PUBLIC LAW 104–105—FEB. 10, 1996

FARM CREDIT SYSTEM REFORM ACT OF 1996

110 STAT. 162 PUBLIC LAW 104–105—FEB. 10, 1996

Public Law 104–105

104th Congress

An Act

To amend the Farm Credit Act of 1971 to provide regulatory relief, and for other

purposes.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Farm Credit

System Reform Act of 1996’’.

(b) TABLE OF CONTENTS.—The table of contents for this Act

is as follows:

Sec. 1. Short title; table of contents.

TITLE I—AGRICULTURAL MORTGAGE SECONDARY MARKET

Sec. 101. Definition of real estate.

Sec. 102. Definition of certified facility.

Sec. 103. Duties of Federal Agricultural Mortgage Corporation.

Sec. 104. Powers of the Corporation.

Sec. 105. Federal reserve banks as depositaries and fiscal agents.

Sec. 106. Certification of agricultural mortgage marketing facilities.

Sec. 107. Guarantee of qualified loans.

Sec. 108. Mandatory reserves and subordinated participation interests eliminated.

Sec. 109. Standards requiring diversified pools.

Sec. 110. Small farms.

Sec. 111. Definition of an affiliate.

Sec. 112. State usury laws superseded.

Sec. 113. Extension of capital transition period.

Sec. 114. Minimum capital level.

Sec. 115. Critical capital level.

Sec. 116. Enforcement levels.

Sec. 117. Recapitalization of the Corporation.

Sec. 118. Liquidation of the Federal Agricultural Mortgage Corporation.

TITLE II—REGULATORY RELIEF

Sec. 201. Compensation of association personnel.

Sec. 202. Use of private mortgage insurance.

Sec. 203. Removal of certain borrower reporting requirement.

Sec. 204. Reform of regulatory limitations on dividend, member business, and voting practices of eligible farmer-owned cooperatives. Sec. 205. Removal of Federal Government certification requirement for certain private sector financings. Sec. 206. Borrower stock.

Sec. 207. Disclosure relating to adjustable rate loans.

Sec. 208. Borrowers’ rights.

Sec. 209. Formation of administrative service entities.

Sec. 210. Joint management agreements.

Sec. 211. Dissemination of quarterly reports.

Sec. 212. Regulatory review.

Sec. 213. Examination of farm credit system institutions.

Sec. 214. Conservatorships and receiverships.

Sec. 215. Farm Credit Insurance Fund operations.

Sec. 216. Examinations by the Farm Credit System Insurance Corporation.

Sec. 217. Powers with respect to troubled insured System banks.

12 USC 2001

note.

Farm Credit

System Reform

Act of 1996.

Loans.

Feb. 10, 1996

[H.R. 2029]

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 163

Sec. 218. Oversight and regulatory actions by the Farm Credit System Insurance

Corporation. Sec. 219. Farm Credit System Insurance Corporation board of directors.

Sec. 220. Interest rate reduction program.

Sec. 221. Liability for making criminal referrals.

TITLE III—IMPLEMENTATION AND EFFECTIVE DATE

Sec. 301. Implementation.

Sec. 302. Effective date.

TITLE I—AGRICULTURAL MORTGAGE

SECONDARY MARKET

SEC. 101. DEFINITION OF REAL ESTATE.

Section 8.0(1)(B)(ii) of the Farm Credit Act of 1971 (12 U.S.C.

2279aa(1)(B)(ii)) is amended by striking ‘‘with a purchase price’’

and inserting ‘‘, excluding the land to which the dwelling is affixed,

with a value’’.

SEC. 102. DEFINITION OF CERTIFIED FACILITY.

Section 8.0(3) of the Farm Credit Act of 1971 (12 U.S.C.

2279aa(3)) is amended—

(1) in subparagraph (A), by striking ‘‘a secondary marketing agricultural loan’’ and inserting ‘‘an agricultural mortgage

marketing’’; and (2) in subparagraph (B), by striking ‘‘, but only’’ and all that follows through ‘‘(9)(B)’’.

SEC. 103. DUTIES OF FEDERAL AGRICULTURAL MORTGAGE CORPORATION.

Section 8.1(b) of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

1(b)) is amended—

(1) in paragraph (2), by striking ‘‘and’’ at the end;

(2) in paragraph (3), by striking the period at the end and inserting ‘‘; and’’; and (3) by adding at the end the following:

‘‘(4) purchase qualified loans and issue securities representing interests in, or obligations backed by, the qualified loans,

guaranteed for the timely repayment of principal and interest.’’.

SEC. 104. POWERS OF THE CORPORATION.

Section 8.3(c) of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

3(c)) is amended—

(1) by redesignating paragraphs (13) and (14) as paragraphs

(14) and (15), respectively; and

(2) by inserting after paragraph (12) the following:

‘‘(13) To purchase, hold, sell, or assign a qualified loan,

to issue a guaranteed security, representing an interest in,

or an obligation backed by, the qualified loan, and to perform

all the functions and responsibilities of an agricultural mortgage marketing facility operating as a certified facility under

this title.’’.

SEC. 105. FEDERAL RESERVE BANKS AS DEPOSITARIES AND FISCAL

AGENTS.

Section 8.3 of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

3) is amended—

(1) in subsection (d), by striking ‘‘may act as depositories

for, or’’ and inserting ‘‘shall act as depositories for, and’’; and

110 STAT. 164 PUBLIC LAW 104–105—FEB. 10, 1996

(2) in subsection (e), by striking ‘‘Secretary of the Treasury may authorize the Corporation to use’’ and inserting ‘‘Corporation shall have access to’’.

SEC. 106. CERTIFICATION OF AGRICULTURAL MORTGAGE MARKETING

FACILITIES.

Section 8.5 of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

5) is amended—

(1) in subsection (a)—

(A) in paragraph (1), by inserting ‘‘(other than the Corporation)’’ after ‘‘agricultural mortgage marketing facilities’’; and

(B) in paragraph (2), by inserting ‘‘(other than the Corporation)’’ after ‘‘agricultural mortgage marketing facility’’; and

(2) in subsection (e)(1), by striking ‘‘(other than the Cor- poration)’’.

SEC. 107. GUARANTEE OF QUALIFIED LOANS.

Section 8.6 of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

6) is amended—

(1) in subsection (a)(1)—

(A) by striking ‘‘Corporation shall guarantee’’ and

inserting the following: ‘‘Corporation— ‘‘(A) shall guarantee’’;

(B) by striking the period at the end and inserting

‘‘; and’’; and

(C) by adding at the end the following:

‘‘(B) may issue a security, guaranteed as to the timely

payment of principal and interest, that represents an

interest solely in, or an obligation fully backed by, a pool

consisting of qualified loans that— ‘‘(i) meet the standards established under section

8.8; and

‘‘(ii) have been purchased and held by the Corporation.’’;

(2) in subsection (d)—

(A) by striking paragraph (4); and

(B) by redesignating paragraphs (5), (6), and (7) as paragraphs (4), (5), and (6), respectively; and

(3) in subsection (g)(2), by striking ‘‘section 8.0(9)(B))’’ and inserting ‘‘section 8.0(9))’’.

SEC. 108. MANDATORY RESERVES AND SUBORDINATED PARTICIPATION INTERESTS ELIMINATED.

(a) GUARANTEE OF QUALIFIED LOANS.—Section 8.6 of the Farm

Credit Act of 1971 (12 U.S.C. 2279aa–6) is amended by striking

subsection (b).

(b) RESERVES AND SUBORDINATED PARTICIPATION INTERESTS.—

Section 8.7 of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

7) is repealed.

(c) CONFORMING AMENDMENTS.—

(1) Section 8.0(9)(B)(i) of the Farm Credit Act of 1971

(12 U.S.C. 2279aa(9)(B)(i)) is amended by striking ‘‘8.7, 8.8,’’

and inserting ‘‘8.8’’.

(2) Section 8.6(a)(2) of the Farm Credit Act of 1971 (12

U.S.C. 2279aa–6(a)(2)) is amended by striking ‘‘subject to the

provisions of subsection (b)’’.

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 165

SEC. 109. STANDARDS REQUIRING DIVERSIFIED POOLS.

