Farm Credit System:

Analysis and Comment on Possible New Insurance Corporation Powers

GGD-96-144: Published: Aug 5, 1996. Publicly Released: Aug 5, 1996.

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Pursuant to a legislative requirement, GAO reviewed the appropriateness and major advantages of three proposals to increase the Farm Credit System Insurance Corporation's (FCSIC) oversight powers over its Insurance Fund.

GAO found that: (1) authorizing FCSIC to assess association capital would provide short-term additional protection to the Insurance Fund, investors, and taxpayers, but reasons for increased FCSIC power have diminished and granting this authority could destabilize the Fund if the authority were used during a period of financial stress; (2) the Farm Credit Administration (FCA) needs to set adequate capital standards for system banks and supervise and resolve any threats to the Fund; (3) FCA has not demonstrated that giving FCSIC supplemental premium authority is needed; (4) giving FCSIC supplemental premium authority could reduce the system's ability to compete, increase its instability, and reduce banks' ability to pay supplemental premiums; (5) if the system avoids major losses, it should reach a secure base amount and continue to grow gradually through investment income; (6) authorizing FCSIC to charge higher premiums to banks that are most at risk could create additional incentives for banks to manage risk prudently and complement FCA risk-based capital requirements; and (7) FCSIC should be required to pay interest on the $260 million used to start up the Fund, since this interest represents a continuing subsidy.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: No action has been taken at this time.

    Matter: While FCSIC should continue to be required to repay the entire amount of government funds, until this occurs, Congress should require FCSIC to pay interest to the government on the unpaid balance of the original $260 million that was transferred to it in 1989.

 

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