Organization and Functions; Privacy Act Regulations; Organization; Loan Policies and Operations; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; General Provisions; Definitions

FARM CREDIT ADMINISTRATION

12 CFR Parts 600, 603, 611, 614, 615, 618, and 619

RIN 3052-AB61

Organization and Functions; Privacy Act Regulations;

Organization; Loan Policies and Operations; Funding and Fiscal Affairs,

Loan Policies and Operations, and Funding Operations; General

Provisions; Definitions

AGENCY: Farm Credit Administration.

ACTION: Interim rule; request for comment.

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SUMMARY: The Farm Credit Administration (FCA or Agency) through the

Farm Credit Administration Board (Board) amends the current regulations

in parts 600, 603, 611, 614, 615, 618, and 619 to eliminate

unnecessary, outdated, duplicative, or burdensome regulatory

requirements, to replace outdated regulatory language with more current

terminology, and to clarify the intended meaning of certain regulatory

provisions. This is an interim rule, with request for comment, because

the changes cover issues that are primarily technical in nature.

DATES: The regulations shall be effective upon the expiration of 30

days after publication during which either or both houses of Congress

are in session. Written comments must be received on or before January

31, 1997. Notice of effective date will be published in the Federal

Register.

ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio,

Director, Regulation Development Division, Office of Policy Development

and Risk Control, Farm Credit Administration, 1501 Farm Credit Drive,

McLean, VA 22102-5090 or by facsimile at (703) 734-5784. Comments may

also be submitted via electronic mail to ``[email protected]''. Copies

of all communications received will be available for review by

interested parties in the Office of Policy Development and Risk

Control, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:

Linda C. Sherman, Policy Analyst, Regulation Development Division,

Office of Policy Development and Risk Control, Farm Credit

Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 883-

4444.

or

Wendy R. Laguarda, Senior Attorney, Legal Counsel Division, Office of

General Counsel, Farm Credit Administration, McLean, VA 22102-5090,

(703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Basic Objectives for Interim Regulation

The FCA is continuing efforts to streamline its regulations as part

of its commitment to the principles contained in the Board's Policy

Statement on Regulatory Philosophy (Policy Statement). See 60 FR 26034

(May 16, 1995). Pursuant to the Policy Statement, the FCA will strive

to ensure that each regulation has a well-defined objective that

addresses specific problems or risks. The Policy Statement commits the

FCA to repeal regulations that prescribe detailed management and

operational practices for Farm Credit System (System) institutions and

that are not needed to enhance safe and sound bank operations. It is in

furtherance of these objectives that the Agency is making a number of

deletions, clarifications, and technical amendments to its regulations.

II. Background Information

As part of its ongoing efforts to streamline the regulatory

process, the Agency took the following initiatives to determine ways to

reduce regulatory burden:

A. The establishment of an FCA task force, pursuant to the Agency's

Strategic Action Plan, to eliminate nonstatutory prior approvals of

routine business matters;

B. A 1993 Solicitation for Public Comments concerning ways to

reduce regulatory burden (See 58 FR 34003, June 23, 1993);

C. The consideration of Regulatory Petitions submitted by the

public that recommended certain changes to existing regulations;

D. The establishment of an FCA task force on agricultural credit

bank (ACB) issues to evaluate the need for technical changes to

existing regulations in order to include ACBs; and

E. The consideration of FCA staff submissions containing

suggestions for regulatory deletions and amendments.

Substantive issues arising from such actions have been incorporated

into existing or new Agency regulatory projects. In order to provide

regulatory relief in the most expeditious manner possible, remaining

non-substantive and technical issues are addressed in this regulation.

III. Section-by-Section Analysis

1. 12 CFR 600.5 (Subpart A)--Farm Credit Administration

This section is amended to reflect the Agency's recent

organizational changes.

2. 12 CFR 603.310 (b)--Privacy Act Regulations

This section is amended to reflect the fact that the Privacy Act

Officer position has moved from the Office of Congressional and Public

Affairs to the Office of General Counsel.

3. 12 CFR 611.1135 (Subpart I)--Service Organizations

Section 611.1135(e) requires prior approval by the FCA for amending

the bylaws of service corporations. Section 4.25 of the Farm Credit Act

of 1971, as amended (Act) authorizes the FCA to charter service

corporations. However, section 5.17(b) of the Act provides that the FCA

shall not have the authority to approve bylaws, or amendments,

modifications or changes to bylaws, of System institutions. Further,

Sec. 4.26 of the Act no longer authorizes the FCA to approve bylaws of

service corporations. Thus, the FCA is deleting Sec. 611.1135(e) and

removing the FCA prior approval requirement for amendments to bylaws

for service corporations.

As part of the normal chartering application process, service

corporation bylaws will continue to be reviewed by the FCA. Such review

will be limited, however, to whether the bylaws violate any statutory,

regulatory or safety and soundness provisions.

Under the Farm Credit System Reform Act of 1996, Pub. L. 104-105,

110 Stat. 162, February 10, 1996, associations are authorized to form

service corporations. Technical changes to make Sec. 611.1135

consistent with the 1996 legislation have been incorporated into the

interim rule. This rule also replaces outdated language with more

current terminology. For example, the word ``Chairman'' is deleted, and

in its place the words ``Farm Credit Administration'' are inserted.

4. 12 CFR 611.1140 and 611.1145 (Subpart J)--Merger and Reorganization

Proposals Required by the Agricultural Credit Act of 1987

The FCA is deleting all of subpart J. These regulations were issued

to facilitate the consolidation of System institutions as required by

section 412 of the Agricultural Credit Act of 1987. All consolidations

were required to be completed by January 1, 1990. Hence, these

regulations, including the FCA

[[Page 67182]]

prior approval requirements in Secs. 611.1140(d) and 611.1145(c), have

become obsolete.

