Credit in Rural America

Overview

In response to a mandate in the Federal Agriculture Improvement and Reform Act of 1996, this report provides information on the major financial institutions and Federal programs active in rural America, the performance of rural financial markets, and the costs and benefits of proposals to expand the lending authority of the Farm Credit System (FCS) and commercial bank access to FCS funds. After examining available data on agricultural, housing, small business, and community development loans, lenders, and programs, this report concludes that rural financial markets work reasonably well in serving the financial needs of these sectors of the rural economy. While localized financial market problems exist in some rural communities, and not all segments of the rural economy are equally well served, financial market failures are neither endemic to nor epidemic in rural America. Therefore, policies which provide untargeted subsidies to a broad range of rural lenders or borrowers such as those examined in this report are unlikely to be cost effective. While the proposals we examined to expand FCS lending authority and bank access to FCS funds would benefit their sponsors and some rural communities, they would do little to address rural credit market imperfections and, at the national level, their associated costs would outweigh their benefits.