Gen. 441] 441

STATE TREASURER

TREASURER MAY INVEST IN SECURITIES OF VARIOUS FEDERAL

INSTRUMENTALITIES

October 20, 1994

The Honorable Lucille Maurer

State Treasurer

You have requested our opinion whether the State Treasurer is

authorized by law to invest funds over which the Treasurer has

custody in securities issued by the following six entities: the

Government National Mortgage Association, the Federal National

Mortgage Association, the Federal Home Loan Mortgage

Corporation, a Federal Home Loan Bank, a Federal Farm Credit

Bank, and the Student Loan Marketing Association. For the reasons

stated below, we conclude that these investments are legally

permissible. 

I

Background

In a recently filed and well-publicized lawsuit in federal court,

Charles County is attempting to secure repayment from various

securities dealers of millions of dollars that had been invested by the

County’s former Deputy Treasurer in derivatives and other risky

long-term investments. The County’s main argument in the suit is

that the transactions were ultra vires, because these forms of

investment were not permitted by the governing provision of public

local law. As a secondary argument, however, the County contends

that if (contrary to its main argument) the investment authority of the

County Treasurer were governed by a provision of public general

law ) Article 95, §22 of the Maryland Code ) the transactions were

still ultra vires, because the investments were not authorized by that

provision either. 

In the course of making this latter argument, the County

contends that the securities of several of the entities identified in

your inquiry are not “any obligation that a federal agency issues in

accordance with an act of Congress” and therefore are not

permissible investments. See Memorandum in Support of Motion
442 [79 Op. Att’y

 In 1993, State investments in these securities totalled about 1

$169,000,000.

 We take no position, of course, concerning the public local law 2

on which Charles County principally relies in its suit. Nor does this

opinion discuss prudential or other limitations on the types of securities

(e.g., derivatives) that might be purchased. Our focus is solely on the

status of the issuers under the pertinent State law.

 None of the obligations in question is backed by the full faith and 3

credit of the United States, a category of permissible investment regardless

of the “federal agency” status of the issuer. SF §6-222(a)(1). SF §6-222

also authorizes other types of investments that are not relevant to your

inquiry.

for Preliminary Injunction, County Commissioners of Charles

County, Maryland v. Liberty Capital Markets, Inc., et al., Case No.

DKC 94-2188 (“County Memorandum”).

Because the State Treasurer’s office has invested in securities

issued by these entities, the argument of the County, if correct,

would have a major impact on the State’s existing investment

portfolio and on future investments. Given the significance of the 1

issue for the State, we are making an exception to our usual policy

of refraining from addressing in an opinion an issue that is pending

before a court. As explained below, we reach a different conclusion

than the County about the meaning of the State law.2

II

Treasurer’s Investment Authority

Article 95, §22 provides that county commissioners and others

may invest any “unexpended or surplus monies in any fund or

account in which they have custody or control in obligations or

repurchase agreements of the type in which the Treasurer may

reinvest under §6-222 of the State Finance and Procurement Article

....” The latter provides, in pertinent part, that the Treasurer may

invest in “any obligation that a federal agency issues in accordance

with an act of Congress ....” §6-222(a)(2) of the State Finance and

Procurement (“SF” Article), Maryland Code. 

3
Gen. 441] 443

One of the entities about which you inquire, the Government

National Mortgage Association, is a “federal agency,” a component

of the federal Department of Housing and Urban Development. See

12 U.S.C. §§1716b, 1717(a)(2)(A), and 1723. Investments in

GNMA securities are unquestionably authorized under SF §6-

222(a)(2), and the County does not suggest otherwise in its suit. 

The County does contend that four of the entities ) the Federal

National Mortgage Association (“FNMA”), the Federal Home Loan

Mortgage Corporation (“FHLMC”), the Federal Home Loan Bank

(“FHLB”), and the Federal Farm Credit Bank (“FFCB”) ) are not

federal agencies. Specifically, the County regards it as “clear that

FNMA is not a federal agency, but is a private, federally-sponsored

corporation.” County Memorandum at 12. With respect to the

FHLMC, the County argues that “like FNMA, FHLMC is a private,

federally-sponsored corporation, not a federal agency.” County

Memorandum at 13. With respect to an FHLB, the County argues

that, “given [its] structure and governance ... it cannot be

characterized as a federal agency.” County Memorandum at 15.