5. 12 CFR 611.1155, 611.1157, 611.1158, 611.1160, 611.1161, 611.1162,

611.1163, 611.1164, 611.1166, 611.1167, 611.1168, 611.1169, 611.1170,

611.1171, 611.1172, 611.1173, 611.1174, 611.1175, 611.1176, 611.1180,

611.1181, 611.1182, and 611.1183 (Subparts K, L, M and N)--Appointment

of Conservators and Receivers, Liquidation of Associations, Liquidation

of Banks, and Conservators and Conservatorships of Banks and

Associations

Subparts K through N address System conservatorships or

receiverships in which the identity of the conservator or receiver is

left to the discretion of the FCA. Pursuant to section 4.12 of the Act,

after January 5, 1993, the Farm Credit System Insurance Corporation

(FCSIC) is the sole entity that may be appointed by the FCA as receiver

or conservator for System institutions (except the Federal Agricultural

Mortgage Corporation) placed into conservatorship or receivership.

Future conservatorships or receiverships of System institutions are

governed by 12 CFR part 627. As there are no outstanding System

receiverships or conservatorships, the regulations in subparts K-N are

obsolete. An issue was raised regarding whether a System institution

may liquidate or dissolve through means other than a receivership. This

issue is substantive and will be addressed at a later date.

Finally, the FCA previously proposed changes to Secs. 611.1155 and

611.1157 pertaining to the definition of insolvency (See 53 FR 43897,

October 31, 1988). In this rulemaking, the FCA is deleting both these

sections and therefore withdrawing any outstanding proposals on these

regulations. Any remaining issues pertaining to the definition of

insolvency will be addressed in the Capital--Phase III (RIN 3052-AB58)

regulatory project.

6. 12 CFR 611.1190, 611.1191, 611.1192, 611.1193, 611.1194, 611.1195,

611.1196, 611.1197, 611.1198 (Subpart O)--Special Reconsideration of

Mergers

The regulations in subpart O implement the provisions of the

Agricultural Credit Act of 1987 relating to special reconsideration of

voluntary mergers and consolidations that occurred after December 23,

1985, and prior to January 6, 1988. System associations had 1 year,

until December 1989, to reconsider these mergers. As this regulation is

obsolete, the FCA is deleting all of subpart O.

7. 12 CFR 614.4321 (Subpart G)--Interest Rates and Charges

Section 614.4321 currently defines the types of interest rate

programs that may be utilized by System banks and associations. This

section also requires the FCA's prior approval of specific criteria for

differential interest rate programs.

The FCA has concluded that defining the types of interest rate

programs and requiring the FCA's prior approval are no longer

necessary. Also, the last sentence in Sec. 614.4321(d) is duplicative

of direction already found in the Other Financing Institutions

regulation at Sec. 614.4640. Accordingly, the FCA is deleting most of

this section. However, the section on differential interest rates is

being retained in order to set forth the requirement that System

institutions adhere to the principle of nondiscrimination among

similarly situated borrowers in setting differential interest rates.

8. 12 CFR 614.4444 (Subpart L)--Actions on Applications; Review of

Credit Decisions

The interim regulation eliminates all references to Special Asset

Groups and the National Special Assets Council, as these entities no

longer exist. The interim regulation also revises the last two

sentences of this paragraph to clarify that System institutions must

continue to retain sufficient documentation of their reasons not to

restructure a loan to permit the institution or an outside party, such

as the FCA, to review each determination. The FCA considers this change

to be technical in nature because this is not a new requirement. The

above change permits the review of a decision not to restructure a loan

to be conducted by a System institution or an outside party such as the

FCA, rather than by the defunct Special Asset Groups or the National

Special Asset Council.

9. 12 CFR 614.4510 (Subpart N)--Loan Servicing Requirements; State

Agricultural Loan Mediation Programs; Right of First Refusal

Section 614.4510 prescribes guidelines for bank and association

loan servicing activities. Specifically, paragraph (b) requires the

district bank to provide guidelines for establishing loan servicing

policies and procedures for associations. Paragraph (d)(4) of this

section requires System institutions to provide the FCA with any

revisions to loan servicing policies. Consistent with the FCA Board's

emphasis on holding direct lender associations responsible for their

lending activities, the Agency is deleting paragraphs (b) and (d)(4).

The funding bank's involvement in association loan servicing policies

will continue to be monitored through its direct loan and the general

financing agreement. Further, these policies will continue to be

reviewed as part of the normal examination process. The interim rule

also replaces outdated terminology to describe correctly the types of

System institutions to which this section applies.

10. 12 CFR 614.4515(b), 614.4516, 614.4517(c), and 614.4520 (Subpart

N)--Loan Servicing Requirements; State Agricultural Loan Mediation

Programs; Right of First Refusal

The interim rule eliminates Sec. 614.4515(a)(2), (b)(1) and (b)(2)

because they contain a statutory requirement relating to restructuring

policy and reporting that expired on January 6, 1993. The remainder of

Sec. 614.4515(a) is incorporated in the introductory paragraph of

Sec. 614.4516, retitled ``Restructuring policy and procedures.''

The FCA is adding a new paragraph (c), entitled ``Documentation,''

to Sec. 614.4517 regarding restructuring decisions. The new paragraph

clarifies that, when an application for restructuring is denied,

qualified lenders must maintain sufficient documentation to support

their decision. The documentation should demonstrate that the

institution considered all the applicable factors for determining

whether to restructure a loan, as set forth in paragraphs (a) and (b)

of this section.

