Restrictions on acceptance of CFI- eligible collateral. The primary duty of the Finance Board is to ensure that the Banks operate in a financially safe and sound manner. See 12 U.S.C. 1422a(a)(3)(A). As discussed in the SUPPLEMENTARY INFORMATION section of the proposed rule, in view of the potentially greater risks inherent in non- mortgage, CFI-eligible collateral, with which the Banks have limited or no experience, the Finance Board, for safety and soundness reasons, considered whether limits or restrictions should be established on the types of collateral that could secure such loans or securities pledged by a CFI member or affiliate to secure an advance. For example, small business loans secured by accounts receivable or inventory, or small farm loans secured by crops or livestock, which may present greater risks than other types of secured small business or small farm loans, could have been excluded from the types of eligible collateral. The Finance Board chose not to impose limits or restrictions in the proposed rule, but instead to require in proposed § 917.4 that the Banks have policies and capacity to value the collateral, whatever it may be. In addition, proposed part 980 treated the acceptance of CFI-eligible collateral for the first time as a new business activity requiring 60-day notice to the Finance Board before the activity could be undertaken. The Finance Board requested comment on whether certain types of CFI-eligible collateral should be prohibited as eligible collateral on the basis of risk. Several commenters supported the approach in the proposed rule, stating that no types of CFI-eligible collateral are so inherently risky as to justify a prohibition on their acceptance, and that each Bank should have the discretion to determine risk parameters and eligibility standards for each type of CFI-eligible collateral it chooses to accept. The Finance Board continues to believe that requiring each Bank to determine the value of collateral in accordance with a member products policy established pursuant to § 917.4 will minimize appropriately the Banks’ exposure to risk in accepting CFI- eligible collateral. The Finance Board expects such policies, if properly developed and implemented, will take the appropriate risk factors into account in their valuation and discounting procedures. Of course, those policies, and the Banks’ activities in this regard, would continue to be subject to examination by the Finance Board and to the new business activities requirements of part 980, di...