Finally, with respect to an FFCB, the County argues that it “is not an

agency of the United States” but is instead “a federally chartered

instrumentality of the United States.” County Memorandum at 16.

In summarizing this aspect of its argument, the County

acknowledges that these entities “may for some purposes be

characterized as federal instrumentalities.” Id. Pointing to the

Community Development Administration statute, however, which

refers to obligations “issued by federal agencies or

instrumentalities,” the County contends that “the Maryland General

Assembly recognizes a difference between federal agencies and

federal instrumentalities” and, in SF §6-222, “chose not to include

instrumentalities in the list of issuers of permitted investments ....”

County Memorandum at 17. Cf. Article 83B, §2-208(b) of the

Maryland Code. 

The County did not have occasion in its memorandum to

discuss the status of the Student Loan Marketing Association

(“SLMA”). The analysis, however, would be the same. The SLMA

is a federally-chartered, private corporation. 20 U.S.C. §1087-2.

While the SLMA might be a federal instrumentality for some

purposes, if the FNMA is not a federal agency, neither is the SLMA.
444 [79 Op. Att’y

We accept the premise of the County’s argument: Except for

the GNMA, all of the entities about which you inquire are best

characterized as federal instrumentalities. Although they were

established by Congress and authorized by Congress to issue

securities, they are not regarded as federal agencies in the strict sense

of that term. They are not part of the executive branch of the federal

government in the way that cabinet departments or independent

regulatory agencies are. If the General Assembly was cognizant of

the distinction between federal agencies and federal instrumentalities

when it enacted what is now SF §6-222(a) (as it obviously was when

it enacted the Community Development Administration statute), then

the reference to “federal agencies” should be taken to exclude the

obligations of these federal instrumentalities, as the County argues.

As a general matter, however, the two terms are not always

used with fine distinctions in mind. The leading law dictionary, for

example, defines “federal instrumentality” as a “means or agency

used by the federal government to implement or carry out a federal

law or function.... A government agency immune from State

control.” Black’s Law Dictionary 611 (6th ed. 1990) (emphasis

added). This same dictionary goes on to define the FHLMC as a

“federal agency,” even though it is a private corporation. Id. The

evolution of the statute that is now SF §6-222(a) makes clear that the

term “federal agency” in this context was not intended to reflect a

technical or narrow meaning of that term, so as exclude federal

instrumentalities. Rather, the General Assembly meant “federal

agency” to include precisely the entities about which you inquire. 

The original law that addressed the investment alternatives

open to the Treasurer, enacted in 1943, limited those investments to

instruments backed by the full faith and credit of the United States.

See Chapter 78, Laws of Maryland 1943.

The next significant development occurred in 1968, when the

General Assembly amended former Article 95, §22 to expressly

authorize investment in the obligations of the Federal National

Mortgage Association. Chapter 127 of the Laws of Maryland 1968.

When Chapter 127 was enacted, the FNMA was a federal agency, a

component of the federal Department of Housing and Urban

Development. At that very time, however, legislation was pending

before Congress to convert the FNMA to private status. See H.R.

17989 and S. 3497 (90th Cong., 2d Sess.). This federal legislation,

part of the Housing and Urban Development Act of 1968, passed in

the summer of that year. See Pub. L. No. 90-448, 82 Stat. 476. The
Gen. 441] 445

 According to notes in the bill file, the only testimony on the bill

4

was that of its true sponsor, former Treasurer James, who testified that

“[t]he bill simply uses Federal Government agencies instead of the

agencies’ specific name, which is subject to change. Federal Government

(continued...)

legislation divided the old FNMA in half, retaining a new entity

called the Government National Mortgage Association as part of the

federal Department of Housing and Urban Development and

reconstituting the FNMA as a federally chartered, stockholderowned corporation. The FNMA’s private status became effective in

1970. 

