INTRODUCTION

This circular presents the legal and supervisory limits governing
proposed ways in which national banks may participate as loan sellers in
the Federal Agricultural Mortgage Corporation (\"Farmer Mac\") program.
Part I explains the regulatory accounting, capital, and legal lending
limit treatments for three ways a national bank might sell loans into
the Farmer Mac program. Part II sets forth important supervisory
restrictions that apply to all national banks that sell loans into the
program. Detailed accounting guidance, additional information on capital
requirements, and further legal analysis is contained in the appendices.

SUMMARY

Under the first of the three proposals, a national bank would sell loans
to a Farmer Mac-certified pooler without recourse and would not assume
any risk of loss from the resulting Farmer Mac loan pool. Under the
second proposal, a national bank would sell loans to a Farmer
Mac-certified pooler and retain subordinated participation interests in
those loans. Under the third proposal, a national bank would sell loans
to a Farmer Mac-certified pooler and acquire a subordinated security
backed by the resulting loan pool.

If a bank sells a loan to a pooler without recourse, no capital is
required against the sold loan and the sold loan is not included when
calculating the amount outstanding to the borrower under the bank\'s
legal lending limit.

If a bank sells a loan to a pooler and retains a subordinated interest
in that loan, capital must be held against the sold and retained
portions and both portions of the loan must be included when calculating
the amount outstanding to the borrower under the bank\'s legal lending
limit. Consistent with safe and sound banking practices, a national bank
may not acquire a direct subordinated interest in loans other lenders
sell into the Farmer Mac program.

If a national bank sells a loan to a pooler and acquires a subordinated
security in the resulting pool, capital must be held against the loan
sold as well as the subordinated security. However, the loan is not
included when calculating the amount outstanding to the borrower under
the bank\'s legal lending limit and the subordinated security is not
considered a loan to any borrower for lending limit purposes. Consistent
with safe and sound banking practices, a national bank may only acquire
a subordinated security issued by a Farmer Mac loan pool in connection
with the sale of its loans into that pool.

As a matter of supervisory policy, the total holdings by a national bank
of subordinated securities and subordinated participation interests
acquired through participation in the Farmer Mac program must be limited
to 25 percent of the bank\'s capital.

BACKGROUND

Farmer Mac is a federally-chartered instrumentality of the United States
created by the Agricultural Credit Act of 1987 (\"Act\") to help develop
a secondary market for agricultural real estate loans. Farmer Mac was
created to provide guarantees for the timely repayment of principal and
interest on securities that represent interests in, or obligations
collateralized by, pools of qualified agricultural real estate loans.
The Act requires Farmer Mac to develop uniform underwriting standards
for qualified loans and to issue standards for the certification of
institutions as agricultural mortgage marketing facilities
(\"poolers\"), authorized to create Farmer Mac loan pools.

A pool may receive the Farmer Mac guarantee only if the pooler has
established a reserve or retained a subordinated participation interest
equal to at least 10 percent of the outstanding principal value of the
loans in the pool (the \"reserve\"). Farmer Mac is authorized to
establish higher reserve requirements for any pool. The reserve may be
funded by the pooler, by the loan originators whose loans are sold into
the pool, or by other sources. The full amount of the reserve must be
exhausted before the Farmer Mac guarantee may be drawn upon to pay
investors. Thus, 100 percent of the losses from any Farmer Mac pool, up
to the balance of the reserve, must be absorbed by whoever funds the
reserve.

The Farmer Mac guarantee structure is not patterned on any existing
government-sponsored guarantee program. Rather, the reserve requirement
is unique to the Farmer Mac statute and is designed to protect Farmer
Mac from at least the normal, predictable credit risk associated with
the underlying mortgages in the pool. The statute permits this credit
risk to be retained by the banks and other agricultural lenders that
sell their loans into Farmer Mac pools.

[Program Description]{.underline}: Farmer Mac requires agricultural
lenders to purchase specified levels of its common stock to become
eligible to participate in the program. The OCC has previously
determined that such stock purchase is permissible for national banks.
See OCC Interpretive Letter No. 427, [reprinted in]{.underline},
\[1988-89 Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 85,651 (May 9,
1988).

Under the Farmer Mac program, eligible agricultural lenders sell
qualified loans to a Farmer Mac-certified pooler. In general, qualified
loans are loans secured by first liens on agricultural real estate or
rural residential dwellings that comply with Farmer Mac\'s underwriting
standards. Farmer Mac may waive certain of its underwriting standards on
a case-by-case basis, but may not waive the minimum standards prescribed
by the statute.

