oversight

Approval Process of Funding Corporation Debt Issuances

Published by the Farm Credit Administration, Office of Inspector General on 2011-09-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

OFFICE OF
                      Report of Audit
INSPECTOR GENERAL
                      Approval Process of
                    Funding Corporation Debt
                           Issuances
                            A-11-02

                          Tammy Rapp
                        Auditor-in-Charge




                       September 12, 2011



                    FARM CREDIT ADMINISTRATION
Farm Credit Administration	                                       Office of Inspector General
                                                                  1501 Farm Credit Drive
                                                                  McLean, Virginia 22102-5090




September 12, 2011


The Honorable Leland A. Strom, Chairman and Chief Executive Officer
The Honorable Kenneth A. Spearman, Board Member
The Honorable Jill Long Thompson, Board Member
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Chairman Strom and Board Members Spearman and Long Thompson:

The Office of the Inspector General completed an audit of the Farm Credit Administration’s
(FCA or Agency) approval process of Farm Credit System (FCS or System) debt issuances by
the Federal Farm Credit Banks Funding Corporation (Funding Corporation). The objective of
this audit was to assess whether FCA’s approval process of Funding Corporation debt
issuances is operating efficiently and effectively and in compliance with applicable guidelines.

The results of our audit revealed that FCA is fulfilling its responsibility outlined in the Farm
Credit Act of 1971, as amended. FCA developed clearly defined approval criteria and
methodically evaluated the Funding Corporation’s funding requests. The approval process was
efficient and effective for approving funding requests and provides a preventive control
mechanism before system-wide debt is issued. We made suggestions throughout this audit,
but did not make any formal recommendations.

We conducted the audit in accordance with Government Auditing Standards issued by the
Comptroller General for audits of Federal organizations, programs, activities, and functions.
We conducted fieldwork from February through August 2011. We provided a discussion draft
report to management on August 25, 2011.

We appreciate the courtesies and professionalism extended to the audit staff. If you have any
questions about this audit, I would be pleased to meet with you at your convenience.

Respectfully,



Carl A. Clinefelter
Inspector General
                                              TABLE OF CONTENTS


EXECUTIVE SUMMARY ................................................................................................... 1



Introduction and Background .............................................................................................. 2



Objective, Scope and Methodology ..................................................................................... 3



Background on Farm Credit System Debt Securities ............................................................. 4



Comparing GSEs with Similar Purpose and Source of Funding .............................................. 6



Laws and Regulations that Govern FCS Debt Obligations...................................................... 8



FCA Funding Approval Delegations, Policies and Procedures ................................................ 9



FCA’s Approval Process for Funding Corporation Debt Issuances......................................... 11

         Discount Notes…………………………………………………………………………11

         Unscheduled Bonds and Designated Bonds………………………………………. 12

         Retail Bonds and Other Small Programs…………………………………………… 14



FCA's Monitoring and Reporting…………………………………………………………… . 15



Acronyms……………………………………………………………………………………….16
Executive Summary

 The Office of Inspector General (OIG) performed an audit of the Farm Credit
 Administration’s (FCA or Agency) approval process of Farm Credit System (FCS or System)
 debt issuances by the Federal Farm Credit Banks Funding Corporation (Funding
 Corporation). The objective of our audit was to assess whether FCA’s approval process of
 Funding Corporation debt issuances is operating efficiently and effectively and in
 compliance with applicable guidelines.

 The results of our audit revealed that FCA is fulfilling its responsibility outlined in the Farm
 Credit Act of 1971, as amended (Farm Credit Act). FCA developed clearly defined criteria
 and methodically evaluated the Funding Corporation’s funding requests. Due to the short
 term nature of discounts notes, the approval process for discount notes is based on a
 program approval with conditions that includes a ceiling of $60 billion outstanding. The
 approval process for unscheduled bonds and designated bonds was efficient and effective
 for approving funding requests and provides a preventive control mechanism before FCS
 bonds are issued. The Agency’s approval process is consistent with the process outlined
 in documented Agency policies and procedures. Key personnel involved in the funding
 approval process are dedicated to researching and responding appropriately to funding
 requests. Overall, we found that FCA is proactive in monitoring significant financial data
 and market events.

