[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]
=======================================================================
-----------------------------------------------------------------------
FARM CREDIT ADMINISTRATION
Market Access Agreement
AGENCY: Farm Credit Administration.
ACTION: Notice of approval of market access agreement.
-----------------------------------------------------------------------
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