In addition, the FCA is deleting all of Sec. 614.4520. The Farm

Credit System Assistance Board (Assistance Board) established the

National Special Asset Council in June 1988 to ensure that Federal

financial assistance to financially distressed farmers provided loan

restructuring measures as alternatives to foreclosure. The Assistance

Board's charter was canceled by the FCA Board, effective December 31,

1992, as required by Sec. 6.12 of the Act. The FCA Board also dissolved

the National Special Asset Council effective December 31, 1992. There

are no longer any ``certified'' institutions remaining in the System

today and, thus, this section is no longer necessary.

11. 12 CFR 614.4525(d) (Subpart O)--Special Lending Programs

The interim rule removes the requirement that System lenders obtain

the approval of their respective banks' board of directors prior to

entering into a memorandum of understanding with other lenders when

processing loans to

[[Page 67183]]

mutual borrowers. Consistent with the FCA Board's regulatory philosophy

of repealing regulations that prescribe needlessly detailed management

and operational practices, the FCA believes that it is reasonable for

System institutions to decide their own policies on these matters. This

rule also replaces outdated language with more current terminology.

12. 12 CFR 615.5140(a)(1) (Subpart E)--Investment Management

Currently Sec. 615.5140(a)(1) permits System banks to invest in

obligations that are both ``issued and guaranteed'' by agencies and

instrumentalities of the United States. The FCA intended to preclude

System banks from acquiring securities that are not guaranteed by

Federal agencies or instrumentalities. However, an unintended

consequence of Sec. 615.5140(a)(1) was to prohibit System banks from

investing in non-governmental obligations that are not issued, but are

guaranteed or insured, by a Federal agency or instrumentality.

For this reason, the FCA is amending Sec. 615.5140(a)(1) to include

the following as eligible investments: Obligations of the United

States; full-recourse obligations, other than mortgage-backed

securities, of agencies, instrumentalities or corporations of the

United States; or debt obligations of other obligers that are fully

insured or guaranteed as to both principal and interest by the United

States, its agencies, instrumentalities, or corporations. This

amendment will provide System banks with the flexibility they need to

achieve the investment objectives specified in Sec. 615.5132.

13. 12 CFR 615.5250 (Subpart I)--Issuance of Equities

Section 615.5250 requires System banks and associations to disclose

certain information to purchasers of an institution's equities. An

exception in Sec. 615.5250(e) relieves System institutions from making

disclosures to ``other financing institutions having a discount or

lending relationship with the selling Farm Credit System

institutions.'' This regulation was intended to grant System

institutions relief from disclosing equity information to sophisticated

or institutional investors in System equities. System institutions have

inquired whether the exemption in Sec. 615.5250(e) applies to those

non-System lenders that purchase System equities as part of a loan

participation transaction. In response to these inquiries, the FCA is

clarifying Sec. 615.5250(e) by including ``other financing

institutions'' as defined in Sec. 1.7(b) of the Act, as well as other

System institutions and non-System lenders. The interim rule is

consistent with the FCA's approach concerning disclosures to

shareholders because the disclosure requirements in Sec. 615.5250 are

not necessary for financial institutions and other sophisticated

investors. This clarification also eliminates an unnecessary regulatory

burden on the System and facilitates loan participation arrangements

between System institutions and non-System institutions.

14. 12 CFR 618.8260 (Subpart F)--Miscellaneous Provisions

This section sets forth procedures by which System banks may

purchase automobiles through the General Services Administration (GSA).

This regulation is rarely used and contains an unnecessary prior

approval in Sec. 618.8260(b).

The authority for System banks to make such purchases exists

whether or not it is specified in an FCA regulation. Accordingly, the

Agency is deleting all of Sec. 618.8260. System banks that desire

guidance on how to proceed may contact the GSA directly, or may request

additional information from the FCA's Contracting and Procurement

Branch.

15. 12 CFR 618.8310(b) (Subpart G)--Releasing Information

In connection with the regulatory burden project (See 58 FR 34003,

June 23, 1993), an association submitted comments to the FCA concerning

the provisions of Sec. 618.8310(b). This regulation prescribes

circumstances under which a System institution can release lists of its

stockholders. The association expressed a concern that the regulation

imposed an undue burden on System institutions in determining what

constitutes a ``permissible purpose'' and whether System institutions

can enforce the regulatory provision after releasing a stockholder

list. It is neither feasible nor advisable to amend this section to

provide a comprehensive list of every permissible purpose for

requesting and using a stockholder list. The Agency will provide

additional interpretive guidance directly to the concerned association

and to any other interested parties.

The interim rule also replaces outdated language with more current

terminology.

16. 12 CFR 618.8320 (Subpart G)--Releasing Information

The existing regulation prohibits System institutions from

releasing information regarding borrowers and loan applicants except in

specified circumstances. The FCA received a letter from a System bank

requesting clarification on whether releasing borrower information to

credit bureaus was permitted by this regulation, as the ``reliable

organization'' exception in Sec. 618.8320(b)(5) does not make this

clear.

The FCA believes that credit bureaus should be among the types of

reliable organizations contemplated by this regulation. To make this

clear, the interim rule amends Sec. 618.8320(b)(5) by expressly

authorizing System institutions to provide borrower information to

consumer reporting agencies.

Section 618.8320(b)(2) permits System institutions to provide

borrower data to specified Federal agencies in connection with official

investigations. The list in the regulation is outdated and restrictive.

To facilitate communications between the System and Federal law

enforcement authorities investigating possible borrower misconduct,

Sec. 618.8320(b)(2) has been modified to replace the list of Federal

agencies with a generic reference to all Federal agencies with a

legitimate law enforcement inquiry.

Finally, a technical change was made to delete Sec. 618.8320(b)(9)

because it refers to the National Special Asset Council, an entity

which no longer exists.

