Fact Sheet Farm Credit Administration

1501 Farm Credit Drive

McLean, Virginia 22102-5090

October 11, 2012 Contact: Michael Stokke or Christine Quinn,

703-883-4056

E-mail: info-line@fca.gov

Website: www.fca.gov

Fact Sheet on Farmer Mac Investment Management: Notice of Final Rulemaking

The Farm Credit Administration Board adopted a final rule today to revise its regulations 

governing the management of nonprogram investments at the Federal Agricultural Mortgage 

Corporation (Farmer Mac). 

FCA first issued these regulations in 2005 and proposed revisions in October 2011. The 

financial crisis that began in 2008 and recent developments in best practices present several 

opportunities to update and strengthen these regulations. FCA will finalize only certain sections 

of the proposed rule, leaving other sections for future separate rulemakings covering liquidity 

management as well as revised standards of creditworthiness and investment eligibility, 

respectively. 

Summary of Changes 

652.5 Definitions: We make technical clarifications to the definitions of “Government agency” 

and “Government-sponsored agency” and finalize a new definition for “Office of Secondary 

Market Oversight.”

652.10 Investment Management: We add board policy requirements and enhanced internal 

controls of investments. We also revise required operational procedures through a section titled 

“Due Diligence.” We incorporate stress testing into the section and also strengthen our 

regulations over investment reporting to ensure the board will have sufficient information 

regarding investment portfolio practices and results.

652.15 Nonprogram Investment Purposes and Limitation: We finalize a new permissible 

purpose for nonprogram investments: Farmer Mac may make nonprogram investments to 

complement program activities. This recognizes that certain investments, such as investments 

with a rural focus that are backed by the full faith and credit of the U.S. government, could 

advance Farmer Mac’s mission. Farmer Mac will, however, need to seek FCA’s prior approval 

for any investments not explicitly authorized on the list of eligible investments. 

The final rule allows Farmer Mac, when calculating the maximum amount of eligible investments 

it may hold, to exclude investments posted as margin against derivative exposures. We make
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this change because the Dodd-Frank Wall Street Reform and Consumer Protection Act may 

result in additional margin requirements for Farmer Mac, and we do not want to discourage the 

use of derivatives as an appropriate risk management tool. 

652.25 Management of Ineligible and Unsuitable Investments: Under the final rule, the 

eligibility of investments will be determined only at the time of purchase. Investments that are 

eligible at the time of purchase remain eligible even if their credit quality deteriorates—though 

such events trigger additional reporting requirements.

652.30 Management of Interest Rate Risk: We finalize revisions that strengthen interest rate 

risk management. Farmer Mac will have to establish policies and procedures to, among other 

things, consider the nature and purpose of derivative contracts and establish derivative 

counterparty limits. We streamline the regulatory language to make it less prescriptive. The final 

rule also includes stress-testing requirements and extends those requirements to all 

investments as well as derivatives.

652.45 Temporary Regulatory Waivers or Modifications for Extraordinary Situations: We 

revise the provision authorizing FCA, if it determines that an extraordinary situation exists that

necessitates a temporary regulatory waiver or modification, to provide relief from FCA’s 

eligibility and liquidity reserve requirements. The revision authorizes FCA to take other actions 

as deemed appropriate.