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History of the Farm Credit System

In the early 1900s, commercial lenders considered agriculture to be a large risk. Interest rates were high, and long-term financing for farmers and ranchers was scarce. President Theodore Roosevelt appointed a Country Life Commission in 1908 to address the problems facing a predominantly rural population.

Congress Sets Up Land Bank Cooperatives

After congressional and presidential studies, Congress passed the Federal Farm Loan Act in 1916, establishing the nationwide Farm Credit System — a network of credit cooperatives — to be a reliable source of funding for farmers, ranchers and aquatic producers. This system was based largely on Germany's Landschafts, which had operated since 1769 and appeared to be the most successful of the European cooperative agricultural credit systems.

The legislation set up 12 district banks across the country to provide funds to local mortgage lending cooperatives, which would be owned by farmers and ranchers. One of these banks, the Federal Land Bank of Houston, was designated to serve the Tenth Farm Credit District and later would become the Farm Credit Bank of Texas.

Following World War I, which was a prosperous time for farmers, prices collapsed, resulting in a shortage of short-term credit for farmers and ranchers. Congress responded with the Agricultural Credit Act of 1923, which added 13 Federal Intermediate Credit Banks (FICBs), including the FICB of Houston, to the Farm Credit System.

Production Lending Co-ops Born of the Depression

The stock market crash of 1929 touched off the Great Depression, throwing thousands of farmers into bankruptcy and strangling the Farm Credit System's ability to finance agriculture. In 1933, Congress passed two laws affecting the future of Farm Credit. One piece of legislation re-capitalized the Land Banks with $189 million. The other revamped the FICBs and established a short-term credit delivery system through locally owned Production Credit Associations. In addition, President Franklin Roosevelt consolidated the supervision of all federal agricultural credit agencies under a new regulator, the Farm Credit Administration.

As producers discovered the benefits of doing business with a financing cooperative that they owned — and that truly cared about their success — Farm Credit became the trusted financial partner of generations of rural Americans. By 1968, all of the Farm Credit System lending entities had repaid their federal capital debt and were completely owned by their borrowers.

Today, agriculture requires enormous amounts of capital. Technology has revolutionized farming and agribusiness. Yet, Farm Credit has continued to rise to the challenge of providing sound, dependable credit to agriculture and rural America.

The Farm Credit Act of 1971, along with amendments added in 1980, expanded the range of services that Farm Credit institutions could offer, to include rural home mortgages, leasing services, and international and rural utility financing.

System Structural Changes

During the early- to mid-1980s, American agriculture plummeted into recession. Again, Congress responded with legislation that revised the structure and operations of the Farm Credit System.

One result was the establishment of the Farm Credit System Insurance Corporation as a new federal agency to regulate and administer the Farm Credit System Insurance Fund. It is funded by premiums paid by System lenders on outstanding loan volume and may be used to insure the timely repayment of debt obligation.

Another result was the establishment of the Federal Farm Credit Banks Funding Corporation, which manages the sale of Systemwide securities. It was established as a stand-alone System institution, with two board members who are not affiliated with other System institutions and who are appointed by directors elected by the System banks after consultation with the Secretary of the Treasury and the chairman of the Federal Reserve Board.

It was also during this era that the Federal Land Bank and Federal Intermediate Credit Bank in Texas merged to form the present Farm Credit Bank of Texas. Congress also enacted provisions allowing Federal Land Bank Associations to merge with Production Credit Associations to become full-service Agricultural Credit Associations. In 1990-91, Congress asked Farm Credit to play a greater role in financing agricultural marketing and processing, as well as financing water and sewer development in rural communities.

Part of the Fabric of Rural America

The cooperative credit system envisioned by Congress has stood the test of time. Since 1916, the Farm Credit System has pursued a mission to maintain the quality of life in rural America by ensuring the availability of sound, dependable funding for creditworthy agricultural producers, agribusiness, rural homeowners and other rural landowners.

Today, the Farm Credit Bank of Texas and our affiliated lending cooperatives remain an important part of the fabric of rural America and a partner to the nation's agricultural sector. Together, we are a leader in rural financing, offering competitive loan products, financial services and specialized expertise in agricultural financing.