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How Mergers in the Farm Credit System Have Affected Ag Banks

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Abstract
Commercial banks and the Farm Credit System (FCS) have been the most important sources of agricultural loans in the United States in recent decades. Since the 1990s, however, mergers and acquisitions have increasingly concentrated both the FCS and commercial banks, raising concerns about potential effects on the agricultural credit market. Starting in the 2000s, the FCS gained a substantial market share of total agricultural debt, lending credibility to these concerns. Thus far, however, how the FCS’s evolving size and scope affect agricultural bank operations, particularly through mergers, has not been adequately examined. Francisco Scott explores the effects of FCS mergers on agricultural banks (ag banks) and finds that FCS mergers have had mostly muted long-term aggregate effects on ag banks’ interest income, efficiency, and agricultural real estate loans as a share of their total loans. However, he also shows that FCS mergers likely decreased ag banks’ agricultural operational loans as a share of their total loans and increased ag banks’ interest expenses from historically low levels. These findings suggest that FCS mergers may have altered some strategic portfolio decisions of ag banks in their respective markets, though the effects on ag banks’ profitability were relatively minor.

Suggested Citation

  • Francisco Scott, 2023. "How Mergers in the Farm Credit System Have Affected Ag Banks," Economic Review, Federal Reserve Bank of Kansas City, vol. 0(no. 3), pages 1-23, July.
    • Handle: RePEc:fip:fedker:96413
    DOI: 10.18651/ER/v108n3Scott
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    References listed on IDEAS

    as
    1. Eric W. Hogue & Charles S. Morris & James Wilkinson, 2015. "Competition in Local Agricultural Lending Markets: The Effect of the Farm Credit System," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 51-78.
    2. William B. English & William R. Nelson, 1998. "Profits and balance sheet developments at U.S. commercial banks in 1997," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 84(Jun), pages 391-419, June.
    3. Robert Clark & Jean-François Houde & Jakub Kastl, 2021. "The Industrial Organization of Financial Markets," NBER Working Papers 29183, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Farm Credit System; bank mergers; agricultural loans;
    All these keywords.

    JEL classification:

    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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