17. 12 CFR 618.8330 and 618.8340 (Subpart G)--Releasing Information

During the regulatory burden project (See 58 FR 34003, June 23,

1993), the FCA received two letters from System institutions requesting

clarification of the legal circumstances under which System institution

personnel could be summoned as witnesses. Their first concern was that

requiring System personnel to formally inform the court of the FCA's

regulations was burdensome. After reviewing the issue the Agency has

determined that, contrary to being a burden, this regulation provides

System directors, officers or employees with a means to resist

complying with a subpoena that requests the disclosure of confidential

information in violation of FCA regulations, except as ordered by a

court of law. Their second concern pertains to the requirements of

Sec. 618.8330(b) to consult with an attorney at their funding bank when

System personnel are summoned as a witness. The Agency agrees that this

requirement is burdensome and unnecessary. Consistent with the FCA

Board's regulatory philosophy of repealing regulations that prescribe

needlessly detailed management and operational

[[Page 67184]]

practices, the FCA is deleting Sec. 618.8330(b).

Upon review of the regulation at Sec. 618.8340, which requires the

approval of the supervising funding bank before releasing lists of bank

and association employees, the FCA has determined to delete it in its

entirety. Consistent with the FCA Board's regulatory philosophy, the

FCA believes that it is reasonable for System institutions to decide

their own policies on these matters.

18. 12 CFR 618.8360 and 618.8370 (Subpart H)--Disposition of Obsolete

Records

This subpart currently requires System institutions to maintain

records indefinitely and to maintain an ``up-to-date records disposal

schedule.'' Consistent with the FCA Board's regulatory philosophy of

repealing regulations that prescribe unnecessarily detailed management

and operational practices, the FCA is proposing to delete this subpart,

including the list of appropriate records retention practices in the

current Sec. 618.8360. The FCA believes that System institutions have

the discretion to dispose of any records that are not required for

research, legal, audit or examination purposes. In accordance with good

business practices, records retention policies should be set forth in

written procedures approved by an institution's board.

The FCA may issue further guidance (such as in a bookletter or

examination manual) regarding what records System institutions should

retain so that they may be adequately examined for safety and soundness

purposes.

Section 618.8360(a)(3) requires System institutions to retain basic

personnel records, including personnel folders, service records, cards,

and earning records for all active and former employees covered under

the Civil Service Retirement Act (CSRA). These records were necessary

to ensure that employees eligible for Civil Service retirement received

appropriate benefits. The FCA is deleting this requirement because our

research indicates that there are only three remaining System employees

eligible for CSRA benefits, and their personnel offices are aware of

the appropriate Office of Personnel Management requirements.

Finally, Sec. 618.8360(a)(6) currently requires System institutions

to keep financial reports as of June 30 and December 31 of each year.

Although the FCA is deleting Sec. 618.8360(a)(6), the call report

instructions will continue to require System institutions to keep such

financial reports.

19. 12 CFR 618.8380, 618.8390, 618.8400, 618.8410, and 618.8420

(Subpart I)--Federal Records

This subpart pertains to the maintenance and disposal of Federal

records. The Federal records held by the System institutions are the

property of the Federal government rather than the property of the

System or the FCA. These records must be handled in accordance with the

laws and regulations governing all Federal records, and there are

penalties attached to the unauthorized disposal of Federal records. The

National Archives and Records Administration is the Federal agency

responsible for promulgating rules and regulations on the management

and disposal of Federal records.

Although no new Federal records are being created in the System

today, some System institutions may still be in possession of Federal

records as described in current Sec. 618.8390. Because most of these

records would be over 40 years old, the FCA assumes that their number

is limited and that most, if not all, could be destroyed or archived.

The FCA believes that future guidance on their maintenance and

disposition is more appropriately the subject of a bookletter.

Therefore, the Agency is deleting all of subpart I. The FCA requests

that any System institution with records as described in Sec. 618.8390

notify the Agency during the comment period of the types of Federal

records in their possession. The goal is to identify all Federal

records still retained by System institutions so that they can either

be destroyed (at the institution's discretion) or archived, as

appropriate.

IV. Agricultural Credit Banks

In 1987, the Act was amended to allow the System to form

agricultural credit banks (ACBs). An ACB is formed by the merger of a

Farm Credit Bank (FCB) and a bank for cooperatives (BC). Pursuant to

section 7.2 of the Act, an ACB is granted all of the powers of its

constituent FCB and BC. The FCA reviewed its regulations to determine

whether or not technical changes were needed to adapt the rules to

ACBs. The ACB review highlighted the need for technical amendments to

the regulations. Set forth below is a discussion of issues involving

ACBs that are technical in nature. A complete listing of the technical

edits can be found in the amendatory language following the preamble.

A. Definition of Bank for Cooperatives

Currently, the definition of a bank for cooperatives in

Sec. 619.9060 reads as follows, ``Banks operating under title III of

the Act, including the National Bank for Cooperatives, individual and

regional banks for cooperatives and agricultural credit banks.'' There

is a separate definition of ACBs in Sec. 619.9020 that reads as

follows, ``Agricultural credit banks are those banks created by the

merger of a Farm Credit Bank and a bank for cooperatives pursuant to

section 7.0 of the Act.'' The current definition of a BC serves to

ensure that an ACB is subject to the same constraints as a BC on its

title III lending authorities. However, this BC definition is

insufficient because it does not address the title I authorities of an

ACB. As currently written, Sec. 619.9060 has the effect of excluding

ACBs from various regulatory provisions. For example, BCs are not

subject to the regulations relating to borrower rights, loan

disclosures, and secondary market activities.

