[Federal Register Volume 87, Number 64 (Monday, April 4, 2022)]
[Proposed Rules]
[Pages 19397-19405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05999]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 87, No. 64 / Monday, April 4, 2022 / Proposed 
Rules

[[Page 19397]]



FARM CREDIT ADMINISTRATION

12 CFR Parts 619 and 627

RIN 3052-AD48


Conservators and Receivers

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA, we, our) proposes a rule 
to update, restructure and reorganize our regulations that govern the 
appointment of the Farm Credit System Insurance Corporation (FCSIC) as 
the conservator or receiver of Farm Credit System (FCS or System) 
banks, associations, service corporations, and the Federal Farm Credit 
Banks Funding Corporation (Funding Corporation). This proposed rule 
also ensures that FCA conservatorship and receivership regulations are 
consistent with section 5412 of the Agricultural Improvement Act of 
2018 (2018 Farm Bill), which strengthens, updates, and clarifies 
FCSIC's powers as the conservator or receiver of these FCS 
institutions. Additionally, we propose consolidating and reorganizing 
our conservatorship and receivership regulations so they are easier to 
understand and use. The proposed rule makes conforming amendments to 
definitional regulations to clarify that bridge System banks are not 
subject to FCA regulations that apply to other System institutions, 
pursuant to new section 5.61C(h) of the Act, which expressly exempts 
bridge banks from certain legal requirements.

DATES: Comments on this proposed rule must be submitted on or before 
June 3, 2022.

ADDRESSES: We offer a variety of methods for you to submit comments. 
For accuracy and efficiency reasons, commenters are encouraged to 
submit comments by email or through the FCA's website. As facsimiles 
(fax) are difficult for us to process and achieve compliance with 
section 508 of the Rehabilitation Act, we do not accept comments 
submitted by fax. 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:
    <bullet> Email: Send us an email at <a href="/cdn-cgi/l/email-protection#e4968183c9878b8989a4828785ca838b92"><span class="__cf_email__" data-cfemail="f6849391db95999b9bb6909597d8919980">[email protected]</span></a>.
    <bullet> FCA website: https://www.fca.gov. Click inside the ``I 
want to . . .'' field near the top of the page; select ``comment on a 
pending regulation'' from the dropdown menu; and click ``Go.'' This 
takes you to an electronic public comment form.
    <bullet> Mail: Autumn R. Agans, Deputy Director, Office of 
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.
    You may review copies of all comments we receive at our office in 
McLean, Virginia, or on our website at https://www.fca.gov. Once you 
are in the website, click inside the ``I want to . . .'' field near the 
top of the page; select ``find comments on a pending regulation'' from 
the dropdown menu; and click ``Go.'' This will take you to the Comment 
Letters page where you can select the regulation for which you would 
like to read the public comments. We will show your comments as 
submitted, but for technical reasons we may omit some 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: 
    Technical information: Jason Moore, Senior Accountant, Office of 
Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090, 
(703) 883-4414, TTY (703) 883-4056.
    Legal information: Richard A. Katz, Senior Counsel, Office of 
General Counsel, Farm Credit Administration, McLean, VA 22102-5090, 
(703) 883-4020, TTY (703) 883-4056.

SUPPLEMENTARY INFORMATION:

I. Objectives

    The objectives of this proposed rule are to:
    <bullet> Consolidate, reorganize, and update our regulations 
governing FCA's appointment of FCSIC as the conservator or receiver of 
any System bank, association, service corporation, or the Funding 
Corporation.
    <bullet> Ensure that our conservatorship and receivership 
regulations in part 627 are consistent with section 5412 of the 2018 
Farm Bill, which added section 5.61C to the Farm Credit Act of 1971, as 
amended (Act).\1\
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    \1\ Public Law 115-334, 132 Stat. 4490 (Dec. 20, 2018).
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    <bullet> Restructure and reorganize part 627 so it is easier for 
FCA examiners, FCS institutions and other interested parties to 
understand and use, and to make conforming or technical revisions to 
other FCA regulations.
    <bullet> Make conforming changes to two definitions in part 619 to 
implement various provisions in section 5.61C(h) of the Act that create 
specific exceptions so that bridge System banks are not subject to 
certain provisions of laws, including FCA regulations, that apply to 
FCS banks, associations, and service corporations.

II. Background

    Section 4.12 of the Act governs the dissolution of System 
institutions through voluntary and involuntary liquidations, mergers, 
and conservatorships or receiverships.\2\ The FCA has ``exclusive power 
and jurisdiction'' under section 4.12(b) of the Act to appoint FCSIC as 
the conservator or receiver for any FCS institution \3\ that meets one 
or more of six specific statutory criteria for determining whether it 
is insolvent or unviable.\4\ Since 1992, FCA regulations

[[Page 19398]]

