[Federal Register Volume 59, Number 162 (Tuesday, August 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20687]


[[Page Unknown]]

[Federal Register: August 23, 1994]


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FARM CREDIT ADMINISTRATION

 

Market Access Agreement

AGENCY: Farm Credit Administration.

ACTION: Notice of approval of market access agreement.

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SUMMARY: The Farm Credit Administration (FCA) announces that, after 
taking into consideration comments from the public on the Market Access 
Agreement (Agreement) to be entered into by all of the banks of the 
Farm Credit System (System) and the Federal Farm Credit Banks Funding 
Corporation (Funding Corporation), the FCA has given final approval to 
the Agreement, subject to certain conditions.

FOR FURTHER INFORMATION CONTACT:
Jean Noonan, General Counsel, Office of General Counsel, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-
4444, or
James M. Morris, Senior Attorney, Regulatory Operations Division, 
Office of General Counsel, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: The Agreement, to be entered into among each 
of the banks of the System and the Funding Corporation, provides that 
it will not be implemented until it is approved by the FCA and the Farm 
Credit System Insurance Corporation (FCSIC) expresses its support for 
the Agreement.
    In February 1993 the boards of directors of the banks and the 
Funding Corporation approved a draft Agreement and submitted the 
Agreement to the FCA and the FCSIC for approval. On September 9, 1993 
the FCA Board granted preliminary approval to the Agreement subject to 
certain conditions. Following the FCA's preliminary approval, the 
System banks and the Funding Corporation modified the Agreement to 
bring the Agreement into conformance with the FCA's conditions. The 
board of directors of each of the banks and of the Funding Corporation 
adopted resolutions whereby each party agreed to enter into the 
Agreement in the form submitted to the FCA, subject to the FCA's 
approval. The resolution of each board of directors provides that if 
the FCA requires modifications to the Agreement in response to public 
comments, the resolution shall be ineffective and the board of 
directors shall consider what further action to take.
    On May 17, 1994, the FCA published the Agreement in the Federal 
Register (59 FR 25644) for public comment by any interested member of 
the public. During the comment period, which ended on June 16, 1994, 
comments were submitted by the Federal Land Bank Association of 
Yosemite, FLCA, and by the Farm Credit Bank (FCB) of Columbia on behalf 
of all of the System banks and the Funding Corporation.
    The comment submitted by the Federal Land Bank Association of 
Yosemite, FLCA, stated that it was unfortunate that associations did 
not have the opportunity to be involved in the formulation of the 
Agreement and suggested two modifications to the Agreement. The 
association proposed that the Agreement be amended to allow ``strong'' 
associations to continue to have access to funds whenever the 
associations' funding bank is subject to restrictions or prohibitions 
on its participation in debt obligations. Second, the association 
recommended that the Agreement be amended to provide that when the 
banks receive notice that a certain bank is in category I, II, or III, 
all associations should receive a similar notice.
    The association's first issue is an important one for associations 
that obtain funding from a bank subjected to sanctions under the 
Agreement. The association correctly points out that in the event a 
bank is restricted in its ability to borrow, the associations funded by 
that bank may need an alternative source of funds. Although this is a 
critical concern, it is not one that is best addressed through the 
Agreement. The Agreement is only designed to impose funding 
restrictions on banks, and cannot be used to empower other banks to 
lend. Moreover, the best approach to ensuring continued funding in a 
particular instance may require an individualized solution. The FCA and 
the affected institutions will have to identify the best options for 
continued funding, some of which may require regulatory action by the 
FCA or the FCSIC. In fact, a major concern of the FCA during the time 
that a bank is in serious financial decline is to minimize the 
financial impact on the bank's related associations and implement 
actions that will enable viable associations to continue to serve the 
territory in question. This need to make arrangements for viable 
associations was among the FCA's reasons for requiring that the 
Agreement provide a limited period during which the FCA could forestall 
the imposition of category III sanctions. For these reasons, the FCA 
concludes that the Agreement does not provide the appropriate vehicle 
for addressing this significant issue.
