Agricultural Outlook Forum Presented: February 18 19, 2010 U.S. Department of Agriculture Credit Conditions for Rural Businesses and Farm Households Brian C. Briggeman
Brian C. Briggeman Economist www.kansascityfed.org/omaha February 18, 2010 The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
Comparing rural businesses and farm households before the Great Recession Lending to businesses during the recession Monitoring credit conditions
Average Income Average Assets ($1,000) ($1,000) $200 $1,200 $150 $900 $100 $600 $50 $300 $0 Farms (2005 ARMS) Rural Small Businesses Urban Small (2003 SSBF) Businesses (2003 SSBF) $0 Total Household Income (Left Axis) Source: 2005 Agricultural Resource Management Survey (USDA) and 2003 Survey of Small Business Finances (Federal Reserve Board of Governors). Calculations by author. Total Household Assets (Right Axis)
0.10 010 Probability of Being Approved for Credit* 0.10 010 0.05 0.05 0.00 0.00 0.05 0.05 0.10 Farms (2005 ARMS) Rural Small Businesses Urban Small Businesses (2003 SSBF) (2003 SSBF) 0.10 Source: 2005 ARMS (USDA) and 2003 SSBF (Federal Reserve Board of Governors). Calculations by author. *Marginal effect of being approved for credit: RHS = income, assets, debt to asset ratio, age, work tenure, college degree.
Return on Assets Tier 1 Capital Ratio 1.2% 1.2% 12.0% 12.0% 0.9% 0.9% 10.0% 10.0% 0.6% 0.6% 8.0% 8.0% 0.3% 0.3% 6.0% 6.0% 0.0% 0.0% 2005 2006 2007 2008 2009 All Commercial Banks Commercial Bank < $1B Assets Agricultural Banks Source: FDIC and Agricultural Finance Databook 4.0% 2005 2006 2007 2008 2009 All Commercial Banks 4.0% Commercial Bank < $1B Assets Agricultural Banks Source: FDIC and Agricultural Finance Databook
Percent change from year ago 14 12 10 8 Domestic Bank Deposits (Second Quarter) 2006 2007 2008 2009 6 4 2 0 All Commercial Banks Commercial Banks <$1B Assets Agricultural Banks Source: FDIC
Billion Dollars 1,200 Excess Reserves of Depository Institutions 1,000 800 600 400 200 0 Source: Federal Reserve Board of Governors
Diffusion Index 200 Loan Standards Diffusion Index 200 Credit Standards for 175 US U.S. Commercial Real Estate Loans 150 175 150 125 125 100 75 50 Collateral Requirements for Tenth District Agricultural Loans 2003 2004 2005 2006 2007 2008 2009 100 75 50 Source: Federal Reserve Board of Governors and Federal Reserve Bank of Kansas City
160 Tenth District Farm Loan Demand and Funds Availability Funds Availability 140 Index 120 160 140 120 100 100 80 60 40 Periods when the targeted Fed Funds rate rose. Farm Loan Demand Index 1986 1989 1992 1995 1998 2001 2004 2007 80 60 40 Source: Federal Reserve Board of Governors and Federal Reserve Bank of Kansas City
In general, rural business and farm household credit conditions have fared better than urban counterparts But challenges to credit conditions exist (e.g., commercial real estate debt and the U.S. economy deleveraging) g) How will exiting the accommodative monetary policy (U.S. and abroad) impact rural credit conditions?
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