in part 627 have implemented section 4.12 of the Act.
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    \2\ Section 4.12 of the Act governs both the voluntary and 
involuntary dissolution of System institutions. Subpart D of part 
627 addresses the voluntary liquidation of System banks, 
associations, service corporations, and the Funding Corporation. 
However, the voluntary liquidation of these System institutions is 
outside the scope of this rulemaking.
    \3\ In contrast to all other FCS institutions, section 
8.41(c)(1)(A) of the Act allows, but does not require, FCA to 
appoint FCSIC as the conservator or receiver of the Federal 
Agricultural Mortgage Corporation (Farmer Mac). Section 8.41 of the 
Act and the regulations in part 650, subpart B, govern the 
conservatorship or receivership of Farmer Mac. Accordingly, this 
rulemaking does not apply to the conservatorship or receivership of 
Farmer Mac.
    \4\ More specifically, section 4.12(b) of the Act authorizes the 
FCA Board to appoint FCSIC as the conservator or receiver of a 
System institution once it determines that one or more of the 
following conditions exists or is occurring at the institution: (1) 
Insolvency, in that the assets of the institutions are less than its 
obligations to its creditors and others, including its members; (2) 
substantial dissipation of assets or earnings due to any violation 
of law, rules, or regulations, or to any unsafe or unsound practice; 
(3)an unsafe or unsound condition to transact business; (4) willful 
violation of a cease and desist order that has become final; (5) 
concealment of books, papers, records, or assets of the institution, 
or refusal to submit books, papers, records, or other material 
relating to the affairs of the instituton for inspection to any 
examiner or to any lawful agent of the Farm Credit Administration; 
(6) the institution is unable to timely pay principal or interest on 
any insured obligation (as defined in section 5.51(3)) issued by the 
institution.
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    As noted earlier, the 2018 Farm Bill added a new section to the 
Act, 5.61C, which strengthens, clarifies, and updates the powers and 
duties of FCSIC after FCA appoints it as the conservator or receiver of 
any FCS institution. Additionally, section 5.61C of the Act enhances 
FCSIC's authority to handle claims by various parties against a System 
institution in conservatorship or receivership. FCSIC's new statutory 
conservatorship and receivership authorities are comparable to those of 
the Federal Deposit Insurance Corporation (FDIC), National Credit Union 
Administration (NCUA), and Federal Housing Finance Agency (FHFA), and 
the legislative history further reveals that Congress intended FCSIC's 
authorities ``to be functionally equivalent to the parallel authorities 
of the [FDIC].'' \5\
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    \5\ Conf. Report No. 115-1072, 115th Cong., 2nd Sess., (Dec. 10, 
2018) p. 648.
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    Bridge System banks are one of the new tools that the 2018 Farm 
Bill gave FCSIC, in its capacity as receiver, for the resolution or 
liquidation of failing or failed System banks. Section 5.61C(h) of the 
Act authorizes FCA to charter bridge System banks at FCSIC's request 
and dissolve them once a failing or failed Farm Credit bank is 
resolved.\6\ The statutory provisions governing the creation, 
operation, capitalization, and termination and dissolution of bridge 
System banks are comprehensive, unambiguous, and prescriptive.\7\
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    \6\ According to section 5.61C(h)(2)(A) of the Act, FCA may 
charter a bridge System bank only if it determines that: (1) The 
amount which is reasonably necessary to operate the bridge System 
bank will not exceed the amount which is reasonbly necessary to save 
the cost of liquidating 1 or more System banks in default or danger 
of default; (2) chartering a bridge System bank is essential to 
continue providing adequate farm credit services in communities 
where such System bank(s) in default or danger of default provides 
such farm credit services; or (3) the continued operation of such 
System bank(s) in default or danger of default with respect to which 
the bridge System bank is chartered is in the best interest of the 
FCS or the public.
    \7\ More specifically, section 5.61C(h) of the Act addresses 
several aspects of a bridge System bank from cradle to grave, such 
as: (1) Organization; (2) chartering; (3) transfer of the assets and 
liabilities of failing or failed System banks to the bridge System 
bank; (4) the powers of bridge System banks under FCSIC management 
and control; (5) capital; (6) employee status; (7) FCSIC assistance 
to the bridge System bank; (8) duration of the bridge System bank; 
and (9) termination and dissolution of a bridge System bank.
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    This is our second rulemaking within the last year to update our 
conservatorship and receivership regulations to address changes that 
section 5412 of the 2018 Farm Bill made to the Act. In March of 2021, 
we issued a direct final rule that rescinded ten regulations in part 
627 that section 5412 of the 2018 Farm Bill superseded and rendered 
obsolete.\8\ The preamble to the direct final rule indicated that 
future rulemakings could revise our conservatorship and receivership 
regulations in part 627 to make them consistent with new section 5.61C 
of the Act.
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    \8\ See 86 FR 15081 (Mar. 22, 2021). The rule became effective 
on May 13, 2021. See 86 FR 27510 (May 21, 2021).
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    In this phase of the rulemaking, FCA proposes to update, 
restructure, and consolidate its regulations governing the appointment 
and role of FCSIC as the conservator or receiver of an FCS institution, 
other than Farmer Mac. More specifically, the proposed rule combines 
the four remaining conservatorship regulations into a single 
regulation, while the three receivership regulations that we retained 
are also consolidated together. We believe that consolidating and 
restructuring the conservatorship and receivership regulations in part 
627 will make it easier for both FCA examiners and FCS institutions to 
understand and follow them. We explain these revisions in greater 
detail in the section-by-section analysis below.
    As explained above, section 5.61C(h) of the Act establishes 
unambiguous, comprehensive, and prescriptive requirements concerning 
FCA's authority over bridge System banks. For this reason, new 
regulations are not necessary to implement FCA's statutory authority 
regarding bridge System banks, and we are not proposing any in this 
rulemaking. Instead, FCA relies on its chartering and supervisory 
powers, as well as coordination with FCSIC, to fulfill its 
responsibilities and obligations under the Act concerning bridge System 
banks. Other Federal regulators of financial institutions, such as the 
Comptroller of the Currency, the NCUA, and the FHFA have not enacted 
regulations to implement similar statutory provisions. Additionally, 
section 5.61C of the Act grants FCSIC authority to organize, control, 
manage, and operate bridge System banks.
    Under this new statutory framework, the successor to the bridge 
System bank is created by a: (1) Merger or consolidation with an 
existing System institution, (2) sale of the bridge System bank's 
capital stock and converting its charter to that of the new 
institution, or (3) purchase or assumption transaction by the 
replacement institution. At the end of this process, FCA cancels the 
bridge System bank's charter. As noted earlier, bridge System banks are 
a new instrument for resolving a failing or failed FCS bank. Replacing 
the bridge System bank with a successor FCS institution raises novel 
issues of first impression for both FCA and FCSIC.\9\ Both agencies are 
exploring and consulting about this matter. FCA may propose new 
regulations in the future to implement sections 5.61C(h)(9) and (h)(10) 
concerning the processes and procedures for replacing a bridge System 
bank with a solvent and viable FCS bank.
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    \9\ Under sections 1.3 and 3.0 of the Act, Farm Credit banks 
established pursuant to provisions of previous Farm Credit statutes 
continue as Federally-chartered instrumentalities of the United 
States. Although sections 7.0 and 7.12 of the Act allow existing 
Farm Credit banks operating under the same or different titles of 
the Act to merge, FCA had no statutory authority, prior to the 2018 
Farm Bill, to charter an entirely new System bank that did not exist 
before. New section 5.61C(h)(10)(B) of the Act grants FCA authority 
to convert the charter of a bridge System bank into the charter of a 
successor System bank.
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    Although we are not proposing substantive regulations governing the 
chartering, operations, activities, and termination of bridge System 
banks, we are introducing the concept into FCA regulations for the 
first time. As discussed below, we are adding two new regulations that 
exclude bridge System banks, chartered pursuant to section 5.61C(h) of 
the Act, from the definitions of FCS institutions and System banks. The 
first place that this proposed amendment appears is in subpart A of the 
conservatorship and receivership regulations in part 627. We also 
propose to exclude bridge System banks from the definitions of ``Farm 
Credit bank'' and ``Farm Credit institutions'' in part 619, which apply 
to all FCA regulations in chapter VI of the Code of Federal 
Regulations, unless specific regulations provide a specific and 
specialized definition of these terms. These two amendments are 
consistent with section 5.61C(h)(4) of the Act, which states that 
bridge System banks have all corporate powers, and are subject to the 
same provisions of law, as any System bank, except for specific 
exceptions enumerated in various provisions of section 5.61C(h).

III. Section-by-Section Analysis

    We discuss the specifics of our proposal for part 627 in the same 
chronological order they appear in the regulations. Conforming changes 
to part

[[Page 19399]]

619 appear last in this section-by-section analysis.

