Fact Sheet Farm Credit Administration

1501 Farm Credit Drive

McLean, VA 22102-5090

September 9, 2021 Contact: Mike Stokke or Emily Yaghmour, 

703-883-4056

Email: info-line@fca.gov

Website: www.fca.gov

Fact sheet on amendments and clarifications to the 

tier 1/tier 2 regulatory capital framework

Today the Farm Credit Administration board adopted a final rule that amends parts 614, 

615, 620, and 628 of its regulations. The amendments to the tier 1/tier 2 capital framework 

clarify FCA’s expectations; reduce burden where appropriate; make technical corrections; 

and incorporate, with appropriate adjustments, the guidance in FCA Bookletter BL-068 Tier 

1/Tier 2 Capital Framework Guidance. 

The final rule will become effective Jan. 1, 2022, or 30 days after publication in the Federal 

Register during which either or both houses of Congress are in session, whichever is later.

FCA’s objectives in adopting this final rule are the following:

• To amend, correct, and clarify certain provisions in the tier 1/tier 2 capital framework

• To ensure the capital requirements of the Farm Credit System (FCS or System) 

continue to be comparable to the standardized approach of the federal banking 

regulatory agencies while accommodating the cooperative structure and the 

organization of the System

Summary of final revisions

Many of the final revisions incorporate into FCA's capital rule the guidance and direction 

previously communicated through BL-068. Others address technical or implementation 

issues identified through the examination process and ongoing monitoring of the System’s

implementation of the regulation. 

• Safe harbor framework revisions: The final rule includes two revisions to clarify 

and simplify the regulatory framework under which System institutions are deemed 

to have received prior approval from FCA to make cash distributions:

– Safe harbor deemed prior approval (§ 628.20(f)(5)(ii)): The final rule measures 

the year-over-year change in common equity tier 1 (CET1) capital as of the 
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quarter-end in the quarter of distribution instead of using the exact distribution 

date.1

– Common cooperative equity issuance date (§ 628.2): The final rule adds a new 

definition of “common cooperative equity issuance date” to clarify the date on 

which the holding period (e.g., seven years for CET1 capital) starts for including 

certain cooperative equities in CET1 or tier 2 capital. In essence, the holding 

period starts on the end date of the quarter in which the instrument is recognized 

in the institution’s financial statements.2

• Bylaw or board resolution requirements: The final rule amends the existing 

requirement under § 615.5200(d) that an institution’s board adopt a redemption and 

revolvement resolution that it must reaffirm each year. Under the final rule, the 

board is required to adopt the resolution only once, and the institution’s annual 

capital plan must expressly acknowledge the resolution. In addition, the bylaw and 

board resolution requirements are moved from existing § 615.5200(d) to new 

§ 628.21.

• Farm Credit Leasing Services Corporation: The final rule no longer requires the 

Farm Credit Leasing Services Corporation to meet minimum capital and related 

regulatory requirements as a stand-alone entity because the Leasing Corporation is a 

wholly owned subsidiary of CoBank. As a result, this amendment results in no 

change to the amount of capital that must be held to capitalize the Leasing 

Corporation’s assets.

• Lending and leasing limit base (§ 614.4351): The final rule amends the 

computation of the lending and leasing limit base to use total capital instead of 

permanent capital. In addition, the final rule eliminates the exceptional treatment of 

stock purchased in connection with a loan participation (§ 614.4351(a)(1)).

• Qualified financial contract definitions (§ 628.2): The final rule amends the 

definitions of several terms to maintain comparability with the capital rules of the 

federal banking regulatory agencies.

• Common equity tier 1 and tier 2 capital eligibility requirements 

(§§ 628.20(b) and (d)): The final rule amends the criteria that capital instruments 

must meet to be included in CET1 and tier 2 capital by requiring capital instruments 

to be paid in (as defined in the Basel III framework). The final rule also includes 

other technical clarifying and conforming changes to the eligibility criteria for capital 

instruments.

• Capitalization bylaw adjustment (§ 615.5220(a)(6)): The final rule amends the 

requirement that an institution’s capitalization bylaws include a reference to parts 

1 For example, a System institution’s board declares a cash patronage on Dec. 16, 2021. To use the 

safe harbor deemed prior approval, the institution would need to ensure that, after such payment, its 

dollar amount of CET1 capital on Dec. 31, 2021, equals or exceeds the dollar amount of its CET1 

capital on Dec. 31, 2020.

2 For example, a System institution’s board adopts a resolution on Dec. 15, 2021, to make a 

patronage distribution in cash and equity. On Jan. 2, 2022, it makes a general ledger entry that 

moves the dollar amounts from unallocated retained earnings to an appropriate payable account and 

allocated equity. The general ledger entry is made effective Dec. 31, 2021, and is reflected in the 

year-end 2021 financial statements. On April 5, 2022, dollar amounts are assigned to each borrower. 

In this example, the common cooperative equity issuance date would be Dec. 31, 2021.
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615 and 628 with a new provision that requires only a general reference to FCA 

regulations.

• Annual report requirement corrections (§ 620.5(f)(3) and (4)): The final rule 

includes two technical corrections for annual reporting requirements.

• Risk weight for cash (§ 628.32): The final rule amends the provisions governing 

the risk weighting of cash to avoid redundancy and confusion.

• Securitization formula corrections: The final rule corrects three formulas used in 

the simplified supervisory formula approach under § 628.43(d) and one formula used 

in the simple risk-weight approach under § 628.52.

• Unallocated retained earnings (URE) and equivalents (UREE) portion of the 

tier 1 leverage ratio (§ 628.10): The final rule clarifies and amends the 

calculation of the requirement that at least 1.5% of the 4% tier 1 leverage ratio 

minimum must consist of URE and UREE. Deductions from the numerator include 

those required under § 628.22(a), (b), and (c). The final rule also makes conforming 

changes to the tier 1 leverage ratio calculation to include the deductions and 

adjustments required by new § 628.22(b), consistent with the existing call report 

instructions for the Consolidated Reporting System (CRS) schedule RC-R.4, item 3, 

and RC-R.5, item 1.c.

• Service corporation deductions (§ 628.22(a)(6)): The final rule requires a 

System institution to deduct any allocated equity investment in a System service 

corporation. This requirement is consistent with the treatment of allocated equities 

among all other System institutions.

• Adjustments for accruing patronage and dividends (§ 628.22(b)): The final 

rule requires the reversal of any accruals of patronage or dividend payables or 

receivables occurring prior to a board declaration resolution. This requirement 

incorporates into the regulations existing call report instructions for CRS schedule 

RC-R.4, item 3.

• Bank disclosure clarifications (§§ 620.3 and 628.63): The final rule clarifies 

certain bank disclosure requirements.

• Retirement of statutory borrower stock (§ 628.20(b)(1)(xiv)(B)): The final 

rule clarifies that System institutions cannot redeem statutory borrower stock if a 

redemption would cause the institution to fall below minimum regulatory capital 

requirements. In addition, under the final rule, an institution may redeem up to 

$1,000 of a member’s statutory borrower stock without a minimum holding period 

and without FCA’s prior approval. FCA made this change in response to public 

comments. This change eliminates the burden of tracking de minimis amounts of 

statutory borrower stock (in excess of the statutory minimum) on some System 

loans of less than $50,000 at issuance.