Safety and Soundness: Agricultural Credit Risk

July 24, 2017


As the agricultural sector continues to present challenges across the Tenth District, we want to take the time to remind institutions of the supervisory expectations to maintain sound underwriting standards, strong credit administration practices, and effective risk management strategies regardless of the market conditions.

 

Supervisory expectations include thorough assessment of borrower creditworthiness and cash flow, effective underwriting standards, appropriate credit administration and controls, proper loan structure, and reliable collateral evaluations and reasonable collateral margins. Each of these expectations is described in more detail in Federal Reserve Supervision and Regulation (SR) letter 11-14, “Supervisory Expectations for Risk Management of Agricultural Credit Risk.” Additionally, further guidance is provided in the December 2016 FedLinks Bulletin, “Agricultural Credit Risk Management.” The bulletin represents an update to a bulletin issued in 2012, and discusses risk management practices that bank management and supervisory staff should consider in assessing the adequacy of a banking organization’s risk management of agriculture-related exposures.This updated version includes more emphasis on identification and treatment of carryover debt and capital planning.

 

Additional resources include:

If you have any questions or would like additional information, please contact your designated Reserve Bank Central Point of Contact at (800) 333-1010.