Organization; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Investment Eligibility
| Published date | 06 October 2020 |
| Citation | 85 FR 62945 |
| Record Number | 2020-19711 |
| Section | Rules and Regulations |
| Court | Farm Credit Administration |
Federal Register, Volume 85 Issue 194 (Tuesday, October 6, 2020)
[Federal Register Volume 85, Number 194 (Tuesday, October 6, 2020)]
[Rules and Regulations]
[Pages 62945-62950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19711]
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FARM CREDIT ADMINISTRATION
12 CFR Part 615
RIN 3052-AD35
Organization; Funding and Fiscal Affairs, Loan Policies and
Operations, and Funding Operations; Investment Eligibility
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA, we, or our) adopts a
final rule that amends its investment regulations to allow Farm Credit
System (FCS or System) associations to purchase and hold the portion of
certain loans that non-FCS lenders originate and sell in the secondary
market, and that the United States Department of Agriculture (USDA)
unconditionally guarantees or insures as to the timely payment of
principal and interest.
[[Page 62946]]
DATES: This regulation shall become effective no earlier than 30 days
after publication in the Federal Register during which either or both
houses of Congress are in session. Pursuant to 12 U.S.C. 2252(c)(1),
FCA will publish notification of the effective date in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Jeremy R. Edelstein, Associate
Director, David J. Lewandrowski, Senior Policy Analyst, Finance &
Capital Market Team, Office of Regulatory Policy, (703) 883-4414, TTY
(703) 883-4056, or Richard A. Katz, Senior Counsel, Office of General
Counsel, (703) 883-4020, TTY (703) 883-4056, Farm Credit
Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of the final rule are to authorize FCS associations
to buy as investments for risk management purposes, portions of certain
loans that non-System lenders originate, and the USDA fully guarantees
as to principal and interest to:
Augment the liquidity of rural credit markets;
Reduce the capital burden on community banks and other
non-System lenders who choose to sell their USDA guaranteed portions of
loans, so they may extend additional credit in rural areas; and
Enhance the ability of associations to manage risk.
II. Background
In 1916, Congress created the System to provide permanent, stable,
affordable, and reliable sources of credit and related services to
American agricultural and aquatic producers. The System consists of 3
Farm Credit Banks, 1 agricultural credit bank, 67 agricultural credit
associations, 1 Federal land credit association, service corporations,
the Federal Farm Credit Banks Funding Corporation (Funding Corporation)
and the Federal Agricultural Mortgage Corporation (Farmer Mac).\1\ Farm
Credit banks (which include both the Farm Credit Banks and the
agricultural credit bank) issue System-wide consolidated debt
obligations in the capital markets through the Funding Corporation,
which enable associations to provide short-, intermediate-, and long-
term credit and related services to farmers, ranchers, producers and
harvesters of aquatic products, rural residents for housing, and farm-
related service businesses.\2\ The System's enabling statute is the
Farm Credit Act of 1971, as amended (Act).\3\
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\1\ The use of the terms ``System'' and ``FCS'' in this preamble
and final rule does not, from this point forward, refer to Farmer
Mac.
\2\ The agricultural credit bank lends to, and provides other
financial services to farmer-owned cooperatives, rural utilities
(electric and telephone), and rural water and waste water disposal
systems. It also finances U.S. agricultural exports and imports, and
provides international banking services to cooperatives and other
eligible borrowers. The agricultural credit bank operates a Farm
Credit Bank subsidiary.
\3\ 12 U.S.C. 2001-2279cc. The Act is available at www.fca.gov
under ``Laws and regulations,'' and ``Statutes.''
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This rulemaking addresses investments that associations purchase
and hold pursuant to their authority in sections 2.2(11) and 2.12(17)
of the Act. In 2014, FCA proposed a new rule that would have authorized
associations to purchase and hold, as investments, obligations issued
or guaranteed by the United States or its agencies for risk management
purposes.\4\ Under the proposed rule, no association could hold
investments in an amount that exceeds 10 percent of its total
outstanding loans.
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\4\ See 79 FR 43301 (July 25, 2014).
