The Effect of Government-Sponsored Enterprise Participation on Syndicated Loan Spreads
The Farm Credit System (FCS) is an important source of financing for many rural communities in the United States. As a government-sponsored enterprise (GSE), the FCS has a mandate to provide credit to eligible borrowers. This paper investigates the effect of FCS participation on the supply and pricing of credit to eligible borrowers in the syndicated loan market. We find significant discounts to interest rates on FCS term loans, likely because GSE participation displaces more opportunistic lenders in the syndicate. We further find that FCS credit provision increased during both the Global Financial Crisis of 2007-2009 and recent COVID-19 crash