(a) IN GENERAL.—Section 8.6 of the Farm Credit Act of 1971

(12 U.S.C. 2279aa–6) (as amended by section 108) is amended—

(1) by striking subsection (c); and

(2) by redesignating subsections (d) through (g) as subsections (b) through (e), respectively.

(b) CONFORMING AMENDMENTS.—

(1) Section 8.0(9)(B)(i) of the Farm Credit Act of 1971

(12 U.S.C. 2279aa(9)(B)(i)) is amended by striking ‘‘(f)’’ and

inserting ‘‘(d)’’.

(2) Section 8.13(a) of the Farm Credit Act of 1971 (12

U.S.C. 2279aa–13(a)) is amended by striking ‘‘sections 8.6(b)

and’’ in each place it appears and inserting ‘‘section’’.

(3) Section 8.32(b)(1)(C) of the Farm Credit Act of 1971

(12 U.S.C. 2279bb–1(b)(1)(C)) is amended—

(A) by striking ‘‘shall’’ and inserting ‘‘may’’; and

(B) by inserting ‘‘(as in effect before the date of the

enactment of the Farm Credit System Reform Act of 1996)’’

before the semicolon.

(4) Section 8.6(b) of the Farm Credit Act of 1971 (12 U.S.C.

2279aa–6(b)) (as redesignated by subsection (a)(2)) is

amended—

(A) by striking paragraph (4) (as redesignated by section 107(2)(B)); and

(B) by redesignating paragraphs (5) and (6) (as redesignated by section 107(2)(B)) as paragraphs (4) and (5),

respectively.

SEC. 110. SMALL FARMS.

Section 8.8(e) of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

8(e)) is amended by adding at the end the following: ‘‘The Board

shall promote and encourage the inclusion of qualified loans for

small farms and family farmers in the agricultural mortgage secondary market.’’.

SEC. 111. DEFINITION OF AN AFFILIATE.

Section 8.11(e) of the Farm Credit Act of 1971 (12 U.S.C.

2279aa–11(e)) is amended—

(1) by striking ‘‘a certified facility or’’; and

(2) by striking ‘‘paragraphs (3) and (7), respectively, of

section 8.0’’ and inserting ‘‘section 8.0(7)’’.

SEC. 112. STATE USURY LAWS SUPERSEDED.

Section 8.12 of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

12) is amended by striking subsection (d) and inserting the following:

‘‘(d) STATE USURY LAWS SUPERSEDED.—A provision of the Constitution or law of any State shall not apply to an agricultural

loan made by an originator or a certified facility in accordance

with this title for sale to the Corporation or to a certified facility

for inclusion in a pool for which the Corporation has provided,

or has committed to provide, a guarantee, if the loan, not later

than 180 days after the date the loan was made, is sold to the

Corporation or included in a pool for which the Corporation has

provided a guarantee, if the provision—

‘‘(1) limits the rate or amount of interest, discount points,

finance charges, or other charges that may be charged, taken,

110 STAT. 166 PUBLIC LAW 104–105—FEB. 10, 1996

received, or reserved by an agricultural lender or a certified

facility; or ‘‘(2) limits or prohibits a prepayment penalty (either fixed or declining), yield maintenance, or make-whole payment that

may be charged, taken, or received by an agricultural lender

or a certified facility in connection with the full or partial

payment of the principal amount due on a loan by a borrower

in advance of the scheduled date for the payment under the

terms of the loan, otherwise known as a prepayment of the

loan principal.’’.

SEC. 113. EXTENSION OF CAPITAL TRANSITION PERIOD.

Section 8.32 of the Farm Credit Act of 1971 (12 U.S.C. 2279bb–

1) is amended—

(1) in the first sentence of subsection (a), by striking ‘‘Not later than the expiration of the 2-year period beginning on

December 13, 1991,’’ and inserting ‘‘Not sooner than the expiration of the 3-year period beginning on the date of enactment

of the Farm Credit System Reform Act of 1996,’’;

(2) in the first sentence of subsection (b)(2), by striking

‘‘5-year’’ and inserting ‘‘8-year’’; and

(3) in subsection (d)—

(A) in the first sentence—

(i) by striking ‘‘The regulations establishing’’ and

inserting the following:

‘‘(1) IN GENERAL.—The regulations establishing’’; and

(ii) by striking ‘‘shall contain’’ and inserting the

following: ‘‘shall—

‘‘(A) be issued by the Director for public comment in

the form of a notice of proposed rulemaking, to be first

published after the expiration of the period referred to

in subsection (a); and

‘‘(B) contain’’; and

(B) in the second sentence, by striking ‘‘The regulations

shall’’ and inserting the following:

‘‘(2) SPECIFICITY.—The regulations referred to in paragraph

(1) shall’’.

SEC. 114. MINIMUM CAPITAL LEVEL.

Section 8.33 of the Farm Credit Act of 1971 (12 U.S.C. 2279bb–

2) is amended to read as follows:

‘‘SEC. 8.33. MINIMUM CAPITAL LEVEL.

‘‘(a) IN GENERAL.—Except as provided in subsection (b), for

purposes of this subtitle, the minimum capital level for the Corporation shall be an amount of core capital equal to the sum of—

‘‘(1) 2.75 percent of the aggregate on-balance sheet assets

of the Corporation, as determined in accordance with generally

accepted accounting principles; and

‘‘(2) 0.75 percent of the aggregate off-balance sheet obligations of the Corporation, which, for the purposes of this subtitle,

shall include—

‘‘(A) the unpaid principal balance of outstanding securities that are guaranteed by the Corporation and backed

by pools of qualified loans;

‘‘(B) instruments that are issued or guaranteed by the

Corporation and are substantially equivalent to

instruments described in subparagraph (A); and

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 167

‘‘(C) other off-balance sheet obligations of the Corporation.

‘‘(b) TRANSITION PERIOD.— ‘‘(1) IN GENERAL.—For purposes of this subtitle, the minimum capital level for the Corporation— ‘‘(A) prior to January 1, 1997, shall be the amount of core capital equal to the sum of— ‘‘(i) 0.45 percent of aggregate off-balance sheet obligations of the Corporation; ‘‘(ii) 0.45 percent of designated on-balance sheet assets of the Corporation, as determined under paragraph (2); and ‘‘(iii) 2.50 percent of on-balance sheet assets of

the Corporation other than assets designated under

paragraph (2);

‘‘(B) during the 1-year period ending December 31, 1997, shall be the amount of core capital equal to the

sum of—

‘‘(i) 0.55 percent of aggregate off-balance sheet obligations of the Corporation; ‘‘(ii) 1.20 percent of designated on-balance sheet assets of the Corporation, as determined under paragraph (2); and ‘‘(iii) 2.55 percent of on-balance sheet assets of

the Corporation other than assets designated under

paragraph (2);

‘‘(C) during the 1-year period ending December 31, 1998, shall be the amount of core capital equal to— ‘‘(i) if the Corporation’s core capital is not less

than $25,000,000 on January 1, 1998, the sum of— ‘‘(I) 0.65 percent of aggregate off-balance sheet obligations of the Corporation; ‘‘(II) 1.95 percent of designated on-balance sheet assets of the Corporation, as determined

under paragraph (2); and ‘‘(III) 2.65 percent of on-balance sheet assets

of the Corporation other than assets designated

under paragraph (2); or

‘‘(ii) if the Corporation’s core capital is less than

$25,000,000 on January 1, 1998, the amount determined under subsection (a); and

‘‘(D) on and after January 1, 1999, shall be the amount determined under subsection (a).

‘‘(2) DESIGNATED ON-BALANCE SHEET ASSETS.—For purposes

of this subsection, the designated on-balance sheet assets of

the Corporation shall be—

‘‘(A) the aggregate on-balance sheet assets of the Corporation acquired under section 8.6(e); and

‘‘(B) the aggregate amount of qualified loans purchased and held by the Corporation under section 8.3(c)(13).’’.

SEC. 115. CRITICAL CAPITAL LEVEL.

Section 8.34 of the Farm Credit Act of 1971 (12 U.S.C. 2279bb–

3) is amended to read as follows:

‘‘SEC. 8.34. CRITICAL CAPITAL LEVEL.

