Organization; Loan Policies and Operations; Disclosure to Shareholders; Disclosure to Investors in Systemwide and Consolidated Bank Debt Obligations of the Farm Credit System; Other Financing Institutions

FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 614, 620, and 630

RIN 3052-AB67

Organization; Loan Policies and Operations; Disclosure to

Shareholders; Disclosure to Investors in Systemwide and Consolidated

Bank Debt Obligations of the Farm Credit System; Other Financing

Institutions

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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

FCA Board (Board), issues a proposed rule to amend its regulations in

subpart P of part 614 that govern the funding and discount relationship

between Farm Credit System (Farm Credit, FCS, or System) banks that

operate under title I of the Farm Credit Act of 1971, as amended (Act),

and non-System other financing institutions (OFIs). The proposed

regulation would substantially expand the opportunities for OFIs, such

as commercial banks, trust companies, agricultural credit corporations,

incorporated livestock loan companies, savings associations, credit

unions, or other financial institutions identified in section

1.7(b)(1)(B) of the Act, to fund or discount loans and leases through a

Farm Credit Bank (FCB) or an agricultural credit bank (ACB). FCBs and

ACBs can offer financing to OFIs for the purpose of funding short- and

intermediate-term loans and leases to parties who are eligible to

borrow from FCS associations under section 2.4(a) of the Act. The FCA's

proposal would eliminate several non-statutory limits on OFI

eligibility. It would also require an FCB or ACB to provide funding and

discount services to any creditworthy OFI that is significantly

involved in agricultural lending and demonstrates a continuing need for

supplementary sources of funds to meet the credit needs of agricultural

borrowers. The proposed rule would expand the opportunity for an OFI to

seek funding, discount and other similar financial assistance from an

FCB or ACB other than the System bank that is chartered to serve its

territory under certain circumstances. The proposed rule also

implements statutory provisions that

[[Page 38224]]

require OFIs to: Invest in the System funding bank; use the funds

obtained from FCS banks only to provide short- and intermediate-term

financing to eligible borrowers for authorized purposes; adhere to

borrower rights on agricultural and aquatic loans; ensure that the FCA

has access to the books and records of the OFI; and limit their

aggregate liabilities to no more than 10 times their paid-in and

unimpaired capital and surplus. Under this proposal, FCBs and ACBs

would be required to lend to OFIs only on a fully secured basis and to

have full recourse to the OFI's capital as protection against default.

The FCA has restructured the regulations in subpart P of part 614 so

they are more concise and easier to understand.

DATES: Written comments should be received on or before September 15,

1997.

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, Virginia 22102-5090 or sent by facsimile transmission to (703)

734-5784. Comments may also be submitted via electronic mail to ``reg-

[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:

Eric Howard, Policy Analyst, Regulation Development Division, Office of

Policy Development and Risk Control, Farm Credit Administration,

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

or

Richard A. Katz, Senior Attorney, Regulatory Enforcement Division,

Office of General Counsel, Farm Credit Administration, McLean, VA

22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: On May 17, 1996, the FCA published for

public comment an Advance Notice of Proposed Rulemaking (ANPRM)

concerning potential revisions to the regulations in subpart P of part

614 that govern the funding and discount relationship between System

banks that operate under title I of the Act and non-System OFIs. See 61

FR 24907 (May 17, 1996). The comment period expired on July 16, 1996,

but the FCA extended the comment period until August 30, 1996, in order

to allow interested parties additional time to respond. See 61 FR 37230

(July 17, 1996). The FCA received 34 comment letters. Of this total, 18

comments were from commercial banks, 4 from FCS banks, 7 from System

associations, 4 from trade associations, and 1 from a non-depository

OFI. Four trade associations submitted comments on behalf of their

members: American Bankers Association (ABA); the Independent Bankers

Association of America (IBAA); the National Livestock Producers

Association (NLPA); and the Nebraska Bankers Association.

The comment letters reflected a broad diversity of viewpoints about

OFI access to funding and discount services at FCBs and ACBs. Neither

System nor non-System commenters offered uniform positions in response

to ANPRM questions. The FCA addresses the commenters' concerns about

specific substantive issues in those sections of this preamble that

explain various provisions of the proposed rule.

The ABA and IBAA have sought legislation that would provide non-

System financial institutions greater access to funding, discount and

other similar financial assistance at System banks, and most commercial

bank commenters asked the FCA to endorse this proposal. Some commercial

bank commenters requested that the FCA propose new regulations that

advance the joint legislative initiative of the ABA and IBAA. Some FCS

associations opined that new OFI regulations could expose them to

competitive disadvantages and they asked the FCA not to proceed with

this rulemaking until Congress expands the System's lending

authorities. The bank for cooperatives asked the FCA to request new

legislation so title III banks could also extend credit to OFIs.

Other commenters also requested that the FCA propose new

regulations that would exceed current statutory authorities. For

example, many commenters requested that the FCA: (1) Authorize OFIs to

fund or discount their long-term mortgages with FCBs and ACBs; (2)

allow OFIs to elect members to the boards of their System funding

banks; (3) exempt non-System lenders from borrower rights requirements;

and (4) model the new regulations after provisions in the Federal Home

Loan Bank Act, 12 U.S.C. 1421 et seq. The current statute prevents the

FCA from adopting these suggestions.

The proposed regulations grant title I banks and OFIs greater

flexibility to finance agriculture, aquaculture and other specified

rural development needs within the confines of the existing statute.

The FCA has decided to revise these regulations because of significant

changes in the financial and agricultural credit markets since the

existing OFI regulations were adopted in 1981. The regulations in

subpart P of part 614 have been restructured substantially to conform

with the Policy Statement on Regulatory Philosophy of the FCA Board.

See 60 FR 26034 (May 16, 1995). The proposed regulations interpret and

implement the applicable provisions of the statute, and they promote a

safe and sound lending relationship between System funding banks and

their OFIs. The FCA proposes to repeal those regulatory provisions that

prescribe detailed management practices to FCS banks or impose

unnecessary costs and burdens on both System institutions and OFIs. The

FCA believes that these proposed regulations are more concise and

easier to understand.

