Loan Policies and Operations; Title IV Conservators, Receivers, and Voluntary Liquidation

FARM CREDIT ADMINISTRATION

12 CFR Parts 614 and 627

RIN 3052-AB09

Loan Policies and Operations; Title IV Conservators, Receivers,

and Voluntary Liquidation

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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

Administration Board (Board), issues a final rule amending its

regulation that governs the funding relationship between a Farm Credit

Bank (FCB) or agricultural credit bank (ACB) and a direct lender

association or other financing institution (OFI). This rule repeals the

requirement that the FCA prior approve the General Financing Agreement

(GFA) between an FCB or ACB and a direct lender association or OFI and

eliminates a regulatory direct loan limitation. The rule also amends

another regulation to permit the voluntary liquidation of Farm Credit

institutions by means of an FCA-approved liquidation plan.

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:

S. Robert Coleman, Senior Policy Analyst, Regulation and Policy

Division, Office of Policy and Analysis, Farm Credit Administration,

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

or

James M. Morris, Senior Counsel, Legal Counsel Division, Office of

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

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

SUPPLEMENTARY INFORMATION: On March 24, 1997, the FCA proposed

amendments to the regulation in subpart C of part 614 that governs the

funding relationship between FCBs or ACBs and direct lender \1\

associations or OFIs. The FCA also proposed amendments to the

regulation contained in part 627 that governs liquidations. These

amendments would authorize the voluntary liquidation of Farm Credit

System (FCS or System) institutions by means of an FCA-approved

liquidation plan. See 62 FR 13842. The amendments were proposed as part

of the FCA's continuing effort to streamline its regulations, provide

flexibility to address issues that pertain to funding relationships,

and outline minimum regulatory criteria for GFAs.

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\1\ As defined in Sec. 619.9135 of this chapter.

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The FCA received 9 comment letters in response to this proposal,

including a comment letter from the Farm Credit Council (FCC or

Council) on behalf of its members,\2\ 5 responses from FCBs, 1 response

from an ACB, and 2 responses from FCS direct lender associations (an

agricultural credit association (ACA) and a jointly managed production

credit association (PCA) and Federal land credit association (FLCA)).

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\2\ The national trade association serving the Farm Credit

System, including FCBs, ACBs, direct lender associations, and

Federal land bank associations.

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In general, all the comments expressed support for the proposed

regulation and its goal to streamline the regulations and provide

flexibility. One FCB commended the FCA for properly relying on its

ongoing examination process and enforcement powers to ensure that GFAs

preserve the interests of the parties and do not pose excessive safety

and soundness risks to the parties involved. Another FCB indicated that

it supports the proposed regulation and, in particular, the elimination

of the requirement for prior FCA approval, as a significant step toward

the streamlining and modernization of the debtor/creditor relationship

between the FCS banks and the direct lender associations.

The FCA responds to specific concerns below as it explains aspects

of the rule commented upon. After considering the comments received in

response to the proposed regulation, the FCA adopts a final rule

governing GFAs and permitting voluntary liquidation of Farm Credit

institutions under FCA-approved liquidation plans.

I. Maximum Term of the General Financing Agreement

The FCA received a comment from the FCC concerning the proposed 3-

year limitation on the term of GFAs. The FCC argued that the final rule

should leave the term of the GFA to the discretion of the parties

involved. The FCC believes that the length or term of the GFA should be

negotiable, like other terms and conditions of the GFA. Further, the

commenter stated that many types of commercial agreements include

``evergreen'' provisions automatically renewing the agreement for an

additional term unless, within a prescribed period of time related to

the stated renewal date, either party gives written notice to the other

of an intent to terminate or renegotiate the arrangement. The commenter

noted that some existing GFAs have terms in excess of 3 years. The FCC

sees no compelling reason for the FCA to restrict by regulation the

parties' latitude to negotiate this aspect of the GFA. As additional

support for its position, the FCC stated that the credit policies and

underwriting standards of many funding banks typically require a

periodic review of their direct lender association's lending

relationship, which includes a review of the GFA itself.