 Our audit did not reveal any significant deficiencies.   Therefore, we did not make any
 formal recommendations.




                                              1

    Introduction and Background

     The Farm Credit Act provides the FCS with the ability to issue notes, bonds, debentures, or
     other similar obligations with approval of the FCA. 1

     The FCS is a Government-Sponsored Enterprise (GSE) created by Congress in 1916 to
     provide American agriculture with a dependable source of credit. The FCS is a nationwide
     network of cooperatively organized banks and associations that are owned and controlled
     by their borrowers. FCS banks obtain a majority of their funds for loans through the
     issuance of Farm Credit Debt Securities (FCDS) since they are precluded from taking
     deposits.

     The Funding Corporation is owned by the FCS banks and its primary function is to market
     securities, mostly bonds and discount notes, for the FCS banks. These securities are
     offered by the Funding Corporation through a nationwide group of securities dealers and
     dealer banks. Subject to FCA approval, the Funding Corporation has the responsibility for
     establishing the amounts, maturities, rates of interest, terms, and conditions of participation
     by the FCS banks in each issuance of FCDS 2.




1
  Section 4.2(b) – (d), 12 U.S.C. 2153 (b) – (d).   An individual bank’s issuance of debt under section 4.2(a) of the Act does not require FCA
approval.
2
  Section 4.9, 12 U.S.C. 2160


                                                                          2

Objective, Scope and Methodology

 The objective of this audit was to assess whether FCA’s approval process of Funding
 Corporation debt issuances on behalf of the FCS is operating efficiently and effectively and
 in compliance with applicable guidelines.

 Our audit focused on discount notes and bond approval since they represent the largest
 dollars issued and outstanding by the FCS.

 In performing this audit, we performed the following procedures:
     •	 Identified and reviewed related laws, regulations, and Agency policies and

         procedures;

     •	 Obtained background information on FCDS;
     •	 Reviewed audits performed by the Government Accountability Office that are
         related to the subject matter;
     •	 Conducted interviews of Primary Reviewing Analysts, Authorizing Officials, the
         Director of the Office of Regulatory Policy (ORP), the Director & Associate Director
         of the Office of Secondary Market Oversight, the Examiner in Charge for the Funding
         Corporation, and a Senior Attorney in the Office of General Counsel;
     •	 Determined whether other GSEs that issue debt securities were required to have
         approval from their respective regulators;
     •	 Reviewed documentation and databases supporting the Funding Corporation debt
         issuance approval process;
     •	 Reviewed a sample of funding requests from the Funding Corporation covering 5
         months during the period August 2010 through April 2011;
     •	 Compared the actual approval process to policies and procedures;
     •	 Identified significant internal control processes and determined if they were

         operating effectively and efficiently; and

     •	 Determined the time elapsed from receipt of funding requests to final approval.

 This audit was performed in accordance with generally accepted auditing standards for
 Federal audits at FCA headquarters in McLean, Virginia, from February through August 2011.
 At the conclusion of this audit, we provided management with a draft report of our
 observations.




                                            3

    Background on Farm Credit System Debt Securities

        FCDS are primarily issued by the Funding Corporation in domestic and global capital
        markets. FCDS include System-wide debt obligations that consist of discount notes,
        designated bonds, fixed rate and floating rate bonds, and master notes in varying
        structures and maturities. The Funding Corporation issues, markets, and handles
        System-wide FCDS on behalf of FCS banks. System-wide FCDS are unsecured, joint and
        several obligations of the FCS banks and are not guaranteed by the United States
        Government. The charts below show the dollars of FCDS issued and outstanding from
        2008 through 2010.
                      Debt Issued3
                                                         as of
                              ($ billions)                                    2009              2008
                                                        12/31/10
                           Discount Notes                 415.6               407.2             407.9
                         Designated Bonds                   3.4                8.5               10.0
                          Fixed-Rate Bonds                 82.8                69.3              67.8
                        Floating-Rate Bonds                32.0                37.9              32.7
                                  Other                     0.1                0.2               0.5
                                TOTAL                     533.9               523.1             518.9