I. OFI Access to Farm Credit Banks and Agricultural Credit Banks

A. Commenter Concerns

The FCA asked several questions about which OFIs should be allowed

to establish a funding and discount relationship with FCBs and ACBs.

The Agency requested guidance on criteria that determine whether an

OFI: (1) Is ``significantly involved in lending for agricultural or

aquatic purposes''; (2) ``demonstrates a continuing need for

supplementary sources of funds to meet the credit requirements of its

agricultural or aquatic borrowers''; and (3) has ``limited access to

national or regional capital markets.'' Additionally, the ANPRM

solicited comments about how OFI access to the FCS will be affected by

changes to corporate organization and structure and the advent of

interstate banking and branching.

Eleven parties responded to one or more of these ANPRM questions.

Three System institutions opined that the policies of each title I

bank, not FCA regulations, should prescribe specific eligibility

criteria for OFIs, while one FCS association suggested that the new

regulation should only require OFI applicants to demonstrate an ongoing

``material and significant'' commitment to agriculture. The NLPA

recommended that only OFIs that lend exclusively to agriculture should

be allowed to borrow from the FCBs and ACBs. The ABA, IBAA, and the ACB

suggested that new regulations should permit OFIs access to System

funding and discount services if at least 10 percent of their loans are

to agricultural or aquatic borrowers. The ABA and the ACB also

recommended additional standards, such as a minimum absolute dollar

threshold or income level, to measure whether an

[[Page 38225]]

OFI is significantly involved in agricultural lending.

The FCA also received comments from the ABA, IBAA, NLPA, and four

FCS institutions about OFI needs for other sources of funding to meet

the credit requirements of agricultural and aquatic borrowers. The NLPA

and the IBAA commented that proposed regulations should grant their

respective constituencies (non-depository financial institutions and

local community banks) preferential access to FCS funding and discount

services because they lack many of the funding sources that are

available to other agricultural lenders. Two commercial bank trade

associations, an FCB, and a pair of jointly managed System associations

advised the FCA to repeal the 60-percent loan-to-deposit ratio in

Sec. 614.4550(a)(3) because it: (1) Imposes unnecessary regulatory

burdens on both OFIs and their System funding bank; (2) is an asset-

liability management measure that is unrelated to the agricultural

lending activities of OFIs; and (3) does not accurately reflect an

OFI's need for supplemental funds. Two FCBs informed the FCA that the

definitions of ``national'' and ``regional'' money markets in

Sec. 614.4540(f) and (g) should be repealed because they are obsolete.

The IBAA and an FCB commented that the advent of interstate banking and

branching has no bearing on whether non-System lenders need

supplemental sources of funds to meet the credit requirements of

farmers, ranchers, and aquatic producers and harvesters.

These responses indicate that many System and non-System commenters

believe that the existing regulations unduly restrict the ability of

non-System financial institutions to fund and discount their

agricultural or aquatic loans at FCBs and ACBs. Although differences of

opinion exist about various details concerning OFI access to the FCS, a

consensus exists among these commenters that a new regulatory approach

is needed so that title I banks can better fulfill their mission to

finance agriculture, aquaculture, and other specified rural credit

needs. The FCA shares this view and proposes new regulations that are

more closely aligned with the provisions of section 1.7(b) of the Act.

B. New Regulatory Approach for OFI Access

Under existing Secs. 614.4545 and 614.4550, only OFIs that satisfy

certain criteria are permitted to establish funding or discount

relationships with a title I bank. The FCA proposes to repeal these two

regulations because they impose restrictions that are not required by

the Act. Both section 1.7(b)(1) of the Act and its legislative history

indicate that Congress intended that Farm Credit banks act as a funding

and liquidity source primarily for small, local OFIs, but it did not

exclude other agricultural creditors from funding or discounting loans

with title I banks.

The FCA proposes a two-tier approach so that any financial

institution that has one of the charters specified in section

1.7(b)(1)(B) of the Act may establish a funding and discount

relationship with a title I bank, while those OFIs that have at least

15 percent of their loans to agricultural producers and enter into a 2-

year funding agreement with an FCB or ACB are assured access to the FCS

on a preferred basis. From the FCA's perspective, proposed

Sec. 614.4540 more closely reflects the statute.

Proposed Sec. 614.4540(a) permits those OFIs that are not assured

access to borrow from a title I bank so long as the proceeds are used

only to make short-and intermediate-term loans to persons and for

purposes eligible for financing by a production credit association

(PCA) or agricultural credit association (ACA) under sections 1.10(b)

and 2.4 (a) and (b) of the Act. By allowing more financial institutions

to fund or discount their loans with FCBs and ACBs, proposed

Sec. 614.4540(a) ultimately will provide farmers, ranchers, aquatic

producers and harvesters, and other eligible rural residents greater

access to credit.

The proposed rule repeals a provision in existing

Sec. 614.4550(a)(1) that prohibits title I banks from lending to

entities that ``* * * finance the sale of products by its affiliates *

* *'' because this restriction is not required by the Act. Two

commercial bank trade associations and three System institutions have

persuaded the FCA to repeal the loan-to-deposit ratio in existing

Sec. 614.4550(a)(3) because it is not a reliable indicator of an OFI's

commitment to agriculture, or its need for supplementary funds.

Proposed Sec. 614.4540(b) implements section 1.7(b)(4) of the Act,

which assures that the funding, discount and other similar financial

assistance of FCBs and ACBs shall be available on a reasonable basis to

any creditworthy OFI that: (1) Is significantly involved in lending for

agricultural or aquatic purposes; (2) demonstrates a continuing need

for supplementary sources of funds to meet the credit requirements of

its agricultural or aquatic borrowers; (3) has limited access to

national or regional capital markets; and (4) does not use the services

of System banks to extend credit to persons and for purposes that

cannot be financed by a PCA under title II of the Act. Proposed

Sec. 614.4540(b)(1) specifies that an OFI is significantly involved in

agricultural or aquatic lending if it has at least 15 percent of its

loan portfolio at a seasonal peak in credit extensions to farmers,

ranchers, and aquatic producers and harvesters. Although these OFIs are

assured access under proposed Sec. 614.4540(b), the regulation

specifically permits FCBs and ACBs to decline any funding request that

imperils their safety and soundness.

