[Federal Register Volume 85, Number 35 (Friday, February 21, 2020)]
[Rules and Regulations]
[Pages 10035-10036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01888]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 85, No. 35 / Friday, February 21, 2020 /
Rules and Regulations
[[Page 10035]]
FARM CREDIT ADMINISTRATION
12 CFR Chapter VI
[NV-20-02]
Oversight of the Federal Agricultural Mortgage Corporation
AGENCY: Farm Credit Administration.
ACTION: Policy statement.
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SUMMARY: The Farm Credit Administration (FCA) Board recently approved a
new Policy Statement on Oversight of the Federal Agricultural Mortgage
Corporation.
DATES: February 21, 2020.
FOR FURTHER INFORMATION CONTACT: Laurie A. Rea, Director, Office of
Secondary Market Oversight, Farm Credit Administration, 1501 Farm
Credit Drive, McLean, Virginia 22102-5090, (703) 883-4280.
SUPPLEMENTARY INFORMATION: The FCA is responsible for examining,
regulating, and supervising the Farm Credit System (FCS or System),
which includes Farmer Mac. Good agency governance practices require the
FCA Board to establish general strategy and direction to the Office of
Secondary Market Oversight (OSMO) for the examination, regulation, and
supervision of Farmer Mac. This policy also establishes OSMO's
responsibility to implement the annual risk-based examination program,
and develop regulations and other guidance, as needed.
The text of the new Policy Statement is set forth below in its
entirety. All FCA Board policy statements may be viewed on FCA's
website. From www.fca.gov, select ``Laws & Regulations,'' then select
``FCA Handbook,'' then select ``FCA Board Policy Statements.''
Oversight of the Federal Agricultural Mortgage Corporation FCA-PS-35
Effective Date: January 16, 2020.
Source of Authority: Sections 5.9, 5.19, 8.1, and 8.11 of the Farm
Credit Act of 1971, as amended.
The Farm Credit Administration Board Hereby Adopts the Following
Policy Statement: This policy provides the general strategy and
direction to the Office of Secondary Market Oversight (OSMO) for the
examination, regulation, and supervision of the Federal Agricultural
Mortgage Corporation (Farmer Mac or Corporation).
Background
The Farm Credit Administration (FCA or Agency) is an independent
Federal agency responsible for examining, regulating, and supervising
the Farm Credit System (FCS or System), which includes Farmer Mac. FCA
ensures that System institutions and Farmer Mac are safe, sound, and
dependable sources of credit and related services for all creditworthy
and eligible persons in agriculture and rural America. Farmer Mac is a
government-sponsored enterprise with the mission of providing a
secondary market for agricultural real estate mortgage loans, rural
housing mortgage loans, and rural utility cooperative loans. The duties
of the Corporation are defined in Section 8.1(b) of the Farm Credit Act
of 1971, as amended (Act).
The OSMO provides for the examination, regulation, and supervision
of the activities of Farmer Mac and its affiliates to ensure its safety
and soundness and the accomplishment of its public policy purpose as
authorized by Congress. OSMO was established by Section 8.11 of the Act
and ensures that Farmer Mac complies with applicable laws and
regulations, and it manages FCA's enforcement activities with respect
to Farmer Mac.
Responsibilities
The OSMO is managed by a full-time Director selected by the FCA
Board. The Director is responsible for the examination and supervision
of Farmer Mac and its affiliates. The Director plans, organizes, and
controls the operations of the OSMO in accordance with the policies and
procedures of FCA. The Director oversees the implementation of the
annual risk-based examination program, the development of regulations,
and the formation of other guidance, as needed. The Director develops
guidance to communicate to Farmer Mac regulatory interpretations and
expectations for compliance.
The Director implements the FCA Board's strategic goals and
objectives related to Farmer Mac, apprises Board members of significant
issues, and identifies specialized resources within and outside FCA to
address the priorities and activities established in the operating and
performance plan. The Director provides appropriate responses to audit
reports from the FCA's Inspector General and establishes and maintains
internal controls for the OSMO. The Director reports to the FCA Board
on policy and rulemaking, and to the Chief Executive Officer, or a
Board designate, on office administrative matters.
Risk-Based Examination
Section 8.11(b)(1) and (2) of the Act requires FCA to examine the
financial transactions of Farmer Mac no less than once each year. To
ensure efficiency and effectiveness, the FCA Board directs a ``risk-
based'' approach to the oversight and examination of System
institutions, including Farmer Mac.
OSMO oversees and evaluates Farmer Mac on an ongoing basis to
timely identify and monitor emerging risks and issues, and to
facilitate efficient and effective risk-based examination activities.
Pursuant to Section 8.11(a)(2), the Director must consider the reduced
levels of risk associated with appropriately structured secondary
market transactions. Through its oversight and examination activities,
OSMO establishes a supervisory strategy and reporting requirements for
effective analysis and evaluation of Farmer Mac's risks and financial
performance. Additionally, OSMO ensures that Farmer Mac complies with
laws and regulations, and that the Corporation's reports accurately
reflect its condition.
In accordance with the risk-based examination approach, OSMO
focuses oversight efforts and resources on those areas that could
materially impact Farmer Mac's safety and soundness. OSMO determines
the scope and depth of examination activities based on current
conditions and risk assessments, and uses a wide range of sources to
identify areas of risk.
