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Stockholder discipline in the FCS is a bad joke (August 1998)

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  • Ely, Bert

Abstract

In genuine stockholder-owned businesses, there is true stockholder discipline. Specifically, bank stock can be bought and sold in the secondary market so that individual stockholders can sell an ownership position or, alternatively, accumulate a large ownership position, and the votes that to with it, in order to take control of a bank. Farm Credit System (FCS) institutions, however, are cooperatives; as such, one becomes a stockholder only by also borrowing from the institution. Since each stockholder-borrower has just one nontransferable vote, there effectively is no market for the control of an FCS institution. As FCS lenders consolidate and begin to claw away at each other, it will become increasingly important for outsiders to monitor the financial health of these lenders since history teaches that the FCA cannot be relied upon to do that job.

Suggested Citation

  • Ely, Bert, 1998. "Stockholder discipline in the FCS is a bad joke (August 1998)," American Bankers Association, American Bankers Association > Journal of Agricultural Lending, vol. 12(01).
    • Handle: RePEc:ags:abajal:336453
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