This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

25577 

Vol. 77, No. 84 

Tuesday, May 1, 2012 

1See 76 FR 30280. 

2One Council letter was submitted on behalf of 

its membership, after soliciting input from all 

System institutions. The other Council letter was 

submitted on behalf of its President and CEO, with 

the endorsement and support of the Council Board 

of Directors. 

FARM CREDIT ADMINISTRATION 

12 CFR Part 618 

RIN 3052–AC66 

General Provisions; Operating and 

Strategic Business Planning 

AGENCY: Farm Credit Administration. 

ACTION: Final rule. 

SUMMARY: The Farm Credit 

Administration (FCA, we, or our) 

amends its regulation requiring the 

board of directors of each Farm Credit 

System (FCS or System) institution to 

adopt an operational and strategic 

business plan (business plan or plan) to 

include, among other things, outreach 

toward diversity and inclusion. Each 

business plan must contain a human 

capital plan that describes the 

institution’s workforce and management 

and assesses their strengths and 

weaknesses; describes succession 

programs; and includes strategies and 

actions to strive for diversity and 

inclusion within the institution’s 

workforce and management. In addition, 

the business plan of each direct lender 

institution must include a marketing 

plan that discusses how the institution 

will further the objective that the FCS be 

responsive to the credit needs of all 

eligible and creditworthy agricultural 

producers and other eligible persons, 

with specific outreach toward diversity 

and inclusion. Further, the regulation 

requires including skills and diversity 

as part of the required assessment of the 

needs of the board of directors and 

establishes annual reporting 

requirements to the board. 

DATES: Effective Date: This regulation 

will be effective 30 days after 

publication in the Federal Register 

during which either or both Houses of 

Congress are in session. We will publish 

a notice of the effective date in the 

Federal Register. 

Compliance Date: System institutions 

must comply with this regulation no 

later than January 30, 2013. 

FOR FURTHER INFORMATION CONTACT:

Jacqueline R. Melvin, Policy Analyst, 

Office of Regulatory Policy, Farm 

Credit Administration, McLean, VA 

22102–5090, (703) 883–4498, TTY 

(703) 883–4434, or 

Jennifer A. Cohn, Senior Counsel, Office 

of General Counsel, Farm Credit 

Administration, McLean, VA 22102– 

5090, (703) 883–4020, TTY (703) 883– 

4020. 

SUPPLEMENTARY INFORMATION: 

I. Objectives 

The objectives of this amendment are 

to ensure that: 

• Each System institution promotes 

diversity and inclusion as critical to its 

success in the long term and 

incorporates diversity and inclusion as 

a vital component of its corporate 

culture; 

• Skills and diversity are explicitly 

included in the assessment of the needs 

of the board of directors; 

• Each System institution assesses the 

strengths and weaknesses of its current 

workforce and management; addresses 

succession planning; and develops 

strategies and actions to strive for 

diversity and inclusion within its 

workforce and management; 

• Each System institution considers 

how it will further the objective of being 

responsive to the credit needs of all 

eligible and creditworthy agricultural 

producers and other eligible persons 

with specific outreach toward diversity 

and inclusion; and 

• Each System institution’s board of 

directors receives reports on the 

institution’s progress in accomplishing 

the strategies and actions in its human 

capital and marketing plans, which will 

help the board establish accountability 

and plan new strategies and actions. 

II. Background and Overview of 

Comments 

On May 25, 2011, the FCA published 

a proposed rule to amend § 618.8440, 

which requires the board of directors of 

each System institution to adopt a 

business plan.1 The proposed rule 

required, among other things, human 

capital and marketing plans that include 

outreach toward diversity and 

inclusion. 

We received approximately 75 

comment letters from 48 System 

institutions. We also received two 

letters from the Farm Credit Council 

(Council), the trade association for the 

System.2 Of the System letters, 

approximately eight opposed our 

proposed rule entirely and requested 

complete withdrawal of the proposal. 

Most of the remainder of the System 

commenters supported the premise of 

the proposed rule to consider human 

capital and marketing outreach, 

including diversity and inclusion, in the 

business plan, but they requested 

extensive revisions to the final rule or 

to the explanatory preamble to reduce 

what they viewed as undue burden. As 

discussed below, we are making a 

number of changes in the final rule in 

response to many of these comments. 

Many System commenters appeared to 

misunderstand some of the intended 

requirements of the proposed rule, 

because they opposed requirements that 

the rule would not have imposed. 

Throughout this preamble, we clarify 

the requirements of the final rule. 

We received approximately 325 

comments from non-System 

commenters, including sustainable 

agriculture advocacy and assistance 

groups, academics in the field of 

sustainable agriculture, small farmers, 

consumers, and others. The vast 

majority of these commenters supported 

the proposed rule. Many of these 

commenters requested that FCA include 

a number of specific requirements in the 

marketing plan provision that would, 

among other things, require institutions 

to train potential customers in business 

planning and financing; develop 

infrastructure such as cooperatives and 

farmers’ markets; partner with 

governmental and non-governmental 

entities and investors for funding local 

and regional food systems (LRFS); set 

numerical investment goals for lending 

to LRFS; and make their marketing goals 

and progress assessments public. 

We also received approximately 40 

electronically submitted comment 

letters that contained the names and 


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addresses of the commenters but were 

otherwise blank. 

III. Requirements of the Final Rule 

The final rule requires each 

institution to: 

• Determine the skills and diversity 

needs of its board of directors; 

• Study and know its workforce, 

labor market, and management 

succession plans; 

• Reach out to potential employees 

within its labor market who may not 

have previously been considered for 

reasons other than merit; 

• Study and know its marketplace, as 

applicable; 

• Reach out to potential borrowers 

who may not have previously been 

considered for reasons other than 

eligibility or creditworthiness; and 

• Report annually to its board of 

directors on the progress the institution 

has made in accomplishing planned 

outreach strategies and actions, as 

applicable. 

The rule does not require an 

institution to: 

• Establish quotas—it does not 

require specific outcomes in 

employment or lending; 

• Complete redundant plans or 

actions—an institution may use existing 

documents to satisfy these new 

planning requirements, provided the 

existing documents are approved 

annually by the board; 

• Disclose confidential or sensitive 

information in public documents; 

• Hire persons who are not the best 

qualified for the position for which they 

are applying; 

• Extend credit to any persons who 

are not eligible, creditworthy, or within 

the scope of financing rules; 

• Favor any type or group of 

agricultural producers in its 

underwriting of credit; 

• Gather or record data on customer 

or employee characteristics not 

currently legally gathered or recorded; 

• Implement strategies or actions that 

extend beyond its marketplace and labor 

market; 

• Develop marketing plans unless it is 

exercising title III lending authorities or 

is a direct lender association; or 

• Implement strategies or actions 

inconsistent with existing lending and 

employment laws and rules or with 

safety and soundness standards. 

IV. What is diversity and inclusion? 

For purposes of this rule, we consider 

diversity and inclusion in employment 

to mean seeking out and using the 

talents of people of different 

backgrounds, experiences, and 

perspectives to improve the workforce 

environment and productivity. These 

differences have a strong influence on 

how individuals approach challenges 

and solve problems, make decisions, 

and identify opportunities. 

For purposes of this rule, we consider 

diversity and inclusion in lending to 

mean looking beyond the traditional 

customer base to ensure that all eligible 

and creditworthy persons have access to 

credit and related financial services. 

Where a particular institution needs to 

focus its outreach depends on the nature 

of its territory and what groups have 

traditionally been underrepresented or 

underserved. 

A diverse workforce could aid the 

System in gaining new customers. A 

diverse range of employees may more 

effectively reach a broader and more 

diverse base of producers, thereby 

widening the pool of potential 

customers. Moreover, diverse employees 

bring different perspectives to an 

organization and may influence the 

development of more creative and 

innovative products and services, which 

can also increase the customer base. 

V. Why Outreach Toward Diversity and 

Inclusion Is Necessary 

As discussed in the preamble to the 

proposed rule, agriculture in America is 

becoming increasingly diverse. 

However, some non-System commenters 

believe that the System is not serving 

diverse agricultural producers. For 

example, the Rural Coalition, an 

alliance of more than 70 rural 

community-based organizations of 

African-American, Asian-American, 

American-Indian, Euro-American, 

Latino and women farmers, farmworkers 

and rural communities in the United 

States, commented that among its 

members who were contacted, ‘‘there 

exists a universal perception that the 

Farm Credit System institutions are not 

accessible to the underserved farmer 

and have failed to conduct outreach to 

these communities to educate them 

regarding the institutions’ programs and 

services.’’ 

