making available an Over-the-Counter Margin Credit Swap contract to grain hedgers. The swap would enable hedgers to draw upon sources of capital outside the farm credit system to provide liquidity needed to make margin calls. Simulation results clearly show that a Margin Credit Swap contract would provide significant liquidity benefits to hedgers during volatile periods.

Money laundering and financial stability: does adverse publicity matter?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bahriye Basaran-Brooks
Keyword(s):  
Money Laundering ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Banking System ◽  
Public Confidence ◽  
Content Type ◽  
Reputational Risk ◽  
The Global Financial Crisis ◽  
The Impact

Purpose Already suffering reputational damage from the global financial crisis, banks face a further loss of trust due to their poor money laundering (ML) compliance practices. As confidence-driven institutions, the loss of reputation stemming from inadequate compliance with regulations and policies labels banks as facilitators of crime and destroys public trust both in the bank itself, peer banks and the wider banking system. Considering the links between financial stability and adverse publicity about banks, this paper aims to critically examine the implications of ML-specific bank information on financial stability. Design/methodology/approach This paper adopts a content analysis and a theoretical discussion by critically evaluating the role of bank compliance information on stability with references to recent case studies. Findings This paper establishes that availability of information regarding a bank involved in or facilitating ML might pose a threat to financial stability if bank counterparties cut their ties with the bank in question and when bank stakeholders show a strong and sudden negative reaction to adverse publicity. Though recent ML scandals have not caused immediate instability, general loss of confidence associated with reputational risk have had a destabilising effect on affected banks’ capital and liquidity. Originality/value There has been surprisingly little discussion to date on the impact of publicly available bank information on financial stability and public confidence within the ML compliance framework. This paper approaches the issue of publicly available banking compliance information solely through the prism of public confidence and reputational risk and its impact on macro-stability by examining recent ML scandals.

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