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FCA received more than 1,250 comment letters on this proposal.
After consideration of these comments, FCA changed the term
``obligations'' in the proposed rule to the more narrow term
``securities'' in the final rule. FCA also added Sec. 615.5140(b)(2)
to the final regulation to clarify that individual loan portions
purchased in the secondary market that are unconditionally guaranteed
or insured by the United States (U.S.) government or its agencies as to
principal and interest are not eligible risk management investments for
FCS associations. The FCA delayed the effective date of the final rule
until January 1, 2019.\5\
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\5\ See 83 FR 27486 (June 12, 2018).
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Shortly after we approved and published the final rule, several FCS
associations, community banks, and a broker-dealer expressed concern
that final Sec. 615.5140(b)(1) and (b)(2) would disrupt the secondary
market for the portions of loans that USDA fully and unconditionally
guarantees as to both principal and interest. Representatives of the
Office of the Administrator for the Rural Business Cooperative Service
at USDA (USDA Administrator) contacted FCA to support these parties.
More specifically, concerns were raised about the potential impact that
the final rule could have on the secondary market for USDA-guaranteed
portions of loans and, more broadly, on rural development. The USDA
Administrator, two community banks, and the broker-dealer warned that
the withdrawal of FCS associations from this market could substantially
reduce the liquidity in this market and the availability of credit in
rural areas.
In response to the concerns raised by the USDA Administrator and
market participants, FCA decided to review final Sec. 615.5140(b)(1)
and (b)(2) and consider their impact on the secondary market for loans
that the USDA fully and unconditionally guarantees as to principal and
interest. As a result of this review, FCA proposed to amend Sec.
615.5140(b)(2) to exempt USDA-guaranteed loan portions from Sec.
615.5140(b)(1), as well as a conforming change to Sec.
615.5140(b)(3).\6\ More specifically, the proposed rule would amend
Sec. 615.5140(b)(2) to allow System associations to purchase in the
secondary market, portions of loans that are originated by non-FCS
institutions, and that the USDA fully and unconditionally guaranteed or
insured as to both principal and interest.
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\6\ See 84 FR 49069 (September 18, 2019).
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The FCA also decided to grant temporary regulatory relief to
certain System associations that had been active or expressed an
interest in the secondary market for USDA-guaranteed loan portions,
notwithstanding the prohibition in Sec. 615.5140(b)(1) and (b)(2) that
became effective on January 1, 2019.\7\ We believe that granting the
``No Action'' requests of these associations is appropriate to prevent
any disruption in the secondary market for USDA-guaranteed loan
portions and to maintain the pre-existing status quo while this
rulemaking is pending and we consider input from the public. FCA placed
strict conditions on those associations that were granted regulatory
relief, and closely monitored their activity.
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\7\ Several System associations asked the FCA in writing not
take action against them for purchasing USDA-guaranteed loan
portions. FCA granted limited ``No-Action'' relief to those
associations that demonstrated that they have: (1) Experience in the
secondary market for USDA-guaranteed loan portions, and (2)
appropriate risk management controls in place to engage in this
activity. In granting ``No-Action'' relief requests, FCA placed
strong and appropriate Conditions of Approval on each association to
ensure that such loan portions were purchased and managed in a safe
and sound manner.
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III. Comment Letters
The comment period expired on November 18, 2019. We received a
total of 34 comment letters from a trade association representing FCS
lenders, 2 Farm Credit banks, 7 FCS associations, the National Rural
Lenders' Roundtable, which is a forum for lenders that use USDA
guarantee programs, a commercial bank trade association, 21 community
bankers, and an individual.
[[Page 62947]]
Essentially, 24 commenters supported the proposed rule, but asked us to
further revise the regulation so System associations could buy loan
portions that any U.S. government agency fully and unconditionally
guarantees as to principal and interest. One System commenter suggested
that our regulations should grant both System banks and associations
the exact same investment authorities. Nine commenters opposed the
proposed rule, and asked FCA to withdraw it. Commercial bank commenters
were divided with 13 supporting the proposed rule and, for the most
part, seeking its expansion to all U.S. government loan-guarantee
programs, while 9 bank commenters opposed it. The individual commenter
expressed no opinion about whether FCA should adopt, modify, or retract
the proposed rule.