                      Debt Outstanding4
                              ($ billions)              12/31/10            12/31/09           12/31/08
                           Discount Notes                  19.2                11.6              16.2
                         Designated Bonds                  28.6                31.3              30.5
                          Fixed-Rate Bonds                 86.7                81.6              86.8
                        Floating-Rate Bonds                52.9                51.4              42.3
                                  Other                     0.1                0.2               0.5
                                TOTAL                     187.5               176.1             176.3


        In addition to setting the terms of each System-wide debt issuance, the Funding
        Corporation is required to determine the conditions for bank participation in System-wide
        debt obligations. The Funding Corporation and FCS banks voluntarily signed agreements
        called the Amended and Restated Market Access Agreement (MAA) and Restated
        Contractual Interbank Performance Agreement (CIPA). These agreements among the FCS
        banks establish and measure financial conditions for FCS banks to participate in
        System-wide obligations. The CIPA contains specific financial indicators to measure
        performance such as capital, asset quality, earnings, interest-rate risk, and liquidity. The
        CIPA also contains monetary penalties if a FCS bank fails to meet the performance
        standards.
3
    Source: http://www.farmcredit-ffcb.com/farmcredit/programs/overview_debt_issued.jsp
4
    Source: http://www.farmcredit-ffcb.com/farmcredit/programs/overview_debt_outstanding.jsp


                                                                   4

If a FCS bank falls below the specified performance criteria identified in the agreements, it
would become a Category I, II, or III bank. Banks categorized as I, II, and III have
additional monitoring and reporting to the Funding Corporation. Banks categorized as II
or III may be limited in their level of participation in System-wide debt issuances. If a FCS
bank meets the criteria defined in the agreements, they are not categorized and not
subject to additional monitoring and reporting. The MAA is currently in the process of
revision. The CIPA was revised on March 1, 2009.




                                            5

    Comparing GSEs with Similar Purpose and Source of Funding

        Some GSEs facilitate lending for certain sectors of the economy such as agriculture and
        home ownership. The GSEs we researched were established as Federally chartered,
        privately owned enterprises to serve the credit needs of a specified part of the national
        economy identified by Congress.

        We researched four other GSEs that have a purpose similar to the FCS and obtain funding
        through agency debt markets:
           1.	 The Federal Home Loan Bank System (FHLB) is a GSE that supports mortgage lending
               and related community investment.
           2.	 The Federal National Mortgage Association (Fannie Mae) is a stockholder-owned,
               publicly-traded GSE whose mission is to provide liquidity, stability, and affordability
               to the housing markets. Fannie Mae has been in conservatorship since 2008.
           3.	 The Federal Home Loan Mortgage Corporation (Freddie Mac) is a
               stockholder-owned, publicly-traded GSE that was also created to provide liquidity,
               stability, and affordability to the housing markets. Freddie Mac has also been in
               conservatorship since 2008.
           4.	 The Federal Agricultural Mortgage Corporation (Farmer Mac), part of the FCS, is a
               stockholder-owned, publicly-traded GSE created to make long-term credit available
               to farmers, ranchers, rural homeowners, rural utility cooperatives, and communities
               by providing a secondary market for qualified loans.

        The FCS is the only GSE currently not in conservatorship that is required to have its debt
        approved by its regulator. Debt issuance by FCS and Farmer Mac are not subject to U.S.
        Treasury approval.

        We compared these GSEs to determine if they were required to have debt issuances
        approved by their regulator. We found the GSEs have varying degrees of oversight by
        other government agencies including the Securities and Exchange Commission and the U.S.
        Treasury. Farmer Mac, Fannie Mae, and Freddie Mac are publicly traded companies
        requiring Securities and Exchange Commission disclosures. Debt issuance by FHLB, Fannie
        Mae, and Freddie Mac are subject to U.S. Treasury approval.