Under this proposal, FCBs and ACBs will not include the loan assets

of the OFI's parent, affiliates, and subsidiaries when determining

whether the OFI applicant meets the 15-percent criterion. By focusing

solely on the applicant, this approach affords more financial

institutions access to the FCS, and therefore, increases the flow of

credit to farmers, ranchers, aquatic producers and harvesters and other

eligible rural residents. Furthermore, the requirement in existing

Sec. 614.4545(c) that a title I bank decide whether an OFI applicant

should be considered by itself or together with its related entities is

not susceptible to consistent and uniform application by the FCS.

Additionally, existing Sec. 614.4545(c) does not facilitate prompt

consideration of OFI funding requests, and the FCA proposes to repeal

it in order to reduce unnecessary regulatory burdens on System funding

banks.

The FCA's approach substantially expands OFI access to the FCS. In

contrast to the existing regulation, proposed Sec. 614.4540 allows OFIs

that have less than 15 percent of their loans in agriculture to borrow

from FCBs and ACBs. In addition, creditworthy OFIs are assured access

to the FCS if at least 15 percent of their loans are made to farmers,

ranchers, and aquatic producers and harvesters. The FCA believes that

this 15-percent threshold reasonably reflects an OFI's commitment to

agricultural lending, and therefore, it does not adopt any of the

alternatives suggested by the commenters.

The NLPA suggested that only OFIs that exclusively finance

agricultural production should qualify for the funding or discount

services of System banks. This suggestion is more restrictive than the

existing regulation, and is incompatible with the mission of title I

banks to provide affordable, dependable, and stable credit to eligible

farmers, ranchers, aquatic producers and harvesters, and other eligible

rural residents through both OFIs and FCS associations. Financial

institutions that

[[Page 38226]]

have non-agricultural loans in their portfolios may still be

``significantly involved in lending for agricultural or aquatic

purposes,'' within the meaning of section 1.7(b)(4)(B)(i) of the Act,

and the legislative history to this provision indicates that Congress

specifically contemplated that FCA regulations would establish a

threshold well below 100 percent.

The FCA has adopted an approach that provides OFIs with greater

access to FCBs and ACBs than the recommendation of the ABA, IBAA, and

the ACB. As noted earlier, the proposed regulation allows any OFI to

fund or discount their short-and intermediate-term agricultural,

aquatic, farm-related business, and non-farm rural home loans with an

FCB or ACB, while it assures any creditworthy OFI that maintains at

least 15 percent of its loan volume in agricultural or aquatic loans

access to the FCS. At this time, the FCA does not believe that this

percentage should be lowered for OFIs that are assured System access

under proposed Sec. 614.4540(b)(1).

Some System commenters suggested that the new regulation authorize

funding banks to establish rules of access for OFI applicants. This

approach is not compatible with section 1.7(b)(4)(A) of the Act, which

requires FCA regulations to establish specific standards that govern

OFI access to System banks. Furthermore, this approach is not

susceptible to uniform application throughout the FCS.

Proposed Sec. 614.4540(b)(2) requires an OFI applicant to

demonstrate a continuing need for supplementary sources of funds by

establishing a financing relationship with an FCB or ACB for at least 2

years. This approach is consistent with existing Sec. 614.4560(b)(5),

and the FCA believes that this 2-year commitment requirement deters

OFIs from making sporadic funding requests to FCBs and ACBs. The FCA

proposes to repeal the provision in existing Sec. 614.4560(b)(5) that

imposes a specific non-use fee on OFIs that fail to maintain an average

daily loan balance of 70 percent of their projected loan volume. The

FCA believes that System banks and OFIs should be free to negotiate

such fees in whatever manner that meets their business needs. Under the

proposed regulation, each FCB and ACB will have the discretion to

establish appropriate interest rates and fees for all OFIs on an

equitable and objective basis.

The proposed regulation does not establish specific criteria for

determining whether OFI applicants have limited access to national or

regional money markets. The FCA observes that virtually all financial

institutions have greater access to regional, national, and even global

money markets today than 16 years ago when the existing regulations

were adopted. The FCA's new regulatory approach enables System banks

that operate under title I of the Act to finance all eligible OFIs,

while it does not disadvantage small, local OFIs or FCS associations.

New provisions are proposed that give additional assurances to small,

local OFIs that significantly and continually lend to agriculture. The

FCA believes that this approach enhances the flow of competitive credit

to farmers, ranchers, and aquatic producers and harvesters by opening

greater access to the credit markets in rural America--a fundamental

public policy purpose of the Farm Credit Act.

C. Denials of OFI Applications

The FCA requested comments about whether the Agency should continue

to review all denials of OFI applications. Two System commenters

thought that FCA review unnecessarily interjects the Agency in the

credit decisions of System banks, while two trade associations believed

that such reviews ensure equitable treatment between OFIs and System

associations and prevent FCBs and ACBs from denying OFI applications

for reasons that are unrelated to safety and soundness.

Proposed Sec. 614.4540(c) requires each FCB and ACB to establish

objective loan underwriting policies and procedures for determining the

creditworthiness of each OFI applicant. The FCA's proposal prevents

FCBs and ACBs from denying the application of any OFI that is assured

access under proposed Sec. 614.4540(b) unless the OFI fails to satisfy

the funding bank's loan underwriting requirements. Proposed

Sec. 614.4540(c) adequately safeguards the interests of OFIs because

denials of credit applications must be based on objective loan

underwriting standards. The FCA will review denials of OFI funding

requests during examinations of FCBs and ACBs. Therefore, the FCA

proposes to repeal existing Sec. 614.4555.

II. Place of Discount

The ANPRM sought guidance about whether the FCA should revise

restrictions in existing Sec. 614.4660 concerning the place of discount

for OFIs. A question in the ANPRM asked under what circumstances an FCB

or ACB should be allowed to extend financing to an OFI that does not

operate in its chartered territory if the designated System bank does

not approve the OFI's application.

