Title: POLICY STATEMENT--Financial Institution Rating System [BM-9-APR-98-02]
Issue Date: 04/22/1998
Agency: FCA
Federal Register Cite: 63 FR 19918
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

[BM-9-APR-98-02]

Financial Institution Rating System

AGENCY: Farm Credit Administration.

ACTION: Policy statement.

SUMMARY: The Farm Credit Administration (FCA or Agency), through the FCA Board (Board), has adopted at its April 9, 1998, Board meeting a policy statement on its financial institution rating system. The Financial Institution Rating System (FIRS) shall be the rating system used by FCA examiners for evaluating and categorizing the safety and soundness of Farm Credit System (System) institutions on an ongoing, uniform and comprehensive basis. The FIRS will provide valuable information to the Agency for assessing risk and allocating resources based on the safety and soundness of regulated institutions.

EFFECTIVE DATE: April 9, 1998.

FOR FURTHER INFORMATION CONTACT: Andrew D. Jacob, Senior Policy Analyst, Office of Policy and Analysis, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4498, TDD (703) 883-4444;

or Wendy R. Laguarda, Senior Attorney, Office of General Counsel, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4020, TDD (703) 883-4444; or Gregory Yowell, Senior Financial Analyst, Office of Examination, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4483, TDD (703) 883-4444.


SUPPLEMENTARY INFORMATION: The text of the Board's policy statement on the financial institution rating system is set forth below in its entirety.

Policy Statement on the Financial Institution Rating System, BM-9-APR-98-02, FCA-PS-72
Effective Date: April 9, 1998.

Effect on Previous Actions: None.

Source of Authority: Sections 5.9 and 5.17 of the Farm Credit Act of 1971, as amended.

I. Policy

The Financial Institution Rating System (FIRS) shall be the rating system used by Farm Credit Administration (FCA or Agency) examiners for evaluating and categorizing the safety and soundness of Farm Credit System (System) institutions on an ongoing, uniform and comprehensive basis. The FIRS will provide valuable information to the Agency for assessing risk and allocating resources based on the safety and soundness of regulated institutions. Ratings assigned to regulated institutions will be adjusted periodically so that they accurately reflect the condition of institutions.

II. Standards and Implementation

Based on the conclusions reached in the ongoing examination of an institution's financial, managerial, and operational condition, FCA examiners will assign ratings to each of the six rating factor components and assign a composite rating that reflects the condition and overall safety and soundness of the System institution. These ratings shall be reported to the institution's Board of Directors and Chief Executive Officer. Component and composite ratings are assigned on a 1 to 5 numerical scale. A 1-rating indicates the strongest performance and management practices and the least degree of supervisory and regulatory concern, while a 5-rating indicates an extremely high, immediate or near-term probability of failure and unsatisfactory management practices and, therefore, the highest degree of concern. Although each institution has its own examination and supervisory issues and concerns, the FIRS is structured to evaluate all significant financial asset quality and management factors common to all System institutions. Examination criteria for each of the rating components is defined in the FCA Examination Manual which is available to the public. The FCA Examination Manual also incorporates the evaluative criteria under which component and composite ratings are assigned.Composite Rating The FIRS provides a general framework for assimilating and evaluating all significant financial, managerial and operational factors to assign a composite rating to each System institution. The composite rating is based on a qualitative and quantitative analysis of the factors comprising each of the following components, the interrelationships among components, and the overall level of concern for those risks that affect a System institution. The composite rating does not assume a predetermined weight for each component nor does it represent an arithmetic average of assigned component ratings. The weight given to any individual component in determining composite ratings varies depending on the degree of concern associated with the component and the threat posed to the overall safety and soundness of the institution.

Component Ratings Listed below is a brief description of the FIRS components and the more common evaluative criteria and factors considered under each component.

III. Responsibility

It is the responsibility of the Chief Examiner to ensure that the components used to support the composite ratings are reviewed periodically to make certain they reflect the material matters that impact the safety and soundness of institutions. In this respect, the Chief Examiner shall make recommendations to the FCA Board to add or delete components as necessary. Specific evaluative criteria and factors for determining component and composite ratings shall be established by the Chief Examiner and incorporated in the FCA Examination Manual or by other means as appropriate. The Chief Examiner is responsible for ensuring that ratings assigned to institutions are commensurate with and accurately reflect the risk in the institutions.

IV. Reporting

At least quarterly, the Chief Examiner will provide the FCA Board a report of the composite rating of all FCS institutions.

V. Implementation

System institutions examined after the date this policy is adopted by the FCA Board will be assigned composite and component ratings in accordance with this Policy Statement.

Dated: April 16, 1998.

Floyd Fithian, Secretary, Farm Credit Administration Board.

[FR Doc. 98-10630 Filed 4-21-98; 8:45 am

]BILLING CODE 6705-01-P