Reserve Accounting:
Rural Telephone Bank's Reserve for Losses Due to Interest Rate Fluctuations
AFMD-89-15: Published: Mar 27, 1989. Publicly Released: Mar 27, 1989.
Additional Materials:
- Full Report:
Contact:
(202) 275-9406
contact@gao.gov
Office of Public Affairs
(202) 512-4800
youngc1@gao.gov
Pursuant to a legislative requirement, GAO studied the Rural Telephone Bank's (RTB) reserve for losses due to interest-rate fluctuations.
GAO found that: (1) RTB retained annual profits as patronage capital after distribution of cash dividends to government and private stockholders, was required to place at least 10 percent of its patronage capital in a contingency reserve, and distributed the residual balance to its loanholders; (2) RTB has converted $87.8 million in profits to loanholder patronage stock, designated $98.3 million for the reserve, and claimed $37.4 million as profits earned after dividends; (3) Public Law 100-203 eliminated fixed-rate loan commitments for advances; (4) although RTB still faced some risks due to its $625 million in outstanding unadvanced fixed-loan commitments, interest rates would have to exceed 19.2 percent for RTB to incur losses; (5) because of the low risk of large losses, a $10 million reserve appeared reasonable; (6) after RTB established the reserve level, it could distribute any residual amounts from the reserve as patronage refunds; and (7) Congress would have to change the law before RTB could redeem patronage stock for cash.
Matters for Congressional Consideration
Status: Closed - Implemented
Comments: The RTB Board of Directors established the reserve at $10 million per GAO recommendation at its May 1989 Board meeting.
Matter: Congress should direct the Governor of the Rural Telephone Bank to initially establish the reserve for losses due to interest-rate fluctuations at an amount not to exceed $10 million.
Status: Closed - Implemented
Comments: Amounts in excess of $10 million were approved for distribution by the RTB Board of Directors at its May 1989 Board meeting. Distribution was completed by June 30, 1989.
Matter: Congress should direct the Governor of the Rural Telephone Bank to distribute amounts over the initially established $10-million level as class B patronage stock dividends to RTB borrowers, in proportion to the interest each borrower paid over the period when the excess was accumulated.
Status: Closed - Implemented
Comments: The RTB Board of Directors adopted this recommendation at its May 1989 Board meeting.
Matter: Congress should direct the Governor of the Rural Telephone Bank to charge the reserve for any losses due to interest-rate fluctuations.
Status: Closed - Implemented
Comments: The RTB Board of Directors adopted this recommendation at its May 1989 Board meeting.
Matter: Congress should direct the Governor of the Rural Telephone Bank to replenish the reserve, as needed, to the established level or a lower level, as the risk of interest losses decreases.
Explore the full database of GAO's Open Recommendations
»
Feb 18, 2021
-
Financial Audit:
Federal Deposit Insurance Corporation Funds' 2020 and 2019 Financial StatementsGAO-21-284R: Published: Feb 18, 2021. Publicly Released: Feb 18, 2021.
Nov 16, 2020
-
Financial Audit:
Bureau of Consumer Financial Protection's FY 2020 and FY 2019 Financial StatementsGAO-21-174R: Published: Nov 16, 2020. Publicly Released: Nov 16, 2020. -
Financial Audit:
Federal Housing Finance Agency's FY 2020 and FY 2019 Financial StatementsGAO-21-201R: Published: Nov 16, 2020. Publicly Released: Nov 16, 2020. -
Financial Audit:
Securities and Exchange Commission's FY 2020 and FY 2019 Financial StatementsGAO-21-192R: Published: Nov 16, 2020. Publicly Released: Nov 16, 2020.
Nov 10, 2020
-
Financial Audit:
IRS's FY 2020 and FY 2019 Financial StatementsGAO-21-162: Published: Nov 10, 2020. Publicly Released: Nov 10, 2020. -
Financial Audit:
Office of Financial Stability's (Troubled Asset Relief Program) FY 2020 and FY 2019 Financial StatementsGAO-21-173R: Published: Nov 10, 2020. Publicly Released: Nov 10, 2020.
Nov 9, 2020
-
Financial Audit:
Bureau of the Fiscal Service's FY 2020 and FY 2019 Schedules of Federal DebtGAO-21-124: Published: Nov 9, 2020. Publicly Released: Nov 9, 2020.
Nov 6, 2020
-
FY 2020 Excise Tax:
Agreed-Upon Procedures Related to Distributions to Trust FundsGAO-21-163R: Published: Nov 6, 2020. Publicly Released: Nov 6, 2020.
Oct 13, 2020
-
DOD Financial Management:
Continued Efforts Needed to Correct Material Weaknesses Identified in Financial Statement AuditsGAO-21-157: Published: Oct 13, 2020. Publicly Released: Oct 13, 2020.
Sep 30, 2020
-
Financial Management:
DOD Needs to Implement Comprehensive Plans to Improve Its Systems EnvironmentGAO-20-252: Published: Sep 30, 2020. Publicly Released: Sep 30, 2020.
Looking for more? Browse all our products here