‘‘For purposes of this subtitle, the critical capital level for

the Corporation shall be an amount of core capital equal to 50

110 STAT. 168 PUBLIC LAW 104–105—FEB. 10, 1996

percent of the total minimum capital amount determined under

section 8.33.’’.

SEC. 116. ENFORCEMENT LEVELS.

Section 8.35(e) of the Farm Credit Act of 1971 (12 U.S.C.

2279bb–4(e)) is amended by striking ‘‘during the 30-month period

beginning on the date of the enactment of this section,’’ and inserting ‘‘during the period beginning on December 13, 1991, and ending

on the effective date of the risk based capital regulation issued

by the Director under section 8.32,’’.

SEC. 117. RECAPITALIZATION OF THE CORPORATION.

Title VIII of the Farm Credit Act of 1971 (12 U.S.C. 2279aa

et seq.) is amended by adding at the end the following:

‘‘SEC. 8.38. RECAPITALIZATION OF THE CORPORATION.

‘‘(a) MANDATORY RECAPITALIZATION.—The Corporation shall

increase the core capital of the Corporation to an amount equal

to or greater than $25,000,000, not later than the earlier of—

‘‘(1) the date that is 2 years after the date of enactment

of this section; or

‘‘(2) the date that is 180 days after the end of the first

calendar quarter that the aggregate on-balance sheet assets

of the Corporation, plus the outstanding principal of the offbalance sheet obligations of the Corporation, equal or exceed

$2,000,000,000.

‘‘(b) RAISING CORE CAPITAL.—In carrying out this section, the

Corporation may issue stock under section 8.4 and otherwise employ

any recognized and legitimate means of raising core capital in

the power of the Corporation under section 8.3.

‘‘(c) LIMITATION ON GROWTH OF TOTAL ASSETS.—During the

2-year period beginning on the date of enactment of this section,

the aggregate on-balance sheet assets of the Corporation plus the

outstanding principal of the off-balance sheet obligations of the

Corporation may not exceed $3,000,000,000 if the core capital of

the Corporation is less than $25,000,000.

‘‘(d) ENFORCEMENT.—If the Corporation fails to carry out subsection (a) by the date required under paragraph (1) or (2) of

subsection (a), the Corporation may not purchase a new qualified

loan or issue or guarantee a new loan-backed security until the

core capital of the Corporation is increased to an amount equal

to or greater than $25,000,000.’’.

SEC. 118. LIQUIDATION OF THE FEDERAL AGRICULTURAL MORTGAGE

CORPORATION.

Title VIII of the Farm Credit Act of 1971 (12 U.S.C. 2279aa

et seq.) (as amended by section 117) is amended by adding at

the end the following:

‘‘Subtitle C—Receivership, Conservatorship, and Liquidation of the Federal

Agricultural Mortgage Corporation

‘‘SEC. 8.41. CONSERVATORSHIP; LIQUIDATION; RECEIVERSHIP.

‘‘(a) VOLUNTARY LIQUIDATION.—The Corporation may voluntarily liquidate only with the consent of, and in accordance with

12 USC 2279cc.

12 USC

2279bb–7.

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 169

a plan of liquidation approved by, the Farm Credit Administration

Board.

‘‘(b) INVOLUNTARY LIQUIDATION.— ‘‘(1) IN GENERAL.—The Farm Credit Administration Board

may appoint a conservator or receiver for the Corporation under

the circumstances specified in section 4.12(b).

‘‘(2) APPLICATION.—In applying section 4.12(b) to the Corporation under paragraph (1)—

‘‘(A) the Corporation shall also be considered insolvent

if the Corporation is unable to pay its debts as they fall

due in the ordinary course of business;

‘‘(B) a conservator may also be appointed for the Corporation if the authority of the Corporation to purchase

qualified loans or issue or guarantee loan-backed securities

is suspended; and

‘‘(C) a receiver may also be appointed for the Corporation if—

‘‘(i)(I) the authority of the Corporation to purchase

qualified loans or issue or guarantee loan-backed securities is suspended; or

‘‘(II) the Corporation is classified under section

8.35 as within level III or IV and the alternative

actions available under subtitle B are not satisfactory;

and

‘‘(ii) the Farm Credit Administration determines

that the appointment of a conservator would not be

appropriate.

‘‘(3) NO EFFECT ON SUPERVISORY ACTIONS.—The grounds

for appointment of a conservator for the Corporation under

this subsection shall be in addition to those in section 8.37.

‘‘(c) APPOINTMENT OF CONSERVATOR OR RECEIVER.—

‘‘(1) QUALIFICATIONS.—Notwithstanding section 4.12(b), if

a conservator or receiver is appointed for the Corporation,

the conservator or receiver shall be—

‘‘(A) the Farm Credit Administration or any other

governmental entity or employee, including the Farm

Credit System Insurance Corporation; or

‘‘(B) any person that—

‘‘(i) has no claim against, or financial interest in,

the Corporation or other basis for a conflict of interest

as the conservator or receiver; and

‘‘(ii) has the financial and management expertise

necessary to direct the operations and affairs of the

Corporation and, if necessary, to liquidate the Corporation.

‘‘(2) COMPENSATION.—

‘‘(A) IN GENERAL.—A conservator or receiver for the

Corporation and professional personnel (other than a Federal employee) employed to represent or assist the conservator or receiver may be compensated for activities conducted as, or for, a conservator or receiver.

‘‘(B) LIMIT ON COMPENSATION.—Compensation may not

be provided in amounts greater than the compensation

paid to employees of the Federal Government for similar

services, except that the Farm Credit Administration may

provide for compensation at higher rates that are not in

excess of rates prevailing in the private sector if the Farm

110 STAT. 170 PUBLIC LAW 104–105—FEB. 10, 1996

Credit Administration determines that compensation at

higher rates is necessary in order to recruit and retain

competent personnel.

‘‘(C) CONTRACTUAL ARRANGEMENTS.—The conservator

or receiver may contract with any governmental entity,

including the Farm Credit System Insurance Corporation,

to make personnel, services, and facilities of the entity

available to the conservator or receiver on such terms

and compensation arrangements as shall be mutually

agreed, and each entity may provide the same to the conservator or receiver.

‘‘(3) EXPENSES.—A valid claim for expenses of the

conservatorship or receivership (including compensation under

paragraph (2)) and a valid claim with respect to a loan made

under subsection (f) shall—

‘‘(A) be paid by the conservator or receiver from funds

of the Corporation before any other valid claim against

the Corporation; and

‘‘(B) may be secured by a lien, on such property of

the Corporation as the conservator or receiver may determine, that shall have priority over any other lien.

‘‘(4) LIABILITY.—If the conservator or receiver for the Corporation is not a Federal entity, or an officer or employee

of the Federal Government, the conservator or receiver shall

not be personally liable for damages in tort or otherwise for

an act or omission performed pursuant to and in the course

of the conservatorship or receivership, unless the act or omission constitutes gross negligence or any form of intentional

tortious conduct or criminal conduct.

‘‘(5) INDEMNIFICATION.—The Farm Credit Administration

may allow indemnification of the conservator or receiver from

the assets of the conservatorship or receivership on such terms

as the Farm Credit Administration considers appropriate.

‘‘(d) JUDICIAL REVIEW OF APPOINTMENT.—

‘‘(1) IN GENERAL.—Notwithstanding subsection (i)(1), not

later than 30 days after a conservator or receiver is appointed

under subsection (b), the Corporation may bring an action

in the United States District Court for the District of Columbia

for an order requiring the Farm Credit Administration Board

to remove the conservator or receiver. The court shall, on

the merits, dismiss the action or direct the Farm Credit

Administration Board to remove the conservator or receiver.

‘‘(2) STAY OF OTHER ACTIONS.—On the commencement of

an action under paragraph (1), any court having jurisdiction

of any other action or enforcement proceeding authorized under

this Act to which the Corporation is a party shall stay the

action or proceeding during the pendency of the action for

removal of the conservator or receiver.

