60674 Federal Register / Vol. 71, No. 199 / Monday, October 16, 2006 / Proposed Rules 

1Federal Deposit Insurance Reform Act of 2005, 

Public Law 109–171, 120 Stat. 9; Federal Deposit 

Insurance Conforming Amendments Act of 2005, 

Public Law 109–173, 119 Stat. 3601. 

2Pursuant to the Reform Act, current assessment 

regulations remain in effect until the effective date 

of new regulations. Section 2109 of the Reform Act. 

The Reform Act requires the FDIC, within 270 days 

of enactment, to prescribe final regulations, after 

notice and opportunity for comment, providing for 

assessments under section 7(b) of the Federal 

Deposit Insurance Act. Section 2109(a)(5) of the 

Reform Act. 

3 12 U.S.C. 1817(b)(1)(A) and (C). 

4 12 U.S.C. 1817(b)(1)(D). 

5Section 2104(a)(2) of the Reform Act (to be 

codified at 12 U.S.C. 1817(b)(2)(D)). 

Model Number: HI–STORM 100. 

* * * * * 

Dated at Rockville, Maryland, this 22nd 

day of September, 2006. 

For the Nuclear Regulatory Commission. 

Martin J. Virgilio, 

Acting Executive Director for Operations. 

[FR Doc. E6–17077 Filed 10–13–06; 8:45 am] 

BILLING CODE 7590–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 327 

RIN 3064–AD09 

Assessments: Initial Regulatory 

Flexibility Act Analysis 

AGENCY: Federal Deposit Insurance 

Corporation. 

ACTION: Notice of proposed rulemaking; 

supplemental notice. 

SUMMARY: On July 24, 2006, the Federal 

Deposit Insurance Corporation (FDIC) 

issued a notice of proposed rulemaking 

with request for comments to better 

price deposit insurance for risk as 

required by the Federal Deposit 

Insurance Act, as amended by the 

Federal Deposit Insurance Reform Act 

(’’Reform Act’’) (see 71 FR 41910 (July 

24, 2006)). The FDIC is supplementing 

that notice of proposed rulemaking with 

an initial regulatory flexibility analysis 

to aid the public in commenting upon 

the small business impact of its 

proposed rule. 

DATES: Comments on the initial 

regulatory flexibility analysis must be 

received on or before October 26, 2006. 

ADDRESSES: You may submit comments, 

identified by ‘‘Regulatory Flexibility Act 

Analysis’’, by any of the following 

methods: 

• Agency Web site: http:// 

www.FDIC.gov/regulations/laws/ 

federal/propose.html. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments/Legal 

ESS, Federal Deposit Insurance 

Corporation, 550 17th Street, NW., 

Washington, DC 20429. 

• Hand Delivered/Courier: The guard 

station at the rear of the 550 17th Street 

Building (located on F Street), on 

business days between 7 a.m. and 5 p.m. 

• E-mail: comments@FDIC.gov. 

Include ‘‘RFA Analysis’’ in the subject 

line of the message. 

• Public Inspection: Comments may 

be inspected and photocopied in the 

FDIC Public Information Center, Room 

E–1002, 3502 Fairfax Drive, Arlington, 

Virginia 22226, between 9 a.m. and 5 

p.m. on business days. 

Instructions: Submissions received 

must include the agency name and RIN 

for this rulemaking. Comments received 

will be posted without change to http:// 

www.FDIC.gov/regulations/laws/ 

federal/propose.html, including any 

personal information provided. 

FOR FURTHER INFORMATION CONTACT: 

Munsell W. St. Clair, Senior Policy 

Analyst, Division of Insurance and 

Research, (202) 898–8967; and 

Christopher Bellotto, Counsel, Legal 

Division, (202) 898–3801. 

