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: Final rule.

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

FCA Board (Board), issues a final rule amending its regulations 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 final rule substantially expands

access to System funding so OFIs can provide more short-and

intermediate-term credit to parties who are eligible to borrow under

sections 2.4(a) and (b) of the Act. The FCA has repealed several non-

statutory limits on OFI eligibility. The final rule assures access to

any creditworthy OFI that is significantly involved in agricultural

lending and demonstrates a continuing need for funds to serve its

agricultural borrowers. Under certain circumstances, OFIs may seek

financing from a Farm Credit Bank (FCB) or agricultural credit bank

(ACB) other than the System bank that is chartered to serve its

territory. The final rule requires FCBs and ACBs to finance OFIs only

on a fully secured basis and to have full recourse to the OFI's

capital.

EFFECTIVE DATE: This regulation shall become effective 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.

FOR FURTHER INFORMATION CONTACT: Eric Howard, Policy Analyst or S.

Robert Coleman, Senior Policy Analyst, Regulation and Policy Division,

Office of Policy Analysis, 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: This final rule completes a 2-year effort by

the FCA to revise these regulations so that farmers, ranchers, and

other eligible rural residents have greater access to credit through

OFIs that are financed by FCBs and ACBs. On May 17, 1996, the FCA

published an Advance Notice of Proposed Rulemaking seeking comments on

how these regulations could be more responsive to the credit needs of

OFIs and their borrowers. See 61 FR 24907. In response to these

comments, the FCA proposed a rule that substantially revised the

regulations in subpart P of part 614. See 62 FR 38223 (July 17, 1997).

After considering the comments received, the FCA Board adopts a final

rule that provides greater opportunities for OFIs to obtain funding

from FCS banks so they can finance agriculture, aquaculture, and other

specified rural credit needs.

Sixteen comment letters were received in response to the proposed

rule. Of this total, comments were received from 4 trade associations,

5 FCS banks (one comment letter came from 2 FCS banks that are jointly-

managed), 4 System direct lender associations, a federation

representing System production credit associations (PCAs), a commercial

bank, a commercial bank holding company, and an existing OFI. Four

trade associations submitted comments on behalf of their members: the

American Bankers Association (ABA); the Independent Bankers Association

of America (IBAA); the North Dakota Bankers Association (NDBA); and the

Farm Credit Council (Council).

The comment letters revealed a diverse range of views about OFI

access to System funding. All System direct lender association

commenters, except one, opposed any revision to the existing OFI

regulation because of their concerns over competition. One commercial

bank supported the proposed rule and urged the FCA to adopt it as a

final rule without revision. Three commercial bank trade associations

recognized the FCA's efforts to improve OFI access to System funding,

but they recommended modifications to the rule. The remaining

commenters focused on specific issues that were important to their

institutions.

Commercial bank trade associations opined that the FCA's regulatory

proposal made progress toward granting OFIs more access to System

funding. However, these commenters believe that several provisions of

the statute discourage many commercial banks from becoming OFIs. The

most commonly cited statutory impediments to greater commercial bank

participation in this program include: (1) No authority for OFIs to

obtain System bank funding \1\ for long-term mortgages; (2) lack of OFI

representation on the boards of FCS funding banks; and (3) the need to

offer borrower rights. For these reasons, the commenters again asked

the FCA to support legislative initiatives that would remodel the FCS

so it is similar to the Federal Home Loan Bank System. As the

commenters acknowledge, the existing statute does not enable the FCA to

accommodate some of their requests, and therefore, these issues are not

addressed by this rulemaking.

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\1\ As used in this preamble, references to Farm Credit banks

apply only to FCBs and ACBs. Although the bank for cooperatives is

also a System bank, it lacks statutory authority to finance the OFIs

identified in section 1.7(b) of the Act.

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Several PCA commenters expressed concern that expanded OFI access

would place them at a competitive disadvantage. These commenters asked

the FCA to enact regulations that provide PCAs with more business

opportunities before final OFI regulations are adopted. Although

several commenters stated that PCAs cannot effectively compete with

OFIs until their intermediate-term lending authorities are expanded,

section 1.10(b) of the Act establishes the maximum timeframe for

intermediate-term loans.

The FCA has considered the concerns of the commenters and adopts a

final rule that balances the needs of these parties. The final rule

incorporates

[[Page 36542]]

many of the commenters' suggestions and promotes a safe and sound

lending relationship between System funding banks and their OFIs. The

changes increase availability of credit to farmers, ranchers, aquatic

producers and harvesters, and other eligible rural borrowers.

I. OFI Access

A. Proposed Rule and Comments

The FCA proposed a two-tier approach for OFIs to establish their

eligibility for a funding and discount relationship with a System bank.

