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Information > Financial Terms > This page Federal Intermediate Credit
Banks The 12 Federal Intermediate Credit banks were
established in 1923 under Title II of the Federal Farm Loan Act, as amended. They were intended to discount or purchase short-and intermediate-term
notes of farmers and ranchers held by commercial banks and other financing
institutions. These organizations,
however, did not fully use the services available to them, nor, it was
held, did they adequately provide for the production credit needs of agricultural
producers. Consequently,
in 1933 the Congress passed the Farm Credit Act of 1933, which authorized
farmers to organize local credit cooperatives, called Production Credit
associations, which could discount farmers' notes with the Federal Intermediate
Credit banks. The capital stock of the Federal Intermediate
Credit banks (FICBS) is owned by the Production Credit associations (PCAs). The stock of the associations is owned by farmers and ranchers. The Farm Credit Act of 1971, enacted in December,
1971, consolidated and updated the various acts under which the units
of the Farm Credit System operate. Lending Operations. The Federal Intermediate Credit banks provide
funds for financing bona fide farmers and ranchers, producers or harvesters
of aquatic products, rural residents, and persons furnishing to farmers
and ranchers services directly related to their on-farm operating needs.
They make loans to and discount paper (maEagle Tradersg in not
more than seven years) for various types of financing institutions, including
Production Credit associations, national and state banks, agricultural
credit corporations, incorporated livestock loan companies, and other
similar institutions, with their endorsement.
The Federal Intermediate Credit banks may also participate as primary
lenders with the 135 Production Credit associations and other Federal
Intermediate Credit banks in making loans. In addition to their operations in discounting
agricultural paper, the Federal Intermediate Credit banks supervise and
assist the Production Credit associations in making sound credit available
in rural areas. The Federal
Intermediate Credit banks have compiled an outstanding operating record
- no loss has been sustained on any loan made since 1933, and no loss
has ever resulted from a loan to a Production Credit association.
FICBs derive their funds through issues of stock (only PCAs may
hold voting stock) and sale of participation certificates.
A large portion of their loans are made for production purposes
and mature within a year. Farm
and rural home loans, however, may have terms of up to 10 years, and loans
to producers and harvesters of aquatic products may be made for up to
15 years. Production Credit Associations. The Production Credit associations are primary
lenders which provide borrowers with short- and intermediate-term credit
for operating, capital, and other needs.
Loans from Production Credit associations may vary from a few months
in maturity up to seven years. Production
Credit associations may participate with commercial banks in making loans
to farmers. A Production Credit association must obtain
prior approval from its district Federal Intermediate Credit bank for
any loan it intends to discount if the loan exceeds 15% of the capital
structure of the association. In
turn, any loan that exceeds 35% of the association's capital structure
must be approved by the Farm Credit Administration. As primary lenders, Production Credit associations
must sustain all losses to the extent of available resources.
In their years of operations, losses have amounted to only a fraction
of 1% of cash advanced. In
all Farm Credit districts, the associations have adopted either mutual
loss sharing or participating loan plans or both.
These agreements, which have been in existence for several years,
have the effect of putting the net worth of the Production Credit associations
more directly behind the net worth of the Federal Intermediate Credit
banks and their outstanding debentures. Production Credit associations are controlled
by their borrowers through elected boards of directors.
Borrowers are required to invest in the capital stock of the associations
in an amount equal to 5% of their loans.
The associations, in turn, invest equal amounts in the capital
stock of their district Federal Intermediate Credit bank. Participation by Commercial Banks. It is reported that more banks are resorting
to PCAs as a source of credit, but that many banks are hesitant to participate
with PCAs in loans for two reasons.
First, PCAs are competitors for such loans.
Second, commercial banks wishing to participate with PCAs in loans
must comply with one of the following terms:
(1) at least 50% of the loan must be retained, (2) at least 10%
of each loan must be retained as long as the ratio of agricultural loans
to total loans is not materially reduced, or (3) the maximum amount of
the participated loan permitted to which the bank is subject is retained. Farm Credit System Financing. Securities serving as financing media for the
Farm Credit System are consolidated systemwide notes and bonds, the joint
and several obligations of all 37 Farm Credit banks.
All of the issues are backed by collateral requirements equal to
the amount of securities outstanding, which consist of the following types: discount notes of 5- to 270-day maturities sold daily in denominations
of $50,000, $10,000, and $1,000,000; six- to nine-month bonds sold each
month; and longer-term bonds sold in January, April, July, and October,
and as system's needs require. Bonds
are issued in book-entry form, with denominations of $1,000 for maturities
of over 13 months and $5,000 for shorter maturities.
The Farm Credit banks are authorized to issue bonds and notes to
a maximum of 20 times the capital and surplus of the banks.
The bonds are eligible investments for national banks and state
member banks of the Federal Reserve System as well as federal savings
and loan associations and federal credit unions, lawful investments for
fiduciary and trust funds of the U.S. government, and eligible as security
for all public deposits. Taxwise,
the bonds and interest therefrom are exempt from state, municipal, and
local income taxes, but subject to federal taxation. Commercial banks are reportedly the largest
single group of investors in Farm Credit System securities. RestrucEagle Tradersg. The AGRICULTURAL ACT OF 1987 mandated a restrucEagle
Tradersg of the Farm Credit System which required the FEDERAL LAND BANK
and the FEDERAL INTERMEDIATE CREDIT BANK in each Farm Credit district
to merge. The resulting FARMCREDIT
BANK will be a federally chartered instrumentality of the United States
with corporate powers similar to those formerly held by the FLB and the
FICB. Each Farm Credit bank
will elect a board of directors in accordance with its bylaws.
At least one member of the board will be elected by the other directors
and shall not be a director, officers, employee, or stockholder of any
system institutions. See FARM CREDIT ADMINISTRATION,
FEDERAL FARM LOAN SYSTEM, FEDERAL LAND BANK ASSOCIATIONS, FEDERAL LAND
BANKS. |