What Is the Purpose of a Federal Land Bank?


Quick Answer

The purpose of a Federal Land Bank is to provide funding for farmers to grow and expand their farms. Farmers help the bank stay afloat because they serve as owners of the National Farm Loan Associations, which act as agents for the bank.

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Full Answer

Federal Land Banks, also known as FLBs, were established under the Federal Farm Loan Act of 1916. The idea of having banks that specifically dealt with land matters was modeled after the Landschaft system of Germany. The FLBs worked well for the long-term financial stability of the farms but lacked in providing enough financial assistance for short-term needs.

After World War I, there was an increase in pressure for American farms to compete with farms in Europe. Use of mechanized farm equipment was on the rise, and there was a need for a lot of money at once to purchase the best equipment possible. In order to fix this problem, Congress passed legislation that permitted the formation of Federal Intermediate Credit Banks. Unlike the FLBs, the FICBs lent funds to agricultural cooperatives and commercial banks instead of funding individual farmers directly. Short-term credit flow was improved slightly, but this was not enough to make much of a difference.

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