[Federal Register Volume 61, Number 120 (Thursday, June 20, 1996)]
[Rules and Regulations]
[Pages 31392-31394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15733]



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FARM CREDIT ADMINISTRATION

12 CFR Part 615

RIN 3052-AB70


Book-entry Procedures for Federal Agricultural Mortgage 
Corporation Securities

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit System Reform Act of 1996 (1996 act) provides 
that the Federal Agricultural Mortgage Corporation (Farmer Mac) shall 
have access to the Federal Reserve Banks' book-entry system (Fed book-
entry system). The Farm Credit Administration (FCA) is issuing a final 
rule authorizing the issuance of Farmer Mac securities in book-entry 
format. Farmer Mac will use the Fed book-entry system in connection 
with the issuance and settlement of its unsecured debt securities and 
its guaranteed securities using substantially the same procedures used 
by all other Government-sponsored enterprises (GSEs).

EFFECTIVE DATE: June 13, 1996.

FOR FURTHER INFORMATION CONTACT: Larry W. Edwards, Director, Office of 
Secondary Market Oversight, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4051.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 105 of the 1996 act amends sections 8.3(d) and (e) of the 
Farm Credit Act of 1971, as amended (act), to require that Farmer Mac 
have access to the Fed book-entry system and that the Federal Reserve 
Banks Act as depositories for, and as fiscal agents of, Farmer 
Mac.<SUP>1 Congress mandated Farmer Mac's access to the Fed book-entry 
system as part of a broad-based reform of Farmer Mac's charter and 
statutory authority. Among other reform measures, the 1996 Act 
liberalized Farmer Mac's charter to allow it to pool loans in a fashion 
similar to such other GSEs as the Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac), which operate in the secondary market for mortgage-backed 
securities. To facilitate Farmer Mac's use of its new authority and to 
help it meet its new responsibilities, Congress amended the act to 
``streamline Farmer Mac's business operations,'' including ``providing 
for Farmer Mac's access to

[[Page 31393]]

the book-entry system of the Federal Reserve System.'' <SUP>2
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    \1\ Pub. L. 104-105 (Feb. 10, 1996), 110 Stat. 163-64. 12 U.S.C. 
2279aa-3(d)-(e).
    \2\ H.R. Rep. No. 446, 104th Cong., 2d Sess., pt. 1, at 8 
(1996).
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    Currently, all Farmer Mac securities (both debt and guaranteed) are 
issued, settled, and traded through the facilities of the Depository 
Trust Company (DTC), one of the private depositories available to 
issuers whose securities are not tradable on the Fed book-entry system. 
DTC's costs (and the costs of other private depositories) are higher 
than those of the Federal Reserve Banks, which results in higher costs 
for Farmer Mac and its investors. Furthermore, it appears that 
investors may differentiate adversely between Farmer Mac's securities 
and all other GSEs' securities because Farmer Mac securities are not 
issued through the Fed book-entry system. Access to the Fed book-entry 
system, therefore, is viewed as an important element in the 
Congressionally mandated effort to reform and revitalize Farmer Mac.