The FCA believes that it is appropriate for each FCS bank's credit

policies and underwriting standards to require a periodic review of

each direct lender's and OFI's lending relationship. These reviews

enable the funding banks to determine if the existing terms and

conditions of the GFA continue to appropriately address relevant risks

in the lending relationship. Because it is this review, rather than a

re-execution of the GFA, that is fundamental to prudent lending, the

FCA has modified proposed Sec. 614.4120 to require that FCBs and ACBs

adopt policies requiring a review of the terms of each GFA at least

every 5 years. The final regulation permits GFAs to renew automatically

for an additional term if neither the bank, after reviewing the terms,

nor the direct lender association (or OFI) offers objection. The FCA

believes this approach satisfies its concerns while

[[Page 5722]]

allowing the parties to GFAs to operate more efficiently.

The FCA also increases the maximum term for most GFAs from 3 years,

as proposed, to 5 years. This limit will accommodate the maximum term

on all existing GFAs. The FCA believes that its safety and soundness

concerns can be addressed if the FCS banks review GFA terms and seek

modifications as appropriate at least every 5 years. In addition, the

direct lender association should be provided a reasonable opportunity

to periodically request new terms and conditions in its borrowing

arrangement with the funding bank. Accordingly, final Sec. 614.4120

adopts a maximum term of 5 years for any GFA used for secured lending.

The FCA continues to believe that the maximum term for any GFA that

provides for unsecured lending to direct lender associations should not

exceed 1 year because of the additional risks inherent in unsecured

lending.

II. Unsecured Lending

In the preamble to the proposed regulation, the FCA specifically

requested comments as to whether there is a need for special

limitations or restrictions on unsecured lending in addition to the 1-

year limit on the term of any GFA that provides for unsecured lending.

The FCC submitted a comment letter on behalf of its membership, in

which it stated it would be inappropriate for FCA to define further the

circumstances under which unsecured lending may be appropriate or to

impose any additional limitations or restrictions on unsecured lending.

The FCA received no comments indicating a need for additional

limitations or restrictions on unsecured lending activity. Accordingly,

in adopting the final rule, the FCA has not changed any provisions of

the proposed rule related to unsecured lending.

III. Providing the FCA Copies of the General Financing Agreement and

Related Documents

The FCC commented on the proposed requirement in Secs. 614.4125(b)

and 614.4130(b) that a funding bank deliver to the FCA's Chief

Examiner, or designee, a copy of each GFA and all related documents

within 10 business days after their execution. The FCC suggested,

To the extent the substantive terms and conditions of two or

more GFAs in a particular district are identical, the Council's

membership believe it would be more efficient, and less burdensome,

for the funding bank to provide FCA one copy of the GFA, together

with the names of all direct lender associations or OFIs, as the

case may be, that have executed identical agreements.

The FCA agrees that submitting duplicate copies of identical GFAs

may not be necessary. Although FCA has not changed the final

regulation's general requirement to submit copies of GFAs to the Chief

Examiner, FCS banks that execute identical GFAs should contact the FCA

field offices that examine the FCS institutions involved to arrange an

efficient means of satisfying this requirement.

IV. Maximum Credit Limit Calculation

Proposed Sec. 614.4125(d) would require that each GFA establish a

maximum credit limit consistent with the FCS bank's lending policies

and underwriting standards and the creditworthiness of the direct

lender association. The proposed regulation would also establish a

ceiling for any maximum credit limit that was equal to the value of the

``direct lender association's assets available'' to the FCS bank to

support outstanding obligations under section 4.3(c) of the Farm Credit

Act of 1971, as amended (Act). The FCA received comments from 6 FCS

banks and 1 jointly managed PCA/FLCA on this issue.

Upon further consideration of this issue, the FCA has concluded

that, in establishing the maximum credit limit in each GFA, each FCS

bank should be guided by the underwriting standards that FCA

regulations require it to develop. The FCA believes that the proposed

regulatory ceiling is unnecessary and potentially misleading for the

reasons outlined below. Accordingly, the last sentence in each of

proposed Secs. 614.4125(d) and 614.4130(c) has been deleted in the

final regulation.

The comments received generally supported the flexibility offered

by replacing the existing direct loan formula with a requirement that

the FCS bank establish credit limits in accordance with its lending

policies and underwriting standards. The comments differed, however, as

to the components appropriately included in calculating the proposed

regulatory ceiling. Most commenters believed that the calculation

should give a direct lender association at least some credit for its

investment in the FCS bank, but one bank suggested that the amount of a

direct lender association's investment should not be included in the

calculation.