SUPPLEMENTARY INFORMATION: 

Initial Regulatory Flexibility Act 

Analysis 

The Reform Act 1 requires that the 

FDIC prescribe final regulations, after 

notice and opportunity for comment, to 

provide for deposit insurance 

assessments under section 7(b) of the 

Federal Deposit Insurance Act (the FDI 

Act). This notice supplements the 

FDIC’s initial notice of proposed 

rulemaking , 71 FR 41910 (July 24, 

2006), to amend 12 CFR 327 to: (1) 

Create different risk differentiation 

frameworks for smaller and larger 

institutions that are well capitalized and 

well managed; (2) establish a common 

risk differentiation framework for all 

other insured institutions; and (3) 

establish a base assessment rate 

schedule. The proposal would improve 

risk differentiation and deposit 

insurance pricing by drawing upon 

established measures of risk and 

existing best practices of the industry 

and Federal regulators for evaluating 

risk. The proposal would make the 

assessment system more sensitive to risk 

and fairer, by limiting the subsidization 

of riskier institutions by safer ones. The 

60-day period for public comment on 

the proposed rule expired on September 

22, 2006. 

The FDIC’s notice of proposed 

rulemaking did not include an initial 

regulatory flexibility analysis pursuant 

to the Regulatory Flexibility Act (RFA) 

(5 U.S.C. 603) based on an exception for 

rules of particular applicability relating 

to rates or practices relating to such 

rates, which are expressly excluded 

from the definition of ‘‘rule’’ for 

purposes of the RFA (5 U.S.C. 601). The 

FDIC continues to believe that the rate 

exception applies to this rulemaking. 

Nonetheless, the FDIC is voluntarily 

undertaking an initial regulatory 

flexibility analysis of the proposal and 

seeking comment on it. 

The Reform Act requires that the FDIC 

prescribe final regulations, after notice 

and opportunity for comment, to 

provide for deposit insurance 

assessments under section 7(b) of the 

Federal Deposit Insurance Act (the FDI 

Act).2 The Reform Act enacted the bulk 

of the recommendations made by the 

FDIC in 2001; it defines a risk-based 

system generally as one based on an 

institution’s probability of incurring loss 

to the deposit insurance fund due to the 

composition and concentration of the 

institution’s assets and liabilities, the 

likely amount of loss, and the revenue 

needs of the Deposit Insurance Fund 

(DIF).3

The Reform Act also grants the FDIC’s 

Board of Directors the discretion to 

price deposit insurance according to 

risk for all insured institutions 

regardless of the level of the fund 

reserve ratio; it leaves in place the 

existing statutory provision allowing the 

FDIC to ‘‘establish separate risk-based 

assessment systems for large and small 

members of the Deposit Insurance 

Fund.’’ 4 These separate systems are 

subject to a new requirement that ‘‘[n]o 

insured depository institution shall be 

barred from the lowest-risk category 

solely because of size.’’ 5 In short, 

Congress directed the FDIC to 

differentiate for risk among all 

depository institutions and gave it the 

tools to do so. 

The FDIC’s proposal would improve 

risk differentiation and pricing by 

drawing upon established measures of 

risk and existing best practices of the 

industry and Federal regulators for 

evaluating risk. The FDIC believes that 

the proposal would make the 

assessment system more sensitive to 

risk, and also make the risk-based 

assessment system fairer, by limiting the 

subsidization of riskier institutions by 

safer ones. The proposed system for risk 

differentiation would consolidate the 

existing nine categories into four and 

name them Risk Categories I, II, III and 

IV. Risk Category I would replace the 

current 1A risk category (see 71 FR 

41910). 

Within Risk Category I, the FDIC 

proposed one method of risk 

differentiation for small institutions 


jlentini on PROD1PC65 with PROPOSAL
Federal Register / Vol. 71, No. 199 / Monday, October 16, 2006 / Proposed Rules 60675 

6Both methods share a common feature, namely, 

the use of CAMELS component ratings. However, 

each method combines these measures with 

additional, different information. 

7For large institutions within Risk Category I, the 

FDIC proposed to combine CAMELS component 

ratings with long-term debt issuer ratings, and, for 

some large institutions, financial ratios to assign 

institutions to initial assessment rate subcategories. 8An institution’s total revenue is defined as the 

sum of its annual net interest income and noninterest income. 

9An institution’s profit is defined as income 

before taxes and extraordinary items, gross of loan 

loss provisions. 