    With regard to the association's second suggestion, the FCA concurs 
that associations receiving their funding from a bank in financial 
trouble should receive a notice when that bank is subject to category 
I, II, or III restrictions or prohibitions. Although these associations 
will also receive notice of the bank's sanctions in the bank's 
quarterly report to shareholders, a notice under the Agreement would be 
more timely. However, the assertion that all associations should 
receive notices identifying a bank that is subject to any of the three 
categories is less compelling. The FCA notes that the Funding 
Corporation would be required to report the imposition of category II 
or III sanctions as a material condition affecting a bank in its 
quarterly report to investors. The FCA concludes that this and other 
information in the public domain will provide adequate information to 
associations that are not affected directly by a bank's restricted 
access to funding. Accordingly, the FCA Board conditions its final 
approval of the Agreement on an amendment that would provide notice to 
associations receiving funding from a bank that is subject to category 
I, II, or III restrictions or prohibitions.
    The comment submitted by the Farm Credit Bank of Columbia on behalf 
of all of the System banks and the Funding Corporation expressed the 
``strong and continuing support of the banks and the Funding 
Corporation'' for the Agreement. However, in light of FCA's publication 
of proposed regulations governing disclosures to investors on February 
4, 1994, subsequent to the development of the Agreement, the FCB of 
Columbia suggested that the Agreement be amended to expand its scope to 
include both consolidated as well as Systemwide debt obligations. The 
banks noted that the FCA stated in its proposed regulations that banks 
are jointly and severally liable on consolidated obligations as well as 
Systemwide obligations. See 59 FR 4341, Feb. 4, 1994, proposed 
Sec. 630.3(f). The commenter stated that, while the banks and the 
Funding Corporation do not concede that all banks are, without further 
action, jointly and severally liable on consolidated obligations, they 
believe that because the purpose of the Agreement was to cover all debt 
obligations on which such liability attaches, the Agreement should be 
amended to specifically encompass both types of obligations.
    Through the issuance of the disclosure regulations, the FCA 
clarified that the statutory provisions governing joint and several 
liability contained in section 4.4 of the Farm Credit Act of 1971, as 
amended (Act), apply equally to consolidated and Systemwide 
obligations. Given the purposes of the Agreement, it is appropriate for 
the Agreement to be amended to treat both types of obligations in the 
same manner. Accordingly, the Agreement should be amended to replace 
the term ``Systemwide Debt Securities'' with the term ``Debt 
Securities,'' which should be defined to include both Systemwide and 
consolidated obligations. In raising this issue, the commenter stated 
that the banks and the Funding Corporation are not ``conceding'' that 
all banks are, without further action, jointly and severally liable on 
consolidated obligations, and proposed that the Agreement refer to 
``potential liability'' on ``Debt Securities.'' Although the FCA does 
not share the commenter's doubt about the extent of liability for 
consolidated debt, the proposed modification of the Agreement is 
acceptable.
    Having given interested parties notice and the opportunity to 
comment on the Agreement, the FCA Board hereby approves the Agreement 
pursuant to sections 4.2(d) and 4.9(b)(2) of the Act, with the 
following conditions:
    1. The Agreement is amended by removing the term ``Systemwide Debt 
Securities'' throughout the Agreement and adding in its place the term 
``Debt Securities,'' and by adding the following definition to Article 
I: Debt Securities means Systemwide and Consolidated Obligations issued 
through the Funding Corporation within the meaning of sections 4.2(c) 
and (d) and 4.9 of the Act.
    2. Section 1.09 of the Agreement is amended by adding the words 
``all associations discounting with or otherwise receiving funding from 
a bank that is in category I, II, or III,'' after ``all Banks.''
    The FCA's approval of this Agreement is conditioned on the banks 
and the Funding Corporation amending the Agreement to make these 
changes and the board of directors of each institution then approving 
the amended Agreement. Neither the Agreement nor FCA approval of it 
shall in any way restrict or qualify the authority of the FCA or the 
FCSIC to exercise any of the powers, rights, or duties granted by law 
to the FCA or the FCSIC. Finally, the FCA retains the right to modify 
or revoke its approval of the Agreement at any time.

    Dated: August 17, 1994.
Curtis M. Anderson,
Secretary, Farm Credit Administration Board.
[FR Doc. 94-20687 Filed 8-22-94; 8:45 am]
BILLING CODE 6705-01-P