The comments helped the FCA recognize the potentially misleading

effect of establishing a regulatory ceiling on maximum credit limits

that is solely tied to an asset-based calculation. As proposed, the

ceiling would have been a theoretical, not a practical, limit. The FCA

believes that if FCS banks develop, and apply to their relationship

with direct lender associations, sound lending policies and

underwriting standards, as required by the regulation, the banks will

establish maximum credit limits that are below the proposed regulatory

ceiling. The FCA expects the banks' lending policies and underwriting

standards to produce an appropriate credit limit tailored to each

direct lender association's circumstances. As required in

Sec. 614.4120, and further explained in the preamble to the proposed

rule, each FCS bank must evaluate the creditworthiness of a direct

lender association on the basis of lending policies and loan

underwriting standards set forth in Sec. 614.4150. The loan

underwriting standards will require the bank to go beyond any simple

asset-based calculation to consider risk factors such as the direct

lender association's capital adequacy and adherence to all regulatory

capital requirements, repayment ability, asset quality, liquidity,

quality of collateral offered, business plan objectives, and quality of

board and management. This credit evaluation will determine an

appropriate upper limit on funding for each direct lender association.

Each FCS bank must also have adequate internal controls in place to

manage the debtor/creditor relationship, including appropriate

disbursement and monitoring controls to ensure on-going compliance with

the funding agreement. Including in the regulation a ceiling based

simply on the direct lender association's available collateral may

suggest, incorrectly, that such an asset-based limit could be a safe

and sound maximum credit limit for most or all associations. Consistent

with the FCA's emphasis on loan underwriting standards as the key to

prudent lending, the final regulation eliminates the asset-based

ceiling for credit extensions to associations and OFIs.

V. Notice of Material Defaults--Monetary Penalties

The FCC submitted a comment concerning notification to the FCA and

the Farm Credit System Insurance Corporation (FCSIC) in case of

``material defaults'' under the GFA. Proposed Sec. 614.4125(e) would

require that any funding bank that provides notice to a direct lender

association that it is in material default of any covenant, term, or

condition of the GFA, promissory note, security agreement, or other

related documents simultaneously provide written notification to the

FCA

[[Page 5723]]

and the FCSIC. Proposed Sec. 614.4125(f) would impose a similar

requirement on a direct lender association that receives such notice

from an FCB, ACB or non-FCS institution. The FCC suggested that the FCA

remove the references to the FCSIC in proposed Sec. 614.4125 (e) and

(f). The FCA has not adopted this suggestion because it believes there

is a benefit in a direct notice to the FCSIC.

Finally, the FCA wishes to clarify the discussion contained in the

preamble to the proposed regulation regarding the ``material default''

notice. The discussion indicated that the ``material default'' notice

requirement ``include[s], but is not limited to, notice from the FCB or

ACB about the imposition of any monetary penalties on the direct lender

association, including penalty interest, additional fees, or other

service charges imposed based on a default by the direct lender

association.'' See 62 FR 13844, Mar. 24, 1997. Two FCBs, an ACA, and a

jointly managed PCA/FLCA requested that the FCA clarify that the term

``penalty interest'' would not include changes in pricing under normal

differential pricing and price incentive structures. The commenters

noted that some GFAs provide different interest rates at different

levels of financial performance as an incentive to improve overall

credit quality and financial condition. The commenters expressed a

concern that imposition of notice requirements might encourage

elimination of these incentive programs. Accordingly, the FCA clarifies

that final Sec. 614.4125 does not require institutions to notify the

FCA when changing interest rates in accordance with normal differential

pricing and price incentive structures. Specifically, if monetary

penalties are imposed based on a default by the direct lender

association, notice to the FCA is required. If no default in the GFA

occurs, notice to the FCA is not required.