Section 1.1(b) of the Farm Credit Act 

of 1971, as amended (Act), requires the 

System to be inclusionary in its lending. 

Section 1.1(b) provides that the System 

was established as a ‘‘permanent system 

of credit for agriculture which will be 

responsive to the credit needs of all 

types of agricultural producers having a 

basis for credit. * * *’’ If some 

producers, including those who would 

bring diversity to an institution’s 

customer base, have a perception that 

the System is not available to serve 

them, then greater outreach is needed. 

While not every farmer is creditworthy 

(under any reasonable standard), has 

credit needs that are within FCA’s scope 

of financing regulations, or is interested 

in financing his or her operations with 

debt, unless System institutions reach 

out to underserved farmers there is no 

way to know whether they might 

become customers. 

As strong and vibrant supporters of 

agriculture in America, System direct 

lender institutions must develop 

specific marketing plans to reach all 

potential customers, including those in 

diverse market segments that may 

currently be underserved. Institutions 

must ensure that there are no 

unnecessary barriers in place, such as 

lack of employee training, lack of 

appropriate loan products, or lack of 

appropriate creditworthiness standards. 

They must consider programs such as 

grassroots outreach activities and 

education efforts that market to diverse 

and underserved populations regarding 

business and financial planning and 

leadership and loan programs for 

persons who are eligible and 

creditworthy. In addition, to more 

effectively reach and serve these 

potential customers, institutions must 

continue to strive for diversity and 

inclusion among their employees, 

management, and boards of directors, 

because diverse perspectives within 

institutions can help increase diversity 

among customers. Unless System 

institutions commit to embracing 

diversity and inclusion in lending, 

employment, and governance, they may 

not be able, or understand how, to 

provide sufficient access to the System’s 

products for all potential eligible and 

creditworthy customers, and they may 

risk losing market share and relevance 

in the marketplace in the long run. 

VI. Comments on Proposed Rule and 

FCA’s Responses 

A. Premise of Rule 

The Council, as well as many System 

institutions that submitted their own 

comments, generally endorsed the 

premise of the proposed rule. 

Specifically, they recognized that 

human capital and marketplace 

outreach, along with diversity and 

inclusion, are important and 

appropriate topics to address in 

business plans. 

Several System institutions, as well as 

one non-System commenter, disagreed 

with our premise that diversity and 

inclusion are beneficial for the System 

and the nation as a whole. These 

commenters stated that mandating 

diversity will inevitably result in 

decisions based on race, sex, and other 

inappropriate characteristics and toward 

quotas or measurable results, which the 


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Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Rules and Regulations 25579 

commenters state are illegal, divisive, 

unfair, and inefficient; these 

commenters state that the System’s 

focus should simply be on 

‘‘nondiscriminatory inclusion’’—that is, 

on equal opportunity and on decisionmaking unbiased by race, sex, or other 

inappropriate characteristics; that 

favoring certain groups over other 

groups is discriminatory and will make 

the former feel entitled and the latter 

feel aggrieved; and that demographic 

imbalances often result from factors 

other than overt or covert 

discrimination. 

As discussed throughout this 

preamble and as evident in the 

regulation language itself, this rule does 

not mandate particular hiring or lending 

decisions or specific results. We do not 

require institutions to make 

employment or lending decisions based 

on any factors other than qualifications 

and creditworthiness. We will not 

examine for quotas or specific results in 

employment or lending, and we do not 

require institutions to establish quotas. 

We do not require institutions to favor 

any groups over any other groups. We 

recognize that to do so would be illegal. 

We agree with the commenters that 

demographic imbalances often result 

from factors other than overt or covert 

discrimination. A lack of diversity in a 

System institution could occur for a 

whole host of non-discriminatory 

reasons, many of which are beyond the 

control of the institution. We do want to 

be sure, however, that institutions do 

not have barriers in place that could 

contribute to such imbalances, even if 

these barriers are in place for nondiscriminatory reasons. Such barriers 

could include, for example, a lack of 

employee training, lack of appropriate 

loan products, lack of appropriate 

creditworthiness standards, or lack of 

outreach toward certain populations. 

For this reason, we disagree that it is 

sufficient for System institutions to 

focus only on ‘‘nondiscriminatory 

inclusion’’ and equal opportunity. This 

rule requires institutions to reach out to 

potential employees within their labor 

markets who may not have previously 

been aware of the opportunities to work 

for the System or whom institutions 

may not have considered for reasons 

other than merit. It also requires 

institutions to reach out to potential 

customers who may not have been 

previously aware of the System’s 

services or whom institutions may not 

have considered for reasons other than 

eligibility and creditworthiness. This 

outreach is necessary even if an 

institution’s previous failure to consider 

these potential customers is not due to 

discrimination. 

B. FCA Authority, Burden, and 

Relationship With Other Legal 

Requirements 

A number of System commenters 

questioned the legal authority of FCA to 

impose human capital and marketing 

plan requirements. Some stated that 

FCA has authority only over safety and 

soundness matters. Some stated that the 

regulation is inconsistent with a 1996 

congressional mandate that FCA must 

eliminate regulations that are 

‘‘unnecessary, unduly burdensome or 

costly, or not based on law.’’ And some 

stated that because Congress has 

imposed diversity requirements on the 

housing Government-sponsored 

enterprises (GSEs) but not on the 

System, there is no authority for FCA to 

impose such requirements on the 

System. 

FCA is not limited to regulating safety 

and soundness matters. FCA has broad 

authority over all matters relating to the 

System and the Act. As part of 

implementing the Act and for safety and 

soundness reasons, FCA has authority to 

adopt regulations governing the 

business planning of System 

institutions. Moreover, section 1.1(b) of 

the Act states that the FCS was 

established as a ‘‘permanent System of 

credit for agriculture which will be 

responsive to the credit needs of all 

types of agricultural producers having a 

basis for credit. * * *’’ While this 

provision does not expressly mention 

diversity and inclusion, it does state 

Congress’ desire that the FCS be 

responsive to all types of creditworthy 

agricultural producers. Moreover, the 

passage of a law imposing diversity 

requirements on the housing GSEs does 

not limit FCA’s authority to impose 

business planning requirements, 

including in the area of diversity and 

inclusion, on System institutions. 

Regarding the 1996 congressional 

mandate to review and eliminate 

unnecessary regulations, we have 

discussed above why this regulation is 

necessary. With the clarifications we 

have made to the regulation text and 

throughout this preamble, we believe 

compliance with the rule will not be 

unduly burdensome or costly. 

Several System commenters requested 

that we modify proposed 

§ 618.8440(b)(7) and (b)(8) to each be 

one-sentence requirements. They 

suggested that § 618.8440(b)(7) should 

simply require that the business plan 

include a summary of the human capital 

plan that addresses diversity, inclusion, 

affirmative action, and management 

succession. And they suggested that 

§ 618.8440(b)(8) should simply require 

that the business plan include a 

summary of the marketing plan that 

addresses diversity, inclusion, and 

marketplace outreach. 

We believe, in order to fulfill the 

objectives of this rule, the human 

capital and marketing plans must 

include all the items that we have 

required. We do not believe a 

requirement that the human capital plan 

simply address diversity, inclusion, 

affirmative action, and management 

succession, or that the marketing plan 

simply address diversity, inclusion, and 

marketplace outreach, is sufficient. 

To eliminate unnecessary burden, we 

have revised § 618.8440(b)(7) and (b)(8) 

to provide that items required to be 

included in the human capital plan and 

marketing plan may be contained in 

other documents that are approved by 

the board and adopted annually, as long 

as those items are summarized in, and 

incorporated by reference into, the 

human capital plan and marketing plan, 

respectively. 

Accordingly, if an institution has 

separate documents (such as section 

4.38 affirmative action program (AAP) 

plans or Young, Beginning, and Small 

(YBS) farmer and rancher program 

documents) that contain the items that 

are required to be included in the 

human capital plan or marketing plan 

component of the business plan, the 

institution can use those other 

documents to satisfy the business plan 

requirements, as long as the other 

documents are approved by the board 

annually (as the business plan itself is) 

and the items are summarized in, and 

incorporated by reference into, the 

human capital plan or marketing plan 

components of the business plan. If the 

separate documents do not include 

these items, however, or if the board 

does not approve these separate 

documents, then the board will have to 

include the required items in the human 

capital plan and marketing plan 

components of the business plan. 