A. Organization

    FCA proposes to restructure, redesignate, and renumber the 
regulations in part 627. As noted earlier, section 5412 of the 2018 
Farm Bill strengthened, clarified, and updated FCSIC's conservatorship 
and receivership authorities. As a result, new section 5.61C of the Act 
superseded several regulations in part 627 and rendered them obsolete. 
For this reason, our recent direct final rule repealed ten regulations 
that were no longer consistent with FCSIC's new statutory authorities 
to administer conservatorships and receiverships of System 
institutions. The 2018 Farm Bill also realigned and clarified the roles 
of FCA and FCSIC pertaining to the conservatorship and receivership of 
failing and failed FCS institutions. Accordingly, we are restructuring 
and reorganizing our regulations in part 627 so they focus on the 
implementation of FCA's specific conservatorship and receivership 
authorities under section 4.12(b) and 5.61C of the Act, while deferring 
to FCSIC about how to carry out its own statutory authorities.
    Additionally, we propose to restructure, reorganize, redesignate, 
renumber, and revise the style and language of our regulations in part 
627 to improve their clarity and readability. Our intent is to make it 
easier for FCA examiners, System institutions and borrowers, and other 
members of the public who may be affected by the conservatorship or 
receivership of an FCS institution, to understand, use, and rely on 
these regulations. We do not intend to change the substantive meaning 
of the affected regulatory provisions unless the preamble discussion of 
a specific provision explicitly states otherwise.
    Reorganizing and restructuring the conservatorship and receivership 
regulations in part 627 are intended to consolidate similar provisions, 
eliminate redundancies, and improve their clarity. More specifically, 
we propose to consolidate the four remaining conservatorship 
regulations in existing subpart C, Sec. Sec.  627.2770, 627.2775, 
627.2785, and 627.2790, in a single regulation: New Sec.  627.10. 
Similarly, the proposed rule also combines the three remaining 
receivership regulations, Sec. Sec.  627.2720, 627.2735, and 627.2765 
in current subpart B, into new Sec.  627.20. As explained in greater 
detail below, both proposed Sec. Sec.  627.10 and 627.20 implement 
provisions in sections 4.12(b) and 5.61C pertaining to FCA's powers and 
responsibilities when it places a System institution into 
conservatorship or receivership. Ten separate regulations in part 627 
were superseded by the 2018 Farm Bill and repealed by FCA because 
authority over the priority of claims and other aspects relating to the 
administration and management of conservatorships and receiverships are 
now among FCSIC's enhanced powers. For all these reasons, consolidating 
and reorganizing the remaining regulations achieves FCA's goal of 
simplifying, clarifying, and making them more user-friendly.
    The proposed rule also reverses the chronological order of the 
existing regulations by presenting the conservatorship regulation first 
and the receivership regulation second. This change is logical from 
FCA's perspective because: (1) It follows the order and flow of section 
4.12 of the Act, and (2) an institution in conservatorship can be 
placed into receivership if its condition worsens. FCA is also 
simplifying the numbering system for the regulations in part 627. As a 
result, these regulations will have no more than a two-digit number 
after the decimal point, which is consistent with the way FCA has 
numbered regulations in recent years.

B. Subpart A--General Provisions

    The proposed rule changes the title of subpart A from ``General'' 
to ``General Provisions.'' Existing Sec. Sec.  627.2700, 627.2705, 
627.2710, and 627.2715 are redesignated as Sec. Sec.  627.1, 627.2, 
627.3, and 627.4, respectively. All of the amendments are stylistic and 
non-substantive.
1. Applicability--Sec.  627.1
    Proposed Sec.  627.1 states that the ``provisions in this part 
apply to conservatorships, receiverships, and voluntary liquidations of 
System institutions chartered under titles I, II, III, IV, and VII of 
the Act.'' This provision is similar, but not identical, to existing 
Sec.  627.2700. The only substantive difference is that we propose to 
add specific references to System institutions chartered under titles 
I, II, III, IV, and VII of the Act. This proposed amendment clarifies 
that the regulations in part 627 do not apply to Farmer Mac. Instead, 
as mentioned earlier, the regulations in subpart B of part 650 govern 
the conservatorship, receivership, or voluntary liquidation of Farmer 
Mac.
    Separately, we propose two minor amendments to redesignated Sec.  
627.1, which do not substantively change the regulation's meaning. 
First, the proposed rule omits the word ``General'' and the hyphen 
after it from the title. Second, we are making a grammatical correction 
in the first sentence so the verb ``apply'' appears in the present, not 
future, tense.
2. Definitions--Sec.  627.2
    The definitions that apply to part 627 are located in proposed and 
redesignated Sec.  627.2. We propose to remove the paragraph 
designations for the definitions in existing Sec.  627.2705 and instead 
list these definitions alphabetically, which is the practice that FCA 
has followed in recent rulemakings. Under this proposal, the 
regulations in part 627 refer to the Farm Credit System Insurance 
Corporation as ``FCSIC'' instead of the ``Insurance Corporation'' as 
they do now. As a result, references to FCSIC are the same throughout 
all FCA regulations. We also propose to amend the definition of ``Farm 
Credit institution(s) or institution(s)'' by: (1) Removing the 
reference to the now-defunct Farm Credit System Financial Assistance 
Corporation; \10\ and (2) adding a final sentence to this provision 
stating that these terms do not include bridge System banks chartered 
by FCA, in accordance with section 5.61C(h)(2) of the Act. Finally, we 
propose to improve the clarity of the regulatory definitions of 
``conservator'' and ``receiver'' in redesignated Sec.  627.2 by adding 
the words ``of a Farm Credit institution'' at the end of each.
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    \10\ Section 5411(39) of the 2018 Farm Bill repealed title VI of 
the Act. Subpart B of former title VI of the Act established the 
Farm Credit System Financial Assistance Corporation. See Public Law 
115-334, supra at 4683.
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3. Grounds for Appointing FCSIC as Conservator or Receiver--Sec.  627.3
    The proposed rule redesignates Sec.  627.2710 as Sec.  627.3 and 
amend this regulation, which specifies the grounds for FCA appointing 
FCSIC as the conservator or receiver of a System institution pursuant 
to sections 4.12(b) and 5.61C(l) of the Act. We propose to delete 
outdated provisions in redesignated Sec.  627.3 and streamline its 
language so it is concise and clear. These proposed amendments are 
technical and stylistic, rather than substantive.
    As amended, proposed Sec.  627.3(a) provides that FCA may, in its 
discretion, appoint a conservator or receiver of a Farm Credit 
institution if it determines that one or more of the conditions in 
Sec.  627.3(b) exists. FCA must also appoint FCSIC as conservator or 
receiver of a Farm Credit institution. We are deleting obsolete 
language in this regulation from 1992 that states that FCSIC is the 
``sole entity'' that FCA can appoint as

[[Page 19400]]