        The FHLB’s consolidated obligations were issued by their former regulator, Federal Housing
        Finance Board (FHFB) 5, prior to 2000. The FHFB published a final rule in June 2000
        transferring authority for issuance of the consolidated obligations to the FHLB. FHLB’s
        consolidated obligations are now issued by FHLB’s Office of Finance.




5
    FHFB was replaced by the Federal Housing Finance Agency (FHFA) by the Housing and Economic Recovery Act of 2008.

    FHFA is the regulator for Fannie Mae, Freddie Mac, and FHLB. FHFA is also the conservator for Fannie Mae and Freddie Mac.



                                                                     6

As a result of review and comparison to other GSEs during this audit, we did not identify
any justification for the Agency to seek relief from the statutory requirement to approve
FCS debt issuances. Instead, this audit assured us that FCA’s prior approval of debt
issuances provides an additional level of oversight and requires minimal resources.




                                           7

Laws and Regulations that Govern FCS Debt Obligations

  The Farm Credit Act is the primary legislation that governs FCS debt obligations. Sections
  4.2, 4.9 and 5.17 of the Farm Credit Act require FCA approval of Systemwide notes, bonds,
  debentures or other obligations issued by the FCS. The Funding Corporation has primary
  responsibility for obtaining funds for FCS lending operations including issuing, marketing,
  and handling obligations issued under section 4.2(b) through (d) of the Farm Credit Act.

  FCA Regulation, Part 615, provides responsibilities for funding, issuance of bonds, notes,
  debentures, similar obligations, and global debt securities. As part of FCA’s responsibility
  to promote safety and soundness of FCS institutions, the Agency imposed by regulation the
  following financial requirements on FCS banks:
     • Minimum liquidity reserve requirement of 90 days;
     • Minimum permanent capital ratio of 7%;
     • Minimum total surplus ratio of 7%;
     • Minimum core surplus ratio of 3.5%; and
     • Minimum net collateral ratio of 103%.




                                             8

    FCA Funding Approval Delegations, Policies and Procedures

       FCA established policies and procedures for the funding approval process. We
       determined that the policies and procedures identified reflect the current funding approval
       process and did not identify any significant differences. We did note that some of the
       policies and procedures were outdated and may need some technical amendments
       because they referred to offices that have changed names and contained other minor
       inconsistencies. However, on the whole, the documented policies and procedures
       remain valid.

       Delegations

       We reviewed delegations related to the funding approval process and did not identify any
       weaknesses. We determined the delegations were clearly defined and included controls
       requiring a qualified funding approval team that consists of an analyst and approving
       official as well as backup personnel.

       In 1994, the FCA Board reaffirmed the Chairman of the Board and Chief Executive Officer’s
       (CEO) authority to approve System funding requests and recognized the CEO’s authority to
       delegate funding issuance approval authority. 6

       After receiving the delegation from the Board, the CEO delegated authority to the Director
       of the Office of Regulatory Policy to approve routine funding requests. This delegation
       contained the following provisions:
          •	 The CEO delegated to the Director of ORP the authority to approve routine funding
              requests submitted by the Funding Corporation.
          •	 The CEO has sole authority to disapprove funding requests.
          •	 The Director of ORP does not have the authority to approve changes in ceiling limits
              or new funding programs requested by the System.
          •	 The Director of ORP may further delegate funding approvals to a qualified ORP
              member or committee.

       Policies and Procedures

       On February 2, 1998, FCA issued an Agency administrative policy that outlined the policies
       and procedures for processing funding requests submitted by the Funding Corporation.
       The primary criteria for approval are sufficient collateral and an authorized purpose for
       funding. Due to the critical role in timing of debt issuances, FCA’s policy is to respond to
       funding requests as quickly as possible, not to exceed 48 hours. The policy requires a
       quarterly report to the FCA Board addressing approval activity, System debt issuances,
       collateral positions, and other relevant matters. In addition, it requires consultation with


6
    FCA Board Action No. NV-94-25

                                                  9

the Farm Credit System Insurance Corporation (FCSIC) prior to approving any funding
request that does not meet minimum capital requirements.