Under Sec. 614.4540(a), any financial institution that operates under

one of the charters specified in section 1.7(b)(1)(B) of the Act may

borrow from an FCB or ACB. Additionally, Sec. 614.4540(b) assures

access to creditworthy OFIs that have at least 15 percent of their

loans to agricultural or aquatic producers and enter into a 2-year

funding agreement with an FCB or ACB. The regulations require OFIs to

use System funding only to extend short- and intermediate-term credit

to eligible persons for authorized purposes under sections 1.10(b) and

2.4(a) and (b) of the Act. This new approach enables more OFIs to

borrow from System banks, and as a result, farmers and ranchers should

have greater access to affordable and dependable credit.

The FCA proposed to repeal the following eligibility provisions of

the existing regulations that are not required by the Act:

The 60-percent loan-to-deposit ratio for OFIs that are

depository institutions;

The requirement that OFIs primarily use locally generated

funds for lending operations;

The automatic denial of access to any entity that

primarily finances the sale of products by its affiliates;

Consideration of an OFI applicant's relationship with its

affiliates and subsidiaries; and

A mandatory non-use fee for OFIs that fail to maintain a

specified average daily loan balance.

The FCA received comments on proposed Sec. 614.4540 from the ABA,

IBAA, NDBA, and the Council. These commenters supported the repeal of

the non-statutory OFI eligibility criteria that are identified above.

The final rule repeals these provisions.

Although all four trade associations supported greater OFI access

to System funding, they expressed differing views on the need to modify

proposed Sec. 614.4540. The NDBA supported the two-tier approach for

OFI access. The Council requested that the FCA amend the regulation so

it expressly conveys that System funding banks have discretion to deny

the credit application of any OFI that is not covered by

Sec. 614.4540(b).

The ABA and IBAA requested amendments that would favor their

respective constituencies. The IBAA believes that the regulation should

favor small, rural community banks whereas the ABA opined that all

banks that provide agricultural credit should be entitled to System

funding. The IBAA commented that no lender should be granted access to

the FCS unless agricultural loans comprise at least 10 percent of its

loan portfolio. Although the IBAA supports the 15-percent threshold for

assured access, it believes that OFIs that meet this criterion should

be entitled to preferred status and special benefits, such as the

lowest cost of funds from System banks and greater flexibility

concerning collateral requirements. In contrast, the ABA suggested that

any commercial bank should be assured access under final

Sec. 614.4540(b) if agricultural loans comprise at least 10 percent of

its loan portfolio, or exceed a fixed dollar amount, such as

$5,000,000. In the ABA's view, the final rule should include a fixed

dollar threshold because agricultural loans often comprise a small

percentage of the loan portfolios of large commercial banks that are

major providers of agricultural credit. This commenter believes that

these large commercial banks deserve assured access to System funding.

The ABA also asked the FCA to reorganize proposed Sec. 614.4540.

The commenter suggested that the FCA relocate the provisions in

proposed Sec. 614.4540(b) that enable FCBs and ACBs to deny the funding

requests of OFIs that are assured access to Sec. 614.4540(c), which

governs denials. The ABA stated that this change would clearly

communicate the FCA's expectations to System banks and make this

regulation more user-friendly.

The IBAA requested that the FCA assume a more active role in

collecting and reporting information about the efforts of each System

bank to provide agricultural credit through OFIs. Specifically, the

commenter suggested that the FCA appoint an Ombudsman to review

complaints by OFIs. Additionally, the IBAA recommended that the FCA's

Annual Report contain comprehensive information about the number of OFI

applications, the number of funding requests that are either approved

or denied, a summary of the reasons for denial, and the total amount of

funds that System banks advance to OFIs. The IBAA also asked that the

final regulations require outside board members to represent OFI

interests and establish target goals for the minimum number of new

commercial bank OFIs that each System bank will approve every year.

B. Final Rule

Final Sec. 614.4540 retains the two-tier approach to OFI

eligibility as proposed. The FCA continues to believe that this

regulatory approach best implements the requirements of the Act.

Section 1.7(b) of the Act and its legislative history indicate that

Congress intended that Farm Credit banks primarily provide financial

assistance to small, local OFIs, but it did not exclude other

agricultural creditors from this program.\2\

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\2\ See H.R. 96-1287, 96th Cong., 2d. Sess., (1980), 21, 32-34.

See also 126 Cong. Rec. H 10960-64 (daily ed. Nov. 19, 1980).