For all the foregoing reasons, the FCA is keeping the definitions

of an ACB and a BC separate by revising the definition of BC to read as

follows, ``A bank for cooperatives is a bank that is operating under

section 3.0 of the Act.'' The definition of an ACB will continue to

read as currently set forth in Sec. 619.9020. The definition of a BC

also strikes the obsolete reference to the National Bank for

Cooperatives, whose charter was canceled in 1994, when CoBank and the

Springfield FCB and BC merged to create CoBank, ACB.

B. Borrower Rights

When the FCA approved the formation of the first ACB in 1994, it

addressed the issue of whether borrower rights provisions would apply

to the new entity. In approving the new charter, the FCA confirmed that

the ACB would not be subject to the borrower rights provisions of title

IV, part C of the Act, except to the extent that it lends to farmers,

ranchers, and producers and harvesters of aquatic products. Thus, the

FCA concluded that the borrower rights provisions attach to all loans

made under an ACB's title I lending authorities.

Many of the current regulations pertaining to borrower rights

exclude a BC from the definition of ``qualified lender.'' By revising

the definition of a BC as discussed above, ACBs would now be included

in the definition of ``qualified lender'' to the extent of their title

I lending authorities. Therefore, no additional regulatory language

changes have been made to the borrower rights

[[Page 67185]]

provisions, except for technical corrections in Secs. 614.4440(h)(1)

and 614.4510, in which outdated language is replaced by more current

terminology.

C. Termination of Farm Credit Status

Several technical changes have been made to the regulatory

provisions pertaining to the termination of Farm Credit status at

Secs. 611.1200(c), 611.1250(b) and (c), 611.1255, 611.1266(c). These

changes include adding the phrase ``or agricultural credit bank'' and

deleting or replacing outdated language with more current terminology,

where necessary.

D. Miscellaneous Technical Changes

Several technical changes have been made to various regulatory

provisions at Secs. 615.5120(a), 615.5143, 615.5280, 615.5290(a),

618.8310(b)(1) and 618.8325(c). These changes include adding the phrase

``or agricultural credit bank'' and deleting or replacing outdated

language with more current terminology, as appropriate.

List of Subjects

12 CFR Part 600

Organization and functions (Government agencies).

12 CFR Part 603

Privacy.

12 CFR Part 611

Agriculture, Banks, banking, Rural areas.

12 CFR Part 614

Agriculture, Banks, banking, Foreign trade, Reporting and

recordkeeping requirements, Rural areas.

12 CFR Part 615

Accounting, Agriculture, Banks, banking, Government securities,

Investments, Rural areas.

12 CFR Part 618

Agriculture, Archives and records, Banks, banking, Insurance,

Reporting and recordkeeping requirements, Rural areas, Technical

assistance.

12 CFR Part 619

Agriculture, Banks, banking, Rural areas.

For the reasons stated in the preamble, parts 600, 603, 611, 614,

615, 618, and 619 of chapter VI, title 12 of the Code of Federal

Regulations, are amended to read as follows:

PART 600--ORGANIZATION AND FUNCTIONS

1. The authority citation for part 600 is revised to read as

follows:

Authority: Secs. 5.7, 5.8, 5.9, 5.10, 5.11, 5.17, 8.11 of the

Farm Credit Act (12 U.S.C. 2241, 2242, 2243, 2244, 2245, 2252,

2279aa-11).

Subpart A--Farm Credit Administration

2. Section 600.5 is amended by removing the words ``Special

Supervision and Corporate Affairs'' and adding in their place the words

``Policy Development and Risk Control'' in the fourth sentence of

paragraph (b); removing the words ``coordinates the agency's

preparation of rules and regulations;'' in the first sentence of

paragraph (d)(1); and by revising paragraph (d)(2) to read as follows:

Sec. 600.5 Organization of the Farm Credit Administration.

* * * * *

(d) * * *

(2) Office of Policy Development and Risk Control.

The Office of Policy Development and Risk Control (OPDRC) develops

policies and regulations for the FCA Board's consideration and promotes

risk management policies and practices by the Farm Credit System. The

OPDRC has primary responsibility for developing regulatory proposals

and public policy statements that effectively implement applicable

statutes and promote the safety and soundness of the System. Other

major functions include evaluating requests for regulatory and charter

approvals and managing the FCA's corporate activities; ensuring that

risks associated with chartering activities are properly disclosed to

System shareholders and the FCA Board; managing the FCA's formal

enforcement activities and providing economic and financial analyses

that identify risk and contribute to the effective management of such

risks. The OPDRC also facilitates the FCA's strategic planning

function.

* * * * *

PART 603--PRIVACY ACT REGULATIONS

3. The authority citation for part 603 is revised to read as

follows:

Authority: Secs. 5.9, 5.17 of the Farm Credit Act (12 U.S.C.

2243, 2252); 5 U.S.C. app. 3, 5 U.S.C. 552a (j)(2) and (k)(2).

Sec. 603.310 [Amended]

4. Section 603.310 is amended by removing the words ``Congressional

and Public Affairs'' and adding in their place the words ``General

Counsel'' in paragraph (b).

PART 611--ORGANIZATION

5. The authority citation for part 611 continues to read as

follows:

Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15,

4.21, 5.9, 5.10, 5.17, 7.0-7.13, 8.5(e) of the Farm Credit Act (12

U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2209, 2243,

2244, 2252, 2279a-2279f-1, 2279aa-5(e)); secs. 411 and 412 of Pub.

L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of Pub. L. 100-

399, 102 Stat. 989, 1003, and 1004.

Subpart F--Bank Mergers, Consolidations and Charter Amendments

Sec. 611.1030 [Amended]

6. Section 611.1030 is amended by removing the words ``Agricultural

Credit Bank'' and adding in their place, the words ``agricultural

credit bank'' in the heading and the first sentence.