Supporters claim that the proposed rule mutually benefits community
banks and other non-System rural lenders, System associations, and
rural communities. According to these commenters, selling USDA-
guaranteed loan portions to FCS associations is advantageous to rural
community banks because it increases their liquidity, which can enable
them to originate more loans in rural areas. The proposed rule also
strengthens the informal secondary market for USDA-guaranteed loans in
rural areas, in which commercial bankers comprise the majority of
buyers and sellers. As several commenters point out, System
institutions have historically played a pivotal role in the secondary
market for USDA-guaranteed loans.\8\ The proposed rule benefits System
associations by enabling them to diversify their portfolios in a way
that is consistent with their statutory mission to provide an adequate
and flexible flow of stable credit into rural areas.\9\ USDA guarantees
ensure that System associations generally have no credit risk \10\ when
they purchase these loan portions in the secondary market, which
reduces risk exposure to capital and increases resilience of the
balance sheet.
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\8\ USDA guarantees loans to borrowers who are both eligible and
ineligible to borrow from the System. FCA lending regulations in
Part 614 already authorize FCS banks and associations to buy the
USDA-guaranteed portions of loans to eligible borrowers under their
loan participation authorities. USDA loan guarantees to eligible
borrowers that are purchased under the loan participation
regulations are not subject to a portfolio limit, or other
requirements of these investment regulations. Final Sec.
615.5140(b)(2) only affects USDA guarantees for loans to ineligible
borrowers or borrowers whose eligibility status is uncertain.
\9\ See preamble and section 1.1(a) of the Act.
\10\ However, these guaranteed loan portions may expose
investors to premium risk, operational risk, and funding risk. The
preamble to the proposed rule addressed potential premium and
operational risks. See 84 FR 49070, footnote 4 (September 18, 2019).
In addition, System associations may also be exposed to funding risk
which could include basis risk, interest rate risk, and risks
related to the transition away from the London Interbank Offered
Rate.
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Most commenters who supported the proposed rule also told us that
Sec. 615.5140(b) should permit associations to purchase and hold
portions of loans guaranteed by other U.S. government agencies as
investments, such as the Small Business Administration (SBA),\11\
Bureau of Indian Affairs, and the Department of Energy. According to
these commenters, the logic for allowing associations to buy USDA-
guaranteed loan portions also applies to all U.S. government-guarantee
loan programs. More specifically, expanding this regulatory authority
beyond USDA would, in the opinion of these commenters, promote a more
robust secondary market for all U.S. government loan programs, which
would ultimately benefit the customers of commercial banks and their
local communities.
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\11\ SBA administers various programs for guaranteeing loans to
small businesses under the Small Business Act of 1953 and the Small
Business Investment Act of 1958. Pursuant to Sec. 5(g)(1) of the
Small Business Act of 1953, 15 U.S.C. 634(g)(1) and 13 CFR 120.620,
SBA guarantees the timely payment of principal and interest, which
is backed by the full faith and credit of the United States, on Pool
Certificates issued by authorized brokers and dealers who assemble
these pools. Such Pool Certificates are eligible investments for FCS
associations under Sec. 615.5140(b)(1), and for FCS banks under
Sec. 615.5140(a)(1).
A separate program under section 7(a) of the Small Business Act
of 1953, 15 U.S.C 636(a), and 13 CFR 120.621 addresses SBA
guarantees of portions of individual loans. Under the 7(a) program,
loan originators obtain SBA guarantees for portions of individual
loans. Each guaranteed portion of a loan is evidenced by an
individual certificate. If the originator sells the guaranteed
portion of the loan in the secondary market, the SBA's fiscal
transfer agent will record who is the current registered holder of
the loan guarantee certificate. If the registered holder does not
receive timely payments of principal and interest because the
borrower defaulted, or the loan originator or the fiscal transfer
agent failed to perform its obligations (in accordance with 13 CFR
120.621(b)), the SBA will purchase the guaranteed portion of the
loan from the registered holder for an amount equal to the unpaid
principal and the accrued interest due on the date of SBA's
purchase. SBA-guaranteed portions of individual loans under the
section 7(a) program are not eligible investments for System banks
and associations under Sec. 615.5140. However, FCS banks and
associations may purchase and hold these individual SBA-guaranteed
loan portions under FCA's loan participation regulations only if the
underlying borrowers are eligible System borrowers.