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The FCA was not persuaded by the IBAA's request to exclude large

financial institutions and the ABA's request to grant most large

commercial banks the same assured access to FCS funding as small, local

OFIs. Accordingly, the FCA does not adopt the IBAA's recommendation to

amend Sec. 614.4540(a) so that OFI applicants are automatically denied

access to FCS funding if agricultural loans comprise less than 10

percent of their loan portfolios. In addition, the final regulation

does not incorporate the ABA's request that final Sec. 614.4540(b)

grant assured access to OFIs that have at least $5,000,000 or 10

percent of their loan portfolio in agricultural loans. The FCA

emphasizes that the final regulation allows any institution, including

large financial institutions, to fund or discount their agricultural

loans with an FCB or ACB, but it does not assure access to creditworthy

OFIs unless they have at least 15 percent of their loans in agriculture

and enter into a 2-year funding relationship. The FCA continues to

believe that the 15-percent threshold is the best measure of whether an

OFI is significantly involved in agricultural or aquatic lending, as

section 1.7(b)(4)(B)(i) of the Act requires.

The IBAA requested that the final regulation require FCBs and ACBs

to provide the lowest cost of funds and other special benefits to OFIs

that are entitled to assured access. This request would unnecessarily

involve the regulator in the daily business decisions of System banks.

Additionally, final Sec. 614.4590 requires Farm Credit banks to treat

their OFIs equitably and to determine loan rates through an objective

process. The FCA believes that System funding banks should retain

[[Page 36543]]

discretion to negotiate the price of funding and other loan terms with

OFIs. The final rule fulfills the FCA's responsibility to ensure that

FCBs and ACBs abide by their statutory mission to finance creditworthy

OFIs in a safe and sound manner.

Many of the ABA's suggestions for reorganizing Sec. 614.4540 have

been incorporated into the final rule. The FCA adopts proposed

Sec. 614.4540(a) as a final regulation, without revision. This

provision allows FCBs and ACBs to fund and discount short- and

intermediate-term agricultural, aquatic, processing and marketing,

farm-related business, and rural home loans for any financial

institution that operates under a charter specified in section

1.7(b)(1)(B) of the Act. As amended, final Sec. 614.4540(b) grants

assured access to creditworthy OFIs that maintain at least 15 percent

of their loan volume to agricultural and aquatic producers and enter

into a 2-year funding or discount relationship with an FCB or ACB.

Final Sec. 614.4540(c) retains the requirement in the proposed

regulation that FCBs and ACBs establish objective policies and loan

underwriting standards for determining the creditworthiness of each OFI

applicant. Under final Sec. 614.4540(d), FCBs and ACBs can deny the

funding requests of creditworthy OFIs that satisfy the conditions in

Sec. 614.4540(b) only if such requests: (1) Adversely affect the Farm

Credit bank's ability to achieve and maintain established or projected

capital levels or raise funds in the money markets; or (2) otherwise

expose the Farm Credit bank to safety and soundness risks. The Council

requested that the FCA amend Sec. 614.4540(a) so it expressly conveys

that System funding banks have discretion to deny the credit

application of any OFI that is not assured access. This revision is

unnecessary because Sec. 614.4540(c) requires FCBs and ACBs to develop

loan underwriting standards for all OFI applicants. As a result, the

framework of this regulation provides FCS banks appropriate discretion,

under their policies and loan underwriting standards, to deny the

funding requests of OFIs that are not assured access.

Commercial bank trade associations commented that the proposed

regulation did not require System funding banks to explain their reason

for denying an OFI's application. In response to this concern, the FCA

adds Sec. 614.4540(e) that requires System banks to expeditiously

process all OFI funding requests and to promptly provide all applicants

written notification of the credit decision. Additionally, System banks

must provide the applicant with specific reasons for any adverse credit

decision.

In response to the IBAA's recommendation about comprehensive

reporting on OFIs, the FCA adds new Sec. 614.4540(f), which requires

the board of directors of each FCB and ACB to receive annual written

reports about the scope of their OFI program activities during the

preceding fiscal year. The FCA expects that these annual reports will

identify:

The number of OFI applicants by category (such as

commercial banks, credit unions, agricultural credit corporations,

etc.);

The number of approved and denied OFI applications;

A summary of the reasons for denying OFI applications;

The total amount of funds advanced to OFIs; and

Other information necessary to evaluate the success of the

System bank's OFI program.

Periodically, the FCA may issue special calls for this information.

The FCA does not adopt the IBAA's request to appoint an OFI

Ombudsman because there are more efficient ways for the FCA to address

concerns that OFIs may raise. The FCA Board does not accept the IBAA's

request that the Agency appoint outside board members to represent OFI

interests and to establish target goals for OFI lending. The FCA has no

authority under the Act to appoint directors to the boards of Farm

Credit banks. In further response to the IBAA, the Agency believes that

this rule offers FCS banks sufficient business incentives to extend

more credit to OFIs. Additionally, a creditworthy OFI has the option to

seek funding from another System funding bank if its designated FCB or

ACB denies or fails to approve its application.