VI. Additional Regulatory Protections

The FCA received comments from the FCC and an ACA responding to the

FCA's request for comments as to whether specific regulations are

needed to protect the interests of FCS institutions negotiating the

terms and conditions of the GFAs. The FCC indicated that its membership

believes that ``a sufficiently level playing field between funding

banks and their direct lender association-stockholders currently

exists.'' In addition, the FCC, on behalf of its members, stated that

the ``promulgation of additional regulations specifically designed to

`protect' the interest of either party in the negotiation process is

wholly unnecessary and would be inappropriate, in our judgment, for an

arm's-length regulator.'' The FCC comments provided in response to the

proposed GFA regulation were developed by the FCC's membership as a

result of a process that included two Systemwide conference calls. The

FCC indicates that prior to being finalized, draft comments were

circulated throughout the FCS for review, and a third Systemwide

conference call was then held to discuss and finalize the comments

provided. The result was a consensus that a sufficiently level playing

field between funding banks and their direct lender association-

stockholders currently exists.

Only the ACA took exception to the FCC's comment. The commenter

stated that direct lender associations are at a competitive

disadvantage when negotiating the GFA and that voting strength alone

does not level that playing field, particularly for associations who

are minority shareholders in their bank. The commenter noted that FCS

associations cannot obtain financing from a source other than their

funding bank without the bank's consent. This dependence places

associations at a disadvantage in negotiating the terms of a GFA. The

commenter did not recommend specific rules that would address the

perceived imbalance in bargaining power but did suggest that the GFA

regulation should provide the associations ``meaningful remedies'' in

the event that an FCS bank fails to perform under the GFA. In addition,

the commenter suggested that the FCA should devise a mechanism for

consistently measuring the effective wholesale cost of funding that

each FCS bank offers to affiliated associations and make that

information available on a Systemwide basis. Finally, the commenter

suggested that FCS banks should be required to establish a specific

policy on approving outside sources of funding for affiliated

associations.

After considering the comments received, the FCA does not believe

that it has been demonstrated that there is a disparity of negotiating

power between FCS banks and direct lender associations that requires a

regulatory solution.\3\ Further, the FCA believes that the remedies

suggested by the ACA commenter go beyond the scope of this regulation.

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\3\ While the FCA agrees with the comment that based on current

information a regulatory solution is unnecessary, the FCA does not

agree that it would be ``inappropriate'' for an arm's-length

regulator to provide a regulatory solution to protect the interest

of either party in the negotiation process, if necessary.

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The FCA adopts conforming changes to the regulations at

Secs. 614.4000(b) and 614.4010(b) to include the reference to the

appropriate sections of the final GFA regulation and references the

definition of an OFI contained in the final regulation at

Sec. 614.4130(a).

List of Subjects

12 CFR Part 614

Agriculture, Banks, Banking, Flood insurance, Foreign trade,

Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 627

Agriculture, Banks, Banking, Claims, Rural areas.

For the reasons stated in the preamble, parts 614 and 627 of

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

read as follows:

PART 614--LOAN POLICIES AND OPERATIONS

1. 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, 4.12, 4.12A,

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

4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6,

7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12 U.S.C. 2011,

2013, 2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091,

2093, 2094, 2096, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149,

2183, 2184, 2199, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206,

2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252,

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

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

Subpart A--Lending Authorities

Sec. 614.4000 [Amended]

2. Section 614.4000 is amended by removing the reference

``Sec. 614.4130(b)'' and adding in its place, the reference

``Sec. 614.4125'' in the last sentence of paragraph (b).

Sec. 614.4010 [Amended]

3. Section 614.4010 is amended by removing the reference

``Sec. 614.4130(b)'' and adding in its place, the reference

``Sec. 614.4125'' in the last sentence of paragraph (b).

Subpart C--Bank/Association Lending Relationship

4. Section 614.4120 is revised to read as follows:

[[Page 5724]]

Sec. 614.4120 Policies governing extensions of credit to direct lender

associations and OFIs.

The board of directors of each Farm Credit Bank and agricultural

credit bank shall adopt policies and procedures governing the making of

direct loans to and the discounting of loans for direct lender

associations and OFIs. The policies and procedures shall prescribe

lending policies and loan underwriting standards that are consistent

with sound financial and credit practices. The policies shall require a

periodic review of the lending relationship with each direct lender

association and OFI at intervals consistent with the term of the

general financing agreement but in no case longer than 5 years. The

policies shall require an evaluation of the creditworthiness of a

direct lender association on the basis of credit factors and lending

policies and loan underwriting standards set forth in part 614, subpart

D, and may permit lending to such an institution on an unsecured basis

only if the overall condition of the institution warrants. The stated

term of a general financing agreement shall not exceed 5 years but may

be automatically renewable for additional terms not to exceed 5 years

if neither party objects at the time of renewal. The term of any

general financing agreement that provides for unsecured lending to a

direct lender association shall not exceed 1 year and may not be

automatically renewed.