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System commenters point out that the plain language of sections
2.2(11) and 2.12(17) of the Act expressly authorize associations to
invest in obligations issued or insured by the U.S. and its agencies.
Most System commenters asked us to authorize associations to buy loan
portions guaranteed by other U.S. government agencies after we enact
this final rule. System commenters noted that our previous investment
regulations permitted FCS banks and associations to buy and hold loan
obligations that U.S. government agencies guaranteed, and they urged us
to restore this regulatory framework.
One System association opined that FCA exceeded its statutory
authority by repealing the regulation that authorized associations to
buy any guaranteed obligation issued by any U.S. government agency.
According to this commenter, existing Sec. 615.5140(b)(1) and (b)(2)
is incompatible with the ``unambiguously expressed intent of
Congress.'' This commenter asked the FCA to authorize System
associations to buy and hold any obligation guaranteed by all U.S.
government agencies, either in this final rule, or by another prompt
agency action.
As noted earlier, nine commercial bank commenters asked the FCA to
withdraw the proposed rule and retain the current investment regulation
for FCS associations. According to these commenters, Congress
specifically established Farmer Mac as the System institution that
would operate the secondary market for loan portions that the USDA
guarantees for loan originators. Augmenting the liquidity of rural
credit markets and reducing the capital burdens on loan originators is
the role that these commenters believe Congress assigned to Farmer Mac,
not FCS associations. Opponents of the proposed rule claim that the
FCA, as the regulator of both FCS lenders and Farmer Mac, is creating
``a duplicate and redundant secondary market'' that will create
unnecessary intra-System competition to Farmer Mac's detriment. The
proposed rule's objective of enhancing the ability of associations to
manage risks could, in the view of these commenters, be achieved if
associations ``were to use Farmer Mac as a secondary market as Congress
intended, rather than trying to create their own secondary market.''
These commenters also dispute that sections 2.2(11) and 2.12(17) of
the Act authorize associations to purchase interest in loans that non-
System lenders originate and USDA guarantees. According to these
commenters, these two statutory provisions authorize associations to
buy and sell loans insured by U.S. government agencies and FCS banks,
not loans originated by non-System lenders. Opponents of the proposed
rule claim that FCS associations are not indispensable to the
[[Page 62948]]
secondary market of USDA-guaranteed loan portions and, therefore, this
rule is not necessary to provide a flexible flow of affordable credit
into rural areas.
IV. Final Rule
After reviewing and considering the comment letters received on the
proposed rule, the FCA now finalizes the proposed rule without change.
Specifically, the final rule amends Sec. 615.5140(b)(2) to allow
System associations to purchase in the secondary market, the portions
of loans that non-FCS institutions originate and that the USDA fully
and unconditionally guarantee \12\ or insured as to both principal and
interest.
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\12\ Lenders who originate loans that are eligible for USDA
guarantees only obtain a conditional guarantee from the USDA. The
guarantee is conditional on the lender complying with the
origination and servicing regulatory requirements applicable to the
loan, as well as other program requirements. Loan originators may
sell the USDA-guaranteed portions of their loans, in the form of an
assignment, to other persons, including individuals, corporate
entities, and other financial institutions. See, 7 CFR 762.160,
1779.65, 3575.65, and 4279.75. Pursuant to these regulations, the
seller must submit a form to the USDA that identifies the party that
becomes the holder of record. Id. A purchaser who subsequently
assigns the loan guarantee to another party must similarly comply
with the same requirement. Only an assignee who is listed as the
holder of record for the loan guarantee may seek payment from the
USDA if the borrower defaults. The USDA provides an unconditional
guarantee to a good-faith guarantee holder who purchased the
guaranteed portion of the loan from the loan originator or a holder
of an assignment, including such transaction made in the secondary
market.