conservator or receiver after January 5, 1993. Proposed Sec.  627.2 
identifies which FCS institutions are subject to these conservatorship 
and receivership regulations. For this reason, we propose to remove the 
reference to ``any bank, association, or other institution of the 
System'' from this provision. Finally, we add a new sentence at the end 
of proposed Sec.  627.3(a) to implement new section 5.61C(l)(1) of the 
Act, which requires FCA, to the extent practicable, to consult with 
FCSIC before taking a pre-resolution action that could result in a 
conservatorship or receivership for a distressed FCS institution.\11\
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    \11\ We note that section 5.61C(l) of the Act establishes a 
reciprocal requirement on FCSIC. According to section 5.61C(l)(2) of 
the Act, FCSIC ``acting in the capacity of the Corporation as a 
conservator or receiver, shall consult with the [FCA] prior to 
taking any significant action impacting System institutions or 
service to System borrowers.''
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    As before, paragraph (b) of this regulation identifies six grounds 
for FCA appointing FCSIC as the conservator or receiver of a System 
institution, which derives from section 4.12(b) of the Act. We are 
proposing the following revisions to redesignated Sec.  627.3, which 
will bring it into conformity with more recent amendments to other FCA 
regulations, or make technical, grammatical, or language corrections 
that will improve its clarity and readability:
    <bullet> In the first sentence of paragraph (b)(1), ``in that the 
assets of the institution'' changes to ``because the value of its 
assets.'' The reason for this revision is that referring to the values 
of the institution's assets and liabilities improves the technical 
accuracy of this provision. Replacing ``in that'' with ``because'' is a 
plain language and a grammatical correction.
    <bullet> In the second sentence of paragraph (b)(1), which excludes 
borrower stock and allocated equities from the phrase ``obligations to 
members,'' we change ``shall not'' to ``does not'' to improve this 
provision's clarity by expressing it in the present, rather than future 
tense.
    <bullet> In paragraph (b)(2), we replace ``the conduct of an unsafe 
or unsound practice'' with ``one or more unsafe or unsound 
practice(s)'' which is more technically accurate and grammatically 
correct.
    <bullet> In the introductory paragraph of paragraph (b)(3), we 
change ``this regulation'' to ``this part'' because it applies to all 
conservatorship and receivership regulations in part 627.
    <bullet> Existing paragraph (b)(3)(ii) is redesignated as paragraph 
(b)(3)(i), which was previously reserved. Existing paragraph 
(b)(3)(iii) is redesignated as paragraph (b)(3)(ii).
    <bullet> In redesignated paragraph (b)(3)(i), ``funding bank'' 
replaces ``affiliated bank'' to improve the accuracy and clarity of 
this provision.
    <bullet> Existing paragraph (b)(3)(iv) is redesignated as paragraph 
(b)(3)(iii), with no other changes. Existing paragraph (b)(3)(iv) was 
previously reserved.
    FCA proposes no changes to the grounds for appointing FCSIC as the 
conservator or receiver of FCS institutions in redesignated Sec.  
627.3(b)(4) and (5). However, we propose to substitute ``A Farm Credit 
bank'' for ``The institution'' in redesignated Sec.  627.3(b)(6) 
because only FCS banks have authority to issue debt obligations insured 
by FCSIC to fund System loans and other assets.
4. Action for the Removal of the Conservator or Receiver--Sec.  627.4
    The proposed rule redesignates Sec.  627.2715 as Sec.  627.4. This 
regulation implements provisions in section 4.12(b) of the Act that 
allows an FCS institution, within 30 days after FCA appoints FCSIC as 
its conservator or receiver, to bring an action in certain United 
States district courts to remove the conservator or receiver. Only the 
board of directors of the institution has authority under this 
regulation to initiate an action to remove the conservator or receiver. 
As discussed later in greater detail, once an institution is placed in 
conservatorship or receivership, all of the powers, rights, and 
privileges of its board, management, and employees are transferred to 
FCSIC, and the charter of an institution in receivership is canceled. 
Redesignated Sec.  627.4 carves out an exception so the institution's 
board subsequent to the appointment of FCSIC as conservator or receiver 
can bring this legal action.
    We propose two revisions to redesignated Sec.  627.4. First, we 
streamlined the language in the first sentence of this regulation and 
rewrote it in the active voice. Second, we deleted language that stated 
that the institution's board is empowered to bring an action to remove 
the conservator or receiver in Federal court ``notwithstanding any 
other provision in subparts B or C of this part.'' Instead, we propose 
to cross-reference this regulation in Sec. Sec.  627.10 and 627.20.

C. Subpart B--Conservator and Conservatorships

    As discussed above, the proposed rule relocates our conservator and 
conservatorship regulations from subpart C to subpart B of part 627, 
and it combines the four remaining applicable regulations into a single 
regulation. As proposed, redesignated Sec.  627.10 is not substantively 
different from the four regulations it replaces, which are existing 
Sec. Sec.  627.2770, 627.2775, 627.2785, and 627.2790. This is because 
the current regulations effectively carry out FCA's statutory powers 
and responsibilities concerning the conservatorship of FCS 
institutions. A conservator continues the ongoing operations of the 
financial institution while taking measures to preserve its assets and 
restore its financial viability so it can resume its normal business 
activities when it emerges from conservatorship. The purpose of a 
conservatorship is to resuscitate a troubled institution, not to 
liquidate it. In this context, our conservatorship regulations 
implement FCA's authority to: (1) Appoint FCSIC as the conservator of a 
System institution; (2) turn the day-to-day operations of the 
institution over to FCSIC; (3) examine the institution in 
conservatorship; (4) require audits and published financial reports of 
such institutions; (5) terminate the conservatorship and discharge 
FCSIC as conservator.
    Proposed Sec.  627.10(a) replaces existing Sec.  627.2775 as the 
regulation governing the appointment of the conservator. According to 
proposed Sec.  627.10(a)(1), the FCA Board may exercise its authority 
under section 4.12(b) of the Act and Sec.  627.3 to appoint FCSIC as 
the conservator of a System institution once it finds that one or more 
of the grounds in Sec.  627.3(b) exists. This provision also allows FCA 
to appoint FCSIC as the conservator of a System institution ex parte 
and without notice. Proposed Sec.  627.10(a)(1) is substantively the 
same as existing Sec.  627.2775(a). However, we propose to change the 
order and flow of this regulatory provision. As rewritten, the 
redesignated rule recognizes that we must first find that legal grounds 
exist for appointing the conservator before we decide to do so ex parte 
and without notice. This revision makes the regulation more logical and 
easier to read and understand.
    Proposed Sec.  627.10(a)(2) is virtually the same as the first 
sentence of existing Sec.  627.2775(b). Upon the appointment of the 
conservator, this regulation requires the FCA Chairman to immediately 
notify the affected institution, and if it is an association, its 
funding bank. This regulation also requires FCA to publish notice in 
the Federal Register whenever it appoints FCSIC as the conservator of a 
System institution. The proposed rule makes two non-substantive, 
stylistic changes to this regulation. First, we propose to change 
``district bank'' to

[[Page 19401]]

