Farm Credit Administration's Liquidation of Production Credit Associations

GGD-86-5: Published: Oct 18, 1985. Publicly Released: Oct 18, 1985.

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In response to a congressional request, GAO reviewed: (1) the criteria and procedures used to liquidate production credit associations; (2) whether the Farm Credit Administration (FCA) was meeting the credit needs of creditworthy borrowers formerly served by the liquidated associations; and (3) the appropriateness and implications of using funds from an FCA revolving fund to financially assist production credit associations.

GAO found that: (1) FCA had general criteria for determining whether a production credit association should be liquidated, but the application of criteria involved subjective judgments based on an association's ability to comply with the loan agreement it had with its intermediate credit bank and its ability to meet its financial responsibilities under the terms of the agreement; (2) the liquidation procedures FCA used were similar to those used by other financial regulators and, although they do not involve the courts or court-appointed creditor committees, FCA procedures are similar to the procedures used to liquidate any business; (3) credit service to creditworthy farmers continued with minimal disruption, although some farmers experienced delays in receiving loan approval; (4) the credit needs of those who had used the services of the failed associations were being adequately met by nearby associations; and (5) the FCA decision not to use revolving funds to provide aid to failed associations was proper because of the other forms of assistance that were available, the minimal disruption that resulted because of the failed associations, the doubtful financial viability of the associations, and the undesirable incentives that might be created if the fund were used to rescue poorly managed institutions.

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