Subpart I--Service Organizations

7. Section 611.1135 is amended by removing paragraph (e) and

revising paragraphs (a), (b)(1), (b)(2), (b)(3)(v), (b)(6), (b)(7),

(c), (d)(1) introductory text, (d)(1)(iv), and (d)(2) to read as

follows:

Sec. 611.1135 Incorporation of service organizations.

(a) General. Any Farm Credit bank(s) or association(s) may organize

a corporation to perform, for or on behalf of the bank(s) or

association(s), any function or service that the bank(s) or

association(s) is authorized to perform under the Act and the

regulations, except extending credit and providing the sale of

insurance services. The bank(s) or association(s) wishing to organize

such a corporation shall submit an application to the Farm Credit

Administration according to the application requirements of paragraph

(b) of this section. If the proposal meets the requirements of the Act,

the regulations, and any other conditions that the Farm Credit

Administration may impose, the Agency may issue a charter for the

service corporation making it a federally chartered instrumentality of

the United States. Such service corporation shall be subject to

examination, supervision, and regulation by the Farm Credit

Administration. Only Farm Credit banks or associations are eligible to

become stockholders in such a corporation. Each bank or association

shall be eligible to become a stockholder of each service corporation

organized under this section.

(b) * * *

(1) The certified resolution of the board of each organizating bank

or

[[Page 67186]]

association authorizing the incorporation.

(2) A request signed by the president(s) of the organizing bank(s)

or association(s) to the Farm Credit Administration to issue a charter,

supported by a detailed statement demonstrating the need and the

justification for the proposed entity.

(3) * * *

(v) The procedures under which a bank or association may become a

stockholder;

* * * * *

(6) Any agreements between the organizing banks or associations

relating to the organization or the operation of the corporation.

(7) Any other supporting documentation as may be requested by the

Farm Credit Administration.

(c) Approval. The Farm Credit Administration may condition the

issuance of a charter as it deems appropriate and for good cause may

deny the application. Upon approval by the Farm Credit Administration

of a completed application, which shall be kept on file at the Farm

Credit Administration, the Agency shall issue a charter for the service

corporation which shall thereupon become a corporate body and a Federal

instrumentality.

(d) * * *

(1) The board of directors of the corporation may request that the

Farm Credit Administration amend the articles of incorporation by

sending with its request a certified resolution of the board of

directors of the service corporation and stating:

* * * * *

(iv) That the requisite shareholder approval has been obtained. The

request shall be subject to the approval of the Farm Credit

Administration as stated in paragraphs (a) and (c) of this section.

(2) The Farm Credit Administration may at any time make any and all

changes in the articles of incorporation of a service corporation that

are necessary and appropriate for the accomplishment of the purposes of

the Act.

Subparts J, K, L, M, N, and O [Reserved]

8. Subparts J, K, L, M, N, and O of part 611 are removed and

reserved.

Subpart P--Termination of Farm Credit Status--Associations

Sec. 611.1200 [Amended]

9. Section 611.1200 is amended by adding the words ``or

agricultural credit bank'' after the words ``Farm Credit Bank'' each

place they appear in paragraph (c).

Sec. 611.1250 [Amended]

10. Section 611.1250 is amended by adding the words ``or

agricultural credit bank'' after the words ``Farm Credit Bank'' in the

first sentence of paragraph (b) and in the first and third place they

appear in paragraph (c); and by removing the words ``Farm Credit Bank''

the second place they appear and adding in their place the words

``appropriate bank'' in the first sentence of paragraph (c).

11. Section 611.1255 is revised to read as follows:

Sec. 611.1255 Retirement of equities owned.

(a) The Farm Credit Bank or agricultural credit bank may retire all

equities of the bank that are owned by the terminating association on

the termination date or may enter into an agreement with the

terminating association that would provide for a phased retirement of

the equities. Any such plan for phased retirement shall provide for

such retirement to be completed by the earlier to occur of the date on

which the terminating association repays all indebtedness to the bank

or the date that is 3 years from the termination date, provided that no

retirement shall occur during that period if any such retirement would

result in the Bank's failure to meet minimum capital requirements.

(b) If the Farm Credit Bank or agricultural credit bank, and the

terminating association are unable to reach agreement regarding the

retirement of the bank's equities, either institution may send the most

recent proposals to the Farm Credit Administration along with an

explanation of the points of disagreement. The Farm Credit

Administration may require the bank to retire terminating association

equities under such conditions as the Farm Credit Administration may

require.

(c) No retirement shall occur if the Farm Credit Administration

determines that the retirement of equities of the Farm Credit Bank or

the agricultural credit bank would threaten the viability of the bank.

(d) The amount to be paid to a terminating association in the

retirement of equities owned in the Farm Credit Bank or the

agricultural credit bank shall be equal to the amount of the allocated

equities owned by the terminating association in the bank, less any

impairment, at the date the request for retirement is made by the

terminating association.

(e) If the terminating association has outstanding stock issued to

another Farm Credit institution, the association shall retire all such

investment prior to termination.

(f) A Farm Credit Bank's or agricultural credit bank's equities

obligated to be retired under any agreement between the terminating

association and the bank shall not be considered as part of the

permanent capital of the Farm Credit Bank or agricultural credit bank

for purposes of Sec. 615.5240.

Sec. 611.1266 [Amended]

12. Section 611.1266 is amended by removing the words ``district

Farm Credit Bank'' and adding in their place the words ``funding bank''

in the last sentence of paragraph (c).

PART 614--LOAN POLICIES AND OPERATIONS

13. The authority citation for part 614 continues to read as

follows:

Authority: 42 U.S.C. 4012a, 4014a, 4104b, 4106, and 4128; secs.