After purchasing the qualified loans, the pooler assembles a loan pool
following Farmer Mac\'s pool diversification requirements, which
incorporate minimum statutory standards. Generally, the Act requires
Farmer Mac loan pools to be diversified as to the underlying borrowers
and to consist of no fewer than 50 loans of varying principal amounts.
The loans must be secured by agricultural commodities over a wide
geographic area. A Farmer Mac loan pool may not contain:

-   Two or more loans to related borrowers,

-   Any one loan that exceeds 3.5 percent of the aggregate principal
    amount of the loans in the pool, or

-   Any loan larger than \$2.5 million, unless it is secured by 1,000
    acres or less.

When the pool has been assembled, the pooler issues and sells securities
that represent interests in or obligations backed by the pool. To
qualify for the Farmer Mac guarantee, the pooler must establish a
reserve of at least 10 percent of the outstanding principal amount of
the loans in the pool. The pooler must also comply with all statutory
requirements and any other conditions that Farmer Mac considers
appropriate.

The reserve must be held as a cash reserve invested in United States
government securities or as subordinated participation interests in each
loan in the pool. The pooler and the originators of the loans in the
pool may contribute to the cash reserve or hold the retained
subordinated participation interests. The institutions that fund the
reserve absorb the first dollars of losses arising from the loans in the
pool. The Farmer Mac guarantee does not support the poolers, the loan
originators, or any other institutions that fund the reserve.

PART I - ACCOUNTING, CAPITAL, AND LENDING LIMIT TREATMENTS

This section presents the specific regulatory accounting, regulatory
capital, and legal lending limit treatments that apply to three methods
by which a national bank may sell a loan into a Farmer Mac pool. The
methods differ in the way the bank participates in establishing the
reserve. The treatments described in this section are derived from
preexisting and long-standing requirements that apply to asset sales by
national banks.

LOAN SALE WITHOUT RECOURSE

The originating bank sells a whole loan to the pooler without recourse
and without acquiring any direct or indirect subordinated interest in
the resulting pool. The bank makes no contribution to the reserve and is
not responsible for any losses that may arise from its own sold loan or
from the pool.

[Regulatory Accounting]{.underline} - This transaction is an asset sale
without recourse. The entire loan is removed from the Report of
Condition (\"Call Report\") balance sheet and no off-balance sheet item
is reported.

[Regulatory Capital]{.underline} - Under current and risk-based capital
requirements effective December 31, 1990, the sold loan requires no
capital support.

[Legal Lending Limit]{.underline} - The entire amount of the sold loan
is removed from the bank\'s calculation of total loans or extensions of
credit outstanding to the borrower under 12 U.S.C. § 84.

LOAN SALE WITH RETAINED SUBORDINATED PARTICIPATION INTEREST

The originating bank sells a loan to the pooler and retains a
subordinated participation interest in that loan. The subordinated
participation interest is the bank\'s contribution to the reserve. The
bank is obligated to absorb all of the losses arising from the sold
loan, up to the amount of the bank\'s retained subordinated
participation interest.

[Regulatory Accounting]{.underline} - This transaction is reported as an
asset sale with recourse in the Call Report using generally accepted
accounting principles (\"GAAP\"). The retained subordinated
participation interest is reported on the balance sheet and the
principal portion sold is reported as an off- balance sheet item (on
schedule RC-L, line 9.c.(1)). [See]{.underline} Appendix I for
additional guidance.

[Regulatory Capital]{.underline} - Under current capital requirements,
the bank must hold capital against the value of the retained
subordinated interest. The portion of the loan that is sold is removed
from the balance sheet and does not require capital support.

Under the risk-based capital guidelines effective December 31, 1990, the
bank must hold capital against the value of the retained subordinated
interest and the value of the sold portion of the loan. The on-balance
sheet subordinated interest is risk-weighted according to the nature of
the obligation. The off-balance sheet recourse amount (reported on
schedule RC-L) is converted to an asset equivalent using a 100 percent
conversion factor and then risk-weighted according to the nature of the
obligation. See Appendix II for additional information and an example.

