Statement on the Small Association Presentation

Jeffery S. Hall

FCA Board Member

Farm Credit Administration Board Meeting

October 14, 2021

In just over 15 years, nearly one-third of Farm Credit System institutions have merged with 

other System institutions. A disproportionate share of the mergers involved small 

institutions. During that same period, total System assets almost tripled — to more than 

$400 billion today. 

The small association presentation

One of the priorities of the FCA board is to assess how the needs and challenges of small 

associations differ from those of large associations and to adopt policies that are appropriate 

for all stakeholders and are consistent with cooperative principles. In the study discussed 

today, we solicited input from small associations on three topics:

• The role they play in the cooperative structure of the Farm Credit System

• Their mission achievement

• The unique challenges they face 

As our staff noted in the presentation, small associations are seriously committed to their 

mission. They are very proud of their connection with their borrower-owners. They feel that 

their size allows them to be customer-friendly, to build good relationships with local farmers 

and ranchers, and to tailor their services to better meet the needs of their customers. They 

also emphasized connections to their local communities, motivation to meet the needs of 

underserved markets, and sharply focused more on mission.

At the same time, small associations have challenges. They point out that obtaining services

— in particular, IT services — can be costly and difficult. They also believe that the cost of 

compliance disproportionately affects their money, time, and staff resources. These 

challenges make it difficult for small associations to grow their business and expand credit 

offerings to their customer base.

The discussion of mergers and the challenges of small associations is ongoing; the 

presentation today did not present conclusions. Some of the challenges identified are 

outside the control of this regulatory body. However, the purpose of including this 

presentation in the board meeting today is to acknowledge some of the high-level issues 

identified and to begin to address things within our control. I note a few takeaways that 

should inform the board in making policies and decisions going forward.

Balancing efficiency with customer service

A constant drive toward increased efficiency is a key factor in consolidation. We see this all 

around us in the business world, especially in mature industries. This is especially true with 
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operating costs — and particularly in technology. Access to state-of-the-art financial 

technology and cybersecurity services may be challenging for small associations with more 

limited resources. But there can be a trade-off between increased efficiency and customer 

service and satisfaction. Both must be considered. 

Cost of compliance

As the Farm Credit System’s safety and soundness regulator, FCA must examine all 

institutions and approve regulations that set a high standard for all System institutions, no 

matter the size. We cannot exempt any institution from these standards. At the same time, 

the cost of compliance may put further stress on already limited resources, particularly in a 

small association. It is a difficult needle to thread but cannot be ignored.

Cooperative structure

Maintaining the cooperative structure of the Farm Credit System is fundamental to 

maintaining its status as a government-sponsored enterprise. A basic tenet of a cooperative 

is ownership and governance by its members. Consolidation and mergers have significantly 

reduced the representation of borrower-owners in the governance structure of the Farm

Credit System as a whole. Each merger has resulted in fewer board members on the 

combined institution.

We must not forget that every Farm Credit System institution has a public mission, and we 

must consider the consequences that mergers may have on the ability of an institution to 

serve the local borrower. We must recognize that preserving local cooperative ownership, 

presence, and control is important to the System’s cooperative structure. 

Conclusion

Consolidation and mergers are not inherently bad. In fact, in the Agricultural Credit Act of 

1987, Congress made it clear that the Farm Credit System should become more efficient 

through consolidation and mergers. Consolidation has been a consistent trend within 

agriculture for decades. In fact, it continues to happen all around us in most areas of our 

economy.

So, what do we do as a regulator? Do we have a role or even an obligation to look internally 

to determine whether we could be contributing unduly to this trend? FCA began this factfinding effort to gather information on the perspective of associations about the changing 

structure of the System. As a regulator, we must remember that our number one priority is 

ensuring that the Farm Credit System provides a safe, sound, and dependable source of 

credit for all creditworthy and eligible persons in agriculture and rural America. To me, that 

not only means the financial stability of the entire System, but also the safety and 

soundness of each institution. It also means acknowledging that the differences between 

large and small associations are important to consider and FCA should maintain a balanced 

approach, making sure all business models have the opportunity to succeed.