10For about half of the small institutions 

analyzed, the change reflected an assessment 

decrease and a revenue increase. 

11For about half of the small institutions 

analyzed, the change reflected an assessment 

decrease and a profit increase. 

(institutions with less than $10 billion 

in assets), and another for large 

institutions (institutions with $10 

billion or more in assets).6 For small 

institutions within Risk Category I, the 

FDIC proposed to combine CAMELS 

component ratings with current 

financial ratios to determine an 

institution’s assessment rate.7 Within 

Risk Category I, the FDIC proposed to 

link assessment rates for small 

institutions to a combination of certain 

financial ratios and supervisory ratings 

based on a statistical analysis relating 

these measures to the probability that an 

institution will be downgraded to 

CAMELS 3, 4, or 5 within one year. An 

alternative was proposed that would use 

financial ratios alone to determine a 

small Risk Category I institution’s 

assessment rate. 

The FDIC also proposed to assess all 

new (established within seven years of 

a particular assessment period) wellcapitalized, well-managed institutions, 

regardless of size, at the maximum rate 

applicable to well-managed, wellcapitalized institutions. The proposal 

included a base schedule of rates, 

setting a minimum of 2 and a maximum 

of 4 basis points in Risk Category I, and 

7, 25, and 40 basis points respectively 

in Risk Categories II, III, and IV. Finally, 

the proposal included retention of the 

FDIC Board’s ability to adjust rates 

uniformly up to a maximum of five 

basis points higher or lower than the 

base rates without the necessity of 

further notice and comment rulemaking. 

As of December 31, 2005, of the 8,832 

insured depository institutions, there 

were 5,362 small insured depository 

institutions as that term is defined for 

purposes of the RFA (i.e., those with 

$165 million or less in assets). 

For purposes of this analysis, whether 

the FDIC were to collect needed 

assessments under the existing rule or 

under the proposed rule, the total 

amount of assessments collected would 

be the same. The FDIC’s total 

assessment needs are driven by its 

aggregate insurance losses, expenses, 

investment income, and insured deposit 

growth, among other factors. The 

proposed rule (or the alternative, if 

employed) would merely alter the 

distribution of assessments among 

banks. Using the data as of December 

31, 2005, the FDIC calculated the total 

assessments that would be collected 

under the base rate schedule in the 

proposed rule. 

The economic impact of the proposal 

on each small institution for RFA 

purposes (i.e., institutions with assets of 

$165 million or less) was then 

calculated as the difference in annual 

assessments under the proposed rule 

compared to the existing rule as a 

percentage of the institution’s annual 

revenue 8 and annual profits,9 assuming 

the same total assessments collected by 

the FDIC from the banking industry. 

Based on the December 2005 data, 

under the proposal, for more than 99 

percent of small institutions (as defined 

by the RFA), the change in the 

assessment system would result in 

assessment changes (up or down) 

totaling one percent or less of annual 

revenue.10 Table 1 below sets forth the 

results of the analysis in more detail. 

TABLE 1.—CHANGE IN ASSESSMENTS UNDER THE PROPOSAL AS A PERCENTAGE OF TOTAL REVENUE

Change in assessments as a percentage of total revenue Number of 

institutions 

Percent of 

institutions 

0.5 percent or less ................................................................................................................................................... 5,236 97.7 

0.5 to 1.0 percent .................................................................................................................................................... 94 1.8 

1.0 to 1.5 percent .................................................................................................................................................... 15 0.3 

1.5 to 2.0 percent .................................................................................................................................................... 7 0.1 

2.0 to 2.5 percent .................................................................................................................................................... 4 0.1 

2.5 to 3.0 percent .................................................................................................................................................... 2 0.0 

3.0 to 3.5 percent .................................................................................................................................................... 0 0.0 

3.5 to 4.0 percent .................................................................................................................................................... 2 0.0 

4.0 to 4.5 percent .................................................................................................................................................... 0 0.0 

4.5 to 5.0 percent .................................................................................................................................................... 0 0.0 

Greater than 5.0 percent ......................................................................................................................................... 2 0.0 

Total .................................................................................................................................................................. 5,362 100.0 

Note: Three institutions with no reported revenue were excluded. The change in assessment under the alternative was less than $2,500 for all 

three institutions. 