Additionally, to further address 

concerns about burden, we have made 

a number of changes to the regulation in 

response to specific requests made by 

commenters. For example, among other 

changes, we have revised language that 

was viewed as requiring redundant 

plans or actions. We have removed 

language that was viewed as requiring 

quotas or quantifiable results. We have 

added language allowing confidential or 

sensitive information to be contained in 

non-public documents. And we have 

limited the marketing plan requirements 

to System institutions in their exercise 

of title III lending authorities and to 

direct lender associations. 

In addition, we clarify in this 

preamble other areas where commenters 


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3Public Law 111–203. 

4 76 FR 30282, May 25, 2011. 

5The CFPB is an independent bureau in the 

Federal Reserve System that regulates the offering 

and provision of consumer financial products or 

services under the Federal consumer finance laws. 

See section 1011(a) of the Dodd-Frank Act. 

6Title VII of the Civil Rights Act of 1964, as 

amended, prohibits employment discrimination 

because of race, color, religion, national origin, or 

sex; the Age Discrimination in Employment Act of 

1967 prohibits employment discrimination because 

of age; the Americans with Disabilities Act of 1990, 

as amended, prohibits employment discrimination 

because of disability; and the Genetic Information 

Nondiscrimination Act of 2008 prohibits 

employment discrimination because of genetic 

information. The ECOA prohibits discrimination in 

the extension of credit on the bases of race, color, 

religion, national origin, sex, marital status, or age 

(provided the applicant has the capacity to 

contract). The ECOA also prohibits discrimination 

because all or part of an applicant’s income derives 

from a public assistance program or because an 

applicant has in good faith exercised any right 

under the Consumer Credit Protection Act. 

were concerned about burden. For 

example, among other clarifications, we 

have explained what we mean by the 

term ‘‘diversity.’’ We have made clear 

that institutions are not required to: Hire 

persons who are not considered the best 

qualified for the position for which they 

are applying; extend credit to persons 

who are not eligible, creditworthy, or 

within the scope of financing rules; 

favor any type or group of agricultural 

producers in their credit underwriting; 

gather or record data on customer or 

employee characteristics not currently 

legally gathered or recorded; or 

implement strategies or actions 

inconsistent with existing lending and 

employment rules and laws or with 

safety and soundness standards. 

A number of System commenters 

stated that they would be at legal risk if 

they were required to ask potential job 

applicants or potential customers about 

demographic information. Because the 

rule does not require institutions to 

collect this information, the rule does 

not create this legal risk. 

A number of System commenters also 

questioned how the requirements of this 

rule fit in with other requirements, 

including AAP planning, YBS activities, 

the various equal employment laws, the 

Equal Credit Opportunity Act (ECOA), 

and the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (DoddFrank Act).3 As we now explain, this 

rule should not be interpreted to impose 

requirements that are redundant or 

inconsistent with any other laws. 

System commenters expressed 

concern that this rule imposes 

requirements that are already included 

among AAP planning and YBS program 

requirements. As we explained in the 

preamble to the proposed rule,4 there 

may be some overlap between the 

information that is contained in existing 

AAP plans and YBS programs and the 

information that is required to be in the 

human capital and marketing plans. 

To eliminate this redundancy, as 

discussed above, we have revised 

§ 618.8440(b)(7) and (b)(8) to provide 

that items required to be included in the 

human capital plan and marketing plan 

may be contained in other documents 

that are approved by the board and 

adopted annually, as long as those items 

are summarized in, and incorporated by 

reference into, the human capital plan 

and marketing plan, respectively. These 

other documents could include an AAP 

plan or YBS program documents. 

System commenters also expressed 

concern that compliance with this 

regulation would require violation of 

the equal employment laws and the 

ECOA, and they pointed out that the 

Dodd-Frank Act does not yet have 

implementing regulations authorizing 

activity they believe the proposed rule 

would require. These commenters were 

primarily focused on what they believed 

was a requirement to collect 

demographic data from job applicants/ 

employees and credit applicants/ 

borrowers. 

As discussed throughout this 

preamble, the rule does not require 

institutions to collect any data on 

employee or customer characteristics. 

Therefore, the rule does not conflict 

with any prohibition on data gathering 

in the equal employment laws or the 

ECOA. Moreover, these laws actually 

require the collection of data in some 

situations. Consistent with these laws, 

an institution can choose to use the data 

collected as required to assess its 

employment of diverse employees, the 

diversity needs of its board of directors, 

and its lending to diverse borrowers. 

In addition, as discussed in the 

preamble to the proposed rule, once the 

Consumer Financial Protection Bureau 

(CFPB) issues implementing 

regulations,5 the Dodd-Frank Act will 

require financial institutions to ask all 

business applicants applying for credit 

whether they are women-owned, 

minority-owned, or small businesses. 

While applicants may choose to 

withhold this information, institutions 

can choose to use any information 

received to assess their lending to 

diverse borrowers. 

C. Meaning of ‘‘Diversity’’ 

The proposed regulation itself did not 

define diversity. In the preamble to the 

proposed rule, we stated that diversity 

is best thought of as the inclusion of all 

individuals rather than as simply a list 

of demographic criteria, and we listed 

several characteristics that might 

indicate diversity. 

We did not intend to limit diversity 

to these characteristics or to suggest that 

these characteristics are more important 

than any others. Instead, our intent was 

to demonstrate that diversity is allinclusive and is broader than the 

characteristics protected by the various 

equal employment and fair lending 

laws.6

Many System commenters questioned 

this definition. They wondered whether 

and how we expected them to 

determine the listed characteristics and 

whether we expected them to make 

employment or lending decisions on the 

basis of those characteristics. They 

stated that asking this information of 

potential employees or borrowers or 

making decisions on these bases is, in 

many cases, offensive or even illegal. 

As stated above, our intent was to 

show that diversity is broad and allinclusive, not to create a list of 

characteristics to be given special focus. 

Also, the rule does not require the 

gathering or recording of data on 

employee or borrower characteristics 

that are not currently legally gathered or 

recorded and does not require specific 

outcomes or the favoring of particular 

persons in employment or lending. 

What the rule does require institutions 

to do, in pertinent part, is to strive for 

diversity and inclusion within their 

workforce and management and to 

market their products and services to all 

eligible and creditworthy persons, with 

specific outreach toward diversity and 

inclusion. 

Like the proposed rule, the final rule 

itself does not define diversity. As 

discussed above, for purposes of this 

rule, we consider diversity and 

inclusion in employment to mean 

seeking out and using the talents of 

people of different backgrounds, 

experiences, and perspectives to 

improve the workforce environment and 

productivity. We consider diversity and 

inclusion in lending, for purposes of 

this rule, to mean looking beyond the 

existing customer base to ensure that all 

eligible and creditworthy persons have 

access to System credit and related 

financial services. 

Accordingly, each institution must 

ensure that it has plans to reach out to 

all potential employees and customers 

as is appropriate for its territory. 

Institutions are not required to gather 

data that is not legal to gather, favor 

persons in particular groups, or satisfy 

quotas in employment or lending. 


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Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Rules and Regulations 25581 

7For example, we recognize that approximately 

10 percent of associations have fewer than 20 

employees and, therefore, are not required to engage 

in the AAP planning requirements of section 4.38 

of the Act. While, as discussed above, an institution 

that is subject to section 4.38 may be able to use 

its AAP plan to satisfy the human capital plan 

requirement, institutions can also satisfy this 

requirement without relying on section 4.38- 

compliant plans. 

8 76 FR 30281, May 25, 2011. 

9FCA’s Spring 2012 Regulatory Performance 

Plan, approved February 9, 2012 (available on 

FCA’s Web site at www.fca.gov/law/ 

perf_plan.html). 

D. Flexibility in Implementation 

A number of System commenters 

requested that FCA allow institutions to 

exercise flexibility and discretion in 

how they implement the requirements 

of the rule. Institutions differ in terms 

of size, employment needs, 

demographics in their territory, and 

nature of farming in their territory. 

Therefore, diversity will not look the 

same across the System. 

A number of System commenters 

were also concerned that FCA and its 

examiners would impose requirements 

that are not found in the rule or would 

use FCA’s suggestions in the preamble 

to the proposed rule regarding tools 

institutions could use to assist in 

complying with their planning 

requirements as a checklist for 

determining compliance. 

Moreover, a number of commenters 

stated that some of FCA’s suggestions 

are not relevant to the System or are too 

rigid. Commenters stated, for example, 

that data from the Census of 

Agriculture, which FCA had suggested 

as a possible source of information 

about potential customers, does not 

accurately represent the System’s 

relevant markets because it includes 

data pertaining to ineligible persons, 

non-creditworthy persons, persons who 

would be disqualified based on scope of 

financing regulations, and persons who 

do not use debt to finance their 

operations. 