II. Place of Discount

Proposed Sec. 614.4550 addresses place of discount for OFIs.

Proposed Sec. 614.4550(a) specifies that an FCB or ACB provide funding,

discount and other financial assistance to any OFI whose headquarters

is located within the funding bank's chartered territory. Under

proposed Sec. 614.4550(b), an FCB or ACB could finance an OFI whose

headquarters is not located in its chartered territory if the System

funding bank identified in Sec. 614.4550(a) consents, denies the OFI's

application, or otherwise fails to approve the funding request pursuant

to Regulation B of the Board of Governors of the Federal Reserve

System, 12 CFR 202.2(f).

The ABA, IBAA, NDBA, three FCBs and two PCAs commented on the place

of discount rule. AgFirst FCB supported the FCA's proposal. This

commenter believes that the proposal best enables FCS banks to fund

OFIs in today's market. The IBAA suggested that the FCA modify its

proposal to allow an OFI that is dissatisfied with its System funding

bank to seek financing from any other FCB or ACB. The ABA and the NDBA

urged the FCA to remove all geographic restrictions on place of

discount. These commenters believe that geographic restrictions hamper

the success of the OFI program because non-System financial

institutions are required to seek funding from a System bank that is

owned and controlled by their competitors. The FCB of Texas asserted

that the existing regulation governing place of discount is sound and

should not be changed. The commenter believes that the FCA's proposal

will ultimately lead to unsafe and unsound competition between FCS

banks for OFI business. The FCB of Texas opposed the proposal to make

an OFI's headquarters the sole factor to determine the place of

discount. Finally, two PCAs made the FCA aware of their concerns that

associations lack similar opportunities to seek funding from other FCBs

or ACBs. After the comment period expired, the FCA received an inquiry

from an FCB about whether existing OFIs would be required to change

their place of discount once the proposed regulation became final.

The FCA Board believed the proposed rule established a balanced

approach concerning the place of discount for OFIs. Traditionally, OFIs

have been required to establish a funding or discount relationship with

a System bank owned and controlled by their competitors. Several

commenters believe that this factor explains why the program has not

been widely used by commercial banks and other potential OFIs. The FCA

has addressed this concern by proposing a regulation that provides

additional flexibility concerning place of discount to OFI applicants.

The FCA believes that some limitations on the place of discount for

OFIs are appropriate because FCS charters specify territories that

System institutions serve. Direct lender associations do not have the

same options to obtain financing from other FCBs and ACBs, and

therefore, the recommendations of the three commercial bank trade

associations would not treat FCS direct lender associations fairly.

Additionally, the ABA's and NDBA's suggestion would deny an FCB or ACB

the first

[[Page 36544]]

opportunity to finance OFIs operating in its chartered territory. The

final rule permits OFIs to apply to any System funding bank after the

designated FCS bank rejects or fails to approve the OFI's application.

The FCA was not persuaded by the FCB of Texas' argument that changes to

the place of discount rule will lead to destructive competition that

will ultimately undermine the safety and soundness of the FCS.

In response to the comments, the FCA has modified proposed

Sec. 614.4550 to provide additional flexibility regarding an OFI's

place of discount. The final regulation continues to require OFIs to

apply first to the FCS bank that serves the territory where the OFI

operates. The FCA recognizes that some OFIs operate in the chartered

territory of two or more FCS banks. Under the final regulation, an OFI

may select the FCS funding bank that serves the territory where the OFI

is headquartered, or alternatively, where more than 50 percent of the

OFI's outstanding loan volume is concentrated.

If the designated funding bank denies, or otherwise fails to

approve an OFI's completed application within 60 days, final

Sec. 614.4550(b) allows the OFI to apply to any other FCB or ACB. Under

final Sec. 614.4550(c), the designated FCS bank may also grant an OFI

its consent to seek financing from any other System funding bank. The

FCA has redesignated this consent provision as final Sec. 614.4550(c)

to enhance the clarity of the regulation. A new provision,

Sec. 614.4550(d), states that an OFI is not required to terminate an

established funding or discount relationship with its System funding

bank if the OFI subsequently relocates its headquarters or experiences

a shift in its loan volume concentration.

As mentioned earlier, the FCB of Texas urged the FCA to retain the

existing regulation on place of discount. However, the FCB of Texas

asked the FCA to consider three alternatives if the final regulation

allows OFIs to seek funding from other FCS banks. First, the commenter

requested that the FCA modify the regulation to provide the designated

FCS bank with the ``right of first refusal'' for any lending agreement

that an OFI negotiated with another System bank. Second, the commenter

wanted the FCA to determine whether another FCS bank should be

permitted to finance each OFI that has been denied credit from the

designated System bank for safety and soundness reasons. Finally, the

FCB of Texas asked the FCA to clarify that the regulation prohibits an

OFI from ``shopping'' FCS banks for funding on a loan-by-loan basis.

