Disclosure to Shareholders; Disclosure to Investors in Systemwide and Consolidated Bank Debt Obligations of the Farm Credit System; Quarterly Report

FARM CREDIT ADMINISTRATION

12 CFR Parts 620 and 630

RIN 3052-AB62

Disclosure to Shareholders; Disclosure to Investors in Systemwide

and Consolidated Bank Debt Obligations of the Farm Credit System;

Quarterly Report

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA or Agency) adopts final

amendments to its regulations governing the preparation, filing, and

distribution of Farm Credit System (FCS or System) bank and association

reports to shareholders and investors. The rule implements a statutory

amendment that supersedes the regulatory requirement that FCS

institutions disseminate quarterly reports to shareholders.

The rule also imposes a new notice requirement designed to improve

shareholder access to timely information and disclosure regarding

adverse events affecting their institutions. Under the new regulations,

FCS institutions must prepare and distribute a notice to shareholders

when their permanent capital falls below the regulatory minimum

standard.

To facilitate the presentation of financial statements by FCS

institutions in a manner that conforms with generally accepted

accounting principles (GAAP), the rule removes the requirement that

banks must present their financial statements on a combined basis with

their related associations.

The rule also makes other technical changes to FCA regulations

governing disclosure to shareholders and investors.

DATES: The final rule shall become effective upon the expiration of 30

days after this publication during which either or both Houses of

Congress are in session. Notice of the effective date will be published

in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Laurie A. Rea, Policy Analyst, Policy Development and Risk Control,

Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498;

or

William L. Larsen, Senior Attorney, Office of General Counsel, Farm

Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)

883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

On August 28, 1996, the FCA proposed amendments to its regulations

governing disclosure to shareholders and investors.1 The

rulemaking implements section 211 of the Farm Credit System Reform Act

of 1996 (1996 Act),2 addresses two regulatory petitions received

by the Agency, and takes other related actions. To conform with the

1996 Act, the FCA proposed amending subpart C of part 620 to eliminate

existing regulatory requirements for distribution of quarterly reports

to shareholders. To improve shareholder access to timely information

and disclosure regarding adverse events affecting their institutions,

the FCA proposed a new requirement that System institutions provide

notice to shareholders in the event of noncompliance with regulatory

permanent capital requirements, followed by subsequent notices in

situations of continued deterioration in permanent capital. The FCA

also responded to petitions of System institutions by proposing to

remove the requirement that banks present their

[[Page 15090]]

financial statements on a combined basis with their related

associations and to allow incorporation by reference of information

contained in offering documents for Farm Credit debt securities into

the Systemwide financial reports to investors.3 The FCA also

proposed technical changes to clarify the reporting requirements of

related organizations in their disclosure to shareholders and

investors.

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\1\ See 61 FR 53331, October 11, 1996.

\2\ Pub. L. 104-105, 110 Stat. 162 (Feb. 10, 1996). Section 211

of the 1996 Act provides that ``the requirements of the Farm Credit

Administration governing the dissemination to stockholders of

quarterly reports of System institutions may not be more burdensome

or costly than the requirements applicable to national banks.''

Section 211 applies only to dissemination requirements and does not

affect the requirement that FCS institutions continue to prepare and

file quarterly reports with the FCA in accordance with the quarterly

report filing and content requirements of part 620.

\3\ See 12 CFR Part 630.

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The FCA received two comment letters on the proposed rule. The Farm

Credit Council (FCC) submitted a letter based on input from individual

members and the System's Accounting Standards Work Group. The Farm

Credit Services of the Midlands, PCA/FLCA (Midlands), also commented.

In general, the commenters supported the FCA's proposal to implement

the 1996 Act, while also raising specific concerns and suggestions for

change. As set forth below, the final regulations retain much of the

content of the proposed regulations, but clarify and ease some proposed

requirements in response to comments.

II. Final Amendments

A. Quarterly Reports

The commenters supported the FCA's proposal to implement section

211 of the 1996 Act regarding dissemination of quarterly reports to

shareholders. The FCA adopts as final the amendments to subpart C of

part 620 and related provisions 4 as proposed.

