Pub. 9 2014-2015 Issue 4

November | December 2014 21 Extraordinary Service for Extraordinary Members. within one of the associations have led to a delay in an outright merger. Time will tell. FCS Investments Concentrated in Just a Few FCS Institutions An FCA proposal to amend its investments regulation (see next subhead) seems to reflect the belief that the FCS’ investment portfolio is spread more or less uniformly across the FCS. That most definitely is not the case. At June 30, FCS investments totaled $50.6 billion, 19 percent of total FCS assets. The four FCS banks—CoBank, AgriBank, AgFirst, and Farm Credit Bank of Texas—held 95.6 percent of all FCS investments, with CoBank investments alone totaling $23.3 billion. Four of the larger associations—AgStar, 1st Farm Credit Services, Farm Credit Mid-America, and Farm Credit West—held another $1.98 billion, or 3.9 percent, of the FCS’ investments. The balance of the FCS’ investment portfo- lio—$284 million—was spread over 24 other associations; 50 associations had absolutely no investments. In terms of highly liquid securities, two FCS banks—Co- Bank and AgriBank—together held all of the FCS’ $9.6 billion of Treasury securities. CoBank also owned $1.2 billion of the $1.6 billion of federally guaranteed obligations owned by FCS institutions. Less liquid securities comprise the balance (78 percent) of the FCS’ investment portfolio. Residential mortgage-backed securities (MBSes) were the four banks’ largest type of investment—$23.7 billion at June 30—with most of these MBSes fully guaranteed by the Treasury or another government-sponsored enterprise (GSE). These se- curities are a pure GSE arbitrage play because they offer yields above the FCS’ borrowing cost. Just one association owned residential MBSes. The $2.25 billion of commercial MBSes owned by FCS institutions at June 30 represented another profitable GSE arbitrage. Almost half of that investment was held by Farm Credit Mid-America, the second-largest FCS association; AgFirst, CoBank, and AgStar owned the balance of the commercial MBSes. FCA Intends to Open the Door to Reckless FCS Investing The ABA and state bankers associations recently submit- ted comment letters opposing proposed revisions to the FCA’s regulations governing permissible investments for FCS banks and associations. Read the letter from the ABA at www.aba. com/Advocacy/Grassroots/WINNDocs/ABACommentLet- terReFCARegulation.pdf. Read the letter from the state bankers associations at www.aba.com/Advocacy/Lettersto- Congress/Documents/JointSTEXFCARegulationLetter.pdf. The proposed revisions would give both the banks and the associations greater investment flexibility without the Contact: Tennyson W. Grebenar, Stephen T. Johnson, or Karen L. Witt 303.623.9000 · www.LRRLaw.com With a national reputation for our financial institutions practice, our goal is to assist clients in structuring and operating their institutions to meet business objectives and regulatory requirements. Our Financial Services Group will help your business run smoothly. Experience works. Albuquerque | Casper | Colorado Springs | Denver | Las Vegas | Phoenix | Reno | Silicon Valley | Tucson  Bert Ely — continued fon page 22