The commenter sought confirmation that the regulation does not allow an

existing OFI to fund or discount individual loans with another System

bank if its funding bank rejects those same loans.

The FCA believes a specific ``right of first refusal'' is

unnecessary because the designated System bank will have already denied

or failed to approve the OFI's initial application. The requirement

that an OFI first seek funding from its designated bank is the

equivalent of a ``right of first refusal.'' In response to the

commenter's second request, the FCA need not determine whether another

FCB or ACB can finance an OFI that has been denied credit by its

designated funding bank because Sec. 614.4540(c) requires each FCB and

ACB to establish its own objective policies and loan underwriting

standards for determining an OFI applicant's creditworthiness. The FCA

will examine the extension of credit to OFIs in the same context of

safety and soundness as it does other risks held in the funding bank's

portfolio. The FCA clarifies that the regulation does not permit an OFI

to ``shop'' for FCS funding on a loan-by-loan basis because

Sec. 614.4560(a)(1) requires all OFIs to execute a general financing

agreement (GFA) to establish a funding or discount relationship with a

System funding bank. Under the circumstances, Sec. 614.4550(b) applies

to the overall relationship between an FCB or ACB and the OFI, not a

specific discounted loan.

III. Requirements for OFI Funding Relationships

Proposed Sec. 614.4560 implements several statutory provisions that

govern the funding and discount relationship between OFIs and System

funding banks. More specifically, each OFI is required to: (1) Execute

a GFA with its System funding bank; (2) purchase non-voting stock in

the System funding bank pursuant to the bank's bylaws; (3) extend

credit only to parties and for purposes that are authorized by sections

1.10(b) and 2.4(a) and (b) of the Act; (4) adhere to portfolio

limitations on non-farm rural home loans and certain processing and

marketing loans; and (5) comply with statutory and regulatory borrower

rights requirements for all agricultural and aquatic loans that an FCB

or ACB funds or discounts. Additionally, 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 proposed 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. The FCA expects each FCS bank to incorporate criteria

for revoking or suspending its funding relationship with an OFI into

its policies and loan underwriting standards. This issue should also be

addressed in the GFA between an OFI and the System funding bank.

The FCA received only one comment about proposed Sec. 614.4560. The

IBAA commented that the FCA should establish general guidelines for

FCBs and ACBs to follow when they negotiate GFAs with their OFIs.

Additionally, the commenter suggested that the FCA consult with OFIs to

develop a model GFA.

The FCA recently adopted a GFA rule that eliminated Agency prior-

approval of GFAs. See 63 FR 12401, March 13, 1998. The new rule

addresses the IBAA's concerns because they provide general guidelines

for developing GFAs between System funding banks and OFIs. However, the

FCA does not believe it should interfere in the business operations of

System banks by negotiating with OFIs to develop a model GFA. The FCA

adopts proposed Sec. 614.4560 as a final regulation.

IV. Recourse and Security Requirements

Proposed Sec. 614.4570 would prohibit any FCB or ACB from extending

credit to an OFI on an unsecured, limited, or non-recourse basis.

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. Proposed Sec. 614.4570(b)(1) requires each

OFI to pledge all notes, drafts, and other obligations that are funded

or discounted with the FCB or ACB as collateral for the credit

extension. 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.

A. Full Recourse

An existing OFI, the Council, and two jointly managed FCBs opposed

the full recourse requirement in Sec. 614.4570(a). The existing OFI

commented that the full recourse requirement would

[[Page 36545]]

seriously jeopardize any new opportunities that the new regulation

creates for expanded OFI access. One of the jointly managed FCBs

expressed concern about how the full recourse requirement in the

proposal would affect its relationship with an existing OFI and

potential opportunities to finance new OFIs in the future. The Council

believes recourse to an OFI's capital should be subject to negotiation

between the parties, and each System bank's loan underwriting standards

should address this issue.

From a safety and soundness perspective, FCBs and ACBs need full

recourse to an OFI's capital in the event of default. Full recourse is

necessary because the final rule significantly expands OFI access to

the FCS and it repeals many existing regulatory restraints on the

funding and discount relationship between System banks and their OFIs.

