News Column

Farm Credit Administration Seeks Comments on Funding and Fiscal Affairs, Loan Policies, and Funding Operations Regulation

July 25, 2014

Targeted News Service

WASHINGTON, July 25 -- The U.S. Farm Credit Administration published the following proposed rule in the Federal Register:

Organization; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Investment Eligibility

A Proposed Rule by the Farm Credit Administration on 07/25/2014

Publication Date: Friday, July 25, 2014

Agency: Farm Credit Administration

Dates: You may send us comments by October 23, 2014.

Comments Close: 10/23/2014

Entry Type: Proposed Rule

Action: Proposed rule.

Document Citation: 79 FR 43301

Page: 43301 -43318 (18 pages)

CFR: 12 CFR 611

12 CFR 615

RIN: 3052-AC84

Document Number: 2014-17493

Shorter URL:


Proposed Rule.


The Farm Credit Administration (FCA, Agency, us, our, or we) proposes to amend our regulations governing the eligibility of investments held by Farm Credit banks. We propose to strengthen these regulations by reinforcing that only high quality investments may be purchased and held. We also propose to revise these regulations to comply with section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or DFA) by removing references to and requirements relating to credit ratings and substituting other appropriate standards of creditworthiness. The FCA also proposes to revise its regulatory approach to Farm Credit System (System) association investments in order to limit the type and amount of investments that an association may hold. The proposed rule also addresses investment and risk management practices at associations and funding bank supervision of association investments.


You may send us comments by October 23, 2014.


We offer a variety of methods for you to submit comments on this proposed rule. For accuracy and efficiency reasons, commenters are encouraged to submit comments by email or through the Agency's Web site. As facsimiles (fax) are difficult for us to process and achieve compliance with section 508 of the Rehabilitation Act, we are no longer accepting comments submitted by fax. Regardless of the method you use, please do not submit your comment multiple times via different methods. You may submit comments by any of the following methods:

Email: Send us an email at

FCA Web site: Select "Public Commenters," then "Public Comments," and follow the directions for "Submitting a Comment."

Federal eRulemaking Portal: Follow the instructions for submitting comments.

Mail: Barry F. Mardock, Deputy Director, Office of Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.

You may review copies of all comments we receive at our office in McLean, Virginia, or on our Web site at Once you are in the Web site, select "Public Commenters," then "Public Comments," and follow the directions for "Reading Submitted Public Comments." We will show your comments as submitted, but for technical reasons we may omit items such as logos and special characters. Identifying information that you provide, such as phone numbers and addresses, will be publicly available. However, we will attempt to remove email addresses to help reduce Internet spam.


Paul K. Gibbs, Senior Accountant, or Timothy T. Nerdahl, Senior Financial Analyst, Office of Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4414, TTY (703) 883-4056; or

Jennifer A. Cohn, Senior Counsel, or Richard A. Katz, Senior Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4056.


I. Objectives

The objectives of this proposed rule are to:

Strengthen the safety and soundness of Farm Credit banks [1] and associations; [2]

Ensure that Farm Credit banks hold sufficient liquidity to continue operations and pay maturing obligations in the event of market disruption;

Enhance the ability of the Farm Credit banks to supply credit to agricultural and aquatic producers;

Comply with the requirements of section 939A of the Dodd-Frank Act;

Modernize the investment eligibility criteria for Farm Credit banks; and

Revise the investment regulation for associations to improve their investment management practices so they are more resilient to risk.

II. Background

Congress created System institutions, including Farm Credit banks and associations, to provide permanent, stable, and reliable sources of credit and related services to American agricultural and aquatic producers. [3] Associations obtain funds from Farm Credit banks to provide short-, intermediate-, and long-term credit and related services to farmers, ranchers, producers and harvesters of aquatic products, to rural residents for housing, and to farm-related businesses. [4]

Farm Credit banks depend on investments to provide liquidity and to fulfill other needs, [5] and investments also enable associations to manage the risks they confront. [6] Although Farm Credit banks obtain their funding primarily through the issuance of System-wide debt securities, [7] they must have enough available funds, including investments, to continue operations and pay maturing obligations if access to the debt market becomes temporarily impeded.

FCA regulations, at subpart E of part 615, impose comprehensive requirements regarding the investments of System institutions. We have recently revised many of these requirements, particularly those guiding prudent investment management practices. [8] This rulemaking proposes to revise the requirements governing the eligibility of investments for Farm Credit banks and associations, which have been largely unchanged since 1999, as well as the permissible investment amounts and purposes for associations. [9] The regulations this rulemaking proposes to amend should not be viewed in isolation, but rather as part of a comprehensive set of rules guiding the System's liquidity and investment management.

Investment products are becoming increasingly complex, and the financial crisis that began in 2007 made clear that some investments are riskier and less liquid than were previously believed. In addition, in July 2010 the President signed into law the Dodd-Frank Act to strengthen regulation of the financial industry in the wake of the financial crisis. Section 939A of the DFA requires each Federal agency to review all of its regulations that refer to or require the use of credit ratings to assess the creditworthiness of an instrument; to remove the reference or requirement; and to substitute other appropriate creditworthiness standards. FCA's existing investment eligibility regulations use credit ratings as a determinant of eligibility of some investments.

We now propose to comply with the DFA by eliminating the regulations' reliance on credit ratings. The financial crisis that began in 2007 identified flaws in relying on credit ratings to determine credit risk, as many investments with similar labels and ratings exhibited substantially differing underlying risk characteristics, ultimately impacting marketability of the investments. Investment eligibility would no longer depend on external credit ratings, thus enhancing safety and soundness. We also propose other amendments to the provisions governing Farm Credit banks that would strengthen the safety and soundness of their investment activities by more accurately reflecting the risk in particular investments.

Finally, we propose amendments to section 615.5142, which governs the investment activities of associations. We recognize that many associations may need to hold investments for purposes other than managing surplus short-term funds and reducing interest rate risk, which are the only investment purposes authorized by the existing regulations. For this reason, the proposed rule would grant associations greater flexibility to hold investments for other risk management purposes. At the same time, we propose to limit the types and amount of investments that associations may hold.

We first considered revisions to our Farm Credit bank and association investment regulations in 2011. [10] As discussed above, we adopted many of these revisions in 2012, but we did not revise the provisions governing investment eligibility and association investments, which we are now proposing to revise. The revisions we now propose take into consideration the comments we received in response to the earlier rulemaking, as well as the approaches some of the other Federal banking regulatory agencies have taken toward compliance with the DFA credit ratings elimination requirement. [11]

[*Federal RegisterVJ 2014-07-25]

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