As another example, several System 

commenters objected to some of FCA’s 

specific suggestions for how to 

overcome barriers for advancing 

diversity and inclusion within the 

corporate culture, such as including 

diversity and inclusion in the mission 

statement. 

FCA recognizes that System 

institutions vary widely in their size, 

needs, and demographics, among other 

areas of difference. A one-size-fits-all 

approach to compliance with this rule is 

not appropriate either for System 

institutions or for FCA.7 The rule 

requires institutions to engage in 

business planning in the specified areas. 

Accordingly, FCA examiners will 

determine whether institutions have 

engaged in this planning and will 

evaluate institutions’ good faith efforts 

in implementing the strategies and 

actions identified in the plans. 

Nevertheless, the rule permits 

institutions to engage in the required 

business planning in any reasonable 

manner, and we will not examine for 

specific outcomes or results in 

employment or lending. 

In addition, our suggestions in the 

preamble to the proposed rule regarding 

tools institutions can use to assist with 

their compliance are not requirements. 

We included them in our preamble to 

the proposed rule to provide ideas and 

to share actions that other institutions 

have taken. We encourage institutions to 

use the suggestions that are appropriate, 

to set aside the suggestions that are not, 

and to come up with their own 

approaches to fit their own 

characteristics. 

Finally, as discussed throughout this 

preamble, it is important to keep in 

mind that this rule does not require 

specific goals or quantifiable results, 

and our compliance examination will be 

qualitative rather than quantitative. We 

suggested the use of the Census of 

Agriculture data not so institutions 

could compare their lending against that 

data but so they could know and would 

be able to describe the characteristics of 

their chartered territories by market 

segment, including the characteristics of 

demography, geography, and types of 

agriculture practiced, as the regulation 

requires. With this information, 

institutions can determine whether 

there may be potential eligible 

customers who may be better reached 

with a different type of marketing 

strategy. If institutions believe other 

reliable data would better provide this 

information, they may use that data 

instead. 

E. Local Food Systems 

In the preamble to our proposed rule, 

we noted that the pool of potential 

eligible and creditworthy FCS 

customers is becoming increasingly 

diverse. We observed that agriculture 

today consists of men and women, the 

old and the young, and a variety of 

racial and ethnic backgrounds. We 

urged institutions to look to all kinds of 

farming operations—from large farmers, 

to small farmers, to farmers who operate 

within local food systems–-to find 

potential eligible and creditworthy 

borrowers who may not be part of the 

institution’s customer base and who 

may be underserved. 

We received a number of comments 

responding specifically to our reference 

to local food systems, from both System 

and non-System commenters. 

Commenters identified four major areas 

of concern. 

First, many System commenters were 

concerned that the term ‘‘local food 

systems’’ was undefined. A number of 

non-System commenters suggested that 

we should adopt the definition of ‘‘local 

and regional food producers’’ from the 

2008 Farm Bill. In the preamble to the 

proposed rule, we stated that local food 

systems typically involve small farmers 

producing heterogeneous organic or 

specialty crops, and short supply chains 

in which farmers also perform 

marketing functions, including storage, 

packaging, transportation, distribution, 

and advertising.8 In the context of this 

rule, however, it is unnecessary to 

specifically define ‘‘local food systems,’’ 

because this rule does not require 

specific marketing targeted toward local 

food systems. Rather, the rule requires 

strategies and actions to market to all 

eligible and creditworthy persons, with 

specific outreach toward diversity and 

inclusion. Our reference to local food 

systems was to provide an example of 

a potentially underserved market 

segment where diversity in farming may 

be found. Reaching out to persons who 

operate in local food systems is one of 

many potential approaches to finding 

new eligible and creditworthy 

customers. Consistent with this effort, 

FCA’s regulatory performance plan 

specifically includes a project to 

consider changes to our policy guidance 

for providing credit and related services 

to all eligible and creditworthy 

agricultural producers, including 

identifying any barriers to efficiently 

and cost-effectively providing credit for 

newer products or marketing systems 

such as local foods and organic 

agriculture.9

Second, many System commenters 

stated that FCA should not favor a 

particular type of agriculture and should 

not suggest that lending to a particular 

type of agricultural practice increases 

diversity. They commented that FCA 

should not distinguish between types of 

crops produced or the methods or 

location of production. As just 

discussed, the rule requires institutions 

to develop plans as to how they reach 

out to and serve all eligible and 

creditworthy persons in their territories. 

This means outreach and service to all 

market segments and to all persons 

within those segments, looking at 

characteristics that include 

demography, geography, and types of 

agriculture practiced. Our use of the 

term ‘‘local food systems’’ was meant to 


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10Section 613.3000(a)(1) of our regulations 

defines a bona fide farmer or rancher as ‘‘a person 

owning agricultural land or engaged in the 

production of agricultural products, including 

aquatic products under controlled conditions.’’ 

11 ‘‘Lending Programs for Farmers’ Other Credit 

Needs,’’ dated October 2006. This document is 

available on FCA’s Web site. From our home page 

at www.fca.gov, click on the Exam Guidance tab; 

then click on Examination Bulletins. 

12 ‘‘Providing Sound and Constructive Credit to 

Young, Beginning, and Small Farmers, Ranchers, 

and Producers or Harvesters of Aquatic Products,’’ 

dated August 10, 2007. This document is available 

on FCA’s Web site. From our home page at 

www.fca.gov, click on Bookletters from the Quick 

Links menu. 

13We note, however, that section 4.38 of the Act 

requires all System institutions with more than 20 

employees to establish and maintain an AAP plan 

illustrate an example of a potentially 

underserved market segment where 

diversity in farming may be found. 

There may be diverse, eligible, and 

creditworthy persons operating within 

local food systems–-as well as within 

other types of agricultural operations–- 

who are not currently being served. 

Third, many System commenters 

stated that many persons who are 

involved in local food systems may not 

be eligible for System credit, or that 

much of their credit needs may not be 

within FCA’s scope of financing 

regulations, because they may not be 

full-time, bona fide agricultural 

producers. Farmers who produce 

agricultural products for sale directly to 

consumers or local intermediaries 

(restaurants, schools, hospitals, etc.) 

comply with the definition of bona fide 

farmer in § 613.3000(a)(1) by virtue of 

growing an agricultural product, and 

they need not be full-time producers to 

be considered bona fide.10 System 

institutions are authorized to serve only 

persons who are eligible, and this rule 

does not require marketing plans to 

address service toward persons who are 

not eligible. 

The scope of financing that a System 

institution can provide to a particular 

borrower is governed by § 613.3005. 

Under that provision, all bona fide 

farmers and ranchers may receive full 

credit, to the extent of creditworthiness, 

for agricultural needs. The degree of a 

borrower’s involvement in agricultural 

production determines the amount of 

non-agricultural credit (also referred to 

as ‘‘other credit needs’’) that a System 

institution may extend to the borrower. 

FCA has previously addressed the issue 

of scope of financing in Examination 

Bulletin: FCA 2006–2 11 and Revised 

Bookletter BL–040 (interpreting ‘‘sound 

and constructive credit’’ for YBS 

farmers).12 We encourage System 

institutions to review these documents 

for guidance in determining the scope of 

financing for all types of agricultural 

producers. 

There may be loans that an institution 

cannot practically make because of 

FCA’s scope of lending regulations. 

Institutions should, however, evaluate 

their lending practices to ensure that 

there are no unnecessary barriers in 

place, such as lack of employee training 

or lack of appropriate loan products. As 

discussed above, FCA’s regulatory 

performance plan specifically includes a 

project to consider changes to our policy 

guidance for providing credit and 

related services to all eligible and 

creditworthy agricultural producers, 

including identifying any barriers to 

efficiently and cost-effectively providing 

credit for newer products or marketing 

systems such as local foods. 

Finally, many System commenters 

stated that certain potential customers, 

including some involved in local food 

systems, are not creditworthy and that 

loans to them could create safety and 

soundness concerns. FCA recognizes 

that, as with farmers practicing other 

types of agriculture, some farmers 

involved in the local food system may 

not be creditworthy. The rule does not 

impose any lending requirements, and 

institutions are not required to make 

loans that pose safety and soundness 

risks. Other farmers in the local food 

system may well be creditworthy based 

on their background and experience. 

Institutions should ensure that their 

credit standards are appropriate and do 

not impose unnecessary barriers to 

producers in the local food system. 

Some farmers who operate within the 

local food system are also YBS farmers. 

The methods suggested in 

§ 614.4165(c)(4), as further explained in 

BL–040, to ensure that credit and 

services offered to YBS farmers are 

provided in a safe and sound manner 

and within an institution’s risk-bearing 

capacity could benefit YBS borrowers 

within the local food system. 

