Market Access Agreement

FARM CREDIT ADMINISTRATION

Market Access Agreement

AGENCY: Farm Credit Administration.

ACTION: Notice of approval of market access agreement.

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SUMMARY: The Farm Credit Administration (FCA) announces that, after

taking into consideration comments from the public on the Market Access

Agreement (Agreement) to be entered into by all of the banks of the

Farm Credit System (System) and the Federal Farm Credit Banks Funding

Corporation (Funding Corporation), the FCA has given final approval to

the Agreement, subject to certain conditions.

FOR FURTHER INFORMATION CONTACT:

Jean Noonan, General Counsel, Office of General Counsel, Farm Credit

Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-

4444, or

James M. Morris, Senior Attorney, Regulatory Operations Division,

Office of General Counsel, Farm Credit Administration, McLean, VA

22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: The Agreement, to be entered into among each

of the banks of the System and the Funding Corporation, provides that

it will not be implemented until it is approved by the FCA and the Farm

Credit System Insurance Corporation (FCSIC) expresses its support for

the Agreement.

In February 1993 the boards of directors of the banks and the

Funding Corporation approved a draft Agreement and submitted the

Agreement to the FCA and the FCSIC for approval. On September 9, 1993

the FCA Board granted preliminary approval to the Agreement subject to

certain conditions. Following the FCA's preliminary approval, the

System banks and the Funding Corporation modified the Agreement to

bring the Agreement into conformance with the FCA's conditions. The

board of directors of each of the banks and of the Funding Corporation

adopted resolutions whereby each party agreed to enter into the

Agreement in the form submitted to the FCA, subject to the FCA's

approval. The resolution of each board of directors provides that if

the FCA requires modifications to the Agreement in response to public

comments, the resolution shall be ineffective and the board of

directors shall consider what further action to take.

On May 17, 1994, the FCA published the Agreement in the Federal

Register (59 FR 25644) for public comment by any interested member of

the public. During the comment period, which ended on June 16, 1994,

comments were submitted by the Federal Land Bank Association of

Yosemite, FLCA, and by the Farm Credit Bank (FCB) of Columbia on behalf

of all of the System banks and the Funding Corporation.

The comment submitted by the Federal Land Bank Association of

Yosemite, FLCA, stated that it was unfortunate that associations did

not have the opportunity to be involved in the formulation of the

Agreement and suggested two modifications to the Agreement. The

association proposed that the Agreement be amended to allow ``strong''

associations to continue to have access to funds whenever the

associations' funding bank is subject to restrictions or prohibitions

on its participation in debt obligations. Second, the association

recommended that the Agreement be amended to provide that when the

banks receive notice that a certain bank is in category I, II, or III,

all associations should receive a similar notice.

The association's first issue is an important one for associations

that obtain funding from a bank subjected to sanctions under the

Agreement. The association correctly points out that in the event a

bank is restricted in its ability to borrow, the associations funded by

that bank may need an alternative source of funds. Although this is a

critical concern, it is not one that is best addressed through the

Agreement. The Agreement is only designed to impose funding

restrictions on banks, and cannot be used to empower other banks to

lend. Moreover, the best approach to ensuring continued funding in a

particular instance may require an individualized solution. The FCA and

the affected institutions will have to identify the best options for

continued funding, some of which may require regulatory action by the

FCA or the FCSIC. In fact, a major concern of the FCA during the time

that a bank is in serious financial decline is to minimize the

financial impact on the bank's related associations and implement

actions that will enable viable associations to continue to serve the

territory in question. This need to make arrangements for viable

associations was among the FCA's reasons for requiring that the

Agreement provide a limited period during which the FCA could forestall

the imposition of category III sanctions. For these reasons, the FCA

concludes that the Agreement does not provide the appropriate vehicle

for addressing this significant issue.