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\4\ Sections 620.1(o) and 620.2(a), (b)(3)(i), (f) through (i).

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Under the final regulations, routine distribution of quarterly

reports by System institutions to shareholders is voluntary rather than

mandatory. The FCA emphasizes that FCS institutions are not prohibited

by the 1996 Act or these regulations from continuing to publish or

distribute quarterly reports to their shareholders. Moreover, each FCS

bank and direct lender association is required to make quarterly

reports available to shareholders on request and must continue to file

quarterly reports with the FCA. Associations are no longer required to

distribute quarterly reports along with their information statements,

regardless of the date of their annual meetings.

Midlands commented on current Sec. 615.5250(a)(2) of this chapter,

which requires institutions to provide prospective borrowers with a

copy of the institution's most recent quarterly report (if more recent

than the annual report) prior to loan closing, at which time the

borrower must purchase equities as a condition for obtaining a loan.

Midlands agreed that prospective borrowers have the right to current

association financial information, but, citing logistical problems in

supplying an accurate number of quarterly reports to its branches,

suggested that the requirement be changed to require only notice of

availability of quarterly reports to prospective borrowers. The FCA

continues to believe that it is important to provide the most current

financial information at the time a borrower is required to purchase

the institution's equities. Thus, the current requirement is unchanged.

Any logistical problems that may be associated with providing a copy of

the quarterly report to prospective borrowers will have to be addressed

through available facilities such as fax, copier, and electronic or

overnight mail.

B. Notice to Shareholders

The FCA proposed that notice be provided to shareholders when an

institution's capital falls below the regulatory minimum permanent

capital standard. Proposed Sec. 620.15(a) would have required each FCS

bank and direct lender association to prepare, file with the FCA, and

distribute to shareholders, a notice within 20 days following the

monthend that the institution initially determines that it is not in

compliance with the minimum permanent capital standards established in

part 615 of FCA regulations. Under certain circumstances, reporting

institutions also would have been required to prepare and distribute a

subsequent notice to shareholders. If the reporting institution's

permanent capital ratio decreased by one-half of 1 percent or more from

the level reported in a notice, the reporting institution would be

required to distribute another notice to shareholders within 20 days of

the end of the current month. In addition, the FCA proposed minimum

content requirements for notices under new Sec. 620.17.

The FCC raised objections to the proposed requirement that notice

be provided to shareholders in instances of noncompliance with the

permanent capital standard. The FCC asserted that the proposed notice

requirement in Sec. 620.15(a) is unnecessary and could be confusing or

even misleading taken out of the context of an institution's financial

statements and Management's Discussion and Analysis of Financial

Condition and Results of Operations. The FCC also found it difficult to

reconcile the notice requirement with the elimination of quarterly

report dissemination by the 1996 Act.

After consideration of these comments, the FCA continues to believe

that the notice requirement will benefit shareholders and impose no

undue burdens on System institutions. For the reasons set forth below

and as noted in the preamble to the proposed rule, the FCA issues a new

subpart D relating to the preparation and distribution of a notice to

shareholders substantially as proposed.

As discussed above, the FCA has deleted the quarterly report

dissemination requirement in accordance with the 1996 Act. The FCA

believes that the limited notice to shareholders is necessary to

provide shareholders with timely notice of important information that

affects the ability of the institution to distribute earnings and

retire stock.5 The Farm Credit Act of 1971, as amended (Act),

encourages borrower/shareholder participation in management, control,

and ownership of FCS institutions.6 In the Farm Credit Amendments

Act of 1985,7 Congress expressly authorized the FCA to regulate

disclosure to shareholders. Unlike shareholders of companies subject to

Securities and Exchange Commission (SEC) disclosure requirements who

have access to an established marketplace for financial information

based on SEC filings,8 System shareholders rely primarily on FCS

institutions to provide them with current information regarding their

institutions. The FCA believes it is critical that shareholders receive

timely notice of material changes in the capital position of the

institutions they own so that they are equipped to exercise their

ownership role.