``funding bank.'' Second, the provision about publishing the notice in 
the Federal Register becomes a separate sentence in proposed Sec.  
627.10(a)(2). We propose to delete the rest of existing Sec.  
627.2775(b), which requires FCSIC to notify all holders of the 
institution's voting stock and participation certificates, by first 
class mail, about the establishment of the conservatorship, and its 
effects on the: (1) Institution's operations, and (2) borrowers' loans 
and equity holdings. Section 5.61C strengthened FCSIC's powers as the 
conservator of FCS institutions, and under the circumstances, FCA 
regulations should not instruct FCSIC how to administer 
conservatorships unless a specific statutory provision explicitly 
requires us to do so. Providing notice and information to the 
shareholders of System institutions about how a conservatorship will 
affect them is now within FCSIC's jurisdiction.
    Proposed Sec.  627.10(b) addresses FCA's responsibilities, powers, 
and prerogatives once it places an FCS institution into 
conservatorship. It incorporates many of the provisions that are 
currently scattered throughout existing Sec. Sec.  627.2775 and 
627.2785.
    We propose to redesignate existing Sec.  627.2775(c) as Sec.  
627.10(b)(1). According to this regulation, once the FCA Board issues 
an order placing an FCS institution into conservatorship, all rights, 
privileges, and powers of its members, board of directors, and 
employees are transferred to and vested exclusively in FCSIC as 
conservator. Except for a few insignificant word changes, both versions 
of this regulation are identical in substance and meaning. The proposed 
rule, however, adds a passage at the end of redesignated Sec.  
627.10(b)(1) that states ``the board of directors of the institution 
retains authority to initiate an action in Federal court to remove the 
conservator pursuant to proposed Sec.  627.4.'' As explained in the 
preamble to Sec.  627.4, this provision replaces the more ambiguous 
``notwithstanding'' passage in existing Sec.  627.2715.
    FCA proposes to transfer all but one of the provisions in existing 
Sec.  627.2785 to the next four paragraphs of redesignated Sec.  
627.10(b). The existing regulation establishes requirements concerning 
the inventory, examination, auditing, and financial reporting of a 
System institution in conservatorship.
    First, we propose to repeal Sec.  627.2785(a), which requires the 
conservator to take an inventory of the assets and liabilities of the 
institution from the date that FCA places it into conservatorship. This 
regulatory provision also requires the conservator to file one copy of 
the inventory with FCA. Conducting an inventory of the assets and 
liabilities of a System institution in conservatorship falls within 
FCSIC's new powers and duties under section 5.61C(b) of the Act. 
Indeed, it is routine practice for conservators to conduct inventories 
of the assets and liabilities of the financial institution immediately 
after appointment. FCA has the right to obtain a copy of the inventory 
because a System institution in conservatorship is still chartered as 
an ongoing FCS institution and remains subject to FCA examination, 
supervision, and regulation. Yet, FCA regulations apply to FCS 
institutions, including those in conservatorship, but not to FCSIC. FCA 
still has authority under the 2018 Farm Bill to receive a copy of the 
conservator's inventory of the institution's assets and liabilities. 
However, in light of the new legislation, a regulation is no longer 
necessary to require FCSIC, as conservator, to conduct the inventory 
and share a copy of it with us.
    The proposed rule redesignates existing Sec.  627.2785(b), which 
confirms FCA's authority to examine an institution in conservatorship 
pursuant to section 5.19 of the Act, as Sec.  627.10(b)(2). Similarly, 
the requirement in Sec.  627.2785(b) that a certified public accountant 
audit a System institution in conservatorship pursuant to part 621 
becomes a separate regulatory provision, which we redesignate as Sec.  
627.10(b)(3). We also rewrote these two provisions in the active voice. 
Although these revisions improve the clarity and readability of these 
provisions, they do not change the substantive meaning or scope of 
these regulatory requirements.
    The proposed rule also redesignates existing Sec.  627.2785(c) and 
(d) as Sec.  627.10(b)(4) and (5), respectively. Proposed and 
redesignated Sec.  627.10(b)(4) continues to require each System 
institution in conservatorship to file the financial reports required 
by part 621. Under Sec.  621.14, each System institution must certify 
that its financial reports have been prepared in accordance with 
applicable regulations and instructions, and they are a true and 
accurate representation of the institution's financial condition and 
performance. Additionally, Sec.  621.14 also requires an officer of the 
institution to certify these financial reports. Since FCSIC replaces 
the management of an FCS institution in conservatorship, FCSIC is 
required by both existing Sec.  627.2785(c) and redesignated Sec.  
627.10(b)(4) to certify the reports of financial conditions that the 
institution submits to FCA. The proposed rule condenses the two 
sentences in existing Sec.  627.2785(c) into a single, shorter 
sentence, without changing its meaning. Existing Sec.  627.2785(d) 
requires System institutions in conservatorship to prepare and publish 
financial reports for their shareholders in accordance with part 620. 
Under this regulation, the conservator must sign and certify the 
disclosures that the institution's former board of directors or 
management previously provided to shareholders pursuant to Sec.  620.3. 
The substance and meaning of redesignated Sec.  627.10(b)(5) is the 
same as the existing regulation. However, we shortened the passage 
requiring FCSIC, as conservator, to sign and certify the disclosure to 
the institution's shareholders.
    Proposed Sec.  627.10(c) addresses the termination of the 
conservatorship. Essentially, a conservatorship ends in one of two 
ways. In the first scenario, the conservatorship corrects and resolves 
the problems and conditions that beleaguered the institution, and FCA 
determines that it is ready to resume normal operations under new 
management. In the alternative, the institution's conditions continue 
to deteriorate, and FCA decides to place it into receivership. In this 
scenario, FCA appoints FCSIC as the receiver, and FCSIC determines the 
best course of action for liquidating and resolving the institution, as 
we will discuss in greater detail below.
    Proposed Sec.  627.10(c) is a restatement of the last two sentences 
of existing Sec.  627.2770(a). Under proposed Sec.  627.10(c)(1), the 
FCA Board may terminate the conservatorship by determining that the 
institution is in a position to resume normal operations. In this 
situation, our Board will instruct FCSIC to turn the institution's 
operations over to management that we designate. Once new management is 
in place, the conservatorship terminates and FCA discharges FCSIC as 
conservator. In the alternative, the conservatorship will end when the 
FCA places the institution in receivership and appoints FCSIC as 
receiver pursuant to Sec.  627.10(c)(2). The proposed rule makes minor 
wording changes to the current regulatory provisions but does not 
change their meaning.
    We propose to rescind the requirement in existing Sec.  627.2790 
that FCSIC submit a report to FCA on its conservatorship activities 
before its discharge as the institution's conservator. Filing a report 
is not a statutory requirement for terminating a conservatorship. FCA 
and FCSIC will jointly determine what documentation

[[Page 19402]]

is appropriate to share at the end of the conservatorship.

D. Subpart C--Receiver and Receiverships

    FCA proposes to consolidate its remaining receivership regulations 
into a single regulation, Sec.  627.20, and transfer it from subpart B 
to subpart C of part 627. To a large extent, proposed and redesignated 
Sec.  627.20 follows the same format and structure as the revised 
conservatorship regulation, Sec.  627.20. However, a receivership is 
fundamentally different from a conservatorship. A receivership 
liquidates and resolves a failing institution rather than correcting 
its problems. For this reason, there are some key distinctions between 
these two regulations, and many of the amendments that we propose to 
the receivership regulation are more substantive than those for the 
conservatorship regulation.
    Proposed Sec.  627.20(a) addresses FCA's appointment of FCSIC as 
the receiver of an FCS institution. Paragraph (a)(1) of proposed Sec.  
627.20(a) states that the FCA Board ``may exercise its authority under 
section 4.12(b) of the Act and Sec.  627.3 to appoint FCSIC as the 
receiver of an FCS institution upon finding that one or more of the 
grounds identified in Sec.  627.3(b) exists.'' Under proposed Sec.  
627.20(a)(1), the FCA Board may appoint FCSIC as the receiver of any 
System institution ex parte and without notice.
    In this context, Sec.  627.20(a)(1) is virtually identical to Sec.  
627.10(a)(1), which is the corresponding provision in the proposed 
conservatorship regulation above. The proposed rule also makes the same 
technical and stylistic changes to the existing receivership 
regulation, Sec.  627.20(a), as it does to the current conservatorship 
regulation. We explained the reasons for these changes in the preamble 
to Sec.  627.10(a)(1), which discusses the appointment of a 
conservator, and the same rationale applies to the appointment of 
receiver under proposed Sec.  627.20(a)(1).
    Upon the appointment of FCSIC as receiver, proposed Sec.  
627.20(a)(2) requires FCA's Chairman to immediately notify the affected 
institution and its funding bank if it is an association. This 
regulation also requires FCA to publish a notice in the Federal 
Register whenever it appoints FCSIC as the conservator of a System 
institution. Again, the technical changes we propose for this provision 
mirror our proposed changes to redesignated Sec.  627.10(a)(2), which 
is the companion provision in the conservatorship regulations. The 
explanation and rationale for these changes in the applicable preamble 
passage for the conservatorship regulations above apply to this 
receivership regulation as well.
    The proposed rule redesignates existing Sec.  627.2720(d) as Sec.  
627.20(b). This regulation continues to require the funding bank, in 
the event of a voluntary or involuntary liquidation of an affiliated 
association, to institute appropriate measures to minimize the adverse 
effect of liquidation on those borrowers whose loans are purchased or 
otherwise transferred to another institution. At this time, we propose 
only two minor word changes to this provision. As noted earlier, FCA 
does not propose substantive amendments to its voluntary liquidation 
regulations in this rulemaking. For this reason, redesignated Sec.  
627.20(b) continues to apply to both voluntary liquidations and 
receiverships for the time being.
    The proposed rule, which redesignates existing Sec.  627.2720(e) as 
Sec.  627.20(c), continues to state that ``all rights, privileges, and 
powers of its members, the board of directors, officers, and employees 
are transferred to and vested exclusively in FCSIC'' once the FCA Board 
issues the order that places it into receivership. The proposed rule 
adds a provision at the end Sec.  627.20(c)(1) that carves out an 
exception that enables the board of directors of the institution to 
initiate an action in Federal court to remove the receiver pursuant to 
Sec.  627.4. The reasons for these changes have already been explained 
twice above.
    Proposed Sec.  627.20(c)(2) revises the last sentence of existing 
Sec.  627.2720(e). This provision pertains to the cancelation of a 
System institution's charter when the FCA appoints FCSIC as its 
receiver. Under the existing regulation, FCA may cancel the charter 
either simultaneously or at any time thereafter. Research reveals that 
in 1992 we added the provision to the final rule that allows us to 
cancel the charter at a later time in response to a comment from a 
System trade association.\12\ FCA decided that the final rule should 
provide flexibility so it could consider the merits about when to 
cancel the charter on a case-by-case basis.\13\ However, the preamble 
expressed FCA's expectation that it would ordinarily cancel the charter 
when it appointed FCSIC as the receiver of a System institution.\14\
---------------------------------------------------------------------------

