§ 652.40. Liquidity reserve requirement and supplemental liquidity.
617 words·~3 min read·
/us/cfr/t12/s§ 652.40·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
(a)Unencumbered. All investments that Farmer Mac holds in its liquidity reserve and as supplemental liquidity in accordance with this section must be unencumbered. For the purposes of this section, an investment is unencumbered if it is free of lien, and it is not explicitly or implicitly pledged to secure, collateralize, or enhance the credit of any transaction. Additionally, an unencumbered investment held in the liquidity reserve cannot be used as a hedge against interest rate risk if liquidation of that particular investment would expose Farmer Mac to a material risk of loss.
(b)Marketable. All investments that Farmer Mac holds in its liquidity reserve in accordance with this section must be readily marketable. For purposes of this section, an investment is readily marketable if it:
(1)Can be easily and quickly converted into cash with little or no loss in value;
(2)Exhibits low credit and market risk;
(3)Has ease and certainty of valuation; and,
(4)Except for money market instruments, can be easily sold or converted to cash through repurchase agreements in active and sizable markets without significantly affecting prices.
(c)Liquidity reserve requirement, supplemental liquidity, and discounts. Farmer Mac must maintain at all times a liquidity reserve sufficient to fund at least 90 days of the principal portion of maturing obligations and other borrowings. Farmer Mac must also hold supplemental liquid assets sufficient to fund obligations and other borrowings maturing after 90 calendar days to meet board liquidity policy in accordance with § 652.35. At a minimum, Farmer Mac must hold instruments in the liquidity reserve, and as supplemental liquidity, that are listed and discounted in accordance with the following table, and are sufficient to cover:
(1)Days 1 through 15 only with Level 1 instruments;
(2)Days 16 through 30 only with Level 1 and Level 2 instruments; and,
(3)Days 31 through 90 with Level 1, Level 2, and Level 3 instruments. Table to § 652.40(c) Liquidity level Instruments Discount (multiply market value by) Level 1Cash, including cash due from traded but not yet settled debt100 percent. Overnight money market instruments, including repurchase agreements secured exclusively by Level 1 investments100 percent. Obligations of U.S. Government agencies with a final remaining maturity of 3 years or less97 percent. GSE senior debt securities that mature within 60 days, excluding securities issued by the Farm Credit System95 percent. Diversified investment funds comprised exclusively of Level 1 instruments95 percent. Level 2Additional Level 1 investmentsDiscount for each Level 1 investment applies. Obligations of U.S. Government agencies with a final remaining maturity of more than 3 years97 percent. MBS that are fully guaranteed by a U.S. Government agency95 percent. Diversified investment funds comprised exclusively of Level 1 and 2 instruments95 percent. Level 3Additional Level 1 or Level 2 investmentsDiscount for each Level 1 or Level 2 investment applies. GSE senior debt securities with maturities exceeding 60 days, excluding senior debt securities of the Farm Credit System93 percent for all instruments in Level 3. MBS that are fully guaranteed by a GSE as to the timely repayment of principal and interest Money market instruments maturing within 90 days Diversified investment funds comprised exclusively of Levels 1, 2, and 3 instruments Qualifying securities backed by Farmer Mac program assets (loans) guaranteed by the United States Department of Agriculture (excluding the portion that would be necessary to satisfy obligations to creditors and equity holders in Farmer Mac II LLC) Supplemental LiquidityEligible investments under § 652.20 and those approved under § 652.2390 percent except discounts for Level 1, 2 or 3 investments apply to such investments held as supplemental liquidity. [78 FR 65553, Nov. 1, 2013; 79 FR 29074, May 21, 2014, as amended at 83 FR 55098, Nov. 2, 2018]