What is 'Bank For Cooperatives'

Bank for Cooperatives is a regional, privately-owned and government-sponsored bank which makes loans to farmer-owned marketing, supply and service cooperatives, and rural utilities. These banks are part of the Federal Farm Credit System  (FFCS) which provides short-, intermediate-, and long-term loans for agricultural purposes, and are subject to regulation by the Farm Credit Administration which. The Bank for Cooperatives is also known as the Agricultural Credit Bank (CoBank).

BREAKING DOWN 'Bank For Cooperatives'

The Bank for Cooperatives (CoBank) is part of the Federal Farm Credit System (FFCS), and are a crucial source of funding for the nation's agribusiness, seen as high-risk by traditional lenders.

Their duties include the authorization to make loans and financial commitments to individuals and businesses involved in agricultural. As a cooperative. The bank is jointly run by its members, who share in the risks and profits from the bank's activities. Banking activities involve technical and financial assistance to members including collateral custody and offering discounting notes and other obligations. The bank is also authorized to finance U.S. agricultural exports and provide international banking and currency exchange services for farmer-owned cooperatives.

CoBank list seven cooperative principles, which guide their mission and provides value to the membership.

  1. Voluntary and open membership
  2. Democratic control with one vote per member
  3. Equal member participation which does not have a basis on the capital invested
  4. Only enter into agreements or raise money from external sources which maintain the bank's independence
  5. Provide education, training, and information to members and the general public
  6. Work through local, national, regional, and international structures to promote the good of the members
  7. Strive for sustainable development of the communities it serves

Authorization for Bank of Cooperatives Formation

In January 2006, the U.S. government signed a law stating that every farm credit district must have a bank for cooperatives. A Bank for Cooperatives title will include the name of the city or geographical location designation. When authorized by the Farm Credit Administration, each bank for cooperatives may establish such branches or other offices as appropriate for the effective operation of its business.

The Federal Farm Credit System is a nationwide cooperative system of banks and associations providing credit to farmers, agricultural concerns, and related businesses. The Farm Credit System provides more than $304 billion in loans, leases, and related services to farmers, ranchers, rural homeowners, aquatic producers, timber harvesters, agribusinesses, and agricultural and rural utility cooperatives. 

This lending amounts to about one-third of the credit needed by those who live and work in rural America. The agency has capitalization through the issuance of bonds whose interest is free from state and local income taxes. Loans are financed primarily by the sale of debt securities issued by the Federal Farm Credit Bank.

History of CoBank

The Farm Credit Act of 1933, which was signed to improve access to credit for farmers, establishes the CoBank. The act formally supervised the operation of the nation's federal land banks, Intermediate Credits Banks, Farm Loan Associations, and the Central Bank for Cooperatives. The Act was part of President Franklin D. Roosevelt's New Deal to help farmers refinance mortgages over a longer time, at below-market interest rates through regional and national banks. This initiative helped farmers recover from the Dust Bowl. 

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