Farm Credit System:

Potential Impacts of FCB Mergers on Farmer and Rancher Borrowers

GGD-95-19: Published: Dec 2, 1994. Publicly Released: Dec 2, 1994.

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Pursuant to a legislative requirement, GAO examined the potential impact of Farm Credit Bank (FCB) mergers on Farm Credit System borrowers and associations, focusing on the: (1) economies of scale; (2) level of services offered by FCB associations; (3) System's operation as a cooperative; and (4) bank-association relationship.

GAO found that: (1) cost savings from FCB mergers through economies of scale may be difficult to realize, since the associations incur most of the district operating costs and their increased costs could more than offset any savings at the bank level; (2) associations in merged districts are expected to offer the same or increased services based on their borrowers' demands, but the banks can withdraw approval for existing services after merging; (3) mergers between certain FCB could affect the application of certain cooperative principles; (4) local control of merged FCB will continue, since local borrowers serve as association and bank board directors; (5) an individual association's influence will be diluted by the mergers, since each association will have proportionally fewer bank directors; (6) local control may increase as FCB lessen their supervision of associations which generally enjoy greater autonomy in operations; (7) FCB mergers should have little impact on systemwide bond issues, since all banks remain liable for the bonds; (8) FCB mergers could significantly change some bank-association relationships due to the merging of banks with varying oversight practices and association support services, but these changes may not directly affect member-borrowers; and (9) FCB mergers could spur jointly provided support services by reducing the number of entities involved and encouraging uniformity in borrower services.

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