5. Section 614.4125 is added to read as follows:

Sec. 614.4125 Funding and discount relationships between Farm Credit

Banks or agricultural credit banks and direct lender associations.

(a) A Farm Credit Bank or agricultural credit bank shall not

advance funds to, or discount loans for, any direct lender association

except pursuant to a general financing agreement.

(b) The Farm Credit Bank or agricultural credit bank shall deliver

a copy of the executed general financing agreement and all related

documents, such as a promissory note or security agreement, and all

amendments of any of these documents, within 10 business days after any

such document or amendment is executed, to the Chief Examiner, Farm

Credit Administration, or to the Farm Credit Administration office that

the Chief Examiner designates.

(c) The general financing agreement shall address only those

matters that are reasonably related to the debtor/creditor relationship

between the Farm Credit Bank or agricultural credit bank and the direct

lender association.

(d) The total credit extended to a direct lender association,

through direct loan or discounts, shall be consistent with the Farm

Credit Bank's or agricultural credit bank's lending policies and loan

underwriting standards and the creditworthiness of the direct lender

association. The general financing agreement or promissory note shall

establish a maximum credit limit determined by objective standards as

established by the Farm Credit Bank or agricultural credit bank.

(e) A Farm Credit Bank or agricultural credit bank that provides

notice to a direct lender association that it is in material default of

any covenant, term, or condition of the general financing agreement,

promissory note, security agreement, or other related documents

simultaneously shall provide written notification to the Chief

Examiner, Farm Credit Administration, or to the Farm Credit

Administration office that the Chief Examiner designates and the

Director, Risk Management, Farm Credit System Insurance Corporation.

(f) A direct lender association shall provide written notification

to the Chief Examiner, Farm Credit Administration, or to the Farm

Credit Administration office that the Chief Examiner designates, and

the Director, Risk Management, Farm Credit System Insurance Corporation

immediately upon receipt of a notice that it is in material default

under any general financing agreement, loan agreement, promissory note,

security agreement, or other related documents with a Farm Credit Bank,

agricultural credit bank or non-Farm Credit institution.

(g) A Farm Credit Bank or agricultural credit bank shall obtain

prior written consent of the Farm Credit Administration before it takes

any action that leads to or could lead to the liquidation of a direct

lender association.

(h) No direct lender association shall obtain financing from any

party unless the parties agree to the requirements of this paragraph.

No Farm Credit Bank, agricultural credit bank, or other party shall

petition any Federal or State court to appoint a conservator, receiver,

liquidation agent, or other administrator to manage the affairs of or

liquidate a direct lender association.

6. Section 614.4130 is revised to read as follows:

Sec. 614.4130 Funding and discount relationships between Farm Credit

Banks or agricultural credit banks and OFIs.

(a) A Farm Credit Bank or agricultural credit bank shall not

advance funds to, or discount loans for, an OFI, as defined in

Sec. 611.1205(c) of this chapter, except pursuant to a general

financing agreement.

(b) The Farm Credit Bank or agricultural credit bank shall deliver

a copy of the executed general financing agreement and all related

documents, such as a promissory note or security agreement, and all

amendments of any of these documents, within 10 business days after any

such document or amendment is executed, to the Chief Examiner, Farm

Credit Administration, or to the Farm Credit Administration office that

the Chief Examiner designates.

(c) The total credit extended to the OFI, through direct loan or

discounts, shall be consistent with the Farm Credit Bank's or

agricultural credit bank's lending policies and loan underwriting

standards and the creditworthiness of the OFI. The general financing

agreement or promissory note shall establish a maximum credit limit

determined by objective standards as established by the Farm Credit

Bank or agricultural credit bank.

7. The heading for part 627 is revised to read as follows:

PART 627--TITLE IV CONSERVATORS, RECEIVERS, AND VOLUNTARY

LIQUIDATIONS

8. The authority citation for part 627 is revised to read as

follows:

Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58 of the Farm

Credit Act (12 U.S.C. 2183, 2243, 2244, 2252, 2277a, 2277a-7).