ORP issued an office directive that further defines policies and procedures for processing
funding requests submitted through the Funding Corporation. In addition, this directive
contains the following elements:
   •	 Delegation of funding approvals based on specific criteria;
   •	 A funding team consisting of a minimum of three ORP staff members with the ability
      to analyze, recommend approval or disapproval of funding requests, and monitor key
      data; and
   •	 Procedures for monitoring, reporting, and contingency plans.

In our review of policies and procedures, we identified a difference in the record retention
policy for funding approval documentation. ORP’s directive stated records would be
maintained for 3 years, while ORP’s Recordkeeping Systems policy stated records would be
maintained for 5 years. However, we learned that the record retention period is currently
pending approval to reflect a 7 year retention period. ORP should ensure that applicable
policies and procedures reflect this revised record retention period once it is approved.

We reviewed position descriptions for key personnel involved in reviewing and approving
funding requests. Some of the position descriptions did not reflect responsibilities
associated with the funding approval process. As a result of our observation, the Director
of ORP is in the process of updating those position descriptions.

The Agency kept the Funding Corporation informed of any changes in personnel related to
the funding approval process. We observed several updates sent to the Funding
Corporation that disclosed changes in FCA’s authorized Reviewing Analysts and Approving
Officials.




                                          10

FCA’s Approval Process for Funding Corporation Debt Issuances

  FCA developed clearly defined criteria for funding approvals.           Each bank’s funding request
  is evaluated for the following elements:
       • Routine in Nature / Funding for Authorized Purposes
       • Statutory Collateral Ratio
       • Net Collateral Ratio
       • Permanent Capital Ratio
       • Total Surplus Ratio
       • Core Surplus Ratio
       • Financial Institution Rating System Composite Rating
       • MAA and CIPA
       • Days of Liquidity
       • Minimum Capital Requirements
       • Trends in Key Financial Data

  FCA’s approval process of funding requests varies by debt product:
      • Discount Notes
      • Unscheduled Bonds and Designated Bonds
      • Retail Bonds and Other Small Programs

  Discount Notes

  Discount notes are generally
  issued daily with a maturity of
  less than a year and represent                          Discount Notes
  the largest amount of FCS debt        $60.0
  issued during 2010. The               $50.0
  approval process for discount         $40.0
  notes is based on a program
                                                          $19.2




                                        $30.0
                                                  $16.3




                                                                             $16.2




                                                                                        Outstanding
  approval due to the short-term
                                                                  $11.6




                                        $20.0                                           (billions)
  nature of this debt instrument.
                                        $10.0                                           Program Ceiling
  In its program approval, FCA                                                          (billions)
  imposed a blanket ceiling that          $-
  limits the amount of
  outstanding discount notes.
  The current ceiling is $60 billion.
  See the chart for a comparison
  of the discount notes ceiling to
  discount notes outstanding.




                                                11

FCA’s CEO approved the Discount Notes Program with the requirement that a FCS bank
must meet certain conditions. If the bank meets the following additional conditions, the
Funding Corporation may issue discount notes on the bank’s behalf without any additional
approval from FCA:
    •	 Maturity less than 365 days;
    •	 FCA may modify or revoke approval at any time; and
    •	 FCA prior approval is required before issuing any discount notes on behalf of a
        System Bank in Category I, II, or III under the Market Access Agreement.

The Discount Notes Program has been revised several times over the past couple of
decades. When the Funding Corporation determines the System needs an increase in the
discount notes ceiling, it requests approval from FCA. The last increase was approved by
FCA’s CEO for $60 billion outstanding in discount notes on September 24, 2008.
However, not all requests for increases to the discount notes ceiling have been approved
by FCA. In 1990, FCA denied a request by the Funding Corporation to increase the
discount notes ceiling because, “FCA has significant concerns about the System’s excessive
liquidity levels, arbitraging activities, and illiquid and ineligible investments.”

