Farm Credit System:

Farm Credit Administration Effectively Addresses Identified Problems

GGD-94-14: Published: Jan 7, 1994. Publicly Released: Jan 7, 1994.

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GAO reviewed how the Farm Credit Administration (FCA), Farm Credit System Assistance Board, and Farm Credit System Insurance Corporation (FCSIC) oversee and regulate Farm Credit System institutions.

GAO found that: (1) FCA examination and monitoring of System banks is comprehensive and timely, and addresses issues of safety and soundness; (2) FCA has established minimum examination and monitoring standards for each individual institution and taken timely enforcement actions against six System banks; (3) FCA has successfully resolved problems; (4) FCA has controls to ensure that its quality standards are met and are administered at all agency levels; (5) the Assistance Board has aided FCA by providing additional oversight and setting assistance requirements; (6) FCSIC was established to replace the Assistance Board, advise and monitor bank performance, develop procedures to assess an institution's assistance needs, and estimate the cost of liquidation; (7) FCSIC plans to use FCA resources for its activities, and is not subject to inspector general reviews or independent annual audits; (8) the Federal Farm Credit Banks Funding Corporation is required to determine the conditions for bank participation in the Farm Credit System and the issuance of debt obligations; (9) Farm Credit System members have proposed that a Market Access Agreement be established so that member banks can determine the conditions of bank participation and have greater internal oversight; and (10) although the extent to which banks will use their new oversight authority will vary, FCA regulation of the Farm Credit System will not be hampered.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: No action was taken in the 105th Congress.

    Matter: Congress should require that FCSIC be subject to oversight of the FCA Inspector General and be required to have an annual independent audit of its financial statements to ensure that all aspects of its operations are reviewed.

  2. Status: Closed - Not Implemented

    Comments: CoBank merged with other institutions and is no longer a bank for cooperatives.

    Matter: To enable FCA to effectively ensure the safety and soundness of the National Bank for Cooperatives (CoBank), Congress should amend the 1987 act to give FCA authority to set appropriate lending limits for this special bank.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Guidelines were developed and included in the revised examination manual.

    Recommendation: To further enhance the effectiveness of FCA regulation of Farm Credit System institutions, the FCA board should issue guidelines for the use of Early Warning System reports.

    Agency Affected: Farm Credit Administration

  2. Status: Closed - Implemented

    Comments: FCA completed its evaluation of LARS, made some modifications to it, and plans to continue using it. FCA has begun to access Farm Credit System banks' loan portfolio databases directly. Those databases vary, and until they become consistent throughout the System and FCA has access to all of them, it intends to rely on LARS.

    Recommendation: To further enhance the effectiveness of FCA regulation of Farm Credit System institutions, the FCA board should decide whether Loan Accounts Report System (LARS) contributions to FCA oversight exceed its costs and if making LARS easier for examiners to use would have benefits that would exceed the costs of modifications.

    Agency Affected: Farm Credit Administration

  3. Status: Closed - Implemented

    Comments: The FCA Office of Examination adopted a new directive on loan sampling August 23, 1996. It provides guidance on the use of statistical sampling techniques in examinations.

    Recommendation: To further enhance the effectiveness of FCA regulation of Farm Credit System institutions, the FCA board should require examiners to make comprehensive reviews of all segments of the loan portfolio with random sampling used where appropriate within the context of the risk-based approach to examinations.

    Agency Affected: Farm Credit Administration

  4. Status: Closed - Implemented

    Comments: FCA's Office of Examinations issued a revised directive on "Quality Assurance" on November 9, 1995, that states that annual quality assurance reviews by the Office of Examinations are required. The directive contains other requirements to ensure the quality of examinations and monitoring of Farm Credit System institutions.

    Recommendation: To further enhance the effectiveness of FCA regulation of Farm Credit System institutions, the FCA board should adopt a policy requiring annual peer reviews of the examination and monitoring work of field and regional offices.

    Agency Affected: Farm Credit Administration

  5. Status: Closed - Implemented

    Comments: The revised exam manual was approved in June 1994.

    Recommendation: To further enhance the effectiveness of FCA regulation of Farm Credit System institutions, the FCA board should ensure that the Examination Manual is revised during 1993.

    Agency Affected: Farm Credit Administration

  6. Status: Closed - Implemented

    Comments: The FCA Board approved a market access agreement on August 8, 1994.

    Recommendation: In considering the proposed Market Access Agreement or similar proposals for approval, FCA should ensure its regulatory powers, including its duty to approve market access decisions, and FCSIC authority, will not be impaired.

    Agency Affected: Farm Credit Administration

 

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