We received hundreds of comments 

from non-System commenters 

supporting small- and mid-sized farmers 

and ranchers producing for local and 

regional food markets, farmers’ markets, 

organic markets, and communitysupported agriculture. These 

commenters stated that these farmers— 

many of whom are socially 

disadvantaged, are nontraditional 

producers, or are from non-farming 

backgrounds—promote healthy farming 

and eating and environmental 

responsibility. These commenters stated 

that these producers are crucial for both 

public health and national security. 

Traditional lending models may not fit 

these producers, however, and limited 

access to capital is a crucial barrier to 

their success. 

These commenters suggested that 

FCA include a number of specific 

requirements in our marketing plan 

regulation that would require 

institutions to do the following: 

• Train potential borrowers on how to 

obtain funding; 

• Develop and refer potential 

borrowers to programs to assist them 

with business planning; 

• Develop infrastructure such as 

cooperatives, farmers’ markets, and 

training programs; 

• Increase their knowledge of 

sustainable agriculture and LRFS; 

• Partner with governmental and nongovernmental entities and investors to 

fund LRFS; 

• Examine their policies to identify 

areas where rules may be unnecessarily 

shutting out potential borrowers; 

• Analyze the characteristics of 

current borrowers to provide baseline 

data for assessments of achieving 

diversity and inclusion of LRFS and 

socially disadvantaged producers; 

• Set minimum investment goals for 

LRFS; 

• Make marketing goals and progress 

assessments public; and 

• Add LRFS producers to their 

boards. 

We are not imposing these specific 

requirements in our regulation. 

Consideration of requirements such as 

these is beyond the scope of this 

regulation project. System institutions 

may choose to implement these 

measures as appropriate for the types of 

agriculture in their territories. Moreover, 

as discussed above, we are committed to 

studying these ideas further and to 

considering future guidance for System 

institutions. 

F. Outreach Efforts or Quotas and 

Quantifiable Results 

Many System commenters urged FCA 

to clarify the final rule to ensure it 

promotes efforts toward outreach rather 

than requiring quotas or quantifiable 

results in employment and lending. On 

the other hand, many non-System 

commenters urged FCA to require 

institutions to collect and quantify 

baseline data and, among other things, 

to evaluate to what extent their 

borrower base reflects their marketplace 

and to set minimum investment goals 

for lending to certain groups. As 

discussed throughout this preamble, 

this final rule does not contemplate 

quotas or quantifiable results in either 

employment or lending. We agree with 

the System commenters that this is 

inappropriate because it is legally 

problematic and may be difficult both to 

achieve and to measure.13


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that applies the affirmative action standards 

otherwise applied to contractors of the Federal 

government. These standards, which are established 

by the U.S. Department of Labor (DOL), are always 

changing and may impose hiring goals. For 

example, in December 2011, the DOL proposed a 

rule that would require Government contractors to 

establish a 7-percent utilization goal for hiring 

employees with disabilities. See 76 FR 77056 (Dec. 

7, 2011). Because the Act requires compliance with 

applicable affirmative action standards, FCA 

examines for compliance with these standards. 

14As discussed in the section-by-section analysis, 

the final rule requires that the institution report to 

its board on its progress rather than requiring the 

human capital plan to include an assessment of its 

progress, as the proposed rule would have 

provided. 

15As discussed in the section-by-section analysis, 

the final rule requires that the institution report to 

its board on its progress rather than requiring the 

marketing plan to include an assessment of its 

progress, as the proposed rule would have 

provided. 

16 ‘‘Farm Credit Bank and Association Appointed 

Directors,’’ dated December 15, 2006. This 

document is available on FCA’s Web site. From our 

home page at www.fca.gov, click on Bookletters 

under the Quick Links menu. 

17 76 FR 30284, May 25, 2011. 

What the final rule does require, in 

pertinent part, is outreach to potential 

employees who may not have 

previously been aware of the 

opportunities or considered for reasons 

other than merit, and to potential 

customers who may not have previously 

been aware of the System’s services or 

considered for reasons other than 

eligibility and creditworthiness. We are 

revising the language in the final rule to 

clarify what it does and does not 

require. 

Proposed § 618.8440(b)(7)(i) would 

have required the human capital plan to 

include, in relevant part, ‘‘strategies and 

actions to achieve diversity and 

inclusion within the institution’s 

workforce [and] management and an 

assessment of the progress the 

institution has made in accomplishing 

these strategies and actions. * * *’’ A 

number of System institutions requested 

that we replace ‘‘achieve’’ with ‘‘strive 

for.’’ They expressed concern that the 

word ‘‘achieve’’ implies quotas or 

quantifiable results. They stated that a 

requirement that they ‘‘strive for’’ 

diversity and inclusion is more 

appropriate, because it would require 

institutions to seek qualified, diverse 

candidates for employment through 

appropriate recruiting and 

communications driven by market 

conditions and current hiring needs but 

would not require them to achieve 

specific, quantifiable results in hiring. 

We agree with this comment and 

make the requested change. The 

relevant provision (which we have 

renumbered as § 618.8440(b)(7)(iii)) 

requires human capital plans to include 

‘‘strategies and actions to strive for 

diversity and inclusion within the 

institution’s workforce and 

management.’’ 

A number of System commenters also 

expressed concern that the word 

‘‘assessment’’ in proposed 

§ 618.8440(b)(7)(i), which would have 

required the human capital plan to 

include ‘‘an assessment of the progress 

the institution has made in 

accomplishing these strategies and 

actions,’’ also implied that the rule 

contemplated data-driven results. We 

did not mean data-driven results with 

our use of the word ‘‘assessment’’. 

Nevertheless, to avoid confusion, the 

final rule does not use that word. 

Instead, § 618.8440(c) requires a report 

on the progress the institution has made 

in accomplishing the required strategies 

and actions.14

Section 618.8440(b)(8)(ii) of the 

proposed rule would have required the 

marketing plan to include, in relevant 

part, ‘‘strategies and actions to provide 

the institution’s products and services 

to all eligible and creditworthy persons 

with specific attention toward diversity 

and inclusion within each market 

segment, and an assessment of the 

progress the institution has made in 

accomplishing these strategies and 

actions.’’ A number of System 

commenters stated that this requirement 

could lead to quotas or quantifiable 

expectations on the lending side. 

First, System commenters questioned 

the requirement to have strategies and 

actions to ‘‘provide’’ the institution’s 

products and services to all eligible and 

creditworthy persons. They stated that 

requiring them to have strategies and 

actions to ‘‘provide’’ their products and 

services, combined with the 

requirement that they must assess their 

progress in accomplishing these 

strategies and actions, suggests that they 

must quantify their progress in 

providing their products and services. 

To clarify this requirement, we replace 

‘‘provide’’ with ‘‘market,’’ thus requiring 

institutions to have strategies and 

actions to market their products and 

services and, to ensure accountability, 

to report on their marketing progress. 

Second, System commenters 

expressed concern with requiring 

‘‘specific attention’’ toward diversity 

and inclusion. To reflect that this rule 

is intended to address outreach, these 

commenters suggested that we require 

‘‘specific outreach’’ rather than ‘‘specific 

attention’’ toward diversity and 

inclusion. We agree with this comment 

and make this change in the final rule. 

Finally, as on the human capital side, 

a number of System commenters 

expressed concern that the word 

‘‘assessment’’ in proposed 

§ 618.8440(b)(8)(ii), which would have 

required the marketing plan to include 

‘‘an assessment of the progress the 

institution has made in accomplishing 

these strategies and actions,’’ implied 

that the rule contemplated data-driven 

results. We did not mean data-driven 

results with our use of the word 

assessment. Nevertheless, to avoid 

confusion, the final rule does not use 

that term. Instead, § 618.8440(c) requires 

a report on the progress the institution 

has made in accomplishing the required 

strategies and actions to ensure 

accountability.15

G. Governance 

The proposed rule would have 

required the human capital plan to 

include strategies and actions to achieve 

diversity and inclusion within the 

institution’s workforce, management, 

and governance structure, and an 

assessment of the progress the 

institution has made in accomplishing 

these strategies and actions. It would 

also have required the human capital 

plan to include a description of the 

institution’s current workforce, 

management, and governance structure 

and an assessment of their strengths and 

weaknesses. 