[Legal Lending Limit]{.underline} - The entire amount of the sold loan
plus the retained subordinated interest is included in the bank\'s legal
lending limit calculation under 12 U.S.C. § 84. The OCC\'s regulation at
12 C.F.R. § 32.107 provides that, for the selling bank to be permitted
to remove the sold portion of a loan participation from its lending
limit, the sale must result in a pro rata sharing of credit risk between
the originating and participating lenders.

When a national bank sells a loan and retains a subordinated interest in
it, the bank retains a disproportionate amount of the credit risk in the
whole loan. The subordinated participation absorbs the first losses on
the whole loan and is in an inferior or secondary position with regard
to collection in the event of default. Accordingly, if a national bank
retains a subordinated interest in a loan sold into the Farmer Mac
program, the full amount of the loan is included when calculating the
amount of credit outstanding to the borrower.

LOAN SALE WITH PURCHASE OF SUBORDINATED SECURITY

The originating bank sells a loan to the pooler and acquires a
subordinated security that represents an undivided, subordinated
interest in the resulting pool. The subordinated security is the bank\'s
contribution to the reserve. Any such subordinated security would not be
guaranteed by Farmer Mac and would be junior in all respects, including
payment and access to collateral, to the Farmer Mac-guaranteed
securities (the senior securities) issued by the pool and sold to
investors. The originating bank would be obligated to absorb up to the
same dollar amount of loss as if it held a direct subordinated interest
in its own loan, but any losses realized would arise from the pool as a
whole.

The OCC has determined that, under the express language of 12 U.S.C. §
24(Seventh), national banks are authorized to purchase subordinated
securities that represent undivided, subordinated interests in Farmer
Mac loan pools. Such purchases are subject to safety and soundness
considerations and the supervisory limits stated in Part II of this
circular. See Appendix III for legal analysis.

[Regulatory Accounting]{.underline} - The loan sale and related purchase
of the subordinated security are accounted for as one transaction. This
transaction is reported as an asset sale with recourse in the Call
Report in accordance with GAAP. The subordinated security is reported on
the balance sheet and the principal portion sold less the principal
amount of the subordinated security is reported as an off-balance sheet
item (on schedule RC-L, line 9.c. (1)).

Generally, the credit risk associated with the pool of loans would be
similar to the risk associated with the bank\'s own loan. The pooled
loans would be provided by various sellers and must be diversified as to
many factors, but all of the loans must be agricultural and must conform
to the same underwriting standards. Thus, the acquisition of the
subordinated security (which represents an undivided interest in the
pool) would expose the selling bank to a similar credit risk as if it
had retained a subordinated interest in its own loan sold. The selling
bank would effectively retain recourse in the transaction.

Even if the pooled loans did not have similar characteristics to the
bank\'s loan, the subordinated security would effectively constitute
recourse on the sale of the bank\'s loan because the subordinated
security holders, as a group, would provide recourse to the holders of
the senior securities. The subordinated security holders must absorb the
first dollars of losses arising from the pool. The selling bank would
have the same dollar amount of exposure through the subordinated
security as if it had retained a subordinated interest in its own loan.
See Appendix I for additional guidance.

[Regulatory Capital]{.underline} - Under current capital requirements,
the bank must hold capital against the value of the subordinated
security. The sold loan is removed from the balance sheet and requires
no capital support.

Under the risk-based capital guidelines effective December 31, 1990, the
bank must hold capital against the value of the subordinated security
AND against the value of the loan sold. The subordinated security is
risk-weighted according to the nature of the obligation. The off-balance
sheet amount (reported on schedule RC-L) is converted using a 100
percent conversion factor and is then risk-weighted according to the
nature of the obligation. See Appendix II for additional information and
an example.

[Legal Lending Limit]{.underline} - The OCC has determined that if a
national bank sells a loan into a Farmer Mac pool and purchases a
subordinated security representing an undivided subordinated interest in
that pool, the entire amount of the sold loan is excluded from the
bank\'s legal lending limit calculation, and the subordinated security
is not considered a loan or extension of credit to any borrower under 12
U.S.C. § 84. [Cf]{.underline}. 12 C.F.R. § 32.111. The lending limit
focuses on a bank\'s credit risk exposure to an individual borrower.
That statute is intended to promote credit risk diversification by
preventing any one borrower from borrowing an unduly large amount of a
national bank\'s funds. [See]{.underline} 12 C.F.R. § 32.1(b).