As indicated, of the total of 5,362 

small institutions for RFA purposes, just 

10 would have experienced an increase 

or decrease equal to 2 percent or greater 

of their total revenue. These figures do 

not reflect a significant economic 

impact on revenues for a substantial 

number of small insured institutions 

from the proposed small bank pricing 

method. 

The FDIC performed a similar 

analysis to determine the impact on 

profits for small (again, as defined by 

the RFA) institutions. Based on 

December 2005 data, under the 

proposal, 85 percent of the small 

institutions (as defined by RFA) with 

reported profits would have 

experienced an increase or decrease in 

their annual profits of one percent or 

less.11 Table 2 sets forth the results of 

the analysis in more detail. 


jlentini on PROD1PC65 with PROPOSAL
60676 Federal Register / Vol. 71, No. 199 / Monday, October 16, 2006 / Proposed Rules 

12For about half of the small institutions 

analyzed, the change reflected an assessment 

decrease and a revenue increase. 

TABLE 2.—CHANGE IN ASSESSMENTS UNDER THE PROPOSAL AS A PERCENTAGE OF PROFIT

Change in assessments as a percentage of profit Number of 

institutions 

Percent of 

institutions 

0.5 percent or less ................................................................................................................................................... 3,470 69.9 

0.5 to 1.0 percent .................................................................................................................................................... 728 14.7 

1.0 to 1.5 percent .................................................................................................................................................... 324 6.5 

1.5 to 2.0 percent .................................................................................................................................................... 132 2.7 

2.0 to 2.5 percent .................................................................................................................................................... 84 1.7 

2.5 to 3.0 percent .................................................................................................................................................... 43 0.9 

3.0 to 3.5 percent .................................................................................................................................................... 37 0.7 

3.5 to 4.0 percent .................................................................................................................................................... 19 0.4 

4.0 to 4.5 percent .................................................................................................................................................... 13 0.3 

4.5 to 5.0 percent .................................................................................................................................................... 12 0.2 

Greater than 5.0 percent ......................................................................................................................................... 104 2.1 

Total .................................................................................................................................................................. 4,966 100.0 

Note:Institutions with negative or no profit were excluded. These institutions are shown separately in Table 3. 

The data indicate that, out of those 

small institutions, as defined by the 

RFA, with reported profits, just 4 

percent would have experienced an 

increase or decrease in their total profits 

of 3 percent or greater. Again, these 

figures do not reflect a significant 

economic impact on profits for a 

substantial number of small (as defined 

by the RFA) insured institutions from 

the proposed small bank pricing 

method. 

Table 2 excludes small institutions (as 

defined by the RFA) that either show no 

profit or show a loss, because a 

percentage cannot be calculated. The 

FDIC analyzed the effect of the proposal 

on these institutions by determining the 

annual assessment change (either an 

increase or a decrease) that would 

result. Table 3 below shows that 56 

percent (224) of the 399 small insured 

institutions in this category would have 

experienced a change (increase or 

decrease) in annual assessments of 

$5,000 or less. Of the remainder, 3 

percent (12) would have experienced 

assessment changes (increases or 

decreases) of $20,000 or more. 

TABLE 3.—CHANGE IN ASSESSMENTS UNDER THE PROPOSAL FOR INSTITUTIONS WITH NEGATIVE OR NO REPORTED

PROFIT

Change in assessments Number of 

institutions 

Percent of 

institutions 

$2,500 or Less ......................................................................................................................................................... 136 34.1 

$2,500–$5,000 ......................................................................................................................................................... 88 22.1 

$5,000–$7,500 ......................................................................................................................................................... 57 14.3 

$7,500–$10,000 ....................................................................................................................................................... 37 9.3 

$10,000–$20,000 ..................................................................................................................................................... 69 17.3 

Greater than $20,000 .............................................................................................................................................. 12 3.0 

Total .................................................................................................................................................................. 399 100.0 

