Fact Sheet Farm Credit Administration

1501 Farm Credit Drive

McLean, Virginia 22102-5090

July 8, 2010 Contact: Michael Stokke or Christine Quinn,

703-883-4056

E-mail: info-line@fca.gov

Website: www.fca.gov

Fact Sheet on Farm Credit System Bank Merger Applications

Bookletter—BL-063

The Farm Credit Administration (FCA or Agency) issued a Bookletter containing guidance for 

Farm Credit System (System) banks to use when preparing merger proposals to submit to FCA. 

While a merger of System banks may provide many benefits—including portfolio and 

geographic diversification, improved risk-bearing capacity, management capability, and 

operational efficiencies—it may also create broader issues for the merged bank and the 

System. Three such issues are discussed below.

1. Size-Concentration Risk

Concentrating assets and funding in a single bank’s business model may unduly stress 

the Farm Credit Insurance Fund and the statutory joint and several liability of the 

remaining banks. To address size-concentration risk, merger applications must identify 

needed risk-mitigating controls such as stronger financial performance requirements;

enhanced standards and obligations in intra-System agreements; and, possibly, the 

equalization of risk concentration through association re-affiliations, territorial 

adjustments, and other structural or financial approaches that could occur at the same 

time as the merger. As part of the analysis of size-concentration risk, merging banks are 

expected to consult with other banks on appropriate and acceptable risk-mitigating 

actions and controls.

2. Business Model Compatibility

For long-term success, a bank and its affiliated associations need compatible business 

models. Merger applications must identify and analyze the risks caused by business 

model incompatibilities and provide practical approaches for addressing them. These 

approaches may include providing associations that have different philosophies the 

opportunity to re-affiliate at the time of the merger. Alternatively, the bank may consider 

refining its business practices or governance structure to create greater compatibility in 

the district business model, cooperative philosophy, and operating practices. 

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3. Intra-System Operational Risk 

A bank merger may concentrate significant influence, management decision making, 

and authority in the resulting bank. This may affect existing coordination mechanisms 

within the System on a variety of operational matters. Therefore, bank merger 

applications must include an assessment of the impact that the merger will have on 

representation in various Systemwide decision-making and coordination bodies and 

identify any needed enhancements or new measures that ensure long-term cooperation 

across the System. 

Legal Authorities Governing Bank Mergers

Under §§ 7.0 and 7.12 of the Farm Credit Act of 1971, as amended, two or more System banks

may merge if the FCA Board approves the plan of merger. FCA regulations governing bank 

mergers are found in 12 C.F.R. Part 611, subpart F.

Bank Merger Guidelines

FCA intends to issue bank merger guidelines that describe the bank merger application process 

and list the specific information and documents that a bank merger application must contain.

FCA issued similar guidelines for association mergers in January 2010.

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