    \12\ This commenter expressed concerns that canceling the 
charter at the same time that FCA appoints the receiver ``clouds'' 
the issue of whether the institution had standing to challenge the 
receivership. FCA rejected this claim because section 4.12(b) of the 
Act expressly authorizes the institutions' board to challenge the 
receivership in Federal court and seek removal of the receiver 
within 30 days after appointment. See 57 FR 46482 (Oct. 9, 1992).
    \13\ Id.
    \14\ Id.
---------------------------------------------------------------------------

    We propose to amend this provision to require cancelation of the 
charter when FCSIC is appointed as the institution's receiver. 
Canceling the charter means that the institution is out of business and 
undergoing liquidation and resolution. A ``live'' corporate charter is 
inconsistent with the rights, powers, and duties of the receiver in 
section 5.61C of the Act, as added by Congress in 2018. As long as the 
charter is active, the institution is not defunct as a matter of law, 
and FCSIC's authority and ability to resolve the estate by disposing of 
its assets and liabilities can more easily be challenged by creditors, 
shareholder-members, and other parties, contrary to Congressional 
intent to provide for an orderly liquidation process comparable to that 
of other federally chartered financial institutions. Federal statutes 
comparable to section 4.12(b) of the Act permit commercial banks, 
credit unions, and Federal Home Loan Banks to challenge, in Federal 
court, decisions by the three Federal banking regulatory agencies, the 
NCUA, and FHFA to appoint receivers and seek their removal. These 
agencies cancel the charters of institutions they supervise at the time 
they place them into receivership to ensure an orderly liquidation and 
resolution.
    Redesignated and amended Sec.  627.20(d) implements section 4.37 of 
the Act,\15\ which addresses the treatment of uninsured voluntary and 
involuntary accounts of a System institution that is in receivership. 
As revised, this regulation provides that once the FCA Board has placed 
an institution into receivership, FCSIC, in accordance with section 
4.37 of the Act, will, as soon as practicable, notify every borrower 
who holds an uninsured voluntary or involuntary account, as described 
in Sec.  614.4175, at the institution that: (1) [s]uch accounts ceased 
earning interest from the date that the FCA Board placed the 
institution into receivership; and (2) FCSIC, as receiver, will 
immediately apply the funds in a borrower's account(s) as payment 
against the outstanding balance of the borrower's loan(s). The only 
substantive

[[Page 19403]]

amendment we propose to this regulation is to delete the provision in 
existing Sec.  627.2735(a) that allows the borrower, within 15 days of 
receiving the notice, to direct FCSIC to apply the funds in the account 
for some other purpose specified in the loan documents. We propose to 
delete this provision because these accounts are uninsured and 
unsecured, and section 4.37 of the Act explicitly states that these 
funds must be applied to reduce the outstanding balance of the 
borrower's loans. All other proposed changes to this regulation are 
designed to improve its readability and clarity.
---------------------------------------------------------------------------

    \15\ Section 4.37 of the Act requires that money of a borrower 
held in an uninsured voluntary or involuntary account at a System 
institution must be immediately applied as payment against the 
borrower's outstanding loans if the institution is placed in 
liquidation. This statutory provision also requires FCA to enact 
regulations that: (1) Define the term ``uninsured voluntary or 
involuntary account''; and (2) effectively carry out section 4.37 of 
the Act.
---------------------------------------------------------------------------

    Section 4.37 requires FCA to enact regulations about how uninsured 
voluntary and involuntary accounts at System institutions in 
receivership are to be resolved by FCSIC, as receiver. For this reason, 
redesignated Sec.  627.20(d) specifies how FCSIC will address the 
resolution of these specific liabilities of an FCS institution in 
receivership.
    FCA proposes to repeal existing Sec.  627.2735(b), which requires 
FCSIC to provide certain notices to the stockholders of FCS 
institutions in liquidation. Existing Sec.  627.2735(b) is not needed 
to implement statutory provisions that protect the rights of borrowers. 
Section 4.9A(c) of the Act, which requires FCSIC to retire borrower 
stock at par at a System institution in receivership, provides clear 
and unambiguous guidance to FCSIC.
    Finally, redesignated Sec.  627.20(e) is a restatement of existing 
Sec.  627.2765, which addresses the final discharge and release of the 
receiver. According to this regulation, a receivership terminates once 
FCSIC makes a final distribution of the assets of the liquidated 
institution. At that time, the regulation specifies that FCA's Board 
will cancel the charter if it has not done so earlier, and it 
completely and finally releases and discharges the receiver. The 
proposed rule removes a provision in the existing regulation that 
states that FCA will cancel the charter if it has not done so 
previously because, as discussed earlier, proposed Sec.  627.20(c)(2) 
requires FCA to cancel the charter when the FCA Board places the 
institution in receivership.

