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Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Proposed Rules
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and reliable sources of credit and related services to American agricultural and aquatic producers. The System currently consists of 3 Farm Credit Banks, 1 agricultural credit bank, 66
agricultural credit associations, 1
Federal land credit association, service corporations, and the Federal Farm Credit Banks Funding Corporation Funding Corporation.3 Farm Credit banks which include both the Farm Credit Banks and the agricultural credit bank issue System-wide consolidated debt obligations in the capital markets through the Funding Corporation,4
which enable the System to extend short-, intermediate-, and long-term credit and related services to farmers, ranchers, aquatic producers and harvesters, their cooperatives, rural utilities, exporters of agricultural commodities products, and capital equipment, farm-related businesses, and certain rural homeowners.5 The Systems enabling statute is the Farm Credit Act of 1971, as amended Act.6
In many respects, the FCS is different from other lenders. In contrast to most commercial banks and other financial institutions, the System lends primarily to agriculture and other eligible borrowers in rural areas. Unlike most other lenders, FCS banks and associations are cooperatives that are owned and controlled by their memberborrowers. Their common equity is not publicly traded. The System also funds its operations differently than most commercial lenders. FCS banks and associations are not depository institutions, and for this reason, Systemwide debt securities, not deposits, are the Systems primary source for funding loans to agricultural producers, their cooperatives, and other eligible 3 Number of institutions as of January 1, 2021.
The Federal Agricultural Mortgage Corporation Farmer Mac, which is also a System institution, has authority to operate secondary markets for agricultural real estate mortgage loans, rural housing mortgage loans, and rural utility cooperative loans. The FCA has a separate set of liquidity regulations that apply to Farmer Mac. This Advance Notice of Proposed Rulemaking does not affect Farmer Mac, and the use of the term System institution in this preamble does not include Farmer Mac.
4 The Funding Corporation is established pursuant to section 4.9 of the Farm Credit Act of 1971, as amended, and is owned by all Farm Credit banks.
5 The agricultural credit bank lends to, and provides other financial services to farmer-owned cooperatives, rural utilities electric and telecommunications, and rural water and waste water disposal systems. It also finances U.S.
agricultural exports and imports, and provides international banking services to cooperatives and other eligible borrowers. The agricultural credit bank operates a Farm Credit Bank subsidiary.
6 12 U.S.C. 20012279cc. The Act is available at www.fca.gov under Laws and regulations, and Statutes.

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borrowers. Although section 4.2a of the Act authorizes FCS banks to borrow from commercial banks and other lending institutions, lines of credit with such lenders are only used as a secondary source of liquidity.
As a government-sponsored enterprise GSE, the System depends on continuing access to the capital markets to obtain the funds necessary to extend credit to agriculture, aquaculture, rural utilities, and rural housing in both good and bad economic times. If access to the capital markets becomes impeded for any reason, FCS banks must have enough readily available funds and assets that can be quickly converted into cash to continue operations and pay maturing obligations. Unlike commercial banks, the System does not have a lender of last resort and does not have a guaranteed line of credit from the U.S. Treasury or the Federal Reserve.
As part of our ongoing efforts to ensure the FCS banks have sufficient liquidity to fund operations in the event of market disruptions, and in light of updated guidance and regulations published by the BCBS and FBRAs, we are soliciting comments on the best ways to enhance FCAs existing liquidity framework.
II. Recent Updates to System Liquidity Regulations FCA regulations governing System banks liquidity were last substantially updated in 2013 in response to the 2008
financial crisis.7 FCA proposed amendments to its liquidity requirements in 2011 to improve the quality of liquidity and bolster the ability of the System banks to fund their operations during times of economic, financial, or market adversity.8 At the time, FCA considered the Basel III
Liquidity Framework that was published in September 2008 and December 2010,9 but decided not to adopt the Basel III liquidity ratios. The final rule incorporated the liquidity coverage principles of Basel III as appropriate to the System, improved the Systems ability to withstand market disruptions by strengthening liquidity management practices at Farm Credit banks, and enhanced the liquidity of assets in their liquidity reserves. The 7 See 78 FR 23438 April 18, 2013, as corrected by 78 FR 26701 May 8, 2013. In addition, technical, non-substantive revisions to the terms Government-sponsored enterprise GSE and U.S. Government agency were made in 2018 83
FR 27486 June 12, 2018.
8 See 76 FR 80817 December 27, 2011.
9 See Principles for Sound Liquidity Risk Management and Supervision. September 2008;
and Basel III: International framework for liquidity risk measurement, standards and monitoring.
December 2010.

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objectives of our 2013 liquidity final rule 10 were to:
Improve the capacity of FCS banks to pay their obligations and fund their operations by maintaining adequate liquidity to withstand various market disruptions and adverse economic or financial conditions;
Strengthen liquidity management at all FCS banks;
Enhance the liquidity of assets that System banks hold in their liquidity reserves;
Require FCS banks to maintain a three-tiered liquidity reserve. The first tier of the liquidity reserve must consist of a sufficient amount of cash and cashlike instruments to cover each banks financial obligations for 15 days. The second and third tiers of the liquidity reserve must contain cash and highly liquid instruments that are sufficient to cover the banks obligations for the next 15 and subsequent 60 days, respectively;
Establish a supplemental liquidity buffer that a bank can draw upon during an emergency and is sufficient to cover the banks liquidity needs beyond 90
days; and Strengthen each banks Contingency Funding Plan CFP.
As explained in the preamble to the 2013 final rule, the amendments to 615.5134 incorporated many of the principles that the BCBS and the FBRAs have articulated on liquidity management because many of these fundamental concepts apply to all financial institutions, including FCS
banks. The comprehensive supervisory approach developed by the BCBS and the FBRAs effectively strengthens both the liquidity reserves and the liquidity risk management practices at regulated financial institutions.
FCAs update created three levels of liquid assets levels 1, 2, and 3 which are similar to, but not exactly the same as, the three levels of high-quality liquid assets HQLA established in the Basel III Liquidity Framework levels 1, 2a, and 2b and used in the Liquidity Coverage Ratio LCR.11 In addition, FCAs framework adopted core concepts of the FBRAs rules, including the supplemental liquidity buffer, specific policies and internal controls that combat liquidity risk, and CFPs based in part on the results of liquidity stress tests.
The Basel III Liquidity Framework is not the only basis for the existing liquidity regulation. The regulation was also based upon the Systems own initiatives to improve liquidity 10 See 11 See
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supra footnote 7.
79 FR 61440 October 10, 2014.

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