Five System institutions, two commercial banks, and four trade

associations responded to ANPRM questions regarding the place of

discount. One System association opposed any revision to Sec. 614.4660.

A PCA advised the FCA not to allow an FCB or ACB to lend to OFIs

located outside of the bank's chartered territory unless FCS

associations could also seek financing from other FCS banks. All other

commenters opined that OFIs should have greater flexibility to fund or

discount loans with FCBs and ACBs that are not chartered to serve the

territory where such OFIs are located. Three commercial bank trade

associations, two commercial banks, and two System institutions

commented that the new regulations should not impose any restriction on

where OFIs can seek FCS funding and discount services. Six of these

commenters advised the FCA that existing Sec. 614.4660 is a significant

impediment to the success of the OFI program because it requires OFIs

to seek funding from FCBs and ACBs that are owned by their competitors.

One System commenter opined that existing Sec. 614.4660 cannot be

reconciled with the primary mission of the FCS to extend credit to

farmers and ranchers. One System bank suggested that the new regulation

authorize FCBs and ACBs to extend financing to OFIs located outside

their chartered territory only after the designated System bank has

denied their applications. The NLPA recommended that the FCA allow OFIs

to seek the funding and discount service of any FCB or ACB, but

prohibit such System banks from soliciting OFIs that are located

outside of their chartered territory.

The FCA proposes to modify the regulatory requirements governing

place of discount to provide OFI applicants with greater flexibility to

obtain System financing. Under proposed Sec. 614.4550(a), each FCB or

ACB would have the first opportunity to provide financing to OFIs

headquartered within its chartered territory. In order to simplify the

rules concerning place of discount, the FCA proposes to repeal a

provision in existing Sec. 614.4660 that requires an OFI to establish a

funding and discount relationship with the title I bank in whose

territory more than 50 percent of the OFI's loan volume is concentrated

if the OFI's headquarters is located in the territory of another FCB or

ACB.

A System bank could provide funding to an OFI whose headquarters is

located outside its territory under two conditions. First, the bank

could obtain the consent of the System bank in whose territory the

OFI's headquarters

[[Page 38227]]

is located. It could also serve an OFI that has unsuccessfully sought

financing from the designated System bank. Thus, proposed

Sec. 614.4550(b) authorizes any FCB or ACB to extend credit to an OFI

if the OFI's designated System bank denies the OFI's application or

otherwise fails to approve the OFI's funding request within 60 days.

The 60-day provision is intended to establish a certain time by which

an OFI is free to seek funding from another System bank. It begins upon

the bank's receipt of a ``completed application'' as defined by

Regulation B of the Board of Governors of the Federal Reserve System,

12 CFR 202.2(f). The FCA notes that Regulation B requires System banks

to notify OFIs of the denial of applications for financing and to

provide reasons for the adverse decision upon request. For this reason,

the FCA believes it is unnecessary for this proposed regulation to

include requirements for notification and disclosure of the reasons for

denial. This new regulatory approach responds to commenter concerns

that FCBs and ACBs might be reluctant to fund OFIs that compete with

the PCAs and ACAs that own the bank. It also simultaneously prevents

unrestrained competition among title I banks for OFI lending.

III. Requirements for OFI Funding Relationships

Proposed Sec. 614.4560 implements several statutory provisions that

govern the funding and discount relationship between OFIs and their

System funding banks. The FCA has consolidated various provisions that

are currently found throughout the regulations in subpart P of part

614, without substantive change. Proposed Sec. 614.4560(a)(1) requires

an OFI to execute a general financing agreement (GFA) with its System

funding bank pursuant to the regulations in subpart C of part 614 as a

condition precedent for obtaining funding, discount and other similar

financial assistance from an FCB or ACB.

Proposed Sec. 614.4560(a)(2) requires each OFI to purchase non-

voting stock in its System funding bank pursuant to the bank's bylaws.

As discussed in greater detail below, proposed Sec. 614.4590 requires

each FCB and ACB to establish appropriate interest rates, fees, and

capitalization requirements that promote equitable treatment between

direct lender associations that operate under title II of the Act and

OFIs. Similarly, the FCB's or ACB's policies and procedures should also

address minimum loan amounts, terms, commitment fees, non-use fees,

prepayment penalties, and other conditions that may apply to OFIs.

Proposed Sec. 614.4560(b) implements provisions in section

1.7(b)(1) and (b)(4)(B)(iv) of the Act that prohibit OFIs from using

the funds that they receive from an FCB or ACB to extend credit to

parties and for purposes and terms that are not authorized by sections

1.10(b) and 2.4(a) and (b) of the Act. The FCA has relocated the

portfolio limitations in existing Sec. 614.4610 on non-farm rural home

loans and certain processing and marketing loans to proposed

Sec. 614.4560(c) without substantive amendment. Proposed

Sec. 614.4560(d) implements section 4.14A(a)(6)(B) of the Act by

subjecting all agricultural and aquatic loans that OFIs fund or

discount through an FCB or ACB to statutory and regulatory borrower

rights requirements.

Proposed Sec. 614.4560(e) implements section 5.21 of the Act, which

enables the FCA to examine non-depository OFIs and obtain examination

reports from the State regulators of commercial banks, trust companies,

and savings associations. Under this regulatory provision, OFIs are

required to execute the applicable consent forms or releases before

they obtain financing from an FCB or ACB. Section 5.22 of the Act

enables the FCA to receive examination reports directly from other

Federal regulatory agencies.

The FCA proposes to repeal existing Sec. 614.4650, which contains

five criteria for a System funding bank to revoke or suspend an OFI's

line of credit. This regulation neither interprets nor implements the

Act, or promotes safety and soundness. The FCA, however, expects each

title I bank to incorporate criteria for revoking or suspending its

funding relationship with an OFI into its loan underwriting policies

and procedures. This issue should be addressed in the GFA between an

OFI and its System funding bank.

IV. Recourse and Security Requirements

These new regulations afford OFIs greater and more flexible access

to the FCS within the confines of safety and soundness. The FCA's

proposal requires FCBs and ACBs to have full recourse to an OFI's

capital and to finance OFIs on a fully secured basis. Proposed

Sec. 614.4570 addresses these two issues.