E. Conforming Amendments

    We propose conforming amendments to other regulations in parts 619 
and 627.
1. Definitions in Part 619
    Our regulations in part 619 define terms that apply to all FCA 
regulations unless a part, subpart, or section states a different 
definition applies. We propose to amend the definitions of ``Farm 
Credit bank'' in Sec.  619.9140 and ``Farm Credit institutions'' in 
Sec.  619.9146, so both terms explicitly exclude bridge System banks 
that FCA charters at FCSIC's request under section 5.61C(h)(2) of the 
Act. As discussed in great detail above, bridge System banks are 
vehicles to resolve FCS banks. These conforming amendments to 
Sec. Sec.  619.9140 and 619.9146 explicitly exempt bridge System banks 
from FCA regulations that govern the activities and operations of 
ongoing FCS institutions. Thus, FCA regulations governing the 
organization and governance, capitalization, funding, and other 
activities of other System institutions do not apply to bridge System 
banks unless we enact a regulation in part 627 or elsewhere that 
explicitly states otherwise.
    Separately, we propose to delete the explicit reference to the 
Funding Corporation from the definition of the ``Farm Credit 
institution'' in Sec.  619.9146. The reason for this revision is that 
section 5411(2) of the 2018 Farm Bill amended section 1.2(a) of the Act 
to expressly identify the Funding Corporation as a System institution.
2. B. Voluntary Liquidation Regulations in Subpart D of Part 627
    We noted earlier that FCA does not propose to revise its voluntary 
liquidation regulations in subpart D of part 627. However, we propose 
non-substantive conforming amendments, so these regulations are 
consistent with other changes to conservatorship and receivership 
regulations in part 627. First, we propose to renumber the two 
regulations in subpart D so they conform to numbering changes we are 
making to subparts A, B, and C of part 627. As a result, this proposed 
rule redesignates Sec.  627.2795 as Sec.  627.40 and Sec.  627.2797 as 
Sec.  627.41. Second, the proposed rule changes the reference to 
``subpart B'' in redesignated Sec.  627.40(a) to ``subpart C'' because 
we propose to relocate our receivership regulations to subpart C. 
Finally, we propose to remove the passage at the end of the final 
sentence in existing Sec.  627.2797(a), which states, ``except that if 
the Farm Credit institution is placed in receivership, the provisions 
of Sec.  627.2730(a) shall govern further disposition of the equities 
of the Farm Credit institution.'' We are deleting this passage because 
the direct final rule that FCA enacted in 2021 repealed Sec.  627.2730.

IV. Regulatory Flexibility Act and Congressional Review Act Conclusions

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), FCA hereby certifies that the proposed rule will 
not have a significant economic impact on a substantial number of small 
entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated associations, has assets and annual income 
in excess of the amounts that would qualify them as small entities. 
Therefore, Farm Credit System institutions are not ``small entities'' 
as defined in the Regulatory Flexibility Act.

List of Subjects

12 CFR Part 619

    Agriculture, Banks, banking, Rural areas.

12 CFR Part 627

    Agriculture, Banks, banking, Claims, Rural areas.

    For the reasons stated in the preamble, parts 619 and 627 of 
chapter VI, title 12 of the Code of Federal Regulations are proposed to 
be amended as follows:

PART 619--DEFINITIONS

0
1. The authority citation for part 619 is revised to read as follows:

    Authority:  Secs. 1.4, 1.5, 1.7, 2.1, 2.2, 2.4, 2.11, 2.12, 3.1, 
3.2, 4.9, 5.9, 5.17, 5.19, 5.61C, 7.0, 7.1, 7.6, 7.8 and 7.12 of the 
Farm Credit Act (12 U.S.C. 2012, 2013, 2015, 2072, 2073, 2075, 2092, 
2093, 2122, 2123, 2160, 2243, 2252, 2254, 2279a, 2279a-1, 2279b, 
2279c-1, 2279f); sec. 514, Pub. L. 102-552, 106 Stat. 4102.
0
2. Revise Sec.  619.9140 to read as follows:


Sec.  619.9140  Farm Credit bank(s).

    Except as otherwise defined, the term Farm Credit bank(s) includes 
Farm Credit Banks, agricultural credit banks, and banks for 
cooperatives, but excludes bridge System banks chartered by the Farm 
Credit Administration Board pursuant to section 5.61C(h)(2) of the Act.
0
3. Revise Sec.  619.9146 to read as follows:


Sec.  619.9146  Farm Credit institutions.

    Except as otherwise defined, the term Farm Credit institutions 
refers to all institutions that are identified in section 1.2 of the 
Act and are chartered and regulated by the Farm Credit Administration, 
but it excludes bridge System banks chartered by the Farm Credit 
Administration Board pursuant to section 5.61C(h)(2) of the Act.

[[Page 19404]]

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

0
4. The authority citation for part 627 is revised to read as follows:

    Authority:  Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58, 5.61, 5.61C 
of the Farm Credit Act (12 U.S.C. 2183, 2243, 2244, 2252, 2277a, 
2277a-7, 2277a-10, 2277a-10c).

0
5. Subparts A, B, and C are revised to read as follows:

Subpart A--General Provisions

Sec.
627.1 Applicability.
627.2 Definitions.
627.3 Grounds for appointing FCSIC as conservator or receiver.
627.4 Action for the removal of the conservator or receiver.

Subpart B--Conservator and Conservatorships

627.10 FCSIC as conservator.

Subpart C--Receiver and Receiverships

627.20 FCSIC as receiver.
* * * * *

Subpart A--General Provisions


Sec.  627.1  Applicability.

    The provisions of this part apply to conservatorships, 
receiverships, and voluntary liquidations of System institutions 
chartered under titles I, II, III, IV, and VII of the Act.


Sec.  627.2  Definitions.

    For the purposes of this part, the following definitions apply:
    Act means the Farm Credit Act of 1971, as amended.
    Conservator means the Farm Credit System Insurance Corporation 
acting in its capacity as the conservator of a Farm Credit institution.
    Farm Credit institution(s) or institution(s) means all Farm Credit 
banks, associations, service corporations chartered under title IV of 
the Act, and the Federal Farm Credit Banks Funding Corporation. These 
two terms do not include any bridge System bank chartered by the Farm 
Credit Administration (FCA), in accordance with section 5.61C(h)(2) of 
the Act.
    FCSIC means the Farm Credit System Insurance Corporation.
    Receiver means FCSIC acting in its capacity as the receiver of a 
Farm Credit institution.


Sec.  627.3  Grounds for appointing FCSIC as conservator or receiver.

    (a) FCA may, in its discretion, appoint a conservator or receiver 
of a Farm Credit institution if it determines that one or more of the 
grounds in paragraph (b) of this section exists. FCA must appoint FCSIC 
as conservator or receiver of a Farm Credit institution. To the extent 
practicable, FCA will consult with FCSIC before taking a pre-resolution 
action that may result in a conservatorship or receivership of a Farm 
Credit institution.
    (b) The grounds for appointing FCSIC as a conservator or receiver 
of a System institution are:
    (1) The institution is insolvent because the value of its assets is 
less than its obligations to creditors and others, including its 
members. For the purpose of determining insolvency, ``obligations to 
members'' does not include stock or allocated equites held by current 
or former borrowers.
    (2) There has been a substantial dissipation of assets or earnings 
of the institution due to the violation of any law, rule, or 
regulation, or one or more unsafe or unsound practice(s).
    (3) The institution is in an unsafe or unsound condition to 
transact business, including having insufficient capital levels or 
otherwise. For the purpose of this part, ``unsafe or unsound 
condition'' includes, but is not limited to, the following conditions:
    (i) For associations, a default by the association of one or more 
terms of its general financing agreement with its funding bank that the 
Farm Credit Administration determines to be a material default;
    (ii) For all institutions, permanent capital of less than one-half 
the minimum required level for the institution; or
    (iii) For associations, stock impairment.
    (4) The institution has committed a willful violation of a final 
cease and desist order issued by the Farm Credit Administration Board.
    (5) The institution is concealing its books, papers, records, or 
assets, or is refusing to submit its books, papers, records, assets, or 
other material relating to the affairs of the institution for 
inspection to any examiner or to any lawful agent of the Farm Credit 
Administration Board.
    (6) A Farm Credit bank is unable to make a timely payment of 
principal or interest on any insured obligation(s) defined in section 
5.51(3) of the Act issued by the bank individually, or on which it is 
primarily liable.