If a bank transfers a loan for inclusion in a Farmer Mac loan pool and
purchases an undivided, subordinated interest in that pool, the bank
exchanges the risk of loss arising from an individual borrower for the
risk of loss arising from the diversified pool. The minimum statutory
loan pool diversification requirements ([see]{.underline} Program
Description) prevent the loan of any one borrower from having more than
a minimal impact on the overall performance of a loan pool. Those
requirements ensure that the credit risk exposure to the underlying
borrower that results from the bank\'s holding the subordinated security
is different, for purposes of applying the lending limit, than the
credit risk exposure that results from the bank\'s own loan to that
borrower.

PART II - SUPERVISORY POLICY

This section sets forth important supervisory restrictions that apply to
all national banks that sell loans into the Farmer Mac program. The
supervisory policies relating to national banks acting as poolers have
not been determined.

SAFETY AND SOUNDNESS

Banks that participate as loan originators in the Farmer Mac program can
expect to benefit from increased liquidity and the ability to transfer
interest rate risk and a portion of their catastrophic credit risk to
investors and Farmer Mac. However, a national bank that sells loans into
a Farmer Mac pool and retains a subordinated interest in those loans or
acquires a subordinated security that represents an undivided,
subordinated interest in the resulting pool, retains significant credit
risk associated with the loans or the pool.

Subordinated credits, whether in the form of subordinated loan
participations or subordinated securities, are significantly more
vulnerable to economic reversals than other types of credits. Therefore,
the OCC has established safety and soundness limitations that apply to a
national bank\'s holdings of subordinated agricultural credits acquired
in connection with the sale of loans for inclusion in Farmer Mac pools.

-   A national bank may acquire a subordinated security representing a
    subordinated, undivided interest in a Farmer Mac pool only in
    connection with the bank\'s sale of its own loans for inclusion in
    that pool.

-   A national bank may not acquire direct subordinated participation
    interests in individual agricultural loans sold for inclusion in
    Farmer Mac pools by other agricultural lenders.

-   A national bank may hold subordinated credits acquired through
    participation in the Farmer Mac program, in the form of subordinated
    loan participations or subordinated securities, equal in total to no
    more than 25 percent of the bank\'s regulatory capital. In
    calculating this limit, until December 31, 1990, a bank\'s
    regulatory capital is its primary capital as defined in 12 C.F.R. §
    3.2(c). Thereafter, a bank\'s regulatory capital for this purpose is
    its Tier 1 capital as defined in Appendix A to 12 C.F.R. Part 3,
    Section 2(a).

ADEQUACY OF ALLOWANCE FOR LOAN AND LEASE LOSSES

A national bank that sells loans to a Farmer Mac-certified pooler must
evaluate the adequacy of its allowance for loan and lease losses and
other specific reserves after the sale. This evaluation should consider
the collectibility and inherent risks of any subordinated assets
retained or acquired.

CAPITAL ADEQUACY

The current and risk-based capital ratios are minimums primarily
designed to protect banks against credit risk exposure. A capital level
at or near the regulatory minimum is acceptable only for a bank with
excellent control systems, high asset quality, and well managed on- and
off-balance sheet activities. Most banks will be expected to maintain
more capital than the regulatory minimum. See Appendix II.

If a bank reduces its risks by participating in the Farmer Mac program,
the amount by which its capital is expected to exceed the regulatory
minimum will be reduced. However, if a bank significantly increases the
riskiness of its portfolio through participation in the Farmer Mac
program, it will be expected to maintain correspondingly more capital
than the regulatory minimum.

ORIGINATING OFFICES

General questions may be referred to the Chief National Bank Examiner\'s
Office, (202874-5190. Accounting questions may be referred to the Chief
Accountant\'s Office, (202) 874-5180. Legal questions may be referred to
the Legal Advisory Services Division, (202) 874-5200.

Donald G. Coonley

Chief National Bank Examiner

Attachments:

Appendix I

Appendix II

Appendix III

APPENDIX I

ACCOUNTING GUIDANCE FOR LOAN SALES WITH RECOURSE

If a bank sells a loan to a Farmer Mac-certified pooler and either
retains a subordinated interest in the loan sold or acquires a
subordinated security backed by the resulting pool, the transaction is
considered an asset sale with recourse. Statement of Financial
Accounting Standards Board No. 77 (\"FASB 77\") and FASB Emerging Issues
Task Force Issue 88-11 (\"EITF 88- 11\") give accounting guidance on the
transfer of receivables with recourse. FASB 77 sets forth the conditions
that must be met if a sale is to be recorded.