Section 1.7(b)(3)(A) of the Act prohibits a System bank from funding an

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

unimpaired capital and surplus. In light of this statutory safety and

soundness requirement, the FCA believes that it is prudent for FCS

banks to have full recourse to an OFI's capital. Additionally, the

regulations in 12 CFR part 615, subpart H, require FCS lenders to hold

sufficient capital as a cushion against risk in all loans. Full

recourse to an OFI's capital strengthens the FCS funding bank's risk-

bearing capacity. System funding banks are required to have full

recourse to the capital of direct lender associations. Since OFIs have

access to other sources of funds, they may expose System funding banks

to greater risk of loss than direct lender associations.

B. Security

The FCA received comments from the ABA, IBAA, and the Council about

the security OFIs are required to pledge under proposed

Sec. 614.4570(b). The ABA and the IBAA requested that the final

regulation provide OFIs with additional flexibility to pledge other

types of collateral to their FCS funding bank. The ABA opposed

Sec. 614.4570(b) because it requires OFIs to pledge all loans that are

actually funded by the FCS bank as primary collateral. The commenter

believes the requirement is particularly burdensome due to the tracking

and recordkeeping that it entails. The ABA recommended that an OFI be

allowed to pledge unrelated agricultural loans as collateral. The

Council commented that loan perfection should be determined by the FCS

funding bank's underwriting standards.

The security requirements of Sec. 614.4570(b) ensure compliance

with two sections of the Act. First, 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. Second,

OFIs are required to track which loans are funded or discounted through

the FCB or ACB funding relationship to ensure compliance with the

borrower rights requirements of the Act. In light of these statutory

requirements, the FCA does not adopt the ABA's suggestion to allow an

OFI to pledge other agricultural loans as primary collateral to a

System funding bank. However, Sec. 614.4570(c) permits System funding

banks to accept long-term mortgages on agricultural assets as

supplemental collateral. Final Sec. 614.4570(b)(2) requires that FCBs

and ACBs perfect, in accordance with State law, a senior security

interest in any and all obligations that an OFI pledges as collateral.

In summary, the FCA's new regulatory approach for OFI financing

affords OFIs greater flexibility and additional access to the FCS. To

ensure the safe and sound implementation of the OFI program, the FCA

adopts proposed Sec. 614.4570 as a final regulation without revision.

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

Similar Financial Assistance to an OFI

Proposed Sec. 614.4580 derives from section 1.7(b)(3) of the Act.

This statutory provision prohibits a System funding bank from extending

credit to an OFI if its aggregate liabilities exceed ten times its

paid-in and unimpaired capital and surplus, or a lesser amount

established by the laws of the jurisdiction creating the OFI.

The IBAA commented that the FCA should discourage FCBs and ACBs

from establishing less than a 10:1 capital ratio, except under rare

circumstances. The commenter expressed concerns that a more stringent

capital requirement could raise an OFI's cost of borrowing from the

System, and make this program less attractive to potential OFI

applicants.

The FCA expects each FCB and ACB to develop loan underwriting

standards that address OFI capital requirements. Compliance with these

loan underwriting standards are the basis for determining safety and

soundness in credit extensions. The FCA believes System banks need the

flexibility to tailor underwriting standards to manage the risks from

OFIs, based on the banks' risk-bearing capacity. As a safety and

soundness regulator, the FCA will not preclude FCBs and ACBs from

establishing a capital requirement that is more stringent than the 10:1

ratio in the statute. However, the final rule requires FCS funding

banks to treat OFIs equitably in this and other matters. The FCA adopts

proposed Sec. 614.4580 as a final regulation.

VI. Lending Limit to a Single OFI Borrower

The FCA proposed to eliminate the existing regulatory lending limit

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

funds. The proposal acknowledged that some OFIs will remain subject to

the lending limit that their primary regulator imposes under applicable

Federal or State law. Additionally, the FCA expects each FCB or ACB to

prudently manage the risk exposure caused by concentrations in OFI loan

portfolios through its loan underwriting standards and the GFA.

The FCA solicited commenters' views on whether the final rule

should contain a lending limit on extensions of credit that an OFI

makes to its borrowers with FCS funds. Additionally, the FCA requested

suggestions for other approaches to manage and control risks

originating through OFI lending relationships.

The ABA, IBAA, and the Council supported the repeal of the existing

50-percent lending limit on OFI borrowers. These commenters advised the

FCA that the repeal of the lending limit would enhance the Farm Credit

banks' ability to finance OFIs. These trade associations also claimed

that the repeal of existing Sec. 614.4565 would not imperil the safety

and soundness of System banks that maintain adequate loan underwriting

standards. The IBAA requested that the final regulation prohibit FCBs

and ACBs from establishing a lending limit below 50 percent. The IBAA

also expressed concern that the FCA's proposal would impose the Federal

or State lending limit on the affiliates and subsidiaries of regulated

financial institutions.