‘‘(e) GENERAL POWERS OF CONSERVATOR OR RECEIVER.—The

conservator or receiver for the Corporation shall have such powers

to conduct the conservatorship or receivership as shall be provided

pursuant to regulations adopted by the Farm Credit Administration

Board. Such powers shall be comparable to the powers available

to a conservator or receiver appointed pursuant to section 4.12(b).

‘‘(f) BORROWINGS FOR WORKING CAPITAL.—

‘‘(1) IN GENERAL.—If the conservator or receiver of the

Corporation determines that it is likely that there will be

Claims.

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 171

insufficient funds to pay the ongoing administrative expenses

of the conservatorship or receivership or that there will be

insufficient liquidity to fund maturing obligations of the

conservatorship or receivership, the conservator or receiver may

borrow funds in such amounts, from such sources, and at such

rates of interest as the conservator or receiver considers necessary or appropriate to meet the administrative expenses or

liquidity needs of the conservatorship or receivership.

‘‘(2) WORKING CAPITAL FROM FARM CREDIT BANKS.—A Farm

Credit bank may loan funds to the conservator or receiver

for a loan authorized under paragraph (1) or, in the event

of receivership, a Farm Credit bank may purchase assets of

the Corporation.

‘‘(g) AGREEMENTS AGAINST INTERESTS OF CONSERVATOR OR

RECEIVER.—No agreement that tends to diminish or defeat the

right, title, or interest of the conservator or receiver for the Corporation in any asset acquired by the conservator or receiver as conservator or receiver for the Corporation shall be valid against the

conservator or receiver unless the agreement—

‘‘(1) is in writing;

‘‘(2) is executed by the Corporation and any person claiming

an adverse interest under the agreement, including the obligor,

contemporaneously with the acquisition of the asset by the

Corporation;

‘‘(3) is approved by the Board or an appropriate committee

of the Board, which approval shall be reflected in the minutes

of the Board or committee; and

‘‘(4) has been, continuously, from the time of the agreement’s execution, an official record of the Corporation.

‘‘(h) REPORT TO THE CONGRESS.—On a determination by the

receiver for the Corporation that there are insufficient assets of

the receivership to pay all valid claims against the receivership,

the receiver shall submit to the Secretary of the Treasury, the

Committee on Agriculture of the House of Representatives, and

the Committee on Agriculture, Nutrition, and Forestry of the Senate

a report on the financial condition of the receivership.

‘‘(i) TERMINATION OF AUTHORITIES.—

‘‘(1) CORPORATION.—The charter of the Corporation shall

be canceled, and the authority provided to the Corporation

by this title shall terminate, on such date as the Farm Credit

Administration Board determines is appropriate following the

placement of the Corporation in receivership, but not later

than the conclusion of the receivership and discharge of the

receiver.

‘‘(2) OVERSIGHT.—The Office of Secondary Market Oversight established under section 8.11 shall be abolished, and

section 8.11(a) and subtitle B shall have no force or effect,

on such date as the Farm Credit Administration Board determines is appropriate following the placement of the Corporation

in receivership, but not later than the conclusion of the receivership and discharge of the receiver.’’.

Government

organization.

110 STAT. 172 PUBLIC LAW 104–105—FEB. 10, 1996

TITLE II—REGULATORY RELIEF

SEC. 201. COMPENSATION OF ASSOCIATION PERSONNEL.

Section 1.5(13) of the Farm Credit Act of 1971 (12 U.S.C.

2013(13)) is amended by striking ‘‘, and the appointment and compensation of the chief executive officer thereof,’’.

SEC. 202. USE OF PRIVATE MORTGAGE INSURANCE.

(a) IN GENERAL.—Section 1.10(a)(1) of the Farm Credit Act

of 1971 (12 U.S.C. 2018(a)(1)) is amended by adding at the end

the following:

‘‘(D) PRIVATE MORTGAGE INSURANCE.—A loan on which

private mortgage insurance is obtained may exceed 85

percent of the appraised value of the real estate security

to the extent that the loan amount in excess of such 85

percent is covered by the insurance.’’.

(b) CONFORMING AMENDMENT.— Section 1.10(a)(1)(A) of the

Farm Credit Act of 1971 (12 U.S.C. 2018(a)(1)(A)) is amended

by striking ‘‘paragraphs (2) and (3)’’ and inserting ‘‘subparagraphs

(C) and (D)’’.

SEC. 203. REMOVAL OF CERTAIN BORROWER REPORTING REQUIREMENT.

Section 1.10(a) of the Farm Credit Act of 1971 (12 U.S.C.

2018(a)) is amended by striking paragraph (5).

SEC. 204. REFORM OF REGULATORY LIMITATIONS ON DIVIDEND, MEMBER BUSINESS, AND VOTING PRACTICES OF ELIGIBLE

FARMER-OWNED COOPERATIVES.

(a) IN GENERAL.—Section 3.8(a) of the Farm Credit Act of

1971 (12 U.S.C. 2129(a)) is amended by adding at the end the

following: ‘‘Any such association that has received a loan from

a bank for cooperatives shall, without regard to the requirements

of paragraphs (1) through (4), continue to be eligible for so long

as more than 50 percent (or such higher percentage as is established

by the bank board) of the voting control of the association is held

by farmers, producers or harvesters of aquatic products, or eligible

cooperative associations.’’.

(b) CONFORMING AMENDMENT.— Section 3.8(b)(1)(D) of the

Farm Credit Act of 1971 (12 U.S.C. 2129(b)(1)(D)) is amended

by striking ‘‘and (4) of subsection (a)’’ and inserting ‘‘and (4), or

under the last sentence, of subsection (a)’’.

SEC. 205. REMOVAL OF FEDERAL GOVERNMENT CERTIFICATION

REQUIREMENT FOR CERTAIN PRIVATE SECTOR

FINANCINGS.

Section 3.8(b)(1)(A) of the Farm Credit Act of 1971 (12 U.S.C.

2129(b)(1)(A)) is amended—

(1) by striking ‘‘have been certified by the Administrator

of the Rural Electrification Administration to be eligible for

such’’ and inserting ‘‘are eligible under the Rural Electrification

Act of 1936 (7 U.S.C. 901 et seq.) for’’; and

(2) by striking ‘‘loan guarantee, and’’ and inserting ‘‘loan

guarantee from the Administration or the Bank (or a successor

of the Administration or the Bank), and’’.

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 173

SEC. 206. BORROWER STOCK.

Section 4.3A of the Farm Credit Act of 1971 (12 U.S.C. 2154a)

is amended—

(1) by redesignating subsections (f) and (g) as subsections

(g) and (h), respectively; and

(2) by inserting after subsection (e) the following:

‘‘(f) LOANS DESIGNATED FOR SALE OR SOLD INTO THE SECONDARY

MARKET.—

‘‘(1) IN GENERAL.—Subject to paragraph (2) and notwithstanding any other provision of this section, the bylaws adopted

by a bank or association under subsection (b) may provide—

‘‘(A) in the case of a loan made on or after the date

of enactment of this paragraph that is designated, at the

time the loan is made, for sale into a secondary market,

that no voting stock or participation certificate purchase

requirement shall apply to the borrower for the loan; and

‘‘(B) in the case of a loan made before the date of

enactment of this paragraph that is sold into a secondary

market, that all outstanding voting stock or participation

certificates held by the borrower with respect to the loan

shall, subject to subsection (d)(1), be retired.

‘‘(2) APPLICABILITY.—Notwithstanding any other provision

of this section, in the case of a loan sold to a secondary market

under title VIII, paragraph (1) shall apply regardless of whether

the bank or association retains a subordinated participation

interest in a loan or pool of loans or contributes to a cash

reserve.

‘‘(3) EXCEPTION.—

‘‘(A) IN GENERAL.—Subject to subparagraph (B) and

notwithstanding any other provision of this section, if a

loan designated for sale under paragraph (1)(A) is not

sold into a secondary market during the 180-day period

that begins on the date of the designation, the voting

stock or participation certificate purchase requirement that

would otherwise apply to the loan in the absence of a

bylaw provision described in paragraph (1)(A) shall be effective.

