FACTORS DETERMINING FSA GUARANTEED LOAN LOSS CLAIM ACTIVITY IN THE U.S. FOR 1990-1997

The study identifies farm operator and economic characteristics explaining variation in FSA guaranteed loan loss claims rates. Regression models using state-level data are estimated. Debt-to-asset ratios, interest rates, off-farm income and bank loan-to-asset ratios explain FO loss rates. Farm size and bank loan-to-asset ratios are important to OL loss rates.Agricultural Finance,

Factors Determining the Use of Guaranteed Loans by U.S. Commercial Banks

Financial Economics,

ANALYSIS OF BORROWER AND LENDER USE OF INTEREST ASSISTANCE ON FSA GUARANTEED FARM LOANS

The Farm Security and Rural Investment Act of 2002 made permanent the interest assistance program for the Farm Service Agency's guaranteed loans, authorized a significant increase in funding for the program, and targeted funding for beginning farmers and ranchers. The research presented here provides a basic descriptive analysis of past use. In particular, borrower data for Federal fiscal years 1985 through 2002 are examined in several dimensions. These dimensions include geographic, borrower type, lender type, interest rate differentials, percent guarantee, and the status of the loan as to whether a loss claim was paid or the loan remained active. Even though the program has been in existence for more than 15 years, little is known about its impact and utilization. This research is an initial step in documenting usage of the program.Agricultural and Food Policy, Agricultural Finance,

Models of Farm Service Agency Guaranteed Loan Loss Claim Rates in the U.S. for 1990-1998

The Farm Service Agency guaranteed loan program is an important source of credit for family-sized farming operations in Arkansas and the other states of the U.S. This program provides loan guarantees to borrowers who are otherwise unable to obtain credit from traditional lenders at reasonable rates and terms. This study identifies those factors related to the program’s loss claim rate performance over the years fiscal 1989 through 1998 using state-level data from forty states. For both the operating loan and farm ownership loan programs, farm operator financial variables, interest rates, and commercial bank characteristics are found to be statistically significant variables in explaining loss claim rate variation

Examining the use of Farm Service Agency guaranteed loans by commercial banks

This dissertation examines the behavior of banks participating in the Farm Service Agency guaranteed loan program between the fiscal years of 1995 and 2003. Guaranteed loans are originated by banks but backed by the federal government. Borrowers must be creditworthy but unable to receive credit at reasonable terms and rates. If the borrower defaults, the federal government reimburses the lender for a portion of lost principal and interest. While banks are not the only commercial lenders eligible to originate guaranteed loans, they are the major users. The study objective is to identify lender and farm financial characteristics that influence the propensity of a bank to use guaranteed loans as well as variables that affect the level of usage of the program. A portfolio selection model is modified to include an asset choice for guaranteed loans. The theoretical model provides insight into the choices of independent variables for the econometric models. Bank asset size, loan-to-asset ratio, agricultural loan-to-total loan ratio, and multi-bank holding affiliation are among the lender variables considered. State-level farm financial variables include debt servicing ratio, debt-to-asset ratio, variability in net farm income, variability in the value of farm assets, as well as others. Bank use of guaranteed loans is considered for all guaranteed borrowers, beginning farmers, and socially disadvantaged farmers. Regression models are estimated for two types of guaranteed loans, farm ownership and operating loans. A double-hurdle specification is employed to account for incidental truncation in the dependent variable. Incidental truncation occurs because loan volume is only observed if a bank has the propensity to use the program. Results indicate that larger banks, banks specializing in agricultural lending, banks with aggressive lending strategies, and banks with a history of significant program participation are more likely to originate guaranteed loans and are predicted to originate higher guaranteed loan volume. Farm financial variables are also found to significantly indicate propensity and intensity of guaranteed loan use. In particular, higher debt servicing ratios and more variability in farm income and asset values are positively related to guaranteed loan use. Rates of return and default for other assets are also significant

Risk-adjusted efficiency and risk aversion in the agricultural banking industry

Purpose – The purpose of this paper is to examine the performance of the agricultural banking industry using both traditional and risk-adjusted non-parametric efficiency measurement techniques. In addition to computing efficiency scores, the risk preference structure of the agricultural banking industry is examined. Design/methodology/approach – The paper used data envelopment analysis (DEA) to examine the efficiency of agricultural banks in the year 2001. Standard cost efficiency is computed and compared to both profit and risk-adjusted profit efficiency scores. The risk-adjustment is a modification of traditional DEA wherein firm preferences are represented via a mean-variance criterion. The risk-adjusted technique also provides estimates of firm level risk aversion. Findings – Results from the traditional approach that does not account for risk indicate a low degree of efficiency in the banking industry, while the risk-adjusted approach indicates banks are much more efficient. On average, 77 percent of the inefficiency identified by the standard DEA formulation is actually attributable to risk averse behavior by the firm. In addition, most banks appear to be substantially risk averse. Research limitations/implications – The risk-adjusted DEA technique used in this study should be applied to other, diverse data sets to examine its performance in a broader context. Practical implications – Results from this study support the idea that traditional DEA methods may mischaracterize the level of efficiency in the data if agents are risk averse. In addition, the paper outlines a practical method for deriving firm level risk aversion coefficients. Originality/value – This paper sheds light on the agricultural banking industry and illustrates the power of a new efficiency and risk analysis technique.Agriculture, Commercial banks, Risk analysis, United States of America

FACTORS DETERMINING FSA GUARANTEED LOAN LOSS CLAIM ACTIVITY IN THE U.S. FOR 1990-1997

The study identifies farm operator and economic characteristics explaining variation in FSA guaranteed loan loss claims rates. Regression models using state-level data are estimated. Debt-to-asset ratios, interest rates, off-farm income and bank loan-to-asset ratios explain FO loss rates. Farm size and bank loan-to-asset ratios are important to OL loss rates

Commercial Bank Usage of the Farm Service Agency Interest Assistance Program

The Farm Service Agency’s (FSA) interest assistance interest assistance program allows lenders to enter into an agreement with FSA to subsidize a guaranteed farm operating loan by reducing the interest rate charged to the borrower by up to four percentage points. With fiscal 1997-2003 data, an incidental truncation model framework is used to analyze: 1) commercial bank usage of the program; and 2) intensity of commercial bank usage. The results suggest bank characteristics, farm and non-farm financial characteristics, region, and time are important factors in determining bank usage of the interest assistance program and its intensity