Vendor Questions and Answers.docx

Enhancing the Allowance for Insurance Fund Questions

Is there an incumbent firm?

There is not an incumbent firm.

How are current risk matrix thresholds determined? Is this an expert judgement framework or based on quantitative data and actual defaults? What if any LGD methodology is in the existing risk matrix?

The risk-matrix thresholds are based on historical financial data and expert judgment. No bank has defaulted on its debt since the inception of FCSIC. At present, we would estimate LGD only if we first determined that a System bank default is probable. FCSIC would like to enhance its approach for estimating LGD.

Is the current process in compliance with relevant regulations or are there any gaps that needs to be addressed?

There are no gaps that need to be addressed. Our allowance for Insurance Fund loss process is not subject to any specific regulations. However, we do follow the requirements of GAAP and our external auditor regularly reviews our process. As stated in the SOW, our objective is to seek professional experience to enhance our ability to determine whether a loss to the Insurance Fund is probable and can be reasonably estimated.

Are there historical breaches and any specific risks faced by the FCS?

Farm Credit System institutions have breached our medium- and high-risk thresholds in the past, but none of those breaches have posed an imminent threat to the System banks’ ability to repay its insured obligations. For a full discussion of the risks the FCS faces, see the Federal Farm Credit Banks Funding Corporation’s annual information statements found at:

Information Statements: Federal Farm Credit Banks Funding Corporation (farmcreditfunding.com)

Are there any other challenges in the current process?

There are no challenges with the current process. We are seeking professional expertise to see whether enhancements can be made to the existing process.

What is the source for non-financial data in the existing framework?

As noted in the SOW, FCSIC has access to FCA’s examination material to help assess the risk a System bank poses to the Insurance Fund.

Are any third-party vendors being used to assist with the provision of non-financial data? If so, can you disclose who those vendors are?

No. The non-financial data comes from FCA’s examination material of the individual Farm Credit System institutions.

What is the current rating scale?

As noted in the SOW, a risk-matrix with low-, medium- and high-risk thresholds is produced for each insured bank and its affiliated associations and organized into the categories of capital, assets, management, earnings, liquidity and sensitivity. We also consider FCA’s FIRS ratings in our risk assessment (the FIRS ratings function similarly to the federal banking agencies’ CAMELS ratings).

What is the target budget or anticipated range of investment for this initiative?

This SOW is, in part, exploratory and will help us identify and plan future investment in our risk management process.

The FCS Institution Directory website lists 66 institutions. Is this the entire portfolio/scope of the required risk rating framework?

Yes, though as of October 1, 2023, there were 4 banks and 58 associations (see the Federal Farm Credit Banks Funding Corporation’s Q3 2023 information statement for further detail).

Can you provide an estimated start date or a "start no later than" date?

We are hoping to start before the end of Q1 2024.

Will the Contractor need to use government issued laptops?

No.

Per the SOW, can you provide additional information regarding the Section 508 compliance requirement? Would standard analysis and reports meet the requirement, or should the offeror specifically incorporate a compliance procedure into its process?

This is a standard contract clause we include for all deliverables. The contractor should be able to incorporate 508 compliance procedures and produce 508 compliant products, if needed; however, standard analysis and reports will meet the current requirements.

In order to estimate hours needed and to determine the not-to-exceed ceiling amounts, is there additional information regarding the volume of review materials that can be shared?

The primary materials to review include FCSIC’s policy statement and procedure governing the allowance process, FCSIC presentations related to the process, and FCSIC allowance for Insurance Fund loss reports. Other supplemental materials could include FCSIC risk reports and presentations and reports issued by the FCA and Farm Credit System.

In particular, any detail that can be provided on the Allowance for Insurance Fund Loss Procedures, risk matrix thresholds, and other methodologies used to determine losses would be helpful. If this information is not available at this stage, would the Corporation accept assumptions about the contents of this information in the Offeror’s proposal and not penalize the Offeror for higher than actual assumptions?

For confidentiality reasons, no detail can be provided until the contract begins. See the previous questions on what needs to be reviewed. We will consider the Offeror’s assumptions during the evaluation process.

Can you provide a summary of economic data and inputs currently used to drive the model?

We use FCA call reporting data as the primary source of our analysis. This is public data. We also have access to FCA’s loan level database and examination material.

Is the model run on a global/macro basis at the FCSIC level in addition to being run at an individual member bank/association level?

The current methodology pulls data from FCA’s call reporting system and produces a risk matrix for the 4 banks and 58 associations. We also populate the risk matrix with some data from FCA examination material. We then assess each insured bank separately to determine whether a loss to the Insurance Fund is probable at quarter end. We also evaluate the condition of the affiliated associations of an insured bank as part of our risk assessment.

Does the existing model have an embedded stress test function(s)?

No.

Can you provide a redacted copy of the existing model output for review?

No.

How many Board meetings or other meetings should the Contractor expect to attend?

The Contractor will not need to attend any board meetings. All meetings will be held virtually with FCSIC risk management staff on an as needed basis.

Can you provide examples of when the Contractor should be available onsite at the request of FCSIC?

We don’t anticipate any onsite meetings.

Would the Corporation support upgrading an existing Tier 1 clearance with a separate agency to a Tier 2 clearance?

At the present time, a Tier 1 clearance is sufficient.

Will the Contractor have access to sample credit files for loans at member banks and associations?

No.

Is there a requirement for accounting support related to the booking of loss reserves?

No.

Should the Contractor provide a single, fully-loaded hourly rate for each projected member of the team?

See the time and material matrix labor rates – response matrix in the SOW. The Contractor would list the title or job function of each member participating in the project under the labor category, the hourly rate of each member, and how many estimated hours the member would work under each task.

Would the FCSIC consider licensing and using a fully developed global bank PD/LGD model as opposed to a custom build?

We would consider this approach in a future phase of the project if it met our needs and the unique characteristics of the System.

We are a US based company but leverage some offshore resources from a subsidiary company (India based) for model validation. Can we use those resources to help with Task 1?

Due to the confidentiality of the information that will be provided to the contractor, all work must be performed and completed within the United States.

Is the current risk model/matrix developed externally or internally by the FCSIC?

The current risk model/matrix is developed internally.