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Frequently Asked Questions

Click on a category below for FAQs on the respective topic.

The Basics How FCSIC insurance works The Farm Credit System The Insurance Fund Premiums FCSIC operations Troubled System Institutions

Troubled System Institutions

What is FCSIC’s role in connection with a failed FCS bank or association?

Federally chartered financial institutions in the United States are not allowed to file for bankruptcy court protection. Instead, the primary federal regulator places a failed or troubled institution into receivership or conservatorship to “resolve” the institution. These are sometimes referred to as federal “resolution” authorities. When appointed by FCA, FCSIC has the statutory responsibility to serve as receiver or conservator for FCS banks and associations. Upon appointment as receiver, FCSIC will take possession of an FCS institution to settle its business operations, collect the debts owed to it, liquidate its property and assets, pay its creditors, and distribute any remaining proceeds to stockholders. As conservator, FCSIC will operate the institution as a going concern until a permanent solution is reached.

If a failed FCS bank is placed into receivership would FCSIC continue to be obligated to pay insured bond investors? Would FCSIC honor other bank commitments and obligations?

FCSIC’s obligation to make payments to bondholders when necessary to insure the timely payment of the insured joint debt of the FCS banks continues even after a bank is placed into receivership. FCSIC’s role as insurer of the FCS banks is different than its role as receiver for an FCS bank. FCSIC as receiver would “honor” non-insured bank commitments and obligations in a receivership only in the sense that FCSIC as receiver may determine such commitments and obligations to be valid claims. Any payments would be made based on the liquidation value of receivership assets and the statutory priority. As such, claims lower in priority than “System wide bonds” may realize no recovery.

What is FCSIC’s role if a System association fails?

FCSIC would act as the receiver or conservator if a System association fails and is put into receivership or conservatorship by FCA. FCSIC’s administrative expenses from acting as receiver would be paid out of assets collected during the receivership and ahead of any other claims. FCSIC would not use money from the Insurance Fund in connection with an association failure.

How does FCSIC’s receivership and conservatorship authorities compare to the FDIC?

Congress specifically stated that FCSIC’s statutory receivership and conservatorship powers are intended to be “functionally equivalent to the parallel authorities of the Federal Deposit Insurance Corporation.”  This includes the authority for FCSIC to create, and FCA to charter, one or more “bridge banks” to help resolve a failed or troubled FCS bank. However, because of the unique structure of the FCS — joint and several liability of the FCS banks, associations borrowing from and relying on supervisory banks, etc. — an FCS resolution may necessarily differ from its FDIC counterpart and have broader impact on the FCS as a whole.

What can FCSIC do to avoid an FCS bank failure?

FCSIC has statutory authority to provide financial assistance to an FCS bank or association for any of the following reasons:

  • To prevent the placing of the institution in receivership
  • To restore the institution to “normal operations”
  • To reduce the risk to FCSIC posed by the institution when “severe financial conditions” threaten the stability of the banks

FCSIC may also provide assistance to facilitate mergers or consolidations. FCSIC must ensure that any proposed assistance is the least costly means to the Insurance Fund for resolving the institution’s problems; by law, FCSIC cannot provide financial assistance if the cost of liquidation is lower than the cost of providing assistance.

Any FCSIC discretionary provision of financial assistance must be consistent with and in support of FCSIC’s statutory purpose to insure the timely payment of principal and interest to investors in insured FCS bank obligations. FCSIC has never had to provide financial assistance to an FCS institution during its 30-year existence.

What can FCSIC do to maintain FCS stability in a broad financial crisis?

FCSIC can provide emergency liquidity assistance to FCS banks from the Insurance Fund when external market circumstances make it extremely doubtful that FCS banks will be able to pay maturing debt obligations that we insure or will be able to sell their liquidity reserves (needed to pay maturing insured debt) without taking a material loss. Such assistance can ensure that an external market event does not lead to a Farm Credit System failure and that the System can continue financing American agriculture without interruption. FCSIC also maintains a $10 billion line of credit with the Federal Financing Bank (a United States government corporation subject to the supervision and direction of the U.S. Treasury that lends to eligible federal entities) for potential use as additional emergency liquidity assistance. Amounts in the Insurance Fund plus the line of credit are sufficient to cover maturing System insured debt obligations during a short-term liquidity crisis, allowing markets time to recover normal operation.