With regard to the association's second suggestion, the FCA concurs

that associations receiving their funding from a bank in financial

trouble should receive a notice when that bank is subject to category

I, II, or III restrictions or prohibitions. Although these associations

will also receive notice of the bank's sanctions in the bank's

quarterly report to shareholders, a notice under the Agreement would be

more timely. However, the assertion that all associations should

receive notices identifying a bank that is subject to any of the three

categories is less compelling. The FCA notes that the Funding

Corporation would be required to report the imposition of category II

or III sanctions as a material condition affecting a bank in its

quarterly report to investors. The FCA concludes that this and other

information in the public domain will provide adequate information to

associations that are not affected directly by a bank's restricted

access to funding. Accordingly, the FCA Board conditions its final

approval of the Agreement on an amendment that would provide notice to

associations receiving funding from a bank that is subject to category

I, II, or III restrictions or prohibitions.

The comment submitted by the Farm Credit Bank of Columbia on behalf

of all of the System banks and the Funding Corporation expressed the

``strong and continuing support of the banks and the Funding

Corporation'' for the Agreement. However, in light of FCA's publication

of proposed regulations governing disclosures to investors on February

4, 1994, subsequent to the development of the Agreement, the FCB of

Columbia suggested that the Agreement be amended to expand its scope to

include both consolidated as well as Systemwide debt obligations. The

banks noted that the FCA stated in its proposed regulations that banks

are jointly and severally liable on consolidated obligations as well as

Systemwide obligations. See 59 FR 4341, Feb. 4, 1994, proposed

Sec. 630.3(f). The commenter stated that, while the banks and the

Funding Corporation do not concede that all banks are, without further

action, jointly and severally liable on consolidated obligations, they

believe that because the purpose of the Agreement was to cover all debt

obligations on which such liability attaches, the Agreement should be

amended to specifically encompass both types of obligations.

Through the issuance of the disclosure regulations, the FCA

clarified that the statutory provisions governing joint and several

liability contained in section 4.4 of the Farm Credit Act of 1971, as

amended (Act), apply equally to consolidated and Systemwide

obligations. Given the purposes of the Agreement, it is appropriate for

the Agreement to be amended to treat both types of obligations in the

same manner. Accordingly, the Agreement should be amended to replace

the term ``Systemwide Debt Securities'' with the term ``Debt

Securities,'' which should be defined to include both Systemwide and

consolidated obligations. In raising this issue, the commenter stated

that the banks and the Funding Corporation are not ``conceding'' that

all banks are, without further action, jointly and severally liable on

consolidated obligations, and proposed that the Agreement refer to

``potential liability'' on ``Debt Securities.'' Although the FCA does

not share the commenter's doubt about the extent of liability for

consolidated debt, the proposed modification of the Agreement is

acceptable.

Having given interested parties notice and the opportunity to

comment on the Agreement, the FCA Board hereby approves the Agreement

pursuant to sections 4.2(d) and 4.9(b)(2) of the Act, with the

following conditions:

1. The Agreement is amended by removing the term ``Systemwide Debt

Securities'' throughout the Agreement and adding in its place the term

``Debt Securities,'' and by adding the following definition to Article

I: Debt Securities means Systemwide and Consolidated Obligations issued

through the Funding Corporation within the meaning of sections 4.2(c)

and (d) and 4.9 of the Act.

2. Section 1.09 of the Agreement is amended by adding the words

``all associations discounting with or otherwise receiving funding from

a bank that is in category I, II, or III,'' after ``all Banks.''

The FCA's approval of this Agreement is conditioned on the banks

and the Funding Corporation amending the Agreement to make these

changes and the board of directors of each institution then approving

the amended Agreement. Neither the Agreement nor FCA approval of it

shall in any way restrict or qualify the authority of the FCA or the

FCSIC to exercise any of the powers, rights, or duties granted by law

to the FCA or the FCSIC. Finally, the FCA retains the right to modify

or revoke its approval of the Agreement at any time.

Dated: August 17, 1994.

Curtis M. Anderson,

Secretary, Farm Credit Administration Board.

[FR Doc. 94-20687 Filed 8-22-94; 8:45 am]

BILLING CODE 6705-01-P