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Early 2026 developments from the Farm Credit Administration (FCA) show the regulator is identifying opportunities to reduce regulatory complexity while reinforcing risk management expectations across Farm Credit System (FCS or System) institutions.

As with the federal banking agencies, the FCA opened the year with a proposed capital reform measure. But FCA Board Chairman and CEO Jeffrey Hall indicated that the agency does not anticipate broader structural changes to capital requirements. The FCA also issued new guidance clarifying expectations for policies, procedures, and controls governing investments in government‑backed assets, including how institutions should distinguish actions taken under their investment authorities from those taken under their lending authorities.

The FCA diverges from the federal banking regulators in this continued emphasis on process and documentation. While banking regulators have publicly shifted their supervisory approach toward material financial risk and away from granular procedural expectations, the FCA continues to stress the importance of clear governance, documentation, and internal controls. The FCA also took enforcement action in these areas against an agricultural credit association in March.

At the same time, the FCA and the institutions it oversees face many of the same challenges confronting the banking sector: staffing constraints at the agency level, an uncertain economic environment, and consolidation across FCS institutions.

We provide further details on these developments below.

FCA Leadership Signals 2026 Regulatory Priorities and Challenges

In early February 2026, FCA Board Chairman and CEO Jeffrey Hall outlined the agency’s current supervisory and regulatory priorities at the Farm Credit Council’s annual meeting in Orlando. His remarks highlighted four themes:

Capital Adequacy and Structure

Chairman Hall emphasized that several years of strong loan growth have compressed both total and regulatory capital ratios across the System, while market uncertainty and increasing credit risk have made a strong capital position even more critical.

Given these pressures, Hall signaled that broad structural changes to capital rules are unlikely. He noted investors place substantial value on the System’s two‑tiered capital structure and encouraged FCS institutions to adopt prudent capital management and patronage policies. As discussed below, FCA’s current efforts therefore focus on simplifying capital regulation — not redesigning it.

Risks in Syndicated Loans and Other Multiple-Institution Lending Structures

Hall noted the rise in loans exceeding $100 million that involve multiple participating institutions, which now represent 35% of the System’s portfolio. These structures improve credit access but can also lead to significant losses in the event of default because these loans are generally large and complex, and participating institutions have less influence over the lending relationship. Hall stressed the importance of robust due diligence and understanding the risks posed by these arrangements. At the same time, Hall encouraged this type of coordination and called for collaboration among FCS institutions more generally as well.

Although not directly addressed in Hall’s comments, the FCA may soon act to propose new rules addressing potential risk that can arise through participation in multi-lender loans originated by non-System lenders, known as “similar entity loans.”  These loans are authorized by statute for banks for cooperatives, Farm Credit Banks, and direct lender associations under certain conditions involving borrowers who, although not eligible for loans from System lending institutions, have activities that are “functionally similar” to those of eligible borrowers. In September 2024, the FCA issued an advanced notice of proposed rulemaking requesting comment on, among other things, potential amendments to FCA regulations clarifying what activities of similar entities would be considered “functionally similar” to the activities of eligible borrowers and how those criteria should ensure consistency with the FCS mission.  As noted below, however, any new rulemaking activity is subject to the FCA having more than one board member.

Consolidation of FCS Banks

Hall acknowledged that consolidation within the System is likely to continue but that it brings risk that regulators must assess — both in over-concentrating funding, with corresponding impacts to safety and soundness, and undermining the benefits of the FCS in providing representation of local interests. He also noted that rating agencies, which assess the creditworthiness of the debt the System issues to fund lending activities, have also expressed concern with increased consolidation within the System.

Staffing and Supervisory Capacity

Hall indicated the FCA is experiencing staffing declines similar to those facing other federal financial regulators. The FCA also soon anticipates having only one board member, which will leave it unable to propose new rulemakings. This may interfere with the FCA’s ability to address emerging risks or changing market conditions with regulation and to achieve deregulatory goals through proposed rulemakings that lessen existing requirements. It could also lead to institutions leaning more heavily on their relationship with their examiners to confirm they understand current regulatory priorities and are meeting expectations. Hall indicated he does not believe these staffing challenges will significantly impact the FCA’s activities given the current deregulatory federal environment and the historically lighter rulemaking output of the FCA compared to banking agencies.

To address resource challenges, FCA is investing in advanced technology, including analytics to flag loans requiring more examiner attention, such as those financing land in transition. The Office of Examination is focusing on needed changes to address increasing operational complexity at FCS institutions, including through a workforce analysis and incorporation of AI into exams.

Capital Modernization Proposed Rulemaking

In February 2026, the FCA requested comment on a proposed rule addressing references in its regulations to permanent capital. Permanent capital — a concept established by statute in 1987 — cannot be reduced below the minimum prescribed by regulation of 7 percent of the institution’s risk-adjusted asset base.

For nearly ten years, permanent capital was the only capital requirement applicable to FCS institutions. Over time, however, the FCA has aligned its capital regulations to the standards developed by the Basel Committee on Banking Supervision, consistent with the approach adopted by the federal banking regulators for their supervised institutions. Currently, the FCA uses tier 1 and tier 2 capital standards, which are based on the Basel III framework and together known as total capital, to evaluate an institution’s safety and soundness.

The proposed rule seeks to reduce the burden on institutions in calculating permanent capital and minimize confusion to shareholders from the differing capital standards by:

• Replacing references to permanent capital in the FCA’s regulations that do not implement statutory provisions with tier 1/tier 2 measures: This includes isolated updates to certain rules governing exit fees, exceptions to violations of the lending and leasing limits, board delegations of authority to management to retire at‑risk stock, and the conditions under which the FCA may appoint the Farm Credit System Insurance Corporation as receiver.
• Replacing the permanent capital ratio denominator with the total capital ratio denominator: Where references to permanent capital remain in the regulation, FCS institutions would no longer have to calculate their risk-adjusted asset base — the current permanent capital ratio denominator. Instead, they could apply the same denominator of risk-weighted assets which is used for their total capital ratio, simplifying the calculation.
• Eliminating permanent capital disclosures in shareholder annual reports: Because the FCA evaluates capital adequacy using tier 1/tier 2 measures, required shareholder disclosures would shift toward those metrics. If an institution chooses to disclose permanent capital, it must include a statement specified in the proposed rule explaining that the FCA uses the tier 1/tier 2 capital ratios to evaluate capital adequacy.

Guidance on System Association Investment Authorities

Also in February, FCA issued an informational memorandum clarifying the permissible investment activities of System associations and expectations for managing investment risk. The guidance emphasizes the need for institutions to understand the distinction between investment authorities and lending authorities, as similar forms of government-backed assets may be involved in both types of activities.

Key expectations outlined in the guidance are:

• Policies and procedures should tailor due diligence, underwriting, portfolio limitations, and other risk management practices to the specific regulatory authority relied on and set forth a process to independently support the relevant authority.
• Guidance, processes, and controls should address correct call reporting, as assets purchased under investment authorities are reported on a different schedule from those originated or acquired under lending authorities.
• Investment policies and procedures should identify purchase of the investment for risk management purposes as their objective. That purpose should also be documented in due diligence on an asset-by-asset basis.
• Processes should be tailored based on investment portfolio size, complexity, and level of activity.

The memorandum includes detailed expectations for investments in SBA and USDA secondary market assets and management of risk associated with acquiring guaranteed assets at a premium, including limits on risk exposure and inclusion in stress testing.

Recent Supervisory Action

On March 6, 2026, the FCA entered into a supervisory agreement with an agricultural credit association related to weaknesses in board governance, corrective action processes, and regulatory compliance.