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\5\ See 12 U.S.C. 2154a(d)(1), which states that: ``* * * the

board of directors of a System institution may not reduce the

permanent capital of the institution through the payment of

patronage refunds or dividends or retirement of stock, if after or

due to such action, the permanent capital of the institution would

thereafter fail to meet the minimum capital adequacy standards

established under section 2154a of this title.'' See also 12 CFR

615.5215.

\6\ See 12 U.S.C. 2001(b).

\7\ Pub. L. 99-205, 99 Stat. 1678 (Dec. 23, 1985). See section

5.19(b)(1) of the Act.

\8\ In addition to annual and quarterly filings, under sections

13 or 15(d) of the Securities Exchange Act of 1934, registrants are

required to file a current report with the SEC within 5-15 days

(depending on the event) upon determination of the occurrence of any

of the following events: (1) changes in control of registrant, (2)

significant acquisition or disposition of assets, (3) bankruptcy or

receivership, (4) changes in registrant's certifying accountant, (5)

other events that the registrant deems of significant importance to

security holders, and (6) resignations of registrant's directors

because of a disagreement with the registrant on any matter relating

to the registrant's operation, policies, or practices. The SEC does

not require current reports to be distributed to shareholders.

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In proposing these regulations, the FCA sought to balance the

competing considerations of providing adequate

[[Page 15091]]

notice to shareholders concerning their investments and minimizing

regulatory burden on FCS institutions. FCS institutions required to

file and distribute a notice will incur costs associated with preparing

and distributing the materials. However, since notice is required only

in those extraordinary circumstances where an institution is not in

compliance with the FCA's minimum permanent capital standard,9 the

FCA does not expect the regulations will significantly increase

regulatory burden on System institutions. In the limited instances when

notice is required, the rule will help ensure timely and adequate

disclosure to shareholders/members who have investments at risk and

rely on the dependable credit services of the FCS institutions. In

addition, such notices will inform shareholders of the effect that

failure to meet the minimum capital standard has on their institution's

ability to retire stock and distribute earnings.

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\9\ All FCS institutions were in compliance with the regulatory

minimum permanent capital standard as of December 31, 1996.

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The FCC also expressed concern that both the time period for

calculating noncompliance with permanent capital requirements and the

timeframe allowed by the proposed rule for distributing the notice are

inadequate. Under proposed Sec. 620.15(a), each Farm Credit bank and

direct lender association required to prepare a notice would have been

required to distribute the notice to shareholders within 20 days

following the monthend that the institution initially determines that

it is not in compliance with the minimum permanent capital standard

prescribed under Sec. 615.5205 of this chapter. The FCC noted that

existing regulations only require that an institution's permanent

capital ratio (PCR) be reported on a quarterly basis. The FCC suggested

that the FCA substitute the phrase ``end of the fiscal quarter'' for

``monthend'' in Sec. 620.15(a) and ``any subsequent quarterend'' for

``any subsequent monthend'' in proposed Sec. 620.15(b).

The FCA declines to adopt a quarterly timeframe for the initial

notice of noncompliance with the PCR because it would undermine the

goal of disseminating this information to shareholders quickly.

Moreover, there is no added burden on FCS institutions in connection

with calculation of the PCR. Although FCS institutions are only

required by current regulations to report their PCR on a quarterly

basis, Sec. 615.5205(a) of this chapter requires that each FCS

institution shall at all times maintain permanent capital at a level of

at least 7 percent of its risk-adjusted assets. The FCA further expects

FCS institutions to have procedures in place that permit calculation of

their PCR on any given date.10

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\10\ FCA Bookletter No. 256-OFA, Permanent Capital Ratio-Average

Daily Balance, May 24, 1990.

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In response to the argument that monthly notices of subsequent

deterioration would be burdensome, the FCA accepts the suggestion of

the FCC to modify final Sec. 620.15(b) to require subsequent notices

following the end of any subsequent fiscal quarter instead of the end

of any subsequent month as proposed. The FCA does not believe that this

change seriously disadvantages shareholders. Once alerted by the

initial notice, concerned shareholders may elect to follow up on their

institution's condition more often than quarterly if they wish.

