Federal Land Bank (FLB): What it Means, How it Works

What Is the Federal Land Bank (FLB)?

The federal land bank (FLB) is a network of regional cooperative banks that provide long-term loans to farmers and ranchers. Founded in 1916, the federal land bank system is now regulated by the Farm Credit Administration (FCA).

There are more than 70 banks in the Farm Credit System (FCS) that specialize in loans for rural businesses including farms, forestry services, fisheries, parks, and recreational services.

Understanding the Federal Land Bank

The federal land bank was founded in 1916 under President Woodrow Wilson as a network of 12 regional banks dedicated to providing low-cost financing to farmers and ranchers. The new program addressed farmers' pressing need for financing at a time when interest rates were high and loans for farming were difficult to obtain.

By 1922, a total of 74,000 farmers had borrowed $234 million from the federal land banks, according to a timeline by the Farm Credit Administration.

In the 1930s, in the midst of the Great Depression, many farmers defaulted on their loans and about half of the land banks were close to insolvency. President Franklin D. Roosevelt issued an executive order that enabled the government to buy up failed farm mortgages and refinance them at lower rates, essentially bailing out the land bank system.

The same executive order created the Farm Credit Administration, which exists to this day.

The program was expanded over the years, particularly during the Depression. The government created another 12 rural lending institutions dedicated to short-term and intermediate-term financing for farms and ranches. The combined network was then called the Farm Credit System.

The FLB system fell into trouble in 1985 when it recorded a $2.7 billion overall loss—the largest one-year loss of any U.S. financial institution at the time. Congress responded by adding more oversight and regulation of the industry and authorizing an infusion of cash into troubled member banks.

The Federal Land Bank Today

Its purpose then and now was to provide long-term loans for purchases of rural land, farm equipment, livestock feed, and other agricultural needs. In addition, the Farm Credit System provides loans to beginning farmers, rural infrastructure providers, and even rural homebuyers.

The banks are cooperatives and are owned by their customers. The loans are no longer federally subsidized. The banks paid off the last of their federal debts in 2005. The banks raise money as needed by issuing bonds to the public.

According to the Farm Credit Administration, 40.7% of current farm debt was issued by the Farm Credit System.

The Farm Credit System

The Farm Credit System (FCS) is a nationwide lending network that specializes in serving the agricultural community. It is made up of cooperative banks and associations that provide credit to individuals and businesses throughout the United States. The FCS assists the rural community and organizations of all types and sizes, ranging from small family farms to corporations with global operations.

The Farm Credit System is a crucial source of funding for the agribusiness industry, which is seen as high-risk by traditional lenders. Each of the member institutions of the FCS has management through a customer-chosen board of directors. 

The FCS makes loans for a variety of purposes, including:

• Agricultural processing and marketing activities
• Rural housing initiatives
• Farm-related businesses
• Construction and improvement of rural utilities
• Financing and promoting the global exports of products
• Purchasing land to operate farms
• Purchasing equipment and building the facilities necessary to the agriculture industry

The Farm Credit System helps the agriculture industry with resources including financial products such as credit life insurance, crop insurance, accounting tools, and cash management services. The organization also provides access to leasing programs that allow customers to purchase and finance vehicles, farm equipment, and other supplies.