‘‘(B) RETIREMENT.—The bylaws adopted by a bank or

association under subsection (b) may provide that if a loan

described in subparagraph (A) is sold into a secondary

market after the end of the 180-day period described in

the subparagraph, all outstanding voting stock or participation certificates held by the borrower with respect to the

loan shall, subject to subsection (d)(1), be retired.’’.

SEC. 207. DISCLOSURE RELATING TO ADJUSTABLE RATE LOANS.

Section 4.13(a)(4) of the Farm Credit Act of 1971 (12 U.S.C.

2199(a)(4)) is amended by inserting before the semicolon at the

end the following: ‘‘, and notice to the borrower of a change in

the interest rate applicable to the loan of the borrower may be

made within a reasonable time after the effective date of an increase

or decrease in the interest rate’’.

SEC. 208. BORROWERS’ RIGHTS.

(a) DEFINITION OF LOAN.—Section 4.14A(a)(5) of the Farm

Credit Act of 1971 (12 U.S.C. 2202a(a)(5)) is amended—

(1) by striking ‘‘(5) LOAN.—The’’ and inserting the following:

110 STAT. 174 PUBLIC LAW 104–105—FEB. 10, 1996

‘‘(5) LOAN.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), the’’;

and

(2) by adding at the end the following:

‘‘(B) EXCLUSION FOR LOANS DESIGNATED FOR SALE INTO

SECONDARY MARKET.—

‘‘(i) IN GENERAL.—Except as provided in clause

(ii), the term ‘loan’ does not include a loan made on

or after the date of enactment of this subparagraph

that is designated, at the time the loan is made, for

sale into a secondary market.

‘‘(ii) UNSOLD LOANS.—

‘‘(I) IN GENERAL.—Except as provided in

subclause (II), if a loan designated for sale under

clause (i) is not sold into a secondary market during the 180-day period that begins on the date

of the designation, the provisions of this section

and sections 4.14, 4.14B, 4.14C, 4.14D, and 4.36

that would otherwise apply to the loan in the

absence of the exclusion described in clause (i)

shall become effective with respect to the loan.

‘‘(II) LATER SALE.—If a loan described in

subclause (I) is sold into a secondary market after

the end of the 180-day period described in

subclause (I), subclause (I) shall not apply with

respect to the loan beginning on the date of the

sale.’’.

(b) BORROWERS’ RIGHTS FOR POOLED LOANS.—The first sentence

of section 8.9(b) of the Farm Credit Act of 1971 (12 U.S.C. 2279aa–

9(b)) is amended by inserting ‘‘(as defined in section 4.14A(a)(5))’’

after ‘‘application for a loan’’.

SEC. 209. FORMATION OF ADMINISTRATIVE SERVICE ENTITIES.

Part E of title IV of the Farm Credit Act of 1971 is amended

by inserting after section 4.28 (12 U.S.C. 2214) the following:

‘‘SEC. 4.28A. DEFINITION OF BANK.

‘‘In this part, the term ‘bank’ includes each association operating under title II.’’.

SEC. 210. JOINT MANAGEMENT AGREEMENTS.

The first sentence of section 5.17(a)(2)(A) of the Farm Credit

Act of 1971 (12 U.S.C. 2252(a)(2)(A)) is amended by striking ‘‘or

management agreements’’.

SEC. 211. DISSEMINATION OF QUARTERLY REPORTS.

Section 5.17(a)(8) of the Farm Credit Act of 1971 (12 U.S.C.

2252(a)(8)) is amended by inserting after ‘‘except that’’ the following:

‘‘the requirements of the Farm Credit Administration governing

the dissemination to stockholders of quarterly reports of System

institutions may not be more burdensome or costly than the requirements applicable to national banks, and’’.

SEC. 212. REGULATORY REVIEW.

(a) FINDINGS.—Congress finds that—

(1) the Farm Credit Administration, in the role of the

Administration as an arms-length safety and soundness regu12 USC 2252

note.

12 USC 2214a.

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 175

lator, has made considerable progress in reducing the regulatory burden on Farm Credit System institutions; (2) the efforts of the Farm Credit Administration described

in paragraph (1) have resulted in cost savings for Farm Credit

System institutions; and

(3) the cost savings described in paragraph (2) ultimately

benefit the farmers, ranchers, agricultural cooperatives, and

rural residents of the United States.

(b) CONTINUATION OF REGULATORY REVIEW.—The Farm Credit

Administration shall continue the comprehensive review of regulations governing the Farm Credit System to identify and eliminate,

consistent with law, safety, and soundness, all regulations that

are unnecessary, unduly burdensome or costly, or not based on

law.

SEC. 213. EXAMINATION OF FARM CREDIT SYSTEM INSTITUTIONS.

The first sentence of section 5.19(a) of the Farm Credit Act

of 1971 (12 U.S.C. 2254(a)) is amended by striking ‘‘each year’’

and inserting ‘‘during each 18-month period’’.

SEC. 214. CONSERVATORSHIPS AND RECEIVERSHIPS.

(a) DEFINITIONS.—Section 5.51 of the Farm Credit Act of 1971

(12 U.S.C. 2277a) is amended—

(1) by striking paragraph (5); and

(2) by redesignating paragraph (6) as paragraph (5).

(b) GENERAL CORPORATE POWERS.—Section 5.58 of the Farm

Credit Act of 1971 (12 U.S.C. 2277a–7) is amended by striking

paragraph (9) and inserting the following:

‘‘(9) CONSERVATOR OR RECEIVER.—The Corporation may act

as a conservator or receiver.’’.

SEC. 215. FARM CREDIT INSURANCE FUND OPERATIONS.

(a) ADJUSTMENT OF PREMIUMS.—

(1) IN GENERAL.—Section 5.55(a) of the Farm Credit Act

of 1971 (12 U.S.C. 2277a–4(a)) is amended—

(A) in paragraph (1), by striking ‘‘Until the aggregate

of amounts in the Farm Credit Insurance Fund exceeds

the secure base amount, the annual premium due from

any insured System bank for any calendar year’’ and inserting the following: ‘‘If at the end of any calendar year

the aggregate of amounts in the Farm Credit Insurance

Fund does not exceed the secure base amount, subject

to paragraph (2), the annual premium due from any insured

System bank for the calendar year’’;

(B) by redesignating paragraph (2) as paragraph (3);

and

(C) by inserting after paragraph (1) the following:

‘‘(2) REDUCED PREMIUMS.—The Corporation, in the sole

discretion of the Corporation, may reduce by a percentage uniformly applied to all insured System banks the annual premium

due from each insured System bank during any calendar year,

as determined under paragraph (1).’’.

(2) CONFORMING AMENDMENTS.—

(A) Section 5.55(b) of the Farm Credit Act of 1971

(12 U.S.C. 2277a–4(b)) is amended—

(i) by striking ‘‘Insurance Fund’’ each place it

appears and inserting ‘‘Farm Credit Insurance Fund’’;

110 STAT. 176 PUBLIC LAW 104–105—FEB. 10, 1996

(ii) by striking ‘‘for the following calendar year’’;

and

(iii) by striking ‘‘subsection (a)’’ and inserting ‘‘subsection (a)(1)’’.

(B) Section 5.56(a) of the Farm Credit Act of 1971

(12 U.S.C. 2277a–5(a)) is amended by striking ‘‘section

5.55(a)(2)’’ each place it appears in paragraphs (2) and

(3) and inserting ‘‘section 5.55(a)(3)’’.

(C) Section 1.12(b) (12 U.S.C. 2020(b)) is amended—

(i) in paragraph (1), by inserting ‘‘(as defined in

section 5.55(a)(3))’’ after ‘‘government-guaranteed

loans’’; and

(ii) in paragraph (3), by inserting ‘‘(as so defined)’’

after ‘‘government-guaranteed loans’’ each place such

term appears.

(b) ALLOCATION TO INSURED SYSTEM BANKS AND OTHER SYSTEM

INSTITUTIONS OF EXCESS AMOUNTS IN THE FARM CREDIT INSURANCE

FUND.—Section 5.55 of the Farm Credit Act of 1971 (12 U.S.C.

