Bank for Cooperatives

What Is the Bank for Cooperatives?

The Bank for Cooperatives was a government-sponsored bank with a mandate to provide subsidized credit to the American agricultural sector. The Bank for Cooperatives was originally established through the Farm Credit Act of 1933. In 1989, 11 of the 13 Banks for Cooperatives merged to form CoBank. CoBank began operations with $12 billion in assets, $9 billion in loans outstanding, and $807 million in financial capital.

The two remaining Banks for Cooperatives (in Springfield, Massachusetts and St. Paul, Minnesota) have continued to operate as separate entities. In 2012, CoBank merged with U.S. AgBank.

CoBank provides financial services to cooperatives, agribusinesses, rural public utilities, and other farm credit associations. CoBank also provides leasing services to agricultural cooperatives, Farm Credit associations, rural communications, energy and water systems, and agricultural producers.

CoBank is part of the Farm Credit System (FCS), which Congress formed in 1916 to provide dependable credit to the American agricultural sector. There are four banks and 68 associations that make up the Farm Credit System. The System serves all 50 states and the Commonwealth of Puerto Rico. 

Understanding the Bank for Cooperatives

Under the FCS framework, CoBank is responsible for providing credit and other financial services to borrowers in the domestic agricultural sector, including farmers, ranchers, rural cooperatives, and others who are eligible to borrow from the System. CoBank has a particular focus on farmer-owned cooperatives, which includes assisting them in their efforts to export products internationally.

The four banks in the System raise money by selling securities in the national and international money markets. They then turn around and lend this money to the associations that are part of the System, which in turn lend to U.S. farmers, ranchers, and other eligible borrowers.

At the end of 2019, the total loan portfolio of the Farm Credit System was $287 billion. The FCS also accounted for 43% of farm sector debt in 2019. In total, the FCS provides production agriculture in the U.S. with more than 30% of its credit and financial needs. The System is financed by government borrowing and taxation.

CoBank is one of the Farm Credit System's four banks. It is organized as an agricultural credit bank (ACB), while the other three banks — AgriBank, FCB, AgFirst Farm Credit Bank, and Farm Credit Bank of Texas — are organized as farm credit banks (FCBs). As an agricultural credit bank (ACB), CoBank has the same authorities as the farm credit banks, plus some additional authorities. CoBank can make loans to agricultural, aquatic, and public utility cooperatives, in addition to financing U.S. agricultural exports and providing international banking services for farmer-owned cooperatives.

CoBank 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. 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.

History of the Bank for Cooperatives

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 President 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 Farm Credit System and other measures.

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.