FCA: Farmer Mac Rule Approved
McLEAN, Va., June, 2005 — The Farm Credit Administration (FCA or Agency) Board today approved a final rule governing the Federal Agricultural Mortgage Corporation (Farmer Mac) in the areas of non-program investments and liquidity.
o Establish minimum liquidity standards that require Farmer Mac to hold sufficient high-quality, marketable investments to provide adequate liquidity to fund maturing obligations, interest expense, and operating expenses for a minimum of 60 days in the case of a market disruption or other extraordinary situation. This provision includes a change from the proposed rule in the components of the calculation.
o Specify the maximum amount, quality, and type of non-program investments that may be held by Farmer Mac. Non-program investments cannot exceed the greater of $1.5 billion or the aggregate of 35 percent of program volume outstanding excluding 75 percent of on-balance sheet Farmer Mac II volume. This marks a change from the formula in the proposed rule, which limited non-program investments to the greater of $1.5 billion or the aggregate of 30 percent of total assets plus up to 15 percent of total off-balance sheet obligations.
o Establish diversification requirements, including portfolio limits on specific types of investments and counterparty exposure limits. These provisions include several adjustments from the proposed rule but retain the proposed approach and structure.
o Require Farmer Mac’s board of directors to approve liquidity and non-program investments policies and other internal controls. This provision was slightly modified from the proposed rule.
o Provide for waivers by FCA to the new regulatory limits, if circumstances warrant regulatory relief.
The final rule will be effective 30 days after publication in the Federal Register during which time either one or both houses of Congress are in session.
In other business, the FCA Board received the 2004 report on Farm Credit System (FCS or System) service to young, beginning, and small (YBS) farmers and ranchers. The report is done on a Systemwide basis and shows that the dollar volume of new loans in the young and the beginning categories has increased every year since 2001, when the Agency’s new YBS reporting definitions became effective. New loans in the small farmer category fell in 2004 from the 2003 level, but were above the 2001 and 2002 levels.
During 2004, the System made $4.4 billion in young farmer loans, $6.8 billion in beginning farmer loans, and $9.8 billion in small farmer loans. At year-end 2004, 12.8 percent of the dollar volume of the System’s farm loan portfolio was to young farmers, 19.3 percent to beginning farmers, and 31.4 percent to small farmers. The percentages for the number of loans were: young farmers, 17.5 percent; beginning farmers, 22.7 percent; and small farmers, 61.8 percent. Borrowers are placed in one, two, or all of these categories depending on their characteristics. As a result, the categories are mutually exclusive and cannot be added.
The report also reviewed Census of Agriculture trends measuring changes in farmer demographics. The significant decline in percentage of young farmers over the past 20 years and the increase in percentage of older farmers emphasize the importance of the System’s role in financing young and beginning farmers, but also highlight the challenges.
Systemwide data on YBS lending and data by individual associations are available on the Agency’s Web site at www.fca.gov.
The FCA Board also heard a report announcing the implementation of a geographical information system that is being used by the Agency to create detailed static and interactive maps of FCS institution territories. The software also is being used to conduct risk analyses and oversight of the FCS because it allows a variety of data to be linked with geographical territory. Static maps of each FCS institution’s territory are now available on the FCA Web site under FCS Institutions/Directory.
Since the May 12 FCA Board meeting, the Board approved by notational vote substantive revisions to two FCA Board Policy Statements. Notational votes are actions taken by the FCA Board between Board meetings. The revised policy statements (PS) are PS 53 “Examination Philosophy” (formerly “Implementing the 1992 Amendment to the Farm Credit Act, Providing Flexibility in the Definition of an Examination”) and PS 59 “Regulatory Philosophy.” The amended policy statements will be published in the Federal Register in compliance with the Freedom of Information Act requirements. FCA Board Policy Statements also are available on the Agency’s Web site under Legal Info/FCA Handbook.
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