Farm Credit System:

Analysis of Financial Condition

GGD-86-150BR: Published: Sep 18, 1986. Publicly Released: Sep 18, 1986.

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In response to a congressional request, GAO provided an overview of the important issues facing the farm credit system, specifically: (1) an assessment of internal problems that may have contributed to the system's financial problems; (2) a periodic assessment of the financial condition of the system; and (3) a projection of its condition for the next 12 months.

GAO concluded that: (1) the effects of problem loans and high borrowing costs and the probability that these conditions will continue raise serious questions about the viability of the system; (2) losses similar to those the system incurred in 1985 will continue in the future unless the agricultural economy improves or the system can borrow and lend money at more competitive rates; (3) private or federal assistance could be needed by the end of 1986, since the system's unallocated surplus may be exhausted by then; and (4) previous management decisions to fund the system's activities with long-term, fixed-rate bonds are preventing the system from maintaining reasonable debt service expenses.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The Farm Credit Administration differs with the GAO position on asset liability management and has taken the position that asset liability management should be managed on an institutional basis, rather than a systemwide basis.

    Recommendation: The Chairman of the Federal Farm Credit Board should require the banks in the system to develop and collectively implement a plan to reduce the interest rate exposure of the system. The plan should consider all assets and liabilities systemwide, not the financial position of the individual banks.

    Agency Affected: Farm Credit Administration: Federal Farm Credit Board

 

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