[Loan Sale with Retained Subordinated Participation
Interest]{.underline}

In this transaction, the profit or loss the bank reports is based on
calculating the cost of the portions sold and retained. The retained
subordinated portion bears more of the risk on the whole loan than the
senior portion sold into the Farmer Mac program. Therefore, a simple pro
rata allocation of the carrying value of the loan is inappropriate.
Under EITF 88- 11, which provides guidance on the partial sale of a loan
when a portion is retained, the cost attributable to the portions sold
and retained must be based upon the relative fair value of each.

Valuation is done as of the date of sale, using established market
values if available. If established market values are not available,
fair values should be established using discounted cash flows. When
computing the present value of cash flows, the interest rates used must
reflect the credit risk associated with each portion \-- that is, each
should be the rate an independent purchaser would demand. The fair value
determined for each portion should not exceed the value that would be
realized in an arm\'s-length sale.

Gain or loss on the sale should be recognized immediately. Any gain
recognized may not exceed the gain that would be recognized if the
entire loan were sold.

[Loan Sale with Purchase of Subordinated Security]{.underline}

The specific accounting treatment for this transaction will vary
depending upon the similarity of the pooled loans and the loan sold by
the bank.

If the subordinated security is backed by a pool of loans with
characteristics similar to the loan sold, the guidance in EITF 88-11 on
the partial sale of loans with an interest retained applies. The
recorded investment in the loan sold is allocated between the portion
sold and the subordinated security acquired based on the relative fair
value of each. The fair values determined for the subordinated security
and the portion sold should not exceed the value that would be realized
in an arm\'s- length transaction.

If the bank obtains a subordinated security backed by a pool of loans
that are not similar to the loan sold, the transaction should be
accounted for at fair market value. The recorded investment in the loan
sold is eliminated from the balance sheet and the subordinated security
and any other proceeds received are recorded at fair value. Gain or loss
is based on the difference between the recorded investment in the loan
sold and the fair value of the total proceeds received.

In either situation, fair values should equal established market values,
if available. If such values are not available, fair values should be
established using discounted cash flows. When discounting cash flows,
banks must use interest rates that reflect the credit risk associated
with each portion \-- that is, rates an independent purchaser would
demand for such assets. If the fair value of the subordinated security
cannot be reasonably determined, gain should not be recognized on the
portion sold.

APPENDIX II

OVERVIEW OF CURRENT AND RISK-BASED CAPITAL REQUIREMENTS

Under the OCC\'s current capital requirements, national banks must
maintain primary capital equal to 5.5 percent of adjusted total assets
and total capital equal to 6 percent of adjusted total assets. Adjusted
total assets are determined by reference to a bank\'s on-balance sheet
assets reported in the Call Report. If an asset transfer is treated as a
sale, the asset is removed from the balance sheet and does not enter
into the computation of adjusted total assets. Accordingly, to the
extent that a loan sold into the Farmer Mac program is removed from the
bank\'s balance sheet, it does not require capital support under current
minimum capital standards. The OCC\'s risk-based capital guidelines
become effective on December 31, 1990. Those guidelines require national
banks to hold Tier 1 and Tier 2 capital equal to at least 7.25 percent
of risk-weighted assets until December 31, 1992 and equal to at least 8
percent of risk-weighted assets thereafter. Unlike the current capital
requirements, those standards will require a bank to hold capital to
protect it from risks from its off- balance sheet activities, including
assets sold with recourse.

In calculating risk-based minimum capital, off-balance sheet activities
are converted to asset equivalent amounts by multiplying the face value
of the off-balance sheet item by the appropriate conversion factor as
specified in the guidelines. The asset equivalent amount is then
risk-weighted according to the nature of the obligation. The resulting
risk-weighted asset is included when computing the bank\'s overall
risk-weighted assets. Assets sold with recourse that are removed from
the balance sheet for Call Report purposes are converted to asset
equivalents at 100 percent of their face value.

[Risk-based Capital Treatment of Loans Sold with Recourse]{.underline}

The following are examples of the risk-based capital treatment when a
national bank sells a loan to a Farmer Mac-certified pooler and either
retains a subordinated interest in the loan sold or acquires a
subordinated security that represents an undivided, subordinated
interest in the resulting pool.