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The FCA proposed to amend existing Sec. 615.5140(b)(2) so
associations could purchase only USDA-guaranteed loan portions because
it is specifically what the USDA Administrator, several FCS
associations, community banks and a broker-dealer requested. Loan
guarantee programs of other U.S. government agencies are outside the
scope of this rulemaking. Most System commenters urged us to promptly
finalize the proposed rule, and then subsequently consider other U.S.
agency-guaranteed loan programs. For all these reasons, this final rule
allows FCS associations to purchase and hold only loan portions that
the USDA fully and unconditionally guarantees as to principal and
interest.
One System commenter claims that sections 2.2(11) and 2.12(17) of
the Act reflects Congress' ``unambiguously expressed intent'' to allow
associations to buy and hold obligations guaranteed by any U.S
government agency as investments. Therefore, any regulation that
prohibits or restricts the ability of associations to do so would, in
the opinion of that commenter, exceed FCA authority. For this reason,
the commenter's position is that the final rule or another action by
FCA must immediately authorize associations to buy loan obligations
guaranteed under any U.S. government agency program.
FCA disagrees with the commenter's interpretation of Act. The text,
structural framework, and history of the Act indicates that Congress
granted FCA discretion to impose conditions and constraints by
regulation on how System institutions exercise their statutory powers
in various circumstances. We note that the introductory text to
sections 2.2 and 2.12 of the Act, which the commenter invokes,
expressly states the powers of each association are subject to
regulation by FCA. Additionally, section 5.17(a)(9) of the Act
authorizes FCA to ``prescribe rules and regulations necessary or
appropriate for carrying out this Act.''
From time to time, FCA has exercised its powers under these
statutory provisions to enact regulations that place limits on the
statutory authorities of System banks and associations, especially in
the area of investments. Reasons for limiting System's statutory
authorities include, but are not limited to: (1) Preserving the
System's safety and soundness; (2) implementing various legal
requirements that apply to the System; and (3) ensuring that FCS
activities and operations are compatible with its status as a
government-sponsored enterprise that extends credit to agriculture and
other eligible borrowers in rural America. For decades, FCA regulations
have limited System investments by amount, type, credit quality, and
purpose even though the Act is silent on these issues. For these
reasons, we conclude that FCA has authority under the Act to impose by
regulations restrictions on the types of obligations guaranteed by U.S.
government agencies that System institutions may purchase and hold.
In this context, the final rule is within the scope of the Act and
FCA's statutory authority. We have amended our association investment
regulations periodically in the past as circumstances changed, and we
may do so again in the future if we determine that evolving conditions
require further regulatory revisions. In the meantime, the final rule
strikes a balance between the needs and interests of USDA, FCS
associations, a significant segment of rural community banks, and rural
credit markets. We observe that USDA loan guarantee programs focus
primarily on the credit needs of rural residents and their communities,
whereas similar loan guarantee programs of other U.S. government
agencies do not. USDA loan guarantee programs overall are uniquely
compatible with the System's mission, as a government-sponsored
enterprise, to provide stable and affordable credit to agriculture and
other authorized needs in rural America.
As noted earlier, one System commenter opined that FCS banks and
associations should have the exact same investment authorities under
our regulations. This issue is outside the scope of our current
rulemaking. The preamble to the final Investment Eligibility rule that
we issued in 2018 explained why the investment authorities of System
banks and associations are different under these regulations.\13\
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\13\ See 83 FR 27493 (June 12, 2018).
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We now respond to comments from the commercial bankers who opposed
the proposed rule. As discussed earlier, these commenters point out
that Congress established Farmer Mac as the System's secondary market
operator. These commenters also note that the Act expressly authorizes
Farmer Mac, not System associations, to operate the secondary market
for USDA-guaranteed loans. These commenters claim that our proposal
would establish a duplicative secondary market, without statutory
authority, and the resulting intra-System competition will harm Farmer
Mac as well as ``several hundred community banks that actively conduct
business with Farmer Mac.''
