What Is the Bank for Cooperatives?

The Bank for Cooperatives is a government-sponsored bank whose mandate is to provide subsidized credit to the American agricultural sector

Also known as the Agricultural Credit Bank (CoBank), the Bank for Cooperatives was established through the Farm Credit Act of 1993 and forms part of the broader Federal Farm Credit System (FFCS).

Key Takeaways

  • The Bank for Cooperatives is a bank dedicated to supporting the American agricultural sector.
  • It is overseen by the FFCS and its governing bodies.
  • Historically, many of the subsidies given to the American agricultural sector originate from the New Deal legislative reforms put in place during the Roosevelt administration. These in turn were designed to help the economy recover following the Great Depression.

Understanding the Bank for Cooperatives

Under the FFCS framework, the Bank for Cooperatives is responsible for providing credit and other financial services to borrowers in the domestic agricultural sector. The Bank has a particular focus on farmer-owned cooperatives, which includes assisting them in their efforts to export products internationally.

Traditionally, private banks have been reluctant to lend to the agricultural sector because farming activities are often viewed as being vulnerable to both lower-cost international competition and unpredictable natural factors, such as abnormal weather events, pests, and crop diseases.

In an effort to protect domestic agriculture, the United States government created a series of institutions to support American farmers during the administration of Franklin Delano Roosevelt. These reforms formed part of Roosevelt's New Deal program, which was designed to promote economic recovery in the wake of the Great Depression

American farmers were among the most heavily impacted by the Depression, which coincided with a period of extreme dust storms that devastated significant tracts of farmland. This natural disaster, which has come to be known as the Dust Bowl, contributed to Roosevelt's decision to subsidize the agricultural sector through the FFCS and other measures.

Today, the Bank for Cooperatives offers a wide range of services, including collateral custody services and discounted loan terms. The bank is also authorized to finance agricultural exports and assist in international transactions involving foreign currencies.

Real World Example of the Bank for Cooperatives

Some of the many stated goals and values of the Bank for Cooperatives are maintaining its independence and democratic control by its members, providing educational and training resources to members and the general public, advocating for the interests of the agricultural sector, and promoting sustainable practices in the communities it serves.

In 2006, Congress signed a law stating that every farm district governed by the FFCS must have its own Bank for Cooperatives. The title given to each of these banks will reflect the name of the city or geographical location it serves, and it will permit the new bank to establish its own branches so long as they adhere to the regulations set out by the FFCS.

Taken together, the various institutions of the FFCS are responsible for providing over $300 billion in loans to farmers and other parties in the agricultural sector. This lending amounts to roughly one-third of the credit required by the sector, and it is financed by government borrowing and taxation.