A bank has a qualified loan with an outstanding principal balance of
\$200 that meets the requirements for the 50 percent risk-weight on
residential mortgages in the risk-based capital guidelines. The bank\'s
other assets and off-balance sheet activities result in additional
risk-weighted assets (\"RWA\") of \$9,900. Therefore, the bank\'s total
RWA equal \$10,000 \[(\$200 x .50) + \$9,900 = \$10,000\]. The bank has
total capital, as defined in the risk-based capital guidelines, of
\$1,000. The bank\'s risk-based capital ratio is 1,000/10,000, or 10
percent.

Then the bank:

-   Sells 90 percent of the principal portion of the loan to a Farmer
    Mac-certified pooler for \$180 in cash and retains a 10 percent
    subordinated participation interest in the loan (face amount of
    \$20), or

-   Sells 100 percent of the principal portion of the loan for \$200 and
    pays \$20 for a subordinated security backed by the resulting pool.

The bank\'s subordinated asset, whether held as a subordinated
participation interest or a subordinated security, is appropriately
valued at \$10. In both cases, the bank records \$180 in cash, a \$10
asset on its balance sheet, a \$10 loss on the sale of the loan, and
\$180 in assets with recourse (on schedule RC-L line 9.c.(1)).

The bank\'s total capital has been reduced by \$10 (from \$1,000 to
\$990) by the loss on the sale of the loan. Assuming for the
subordinated security that the loans in the pool qualify for the 50
percent risk-weight, the bank\'s total RWA is:

  ----------------- ---- ----------- --- ----------------------------------
                         \$9,900         Other risk-weighted assets

  \+ (\$180 x 0.0)  =    0               Cash on the balance sheet

  \+ (\$10 x .50)   =    \$5             The subordinated participation
                                         interest or subordinated security
                                         risk-weighted at 50 percent

  \+ (\$180 x 1.0 x =    \$90            The off-balance sheet recourse,
  .50)                                   converted at 100 percent and
                                         risk-weighted at 50 percent

                                         

  Total             =    \$9,995.        
  ----------------- ---- ----------- --- ----------------------------------

The bank\'s risk-based capital ratio is 990/9,995 or 9.9 percent.

APPENDIX III

AUTHORITY OF NATIONAL BANKS TO PURCHASE

SUBORDINATED SECURITIES REPRESENTING UNDIVIDED INTERESTS

IN FARMER MAC POOLS

The OCC has determined that a national bank is authorized to purchase a
subordinated security that represents an undivided, subordinated
interest in a Farmer Mac pool. Although Section 16 of the Glass-Steagall
Act, 12 U.S.C. § 24 (seventh), restricts, among other things, a national
bank\'s power to purchase securities for its own account, this
restriction does not apply to \"obligations issued under authority of
the Federal Farm Loan Act, as amended . . . .\"

The Federal Farm Loan Act was repealed by section 5.26(a) of the Farm
Credit Act of 1971, Pub. L. No. 92-181, 85 Stat. 583, 625. The Farm
Credit Act of 1971 provided, however, that \"\[a\]ll references in other
legislation, State or Federal, . . . to the Acts repealed hereby, shall
be deemed to refer to comparable provisions of this Act.\" 12 U.S.C. §
2001 note. Thus, the reference in 12 U.S.C. § 24(Seventh) to the
\"Federal Farm Loan Act, as amended\" should now be read as the \"Farm
Credit Act of 1971, as amended.\" The statute which created Farmer Mac,
Title VII of the Agricultural Credit Act of 1987, was an amendment to
the Farm Credit Act of 1971. Accordingly, \"obligations issued under
authority\" of the statute that created Farmer Mac are legally
authorized for purchase by national banks under 12 U.S.C. § 24(Seventh).

A subordinated security representing an undivided, subordinated interest
in a Farmer Mac loan pool would be an \"obligation\",
[i.e.]{.underline}, a participation in, or obligation backed by, a pool
of mortgage loans. A Farmer Mac pooler\'s issuance of such a
subordinated security in connection with meeting its statutory
obligation of establishing reserves or retaining subordinated
participation interests to absorb at least the first 10 percent of
losses from the pool would be made \"under authority\" of the Farm
Credit Act of 1971, as amended by Title VII of the Agricultural Credit
Act of 1987.

Therefore, the subordinated securities would literally meet the terms of
the exception stated in 12 U.S.C. § 24(Seventh) for obligations issued
under the authority of the Federal Farm Loan Act, as amended. National
banks are authorized to purchase these obligations subject to safety and
soundness considerations and the specific supervisory limits stated in
Part II of Banking Circular [248]{.underline}.