National Consumer Cooperative Bank

Oversight Adequate But Federal Loan Repayment Needs Monitoring Gao ID: GGD-95-63 February 24, 1995

Congress created the National Consumer Cooperative Bank to provide financial and technical assistance to cooperatives to increase their contribution to the nation's economy. Although the Farm Credit Administration (FCA) examines the Bank, which holds about $536 million in assets, Congress did not assign regulatory or enforcement powers over the Bank to FCA or any federal financial regulator. The Treasury Department holds $183 million in debt that the Bank must repay by 2020. This report examines (1) the ability of the present oversight arrangement to effectively monitor the Bank's safety and soundness and (2) the Bank's obligation to repay the Treasury debt.

GAO found that: (1) NCB is a private, cooperatively-owned financial institution with limited ties to the government; (2) although NCB is overseen by the Farm Credit Administration (FCA), its discipline and most of its funds come from private-sector lenders; (3) the government does not guarantee any obligations incurred by NCB and NCB creditors do not believe that the government would intervene if NCB became financially unstable; (4) there is no need for additional regulatory oversight because the safety and soundness of NCB appears to be effectively monitored by FCA; (5) NCB has a direct financial link to the government through its debt to the Treasury; (6) as of December 1993, the government's potential financial liability was about $183 million; (7) federal law requires NCB to repay the principal amount of its debt no later than October 31, 2020; (8) in February 1993, NCB adopted a plan to accumulate a portion of the funds needed to repay its debt; (9) Treasury should be legally required to approve or monitor the NCB repayment plan; and (10) Treasury's involvement in the NCB repayment plan would help ensure that NCB maintains its repayment schedule, meets its debt requirements, and protects the taxpayers' interest.

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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