What Is the Federal Land Bank (FLB)?

The Federal Land Bank 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.

Key Takeaways

  • The Federal Land Bank system was created in 1916 to provide credit to farmers and ranchers.
  • Today it also finances parks and recreation areas and even home purchases for rural buyers.
  • Member banks are cooperatives owned by their customers.

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

Understanding the FLB

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 the pressing need of farmers for financing at a time when interest rates were high and loans for farming were difficult to obtain.

40.7%

The amount of all current American farm debt issued by the Farm Credit System.

By 1922, a total 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 system fell into trouble in 1985 when it recorded a $2.7 billion overall loss, then the largest one-year loss of any U.S. financial institution. Congress responded by adding additional oversight and regulation of the industry and authorizing an infusion of cash into troubled member banks.

Its purpose then and now was to provide long-term loans for purchases of rural land, farm equipment, livestock feed, and other agricultural purposes. 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.