Farm Credit System

Repayment of Federal Assistance and Competitive Position Gao ID: GGD-94-39 March 10, 1994

This report discusses the Farm Credit System's repayment of the federal financial assistance provided in the late 1980s and its current and future competitive position. In studying rural credit cost and availability, GAO answers three main questions: (1) Whether and how the federal financial assistance granted to the Farm Credit System will be repaid? (2) What is the extent and fairness of competition between System institutions and commercial banks? (3) Whether the 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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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