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Historical highlights of FCA and the FCS

1916 The Federal Farm Loan Act of 1916 seeks to rectify the scarcity of reliable credit at reasonable interest rates and terms for farmers. The Act establishes 12 federal land banks in 12 districts across the country, served by hundreds of national farm loan associations. These associations provide long-term credit to farmers to develop and expand their farms.
1920s Lower demand and prices for farm goods with the end of World War I and falling land prices create hardships for farmers. As farmers find it increasingly difficult to pay back their loans, the need for short-term credit for production needs becomes more apparent.
1922 The Capper-Volstead Act protects farmers who have organized into cooperatives from antitrust violations. The secretary of agriculture has the power to prevent farmers from establishing and maintaining monopolies.
1923 Congress attempts to solve the lack of shorter-term credit for the nation’s farmers by passing the Agricultural Credits Act of 1923. This act creates 12 federal intermediate credit banks in each of the 12 districts to lend to commercial banks and other intermediaries. This remedy is not successful in significantly increasing short-term credit to farmers.
1929 The Great Depression begins. Many farmers, unable to pay their expenses and loan payments, abandon their farms. The great number of nonperforming loans leads to dire financial instability for the land banks and farm loan associations.
1932 President-elect Franklin D. Roosevelt immediately sets to work to relieve the hardship of the nation’s farmers. He orders his agriculture advisor, Henry Morgenthau Jr., to see that an executive order is drawn up that consolidates all federal agencies that extend farm credit. He also orders two bills to be drafted: one to offer emergency financing to farmers in danger of losing their farms and one to establish a comprehensive, reliable system of farm credit. Morgenthau charges his technical advisor, William I. Myers of Cornell University, with these tasks.
1933 Myers, along with Rep. Marvin Jones, chairman of the House Committee on Agriculture, writes the executive order consolidating all agricultural credit agencies and names the new agency the Farm Credit Administration. The two men also write the Emergency Farm Mortgage Act to provide emergency financing to save farms whose owners are delinquent in their loans and the Farm Credit Act to establish the cooperative Farm Credit System. Some 40,000 farmers apply for loan restructuring in the first few months to save their farms.

Morgenthau is named the first governor of the Farm Credit Administration when Roosevelt takes office and the Farm Credit Act takes effect; Myers is named deputy governor. When Morgenthau becomes acting and under secretary of the Treasury later that year, Myers becomes governor.

Myers, considered the principal architect of the Farm Credit System, champions the ideal that FCA and the System should remain independent and free of political coercion. He exhorts farmers and their cooperatives to strive to become free of government capital and subsidies as soon as possible.
1934 FCA is given the added responsibility of chartering, examining, and supervising all federal credit unions, which are in their infancy. FCA continues this oversight until 1942.
1938–39  Myers returns to Cornell. His deputy governor and protégé at Cornell University, Forrest (“Frosty”) F. Hill, becomes governor. When Secretary of Agriculture Henry A. Wallace lobbies to have FCA placed under the control of his department, Hill mounts an effort to keep FCA as an independent agency. In the end, Wallace wins out. President Roosevelt signs an executive order placing FCA in the U.S. Department of Agriculture.
1940 Hill resigns, and Albert G. Black, a director in the Department of Agriculture, is appointed governor. Black and Wallace attempt to change the structure of the System from a farmer-owned stock cooperative to a membership cooperative under the control of the department. The effort fails, and national farmers organizations are energized to maintain farmer ownership by starting a program to pay off all government capital invested in the System.
1947 Rising prices for farm commodities and land after World War II raise the income of farmers and enable them to increase payments on their loans. The federal land banks pay back all the government capital invested in them.
1953 FCA becomes an independent agency again under the Farm Credit Act of 1953. The Act creates a Federal Farm Credit Board with 13 part-time members—one from each of the 12 agricultural districts and one appointed by the secretary of agriculture—to develop policy for FCA. From then on, it is this board—not the president—that appoints future governors. Robert B. Tootell is the first governor appointed by the board (in 1954).

More than half of the production credit associations have paid back their government capital, a credit to the vigorous efforts of Governor (and previous production credit commissioner) Carl Arnold.
1968 All government capital has been paid back by System institutions, making them wholly owned by their farmer-borrowers. This great accomplishment is the capstone on Mr. Tootell’s 15 years as FCA governor.
1969 The country is in a recession until 1970.