The FCC also commented that it is likely that an institution

required to distribute a notice of noncompliance with regulatory

minimum capital standards would need to provide additional supplemental

information to make the information more meaningful. The FCC suggested

that the required timeframe for distributing the notice and any

subsequent notices in proposed Sec. 620.15 (a) and (b) be changed from

20 days to 45 days. The FCA agrees that additional information may make

the disclosures more meaningful to shareholders and, to facilitate such

additional disclosure, has decided to increase the timeframe for

preparation and distribution of the initial notice by 10 days. Final

Sec. 620.15(a) thus requires distribution of the notice within 30 days

following the monthend that the institution initially determines that

it is not in compliance with the minimum permanent capital standards.

The FCA adopts the suggestion of the FCC to permit distribution of

a subsequent notice to shareholders within 45 days following the end of

any subsequent quarter at which the institution's PCR decreases by one-

half of 1 percent or more from the level reported in the most recent

notice distributed to shareholders. This timeframe for preparation and

distribution of subsequent notices to shareholders under Sec. 620.15(b)

will coincide with the time allowed institutions to prepare and file

their quarterly reports with the FCA under Sec. 620.2. Final

Sec. 620.15(c) and the content requirements for the notice in

Sec. 620.17 are adopted as proposed.

The FCA also invited comments on the use of the total surplus to

risk-adjusted assets standard 11 to determine the point at which

shareholders would be informed that their institution is experiencing

financial difficulties. Both commenters opposed the use of the total

surplus ratio as the trigger for the notice requirement. The FCC

commented that the total surplus to risk-adjusted assets ratio is not

always an indicator of impaired financial condition and thus, such

notices could unnecessarily alarm shareholders when the institution

continues to have a reasonable margin to protect its investment. The

FCC also argued that the FCA should provide additional notice and

opportunity for comment before adopting a notice requirement triggered

by failure to meet the total surplus standard, which was not in effect

at the time the notice requirement was proposed.

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\11\ The total surplus to risk-adjusted assets standard is part

of the new capital requirements recently adopted by the FCA. See 62

FR 4429, January 30, 1997.

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The FCA believes that persuasive arguments exist for adopting a

total surplus trigger for the notice to shareholders, as explained in

the proposed and final capital regulations.12 However, the FCA has

decided not to adopt a total surplus standard as the triggering point

for the notice at this time. Rather, the FCA will carefully monitor

implementation of the new capital standards and will consider changing

the notice trigger from the PCR to the total surplus ratio as FCS

institutions gain experience with the new standards.

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\12\ See 60 FR 38521, July 27, 1995. See also ``Basis for

Conclusions and Positions Taken in the Final Capital Adequacy

Regulations'' at 62 FR 4429, 4434, January 30, 1997.

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III. Combined Financial Statement Presentation Requirements

The FCA proposed removing the requirement that banks must present

the financial statements of the bank and its related associations on a

combined basis. The intent of the proposal was to facilitate the

presentation of financial statements by FCS institutions in a manner

that conforms with GAAP. Under the proposed regulations, banks that

present their financial statements on a stand-alone basis would be

required to present, in the footnotes to their financial statements, a

condensed statement of condition and statement of income for their

related associations on a combined basis. The FCA adopts the

regulations substantially as proposed.

In its comment concurring with this proposal, the FCC requested

that the FCA clarify the language of Sec. 620.2(g)(2) to indicate that

banks presenting their financial statements on a stand-alone

[[Page 15092]]

basis are only required to present the supplemental combined statements

in the footnotes accompanying their annual reports. The final

regulations include this suggested clarification. Further, the FCC

requested that the FCA confirm that once a reporting entity is

determined under GAAP to be the preferred reporting entity, it would

require a significant change in facts and circumstances to change the

reporting basis of such entity. The FCA agrees that, under GAAP, it

would require a significant change in facts and circumstances to

support a change in a reporting entity's method of financial statement

presentation (e.g., from reporting on a combined basis to reporting on

a stand-alone basis).