Farmer Mac did not submit a comment letter. As a result, Farmer
Mac, on its own behalf, did not raise any of the issues that the
commenters brought up.
This amendment to Sec. 615.5140(b)(2) neither violates the Act,
nor is it contrary to Congressional intent, as these commenters allege.
In response to these commenters, sections 2.2(11) and 2.12(17) of the
Act expressly authorize associations to buy obligations of or insured
by the U.S. and its agencies, and these provisions are separate and
distinct from Farmer Mac's authority under several provisions of title
VIII of the Act to purchase, hold, and securitize loan portions
guaranteed by USDA.\14\ In
[[Page 62949]]
granting these authorities to Farmer Mac, Congress did not repeal other
provisions of the Act that authorize FCS banks and associations,
subject to FCA regulation, to invest in obligations of or insured by
the U.S. or its agencies, including USDA fully-guaranteed loan
portions.
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\14\ Titles VII and VIII of the Agricultural Credit Act of 1987
chartered Farmer Mac. See Public Law 100-233, 101 Stat. 1568, 1686
(Jan. 6, 1988). The former General Counsel of FCA issued a legal
opinion concluding that System institutions did not have authority
under the Act to securitize their loans and sell the resulting
securities in the secondary market. This legal opinion influenced
Congress to create Farmer Mac. [See 133 Cong. Rec.S. 16909 (daily
ed. Dec. 2, 1987) Originally, the only loans that qualified for
Farmer Mac programs were the types of agricultural and rural home
mortgages that System lenders, other than banks for cooperatives,
could originate. The Food, Agriculture, Conservation, and Trade Act
of 1990 added portions of loans that the USDA guarantees under the
Consolidated Farm and Rural Development Act to the statutory
definition of ``qualified loan'' in section 8.0(7) of the Act. See
Public Law 101-624, Sec. 1839(b), 104 Stat. 3359, 3835 (Nov 28,
1990). The Food, Conservation and Energy Act of 2008 further
expanded the definition of ``qualified loan'' in re-designated Sec.
8.0(7) of the Act to include loans and interest in loans for an
electric or telephone facility from a cooperative lender to a
borrower who is eligible for loans under the Rural Electrification
Act of 1936. See Public Law 110-234, Sec. 5406(a), 122 Stat. 923,
1158 (May 22, 2008).
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The opponents of the proposed rule also claim that the Act does not
allow FCS associations to buy USDA-guaranted loan portions from non-
System loan originators. We respond that these commenters have
misinterpreted the Act. Although FCA banks and associations generally
lack authority to buy most loans (and portions thereof) from the non-
System lenders, the Act carves out exceptions, such as sections 2.2(11)
and 2.12(17) of the Act. Since USDA-guaranteed obligations qualify as
eligible investments under sections 2.2(11) and 2.12(17), System
associations may buy them from any bona fide seller, including
community banks, and other non-System lenders.
Beyond their legal arguments, these commenters also claim that
allowing associations to buy USDA-guaranteed loan portions from non-
System originators is detrimental to Farmers Mac and the broader
secondary market. However, these commenters did not provide any data,
information, or analysis that supports their claim that the proposed
rule would harm Farmer Mac.\15\ Instead information provided by the
USDA, and comment letters received from a majority of community bank
commenters contradict these assertions. As noted in the preamble to the
proposed rule, USDA informed FCA that the FCS in recent years has
constituted as much as 40 percent of the secondary market for USDA loan
guarantees. The majority of community bankers who commented on the
proposed rule told us that System associations play a beneficial role
in this secondary market. These commenters also stated that System
associations that buy these guaranteed loan portions enable community
banks to reinvest the sale proceeds back into local communities. These
comments support one of FCA's objectives in this rulemaking, which is
to augment liquidity of rural credit markets. As stated above, Farmer
Mac did not comment on the proposed rule.