By way of comparison, the FDIC 

performed the same analyses on the 

alternative to the small banking method 

set forth in the proposed rule. As set 

forth in Tables 4, 5, and 6 below, the 

results are similar to the results 

obtained analyzing the proposed 

method. For example, based on 

December 2005 data, under the 

alternative method, more than 99 

percent of small institutions (as defined 

by RFA) would have experienced an 

increase or decrease in their annual 

assessments amounting to one percent 

or less of annual revenue, as shown in 

Table 4.12

TABLE 4.—CHANGE IN THE ASSESSMENTS UNDER THE ALTERNATIVE AS A PERCENTAGE OF TOTAL REVENUE

Change in assessments as a percentage of total revenue Number of 

institutions 

Percent of 

institutions 

0.5 percent or less ................................................................................................................................................... 5,236 97.7 

0.5 to 1.0 percent .................................................................................................................................................... 93 1.7 

1.0 to 1.5 percent .................................................................................................................................................... 16 0.3 

1.5 to 2.0 percent .................................................................................................................................................... 7 0.1 

2.0 to 2.5 percent .................................................................................................................................................... 4 0.1 

2.5 to 3.0 percent .................................................................................................................................................... 2 0.0 

3.0 to 3.5 percent .................................................................................................................................................... 0 0.0 

3.5 to 4.0 percent .................................................................................................................................................... 2 0.0 

4.0 to 4.5 percent .................................................................................................................................................... 0 0.0 


jlentini on PROD1PC65 with PROPOSAL
Federal Register / Vol. 71, No. 199 / Monday, October 16, 2006 / Proposed Rules 60677 

13For about half of the small institutions 

analyzed, the change reflected an assessment 

decrease and a profit increase. 

TABLE 4.—CHANGE IN THE ASSESSMENTS UNDER THE ALTERNATIVE AS A PERCENTAGE OF TOTAL REVENUE—Continued 

Change in assessments as a percentage of total revenue Number of 

institutions 

Percent of 

institutions 

4.5 to 5.0 percent .................................................................................................................................................... 0 0.0 

Greater than 5.0 percent ......................................................................................................................................... 2 0.0 

Total .................................................................................................................................................................. 5,362 100.0 

Note: Three institutions with no reported revenue were excluded. The change in assessments under the alternative was less than $2,500 for 

all three institutions. 

Similarly, based on December 2005 

data, under the alternative, 85 percent of 

the small institutions (as defined by 

RFA) with reported profits would have 

experienced an increase or decrease of 

one percent or less of annual profits as 

shown in Table 5.13

TABLE 5.—CHANGE IN ASSESSMENTS UNDER THE ALTERNATIVE AS A PERCENTAGE OF PROFIT

Change in assessments as a percentage of profit Number of 

institutions 

Percent of 

institutions 

0.5 percent or less ................................................................................................................................................... 3,489 70.3 

0.5 to 1.0 percent .................................................................................................................................................... 728 14.7 

1.0 to 1.5 percent .................................................................................................................................................... 307 6.2 

1.5 to 2.0 percent .................................................................................................................................................... 138 2.8 

2.0 to 2.5 percent .................................................................................................................................................... 79 1.6 

2.5 to 3.0 percent .................................................................................................................................................... 43 0.9 

3.0 to 3.5 percent .................................................................................................................................................... 34 0.7 

3.5 to 4.0 percent .................................................................................................................................................... 18 0.4 

4.0 to 4.5 percent .................................................................................................................................................... 16 0.3 

4.5 to 5.0 percent .................................................................................................................................................... 12 0.2 

Greater than 5.0 percent ......................................................................................................................................... 102 2.1 

Total .................................................................................................................................................................. 4,966 100.0 

Note: Institutions with negative or no profit were excluded. These institutions are shown separately in Table 6. 

Table 6 below shows that 56 percent 

of the 399 small insured institutions 

that showed no profit or a negative 

profit category would have experienced 

a change (increase or decrease) in 

annual assessments of $5,000 or less. Of 

the remainder, three percent (12) would 

have experienced assessment changes 

(increases or decreases) of $20,000 or 

more. 

