Farm Credit:

Basis for Decision Not to Assist Jackson Federal Land Bank

GGD-90-16: Published: Dec 13, 1989. Publicly Released: Dec 13, 1989.

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Pursuant to a congressional request, GAO reviewed the Farm Credit System Assistance Board's (FCSAB) procedures in making its decision to recommend receivership for the Federal Land Bank of Jackson, Mississippi, rather than to provide it with viability assistance, focusing on: (1) the basis for the FCSAB decision to deny financial assistance; (2) whether the FCSAB analysis showed that receivership was the least costly option for resolving the bank's problems and whether the analysis provided a reliable basis for the decision; and (3) the extent to which good communication and cooperation existed between FCSAB and the bank during the decision process.

GAO found that: (1) FCSAB determined that receivership would be less expensive than assistance and would effectively eliminate the bank's management problems and restore credit to the district; (2) the FCSAB cost estimates did not provide a reliable basis for deciding whether receivership or assistance would be the less expensive alternative and were based on an analysis that omitted millions of dollars in receivership interest costs, relied on unsupported or inappropriate economic assumptions, and compared alternatives on the basis of cash costs rather than present-value costs; and (3) interaction between bank and FCSAB officials was strained and characterized by misunderstandings over their respective roles and responsibilities and over assistance request requirements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Assistance Board stated it will use the analysis GAO recommended. The only way to determine if it does, and what savings occur, would be a detailed GAO analysis after future assistance requests.

    Recommendation: Although future assistance requests may be unique, costs should be estimated on the basis of a complete and well-supported analysis. Therefore, the FCSAB Board of Directors should direct its officials to use an analysis that: (1) includes all relevant costs for each option; (2) provides that data used in the analysis and key assumptions, such as interest rates, be supported by current, generally accepted economic sources; and (3) compares cost on a present value basis.

    Agency Affected: Farm Credit Administration: Farm Credit System Assistance Board

  2. Status: Closed - Implemented

    Comments: Detailed guidance will be provided in future assistance requests according to the Assistance Board. No additional followup is intended.

    Recommendation: To help avoid misunderstandings between affected parties in possible future requests, the FCSAB Board of Directors should direct its officials to issue guidance detailing the: (1) requirements for requesting assistance; and (2) FCSAB role in helping institutions request assistance.

    Agency Affected: Farm Credit Administration: Farm Credit System Assistance Board


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