Audit of Financial Statements of the Federal Financing Bank, Fiscal Years 1975 and 1976

GGD-77-36: Published: Apr 27, 1977. Publicly Released: Apr 27, 1977.

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The financial statements of the Federal Financing Bank for fiscal years 1975 and 1976 and other information concerning the Bank's operation and financial condition were examined.

The Bank charges interest, including a fee for expenses and contingencies, on its loans to federal agencies--its only customers. It accumulated profits of $126 million from its creation in 1973 through the end of fiscal year 1976, and will continue to add to these profits under its present lending practices. Use of the Bank has saved the borrowing agencies' money. Eleven agencies estimated fiscal year savings of $43 million in interest and $10 million in administrative expenses. However, the Bank is accumulating profits far beyond its needs. The Bank's net income in 1976 was $62.6 million; its expenses were $250,000.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Bank should transfer accumulated and future cash profits to the Treasury by declaring dividends. The Bank should also discontinue the practice of adding a fraction of a percent to the rates it charges on its loans until studies confirm that the Treasury will, over the long run, incur a shortfall because of borrowing and loan rate differentials. At the end of each fiscal year, the Bank should estimate its following year's expenses and withhold this amount from the profits to be transferred to the Treasury as a dividend. If the expenses should exceed the profits, the differences should be recovered by a quarterly or annual charge to the borrowing agencies for each new loan or commitment.

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