Notice of Availability of Study and Request for Comment

FARM CREDIT ADMINISTRATION

Farmer Mac Risk-Based Capital

Notice of Availability of Study and Request for Comment

SUMMARY: The Farm Credit Administration (FCA or Agency), acting through

the Office of Secondary Market Oversight (OSMO), is required, under

section 8.32 of the Farm Credit Act of 1971, as amended (Act), to

establish a risk-based capital regulation for the Federal Agricultural

Mortgage Corporation (Farmer Mac). The FCA is in the process of

developing this regulation and will publish a proposed regulation for

comment no sooner than February 1999.

The credit risk portion of the prescribed risk-based capital test

must take into account agricultural mortgage losses in an area

containing not less than 5 percent of the U.S. population during a 2-

year historic period in which the highest rates of losses occurred.

After an extensive search for applicable data on agricultural

mortgage loan losses, the FCA was able to obtain useful data from the

Farm Credit Bank of Texas. FCA contracted with the firm of Barry and

Associates to study these data, to make extrapolations of loss data for

other states in order to identify the geographic area meeting the

criteria of the Act, and to determine the applicable credit risk

component.

The FCA is making the results of this study available for public

comment and suggestions that could possibly lead to improved input for

the credit risk component of the proposed regulation.

DATES: Written comments should be received on or before September 15,

1998.

ADDRESSES: You may obtain a copy of the study by downloading from the

FCA web page at www.fca.gov; by submitting an electronic mail request

for a copy to [email protected]; or by contacting George D. Irwin,

Director, Office of Secondary Market Oversight, Farm Credit

Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090, (703)

883-4280.

Submit your comments via electronic mail to ``[email protected]'' or

in hard copy to George D. Irwin, Director, Office of Secondary Market

Oversight, Farm Credit Administration, 1501 Farm Credit Drive, McLean,

VA 22102-5090. Copies of all comments received will be available for

review by interested parties at the Farm Credit Administration offices

in McLean, Virginia.

FOR FURTHER INFORMATION CONTACT: George D. Irwin, Director, Office of

Secondary Market Oversight, Farm Credit Administration, 1501 Farm

Credit Drive, McLean, VA 22102-5090, (703) 883-4280, TDD (703) 883-

4444.

SUPPLEMENTARY INFORMATION: Section 8.32 of the Act specifies that the

FCA, through the Office of Secondary Market Oversight, shall establish,

by regulation, a risk-based capital test for Farmer Mac. The statute

further provides that:

``* * * the risk-based capital test shall determine the amount

of regulatory capital for the Corporation [Farmer Mac] that is

sufficient for the Corporation to maintain positive capital during a

10-year period in which both of the following circumstances occur:

(1) CREDIT RISK * * * losses on the underlying qualified loans

occur throughout the United States at a rate of default and severity

(based on any measurements of default reasonably related to

prevailing industry practice in determining capital adequacy)

reasonably related to the rate and severity that occurred in

contiguous areas of the United States containing an aggregate of not

less than 5 percent of the total population of the United States

that, for a period of not less than 2 years (as established by the

Director [of OSMO]), experienced the highest rates of default and

severity of agricultural mortgage losses, in comparison with such

rates of default and severity of agricultural mortgage losses in

other such areas for any period of such duration, as determined by

the Director.

(2) INTEREST RATE RISK * * *''

Section 8.32 also states that the FCA may not publish the risk-

based capital regulations for comment until after February 10, 1999.

The FCA conducted an extensive search and found usable historic

databases on loan performance during the severe loss period of the

1980s in the Farm Credit Bank of Texas. It then became necessary to

find a method to extrapolate the loan loss experience in Texas to other

geographic areas of the U.S., which had different experience and

different loss rates. The contractors evaluated several approaches to

extrapolation in developing these estimates of loss experience and

identifying the geographic areas of most severe loss.

The FCA wishes to make this study available for public comment and

suggestions. We welcome responses that may offer: (1) Information that

leads to additional relevant data sources; (2) suggestions that might

improve use of the study in developing risk-based capital regulations;

and (3) any other ideas that might lead to an improved credit risk

component in the risk-based capital regulation being developed for

Farmer Mac.

The FCA cautions commenters that this study is based on currently

available data, which we have found to be very limited. The FCA is

making the study available at this time solely for informational

purposes and to seek additional input. FCA may elect to use alternative

approaches in developing the credit risk component of the risk-based

capital regulations.

Dated: July 23, 1998.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 98-20131 Filed 7-27-98; 8:45 am]

BILLING CODE 6705-01-P