As the FCA originally proposed, the final rule repeals the lending

limit in existing Sec. 614.4565. In response to the IBAA, the FCA

observes that OFIs remain subject to any lending limit imposed by

Federal or State law. If the OFI is not subject to a Federal or State

lending limit, the funding banks' underwriting standards and the GFA

will address single borrower concentration risks in the OFI's

portfolio. The FCA rejects the IBAA suggestion that the final rule

prohibit FCBs and ACBs from establishing a

[[Page 36546]]

lending limit of less than 50 percent because it is inconsistent with

safety and soundness. The underwriting standards of each Farm Credit

bank should ensure that concentrations in an OFI's loan portfolio do

not expose the bank to unacceptable levels of risk.

VII. Equitable Treatment of OFIs and FCS Associations

Proposed Sec. 614.4590 promotes the equitable treatment of OFIs and

direct lender associations. Proposed Sec. 614.4590(a) would require

FCBs and ACBs to apply objective loan underwriting standards for both

types of borrowers. Under proposed Sec. 614.4590(b), the total charges

a Farm Credit bank assesses an OFI must be comparable to the charges it

imposes on direct lender associations. Furthermore, any variation in

funding costs must be attributed to differences in credit risk and

administrative costs.

The IBAA and the NDBA commented on proposed Sec. 614.4590.

According to the IBAA, references to ``similar'' underwriting standards

and ``comparable'' overall cost of funds in the proposed regulation

grants System banks too much discretion. The IBAA asserts that the

interest rates and the overall cost of funds should be equal for both

OFIs and direct lender associations. For this reason, the commenter

believes that the final regulation should require System banks to

disclose pricing information about their loans to FCS direct lender

associations. According to the IBAA, ``equal treatment'' entails lower

stock purchase requirements and mandatory dividend payments to OFIs

because they are not afforded voting rights and other privileges. The

NDBA commented that the final rule should require FCBs and ACBs to

adopt ``objective and uniform underwriting standards and pricing

requirements.''

The FCA observes that there are fundamental differences between

OFIs and direct lender associations. These differences make it

difficult to compare the treatment of these two types of financial

institutions. The following factors illustrate some of the basic

differences between OFIs and direct lender associations that preclude

identical treatment:

OFIs have access to several funding sources whereas direct

lender associations are required to borrow from their designated

funding bank.

Direct lender associations have significant amounts of

capital invested in their System funding bank, but most OFIs do not.

As part of a cooperative system, direct lender

associations share in System gains and losses. In contrast, OFIs have

limited exposure to System losses in the FCS.

Administrative costs for funding a direct lender

association and an OFI differ because OFIs are not required to maintain

a long-term commitment with an FCB or ACB.

Under these circumstances, the regulations can only require FCBs

and ACBs to treat OFIs and direct lender associations equitably, but

not equally. The FCA expects System funding banks to treat similarly

situated associations and OFIs comparably. Any variation in the overall

amounts that System funding banks charge OFIs and direct lender

associations for capitalization requirements, interest rates, and fees

shall be attributed to differences in credit risk and administrative

costs.

The FCA does not adopt any of the IBAA's suggestions for revising

this regulation. The final regulation does not require dividend

payments to OFIs, or establish OFI investment levels in System funding

banks because the FCA regulations do not impose business practices on

FCS institutions in the absence of compelling public policy or safety

and soundness reasons. The final regulation does not compel FCS funding

banks to charge identical rates to OFIs and FCS direct lender

associations, and therefore, it is unnecessary for FCBs and ACBs to

disclose pricing information for direct lender associations.

The FCA finds merit in the NDBA's suggestion that Sec. 614.4590(a)

should require FCBs and ACBs to establish comparable and objective loan

pricing standards for both OFIs and direct lender associations.

Accordingly, the FCA has incorporated this revision into final

Sec. 614.4590(a). Additionally, the FCA substitutes ``comparable'' for

``similar'' in final Sec. 614.4590(a) so that the language used

throughout this regulation is consistent.

VIII. Miscellaneous Issues

A. Association Funding of OFIs

One association asked the FCA to clarify that PCAs and agricultural

credit associations can establish and manage OFI relationships on

authority delegated by their System banks. The commenter observed that

such a program, established under System bank guidelines, would become

a natural adjunct to the participation authorities that associations

now exercise. Although the Act authorizes only FCBs and ACBs to provide

funding to OFIs, the FCA believes that direct lender associations have

considerable opportunities for involvement in their funding bank's OFI

relationships. Indeed, as funding banks have increasingly become

wholesale lenders, associations may be in a position to recruit OFIs,

assess the risk in the retail loans or collateral, and service the

credit relationship on behalf of the bank. Through their participation

authorities, associations may form effective alliances with other

agricultural lenders for the benefit of farmers and ranchers.

