FCA Issues Rule Regarding FCS Financing
McLEAN, Va., — The Board of the Farm Credit Administration (FCA or Agency) voted to issue a final rule amending the criteria that processing and marketing operations must meet to qualify for Farm Credit System (FCS) financing under titles I and II of the Farm Credit Act of 1971, as amended.
The purpose of the final rule is to enable FCS institutions to be more responsive to the changing ownership structures of processing and marketing operations and to more effectively meet the credit needs of eligible borrowers as they pursue value-added opportunities.
The current rule provides that a legal entity engaged in processing or marketing is eligible to borrow if eligible borrowers own more than 50 percent of the voting stock or equity. In a proposed rule that the Board approved in September of 2006, the Agency proposed three new criteria to determine eligibility for a legal entity.
The first criterion determines eligibility for financing of processing or marketing operations by measuring the extent to which eligible borrowers control the entity. The second criterion determines eligibility by measuring the commitment of eligible borrowers to the processing or marketing entity. The third criterion determines eligibility by the extent to which the processing or marketing entity is an extension or outgrowth of an eligible borrower’s production operation.
The Agency received more than 5,000 public comments in response to the proposed regulation. As a result of these comments, the proposed rule was revised to clarify the new eligibility criteria. The final rule also contains policy and reporting requirements that FCS institutions must meet when making loans to processing and marketing operations.
In a separate action, the Board approved a final rule revising FCA regulations governing the Risk-Based Capital Stress Test (RBCST) for the Federal Agricultural Mortgage Corporation (Farmer Mac). Farmer Mac was created by the Agricultural Credit Act of 1987 to provide a secondary market for agricultural real estate and rural housing mortgage loans.
The RBCST calculates the minimum amount of regulatory capital that Farmer Mac is required to hold.
The new version of the RBCST (1) adds a component to recognize the risk-reducing characteristics of structures such as Off-Balance-Sheet AgVantage, a new guarantee product that accounts for a growing percentage of Farmer Mac’s program volume; (2) adds a component to recognize counterparty risk on nonprogram investments; and (3) revises the estimated carrying costs of nonperforming loans.
These rules will be effective 30 days after publication in the Federal Register during which either body of Congress is in session. Notice of the effective date will be published in the Federal Register.
