Assessment and Apportionment of Administrative Expenses; Technical Change

FARM CREDIT ADMINISTRATION

12 CFR Part 607

RIN 3052-AB83

Assessment and Apportionment of Administrative Expenses;

Technical Change

AGENCY: Farm Credit Administration.

ACTION: Direct final rule with opportunity for comment.

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

FCA Board (Board), issues a direct final rule that makes technical

amendments to its assessment regulations in order to conform to the

recently adopted FCA Board policy statement on its financial

institution rating system. The Financial Institution Rating System

(FIRS) is the rating system used by FCA examiners for evaluating and

categorizing the safety and soundness of Farm Credit System (System)

institutions on an ongoing, uniform, and comprehensive basis. The FIRS

modified the FCA Rating System (which had been referred to as the CAMEL

rating system) by adding a separate rating factor for sensitivity to

market risk. In accordance with the FIRS policy statement, these

technical amendments replace the reference to ``composite CAMEL

rating'' (the acronym CAMEL referred to the following five rating

components: capital, asset quality, management, earnings, and

liquidity), with ``composite Financial Institution Rating System (FIRS)

rating'' and replace references to ``CAMEL'' with ``FIRS.'' The

technical amendments do not substantively change the FCA assessment

process or adversely affect System institutions.

DATES: If no significant adverse comment is received on or before July

24, 1998, these regulations shall be effective upon the expiration of

30 days after publication in the Federal Register during which either

or both Houses of Congress are in session. Notice of the effective date

will be published in the Federal Register. If significant adverse

comment is received, the FCA will publish a timely notice of withdrawal

of the regulations and indicate how the Agency expects to proceed with

further rulemaking.

ADDRESSES: Comments may be submitted via electronic mail to ``reg-

[email protected]'' or facsimile transmission to (703) 734-5784. Comments

also may be mailed or delivered to Patricia W. DiMuzio, Director,

Regulation and Policy Division, Office of Policy and Analysis, Farm

Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-

5090. Copies of all communications received will be available for

review by interested parties in the Office of Policy and Analysis, Farm

Credit Administration.

FOR FURTHER INFORMATION CONTACT:

Andrew D. Jacob, Senior Financial Analyst, Office of Policy and

Analysis, Farm Credit Administration, McLean, Virginia 22102-5090,

(703) 883-4498, TDD (703) 883-4444

or

Wendy R. Laguarda, Senior Attorney, Office of General Counsel, Farm

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

(703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

The Board is making technical amendments to its assessment

regulations to replace the reference to ``composite CAMEL rating'' with

``composite Financial Institution Rating System (FIRS) rating'' and to

replace references to ``CAMEL'' with ``FIRS.'' The technical amendments

reflect the Board's adoption, at its April 9, 1998 Board meeting, of a

policy statement on the FIRS. The policy statement establishes six

rating factor components and a composite rating that reflect the

condition and overall safety and soundness of a System institution. The

FIRS policy statement differs from the previous CAMEL rating system by

the addition of a sixth rating component--the ``S'' component for

sensitivity to market risk. Hence, the six rating factor components of

the FIRS are capital, assets, management, earnings, liquidity, and

sensitivity (``S'' component). The policy statement also sets forth the

responsibility of the Chief Examiner to implement, maintain, and

recommend to the FCA Board changes to the rating system and to

establish appropriate evaluative criteria for determining FIRS

composite and component ratings.

The FIRS is an internal rating system used by the FCA for

evaluating the safety and soundness of System institutions on a uniform

basis and for identifying those System institutions requiring special

supervisory attention or concern. In addition, the FIRS also provides

the Agency with valuable information for assessing risk and allocating

resources based on the safety and soundness of regulated institutions.

The FIRS is similar to the system known as the Uniform Financial

Institutions Rating System (UFIRS), which is used by Federal and state

supervisory

[[Page 34268]]

banking agencies for rating commerical banks and savings associations.

The FIRS policy statement was published in the Federal Register at

63 FR 19918, April 22, 1998. In addition, the evaluative criteria for

determining FIRS composite and component ratings is set forth in the

FCA Examination Manual at section EM 135. The examination manual is a

public document and available for a fee upon request from the FCA or

through the FCA's Internet Home Page (http://www.fca.gov).

II. Direct Final Rulemaking

The FCA is using a ``direct final'' procedure for this rulemaking.

In a direct final rulemaking, an agency gives notice that a rule will

become final at a specified future date unless the agency receives

significant adverse comment on the rule during the comment period

established in the rulemaking notice. Direct final rulemaking is

justified under section 553(b)(B) of the Administrative Procedure Act,

5 U.S.C. 551-59, et seq. (APA). Section 553(b)(B) is the APA's ``good

cause'' exemption for omitting notice and comment on a rule where an

agency finds ``that notice and public procedure thereon are

impracticable, unnecessary, or contrary to the public interest.''

However, rather than eliminating public comment altogether, as would be

permissible under section 553(b)(B), in a direct final rule, the FCA

gives the public adequate opportunity to comment on or object to a

rule. For a full explanation of direct final rulemaking, see 62 FR

63644 (December 3, 1997).

The FCA believes that the technical amendments to the assessment

regulations fit the category of rules appropriate for direct final

rulemaking. These changes merely conform the regulations to the FCA

Board's policy statement on FIRS. The changes amend current regulatory

references to ``composite CAMEL rating'' with an updated reference to

``composite FIRS rating.'' As such, the changes are straightforward and

noncontroversial.

This rule has a 30-day comment period. If, during that period, the

FCA receives a significant adverse comment on the rule, the FCA will

withdraw the rule and may either issue another direct final rule or

promulgate the rule in proposed form. A significant adverse comment is

defined as one where the commenter explains why the rule would be

inappropriate, including challenges to the rule's underlying premise or

approach, or would be ineffective or unacceptable without a change. In

general, a significant adverse comment would raise an issue serious

enough to warrant a substantive response from the FCA in a notice-and-

comment proceeding.

If no significant adverse comment is received, the FCA will publish

its customary notice of the effective date of the rule following the

required Congressional waiting period under section 5.17(c)(1) of the

Farm Credit Act of 1971, as amended.

List of Subjects in 12 CFR Part 607

Accounting, Agriculture, Banks, Banking, Reporting and

recordkeeping requirements, Rural areas.

As stated in the preamble, part 607 of chapter VI, title 12 of the

Code of Federal Regulations is amended as follows:

PART 607--ASSESSMENT AND APPORTIONMENT OF ADMINISTRATIVE EXPENSES

1. The authority citation for part 607 is revised to read as

follows:

Authority: Secs. 5.15, 5.17 of the Farm Credit Act (12 U.S.C.

2250, 2252) and 12 U.S.C. 3025.

2. Section 607.2 is amended by revising paragraph (c) to read as

follows:

Sec. 607.2 Definitions.

* * * * *

(c) Composite Financial Institution Rating System (FIRS) rating

means the composite numerical assessment of the financial condition of

an institution assigned to the institution by the FCA based on its most

recent examination of the institution. The FIRS factors are generally

considered to be important indicators of an institution's financial

health. Institutions are rated on each of the factors during an

examination. The composite FIRS rating ranges from 1 to 5, with a lower

number indicating a better financial condition than a higher number.

* * * * *

Sec. 607.3 [Amended]

3. Section 607.3 is amended by removing the acronym ``CAMEL'' and

adding in its place ``FIRS'' each place it appears in paragraph (b)(2).

Dated: June 19, 1998.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 98-16809 Filed 6-23-98; 8:45 am]

BILLING CODE 6705-01-P