B. Small Business Investment Companies

A commercial bank holding company commented that the final

regulation should permit Small Business Investment Companies (SBICs) to

participate in the OFI program. According to the commenter, SBICs and

similar state-chartered entities need access to additional stable pools

of funds to support their agricultural lending operations. The

commenter also suggested that the FCA follow the lead of the Federal

Housing Finance Board and permit System banks to invest directly in

SBICs.

SBICs do not qualify as OFIs because they do not have one of the

charters specified in section 1.7(b)(1)(B) of the Act. Additionally,

Federal and State laws effectively preclude SBICs from participating in

the OFI program. As a result, the final regulation does not allow SBICs

to become OFIs.

The OFI regulations do not implement the investment authorities of

FCS banks under sections 1.5(15) and 3.1(13)(A) of the Act. An existing

investment regulation, Sec. 615.5140, does not authorize System banks

to invest in SBIC equities. However, the FCA recently proposed

amendments to Sec. 615.5140, and the Agency will consider the

commenter's request when it deliberates on the final investment

regulation.

C. Insolvency

The FCA received no comments about proposed Sec. 614.4600, which

governs the insolvency of OFIs. The FCA adopts proposed Sec. 614.4600

as a final rule.

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.

[[Page 36547]]

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

amended 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, 4104a, 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, 4.3A, 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, 8.9 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, 2154a,

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, 2279aa-9); sec.

413 of Pub. L. 100-233, 101 Stat. 1568, 1639.

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 Institutions

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.

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

of Other Financing Institutions

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, agriculture 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. Each Farm Credit Bank or agricultural credit

bank must fund, discount, or 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) Underwriting standards. Each Farm Credit Bank and agricultural

credit bank shall establish objective policies and loan underwriting

standards for determining the creditworthiness of each OFI applicant.

(d) Denial of OFI access. A Farm Credit Bank or an agricultural

credit bank may deny the funding request of any creditworthy OFI that

meets the conditions in paragraph (b) of this section only when such

request would:

(1) Adversely affect a Farm Credit Bank or agricultural credit

bank's ability to:

(i) Achieve and maintain established or projected capital levels;

or

(ii) Raise funds in the money markets; or

(2) Otherwise expose the Farm Credit Bank or agricultural credit

bank to safety and soundness risks.

(e) Notice to applicants. Each Farm Credit Bank or agricultural

credit bank shall render its decision on an OFI application in as

expeditious a manner as is practicable. Upon reaching a decision on an

application, the Farm Credit Bank or agricultural credit bank shall

provide prompt written notice of its decision to the applicant. When

the Farm Credit Bank or agricultural credit bank makes an adverse

credit decision on an application, the written notice shall include the

specific reason(s) for the decision.

(f) Reports to the board of directors. Each Farm Credit Bank and

agricultural credit bank shall provide its board of directors with a

written annual report regarding the scope of OFI program activities

during the preceding fiscal year.

Sec. 614.4550 Place of discount.

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

funding, discounting, or other similar financial assistance to any OFI

applicant that:

(1) Maintains its headquarters in such funding bank's chartered

territory; or

(2) Has more than 50 percent of its outstanding loan volume to

eligible

[[Page 36548]]

borrowers who conduct agricultural or aquatic operations in such

funding bank's chartered territory.

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

in paragraph (a) of this section denies or otherwise fails to approve

an OFI's funding request within 60 days of receipt of a ``completed

application'' as defined by 12 CFR 202.2(f), the OFI may apply to any

other Farm Credit Bank or agricultural credit bank for funding,

discounting, or other similar financial assistance.

(c) The Farm Credit Bank or agricultural credit bank may grant its

consent for an OFI identified in paragraph (a) of this section to seek

financing from another Farm Credit Bank or agricultural credit bank.

(d) No OFI shall be required to terminate its existing funding or

discount relationship with a Farm Credit Bank or agricultural credit

bank if, at a subsequent time, an OFI relocates its headquarters to the

chartered territory of another Farm Credit Bank or agricultural credit

bank or the loan volume in the relevant territory falls below 50

percent.

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 from 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 policies and loan underwriting

standards that establish uniform and objective requirements 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 ten 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

comparable and objective loan underwriting standards and pricing

requirements 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 or agricultural 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 or agricultural credit

bank may also liquidate the OFI's loans and other assets in order to

achieve repayment of the debt.

[[Page 36549]]

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 word ``financial'' and

adding in its place the word ``financing''; and by removing the words

``, as defined in Sec. 614.4540(e) of this chapter'' 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: June 26, 1998.

Floyd Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 98-17844 Filed 7-6-98; 8:45 am]

BILLING CODE 6705-01-P