II. Implementing Regulations

    To implement Farmer Mac's new statutory authority to access the Fed 
book-entry system, regulations are necessary to establish a framework 
for issuance and subsequent disposition of Farmer Mac securities issued 
through the Fed book-entry system. Without such regulations, investors 
would not know what law governs the holding, transferring, and pledging 
of the Farmer Mac securities in which they have invested. This 
uncertainty could create a perception of market risk that could 
detrimentally affect investment in Farmer Mac securities and possibly 
could place Farmer Mac securities at a marketing disadvantage compared 
to the securities of other GSEs.<SUP>3
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    \3\ All other GSEs that utilize the Fed book-entry system, 
including the Farm Credit System, have regulations in place that 
govern their book-entry securities. See, e.g., 24 CFR part 81 
(Fannie Mae); 1 CFR part 462 (Freddie Mac); 31 CFR part 354 (Student 
Loan Marketing Association (Sallie Mae)).
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    FCA regulations governing book-entry procedures with respect to 
Farm Credit System (FCS) securities were adopted in 1977 and are 
located at 12 CFR part 615, subpart O. The FCA's book-entry regulations 
are based on the Department of the Treasury's book-entry regulations at 
31 CFR part 357, subpart O. The regulations establish procedures that 
permit FCS banks to utilize the Fed book-entry system in the same way 
as do other GSEs. The FCA extended its book-entry regulations in 1988 
by adding a new subpart R to 12 CFR part 615 to cover securities issued 
by the FCS Financial Assistance Corporation. Rather than duplicating 
the basic book-entry regulations found in subpart O, subpart R 
incorporates by reference the pertinent book-entry provisions from 
subpart O and applies them to the Financial Assistance Corporation.
    The FCA is adopting the same abbreviated approach to applying book-
entry regulations to Farmer Mac in this rulemaking. The final rule 
creates a new subpart S in part 615 that authorizes the issuance of 
Farmer Mac securities in book-entry format pursuant to pertinent 
provisions of subpart O of part 615, which are incorporated by 
reference. The incorporated provisions of subpart O include: 
Secs. 615.5460 (definitions), 615.5465 (authority of Reserve Banks), 
615.5470 (scope and effect of book-entry procedure), 615.5475 (transfer 
or pledge), 615.5480 (withdrawal of securities), 615.5485 (delivery of 
securities), 615.5490 (classes of accounts), 615.5492 (identification 
of accounts), and 615.5494 (servicing book-entry securities, including 
payment of interest and payment at maturity or upon call).

III. Necessity for Immediate Regulatory Action

    In passing the 1996 act, Congress recognized the difficulties 
Farmer Mac has had in meeting its statutory mandate and the resulting 
deterioration in its core capital.<SUP>4 In what the House Committee on 
Agriculture termed ``the most extensive attempt yet to make Farmer Mac 
a viable secondary market for agricultural real estate and moderate 
rural housing loans,'' <SUP>5 the 1996 act eases prior statutory 
operating requirements and expands the activities in which Farmer Mac 
can engage. It is clear that Congress also expects Farmer Mac to act 
quickly to stabilize its financial position and rebuild its core 
capital. Section 117 of the 1996 act requires that, if Farmer Mac does 
not complete mandatory recapitalization of its core capital within 2 
years, its activities will be critically restricted. If the 2-year goal 
is not met, Farmer Mac will not be allowed to purchase a new qualified 
loan or issue or guarantee a new loan-backed security.<SUP>6
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    \4\ H.R. Rep. No. 446, supra note 2, at 9.
    \5\ Id. at 8.
    \6\ Pub. L. 104-105, supra note 1, Sec. 117.
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    In the very near future, Farmer Mac plans to issue debt securities 
backed by mortgages purchased by Farmer Mac pursuant to its new 
authority under the 1996 act. Farmer Mac intends to utilize the Fed 
book-entry system to issue the securities, as sanctioned by the 1996 
act. To avoid creating any ambiguities regarding Farmer Mac's authority 
to obtain access to the Fed book-entry system and to ensure that the 
book-entry treatment of Farmer Mac's securities will be the same as 
that of other GSEs, the FCA is taking expedited action to adopt book-
entry regulations covering Farmer Mac.
    In view of the clear Congressional mandate expressed in the 1996 
act that Farmer Mac have access to the Fed book-entry system and the 
equally clear Congressional intent that Farmer Mac utilize its new 
authorities to rebuild its core capital and meet its other statutory 
mandates as soon as possible, the FCA believes that expedited 
rulemaking action is warranted for book-entry regulations covering 
Farmer Mac. Moreover, the regulations adopted are minor, technical, and 
noncontroversial. For these reasons, the FCA finds good cause to omit 
notice and comment as impracticable, unnecessary, and contrary to the 
public interest pursuant to section 553(b)(B) of the Administrative 
Procedure Act, 5 U.S.C. 553-59 (APA). The same reasons and, in 
particular, the time limit Congress has imposed on Farmer Mac to 
recapitalize its core capital base, provide good cause to adopt an 
effective date for the regulations that is less than 30 days after 
publication in the Federal Register. 5 U.S.C. 553(d). The FCA's finding 
of good cause for expedited rulemaking action also supports specifying 
an effective date for the regulations that is prior to the date of 
filing of the report to Congress required by the Small Business 
Regulatory Enforcement Fairness Act, 5 U.S.C. 801-808. See 5 U.S.C. 
808. Finally, consistent with the reasons for its expedited actions 
under the APA, the FCA finds that, pursuant to section 5.17(c)(2) of 
the act, an emergency exists that requires that these regulations take 
effect prior to the expiration of the 30-day Congressional notice and 
waiting period for final agency regulatory action.
    The FCA notes that the U. S. Treasury Department recently proposed 
TRADES (Treasury/Reserve Automated Debt Entry System) regulations (61 
FR 8420, March 4, 1996), which will govern book-entry treatment of 
Treasury securities. Since FCA's book-entry regulations are based on 
the Treasury's book-entry regulations, the FCA expects to revise all of 
its book-entry regulations, including those covering Farmer Mac, to 
conform with the Treasury's TRADE regulations when they are finalized. 
Accordingly, there will be opportunity for public comment on FCA book-
entry regulations at that time.

