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 InstitutionsThe Insurance Fund
Where does the money in the Farm Credit Insurance Fund come from?
The Farm Credit Insurance Fund was created with $260 million in government funds in 1989. Since then, the Insurance Fund has been built through annual premiums paid by FCS banks and FCSIC earnings on its investment of the Insurance Fund. The Insurance Fund totaled about $7.5 billion as of January 1, 2024.
How much money does FCSIC keep in the Farm Credit Insurance Fund?
Congress directed FCSIC to maintain the Insurance Fund at a “secure base amount.” Congress defined the secure base amount, or “SBA,” as 2 percent of the aggregate of outstanding insured debt obligations of all insured banks, adjusted to exclude certain government-guaranteed loans and investments. Because of the deductions, in recent years FCSIC has held around 1.74 percent of total insured debt as the SBA.
Congress also provided that FCSIC, in its sole discretion, may adopt a different percentage it “determines is actuarially sound to maintain the Insurance Fund taking into account the risk of insuring outstanding obligations.” FCSIC has maintained the SBA at the statutory 2 percent level since the inception of the Insurance Fund and is committed to doing so unless it determines 2 percent is not “actuarially sound.” To date, FCSIC has concluded that 2 percent remains actuarially sound.
What does it mean for an insurance fund to be “actuarially sound?”
“Actuarial soundness” refers to a fund’s ability to meet anticipated future obligations. The solvency/sufficiency of an insurance fund must be assessed using an actuarially sound process.
How does FCSIC determine whether the Insurance Fund remains sufficient in light of the risks of insuring System debt?
FCSIC employs an actuarially sound model and processes to evaluate the size of the Insurance Fund. “Actuarial soundness” is the required standard used by FCSIC in determining whether the amounts held in the Insurance Fund are sufficient in light of the risk of insuring System debt. FCSIC regularly reviews its actuarial model to enhance capabilities, improve controls, and validate results and also employs a variety of risk management tools and techniques to identify and evaluate risks facing the Insurance Fund.
Why is it important to target the full 2% SBA every year?
Unlike some other kinds of insurers — life insurance or pensions, for example — FCSIC cannot meaningfully predict when a claim may arise or how much would be needed. We hope never to use the Insurance Fund; however, the entire Insurance Fund needs to be available at all times to meaningfully protect investors against an FCS bank default.
What is the effect of the "adjustments" to the secure base amount?
In calculating the aggregate outstanding insured obligations, FCSIC must exclude 90% of federally guaranteed loans and investments made by FCS banks (and their affiliated associations and “other financing institutions” funded by an FCS bank) and 80% of state guaranteed loans and investments. In recent years, these reductions have meant that the 2% SBA — based on adjusted debt — has been equal to approximately 1.74% of total insured debt outstanding. These statutory deductions reflect the reduced risk of loss to the Insurance Fund when FCS banks hold government-guaranteed obligations.
How long would the Insurance Fund last if FCSIC had to make payments?
As of January 2024, FCSIC is holding a little over $7.5 billion in its Insurance Fund to insure about $400 billion in outstanding debt. However, the FCS is constantly issuing new insured debt to replace maturing insured debt. During 2023, the FCS averaged about $4.2 billion in insured debt maturing each week. This means that the Insurance Fund can cover on average — if no FCS bank was able to make any payments — about nine days of maturing insured debt.
How much has the Insurance Fund cost the FCS?
Since the inception of the Insurance Fund through April 30, 2024, FCS banks have paid about $4.8 billion in premiums to FCSIC, net of amounts refunded to the System (about $855 million) and amounts FCSIC paid from the Insurance Fund on the System’s behalf (in 2005, Congress directed FCSIC to pay $231 million out of its Insurance Fund to help retire certain obligations that pre-dated FCSIC). This represents a little over half of the current Insurance Fund, with net premiums paid by the System representing about 1.16% of current insured System debt.
How does FCSIC invest the money in the Insurance Fund?
FCSIC invests solely in U.S. Treasury securities. Our primary investment objective is to ensure adequate liquidity of the Insurance Fund to meet our mission. Our secondary objective is to optimize the rate of return on our investment portfolio within the following parameters:
- At least 40 percent of the portfolio consists of securities with remaining maturities of two years or less;
- Investments with remaining maturities of between five and ten years are limited to 20 percent of the portfolio; and
- The maximum maturity limit of investment securities is 10 years.
In January 2022, we began implementing a 5-year bond ladder strategy. Over the past two years, we have invested approximately $5.72 billion in Treasury securities with a weighted average maturity of 3.96 years and a weighted average yield of 3.54 percent. About $1.5 billion in Treasury securities will be maturing in 2024 with a weighted average yield of 1.38 percent. By moving to a 5-year bond ladder strategy, the Insurance Fund’s investment returns should continue to reduce the premium rate we charge the banks in the years to come.
For 2024, FCSIC investment income is projected to be over $240 million, which will save the FCS banks the equivalent of about 7 basis points on their assessed premium rate.
Do Farm Credit System institutions have any ownership interest in the Farm Credit Insurance Fund?
No. Unlike federally chartered credit unions — which are required to make a refundable deposit into the National Credit Union Share Insurance Fund (NCUSIF) of 1% of insurable assets — FCS banks and associations have no legal ownership rights to any portion of the Farm Credit Insurance Fund. This is the same legal relationship that insured commercial banks have with the FDIC Deposit Insurance Fund (DIF) — on which Congress modeled the Farm Credit Insurance Fund — where insured commercial banks have no vested ownership interest in any portion of the DIF and FDIC insurance is considered an expense for banks.
Is the Farm Credit Insurance Fund U.S. government money?
Yes. The Farm Credit Insurance Fund is identified on the Consolidated Financial Statements of the United States and the annual Budget of the United States as an asset of the United States government. Under current law, money in the Farm Credit Insurance Fund can only be used by FCSIC for the purposes specified in the Farm Credit Act. Full governmental ownership and control of the Farm Credit Insurance Fund protects the public interest and helps ensure that the Fund will only be used for its intended purposes.