One year later, in Chapter 240 of the Laws of Maryland 1971,

the General Assembly repealed and reenacted Article 95, §22. The

reenacted version continued to authorize investment in the

obligations of the FNMA ) then a private corporation, just as it is

now ) and added authorization for investment in the obligations of

“federal land banks, federal intermediate credit banks or banks for

cooperatives, issued pursuant to Acts of Congress ....” These banks

were not agencies of the federal government in the narrow sense.

Rather, they were (and still are, in their current form as Farm Credit

Banks) federal instrumentalities. See Federal Land Bank of St. Paul

v. Bismarck Lumber Co., 314 U.S. 95 (1941). 

The last major change occurred in 1976, with the enactment of

Chapter 329 (Senate Bill 825). This bill amended Article 95, §22 to

delete the reference to “the Federal National Mortgage Association,

federal land banks, federal intermediate credit banks or banks for

cooperatives,” and substitute instead the term “federal governmental

agencies.” The report of the Senate Budget and Taxation Committee

states that the purpose of the legislation was to “allow the State

Treasurer to invest in a wider range of federal obligations.” Report

on SB 825 (March 11, 1976). The report summarized the thencurrent law as “specif[ying] certain federal agencies such as Federal

National Mortgage Association, federal land banks, federal

intermediate credit banks, which the State may invest in their

obligations. This bill changes the specific designations to all Federal

agencies.” It is obvious from this report that the General Assembly

was not using the term “federal agencies” in any technical sense, as

distinguishing federal agencies from instrumentalities, but rather was

using the term simply as an inclusive label for the kind of federally

sponsored entity previously listed in the statute ) including, in

particular, the FNMA and federal land banks.4
446 [79 Op. Att’y

 (...continued) 4

Agencies is a broader term.”

 The fiscal note also pointed out that, “as the section of the law 5

amended by this bill also governs the investment opportunities of the

subdivisions, their investment pool system will expand and presumably

their investment return should grow.”

The fiscal note accompanying Senate Bill 825 summarized the

bill as authorizing the State Treasurer “to invest any available State

funds as appropriate in the obligations of any Federal government

agency rather than the specified few presently allowed in the law.”

The bill would “affor[d] the Treasurer an opportunity to invest in a

wider range of Federal government obligations.”5

Later enactments redesignated the provisions governing

investments by the Treasurer but did not change the scope of

permissible investments in federally-affiliated issuers. See Chapter

604, Laws of Maryland 1981, and Chapter 55, Laws of Maryland

1983. Then, in Chapter 11 of the Laws of Maryland 1985, the

General Assembly recodified the provision as SF §§6-222 and 6-

223. The Revisor’s Note confirms that the recodification was “new

language derived without substantive change” from the source law.

In light of this legislative history, we conclude that the General

Assembly used the term “federal agency” in SF §6-222(a)(2) to

encompass not only entities that are federal agencies in the strict

sense but also those that were created Congress to advance federal

policy through the issuance of securities. These entities have, by

statute, a relationship to the federal government that makes their

obligations more secure than issuers without such a relationship.

The United States is expressly empowered, for example, to purchase

the securities of the FNMA, FHLB, FFCB, and SLMA, so as to

safeguard against liquidity problems. See 12 U.S.C. §1719(c)

(FNMA); 12 U.S.C. §1431(i) (FHLB); 12 U.S.C. §2158 (FFCB);

20 U.S.C. §1087-2(h)(5) (SLMA). See also 12 U.S.C. §1455(j)

(unsecured obligations of the FHLMC to be issued with approval of

Treasury Secretary); 12 U.S.C. §1452(f) (obligations of the FHLMC

“may be accepted as security for all ... funds ... under the authority

and control of the United States or any officers thereof”). 
Gen. 441] 447

III

Conclusion

In summary, it is our opinion that the Treasurer is authorized

by law to invest in the obligations of the Government National

Mortgage Association, the Federal National Mortgage Association,

a Federal Home Loan Bank, the Federal Home Loan Mortgage

Corporation, a Federal Farm Credit Bank, and the Student Loan

Marketing Association. 

J. Joseph Curran, Jr.

Attorney General

Jack Schwartz

Chief Counsel

 Opinions & Advice