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Farmer Mac Some Progress Made, But Greater Attention to Risk Management, Mission, And Corporate Governance Is Needed

By General Accounting Office

Government Accountability Integrity Reliability Office Collection

Excerpt: Farmer Mac?s income has increased since 1999, and its capital continues to exceed required levels. At the same time, we identified trends that indicated a more complex risk profile. For example, its off-balance sheet standby agreements have grown 350 percent in 3 years and comprise nearly 50 percent of Farmer Mac?s total loans. To date, the underlying loans have been performing better than the on-balance sheet loans. However, if rapid growth in standby agreements continues, and Farmer Mac were to undergo stressful economic conditions, it could face substantial funding liquidity risk. Farmer Mac has risk management systems in place, but certain aspects of its risk management capacity have not kept pace with its increasingly complex portfolio. For example, the loans used in the loss estimation model have characteristics that differ from Farmer Mac?s portfolio both with respect to geographic distribution and interest rate terms. In addition, although Farmer Mac has maintained sufficient liquidity to support its loan purchase and guarantee activity, it has lacked a formal contingency plan to address potential liquidity needs under stressful agricultural economic conditions.

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