In the preamble to the proposed rule, 

we noted that FCA Revised Bookletter 

BL–009 16 states that bank and 

association boards of directors may 

appoint directors–-both outside 

directors and ‘‘other appointed 

directors’’ (stockholders who are 

appointed)–-for specific public policy 

purposes, such as facilitating diversity, 

and we encouraged all institutions to 

consider appointing directors for this 

purpose when feasible.17 We also noted 

that § 611.325(d)(1) of FCA regulations, 

which implements a specific 

requirement of section 4.15 of the Act, 

directs institution nominating 

committees, which submit slates of 

eligible borrowers wishing to run for 

stockholder-elected director positions, 

to ‘‘endeavor to ensure representation 

from all areas of [an institution’s 

territory] and as nearly as possible, all 

types of agriculture practiced within the 

territory.’’ As an institution’s borrower 

base becomes more diverse, we 

encouraged nominating committees to 

consider seeking out qualified and 

representative borrowers of diverse 

backgrounds. 

Some System commenters objected to 

including governance requirements in 

their human capital planning. They 

stated that board diversity and inclusion 

is a different issue than diversity and 

inclusion within their workforce. They 


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18 ‘‘Farm Credit Bank and Association 

Nominating Committees,’’ issued March 8, 2007. 

This document is available on FCA’s Web site. 

From our home page at www.fca.gov, click on 

Bookletters from the Quick Links menu. 

19 Directors, officers, employees, and agents must 

avoid any activity that could be construed as 

influencing the nominating committee’s vote on its 

slate of candidates. 

20We note that large numbers of women are 

present even in areas that may lack other 

characteristics of diversity. 

21FCA regulations do not use the term ‘‘SWOT 

analysis.’’ 

22 In both § 618.8440(b)(7) and (b)(8), however, 

we revise the language in the final rule to provide 

that the items required in the human capital plan 

and the marketing plan may be contained in other 

board-approved documents that are adopted 

annually, provided the items are summarized in, 

and incorporated by reference into, the human 

capital plan and the marketing plan, respectively. 

Therefore, if an institution believes that an analysis 

it is conducting under the existing rule satisfies the 

requirements of the final rule, it does not need to 

conduct another, redundant analysis, as long as the 

analysis is approved by the board, adopted 

annually, and summarized in and incorporated into 

the human capital plan and marketing plan, as 

appropriate. 

stated that boards of directors are 

responsible for governance and 

therefore should ‘‘own’’ the issue, 

which should not be integrated into a 

human capital plan that focuses on the 

workforce and is developed by the 

institution’s leadership. These 

commenters urged FCA to remove the 

governance references from human 

capital planning and instead incorporate 

these references into existing 

§ 618.8440(b)(2)(ii), as part of the 

existing requirement that the board’s 

business plan must include an 

assessment of the needs of the board, 

based on the annual self-evaluation of 

the board’s performance. 

We agree with this comment and 

suggestion. Accordingly, we are 

removing all references to governance in 

the human capital plan requirements in 

new § 618.8440(b)(7), and we are 

revising existing § 618.8440(b)(2)(ii) to 

require that the board specifically must 

assess whether its needs include 

improved diversity, as well as the 

addition of particular skills. This 

revision clarifies the existing 

requirement that the board must assess 

its needs to specifically include 

diversity as one of its potential needs. 

Some System commenters stated that 

the Act gives nominating committees 

the responsibility for determining the 

candidates for director elections and 

that it would be challenging to provide 

the nominating committee with 

information on potential candidates in 

an attempt to make the board more 

diverse. System commenters were also 

concerned that the rule would require 

institutions to improperly influence the 

nominating committee in violation of 

the existing requirement that 

management must remain impartial in 

governance matters. 

If a board determines, based on its 

assessment, that it needs to increase its 

diversity, it may do so directly, without 

involving the nominating committee, by 

appointing diverse directors—either 

outside directors or other appointed 

(stockholder) directors. Moreover, FCA 

regulations permit directors or other 

institution personnel to provide the 

names of qualified, diverse persons for 

consideration by the nominating 

committee. FCA Revised Bookletter BL– 

043 18 contains substantial discussion of 

the extensive assistance institution 

boards, officers, employees, and agents 

may provide to nominating committees 

without violating FCA regulations. This 

assistance includes, but is not limited 

to, providing lists of qualified persons 

from which nominating committees may 

identify potential candidates.19

Assistance of this nature does not 

constitute improper interference with 

the work of the nominating committee. 

Some System commenters stated that 

there is little diversity in their 

territory 20 or that stockholders have not 

elected diverse boards even when 

candidates were nominated who would 

have contributed to diversity. We 

understand that some institution boards 

may find it difficult to increase diversity 

among their elected board members. 

However, if a board determines that it 

needs additional diversity, and diverse 

members are not being elected, it should 

consider appointing qualified directors, 

either as outside directors or as other 

appointed (stockholder) directors. 

Some System commenters stated that 

FCA should not suggest that boards 

should appoint additional directors, 

whether or not they are qualified, only 

to achieve board diversity. We are not 

suggesting this. We note that BL–009 

states that institution boards may 

appoint directors for specific public 

policy purposes, such as facilitating 

diversity or acquiring needed skills. 

This regulation complements that 

Bookletter by requiring boards to assess 

whether their needs include additional 

skills or increased diversity. 

A number of System commenters 

stated that FCA already has enough 

regulations in the area of governance, 

that the process is working well, and 

that any more regulation in this area 

would pose an undue burden. System 

commenters also stated that FCA has no 

authority over governance because the 

Act provides that board qualifications 

are set forth in institution bylaws and 

FCA has no authority, whether direct or 

indirect, to approve bylaws. 

This rule does not specify board 

qualifications, nor does it impose board 

composition requirements. The existing 

rule required boards to assess their 

needs, and the new requirements 

specify that diversity is among the 

needs that must be assessed. Requiring 

boards to assess a need for diversity 

does not constitute approval of bylaws. 

And, since boards are already required 

to assess all of their needs, whether or 

not those needs are itemized, expressly 

identifying certain needs in the 

regulation does not pose an extra 

burden. 

A number of non-System commenters 

urged FCA to require System boards to 

include members of historically 

underserved farming communities, 

community-based organizations that 

serve socially disadvantaged or limited 

resource farmers, and local and regional 

farmers and producers. They stated that 

in order to bring about transformative 

change toward diversity and inclusion 

in the corporate culture of System 

institutions, boards must actively 

incorporate the unique perspective of 

these markets. 

Consideration of this requirement is 

beyond the scope of this rulemaking. 

Institutions may choose to seek out such 

potential directors, as appropriate. 

H. Redundancy in Requirement To 

Assess Management Capabilities 

A number of System commenters 

stated that the preamble to the proposed 

rule specified that institutions must 

perform a SWOT analysis (strengths, 

weaknesses, opportunities, threats) as 

part of their human capital and 

marketing planning. They stated that 

this requirement was redundant because 

they believe that existing 

§ 618.8440(b)(2), which requires the 

business plan to include an annual 

review of the internal and external 

factors likely to affect the institution, 

already requires a SWOT analysis.21

However, neither the preamble to the 

proposed rule nor the proposed rule 

itself required an overall analysis in 

either the human capital or marketing 

plans. The proposed rule, therefore, is 

not redundant in this respect, and we 

make no change in the final rule in that 

regard.22

We agree, however, that proposed 

§ 618.8440(b)(7)(ii), which would have 

required the human capital plan to 

include a description of the institution’s 

workforce and management and an 

assessment of their strengths and 

weaknesses, was redundant; existing 

§ 618.8440(b)(2)(i), which requires the 

business plan to include an annual 

review of the internal and external 


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23We are making an unrelated change to this 

provision, which we discuss elsewhere in this 

preamble. 

24Currently, there is one agricultural credit bank, 

which has the authority of an FCB and also the title 

III authority of a bank for cooperatives; in addition 

to providing loan funds to direct lender 

associations, it makes loans to agricultural, aquatic, 

and public utility cooperatives. 

25Under § 618.8440(a), each institution board 

must adopt a business plan no later than 30 days 

after the commencement of each calendar year. 

factors likely to affect the institution, 

already includes an assessment of 

management capabilities. 

We are finalizing the proposed human 

capital plan requirement, which we are 

renumbering as § 618.8440(b)(7)(i), 

without any changes in the management 

assessment requirement.23 To eliminate 

the redundancy, however, in the final 

rule we revise the existing business plan 

requirement at § 618.8440(b)(2)(i). The 

existing provision requires the business 

plan to include an assessment of 

management capabilities, while the 

revised provision requires the business 

plan to incorporate the description and 

assessment of workforce and 

management strengths and weaknesses 

required by § 618.8440(b)(7)(i). The 

existing business plan requirement as 

revised, therefore, no longer requires an 

assessment of management capabilities; 

instead, it requires incorporation of the 

description and assessment of workforce 

and management strengths and 

weaknesses required by the human 

capital plan requirement. 