2277a–4) is amended by adding at the end the following:

‘‘(e) ALLOCATION TO SYSTEM INSTITUTIONS OF EXCESS

RESERVES.—

‘‘(1) ESTABLISHMENT OF ALLOCATED INSURANCE RESERVES

ACCOUNTS.—There is hereby established in the Farm Credit

Insurance Fund an Allocated Insurance Reserves Account—

‘‘(A) for each insured System bank; and

‘‘(B) subject to paragraph (6)(C), for all holders, in

the aggregate, of Financial Assistance Corporation stock.

‘‘(2) TREATMENT.—Amounts in any Allocated Insurance

Reserves Account shall be considered to be part of the Farm

Credit Insurance Fund.

‘‘(3) ANNUAL ALLOCATIONS.—If, at the end of any calendar

year, the aggregate of the amounts in the Farm Credit Insurance Fund exceeds the average secure base amount for the

calendar year (as calculated on an average daily balance basis),

the Corporation shall allocate to the Allocated Insurance

Reserves Accounts the excess amount less the amount that

the Corporation, in its sole discretion, determines to be the

sum of the estimated operating expenses and estimated insurance obligations of the Corporation for the immediately succeeding calendar year.

‘‘(4) ALLOCATION FORMULA.—From the total amount

required to be allocated at the end of a calendar year under

paragraph (3)—

‘‘(A) 10 percent of the total amount shall be credited

to the Allocated Insurance Reserves Account established

under paragraph (1)(B), subject to paragraph (6)(C); and

‘‘(B) there shall be credited to the Allocated Insurance

Reserves Account of each insured System bank an amount

that bears the same ratio to the total amount (less any

amount credited under subparagraph (A)) as the average

principal outstanding for the 3-year period ending on the

end of the calendar year on loans made by the bank that

are in accrual status bears to the average principal

outstanding for the 3-year period ending on the end of

the calendar year on loans made by all insured System

banks that are in accrual status (excluding, in each case,

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 177

the guaranteed portions of government-guaranteed loans

described in subsection (a)(1)(C)).

‘‘(5) USE OF FUNDS IN ALLOCATED INSURANCE RESERVES

ACCOUNTS.—To the extent that the sum of the operating

expenses of the Corporation and the insurance obligations of

the Corporation for a calendar year exceeds the sum of operating expenses and insurance obligations determined under paragraph (3) for the calendar year, the Corporation shall cover

the expenses and obligations by—

‘‘(A) reducing each Allocated Insurance Reserves

Account by the same proportion; and

‘‘(B) expending the amounts obtained under subparagraph (A) before expending other amounts in the Fund.

‘‘(6) OTHER DISPOSITION OF ACCOUNT FUNDS.—

‘‘(A) IN GENERAL.—As soon as practicable during each

calendar year beginning more than 8 years after the date

on which the aggregate of the amounts in the Farm Credit

Insurance Fund exceeds the secure base amount, but not

earlier than January 1, 2005, the Corporation may—

‘‘(i) subject to subparagraphs (D) and (F), pay to

each insured System bank, in a manner determined

by the Corporation, an amount equal to the lesser

of—

‘‘(I) 20 percent of the balance in the insured

System bank’s Allocated Insurance Reserves

Account as of the preceding December 31; or

‘‘(II) 20 percent of the balance in the bank’s

Allocated Insurance Reserves Account on the date

of the payment; and

‘‘(ii) subject to subparagraphs (C), (E), and (F),

pay to each System bank and association holding

Financial Assistance Corporation stock a proportionate

share, determined by dividing the number of shares

of Financial Assistance Corporation stock held by the

institution by the total number of shares of Financial

Assistance Corporation stock outstanding, of the lesser

of—

‘‘(I) 20 percent of the balance in the Allocated

Insurance Reserves Account established under

paragraph (1)(B) as of the preceding December

31; or

‘‘(II) 20 percent of the balance in the Allocated

Insurance Reserves Account established under

paragraph (1)(B) on the date of the payment.

‘‘(B) AUTHORITY TO ELIMINATE OR REDUCE PAYMENTS.—

The Corporation may eliminate or reduce payments during

a calendar year under subparagraph (A) if the Corporation

determines, in its sole discretion, that the payments, or

other circumstances that might require use of the Farm

Credit Insurance Fund, could cause the amount in the

Farm Credit Insurance Fund during the calendar year

to be less than the secure base amount.

‘‘(C) REIMBURSEMENT FOR FINANCIAL ASSISTANCE CORPORATION STOCK.—

‘‘(i) SUFFICIENT FUNDING.—Notwithstanding paragraph (4)(A), on provision by the Corporation for the

accumulation in the Account established under paraVerDate 20-FEB-96 13:51 Feb 21, 1996 Jkt 029139 PO 00105 Frm 00017 Fmt 6580 Sfmt 6581 PUBL105.104 apps10
110 STAT. 178 PUBLIC LAW 104–105—FEB. 10, 1996

graph (1)(B) of funds in an amount equal to

$56,000,000 (in addition to the amounts described in

subparagraph (F)(ii)), the Corporation shall not allocate

any further funds to the Account except to replenish

the Account if funds are diminished below $56,000,000

by the Corporation under paragraph (5).

‘‘(ii) WIND DOWN AND TERMINATION.—

‘‘(I) FINAL DISBURSEMENTS.—On disbursement

of $53,000,000 (in addition to the amounts

described in subparagraph (F)(ii)) from the Allocated Insurance Reserves Account, the Corporation

shall disburse the remaining amounts in the

Account, as determined under subparagraph

(A)(ii), without regard to the percentage limitations

in subclauses (I) and (II) of subparagraph (A)(ii).

‘‘(II) TERMINATION OF ACCOUNT.—On disbursement of $56,000,000 (in addition to the amounts

described in subparagraph (F)(ii)) from the Allocated Insurance Reserves Account, the Corporation

shall close the Account established under paragraph (1)(B) and transfer any remaining funds

in the Account to the remaining Allocated Insurance Reserves Accounts in accordance with paragraph (4)(B) for the calendar year in which the

transfer occurs.

‘‘(D) DISTRIBUTION OF PAYMENTS RECEIVED.—Not later

than 60 days after receipt of a payment made under

subparagraph (A)(i), each insured System bank, in consultation with affiliated associations of the insured System

bank, and taking into account the direct or indirect payment of insurance premiums by the associations, shall

develop and implement an equitable plan to distribute

payments received under subparagraph (A)(i) among the

bank and associations of the bank.

‘‘(E) EXCEPTION FOR PREVIOUSLY REIMBURSED ASSOCIATIONS.—For purposes of subparagraph (A)(ii), in any Farm

Credit district in which the funding bank has reimbursed

1 or more affiliated associations of the bank for the previously unreimbursed portion of the Financial Assistance

Corporation stock held by the associations, the funding

bank shall be deemed to be the holder of the shares of

Financial Assistance Corporation stock for which the funding bank has provided the reimbursement.

‘‘(F) INITIAL PAYMENT.—Notwithstanding subparagraph

(A), the initial payment made to each payee under subparagraph (A) shall be in such amount determined by the

Corporation to be equal to the sum of—

‘‘(i) the total of the amounts that would have been

paid if payments under subparagraph (A) had been

authorized to begin, under the same terms and conditions, in the first calendar year beginning more than

5 years after the date on which the aggregate of the

amounts in the Farm Credit Insurance Fund exceeds

the secure base amount, and to continue through the

2 immediately subsequent years;

‘‘(ii) interest earned on any amounts that would

have been paid as described in clause (i) from the

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 179

date on which the payments would have been paid

as described in clause (i); and

‘‘(iii) the payment to be made in the initial year described in subparagraph (A), based on the amount

in each Account after subtracting the amounts to be

paid under clauses (i) and (ii).’’.

(c) TECHNICAL AMENDMENTS.—Section 5.55(d) of the Farm

Credit Act of 1971 (12 U.S.C. 2277a–4(d)) is amended—

(1) in the matter preceding paragraph (1)—

(A) by striking ‘‘subsections (a) and (c)’’ and inserting

‘‘subsections (a), (c), and (e)’’; and

(B) by striking ‘‘a Farm Credit Bank’’ and inserting

‘‘an insured System bank’’; and

(2) in paragraphs (1), (2), and (3), by striking ‘‘Farm Credit

Bank’’ each place it appears and inserting ‘‘insured System

bank’’.

