Pursuant to a legislative requirement, GAO provided information on the Farm Credit System's repayment of federal financial assistance, focusing on whether the: (1) system can and will repay the financial assistance; (2) system's status gives it an unfair competitive advantage over commercial banks; and (3) system's charter should be changed to permit diversification.

GAO found that: (1) the Farm Credit System Insurance Corporation (FCSIC) used $1.261 billion of its $4 billion to aid system banks, liquidate the Jackson Federal Land Bank's assets, fund inter-bank obligations, and fund miscellaneous authorized purposes; (2) although the system is obligated to repay the Department of the Treasury for an advance it received for financing interest payments, it is not required to repay the interest on the advance; (3) system banks' reported capital is often greater than their actual available capital because they are not required to follow liability recording procedures; (4) eliminating the system's accounting and regulatory exemptions would not adversely affect system banks' financial status or ability to meet minimum capital requirements; (5) FCSIC needs to repay the advance so that it can be entirely financed by premium collections; (6) if the system removed the FCSIC Insurance Fund from its asset balance sheet, it could better support its financial statements, and its banks would meet capital requirements; (7) although the system enjoys some cost advantages because it is a government-sponsored enterprise, its lending practices are legitimate and do not create unfair competition; and (8) although the system's charter may need revision in the future, its present charter is limited to serving agriculture policy purposes and does not need to be diversified to remain viable.

Status Legend:

Review Pending-GAO has not yet assessed implementation status.

Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.

Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.

Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.

• Review Pending
• Open
• Closed - implemented
• Closed - not implemented

Matters for Congressional Consideration

Matter: Congress should require that system institutions record all categories of assistance granted under the 1987 act using the generally accepted accounting principle that best reflects the economic substance of this federal aid.

Status: Closed - Not Implemented

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

Matter: Congress should provide the Farm Credit Administration (FCA) statutory authority to recognize all categories of 1987 act assistance as temporary, not permanent, capital of system banks for regulatory purposes.

Status: Closed - Not Implemented

Comments: Per Farm Credit System Insurance Corporation officials, assistance provided to four System banks has been repaid ahead of schedule. The issue, therefore, is moot.

Matter: Congress should require FCSIC to reimburse the Treasury for its initial capital infusion of $260 million within a reasonable time, taking the financial condition of the system and the Insurance Fund into consideration.

Status: Closed - Not Implemented

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

Recommendation for Executive Action

Recommendation: FCA should require the system to exclude the FCSIC Insurance Fund from its combined financial statements.

Agency Affected: Farm Credit Administration

Status: Closed - Not Implemented

Comments: The agency reached a compromise with the Farm Credit System on this matter. It does not intend to take further action.