1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13,

2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 4.13,

4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.19, 4.36, 4.37,

5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 7.8, 7.12, 7.13, 8.0, 8.5 of

the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017, 2018,

2071, 2073, 2074, 2075, 2091, 2093, 2094, 2096, 2121, 2122, 2124,

2128, 2129, 2131, 2141, 2149, 2183, 2184, 2199, 2201, 2202, 2202a,

2202c, 2202d, 2202e, 2206, 2207, 2219a, 2219b, 2243, 2244, 2252,

2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f, 2279f-1, 2279aa,

2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639; sec.

207 of Pub. L. 104-105, 110 Stat. 162.

Subpart G--Interest Rates and Charges

14. Section 614.4321 is revised to read as follows:

Sec. 614.4321 Differential interest rate programs.

Pursuant to policies approved by the board of directors,

differential interest rates may be established for loans based on a

variety of factors that may include type, purpose, amount, quality,

funding or operating costs, or similar factors or combinations of

factors. Differential interest rate programs should achieve equitable

rate treatment within categories of borrowers. In the adoption of

differential interest rate programs, institutions may consider, among

other things, the effect that such interest rate structures will have

on the achievement of objectives relating to the special credit needs

of young, beginning or small farmers.

[[Page 67187]]

Subpart K--Disclosure of Loan Information

Sec. 614.4440 [Amended]

15. Section 614.4440 is amended by removing the reference to

``paragraph (f)'' and adding in its place the reference ``paragraph

(g)'' in paragraph (h)(1).

Subpart L--Actions on Applications: Review of Credit Decisions

16. Section 614.4444 is amended by revising the last two sentences

to read as follows:

Sec. 614.4444 Records.

* * * The file shall include minutes of each credit review

committee meeting, and sufficient documentation of the basis for each

determination not to restructure a loan to permit the institution or

the FCA to review each determination.

Subpart N--Loan Servicing Requirements; State Agricultural Loan

Mediation Programs; Right of First Refusal

17. Section 614.4510 is amended by removing paragraphs (b) and

(d)(4); by redesignating paragraphs (c) and (d) as paragraphs (b) and

(c); and by revising the introductory paragraph, paragraph (a), and

newly designated paragraph (c) introductory text to read as follows:

Sec. 614.4510 General.

Direct lenders shall be responsible for the servicing of the loans

that they make. However, loan participation agreements may designate

specific loan servicing efforts to be accomplished by a participating

institution. Each direct lender shall adopt loan servicing policies and

procedures to assure that loans will be serviced fairly and equitably

for the borrower while minimizing the risk for the lender. Procedures

shall include specific plans that help preserve the quality of sound

loans and that help correct credit deficiencies as they develop.

(a) The Farm Credit Bank shall provide guidelines for the servicing

of loans by the Federal land bank associations. The servicing may be

accomplished either under the direct supervision of the bank or under

delegated authority.

* * * * *

(c) In the development of loan servicing policies and procedures,

the following criteria shall be included:

* * * * *

Sec. 614.4515 [Reserved]

18. Section 614.4515 is removed and reserved.

19. Section 614.4516 is amended by revising the heading and adding

the following introductory paragraph before paragraph (a) to read as

follows:

Sec. 614.4516 Restructuring policy and procedures.

Loan restructurings are to be accomplished with the policy adopted

by the bank board of directors under section 4.14A(g) of the Act.

* * * * *

20. Section 614.4517 is amended by adding paragraph (c) as follows:

Sec. 614.4517 Restructuring decision.

* * * * *

(c) Documentation. In the event that an application for

restructuring is denied, a qualified lender shall maintain sufficient

documentation to demonstrate its compliance with paragraphs (a) and (b)

of this section, as applicable.

Sec. 614.4520 [Reserved]

21. Section 614.4520 is removed and reserved.

Subpart O--Special Lending Programs

Sec. 614.4525 [Amended]

22. Section 614.4525 is amended by adding the words ``and

agricultural credit associations'' after the words ``Production credit

associations'' in the first sentence of paragraph (c); and by removing

the words ``Subject to the approval of the respective banks board of

directors, Federal land banks, Federal intermediate credit banks, for

cooperatives, and production credit associations'' and adding in their

place the words ``Farm Credit System institutions that are direct

lenders'' in the first sentence of paragraph (d).

PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS,

AND FUNDING OPERATIONS

23. The authority citation for part 615 continues to read as

follows:

Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2. 2.3, 2.4, 2.5,

2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17,

6.20, 6.26, 8.0, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit

Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076,

2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243,

2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-

7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of Pub. L. 100-233,

101 Stat. 1568, 1608; sec. 105 of Pub. L. 104-105, 110 Stat. 162,

163-64.

Subpart D--Other Funding

Sec. 615.5120 [Amended]

24. Section 615.5120 is amended by adding the words ``or

agricultural credit bank'' after the words ``Farm Credit Bank'' in the

fourth sentence of paragraph (a).

25. Section 615.5140 is amended by revising paragraph (a)(1) to

read as follows:

Sec. 615.5140 Eligible investments and risk diversification.

(a) * * *

(1) Obligations of the United States; full-recourse obligations,

other than mortgage-backed securities, of agencies, instrumentalities

or corporations of the United States; or debt obligations of other

obligors that are fully insured or guaranteed as to both principal and

interest by the United States, its agencies, instrumentalities, or

corporations;

* * * * *

Subpart E--Investment Management

Sec. 615.5143 [Amended]

26. Section 615.5143 is amended by adding the words ``and

agricultural credit banks'' at the end of the heading; by adding the

words ``or agricultural credit banks' '' after the words ``banks for

cooperatives' '' in the first sentence; and by adding the words ``or

agricultural credit bank'' after the words ``bank for cooperatives'' in

the fourth and fifth sentences of the paragraph.