[[Page 31394]]

List of Subjects in 12 CFR Part 615

    Accounting, Agriculture, Banks, banking, Government securities, 
Investments, Rural areas.
    For the reasons stated in the preamble, part 615 of chapter VI, 
title 12 of the Code of Federal Regulations is amended to read as 
follows:

PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, 
AND FUNDING OPERATIONS

    1. The authority citation for part 615 is revised to read as 
follows:

    Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 
2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 
6.20, 6.26, 8.0, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit 
Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 
2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 
2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-
7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of Pub. L. 100-233, 
101 Stat. 1568, 1608; sec. 105 of Pub. L. 104-105, 110 Stat. 162, 
163-64.

    2. Subpart S is added to read as follows:

Subpart S--Federal Agricultural Mortgage Corporation Securities

Sec.
615.5570  Book-entry procedures for Federal Agricultural Mortgage 
Corporation securities.

Subpart S--Federal Agricultural Mortgage Corporation Securities


Sec. 615.5570  Book-entry procedures for Federal Agricultural Mortgage 
Corporation Securities.

    (a) The Federal Agricultural Mortgage Corporation (Farmer Mac) is a 
Federally chartered instrumentality of the United States and an 
institution of the Farm Credit System, subject to the examination and 
regulation of the Farm Credit Administration.
    (b) Farmer Mac, either in its own name or through an affiliate 
controlled or owned by Farmer Mac, is authorized by section 8.6 of the 
Act:
    (1) To issue and/or guarantee the timely payment of principal and 
interest on securities representing interests in or obligations backed 
by pools of agricultural real estate loans (guaranteed securities); and
    (2) to issue debt obligations (which, together with the guaranteed 
securities described in paragraph (b)(1) of this section, are referred 
to as Farmer Mac securities). Farmer Mac may prescribe the forms, the 
denominations, the rates of interest, the conditions, the manner of 
issuance, and the prices of Farmer Mac securities.
    (c) Farmer Mac securities shall be governed by Secs. 615.5460, 
615.5465, 615.5470, 615.5475, 615.5480, 615.5485, 615.5490, 615.5492, 
and 615.5494. In interpreting those sections for purposes of this 
section, the term ``Farmer Mac securities'' shall be read for ``Farm 
Credit securities,'' and ``Farmer Mac'' shall be read for ``banks of 
the Farm Credit System'' and ``Farm Credit bank.''

    Dated: June 14, 1996.
Floyd Fithian,
Secretary, Farm Credit Administration.
[FR Doc. 96-15733 Filed 6-19-96; 8:45 am]
BILLING CODE 6705-01-P