Unscheduled Bonds and Designated Bonds

Bonds generally have a maturity
range from 1 year to 10 years.                        Bonds Outstanding
   •	 Unscheduled bonds are
                                     $200.0
        issued throughout the
        month.                       $180.0
   •	 Designated bonds reflect       $160.0
                                               $27


                                                       $29




        larger issuances and are
                                                              $31


                                                                     $31




                                     $140.0
        issued quarterly or as
        needed.                      $120.0

                                     $100.0                                 Designated Bonds
The approval process for                                                  (billions)
unscheduled and designated            $80.0
                                               $143


                                                       $140


                                                              $133




                                                                          Unscheduled Bonds
                                                                     $129




bonds is done through a funding       $60.0                               (billions)
approval request. The Funding
                                      $40.0
Corporation submits each System
bank’s funding request on a           $20.0
monthly schedule that runs from         $-
the middle of one month to the
middle of the following
month. This request is based on
each individual bank’s projection
of its unscheduled bonds issuance needs for that upcoming period given what it expects in
terms of loan growth, maturing debt, and exercised calls. If the bank meets the Funding


                                         12

Corporation’s criteria, the Funding Corporation groups all of the banks’ monthly funding
requests and forwards to FCA for approval. The designated bonds funding requests are
separate from and do not count toward the bank’s monthly funding request but do have
similar criteria to meet before being approved. The Funding Corporation has conservative
criteria that a bank must meet before it will forward a bank’s request to FCA. In addition,
each bank, through the Funding Corporation, is required to provide FCA with monthly
certification of key financial data which includes collateral and liquidity positions.

Each bank is authorized to participate in bonds issued by the Funding Corporation
throughout the month up to the amount requested and approved by FCA on its respective
monthly funding request. If a bank has unforeseen needs and anticipates it will exhaust
its monthly approval, it can request an interim funding request to provide additional
funding until the next monthly cycle.

When the monthly funding request is received by FCA, one of three ORP analysts processes
the approval request. The analyst reviews each bank to ensure it meets or exceeds the
predefined criteria (previously outlined on p. 11), reviews quarterly call report data,
observes trends in key financial data, and documents the analysis. If the analyst
determines the System bank has sufficient collateral, meets or exceeds capital ratios, and
does not have any concerns related to the System bank or capital markets, the analyst
recommends approval to an approving official. The analyst also determines if the FCSIC
needs to be consulted and whether the approval is within the delegated authority of the
Associate Director of ORP’s Finance and Capital Markets Team. If a bank’s monthly
funding request is significantly larger than normal, the analyst contacts the Funding
Corporation for additional information.

The approving official reviews the documentation provided by the analyst and provides
approval, if appropriate. As a result of close monitoring by FCA and the Funding
Corporation’s conservative criteria, ORP is not aware of any monthly funding requests
denied by FCA.

During the audit, we reviewed a sample of funding requests. The purpose of our review
was to determine if the approval process was consistent with established laws, regulations,
and policies and procedures. Specifically, we determined that funding requests:
    •	 Were logged in the database;
    •	 Were routine in nature and to be used for authorized activities;
    •	 Met criteria for delegated approval by the Associate Director of ORP’s Finance and
        Capital Markets Team;
    •	 Had appropriate collateral and liquidity certifications; and
    •	 Were signed by authorized reviewing analyst and approving official.

The results of our review indicated that the approval process for bonds was well
documented and consistent with established laws, regulations, policies and procedures.


                                          13

Approval was made within 3 hours of receipt of required documentation including approval
request forms and certifications. Although minor issues were identified with data
incorrectly logged in the ORP Funding Approval database for a couple of approval requests,
these issues would not change the approval determination.