9. Section 627.2700 is revised to read as follows:

Subpart A--General

Sec. 627.2700 General--applicability.

The provisions of this part shall apply to conservatorships,

receiverships, and voluntary liquidations.

Subpart B--Receivers and Receiverships

10. Section 627.2720 is amended by removing paragraph (a);

redesignating paragraphs (b), (c), (d), (e), and (f) as new paragraphs

(a), (b), (c), (d), and (e); and revising newly designated paragraph

(b) to read as follows:

Sec. 627.2720 Appointment of receiver.

* * * * *

(b) The receiver appointed for a Farm Credit institution shall be

the Insurance Corporation.

* * * * *

11. Section 627.2730 is amended by removing paragraph (b);

redesignating paragraph (c) as new paragraph (b); and

[[Page 5725]]

revising newly designated paragraph (b) to read as follows:

Sec. 627.2730 Preservation of equity.

* * * * *

(b) Notwithstanding paragraph (a) of this section, eligible

borrower stock shall be retired in accordance with section 4.9A of the

Act.

* * * * *

12. Part 627 is amended by adding a new subpart D to read as

follows:

Subpart D--Voluntary Liquidation

Sec. 627.2795 Voluntary liquidation.

Sec. 627.2797 Preservation of equity.

Sec. 627.2795 Voluntary liquidation.

(a) A Farm Credit institution may voluntarily liquidate by a

resolution of its board of directors, but only with the consent of, and

in accordance with a plan of liquidation approved by, the Farm Credit

Administration Board. Upon adoption of such resolution to liquidate,

the Farm Credit institution shall submit the proposed voluntary

liquidation plan to the Farm Credit Administration for preliminary

approval. The Farm Credit Administration Board, in its discretion, may

appoint a receiver as part of an approved liquidation plan. If a

receiver is appointed for the Farm Credit institution as part of a

voluntary liquidation, the receivership shall be conducted pursuant to

subpart B of this part, except to the extent that an approved plan of

liquidation provides otherwise.

(b) If the Farm Credit Administration Board gives preliminary

approval to the liquidation plan, the board of directors of the Farm

Credit institution shall submit the resolution to liquidate and the

liquidation plan to the stockholders for approval.

(c) The resolution to liquidate and the liquidation plan shall be

approved by the stockholders if agreed to by at least a majority of the

voting stockholders of the institution voting, in person or by written

proxy, at a duly authorized stockholders' meeting.

(d) The Farm Credit Administration Board will consider final

approval of the liquidation plan after an affirmative stockholder vote

on the resolution to liquidate.

(e) Any subsequent amendments, modifications, revisions, or

adjustments to the liquidation plan shall require Farm Credit

Administration Board approval.

(f) The Farm Credit Administration Board, in its discretion,

reserves the right to terminate or modify the liquidation plan at any

time.

Sec. 627.2797 Preservation of equity.

(a) Immediately upon the adoption of a resolution by its board of

directors to voluntarily liquidate a Farm

Credit institution, the capital stock, participation certificates,

equity reserves, and allocated equities of the Farm Credit institution

shall not be issued, allocated, retired, sold, distributed,

transferred, assigned, or applied against any indebtedness of the

owners of such equities. Such activities could resume if the

stockholders of the Farm Credit institution disapprove the resolution

to liquidate or the Farm Credit Administration Board disapproves the

liquidation plan. In the event the resolution to liquidate is approved

by the stockholders of the Farm Credit institution and the liquidation

plan is approved by the Farm Credit Administration Board, the

liquidation plan shall govern disposition of the equities of the Farm

Credit institution, except that if the Farm Credit institution is

placed in receivership, the provisions of Sec. 627.2730(a) shall govern

further disposition of the equities of the Farm Credit institution.

(b) Notwithstanding paragraph (a) of this section, eligible

borrower stock shall be retired in accordance with section 4.9A of the

Act.

Dated: January 27, 1998.

Floyd Fithian,

Secretary,

Farm Credit Administration Board.

[FR Doc. 98-2726 Filed 2-3-98; 8:45 am]

BILLING CODE 6705-01-P]