Objectives, Scope, and Methodology

The primary objective of our review was to determine if the financial safety and soundness of NCB is effectively monitored by the present oversight arrangement. Although NCB is a federally chartered, private institution that is cooperatively owned by its stockholders, it has much weaker financial links to the government. Thus, because NCB is a small institution that does not accept insured deposits, and the government’s potential loss due to NCB’s outstanding debt to the Treasury is limited to $183 million, the reasons why the government regulates financial institutions do not apply to NCB. At the same time, the government declared that it does not guarantee obligations incurred by NCB. The creditors impose discipline on NCB as a requirement of extending credit, and NCB appears to be responsive to this market discipline. NCB Recently Adopted a New Plan for Repaying the Debt

Another section of the act (section 116(a)(3)(C)), also added in the 1981 amendments, states that “after December 31, 1990, the Bank shall maintain a repayment schedule for class A notes which will assure full repayment of all class A notes not later than December 31, 2020.”
NCB adopted a plan in February 1993 to accumulate a portion of the funds needed to repay the debt. We believe, however, that prudent and responsible financial management on the part of the government would call for Treasury, as NCB’s government creditor, to protect the public’s investment in NCB by approving and monitoring NCB’s plans to repay its debt. The National Consumer Cooperative Bank Act does not, however, require Treasury to approve or monitor NCB’s plan to repay the debt. Treasury should also, through FCA, monitor NCB’s performance against the plan and require revisions as needed. GAO Comments

1. GAO Comments

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Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the safety and soundness of the National Consumer Cooperative Bank (NCB), focusing on whether NCB is: (1) fiscally sound; and (2) able to repay its debt to the Department of the Treasury.

What GAO Found

GAO found that: (1) NCB is a private, cooperatively-owned financial institution with limited ties to the government; (2) although NCB is overseen by the Farm Credit Administration (FCA), its discipline and most of its funds come from private-sector lenders; (3) the government does not guarantee any obligations incurred by NCB and NCB creditors do not believe that the government would intervene if NCB became financially unstable; (4) there is no need for additional regulatory oversight because the safety and soundness of NCB appears to be effectively monitored by FCA; (5) NCB has a direct financial link to the government through its debt to the Treasury; (6) as of December 1993, the government's potential financial liability was about $183 million; (7) federal law requires NCB to repay the principal amount of its debt no later than October 31, 2020; (8) in February 1993, NCB adopted a plan to accumulate a portion of the funds needed to repay its debt; (9) Treasury should be legally required to approve or monitor the NCB repayment plan; and (10) Treasury's involvement in the NCB repayment plan would help ensure that NCB maintains its repayment schedule, meets its debt requirements, and protects the taxpayers' interest.