In general, the FCA believes the relationship between a bank and

its related associations is an important one that warrants discussion

in the financial statements to achieve full and complete disclosure

regardless of how the bank presents its financial statements. In

adopting the regulations substantially as proposed, the FCA reiterates

its position that presentation of combined financial statements

conforms with GAAP and is the most appropriate method of disclosure to

shareholders of FCBs and their related associations. Similarly, based

on the financial and operational interdependence of the banks and their

associations, and the banks' joint and several liability for Systemwide

debt securities, the FCA believes combined financial statements

continue to provide the most meaningful disclosure under GAAP for

purposes of the System's reports to investors.

Under final Sec. 620.4, any bank that presents its financial

statements on a combined basis must distribute its annual report to the

shareholders of related associations. Where bank preparation of bank-

only financial statements is supported by GAAP, the regulation does not

require that the bank distribute its annual report to the shareholders

of related associations in ordinary circumstances. However,

Sec. 620.4(b)(2) provides that for periods where the bank has

experienced a significant event that has a material effect on the

associations, the bank's annual report must be distributed to the

related associations' shareholders.

IV. Technical Changes to Part 620

The FCA proposed several technical changes to part 620 to clarify

the reporting requirements of related organizations. The FCA received

no comments on the proposed changes. The amendments are adopted as

proposed.

V. Report to Investors

Lastly, the FCA proposed to add new Sec. 630.3(f), which would

permit the Federal Farm Credit Banks Funding Corporation to incorporate

by reference information contained in offering documents for Farm

Credit debt securities into the Systemwide financial reports to

investors. The FCA received one comment in support of the new section

and adopts Sec. 630.3(f) as proposed.

VI. Regulatory Impact

The FCA has determined that the final regulations will not have a

significant effect on the general economy and are not a significant

regulatory action under Executive Order 12866. In addition, the final

regulations pertain only to FCS institutions and, therefore, will not

conflict with the rules and regulations of other financial regulatory

agencies. Due to the nature of the regulations, it is unlikely that the

regulations will have any material impact on governmental entitlements,

grants, user fees, or loan programs.

List of Subjects

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 620 and 630 of

chapter VI, title 12 of the Code of Federal Regulations are amended to

read as follows:

PART 620--DISCLOSURE TO SHAREHOLDERS

1. 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 A--General

2. Section 620.1 is amended by redesignating paragraphs (o), (p),

and (q) as new paragraphs (p), (q), and (r), respectively, and adding

new paragraph (o) to read as follows:

Sec. 620.1 Definitions.

* * * * *

(o) Report refers to the annual report, quarterly report, notice,

or information statement required by this part unless otherwise

specified.

* * * * *

3. Section 620.2 is amended by revising paragraphs (a), (b)(3)(i),

and (f) through (i) to read as follows:

Sec. 620.2 Preparing and filing the reports.

* * * * *

(a) Three copies of each report required by this section, including

financial statements and related schedules, exhibits, and all other

papers and documents that are part of the report shall be filed with

the Chief Examiner, Farm Credit Administration, McLean, Virginia 22102-

5090, or with such other Farm Credit Administration offices as the

Chief Examiner designates. The Farm Credit Administration must receive

the report within the period prescribed under applicable subpart

sections. The reports shall be available for public inspection at the

issuing institution and the Farm Credit Administration office with

which the reports are filed. Bank reports shall also be available for

public inspection at each related association office.

(b) * * *

(3)(i) For each quarterly report or notice filed under this

section, each member of the board or one of the following board members

formally designated by action of the board to certify reports of

condition and performance on behalf of the individual board members:

The chairperson of the board; the chairperson of the audit committee;

or a board member designated by the chairperson of the board.

* * * * *

(f) No disclosure required by subparts B and E of this part shall

be deemed to violate any regulation of the Farm Credit Administration.

(g) Each Farm Credit institution shall present its reports in

accordance with generally accepted accounting principles and in a

manner that provides the most meaningful disclosure to shareholders.

