Download FCA staff - The Farm Credit Council

Farm Credit Council Annual Meeting
February 2, 2016
Farm Credit Administration
William Hoffman, Chief Operating Officer
Robert Coleman, Chief Examiner
Gary Van Meter, Director, Office of
Regulatory Policy
Jerry Golley, Director, Office of Information
Technology
1
Agenda
 FCA Operations and Organizational
Changes
 FCA Risk Assessment and Analysis
 Regulations and Projects
 Office of Information Technology
 Closing Comments
2
FCA Priorities
 Monitor risks to the Farm Credit System
 Strengthen internal controls at System
institutions
 Issue a final capital rule
 Support service to YBS farmers
 Support diversity and inclusion in the
customer base and the workforce of System
institutions, as well in the FCA workforce
3
Leveraging Technology
 Office of Information Technology
 FCA Risk Project
 Enterprise Documentation Guidance
(EDGe) system
4
Human Capital Challenges
Challenge: 25 percent of FCA
personnel now eligible to retire
Strategy: Increase recruiting efforts
Challenge: Employees who have been
with FCA for five years or less now
constitute sizable portion of workforce
Strategy: Emphasize cross-training
and succession planning
5
Managing Agency Resources
Use audio- and videoconferencing
Encourage prudent travel practices
Provide guidance on conference costs
Use penalty airfares
Rely on FCS Loans Database to
minimize travel
Share resources across agency
offices
6
FCA Organizational Structure
Organizational Chart
As of October 2015
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FCA Risk Assessment and Analysis
Risk on the Horizon - 2016
1)
2)
3)
4)
5)
6)
7)
Higher short-term interest rate
Tight to negative margins for grain producers
Decline in farmland values and ag assets
Higher and “sticky” input costs
Stronger US dollar affecting ag exports
Slowdown in global economic growth
Global weather conditions
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FCA Risk Assessment and Analysis
System Risk Profile
Composite FIRS Ratings - System Banks & Associations
FIRS Ratings
2
1
1
12
12
10
46
44
29
30
Dec-10
Dec-11
1 Rated
38
37
Dec-12
2 Rated
Source: FCA's FIRS ratings database
8
31
1
3
32
1
3
30
43
44
46
Dec-13
Dec-14
Sep-15
3 Rated
• Current FIRS ratings reflect the
System’s favorable earning and
strong capital position
• 95% of System Banks and
Associations have a Composite
FIRS rating of 1 or 2
• 3 and 4 rated institutions
account for less than 1% of total
System assets
4 Rated
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FCA Risk Assessment and Analysis
National Oversight Risk Topics
1) Internal Controls and Operations Risks
2) Intensifying Credit Risk
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FCA Risk Assessment and Analysis
Other Office of Examination Priorities
1. Similar Entity Lending
a) Review Activities
b) Agency Guidance
2. Capital Requirements
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Regulations and Projects
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Tier 1—Tier 2 Capital (Basel 3, as appropriate)
Investment Eligibility – Banks & Assns.
Standards of Conduct
Private Flood Insurance
Amortization Limits
Similar Entity Guidance
Internal Controls
Territorial concurrence
Case-by-Case Investment Requests
Liquidity
Rural Business Investment Companies
Regulatory Projects Plan on FCA Website at
http://www.fca.gov/law/perf_plan.html
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Final Rule on Tier 1/Tier 2 Capital
Framework
Potential Revisions of Proposed
Rule Include




Allocated equities that may be included in CET1
Tier I leverage ratio
High volatility commercial real estate
Risk weights for loans to OFIs and certain
cooperatives
 Implementation date
Planning for the FCA Board to
consider in March
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Investment Eligibility
 Planning for Board to consider final rule in July
 Due to the Dodd-Frank Act, must remove credit
rating references and add other standards of
creditworthiness
 Address the type and amount of investments an
association may hold for risk management
purposes.
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Standards of Conduct
 We received a large number of thoughtful
comments, suggestions, and concerns
 What prohibitions should be included for
directors, officers and employees
 Would a more principle-based approach be
appropriate
 May re-propose the rule
15
Case-by-Case Investment
Requests Under 615.5140(e)
 Received requests from five different FCS
institutions
 Developed conditions that may apply to
requests approved by the FCA Board
 Cannot purchase a bond unless issuer determined bond is
a security under Federal securities law
 The institution cannot purchase the bond unless it can be
and is recorded as an investment under GAAP
 Bond offering must be independent of any institution that
may purchase the bond and must also be offered to
accredited investors in the offer’s local area that are not
FCS institutions
16
Territorial Concurrence Project
 Reviewing 614.4070 - consent or notice for
out-of-territory loans.
 Prompted in part by FCS questions/concerns on how
614.4070 should apply to specialty loan programs (e.g.,
point-of-sale financing or on-line auctions for equipment),
overchartered territories, and service to all markets/loan
types.
 Is the rule as relevant in today’s lending environment –
should it be clarified, simplify and modernize the rule.
 FCA has contacted each bank and association
and provided questions
 Will hold meetings with representatives of each
district
17
Similar Entity Guidance
 FCA is working on guidance
 Areas that may be addressed
 Purpose for participation
 Functionally similar activities
 Statutory limits
 Internal controls
18
FASB Standard: Accounting for Financial
Instruments—Credit Impairment
 Final Standard is expected in the second quarter of
2016—Implementation date in 2018 or 2019
 Replace incurred loss model with Current
Expected Credit Loss Model (CECL)
 Would include forward-looking requirements--all
expected, future credit losses
 OCC and FRB studies provide estimates of a 25 to 50
percent increase in the ALL due to CECL implementation
 Feb. 4, 2016, FASB will host a public meeting with
representatives from ICBA and ABA, auditors, and
banking regulators to discuss the project.
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Jerry Golley
Chief Information Officer and Director
of the Office of Information
Technology
20
OIT Organization
21
Recent Cyber Attack
January 22, 2016 12:18 PM, 16-00000542, Version: 1
KEY POINTS
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
An unknown individual or group of individuals fraudulently
transferred 60 million rubles (approximately $816,540 USD)
from a small bank in Central Asia. The perpetrators reportedly
used malware to replace recipient details in payment orders,
redirecting the transfers to accounts controlled by the actors.
The nature of the malware is unclear.
Based on this institution's size and location, whether the
attack could be replicated against financial institutions in other
areas is unclear. However, iSIGHT Partners assesses with
high confidence that financially motivated targeted
intrusions against financial institutions will continue,
occurring on a sporadic basis for the foreseeable future.
22
Closing Comments
 Comments
 Questions
 Thank you
23
Contact Information
Farm Credit Administration
William Hoffman (703) 883-4340
Robert Coleman (703) 883-4246
Jerry Golley (703) 883-4444
Charles Rawls (703) 883-4021
Gary Van Meter (703) 883-4026
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