SEC. 216. EXAMINATIONS BY THE FARM CREDIT SYSTEM INSURANCE

CORPORATION.

Section 5.59(b)(1)(A) of the Farm Credit Act of 1971 (12 U.S.C.

2277a–8(b)(1)(A)) is amended by adding at the end the following:

‘‘Notwithstanding any other provision of this Act, on cancellation

of the charter of a System institution, the Corporation shall have

authority to examine the system institution in receivership. An

examination shall be performed at such intervals as the Corporation

shall determine.’’.

SEC. 217. POWERS WITH RESPECT TO TROUBLED INSURED SYSTEM

BANKS.

(a) LEAST-COST RESOLUTION.—Section 5.61(a)(3) of the Farm

Credit Act of 1971 (12 U.S.C. 2277a–10(a)) is amended—

(1) by redesignating subparagraph (B) as subparagraph

(F); and

(2) by striking subparagraph (A) and inserting the following:

‘‘(A) LEAST-COST RESOLUTION.—Assistance may not be

provided to an insured System bank under this subsection

unless the means of providing the assistance is the least

costly means of providing the assistance by the Farm Credit

Insurance Fund of all possible alternatives available to

the Corporation, including liquidation of the bank (including paying the insured obligations issued on behalf of the

bank). Before making a least-cost determination under this

subparagraph, the Corporation shall accord such other

insured System banks as the Corporation determines to

be appropriate the opportunity to submit information relating to the determination.

‘‘(B) DETERMINING LEAST COSTLY APPROACH.—In determining the least costly alternative under subparagraph

(A), the Corporation shall—

‘‘(i) evaluate alternatives on a present-value basis,

using a reasonable discount rate;

‘‘(ii) document the evaluation and the assumptions

on which the evaluation is based; and

‘‘(iii) retain the documentation for not less than

5 years.

‘‘(C) TIME OF DETERMINATION.—

110 STAT. 180 PUBLIC LAW 104–105—FEB. 10, 1996

‘‘(i) GENERAL RULE.—For purposes of this subsection, the determination of the costs of providing

any assistance under any provision of this section with

respect to any insured System bank shall be made

as of the date on which the Corporation makes the

determination to provide the assistance to the institution under this section.

‘‘(ii) RULE FOR LIQUIDATIONS.—For purposes of this

subsection, the determination of the costs of liquidation

of any insured System bank shall be made as of the

earliest of—

‘‘(I) the date on which a conservator is

appointed for the insured System bank; ‘‘(II) the date on which a receiver is appointed

for the insured System bank; or ‘‘(III) the date on which the Corporation makes

any determination to provide any assistance under

this section with respect to the insured System

bank.

‘‘(D) RULE FOR STAND-ALONE ASSISTANCE.—Before

providing any assistance under paragraph (1), the Corporation shall evaluate the adequacy of managerial resources

of the insured System bank. The continued service of any

director or senior ranking officer who serves in a policymaking role for the assisted insured System bank, as determined by the Corporation, shall be subject to approval

by the Corporation as a condition of assistance. ‘‘(E) DISCRETIONARY DETERMINATIONS.—Any deter- mination that the Corporation makes under this paragraph

shall be in the sole discretion of the Corporation.’’. (b) CONFORMING AMENDMENTS.—Section 5.61(a) of the Farm

Credit Act of 1971 (12 U.S.C. 2277a–10(a)) is amended—

(1) in paragraph (1) by striking ‘‘IN GENERAL.—’’ and inserting ‘‘STAND-ALONE ASSISTANCE.—’’; and

(2) in paragraph (2)— (A) by striking ‘‘ENUMERATED POWERS.—’’ and inserting

‘‘FACILITATION OF MERGERS OR CONSOLIDATION.—’’; and

(B) in subparagraph (A) by striking ‘‘FACILITATION OF

MERGERS OR CONSOLIDATION.—’’ and inserting ‘‘IN GEN- ERAL.—’’.

SEC. 218. OVERSIGHT AND REGULATORY ACTIONS BY THE FARM

CREDIT SYSTEM INSURANCE CORPORATION.

The Farm Credit Act of 1971 is amended by inserting after section 5.61 (12 U.S.C. 2279a–10) the following:

‘‘SEC. 5.61A. OVERSIGHT ACTIONS BY THE CORPORATION.

‘‘(a) DEFINITIONS.—In this section, the term ‘institution’

means—

‘‘(1) an insured System bank; and

‘‘(2) a production credit association or other association

making loans under section 7.6 with a direct loan payable

to the funding bank of the association that comprises 20 percent

or more of the funding bank’s total loan volume net of

nonaccrual loans.

‘‘(b) CONSULTATION REGARDING PARTICIPATION OF

UNDERCAPITALIZED BANKS IN ISSUANCE OF INSURED OBLIGATIONS.—

The Farm Credit Administration shall consult with the Corporation

12 USC

2277a–10a.

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 181

prior to approving an insured obligation that is to be issued by

or on behalf of, or participated in by, any insured System bank

that fails to meet the minimum level for any capital requirement

established by the Farm Credit Administration for the bank.

‘‘(c) CONSULTATION REGARDING APPLICATIONS FOR MERGERS

AND RESTRUCTURINGS.—

‘‘(1) CORPORATION TO RECEIVE COPY OF TRANSACTION

APPLICATIONS.—On receiving an application for a merger or

restructuring of an institution, the Farm Credit Administration

shall forward a copy of the application to the Corporation.

‘‘(2) CONSULTATION REQUIRED.—If the proposed merger or

restructuring involves an institution that fails to meet the

minimum level for any capital requirement established by the

Farm Credit Administration applicable to the institution, the

Farm Credit Administration shall allow 30 days within which

the Corporation may submit the views and recommendations

of the Corporation, including any conditions for approval. In

determining whether to approve or disapprove any proposed

merger or restructuring, the Farm Credit Administration shall

give due consideration to the views and recommendations of

the Corporation.

‘‘SEC. 5.61B. AUTHORITY TO REGULATE GOLDEN PARACHUTE AND

INDEMNIFICATION PAYMENTS.

‘‘(a) DEFINITIONS.—In this section:

‘‘(1) GOLDEN PARACHUTE PAYMENT.—The term ‘golden parachute payment’—

‘‘(A) means a payment (or any agreement to make

a payment) in the nature of compensation for the benefit

of any institution-related party under an obligation of any

Farm Credit System institution that—

‘‘(i) is contingent on the termination of the party’s

relationship with the institution; and

‘‘(ii) is received on or after the date on which—

‘‘(I) the institution is insolvent;

‘‘(II) a conservator or receiver is appointed for

the institution;

‘‘(III) the institution has been assigned by the

Farm Credit Administration a composite CAMEL

rating of 4 or 5 under the Farm Credit Administration Rating System, or an equivalent rating; or

‘‘(IV) the Corporation otherwise determines

that the institution is in a troubled condition (as

defined in regulations issued by the Corporation);

and

‘‘(B) includes a payment that would be a golden parachute payment but for the fact that the payment was

made before the date referred to in subparagraph (A)(ii)

if the payment was made in contemplation of the occurrence

of an event described in any subclause of subparagraph

(A); but

‘‘(C) does not include—

‘‘(i) a payment made under a retirement plan that

is qualified (or is intended to be qualified) under section

401 of the Internal Revenue Code of 1986 or other

nondiscriminatory benefit plan;

12 USC

2277a–10b.

110 STAT. 182 PUBLIC LAW 104–105—FEB. 10, 1996

‘‘(ii) a payment made under a bona fide supplemental executive retirement plan, deferred compensation plan, or other arrangement that the Corporation

determines, by regulation or order, to be permissible;

or

‘‘(iii) a payment made by reason of the death or

disability of an institution-related party.

‘‘(2) INDEMNIFICATION PAYMENT.—The term ‘indemnification payment’ means a payment (or any agreement to make

a payment) by any Farm Credit System institution for the

benefit of any person who is or was an institution-related

party, to pay or reimburse the person for any liability or legal

expense with regard to any administrative proceeding or civil

action instituted by the Farm Credit Administration that

results in a final order under which the person—

‘‘(A) is assessed a civil money penalty; or

‘‘(B) is removed or prohibited from participating in

the conduct of the affairs of the institution.