Subpart I--Issuance of Equities

27. Section 615.5250 is amended by revising paragraph (e) to read

as follows:

Sec. 615.5250 Disclosure requirements.

* * * * *

(e) The requirements of this section shall not apply to the sale of

Farm Credit System institution equities to other Farm Credit System

institutions, other financing institutions, or non-Farm Credit System

lenders.

Subpart J--Retirement of Equities

28. Section 615.5280 is amended by revising paragraphs (a), (b),

(c), (d) and (e) to read as follows:

Sec. 615.5280 Retirement in event of default.

(a) When the debt of a holder of eligible borrower stock issued by

a production credit association, Federal land association, Federal land

credit association or agriculture credit association is in default,

such institution may, but shall not be required to, retire at par

eligible borrower stock owned by such borrower

[[Page 67188]]

on which the institution has a lien, in total or partial liquidation of

the debt.

(b) When the debt of a holder of stock, participation certificates

or other equities issued by a production credit association, Federal

land bank association, Federal land credit association or agricultural

credit association is in default, such institution may, but shall not

be required to, retire at book value not to exceed par all or part of

such equities, other than eligible borrower stock as defined in

Sec. 615.5260(a)(1), owned by such borrower on which the institution

has a lien, in total or partial liquidation of the debt.

(c) When the debt of a holder of equities or guaranty fund

certificates issued by a bank for cooperatives or agricultural credit

bank is in default the bank may, but shall not be required to, retire

all or part of such equities qualify or guaranty fund investments owned

by the borrower on which the bank has a lien, in total or partial

liquidation of the debt. If such investments qualify as eligible

borrower stock, it shall be retired at par, as defined in

Sec. 615.5260(a)(3). All other investments shall be retired at a rate

determined by the institution to reflect its present value on the date

of retirement.

(d) When the debt of a holder of the equities of a Farm Credit Bank

or agricultural credit bank is in default the bank may, but shall not

be required to, retire all or part of such equities owned by the

borrower on which the bank has a lien, in total or partial liquidation

of the debt. If such equities qualify as eligible borrower stock or are

retired solely to permit a Federal land bank association to retire

eligible borrower stock under Sec. 615.5280(a), they shall be retired

at par. All other equities shall be retired at book value not to exceed

par.

(e) Any retirements made under this section by a Federal land bank

association shall be made only upon the specific approval of, or in

accordance with, approval procedures issued by the association's

funding bank.

* * * * *

Sec. 615.5290 [Amended]

29. Section 615.5290 is amended by adding the words ``or

agricultural credit bank'' after each reference to ``Farm Credit Bank''

in paragraph (a).

PART 618--GENERAL PROVISIONS

30. The authority citation for part 618 continues to read as

follows:

Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1, 3.7,

4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit Act (12

U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128, 2183,

2200, 2211, 2218, 2243, 2244, 2252).

Subpart F--Miscellaneous Provisions

Sec. 618.8260 [Reserved]

31. Section 618.8260 is removed and reserved.

Subpart G--Releasing Information

Sec. 618.8310 [Amended]

32. Section 618.8310 is amended by adding the words ``agricultural

credit bank'' before the words ``bank for cooperatives'' in paragraph

(b)(1).

33. Section 618.8320 is amended by removing paragraph (b)(9); by

redesignating paragraphs (b)(10) and (b)(11) as new paragraphs (b)(9)

and (b)(10) consecutively; and by revising paragraphs (b)(2) and (b)(5)

to read as follows:

Sec. 618.8320 Data regarding borrowers and loan applicants.

* * * * *

(b) * * *

(2) In connection with a legitimate law enforcement inquiry,

accredited representatives of any agency or department of the United

States may be given access to information upon presentation of official

identification and a written request specifying:

(i) The particular information desired; and

(ii) That the information is relevant to the law enforcement

inquiry and will be used only for the purpose for which it is sought.

* * * * *

(5) Impersonal information based solely on transaction or

experience with a borrower, such as amounts of loans, terms and payment

records, may be given by a bank or association to a consumer reporting

agency, or any other reliable organization for its confidential use in

contemplation of the extension of credit.

* * * * *

Sec. 618.8325 [Amended]

34. Section 618.8325 is amended by removing the commas after the

words ``offices'', ``charter'', and ``inspection'' in paragraph (c).

Sec. 618.8330 [Amended]

35. Section 618.8330 is amended by removing paragraph (b) and

removing the designation from paragraph (a).

Sec. 618.8340 [Reserved]

36. Section 618.8340 is removed and reserved.

Subpart H--Disposition of Obsolete Records

Sec. 618.8360 [Reserved]

37. Section 618.8360 is removed and reserved.

Sec. 618.8370 [Reserved]

38. Section 618.8370 is removed and reserved.

Subpart I [Reserved]

39. Subpart I, consisting of Secs. 618.8380 through 618.8420, is

removed and reserved.

PART 619--DEFINITIONS

40. The authority citation for part 619 continues to read as

follows:

Authority: Secs. 1.7, 2.4, 4.9, 5.9, 5.12, 5.17, 5.18, 7.0, 7.6,

7.7, 7.8 of the Farm Credit Act (12 U.S.C. 2015, 2075, 2160, 2243,

2246, 2252, 2253, 2279a, 2279b, 2279b-1, 2279b-2).

41. Section 619.9060 is revised to read as follows:

Sec. 618.9060 Bank for cooperatives.

A bank for cooperatives is a bank that is operating under section

3.0 of the Act.

Dated: December 12, 1996.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 96-32309 Filed 12-19-96; 8:45 am]

BILLING CODE 6705-01-M