TABLE 6.—CHANGE IN ASSESSMENTS UNDER THE ALTERNATIVE FOR INSTITUTIONS WITH NEGATIVE OR NO REPORTED

PROFIT

Change in assessment Number of 

institutions 

Percent of 

institutions 

$2,500 or Less ......................................................................................................................................................... 138 34.6 

$2,500–$5,000 ......................................................................................................................................................... 87 21.8 

$5,000–$7,500 ......................................................................................................................................................... 57 14.3 

$7,500–$10,000 ....................................................................................................................................................... 36 9.0 

$10,000–$20,000 ..................................................................................................................................................... 69 17.3 

Greater than $20,000 .............................................................................................................................................. 12 3.0 

Total .................................................................................................................................................................. 399 100.0 

The proposed rule does not directly 

impose any ‘‘reporting’’ or 

‘‘recordkeeping’’ requirements within 

the meaning of the Paperwork 

Reduction Act. The compliance 

requirements for the proposed rule 

would not exceed existing compliance 

requirements for the present system of 

FDIC deposit insurance assessments, 

which, in any event, are governed by 

separate regulations. 

The FDIC is unaware of any 

duplicative, overlapping or conflicting 

Federal rules. 

The initial regulatory flexibility 

analysis set forth above demonstrates 

that, if adopted in final form, the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small institutions 

within the meaning of those terms as 

used in the RFA (5 U.S.C. 605). 

Commenters are invited to provide 

the FDIC with any information they may 

have about the likely quantitative effects 

of the proposal on small insured ($165 


jlentini on PROD1PC65 with PROPOSAL
60678 Federal Register / Vol. 71, No. 199 / Monday, October 16, 2006 / Proposed Rules 

1 12 U.S.C. 2019(a)(1), 2075(a)(1). Each Farm 

Credit Bank has transferred its title I authority to 

make long-term real estate mortgage loans to 

Federal land bank associations pursuant to section 

7.6 of the Act (12 U.S.C. 2279b). 

million or less in assets) depository 

institutions. 

By order of the Board of Directors. 

Dated at Washington, DC, this 11th day of 

October, 2006. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 06–8728 Filed 10–13–06; 8:45 am] 

BILLING CODE 6714–01–P 

FARM CREDIT ADMINISTRATION 

12 CFR Part 613 

RIN 3052–AC33 

Eligibility and Scope of Financing; 

Processing and Marketing 

AGENCY: Farm Credit Administration. 

ACTION: Proposed rule. 

SUMMARY: The Farm Credit 

Administration (FCA or Agency) 

proposes to amend its regulation 

governing financing of processing and 

marketing operations by Farm Credit 

System (Farm Credit, FCS, or System) 

institutions under titles I and II of the 

Farm Credit Act of 1971, as amended 

(Act). Specifically, this proposal would 

revise the criteria used to determine 

eligibility of legal entities for financing 

as processing and marketing operations. 

FCA further proposes a non-substantive 

technical correction to its regulation 

defining the term ‘‘person.’’

DATES: Comments should be received on 

or before December 15, 2006. 

ADDRESSES: We offer a variety of 

methods to receive your comments. For 

accuracy and efficiency reasons, 

commenters are encouraged to submit 

comments by e-mail or through the 

Agency’s Web site or the Federal 

eRulemaking Portal. As faxes are 

difficult for us to process and achieve 

compliance with section 508 of the 

Rehabilitation Act, please consider 

another means to submit your comment 

if possible. Regardless of the method 

you use, please do not submit your 

comment multiple times via different 

methods. You may submit comments by 

any of the following methods: 

• E-mail: Send us an e-mail at 

reg-comm@fca.gov. Agency Web site: 

http://www.fca.gov. Select ‘‘Legal Info,’’

then ‘‘Pending Regulations and 

Notices.’’

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Gary K. Van Meter, Deputy 

Director, Office of Regulatory Policy, 

Farm Credit Administration, 1501 Farm 

Credit Drive, McLean, VA 22102–5090. 

• Fax: (703) 883–4477. Posting and 

processing of faxes may be delayed. 

Please consider another means to 

comment, if possible. 