We also observed that the approval process requires duplicate keying of financial data.
However, we are not making a recommendation to streamline this process since ORP is
planning an information technology project in fiscal year 2013 that will “facilitate
interactive processing of funding requests and improve communication across offices,
including the prompt sharing of information with interested parties.”

Retail Bonds and Other Small Programs

FCA’s CEO approved the Farm Credit Retail Bond Program effective November 18, 2010.
This new program represents a small percentage of FCS debt. Bonds issued under this
program will be included in each respective bank’s monthly funding request.

In addition, there are other small programs that represent an immaterial amount of FCS
debt that have been approved by FCA.




                                          14

FCA’s Monitoring and Reporting

  ORP closely monitors financial trends impacting the FCS and agency debt markets. We
  reviewed various reports and briefing documents provided by ORP and determined they
  kept the FCA Board and senior management well informed of related market events
  through periodic reports and briefings.

  ORP has frequent contact with FCA’s Office of Examination (OE) and the Funding
  Corporation to discuss and monitor adverse events. Routine monitoring performed by
  ORP includes:
     • The agency debt markets and System’s ability to access the market;
     • Trends in key aspects of banks’ financial data;
     • Periodically reviewing FCS website including debt issued;
     • Reviewing debt issuance and discount note allocation reports; and
     • Reviewing monthly reports and quarterly flash reports provided by OE.

  As part of its monitoring strategy, ORP periodically meets onsite with Funding Corporation
  management to discuss the funding approval process, reporting expectations, current
  events impacting the GSE debt market, and other topics impacting the FCS.

  During the financial crisis, ORP increased the frequency of collateral and liquidity reports
  from quarterly to monthly and increased monitoring of FCS’ debt composition. ORP also
  performed stress testing to determine the amount of loan deterioration that would cause a
  bank to trigger a MAA Category I.

  ORP provides periodic reports to the FCA Board and senior management including weekly
  email reports with FCS debt yield curves, issuance activity, and FCS basis points over
  Treasuries. In addition, ORP’s monthly status reports include funding approval activity,
  liquidity, and funding management information. As significant events occur that impact
  FCS funding, ORP provides additional reporting. For example, in July 2009, ORP provided
  the Board and senior management with a briefing on the impacts of the CIPA and MAA on
  the FCS including results from stress tests performed on two System banks.

  As part of FCA’s safety and soundness examinations of the Funding Corporation and System
  banks, OE verifies data provided by the Funding Corporation and System banks and
  reconciles actual debt issuances with debt issuances approved by ORP. OE and ORP work
  closely together to monitor the financial health of System banks. Without ORP’s
  involvement in the funding approval process, OE would likely require additional resources
  to perform additional monitoring and analysis that is currently performed by ORP.




                                            15

Acronyms

   CEO           Chairman of the Board and Chief Executive Officer

   CIPA          Restated Contractual Interbank Performance Agreement

   FCA           Farm Credit Administration

   FCDS          Farm Credit Debt Securities

   FCS           Farm Credit System

   FCSIC         Farm Credit System Insurance Corporation

   FHFB          Federal Housing Finance Board

   FHLB          Federal Home Loan Bank System

   Fannie Mae    Federal National Mortgage Association

   Farmer Mac    Federal Agricultural Mortgage Corporation

   Freddie Mac   Federal Home Loan Mortgage Corporation

   GSE           Government-Sponsored Enterprise

   MAA           Amended and Restated Market Access Agreement

   OE            Office of Examination

   OIG           Office of Inspector General

   ORP           Office of Regulatory Policy




                                  16

        R E P O R T 

Fraud   |     Waste    |   Abuse     |   Mismanagement





        FARM CREDIT ADMINISTRATION
        OFFICE OF INSPECTOR GENERAL

   • Phone: Toll Free (800) 437-7322; (703) 883-4316


   • Fax: 	 (703) 883-4059


   • E-mail: fca-ig-hotline@rcn.com

   •	 Mail:    Farm Credit Administration

               Office of Inspector General

               1501 Farm Credit Drive

               McLean, VA 22102-5090