The proposed Sec. 614.4570(a) requires an OFI to endorse all

obligations that it funds or discounts through an FCB or ACB with full

recourse or its unconditional guarantee. For safety and soundness

reasons, the FCA believes that FCBs and ACBs must have recourse to the

OFI's capital.

Proposed Sec. 614.4570(b)(1) requires that each OFI pledge all

notes, drafts, and other obligations that are funded or discounted with

the FCB or ACB as collateral for the credit extension, and proposed

Sec. 614.4570(b)(2) obligates each FCB or ACB to perfect its security

interest in such obligations and the proceeds thereunder in accordance

with applicable State law. These provisions would prohibit any FCB or

ACB from extending credit to an OFI on an unsecured, or limited or non-

recourse basis.

The ANPRM asked under what circumstances, if any, the new

regulations should require OFIs to pledge cash and readily marketable

securities or other assets as supplemental collateral to their System

funding bank. The FCA received comments on this issue from two trade

associations and three System institutions. The NLPA advised the FCA

that supplemental collateral should be pledged when 1 percent of the

OFI's loans under discount fall below ``Acceptable'' and ``Other Assets

Especially Mentioned'' classifications. The three System commenters

expressed the view that the System funding bank should have the

discretion to determine whether supplemental collateral is needed to

manage the risk posed by each OFI. The IBAA suggested that the FCA

establish supplemental collateral requirements for FCBs and ACBs that

are patterned after a provision in the Federal Home Loan Bank Act, 12

U.S.C. 1430, which allows each Federal Home Loan Bank, in its

discretion, to take residential mortgages and securities that are

issued, insured, or guaranteed by the United States or any of its

agencies as security for advances to its members. The System commenters

and the IBAA have persuaded the FCA that the new regulations should

leave questions about supplemental collateral to the discretion of the

System funding bank as a part of its underwriting policies and

standards. Accordingly, the FCA does not propose a specific

supplemental collateral requirement by regulation. For these reasons,

the FCA proposes to repeal Secs. 614.4570 and 614.4600(b)(3), which

require OFIs to pledge certain liquid collateral to the System funding

bank as a condition for obtaining financing.

The IBAA suggested that the new regulations authorize OFIs to

pledge any rural or agricultural loans as collateral to the System

funding bank. The commenter did not specify whether this suggestion

pertains to pledges of primary or supplemental collateral. FCBs and

ACBs cannot accept long-term

[[Page 38228]]

``rural'' loans as primary collateral because section 1.7(b) of the Act

requires OFIs to use funds from a title I bank only for the purpose of

extending short- and intermediate-term credit to eligible borrowers for

authorized purposes under section 2.4(a) and (b) of the Act. Other

types of loans could be used as supplemental collateral, but the

funding bank must ensure that its funds are used only for loans to

eligible borrowers for authorized purposes.

Proposed Sec. 614.4570(c) would require each FCB and ACB to develop

policies and procedures that establish uniform and objective standards

for determining the need and amount of supplemental collateral or other

credit enhancements that each OFI must pledge to its System funding

bank as a condition for obtaining credit. The amount, type, and quality

of supplemental collateral or other credit enhancements specified by

such policies and procedures must be proportional to the level of risk

that the OFI poses to its System funding bank. Provisions in the GFA or

the security agreement would govern collateral pledged by each OFI to

its System funding bank.

V. Limitation on the Extension of Funding, Discount and Other

Similar Financial Assistance to an OFI

The FCA proposes to redesignate Sec. 614.4560(b)(3) as new

Sec. 614.4580. This regulation derives from section 1.7(b)(3) of the

Act, which prohibits a System funding bank from extending credit to an

OFI if its aggregate liabilities exceed 10 times its paid-in and

unimpaired capital and surplus, or a lesser amount established by the

laws of the jurisdiction creating the OFI. Although the FCA proposes to

omit the last three sentences of existing Sec. 614.4560(b)(3), System

banks may still establish, by policy, a lower liabilities-to-capital

ratio for their OFIs. In this context, the FCA expects that each FCB or

ACB will establish in its underwriting policies and procedures, as

referred to in Sec. 614.4540(c), specific capital standards that

address risks posed by its OFIs. A commercial bank trade association

asked the FCA to adopt a liabilities-to-capital ratio of 20:1 because

this is the standard for members of the Federal Home Loan Bank System.

See 12 U.S.C. 1430(c). The FCA is unable to adopt the commenter's

suggestion because section 1.7(b)(3) of the Act does not provide that

flexibility.

VI. Lending Limit to a Single OFI Borrower

The ANPRM requested comments about how the regulations should

address concentration risk in an OFI's loan portfolio. More

specifically, the FCA asked whether the current 50-percent lending

limit in existing Sec. 614.4565 is appropriate or whether the Agency

should consider alternative approaches. The FCA received responses to

these questions from three trade associations, a commercial bank, an

FCB, and a pair of jointly managed FCS associations. The NLPA and the

FCB suggested that the FCA retain the existing 50-percent lending

limit, while the FCS associations advised the Agency to repeal the

regulatory lending limit so that OFIs and their respective FCS funding

bank could determine the appropriate lending limit when they negotiate

their GFAs. The three commercial bank commenters opined that the OFI

lending limits in existing Sec. 614.4565 are overly restrictive and

should be raised. These commenters claimed that the 50-percent lending

limit enables only OFIs with substantial capital to make loans of a

significant size.

The FCA proposes that it will no longer impose a regulatory lending

limit on extensions of credit that OFIs make to their borrowers with

FCS funds. Some OFIs will remain subject to the lending limits that

their primary regulator imposes under applicable Federal or State law.

The FCA will rely on the OFI's primary Federal or State regulator where

one exists to ensure that an OFI does not lend a disproportionate

amount of its capital and surplus to a single credit risk. However, the

FCA further expects each FCB or ACB to prudently manage its exposure to

risks caused by concentrations in OFI loan portfolios through both its

loan underwriting standards and the GFA. During examinations, the FCA

will review the controls that each FCB or ACB establishes to address

such single-credit risk concentrations in OFI loan portfolios.

