Agricultural banking and the bank failures of the late 2000s Great Recession

Abstract

The late-2000s Great Recession led to a surge of bank failures in the United States with nearly three hundred banks failing from 2009 to 2010. Recalling the farm crises of the 1980s where the farm sector was pinpointed as one of the major precursors of economic turmoil, this study is an attempt to validate if the agricultural sector can once again be labeled as an instigator of such economic pandemonium using early warning models and technical efficiency analytical techniques. The empirical results indicate that exposure to agribusiness operations does not necessarily enhance a banks’ tendency to fail. This lends support to the reality that agricultural loan delinquency rates are consistently below the banks’ overall loan delinquency rates, thus confirming that agricultural lenders are in relatively stronger financial health. The technical efficiency analyses also confirm our contention that surviving agricultural banks are operating more efficiently than successful non-agricultural banks.