You may review copies of comments 

we received at our office in McLean, 

Virginia, or from our Web site at 

http://www.fca.gov. Once you are in the 

Web site, select ‘‘Legal Info,’’ and then 

select ‘‘Public Comments.’’ We will 

show your comments as submitted, but 

for technical reasons we may omit items 

such as logos and special characters. 

Identifying information that you 

provide, such as phone numbers and 

addresses, will be publicly available. 

However, we will attempt to remove email addresses to help reduce Internet 

spam. 

FOR FURTHER INFORMATION CONTACT: 

Barry Mardock, Associate Director, 

Office of Regulatory Policy, Farm 

Credit Administration, 1501 Farm 

Credit Drive, McLean, VA, (703) 883–

4456, TTY (703) 883–4434; 

or 

Michael A. Anderson, Policy Analyst, 

Office of Regulatory Policy, Farm 

Credit Administration, Denver, CO, 

(303) 696–9737, TTY (303) 696–9259; 

or 

Howard I. Rubin, Senior Counsel, Office 

of General Counsel, Farm Credit 

Administration, McLean, VA 22102–

5090, (703) 883–4029, TTY (703) 883–

4020. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Sections 1.11(a)(1) and 2.4(a)(1) of the 

Act authorize Farm Credit Banks and 

associations to finance the processing 

and marketing operations of bona fide 

farmers, ranchers, and aquatic 

producers or harvesters that are 

‘‘directly related’’ to the operations of 

the borrower, provided that the 

operations of the borrower supply some 

portion of the raw materials used in the 

processing or marketing operation 

(throughput).1 Current § 613.3010(a)(1) 

provides that a borrower is eligible for 

financing for a processing or marketing 

operation only if the borrower is eligible 

to borrow from the System or is a legal 

entity in which eligible borrowers own 

more than 50 percent of the voting stock 

or equity. 

We believe that our current rule, 

focusing solely on the percentage of 

eligible borrower ownership in a legal 

entity, is unnecessarily narrow. 

Therefore, FCA proposes to add 

additional specific criteria for 

determining what legal entities are 

eligible for financing for processing and 

marketing operations in accordance 

with the provisions in §§ 1.11(a) and 

2.4(a) of the Act. While potentially 

expanding the pool of eligible legal 

entities, we believe that the additional 

criteria properly ensure that there is a 

sufficiently strong economic link—or 

identity of interests—between eligible 

borrowers and the processing or 

marketing entity so that the financing 

can be considered made and ‘‘directly 

related’’ to eligible borrowers and their 

operations. 

II. Need for Proposed Rule 

FCA believes its amendment to 

§ 613.3010 will permit System 

associations to more effectively meet the 

credit needs of eligible borrowers in the 

face of changing agricultural and 

economic conditions while remaining 

consistent with the Act. We recognize 

the increasing importance of valueadded agriculture and aquaculture and 

the changing ownership structures in 

processing and marketing operations. As 

part of these changing agricultural and 

economic conditions, FCA seeks to 

ensure that affordable and dependable 

credit for businesses that add value to 

farm and aquatic products and 

commodities remains available for the 

benefit of agricultural and aquacultural 

producers (and the rural communities in 

which they operate). 

As farmers, ranchers, and producers 

or harvesters of aquatic products look 

for opportunities to increase farm and 

aquaculture income and diversify 

income sources, the importance of 

value-added agriculture and aquaculture 

has emerged, benefiting both producers 

and rural communities. Producers are 

pursuing value-added activities to gain 

more direct access to markets and a 

greater share of the consumers’ food 

dollar. As such, farmers are increasingly 

relying on vertical integration and 

coordination of production, processing, 

and marketing to deliver products that 

meet consumer needs. These 

opportunities have stemmed from 

increased consumer demands regarding 

health, nutrition, and convenience; 

efforts by food processors to improve 

their productivity; and technological 

advances that enable producers to 

produce what consumers and processors 

desire. With the continuous shifting to 

a global economy, the international 

market for value-added products is 

growing. 

Ownership structures within 

processing and marketing operations are 

changing as substantial capital 

investments cannot be fully raised 


jlentini on PROD1PC65 with PROPOSAL