Sec.  627.4  Action for the removal of the conservator or receiver.

    Within 30 days after the Farm Credit Administration Board appoints 
FCSIC as the conservator or receiver of a Farm Credit institution 
pursuant to Sec.  627.3, the institution may bring an action in the 
United States District Court for the judicial district in which its 
home office is located, or the United States District Court for the 
District of Columbia, for an order requiring the Farm Credit 
Administration Board to remove such conservator or receiver and, if the 
charter has been canceled, to rescind the cancellation of the charter. 
The institution's board of directors is empowered to meet subsequent to 
the appointment of a conservator or receiver and authorize the filing 
of an action in Federal court to remove the conservator or receiver. 
Only the institution's board of directors has the power to authorize an 
action to remove the conservator or receiver.

Subpart B--Conservator and Conservatorships


Sec.  627.10  FCSIC as conservator.

    (a) Appointment. (1) The Farm Credit Administration Board may 
exercise its authority under section 4.12(b) of the Act and Sec.  627.3 
to appoint FCSIC as the conservator of a Farm Credit institution upon 
finding that one or more of the grounds identified in Sec.  627.3(b) 
exists. The Farm Credit Administration Board may appoint, ex parte and 
without notice, FCSIC as conservator for any Farm Credit institution.
    (2) Upon appointing FCSIC as the conservator of an institution, the 
Chairman of the Farm Credit Administration shall immediately notify 
such institution and, in the case of an association, its funding bank. 
The Farm Credit Administration will immediately publish notice of the 
appointment of the conservator in the Federal Register.
    (b) Conservatorship. (1) Once the Farm Credit Administration Board 
issues the order placing a Farm Credit institution in conservatorship, 
all rights, privileges, and powers of its members, board of directors, 
officers, and employees, are transferred to and vested exclusively in 
FCSIC as conservator, except that the board of directors of the 
institution retains authority to initiate an action in a Federal 
district court to remove the conservator pursuant to Sec.  627.4.
    (2) The Farm Credit Administration will continue to examine Farm 
Credit institutions in conservatorship in accordance with section 5.19 
of the Act.
    (3) A qualified public accountant must audit a Farm Credit 
institution in conservatorship in accordance with part 621 of this 
chapter.
    (4) Pursuant to the requirements of part 621 of this chapter, each 
institution in conservatorship must prepare and file

[[Page 19405]]

with the Farm Credit Administration financial reports, certified by 
FCSIC, as required by Sec.  621.14.
    (5) Each institution in conservatorship must prepare and issue 
published financial reports in accordance with the requirements of part 
620 of this chapter. FCSIC, as the conservator of the institution, will 
provide the signatures and certifications required by Sec.  620.3.
    (c) Termination of the conservatorship. (1) Whenever the Farm 
Credit Administration Board determines that the problem(s) or 
condition(s) that led to the conservatorship have been corrected and 
resolved, and the institution is in a position to resume normal 
operations, it may terminate the conservatorship and direct FCSIC to 
turn over the institution's operations to such management that FCA 
designates. Once new management is in place, the conservatorship 
terminates and FCA discharges FCSIC as conservator; or
    (2) Whenever the Farm Credit Administration Board determines that 
the institution should be placed in receivership, the Farm Credit 
Administration Board will appoint FCSIC as the receiver of such 
institution.

Subpart C--Receiver and Receiverships


Sec.  627.20  FCSIC as receiver.

    (a) Appointment. (1) The Farm Credit Administration Board may 
exercise its authority under section 4.12(b) of the Act and Sec.  627.3 
to appoint FCSIC as the receiver of a Farm Credit institution upon 
finding that one or more of the grounds identified in Sec.  627.3(b) 
exists. The Farm Credit Administration Board may appoint, ex parte and 
without notice, FCSIC as receiver for any Farm Credit institution.
    (2) Upon appointing FCSIC as the receiver of an institution, the 
Chairman of the Farm Credit Administration shall immediately notify 
such institution and, in the case of an association, its funding bank. 
The Farm Credit Administration will immediately publish notice of the 
appointment of the receiver in the Federal Register.
    (b) Funding bank role for association in liquidation. In the event 
of the voluntary or involuntary liquidation of an association, the 
funding bank must institute appropriate measures to minimize the 
adverse effect of the liquidation on those borrowers whose loans are 
purchased by, or otherwise transferred to another System institution.
    (c) Receivership. (1) Once the Farm Credit Administration Board 
issues the order placing a Farm Credit institution in receivership, all 
rights, privileges, and powers of its members, the board of directors, 
officers, and employees, are transferred to and vested exclusively in 
FCSIC as receiver, except that the institution's board of directors 
retains authority to initiate an action in a Federal district court to 
remove the receiver pursuant to Sec.  627.4.
    (2) The Farm Credit Administration Board simultaneously will cancel 
the charter of the institution when it appoints FCSIC as receiver.
    (d) Uninsured accounts. Once the Farm Credit Administration Board 
has placed an institution into receivership, FCSIC, in accordance with 
section 4.37 of the Act, will, as soon as practicable, notify every 
borrower who holds an uninsured voluntary or involuntary account, as 
described in Sec.  614.4175 of this chapter, at the institution that:
    (1) Such accounts ceased earning interest from the date that the 
Farm Credit Administration Board placed the institution into 
receivership; and
    (2) FCSIC, as receiver, will immediately apply the funds in a 
borrower's uninsured account(s) as payment against the outstanding 
balance of the borrower's loan(s).
    (e) Final discharge and release of the receiver. The receivership 
terminates after FCSIC makes a final distribution of the assets of the 
liquidated institution. Then, the Farm Credit Administration Board will 
completely and finally release and discharge the receiver.


Sec.  627.2795  [Redesignated as Sec.  627.40]

0
6. Redesignate Sec.  627.2795 as Sec.  627.40.


Sec.  627.40  [Amended]

0
7. In newly redesignated Sec.  627.40(a), remove ``subpart B'' and add 
``subpart C'' in its place.


Sec.  627.2797  [Redesignated as Sec.  627.41]

0
8. Redesignate Sec.  627.2797 as Sec.  627.41.


Sec.  627.41  [Amended]

0
9. In newly redesignated Sec.  627.41, revise the last sentence in 
paragraph (a) to read as follows:


Sec.  627.41   Preservation of equity.

    (a) * * * In the event the resolution to liquidate is approved by 
the stockholders of the Farm Credit institution and the liquidation 
plan is approved by the Farm Credit Administration Board, the 
liquidation plan shall govern disposition of the equities of the Farm 
Credit institution.
* * * * *

    Dated: March 17, 2022.
Ashley Waldron,
Secretary, Farm Credit Administration Board.
[FR Doc. 2022-05999 Filed 4-1-22; 8:45 am]
BILLING CODE 6705-01-P


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