‘‘(3) INSTITUTION-RELATED PARTY.—The term ‘institutionrelated party’ means—

‘‘(A) a director, officer, employee, or agent for a Farm

Credit System institution or any conservator or receiver

of such an institution;

‘‘(B) a stockholder (other than another Farm Credit

System institution), consultant, joint venture partner, or

any other person determined by the Farm Credit Administration to be a participant in the conduct of the affairs

of a Farm Credit System institution; and

‘‘(C) an independent contractor (including any attorney,

appraiser, or accountant) that knowingly or recklessly

participates in any violation of any law or regulation, any

breach of fiduciary duty, or any unsafe or unsound practice

that caused or is likely to cause more than a minimal

financial loss to, or a significant adverse effect on, the

Farm Credit System institution.

‘‘(4) LIABILITY OR LEGAL EXPENSE.—The term ‘liability or

legal expense’ means—

‘‘(A) a legal or other professional expense incurred in

connection with any claim, proceeding, or action;

‘‘(B) the amount of, and any cost incurred in connection

with, any settlement of any claim, proceeding, or action;

and

‘‘(C) the amount of, and any cost incurred in connection

with, any judgment or penalty imposed with respect to

any claim, proceeding, or action.

‘‘(5) PAYMENT.—The term ‘payment’ means—

‘‘(A) a direct or indirect transfer of any funds or any

asset; and

‘‘(B) any segregation of any funds or assets for the

purpose of making, or under an agreement to make, any

payment after the date on which the funds or assets are

segregated, without regard to whether the obligation to

make the payment is contingent on—

‘‘(i) the determination, after that date, of the liability for the payment of the amount; or

‘‘(ii) the liquidation, after that date, of the amount

of the payment.

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 183

‘‘(b) PROHIBITION.—The Corporation may prohibit or limit, by

regulation or order, any golden parachute payment or indemnification payment by a Farm Credit System institution (including any

conservator or receiver of the Federal Agricultural Mortgage Corporation) in troubled condition (as defined in regulations issued

by the Corporation).

‘‘(c) FACTORS TO BE TAKEN INTO ACCOUNT.—The Corporation

shall prescribe, by regulation, the factors to be considered by the

Corporation in taking any action under subsection (b). The factors

may include—

‘‘(1) whether there is a reasonable basis to believe that

an institution-related party has committed any fraudulent act

or omission, breach of trust or fiduciary duty, or insider abuse

with regard to the Farm Credit System institution involved

that has had a material effect on the financial condition of

the institution;

‘‘(2) whether there is a reasonable basis to believe that

the institution-related party is substantially responsible for

the insolvency of the Farm Credit System institution, the

appointment of a conservator or receiver for the institution,

or the institution’s troubled condition (as defined in regulations

prescribed by the Corporation);

‘‘(3) whether there is a reasonable basis to believe that

the institution-related party has materially violated any

applicable law or regulation that has had a material effect

on the financial condition of the institution;

‘‘(4) whether there is a reasonable basis to believe that

the institution-related party has violated or conspired to violate—

‘‘(A) section 215, 657, 1006, 1014, or 1344 of title 18,

United States Code; or

‘‘(B) section 1341 or 1343 of title 18, United States

Code, affecting a Farm Credit System institution;

‘‘(5) whether the institution-related party was in a position

of managerial or fiduciary responsibility; and

‘‘(6) the length of time that the party was related to the

Farm Credit System institution and the degree to which—

‘‘(A) the payment reasonably reflects compensation

earned over the period of employment; and

‘‘(B) the compensation represents a reasonable payment

for services rendered.

‘‘(d) CERTAIN PAYMENTS PROHIBITED.—No Farm Credit System

institution may prepay the salary or any liability or legal expense

of any institution-related party if the payment is made—

‘‘(1) in contemplation of the insolvency of the institution

or after the commission of an act of insolvency; and

‘‘(2) with a view to, or with the result of—

‘‘(A) preventing the proper application of the assets

of the institution to creditors; or

‘‘(B) preferring 1 creditor over another creditor.

‘‘(e) RULE OF CONSTRUCTION.—Nothing in this section—

‘‘(1) prohibits any Farm Credit System institution from

purchasing any commercial insurance policy or fidelity bond,

so long as the insurance policy or bond does not cover any

legal or liability expense of an institution described in subsection (a)(2); or

110 STAT. 184 PUBLIC LAW 104–105—FEB. 10, 1996

‘‘(2) limits the powers, functions, or responsibilities of the

Farm Credit Administration.’’.

SEC. 219. FARM CREDIT SYSTEM INSURANCE CORPORATION BOARD

OF DIRECTORS.

(a) IN GENERAL.—Section 5.53 of the Farm Credit Act of 1971

(12 U.S.C. 2277a–2) is amended to read as follows:

‘‘SEC. 5.53. BOARD OF DIRECTORS.

‘‘(a) ESTABLISHMENT.—The Corporation shall be managed by

a Board of Directors that shall consist of the members of the

Farm Credit Administration Board.

‘‘(b) CHAIRMAN.—The Board of Directors shall be chaired by

any Board member other than the Chairman of the Farm Credit

Administration Board.’’.

(b) CONFORMING AMENDMENTS.— (1) Section 5314 of title 5, United States Code, is amended

by striking ‘‘Chairperson, Board of Directors of the Farm Credit

System Insurance Corporation.’’. (2) Section 5315 of title 5, United States Code, is amended

by striking ‘‘Members, Board of Directors of the Farm Credit

System Insurance Corporation.’’.

SEC. 220. INTEREST RATE REDUCTION PROGRAM.

Section 351(a) of the Consolidated Farm and Rural Development Act (7 U.S.C. 1999) is amended—

(a) by striking ‘‘SEC. 351. (a) The’’ and inserting the following:

‘‘SEC. 351. INTEREST RATE REDUCTION PROGRAM.

‘‘(a) ESTABLISHMENT OF PROGRAM.—

‘‘(1) IN GENERAL.—The’’; and

(b) by adding at the end the following:

‘‘(2) TERMINATION OF AUTHORITY.—The authority provided

by this subsection shall terminate on September 30, 2002.’’.

SEC. 221. LIABILITY FOR MAKING CRIMINAL REFERRALS.

(a) IN GENERAL.—Any institution of the Farm Credit System,

or any director, officer, employee, or agent of a Farm Credit System

institution, that discloses to a Government authority information

proffered in good faith that may be relevant to a possible violation

of any law or regulation shall not be liable to any person under

any law of the United States or any State—

(1) for the disclosure; or

(2) for any failure to notify the person involved in the

possible violation.

(b) NO PROHIBITION ON DISCLOSURE.—Any institution of the

Farm Credit System, or any director, officer, employee, or agent

of a Farm Credit System institution, may disclose information to

a Government authority that may be relevant to a possible violation

of any law or regulation.

12 USC 2219e.

PUBLIC LAW 104–105—FEB. 10, 1996 110 STAT. 185

LEGISLATIVE HISTORY—H.R. 2029:

HOUSE REPORTS: No. 104–421 (Comm. on Agriculture).

CONGRESSIONAL RECORD:

Vol. 141 (1995): Dec. 19, considered and passed House.

Dec. 21, considered and passed Senate, amended.

Vol. 142 (1996): Jan. 3, House concurred in Senate amendment with an

amendment.

Jan. 26, Senate concurred in House amendment.

WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):

Feb. 10, Presidential statement.

Æ

TITLE III—IMPLEMENTATION AND

EFFECTIVE DATE

SEC. 301. IMPLEMENTATION.

The Secretary of Agriculture and the Farm Credit Administration shall promulgate regulations and take other required actions

to implement the provisions of this Act not later than 90 days

after the effective date of this Act.

SEC. 302. EFFECTIVE DATE.

Except as otherwise provided in this Act, this Act and the

amendments made by this Act shall become effective on the date

of enactment.

Approved February 10, 1996.

12 USC 2013

note.

Regulations.

12 USC 2001

note.