(1) Any Farm Credit institution that presents its annual and

quarterly financial statements on a combined or consolidated basis

shall also include in the report the statement of condition and

statement of income of the institution on a stand-alone basis. The

stand-alone statements may be in summary form and shall disclose the

basis of presentation if different from accounting policies of the

combined or consolidated statements.

(2) Any bank that prepares its financial statements on a stand-

alone basis shall provide in the footnotes

[[Page 15093]]

accompanying its annual report supplemental information containing a

condensed statement of condition and statement of income for the bank's

related associations on a combined basis. The condensed statements may

be unaudited and shall disclose the basis of presentation if different

from accounting policies of the bank-only statements.

(h)(1) Each annual report or notice shall include a statement in a

prominent location within the report or notice that the institution's

quarterly reports are available free of charge on request. The

statement shall include approximate dates of availability of the

quarterly reports and the telephone numbers and addresses where

shareholders may obtain a copy of the reports.

(2) Each association shall include a statement in a prominent

location within each report that the shareholders' investment in the

association may be materially affected by the financial condition and

results of operations of the related bank and (if not otherwise

provided) that a copy of the bank's financial reports to shareholders

will be made available free of charge on request. The statement shall

also include the telephone numbers and addresses where shareholders may

obtain copies of the related bank's financial reports.

(3) Each institution shall, after receiving a request for a report,

mail or otherwise furnish the report to the requestor. The first copy

of the requested report shall be provided to the requestor free of

charge.

(i) Any events that have affected one or more related organizations

of the reporting institution that are likely to have a material effect

on the financial condition, results of operations, cost of funds, or

reliability of sources of funds of the reporting institution shall be

considered significant events for the reporting institution and shall

be disclosed in the reports. Any significant event affecting the

reporting institution that occurred during the preceding fiscal

quarters that continues to have a material effect on the reporting

institution shall be considered significant events of the current

fiscal quarter and shall be disclosed in the reports.

Subpart B--Annual Report to Shareholders

4. Section 620.4 is amended by revising paragraph (b) to read as

follows:

Sec. 620.4 Preparing and distributing the annual report.

* * * * *

(b)(1) Any bank that presents its financial statements on a

combined basis shall distribute its annual report to the shareholders

of related associations within the period required by paragraph (a) of

this section. Each bank shall coordinate such distribution with its

related associations.

(2) Any bank that presents its financial statements on a bank-only

basis shall distribute its annual report to the shareholders of related

associations within the period required by paragraph (a) of this

section in all instances where the bank experiences a significant event

that has a material effect on the associations. Each bank shall

coordinate such distribution with its related associations.

* * * * *

5. Section 620.5 is amended by revising paragraph (g)(2)(vi) to

read as follows:

Sec. 620.5 Contents of the annual report to shareholders.

(g) * * *

(2) * * *

(vi) Discuss any events affecting a related organization that are

likely to have a material effect on the reporting institution's

financial condition, results of operations, cost of funds, or

reliability of sources of funds.

* * * * *

Subpart C--Quarterly Report

6. The heading for subpart C is revised as set forth above.

7. Section 620.10 is revised to read as follows:

Sec. 620.10 Preparing the quarterly report.

(a) Each Farm Credit bank and direct lender association shall

prepare a quarterly report within 45 days after the end of each fiscal

quarter, except that no report need be prepared for the fiscal quarter

that coincides with the end of the fiscal year of the institution.

(b) The report shall contain, at a minimum, the information

specified in Sec. 620.11 and, in addition, such other material

information (including significant events) as is necessary to make the

required disclosures, in light of the circumstances under which they

are made, not misleading.

8. Part 620 is amended by redesignating subparts D, E, and F as new

subparts E, F, and G, respectively, and adding a new subpart D to read

as follows:

Subpart D--Notice to Shareholders

Sec. 620.15 Notice.

(a) Each Farm Credit bank and direct lender association shall

prepare, file with the Farm Credit Administration, and distribute a

notice to shareholders, within 30 days following the monthend that the

institution initially determines that it is not in compliance with the

minimum permanent capital standard prescribed under Sec. 615.5205 of

this chapter.