I. Confidentiality 

A number of System commenters 

stated they should not be required to 

include sensitive and confidential 

information pertaining to human capital 

and marketing planning in their 

business plans, because business plans 

are not privileged and may be 

disseminated to a broader audience. 

These commenters requested that the 

regulation require that business plans 

must incorporate a high-level summary 

of this information. Many non-System 

commenters, on the other hand, 

suggested that FCA should require 

institutions to make their marketing 

goals and progress reports public. 

The objectives of this rule are, in 

pertinent part, to ensure that institution 

boards consider diversity and inclusion 

in their human capital and marketing 

planning. These requirements are 

intended to provide information for 

boards to consider candidly as they 

engage in planning, not for public 

disclosure. Accordingly, both 

§ 618.8440(b)(7), governing human 

capital planning, and § 618.8440(b)(8), 

governing marketing planning, provide 

that the items that are to be included in 

the plans may be contained in other 

board-approved documents that are 

adopted annually, provided the items 

are summarized in, and incorporated by 

reference into, the plans. This will 

enable boards to address sensitive and 

confidential information in more 

confidential documents while still 

ensuring that summaries are included in 

business plans. 

J. Marketing Plan Requirements for 

Banks and Service Corporations 

Several System commenters stated 

that requiring marketing outreach is 

problematic for Farm Credit Banks 

(FCBs), which do not engage in direct 

lending operations but instead provide 

loan funds to the direct lender 

associations. Moreover, service 

corporations chartered under section 

4.25 of the Act typically also do not 

engage directly with retail customers. 

We agree with these comments and 

revise § 618.8440(b)(8) to apply to 

System institutions in their exercise of 

title III lending authorities 24 as well as 

to direct lender associations. 

Although FCBs and service 

corporations are not subject to the 

marketing plan requirements of 

§ 618.8440(b)(8), they should ensure 

that they do not do anything to impede 

the objectives of this regulation nor the 

ability of subject System institutions to 

comply with the regulation. 

K. Compliance Date for Requirements 

Several System commenters requested 

that FCA not require compliance with 

these requirements in the middle of the 

planning year. We agree with this 

request. Accordingly, we will require 

compliance beginning with the 2013 

business plan.25

VII. Section-by-Section Analysis 

A. Section 618.8440(a) 

For clarity and ease of reference, we 

are adding a heading, ‘‘Business Plan 

Requirement,’’ to this paragraph. Also 

for clarity, we are changing ‘‘shall’’ to 

‘‘must.’’ 

B. Section 618.8440(b) 

For clarity and ease of reference, we 

are adding a heading, ‘‘Content of 

Business Plan,’’ to this paragraph. 

1. Section 618.8440(b)(2) 

Existing § 618.8440(b)(2) provides that 

the business plan must include an 

annual review of the internal and 

external factors likely to affect the 

institution during the planning period; 

this provision is unchanged in the 

revised rule. 

As discussed above in our response to 

comments, we revise § 618.8440(b)(2)(i) 

to eliminate the redundancy created by 

the new human capital plan provision. 

Existing § 618.8440(b)(2)(i) provides that 

the required review must include an 

assessment of management capabilities. 

The new human capital plan provision 

(discussed below) requires a description 

of the institution’s workforce and 

management and an assessment of their 

strengths and weaknesses. We revise 

§ 618.8440(b)(2)(i) to provide that the 

review must incorporate the description 

and assessment of workforce and 

management strengths and weaknesses 

required in the human capital plan. 

Also, as discussed above in our 

response to comments, we revise 

§ 618.8440(b)(2)(ii) to explicitly require 

that the assessment of board needs 

included in the business plan must 

specifically include skills and diversity. 

Existing § 618.8440(b)(2)(ii) provides 

that the required review must include 

an assessment of the needs of the board, 

based on the annual self-evaluation of 

the board’s performance. This revision 

clarifies that the board’s assessment 

must specifically include diversity and 

skills as potential needs. 

We are making several minor 

grammatical changes to this provision 

that are necessary because of the 

revisions we have discussed. 

2. Section 618.8440(b)(6) 

We are correcting an erroneous 

citation in this section. 

3. Section 618.8440(b)(7) 

New § 618.8440(b)(7) requires each 

institution to include a human capital 

plan, which must include specified 

items, in its business plan. As explained 

above, the specified items may be 

contained in other board-approved 

documents that are adopted annually, 

provided the items are summarized in, 

and incorporated by reference into, the 

human capital plan. Accordingly, if an 

institution has a separate human capital 

plan, AAP plan, or other document that 

contains the items that are required to 

be included in the human capital plan 

component of the business plan, the 

institution can use that other document 

to satisfy the business plan requirement, 

as long as the other document is 

approved by the board annually, as the 

business plan itself is, and the items are 

summarized in, and incorporated by 

reference into, the human capital plan 

component of the business plan. If the 

other document does not include these 

items, however, or if the board does not 

approve the other document, then the 

board will have to include the required 


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25586 Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Rules and Regulations 

26Currently, there is one agricultural credit bank 

which, in pertinent part, exercises title III authority 

by making loans to agricultural, aquatic, and public 

utility cooperatives. 

27www.agcensus.usda.gov. 

28www.census.gov. 

29www.ersusda.gov/data/ruralatlas. 

items in the human capital plan 

component of the business plan. 

New § 618.8440(b)(7)(i) requires the 

human capital plan to include a 

description of the institution’s 

workforce and management and an 

assessment of their strengths and 

weaknesses. New § 618.8440(b)(7)(ii) 

requires the human capital plan to 

include a description of the institution’s 

workforce and management succession 

programs. New § 618.8440(b)(7)(iii) 

requires the human capital plan to 

include strategies and actions to strive 

for diversity and inclusion within the 

institution’s workforce and 

management. In consideration of 

comments that we received, these 

provisions contain several changes from 

what was proposed. We discuss the 

reasons for these changes above, in our 

response to comments. 

4. Section 618.8440(b)(8) 

New § 618.8440(b)(8) requires each 

institution in its exercise of title III 

lending authorities 26 and direct lender 

association to include a marketing plan, 

which must include specified items, in 

its business plan. The requirement does 

not apply to FCBs, which do not engage 

in direct lending operations but instead 

provide loan funds to the direct lender 

associations, or to service corporations 

chartered under section 4.25 of the Act, 

which typically also do not engage 

directly with retail customers. However, 

FCBs and service corporations should 

ensure that they do not do anything to 

impede the objectives of this regulation 

nor the ability of subject System 

institutions to comply with this 

regulation. 

As explained above, the specified 

items that must be included in the 

marketing plan may be contained in 

other board-approved documents that 

are adopted annually, provided the 

items are summarized in, and 

incorporated by reference into, the 

marketing plan. Accordingly, if an 

institution has a separate marketing 

plan, YBS plan, or other document that 

contains the items that are required to 

be included in the marketing plan 

component of the business plan, the 

institution can use that other document 

to satisfy the business plan requirement, 

as long as the other document is 

approved by the board annually, as the 

business plan itself is, and the items are 

summarized in, and incorporated by 

reference into, the marketing plan 

component of the business plan. If the 

other document does not include these 

items, however, or if the board does not 

approve the other document, then the 

board will have to include the required 

items in the marketing plan component 

of the business plan. 

The marketing plan must strategically 

address how the institution will further 

the objective of the Act, set forth in 

section 1.1(b), that the System be 

responsive to the credit needs of all 

types of agricultural producers having a 

basis for credit. The marketing plan 

must include, at a minimum, the 

following: 

• A description of the institution’s 

chartered territory by market segment, 

including the characteristics of 

demography, geography, and types of 

agriculture practiced; and 

• Strategies and actions to market the 

institution’s products and services to all 

eligible persons, with specific outreach 

toward diversity and inclusion within 

each market segment. 

To be able to describe its chartered 

territory, and to understand whom it 

should be striving to reach, an 

institution must know the market 

segmentation of its territory. Market 

segmentation is the identification of 

portions of the market that are different 

from one another and can include, but 

is not limited to, characteristics such as 

demography, geography, and types of 

agriculture practiced. Market 

segmentation allows a business to better 

satisfy the needs of its potential 

customers. 

A vast amount of demographic 

information, down to the county level, 

is available on the Web sites of the 

Census of Agriculture,27 the U.S. Census 

Bureau,28 and the U.S. Department of 

Agriculture’s Economic Research 

Service.29 As discussed above, because 

this rule does not require specific 

outcomes or quantifiable results, an 

institution should not compare its 

lending against this demographic data. 