Incoming Governor Edwin A. Jaenke seeks to broaden the authorities of FCA and the System to serve the needs of modern farmers and rural communities. The Commission on Agricultural Credit, formed by the Federal Farm Credit Board on Governor Jaenke’s recommendation, comes up with 12 objectives for the System, including objectives to increase credit for young farmers; for certain farm-related businesses necessary for agricultural production, processing, and marketing; and for the development of rural America, including nonfarm rural homes, rural utility systems, and other community needs.
1970s The Farm Credit Act of 1971 incorporates many of these objectives. The Act gives banks and associations more flexibility in lending to production agriculture and authorizes lending to commercial fishermen and nonfarming rural homeowners. The Act is amended in 1980 to make lending to young, beginning, and small farmers more accessible.

To stem inflation and reduce unemployment, the federal government imposes wage and price controls. It also devalues the dollar and removes the gold standard. These actions lead to shortages, curtailed foreign investment, and rising inflation. An oil embargo by Arab nations impacts farm production by quadrupling oil prices. Double-digit inflation raises the price of farm goods and farmland.

Wage and price controls are considered ineffective and are lifted in 1974. The oil embargo also ends.

Great demand for U.S. agricultural exports, particularly in the Soviet Union, which is experiencing severe grain shortages as a result of years of drought, causes farmers to expand their assets and produce more to meet the demand.
1979 The Federal Reserve tightens currency to rein in inflation. Interest rates soar and foreign demand for U.S. farm exports falls. Other macroeconomic policies combine to produce large U.S. farm surpluses, lower prices, and lower incomes to repay farm loans.
1985 Hundreds of thousands of farmers are at risk of losing their farms, and many FCS institutions are financially unstable as a result of nonperforming loans and poor loan policies. The FCS suffers the largest losses of any financial institution in U.S. history.

Congress passes the Farm Credit Amendments Act to separate FCA from the FCS, making FCA an “arm’s-length” regulator. The Act gives FCA increased regulatory, oversight, and enforcement powers and responsibilities to restore safety and soundness to the System. It also does away with the policy-making structure of the part-time Federal Farm Credit Board, replacing it with a presidentially appointed board of three full-time members. Frank W. Naylor is named the first chairman of the FCA board.

Congress, recognizing the need for financial assistance for failing FCS institutions, passes the Agricultural Credit Act. The Act creates the FCS Financial Assistance Corporation and the FCS Assistance Board to provide and administer financial and technical assistance to weak institutions, authorizing up to $4 billion in total (but spending only about $1.3 billion). The Act also creates the Farm Credit System Insurance Corporation (FCSIC) to ensure timely payment of interest and principal on Systemwide and consolidated bonds and other obligations issued by FCS banks. In addition, the Act strengthens borrower rights and creates the Federal Agricultural Mortgage Corporation (Farmer Mac) to establish a secondary market for agricultural real estate and rural home mortgages.

1988–1990s The increased oversight, regulatory, and enforcement powers granted to FCA help the System to rebound. Falling interest rates and record-high farm income, boosted by large government subsidies, also facilitate the System’s recovery. FCS institutions start posting profits instead of losses, and loan quality significantly improves. Both mandatory and voluntary mergers of institutions bolster their financial strength and services.

The Food, Agriculture, Conservation, and Trade Act Amendments (1991) create the Office of Secondary Market Oversight within FCA to administer the regulation of Farmer Mac.
2000s The System continues to build capital reserves and enjoys the strongest financial position in its history. Loan growth increases at impressive rates.

In 2004, one FCS association, which does not have a patronage program to disburse surplus earnings to its members, announces its plans to terminate System status and become a subsidiary of Rabobank International. Although termination of System status is allowed under the Farm Credit Act of 1971 as amended, the association does not go through with it. Nevertheless, the proposed termination helps spur the trend of the preceding decade of more associations establishing patronage programs. The percentage of associations with patronage programs increases from 43 percent in 2000 to 81 percent in 2005. In 2005, total patronage paid out by both banks and associations is $874 million, up from just $391 million in 2000.

All federal assistance received by FCS institutions during and after the agricultural credit crisis of the mid-1980s is repaid, with interest, by June 2005.

The System rededicates itself to fulfilling its mission to improve the flow of capital into rural America by forming alliances with other commercial bankers and, under conditions approved by FCA, establishing pilot programs for mission-related investments (MRIs). Loan participations and syndications with non-System lenders, plus MRI programs, now constitute 10 to 12 percent of the System’s total assets.
Page updated: November 30, 2018