Overview
of the Farm Credit System Insurance Corporation
The Farm Credit System Insurance Corporation (Corporation) is
a Government-controlled corporation established by the Agricultural Credit Act
of 1987 (1987 Act). Congress, in an effort to renew faith in the financial integrity
of the Farm Credit System (System), created the Insurance Corporation. The Corporation
insures the timely payment of principal and interest on System notes, bonds, and
other obligations issued to investors. The Corporation is administered by a board
of directors who serve concurrently as the Farm Credit Administration (FCA) Board.
The Chairperson of the Corporation's Board is elected by the other members and
must not be the same person as the FCA Chairman. The Corporation administers
the Farm Credit Insurance Fund (the Fund) and collects annual insurance premiums
from System banks. Premium rates are calculated using a statutorily defined formula
based on System loan volume with different rates for accrual loans, nonaccrual
loans, and loans guaranteed by Federal or State governments. Congress
directed the Insurance Corporation to build the Fund to a "secure base amount."
The secure base amount is defined as 2 percent of the aggregate of outstanding
insured obligations of all insured banks, adjusted downward by a certain percentage
of the System's government guaranteed loans. The Farm Credit System Reform Act
of 1996 provided the Corporation's Board the authority, in its sole discretion,
to reduce insurance premiums from the statutory rates before the Fund reaches
the secure base amount. For current information about the Insurance Fund secure
base and insurance premium rates, please see the Corporation's annual and other
reports. In addition to building and maintaining the Fund, the Corporation
has other mandatory and discretionary responsibilities. The 1987 Act created the
Farm Credit System Financial Assistance Corporation (FAC) to raise capital required
to restore the financial health of the System. Between 1988 and 1990, the FAC
issued $1.26 billion in U.S. Treasury guaranteed bonds. The 1987 Act mandates
that the Corporation satisfy any System bank defaults on repayment of outstanding
FAC assistance bond principal and interest. On June 10, 2005, as required by the
1987 Act, the Corporation paid $231 million towards the retirement of the final
FAC bond, representing the Corporations remaining share of its outstanding
obligation. Another responsibility of the Corporation is to ensure the retirement
of eligible borrower stock at par value. For current information about the Corporation's
insurance obligations, please see the Corporation's annual and other reports.
The Corporation, in its discretion, is empowered to provide assistance to
System banks and direct lender associations suffering financial difficulties by
providing loans or contributions, purchasing assets and debt securities, assuming
liabilities, and facilitating consolidations and mergers. The statute imposes
a cost-test limitation for financial assistance whereby the total cost of assistance
may not exceed the alternative cost of liquidating the institution. The Corporation
shall also serve as conservator or receiver of any System bank or association
placed into conservatorship or receivership by the FCA Board and may serve as
conservator or receiver, when appropriate, for other organizations regulated by
the FCA. |