Page 58 - September October 2018 Disruption Report Flip Book

FARM CREDIT SYSTEM / FARMER MAC SEJPATN.U-AORCYT.20210818
FARM CREDIT SYSTEM / FARMER MAC
Is the FCA waking up fast enough to risks facing the Farm Credit System?
TIn the October issue of Farm Credit Report, Bert Ely wrote:
On Oct. 2 the FCA issued an informational memorandum summarizing its National Oversight Plan for Fiscal Year 2019. This plan signals that the FCA is aware of key risks facing the FCS as farmers and ranchers deal with a tough economic environment due to declining commodity prices, rising interest rates, and declining real estate prices. The memorandum highlighted the importance of internal controls, noting an “increased incidence [within the FCS] of internal control weaknesses that led to credit losses, increased operating expenses, and increased reputational risk.” That, of course, is what occurred at Lone Star Ag Credit and earlier at FCS Southwest in Arizona, leading to
its shotgun merger with Farm Credit West. One can reasonably wonder, though, what accounting and internal control failures are lurking today inside other FCS institutions. While it is commendable that the FCA is concerned about those risks and the importance of strong internal controls, the key question today is how well do FCS institutions understand those risks as they continue to aggressively compete against commercial banks by offering generous collateral valuations, low interest rates, and promises of patronage dividends?
Another indication of the FCA’s concern about growing risks within the FCS was the recent appointment of Howard Rubin as the chief risk officer of the FCS Insurance Corporation (FCSIC) — he “will act as director of the FCSIC’s Risk Management Division while continuing to provide guidance to [its] board and management on complex legal issues affecting risk to the Insurance Fund.” The three members of the FCA’s board of directors also serve as the directors of the FCSIC, which guarantees the timely payment of principal and interest on debt issued by the Funding Corporation. The insolvency of an FCS institution, most likely through loan losses, could trigger a claim on the fund balance the FCSIC has built up through premiums paid by FCS institutions. Given the stresses agriculture and the FCS are facing today, Mr. Rubin faces a challenging task. (Farm Credit Report, Bert Ely, October 2018)
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