The FCA observes that opportunities for FCBs and ACBs to fund OFIs

are substantially increased by this proposal. While considering the

safety and soundness risks associated with such an expansion the Agency

considered alternative approaches for controlling risk exposure to the

FCS. Specifically, the FCA is considering whether the final regulation

should establish a lending limit on the extension of credit from a Farm

Credit bank to each OFI. See Secs. 614.4350 and 614.4352. The FCA

solicits commenters' views as to whether the final rule should contain

a lending limit to an OFI as a percent of the funding bank's capital

base similar to the approach delineated in Sec. 614.4352, and if so, at

what percent should the limit be established. Finally, the FCA welcomes

suggestions for other approaches to manage and control risks

originating through OFI lending relationships.

VII. Equitable Treatment of OFIs and FCS Associations

The FCA requested comments about how the proposed regulations could

ensure that System funding banks accord impartial and equitable

treatment to both OFIs and FCS direct lender associations. Three trade

associations, three FCS banks, three System associations, two

commercial banks, and one non-depository OFI responded to the FCA's

questions. The NLPA and one FCS commenter replied that existing

Sec. 614.4640 is adequate because it ensures that System banks treat

OFIs and FCS direct lender associations equitably. One FCB urged the

FCA to repeal Sec. 614.4640 so that title I banks could negotiate

interest rates and servicing fees with prospective OFIs. The ACB and

the non-depository OFI opined that System funding banks should accord

essentially the same treatment to the their direct lender associations

and OFIs, but disparity in interest rates and fees could be justified

by different levels of risk that such institutions pose to their System

funding bank. Two FCS associations suggested that the proposed

regulation impose the same capital investment requirement on both OFIs

and direct lender associations. One of these associations suggested

that if the FCA permits FCBs and ACBs to establish different capital

requirements for OFIs and direct lender associations, interest rates

should be charged which result in similar levels of overall financial

return to the funding bank from all borrowing entities. One pair of

jointly managed associations commented that the proposed regulations

should require OFIs to contribute to the funding bank's premium to the

Farm Credit System Insurance Corporation (FCSIC). Three commercial bank

commenters suggested that the FCA encourage FCBs and ACBs to pay

dividends to OFIs on their non-voting stock. The IBAA commented that

the proposed regulation should require each FCB and ACB to disclose to

OFI applicants information about its rates, spreads, and dividends for

direct lender associations.

The FCA proposes a new regulatory approach that balances a System

funding bank's obligation to accord equitable treatment to both direct

lender associations and OFIs with its needs for greater business

flexibility to price and structure its credit to all lending

institutions. Whereas existing Sec. 614.4640 specifically requires FCBs

[[Page 38229]]

and ACBs to charge OFIs and direct lender associations the same rates

and fees on the same basis, the proposed regulation would require that

the overall costs of funds to OFIs and associations be comparable,

irrespective of the individual components of credit costs, such as

interest rates and fees. Proposed Sec. 614.4590(a) requires each FCB

and ACB to apply similar objective loan underwriting standards to both

OFIs and direct lender associations, and proposed Sec. 614.4590(b)

states that any variation in the overall amounts that OFIs and direct

lender associations are charged by the funding bank for capitalization

requirements, interest rates, and fees shall be attributed to

differences in credit risk and administrative costs to the bank.

The FCA declines suggestions by a System commenter that the

proposed regulation establish identical capital investment requirements

for both OFIs and direct lender associations. The FCA believes that

FCBs and ACBs should have the flexibility to impose different capital

requirements because risk levels are different and the Act does not

allow OFIs to own voting stock in the FCBs or ACBs. In response to an

association's comment about OFI contributions to the premium that its

funding bank pays to FCSIC, the FCA notes that the proposed regulation

allows the FCB or ACB to take FCSIC premiums into account when they

price OFI loans. The proposed regulation does not require FCBs and ACBs

to pay dividends to OFIs, as commercial bank commenters requested,

because the FCA does not prescribe business practices to FCS

institutions in the absence of compelling safety and soundness reasons.

From the FCA's perspective, an institution's bylaws best prescribe

detailed capitalization requirements, dividend policies, and

cooperative principles. The FCA declines the IBAA's request to compel

FCBs and ACBs to disclose pricing information about their loans to

their affiliated direct lender associations because the regulations can

promote impartial and equitable treatment of OFIs and direct lender

associations without requiring Farm Credit banks to disclose

confidential and proprietary information affecting its other customers.

VIII. Insolvency

The ANPRM inquired how new regulations could safeguard the

interests of an FCB or ACB when an OFI is liquidated. An ACB and the

IBAA responded that a System bank should maintain a senior security

interest in all assets that an OFI pledges as collateral. An FCB and a

pair of jointly managed FCS associations opined that liquidation of an

OFI should be addressed in the GFA, not FCA regulations.

Under proposed Sec. 614.4600, the System funding bank may take over

loans and other assets that the OFI pledged as collateral if the OFI

becomes insolvent, is in process of liquidation, or fails to service

its loans properly. As a result, the FCB or ACB will have the authority

to make additional advances, to grant renewals and extensions, and to

take such other actions as may be necessary to collect and service

loans to the OFI's borrowers. The System funding bank may also

liquidate the OFI's loans and other assets that it has pledged in order

to fully realize repayment from the OFI.

In contrast to existing Sec. 614.4630(a), proposed Sec. 614.4600 no

longer requires an FCB or ACB to obtain FCA approval before it takes

over the loans and other assets of an insolvent OFI. From a safety and

soundness perspective, FCBs and ACBs should be able to exercise

creditor remedies whenever the OFI defaults on the GFA. The prior-

approval requirements in existing Sec. 614.4630(a) were established

before the FCA became an arms-length regulator. This approach is

consistent with the FCA's general policy of repealing Agency approval

requirements that are not imposed by the Act.