The Director will develop procedures on operating parameters and
responsibilities, including a quality assurance review, for the
comprehensive annual examination process.
[[Page 10036]]
Communications
OSMO will issue an annual communication to Farmer Mac, which
identifies risk topics that will be emphasized in ongoing examination,
monitoring, and planning activities. OSMO will issue Examination
Activity Letters to Farmer Mac to communicate the findings of
significant examination activities. At the end of each annual
examination cycle, OSMO will issue a Report of Examination.
Financial Institution Rating System
OSMO will use the Financial Institution Rating System (FIRS) as
outlined in FCA Board Policy Statement 72 to evaluate and categorize
the safety and soundness of Farmer Mac on an ongoing, uniform, and
comprehensive basis. Based on the conclusions reached during the
examination process and ongoing monitoring activities, OSMO will assign
ratings for each component factor and assign a composite rating that
reflects the condition and overall safety and soundness of Farmer Mac.
The rating will be revised periodically to reflect Farmer Mac's
condition. The FIRS analysis provides OSMO with valuable information to
assess risk and allocate resources.
Risk-Based Capital
Section 8.32 of the Act directs the Director to establish a risk-
based capital stress test (RBCST). The RBCST calculates the amount of
regulatory capital for the Corporation that is sufficient to maintain
positive working capital during a 10-year period under prescribed
credit risk and interest rate risk scenarios. The RBCST estimates
credit losses on agricultural mortgages and rural utility loans owned,
or under Farmer Mac Standby Commitments, as well as loans serving as
collateral for AgVantage bonds (collectively, program volume). The
statute also provides that the Director may examine and revise the
RBCST. The RBCST results, coupled with other analyses and information,
will be used to evaluate Farmer Mac's capital adequacy and long-term
resiliency.
Enforcement Level Rating
Section 8.35 of the Act requires the Director to determine and
document an enforcement level classification for Farmer Mac ``on not
less than a quarterly basis, and as appropriate for a discretionary
classification.'' Further, Section 8.35(a) outlines the enforcement
levels and directs the following:
Upon determining the Corporation is within Level II or III, the
Director shall provide written notice to Congress and the Corporation:
That the Corporation is within such level;
that the Corporation is subject to the provisions of
section 8.36 or 8.37, as applicable; and
stating the reasons for the classification of the
Corporation within such level.
Supervision and Enforcement Procedures
Section 8.11(a)(1) of the Act authorizes the Director to develop
mandatory and discretionary supervision and enforcement procedures for
Farmer Mac or its directors, officers, or employees. To the extent
possible, the OSMO enforcement procedures will parallel the procedures
developed by the Office of Examination. OSMO will identify any
necessary distinctions and develop supplemental procedures for Farmer
Mac.
If Farmer Mac, or its directors, officers, or employees, is unable
or unwilling to address material unsafe and unsound practices, or if
there is a serious statutory or regulatory violation, OSMO will pursue
an appropriate supervisory or enforcement action.
The Director also has responsibilities under Section 8.37 of the
Act for supervisory actions when Farmer Mac is classified as within
Level III based on regulatory capital levels.
Regulatory Philosophy
The OSMO will develop regulations consistent with Farmer Mac's role
to serve as a secondary market for agricultural credit, and to increase
liquidity and lending capacity in the agricultural marketplace.
Consistent with FCA Board Policy Statement 62, these regulations will:
(1) Be necessary to implement the law; (2) support achieving Farmer
Mac's mission; and (3) ensure Farmer Mac's safety and soundness. The
regulations will support the secondary market and promote increased
availability and affordability of competitive credit.
FCA Staff Assigned to OSMO
Section 8.11(f) of the Act states that the supervision of the
powers, functions, and duties of Farmer Mac is to be performed, to the
extent practicable, by personnel who are not responsible for the
supervision of the System banks and associations. Thus, to safeguard
the integrity of the oversight of Farmer Mac from any conflicts of
interest that may arise, individuals working on rotational assignments
and FCA examiners assigned to the annual Farmer Mac examination must
sign OSMO's Conflict-of-Interest Questionnaire form annually.
Assessment
Section 8.11(d) of the Act directs FCA to assess Farmer Mac for the
cost of any regulatory activities, including the cost of any
examination. The Director, in coordination with the FCA Chief Financial
Officer, will establish procedures for the financial assessment of
Farmer Mac. The assessment process should consider the agency's
resources used to accomplish supervisory and oversight requirements
based on the Corporation's size, activities, and risk profile.
Reporting to the FCA Board
Annually, the Director will provide the FCA Board an oversight and
examination plan (plan) for approval. This plan will:
Identify risks affecting Farmer Mac;
Establish priorities and identify staffing, training, and
budgetary needs;
Include an examination schedule that ensures statutory
requirements are met; and
Include operational objectives and strategies.
The Director will also report on proposed new and amended
regulations and implement any necessary follow-up strategies as
directed by the FCA Board.
Dated this 16th day of January 2020.
By Order of the Board.
Dale Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2020-01888 Filed 2-20-20; 8:45 am]
BILLING CODE 6705-01-P