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\15\ Since Farmer Mac has been granted this authority in 1990,
it has been and continues to be an active participant in this
secondary market. It currently holds over $2.2 billion in USDA's
guaranteed loan portions (See Farmer Mac Reports 2019 Results, Pg.
9, https://www.farmermac.com/wp-content/uploads/Farmer-Mac-Reports-2019-Results.pdf).
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One commenter claimed that ``FCS lenders have long desired to
operate their own secondary market, and FCA's proposal would lay the
groundwork allowing them to do so.'' We disagree with this comment. As
discussed in greater detail above, the Act does not authorize System
banks and associations to securitize assets and then sell the resulting
securities to investors. Associations buy USDA guaranteed loan portions
in the secondary market from willing sellers, the majority of which are
commercial banks, and then hold those investments for risk management
purposes.
The proposed rule would not enable FCS lenders to ``operate their
own secondary market'' as the commenter alleges. At most, System
associations would resume their previous role as a meaningful
participant in the longstanding informal secondary market. FCA proposed
this rule after USDA provided data and information that substantiated
its claim \16\ that the System's withdrawal from this secondary market
actually disrupts it. Allowing System associations to return to the
informal secondary market for USDA loan guarantees provides additional
liquidity and funding sources to those market participants who opt to
engage in these transactions.
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\16\ In the proposed rule, we indicated that data provided by
USDA shows that loan originators retain approximately 60 percent of
the USDA-guaranteed portions of such loans and sell the remaining 40
percent in the secondary market, often at a premium. See 84 FR 49069
(September 18, 2019).
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For the reasons discussed in the preamble, the final rule amends
Sec. 615.5140(b)(2) to allow System associations to purchase in the
secondary market, the portions of loans that non-FCS institutions
originate and that the USDA fully and unconditionally guarantee or
insured as to both principal and interest.
V. Regulatory Flexibility Act and Major Rule Conclusion
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies that the final rule would not
have a significant economic impact on a substantial number of small
entities. Each of the banks in the System, considered together with its
affiliated associations, has assets and annual income in excess of the
amounts that would qualify them as small entities. Therefore, System
institutions are not ``small entities'' as defined in the Regulatory
Flexibility Act.
Under the provisions of the Congressional Review Act (5 U.S.C. 801
et seq.), the Office of Management and Budget's Office of Information
and Regulatory Affairs has determined that this final rule is not a
``major rule,'' as the term is defined at 5 U.S.C. 804(2).
Lists of Subjects in 12 CFR Part 615
Accounting, Agriculture, Banks, banking, Government securities,
Investments, Rural areas.
For the reasons stated in the preamble, part 615 of chapter VI,
title 12 of the Code of Federal Regulations are amended as follows:
PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS,
AND FUNDING OPERATIONS
0
1. The authority citation for part 615 continues to read as follows:
Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5,
2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17,
6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm
Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074,
2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b,
2211, 2243, 2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4,
2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a),
Pub. L. 100-233, 101 Stat. 1568, 1608; sec. 939A, Pub. L. 111-203,
124 Stat. 1326, 1887 (15 U.S.C. 78o-7 note).
Sec. 615.5140 [Amended]
0
2. Amend Sec. 615.5140 by revising paragraphs (b)(2) and (3) to read
as follows:
* * * * *
(b) * * *
(2) Secondary market Government-guaranteed loans. In addition to
investing in the securities described in paragraph (b)(1) of this
section, each Farm Credit System association may also manage risk by
holding those portions of loans that:
(i) Lenders, which are not Farm Credit System institutions,
originate and then sell in the secondary market; and
(ii) The United States Department of Agriculture fully and
unconditionally guarantees or insures as to both principal and
interest.
(3) Risk management requirements. Each association that purchases
investments pursuant to paragraphs (b)(1) and (2) of this section must
[[Page 62950]]
document how its investment activities contribute to managing risks as
required by paragraph (b)(1) of this section. Such documentation must
address and evidence that the association:
* * * * *
Dated: September 1, 2020.
Dale Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2020-19711 Filed 10-5-20; 8:45 am]
BILLING CODE 6705-01-P