The FCA proposes to repeal Sec. 614.4630(b), which prohibits FCBs

and ACBs from assigning obligations handled for an insolvent OFI as

collateral for bonds without FCA prior approval. The applicable

requirements for collateral pledged by FCBs and ACBs for bond

obligations are contained in Sec. 615.5050, and FCA approval for each

issuance is required by Sec. 615.5101(d) of this chapter. The FCA also

proposes to repeal Sec. 614.4630(c), which places restrictions on

interest rates that an FCB or ACB can charge borrowers whose loans were

taken over from a defaulting OFI. The FCA believes the restrictions in

Sec. 614.4630(c) are no longer necessary because the FCA's examinations

will assure sufficient controls and monitoring exist in this area.

List of Subjects

12 CFR Part 611

Agriculture, Banks, banking, Rural areas.

12 CFR Part 614

Agriculture, Banks, banking, Flood insurance, Foreign trade,

Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 620

Accounting, Agriculture, Banks, banking, Reporting and

recordkeeping requirements, Rural areas.

12 CFR Part 630

Accounting, Agriculture, Banks, banking, Credit, Organization and

functions (Government agencies), Reporting and recordkeeping

requirements, Rural areas.

For the reasons stated in the preamble, parts 611, 614, 620, and

630 of chapter VI, title 12 of the Code of Federal Regulations are

proposed to be revised to read as follows:

PART 611--ORGANIZATION

1. 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 P--Termination of Farm Credit Status--Associations

2. Section 611.1205 is amended by revising paragraph (c) to read as

follows:

Sec. 611.1205 Definitions.

* * * * *

(c) OFI means an other financing institution that has established a

funding and discount relationship with a Farm Credit Bank or an

agricultural credit bank pursuant to section 1.7(b)(1) of the Act and

the regulations in subpart P of part 614.

* * * * *

PART 614--LOAN POLICIES AND OPERATIONS

3. 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, 1.11, 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, 4.18A, 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, 2019, 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, 2206a, 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.

[[Page 38230]]

Subpart J--Lending Limits

4. Section 614.4350 is amended by revising paragraph (a) to read as

follows:

Sec. 614.4350 Definitions.

* * * * *

(a) Borrower means an individual, partnership, joint venture,

trust, corporation, or other business entity (except a Farm Credit

System association or other financing institution that complies with

the criteria in section 1.7(b) of the Act and the regulations in

subpart P of this part) to which an institution has made a loan or a

commitment to make a loan either directly or indirectly.

* * * * *

5. Subpart P of part 614 is revised to read as follows:

Subpart P--Farm Credit Bank and Agricultural Credit Bank Financing

of Other Financing Institution

Sec.

614.4540 Other financing institution access to Farm Credit Banks

and agricultural credit banks for funding, discount, and other

similar financial assistance.

614.4550 Place of discount.

614.4560 Requirements for OFI funding relationships.

614.4570 Recourse and security.

614.4580 Limitation on the extension of funding, discount and other

similar financial assistance to an OFI.

614.4590 Equitable treatment of OFIs and Farm Credit System

associations.

614.4600 Insolvency of an OFI.

Sec. 614.4540 Other financing institution access to Farm Credit Banks

and agricultural credit banks for funding, discount, and other similar

financial assistance.

(a) Basic criteria for access. Any national bank, State bank, trust

company, agricultural credit corporation, incorporated livestock loan

company, savings association, credit union, or any association of

agricultural producers engaged in the making of loans to farmers and

ranchers, and any corporation engaged in the making of loans to

producers or harvesters of aquatic products may become an other

financing institution (OFI) that funds, discounts, and obtains other

similar financial assistance from a Farm Credit Bank or agricultural

credit bank in order to extend short-and intermediate-term credit to

eligible borrowers for authorized purposes pursuant to sections 1.10(b)

and 2.4(a) and (b) of the Act. Each OFI shall be duly organized and

qualified to make loans and leases under the laws of each jurisdiction

in which it operates.

(b) Assured access. Except when an OFI's funding request would

adversely affect a Farm Credit bank's ability to achieve and maintain

established or projected capital levels, raise funds in the money

markets, or would otherwise expose the Farm Credit bank to other safety

and soundness risks, each Farm Credit Bank or an agricultural credit

bank shall fund, discount, and provide other similar financial

assistance to any creditworthy OFI that:

(1) Maintains at least 15 percent of its loan volume at a seasonal

peak in loans and leases to farmers, ranchers, aquatic producers and

harvesters. The Farm Credit Bank or agricultural credit bank shall not

include the loan assets of the OFI's parent, affiliates, or

subsidiaries when determining compliance with the requirement of this

paragraph; and

(2) Executes a general financing agreement with the Farm Credit

Bank or agricultural credit bank that establishes a financing or

discount relationship for at least 2 years.

(c) Denial of OFI access. Each Farm Credit Bank and agricultural

credit bank shall establish objective loan underwriting policies and

procedures for determining the creditworthiness of each OFI applicant.

No Farm Credit Bank or agricultural credit bank shall deny access to

any creditworthy OFI that meets the conditions in paragraph (b) of this

section.

Sec. 614.4550 Place of discount.

(a) A Farm Credit Bank or agricultural credit bank may provide

funding, discount, and other similar financial assistance to any OFI

whose headquarters is located within the funding bank's chartered

territory.

(b) A Farm Credit Bank or agricultural bank may provide funding,

discount, and other similar financial assistance to an OFI whose

headquarters is not located in the funding bank's chartered territory

only if the Farm Credit Bank or agricultural credit bank referred to in

paragraph (a) of this section either grants its consent, or denies or

otherwise fails to approve such OFI's funding request within 60 days of

receipt of a ``completed application'' as defined by 12 CFR 202.2(f).

Sec. 614.4560 Requirements for OFI funding relationships.

(a) As a condition for extending funding, discount and other

similar financial assistance to an OFI, each Farm Credit Bank or

agricultural credit bank shall require every OFI to:

(1) Execute a general financing agreement pursuant to the

regulations in subpart C of part 614; and

(2) Purchase non-voting stock in its Farm Credit Bank or

agricultural credit bank pursuant to the bank's bylaws.