(b) An institution that has given notice to shareholders pursuant

to paragraph (a) of this section or subsequent notice pursuant to this

paragraph shall also prepare, file with the Farm Credit Administration,

and distribute to shareholders a notice within 45 days following the

end of any subsequent quarter at which the institution's permanent

capital ratio decreases by one-half of 1 percent or more from the level

reported in the most recent notice distributed to shareholders.

(c) Each institution required to prepare a notice under Sec. 620.15

(a) or (b) shall distribute the notice to shareholders by mail or

otherwise furnish the information required in the notice by publishing

it in any publication with circulation wide enough to be reasonably

assured that all of the institution's shareholders have access to the

information in a timely manner.

Sec. 620.17 Contents of the notice.

(a) The information required to be included in a notice must be

conspicuous, easily understandable, and not misleading.

(b) A notice, at a minimum, shall include:

(1) A statement that:

(i) Briefly describes the regulatory minimum permanent capital

standard established by the Farm Credit Administration and the notice

requirement of Sec. 620.15(a);

(ii) Indicates the institution's current level of permanent

capital; and

(iii) Notifies shareholders that the institution's permanent

capital is below the Farm Credit Administration regulatory minimum

standard.

(2) A statement of the effect that noncompliance has had on the

institution and its shareholders, including whether the institution is

currently prohibited by statute or regulation from retiring stock or

distributing earnings or whether the Farm Credit Administration has

issued a capital directive or other enforcement action to the

institution.

(3) A complete description of any event(s) that may have

significantly contributed to the institution's noncompliance with the

minimum permanent capital standard.

(4) A statement that the institution is required by regulation to

distribute another notice to shareholders within 45

[[Page 15094]]

days following the end of any subsequent quarter at which the

institution's permanent capital ratio decreases by one half of 1

percent or more from the level reported in the notice.

Subpart E--Association Annual Meeting Information Statement

9. Section 620.20 is amended by removing paragraph (c) and revising

paragraph (b) to read as follows:

Sec. 620.20 Preparing and distributing the information statement.

* * * * *

(b) The statement shall incorporate by reference the annual report

to shareholders required by subpart B of this part and contain the

information specified in Sec. 620.21 and such other material

information as is necessary to make the required statement, in light of

the circumstances under which it is made, not misleading.

PART 630--DISCLOSURE TO INVESTORS IN SYSTEMWIDE AND CONSOLIDATED

BANK DEBT OBLIGATIONS OF THE FARM CREDIT SYSTEM

10. The authority citation for part 630 is revised to read as

follows:

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

2252, 2254).

Subpart A--General

11. Section 630.3 is amended by redesignating existing paragraphs

(f) and (g) as new paragraphs (g) and (h), respectively, and adding new

paragraph (f) to read as follows:

Sec. 630.3 Publishing and filing the report to investors.

* * * * *

(f) Information in documents prepared for investors in connection

with the offering of debt securities issued through the Federal Farm

Credit Banks Funding Corporation may be incorporated by reference in

the annual and quarterly reports in answer or partial answer to any

item required in the reports under this part. A complete description of

any offering documents incorporated by reference must be clearly

identified in the report (e.g., Federal Farm Credit Banks Consolidated

Systemwide Bonds and Discount Notes--Offering Circular issued on

[insert date]). Offering documents incorporated by reference in either

an annual or quarterly report prepared under this part must be filed

with the Chief Examiner, Farm Credit Administration, McLean, Virginia

22102-5090, either prior to or at the time of submission of the report

under paragraph (h) of this section. Any offering document incorporated

by reference is subject to the delivery and availability requirements

set forth in Sec. 630.4(a) (5) and (6).

* * * * *

Dated: March 20, 1997.

Jeanette Brinkley,

Acting Secretary, Farm Credit Administration Board.

[FR Doc. 97-8000 Filed 3-28-97; 8:45 am]

BILLING CODE 6705-01-P