[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