Rather, the institution should use this 

data to gain knowledge of the 

characteristics of its chartered territory. 

With this knowledge, the institution can 

determine whether there may be 

potential eligible borrowers it can reach 

out to through better marketing and 

outreach methods. If an institution 

believes other reliable data would better 

provide this information, it may use that 

data instead. 

In consideration of comments we 

received on these provisions, the 

revised rule contains several changes 

from what was proposed. We discuss 

the reasons for these changes above in 

our response to comments. 

We are also making several minor, 

nonsubstantive changes to this 

provision for clarity. 

C. Section 618.8440(c) 

Section 618.8440(c) is titled ‘‘Board 

Reporting Requirements.’’ This 

provision requires each institution to 

report annually to its board of directors 

on the progress the institution has made 

in accomplishing the strategies and 

actions in the human capital plan and, 

as applicable, the marketing plan. 

This provision was not in the 

proposed rule. Instead, the proposed 

rule would have required the human 

capital and marketing plans to include 

an assessment of the progress the 

institution had made in accomplishing 

the strategies and actions in the plans. 

We made this change for several 

reasons. First, as discussed above in our 

response to comments, a number of 

System commenters were concerned 

that the word ‘‘assessment’’ implied 

data-driven results. We did not mean 

data-driven results with our use of the 

term assessment; therefore, to avoid 

confusion, we do not use that term here. 

Second, we believe it is more 

appropriate for the institution to 

provide progress reports to the board 

rather than for the board to include 

progress reports in its human capital 

and marketing plans. Although it is not 

stated explicitly in the rule, we expect 

that boards will use the information in 

the progress reports they receive to 

establish accountability and to 

formulate the strategies and actions 

contained in their human capital and 

marketing plans for the following year. 

VIII. Regulatory Flexibility Act 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.), FCA hereby certifies that the 

final rule will not have a significant 

economic impact on a substantial 

number of small entities. Each of the 

banks in the Farm Credit System, 

considered together with its affiliated 

associations, has assets and annual 

income in excess of the amounts that 

would qualify them as small entities. 

Therefore, Farm Credit System 

institutions are not ‘‘small entities’’ as 

defined in the Regulatory Flexibility 

Act. 

List of Subjects in 12 CFR Part 618 

Agriculture, Archives and records, 

Banks, banking, Insurance, Reporting 

and recordkeeping requirements, Rural 

areas, Technical assistance. 

For the reasons stated in the 

preamble, part 618 of chapter VI, title 12 


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Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Rules and Regulations 25587 

of the Code of Federal Regulations is 

amended as follows: 

PART 618—GENERAL PROVISIONS 

■ 1. The authority citation for part 618 

continues to read as follows: 

Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 

2.5, 2.12, 3.1, 3.7, 4.12, 4.13A, 4.25, 4.29, 5.9, 

5.10, 5.17 of the Farm Credit Act (12 U.S.C. 

2013, 2019, 2020, 2073, 2075, 2076, 2093, 

2122, 2128, 2183, 2200, 2211, 2218, 2243, 

2244, and 2252). 

Subpart J—Internal Controls 

■ 2. Section 618.8440 is revised to read 

as follows: 

§ 618.8440 Planning. 

(a) Business plan requirement. No 

later than 30 days after the 

commencement of each calendar year, 

the board of directors of each Farm 

Credit System institution must adopt an 

operational and strategic business plan 

for at least the succeeding 3 years. 

(b) Content of business plan. The plan 

must include, at a minimum, the 

following: 

(1) A mission statement. 

(2) An annual review of the internal 

and external factors likely to affect the 

institution during the planning period. 

The review must: 

(i) Incorporate the description and 

assessment of workforce and 

management strengths and weaknesses 

required by paragraph (b)(7)(i) of this 

section; 

(ii) Include an assessment of the 

needs of the board, including skills and 

diversity, based on the annual selfevaluation of the board’s performance; 

and 

(iii) Include strategies for correcting 

identified weaknesses. 

(3) Quantifiable goals and objectives. 

(4) Pro forma financial statements for 

each year of the plan. 

(5) A detailed operating budget for the 

first year of the plan. 

(6) The capital adequacy plan adopted 

pursuant to § 615.5200(b) of this 

chapter. 

(7) A human capital plan that 

includes, at a minimum, the items 

specified in this paragraph (b)(7). These 

items may be contained in other boardapproved documents that are adopted 

annually, provided the items are 

summarized in, and incorporated by 

reference into, the human capital plan. 

(i) A description of the institution’s 

workforce and management and an 

assessment of their strengths and 

weaknesses; 

(ii) A description of the institution’s 

workforce and management succession 

programs; and 

(iii) Strategies and actions to strive for 

diversity and inclusion within the 

institution’s workforce and 

management. 

(8) For each Farm Credit System 

institution in its exercise of title III 

lending authorities and direct lender 

association, a marketing plan that 

strategically addresses how the 

institution will further the objective of 

the Act, set forth in section 1.1(b) of the 

Act, that the System be responsive to 

the credit needs of all types of 

agricultural producers having a basis for 

credit. The marketing plan must 

include, at a minimum, the items 

specified in this paragraph (b)(8). These 

items may be contained in other boardapproved documents that are adopted 

annually, provided the items are 

summarized in, and incorporated by 

reference into, the marketing plan. 

(i) A description of the institution’s 

chartered territory by market segment, 

including the characteristics of 

demography, geography, and types of 

agriculture practiced; and 

(ii) Strategies and actions to market 

the institution’s products and services 

to all eligible and creditworthy persons, 

with specific outreach toward diversity 

and inclusion within each market 

segment. 

(c) Board reporting requirements. 

(1) Each institution must report 

annually to its board of directors on the 

progress the institution has made in 

accomplishing the strategies and actions 

required by paragraph (b)(7)(iii) of this 

section. 

(2) Each institution subject to 

paragraph (b)(8) of this section must 

report annually to its board of directors 

on the progress the institution has made 

in accomplishing the strategies and 

actions required by paragraph (b)(8)(ii) 

of this section. 

Dated: April 19, 2012. 

Dale L. Aultman, 

Secretary, Farm Credit Administration Board. 

[FR Doc. 2012–10356 Filed 4–30–12; 8:45 am] 

BILLING CODE 6705–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 110 

[USCG–2011–0231] 

RIN 1625–AA01 

Anchorage Regulations; Wells, ME 

AGENCY: Coast Guard, DHS. 

ACTION: Direct final rule; request for 

comments. 

SUMMARY: On January 6, 2012, we 

established three special anchorage 

areas in Wells Harbor, Wells, Maine, 

through a published final rule. The 

Marine Chart Division of the National 

Oceanographic and Atmospheric 

Administration (NOAA) advised the 

Coast Guard that the coordinates in the 

final rule for the three special anchorage 

areas were out of sequence and formed 

an hourglass shaped anchorage. This 

direct final rule corrects the sequence of 

the coordinates so that the anchorage 

area forms a box-like shaped anchorage. 

DATES: This rule is effective July 30, 

2012, unless an adverse comment, or 

notice of intent to submit an adverse 

comment, is either submitted to our 

online docket via http:// 

www.regulations.gov on or before July 2, 

2012 or reaches the Docket Management 

Facility by that date. If an adverse 

comment, or notice of intent to submit 

an adverse comment, is received by July 

2, 2012, we will withdraw this direct 

final rule and publish a timely notice of 

withdrawal in the Federal Register. 

ADDRESSES: You may submit comments 

identified by docket number USCG– 

2011–0231 using any one of the 

following methods: 

(1) Federal eRulemaking Portal: 

http://www.regulations.gov. 

(2) Fax: 202–493–2251. 

(3) Mail: Docket Management Facility 

(M–30), U.S. Department of 

Transportation, West Building Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue SE., Washington, DC 20590– 

0001. 

(4) Hand delivery: Same as mail 

address above, between 9:00 a.m. and 

5:00 p.m., Monday through Friday, 

except Federal holidays. The telephone 

number is 202–366–9329. 

To avoid duplication, please use only 

one of these four methods. See the 

‘‘Public Participation and Request for 

Comments’’ portion of the 

SUPPLEMENTARY INFORMATION section 

below for instructions on submitting 

comments. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this rule, call or 

email Mr. John J. Mauro, Waterways 

Management Branch Chief, First Coast 

Guard District; telephone 617–223– 

8355, email John.J.Mauro@uscg.mil. If 

you have questions on viewing or 

submitting material to the docket, call 

Renee V. Wright, Program Manager, 

Docket Operations, telephone 202–366– 

9826. 

SUPPLEMENTARY INFORMATION: 


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