(b) A Farm Credit Bank or agricultural credit bank shall extend

funding, discount and other similar financial assistance to an OFI only

for purposes and terms authorized under sections 1.10(b) and 2.4(a) and

(b) of the Act.

(c) Rural home loans to borrowers who are not bona fide farmers,

ranchers, and aquatic producers and harvesters are subject to the

restrictions in Sec. 613.3030 of this chapter. Loans that an OFI makes

to processing and marketing operators who supply less than 20 percent

of the throughput shall be included in the calculation that

Sec. 613.3010(b)(1) of this chapter establishes for Farm Credit Banks

and agricultural credit banks.

(d) The borrower rights requirements in part C of title IV of the

Act, and section 4.36 of the Act, and the regulations in subparts K, L,

and N of part 614 shall apply to all loans that an OFI funds or

discounts through a Farm Credit Bank or agricultural credit bank,

unless such loans are subject to the Truth-in-Lending Act, 15 U.S.C.

1601 et seq.

(e) As a condition for obtaining funding, discount and other

similar financial assistance of a Farm Credit Bank or agricultural

credit bank, all State banks, trust companies, or State-chartered

savings associations shall execute a written consent that authorizes

their State regulators to furnish examination reports to the Farm

Credit Administration upon its request. Any OFI that is not a

depository institution shall consent in writing to examination by the

Farm Credit Administration as a condition precedent for obtaining

funding, discount and other similar financial assistance from a Farm

Credit Bank or agricultural credit bank, and file such consent with its

Farm Credit funding bank.

Sec. 614.4570 Recourse and security.

(a) Full recourse and guarantee. All obligations that are funded or

discounted through a Farm Credit Bank or agricultural credit bank shall

be endorsed with the full recourse or unconditional guarantee of the

OFI.

(b) General collateral. (1) Each Farm Credit Bank and agricultural

credit bank shall take as collateral all notes, drafts, and other

obligations that it funds or discounts for each OFI; and

(2) Each Farm Credit Bank and agricultural credit bank shall

perfect, in accordance with State law, a senior security interest in

any and all obligations and the proceeds thereunder that the OFI

pledges as collateral.

(c) Supplemental collateral. (1) Each Farm Credit Bank and

agricultural credit bank shall develop underwriting

[[Page 38231]]

policies and procedures that establish uniform and objective standards

to determine the need and amount of supplemental collateral or other

credit enhancements that each OFI shall provide as a condition for

obtaining funding, discount and other similar financial assistance from

such Farm Credit bank.

(2) The amount, type, and quality of supplemental collateral or

other credit enhancements required for each OFI shall be established in

the general financing agreement and shall be proportional to the level

of risk that the OFI poses to the Farm Credit Bank or agricultural

credit bank.

Sec. 614.4580 Limitation on the extension of funding, discount and

other similar financial assistance to an OFI.

(a) No obligation shall be purchased from or discounted for and no

loan shall be made or other similar financial assistance extended by a

Farm Credit Bank or agricultural credit bank to an OFI if the amount of

such obligation added to the aggregate liabilities of such OFI, whether

direct or contingent (other than bona fide deposit liabilities),

exceeds 10 times the paid-in and unimpaired capital and surplus of such

OFI or the amount of such liabilities permitted under the laws of the

jurisdiction creating such OFI, whichever is less.

(b) It shall be unlawful for any national bank that is indebted to

any Farm Credit Bank or agricultural credit bank, on paper discounted

or purchased, to incur any additional indebtedness, if by virtue of

such additional indebtedness its aggregate liabilities, direct or

contingent, will exceed the limitation described in paragraph (a) of

this section.

Sec. 614.4590 Equitable treatment of OFIs and Farm Credit System

associations.

(a) Each Farm Credit Bank and agricultural credit bank shall apply

similar objective credit underwriting standards to both OFIs and Farm

Credit System direct lender associations.

(b) The total charges that a Farm Credit Bank or agricultural

credit bank assesses an OFI through capitalization requirements,

interest rates, and fees shall be comparable to the charges that the

same Farm Credit bank imposes on its direct lender associations. Any

variation between the overall funding costs that OFIs and direct lender

associations are charged by the same funding bank shall result from

differences in credit risk and administrative costs to the Farm Credit

Bank or agricultural credit bank.

Sec. 614.4600 Insolvency of an OFI.

If an OFI that is indebted to a Farm Credit Bank or agricultural

credit bank becomes insolvent, is in process of liquidation, or fails

to service its loans properly, the Farm Credit Bank or agricultural

credit bank may take over such loans and other assets that the OFI

pledged as collateral. Once the Farm Credit Bank or agricultural credit

bank exercises its remedies, it shall have the authority to make

additional advances, to grant renewals and extensions, and to take such

other actions as may be necessary to collect and service loans to the

OFI's borrower. The funding Farm Credit bank may also liquidate the

OFI's loans and other assets in order to achieve repayment of the debt.

PART 620--DISCLOSURE TO SHAREHOLDERS

6. The authority citation for part 620 continues to read as

follows:

Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act (12

U.S.C. 2252, 2254, 2279aa-11); sec. 424 of Pub. L. 100-233, 101

Stat. 1568, 1656.

Subpart B--Annual Report to Shareholders

Sec. 620.5 [Amended]

7. Section 620.5 is amended by removing the words ``, as defined in

Sec. 614.4540(e) of this chapter,'' and by removing the word

``financial'' and adding in its place the word ``financing'' in

paragraph (a)(8).

PART 630--DISCLOSURE TO INVESTORS IN SYSTEMWIDE AND CONSOLIDATED

BANK DEBT OBLIGATIONS OF THE FARM CREDIT SYSTEM

8. The authority citation for part 630 continues to read as

follows:

Authority: Secs. 5.17, 5.19 of the Farm Credit Act (12 U.S.C.

2252, 2254).

Subpart B--Annual Report to Investors

Sec. 630.20 [Amended]

9. Section 630.20 is amended by removing the words ``, as defined

in Sec. 614.4540(e) of this chapter,'' in paragraph (a)(1)(v).

Dated: July 14, 1997.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 97-18827 Filed 7-16-97; 8:45 am]

BILLING CODE 6705-01-P